SIGA Technologies, Inc.
Filed 4/9/01
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File No. 0-23047
December 31, 2000
SIGA Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3864870
(State or other jurisdiction of (IRS Employer Id. No.)
incorporation or organization)
420 Lexington Avenue, Suite 620
New York, NY 10170
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (212) 672-9100
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
(Title of Class)
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 |X| No |_|.
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. |X| .
The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the
Common Stock on March 20, 2001 as reported on the Nasdaq SmallCap Market was approximately $15,550,544. As of
March 20, 2001 the registrant had outstanding 7,548,808 shares of Common Stock.
SIGA Technologies, Inc.
Form 10-KSB
Table of Contents
Part I Page No.
Item 1 Business .................................................................. 3
Item 2 Properties ................................................................ 14
Item 3 Legal Proceedings ......................................................... 14
Item 4 Submission of Matters to a Vote of Security Holders ....................... 15
Part II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters ..... 16
Item 6 Management's Discussion and Analysis for Financial Condition and Results
of Operations ............................................................. 18
Item 7 Financial Statements and Supplementary Data ............................... 27
Item 8 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ...................................................... 27
Part III
Item 9 Directors and Executive Officers of the Registrant ........................ 28
Item 10 Executive Compensation .................................................... 30
Item 11 Security Ownership of Certain Beneficial Owners and Management ............ 34
Item 12 Certain Relationships and Related Transactions ............................ 36
Part IV
Item 13 Exhibits, Lists and Reports on Form 8-K ................................... 37
Signatures ........................................................................... 42
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PART I
Item 1. Business
Certain statements in this Annual Report on Form 10-KSB, including certain statements contained in "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of Operations," constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The words or phrases "can be", "expects", "may affect", "may depend", "believes",
"estimate", "project", and similar words and phrases are intended to identify such forward-looking statements. Such
forward-looking statements are subject to various known and unknown risks and uncertainties and Siga cautions you that any
forward-looking information provided by or on behalf of Siga is not a guarantee of future performance. Siga's actual results
could differ materially from those anticipated by such forward-looking statements due to a number of factors, some of which
are beyond Siga's control, in addition to those risks discussed below and in Siga's other public filings, press releases and
statements by Siga's management, including (i) the volatile and competitive nature of the biotechnology industry, (ii) changes in
domestic and foreign economic and market conditions, and (iii) the effect of federal, state and foreign regulation on Siga's
businesses. All such forward-looking statements are current only as of the date on which such statements were made. Siga
does not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the
date on which any such statement is made or to reflect the occurrence of unanticipated events.
SIGA Technologies, Inc. is referred to throughout this report as "Siga," "we" or "us."
Introduction
SIGA Technologies, Inc. is a development stage biotechnology company. Our focus is on the discovery, development and
commercialization of vaccines, antibiotics and novel anti-infectives for serious infectious diseases. Our lead vaccine candidate is
for the prevention of group A streptococcal pharyngitis or "strep throat." We are developing a technology for the mucosal
delivery of our vaccines which may allow those vaccines to activate the immune system at the mucus lined surfaces of the body
-- the mouth, the nose, the lungs and the gastrointestinal and urogenital tracts -- the sites of entry for most infectious agents.
Siga's anti-infectives programs are aimed at the increasingly serious problem of drug resistance, they are designed to block the
ability of bacteria to attach to human tissue, the first step in the infection process.
Technology
Vaccine Technologies: Mucosal Immunity and Vaccine Delivery
Using proprietary technology licensed from The Rockefeller University ("Rockefeller"), Siga is developing certain commensal
bacteria ("commensals") as a means to deliver mucosal vaccines. Commensals are harmless bacteria that naturally inhabit the
body's surfaces with different commensals inhabiting different surfaces, particularly the mucosal surfaces. Our vaccine
candidates utilize genetically engineered commensals to deliver antigens from a variety of pathogens to the mucosal immune
system. When administered, the genetically engineered ("recombinant") commensals colonize the mucosal surface and replicate.
By activating a local mucosal immune response, our vaccine candidates are designed to prevent infection and disease at the
earliest possible stage. By comparison, most conventional vaccines are designed to act after infection has already occurred.
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Our commensal vaccine candidates utilize gram-positive bacteria, one of two major classes of bacteria. Rockefeller scientists
have identified a protein region that is used by gram-positive bacteria to anchor proteins to their surfaces. We are using the
proprietary technology licensed from Rockefeller to combine antigens from a wide range of infectious organisms, both viral and
bacterial, with the surface protein anchor region of a variety of commensal organisms. By combining a specific antigen with a
specific commensal, vaccines can be tailored to both the target pathogen and its mucosal point of entry.
To target an immune response to a particular mucosal surface, a vaccine would employ a commensal organism that naturally
inhabits that surface. For example, vaccines targeting sexually transmitted diseases could employ Lactobacillus acidophilus, a
commensal colonizing the female urogenital tract. Vaccines targeting gastrointestinal ("GI") diseases could employ Lactobacillus
casei, a commensal colonizing the GI tract. We have conducted initial experiments using Streptococcus gordonii ("S. gordonii"),
a commensal that colonizes the oral cavity and that can potentially be used in vaccines targeting pathogens that enter through the
upper respiratory tract, such as the influenza virus.
By using an antigen unique to a given pathogen, the technology can potentially be applied to any infectious agent that enters the
body through a mucosal surface. Our founding scientists have expressed and anchored a variety of viral and bacterial antigens
on the outside of S. gordonii, including the M6 protein from group A streptococcus, a group of organisms that cause a range of
diseases, including strep throat, necrotizing fasciitis, impetigo and scarlet fever. In addition, proteins from other infectious
agents, such as HIV and human papilloma virus have also been expressed using this system. We believe this technology will
enable the expression of most antigens regardless of size or shape. In animal studies, we have shown that the administration of a
recombinant S. gordonii vaccine prototype induces both a local mucosal immune response and a systemic immune response.
We believe that mucosal vaccines developed using our proprietary commensal delivery technology could provide a number of
advantages, including:
o More complete protection than conventional vaccines: Mucosal vaccines in general may be more effective than conventional
parenteral (injectable) vaccines, due to their ability to produce both a systemic and local (mucosal) immune response.
o Safety advantage over other live vectors: A number of bacterial pathogens have been genetically rendered less infectious, or
attenuated, for use as live vaccine vectors. Commensals, by virtue of their harmless nature, may offer a safer delivery vehicle
without fear of genetic reversion to the infectious state inherent in attenuated pathogens.
o Non-injection administration: Oral, nasal, rectal or vaginal administration of the vaccine eliminates the need for painful
injections with their potential adverse reactions.
o Potential for combined vaccine delivery: The Children's Vaccine Initiative has called for the development of combined
vaccines, specifically to reduce the number of needle sticks per child, by combining several vaccines into one injection, thereby
increasing compliance and decreasing disease. We believe our commensal delivery technology can be an effective method of
delivery of multi-component vaccines within a single commensal organism that address multiple diseases or diseases caused by
multiple strains of an infectious agent.
o Eliminating need for refrigeration: One of the problems confronting the effective delivery of parenteral vaccines is the need for
refrigeration at all stages prior to injection. The stability of the commensal organisms in a freeze-dried state would, for the most
part, eliminate the need for special climate conditions, a critical consideration, especially for the delivery of vaccines in
developing countries.
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o Low cost production: By using a live bacterial vector, extensive downstream processing is eliminated, leading to considerable
cost savings in the production of the vaccine. The potential for eliminating the need for refrigeration would add considerably to
these savings by reducing the costs inherent in refrigeration for vaccine delivery.
Anti-Infectives Technology: Prevention of Attachment and Infectivity
The bacterial infectious process generally includes three steps:
colonization, invasion and disease. The adherence of bacteria to a host's surface is crucial to establishing colonization. Bacteria
adhere through a number of mechanisms, but generally by using highly specialized surface structures which, in turn, bind to
specific structures or molecules on the host's cells or, as discussed below, to inanimate objects residing in the host. Once
adhered, many bacteria will invade the host's cells and either establish residence or continue invasion into deeper tissues. During
any of these stages, the invading bacteria can cause the outward manifestations of disease, in some cases through the
production and release of toxin molecules. The severity of disease, while dependent on a large combination of factors, is often
the result of the ability of the bacteria to persist in the host. These bacteria accomplish this persistence by using surface
molecules which can alter the host's nonspecific mechanisms or its highly specific immune responses to clear or destroy the
organisms.
Unlike conventional antibiotics, as discussed above, our anti-infectives approaches aim to block the ability of pathogenic
bacteria to attach to and colonize human tissue, thereby preventing infection at its earliest stage. Our scientific strategy is to
inhibit the expression of bacterial surface proteins required for bacterial infectivity. We believe that this approach has promise in
the areas of hospital-acquired drug-resistant infections and a broad range of other diseases caused by bacteria.
Many special surface proteins used by bacteria to infect the host are anchored in the bacterial cell wall. Scientists at Rockefeller
University have identified an amino acid sequence and related enzyme, a selective protease, that are essential for anchoring
proteins to the surface of most gram-positive bacteria. Published information indicates that this amino acid sequence is shared
by more than 50 different surface proteins found on a variety of gram-positive bacteria. This commonality suggests that this
protease represents a promising target for the development of a new class of antibiotic products for the treatment of a wide
range of infectious diseases. Experiments by our founding scientists have shown that without this sequence, proteins cannot
become anchored to the bacterial surface and thus the bacteria are no longer capable of attachment, colonization or infection.
Such "disarmed" bacteria should be readily cleared by the body's immune system. Our drug discovery strategy is to use a
combination of structure-based drug design and high throughput screening procedures to identify compounds that inhibit the
protease, thereby blocking the anchoring process. If successful, this strategy should provide relief from many gram-positive
bacterial infections, but may prove particularly important in combating diseases caused by the emerging antibiotic resistance of
the gram-positive organisms S. aureus, Streptococcus pneumoniae, and the enterococci.
In contrast to the above program, which focuses on gram-positive bacteria, our pilicide program, based upon initial research
performed at Washington University, focuses on a number of new and novel targets all of which impact on the ability of
gram-negative bacteria to assemble adhesive pili on their surfaces. Pili are proteins on the surfaces of gram-negative bacteria -
such as E. coli, salmonella, and shigella - that are required for the attachment of the bacteria to human tissue, the first step in the
infection process. This research program is based upon the well-characterized interaction between a periplasmic protein -- a
chaperone -- and the protein subunits required to form pili. In addition to describing the process by which chaperones and pili
subunits interact, we have developed the assay systems necessary to screen for potential therapeutic compounds, and has
provided an initial basis for selecting novel antibiotics that work by interfering with the pili adhesion mechansism.
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Surface Protein Expression System ("SPEX")
The ability to overproduce many bacterial and human proteins has been made possible through the use of recombinant DNA
technology. The introduction of DNA molecules into E. coli has been the method of choice to express a variety of gene
products, because of this bacteria's rapid reproduction and well-understood genetics. Yet despite the development of many
efficient E. coli-based gene expression systems, the most important concern continues to be associated with subsequent
purification of the product. Recombinant proteins produced in this manner do not readily cross E. coli's outer membrane, and
as a result, proteins must be purified from the bacterial cytoplasm or periplasmic space. Purification of proteins from these
cellular compartments can be very difficult. Frequently encountered problems include low product yields, contamination with
potentially toxic cellular material (i.e., endotoxin) and the formation of large amounts of partially folded polypeptide chains in
non-active aggregates termed inclusion bodies.
To overcome these problems, we have taken advantage of our knowledge of gram-positive bacterial protein expression and
anchoring pathways. This pathway has evolved to handle the transport of surface proteins that vary widely in size, structure and
function. Modifying the approach used to create commensal mucosal vaccines, we have developed methods which, instead of
anchoring the foreign protein to the surface of the recombinant gram-positive bacteria, result in it being secreted into the
surrounding medium in a manner which is readily amenable to simple batch purification. We believe the advantages of this
approach include the ease and lower cost of gram-positive bacterial growth, the likelihood that secreted recombinant proteins
will be folded properly, and the ability to purify recombinant proteins from the culture medium without having to disrupt the
bacterial cells and liberating cellular contaminants. Gram-positive bacteria may be grown simply in scales from those required
for laboratory research up to commercial mass production.
Our Product Candidates and Research and Discovery Programs
Mucosal Vaccines
Development of our mucosal vaccine candidates involves: (i) identifying a suitable immunizing antigen from a pathogen; (ii)
selecting a commensal that naturally colonizes the mucosal point of entry for that pathogen; and (iii) genetically engineering the
commensal to express the antigen on its surface for subsequent delivery to the target population.
Strep Throat Vaccine Candidate. Until the age of 15, many children suffer recurrent strep throat infections. Up to five percent
of ineffectively treated strep throat cases progress to rheumatic fever, a debilitating heart disease, which worsens with each
succeeding streptococcal infection. Since the advent of penicillin therapy, rheumatic fever in the United States has experienced
a dramatic decline. However, in the last decade, rheumatic fever has experienced a resurgence in the United States. Part of the
reason for this is the latent presence of this organism in children who do not display symptoms of a sore throat, and, therefore,
remain untreated and at risk for development of rheumatic fever. Based on data from the Centers for Disease Control and
Prevention, there are five to 10 million cases of pharyngitis due to group A streptococcus in the United States each year. There
are over 32 million children in the principal age group targeted by us for vaccination. Worldwide, it is estimated that one
percent of all school age children in the developing world have rheumatic heart disease. Despite the relative ease of treating
strep throat with antibiotics, the specter of antibiotic resistance is always present. In fact, resistance to erythromycin, the second
line antibiotic in patients allergic to penicillin, has appeared in a large number of cases.
No vaccine for strep throat has been developed because of the problems associated with identifying an antigen that is common
to the more than 100 different serotypes of group A streptococcus, the bacterium that causes the disease. We have licensed
from Rockefeller a proprietary antigen which is common to most types of group A streptococcus, including types that have
been associated with rheumatic fever. When this antigen was orally administered to animals, it was shown to provide protection
against multiple types of group A streptococcal infection. Utilizing this antigen, we are developing a mucosal vaccine for strep
throat.
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Our strep throat vaccine candidate expresses the strep throat antigen on the surface of the commensal S. gordonii, which lives
on the surface of the teeth and gums. Pre-clinical research in mice and rabbits has established the ability of this vaccine
candidate to colonize and induce both a local and systemic immune response. We are collaborating with the National Institutes
of Health (the "NIH") and the University of Maryland Center for Vaccine Development on the clinical development of this
vaccine candidate. In cooperation with the NIH we filed an Investigational New Drug Application ("IND") with the United
States Food and Drug Administration (the "FDA") in December 1997. The first stage of these clinical trials, utilizing the
commensal delivery system without the strep throat antigen, were completed at the University of Maryland in 2000. The study
showed the commensal delivery system to be well-tolerated and that it spontaneously eradicated or was easily eradicated by
conventional antibiotics. A second clinical trial of the commensal delivery system without the strep throat antigen was initiated in
2000 at the University of Maryland. In September 1999 we were awarded a Phase I Small Business Innovation Research
Grant (SBIR) from the NIH to help support the research cost of our strep program.
STD Vaccine Candidates. One of the great challenges in vaccine research remains the development of effective vaccines to
prevent sexually transmitted diseases (STDs). Two principal pathogens that are transmitted via this route are chlamydia, the
most common bacterial STD, and Neisseria, the causative agent of gonnorhia. To date, a great deal of effort has been
expended, without appreciable success, to develop effective injectable prophylactic vaccines versus these pathogens. Given
that both of these pathogens enters the host through the mucosa, we believe that induction of a vigorous mucosal response to
certain bacterial antigens may protect against acquisition of the initial infection. To test this hypothesis, we have expressed newly
discovered antigens from these pathogens in our proprietary mucosal vaccine delivery system. These live recombinant vaccines
will be delivered to animals and tested for local and systemic immune response induction, and whether these responses can
block subsequent viral infections. We have licensed technology from Oregon State University and Washington University in
support of our chlamydia and Neisseria programs. In February 2000 we entered into an option agreement with the Ross
Products Division of Abbott Laboratories (Ross) which will provide funding to further development of an STD vaccine
product. In September 2000 we were awarded a Phase I SBIR Grant from the NIH to help support the research cost of this
program.
Mucosal Vaccine Delivery System
We are developing our proprietary mucosal vaccine delivery system, which is a component of our vaccine candidates, for
license to other vaccine developers. Our commensal vaccine candidates utilize gram-positive bacteria as vectors for the
presentation of antigens. We are using proprietary technology to anchor antigens from a wide range of infectious organisms,
both viral and bacterial, to the surface protein anchor region of a variety of commensal organisms. By combining a specific
antigen with a specific commensal, we believe that vaccines can be tailored to both the target pathogen and its mucosal point of
entry.
We have developed several genetic methods for recombining foreign sequences into the genome of gram-positive bacteria at a
number of non-essential sites. Various parameters have been tested and optimized to improve the level of foreign protein
expression and its immunogenicity. In pre-clinical studies, recombinant commensals have been implanted into the oral cavities of
several animal species with no deleterious effects. The introduced vaccine strains have taken up residence for prolonged
periods of time and induce both a local mucosal (IgA) as well as a systemic immune response (IgG and T-cell).
We have completed two early stage clinical evaluations of our mucosal vaccine delivery system based on the commensal
bacteria S. gordonii. These clinical studies were designed to test the safety of the formulation, to monitor the extent and duration
of colonization of the nasal and oral cavities, and to determine if the delivery system could be eradicated at the end of the study
with a regimen of conventional antibiotics. A total of 47 volunteers between the ages of 18 and 40 completed the first study, in
which S. gordonii was delivered to the nasal passage and oral cavity. A total of 60 volunteers completed a second
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study which was conducted at the University of Maryland as part of our strep throat vaccine program as described above. The
results of the studies indicated the delivery system was well-tolerated and that the delivery system spontaneously eradicated or
was easily eradicated by conventional antibiotics. The ongoing clinical studies at the University of Maryland are also designed to
evaluate S. gordonii as a commensal bacterial delivery system for our vaccine targeting strep throat.
Anti-Infectives
Our anti-infectives program is targeted principally toward drug-resistant bacteria and hospital-acquired infections. According to
estimates from the Centers for Disease Control, approximately two million hospital-acquired infections occur each year in the
United States.
Our anti-infectives approaches aim to block the ability of bacteria to attach to and colonize human tissue, thereby blocking
infection at the first stage in the infection process. By comparison, antibiotics available today act by interfering with either the
structure or the metabolism of a bacterial cell, affecting its ability to survive and to reproduce. No currently available antibiotics
target the attachment of a bacterium to its target tissue. By preventing attachment, the bacteria should be readily cleared by the
body's immune system.
Gram-Positive Antibiotic Technology. Our lead anti-infectives program is based on a novel target for antibiotic therapy. Our
founding scientists have identified an enzyme, a selective protease, utilized by most gram-positive bacteria to anchor certain
proteins to the bacterial cell wall. These surface proteins are the means by which certain bacteria recognize, adhere to and
colonize specific tissue. Our strategy is to develop protease inhibitors as novel antibiotics. We believe protease inhibitors will
have wide applicability to gram-positive bacteria in general, including antibiotic resistant staphlyococcus and a broad range of
serious infectious diseases including meningitis and respiratory tract infections. In 1997, we entered into a collaborative research
and license agreement with the Wyeth-Ayerst Laboratories Division of American Home Products Corporation
("Wyeth-Ayerst") to identify and develop protease inhibitors as novel antibiotics. In the first quarter of 2001 we received a
milestone payment from Wyeth-Ayerst for delivery of the first quantities of protease for screening, and high-throughput
screening for protease inhibitors was initiated. In connection with our effort on this program we have entered into a license with
the University of California at Los Angeles (UCLA) for certain technology that may be incorporated into our development of
products for Wyeth-Ayerst.
Gram-Negative Antibiotic Technology. We have entered into a set of technology transfer and related agreements with
MedImmune, Inc. ("MedImmune"), Astra AB and The Washington University, St. Louis ("Washington University"), pursuant to
which we acquired rights to certain gram-negative antibiotic targets, products, screens and services developed at Washington
University. In February 2000, we ended our collaborative research and development relationship with Washington University
on this technology. (See "Collaborative Research and Licenses") We maintain a non-exclusive license to technology acquired
through these related agreements. We are using this technology in the development of antibiotics against gram-negative
pathogens. These bacteria utilize structures called pili to adhere to target tissue, and we plan to exploit the assembly and export
of these essential infective structures as novel anti-infective targets.
Research carried out at Washington University has demonstrated that assembly of type P pili on gram-negative bacteria
requires the participation of both a periplasmic molecular chaperone and an outer membrane usher. Since the gram-negative pili
are the primary structures by which these organisms adhere to and colonize host tissue, inhibition of their assembly should
effectively inhibit disease caused by this class of organisms. Detailed structural data is available on the molecular chaperone and
the usher protein. This information has been used in concert with molecular modeling techniques to identify potential structures
that will bind to the conserved residues of the chaperone and usher proteins. With identification of these structures, natural and
synthetic molecules that inhibit chaperone/usher function can be screened
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using high throughput assays developed by our scientists. We believe that this approach is a departure from conventional
antibiotics and therefore may afford a method to circumvent the resistance mechanisms already established in many
gram-negative bacteria.
Scientists at Washington University have elucidated the role of chaperones -- a family of periplasmic proteins -- in the formation
of pili, which are essential for the virulence of certain gram-negative bacteria, such as E. coli or the Enterobacteriaceae
(Salmonella, Shigella, Klebsiella, etc.). The elucidation of this pathway provides several targets for the development of novel
anti-infectives: (i) blocking the interaction between chaperones and pilin subunits; (ii) interfering with chaperone-dependent
folding of pilin subunits; or (iii) interfering with how pilin subunits exit from the bacteria's outer membrane (through the "usher"
component). The chaperone-pilin complex has been examined using x-ray crystallography, and assays measuring the chaperone
interactions have been established. We are reviewing potential compounds which interfere with the chaperone-pilin interaction,
as well as seeking alternative intervention sites in the pilus formation pathway. In July 1999 and August 2000 we were awarded
Phase I SBIR grants from the NIH to support our development efforts in this area.
Broad-Spectrum Antibiotic Technology. An initial host response to pathogen invasion is the release of oxygen radicals, such as
superoxide anions and hydrogen peroxide. The DegP protease is a first-line defense against these toxic compounds, which are
lethal to invading pathogens, and is a demonstrated virulence factor for several important gram-negative pathogens: Salmonella
typhimurium, Salmonella typhi, Brucella melitensis and Yersinia enterocolitica. In all of these pathogens it was demonstrated that
organisms lacking a functional DegP protease were compromised for virulence and showed an increased sensitivity to oxidative
stress. It was also recently demonstrated that in Pseudomonas aeruginosa conversion to mucoidy, the so-called CF phenotype
involves two DegP homologues.
Scientists at Siga recently demonstrated that the DegP protease is conserved in most important Gram-positive pathogens,
including S. pyogenes, S. pneumoniae, S. mutans and S. aureus. Moreover, Siga investigators have shown a conservation of
function of this important protease in Gram-positive pathogens and believe that DegP represents a true broad-spectrum
anti-infective development target. Siga research has uncovered a virulence-associated target of the DegP protease that will be
utilized to design an assay for high-throughput screening for the identification of lead inhibitors of this potentially important
anti-infective target.
Biological Defense Program. In the U.S. an estimated $177 million will be spent this year on measures to address bioterrorism.
On of the major concerns is smallpox, although declared extinct in 1980 by the World Health Organization, it is believed that
rogue nations such as Iran, Iraq, Libya and North Korea may have an illegal inventory of the virus that causes the disease. The
only legal inventory of the virus is held under extremely tight security at the Centers For Disease Control in Atlanta, and at a
laboratory in Russia. As a result of this threat the U.S. government will be making significant expenditures on finding a way to
counter act the virus if turned loose by terrorist or on a battlefield. Siga in collaboration with Rockefeller University and Oregon
State University is working on ways to disable the virus' ability to replicate. If the virus can not replicate, it can not overwhelm
the immune system and, theoretically, can not kill its victims. The parties are also working on developing nasal sprays and
lozenges that could combat toxins such as anthrax. In September 2000 we entered into a subcontract agreement with Oregon
State University. The subcontract agreement is part of a project targeted towards developing novel antiviral drugs capable of
preventing disease and pathology for smallpox in the event this pathogen were to be used as an agent of bioterrorism. The
project is being funded by a grant from the NIH to Oregon State University. The basic virology aspects of the project will be
conducted at OSU and the drug development will be performed by Siga under subcontract.
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Veterinary Vaccines
One application of our technology is the development of live vaccines that are delivered to a specific mucosal niche where they
can colonize and thereby present antigen to the immune system and produce local immunity at the site where the corresponding
pathogen will eventually attempt to enter. Since the proprietary expression pathway that we use is conserved in essentially all
gram-positive bacteria, this should allow the same strategy to be employed in the development of veterinary vaccines. A
commensal bacterium can be isolated from the mucosa of the target species, engineered to express a desired antigen and then
reintroduced to the species in order to produce immunity against subsequent infection by the corresponding pathogen.
Examples of potential targets for this technology in the area of animal health include prevention of salmonid aquaculture disease
problems or canine papilloma virus infections.
Veterinary Program. We believe our vaccine and anti-infectives technologies also provide opportunities to develop
biopharmaceutical products for the veterinary health care market. The world wide veterinary market was reported to have been
$8 billion in 1999. In the U.S. alone, there are 120 million cats and dogs, 2 million horses, 100 million cattle, 56 million hogs
and 8 million sheep and goats. In December 2000 we entered into a collaborative agreement with Fort Dodge Animal Health, a
division of American Home Products Corporation, focusing on the design of novel vaccines for the prevention of veterinary
diseases. The research collaboration combines Siga's bacterial commensal delivery technology with Fort Dodge's proprietary
veterinary antigens. Siga will be responsible for the construction and characterization of candidate vaccines while Fort Dodge
will assess the immunogenicity and protective capacity of the target animal species.
Surface Protein Expression System
Our proprietary SPEX protein expression uses the protein export and anchoring pathway of gram-positive bacteria as a means
to facilitate the production and purification of biopharmaceutical proteins. We have developed vectors which allow foreign
genes to be inserted into the chromosome of gram-positive bacteria in a manner such that the encoded protein is synthesized,
transported to the cell surface and secreted into the medium. This system has been used to produce milligram quantities of
soluble antigenically authentic protein that can be easily purified from the culture medium by affinity chromatography. We
believe this technology can be extended to a variety of different antigens and enzymes.
We have commenced yield optimization and process validation of this system. This program is designed to transfer the method
from a laboratory scale environment to a commercial production facility. Our business strategy is to license this technology on a
non-exclusive basis for a broad range of applications.
Collaborative Research and Licenses
We sponsor research and development activities in laboratories at Oregon State University and at the University of California,
Los Angeles. We have a research and development facility in Corvallis, Oregon. We have entered into the following license
agreements and collaborative research arrangements:
Rockefeller University. Siga and Rockefeller have entered into an exclusive worldwide license agreement whereby we have
obtained the right and license to make, use and sell mucosal vaccines based on gram-positive organisms and products for the
therapy, prevention and diagnosis of diseases caused by streptococcus, staphylococcus and other organisms. The license
covers two issued United States patents and one issued European patent as well as 11 pending United States patent
applications and corresponding foreign patent applications. The issued United States patents expire in 2005 and 2014,
respectively. The agreement generally requires us to pay royalties on sales of products developed from the licensed
technologies and fees on revenues from sublicensees, where applicable, and we are responsible for certain milestone payments
and for the costs of filing and prosecuting patent applications.
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Oregon State University. Oregon State is also a party to our license agreement with Rockefeller whereby we have obtained the
right and license to make, use and sell products for the therapy, prevention and diagnosis of diseases caused by streptococcus.
Pursuant to a separate research support agreement with Oregon State, we provided funding for sponsored research through
December 31, 1999, with exclusive license rights to all inventions and discoveries resulting from this research. At this time, no
additional funding is contemplated under this agreement, however we retain the exclusive licensing rights to the inventions and
discoveries that may arise from this collaboration. During 1999, we acquired an option to enter into a license with the University
in which we will acquire the rights to certain technology pertaining to the potential development of a chlamydia vaccine. In
February 2000 we exercised our option and pursuant to an exclusive license agreement dated March, 2000, we will make
certain payments to the University as part of our obligation under the option.
In September 2000 we entered into a subcontract with Oregon State University. The contract is for a project which is targeted
towards developing novel antiviral drugs capable of preventing disease and pathology for smallpox in the event this pathogen
were to be used as an agent of bioterrorism. The project is being funded by a grant from the NIH. The basic virology aspects
of the project will be conducted at OSU and the drug development will be performed by Siga under the subcontract. The
budget for the subcontract work will be negotiated on a year by year basis with OSU depending on progress of the program
and funding available.
National Institutes of Health. We have entered into a clinical trials agreement with the NIH pursuant to which the NIH, with our
cooperation, will conduct a clinical trial of our strep throat vaccine candidate. In addition, during 2000, we received four Phase
I SBIR grants from the NIH to support our vaccine and anti infectives development programs.
Wyeth-Ayerst. We have entered into a collaborative research and license agreement with Wyeth-Ayerst in connection with the
discovery and development of anti-infectives for the treatment of gram-positive bacterial infections. Pursuant to the agreement,
Wyeth-Ayerst provided funding for a joint research and development program, subject to certain milestones, through
September 30, 1999 and is responsible for additional milestone payments.
Washington University. In February 1998 we entered into a research collaboration and worldwide license agreement with
Washington University pursuant to which we obtained the right and license to make, use and sell antibiotic products based on
gram-negative technology for all human and veterinary diagnostic and therapeutic uses. The license covered five pending United
States patent applications and corresponding foreign patent applications. The agreement generally required us to pay royalties
on sales of products developed from the licensed technologies and fees on revenues from sublicensees, where applicable, and
we were responsible for certain milestone payments and for the costs of filing and prosecuting patent applications. Pursuant to
the agreement, we agreed to provided funding to Washington University for sponsored research through February 6, 2001,
with exclusive license rights to all inventions and discoveries resulting from this research. During 1999, a dispute arose between
the parties regarding their respective performance under the agreement. In February 2000, the parties reached a settlement
agreement and mutual release of their obligations under the research collaboration agreement. Under the terms of the
settlement, we are released from any further payments to the University and have disclaimed any rights to the patents licensed
under the original agreement. As part of the settlement agreement, we entered into a non-exclusive license to certain patents
covered in the original agreement.
11
Abbott Laboratories. In March 2000 we entered into an agreement with the Ross Products Division of Abbott Laboratories
(Ross). The agreement grants Ross an exclusive option to negotiate an exclusive license to certain Siga technology and patents
in addition to certain research development services. In exchange for research services and the option, Ross is obligated to pay
us $120,000 in three installments of $40,000. The first payment of $40,000 was received during the quarter ended March 31,
2000. The remaining installments are contingent upon certain milestones under the agreement. In the twelve months ended
December 31, 2000, we recognized revenue of $80,000.
Regents of the University of California. In December 2000 we entered into an exclusive license agreement and a sponsored
research agreement with the Regents of the University of California (the "Regents"). Under the license agreement Siga obtained
rights for the exclusive commercial development, use and sale of products related to certain inventions in exchange for a
non-refundable license issuance fee of $15,000 and an annual maintenance fee of $10,000. In the event that the Company
sub-leases the license, it shall pay Regents 15% of all royalty payments made to Siga. Under the agreement, Siga will also pay
Regents 15% of all funds received from Wyeth-Ayesrt and a minimum annual amount of $250,000 for the continued
development of the inventions for a period of three years.
Under the sponsored research agreement Siga will provide the Regents with funding in the total amount of $300,000 over a
period of two years to support certain research.
Maxygen, Inc. In October 2000 we entered into a collaborative agreement with Maxygen, Inc. to develop a vaccine for
biological defense applications. The collaboration combines Siga's patented vaccine delivery system with Maxygen's
proprietary antigens for generating an immune response.
American Home Products. In December 2000 we entered into a collaborative agreement with Fort Dodge Animal Health, a
division of American Home Products Corporation. The collaboration is focused on the design of novel vaccines for the
prevention of veterinary diseases. The research collaboration combines Siga's bacterial commensal delivery technology with
Fort Dodge's proprietary veterinary antigens. Siga will be responsible for the construction and characterization of candidate
vaccines while Fort Dodge will assess the immunogenicity and protective capacity of the target animal species.
Intellectual Property and Proprietary Rights
Protection of our proprietary compounds and technology is essential to our business. Our policy is to seek, when appropriate,
protection for our lead compounds and certain other proprietary technology by filing patent applications in the United States
and other countries. We have licensed the rights to seven issued United States patents and one issued European patent. We
have also licensed the rights to one allowed United States patent application, four pending United States patent applications as
well as corresponding foreign patent applications. We are joint owner with Washington University of one issued, one allowed
application, and seven pending applications as well as foreign counterparts. We are also exclusive owner of three pending U.S.
applications based on research conducted in our facility in Oregon.
The patents and patent applications licensed to us relate to all of the core technology used in the development of our leading
product candidates, including the mucosal vaccine delivery system, the SPEX protein expression system for producing
biopharmaceutical products, the protective streptococcal antigens and the antibiotic development target, as well as a variety of
early stage research projects. Each of our products represented by each of the patents is in a very early stage in its
development process.
We also rely upon trade secret protection for our confidential and proprietary information. No assurance can be given that
other companies will not independently develop substantially equivalent proprietary information and techniques or otherwise
gain access to our trade secrets or that we can meaningfully protect our trade secrets.
12
Government Regulation
Regulation by governmental authorities in the United States and other countries will be a significant factor in the production and
marketing of any biopharmaceutical products that we may develop. The nature and the extent to which such regulations may
apply to us will vary depending on the nature of any such products. Virtually all of our potential biopharmaceutical products will
require regulatory approval by governmental agencies prior to commercialization. In particular, human therapeutic products are
subject to rigorous pre-clinical and clinical testing and other approval procedures by the FDA and similar health authorities in
foreign countries. Various federal statutes and regulations also govern or influence the manufacturing, safety, labeling, storage,
record keeping and marketing of such products. The process of obtaining these approvals and the subsequent compliance with
appropriate federal and foreign statutes and regulations requires the expenditure of substantial resources.
In order to test clinically, produce and market products for diagnostic or therapeutic use, a company must comply with
mandatory procedures and safety standards established by the FDA and comparable agencies in foreign countries. Before
beginning human clinical testing of a potential new drug, a company must file an IND and receive clearance from the FDA. This
application is a summary of the pre-clinical studies that were conducted to characterize the drug, including toxicity and safety
studies, as well as an in-depth discussion of the human clinical studies that are being proposed.
The pre-marketing program required for approval of a new drug typically involves a time-consuming and costly three-phase
process. In Phase I, trials are conducted with a small number of patients to determine the early safety profile, the pattern of
drug distribution and metabolism. In Phase II, trials are conducted with small groups of patients afflicted with a target disease in
order to determine preliminary efficacy, optimal dosages and expanded evidence of safety. In Phase III, large scale,
multi-center comparative trials are conducted with patients afflicted with a target disease in order to provide enough data for
statistical proof of efficacy and safety required by the FDA and others.
The FDA closely monitors the progress of each of the three phases of clinical testing and may, in its discretion, reevaluate, alter,
suspend or terminate the testing based on the data that have been accumulated to that point and its assessment of the
risk/benefit ratio to the patient. Estimates of the total time required for carrying out such clinical testing vary between two and
ten years. Upon completion of such clinical testing, a company typically submits a New Drug Application ("NDA") or Product
License Application ("PLA") to the FDA that summarizes the results and observations of the drug during the clinical testing.
Based on its review of the NDA or PLA, the FDA will decide whether to approve the drug. This review process can be quite
lengthy, and approval for the production and marketing of a new pharmaceutical product can require a number of years and
substantial funding; there can be no assurance that any approvals will be granted on a timely basis, if at all.
Once the product is approved for sale, FDA regulations govern the production process and marketing activities, and a
post-marketing testing and surveillance program may be required to monitor continuously a product's usage and its effects.
Product approvals may be withdrawn if compliance with regulatory standards is not maintained. Other countries in which any
products developed by us may be marketed, could impose a similar regulatory process.
13
Competition
The biotechnology and pharmaceutical industries are characterized by rapidly evolving technology and intense competition. Our
competitors include most of the major pharmaceutical companies, which have financial, technical and marketing resources
significantly greater than ours. Biotechnology and other pharmaceutical competitors include Cubist Pharmaceuticals, Inc.,
Corixa Corporation, Microcide Pharmaceuticals, Inc., ID Vaccines Ltd., Actinova PLC, and Antex Biologics, Inc. Academic
institutions, governmental agencies and other public and private research organizations are also conducting research activities
and seeking patent protection and may commercialize products on their own or through joint venture. There can be no
assurance that our competitors will not succeed in developing products that are more effective or less costly than any which are
being developed by us or which would render our technology and future products obsolete and noncompetitive.
Human Resources and Facilities
As of March 20, 2001 we had 17 full time employees. Our employees are not covered by a collective bargaining agreement
and we consider our employee relations to be excellent.
Item 2. Properties
Our headquarters are located in New York, New York and our research and development facilities are located in Corvallis,
Oregon. In New York, we lease approximately 5,200 square feet under a lease that expires in November 2002. In Corvallis,
we lease approximately 10,000 square feet under a lease that expires in December 2004.
Item 3. Legal Proceedings - None
14
Item 4. Submission of Matters to a Vote of Security Holders
At our Annual Meeting of Stockholders held on November 1, 2000, the following matters were voted upon:
The following nominees were elected to the Board of Directors
Nominee For Number of Votes Against Abstained
------- --- ----------------------- ---------
Judson A. Cooper 5,925,991 12,840 0
Eric I. Richman 5,925,991 12,840 0
Thomas N. Lanier 5,925,991 12,840 0
Jeffrey Rubin 5,925,991 12,840 0
Joshua D. Schein 5,925,991 12,840 0
The Stockholders voted to ratify the selection of Pricewaterhouse Coopers LLP as independent auditors of SIGA
Technologies, Inc. for its fiscal year ending December 31, 2000.
For Number of Votes Against Abstained
5,928,491 7,340 3,000
The Stockholders voted to amend our 1996 Incentive and Non-Qualified Stock Option Plan increasing the number of shares
authorized for issuance by 1,000,000 shares from 1,500,000 to 2,500,000.
For Number of Votes Against Abstained
--- ----------------------- ---------
2,290,025 70,130 1,600
15
Part II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
Price Range of Common Stock
Our common stock has been traded on the Nasdaq SmallCap Market since September 9, 1997 and trades under the symbol
"SIGA." Prior to that time there was no public market for our common stock. The following table sets forth, for the periods
indicated, the high and low closing sales prices for the common stock, as reported on the Nasdaq SmallCap Market.
Price Range
1999 High Low
First Quarter $1.88 $1.03
Second Quarter $1.44 $0.81
Third Quarter $1.41 $0.69
Fourth Quarter $2.09 $0.97
2000 High Low
First Quarter $9.38 $1.44
Second Quarter $5.50 $3.00
Third Quarter $4.88 $2.59
Fourth Quarter $5.31 $3.00
As of March 20, 2001, the closing sales price of our common stock was $2.06 per share. There were 44 holders of record as
of March 20, 2001. We believe that the number of beneficial owners is substantially greater than the number of record holders,
because a large portion of common stock is held in broker "street names."
We have paid no dividends on our common stock and we do not expect to pay cash dividends in the foreseeable future. We
are not under any contractual restriction as to our present or future ability to pay dividends. We currently intend to retain any
future earnings to finance the growth and development of our business.
Recent Sales of Unregistered Securities
On January 31, 2000, we completed a private placement of an aggregate principal amount of $1,500,000 6% convertible
debentures and 1,043,478 warrants. We received net proceeds of $1,499,674 from the total $1,552,174 gross proceeds. The
debentures are convertible into common stock at $1.44 per share. The warrants have a term of five years and are exercisable
at $3.41 per share. Under certain circumstances, we can redeem the shares.
16
On March 28, 2000, we completed a private placement of an aggregate of 600,000 shares of common stock and 450,000
warrants. We received net proceeds of $2,883,000 from the total gross proceeds of $3,000,000. The warrants have a term of
three years; 210,000 warrants are exercisable at $5.00 per share, 120,000 are exercisable at $6.375 per share and 120,000
are exercisable at $6.90 per share.
On July 7, 2000, pursuant to a stock purchase agreement, we exchanged 40,336 shares of our common stock and certain
additional consideration, for 12.5% of the outstanding capital stock of Open-i Media, Inc., an Internet development and
multimedia training company.
Recent Developments
On March, 30, 2001, Joshua D. Schein, our Chief Executive Officer and a director and Judson A. Cooper, our Chairman of
the Board entered into an agreement with, among others, Donald G. Drapkin, a beneficial owner of more than 5% of our
common stock, in which Messrs. Schein and Cooper have agreed to resign from Siga and use their best efforts to cause each
of the current directors of Siga to resign. Certain provisions of the agreement are subject to the condition that each current
director of Siga resign. Provided that such condition is satisfied, it is expected that Mr. Drapkin will be appointed Chairman of
the Board and Eric A. Rose, M.D. will be appointed as Interim Chief Executive Officer. In addition, it is anticipated that
Gabriel M. Cerrone, Thomas E. Constance, Mehmet C. Oz, M.D. and Michael Weiner, M.D. will be appointed as directors.
Each of the parties to the agreement have agreed to lock up their respective shares of common stock and options of Siga for
24 months subject to certain conditions and exceptions. Messrs. Schein and Cooper have also each entered into a separation
agreement with Siga. A Schedule 14f-1 is currently being prepared and will be sent to our stockholders promptly. The
resignations of Messrs. Schein and Cooper are expected to be effective 10 days after the mailing of Schedule 14f-1.
17
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS
The following discussion should be read in conjunction with our financial statements and notes to those statements and other
financial information appearing elsewhere in this Annual Report. In addition to historical information, the following discussion
and other parts of this Annual Report contain forward-looking information that involves risks and uncertainties.
Overview
We are a development stage, technology company, whose primary focus is in biopharmaceutical product development. Since
inception in December 1995 our efforts have been principally devoted to research and development, securing patent
protection, obtaining corporate relationships and raising capital. Since inception through December 31, 2000, we have
sustained cumulative net losses of $22,441,569, including non-cash charges in the amount of $1,457,458 for the write-off of
research and development expenses associated with the acquisition of certain technology rights acquired from a third party in
exchange for our common stock. In addition, a non-cash charge of $450,450 was incurred for stock option and warrant
compensation expense. Our losses have resulted primarily from expenditures incurred in connection with research and
development, patent preparation and prosecution and general and administrative expenses. From inception through December
31, 2000, research and development expenses amounted to $10,275,888, patent preparation and prosecution expenses
totaled $1,237,491, general and administration expenses amounted to $12,264,156. From inception through December 31,
2000 revenues from research and development agreements and government grants totaled $2,127,681.
Since inception, Siga has had limited resources, has incurred cumulative net operating losses of $22,198,954 and expects to
incur additional losses to perform further research and development activities. We do not have commercial biomedical
products, and we do not expect to have such for several years, if at all. We believe that we will need additional funds to
complete the development of our biomedical products. These circumstances raise substantial doubt about our ability to continue
as a going concern. Our plans with regard to these matters include continued development of our products as well as seeking
additional research support funds and financial arrangements. Although we continue to pursue these plans, there is no assurance
that we will be successful in obtaining sufficient financing on terms acceptable to us. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
We have consolidated our biotechnology assets and operations in our research facility in Corvallis, Oregon. We continue to
seek to fund a major portion of our ongoing vaccine and antibiotic programs through a combination of government grants,
corporate partnerships and strategic alliances. While we have had success in obtaining partners and grants, no assurance can be
given that we will continue to be successful in obtaining funds from these sources. Until additional relationships are established,
we expect to continue to incur significant research and development costs and costs associated with the manufacturing of
product for use in clinical trials and pre-clinical testing. It is expected that general and administrative costs, including patent and
regulatory costs, necessary to support clinical trials and research and development will continue to be significant in the future.
To date, we have not marketed, or generated revenues from the commercial sale of any products. Our biopharmaceutical
product candidates are not expected to be commercially available for several years, if at all. Accordingly, we expect to incur
operating losses for the foreseeable future. There can be no assurance that we will ever achieve profitable operations.
Results of Operations
Twelve Months ended December 31, 2000 and December 31, 1999.
Revenues from grants and research and development contracts were $483,120 for the twelve months ended December 31,
2000 compared to $519,561 for the same period of 1999. The approximate 7% decline in revenue for the period ended
December 31, 2000 is the result of no revenue being recognized from Wyeth-Ayerst, compared to revenue of $337,500 for
the same twelve month period of 1999. This decline was largely offset by increased revenue from Small Business Innovation
Research (SBIR) Grants and an agreement with the Ross Products division of Abbott Laboratories. During the twelve month
period of 2000 we received $450,000 from Wyeth-Ayerst in continued support for our research efforts, however, pending
completion of a new agreement, the entire amount has been recorded as deferred revenue.
18
General and administrative expenses increased approximately 123% for the twelve months ended December 31, 2000 to
$4,851,100 from $2,284,790 for the twelve months ended December 31, 1999. The increase in expenditures is the result of
non-cash compensation of approximately $950,000 associated with the grant of warrants and options to certain consultants
and directors, and a charge of $511,000 to reserve an amount advanced to Hypernix during the twelve months ended
December 31, 2000. Hypernix was an Isreali company we entered into a letter of intent to acquire in May 2000. We
terminated the agreement in August 2000. Also contributing to the increase in expenses were the personnel costs associated
with managing our internet assets and higher legal and accounting costs incurred as a result of our Internet investment.
Research and development expenses increased to $2,608,907 for the twelve months ended December 31, 2000 from
$1,672,778 for the same period in 1999. The approximate 56% increase in spending from 1999 compared to the same twelve
month period ended December 31, 2000, is primarily the result of expenses incurred in the development of our internet
initiative, PeerFinder. In July 2000, we exchanged our internet assets and 40,336 shares of our common stock for 12.5% of
Open-i Media, Inc. an Internet development and multimedia training company. At December 31, 2000, we reassessed the
value of our investment in Open-i Media. We reviewed certain events and changes in circumstances indicating that the carrying
amount of the investment in Open-i Media may not be recoverable in its entirety. As a result, we elected to reduce the carrying
amount of our investment to reflect its recoverable value as of year end and recorded an impairment charge of $156,000.
Research and development expenses incurred in our biotechnology operation were essentially flat.
Patent preparation expense of $106,647 for the twelve months ended December 31, 2000 was approximately 45% lower than
the $193,567 incurred for the twelve months ending December 31, 1999. The decline in spending from the prior year twelve
month period reflects the continuing trend to reduce patent costs by focusing on our core biopharmaceutical technologies and
eliminating programs that we believe have less commercial value.
In the twelve months ended December 31, 1999 we incurred expenses of $97,696 resulting from the settlement of litigation
with a university where we had been sponsoring research. The settlement expenses were for the transfer of title to the university
of certain fixed assets as part of the settlement agreement. No such expenses were incurred in the twelve months ended
December 31, 2000.
Total operating loss for the twelve months ended December 31, 2000 was $7,083,534, an approximate 90% increase from the
$3,729,543 loss incurred for the twelve months ended December 31, 1999. The increase in the operating loss was primarily
due to the non-cash general and administration compensation expense associated with warrants and options granted to certain
consultants and directors and the charge taken to reserve the funds advanced to Hypernix. Also contributing to the increase in
the operating loss were the higher general and administrative and research and development expenses associated with the
management and development of our internet assets.
19
Net interest expense for the twelve months ended December 31, 2000 was $550,464 compared to income of $26,383 for the
twelve months ended December 31, 1999. The increase in interest expense is the result of the accrual of interest expense
associated with our sale of $1,500,000 principal amount of 6% convertible debentures in January 2000.
We recorded a net gain of $66,660 for the twelve months ended December 31, 1999 from the sale of certain securities held
for investment purposes. No such income was received in the year ending December 31, 2000.
Quarterly Results of Operations
The following table sets forth selected unaudited quarterly statements of operations data, in dollar amounts and as percentages
of net revenue, for the four quarters ended December 31, 1999 and for the four quarters ended December 31, 2000. In our
opinion this information has been prepared substantially on the same basis as the audited financial statements appearing
elsewhere in this annual statement, and all necessary adjustments, consisting only of normal recurring adjustments, have been
included in the amounts stated below to present fairly the unaudited quarterly results of operations data. The quarterly data
should be read with our financial statement and then noted to those statements appearing elsewhere in the annual statement.
1999
($ in 000's) Q1 Q2 Q3 Q4
-- -- -- --
Revenue $ 113 $ 113 $ 147 $ 147
G&A $ 525 $ 531 $ 551 $ 678
% of Revenue 465% 470% 375% 461%
R&D $ 554 $ 519 $ 489 $ 111
% of Revenue 490% 459% 333% 76%
Patent Prep. Costs $ 62 $ 61 $ 14 $ 56
% of Revenue 55% 54% 10% 39%
Operating Loss $1,028 $ 997 $ 907 $ 796
% of Revenue 910% 883% 618% 542%
Net Loss $ 947 $ 910 $ 868 $ 911
% of Revenue 838% 805% 590% 620%
2000
($ in 000's) Q1 Q2 Q3 Q4
-- -- -- --
Revenue $ 81 $ 91 $ 193 $ 118
G&A $ 811 $ 966 $1,808 $1,266
% of Revenue 1,001% 1,062% 937% 1,073%
R&D $ 763 $ 392 $ 876 $ 578
% of Revenue 942% 437% 454% 490%
Patent Prep. Costs $ 26 $ 38 $ 20 $ 23
% of Revenue 32% 42% 10% 18%
Operating Loss $1,519 $1,305 $2,511 $1,747
% of Revenue 1,875% 1,434% 1301% 1,482%
Net Loss $1,638 $1,447 $2,658 $1,891
% of Revenue 2,022% 1,590% 1,377% 1,603%
20
Liquidity and Capital Resources
As of December 31, 2000 we had $1,707,385 in cash and cash equivalents. In July of 1997 we entered into a collaborative
two year research and license agreement with Wyeth-Ayerst. Under the terms of the agreement, we have granted
Wyeth-Ayerst an exclusive worldwide license to develop, make, use and sell products derived from specified technologies. If
certain milestones are met, the agreement requires Wyeth-Ayerst to sponsor further research by us for the development of the
licensed technologies for a period of two years from the effective date of the agreement, in return for payments to Siga.
Through December 31, 2000 we have recorded a total of $1,800,000 of revenue from Wyeth-Ayerst. We received an
additional $450,000 in payments from Wyeth-Ayerst during the twelve months ended December 31, 2000 and an additional
$350,000 in the first quarter of 2001. In July and October of 1999 we were awarded SBIR grants from the NIH. The grant
received in July was for a six month program for a total of $109,072 and the October grant was a twelve month program for a
total of $293,466. As of December 31, 2000 the total amount of the grants had been received. In May and August 2000 we
were awarded two Phase I SBIR grants from the National Institutes for Health in the amounts of $26,000 and $96,163,
respectively. As of December 31, 2000 the total award of $26,000 from the May grant had been received and $83,637 has
been invoiced from the August grant. The remaining $12,526 from the August grant was received in February 2001. In
September 2000 we were awarded an additional grant from the NIH for $125,000 to support certain research activities for a
six month period. As of December 31, 2000 we had received $73,056 of the grant, the remaining $51,994 was received in
March 2001.
In January of 2000 we completed a private placement of 6% convertible debentures at an aggregate principal amount of
$1,500,000 and 1,043,478 warrants to purchase shares of our common stock with a purchase price of $0.05 per warrant. We
received net proceeds of $1,499,674 from the total $1,552,174 gross proceeds raised. The debentures are convertible into
common stock at $1.4375 per share. Interest at the rate of 6% per annum is payable on the principal of each convertible
debenture in cash or shares of Siga's common stock, at our discretion upon conversion or at maturity. In the twelve months
ended December 31, 2000, $125,000 principal amount of the debenture and the accrued interest was converted into our
common stock. In January 2001, an additional $25,000 principal amount of the debenture was converted into our common
stock. The warrants have a term of five years and are exercisable at $3.4059 per share. We have the right to require the holder
to exercise the warrants within five days under the following circumstances: (i) a registration statement is effective; and (ii) the
closing bid price for our common stock, for each of any 15 consecutive trading days is at least 200% of the exercise price of
such warrants. If the holder does not exercise the warrants after notice is given, the unexercised warrants will expire. In
connection with this transaction, we issued warrants to purchase a total of 275,000 shares of common stock to the placement
agent and the investor's counsel (or their respective designees). These warrants have a term of five years and are exercisable at
$1.45 per share.
In March 2000 we entered into an agreement with the Ross Products Division of Abbott Laboratories (Ross). The agreement
grants Ross an exclusive option to negotiate an exclusive license to certain Siga technology and patents in addition to certain
research development services. In exchange for research services and the option, Ross is obligated to pay us $120,000 in three
installments of $40,000. The first payment of $40,000 was received during the quarter ended March 31, 2000. The remaining
installments are contingent upon certain milestones under the agreement. In the twelve months ended December 31, 2000, we
recognized revenue of $80,000.
On March 28, 2000 we completed a private placement of an aggregate of 600,000 shares of common stock and 450,000
warrants. We received net proceeds of $2,883,000 from the total gross proceeds of $3,000,000. The warrants have a term of
three years; 210,000 warrants are exercisable at $5.00 per share, 120,000 are exercisable at $6.375 per share and 120,000
are exercisable at $6.90 per share. The warrants are redeemable at $0.01 each, by us upon meeting certain conditions.
21
In May 2000 we entered into a binding letter of intent to acquire Israel-based Hypernix Technologies, Ltd. Hypernix is the
developer of Gooey, an integrated roving communication platform. If the transaction was consummated, we would have issued
3 million shares of our common stock to the stockholders and certain employees of Hypernix and assume all of the disclosed
liabilities of Hypernix (not to exceed $1,250,000), with Hypernix's creditors to be paid half in cash and half in our common
stock. Also, we were to lend Hypernix $250,000 per month for up to five months. This advance was subject to interest at an
annual rate of 10% and was secured by all the assets of Hypernix. We advanced Hypernix $261,000 and $250,000 in May
and July respectively, under the agreement. In August we terminated the letter of intent. We recorded a charge of $261,000 for
the three months ended June 30, 2000 and $250,000 for the three months ended September 30, 2000 to reserve the advances
made to Hypernix. In March 2001 we received approximately $84,000 from the liquidation of certain assets of Hypernix.
In July 2000 we entered into an agreement with Global Impact Communications, Inc.(GIC). GIC will serve as our public
relations agency. GIC received options to purchase 75,000 shares of our common stock and they will receive a monthly
retainer of $6,000. Twenty five thousand options are exercisable at $5.75 per share, 25,000 at $6.50 per share and 25,000 at
$7.50 per share.
In August 2000 we entered into an agreement with The Kriegsman Group for them to render advice and assistance with
respect to financial consulting , planning, structuring, business strategy, public relations and raising equity capital. The term of the
agreement was for a period of fifteen months with a guarantee of a six-month retention from August 1, 2000 through February
1, 2001. We paid Kriegsman a fee of $40,000 upon signing of the agreement The agreement also granted Kriegsman a warrant
to purchase 500,000 shares of our common stock with 200,000 warrants vesting upon the date of the agreement with an
exercise price of $3.63 per share. As of December 31, 2000 we had paid them $120,000 under the agreement. In January
2001, the agreement was terminated. As part of the mutual agreement to terminate, Kriegsman agreed to the cancellation of the
500,000 warrant grant made at the time of the signing of the agreement and accept a new grant of 50,000 warrants at an
exercise price of $3.63 per share.
In November 2000 we entered into a one year consulting agreement with Fahnestock and Co., the investment banking firm that
provided services facilitating our sale in January 2000 of the $1.5 million principal amount 6% convertible debentures, and the
March 2000 sale of $3.0 million of our equity. Under the terms of the agreement, we will receive, marketing, public relations,
acquisitions and strategic planning services. In exchange for such services, we amended the terms of the warrants Fahnestock
received for their efforts in the two fund raising efforts, changing the exercise price of their warrants to $2.00 per share.
On December 6, 2000 the Company entered into an exclusive license agreement and a sponsored research agreement with the
Regents of the University of California (the "Regents"). Under the license agreement Siga obtained rights for the exclusive
commercial development, use and sale of products related to certain inventions in exchange for a non-refundable license
issuance fee of $15,000 and an annual maintenance fee of $10,00. In the event that the Company sub-leases the license, it
shall; pay Regents 15% of all royalty payments made to Siga. Under the agreement, Siga will also pay Regents 15% of all funds
received from Wyeth-Avesrt and a minimum annual amount of $250,000 for the continued development of the inventions for a
period of three years.
Under the sponsored research agreement Siga will provide the Regents with funding in the total amount of $300,000 over a
period of two years to support certain research.
In January 2001 we received an additional $112,500 from Wyeth-Ayerst to further support our research and development
programs begun under our July 1997 agreement. In February 2001 we received a $237,500 payment from Wyeth-Ayerst for
achieving a certain research milestone under the July 1997 agreement.
We anticipate that our current resources will be sufficient to finance our currently anticipated needs for operating and capital
expenditures approximately through the Fourth quarter of 2001. In addition, we will attempt to generate additional working
capital through a combination of collaborative agreements, strategic alliances, research grants, equity and debt financing.
However, no assurance can be provided that additional capital will be obtained through these sources or, if obtained, on
commercially reasonable terms. If we are unable to raise additional capital when needed, we may be forced to curtail certain
activities and programs or possibly cease operations altogether.
22
Since inception, Siga has had limited resources, has incurred cumulative net operating losses of $22,198,954 and expects to
incur additional losses to perform further research and development activities. We do not have commercial biomedical
products, and we do not expect to have such for several years, if at all. We believe that we will need additional funds to
complete the development of our biomedical products. These circumstances raise substantial doubt about our ability to continue
as a going concern. Our plans with regard to these matters include continued development of our products as well as seeking
additional research support funds and financial arrangements. Although we continue to pursue these plans, there is no assurance
that we will be successful in obtaining sufficient financing on terms acceptable to us. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Our working capital and capital requirements will depend upon numerous factors, including pharmaceutical research and
development programs; pre-clinical and clinical testing; timing and cost of obtaining regulatory approvals; levels of resources
that we devote to the development of manufacturing and marketing capabilities; technological advances; status of competitors;
and our ability to establish collaborative arrangements with other organizations.
Risk Factors That May Affect Results of Operations and Financial Condition
We have incurred operating losses since our inception and expect to incur net losses and negative cash flow for the foreseeable
future. We incurred net losses of $6.6 million for the year ended December 31, 1998, $3.6 million for the year ended
December 31, 1999 and $7.8 million for the year ended December 31, 2000. As of December 31, 2000 and December 31,
1999, our accumulated deficit was $22.4 million and $14.7 million, respectively. We expect to continue to incur significant
operating and capital expenditures and, as a result, we will need to generate significant revenues to achieve and maintain
profitability.
We cannot guarantee that we will achieve sufficient revenues for profitability. Even if we do achieve profitability, we cannot
guarantee that we can sustain or increase profitability on a quarterly or annual basis in the future. If revenues grow slower than
we anticipate, or if operating expenses exceed our expectations or cannot be adjusted accordingly, our business, results of
operations and financial condition will be materially and adversely affected. Because our strategy includes acquisitions of other
businesses, acquisition expenses and any cash used to make these acquisitions will reduce our available cash.
We are in various stages of product development and there can be no assurance of successful commercialization. Our research
and development programs are at an early stage of development. The United States Food and Drug Administration has not
approved any of our biopharmaceutical product candidates. Any drug candidates developed by us will require significant
additional research and development efforts, including extensive pre-clinical and clinical testing and regulatory approval, prior to
commercial sale. We cannot be sure our approach to drug discovery will be effective or will result in the development of any
drug. We cannot expect that any drugs that do result from our research and development efforts will be commercially available
for many years.
We have limited experience in conducting pre-clinical testing and clinical trials. Even if we receive initially positive pre-clinical
results, such results do not mean that similar results will be obtained in the later stages of drug development, such as additional
pre-clinical testing or human clinical trials. All of our potential drug candidates are prone to the risks of failure inherent in
pharmaceutical product development, including the possibility that none of our drug candidates will or can:
o be safe, non-toxic and effective;
o otherwise meet applicable regulatory standards;
o receive the necessary regulatory approvals;
o develop into commercially viable drugs;
o be manufactured or produced economically and on a large scale;
o be successfully marketed;
o be reimbursed by government or private consumers; and
o achieve customer acceptance.
23
In addition, third parties may preclude us from marketing our drugs through enforcement of their proprietary rights, or third
parties may succeed in marketing equivalent or superior drug products. Our failure to develop safe, commercially viable drugs
would have a material adverse effect on our business, financial condition and results of operations.
Most of our expected future revenues are contingent upon collaborative and license agreements and we may not achieve
sufficient revenues from these agreements to attain profitability. Our ability to generate revenues depends on our ability to enter
into additional collaborative and license agreements with third parties and maintain the agreements we currently have in place.
We will receive little or no revenues under our agreements if our collaborators' research, development or marketing efforts are
unsuccessful, or if our agreements are terminated early. Additionally, if we do not enter into new collaborative agreements, we
will not receive future revenues from new sources.
Our future receipt of revenues from collaborative arrangements will be significantly affected by the amount of time and effort
expended by our collaborators, the timing of the identification of useful drug targets and the timing of the discovery and
development of drug candidates. Under our existing agreements, we may not earn significant milestone payments until our
collaborators have advanced products into clinical testing, which may not occur for many years, if at all.
We may not find sufficient acquisition candidates to implement our business strategy. As part of our business strategy we
expect to enter into additional business combinations and acquisitions. We compete for acquisition candidates with other
entities, some of which have greater financial resources than we have. Increased competition for acquisition candidates may
make fewer acquisition candidates available to us and may cause acquisitions to be made on less attractive terms, such as
higher purchase prices. Acquisition costs may increase to levels that are beyond our financial capability or that would adversely
affect our results of operations and financial condition. Our ability to make acquisitions will depend in part on the relative
attractiveness of shares of our common stock as consideration for potential acquisition candidates. This attractiveness may
depend largely on the relative market price, our ability to register common stock and capital appreciation prospects of our
common stock. If the market price of our common stock were to decline materially over a prolonged period of time, our
acquisition program could be materially adversely affected.
The biopharmaceutical market in which we compete and will compete is highly competitive. The biopharmaceutical industry is
characterized by rapid and significant technological change. Our success will depend on our ability to develop and apply our
technologies in the design and development of our product candidates and to establish and maintain a market for our product
candidates. There also are many companies, both public and private, including major pharmaceutical and chemical companies,
specialized biotechnology firms, universities and other research institutions engaged in developing pharmaceutical and
biotechnology products. Many of these companies have substantially greater financial, technical, research and development,
and human resources than us. Competitors may develop products or other technologies that are more effective than any that
are being developed by us or may obtain FDA approval for products more rapidly than us. If we commence commercial sales
of products, we still must compete in the manufacturing and marketing of such products, areas in which we have no experience.
Many of these companies also have manufacturing facilities and established marketing capabilities that would enable such
companies to market competing products through existing channels of distribution.
Because we must obtain regulatory clearance to test and market our products in the United States and foreign jurisdictions, we
cannot predict whether or when we will be permitted to commercialize our products. The pharmaceutical industry is subject to
stringent regulation by a wide range of authorities in the geographic areas where we intend to develop and commercialize
products. A pharmaceutical product cannot be marketed in the United States until it has completed rigorous preclinical testing
and clinical trials and an extensive regulatory clearance process implemented by the FDA. Satisfaction of regulatory
requirements typically takes many years, is dependent upon the type, complexity and novelty of the product and requires the
expenditure of substantial resources.
24
Before commencing clinical trials in humans, we must submit and receive clearance from the FDA by means of an IND
application. Clinical trials are subject to oversight by institutional review boards and the FDA and:
o must be conducted in conformance with the FDA's good laboratory practice regulations;
o must meet requirements for institutional review board oversight;
o must meet requirements for informed consent;
o must meet requirements for good clinical and manufacturing practices;
o are subject to continuing FDA oversight;
o may require large numbers of test subjects; and
o may be suspended by us or the FDA at any time if it is believed that the subjects participating in these trials are being
exposed to unacceptable health risks or if the FDA finds deficiencies in the IND application or the conduct of these trials.
Before receiving FDA clearance to market a product, we must demonstrate that the product is safe and effective on the patient
population that will be treated. Data obtained from preclinical and clinical activities are susceptible to varying interpretations that
could delay, limit or prevent regulatory clearances. Additionally, we have limited experience in conducting and managing the
clinical trials and manufacturing processes necessary to obtain regulatory clearance.
If regulatory clearance of a product is granted, this clearance will be limited to those disease states and conditions for which the
product is demonstrated through clinical trials to be safe and efficacious. We cannot ensure that any compound developed by
us, alone or with others, will prove to be safe and efficacious in clinical trials and will meet all of the applicable regulatory
requirements needed to receive marketing clearance.
Outside the United States, our ability to market a product is contingent upon receiving a marketing authorization from the
appropriate regulatory authorities. This foreign regulatory approval process includes all of the risks associated with FDA
clearance described above.
If our technologies or those of our collaborators are alleged or found to infringe the patents or proprietary rights of others, we
may be sued or have to license those rights from others on unfavorable terms. Our commercial success will depend significantly
on our ability to operate without infringing the patents and proprietary rights of third parties. Our technologies along with our
licensors' and our collaborators' technologies may infringe the patents or proprietary rights of others. An adverse outcome in
litigation or an interference to determine priority or other proceeding in a court or patent office could subject us to significant
liabilities, require disputed rights to be licensed from or to other parties or require us, our licensors or our collaborators to cease
using a technology necessary to carry out research, development and commercialization.
Litigation to establish the validity of patents, to defend against patent infringement claims of others and to assert infringement
claims against others can be expensive and time consuming, even if the outcome is favorable. An outcome of any patent
prosecution or litigation that is unfavorable to us or one of our licensors or collaborators may have a material adverse effect on
us. We could incur substantial costs if we are required to defend ourselves in patent suits brought by third parties, if we
participate in patent suits brought against or initiated by our licensors or collaborators or if we initiate such suits. We may not
have sufficient funds or resources in the event of litigation. Additionally, we may not prevail in any such action.
25
Any conflicts resulting from third-party patent applications and patents could significantly reduce the coverage of the patents
owned, optioned by or licensed to us or our collaborators and limit our ability or that of our collaborators to obtain meaningful
patent protection. If patents are issued to third parties that contain competitive or conflicting claims, we, our licensors or our
collaborators may be legally prohibited from pursuing research, development or commercialization of potential products or be
required to obtain licenses to these patents or to develop or obtain alternative technology. We, our licensors and/or our
collaborators may be legally prohibited from using patented technology, may not be able to obtain any license to the patents
and technologies of third parties on acceptable terms, if at all, or may not be able to obtain or develop alternative technologies.
In addition, like many biopharmaceutical companies, we may from time to time hire scientific personnel formerly employed by
other companies involved in one or more areas similar to the activities conducted by us. We or these individuals may be subject
to allegations of trade secret misappropriation or other similar claims as a result of their prior affiliations.
Our ability to compete may decrease if we do not adequately protect our intellectual property rights. Our commercial success
will depend in part on our and our collaborators' ability to obtain and maintain patent protection for our proprietary
technologies, drug targets and potential products and to effectively preserve our trade secrets. Because of the substantial length
of time and expense associated with bringing potential products through the development and regulatory clearance processes to
reach the marketplace, the pharmaceutical industry places considerable importance on obtaining patent and trade secret
protection. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex
legal and factual questions. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged
to date. Accordingly, we cannot predict the type and breadth of claims allowed in these patents.
We also rely on copyright protection, trade secrets, know-how, continuing technological innovation and licensing opportunities.
In an effort to maintain the confidentiality and ownership of trade secrets and proprietary information, we require our
employees, consultants and some collaborators to execute confidentiality and invention assignment agreements upon
commencement of a relationship with us. These agreements may not provide meaningful protection for our trade secrets,
confidential information or inventions in the event of unauthorized use or disclosure of such information, and adequate remedies
may not exist in the event of such unauthorized use or disclosure.
We may have difficulty managing our growth. We expect to continue to experience significant growth in the number of our
employees and the scope of our operations. This growth has placed, and may continue to place, a significant strain on our
management and operations. Our ability to manage this growth will depend upon our ability to broaden our management team
and our ability to attract, hire and retain skilled employees. Our success will also depend on the ability of our officers and key
employees to continue to implement and improve our operational and other systems and to hire, train and manage our
employees.
We depend on key employees in a competitive market for skilled personnel. We are highly dependent on the principal
members of our management, operations and scientific staff, including Joshua D. Schein, our Chief Executive Officer. The loss
of any of these persons' services would have a material adverse effect on our business. We have entered into employment
agreements with seven individuals who we consider to be "Key Employees." We do not maintain a key person life insurance
policy on the life of any employee.
Our future success also will depend in part on the continued service of our key scientific, software, bioinformatics and
management personnel and our ability to identify, hire and retain additional personnel, including customer service, marketing and
sales staff. We experience intense competition for qualified personnel. We may not be able to continue to attract and retain
personnel necessary for the development of our business.
26
Our activities involve hazardous materials and may subject us to environmental regulatory liabilities. Our biopharmaceutical
research and development involves the controlled use of hazardous and radioactive materials and biological waste. We are
subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these
materials and certain waste products. Although we believe that our safety procedures for handling and disposing of these
materials comply with legally prescribed standards, the risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of an accident, we could be held liable for damages, and this liability could exceed our
resources.
We believe that we are in compliance in all material respects with applicable environmental laws and regulations and currently
do not expect to make material additional capital expenditures for environmental control facilities in the near term. However, we
may have to incur significant costs to comply with current or future environmental laws and regulations.
Item 7. Financial Statements and Supplementary Data
The financial statements required by Item 7 are included in this Annual Report beginning on Page F-1.
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
27
PART III
Item 9. Directors and Executive Officers of the Registrant
Name Age Position
---- --- --------
Joshua D. Schein, Ph.D. 40 Chief Executive Officer, Secretary and Director
Judson A. Cooper 42 Chairman of the Board, Executive Vice President
Thomas N. Konatich 55 Chief Financial Officer and Treasurer
Dennis E. Hruby, Ph.D. 49 Chief Scientific Officer
Eric Richman 40 Director
Thomas Lanier 41 Director
Jeffrey Rubin 33 Director
Joshua D. Schein, Ph.D. has served as our Chief Executive Officer since August 1998 and as acting Chief Executive Officer
from April 1998 to August 1998. Dr. Schein has also served as Secretary and a Director since December 1995. Dr. Schein
served as Chief Financial Officer from December 1995 until April 1998. From December 1995 to June 1998, Dr. Schein was
a Director of DepoMed, Inc., a publicly traded biotechnology company. From January 1996 to August 1998, Dr. Schein was
an executive officer and a director of Virologix Corporation, a private biotechnology company. From June 1996 to September
1998, Dr. Schein was an executive officer and a director of Callisto Pharmaceuticals, Inc. From 1994 to 1995, Dr. Schein
served as a Vice President of Investment Banking at Josephthal, Lyon and Ross, Incorporated, an investment banking firm.
From 1991 to 1994, Dr. Schein was a Vice President at D. Blech & Company, Incorporated, a merchant and investment
banking firm focused on the biopharmaceutical industry. Dr. Schein received a Ph.D. in neuroscience from the Albert Einstein
College of Medicine and an MBA from the Columbia Graduate School of Business. Dr. Schein is a principal of Prism Ventures
LLC ("Prism"), a privately held limited liability company.
Judson A. Cooper has served as our Chairman of the Board of Directors since August 1998 and as acting Chairman of the
Board from April 1998 to August 1998. Mr. Cooper has also served as a Director since December 1995 and Executive Vice
President since November 1996. From December 1995 until November 1996 Mr. Cooper served as President. From August
1995 to June 1998, Mr. Cooper was a Director of DepoMed, Inc., a publicly traded biotechnology company. From January
1996 to August 1998, Mr. Cooper was an executive officer and a director of Virologix Corporation, a private biotechnology
company. From June 1996 to September 1998, Mr. Cooper was an executive officer and a director of Callisto
Pharmaceuticals, Inc. Mr. Cooper was a private investor from September 1993 to December 1995. From 1991 to 1993, Mr.
Cooper served as a Vice President of D. Blech & Company, Incorporated. Mr. Cooper is a graduate of the Kellogg School of
Management. Mr. Cooper is a principal of Prism Ventures LLC ("Prism"), a privately held limited liability company.
Thomas N. Konatich has served as Chief Financial Officer and Treasurer since April 1, 1998. From November 1996 through
March 1998, Mr. Konatich served as Chief Financial Officer and a Director of Innapharma, Inc., a privately held
pharmaceutical development company. From 1993 through November 1996, Mr. Konatich served as Vice President and
Chief Financial Officer of Seragen, Inc., a publicly traded biopharmaceutical development company. From 1988 to 1993, he
was Treasurer of Ohmicron Corporation, a venture capital financed environmental biotechnology firm. Mr. Konatich has an
MBA from the Columbia Graduate School of Business.
28
Dennis F. Hruby, Ph.D. has served as Vice-President - Chief Scientific Officer since June 2000. From April 1,1997 through
June 2000 Dr. Hruby was our Vice President of Research. From January 1996 through March 1997, Dr. Hruby served as a
senior scientific advisor to Siga. Dr. Hruby is a Professor of Microbiology at Oregon State University, and from 1990 to 1993
was Director of the Molecular and Cellular Biology Program and Associate Director of the Center for Gene Research and
Biotechnology. Dr. Hruby specializes in virology and cell biology research, and the use of viral and bacterial vectors to produce
recombinant vaccines. He is a member of the American Society of Virology, the American Society for Microbiology and a
fellow of the American Academy of Microbiology. Dr. Hruby received a Ph.D. in microbiology from the University of
Colorado Medical Center and a B.S. in microbiology from Oregon State University.
Eric Richman has been a Director since November 2000. Since June 2000, Mr. Richman has been Vice President, Corporate
Development at OptiMEMS, Inc., a development stage optical switch company. Prior to thant, from 1998 to 2000, he was
Director, International Commercialization with MedImmune, Inc. From 1993 to 1998, Mr. Richman was MedImmune's Senior
Director of Transplantation Products. Mr. Richman was part of the founding team at MedImmune holding various other
administrative, financial and strategic planning positions since joining MedImmune in 1988. Mr. Richman was a key member on
the launch teams for the company's biotechnology products, both domestically and internationally. Mr. Richman received a B.S.
degree in Biomedical Science in 1984 from the Sophie Davis School of Biomedical Education and a Master of International
Management in 1987 from the American Graduate School of International Management.
Thomas Lanier has been a Director since January 2000. Since 1996, Mr. Lanier has been an International Advisor for the U.S.
Department of the Treasury during which time he co-wrote the U.S. Treasury's guide to external debt issuance for emerging
market borrowers. From 1988 until 1996 Mr. Lanier worked for Chemical Bank as a U.S. Government Bond Trader
(1988-1993), Emerging Markets Salesperson (1993-1994) and Emerging Markets Debt Trader (1994-1996). In 1981 Mr.
Lanier graduated from the United States Military Academy at West Point with a Bachelor of Science Degree and prior to
leaving the Army in 1986, also graduated from the U.S. Army Airborne School and the U.S. Army Flight School as well as
planning, organizing and controlling logistical operations on an international project for the Army Chief of Staff. In 1998, Mr.
Lanier received a Masters of Business Administration with an emphasis in finance and marketing from the Fuqua School of
Business, Duke University.
Jeffrey Rubin has been a director since November 1998. Mr. Rubin is President and Director of Newtek Capital, Inc., an asset
management and investment banking firm he formed in January 1998. From 1994 to 1997, Mr. Rubin was founder and a
director of the Fastcast Corporation, a company specializing in optical technologies. From 1989 to 1994, Mr. Rubin was a
Vice President of American European Corporation, an import/export company. Mr. Rubin received a Bachelor of Arts degree
in 1989 from the University of Michigan.
29
Item 10. Executive Compensation
The following table sets forth the total compensation paid or accrued for the years ended December 31, 2000, 1999 and 1998
for Siga's Chief Executive Officer and its four most highly compensated executive officers, other than its Chief Executive
Officer, whose salary and bonus for the fiscal year ended December 31, 2000 were in excess of $100,000.
Summary Compensation Table
Annual Compensation
-------------------
Long-Term
Compensation
Other Annual Securities
Compensation Underlying Options(#)
------------ ---------- ----------
Name and Principal Position Year Salary ($) ($)
--------------------------- ---- ---------- ---
Joshua D. Schein, Ph.D., Chief 2000 250,000 -- 500,000
Executive Officer and Director
1999 225,000 -- 150,000
1998 170,939 -- 16,667
Judson A. Cooper, Executive Vice 2000 250,000 -- 500,000
President and Director
1999 225,000 -- 150,000
1998 170,939 -- 16,667
Dennis E. Hruby, Ph.D., Chief 2000 180,000 -- 125,000
Scientific Officer
1999 170,000 -- --
1998 167,148 -- 40,000
Thomas N. Konatich, Chief Financial 2000 170,000 -- 100,000
Officer
1999 170,000 -- --
1998 120,172 -- 95,000
(1) Consisting of the value of common stock issued at fair market value.
30
Option Grants for the Year Ended December 31, 2000
The following table sets forth grants of stock options to Siga's Chief Executive Officer and its four most highly compensated
executive officers, other than its Chief Executive Officer, for the year ended December 31, 2000. The exercise price per share
of each option was equal to the fair market value at the time of the grant, except for the grant to Dr. Hruby. The grants to Dr.
Hruby were non-Plan grants at a discount of approximately 50% to market.
Option Grants in Last Fiscal Year
Individual Grants
----------------------------------------------------
Percent of
Total
Number of Options
Securities Granted to
Underlying Employees Exercise
Options in Fiscal Price per Expiration
Name Granted (#) Year (%)(1) Share ($/SH) Date
---- ----------- ----------- ------------ ----
Joshua D. Schein 500,000 43.8 2.00 1/19/10
Judson A. Cooper 500,000 43.8 2.00 1/19/10
Dennis E. Hruby 125,000 (2) 2.00 1/19/10
Thomas N. Konatich 100,000 8.7 2.00 1/19/10
(1) Based on options to purchase an aggregate of 1,144,000 shares of common stock granted under the Amended 1996
Incentive and Non-Qualified Stock Option Plan.
(2) Options were granted outside the Amended 1996 Incentive and Non-Qualified Stock Option Plan.
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table provides certain summary information concerning stock options held as of December 31, 2000 by Siga's
Chief Executive Officer and its four most highly compensated executive officers, other than its Chief Executive Officer. No
options were exercised during fiscal 1999 by any of the officers.
Value of Unexercised
Number of Securities Underlying In-The-Money Options
Unexercised Options# at Fiscal Year-End($)(1)
--------------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Joshua D. Schein 662,501 37,500 735,938 70,313
Judson A. Cooper 662,501 37,500 735,938 70,313
Dennis Hruby 52,500 122,500 25,000 100,000
Thomas N. Konatich 85,000 110,000 37,500 62,500
(1) Based upon the closing price on December 31, 2000 as reported on the Nasdaq SmallCap Market and the exercise price
per option.
31
Stock Option Plan
As of January 1, 1996, we adopted our 1996 Incentive and Non-Qualified Stock Option Plan (the "Plan"), pursuant to which
stock options may be granted to key employees, consultants and outside directors.
The Plan is administered by a committee (the "Committee") comprised of disinterested directors. The Committee determines
persons to be granted stock options, the amount of stock options to be granted to each such person, and the terms and
conditions of any stock options as permitted under the Plan. The members of the Committee are Thomas Lanier and Jeffrey
Rubin.
Both Incentive Options and Nonqualified Options may be granted under the Plan. An Incentive Option is intended to qualify as
an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
Any Incentive Option granted under the Plan will have an exercise price of not less than 100% of the fair market value of the
shares on the date on which such option is granted. With respect to an Incentive Option granted to an employee who owns
more than 10% of the total combined voting stock of Siga or of any parent or subsidiary of Siga, the exercise price for such
option must be at least 110% of the fair market value of the shares subject to the option on the date the option is granted. A
Nonqualified Option (i.e., an option to purchase common stock that does not meet the Code's requirements for Incentive
Options) must have an exercise price of at least the fair market value of the stock at the date of grant.
The Plan, as amended, provides for the granting of options to purchase 2,500,000 shares of common stock, of which
2,167,061 options were outstanding as of December 31, 2000.
Employment Contracts and Directors Compensation
Dr. Joshua Schein, our Chief Executive Officer, was employed under an agreement through December 31, 1999 which had a
base annual salary of $225,000 and granted him 16,667 options per year, exercisable at the fair market value on the date of the
grant. In January 2000 he entered into a new employment agreement with Siga, which agreement was amended and restated as
of October 6, 2000, expires January 2005 and is cancelable by Siga only for cause, as defined in the agreement. The
agreement is renewable for additional one year terms unless cancelled by either party in writing 180 days prior to cancellation.
Dr. Schein receives an annual base salary of $250,000 and he was granted 500,000 fully vested stock options upon signing the
new agreement. The options are exercisable at $2.00 per share, the fair market value on the date of grant. He is eligible to
receive additional stock options and bonuses at the discretion of the Board of Directors. Under the amended and restated
agreement, in the event of a change in control, Dr. Schein will be paid his compensation for the remainder of his employment
term and will receive a tax gross-up payment, and all unvested options held by Dr. Schein will become vested and exercisable.
In addition, Dr. Schein will receive a cash payment equal to 1.5% of the total consideration received by Siga in a sale of all or
substantially all of the assets or stock of Siga, or a transaction where the holders of the voting capital stock of Siga immediately
prior to the transaction own less than a majority of the voting capital stock of the acquiring or surviving entity. In the event of a
sale, merger or public spin-out of any subsidiary or material asset of Siga, Dr. Schein shall receive a fee equal to 1.5% of the
value of Siga's shares of the subsidiary or material asset.
Judson Cooper, our Chairman of the Board of Directors, was employed under an employment agreement through December
31, 1999 which had a base annual salary of $225,000 and granted him 16,667 options per year, exercisable at the fair market
value on the date of the grant. In January 2000 he entered into a new employment agreement, which agreement was amended
and restated as of October 6, 2000, expires January 2005 and is cancelable by Siga only for cause, as defined in the
agreement. The agreement is renewable for additional one year terms unless cancelled by either party in writing 180 days
32
prior to cancellation. Mr. Cooper receives an annual base salary of $250,000 and he was granted 500,000 fully vested stock
options upon signing the new agreement. The options are exercisable at $2.00 per share, the fair market value on the date of
grant. He is eligible to receive additional stock options and bonuses at the discretion of the Board of Directors. Under the
amended and restated agreement, in the event of a change in control, Mr. Cooper will be paid his compensation for the
remainder of his employment term and will receive a tax gross-up payment, and all unvested options held by Mr. Cooper will
become vested and exercisable. In addition, Mr. Cooper will receive a cash payment equal to
1.5% of the total consideration received by Siga in a sale of all or substantially all of the assets or stock of Siga, or a transaction
where the holders of the voting capital stock of Siga immediately prior to the transaction own less than a majority of the voting
capital stock of the acquiring or surviving entity. In the event of a sale, merger or public spin-out of any subsidiary or material
asset of Siga, Mr. Cooper shall receive a fee equal to
1.5% of the value of Siga's shares of the subsidiary or material asset.
Thomas Konatich, Chief Financial Officer, is employed by Siga under an employment agreement that was to expire April 1,
2000. On January 19, 2000 the employment agreement was amended, and in October, 2000, the agreement was amended
and restated. The amended agreement expires on April 1, 2002 and is cancelable by Siga only for cause, as defined in the
agreement. Mr. Konatich receives an annual base salary of $170,000. He received options to purchase 95,000 shares of
common stock, at $4.44 on April 1, 1998. The options vest on a pro rata basis on the first, second, third and fourth
anniversaries of the agreement. On January 19, 2000 he received an additional grant to purchase 100,000 shares at an exercise
price of $2.00 per share. The options vest on a pro rata basis each quarter through January 19, 2002. Mr. Konatich is also
eligible to receive additional stock options and bonuses at the discretion of the Board of Directors. Under the amended and
restated agreement, in the event of a change in control, Mr. Konatich will be paid his compensation for the remainder of his
employment term and will receive a tax gross-up payment, and all unvested options held by Mr. Konatich will become vested
and exercisable.
Dr. Dennis Hruby, Chief Scientific Officer ("CSO"), is employed by Siga under an employment agreement that was to expire
on December 31, 2000. In May 2000, the employment agreement was amended, extending Mr. Hruby's employment until
December 31, 2002, except that the Company may terminate the agreement upon 180 days written notice, and changing Mr.
Hruby's title from Vice President of Research to CSO. Dr. Hruby received options to purchase 40,000 shares of common
stock at an exercise price of $4.63 per share on February 1, 1998]. The options become exercisable on a pro rata basis on the
first, second, third and fourth anniversaries of the agreement. Dr. Hruby is eligible to receive additional stock options and
bonuses at the discretion of the Board of Directors. Under the amendment, the CSO was granted options to purchase 125,000
shares of the Company's common stock at $2.00 per share. The options vest ratably over the remaining term of the
amendment.
33
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial ownership of the common stock as of December 31,
2000 of (i) each person known to Siga to beneficially own more than 5% of the common stock, (ii) each director of Siga, (iii)
each executive officer of Siga for whom information is given in the Summary Compensation Table, and (iv) all directors and
executive officers of Siga as a group.
Name and Address of Amount of Percentage
Beneficial Owner (1) Beneficial Ownership (2) of Total
-------------------- ------------------------ --------
Judson Cooper 1,144,117(3) 13.2%
Joshua D. Schein, Ph.D 1,141,017(3) 13.2%
Richard B. Stone 556,615 6.3%
135 East 57th Street
11th Floor
New York, NY 10022
Jeffrey Rubin (4) 65,000 *
Thomas Lanier 5,000 *
Eric Richman 0 *
Dennis Hruby 52,500 *
Thomas N. Konatich 97,500 1.3%
Panetta Partners, Ltd. (5) 574,700(6) 7.1%
265 E. 66th Street, Suite 16G
New York, NY 10021
Donald G. Drapkin (5) 784,504(7)(8) 9.99%
35 East 62nd Street
New York, NY 10021
Howard Gittis (5) 787,590(6)(7) 9.99%
35 East 62nd Street
New York, NY 10021
All Officers and Directors 2,505,134 25.1%
as a group (seven persons) (9)
34
* Less than 1% of the outstanding shares of common stock.
(1) Unless otherwise indicated the address of each beneficial owner identified is 420 Lexington Avenue, Suite 620, New York,
NY 10170.
(2) Unless otherwise indicated, each person has sole investment and voting power with respect to the shares indicated. For
purposes of this table, a person or group of persons is deemed to have "beneficial ownership" of any shares as of a given date
which such person has the right to acquire within 60 days after such date. For purposes of computing the percentage of
outstanding shares held by each person or group of persons named above on a given date, any security which such person or
persons has the right to acquire within 60 days after such date is deemed to be outstanding for the purpose of computing the
percentage ownership of such person or persons, but is not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person.
(3) Includes currently exercisable options to purchase 662,501 shares of common stock owned directly and 50% beneficial
ownership of 12,500 additional options held by Prism Ventures LLC, an entity jointly owned by Mr. Cooper and Dr. Schein.
(4) Includes currently vested and exercisable options to purchase 15,000 shares of common stock as well as currently vested
and exercisable warrants to puchase 50,000 shares of common stock by Stefan Capital, LLC. Mr. Rubin is a principal of
Stefan. An additional 50,000 vested warrants become exercisable in September 2001.
(5) Share ownership as reported in the most recently filed Schedule 13G.
(6) Includes 513,200 shares issuable upon exercise of warrants.
(7) Includes Shares issuable upon conversion of 6% convertible Debentures due January 31, 2002, plus accrued interest as of
January 31, 2001 and shares issuable upon exercise of a warrant.
(8) The debentures and warrants each provide that except in certain circumstances, they are not convertible or exercisable, as
the case may be, if as a result of such action, the number of shares of common stock beneficially owned by such person would
exceed 9.99% of the outstanding shares of common stock. If not for such 9.99% limitation, Mr. Drapkin could be deemed to
beneficially own 1,101,672 shares or 13.3% and Mr. Gittis could be deemed to beneficially own 823,089 shares or 10.3%.
(9) Includes an aggregate of 1,490,002 currently exercisable options to purchase shares of common stock.
35
Item 12. Certain Relationships and Related Transactions
Effective January 15, 1998, we entered into a consulting agreement with Prism Ventures LLC pursuant to which Prism has
agreed to provide certain business services to Siga, including business development, operations and other advisory services,
licensing, strategic alliances, merger and acquisition activity, financings and other corporate transactions. Pursuant to the terms
of the agreement, Prism receives an annual fee of $150,000 and 16,667 stock options per year. The agreement expired on
January 15, 2001, and was cancelable by Siga only for cause as defined in the agreement. Mr. Cooper and Dr. Schein are the
members of Prism. In October of 1998, Siga and Prism agreed to suspend the agreement for as long as the two principals are
employed by Siga under the provisions of their amended employment agreements. During 2000, Prism received no payments
pursuant to the agreement.
Effective September 9, 1999 we entered into a consulting agreement with Stefan Capital, LLC pursuant to which Stefan has
agreed to provide certain business services to Siga. Pursuant to the terms of the agreement, Stefan received five year warrants
to purchase 100,000 shares of our common stock at an exercise price of $1.00. As of December 31, 2000, 50,000 warrants
were exercisable, the remaining warrants are exercisable on September 9, 2001. Mr. Jeffrey Rubin, one of our directors, is a
principal of Stefan.
36
PART IV
Item 13. Exhibits, Material Agreements and Reports on Form 8-K
3(a) Restated Articles of Incorporation of the Company (Incorporated by reference to Form S-3 Registration Statement of the
Company dated May 10, 2000 (No. 333-36682)).
3(b) Bylaws of the Company (Incorporated by reference to Form SB-2 Registration Statement of the Company dated March
10, 1997 (No. 333-23037)).
4(a) Form of Common Stock Certificate (Incorporated by reference to Form SB-2 Registration Statement of the Company
dated March 10, 1997 (No. 333-23037)).
4(b) Amended 1996 Incentive and Non-Qualified Stock Option Plan (Incorporated by reference to Form S-8 Registration
Statement of the Company dated February 26, 2001 (No. 333-56216)).
4(c) Warrant Agreement dated as of September 15, 1996 between the Company and Vincent A. Fischetti (1) (Incorporated
by reference to Form SB-2 Registration Statement of the Company dated March 10, 1997 (No. 333-23037)).
4(d) Warrant Agreement dated as of November 18, 1996 between the Company and David de Weese (1) (Incorporated by
reference to Form SB-2 Registration Statement of the Company dated March 10, 1997 (No. 333-23037)).
4(e) Stock Purchase Agreement between the Company and MedImmune, Inc., dated as of February 10, 1998. (Incorporated
by reference to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1997).
4(f) Registration Rights Agreement between the Company and MedImmune, Inc., dated as of February 10, 1998.
(Incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1997).
10(a) License and Research Support Agreement between the Company and The Rockefeller University, dated as of January
31, 1996; and Amendment to License and Research Support Agreement between the Company and The Rockefeller
University, dated as of October 1, 1996(2) (Incorporated by reference to Form SB-2 Registration Statement of the Company
dated March 10, 1997 (No. 333-23037)).
10(b) Research Agreement between the Company and Emory University, dated as of January 31, 1996(2) (Incorporated by
reference to Form SB-2 Registration Statement of the Company dated March 10, 1997 (No. 333-23037)).
10(c) Research Support Agreement between the Company and Oregon State University, dated as of January 31, 1996(2)
(Incorporated by reference to Form SB-2 Registration Statement of the Company dated March 10, 1997 (No. 333-23037)).
Letter Agreement dated as of March 5, 1999 to continue the Research Support Agreement. (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1999).
37
10(d) Option Agreement between the Company and Oregon State University, dated as of November 30, 1999 and related
Amendments to the Agreement (Incorporated by reference to the Company's Annual Report on Form 10- KSB for the year
ended December 31, 1999).
10(e) Amended and Restated Employment Agreement between the Company and Dr. Joshua D. Schein, dated as of October
6, 2000
10(f) Amended and Restated Employment Agreement between the Company and Judson A. Cooper, dated as of October 6,
2000.
10(g) Employment Agreement between the Company and Dr. Kevin F. Jones, dated as of January 1, 1996 (Incorporated by
reference to Form SB-2 Registration Statement of the Company dated March 10, 1997 (No. 333-23037)).
10(h) Employment Agreement between the Company and David de Weese, dated as of November 18, 1996(1) (Incorporated
by reference to Form SB-2 Registration Statement of the Company dated March 10, 1997 (No. 333-23037)).
10(i) Consulting Agreement between the Company and CSO Ventures LLC, dated as of January 1, 1996 (Incorporated by
reference to Form SB-2 Registration Statement of the Company dated March 10, 1997 (No. 333-23037)).
10(j) Consulting Agreement between the Company and Dr. Vincent A. Fischetti, dated as of January 1, 1996 (Incorporated by
reference to Form SB-2 Registration Statement of the Company dated March 10, 1997 (No. 333-23037)).
10(k) Consulting Agreement between the Company and Dr. Dennis Hruby, dated as of January 1, 1996 (Incorporated by
reference to Form SB-2 Registration Statement of the Company dated March 10, 1997 (No. 333-23037)).
10(l) Letter Agreement between the Company and Dr. Vincent A. Fischetti, dated as of March 1, 1996 (Incorporated by
reference to Form SB-2 Registration Statement of the Company dated March 10, 1997 (No. 333-23037)).
10(m) Employment Agreement between the Company and Dr. Dennis Hruby, dated as of April 1, 1997 (Incorporated by
reference to Amendment No. 1 to Form SB-2 Registration Statement of the Company dated July 11, 1997 (No.
333-23037)).
10(n) Clinical Trials Agreement between the Company and National Institute of Allergy and Infectious Diseases, dated as of
July 1, 1997 (Incorporated by reference to Amendment No. 1 to Form SB-2 Registration Statement of the Company dated
July 11, 1997 (No. 333-23037)).
10(o) Research Agreement between the Company and The Research Foundation of State University of New York, dated as
of July 1, 1997(2) (Incorporated by reference to Amendment No. 1 to Form SB-2 Registration Statement of the Company
dated July 11, 1997 (No. 333-23037)).
10(p) Collaborative Research and License Agreement between the Company and American Home Products Corporation,
dated as of July 1, 1997(2) (Incorporated by reference to Amendment No. 3 to Form SB-2 Registration Statement of the
Company dated September 2, 1997 (No. 333-23037)).
38
10(q) Collaborative Evaluation Agreement between the Company and Chiron
Corporation, dated as of July 1, 1997 (Incorporated by reference
to Amendment No. 1 to Form SB-2 Registration Statement of the
Company dated July 11, 1997 (No. 333-23037)).
10(r) Consulting Agreement between the Company and Dr. Scott Hultgren,
dated as of July 9, 1997 (Incorporated by reference to Amendment
No. 1 to Form SB-2 Registration Statement of the Company dated
July 11, 1997 (No. 333-23037)).
10(s) Letter of Intent between the Company and MedImmune, Inc., dated
as of July 10, 1997 (Incorporated by reference to Amendment No. 1
to Form SB-2 Registration Statement of the Company dated July 11,
1997 (No. 333-23037)).
10(t) Research Collaboration and License Agreement between the Company
and The Washington University, dated as of February 6, 1998 (2).
(Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997).
10(u) Settlement Agreement and Mutual Release between the Company and
The Washington University, dated as of February 17, 2000
(Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999).
10(v) Technology Transfer Agreement between the Company and MedImmune,
Inc., dated as of February 10, 1998. (Incorporated by reference
to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997).
10(w) Employment Agreement between the Company and Dr. Dennis Hruby,
dated as of January 1, 1998. (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997). Amendment to the Agreement, dated as of
October 15, 1999 (Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the year ended December 31,
1999). Amendment to the Agreement dated as of June 12, 2000).
10(x) Employment Agreement between the Company and Dr. Walter
Flamenbaum, dated as of February 1, 1998. (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1997).
10(y) Employment Agreement between the Company and Thomas Konatich,
dated as of April 1, 1998. (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997). Extension and Amendment of the Agreement,
dated as of January 19, 2000 (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999). Amended and restated as of October 6, 2000.
10(z) Consulting Agreement between the Company and Prism Ventures LLC,
dated as of January 15, 1998. (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997).
10(aa) Small Business Innovation Research Grant to the Company by the
National Institutes for Health, dated June 21, 1999 (Incorporated
by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1999).
10(bb) Small Business Innovation Research Grant to the Company by the
National Institutes for Health, dated September 27, 1999
(Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999).
39
10(cc) Software Application Development Services Agreement between the
Company and Open-i Media, Inc., dated October 15, 1999
(Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999).
10(dd) Media Development Agreement Services Agreement between the
Company and Open-i Media, Inc., dated March 15, 2000
(Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999).
10(ee) Option Agreement between the Company and Ross Products Division
of Abbott Laboratories, dated February 28, 2000 (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1999).
10(ff) Consulting Agreement between the Company and Stefan Capital,
dated September 9, 1999 (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999).
10(gg) Warrant Agreement between the Company and Stefan Capital, dated
September 9, 1999 (Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the year ended December 31,
1999).
10(hh) Small Business Innovation Research Grant to the Company by the
National Institutes for Health, dated May 3, 2000.
10(ii) Small Business Innovation Research Grant to the Company by the
National Institutes for Health, dated August 1, 2000.
10(jj) Small Business Innovation Research Grant to the Company by the
National Institutes for Health, dated August 21, 2000.
10(kk) Stock Purchase Agreement between the Company and Open-i Media,
Inc. dated July 7, 2000.
10(ll) Agreement between the Company and Oregon State University for the
Company to provide contract research services to the University
dated September 24, 2000.
10(mm) Agreement between the Company and Maxygen, Inc. dated October 17,
2000.
10(nn) License and Research Agreements between the Company and the
Regents of the University of California dated December 6, 2000.
40
10(oo) Research Agreement between the Company and the University of
Maryland dated January 3, 2001)
99(a) Form of Agreement for Management Restructuring.
99(b) Form of Separation Agreement between the Company and Joshua D.
Schein.
99(c) Form of Separation Agreement between the Company and Judson A.
Cooper.
27 Financial Data Schedule
----------
(1) These agreements were entered into prior to the reverse split of the Company's Common Stock and, therefore, do not
reflect such reverse split.
(2) Confidential information is omitted and identified by a * and filed separately with the SEC pursuant to a request for
Confidential Treatment.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the fourth quarter of 2000.
41
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.
SIGA Technologies, Inc.
(Registrant)
Date: April 4, 2001 By: /s/ Joshua D. Schein, Ph.D.
-----------------------------------
Joshua D. Schein, Ph.D.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Signature Capacity Date
/s/ Joshua D. Schein, Ph.D.
----------------------------- Chief Executive Officer April 4, 2001
Joshua D. Schein, Ph.D. Secretary and Director
/s/ Judson A. Cooper
----------------------------- Chairman of the Board and April 4, 2001
Judson A. Cooper Executive Vice President
/s/ Thomas N. Konatich
----------------------------- Chief Financial Officer April 4, 2001
Thomas N. Konatich
/s/ Jeffrey Rubin
----------------------------- Director April 4, 2001
Jeffrey Rubin
/s/ Thomas Lanier
----------------------------- Director April 4, 2001
Thomas Lanier
/s/ Eric Richman
----------------------------- Director April 4, 2001
Eric Richman
42
SIGA Technologies, Inc.
(A development stage company)
Financial Statements
December 31, 2000 and 1999
SIGA Technologies, Inc.
(A development stage company)
Index to Financial Statements
--------------------------------------------------------------------------------
Report of Independent Accountants F-2
Balance Sheets as of December 31, 2000 and 1999 F-3
Statement of Operations for the years ended December 31, 2000 and
1999, and for the period from inception through December 31, 2000 F-4
Statement of Changes in Stockholders' Equity for the period
from inception through December 31, 2000 F-5
Statement of Cash Flows for the years ended December 31, 2000, and
1999, and for the period from inception through December 31, 2000 F-6
Notes to Financial Statements F-7
F-1
Report of Independent Accountants
To the Board of Directors and Stockholders of SIGA Technologies, Inc.
In our opinion, the accompanying balance sheets and related statements of operations, of cash flows and of changes in
stockholders' equity (deficit) present fairly, in all material respects, the financial position of SIGA Technologies, Inc. (a
development stage company) at December 31, 2000 and 1999, and the results of its operations and cash flows for the years
ended December 31, 2000 and 1999, and for the period from December 28, 1995 ("Inception") through December 31, 2000,
in conformity with accounting principles generally accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United
States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the Company has incurred losses from operations since its inception, has a net
stockholders' deficit and expects to incur additional losses to perform further research and development activities. These
circumstances raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
New York, New York
February 15, 2001, except as to note 14 which is as of March 30, 2001
F-2
SIGA Technologies, Inc.
(A development stage company)
Balance Sheet
December 31,
2000 1999
------------ ------------
Assets
Current Assets:
Cash and cash equivalents $ 1,707,385 $ 1,758,541
Accounts receivable 37,800 47,570
Prepaid expenses 5,644 38,279
------------ ------------
Total current assets 1,750,829 1,844,390
Equipment, net 1,027,702 1,366,362
Investment, net 275,106 --
Other assets 156,556 147,002
------------ ------------
Total assets $ 3,210,193 $ 3,357,754
============ ============
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable $ 209,278 $ 248,962
Accrued expenses 305,912 104,096
Capital lease obligations 391,407 280,092
Deferred Revenue 450,000 --
------------ ------------
Total current liabilities 1,356,597 633,150
6% Convertible Debt 719,561 --
Accrued Debenture Interest 80,281 --
Non current capital lease obligations 129,018 520,424
------------ ------------
Total liabilities 2,285,457 1,153,574
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock ($.0001 par value, 10,000,000
shares authorized, none issued and outstanding) -- --
Common stock ($.0001 par value, 50,000,000
shares authorized, 7,471,837 and 6,602,712
issued and outstanding at December 31,
2000 and December 31, 1999, respectively) 747 661
Additional paid-in capital 23,793,983 16,855,499
Deferred Compensation (428,425) --
Deficit accumulated during the development stage (22,441,569) (14,651,980)
------------ ------------
Total stockholders' equity 924,736 2,204,180
------------ ------------
Total liabilities and stockholders' equity $ 3,210,193 $ 3,357,754
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
SIGA Technologies, Inc.
(A development stage company)
Statement of Operations
For the Period
December 28,
1995 (Date of
Year Ended December 31, Inception) to
----------------------------- December 31,
2000 1999 2000
Revenues:
Research and Development Contracts $ 483,120 $ 519,561 $ 2,127,681
----------- ----------- ------------
Operating expenses:
General and administrative 4,851,100 2,284,790 12,264,156
Research and development (incuding amounts to related
parties of $75,000, $75,000 and $384,581 for the years
ended December 31, 2000 and 1999, and for the period
from the date of inception of December 31, 2000, respectively) 2,608,907 1,672,778 10,275,888
Patent preparation fees 106,647 193,567 1,237,491
Settlement of litigation -- 97,969 97,969
Stock option and warrant compensation -- -- 450,450
----------- ----------- ------------
Total operating expenses 7,566,654 4,249,104 24,325,954
----------- ----------- ------------
Operating loss (7,083,534) (3,729,543) (22,198,273)
Interest income/(expense) (550,464) 26,383 (154,365)
Loss on impairment of investment 155,591 -- 155,591
Other Income/Gain on sale of securities -- 66,660 66,660
----------- ----------- ------------
Net loss $(7,789,589) $(3,636,500) $(22,441,569)
=========== =========== ============
Basic and diluted loss per share $ (1.08) $ (0.55)
----------- ------------
Weighted average common shares outstanding
used for basic and diluted loss per share 7,202,856 6,579,424
=========== ============
Comprehensive loss:
Net loss $(7,789,589) $(3,636,500) $(22,441,569)
Unrealized gains (losses) on available for sale
securities -- 34,816 --
----------- ----------- ------------
Total comprehensive loss $(7,789,589) $(3,601,684) $(22,441,569)
=========== =========== ============
The accompanying notes are an integral part of these financial statements.
F-4
SIGA Technologies, Inc.
(A development stage company)
Statement of Changes in Stockholders' Equity (Deficit)
Additional
Common Paid-in Deferred
Shares Stock Capital Compensation
Issuance of common stock at inception 2,079,170 $ 208 $ 1,040
Net loss -- -- -- --
--------- ----- ----------- -----------
Balances at December 31, 1995 2,079,170 208 1,040 --
Net proceeds from issuance and sale of common stock ($1.50 per share) 1,038,008 104 1,551,333
Net proceeds from issuance and sale of common stock ($3.00 per share) 250,004 25 748,985
Receipt of stock subscriptions outstanding -- -- --
Issuance of compensatory options and warrants -- -- 367,461
Net loss -- -- -- --
--------- ----- ----------- -----------
Balances at December 31, 1996 3,367,182 337 2,668,819 --
Net proceeds from issuance and sale of common stock ($5.00 per share) 2,875,000 287 12,179,322
Issuance of warrants with bridge notes -- -- 133,000
Stock option and warrant compensation -- -- 68,582
Net loss -- -- -- --
--------- ----- ----------- -----------
Balance at December 31, 1997 6,242,182 624 15,049,723 --
Issuance of common stock to acquire third party's
right to certain technology ($4.34 per share) 335,530 34 1,457,424
Issuance of compensatory options and warrants -- -- 175,870
Stock option and warrant compensation -- -- 14,407
Unrealized losses on available for sale securities -- -- --
Net loss -- -- -- --
--------- ----- ----------- -----------
Balance at December 31, 1998 6,577,712 658 16,697,424 --
Issuance of common stock for software development ($1.25 per share) 25,000 3 31,247
Issuance of compensatory common stock, options and warrants 51,550
Stock option and warrant compensation 75,278
Unrealized gains on available for sale securities
Net loss
--------- ----- ----------- -----------
Balance at December 31, 1999 6,602,712 661 16,855,499 --
--------- ----- ----------- -----------
Deficit Unrealized
Accumulated Gains (Losses) Total
Stock During the on Available Stockholders'
Subscriptions Development for Sale of Equity
Outstanding Stage Securities (Deficit)
Issuance of common stock at inception $ (1,248) -- --
Net loss -- $ (1,000) -- $ (1,000)
-------- ------------ ------- -----------
Balances at December 31, 1995 (1,248) (1,000) -- (1,000)
Net proceeds from issuance and sale of common stock ($1.50 per share) -- -- -- 1,551,437
Net proceeds from issuance and sale of common stock ($3.00 per share) -- -- 749,010
Receipt of stock subscriptions outstanding 1,248 -- -- 1,248
Issuance of compensatory options and warrants -- -- -- 367,461
Net loss -- (2,268,176) -- (2,268,176)
-------- ------------ ------- -----------
Balances at December 31, 1996 -- (2,269,176) -- 399,980
Net proceeds from issuance and sale of common stock ($5.00 per share) 12,179,609
Issuance of warrants with bridge notes -- -- -- 133,000
Stock option and warrant compensation -- -- -- 68,582
Net loss -- (2,194,638) -- (2,194,638)
-------- ------------ ------- -----------
Balance at December 31, 1997 -- (4,463,814) -- 10,586,533
Issuance of common stock to acquire third party's
right to certain technology ($4.34 per share) 1,457,458
Issuance of compensatory options and warrants -- -- -- 175,870
Stock option and warrant compensation -- -- -- 14,407
Unrealized losses on available for sale securities -- -- (34,816) (34,816)
Net loss -- (6,551,666) -- (6,551,666)
-------- ------------ ------- -----------
Balance at December 31, 1998 -- (11,015,480) (34,816) 5,647,786
Issuance of common stock for software development ($1.25 per share) 31,250
Issuance of compensatory common stock, options and warrants 51,550
Stock option and warrant compensation 75,278
Unrealized gains on available for sale securities 34,816 34,816
Net loss (3,636,500) (3,636,500)
-------- ------------ ------- -----------
Balance at December 31, 1999 -- (14,651,980) -- 2,204,180
-------- ------------ ------- -----------
(Continued)
F-5
SIGA Technologies, Inc.
(A development stage company)
Statement of Changes in Stockholders' Equity (Deficit)
Additional
Common Paid-in Deferred
Shares Stock Capital Compensation
Net proceeds from exercising of stock options 19,875 $ 2 $ 52,772
Net proceeds from the issuance of common stock ($5.0 per share) 600,000 60 2,882,940
Issuance of common stock in connection with software development 102,721 10 500,334
Issuance of common shares in connection with acquisition of 12.5%
equity interest in a private company 40,336 4 179,996
Issuance of common shares upon conversion of debentures 90,193 9 49,246
Warrants granted in connection with the issuance of debentures 1,320,170
Issuance of compensatory options and warrants to non-employees 1,218,145 $(1,218,145)
Issuance of compensatory options to employees 278,750 (278,750)
Stock options and warrants compensation related to services received from
non-employees 185,876
Amortization of deferred compensation 1,068,470
Issuance of shares in exchange for services 16,000 1 (1)
Amendment of warrants issued to a non-employee for services 270,256
Net loss
--------- ----- ----------- -----------
Balance at December 31, 2000 7,471,837 $ 747 $23,793,983 $ (428,425)
========= ===== =========== ===========
Deficit Unrealized
Accumulated Gains (Losses) Total
Stock During the on Available Stockholders'
Subscriptions Development for Sale of Equity
Outstanding Stage Securities (Deficit)
Net proceeds from exercising of stock options $ 52,774
Net proceeds from the issuance of common stock ($5.0 per share) 2,883,000
Issuance of common stock in connection with software development 500,344
Issuance of common shares in connection with acquisition of 12.5% --
equity interest in a private company 180,000
Issuance of common shares upon conversion of debentures 49,255
Warrants granted in connection with the issuance of debentures 1,320,170
Issuance of compensatory options and warrants to non-employees --
Issuance of compensatory options to employees --
Stock options and warrants compensation related to services received from
non-employees 185,876
Amortization of deferred compensation 1,068,470
Issuance of shares in exchange for services --
Amendment of warrants issued to a non-employee for services 270,256
Net loss $ (7,789,589) (7,789,589)
-------- ------------ ------- -----------
Balance at December 31, 2000 $ -- $(22,441,569) $ -- $ 924,736
======== ============ ======= ===========
The accompanying notes are an integral part of these financial statements.
F-6
SIGA Technologies, Inc.
(A development stage company)
Statement of Cash Flows
For the Period
December 28,
Year Ended 1995 (Date of
----------------------------- Inception) to
December 31, December 31, December 31,
2000 1999 2000
------------ ------------ ------------
Cash flows from operating activities:
Net loss $ (7,789,589) $ (3,636,500) $(22,441,569)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 356,089 366,816 950,886
Stock, options & warrant compensation 1,524,602 158,078 2,309,000
Loss on impairment of investment 155,591 -- 155,591
Loss on write-off of capital equipment -- 97,969 97,969
Amortization of debt discount 589,312 -- 722,312
Write-off of in-process research and development -- -- 1,457,458
Realized gain on sale of marketable securities (66,660) (66,660)
Non-cash research and development 500,344 -- 500,344
Changes in assets and liabilities:
Accounts receivable 9,770 (47,570) (37,800)
Prepaid expenses and other current assets 32,635 96,690 (5,644)
Other assets (9,554) -- (156,556)
Accounts payable and accrued expenses 162,132 (56,677) 515,190
Deferred Revenue 450,000 -- 450,000
Accrued Interest 80,281 -- 80,281
------------ ------------ ------------
Net cash used in operating activities (3,938,387) (3,087,854) (15,469,198)
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures (98,126) (134,743) (2,157,254)
Sale (purchase) of investment securities 233,696 66,660
Investment in Open-I-Media (170,000) (170,000)
------------ ------------ ------------
Net cash flow used in investing activities (268,126) 98,953 (2,260,594)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 2,883,000 -- 17,363,056
Receipts of stock subscriptions outstanding -- -- 1,248
Gross proceeds from sale of convertible debentures 1,500,000 -- 1,500,000
Proceeds from exercise of stock options 52,774 -- 52,774
Net proceeds from sale of warrants 52,174 -- 52,174
Convertible debentures and warrants issuance costs (52,500) -- (52,500)
Proceeds from bridge notes -- -- 1,000,000
Repayment of bridge notes -- -- (1,000,000)
Proceeds from sale and leaseback of equipment -- -- 1,139,085
Principal payments on capital lease obligations (280,091) (219,431) (618,660)
------------ ------------ ------------
Net cash provided from financing activities 4,155,357 (219,431) 19,437,177
------------ ------------ ------------
Net increase in cash and cash equivalents (51,156) (3,208,332) 1,707,385
Cash and cash equivalents at beginning of period 1,758,541 4,966,873 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 1,707,385 $ 1,758,541 $ 1,707,385
============ ============ ============
Supplemental disclosure of non-cash investing and financing activities:
Fixed assets exchanged in acquisition $ 80,697 -- $ 80,697
============ ============ ============
Fair value of common shares exchanged in acquisition $ 180,000 -- $ 180,000
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-7
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements
December 31, 2000 and 1999
1. Organization and Basis of Presentation
Organization
SIGA Technologies, Inc. ("SIGA" or the "Company") was incorporated in the State of Delaware on December 28, 1995
("Inception") as SIGA Pharmaceuticals, Inc. The Company is engaged in the discovery, development and commercialization of
vaccines, antibiotics, and novel anti-infectives for the prevention and treatment of infectious diseases. The Company's
technologies are licensed from third parties. In 1998 the Company opened its research facility in the State of Oregon, reducing
the Company's dependency on third parties to conduct research on its behalf. In January 2000, the shareholders of the
Company changed its name to SIGA Technologies, Inc.
Basis of presentation
The Company's activities since inception have consisted primarily of sponsoring and performing research and development,
performing business and financial planning, preparing and filing patent applications and raising capital. Accordingly, the
Company is considered to be a development stage company.
The accompanying financial statements have been prepared on a basis which assumes that the Company will continue as a
going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal
course of business. Since inception the Company has limited resources, has incurred cumulative net operating losses of
$22,198,273 and expects to incur additional losses to perform further research and development activities. The Company does
not have commercial biomedical products, and does not expect to have such for several years, if at all. The Company believes
that it will need additional funds to complete the development of its biomedical products. These circumstances raise substantial
doubt about the Company's ability to continue as a going concern. Management's plans with regard to these matters include
continued development of its products as well as seeking additional research support funds and financial arrangements.
Although, management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining
sufficient financing on terms acceptable to the Company. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
2. Summary of Significant Accounting Policies
Cash and cash equivalents
Cash and cash equivalents consist of short term, highly liquid investments, with original maturities of less than three months when
purchased and are stated at cost. Interest is accrued as earned.
Investments
The Company accounts for investments under the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). The Company classified its investments in
marketable securities as available for sale and reports them at fair market value, with the unrealized holding gains and losses, net
of tax effect, reported as a separate component of stockholders' equity. Any gains or losses from the sale of these securities
were recognized using the specific identification method. At December 31, 2000 and 1999, the Company did not have
investments in marketable securities.
F-8
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements
December 31, 2000 and 1999
Equipment
Equipment is stated at cost. Depreciation is provided on the straight-line method over the estimated useful lives of the
respective assets, which are as follows:
Laboratory equipment 5 years
Leasehold improvements Life of lease
Computer equipment 3 years
Furniture and fixtures 7 years
Revenue recognition
Effective January 1, 2000, the Company adopted the guidance provided by Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements ("SAB 101"). Under the provisions of SAB 101 the Company recognizes revenue from
government research grants, contract research and development and progress payments as services are performed, provided a
contractual arrangement exists, the contract price is fixed or determinable, and the collection of the resulting receivable is
probable. In situations where the Company receives payment in advance of the performance of services, such amounts are
deferred and recognized as revenue as the related services are performed. Non-refundable fees are recognized as revenue over
the term of the arrangement or based on the percentage of costs incurs to date, estimated costs to complete and total expected
contract revenue.
Research and development
Research and development costs are expensed as incurred and include costs of third parties who conduct research and
development, pursuant to development and consulting agreements, on behalf of the Company. Costs related to the acquisition
of technology rights, for which development work is still in process, and that have no alternative future uses, are expensed as
incurred and considered a component of research and development costs.
Income taxes
Income taxes are accounted for under the asset and liability method prescribed by Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Deferred income taxes are recorded for temporary differences between
financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax
rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided
if it is more likely than not that some or all of the deferred tax asset will not be realized.
Net loss per common share
Effective December 31, 1997 the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128") which requires presentation of basic earnings per share ("Basic EPS") and diluted earnings per share
("Diluted EPS") by all entities that have publicly traded common stock or potential common stock (options, warrants,
convertible securities or contingent stock arrangements). Basic EPS is computed by dividing income (loss) available to common
stockholders by the weighted-average number of common shares outstanding during the period. Diluted EPS gives effect to all
dilutive potential common shares outstanding during the period. The computation of Diluted EPS does not assume
F-9
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements
December 31, 2000 and 1999
conversion, exercise or contingent exercise of securities that would have an antidilutive effect on earnings.
At December 31, 2000 and 1999, outstanding options to purchase 2,167,061 and 1,130,561 shares of common stock,
respectively, with exercise prices ranging from $1.0 to $5.5 have been excluded from the computation of diluted loss per share
as they are antidilutive. Outstanding warrants to purchase 3,694,202 and 896,724 shares of common stock, at December 31,
2000 and 1999, respectively, with exercise prices ranging from $1.00 to $9.50 were also antidilutive and excluded from the
computation of diluted loss per share.
Accounting estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual
results could differ from those estimates. Significant estimates include the value of options and warrants granted by the
Company and the value of the investment in Open-i Media.
Fair value of financial instruments
The carrying value of cash and cash equivalents, and accounts payable and accrued expenses approximates fair value due to
the relatively short maturity of these instruments.
Concentration of credit risk
The Company has cash in bank accounts that exceed the FDIC insured limits. The Company has not experienced any losses on
its cash accounts. No allowance has been provided for potential credit losses because management believes that any such
losses would be minimal.
Accounting for stock based compensation
The Company has adopted Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). As provided for by SFAS 123, the Company has elected to continue to account for its
stock-based compensation programs according to the provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." Accordingly, compensation expense has been recognized to the extent of employee or
director services rendered based on the intrinsic value of compensatory options or shares granted under the plans. The
Company has adopted the disclosure provisions required by SFAS 123.
F-10
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements
December 31, 2000 and 1999
3. Equipment
Equipment consisted of the following at December 31, 2000 and 1999
Laboratory equipment $ 862,005 $ 785,888
Leasehold improvements 618,315 618,315
Computer equipment 153,360 225,803
Furniture and fixtures 291,637 291,637
----------- -----------
1,925,317 1,921,643
Less - Accumulated depreciation (897,615) (555,281)
----------- -----------
Equipment, net $ 1,027,702 $ 1,366,362
=========== ===========
Depreciation expense for the years ended December 31, 2000 and December 31, 1999 was $356,089 and $366,816,
respectively.
At December 31, 2000 and 1999, laboratory equipment, computer equipment and furniture included approximately $730,500,
$117,000 and $291,600, respectively, of equipment acquired under capital leases. Accumulated depreciation related to such
equipment approximated $392,200, $105,000 and $107,514 respectively, at December 31, 2000, and $246,100, $66,000
and $65,857 respectively, at December 31, 1999.
4. Stockholders' Equity
In September and October 1997, The Company completed an initial public offering of 2,875,000 shares of its common stock
at an offering price of $5.00 per share. The Company realized gross proceeds of $14,375,000 and net proceeds, after
deducting underwriting discounts and commissions, and other offering expenses payable by the Company, of $12,179,609.
In January 2000 the shareholders of the Company approved an increase in the number of authorized shares from 35,000,000
to 60,000,000, of which 50,000,000 are designated common shares, and 10,000,000 are designated preferred shares. The
Company's Board of Directors (the "Board") is authorized to issue preferred shares, in series, with rights, privileges and
qualifications of each series determined by the Board.
In January 2000 the Company completed a private placement of 6% convertible debentures at an aggregate principal amount
of $1,500,000 and 1,043,478 warrants to purchase shares of the Company's common stock with a purchase price of $0.05
per warrant (the "January Financing"). The Company received net proceeds of $1,499,674 from the total $1,552,174 gross
proceeds raised. The debentures are convertible into common stock at $1.4375 per share. Interest at the rate of 6% per
annum is payable on the principal of each convertible debenture in cash or shares of the Company's common stock, at the
discretion of the Company upon conversion or at maturity. The warrants have a term of five years and are exercisable at
$3.4059 per share.
The Company has the right to require the holder to exercise the warrants within five days under the following circumstances: (i)
a registration statement is effective; and (ii) the closing bid price
F-11
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements
December 31, 2000 and 1999
for the Company's common stock, for each of any 15 consecutive trading days is at least 200% of the exercise price of such
warrants. If the holder does not exercise the warrants after notice is given, the unexercised warrants will expire. The warrants
are exercisable for a period of five years.
In connection with the placement of the debentures and warrants, the Company recorded debt discount of approximately $1.0
million. Such amount represents the value of the warrants calculated using the Black-Scholes valuation model. The discount is
amortized over the term of the debentures. During the year ended December 31, 2000, the Company recorded interest
expense of $589,312 related to the amortization of such debt discount. In August and December 2000, debentures with a
principal amount of $100,000 and $25,000, respectively, along with accrued interest, were converted into 71,901 and 18,292
shares of the Company's common stock, respectively.
In connection with the January Financing, the Company issued warrants to purchase a total of 275,000 shares of common
stock to the placement agent and the investors' counsel (or their respective designees). These warrants have a term of five years
and are exercisable at $1.45 per share. In connection with the issuance of such warrants, the Company recorded a deferred
charge of $280,653, which is amortized over the term of the debentures.
In March 2000 the Company entered into an agreement to sell 600,000 shares of the Company's common stock and 450,000
warrants to acquire shares of the Company's common stock (the "March Financing") for gross proceeds of $3,000,000. Of the
warrants issued, 210,000, 120,000 and 120,000 are exercisable at $5.00, $6.38 and $6.90, respectively. The warrants have a
term of three years and are redeemable at $0.01 each by the Company upon meeting certain conditions. Offering expenses of
$117,000 were paid in April 2000. At December 31, 2000, all 450,000 warrants were outstanding.
In connection with the March Financing, Siga issued a total of 379,000 warrants to purchase shares of the Company's common
stock to Fahnestock & Co. (the"Fahnestock Warrants") in consideration for services related to the March Financing. The
warrants had an exercise price of $5.00 per share and are exercisable at any time until March 28, 2005. In November 2000,
the Company entered into a one year consulting agreement with Fahnestock and Co. under which the Company will receive
marketing, public relations acquisitions and strategic planning service. In exchange for such services, the Company canceled the
Fahnestock Warrants and reissued them to effectuate an amendment to the exercise price to $2.00 per share. In connection
with such amendment, the Company recorded a charge of approximately $270,000 in the year ended December 31, 2000.
Stock option plan and warrants
In January 1996, the Company implemented its 1996 Incentive and Non-Qualified Stock Option Plan (the "Plan"). The Plan as
amended provided for the granting of up to 1,500,000 shares of the Company's common stock to employees, consultants and
outside directors of the Company. In November 2000, the shareholders of the Company approved an increase in the number
of options to purchase common shares available for grant under the plan to 2,500,000. The exercise period for options granted
under the Plan, except those granted to outside directors, is determined by a committee of the Board of Directors. Stock
options granted to outside directors pursuant to the Plan must have an exercise price equal to or in excess of the fair market
value of
F-12
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements
December 31, 2000 and 1999
the Company's common stock at the date of grant and become exercisable over a period of three years with a third of the grant
being exercisable at the completion of each year of service subsequent to the grant. The fair market value of the Company's
common stock before its initial public offering in September 1997, was determined by a committee of the Board of Directors.
The committee was comprised entirely of employees who receive stock options under the Plan.
Transactions under the Plan are summarized as follows:
Weighted
Average
Number of Exercise
Shares Price
---------- ----------
Outstanding at December 31, 1998 540,561 $ 3.88
Granted 612,500 1.12
Forfeited (22,500) 1.37
---------- ----------
Outstanding at December 31, 1999 1,130,561 2.42
Granted 1,144,000 2.00
Forfeited (107,500) 1.19
---------- ----------
Total outstanding at December 31, 2000 2,167,061 $ 2.26
========== ==========
Options available for future grant at December 31, 2000 332,939
Weighted average fair value of options granted during 1999 $ 0.87
Weighted average fair value of options granted during 2000 $ 1.85
F-13
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements
December 31, 2000 and 1999
The following table summarizes information about options outstanding under the plan at December 31, 2000:
Weighted Number
Number Average Weighted Exercisable Weighted
Outstanding Remaining Average at Average
December 31, Contractual Exercise December 31, Exercise
2000 Life (Years) Price 2000 Price
$1.00 15,000 9.22 1.00 -- 0.00
1.13 500,000 8.83 1.13 375,000 1.13
1.50 33,334 5.00 1.50 33,334 1.50
2.00 - 2.50 1,232,500 7.46 2.02 1,093,500 1.78
4.00 - 7.50 386,227 3.56 4.72 296,227 4.12
--------- ---------
2,167,061 1,798,061
========= =========
On December 31, 2000, there were a total of 3,694,202 warrants outstanding.
In August 2000 the Company entered into an agreement with a consultant to provide the Company with financial consulting,
planning, structuring, business strategy, and public relations services and raising equity capital. The term of the agreement is for
a period of fifteen months with a guarantee of a six-month retention from August 1, 2000, through February 1, 2001. The
consultant was paid a fee of $40,000 upon signing of the agreement, and will be paid an additional $40,000 every two months
for the term of the agreement unless terminated by the Company at the end of the initial six month period. Under the provisions
of the agreement, the consultant received warrants to purchase 500,000 shares of the Company's common stock. 200,000
warrants with an exercise price of $3.63 per share vested upon the date of the agreement. Of the remaining 300,000 warrants,
100,000 warrants will vest on May 1, 2001 with an exercise price of $6.50 per share, 100,000 vest on August 1, 2001 with
an exercise price of $7.50 per share and 100,000 vest on October 1, 2001 with an exercise price of $9.50 per share. The
warrants will become exercisable over a period of five years. Unvested warrants will terminate in the event the agreement is
terminated. During the year ended December 31, 2000, the Company recorded a non-cash charge associated with such
warrants in the amount of $645,786.
In July 2000 the Company entered into an agreement with a consultant to serve as the Company's public relations agent. The
consultant is paid a monthly retainer of $6,000 and received options to purchase 75,000 shares of the Company's common
stock: 25,000 are exercisable at $5.75 per share, 25,000 at $6.50 per share and 25,000 at $7.50 per share. After an initial
four-month term, the Company may terminate the agreement on thirty days notice. During the year ended December 31, 2000,
the Company recorded a non-cash charge associated with such options in the amount of $160,314.
In January 2000 the Company entered into a one year consulting agreement with a member of its Board of Directors. In
exchange for the consulting services, the Company granted the member of
F-14
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements
December 31, 2000 and 1999
the Board warrants to purchase 50,000 shares of common stock at an exercise price of $1.00. The warrants vested
immediately and will become exercisable on January 19, 2001. During the year ended December 31, 2000, the Company
recorded a non-cash charge associated with such warrants in the amount of $134,598.
In November 1999, 16,000 shares of the Company's common stock were granted in exchange for professional services. The
Company recognized non-cash compensation expense of $21,500 for the year ended December 31, 1999 based upon the fair
value of the stock on the date of grant. The Company issued the shares in 2000.
In September 1999 the Company entered into a consulting agreement with one of its directors under which the director will
provide the Company with business valuation services in exchange for warrants to purchase 100,000 shares of the Company's
common stock, at an exercise price of $1.00 per share. Of these warrants, 50,000 were exercisable on the date of grant and
the remaining 50,000 on the first anniversary of the consulting agreement. The warrants must be exercised on or prior to
September 9, 2004. The Company recognized non-cash compensation expense of $108,202 and $46,848 for the years ended
December 31, 2000 and 1999, respectively, based upon the fair value of such warrants.
In June 1998 the Company granted a consultant options to purchase 150,000 shares of the Company's common stock at an
exercise price of $5.00 per share. 50,000 options vested immediately, and the remaining 100,000 vest pro rata over a period
of ten quarters. The options have a term of five years. The Company recognized non-cash compensation expense of $41,424
and $58,480 for the years ended December 31, 2000 and 1999, respectively, based upon the fair value of the options on the
date of the grant.
In May 1998, the Company granted a consultant options to purchase 5,000 shares of the Company's common stock, at an
exercise price of $4.25. The Company recognized non-cash compensation expense of $15,655 for the year ended December
31, 1998 based upon the fair value of such options on the date of the grant.
In January 1998 the Company issued warrants to a third party to purchase 16,216 shares of the Company's common stock, at
an exercise price of $4.60 per share. The Company recognized non-cash compensation expense of $57,875 for the year
ended December 31, 1998 based upon the fair value of such warrants on the date the grant.
In September 1997, in connection with the Company's IPO, the Company issued the underwriters warrants to purchase
225,000 shares of common stock at an exercise price of $8.25 per share. All the warrants, which have a term of five years, are
exercisable at December 31, 1999.
In November 1996, the Company entered into an employment agreement with its former President and Chief Executive
Officer. Under the terms of the agreement, the employee received warrants to purchase 461,016 shares of common stock at
$3.00 per share (see Note 6). These warrants expire on November 18, 2006. Upon termination of the employment agreement
on April 21, 1998, 230,508 warrants were surrendered to the Company. 230,508 of the warrants are still outstanding at
December 31, 2000.
F-15
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements
December 31, 2000 and 1999
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for warrants issued to employees and stock options granted under the Plan. During the year ended
December 31, 1999 compensation expense of $14,407 was recognized for warrants issued to employees. Compensation
expense was calculated based upon the difference between the exercise price of the warrant or option and the fair market value
of the Company's common stock on the date of grant. Had compensation cost for warrants issued and stock options granted
been determined based upon the fair value at the grant date for awards, consistent with the methodology prescribed under
SFAS 123, the Company's net loss and loss per share would have been increased by approximately $1,922,000, or $0.27 per
share for the year ended December 31, 2000, and approximately $199,000, or $0.03 per share for the year ended December
31, 1999.
The fair value of the options and warrants granted to employees and consultants during 2000 and 1999 ranged from $1.55 to
$4.71 on the date of the respective grant using the Black-Scholes option-pricing model. The following weighted-average
assumptions were used for 2000: no dividend yield, expected volatility of 100%, risk free interest rates of
5.94%-6.3%, and an expected term of 3 to 5 years. The following weighted-average assumptions were used for 1999: no
dividend yield, expected volatility of 100%, risk free interest rates of 5.78%-5.83%, and an expected term of 5 years.
5. Income Taxes
The Company has incurred losses since inception which have generated net operating loss carryforwards of approximately
$13,866,000 and $7,640,030, respectively, at December 31, 2000 and 1999 for federal and state income tax purposes.
These carryforwards are available to offset future taxable income and begin expiring in 2010 for federal income tax purposes.
As a result of a previous change in stock ownership, the annual utilization of the net operating loss carryforwards is subject to
limitation.
The net operating loss carryforwards and temporary differences, arising primarily from deferred research and development
expenses result in a noncurrent deferred tax asset at December 31, 2000 and December 31, 1999 of approximately
$8,888,000 and $5,631,000, respectively. In consideration of the Company's accumulated losses and the uncertainty of its
ability to utilize this deferred tax asset in the future, the Company has recorded a valuation allowance of an equal amount on
such date to fully offset the deferred tax asset.
For the years ended December 31, 2000 and December 31, 1999, the Company's effective tax rate differs from the federal
statutory rate principally due to net operating losses and other temporary differences for which no benefit was recorded, state
taxes and other permanent differences.
6. Related Parties
Consulting agreements
In 1998 the Company entered into a two year consulting agreement, expiring January 15, 2000, with Prism Ventures LLC
("Prism") under which Prism was to provide the Company business development, operations and other advisory services.
Pursuant to the agreement Prism was to
F-16
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements
December 31, 2000 and 1999
receive an annual consulting fee of $150,000 and an annual stock option grant to purchase 16,667 of the Company's common
shares. The Chief Executive Officer and Chairman of the Company are principals of Prism. In October 1998 the Company and
Prism agreed to suspend the agreement for as long as the two principals are employed by the Company under the provisions of
their amended employment agreements. During the year ended December 31, 1998, the Company incurred expense of
$112,500 pursuant to the agreement.
In connection with the development of its licensed technologies the Company entered into a consulting agreement with the
scientist who developed such technologies, under which the consultant serves as the Company's Chief Scientific Advisor. The
scientist, who is a stockholder, shall be paid an annual consulting fee of $75,000. The agreement, which commenced in January
1996 and is only cancelable by the Company for cause, as defined in the agreement, had an initial term of two years and
provided for automatic renewals of three additional one year periods unless either party notifies the other of its intention not to
renew. Research and development expense incurred under the agreement amounted to $75,000 and $75,000 for the years
ended December 31, 2000 and 1999, respectively.
Employment agreements
In September 1998 the Company and its Chief Executive Officer and Chairman ("EVPs") entered into employment agreements
commencing October 1, 1998 and expiring on December 31, 2000. Under the agreements, the EVPs were each to be paid an
annual minimum compensation of $225,000, and to be granted a minimum of 16,666 options to purchase shares of the
Company's common stock per annum. In addition, one EVP was appointed as the Company's Chairman and the other was
appointed as the Chief Executive Officer. The Company incurred $450,000 of expense for the year ended December 31, 1999
pursuant to these agreements.
In November 1999, the EVPs were each granted non-qualified stock options to purchase 150,000 shares under the
Company's 1996 Incentive and Non-Qualified Stock Option Plan, at an exercise price of $1.30, to expire in ten years. 37,500
options vested immediately. 75,000 will vest in November 2000, and the remaining 37,500 will vest in November 2001.
In January 2000, the Company entered into new employment agreements with its EVPs, expiring in January 2005. The new
agreements provide for an annual salary of $250,000, with annual increases of at least 5%. In addition, both of the EVPs were
granted fully-vested options to purchase 500,000 shares of the Corporations' common stock at $2.00 per share. Under the
provisions of the agreements the EVPs would each receive a cash payment equal to 1.5% of the total consideration received by
the Company in a transaction resulting in a greater than 50% change in ownership of the outstanding common stock of the
Company.
In January 2000, the Company and its Chief Financial Officer ("CFO") entered into an amendment to the CFO's employment
agreement, extending his employment until April 2002. Under this amendment, the CFO received options to purchase100,000
shares of the Company's common stock at $2.00 per share. The options vest ratably over two years and expire in January
2010.
F-17
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements
December 31, 2000 and 1999
In October 2000, the Company entered into an amended and restated employment agreements with its Chief Executive
Officer, its Chairman and its CFO. Under the amended agreements, in the event of a change in control, the EVPs and the CFO
will be paid their respective compensation for the remainder of their employment terms and will receive a tax gross-up payment.
In addition, in such event, all unvested options held by the EVPs and the CFO will become vested and exercisable. In the event
of a merger or consolidation where the holders of the voting capital stock of the Company immediately prior to the transaction
own less than a majority of the voting capital stock of the surviving entity, the EVPs will each receive a one time cash payment
of 1.5% of the total consideration received by the Company and a tax gross-up payment. In the event of a sale, merger or
public spin-out of any subsidiary or material asset of the Company, the EVPs shall each receive a fee equal to 1.5% of the
value of the Company's shares of the subsidiary or material asset and a tax gross-up payment.
In May 2000, the Company and its Vice President for Research entered into an amendment of the Vice Presidents employment
agreement, extending his employment until December 31, 2002, except that the Company may terminate the agreement upon
180 days written notice. Under the amendment the employee's title was changed to Chief Scientific Officer ("CSO"). The CSO
was granted options to purchase 125,000 shares of the Company's common stock at $2.00 per share. The options vest ratably
over the remaining term of the amendment. During the year ended December 31, 2000, the company recorded non-cash
compensation charge of $130,999 related to these options.
In November 1999, the Company entered into two year employment agreements with three newly-hired Vice Presidents
("VPs"), of Business Development, Investor Relations, and Marketing, at annual salaries of $95,000, $100,000, and
$120,000, respectively. Each VP was also granted options to purchase 100,000 shares of the Company's common stock at an
exercise price of $1.125 per share, to vest ratably over two years. As of December 31, 2000, two of the VPs were no longer
with the Company, 100,000 unvested options at December 31, 2000 were forfeited by the Company.
7. Technology Purchase Agreement
In February 1998, the Company entered into an agreement with a third party pursuant to which the Company acquired the
third party's right to certain technology, intellectual property and related rights in the field of gram negative antibiotics in
exchange for 335,530 shares of the Company's common stock. Research and development expense related to this agreement
amounted to $1,457,458 for the year ended December 31, 1998.
F-18
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements
December 31, 2000 and 1999
8. Collaborative Research and License Agreement
In July 1997, the Company entered into a collaborative research and license agreement with Wyeth-Ayerst (the
"Collaborator"). Under the terms of the agreement, the Company has granted the collaborator an exclusive worldwide license
to develop, make, use and sell products derived from specified technologies. The agreement required the collaborator to
sponsor further research by the Company for the development of the licensed technologies for a period of two years from the
effective date of the agreement, in return for payments totaling $1,200,000. In consideration of the license grant the Company is
entitled to receive royalties equal to specified percentages of net sales of products incorporating the licensed technologies. The
royalty percentages increase as certain cumulative and annual net sales amounts are attained. The Company could receive
milestone payments, under the terms of the agreement of up to $13,750,000 for the initial product and $3,250,000 for the
second product developed from a single compound derived from the licensed technologies. Such milestone payments are
contingent upon the Company making project milestones set forth in the agreement, and, accordingly, if the Company is unable
to make such milestones, the Company will not receive such milestone payments. During 1999, the Company recognized
$337,500 in revenue related to this agreement. In 2000, the Company received $450,000 from the Collaborator. The
Company recorded the entire amount as deferred revenue on December 31, 2000.
9. License and Research Support Agreements
On December 6, 2000 the company entered into an exclusive license agreement and a sponsored research agreement with the
Regents of the University of California (the "Regents"). Under the license agreement Siga obtained rights for the exclusive
commercial development, use and sale of products related to certain inventions in exchange for a non-refundable license
issuance fee of $15,000 and an annual maintenance fee of $10,000. In the event that the Company sub-leases the license, it
shall pay Regents 15% of all royalty payments made to Siga. Under the agreement, Siga will also pay Regents 15% of all funds
received from Wyeth-Ayesrt and a minimum annual amount of $250,000 for the continued development of the inventions for a
period of three years. Under the sponsored research agreement Siga will additionally provide the Regents with funding in the
total amount of $300,000 over a period of two years to support certain research. The Company recorded total research and
development charges in the amount of $52,500 for the year ended December 31, 2000, related to the two agreements.
In October 2000, the Company entered into a collaborative agreement with Maxygen, Inc. to develop a vaccine for biological
defense applications. The collaboration combines Siga's patented vaccine delivery system with Maxygen's proprietary antigens
for generating an immune response.
In December 2000 Siga entered into a collaborative agreement with Fort Dodge Animal Health, a division of America Home
Products Corporation. The collaboration is focused on the design of novel vaccines for the prevention of veterinary diseases.
The research collaboration combines Siga's bacterial commensal delivery technology with Fort Dodge's proprietary veterinary
antigens. Siga will be responsible for the construction and characterization of candidate vaccines while Fort Dodge will assess
the immunogenicity and protective capacity of the target animal species.
F-19
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements
December 31, 2000 and 1999
In February 2001, the Company entered into a subcontract agreement with the Oregon State University. Under the agreement,
the Oregon State University subcontracted to Siga certain duties it has under a grant received from the national Institute of
Health for the development of Proxvirus Proteinase Inhibitors. The term of the agreement ends on August 31, 2001.
In March 2000 the Company entered into an agreement with the Ross Products Division of Abbott Laboratories (Ross), under
which the Company granted Ross an exclusive option to negotiate an exclusive license to certain Company technology and
patents, in addition to certain research development services. In exchange for the research services and the option, Ross is
obligated to pay the Company $120,000 in three installments of $40,000. The first payment of $40,000 was received during
the quarter ended March 31, 2000 and is recognized ratably, over the expected term of the arrangement. The remaining
installments are contingent upon meeting certain milestones under the agreement and will be recognized as revenue upon
completion and acceptance of such milestones. The first milestone was met, and payment of $40,000 received, in the quarter
ended September 30, 2000. In the year ended December 31, 2000, the Company recognized revenue in the amount of
$80,000.
In May, August and September 2000 the Company was awarded three Phase I Small Business Innovation Research (SBIR)
grants from the National Institutes for Health in the amounts of $26,000, $96,000 and $125,000 respectively. The grants are
for the periods May 3, 2000 to August 31, 2000, August 1, 2000 to January31, 2001, and September 15, 2000 to March 14,
2001 respectively, and will support the Company's antibiotic and vaccine development programs.
In February of 1998, the Company entered into a research collaboration and license agreement with Washington University
(the "University"). Under the terms of the agreement, the Company was granted an exclusive world-wide license to make, use
and sell products derived from the licensed technology, in exchange for royalty payments equal to a certain percentage of net
sales of products incorporating the licensed technology, and certain milestone payments. In 1999, a dispute arose between the
Company, the University and a consultant of the University regarding, among other things, the performance of the parties under
the agreements. In February of 2000 the parties reached a settlement agreement and mutual release of their obligations under
the research collaboration and licensing agreement entered into in February 1998. Further, all personal consulting agreements
between the Company and Washington University faculty members and employees were terminated. Under the terms of the
settlement agreement any payments owed by the Company under the research collaboration agreements and any consulting
agreements with the University faculty members were cancelled.
In July and September, 1999 the Company was awarded two Phase I research grants by the Small Business Innovation
Research Program (SBIR) of $109,072 and $293,446 respectively. The first grant was to help support the Company's
antibiotic discovery efforts for the period July 1, 1999 through December 31, 1999. The second grant provides support for the
Company's effort to develop a vaccine targeting strep throat, in collaboration with the National Institutes of Health (NIH). The
grant award is for a period of twelve months beginning on October 1, 1999. As of December 31, 2000 the Company had
recognized revenue from the two grants of $220,099 and $109,072, respectively.
F-20
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements
December 31, 2000 and 1999
In January 1996, the Company entered into a license and research support agreement with Rockefeller University
("Rockefeller"). The Company agreed to sponsor research by Rockefeller for the development of licensed technologies for a
period of two years from the date of the agreement, in return for a payment of $725,000. The agreement expired in January
1998. However, the Company has continued its relationship with Rockefeller under similar terms. Sponsored research related
to this third party amounted to $125,000 for the year ended December 31, 1999.
10. Product Development Agreement
In October 1999 the Company entered into an agreement with Open-iMedia, a software and web development company
("Development Company"). Under the terms of the agreement the Company was to acquire and the Development Company
was to develop, the source code for a client/server chat and instant messaging application. In March 2000, the Company
entered into an agreement with the Development Company for creative and technical services, and for business strategy
consulting in exchange for $280,000 in cash and 13,605 shares of the Company's common stock.
During the year ended December 31, 2000 the Company recognized charges of $180,000 and $500,334 associated with cash
paid and 102,721 shares of the Company's common stock, respectively, paid and granted under the agreements. Costs related
to this agreement were recognized as the services were performed or upon meeting certain milestones as defined under the
agreements. The Company recorded all amounts paid under the development agreements, including the fair value of shares
issued in research and development expenses.
In July 2000 the Company acquired a 12.5% equity position in the Development Company. Under the terms of the agreement,
the Development Company received: (i) $170,000 in cash; (ii) 40,336 shares of the Company's common stock; and (iii) certain
assets consisting of the instant messenger product, PeerFinder and fixed assets with a net book value of $80,697. In addition,
the Company received the right to appoint one director to the Development Company's board of directors. At December 31,
2000, the Company reassessed the value of its investment in Open-i. The Company reviewed certain events and changes in
circumstances indicating that the carrying amount of the investment in Open-i may not be recoverable in its entirety. As a result,
management elected to reduce the carrying amount of its investment to reflect its recoverable value as of the year-end and
recorded an impairment charge of $156,000.
11. Other Agreements
In May 2000, the Company entered into a binding letter of intent (the "Letter") to acquire Hypernix Technologies, Ltd, an
Israel-based entity. Under the letter, in the event that the transaction was consummated, Siga was to issue 3 million shares of its
common stock to the stockholders and certain employees of Hypernix and assume all of the disclosed liabilities of Hypernix
(not to exceed $1,250,000),with Hypernix's creditors to be paid half in cash and half in common stock of Siga. Also under the
letter, Siga was to lend Hypernix $250,000 per month for up to five months. This advance was subject to interest at an annual
rate of 10% and was collateralized by all the assets of Hypernix. The Company advanced Hypernix $261,000 and $250,000 in
May and July 2000,respectively, under the agreement. On August 10, 2000, the Company terminated the letter of intent. Siga
recorded charges of $261,000 and $250,000 for the three months ended June 30, 2000 and September 30, 2000
respectively, to reserve the amounts advanced to Hypernix.
F-21
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements
December 31, 2000 and 1999
Subsequent to December 31, 2000, the Company received a settlement payment from Hypernix in the amount of $84,375.
12. Commitments and Contingencies
Operating lease commitments
The Company leases certain facilities and office space under operating leases. Minimum future rental commitments under
operating leases having noncancelable lease terms in excess of one year are as follows:
Year ended December 31,
2001 $234,672
2002 226,333
2003 105,002
2004 108,152
2005 and thereafter --
--------
$674,159
========
F-22
SIGA Technologies, Inc.
(A development stage company)
Notes to Financial Statements
December 31, 2000 and 1999
Capital lease commitments
In July, August and September 1998, the Company sold certain laboratory equipment, computer equipment and furniture to a
third party for $493,329, $385,422 and $260,333, respectively, under sale-leaseback agreements. The leases have terms of
42 months and require minimum monthly payments of $13,171, $10,290 and $6,950, respectively. The Company has an
option to purchase the equipment at 15% of the original cost at the end of the lease term.
Future minimum lease payments for assets under capital leases at December 31, 2000 are as follows:
Year ended December 31,
2001 $438,931
2002 131,342
--------
Total Minimum Payments 570,273
Less: amounts representing interest 49,848
--------
Present value of future minimum lease payments 520,425
Less current portion of capital lease obligations 391,407
--------
Capital lease obligations, net current portion $129,018
========
13. Segments
Since the announcement in September 1999 that the Company intends to pursue its Internet initiative, the Company has
operated the Internet initiative as a separate segment. The Internet segment generated operating expenses of approximately
$1,018,000 during 2000 and has no identifiable assets at December 31, 2000
14. Subsequent Events
On March, 30, 2001, the Compnay, its EVPs and certain investors (the "Investors") in the Company entered into an agreement
under which the EVP's have agreed to resign from Siga and use their best efforts to cause each of the current directors of Siga
to resign. Under the agreement, it is expected that Investors will be appointed as Chairman of the Board and as Chief Executive
Officer. Under the agreement, the amended employment agreement entered into by the Company and the EVPs in October
2000 (see note 6) will be terminated with no cost to the Company, the vesting of 37,500 options granted to the EVPs will be
accelerated, excercise terms will be extended and the EVPs will be entitled to certain benefits until April 2003. In addition,
each of the parties of the agreement have agreed to lock up their respective shares of common stock and options of Siga for 24
months subject to certain release provisions.
F-23
ARTICLE 5
PERIOD TYPE
12 mos
FISCAL YEAR END
DEC 31 2000
PERIOD START
JAN 01 2000
PERIOD END
DEC 31 2000
CASH
1,707,385
SECURITIES
0
RECEIVABLES
37,800
ALLOWANCES
0
INVENTORY
0
CURRENT ASSETS
1,750,829
PP&E
1,925,317
DEPRECIATION
897,615
TOTAL ASSETS
3,210,193
CURRENT LIABILITIES
1,356,597
BONDS
0
PREFERRED MANDATORY
0
PREFERRED
0
COMMON
747
OTHER SE
23,793,983
TOTAL LIABILITY AND EQUITY
3,210,193
SALES
0
TOTAL REVENUES
483,120
CGS
0
TOTAL COSTS
0
OTHER EXPENSES
7,566,654
LOSS PROVISION
0
INTEREST EXPENSE
0
INCOME PRETAX
(7,789,589)
INCOME TAX
0
INCOME CONTINUING
(7,789,589)
DISCONTINUED
0
EXTRAORDINARY
0
CHANGES
0
NET INCOME
(7,789,589)
EPS BASIC
(1.08)
EPS DILUTED
(1.08)
Exhibit 1
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (the "Agreement"), is entered into as of October 6, 2000, between SIGA
TECHNOLOGIES, INC., a Delaware corporation (with its successors and assigns, referred to as the "Corporation") and
Joshua D. Schein (referred to as "Schein").
WHEREAS, the Corporation and Schein are parties to an Employment Agreement dated as of January 19, 2000 (the "Original
Agreement"); and
WHEREAS, the Corporation and Schein have agreed to amend and restate the Original Agreement in order to add certain
change of control provisions and make other modifications.
NOW, THEREFORE, in consideration of the foregoing premises and of the mutual agreements and covenants hereinafter set
forth, the parties hereto agree to the terms and conditions of this Agreement as follows:
1. Employment for Term. The Corporation hereby employs Schein and Schein hereby accepts employment with the
Corporation for the period beginning on January 19, 2000 and ending January 19, 2005. (the "Initial Term"), or upon the earlier
termination of the Term pursuant to Section 6. This Agreement shall be automatically renewed for additional one-year periods
(the "Renewal Terms;" together with the Initial Term, the "Term") unless either party notifies the other in writing of its intention
not to so renew this Agreement no less than 180 days prior to the expiration of the Initial Term or a Renewal Term. The
termination of Schein's employment under this Agreement shall end the Term but shall not terminate Schein's or the
Corporation's other agreements in this Agreement, except as otherwise provided herein.
2. Position and Duties. During the Term, Schein shall serve as Chief Executive Officer of the Corporation. During the Term,
Schein shall also hold such additional positions and titles as the Board of Directors of the Corporation (the "Board") may
determine from time to time. During the Term, Schein shall devote as much time as is necessary to satisfactorily perform his
duties as an employee of the Corporation.
3. Compensation.
(a) Base Salary. The Corporation shall pay Schein a base salary, beginning on the first day of the Term and ending on the last
day of the Term, of not less than $250,000 per annum, payable at least monthly on the Corporation's regular pay cycle for
professional employees (the "Base Salary").
(b) Stock Options. Pursuant to the Corporation's stock option plan and subject to stockholder approval of the Corporation's
Amended 1996 Incentive and Non-Qualified Stock Option Plan (the "Plan"), the Corporation shall grant to Schein fully-vested
options to purchase 500,000 shares of the Corporation's Common Stock exercisable at $2.00 per share, the closing bid price
of the Common Stock of the Corporation on January 19, 2000 (the "Options"). The Options shall expire on January 19, 2010.
In the event the Plan is not approved by the stockholders at the Corporation's 2000 Annual Meeting, the Corporation shall
grant to Schein such Options outside of the Plan with the same terms and conditions as if granted pursuant to the Plan.
(c) Annual Increases. The Base Salary shall be increased at the end of each year of service by the greater of (i) 5% or (ii) a
percentage equal to the increase, if any, in the United States Department of Labor Consumer Price Index (or comparable
index, if available) for the New York metropolitan area over the previous 12 months.
1
(d) Other and Additional Compensation. The preceding sections establish the minimum compensation during the Term and shall
not preclude the Board from awarding Schein a higher salary or any bonuses or stock options in the discretion of the Board
during the Term at any time. The Corporation will adopt a bonus plan and Schein will be eligible to participate in such plan. The
Corporation shall pay Schein a monthly car allowance of $500.
4. Employee Benefits. During the Term, Schein shall be entitled to the employee benefits including vacation, 401(k) plan, health
plan and other insurance benefits made available by the Corporation to any other officers or key employees of the Corporation.
5. Expenses. The Corporation shall reimburse Schein for actual out-of-pocket expenses incurred by him in the performance of
his services for the Corporation upon the receipt of appropriate documentation of such expenses.
6. Termination.
(a) General. The Term shall end immediately upon Schein's death. The Term may also end for Cause or Disability, as defined in
Section 7.
(b) Notice of Termination. Promptly after it ends the Term, the Corporation shall give Schein notice of the termination, including
a statement of whether the termination was for Cause or Disability (as defined in Section
7(a) and 7(b) below). The Corporation's failure to give notice under this
Section 6(b) shall not, however, affect the validity of the Corporation's termination of the Term.
(c) Effective Termination by the Corporation. If the Corporation reassigns Schein's base of operations outside of New York
City, or materially reduces Schein's duties during the term, including replacing Schein as Chief Executive Officer, then, at his
option, Schein may treat such reduction in duties as a termination of the Term without Cause by the Corporation.
7. Severance Benefits.
(a) Cause Defined. "Cause" means (i) willful malfeasance or willful misconduct by Schein in connection with his employment; (ii)
Schein's gross negligence in performing any of his duties under this Agreement; (iii) Schein's conviction of, or entry of a plea of
guilty to, or entry of a plea of nolo contendre with respect to, any crime other than a traffic violation or infraction which is a
misdemeanor; (iv) Schein's material breach of any written policy applicable to all employees adopted by the Corporation which
is not cured to the reasonable satisfaction of the Corporation within fifteen (15) business days after notice thereof; or (v)
material breach by Schein of any of his agreements in this Agreement which is not cured to the reasonable satisfaction of the
Corporation within fifteen (15) business days after notice thereof.
(b) Disability Defined. "Disability" shall mean Schein's incapacity due to physical or mental illness that results in his being
substantially unable to perform his duties hereunder for six consecutive months (or for six months out of any nine month period).
During a period of Disability, Schein shall continue to receive his base salary hereunder, provided that if the Corporation
provides Schein with disability insurance coverage, payments of Schein's base salary shall be reduced by the amount of any
disability insurance payments received by Schein due to such coverage. The Corporation shall give Schein written notice of
termination which shall take effect sixty (60) days after the date it is sent to Schein unless Schein shall have returned to the
performance of his duties hereunder during such sixty (60) day period (whereupon such notice shall become void).
2
(c) Termination. If the Corporation ends the Term for Cause or Disability, or if Schein resigns as an employee of the
Corporation for reasons other than a material breach by the Corporation of its obligations under this Agreement or a material
reduction of Schein's duties as provided in Section
6(c), or if Schein dies, then the Corporation shall have no obligation to pay Schein any amount, whether for salary, benefits,
bonuses, or other compensation or expense reimbursements of any kind, accruing after the end of the Term, and such rights
shall, except as otherwise required by law, be forfeited immediately upon the end of the Term, except that payments under
Section 3(a) shall continue for the remainder of the Term unless the Corporation ends the Term for Cause or if Schein resigns
for reasons other than a material breach by the Corporation of its obligations under this Agreement or a material reduction of
his duties as provided in Section 6(c). If the Corporation ends the Term without Cause, then the Corporation will be obligated
to continue to pay Schein's salary and all other amounts due hereunder for the remainder of the Term.
8. Change of Control Payment. The provisions of this paragraph 8 set forth the terms of an agreement reached between Schein
and the Corporation regarding Schein's rights and obligations upon the occurrence of a "Change in Control" (as hereinafter
defined) of the Corporation. These provisions are intended to assure and encourage in advance Schein's continued attention
and dedication to his assigned duties and his objectivity during the pendency and after the occurrence of any such Change in
Control. These provisions shall apply in lieu of, and expressly supersede, the provisions of paragraph 7(c) if Schein's
employment is terminated or Notice of Termination is given ninety (90) days prior to or within eighteen (18) months after the
occurrence of an event constituting a Change in Control.
(a) Escrow. Within ten (10) days after the occurrence of the first event constituting a Change in Control (irrespective of whether
Schein has actual knowledge of such event), the Corporation shall place immediately negotiable funds in escrow in an amount
equal to Schein's salary and all other amount due hereunder for the remainder of the Term, plus such additional amount as
equals the "Gross Up Payment" (as hereinafter defined) thereon (the "Change of Control Amount"). Such escrow shall be
conducted pursuant to a standard escrow agreement among the Corporation, Schein and an independent escrow agent
providing for the timely payment to Schein of the amounts hold in such escrow in the event Schein becomes entitled thereto
under the applicable provisions of this Agreement (the "Escrow Arrangement"). The Escrow Arrangement shall be maintained
until the earlier of (A) nineteen (19) months after the occurrence of an event constituting a Change in Control or (B) the
payment to Schein of all sums escrowed.
(b) Change In Control. If, within 90 days prior to, or within eighteen
(18) months after the occurrence of an event constituting a Change in Control, Schein's employment is terminated or a Notice
of Termination is given for any reason other than (A) his death, (B) his Disability, or (C) by Schein without Cause on the part of
the Corporation, then such termination shall be deemed to be a "Termination Due to Change in Control (herein so called), in
which event the Corporation shall pay Schein, in a lump sum, on or prior to the fifth (5th) day following the date of termination
of the Term:
(1) an amount equal to the Change of Control Amount (including any Gross Up Payment); and
(2) Schein's accrued and unpaid base salary.
(c) Stock Option Floor. Upon the occurrence of the first event constituting a Change in Control, all stock options and other
stock-based grants to Schein by the Corporation shall, irrespective of any provisions of his option agreements, immediately and
irrevocably vest and become exercisable as of the date of such first event whereupon, at any time during the Option Term as
defined in the option agreements, Schein or his estate may by five (5) days' advance written notice given to the Corporation,
and irrespective of whether Schein is then employed by
3
the Corporation or then living, and solely at the election of Schein or his estate, require the Corporation to:
(1) within thirty (30) days of a request by Schein or his estate file and cause to become effective a Form S-8 (or other
appropriate form) with the Securities and Exchange Commission ("SEC") registering for resale all shares underlying stock
options granted to Schein and outstanding with all fees and expenses of such filing being paid by the Corporation, or,
(2) allow Schein to exercise all or any part of such Stock Options at the option prices therefor specified in the grant of the
Stock Options.
In the event the Corporation does not file and cause to become effective a Form S-8 (or other appropriate form) with the SEC
within the thirty (30) day time period, the Corporation shall pay liquidated damages to Schein or his estate equal to the greater
of
(a) the amount equal to the difference between the Market Price of the Corporation's common stock and the exercise price of
the stock options multiplied by the aggregate number of stock options outstanding or (b) $500,000. For purposes of this
Section 8(c), Market Price is defined as the average of the closing bid and ask price of the Corporation's common stock on the
Nasdaq SmallCap Market or the closing sale price of the common stock on a national exchange, if listed on such exchange, in
each case, on the day prior to the date of the Corporation's breach of this Section 8(c).
(d) Gross Up Payment.
(1) Excess Parachute Payment. If Schein incurs the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue
Code of 1986 (the "Code") on "Excess Parachute Payments" within the meaning of
Section 28OG(b)(1) of the Code, the Corporation will pay to Schein an amount (the "Gross Up Payment") such that the net
amount retained by Schein, after deduction of any Excise Tax on both the Excess Parachute Payment and any federal, state and
local income tax (together with penalties and interest) as well as the Excise Tax upon the payment provided for by this
subparagraph 8(d)(1), will be equal to the Change of Control Amount.
(2) Applicable Rates. For purposes of determining the amount of the Gross Up Payment, Schein will be deemed to pay federal
income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross Up Payment is to be
made and state and local income taxes at the highest marginal rates of taxation in the state and locality where taxes thereon are
lawfully due, net of the maximum reduction (if any) in federal income taxes that could be obtained from deduction of deductible
state and local taxes.
(3) Determination of Gross Up Payment Amount. The determination of whether the Excise Tax is payable and the amount
thereof will be based upon the opinion of tax counsel selected by Schein and reasonably approved by the Corporation, which
approval will not be unreasonably withheld or delayed. If such opinion is not finally accepted by the Internal Revenue Service
(or state and local taxing authorities), then appropriate adjustments to the Excise Tax will be computed and additional Gross
Up Payments will be made in the manner provided by this subparagraph (d).
(4) Payment. The Corporation will pay the estimated amount of the Gross Up Payment in cash to Schein at the time specified in
this Agreement. Schein and the Corporation agree to reasonably Scheinate in the determination of the actual amount of the
Gross Up Payment. Further, Schein and the Corporation agree to make such adjustments to the estimated amount of the Gross
Up Payment as may be necessary to equal the actual amount of the Gross Up Payment, which in the case of the Corporation
4
will refer to refunds of prior overpayments by the Corporation and in the case of Schein will refer to additional payments to
Schein to make up for prior underpayments.
(e) Definitions. For purposes of this paragraph 8, the following terms shall have the following meanings:
"Change in Control" shall mean any of the following:
(1) the acquisition by any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
(the "Acquiring Person"), other than the Corporation, or any of its Subsidiaries or any Excluded Group (as defined herein), of
beneficial ownership (within the meaning of Rule 13d-3- promulgated under the Exchange Act) of 35% or more of the
combined voting power or economic interests of the then outstanding voting securities of the Corporation entitled to vote
generally in the election of directors; provided however, that any transfer from any director or executive officer listed in the
Company's Form 10-KSB for the year ended December 31, 1999 under "Security Ownership of Certain Beneficial Owners"
(the "Excluded Group") will not result in a Change in Control if such transfer was part of a series of related transactions the
effect of which, absent the transfer to such Acquiring Person by the Excluded Group, would not have resulted in the acquisition
by such Acquiring Person of 35% or more of the combined voting power or economic interests of the then outstanding voting
securities; or
(2) during any period of 12 consecutive months after the date of this Amendment, the individuals who at the beginning of any
such 12-month period constituted a majority of the Directors (the "Incumbent Non-Investor Majority") cease for any reason to
constitute at least a majority of such Directors; provided that (i) any individual becoming a director whose election, or
nomination for election by the Corporation's stockholders, was approved by a vote of the stockholders having the right to
designate such director and
(ii) any director whose election to the Board or whose nomination for election by the stockholders of the Corporation was
approved by the requisite vote of directors entitled to vote on such election or nomination in accordance with the Restated
Certificate of Incorporation of the Corporation, shall, in each such case, be considered as though such individual were a
member of the Incumbent Non-Investor Majority, but excluding, as a member of the Incumbent Non-Investor Majority, any
such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the
election of the directors of the Corporation (as such terms are used in Rule 14a-2 of Regulation 14A promulgated under the
Exchange Act) and further excluding any person who is an affiliate or associate of an Acquiring Person having or proposing to
acquire beneficial ownership of 25% or more of the combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors; or
(3) the approval by the stockholders of the Corporation of a reorganization, merger or consolidation, in each case, with respect
to which all or substantially all of the individuals and entities who were the respective beneficial owners of the voting securities
of the Corporation immediately prior to such reorganization, merger, or consolidation do not, following such reorganization,
merger, or consolidation, beneficially own, directly or indirectly, more than 50% of the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of directors of the Corporation resulting from such
reorganization, merger, or consolidation; or
(4) the sale or other disposition of assets representing 50% or more of the assets of the Corporation in one transaction or series
of related transactions not initiated or commenced by any person within the Excluded Group; or
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(5) a "Fundamental Change in Business" as hereinafter defined; or
(6) a "Hostile Takeover" as hereinafter defined is declared.
"Fundamental Change in Business" shall mean that the Corporation, at any time, no longer spends at least fifty percent (50%) of
its annual budget on activities related to biotechnology or pharmaceuticals.
"Hostile Takeover" shall mean any Change in Control which at any time is declared by at least a majority of the Board, directly
or indirectly, to be hostile or not in the best interests of the Corporation, or in which an attempt is made (irrespective of whether
successful) to wrest control away from the incumbent management of the Corporation, or with respect to which the Board
makes any effort to resist.
9. Confidentiality, Ownership, and Covenants.
(a) "Corporation Information" and "Inventions" Defined. "Corporation Information" means all information, knowledge or data of
or pertaining to (i) the Corporation, its employees and all work undertaken on behalf of the Corporation, and (ii) any other
person, firm, corporation or business organization with which the Corporation may do business during the Term, that is not in
the public domain (and whether relating to methods, processes, techniques, discoveries, pricing, marketing or any other
matters). "Inventions" collectively refers to any and all inventions, trade secrets, ideas, processes, formulas, source and object
codes, data, programs, other works of authorship, know-how, improvements, research, discoveries, developments, designs,
and techniques regarding any of the foregoing.
(b) Confidentiality. (i) Schein hereby recognizes that the value of all trade secrets and other proprietary data and all other
information of the Corporation not in the public domain disclosed by the Corporation in the course of his employment with the
Corporation may be attributable substantially to the fact that such confidential information is maintained by the Corporation in
strict confidentiality and secrecy and would be unavailable to others without the expenditure of substantial time, effort or money.
Schein, therefore, except as provided in the next two sentences, covenants and agrees that all Corporation Information shall be
kept secret and confidential at all times during the Term and for the five (5) year period after the end of the Term and shall not
be used or divulged by him outside the scope of his employment as contemplated by his Agreement, except as the Corporation
may otherwise expressly authorize by action of the Board. In the event that Schein is requested in a judicial, administrative or
governmental proceeding to disclose any of the Corporation Information, Schein will promptly so notify the Corporation so that
the Corporation may seek a protective order of other appropriate remedy and/or waive compliance with this Agreement. If
disclosure of any of the Corporation Information is required, Schein may furnish the material so required to be furnished, but
Schein will furnish only that portion of the Corporation Information that legally is required.
(ii) Schein also hereby agrees to keep the terms of this Agreement confidential to the same extent that the Corporation
maintains such confidentiality (except with regard to any disclosure by the Corporation required under applicable securities
laws).
(c) Ownership of Inventions, Patents and Technology. Schein hereby assigns to the Corporation all of Schein's rights (including
patent rights, copyrights, trade secret rights, and all other rights throughout the world), title and interest in and to Inventions,
whether or notpatentable or registrable under copyright or similar statutes, made or conceived or reduced to practice or
learned by Schein, either alone or jointly with others, during the course of the performance of services for the Corporation.
Schein shall also assign to, or as directed by, the Corporation, all of Schein's right, title and interest in and to any and all
Inventions, the full title to which is required to be in the United States government of any of its agencies. The Corporation shall
have all right, title and interest in all research and work product produced by Schein as an employee of the Corporation,
including, but not limited to, all research materials and lab books.
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(d) Non-Competition Period Defined. "Non-Competition Period" means the period beginning at the end of the Term and
ending one (1) year after the end of the Term.
(e) Covenants Regarding the Term and Non-Competition Period. Schein acknowledges and agrees that his services pursuant
to this Agreement are unique and extraordinary; that the Corporation will be dependent upon Schein for the development of its
products; and that he will have access to and control of confidential information of the Corporation. Schein further
acknowledges that the business of the Corporation is international in scope and cannot be confined to any particular geographic
area. For the foregoing reasons and to induce the Corporation to enter this Agreement, Schein covenants and agrees that,
subject to Section 9(h), during the Term and the Non-Competition Period Schein shall not unless with written consent of the
Corporation:
(i) engage in any business related to the research and development of the products or processes in which the Corporation is
engaged in during the Term or in any other business conducted by the Corporation during the Term (collectively the "Prohibited
Activity") in the World for his own account;
(ii) become interested in any individual, corporation, partnership or other business entity (a "Person") engaged in any Prohibited
Activity in the World, directly or indirectly, as an individual, partner, shareholder, officer, director, principal, agent, employee,
trustee, consultant or in any other relationship or capacity; provided, however, that Schein may own directly or indirectly, solely
as an investment, securities of any Person which are traded on any national securities exchange if Schein (x) is not a controlling
person of, or a member of a group which controls, such person or (y) does not, directly or indirectly, own 5% or more of any
class of securities of such person; or
(iii) directly or indirectly hire, employ or retain any person who at any time during the Term was an employee of the
Corporation or directly or indirectly solicit, entice, induce or encourage any such person to become employed by any other
person.
(f) Remedies. Schein hereby acknowledges that the covenants and agreements contained in Section 9 are reasonable and valid
in all respects and that the Corporation is entering into this Agreement, inter alia, on such acknowledgement. If Schein
breaches, or threatens to commit a breach, of any of the Restrictive Covenants, the Corporation shall have the following rights
and remedies, each of which rights and remedies shall be independent of the other and severally enforceable, and all of which
rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Corporation under
law or in equity: (i) the right and remedy to have the Restrictive Covenants specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the
Corporation and that money damages will not provide an adequate remedy to the Corporation; (ii) the right and remedy to
require Schein to account for and pay over to the Corporation such damages as are recoverable at law as the result of any
transactions constituting a breach of any of the Restrictive Covenants; (iii) if any court determines that any of the Restrictive
Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be
affected and shall be given full effect, without regard to the invalid portions; and (iv) if any court construes any of the Restrictive
Covenants, or any part thereof, to be unenforceable because of the duration of such provision or the area covered thereby,
such court shall have the power to reduce the duration or area of such provision and, in its reduced form, such provision shall
then be enforceable and shall be enforced.
(g) Jurisdiction. The parties intend to and hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any
jurisdiction within the geographical scope of such Covenants. If the courts of any one or more such jurisdictions hold the
Restrictive Covenants wholly unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the
parties that such determination not bar or in any way affect the Corporation's right to the relief provided above in the courts of
any other jurisdiction, within the geographical scope of such Covenants, as to breaches of such Covenants in such
7
other respective jurisdiction such Covenants as they relate to each jurisdiction being, for this purpose, severable into diverse
and independent covenants.
(h) Schein's agreements and covenants under Section 9(e) shall automatically terminate if the Corporation ends the Term
without Cause or Schein resigns due to a material breach by the Corporation of its obligations under this Agreement or a
material reduction of Schein's duties as provided in Section 6(c).
10. Successors and Assigns.
(a) Schein. This Agreement is a personal contract, and the rights and interests that the Agreement accords to Schein may not be
sold, transferred, assigned, pledged, encumbered, or hypothecated by him. All rights and benefits of Schein shall be for the sole
personal benefit of Schein, and no other person shall acquire any right, title or interest under this Agreement by reason of any
sale, assignment, transfer, claim or judgement or bankruptcy proceedings against Schein. Except as so provided, this
Agreement shall inure to the benefit of and be binding upon Schein and his personal representatives, distributes and legatees.
(b) The Corporation. This Agreement shall be binding upon the Corporation and inure to the benefit of the Corporation and of
its successors and assigns, including (but not limited to) any corporation that may acquire all or substantially all of the
corporation's assets or business or into or with which the Corporation may be consolidated or merged. In the event that the
Corporation sells all or substantially all of its assets, merges or consolidates, otherwise combines or affiliates with another
business, dissolves and liquidates, or otherwise sells or disposes of substantially all of its assets and Schein does not elect to
treat any such transaction as a termination by the Corporation without Cause pursuant to Section 7(c), then this Agreement
shall continue in full force and effect. The Corporation's obligations under this Agreement shall cease, however, if the successor
to, the purchaser or acquirer either of the Corporation or of all or substantially all of its assets, or the entity with which the
Corporation has affiliated, shall assume in writing the Corporation's obligations under this Agreement (and deliver and executed
copy of such assumption to Schein), in which case such successor or purchaser, but not the Corporation, shall thereafter be the
only party obligated to perform the obligations that remain to be performed on the part of the Corporation under this
Agreement.
11. Transaction Fee. Upon the completion of a transaction resulting in a Transaction (as defined herein) or any transaction
described in Section 10(b), the Corporation shall pay to Schein, in consideration of his work on behalf of the Corporation, a
one time cash payment equal to one and one-half percent (1.5%) of the total consideration received by the Corporation.
"Transaction" shall mean any merger or consolidation of the Corporation into or with another corporation, or any
reorganization, recapitalization or like transaction or series of transactions having substantially equivalent effect and purpose, at
the conclusion of which such merger, consolidation, reorganization, recapitalization or like transaction the holders of the voting
capital stock of the Corporation immediately prior to such transaction or series of transactions own less than a majority of the
voting capital stock of the acquiring entity or entity surviving or resulting from such transaction or series of transactions
immediately thereafter, or any sale, transfer or other disposition of all or substantially all of the assets or capital stock of the
Corporation.
12. Sale, Merger or Spin-out of Subsidiary. Upon the sale, merger or public spin-out of any wholly-owned or partially-owned
subsidiary of the Corporation, or of any material asset of the Corporation, Schein shall receive a success fee equal to one and
one-half percent (1.5%) of the value of the Corporation's shares of the subsidiary, or of the value of the material asset, upon the
sale, merger or spinout. In the event the subsidiary or material asset is sold for cash, the 1.5% success fee shall be paid for in
cash. In the event the subsidiary or material asset is sold for equity in another company, the 1.5% success fee shall be paid for
in the form of equity received by the Corporation. In the event of a merger or public spin-out of the subsidiary or of any
material asset of the Corporation, the 1.5% success fee shall be paid for in the form of shares of the subsidiary or in the form of
equity received by the Corporation.
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13. Entire Agreement. This Agreement represents the entire agreement between the parties concerning Schein's employment
with the Corporation and supersedes all prior negotiations, discussions, understanding and agreements, whether written or oral,
between Schein and the Corporation relating to the subject matter of this Agreement.
14. Amendment or Modification, Waiver. No provision of this Agreement may be amended or waived unless such amendment
or waiver is agreed to in writing signed by Schein and by a duly authorized officer of the Corporation. No waiver by any party
to this Agreement or any breach by another party of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any
subsequent time.
15. Notices. Any notice to be given under this Agreement shall be in writing and delivered personally or sent by overnight
courier or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the
address indicated below, or to such other address of which such party subsequently may give notice in writing:
If to Schein: Joshua D. Schein
420 Lexington Avenue
Suite 620
New York, NY 10170
Fax: 212-697-3130
If to the Corporation: SIGA TECHNOLOGIES, INC.
420 Lexington Avenue
Suite 620
New York, NY 10170
Fax: 212-697-3130
Attention: Judson Cooper
with a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, NY 10022
Attention: Jeffrey J. Fessler
Any notice delivered personally or by overnight courier shall be deemed given on the date delivered and any notice sent by
registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date mailed.
16. Severability. If any provision of this Agreement or the application of any such provision to any party or circumstances shall
be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this
Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to
be invalid and unenforceable shall not be affected, and each provision of this Agreement shall be validated and shall be
enforced to the fullest extent permitted by law. If for any reason any provision of this Agreement containing restrictions is held
to cover an area or to be for a length of time that is unreasonable or in any other way is construed to be too broad or to any
extent invalid, such provision shall not be determined to be entirely null, void and of no effect; instead, it is the intention and
desire of both the Corporation and Schein that, to the extent that the provision is or would be valid or enforceable under
applicable law, any court of competent jurisdiction shall construe and interpret or reform this Agreement to provide for a
restriction having the maximum enforceable area, time period and such other constraints or conditions (although not greater than
those contained currently contained in this Agreement) as shall be valid and enforceable under the applicable law.
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17. Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement
to the extent necessary to the intended preservation of such rights and obligations.
18. Headings. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience of
reference, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph.
19. Withholding Taxes. All salary, benefits, reimbursements and any other payments to Schein under this Agreement shall be
subject to all applicable payroll and withholding taxes and deductions required by any law, rule or regulation of and federal,
state or local authority.
20. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an
original but all of which together constitute one and same instrument.
21. Applicable Law; Arbitration. The validity, interpretation and enforcement of this Agreement and any amendments or
modifications hereto shall be governed by the laws of the State of New York, as applied to a contract executed within and to
be performed in such State. The parties agree that any disputes shall be definitively resolved by binding arbitration before the
American Arbitration Association in New York, New York and consent to the jurisdiction to the federal courts of the Southern
District of New York or, if there shall be no jurisdiction, to the state courts located in New York County, New York, to
enforce any arbitration award rendered with respect thereto. Each party shall choose one arbitrator and the two arbitrators
shall choose a third arbitrator. All costs and fees related to such arbitration (and judicial enforcement proceedings, if any) shall
be borne by the unsuccessful party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
SIGA TECHNOLOGIES, INC.,
By: /s/ Judson Cooper
--------------------------
Judson Cooper
Executive Vice President
/s/ Joshua D. Schein
--------------------------
Joshua D. Schein
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Exhibit 2
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (the "Agreement"), is entered into as of October 6, 2000, between SIGA
TECHNOLOGIES, INC., a Delaware corporation (with its successors and assigns, referred to as the "Corporation") and
Judson Cooper (referred to as "Cooper").
WHEREAS, the Corporation and Cooper are parties to an Employment Agreement dated as of January 19, 2000 (the
"Original Agreement"); and
WHEREAS, the Corporation and Cooper have agreed to amend and restate the Original Agreement in order to add certain
change of control provisions and make other modifications.
NOW, THEREFORE, in consideration of the foregoing premises and of the mutual agreements and covenants hereinafter set
forth, the parties hereto agree to the terms and conditions of this Agreement as follows:
1. Employment for Term. The Corporation hereby employs Cooper and Cooper hereby accepts employment with the
Corporation for the period beginning on January 19, 2000 and ending January 19, 2005. (the "Initial Term"), or upon the earlier
termination of the Term pursuant to Section 6. This Agreement shall be automatically renewed for additional one-year periods
(the "Renewal Terms;" together with the Initial Term, the "Term") unless either party notifies the other in writing of its intention
not to so renew this Agreement no less than 180 days prior to the expiration of the Initial Term or a Renewal Term. The
termination of Cooper's employment under this Agreement shall end the Term but shall not terminate Cooper's or the
Corporation's other agreements in this Agreement, except as otherwise provided herein.
2. Position and Duties. During the Term, Cooper shall serve as Chairman and Executive Vice President of the Corporation.
During the Term, Cooper shall also hold such additional positions and titles as the Board of Directors of the Corporation (the
"Board") may determine from time to time. During the Term, Cooper shall devote as much time as is necessary to satisfactorily
perform his duties as an employee of the Corporation.
3. Compensation.
(a) Base Salary. The Corporation shall pay Cooper a base salary, beginning on the first day of the Term and ending on the last
day of the Term, of not less than $250,000 per annum, payable at least monthly on the Corporation's regular pay cycle for
professional employees (the "Base Salary").
(b) Stock Options. Pursuant to the Corporation's stock option plan and subject to stockholder approval of the Corporation's
Amended 1996 Incentive and Non-Qualified Stock Option Plan (the "Plan"), the Corporation shall grant to Cooper
fully-vested options to purchase 500,000 shares of the Corporation's Common Stock exercisable at $2.00 per share, the
closing bid price of the Common Stock of the Corporation on January 19, 2000 (the "Options"). The Options shall expire on
January 19, 2010. In the event the Plan is not approved by the stockholders at the Corporation's 2000 Annual Meeting, the
Corporation shall grant to Cooper such Options outside of the Plan with the same terms and conditions as if granted pursuant
to the Plan.
(c) Annual Increases. The Base Salary shall be increased at the end of each year of service by the greater of (i) 5% or (ii) a
percentage equal to the increase, if any, in the United States Department of Labor Consumer Price Index (or comparable
index, if available) for the New York metropolitan area over the previous 12 months.
1
(d) Other and Additional Compensation. The preceding sections establish the minimum compensation during the Term and shall
not preclude the Board from awarding Cooper a higher salary or any bonuses or stock options in the discretion of the Board
during the Term at any time. The Corporation will adopt a bonus plan and Cooper will be eligible to participate in such plan.
The Corporation shall pay Cooper a monthly car allowance of $500.
4. Employee Benefits. During the Term, Cooper shall be entitled to the employee benefits including vacation, 401(k) plan,
health plan and other insurance benefits made available by the Corporation to any other officers or key employees of the
Corporation.
5. Expenses. The Corporation shall reimburse Cooper for actual out-of-pocket expenses incurred by him in the performance of
his services for the Corporation upon the receipt of appropriate documentation of such expenses.
6. Termination.
(a) General. The Term shall end immediately upon Cooper's death. The Term may also end for Cause or Disability, as defined
in Section 7.
(b) Notice of Termination. Promptly after it ends the Term, the Corporation shall give Cooper notice of the termination,
including a statement of whether the termination was for Cause or Disability (as defined in Section
7(a) and 7(b) below). The Corporation's failure to give notice under this
Section 6(b) shall not, however, affect the validity of the Corporation's termination of the Term.
(c) Effective Termination by the Corporation. If the Corporation reassigns Cooper's base of operations outside of New York
City, or materially reduces Cooper's duties during the term, including replacing Cooper as Chief Executive Officer, then, at his
option, Cooper may treat such reduction in duties as a termination of the Term without Cause by the Corporation.
7. Severance Benefits.
(a) Cause Defined. "Cause" means (i) willful malfeasance or willful misconduct by Cooper in connection with his employment;
(ii) Cooper's gross negligence in performing any of his duties under this Agreement; (iii) Cooper's conviction of, or entry of a
plea of guilty to, or entry of a plea of nolo contendre with respect to, any crime other than a traffic violation or infraction which
is a misdemeanor; (iv) Cooper's material breach of any written policy applicable to all employees adopted by the Corporation
which is not cured to the reasonable satisfaction of the Corporation within fifteen (15) business days after notice thereof; or (v)
material breach by Cooper of any of his agreements in this Agreement which is not cured to the reasonable satisfaction of the
Corporation within fifteen (15) business days after notice thereof.
(b) Disability Defined. "Disability" shall mean Cooper's incapacity due to physical or mental illness that results in his being
substantially unable to perform his duties hereunder for six consecutive months (or for six months out of any nine month period).
During a period of Disability, Cooper shall continue to receive his base salary hereunder, provided that if the Corporation
provides Cooper with disability insurance coverage, payments of Cooper's base salary shall be reduced by the amount of any
disability insurance payments received by Cooper due to such coverage. The Corporation shall give Cooper written notice of
termination which shall take effect sixty (60) days after the date it is sent to Cooper unless Cooper shall have returned to the
performance of his duties hereunder during such sixty (60) day period (whereupon such notice shall become void).
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(c) Termination. If the Corporation ends the Term for Cause or Disability, or if Cooper resigns as an employee of the
Corporation for reasons other than a material breach by the Corporation of its obligations under this Agreement or a material
reduction of Cooper's duties as provided in Section
6(c), or if Cooper dies, then the Corporation shall have no obligation to pay Cooper any amount, whether for salary, benefits,
bonuses, or other compensation or expense reimbursements of any kind, accruing after the end of the Term, and such rights
shall, except as otherwise required by law, be forfeited immediately upon the end of the Term, except that payments under
Section 3(a) shall continue for the remainder of the Term unless the Corporation ends the Term for Cause or if Cooper resigns
for reasons other than a material breach by the Corporation of its obligations under this Agreement or a material reduction of
his duties as provided in Section 6(c). If the Corporation ends the Term without Cause, then the Corporation will be obligated
to continue to pay Cooper's salary and all other amounts due hereunder for the remainder of the Term.
8. Change of Control Payment. The provisions of this paragraph 8 set forth the terms of an agreement reached between
Cooper and the Corporation regarding Cooper's rights and obligations upon the occurrence of a "Change in Control" (as
hereinafter defined) of the Corporation. These provisions are intended to assure and encourage in advance Cooper's continued
attention and dedication to his assigned duties and his objectivity during the pendency and after the occurrence of any such
Change in Control. These provisions shall apply in lieu of, and expressly supersede, the provisions of paragraph 7(c) if
Cooper's employment is terminated or Notice of Termination is given ninety (90) days prior to or within eighteen (18) months
after the occurrence of an event constituting a Change in Control.
(a) Escrow. Within ten (10) days after the occurrence of the first event constituting a Change in Control (irrespective of whether
Cooper has actual knowledge of such event), the Corporation shall place immediately negotiable funds in escrow in an amount
equal to Cooper's salary and all other amount due hereunder for the remainder of the Term, plus such additional amount as
equals the "Gross Up Payment" (as hereinafter defined) thereon (the "Change of Control Amount"). Such escrow shall be
conducted pursuant to a standard escrow agreement among the Corporation, Cooper and an independent escrow agent
providing for the timely payment to Cooper of the amounts hold in such escrow in the event Cooper becomes entitled thereto
under the applicable provisions of this Agreement (the "Escrow Arrangement"). The Escrow Arrangement shall be maintained
until the earlier of (A) nineteen (19) months after the occurrence of an event constituting a Change in Control or (B) the
payment to Cooper of all sums escrowed.
(b) Change in Control. If, within 90 days prior to, or within eighteen (18) months after the occurrence of an event constituting a
Change in Control, Cooper's employment is terminated or a Notice of Termination is given for any reason other than (A) his
death, (B) his Disability, or (C) by Cooper without Cause on the part of the Corporation, then such termination shall be
deemed to be a "Termination Due to Change in Control (herein so called), in which event the Corporation shall pay Cooper, in
a lump sum, on or prior to the fifth (5th) day following the date of termination of the Term:
(1) an amount equal to the Change of Control Amount (including any Gross Up Payment); and
(2) Cooper's accrued and unpaid base salary.
(c) Stock Option Floor. Upon the occurrence of the first event constituting a Change in Control, all stock options and other
stock-based grants to Cooper by the Corporation shall, irrespective of any provisions of his option agreements, immediately
and irrevocably vest and become exercisable as of the date of such first event whereupon, at any time during the Option Term
as defined in the option agreements, Cooper or his estate may by five (5) days' advance
3
written notice given to the Corporation, and irrespective of whether Cooper is then employed by the Corporation or then living,
and solely at the election of Cooper or his estate, require the Corporation to:
(1) within thirty (30) days of a request by Cooper or his estate file and cause to become effective a Form S-8 (or other
appropriate form) with the Securities and Exchange Commission ("SEC") registering for resale all shares underlying stock
options granted to Cooper and outstanding with all fees and expenses of such filing being paid by the Corporation, or,
(2) allow Cooper to exercise all or any part of such Stock Options at the option prices therefor specified in the grant of the
Stock Options.
In the event the Corporation does not file and cause to become effective a Form S-8 (or other appropriate form) with the SEC
within the thirty (30) day time period, the Corporation shall pay liquidated damages to Cooper or his estate equal to the greater
of
(a) the amount equal to the difference between the Market Price of the Corporation's common stock and the exercise price of
the stock options multiplied by the aggregate number of stock options outstanding or (b) $500,000. For purposes of this
Section 8(c), Market Price is defined as the average of the closing bid and ask price of the Corporation's common stock on the
Nasdaq SmalICap Market or the closing sale price of the common stock on a national exchange, if listed on such exchange, in
each case, on the day prior to the date of the Corporation's breach of this Section 8(c).
(d) Gross Up Payment.
(1) Excess Parachute Payment. If Cooper incurs the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue
Code of 1986 (the "Code") on "Excess Parachute Payments" within the meaning of
Section 280G(b)(l) of the Code, the Corporation will pay to Cooper an amount (the "Gross Up Payment") such that the net
amount retained by Cooper, after deduction of any Excise Tax on both the Excess Parachute Payment and any federal, state
and local income tax (together with penalties and interest) as well as the Excise Tax upon the payment provided for by this
subparagraph 8(d)(l), will be equal to the Change of Control Amount.
(2) Applicable Rates. For purposes of determining the amount of the Gross Up Payment, Cooper will be deemed to pay
federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross Up Payment
is to be made and state and local income taxes at the highest marginal rates of taxation in the state and locality where taxes
thereon are lawfully due, net of the maximum reduction (if any) in federal income taxes that could be obtained from deduction of
deductible state and local taxes.
(3) Determination of Gross Up Payment Amount. The determination of whether the Excise Tax is payable and the amount
thereof will be based upon the opinion of tax counsel selected by Cooper and reasonably approved by the Corporation, which
approval will not be unreasonably withheld or delayed. If such opinion is not finally accepted by the Internal Revenue Service
(or state and local taxing authorities), then appropriate adjustments to the Excise Tax will be computed and additional Gross
Up Payments will be made in the manner provided by this subparagraph (d).
(4) Payment. The Corporation will pay the estimated amount of the Gross Up Payment in cash to Cooper at the time specified
in this Agreement. Cooper and the Corporation agree to reasonably cooperate in the determination of the actual amount of the
Gross Up Payment. Further, Cooper and the Corporation agree to make such adjustments to the estimated amount of the
Gross Up Payment as may be necessary to
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equal the actual amount of the Gross Up Payment, which in the case of the Corporation will refer to refunds of prior
overpayments by the Corporation and in the case of Cooper will refer to additional payments to Cooper to make up for prior
underpayments.
(e) Definitions. For purposes of this paragraph 8, the following terms shall have the following meanings:
"Change in Control" shall mean any of the following:
(1) the acquisition by any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
(the "Acquiring Person"), other than the Corporation, or any of its Subsidiaries or any Excluded Group (as defined herein), of
beneficial ownership (within the meaning of Rule 13d-3- promulgated under the Exchange Act) of 35% or more of the
combined voting power or economic interests of the then outstanding voting securities of the Corporation entitled to vote
generally in the election of directors; provided however, that any transfer from any director or executive officer listed in the
Company's Form l0-KSB for the year ended December 31, 1999 under "Security Ownership of Certain Beneficial Owners"
(the "Excluded Group") will not result in a Change in Control if such transfer was part of a series of related transactions the
effect of which, absent the transfer to such Acquiring Person by the Excluded Group, would not have resulted in the acquisition
by such Acquiring Person of 35% or more of the combined voting power or economic interests of the then outstanding voting
securities; or
(2) during any period of 12 consecutive months after the date of this Amendment, the individuals who at the beginning of any
such 12-month period constituted a majority of the Directors (the "Incumbent Non-Investor Majority") cease for any reason to
constitute at least a majority of such Directors; provided that (i) any individual becoming a director whose election, or
nomination for election by the Corporation's stockholders, was approved by a vote of the stockholders having the right to
designate such director and
(ii) any director whose election to the Board or whose nomination for election by the stockholders of the Corporation was
approved by the requisite vote of directors entitled to vote on such election or nomination in accordance with the Restated
Certificate of Incorporation of the Corporation, shall, in each such case, be considered as though such individual were a
member of the Incumbent Non-Investor Majority, but excluding, as a member of the Incumbent Non-Investor Majority, any
such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the
election of the directors of the Corporation (as such terms are used in Rule 14a- 2 of Regulation I 4A promulgated under the
Exchange Act) and further excluding any person who is an affiliate or associate of an Acquiring Person having or proposing to
acquire beneficial ownership of 25% or more of the combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors; or
(3) the approval by the stockholders of the Corporation of a reorganization, merger or consolidation, in each case, with respect
to which all or substantially all of the individuals and entities who were the respective beneficial owners of the voting securities
of the Corporation immediately prior to such reorganization, merger, or consolidation do not, following such reorganization,
merger, or consolidation, beneficially own, directly or indirectly, more than 50% of the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of directors of the Corporation resulting from such
reorganization, merger, or consolidation; or
(4) the sale or other disposition of assets representing 50% or more of the assets of the Corporation in one transaction or series
of related transactions not initiated or commenced by any person within the Excluded Group; or
5
(5) a "Fundamental Change in Business" as hereinafter defined; or
(6) a "Hostile Takeover" as hereinafter defined is declared.
"Fundamental Change in Business" shall mean that the Corporation, at any time, no longer spends at least fifty percent (50%) of
its annual budget on activities related to biotechnology or pharmaceuticals.
"Hostile Takeover" shall mean any Change in Control which at any time is declared by at least a majority of the Board, directly
or indirectly, to be hostile or not in the best interests of the Corporation, or in which an attempt is made (irrespective of whether
successful) to wrest control away from the incumbent management of the Corporation, or with respect to which the Board
makes any effort to resist.
9. Confidentiality, Ownership, and Covenants.
(a) "Corporation Information" and "Inventions" Defined. "Corporation Information" means all information, knowledge or data of
or pertaining to (i) the Corporation, its employees and all work undertaken on behalf of the Corporation, and (ii) any other
person, firm, corporation or business organization with which the Corporation may do business during the Term, that is not in
the public domain (and whether relating to methods, processes, techniques, discoveries, pricing, marketing or any other
matters). "Inventions" collectively refers to any and all inventions, trade secrets, ideas, processes, formulas, source and object
codes, data, programs, other works of authorship, know-how, improvements, research, discoveries, developments, designs,
and techniques regarding any of the foregoing.
(b) Confidentiality. (i) Cooper hereby recognizes that the value of all trade secrets and other proprietary data and all other
information of the Corporation not in the public domain disclosed by the Corporation in the course of his employment with the
Corporation may be attributable substantially to the fact that such confidential information is maintained by the Corporation in
strict confidentiality and secrecy and would be unavailable to others without the expenditure of substantial time, effort or money.
Cooper, therefore, except as provided in the next two sentences, covenants and agrees that all Corporation Information shall
be kept secret and confidential at all times during the Term and for the five (5) year period after the end of the Term and shall
not be used or divulged by him outside the scope of his employment as contemplated by his Agreement, except as the
Corporation may otherwise expressly authorize by action of the Board. In the event that Cooper is requested in a judicial,
administrative or governmental proceeding to disclose any of the Corporation Information, Cooper will promptly so notify the
Corporation so that the Corporation may seek a protective order of other appropriate remedy and/or waive compliance with
this Agreement. If disclosure of any of the Corporation Information is required, Cooper may furnish the material so required to
be furnished, but Cooper will furnish only that portion of the Corporation Information that legally is required.
(ii) Cooper also hereby agrees to keep the terms of this Agreement confidential to the same extent that the Corporation
maintains such confidentiality (except with regard to any disclosure by the Corporation required under applicable securities
laws).
(c) Ownership of Inventions, Patents and Technology. Cooper hereby assigns to the Corporation all of Cooper's rights
(including patent rights, copyrights, trade secret rights, and all other rights throughout the world), title and interest in and to
Inventions, whether or not patentable or registrable under copyright or similar statutes, made or conceived or reduced to
practice or learned by Cooper, either alone or jointly with others, during the course of the performance of services for the
Corporation. Cooper shall also assign to, or as directed by, the Corporation, all of Cooper's right, title and interest in and to
any and all Inventions, the full title to which is required to be in the United States government of any of its agencies. The
Corporation shall have all right, title and interest in all research and work product produced
6
by Cooper as an employee of the Corporation, including, but not limited to, all research materials and lab books.
(d) Non-Competition Period Defined. "Non-Competition Period" means the period beginning at the end of the Term and
ending one (1) year after the end of the Term.
(e) Covenants Regarding the Term and Non-Competition Period. Cooper acknowledges and agrees that his services pursuant
to this Agreement are unique and extraordinary; that the Corporation will be dependent upon Cooper for the development of its
products; and that he will have access to and control of confidential information of the Corporation. Cooper further
acknowledges that the business of the Corporation is international in scope and cannot be confined to any particular geographic
area. For the foregoing reasons and to induce the Corporation to enter this Agreement, Cooper covenants and agrees that,
subject to Section 9(h), during the Term and the Non-Competition Period Cooper shall not unless with written consent of the
Corporation:
(i) engage in any business related to the research and development of the products or processes in which the Corporation is
engaged in during the Term or in any other business conducted by the Corporation during the Term (collectively the "Prohibited
Activity") in the World for his own account;
(ii) become interested in any individual, corporation, partnership or other business entity (a "Person") engaged in any Prohibited
Activity in the World, directly or indirectly, as an individual, partner, shareholder, officer, director, principal, agent, employee,
trustee, consultant or in any other relationship or capacity; provided, however, that Cooper may own directly or indirectly,
solely as an investment, securities of any Person which are traded on any national securities exchange if Cooper (x) is not a
controlling person of, or a member of a group which controls, such person or (y) does not, directly or indirectly, own 5% or
more of any class of securities of such person; or
(iii) directly or indirectly hire, employ or retain any person who at any time during the Term was an employee of the
Corporation or directly or indirectly solicit, entice, induce or encourage any such person to become employed by any other
person.
(f) Remedies. Cooper hereby acknowledges that the covenants and agreements contained in Section 9 are reasonable and valid
in all respects and that the Corporation is entering into this Agreement, inter alia, on such acknowledgement. If Cooper
breaches, or threatens to commit a breach, of any of the Restrictive Covenants, the Corporation shall have the following rights
and remedies, each of which rights and remedies shall be independent of the other and severally enforceable, and all of which
rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Corporation under
law or in equity: (i) the right and remedy to have the Restrictive Covenants specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the
Corporation and that money damages will not provide an adequate remedy to the Corporation; (ii) the right and remedy to
require Cooper to account for and pay over to the Corporation such damages as are recoverable at law as the result of any
transactions constituting a breach of any of the Restrictive Covenants; (iii) if any court determines that any of the Restrictive
Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be
affected and shall be given full effect, without regard to the invalid portions; and (iv) if any court construes any of the Restrictive
Covenants, or any part thereof, to be unenforceable because of the duration of such provision or the area covered thereby,
such court shall have the power to reduce the duration or area of such provision and, in its reduced form, such provision shall
then be enforceable and shall be enforced.
(g) Jurisdiction. The parties intend to and hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any
jurisdiction within the geographical scope of such Covenants. If the courts of any one or more such jurisdictions hold the
Restrictive Covenants wholly unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the
parties that such determination
7
not bar or in any way affect the Corporation's right to the relief provided above in the courts of any other jurisdiction, within the
geographical scope of such Covenants, as to breaches of such Covenants in such other respective jurisdiction such Covenants
as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants.
(h) Cooper's agreements and covenants under Section 9(e) shall automatically terminate if the Corporation ends the Term
without Cause or Cooper resigns due to a material breach by the Corporation of its obligations under this Agreement or a
material reduction of Cooper's duties as provided in Section 6(c).
10. Successors and Assigns.
(a) Cooper. This Agreement is a personal contract, and the rights and interests that the Agreement accords to Cooper may not
be sold, transferred, assigned, pledged, encumbered, or hypothecated by him. All rights and benefits of Cooper shall be for the
sole personal benefit of Cooper, and no other person shall acquire any right, title or interest under this Agreement by reason of
any sale, assignment, transfer, claim or judgement or bankruptcy proceedings against Cooper. Except as so provided, this
Agreement shall inure to the benefit of and be binding upon Cooper and his personal representatives, distributes and legatees.
(b) The Corporation. This Agreement shall be binding upon the Corporation and inure to the benefit of the Corporation and of
its successors and assigns, including (but not limited to) any corporation that may acquire all or substantially all of the
corporation's assets or business or into or with which the Corporation may be consolidated or merged. In the event that the
Corporation sells all or substantially all of its assets, merges or consolidates, otherwise combines or affiliates with another
business, dissolves and liquidates, or otherwise sells or disposes of substantially all of its assets and Cooper does not elect to
treat any such transaction as a termination by the Corporation without Cause pursuant to Section 7(c), then this Agreement
shall continue in full force and effect. The Corporation's obligations under this Agreement shall cease, however, if the successor
to, the purchaser or acquirer either of the Corporation or of all or substantially all of its assets, or the entity with which the
Corporation has affiliated, shall assume in writing the Corporation's obligations under this Agreement (and deliver and executed
copy of such assumption to Cooper), in which case such successor or purchaser, but not the Corporation, shall thereafter be
the only party obligated to perform the obligations that remain to be performed on the part of the Corporation under this
Agreement.
11. Transaction Fee. Upon the completion of a transaction resulting in a Transaction (as defined herein) or any transaction
described in Section 10(b), the Corporation shall pay to Cooper, in consideration of his work on behalf of the Corporation, a
one time cash payment equal to one and one-half percent (1.5%) of the total consideration received by the Corporation.
"Transaction" shall mean any merger or consolidation of the Corporation into or with another corporation, or any
reorganization, recapitalization or like transaction or series of transactions having substantially equivalent effect and purpose, at
the conclusion of which such merger, consolidation, reorganization, recapitalization or like transaction the holders of the voting
capital stock of the Corporation immediately prior to such transaction or series of transactions own less than a majority of the
voting capital stock of the acquiring entity or entity surviving or resulting from such transaction or series of transactions
immediately thereafter, or any sale, transfer or other disposition of all or substantially all of the assets or capital stock of the
Corporation.
12. Sale, Merger or Spin-out of Subsidiary. Upon the sale, merger or public spin-out of any wholly-owned or partially-owned
subsidiary of the Corporation, or of any material asset of the Corporation, Cooper shall receive a success fee equal to one and
one-half percent (1.5%) of the value of the Corporation's shares of the subsidiary, or of the value of the material asset, upon the
sale, merger or spin-out. In the event the subsidiary or material asset is sold for cash, the 1.5% success fee shall be paid for in
cash. In the event the subsidiary or material asset is sold for equity in another company, the 1.5% success fee shall be paid for
in the form of equity received by the Corporation. In the event of a merger or public spin-out of the subsidiary or of any
material asset of the Corporation, the 1.5% success fee shall be paid for in the form of shares of the subsidiary or in the form of
equity received by the Corporation.
8
13. Entire Agreement. This Agreement represents the entire agreement between the parties concerning Cooper's employment
with the Corporation and supersedes all prior negotiations, discussions, understanding and agreements, whether written or oral,
between Cooper and the Corporation relating to the subject matter of this Agreement.
14. Amendment or Modification, Waiver. No provision of this Agreement may be amended or waived unless such amendment
or waiver is agreed to in writing signed by Cooper and by a duly authorized officer of the Corporation. No waiver by any party
to this Agreement or any breach by another party of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any
subsequent time.
15. Notices. Any notice to be given under this Agreement shall be in writing and delivered personally or sent by overnight
courier or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the
address indicated below, or to such other address of which such party subsequently may give notice in writing:
If to Cooper: Judson Cooper
420 Lexington Avenue
Suite 620
New York, NY 10170
Fax: 212-697-3130
If to the Corporation: SIGA TECHNOLOGIES, INC.
420 Lexington Avenue
Suite 620
New York, NY 10170
Fax: 212-697-3130
Attention: Joshua D. Schein
with a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, NY 10022
Attention: Jeffrey J. Fessler
Any notice delivered personally or by overnight courier shall be deemed given on the date delivered and any notice sent by
registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date mailed.
16. Severability. If any provision of this Agreement or the application of any such provision to any party or circumstances shall
be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this
Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to
be invalid and unenforceable shall not be affected, and each provision of this Agreement shall be validated and shall be
enforced to the fullest extent permitted by law. If for any reason any provision of this Agreement containing restrictions is held
to cover an area or to be for a length of time that is unreasonable or in any other way is construed to be too broad or to any
extent invalid, such provision shall not be determined to be entirely null, void and of no effect; instead, it is the intention and
desire of both the Corporation and Cooper that, to the extent that the provision is or would be valid or enforceable under
applicable law, any court of competent jurisdiction shall construe and interpret or reform this Agreement to provide for a
restriction having the maximum enforceable area, time period and such other constraints or conditions (although not greater than
those contained currently contained in this Agreement) as shall be valid and enforceable under the applicable law.
9
17. Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement
to the extent necessary to the intended preservation of such rights and obligations.
18. Headings. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience of
reference, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph.
19. Withholding Taxes. All salary, benefits, reimbursements and any other payments to Cooper under this Agreement shall be
subject to all applicable payroll and withholding taxes and deductions required by any law, rule or regulation of and federal,
state or local authority.
20. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an
original but all of which together constitute one and same instrument.
21. Applicable Law; Arbitration. The validity, interpretation and enforcement of this Agreement and any amendments or
modifications hereto shall be governed by the laws of the State of New York, as applied to a contract executed within and to
be performed in such State. The parties agree that any disputes shall be definitively resolved by binding arbitration before the
American Arbitration Association in New York, New York and consent to the jurisdiction to the federal courts of the Southern
District of New York or, if there shall be no jurisdiction, to the state courts located in New York County, New York, to
enforce any arbitration award rendered with respect thereto. Each party shall choose one arbitrator and the two arbitrators
shall choose a third arbitrator. All costs and fees related to such arbitration (and judicial enforcement proceedings, if any) shall
be borne by the unsuccessful party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
SIGA TECHNOLOGIES, INC.
By: /s/ Joshua D. Schein
-----------------------
Joshua D. Schein
Chief Executive Officer
/s/ Judson Cooper
-----------------------
Judson Cooper
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Exhibit 3
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (the "Agreement"), is entered into as of October 6, 2000, between SIGA
TECHNOLOGIES, INC., a Delaware corporation (with its successors and assigns, referred to as the "Corporation") and
Thomas Konatich (referred to as "Konatich").
WHEREAS, the Corporation and Konatich are parties to an Employment Agreement dated as of April 1, 1998 (the "Original
Agreement"), as amended on January 19, 2000 (the "Agreement"); and
WHEREAS, the Corporation and Konatich have agreed to amend and restate the Original Agreement in order to add certain
change of control provisions and make other modifications.
NOW, THEREFORE, in consideration of the foregoing premises and of the mutual agreements and covenants hereinafter set
forth, the parties hereto agree to the terms and conditions of this Agreement as follows:
1. Employment for Term. The Corporation hereby employs Konatich and Konatich hereby accepts employment with the
Corporation for the period beginning on January 19, 2000 and ending April 1, 2002. (the "Initial Term"), or upon the earlier
termination of the Term pursuant to Section 6. The termination of Konatich's employment under this Agreement shall end the
Term but shall not terminate Konatich's or the Corporation's other agreements in this Agreement, except as otherwise provided
herein.
2. Position and Duties. During the Term, Konatich shall serve as the Chief Financial Officer of the Corporation. During the
Term, Konatich shall also hold such additional positions and titles as the Board of Directors of the Corporation (the "Board")
may determine from time to time. During the Term, Konatich shall devote as much time as is necessary to satisfactorily perform
his duties as an employee of the Corporation.
3. Compensation.
(a) Base Salary. The Corporation shall pay Konatich a base salary, beginning on the first day of the Term and ending on the last
day of the Term, of not less than $170,000 per annum, payable at least monthly on the Corporation's regular pay cycle for
professional employees (the "Base Salary").
(b) Stock Options. In addition to stock options to purchase 95,000 shares of the Corporation's Common Stock previously
granted, Konatich is hereby granted additional
1
options as follows: Pursuant to the Corporation's stock option plan and subject to stockholder approval of the Corporation's
Amended 1996 Incentive and Non-Qualified Stock Option Plan (the "Plan"), Konatich is hereby granted options to purchase
100,000 shares at an exercise price of $2.00 per share, the closing bid price of the Common Stock of the Corporation on
January 19, 2000 (the "Options"). The Options shall expire on January 19, 2010. The 100,000 Options will vest in eight equal
installments on every three month anniversary of the date of the Amendment. All unvested options shall automatically vest upon
the closing of a Change of Control. In the event the closing bid price of the common stock of the Corporation is at least $10.00
per share for twenty consecutive trading days prior to January 19, 2001, the first four installments, or the unvested portion of
the balance thereof, shall immediately vest. Similarly, an additional 25,000 options shall immediately vest if the closing bid price
for such twenty day period is $15.00 per share, and an additional 25,000 options if the closing bid price equals or exceeds
$20.00 per share. The Corporation will provide a stock option agreement providing, among other things, that all vested and
non-vested stock options will terminate immediately upon termination for Cause. In the event of termination for any other
reason, all vested options must be exercised within ninety (90) days of termination and all non-vested options will terminate
immediately. In the event the Plan is not approved by the stockholders at the Corporation's 2000 Annual Meeting, the
Corporation shall grant to Konatich such Options outside of the Plan with the same terms and conditions as if granted pursuant
to the Plan.
(c) Other and Additional Compensation. The preceding sections establish the minimum compensation during the Term and shall
not preclude the Board from awarding Konatich a higher salary or any bonuses or stock options in the discretion of the Board
during the Term at any time. The Corporation intends to adopt a performance based bonus plan for 1998 and subsequent years
and Konatich will be eligible to participate in such plan.
4. Employee Benefits. During the Term, Konatich shall be entitled to the employee benefits including vacation, 401(k) plan,
health plan and other insurance benefits made available by the Corporation to any other employee of the Corporation.
5. Expenses. The Corporation shall reimburse Konatich for actual out-of-pocket expenses incurred by him in the performance
of his services for the Corporation upon the receipt of appropriate documentation of such expenses.
6. Termination.
(a) General. The Term shall end immediately upon Konatich's death. The Term may also end for Cause or Disability, as defined
in Section 7.
(b) Notice of Termination. Promptly after it ends the Term, the Corporation shall give Konatich notice of the termination,
including a statement of whether the termination was for Cause or Disability (as defined in Section
7(a) and 7(b)
2
below). The Corporation's failure to give notice under this Section 6(b) shall not, however, affect the validity of the
Corporation's termination of the Term.
(c) Effective Termination by the Corporation. If the Corporation reassigns Konatich's base of operations outside of New York
City, or materially reduces Konatich's duties during the term, including replacing Konatich as Chief Financial Officer, then, at his
option, Konatich may treat such reduction in duties as a termination of the Term without Cause by the Corporation.
7. Severance Benefits.
(a) Cause Defined. "Cause" means (i) willful malfeasance or willful misconduct by Konatich in connection with his employment;
(ii) Konatich's gross negligence in performing any of his duties under this Agreement; (iii) Konatich's conviction of, or entry of a
plea of guilty to, or entry of a plea of nolo contendre with respect to, any crime other than a traffic violation or infraction which
is a misdemeanor; (iv) Konatich's material breach of any written policy applicable to all employees adopted by the Corporation
which is not cured to the reasonable satisfaction of the Corporation within fifteen (15) business days after notice thereof; or (v)
material breach by Konatich of any of his agreements in this Agreement which is not cured to the reasonable satisfaction of the
Corporation within fifteen (15) business days after notice thereof.
(b) Disability Defined. "Disability" shall mean Konatich's incapacity due to physical or mental illness that results in his being
substantially unable to perform his duties hereunder for six consecutive months (or for six months out of any nine month period).
During a period of Disability, Konatich shall continue to receive his base salary hereunder, provided that if the Corporation
provides Konatich with disability insurance coverage, payments of Konatich's base salary shall be reduced by the amount of
any disability insurance payments received by Konatich due to such coverage. The Corporation shall give Konatich written
notice of termination which shall take effect sixty
(60) days after the date it is sent to Konatich unless Konatich shall have returned to the performance of his duties hereunder
during such sixty (60) day period (whereupon such notice shall become void).
(c) Termination. If the Corporation ends the Term for Cause or Disability, or if Konatich resigns as an employee of the
Corporation for reasons other than a material breach by the Corporation of its obligations under this Agreement or a material
reduction of Konatich's duties as provided in Section
6(c), or if Konatich dies, then the Corporation shall have no obligation to pay Konatich any amount, whether for salary,
benefits, bonuses, or other compensation or expense reimbursements of any kind, accruing after the end of the Term, and such
rights shall, except as otherwise required by law, be forfeited immediately upon the end of the Term, except that payments
under
Section 3(a) shall continue for the remainder of the Term unless the Corporation ends the Term for Cause or if Konatich resigns
for reasons other than a material breach by the Corporation of its obligations under this Agreement or a material reduction of
his duties
3
as provided in Section 6(c). If the Corporation ends the Term without Cause, then the Corporation will be obligated to
continue to pay Konatich's salary and all other amounts due hereunder for the remainder of the Term.
8. Change of Control Payment. The provisions of this paragraph 8 set forth the terms of an agreement reached between
Konatich and the Corporation regarding Konatich's rights and obligations upon the occurrence of a "Change in Control" (as
hereinafter defined) of the Corporation. These provisions are intended to assure and encourage in advance Konatich's
continued attention and dedication to his assigned duties and his objectivity during the pendency and after the occurrence of any
such Change in Control. These provisions shall apply in lieu of, and expressly supersede, the provisions of paragraph 7(c) if
Konatich's employment is terminated or Notice of Termination is given ninety (90) days prior to or within eighteen (18) months
after the occurrence of an event constituting a Change in Control.
(a) Escrow. Within ten (10) days after the occurrence of the first event constituting a Change in Control (irrespective of whether
Konatich has actual knowledge of such event), the Corporation shall place immediately negotiable funds in escrow in an amount
equal to Konatich's salary and all other amounts due hereunder for the remainder of the Term, plus such additional amount as
equals the "Gross Up Payment" (as hereinafter defined) thereon (the "Change of Control Amount"). Such escrow shall be
conducted pursuant to a standard escrow agreement among the Corporation, Konatich and an independent escrow agent
providing for the timely payment to Konatich of the amounts hold in such escrow in the event Konatich becomes entitled
thereto under the applicable provisions of this Agreement (the "Escrow Arrangement"). The Escrow Arrangement shall be
maintained until the earlier of (A) nineteen (19) months after the occurrence of an event constituting a Change in Control or (B)
the payment to Konatich of all sums escrowed.
(b) Change in Control. If, within 90 days prior to, or within eighteen
(18) months after the occurrence of an event constituting a Change in Control, Konatich's employment is terminated or a
Notice of Termination is given for any reason other than (A) his death, (B) his Disability, or (C) by Konatich without Cause on
the part of the Corporation, then such termination shall be deemed to be a "Termination Due to Change in Control (herein so
called), in which event the Corporation shall pay Konatich, in a lump sum, on or prior to the fifth (5th) day following the date of
termination of the Term:
(1) an amount equal to the Change of Control Amount (including any Gross Up Payment); and
(2) Konatich's accrued and unpaid base salary.
(c) Stock Option Floor. Upon the occurrence of the first event constituting a Change in Control, all stock options and other
stock-based grants to Konatich by
4
the Corporation shall, irrespective of any provisions of his option agreements, immediately and irrevocably vest and become
exercisable as of the date of such first event whereupon, at any time during the Option Term as defined in the option
agreements, Konatich or his estate may by five
(5) days' advance written notice given to the Corporation, and irrespective of whether Konatich is then employed by the
Corporation or then living, and solely at the election of Konatich or his estate, require the Corporation to:
(1) within thirty (30) days of a request by Konatich or his estate file and cause to become effective a Form S-8 (or other
appropriate form) with the Securities and Exchange Commission ("SEC") registering for resale all shares underlying stock
options granted to Konatich and outstanding with all fees and expenses of such filing being paid by the Corporation, or,
(2) allow Konatich to exercise all or any part of such Stock Options at the option prices therefor specified in the grant of the
Stock Options.
In the event the Corporation does not file and cause to become effective a Form S-8 (or other appropriate form) with the SEC
within the thirty (30) day time period, the Corporation shall pay liquidated damages to Konatich or his estate equal to the
greater of
(a) the amount equal to the difference between the Market Price of the Corporation's common stock and the exercise price of
the stock options multiplied by the aggregate number of stock options outstanding or (b) $500,000. For purposes of this
Section 8(c), Market Price is defined as the average of the closing bid and ask price of the Corporation's common stock on the
Nasdaq SmallCap Market or the closing sale price of the common stock on a national exchange, if listed on such exchange, in
each case, on the day prior to the date of the Corporation's breach of this Section 8(c).
(d) Gross Up Payment
(1) Excess Parachute Payment. If Konatich incurs the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue
Code of 1986 (the "Code") on "Excess Parachute Payments" within the meaning of Section 280G(b)(1) of the Code, the
Corporation will pay to Konatich an amount (the "Gross Up Payment") such that the net amount retained by Konatich, after
deduction of any Excise Tax on both the Excess Parachute Payment and any federal, state and local income tax (together with
penalties and interest) as well as the Excise Tax upon the payment provided for by this subparagraph
8(d)(1), will be equal to the Change of Control Amount.
(2) Applicable Rates. For purposes of determining the amount of the Gross Up Payment, Konatich will be deemed to pay
federal income taxes at the highest marginal rate of federal income taxation in the calendar year
5
in which the Gross Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation in the
state and locality where taxes thereon are lawfully due, net of the maximum reduction (if any) in federal income taxes that could
be obtained from deduction of deductible state and local taxes.
(3) Determination of Gross Up Payment Amount. The determination of whether the Excise Tax is payable and the amount
thereof will be based upon the opinion of tax counsel selected by Konatich and reasonably approved by the Corporation,
which approval will not be unreasonably withheld or delayed. If such opinion is not finally accepted by the Internal Revenue
Service (or state and local taxing authorities), then appropriate adjustments to the Excise Tax will be computed and additional
Gross Up Payments will be made in the manner provided by this subparagraph (d).
(4) Payment. The Corporation will pay the estimated amount of the Gross Up Payment in cash to Konatich at the time specified
in this Agreement. Konatich and the Corporation agree to reasonably cooperate in the determination of the actual amount of the
Gross Up Payment. Further, Konatich and the Corporation agree to make such adjustments to the estimated amount of the
Gross Up Payment as may be necessary to equal the actual amount of the Gross Up Payment, which in the case of the
Corporation will refer to refunds of prior overpayments by the Corporation and in the case of Konatich will refer to additional
payments to Konatich to make up for prior underpayments.
(e) Definitions. For purposes of this paragraph 8, the following terms shall have the following meanings:
"Change in Control" shall mean any of the following:
(1) the acquisition by any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
(the "Acquiring Person"), other than the Corporation, or any of its Subsidiaries or any Excluded Group (as defined herein), of
beneficial ownership (within the meaning of Rule 13d-3- promulgated under the Exchange Act) of 35% or more of the
combined voting power or economic interests of the then outstanding voting securities of the Corporation entitled to vote
generally in the election of directors; provided however, that any transfer from any director or executive officer listed in the
Company's Form 10-KSB for the year ended December 31, 1999 under "Security Ownership of Certain Beneficial Owners"
(the "Excluded Group") will not result in a Change in Control if such transfer was part of a series of related transactions the
effect of which, absent the transfer to such Acquiring Person by the Excluded Group, would not have resulted in the acquisition
6
by such Acquiring Person of 35% or more of the combined voting power or economic interests of the then outstanding voting
securities; or
(2) during any period of 12 consecutive months after the date of this Amendment, the individuals who at the beginning of any
such 12-month period constituted a majority of the Directors (the "Incumbent Non-Investor Majority") cease for any reason to
constitute at least a majority of such Directors; provided that (i) any individual becoming a director whose election, or
nomination for election by the Corporation's stockholders, was approved by a vote of the stockholders having the right to
designate such director and
(ii) any director whose election to the Board or whose nomination for election by the stockholders of the Corporation was
approved by the requisite vote of directors entitled to vote on such election or nomination in accordance with the Restated
Certificate of Incorporation of the Corporation, shall, in each such case, be considered as though such individual were a
member of the Incumbent Non-Investor Majority, but excluding, as a member of the Incumbent Non-Investor Majority, any
such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the
election of the directors of the Corporation (as such terms are used in Rule 14a-2 of Regulation 14A promulgated under the
Exchange Act) and further excluding any person who is an affiliate or associate of an Acquiring Person having or proposing to
acquire beneficial ownership of 25% or more of the combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors; or
(3) the approval by the stockholders of the Corporation of a reorganization, merger or consolidation, in each case, with respect
to which all or substantially all of the individuals and entities who were the respective beneficial owners of the voting securities
of the Corporation immediately prior to such reorganization, merger, or consolidation do not, following such reorganization,
merger, or consolidation, beneficially own, directly or indirectly, more than 50% of the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of directors of the Corporation resulting from such
reorganization, merger, or consolidation; or
(4) the sale or other disposition of assets representing 50% or more of the assets of the Corporation in one transaction or series
of related transactions not initiated or commenced by any person within the Excluded Group; or
(5) a "Fundamental Change in Business" as hereinafter defined; or
(6) a "Hostile Takeover" as hereinafter defined is declared.
7
"Fundamental Change in Business" shall mean that the Corporation, at any time, no longer spends at least fifty percent (50%) of
its annual budget on activities related to biotechnology or pharmaceuticals.
"Hostile Takeover" shall mean any Change in Control which at any time is declared by at least a majority of the Board, directly
or indirectly, to be hostile or not in the best interests of the Corporation, or in which an attempt is made (irrespective of whether
successful) to wrest control away from the incumbent management of the Corporation, or with respect to which the Board
makes any effort to resist.
9. Confidentiality, Ownership, and Covenants.
(a) "Corporation Information" and "Inventions" Defined. "Corporation Information" means all information, knowledge or data of
or pertaining to (i) the Corporation, its employees and all work undertaken on behalf of the Corporation, and (ii) any other
person, firm, corporation or business organization with which the Corporation may do business during the Term, that is not in
the public domain (and whether relating to methods, processes, techniques, discoveries, pricing, marketing or any other
matters). "Inventions" collectively refers to any and all inventions, trade secrets, ideas, processes, formulas, source and object
codes, data, programs, other works of authorship, know-how, improvements, research, discoveries, developments, designs,
and techniques regarding any of the foregoing.
(b) Confidentiality. (i) Konatich hereby recognizes that the value of all trade secrets and other proprietary data and all other
information of the Corporation not in the public domain disclosed by the Corporation in the course of his employment with the
Corporation may be attributable substantially to the fact that such confidential information is maintained by the Corporation in
strict confidentiality and secrecy and would be unavailable to others without the expenditure of substantial time, effort or money.
Konatich, therefore, except as provided in the next two sentences, covenants and agrees that all Corporation Information shall
be kept secret and confidential at all times during the Term and for the five (5) year period after the end of the Term and shall
not be used or divulged by him outside the scope of his employment as contemplated by his Agreement, except as the
Corporation may otherwise expressly authorize by action of the Board. In the event that Konatich is requested in a judicial,
administrative or governmental proceeding to disclose any of the Corporation Information, Konatich will promptly so notify the
Corporation so that the Corporation may seek a protective order of other appropriate remedy and/or waive compliance with
this Agreement. If disclosure of any of the Corporation Information is required, Konatich may furnish the material so required to
be furnished, but Konatich will furnish only that portion of the Corporation Information that legally is required.
(ii) Konatich also hereby agrees to keep the terms of this Agreement confidential to the same extent that the Corporation
maintains such confidentiality
8
(except with regard to any disclosure by the Corporation required under applicable securities laws).
(c) Ownership of Inventions, Patents and Technology. Konatich hereby assigns to the Corporation all of Konatich's rights
(including patent rights, copyrights, trade secret rights, and all other rights throughout the world), title and interest in and to
Inventions, whether or not patentable or registrable under copyright or similar statutes, made or conceived or reduced to
practice or learned by Konatich, either alone or jointly with others, during the course of the performance of services for the
Corporation. Konatich shall also assign to, or as directed by, the Corporation, all of Konatich's right, title and interest in and to
any and all Inventions, the full title to which is required to be in the United States government of any of its agencies. The
Corporation shall have all right, title and interest in all research and work product produced by Konatich as an employee of the
Corporation, including, but not limited to, all research materials and lab books.
(d) Non-Competition Period Defined. "Non-Competition Period" means the period beginning at the end of the Term and
ending one (1) year after the end of the Term.
(e) Covenants Regarding the Term and Non-Competition Period. Konatich acknowledges and agrees that his services pursuant
to this Agreement are unique and extraordinary; that the Corporation will be dependent upon Konatich for the development of
its products; and that he will have access to and control of confidential information of the Corporation. Konatich further
acknowledges that the business of the Corporation is international in scope and cannot be confined to any particular geographic
area. For the foregoing reasons and to induce the Corporation to enter this Agreement, Konatich covenants and agrees that,
subject to Section 9(h), during the Term and the Non-Competition Period Konatich shall not unless with written consent of the
Corporation:
(i) engage in any business related to the research and development of the products or processes in which the Corporation is
engaged in during the Term or in any other business conducted by the Corporation during the Term (collectively the "Prohibited
Activity") in the World for his own account;
(ii) become interested in any individual, corporation, partnership or other business entity (a "Person") engaged in any Prohibited
Activity in the World, directly or indirectly, as an individual, partner, shareholder, officer, director, principal, agent, employee,
trustee, consultant or in any other relationship or capacity; provided, however, that Konatich may own directly or indirectly,
solely as an investment, securities of any Person which are traded on any national securities exchange if Konatich (x) is not a
controlling person of, or a member of a group which controls, such person or (y) does not, directly or indirectly, own 5% or
more of any class of securities of such person; or
9
(iii) directly or indirectly hire, employ or retain any person who at any time during the Term was an employee of the
Corporation or directly or indirectly solicit, entice, induce or encourage any such person to become employed by any other
person.
(f) Remedies. Konatich hereby acknowledges that the covenants and agreements contained in Section 9 are reasonable and
valid in all respects and that the Corporation is entering into this Agreement, inter alia, on such acknowledgement. If Konatich
breaches, or threatens to commit a breach, of any of the Restrictive Covenants, the Corporation shall have the following rights
and remedies, each of which rights and remedies shall be independent of the other and severally enforceable, and all of which
rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Corporation under
law or in equity: (i) the right and remedy to have the Restrictive Covenants specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the
Corporation and that money damages will not provide an adequate remedy to the Corporation; (ii) the right and remedy to
require Konatich to account for and pay over to the Corporation such damages as are recoverable at law as the result of any
transactions constituting a breach of any of the Restrictive Covenants; (iii) if any court determines that any of the Restrictive
Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be
affected and shall be given full effect, without regard to the invalid portions; and (iv) if any court construes any of the Restrictive
Covenants, or any part thereof, to be unenforceable because of the duration of such provision or the area covered thereby,
such court shall have the power to reduce the duration or area of such provision and, in its reduced form, such provision shall
then be enforceable and shall be enforced.
(g) Jurisdiction. The parties intend to and hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any
jurisdiction within the geographical scope of such Covenants. If the courts of any one or more such jurisdictions hold the
Restrictive Covenants wholly unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the
parties that such determination not bar or in any way affect the Corporation's right to the relief provided above in the courts of
any other jurisdiction, within the geographical scope of such Covenants, as to breaches of such Covenants in such other
respective jurisdiction such Covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
(h) Konatich's agreements and covenants under Section 9(e) shall automatically terminate if the Corporation ends the Term
without Cause or Konatich resigns due to a material breach by the Corporation of its obligations under this Agreement or a
material reduction of Konatich's duties as provided in
Section 6(c).
10. Successors and Assigns.
(a) Konatich. This Agreement is a personal contract, and the rights and interests that the Agreement accords to Konatich may
not be sold, transferred,
10
assigned, pledged, encumbered, or hypothecated by him. All rights and benefits of Konatich shall be for the sole personal
benefit of Konatich, and no other person shall acquire any right, title or interest under this Agreement by reason of any sale,
assignment, transfer, claim or judgement or bankruptcy proceedings against Konatich. Except as so provided, this Agreement
shall inure to the benefit of and be binding upon Konatich and his personal representatives, distributes and legatees.
(b) The Corporation. This Agreement shall be binding upon the Corporation and inure to the benefit of the Corporation and of
its successors and assigns, including (but not limited to) any corporation that may acquire all or substantially all of the
corporation's assets or business or into or with which the Corporation may be consolidated or merged. In the event that the
Corporation sells all or substantially all of its assets, merges or consolidates, otherwise combines or affiliates with another
business, dissolves and liquidates, or otherwise sells or disposes of substantially all of its assets and Konatich does not elect to
treat any such transaction as a termination by the Corporation without Cause pursuant to Section 7(c), then this Agreement
shall continue in full force and effect. The Corporation's obligations under this Agreement shall cease, however, if the successor
to, the purchaser or acquirer either of the Corporation or of all or substantially all of its assets, or the entity with which the
Corporation has affiliated, shall assume in writing the Corporation's obligations under this Agreement (and deliver and executed
copy of such assumption to Konatich), in which case such successor or purchaser, but not the Corporation, shall thereafter be
the only party obligated to perform the obligations that remain to be performed on the part of the Corporation under this
Agreement.
11. Entire Agreement. This Agreement represents the entire agreement between the parties concerning Konatich's employment
with the Corporation and supersedes all prior negotiations, discussions, understanding and agreements, whether written or oral,
between Konatich and the Corporation relating to the subject matter of this Agreement.
12. Amendment or Modification, Waiver. No provision of this Agreement may be amended or waived unless such amendment
or waiver is agreed to in writing signed by Konatich and by a duly authorized officer of the Corporation. No waiver by any
party to this Agreement or any breach by another party of any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or
any subsequent time.
13. Notices. Any notice to be given under this Agreement shall be in writing and delivered personally or sent by overnight
courier or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the
address indicated below, or to such other address of which such party subsequently may give notice in writing:
11
If to Konatich: Thomas Konatich
18 Plymouth Road
Port Washington, NY 11050
If to the Corporation: SIGA TECHNOLOGIES, INC.
420 Lexington Avenue
Suite 620
New York, NY 10170
Fax: 212-697-3130
Attention: Joshua D. Schein
with a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, NY 10022
Attention: Jeffrey J. Fessler
Any notice delivered personally or by overnight courier shall be deemed given on the date delivered and any notice sent by
registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date mailed.
14. Severability. If any provision of this Agreement or the application of any such provision to any party or circumstances shall
be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this
Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to
be invalid and unenforceable shall not be affected, and each provision of this Agreement shall be validated and shall be
enforced to the fullest extent permitted by law. If for any reason any provision of this Agreement containing restrictions is held
to cover an area or to be for a length of time that is unreasonable or in any other way is construed to be too broad or to any
extent invalid, such provision shall not be determined to be entirely null, void and of no effect; instead, it is the intention and
desire of both the Corporation and Konatich that, to the extent that the provision is or would be valid or enforceable under
applicable law, any court of competent jurisdiction shall construe and interpret or reform this Agreement to provide for a
restriction having the maximum enforceable area, time period and such other constraints or conditions (although not greater than
those contained currently contained in this Agreement) as shall be valid and enforceable under the applicable law.
15. Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement
to the extent necessary to the intended preservation of such rights and obligations.
16. Headings. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience of
reference, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph.
12
17. Withholding Taxes. All salary, benefits, reimbursements and any other payments to Konatich under this Agreement shall be
subject to all applicable payroll and withholding taxes and deductions required by any law, rule or regulation of and federal,
state or local authority.
18. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an
original but all of which together constitute one and same instrument.
19. Applicable Law; Arbitration. The validity, interpretation and enforcement of this Agreement and any amendments or
modifications hereto shall be governed by the laws of the State of New York, as applied to a contract executed within and to
be performed in such State. The parties agree that any disputes shall be definitively resolved by binding arbitration before the
American Arbitration Association in New York, New York and consent to the jurisdiction to the federal courts of the Southern
District of New York or, if there shall be no jurisdiction, to the state courts located in New York County, New York, to
enforce any arbitration award rendered with respect thereto. Each party shall choose one arbitrator and the two arbitrators
shall choose a third arbitrator. All costs and fees related to such arbitration (and judicial enforcement proceedings, if any) shall
be borne by the unsuccessful party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
SIGA TECHNOLOGIES, INC.
By: /s/ Joshua D. Schein
----------------------
Joshua D. Schein
Chief Executive Officer
/s/ Thomas Konatich
----------------------
Thomas Konatich
13
Exhibit 4
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT BETWEEN SIGA
PHARMACEUTICALS, INC. AND DENNIS E. HRUBY DATED JANUARY 1, 1998
Paragraph 1 of the above Agreement, as amended on October 18, 1999, shall be deleted in its entirety and replaced with the
following:
1. Employment for Term. The Corporation hereby employs Hruby and Hruby hereby accepts employment with the
Corporation for the period beginning on the date of this Agreement and ending on December 31, 2002 (the "Initial Term"), or
upon the earlier termination of the Term pursuant to Section 7. The foregoing notwithstanding, Corporation shall have the right
to terminate Hruby's employment under this Agreement upon 180 days written notice and such termination will be treated as
Termination with Cause pursuant to Section 8 of this Agreement. The termination of Hruby's employment under this Agreement
shall end the Term but shall not terminate Hruby's or the Corporation's other agreements in this Agreement, except as otherwise
provided in this Agreement.
Paragraph 3 shall be deleted in its entirety and replaced with the following:
3. Position and Duties. During the Term, Hruby shall serve as the Chief Scientific Officer of SIGA Research Laboratories, the
Corporation's biotechnology division. During the Term, Hruby shall also hold such additional positions and titles as the Board of
Directors of the Corporation (the "Board") may determine from time to time. During the Term, Hruby shall devote his full time
and efforts to his duties as an employee of the Corporation (aside from his commitment to Oregon State University to oversee
research funded by, or of interest to, the Corporation).
Section 4 shall be deleted in its entirety and replaced with the following:
4.
(a) Base Salary. The Corporation shall pay Hruby a base salary, beginning June 12, 2000, of $180,000, payable at least
monthly on the Corporation's regular pay cycle for professional employees.
(b) Stock Options. Pursuant to the Corporation's stock option plan, the Corporation shall grant to Hruby options to purchase
125,000 shares of the Corporation's Common Stock at an exercise price of $2.00 per share. The options shall vest as follows:
25,000 shares on December 31, 2000; 25,000 shares on June 30, 2001; 25,000 shares on December 31, 2001; 25,000
shares on June 30, 2002, and 25,000 shares on December 31, 2002. In the event of a sale or merger of SIGA Research
Laboratories or in the event of a change in ownership of greater than fifty percent (50%) of the Corporation's outstanding
voting stock or any transaction described in Section 10(b), all unvested stock options issued pursuant to this agreement shall
immediately vest.
(c) Lock-up. All shares issued pursuant to the above grant of 125,000 options shall be subject to a lock-up agreement and
Hruby will not be permitted to sell any such shares until six months after his employment with the Corporation ends. Beginning
six months after Hruby's employment with the Corporation ends, the shares will be released from the lock-up at a rate of
12,500 shares per month.
(d) Additional Compensation. Hruby shall receive an annual cash bonus equal to one percent (1.0%) of all net revenues
generated in a given year by Hruby and the employees of SIGA Research Laboratories. The bonus shall be paid on December
1 of each year of employment. Net revenues shall include all research grants, research support from other companies received
by SIGA Research Laboratories and milestone payments received pursuant to license or sub-license agreements. Net revenues
shall not include expense reimbursements (e.g. for patent expenses), royalties on product sales pursuant to a sublicense or
revenues from direct product sales by the Corporation. Payments by SIGA to third parties (e.g. universities) for additional
research and development of the technologies that are the subject of the funding shall be deducted from gross revenues in
calculating net revenues.
Notices to the Corporation, as described in Section 13, shall be sent to:
SIGA Technologies, Inc.
420 Lexington Avenue, Suite 620
New York, NY 10170
Fax: 212-697-3130
Attention: Joshua D. Schein
With a copy to:
Camhy Karlinsky & Stein LLP 1740 Broadway, 16th Floor New York, NY 10010
Fax: 212-977-8389
Attention: Jeffrey Fessler, Esq.
AGREED AND ACCEPTED:
SIGA TECHNOLOGIES, INC.
By: /s/ Joshua D. Schein Date: 6/16/00
------------------------------ ----------------------------------
Joshua D. Schein
Its: Chief Executive Officer
By: /s/ Dennis E. Hruby Date: 6/13/00
------------------------------ ----------------------------------
Dennis E. Hruby
Exhibit 5
***************************** NOTICE OF GRANT AWARD ****************************
NIH CHALLENGE GRANTS AND PARTNERSHIPS Issue Date: 05/03/2000
Department of Health and Human Services
National Institutes Of Health
NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES
********************************************************************************
Grant Number: 1 RC1 AI48870-01
Principal Investigator: HRUBY, DENNIS E PHD
Project Title: NOVEL ANTI-INFECTIVES TO COMBAT RESISTANT STAPHYLOCOCCUS
CFO
SIGA TECHNOLOGIES, INC
420 LEXINGTON AVE.
SUITE 620
NY, NY 10170
Budget Period: 05/03/2000 - 08/31/2000 Project Period: 05/03/2000 - 08/31/2000
Dear Business Official:
The National Institutes of Health hereby awards a grant in the amount of $26,000(see "Award Calculation" in Section I) to
SIGA PHARMACEUTICALS, INC. in support of the above referenced project. This award is pursuant to the authority of 42
USC 241 P.L. 106 - 113 and is subject to terms and conditions referenced below.
Acceptance of this award including the Terms and Conditions is acknowledged by the grantee when funds are drawn down or
otherwise obtained from the grant payment system.
Award recipients are responsible for reporting inventions derived or reduced to practice in the performance of work under this
grant. Rights to inventions vest with the grantee organization provided certain requirements are met and there is
acknowledgement of NIH support. In addition, recipients must ensure that patent and license activities are consistent with their
responsibility to make unique research resources developed under this award available to the scientific community, in
accordance with NIH policy. For additional information, please visit http://www.iedison.gov.
If you have any questions about this award, please contact the individual(s) referenced in the information below.
Sincerely yours,
/s/ Ann H. Haugh
Grants Management Officer
NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES
See additional information below
SECTION I - AWARD DATA - 1 RC1 AI48870-01
AWARD CALCULATION (U.S. Dollars):
Direct Costs $18,000
F&A Costs $ 8,000
APPROVED BUDGET $26,000
TOTAL $26,000
FISCAL INFORMATION:
CFDA Number: 93.855
EIN: 1133864870A1
Document Number: R1AI48870A
IC/ CAN / FY2000
AI / 8425554 / 26,000
NIH ADMINISTRATIVE DATA:
PCC: M36 / OC: 41.4A /Processed: PFELNER 000501 0942
SECTION II - PAYMENT/HOTLINE INFORMATION - 1 RC1 AI48870-01
For Payment and HHS Office of Inspector General Hotline Information, see the NIH Home Page at
http://grants.nih.gov/grants/policy/awardconditions.htm
SECTION III - TERMS AND CONDITIONS - 1 RC1 AI48870-01
This award is based on the application submitted to, and as approved by, the NIH on the above-titled project and is subject to
the terms and conditions incorporated either directly or by reference in the following:
a. The grant program legislation and program regulation cited in this Notice of Grant Award.
b. The restrictions on the expenditure of federal funds in appropriations acts, to the extent those restrictions are pertinent to the
award.
c. 45 CFR Part 74 or 45 CFR Part 92 as applicable.
d. The NIH Grants Policy Statement, including addenda in effect as of the beginning date of the budget period.
e. This award notice, INCLUDING THE TERMS AND CONDITIONS CITED BELOW.
(see NIH Home Page at http://grants.nih.gov/grants/policy/awardconditions.htm for certain references cited above.)
This grant is excluded from Expanded Authorities.
Treatment of Program Income:
Additional Costs
"The policies, as stated in the NIH Grants Policy Statement of October 1998 and RFA AI-00-010, as announced in the NIH
Guide for Grants and Contracts on February 10, 2000 must be followed."
http://grants.nih.gov/grants/guide/rfa-files/RFA-AI-00-O1O.html
Travel funds, in the amount of $1,000, are provided for an individual to attend a mandatory Challenge Grant Program - Phase
II meeting to be held on May 8, 2000. Additional information will be provided in a separate letter. These funds are restricted
for this purpose only and may not be rebudgeted.
For Phase I Challenge Grants - Restriction: Federal funds shall not be expended for research involving live vertebrate animals
or human subjects, and individuals shall not be enrolled in such research without prior approval of the Office for Protection
from Research Risks (OPRR)."
The above referenced grant is scheduled to expire on 8/31/00. Unless an application for competitive renewal is funded, grant
closeout documents must be submitted within 90 days of the expiration of the grant. Grant closeout documents consist of a
Financial Status Report (OMB 269), Final Invention Statement (HHS 568) and a Final Progress Report.
The Final Progress Report may be typed on plain white paper and should include, at a minimum, a summary statement of
progress toward the achievement of the originally stated aims, a list of results (positive and/or negative) considered significant,
and a list of publications resulting from the project as well as plans for further publications. An original and one copy are
required.
Please send the Final Progress Report and Final Invention Statement & a copy of the Financial Status Report to the following
address:
ATTENTION: CLOSEOUT
NIH, NIAID, Division of Extramural Activities Grants Management Branch
Room 2200, 6700-B Rockledge Drive, MSC-7614 Bethesda, Maryland 20892-7614
The Financial Status Report should be sent to:
Division of Financial Management, NIH
9000 Rockville Pike, MSC-2052
Building 31, Room B1B05A
Bethesda, Maryland 20892-2052
Grants Management Contact:
Patricia Felner
(301) 402-6450 phone
(301) 480-3780 fax pf14h@nih.gov email Stephen P Heyse, Program Official 301-496-7728 sh42i@nih.gov Karen McVay,
Grants Specialist
Exhibit 6
***************************** NOTICE OF GRANT AWARD ****************************
SMALL BUSINESS INNOVATION RESEARCH PROG Issue Date: 08/01/2000
Department of Health and Human Services
National Institutes Of Health
NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES
********************************************************************************
Grant Number: 1 R43 AI46828-01
Principal Investigator: JONES, C HAL PHD
Project Title: DEGP PROTEINASE INHIBITORS: NOVEL ANTI-INFECTIVES
CHIEF FINANCIAL OFFICER
SIGA PHARMACEUTICALS INC
420 LEXINGTON AVE
SUITE 620
NEW YORK, NY 10170
Budget Period: 08/01/2000 - 01/31/2001 Project Period: 08/01/2000 - 01/31/2001
Dear Business Official:
The National Institutes of Health hereby awards a grant in the amount of $96,163 (see "Award Calculation" in Section I) to
SIGA TECHNOLOGIES, INC. in support of the above referenced project. This award is pursuant to the authority of 42
USC 241 42 CFR PART 52 15 USC 638 and is subject to terms and conditions referenced below.
Acceptance of this award including the Terms and Conditions is acknowledged by the grantee when funds are drawn down or
otherwise obtained from the grant payment system.
Award recipients are responsible for reporting inventions derived or reduced to practice in the performance of work under this
grant. Rights to inventions vest with the grantee organization provided certain requirements are met and there is
acknowledgement of NIH support. In addition, recipients must ensure that patent and license activities are consistent with their
responsibility to make unique research resources developed under this award available to the scientific community, in
accordance with NIH policy. For additional information, please visit http://www.iedison.gov.
If you have any questions about this award, please contact the individual(s) referenced in the information below.
Sincerely yours,
/s/ Ann Devine
Ann Devine
Grants Management Officer
NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES
See additional information below
SECTION I - AWARD DATA - 1 R43 AI46828-01
AWARD CALCULATION (U.S. Dollars):
Salaries and Wages $24,800
Personnel Costs $24,800
Supplies $15,000
Travel Costs $2,000
Other Costs $3,000
Consortium/Contractual Cost $20,000
Direct Costs $64,800
F&A Costs $25,920
APPROVED BUDGET $90,720
Fee $5,443
TOTAL $96,163
FISCAL INFORMATION:
CFDA Number: 93.856
EIN: 1133864870A1
Document Number: R3AI46828A
IC/ CAN / FY2000
AI/ 8425710 / 96,163
NIH ADMINISTRATIVE DATA:
PCC: M52 / OC: 41.4A /Processed: ADEVINE 000727 0901
SECTION II - PAYMENT/HOTLINE INFORMATION - 1 R43 AI46828-01
For Payment and HHS Office of Inspector General Hotline Information, see the NIH Home Page at
http://grants.nih.gov/grants/policy/awardconditions.htm
SECTION III - TERMS AND CONDITIONS - 1 R43 AI46828-01
This award is based on the application submitted to, and as approved by, the NIH on the above-titled project and is subject to
the terms and conditions incorporated either directly or by reference in the following:
a. The grant program legislation and program regulation cited in this Notice of Grant Award.
b. The restrictions on the expenditure of federal funds in appropriations acts, to the extent those restrictions are pertinent to the
award.
c. 45 CFR Part 74 or 45 CFR Part 92 as applicable.
d. The NIH Grants Policy Statement, including addenda in effect as of the beginning date of the budget period.
e. This award notice, INCLUDING THE TERMS AND CONDITIONS CITED BELOW.
(see NIH Home Page at http://grants.nih.gov/grants/policy/awardconditions.htm for certain references cited above.)
This grant is excluded from Expanded Authorities.
Treatment of Program Income:
Additional Costs
Information concerning funding, policy, administrative issues, is available for First-Time NIH grantee organizations via the NIH
"Welcome Wagon" Memorandum. This document may be access through the following Internet address:
http: //www.nih.gov/grants/funding/welcomewagon.htm
PAYMENT INFORMATION: The awardee organization will receive information and forms from the Payment Management
System of the Department of Health and Human Services regarding requests for cash, manners of payment, and associated
reporting requirements. Payment may be made on a cost-reimbursement or advance basis. Cost reimbursements may be
requested monthly, quarterly, or at other periodic intervals. Advance payments may be requested on a monthly basis only. The
telephone number for the Payment Management System Office is (301) 443-1660.
The fixed fee provided as part of this grant award is included in the maximum allowable total costs. An adjustment of the fee
will be made in the event the grant is terminated. The fee is to be drawn down from the HHS Payment Management System in
increments proportionate to the drawdown of funds for costs.
Normally, the awardee organization retains the principal worldwide patent rights to any invention developed with United States
government support. Under Title 37 Code of Federal Regulations Part 401, the Government receives a royalty-free license for
its use, reserves the right to require the patent holder to license others in certain circumstances, and requires that anyone
exclusively licensed to sell the invention in the United States must normally manufacture it substantially in the United States. To
the extent authorized by Title 35 United States Code Section 205, the Government will not make public any information
disclosing a Government-supported invention for a 4-year period to allow the awardee organization a reasonable time to file a
patent application, nor will the Government release any information that is part of that application.
When purchasing equipment or products under this SBIR award, the grantee shall use only American-made items whenever
possible.
The above referenced grant is scheduled to expire on 01/31/2001. Unless an application for competitive renewal is funded,
grant closeout documents must be submitted within 90 days of the expiration of the grant. Grant closeout documents consist of
a Financial Status Report (0MB 269), Final Invention Statement (HHS 568) and a Final Progress Report.
The Final Progress Report may be typed on plain white paper and should include, at a minimum, a summary statement of
progress toward the achievement of the originally stated aims, a list of results (positive and/or negative) considered significant,
and a list of publications resulting from the project as well as plans for further publications. An original and one copy are
required.
Please send the Final Progress Report and Final Invention Statement & a copy of the Financial Status Report to the following
address:
ATTENTION: CLOSEOUT
NIH, NIAID, Division of Extramural Activities Grants Management Branch
Room 2200, 6700-B Rockledge Drive, MSC-7614 Bethesda, Maryland 20892-7614
The Financial Status Report should be sent to:
Division of Financial Management, NIH
9000 Rockville Pike, MSC-2052
Building 31, Room B1BO5A
Bethesda, Maryland 20892-2052
Grants Management Contact:
Jeannette Gordon
(301) 402-5065 phone
(301) 480-3780 fax jg82s@nih.gov email
Program Official Contact:
Christopher K-H Tseng, Ph.D.
(301) 496-7453
Christopher Tseng, Program Official 301-496-7453 ct23i@nih.gov Karen McVay, Grants Specialist (301)402-6578
km18f@nih.gov
SPREADSHEET
GRANT NUMBER: 1 R43 AI46828-01
P.I.: JONES, C HAL
INSTITUTION: SIGA TECHNOLOGIES, INC.
YEAR 01
Salaries and Wages 24,800
Personnel Costs 24,800
Supplies 15,000
Travel Costs 2,000
Other Costs 3,000
Consortium/Contractual Cost 20,000
TOTAL DC 64,800
TOTAL F&A 25,920
TOTAL COST 90,720
YEAR 01
=========
F&A Cost Rate 1 40.00%
F&A Cost Base 1 64,800
F&A Costs 1 25,920
FEE 5,443
Exhibit 7
***************************** NOTICE OF GRANT AWARD ****************************
SMALL BUSINESS INNOVATION RESEARCH PROG Issue Date: 08/21/2000
Department of Health and Human Services
National Institutes Of Health
NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES
********************************************************************************
Grant Number: 1 R43 AI46899-01A1
Principal Investigator: JONES, C H PHD
Project Title: DEVELOPMENT OF AN ANTI-ADHESIN BASED GONOCOCCAL VACCINE
CHIEF FINANCIAL OFFICER
SIGA PHARMACEUTICALS INC
420 LEXINGTON AVE
SUITE 620
NEW YORK, NY 10170
Budget Period: 09/15/2000 - 03/14/2001
Project Period: 09/15/2000 - 03/14/2001
Dear Business Official:
The National Institutes of Health hereby awards a grant in the amount of $125,000(see "Award Calculation" in Section I) to
SIGA TECHNOLOGIES, INC. in support of the above referenced project. This award is pursuant to the authority of 42
USC 241 42 CFR PART 52 15 USC 638 and is subject to terms and conditions referenced below.
Acceptance of this award including the Terms and Conditions is acknowledged by the grantee when funds are drawn down or
otherwise obtained from the grant payment system.
Award recipients are responsible for reporting inventions derived or reduced to practice in the performance of work under this
grant. Rights to inventions vest with the grantee organization provided certain requirements are met and there is
acknowledgement of NIH support. In addition, recipients must ensure that patent and license activities are consistent with their
responsibility to make unique research resources developed under this award available to the scientific community, in
accordance with NIH policy. For additional information, please visit http://www.iedison.gov.
If you have any questions about this award, please contact the individual(s) referenced in the information below.
Sincerely yours,
/s/ Cathy Walker
Cathy Walker
Grants Management Officer
NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES
See additional information below
SECTION I - AWARD DATA - 1 R43 AI46899-01A1
AWARD CALCULATION (U.S. Dollars):
Salaries and Wages $56,750
Personnel Costs $56,750
Supplies $28,250
Direct Costs $85,000
F&A Costs $34,000
APPROVED BUDGET $119,000
Fee $6,000
TOTAL $125,000
FISCAL INFORMATION:
CFDA Number: 93.856
EIN: 1133864870A1
Document Number: R3AI46899A
IC/ CAN / FY2000
AI/ 8425743 / 125,000
NIH ADMINISTRATIVE DATA:
PCC: M48 / OC: 41.4A /Processed: CWALKER 000817 0227
SECTION II - PAYMENT/HOTLINE INFORMATION - 1 R43 AI46899-01A1
For Payment and HHS Office of Inspector General Hotline Information, see the NIH Home Page at
http://grants.nih.gov/grants/policy/awardconditions.htm
SECTION III - TERMS AND CONDITIONS - 1 R43 AI46899-O1A1
This award is based on the application submitted to, and as approved by, the NIH on the above-titled project and is subject to
the terms and conditions incorporated either directly or by reference in the following:
a. The grant program legislation and program regulation cited in this Notice of Grant Award.
b. The restrictions on the expenditure of federal funds in appropriations acts, to the extent those restrictions are pertinent to the
award.
C. 45 CFR Part 74 or 45 CFR Part 92 as applicable.
d. The NIH Grants Policy Statement, including addenda in effect as of the beginning date of the budget period.
e. This award notice, INCLUDING THE TERMS AND CONDITIONS CITED BELOW.
(see NIH Home Page at http://grants.nih.gov/grants/policy/awardconditions.htm for certain references cited above.)
This grant is excluded from Expanded Authorities.
Treatment of Program Income:
Additional Costs
NOTICE: UNDER GOVERNING POLICY, FEDERAL FUNDS ADMINISTERED BY THE NIH MAY NOT BE
EXPENDED FOR RESEARCH INVOLVING LIVE VERTEBRATE ANIMALS
WITHOUT PRIOR APPROVAL BY THE OFFICE FOR PROTECTION FROM RESEARCH RISKS. THIS
APPROVAL TAKES THE FORM OF AN ASSURANCE TO COMPLY WITH THE PHS POLICY ON HUMANE
CARE AND USE OF LABORATORY ANIMALS. THIS RESTRICTION OF $125,000 APPLIES TO ALL
PERFORMANCE SITES (e.g., COLLABORATING INSTITUTIONS, SUBCONTRACTORS, SUBGRANTEES)
WITHOUT OPRR-APPROVED ASSURANCES, WHETHER DOMESTIC OR FOREIGN. THIS RESTRICTION MAY
ONLY BE LIFTED VIA REVISED NOTICE OF GRANT AWARD.
PAYMENT INFORMATION: The awardee organization will receive information and forms from the Payment Management
System of the Department of Health and Human Services regarding requests for cash, mariners of payment, and associated
reporting requirements. Payment may be made on a cost-reimbursement or advance basis. Cost eimbursements may be
requested monthly, quarterly, or at other periodic intervals. Advance payments may be requested on a monthly basis only. The
telephone number for the Payment Management System Office is (301) 443-1660.
The fixed fee provided as part of this grant award is included in the maximum allowable total costs. An adjustment of the fee
will be made in the event the grant is terminated. The fee is to be drawn down from the HHS Payment Management System in
increments proportionate to the drawdown of funds for costs.
Normally, the awardee organization retains the principal worldwide patent rights to any invention developed with United States
government support. Under Title 37 Code of Federal Regulations Part 401, the Government receives a royalty-free license for
its use, reserves the right to require the patent holder to license others in certain circumstances, and requires that anyone
exclusively licensed to sell the invention in the United States must normally manufacture it substantially in the United States. To
the extent authorized by Title 35 United States Code Section 205, the Government will not make public any information
disclosing a Government-supported invention for a 4-year period to allow the awardee organization a reasonable time to file a
patent application, nor will the Government release any information that is part of that application.
When purchasing equipment or products under this SBIR award, the grantee shall use only American-made items whenever
possible.
The above referenced grant is scheduled to expire on 3/14/01. Unless an application for competitive renewal is funded, grant
closeout documents must be submitted within 90 days of the expiration of the grant. Grant closeout documents consist of a
Financial Status Report (0MB 269), Final Invention Statement (HHS 568) and a Final Progress Report.
The Final Progress Report may be typed on plain white paper and should include, at a minimum, a summary statement of
progress toward the achievement of the originally stated aims, a list of results (positive and/or negative) considered significant,
and a list of publications resulting from the project as well as plans for further publications. An original and one copy are
required.
Please send the Final Progress Report and Final Invention Statement & a copy of the Financial Status Report to the following
address:
ATTENTION: CLOSEOUT
NIH, NIAID, Division of Extramural Activities Grants Management Branch
Room 2200, 6700-B Rockledge Drive, MSC-7614 Bethesda, Maryland 20892-7614
The Financial Status Report should be sent to:
Division of Financial Management, NIH
9000 Rockville Pike, MSC-2052
Building 31, Room B1BO5A
Bethesda, Maryland 20892-2052
If you have a question on the award calculation or the terms and conditions of the award, your grants management contact
should be Pat Felner_ at (301) 402-6450.
Grants Management Contact:
Karen McVay
(301) 402-6578
(301) 480-3780 fax km18f@nih.gov email
Penelope Hitchcock, Program Official 301-402-0443 ph22k@nih.gov Karen McVay, Grants Specialist (301)402-6578
km18fnih.gov
SPREADSHEET
GRANT NUMBER: 1 R43 AI46899-01A1
P.I.: JONES, C H
INSTITUTION: SIGA TECHNOLOGIES, INC.
YEAR 01
Salaries and Wages 56,750
Personnel Costs 56,750
Supplies 28,250
TOTAL DC 85,000
TOTAL F&A 34,000
TOTAL COST 119,000
YEAR 01
========
F&A Cost Rate 1 40.00%
F&A Cost Base 1 85,000
F&A Costs 1 34,000
FEE 6,000
Exhibit 8
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") made as of the 7th day of July, 2000, by and between Open-i
Media, Inc., a New York corporation ("Seller" or the "Company"), and SIGA Technologies, Inc., a Delaware corporation
("Purchaser").
W I T N E S S E T H:
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to purchase from Seller, one million one hundred
forty-three thousand (1,143,000) shares of Series A Preferred stock, par value $0.001 per share, of Seller, all on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual representations, warranties and covenants contained herein,
and intending to be legally bound hereby, the parties agree as follows:
1. Purchase of Shares. (a) Seller hereby agrees to sell to Purchaser, and Purchaser hereby agrees to purchase from Seller, one
million one hundred forty-three thousand (1,143,000) shares of Series A Preferred stock of Seller, par value $0.001 per share,
(the "Purchased Shares"), for and in consideration of the sum of One Hundred Seventy Thousand Dollars ($170,000) in cash
paid concurrently herewith in immediately available funds, plus the number of shares of Purchaser common stock as shall equal
One Hundred Eighty Thousand Dollars ($180,000) (the "SIGA Shares") as calculated based on the average closing sale price
of Purchaser's common stock on the Nasdaq Small Cap Market on the five (5) trading dates preceding the Closing Date (as
hereinafter defined), plus all right, title, and interest in and to that certain computer program identified as "Peerfinder" as set forth
in the Assignment of Intellectual Property Agreement attached hereto as Exhibit A, including appropriate assignments (the
"Assets"). The rights, privileges, preferences and other terms of the Purchased Shares are set forth in the Restated Certificate of
Incorporation of the Company (the "Restated Certificate of Incorporation"), a copy of which is attached hereto as Exhibit B.
(b) No later than September 30, 2000, subject to any comments of the Securities and Exchange Commission (the "SEC"),
Purchaser shall cause a registration statement under the Securities Act of 1933, as amended (the "Securities Act") on Form S-3
(or on any successor form to Form S-3 regardless of its designation) covering the SIGA Shares to become effective under the
Securities Act, and Purchaser shall use its reasonable best efforts to keep such registration effective in accordance with
applicable regulations for a period of five (5) months from the date on which the SEC declares such registration statement
effective until the SIGA Shares have been sold pursuant to such registration statement.
(c) Title to the Assets shall be conveyed to Seller, on the Closing Date (as hereinafter defined), free and clear of all liens and
encumbrances. Purchaser shall assume no obligations or liabilities of Seller whatsoever, whether known or unknown, matured
or unmatured, absolute or contingent, whether relating to the Assets or otherwise.
(d) The closing of the purchase and sale of the Purchased Shares hereunder (the "Closing") shall take place at the offices of
Camhy Karlinsky & Stein LLP, 1740 Broadway, New York, New York at 10:00 am on July 7, 2000 or at such other time
and place as the Company and Purchaser may agree in writing (the "Closing Date").
2. Board Positions. (a) Until (i) such time as Purchaser owns less than five percent (5%) of Seller's stock on a fully diluted
basis, or (ii) the date of the consummation of an initial public offering of Seller's stock, Seller shall have the obligation to cause
Purchaser's representative ("Purchaser's Director") to be appointed to Seller's board of directors. Seller and Purchaser agree
that Purchaser's Director shall be either Judson Cooper, Josh Schein, Dave Kaufman or such other person as shall be mutually
acceptable to Seller and Purchaser. The number of directors on the Company's Board of Directors shall be initially set at five
(5). To determine when Purchaser owns less than five percent (5%) of Seller's stock for purposes of this Section 2(a) the total
number of shares of common stock issued or issuable to Purchaser shall be divided by (b) the total number of issued and
outstanding shares of common and preferred stock of Seller, which number shall not include any capital stock issuable upon
exercise of outstanding options or warrants of Seller.
(b) Any board action approving a Below Market Transaction shall require the affirmative vote of Purchaser's Director. A
"Below Market Transaction" as defined herein, shall mean either (i) a sale of all or substantially all the assets of the Corporation;
or (ii) a merger or consolidation involving the Company in which the Company is not the surviving entity and in which the
shareholders of the Company immediately preceding such transaction do not own at least fifty percent (50%) of the total equity
interest in the resulting entity after such transaction is closed, and in either (b)(i) or (b)(ii) above, the valuation of Seller is less
than ten million dollars ($10,000,000).
3. Seller Representations and Warranties. Seller hereby represents and warrants to Purchaser as follows:
3.1 Organization and Standing. The Company is a corporation duly organized, validly existing and is in good standing under the
laws of the State of New York, and has the requisite corporate power and authority to own its properties and to carry on its
business in all material respects as now being conducted and as proposed to be conducted. Except as set forth in Schedule 3.1,
the Company has no subsidiaries or direct or indirect ownership interest in any firm, corporation, partnership, joint venture,
association or other business organization. The Company is qualified to do business and is in good standing as a foreign
corporation in every jurisdiction in which its ownership of property or conduct of business requires it so to be qualified and in
which the failure to so qualify would result in any change or effect that is materially adverse (a "Material Adverse Effect") to the
business, properties, results of operations or financial condition taken as a whole (collectively, "Condition") of the Company.
The Company has the requisite corporate power and authority to execute and deliver this Agreement and to issue the
Purchased Shares and the common stock into which the Purchased Shares are convertible (the "Conversion Shares") and to
otherwise perform its obligations under this Agreement. The copies of the Restated Certificate of Incorporation and Bylaws of
the Company delivered to Purchaser prior to the execution of this Agreement are true and complete copies of
2
the duly and legally adopted certificate of incorporation and bylaws of the Company in effect as of the date of this Agreement.
3.2 Financial Statements. Attached hereto as Exhibit C are the Company's unaudited balance sheet as of May 31, 2000 (the
"Balance Sheet Date") and profit and loss statements through March, 2000 (the "Financial Statements"). The Financial
Statements (i) have been prepared in accordance with the Company's books and records and (ii) fairly present in all material
respects the financial condition and operating results of the Company as of the dates, and for the periods indicated therein,
subject to normal year-end review adjustments that individually or in the aggregate will not be material to the financial condition
or business of the Company. Except as reflected in the Financial Statements, the Company has no material liabilities, contingent
or otherwise, other than (i) liabilities incurred in the ordinary course of business since the Balance Sheet Date and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and not required under GAAP to be reflected in
the Financial Statements, which, in the case of both (i) and (ii), individually or in the aggregate, are not material to the financial
condition or business of the Company.
3.3 Events Subsequent to the Balance Sheet Date. Since the Balance Sheet Date, except pursuant to the transactions
contemplated hereby or as set forth on Schedule 3.3 attached hereto, the Company has not (i) issued any stock, bond or other
corporate security, (ii) borrowed any amount, or incurred or become subject to any liability (absolute, accrued or contingent),
except current liabilities incurred and liabilities under contracts entered into in the ordinary course of business of the Company
and consistent with its past practice ("Ordinary Course of Business"), (iii) discharged or satisfied any lien or encumbrance, or
incurred or paid any obligation or liability (absolute, accrued or contingent), other than current liabilities shown on the Financial
Statements and current liabilities incurred since the Balance Sheet Date in the Ordinary Course of Business, (iv) declared or
made any payment or distribution to stockholders (other than in shares of common stock), or purchased or redeemed any
share of its capital stock or other security, (v) mortgaged, pledged, encumbered or subjected to lien any of its assets, tangible
or intangible, other than liens of current real property taxes not yet due and payable, (vi) sold, assigned or transferred any of its
tangible assets except in the Ordinary Course of Business, or canceled any debt or claim, (vii) sold, assigned, transferred or
granted any exclusive license with respect to any patent, trademark, trade name, service mark, copyright, trade secret or other
intangible asset, (viii) suffered any material loss of property or waived any right of substantial and material value, whether or not
in the Ordinary Course of Business, (ix) made any change in officer or director compensation, except in the Ordinary Course of
Business,
(x) made any material change in the manner of business, financial condition or operations of the Company, (xi) entered into any
transaction except in the Ordinary Course of Business or as otherwise contemplated hereby or (xii) entered into any
commitment (contingent or otherwise) to do any of the foregoing. No event that has or could be reasonably expected to have a
Material Adverse Effect on the Condition of the Company has occurred since the Balance Sheet Date.
3.4 Tax Returns. All required federal, state or local tax returns or appropriate extension requests of the Company have been
filed, and all federal, state and local taxes required to be paid in accordance with such returns have been paid or due provision
for the payment thereof has been made. The Company has not received any notice of delinquency in the payment of any
federal, state or local tax, any assessment or governmental charge, or any tax which it is required to withhold from amounts
owing to employees or other third parties. The Company has
3
not received any notice of deficiency or assessment of additional taxes and has not executed any waiver of any statute of
limitations on the assessment or collection of any tax. The Company has not incurred any tax or worker's compensation
liabilities from the Company's inception through the date hereof except those reflected in the Financial Statements and incurred
in the Ordinary Course of Business since the Balance Sheet Date. The Company has not made an election under Article 341(f)
of the Internal Revenue Code.
3.5 Title to Properties and Encumbrances. Except as set forth on Schedule 3.5, the Company has good and marketable title to
all of its owned properties and assets, and is not subject to any mortgage, pledge, lease, lien, charge, security interest,
encumbrance or restriction thereon. The Company does not own any real property. The Company has not received any notice
of any action or proceeding under any building, zoning or other ordinance, law or regulation. With respect to the property and
assets it leases, the Company is in compliance with such leases, except where the failure to be so in compliance would not have
a Material Adverse Effect on the Condition of the Company, and to its knowledge, holds a valid leasehold interest free from
any liens, claims or encumbrances.
3.6 Litigation. There are no legal actions, suits, arbitrations or other legal, administrative or governmental proceedings or
investigations pending or, to the knowledge of the Company, threatened against the Company or its properties, assets or
business, and neither the Company nor any of its officers has knowledge of any facts which would be reasonably expected to
result in or form the basis for any such action, suit or other proceeding that would have a Material Adverse Effect on the
Condition of the Company. The Company is not in default with respect to any judgment, order or decree of any court or any
governmental agency or instrumentality known to the Company.
3.7 Compliance with Other Instruments. The Company is not in violation or default of any term in its Restated Certificate of
Incorporation or Bylaws, or of any term contained in any mortgage, indenture, agreement, instrument or contract to which it is a
party, except for such violations as would not have a Material Adverse Effect on the Condition of the Company. To its
knowledge, the Company is not in violation of any order, statute, rule or regulation applicable to the Company, except for such
violations as would not have a Material Adverse Effect on the Condition of the Company. Neither the execution, delivery and
performance of this Agreement nor any other agreement contemplated hereby, nor, assuming the representations and
warranties made by Purchaser in Article 4 are true and correct, the issuance of the Purchased Shares, will result in any such
violation or be in conflict with or constitute a default under any such term, or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company.
3.8 Purchased Shares and Conversion Shares. The Purchased Shares, when issued in accordance with the terms of this
Agreement, will be validly issued, fully paid, and non-assessable and will be free and clear of all pledges, liens, encumbrances
and restrictions, other than as set forth herein or pursuant to any agreements contemplated hereby or under applicable federal
and state securities laws. The Conversion Shares issuable upon conversion of the Purchased Shares have been reserved for
issuance and, when so issued, will be validly issued, fully paid and nonassessable and will be free and clear of all pledges, liens,
encumbrances and restrictions, other than as set forth herein or pursuant to any agreements contemplated hereby or under
applicable federal and state securities laws.
4
3.9 Securities Laws. Based upon the representations and warranties of Purchaser contained in Article 4 of this Agreement, no
consent, authorization, approval, permit or order of or filing with any governmental or regulatory authority is required under
current laws and regulations applicable to the Company in connection with the execution and delivery of this Agreement or the
offer, issuance, sale or delivery of the Purchased Shares or the Conversion Shares, other than (i) the filing of the Restated
Certificate of Incorporation with the Secretary of State of the State of New York, and (ii) such filings as have been made prior
to the Closing, if required, under applicable state securities laws, except with regard to any notices of sales required to be filed
with the SEC pursuant to Regulation D under the Securities Act, or such post-Closing filings as may be required under the
applicable state securities laws, which will be timely filed within the applicable periods therefor. Under the circumstances
contemplated hereby, the offer, issuance, sale and delivery of the Purchased Shares and the Conversion Shares will not, under
current laws and regulations, require compliance with the prospectus delivery or registration requirements of the Securities Act,
assuming the accuracy of the representations and warranties of Purchaser contained in Article 4 hereof.
3.10 Patents, Trademarks, and Trade Secrets. There are no pending or, to the Company's knowledge, threatened claims
against the Company alleging that the Company's business, as conducted or as proposed to be conducted, infringes or conflicts
with the rights of others under patents, service marks, trade names, trademarks, copyrights, trade secrets or other proprietary
rights ("Intellectual Property Rights"). To the knowledge of the Company, the Company's business as now conducted does not,
and as proposed to be conducted will not, infringe or conflict with the rights of others, including Intellectual Property Rights.
The Company owns, or possesses sufficient legal rights to use, all Intellectual Property Rights and other rights necessary for the
operation of its business as now conducted and as proposed to be conducted without conflict or infringement against the rights
of others. Except as set forth in Schedule 3.10, there are no outstanding options, licenses, or agreements of any kind relating to
the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the
Intellectual Property Rights of any other person or entity, except for those arising from "off-the-shelf" commercial software. To
the knowledge of the Company the Company has not violated or, by conducting its business as proposed, would not violate
any of the Intellectual Property Rights of any other person or entity. To the knowledge of the Company, no employee or
consultant of the Company owns any Intellectual Property Rights which are directly or indirectly competitive with those owned
or to be used by the Company or derived from or in connection with the conduct of the Company's business. The Company is
not aware of any violation or infringement by a third party of any of the Company's Intellectual Property Rights. The Company
has taken and will take reasonable security measures to protect the secrecy, confidentiality and value of all trade secrets useful
in the conduct of its business.
3.11 Capital Stock. Immediately prior to the Closing, the authorized capital stock of the Company consists of 50,000,000
shares, par value $.001 per share, 40,000,000 shares of which are Common Stock, and 10,000,000 shares of which are
preferred stock of which two million (2,000,000) shares will have been designated Series A Preferred Stock. Immediately
prior to the Closing, six million (6,000,000) shares of Common Stock were issued and outstanding, and two million
(2,000,000) shares of Series A Preferred Stock were issued and outstanding. The Purchased Shares will, at the time of
issuance represent twelve and one half percent (12.5%) of the issued and outstanding capital stock of the Company on a fully
diluted basis. All of the outstanding shares of the Company's capital stock were duly authorized and
5
validly issued and are fully paid and non-assessable and were issued in compliance with all applicable federal and state
securities laws. Except as set forth on Schedule 3.11 attached hereto, prior to the Closing, there are no agreements among the
Company's stockholders with respect to the voting or transfer of the Company's capital stock or with respect to other material
aspects of the Company's affairs. As of the date of this Agreement there are no convertible securities, warrants, options or
other agreements or arrangements (collectively, "Purchase Rights") under which the Company is or may be obligated to issue
shares of its capital stock or any Purchase Rights. No holder of any security of the Company is entitled to any preemptive or
similar rights to purchase any securities proposed to be sold by the Company, except as provided in this Agreement.
3.12 Contracts and Other Commitments.
(a) Except as set forth in Schedule 3.12, the Company does not have any contracts, agreements, leases, or other commitments,
written or oral, absolute or contingent, which (i) involve more than fifty thousand dollars ($50,000), (ii) extend for more than
nine (9) months beyond the date hereof,
(iii) license any Intellectual Property Right to or from the Company, or (iv) materially restrict or affect the development or
distribution of the Company's products or services. For purposes of the foregoing, all indebtedness, liabilities, agreements,
understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or
entities the Company reasonably believes are affiliated therewith) shall be aggregated for the purpose of meeting the individual
minimum dollar amounts set forth in Article 3. 12(a)(i) above.
(b) The Company has not (i) declared or paid any dividends or authorized any distribution upon or with respect to any class or
series of its capital stock, (ii) incurred any indebtedness for borrowed money or any other liabilities individually in excess of fifty
thousand dollars ($50,000), or in the case of indebtedness and/or liabilities individually less than fifty thousand dollars
($50,000), in excess of one hundred fifty thousand dollars ($150,000) in the aggregate, (iii) made any loans or advances to any
person, other than ordinary travel advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of any assets or
rights except in the ordinary course of business.
3.13 Corporate Acts and Proceedings. This Agreement has been duly authorized by the requisite corporate action and has
been duly executed and delivered by an authorized officer of the Company, and is a valid and binding obligation of the
Company enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency,
moratorium, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by limitations on the
enforcement of the remedy of specific performance and other equitable remedies. The requisite corporate action necessary to
the authorization, creation, issuance and delivery of the Purchased Shares and the Conversion Shares will be taken by the
Company prior to the Closing.
3.14 Insurance Coverage. There are in full force policies of insurance issued by insurers of recognized responsibility insuring the
Company and its properties and business against loss, damage, fire or other risks, including general liability insurance against
claims for personal injury, death or property damage suffered by others upon, in or about the premises occupied by the
Company or occurring as a result of the Company's maintenance or operation of
6
any automobiles, trucks, or other vehicles or other facilities. The Company maintains all worker's compensation or similar
insurance as may be required under the laws of any state or jurisdiction in which it may be engaged in business.
3.15 No Brokers or Finders. No person has or will have, as a result of any act or omission of the Company, any right, interest
or valid claim against the Company or Purchaser for any commission, fee or other compensation as a finder or broker in
connection with the transactions contemplated by this Agreement. The Company will indemnify and hold Purchaser harmless
against any and all liability solely with respect to any such commission, fee or other compensation.
3.16 Disclosure. The Company has fully provided Purchaser with the information which Purchaser has requested for deciding
whether to purchase the Purchased Shares. No representation or warranty by the Company in this Agreement or the exhibits or
schedules attached hereto applicable to it contains or will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements contained therein or herein not misleading in light of the circumstances
under which they were made. Any disclosure made under any section of this Article 3 shall be deemed to have been made
under all other sections of this Article 3 to which such disclosure reasonably relates.
3.17 Registration Rights. Except as set forth on Schedule 3.17, other than under this Agreement, the Company has not agreed
to register under the Securities Act any of its authorized or outstanding securities.
3.18 Retirement Plans. The Company does not have any "employee benefit plans," as defined in the Employee Retirement
Income Security Act of 1974, as amended.
3.19 Compliance With Environmental Laws. Without limiting the generality of Section 3.7, the Company is not in violation in
any material respect of any applicable statute, law or regulation relating to the environment or occupational health and safety,
and to its knowledge no material expenditures are or will be required in order to comply with any such existing statute, law or
regulation.
3.20 Licenses and Permits. The Company possesses from the appropriate agency, commission, board or government body or
authority, whether state, local or federal, all licenses, permits, authorizations, approvals, franchises and rights which (a) are
necessary for it to engage in the business currently conducted by it and (b) if not possessed by the Company would have a
Material Adverse Effect on the Condition of the Company.
3.21 Conflicts of Interest. To the Company's knowledge, except as set forth on Schedule 3.20, no officer or director or holder
of more than five percent (5%) of the Company's capital stock or any affiliate of any such person has any direct or indirect
interest (a) in any person which does business with the Company, (b) in any material property, asset or right which is used by
the Company in the conduct of its business, or (c) in any contractual relationship with the Company, other than as an employee.
For the purpose of this Section
3.21, there shall be disregarded any interest which arises solely from the ownership of less than a five percent (5%) equity
interest in a corporation whose stock is regularly traded on any national securities exchange or in the over-the-counter market.
7
3.22 Employees. To the Company's knowledge, no officer of the Company has any plans to terminate his or her employment
with the Company. The Company has complied in all material respects with all laws relating to the employment of labor,
including provisions relating to wages, hours, equal opportunity, collective bargaining and payment of Social Security and other
taxes, and the Company has not encountered any material labor difficulties.
3.23 Absence of Restrictive Agreements. To the knowledge of the Company, no employee of the Company is subject to any
secrecy or non-competition agreement or any agreement or restriction of any kind that would impede in any way the ability of
such employee to carry out fully all activities of such employee in furtherance of the business of the Company.
3.2 Nondistributive Intent. The Seller is acquiring the SIGA Shares to be issued pursuant to Section 1 hereof for its own
account, for investment and not with a view to the distribution thereof. Seller will not sell or otherwise dispose of such shares
without registration under the Securities Act, or an exemption therefrom.
3.25 Other Representations Ineffective. Seller shall not be liable or bound in any manner by representations, warranties,
covenants, agreements or indemnifications pertaining to the subject matter of this Agreement, whether express or implied,
unless and only to the extent that such representations, warranties, covenants, agreements or indemnifications are expressly and
specifically set forth in this Agreement or the Schedules hereto or in any certificate or other agreement, document or instrument
delivered pursuant to the provisions of this Agreement.
4. Purchaser Representations and Warranties. Purchaser hereby represents and warrants as follows:
4.1 Authority. Purchaser has full power, authority and legal capacity to execute and deliver this Agreement and to consummate
the transactions described herein.
4.2 No Consent. No consent of any person is required for the execution, delivery and performance of this Agreement by
Purchaser.
4.3 SIGA Shares. The SIGA Shares, when issued in accordance with the terms of this Agreement, will be validly issued, fully
paid, and non-assessable and will be free and clear of all pledges, liens, encumbrances and restrictions, other than as set forth
herein or pursuant to any agreements contemplated hereby or under applicable federal and state securities laws.
4.4 Securities Laws. No consent, authorization, approval, permit or order of or filing with any governmental or regulatory
authority is required under current laws and regulations applicable to the Company in connection with the execution and
delivery of this Agreement or the offer, issuance, sale or delivery of the SIGA Shares, other than such filings as have been made
prior to the Closing, if required, under applicable state securities laws, except with regard to any notices of sales required to be
filed with the SEC pursuant to Regulation D under the Securities Act, or such post-Closing filings as may be required under the
applicable state securities laws, which will be timely filed within the applicable periods therefor. Under the circumstances
contemplated hereby, the offer, issuance, sale and delivery of the SIGA Shares will not, under current laws and regulations,
require compliance with the prospectus delivery or
8
registration requirements of the Securities Act, assuming the accuracy of the representations and warranties of Seller contained
in Article 3 hereof.
4.5 Assets. Purchaser has and the Company will receive at Closing, good and marketable title to the Assets free and clear of all
mortgages, pledges, liens, charges, restrictions, easements and other encumbrances. There are no pending or, to the
Company's knowledge, threatened claims against Purchaser alleging that the Assets infringe or conflict with the rights of others
under patents, service marks, trade names, trademarks, copyrights, trade secrets or other proprietary rights. To the knowledge
of Purchaser, the Company's use of the Assets as proposed to be conducted will not, infringe or conflict with the rights of
others. To the knowledge of Purchaser, no employee or consultant of Purchaser owns any intellectual property rights which are
directly or indirectly competitive with the Assets. Purchaser is not aware of any violation or infringement by a third party of any
of the Assets. Purchaser has taken and will take reasonable security measures to protect the secrecy, confidentiality and value
of the Assets.
4.6 No Brokers or Finders. Purchaser has not authorized any person to act as broker, finder or in any other similar capacity in
connection with the transactions described in this Agreement and the negotiations leading to it in such manner as to give rise to
any valid claim against Seller for any broker's or finder's fee or similar compensation.
4.7 Nondistributive Intent. Purchaser is acquiring the Purchased Shares solely for Purchaser's own account for investment and
not with a view to resale or distribution thereof, in whole or in part, and Purchaser has no present or contemplated intention,
agreement, understanding or arrangement to sell, assign, transfer, hypothecate or otherwise dispose of all or any part of the
Purchased Shares.
4.8 Limitations on Transfer. Purchaser understands that the Purchased Shares have not been registered under the Securities
Act and state securities laws (the "Securities Laws") and are offered and sold in reliance upon an exemption from the
registration requirements of the Securities Act and exemptions available under applicable state securities laws and that, in that
regard, Seller is relying on the representations and warranties made by Purchaser herein.
4.9 Restricted Securities. Purchaser understands that the Purchased Shares may not be sold, transferred, hypothecated or
otherwise disposed of unless subsequently registered under the Securities Act and applicable state securities laws or an
exemption from such registration is available.
4.10 No Solicitation. Purchaser did not become aware of the offer of the Purchased Shares through or as a result of any form
of general solicitation or general advertising, including, without limitation, any article, notice, advertisement or other
communication.
4.11 Knowledge and Experience. Purchaser has such knowledge and experience in business and financial matters that
Purchaser is capable of evaluating the merits and risks of the purchase of the Purchased Shares and making an informed
investment decision with respect thereto.
4.12 Additional Information. Purchaser acknowledges that Purchaser has had the opportunity to ask questions of the
management of Seller and receive answers about the
9
Seller and to obtain and review Seller's books and records and financial statements of Seller upon Purchaser's request directed
to James Chong, President, and Purchaser has been provided with such information as Purchaser has determined to be
sufficient to enable Purchaser to evaluate the economic merits and risks of the acquisition of the Purchased Shares hereunder.
4.13 Restrictive Legend. Purchaser understands that any certificate or other document evidencing the Purchased Shares will
bear a legend restricting their transfer and sale and stating that the Purchased Shares have not been registered under the
Securities Laws and referring to the foregoing restrictions on their transferability and sale.
4.14 Risks. Purchaser understands that an investment in Seller involves substantial risks and has taken full cognizance of and
understands all risk factors related to the acquisition of the Purchased Shares hereunder as set forth in the attached "Risk
Factors". Purchaser has adequate means of providing for Purchaser's current needs and possible contingencies, has no need for
liquidity of the Purchased Shares and is able to bear the economic risk of loss of all of Purchaser's investment in the Purchased
Shares.
4.15 Representations. Purchaser, in deciding to enter into this Agreement and purchase the Purchased Shares, has not relied
upon any representations of Seller, other than those representations contained in this Agreement and no oral representations
have been made by Seller in connection with the purchase of the Purchased Shares.
4.16 No Legal or Tax Advice. Purchaser understands and acknowledges that Seller has given no legal or tax advice regarding
the tax consequences arising from an investment in the Purchased Shares, and that the tax consequences to Purchaser of an
investment depend on Purchaser's individual circumstances. In this regard, Purchaser has consulted with Purchaser's own legal
or tax advisor.
4.17 Corporate Acts and Proceedings. This Agreement has been duly authorized by the requisite corporate action and has
been duly executed and delivered by an authorized officer of Purchaser, and is a valid and binding obligation of Purchaser
enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization or other similar laws affecting the enforcement of creditors' rights generally and by limitations on the enforcement
of the remedy of specific performance and other equitable remedies. The requisite corporate action necessary to the
authorization, creation, issuance and delivery of the SIGA Shares will be taken by Purchaser prior to the Closing.
4.18 Disclosure. No representation or warranty by Purchaser in this Agreement or the exhibits or schedules attached hereto
applicable to it contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained therein or herein not misleading in light of the circumstances under which they were
made. Any disclosure made under any section of this Article 4 shall be deemed to have been made under all other sections of
this Article 4 to which such disclosure reasonably relates.
4.19. Other Representations Ineffective. Purchaser shall not be liable or bound in any manner by representations, warranties,
covenants, agreements or indemnifications
10
pertaining to the subject matter of this Agreement, whether express or implied, unless and only to the extent that such
representations, warranties, covenants, agreements or indemnifications are expressly and specifically set forth in this Agreement
or the Schedules hereto or in any certificate or other agreement, document or instrument delivered pursuant to the provisions of
this Agreement.
4.20 Accredited Investor Certification. Purchaser hereby represents that Purchaser is an accredited investor as that term is
defined in Rule 501(a) of Regulation D under the Securities Act (and such Purchaser understands the meaning of the definition
"Accredited Investor" given thereunder).
5. Conditions to Purchaser's Obligation. The obligations of Purchaser to complete the transactions contemplated by this
Agreement are subject to the fulfillment prior to or on the Closing Date of the following conditions, any of which may be waived
in whole or in part by Purchaser:
5.1 The representations and warranties of the Company under this Agreement shall be true in all material respects as of the
Closing Date with the same effect as though made on and as of the Closing Date, except where any such representation or
warranty speaks as of a specific date.
5.2 The Company shall have performed and complied in all material respects with all other agreements or conditions required
by this Agreement prior to or as of the Closing Date.
5.3 All corporate and other proceedings and actions taken in connection with the transactions contemplated hereby, and all
certificates, opinions, agreements, instruments and documents referenced herein or incident to any such transaction, shall be
reasonably satisfactory in form and substance to Purchaser.
5.4 The Restated Certificate of Incorporation in the form attached hereto as Exhibit B shall have been filed with the Secretary
of State of the State of New York.
5.5 The Company shall have executed and delivered the Amended and Restated Registration Rights Agreement in substantially
the form attached hereto as Exhibit D.
5.6 The Company shall have executed and delivered the Amended and Restated Shareholders Agreement in substantially the
form attached hereto as Exhibit E.
5.7 The Company shall have obtained all registrations, qualifications, permits and approvals required under applicable state
securities laws for the lawful execution and delivery of this Agreement and the offer, sale, issuance and delivery of the
Purchased Shares and the offer of the Conversion Shares.
5.8 The Company shall have delivered to Purchaser an opinion of counsel to the Company, dated the Closing Date, a form of
which is attached hereto as Exhibit F, which opinion shall be reasonably satisfactory in form and substance to Purchaser.
11
5.9 There shall not have been any action taken, or any law, rule, regulation, order, judgment, or decree proposed,
promulgated, enacted, entered, enforced, or deemed applicable to the transactions contemplated by this Agreement, by any
federal, state, local, or other governmental authority or by any court or other tribunal, including the entry of a preliminary or
permanent injunction, which makes this Agreement or any of the other transactions contemplated by this Agreement illegal or
otherwise prohibits, restricts, or delays consummation of any of the other transactions contemplated by this Agreement or
impairs the contemplated benefits to the Company or Purchaser of this Agreement or any of the other transactions
contemplated by this Agreement.
5.10 At the Closing, the Company shall deliver a certificate, dated the Closing Date, of the Secretary of the Company certifying
that attached or appended to such certificate (1) is a true and correct copy of its Restated Certificate of Incorporation as of the
date thereof; (2) is a true and correct copy of its Bylaws as of the date thereof; (3) is a true copy of all resolutions of its board
of directors authorizing the execution, delivery and performance of this Agreement, and each other document to be delivered by
the Company pursuant hereto; and (4) the names and signatures of its duly elected or appointed officers who are authorized to
execute and deliver this Agreement and any certificate, document or other instrument in connection herewith.
6. Conditions to Company's Obligation. The Company's obligation to sell and issue the Purchased Shares to Purchaser,
according to this Agreement, on the Closing Date is subject to the fulfillment prior to or on the Closing Date of the following
conditions, any of which may be waived in whole or in part by the Company:
6.1 Purchaser shall have delivered to the Company cash by wire transfer or by check, in immediately available funds, in an
amount equal to the cash portion of the purchase price as set forth in Section 1 hereof.
6.2 Purchaser shall have delivered an Intellectual Property Assignment substantially in the form attached hereto as Exhibit G.
6.3 Purchaser shall have obtained all registrations, qualifications, permits and approvals required under applicable state
securities laws for the lawful execution and delivery of this Agreement and the offer, sale, issuance and delivery of the SIGA
Shares.
6.4 There shall not have been any action taken, or any law, rule, regulation, order, judgment, or decree proposed,
promulgated, enacted, entered, enforced, or deemed applicable to the transactions contemplated by this Agreement, by any
federal, state, local, or other governmental authority or by any court or other tribunal, including the entry of a preliminary or
permanent injunction, which makes this Agreement or any of the other transactions contemplated by this Agreement illegal or
otherwise prohibits, restricts, or delays consummation of any of the other transactions contemplated by this Agreement or
impairs the contemplated benefits to the Company or Purchaser of this Agreement or any of the other transactions
contemplated by this Agreement.
6.5 At the Closing, Purchaser shall deliver a certificate, dated the Closing Date, of the Secretary of Purchaser certifying, that
attached or appended to such certificate is a true copy of all resolutions of its board of directors, authorizing the execution,
delivery and
12
performance of this Agreement, and each other document to be delivered by Purchaser pursuant hereto.
6.6 The representations and warranties of Purchaser under this Agreement shall be true in all material respects as of the Closing
Date with the same effect as though made on and as of the Closing Date, except where any such representation or warranty
speaks as of a specified date.
6.7 Purchaser shall have executed and delivered the Amended and Restated Shareholders Agreement in substantially the form
attached hereto as Exhibit E.
6.8 Purchaser shall have executed and delivered to the Company an Accredited Investor Representation form in substantially
the form attached hereto as Exhibit G.
6.9 Purchaser shall have performed and complied in all material respects with all other agreements or conditions required by
this Agreement prior to or as of the Closing Date.
7. Indemnification. (a) Seller shall indemnify, defend and hold Purchaser harmless against all liability, loss or damage, together
with all reasonable costs and expenses related thereto (including reasonable legal fees and expenses), relating to or arising from
the untruth, inaccuracy or breach of any of the representations, warranties or agreements of Purchaser contained in this
Agreement.
(b) Purchaser shall indemnify and hold Seller harmless against all liability, loss or damage, together with all reasonable costs and
expenses related thereto (including reasonable legal fees and expenses), relating to or arising from the untruth, inaccuracy or
breach of any of the representation, warranties or agreements of Seller contained in this Agreement.
(c) Indemnification hereunder shall include liability for any special, incidental, punitive or consequential damages to the extent
the indemnified party is required to pay such amount to a third party. Except as expressly provided in the preceding sentence,
there shall be no indemnification by Seller or Purchaser for any special, incidental, punitive or consequential damages.
(d) Upon making any payment to an indemnified party for any indemnification claim pursuant to this Section 7, the indemnifying
party shall be subrogated, to the extent of such payment, to any rights which the indemnified party may have against any other
persons or entity with respect to the subject matter underlying such indemnification claim and the indemnified party shall take
such actions as the indemnifying party may reasonably require to perfect such subrogation or to pursue such rights against such
other persons or entities as the indemnified party may have.
8. Special Shareholder Rights. The Company shall deliver to Purchaser (i) within 120 days after the end of each fiscal year
audited financial statements audited by a "Big Five" accounting firm or such regional accounting firm reasonably acceptable to
Purchaser's Director, and (ii) within 30 days of the end of each month and quarter, internally prepared, unaudited financial
statements.
13
9. Stock Option Plan. Seller and Purchaser acknowledge and agree that in order to attract and retain the most qualified
employees it will be necessary and desirable for the Company to implement an employee stock option plan. Seller agrees that
at no time without the consent of Purchaser will the Shares issuable under the plan represent after issuance more than twenty
percent (20%) of the issued and outstanding Shares. James Chong and his immediate family will not at any time be entitled to
be participants in such plan.
10. Tax Considerations; Legal Consequences. Purchaser is strongly advised to consult Purchaser's tax advisor with respect to
the tax consequences hereof. Purchaser also acknowledges that it has been advised by Seller that the transactions represented
by this Agreement have serious legal consequences and that Seller has strongly advised Purchaser to review this Agreement
with legal counsel prior to execution.
11. Survival of Representations and Warranties. The representations and warranties made herein by Purchaser shall survive the
closing of the purchase and sale of the Shares as contemplated herein.
12. Entire Agreement. This Agreement and the exhibits hereto constitute the entire agreement between the parties and
supersedes all prior agreements and understandings, both written and oral, between the parties hereto with respect to the
subject matter hereof and no party shall be liable or bound to the other in any manner by any warranties, representations,
covenants or agreements except as specifically set forth herein or expressly required to be made or delivered pursuant hereto.
13. Modifications. Any amendment, change or modification of this Agreement shall be void unless in writing and signed by all
parties hereto.
14. Further Assurances. Seller and Purchaser shall execute and deliver to the appropriate other party such other instruments as
may be reasonably required in connection with the performance of this Agreement and each shall take all further actions as may
be reasonably required to carry out the transactions contemplated by this Agreement.
15. Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of Seller and Purchaser and their
respective heirs, successors, transferees and legal representatives and permitted assigns. Neither party may assign any rights
hereunder without the consent of the other.
16. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same instrument.
17. Governing Law. This Agreement shall be governed by the laws of the State of New York regardless of principles of
conflicts of law.
18. Headings. The headings used in this Agreement are solely for convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
14
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be executed and delivered as of the date
hereinabove set forth.
SELLER: Open-i Media, Inc.
By: /s/ James Chong
------------------------------------
Name: James Chong
Title: President
PURCHASER: SIGA Technologies, Inc.
By:
------------------------------------
Name:
Title:
15
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be executed and delivered as of the date
hereinabove set forth.
SELLER: Open-i Media, Inc.
By:
------------------------------------
Name:
Title:
PURCHASER: SIGA Technologies, Inc.
By: /s/ Joshua D. Schein
------------------------------------
Name: Joshua D. Schein
Title: Chief Executive Officer
Schedule 3.1
Ownership Interests in Business Organizations
1. The Company owns ten thousand (10,000) shares of the capital stock, $0.001 par value per share, of CalendarWare, Inc.,
a Delaware corporation.
2. The Company owns one hundred twenty-seven thousand seven hundred twenty-one (127,721) shares of the common
stock, $0.0001 par value per share, of SIGA Technologies, Inc., a Delaware corporation.
Schedule 3.3
Events Subsequent to the Balance Sheet Date
1. James Chong is currently paid an annual salary of forty-eight thousand six hundred fifty dollars ($48,650).
2. On or about May 11, 2000, the Company paid approximately two hundred ten thousand dollars ($210,000) to former
stockholders and creditors of Open Interactive Media, Inc. ("OIM"), a New York corporation and predecessor company to
Open-i Media, Inc., in satisfaction of certain liabilities of OIM.
Schedule 3.5
Title to Properties and Encumbrances
1. The Company occupies the premises located at 73 Franklin Street, New York, NY 10013, pursuant to a Lease Agreement,
dated January 27, 1994, by and between OIM, as tenant, and Shushana Company, as landlord.
2. The Company occupies the premises located at 75 Franklin Street, New York, NY 10013, pursuant to a Lease Agreement,
dated October 29,1999, by and between OIM, as tenant, and 75 Franklin Development Corporation, as landlord.
3. The following equipment of the Company is leased pursuant to the following Equipment Lease Agreements by and between
OIM, as lessee, and the following leasing companies:
Date of
Leasing Company: Lease #: Lease Agreement:
---------------- -------- ----------------
GE Capital 330500002 1/1/00
GE Capital 330500001 8/1/99
Apple Credit Leasing 185410 8/25/97
Bankers Leasing 1606980 4/28/99
Copelco Leasing 1144892 3/30/99
Copelco Leasing 1129921 8/5/98
Copelco Leasing 0954322 6/10/99
Copelco Leasing 1598953 1/25/96
Copelco Leasing 1598958 10/21/98
Balboa Leasing 006-10102-01 9/13/96
4. Other Encumbrances:
(a) UCC-1 Financing Statement filed naming the Company as Debtor:
Jurisdiction: State of New York
File No.: 096894
Filing Date: 05/16/00
Secured Party: Bankers/Softech/Mid-States Collateral: Leased Equipment
(b) UCC-l Financing Statement filed naming the Company as Debtor:
Jurisdiction: State of New York
File No.: 097110
Filing Date: 05/16/00
Secured Party: Bankers/Softech/Mid-States Collateral: All goods, chattels, fixtures, furniture, equipment, assets, accounts
receivable, contract rights, general intangibles & property of every kind wherever located now or hereafter acquired and
proceeds thereof.
(c) UCC-1 Financing Statement filed naming the Company as Debtor:
Jurisdiction: State of New York
File No.: 00PN25515
Filing Date: 05/19/00
Secured Party: Bankers/Softech/Mid-States Collateral: Leased Equipment
(d) UCC-1 Financing Statement filed naming the Company as Debtor:
Jurisdiction: State of New York
File No.: 009PN25516
Filing Date: 05/19/00
Secured Party: Bankers/Softech/Mid-States Collateral: All goods, chattels, fixtures, furniture, equipment, assets, accounts
receivable, contract rights, general intangibles & property of every kind wherever located now or hereafter acquired and
proceeds thereof.
Schedule 3.10
Licenses and Agreements Relating to Patents, Trademarks, and Trade Secrets
None.
Schedule 3.11
Agreements Among Stockholders
1. On May 4, 2000, the Company and the then current shareholders of the Company entered into a certain Shareholders
Agreement which provides, among other things, restrictions upon the transfer of the Company's capital stock.
Schedule 3.12
Contracts and Other Commitments
1. The Company occupies the premises located at 73 Franklin Street, New York, NY 10013, pursuant to a Lease Agreement,
dated January 27, 1994, by and between OIM, as tenant, and Shushana Company, as landlord, pursuant to which the
Company is obligated to pay annual base rent through January 31, 2001 as follows:
2/1/94 to 1/31/95: $30,000
2/1/95 to 1/31/96: $30,000
2/1/96 to 1/31/97: $30,000
2/1/97 to 1/31/98: $33,600
2/1/98 to 1/31/99: $36,000
2/1/99 to 1/31/00: $38,400
2/1/00 to 1/31/01: $45,600.
OIM has an option to extend this Lease Agreement for two years.
2. The Company occupies the premises located at 75 Franklin Street, New York, NY 10013, pursuant to a Lease Agreement,
dated October 29,1999, by and between OIM, as tenant, and 75 Franklin Development Corporation, as landlord, pursuant to
which the Company is obligated to pay annual base rent through October 31, 2004 as follows:
11/1/99 to 10/31/00 - $67,800.00 11/1/00 to 10/31/01 - $72,546.00 11/1/01 to 10/31/02 - $77,624.22 11/1/02 to
10/31/03 - $83,058.00 11/1/03 to 10/31/04 - $88,872.06.
Schedule 3.17
Registration Rights
1. On May 4, 2000, the Company and the then current shareholders of the Company entered into a certain Registration Rights
Agreement which provides, among other things, that the Company will register under the Securities Act certain of its securities
upon the occurrence of certain events.
Schedule 3.20
Conflicts of Interest
1. James Chong is the sole shareholder of OIM, subject to the terms of a certain Agreement, dated May 31, 1999, among
certain former shareholders of OIM and OIM.
Exhibit A
INTELLECTUAL PROPERTY ASSIGNMENT AGREEMENT
THIS INTELLECTUAL PROPERTY ASSIGNMENT AGREEMENT (the "Assignment") is executed and delivered as of the
7th day of July, 2000, by and between SIGA Technologies, Inc., a Delaware corporation ("Assignor"), with an address at 420
Lexington Ave., New York, NY 10022, and Open-i Media, Inc., a New York corporation ("Assignee"), with an address at
73 Franklin Street, New York, NY 10013.
WHEREAS, Assignor owns all right, title, and interest in and to that certain computer application identified as "Peerfinder"; and
WHEREAS, Assignor desires to assign, grant, convey, and transfer the Peerfinder application and the business associated
therewith to Assignee, and Assignee desires to acquire the Peerfinder application and the business associated therewith,
pursuant to a certain Stock Purchase Agreement of even date herewith between Assignor and Assignee and in accordance with
the terms and conditions of this Assignment.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
Assignor and Assignee, intending to be legally bound, hereby agree as follows:
SECTION 1 CONVEYANCE OF RIGHTS
1.1 Assignment and Transfer of Assets. Effective as of July 7, 2000 (the "Effective Date"), Assignor hereby transfers, grants,
conveys, assigns, and relinquishes exclusively to Assignee, its successors and permitted assigns, absolutely and forever, all of
Assignor's right, title, interest, benefit and claims, whether statutory or at common law, in and to all of the assets, properties and
rights of Assignor, of every type and description, whether tangible or intangible, relating to the Peerfinder application and the
business associated therewith, together with the goodwill associated with the Peerfinder application, along with the right to
recover for damages and profits for past infringement thereof and all present and future rights of every kind pertaining to the
Peerfinder application, whether or not such rights are now known, recognized or contemplated, with such right, title and interest
in the Peerfinder application to be held and enjoyed by Assignee as fully and entirely as the same would have been held by
Assignor had this Assignment not been made, including, without limitation, the following (all the assets of Assignor to be
transferred and assigned to the Assignee pursuant hereto, including, without limitation, the Developed Technology, Peerfinder
Technology, Software, Proprietary Rights, Inventories and Contract Rights (as hereinafter defined), are hereinafter collectively
referred to as the "Program"):
(a) The Deliverable, as such term is defined in the Agreement, dated October 15, 1999, by and between the Assignee and
SIGA Pharmaceuticals, Inc. (the "First Development Agreement"), and all designs, drawings, models, procedures (including
design, manufacturing, test and maintenance procedures), specifications, equipment, software, test procedures, tools,
documentation, content, training materials and other information and technology in whatever form developed and/or transferred
pursuant to (i) the First Development Agreement, (ii) each Section of the Specifications (as defined in the First Development
Agreement and incorporated therein) (the
"Specifications"), (iii) the Service Agreement, dated March 9, 2000, between the Assignor and the Assignee (the "Second
Development Agreement"), and (iv) all amendments, modifications and communications, whether oral or written, to or with
respect to the First Development Agreement, the Second Development Agreement and the Specifications (hereinafter
collectively referred to the "Developed Technology").
(b) All designs, drawings, procedures (including design, manufacturing, test and maintenance procedures), specifications,
equipment, software, printed circuit board art work, integrated circuit masks, test equipment, tools, fixtures, documentation,
training materials, and information, in whatever form, related to, useful, utilizable or necessary in the design, manufacture, test
and/or maintenance of the Program, including, without limitation, the assets described in the Schedule attached hereto as
Schedule A and made a part hereof (hereinafter collectively referred to the "Peerfinder Technology").
(c) All computer code (both source and object, in machine readable and listing form), interfaces, navigational devices, menus,
menu structures or arrangements, icons, help, operational instructions, scripts, information, HTML, JavaScript, Java, Visual
Basic, C++, SQL or any other programming or procedural language, commands, syntax, graphical designs, photographs,
animation, images, audio and/or digital video components, and the literal and non-literal expressions of ideas that operate,
cause, create, direct, manipulate, access or otherwise affect the Program and any copyrights, trade secrets and other intellectual
or industrial property rights therein, documentation (including internal documentation, documentation made available to
customers and training materials), flowcharts, source code notes, software tools, compilers, test routines and information, in
whatever form, and all revisions, release levels and versions of the foregoing, relating to or used on or with the Program, offered
for sale or license by Assignor, developed by or for Assignor, or in the possession of Assignor (hereinafter collectively referred
to as "Software").
(d) All patents, patent applications, copyrights, trade secrets, trademarks, trade names, inventions, discoveries, improvements,
ideas, know-how, confidential information, and all other intellectual property or proprietary rights based, in whole or in part,
related to or included in, covering or pertaining to the Developed Technology, Peerfinder Technology, Software or any portion
thereof (hereinafter collectively referred to as "Proprietary Rights").
(e) All inventories of Peerfinder Technology, Software, or any portion thereof (hereinafter collectively referred to as
"Inventories").
(f) All rights of Assignor under any sales agreements, franchises, license agreements, lease agreements, maintenance
agreements, procurement agreements, consulting agreement, employee agreements, invention agreements and all other
agreements of whatever nature or kind relating to Peerfinder Technology, Software or Proprietary Rights (hereinafter
collectively referred to as "Contract Rights").
1.2 Liabilities Excluded. Except as set forth in Section 1.3 below, Assignor acknowledges that Assignee is acquiring the
Program hereunder without any assumption of Assignor's liabilities.
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1.3 Globix Invoices. Assignor shall pay to Assignee currently with the execution hereof, sixty thousand dollars ($60,000) in full
and complete satisfaction of Assignor's obligations to Globix, and Assignee shall assume all obligations of Assignor to Globix,
with respect to the Program.
SECTION 2 WARRANTIES OF TITLE
2.1 Assignor represents and warrants that Assignee shall receive, pursuant to this Assignment as of the Effective Date,
complete and exclusive right, title, and interest in and to all tangible and intangible property rights of Assignor existing in the
Program. Assignor represents and warrants that it has developed the Program entirely through its own efforts or through the
efforts that were the subject of the First Development Agreement and the Second Development Agreement for its own account
and that the Program, to the extent of Assignors actions, is free and clear of all liens, claims, encumbrances, rights, or equities
whatsoever of any third party.
2.2 Assignor represents and warrants to the best of its knowledge that Program does not infringe any patent, copyright,
trademark or trade secret of any third party and that it is unaware of any claim that the Program infringes any patent, copyright,
trademark or trade secret of any third party; that Assignor has sought protection under applicable patent, copyright and
trademark laws and that such rights have not been forfeited to the public domain; and that the Program has been maintained in
confidence consistent with trade secret law.
2.3 Assignor represents and warrants that all of Assignor's personnel, including employees, agents, consultants, and
contractors, who have contributed to or participated in the conception and development of the Program either (1) have been
employees of Assignor, or (2) have executed or will execute appropriate work made for hire or other instruments of assignment
in favor of Assignor as assignee that have conveyed to Assignor full, effective, and exclusive ownership of all tangible and
intangible property thereby arising with respect to the Program.
2.4 Assignor represents and warrants that there are no agreements or arrangements in effect with respect to the marketing,
distribution, licensing, or promotion of the Program by any independent salesperson, distributor, sublicensor, or other
remarketer or sales organization.
SECTION 3 ACKNOWLEDGMENT OF RIGHTS
In furtherance of this Assignment, Assignor hereby acknowledges that, from and after the effective date of this Assignment,
Assignee has acceded to all of Assignor's right, title, and standing to:
(a) Receive all rights and benefits pertaining to the Program.
(b) Institute and prosecute all suits and proceedings and take all actions that Assignee, in its sole discretion, may deem
necessary or proper to collect, assert, or enforce any claim, right, or title of any kind in and to any and all of the Program.
-3-
(c) Defend and compromise any and all such action, suits, or proceedings relating to such transferred and assigned rights, title,
interest, and benefits, and perform all other such acts in relation thereto as Assignee, in its sole discretion, deems advisable.
SECTION 4 FURTHER ASSURANCES
4.1 At any time and from time to time hereafter, the Assignor shall forthwith upon the Assignee's written requests and at
Assignee's expense take any and all steps and execute, acknowledge and deliver to the Assignee any and all further instruments
and assurances necessary or desirable to evidence more fully the transfer of ownership of all of the Program to Assignor.
Accordingly, Assignor agrees:
(a) To execute, acknowledge, and deliver any affidavits or documents of assignment and conveyance regarding the Program.
(b) To provide testimony in connection with any proceeding affecting the right, title, or interest of Assignee in the Program.
(c) To perform any other acts deemed necessary to carry out the intent of this Assignment.
4.2 Assignor hereby constitutes and appoints Assignee its true and lawful attorney-in-fact, with full power of substitution in
Assignor's name and stead but for Assignee's benefit to take any and all steps (including proceeding at law, in equity or
otherwise at Assignee's cost and expense), and to execute, acknowledge and deliver any and all instruments and assurances
necessary or expedient in order to vest the aforesaid Program and causes of action more effectively in Assignee or to protect
the same, or to enforce any claim or right of any kind with respect thereto (at Assignee's cost and expense). Assignor hereby
declares that the foregoing power is coupled with an interest and is irrevocable.
SECTION 5 MISCELLANEOUS
5.1 This Assignment shall inure to the benefit of, and be binding upon, the parties hereto, together with their respective legal
representatives, successors, and assigns.
5.2 This Assignment shall be governed by, and construed in accordance with, the laws of the State of New York, without
reference to conflicts of law provisions thereof.
5.3 This Assignment merges and supersedes all prior and contemporaneous agreements, assurances, representations, and
communications between the parties hereto relating to the subject matter hereof.
5.4 This Assignment may be executed in two or more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
-4-
IN WITNESS WHEREOF, the parties hereto have caused this Assignment to be duly executed by their authorized
representatives as of the date first above written.
SIGA TECHNOLOGIES, INC.
By:
Name:
Title:
OPEN-I MEDIA, INC.
By:
Name: James Chong Title: President
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STATE OF NEW YORK )
ss.:
COUNTY OF ________)
On the ____ day of ____________ in year 2000 before me, the undersigned, a notary public in and for said State, personally
appeared ________ personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose
name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his
signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
Notary Public
-6-
SCHEDULE A
1. All software, hardware, equipment and other assets listed on the invoices numbers 26699, 25993, 25684, 24789, 24790,
24742 and 24546 from PC Warehouse attached hereto as Rider A.
2. All software, hardware, equipment and other assets listed on all Globix invoices.
-7-
Exhibit B
Restated Certificate of Incorporation
RESTATED CERTIFICATE OF INCORPORATION
OF
OPEN-I MEDIA, INC.
UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW
FIRST: The name of the corporation is Open-i Media, Inc. (hereinafter referred to as the "Corporation").
SECOND: The certificate of incorporation of the Corporation was filed by the Department of State on March 18, 1999.
THIRD: The certificate of incorporation, as heretofore amended, is hereby amended or changed to effect one or more of the
amendments or changes authorized by the Business Corporation Law, to wit:
(A) To provide for the increase in the number of shares constituting the series of preferred stock of the Corporation known as
"Series A Preferred" to three million one hundred forty-three thousand (3,143,000) shares;
(B) To change certain provisions relating to the adjustment of the Series A Conversion Price upon the occurrence of certain
events; and
(C) To add provisions requiring the affirmative vote of the directors designated by the holders of the Series A Preferred to
approve certain actions by the Corporation.
FOURTH: To accomplish the foregoing amendments, (i) Section A and Section B of Article FOURTH of the certificate of
incorporation of the Corporation, relating to the number of shares constituting the series of preferred stock of the Corporation
known as "Series A Preferred" are hereby amended to read as set forth in the same numbered sections and article of the
certificate of incorporation of the Corporation as hereinafter restated; (ii) Section C (2) (d) of Article FOURTH of the
certificate of incorporation of the Corporation, relating to adjustments to the Series A Conversion Price upon the occurrence of
certain events is hereby amended to read as set forth in the same numbered section and article of the certificate of incorporation
of the Corporation as hereinafter restated; and (iii) Section C (2)(b) and Section C (3) of Article FOURTH of the certificate of
incorporation of the Corporation, relating to voting rights are hereby amended to read as set forth in the same numbered
sections and article of the certificate of incorporation of the Corporation as hereinafter restated.
FIFTH: The restatement of the certificate of incorporation of the Corporation herein provided was duly authorized by the
unanimous written consent of the members of the Board of Directors of the Corporation, followed by the unanimous written
consent of the holders of outstanding shares of each class of the Corporation which is not entitled under the certificate
of incorporation to vote on the said restatement of the certificate of incorporation, but which is entitled under Section 804 of
New York Business Corporation Law (the "BCL") to vote thereon, having not less than the minimum requisite proportion of
votes, which has been given in accordance with Section 615 of the BCL. Written notice has been given as and to the extent
required by the said Section 615.
SIXTH: The text of the certificate of incorporation of the Corporation is hereby restated as further amended or changed herein
to read as follows:
"FIRST: The name of the corporation is Open-i Media, Inc. (the "Corporation").
SECOND: The purpose of the corporation is to engage in multimedia design and production, hardware/software sales,
placement and any lawful act or activity for which corporations may be organized under Article IV of the BCL, except that it is
not formed to engage in any act or activity requiring the consent or approval of any state official, department, board, agency or
other body without such consent or approval first being obtained.
THIRD: The office of the corporation is to be located in the County of New York, State of New York.
FOURTH: A. Classes of Stock. The Corporation is authorized to issue two classes of stock to be designated, respectively,
"Common Stock" and "Preferred Stock." The total number of shares of stock which the Corporation is authorized to issue is
fifty million (50,000,000) shares consisting of forty million (40,000,000) shares of Common Stock, $0.001 par value per share,
and ten million (10,000,000) shares of Preferred Stock, $0.001 par value per share, of which three million one hundred
forty-three thousand (3,143,000) shares of such Preferred Stock shall be designated as Series A Preferred Stock.
B. Designation of Preferred Stock. The Preferred Stock may be issued from time to time in one or more series. The rights,
preferences, privileges and restrictions granted to and imposed on the series designated Series A Preferred Stock ("Series A
Preferred"), which series shall consist of three million one hundred forty-three thousand (3,143,000) shares, are as set forth in
Article FOURTH C hereof The Board of Directors of the Corporation (the "Board") is hereby authorized to provide for the
issuance of all or any of the remaining shares of authorized Preferred Stock and to fix or alter the rights, preferences, privileges
and restrictions granted to or imposed upon such additional series of Preferred Stock and the number of shares constituting any
such series and the designation thereof. Subject to compliance with the BCL and the provisions of Section C below, the rights,
preferences, privileges and restrictions of any such additional series may be subordinated to, pari passu with or senior to any of
those of any present or future class or series of Preferred or Common Stock. The Board is also authorized to increase or
decrease the number of shares of any series, prior or subsequent to the issuance of that series of Preferred Stock, excluding the
Series A Preferred, but not below the number of shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume the status of authorized shares of Preferred
Stock.
C. Rights, Preferences, Privileges and Restrictions of the Series A Preferred. The rights, preferences, privileges and restrictions
of the Series A Preferred are as follows:
1. Liquidation Preference.
-2-
(a) Upon the occurrence of a Liquidation Event, as such term is defined below, holders of Series A Preferred shall be entitled
to receive from the assets of the Corporation legally available for distribution to the Corporation's stockholders, prior and in
preference to any distribution to the holders of Common Stock or any other series of Preferred Stock, an amount per share
equal to the original Series A Preferred issue price (the "Series A Liquidation Preference"). After the payment in full of the
Series A Liquidation Preference, any remaining assets of the Corporation legally available for distribution to the Corporation's
stockholders shall be distributed to the holders of Common Stock, pro rata in accordance with the number of shares of
Common Stock held.
(b) In the event the assets and funds legally available for distribution to the holders of Series A Preferred are not sufficient to
permit the payment of the full Series A Liquidation Preference to each holder of Series A Preferred, then the amount legally
available for distribution to the holders of Series A Preferred shall be allocated among the holders of Series A Preferred pro
rata in accordance with the maximum amounts which such holders would have received if the assets and funds had been
sufficient to permit the payment of the full amount of the Series A Liquidation Preference.
(c) As used herein, the term "Liquidation Event" shall mean any of the following events: (i) any sale of all or substantially all of
the assets of the Corporation, or (ii) any liquidation, dissolution or winding up of the Corporation.
2. Conversion.
(a) Right to Convert. Each share of Series A Preferred shall be convertible, at the option of the holder thereof, at any time after
the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into such number of
fully paid and nonassessable shares of Common Stock as is determined by dividing (i) $1.00 by the Series A Conversion Price,
determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The initial Series A
Conversion Price shall be $1.00. The Series A Conversion Price shall be subject to adjustment as set forth in subsection 2(d)
below.
(b) Automatic Conversion. Each share of Series A Preferred shall automatically be converted into shares of Common Stock at
the Series A Conversion Price then in effect immediately prior to the occurrence of any of the following events (each an
"Automatic Conversion Event"): (i) any merger or consolidation of the Corporation with or into another business entity,
regardless of whether or not the Corporation is the surviving entity, provided that (A) if the Corporation is not the surviving
entity, and (B) the shareholders of the Corporation immediately preceding such transaction do not own at least fifty percent
(50%) of the total equity interest in the resulting entity after such transaction is closed, and (C) the valuation of the Corporation
in the transaction is less than ten million dollars ($10,000,000), the affirmative vote of each of the directors designated by the
holders of Series A Preferred (each a "Series A Designated Director") pursuant to those certain Stock Purchase Agreements
between the holders of Series A Preferred named therein and the Corporation shall be required to approve such transaction, or
(ii) the closing of a public offering for the sale of any of the Corporation's securities.
(c) Mechanics of Conversion. Except in the case of an automatic conversion, before any holder of Series A Preferred shall be
entitled to convert the same into shares of
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Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series A Preferred and shall give written notice to the Corporation at its principal
corporate office of the election to convert the same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder, or to the nominee or nominees of such holder, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the shares to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. The automatic conversion of shares of Series A
Preferred pursuant to subsection 2(b) shall be deemed to be effective upon the happening of the event upon which such
automatic conversion is contingent, whether or not the holder thereof has surrendered the certificate therefor and, upon such
automatic conversion, the shares of Series A Preferred shall cease to be outstanding and the holders thereof shall be entitled
only to receive certificates evidencing the Common Stock issued upon such conversion against delivery of the certificates
evidencing such shares of Series A Preferred. The Corporation shall give written notice of any automatic conversion resulting
from the happening of an Automatic Conversion Event to all holders of Series A Preferred within five (5) business days of the
occurrence of either: (i) the consummation of the Automatic Conversion Event or (ii) the receipt of knowledge by any officer of
the Corporation of the consummation of an Automatic Conversion Event. Each holder of shares of Series A Preferred which
have been automatically converted as provided herein shall surrender the certificate or certificates evidencing such shares of
Series A Preferred, duly endorsed, at the office of the Corporation or of any transfer agent for the Series A Preferred and the
person or persons entitled to receive shares of Common Stock issuable upon such automatic conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock as of the date such certificate or certificates are so
surrendered. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder, or to the
nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such
holder shall be entitled.
(d) Adjustments to Series A Conversion Price for Diluting Issues.
(i) Special Definitions. For purposes of this Section 2(d), the following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities (as defined herein) (such excluded options and shares, the "Reserved Option Shares").
(B) "Convertible Securities" shall mean any evidences of indebtedness, shares or other securities (other than the Reserved
Option Shares) directly or indirectly convertible into or exchangeable for Common Stock or Preferred Stock.
(C) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Subsection 2(d)(iii)
of this Certificate, deemed to be issued) by the Corporation after the date of issuance of the Series A Preferred ("Original Issue
Date"), other than:
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(I) shares of Common Stock that on the Original Issue Date of the first issued share of Series A Preferred Stock (the "First
Original Issue Date") are issued or issuable upon conversion of shares of Series A Preferred then outstanding or then subject to
issuance against receipt of payment therefor in accordance with the Stock Purchase Agreement;
(II) shares of Common Stock issued or issuable as a dividend or distribution on Series A Preferred;
(III) the Reserved Option Shares; or
(IV) shares of Common Stock issued or issuable by reason of a dividend, stock split, split-up or other distribution on shares of
Common Stock excluded from the definition of Additional Shares of Common Stock by the foregoing clauses (I), (II) and (III)
or this clause (IV).
(ii) No Adiustment of Series A Conversion Price. No adjustment in the number of shares of Common Stock into which the
shares of Series A Preferred are convertible shall be made, by adjustment in the applicable Series A Conversion Price thereof,
unless the consideration per share (determined pursuant to Section 2(d)(v)) hereof for an Additional Share of Common Stock
issued or deemed to be issued by the Corporation is less than the applicable Series A Conversion Price in effect on the date of,
and immediately prior to, the issue of such Additional Shares. Notwithstanding the other provisions of this Section 2(d) to the
contrary, no adjustment to the applicable Series A Conversion Price shall be made as a result of (I) the issuance or deemed
issuance of any shares of Common Stock as a dividend with respect to which holders of Series A Preferred Stock receive a
ratable portion, (II) the issuance of Common Stock as a result of conversion of the Series A Preferred Stock or the issuance of
any stock options or the issuance of any Common Stock as a result of the exercise of options that are issued pursuant to option
plans applicable to employees, consultants, and/or directors approved by the Board of Directors,
(III) the issuance or deemed issuance of any shares of Common Stock or securities convertible into Common Stock to financial
institutions or lessors in connection with commercial credit arrangements, equipment financings or similar transactions or (IV)
securities issued solely in consideration for the acquisition (whether by merger or otherwise) by the Corporation of all or
substantially all of the capital stock or assets of any other entity or business organization, or securities issued solely in
consideration for the grant by or to the Corporation of marketing rights, distribution rights, license rights or similar rights granted
by or to the Corporation in consideration of the exchange of the proprietary technology, whether of the Corporation or any
other entity, provided that with respect to any issuance pursuant to the foregoing clauses
(I), (II) and (III) or (IV), the issuance of such securities is approved by all of the members of the Board of Directors and as
long as such securities are issued for a price, or options are granted with an exercise price, of no less than fair market value.
(iii) Issue of Options and Convertible Securities Deemed Issue of Additional Shares of Common Stock. If the Corporation at
any time or from time to time after the First Original Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard
to any provision contained therein for a
- 5 -
subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and
Options therefor, issuable upon the conversion or exchange of such Convertible Securities, shall be deemed to be Additional
Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the
close of business on such record date, provided that in any such case in which Additional Shares of Common Stock are
deemed to be issued:
(A) no further adjustment in the Series A Conversion Price shall be made upon the subsequent issue of Convertible Securities
or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities and,
upon the expiration of any such Option or the termination of any such right to convert or exchange such Convertible Securities,
the Series A Conversion Price then in effect hereunder shall forthwith be increased to the Series A Conversion Price that would
have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such expiration or termination, never been issued, and the Common Stock issuable thereunder
shall no longer be deemed to be outstanding; and
(B) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the Series A Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options
or the rights of conversion or exchange under such Convertible Securities, provided that no readjustment pursuant to this clause
(B) shall have the effect of increasing the Series A Conversion Price to an amount that exceeds the lower of (i) the Series A
Conversion Price on the original adjustment date, or (ii) the Series A Conversion Price that would have resulted from any
issuance of Additional Shares of Common Stock other than such Stock Options or Convertible Securities between the original
adjustment date and such readjustment date.
(iv) Adjustment of Series A Conversion Price. If the Corporation issues Additional Shares of Common Stock (including,
without limitation, Additional Shares of Common Stock deemed to be issued pursuant to
Section 2(d)(iii) hereof), without consideration or for a consideration per share less than the Series A Conversion Price in effect
on the date of and immediately prior to such issue, then and in such event, the Series A Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest tenth of a cent) determined by multiplying the Series A
Conversion Price by a fraction the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue (including all shares issuable upon the conversion of shares of Series A Preferred Stock and all
Reserved Option Shares) plus the number of shares of Common Stock that the aggregate consideration received by the
Corporation for the total number of Additional Shares of Common Stock so issued would purchase at the Series A Conversion
Price in effect prior to such issue; and the denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue (including all shares issuable upon the conversion of shares of Series A Preferred Stock and all
Reserved Option Shares) plus the number of such Additional Shares of Common Stock so issued; provided that, for the
purpose of this Section 2(d)(iv), (i) all shares of Common Stock issuable upon conversion of shares of Series A Preferred
Stock outstanding immediately prior to such issue shall be deemed to be outstanding, and (ii)
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immediately after any Additional Shares of Common Stock are deemed issued pursuant to Section 2(d)(iii) hereof, such
Additional Shares of Common Stock shall be deemed to be outstanding.
(v) Determination of Consideration. For purposes of this
Section 2(d), the "Net Consideration Per Share" shall mean the per share consideration received by the Corporation for the
issue of any Additional Shares of Common Stock and shall be computed as follows:
(A) Cash and Property: such consideration shall:
(I) insofar as it consists of cash, be computed at the aggregate of cash received by the Corporation, excluding amounts paid or
payable for accrued interest or accrued dividends;
(II) insofar as it consists of property other than cash, be computed at the Fair Market Value thereof at the time of such issue;
and
(III) if the Corporation issues Additional Shares of Common Stock together with other shares or securities or other assets of
the Corporation for consideration that covers both, be the proportion of such consideration so received, computed in good
faith by the Board of Directors as provided in clauses (I) and (II) above.
(B) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 2(d)(iii) hereof, relating to Options and Convertible
Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the
Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of
such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
(vi) Adjustment for Combinations or Consolidation of Common Stock. If, at any time after the First Original Issue Date the
number of shares of Common Stock outstanding are decreased by a combination of the outstanding shares of Common Stock,
then following the record date fixed for such combination (or the date of such combination, if no record date is fixed), the
applicable Series A Conversion Price shall be increased so that the number of shares of Common Stock issuable on conversion
of each share of Series A Preferred shall be decreased in proportion to such decrease in outstanding shares of Common Stock.
- 7 -
(vii) Adjustment for Stock Dividends, Splits, and the Like. If the Corporation shall at any time after the applicable First Original
Issue Date fix a record date for the subdivision, split-up or stock dividend of shares of Common Stock, then, following the
record date fixed for the determination of holders of shares of Common Stock entitled to receive such subdivision, split-up or
dividend (or the date of such subdivision, split-up or dividend, if no record date is fixed), the Series A Conversion Price shall
be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of Series A
Preferred shall be increased in proportion to such increase in outstanding shares; provided, however, that the Series A
Conversion Price shall not be decreased at such time if the amount of such reduction would be an amount less than $0.01, but
any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any
subsequent reduction that, together with such amount and any other amount or amounts so carried forward, shall aggregate
$0.01 or more.
(viii) Adjustment for Merger or Reorganization, and the Like. In case of any consolidation, recapitalization or merger of the
Corporation with or into another corporation or the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a subdivision or combination provided for elsewhere in this Section 2 and other than a consolidation,
merger or sale that is treated as a Liquidation Event pursuant to
Section 1 hereof), each share of Series A Preferred shall thereafter be convertible into the kind and amount of shares of stock
or other securities or property to which a holder of the number of shares of Common Stock of the Corporation deliverable
upon conversion of such shares of Series A Preferred would have been entitled upon such consolidation, merger or sale; and, in
such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of
the provisions in this Section 2 set forth with respect to the rights and interest thereafter of the holders of the shares of Series A
Preferred, to the end that the provisions set forth in this Section 2 (including provisions with respect to changes in and other
adjustments of the Series A Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of the shares of Series A Preferred.
(e) No Fractional Shares. No fractional shares shall be issued upon the conversion of any share or shares of Series A
Preferred, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share.
(f) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of Series A
Preferred, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series A Preferred.
(g) No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will
at all times in good faith assist in the carrying out of all the provisions of this
Section 2 and in the taking of all such action as may be necessary or
- 8 -
appropriate in order to protect the Conversion Rights of the holders of the shares of Series A Preferred against impairment.
(h) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Series A Conversion Price
pursuant to this
Section 2, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to each holder of shares of Series A Preferred a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A Preferred, furnish or cause to be furnished to such holder a similar certificate
setting forth (i) such adjustments and readjustments, (ii) the Series A Conversion Price then in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property that then would be received upon the conversion of the
shares of Series A Preferred.
3. Voting Rights. (a) Each share of Series A Preferred stock shall have the same voting rights as that number of shares of
common stock into which it may be convertible from time to time at the then Series A Conversion Price.
(b) The following actions shall require the affirmative vote of all Series A Designated Directors:
(i) any action by the Board to authorize, create, designate or establish any class or series of capital stock ranking on a parity
with, or senior to Series A Preferred or reclassify any shares of common stock into shares having any preference or priority as
to dividends or assets superior to or, on a parity with any such preference or priority of the Series A Preferred; or to in any
other manner alter or change the powers, preferences or rights, or qualification, limitations or restrictions of the shares of Series
A Preferred;
(ii) approval or authorization of any liquidation or winding up or recapitalization or reorganization of the Seller; and
(iii) approval of any proposal to amend the certificate of incorporation or bylaws of the Corporation in a manner that adversely
affects the rights of the holders of the Series A Preferred.
FIFTH: The Secretary of State is designated as agent of the Corporation upon whom process against it may be served. The
post office address to whom the Secretary of State shall mail a copy of any process against the Corporation served upon him
is:
Open-i Media, Inc.
73 Franklin Street
New York, New York 10013
SIXTH: No director of the Corporation shall have personal liability to the Corporation or to its shareholders for damages for
any breach of duty in such capacity, provided, however, that the provision shall not eliminate or limit:
(a) the liability of any director of the Corporation if a judgment or other final adjudication adverse to him establishes that his acts
or omissions were in bad faith or involved
- 9 -
intentional misconduct or a knowing violation of law or that he personally gained in fact a financial profit or other advantage to
which he was not legally entitled or, with respect to any director of the Corporation, that his acts violated Section 719 of the
BCL, or
(b) the liability of a director for any act or omission prior to the final adoption of this article.
SEVENTH: The holders of the Corporation's equity shares shall not be entitled to preemptive rights in accordance with the
provisions of section 622 of the BCL."
IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate to be executed by its President on the _____
day of July, 2000.
OPEN-I MEDIA, INC.
By: _______________________________
James Chong, President
- 10 -
Exhibit C
Financial Statements
Open-i Media
06/27/00 Balance Sheet
As of May 31, 2000
May 31,'00
------------
ASSETS
Current Assets
Checking/Savings
Cash 1,678,322.43
------------
Total Checking/Savings 1,678,322.43
Accounts Receivable
Accounts Receivable 694,751.12
------------
Total Accounts Receivable 694,751.12
Other Current Assets
Gruntal 10,203.75
Stock Subscription Receivable 6,000.00
Security Deposits 18,706.00
------------
Total Other Current Assets 34,909.75
------------
Total Current Assets 2,407,983.30
Fixed Assets
Fixed Assets 56,421.39
------------
Total Fixed Assets 56,421.39
------------
TOTAL ASSETS 2,464,404.69
============
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable
Accounts Payable 140,678.94
------------
Total Accounts Payable 140,678.94
Credit Cards
Amex Corp. Card 18,472.26
------------
Total Credit Cards 18,472.26
Other Current Liabilities
Sales Tax Payable 1,337.99
------------
Total Other Current Liabilities 1,337.99
------------
Total Current Liabilities 160,489.19
------------
Total Liabilities 160,489.19
Equity
Paid in Capital 1,998,085.39
Capital Stock 8,000.00
Retained Earnings 37,944.37
Net Income 259,885.74
------------
Total Equity 2,303,915.50
------------
TOTAL LIABILITIES & EQUITY 2,464,404.69
============
Exhibit C
Financial Statements
Open-i Media
06/27/00 Profit and Loss
January through December 1999
Jan - Dec 99
------------
Ordinary Income/Expense
Income
Development 664,372.79
Training 180,920.02
----------
Total Income 845,292.81
Cost of Goods Sold
CGS Development 171,751.51
CGS Training 111,933.50
----------
Total COGS 283,685.01
----------
Gross Profit 561,607.80
Expense
Miscellaneous 6,229.64
Advertising & Promotion 23,537.51
Open Interactive Leased Equip 200,000.00
Depreciation & Amortization Exp 17,903.99
Payroll Expenses 147,868.95
Professional Fees 46,382.58
Office Expense 19,115.17
Rent 36,386.36
Telephone 7,812.18
Travel & Ent 6,258.34
Utilities 10,519.92
Interest Expense 1,811.84
----------
Total Expense 523,826.48
----------
Net Ordinary Income 37,781.32
Other Income/Expense
Other Income
Other income 163.05
----------
Total Other Income 163.05
----------
Net Other Income 163.05
----------
Net Income 37,944.37
=========
Exhibit C
Financial Statements
Open-i Media
06/27/00 Profit and Loss
January through March 2000
Jan - Mar '00
-------------
Ordinary Income/Expense
Income
Development 397,954.72
Training 172,382.11
----------
Total Income 570,336.83
Cost of Goods Sold
CGS Development 44,166.31
CGS Training 81,671.25
----------
Total COGS 125,837.56
----------
Gross Profit 444,499.27
Expense
Miscellaneous 13,716.52
Advertising & Promotion 6,704.00
Open Interactive Leased Equip 75,000.00
Depreciation & Amortization Exp 3,130.64
Payroll Expenses 122,300.72
Professional Fees 25,106.75
Office Expense 4,902.16
Rent 26,426.55
Taxes 680.00
Telephone 3,137.50
Travel & Ent 1,399.81
Utilities 3,849.11
Interest Expense 1,610.66
----------
Total Expense 287,964.42
----------
Net Ordinary Income 156,534.85
Other Income/Expense
Other Income
Other Income 56.04
----------
Total Other Income 56.04
----------
Net Other Income 56.04
----------
Net income 156,590.89
==========
Exhibit D
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT made as of the 7th day of July, 2000, by and among Open-i Media, Inc., a New York corporation (the
"Company") and the parties set forth in Schedule I attached hereto (the "Investors").
WHEREAS, the Investors have acquired shares of the Series A Preferred Stock, par value $0.001 per share, of the Company
pursuant to certain Stock Purchase Agreements (the "Stock Purchase Agreements"); and
WHEREAS, on May 4, 2000, the Company and certain of its then shareholders entered into a Registration Rights Agreement
(the "Original Registration Rights Agreement"); and
WHEREAS, the parties to the Original Registration Rights Agreement believe that it is in the best interests of the Company and
the parties thereto to amend and restate the Original Registration Rights Agreement in its entirety as set forth herein; and
WHEREAS, the Company desires to grant to the Investors registration rights and certain other rights on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained and other valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. The following terms shall be used in this Agreement with the following respective meanings:
"Affiliate" shall mean with respect to any Person, any other Person which, directly or indirectly, controls, is controlled by or is
under common control with such Person; any general or limited partner, officer, director, or member of such Person and any
venture capital fund now or hereafter existing which is controlled by or under common control with one or more general
partners of such Person.
"Board" shall mean the Board of Directors of the Company.
"Commission" means the Securities and Exchange Commission, or any other federal agency at the time administering the
Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, or any successor Federal statute, and the rules and regulations of
the Commission (or of any other Federal agency then administering the Exchange Act) thereunder, all as the same shall be in
effect at the time.
"Holder" means any holder of Registrable Stock.
"Initial Public Offering" means the effective date for the Company's first registration statement covering a public offering of
securities of the Company under the Securities Act.
"NASD" means the National Association of Securities Dealers, Inc.
"Person" means any natural person, partnership, corporation or other legal entity.
"Registrable Stock" means (a) the Common Stock and (b) any other shares of Common Stock issued in respect of such shares
by way of a stock dividend, or stock split or in connection with a combination of shares, recapitalization, merger or
consolidation or reorganization; provided, however, that shares of Common Stock shall only be treated as Registrable Stock if
and so long as they are not eligible for sale without restriction under Rule 144(k) under the Securities Act or have not been (i)
sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (ii) sold in a
transaction under Rule 144 of the Securities Act so that all transfer restrictions and restrictive legends with respect to such
Common Stock are removed upon the consummation of such sale.
"Registration Statement" means a registration statement filed by the Company with the Commission for a public offering and
sale of securities of the Company (other than a registration statement on Form S-8, Form S-4, or successor forms, or any
registration statement covering only securities proposed to be issued in exchange for securities or assets of another corporation
or which is not available for registering the shares of Registrable Stock for sale to the public).
"Securities Act" means the Securities Act of 1933, or any successor Federal statute, and the rules and regulations of the
Commission (or of any other Federal agency then administering the Securities Act) thereunder, all as the same shall be in effect
at the time.
"Stock" means and includes (a) the Company's common stock, $0.001 par value per share, as authorized on the date of this
Agreement, and (b) any other securities into which or for which the securities described in (a) above may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise.
"Shareholders Agreement" means the Amended and Restated Shareholders Agreement of even date between the Company,
the Investors and certain other parties, as amended or amended and restated and in effect from time to time.
2. Restrictive Legend. Each certificate representing Registrable Stock shall, except as otherwise provided in this Section 2, be
stamped or otherwise imprinted with a legend substantially in the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS
BEEN REGISTERED UNDER SUCH ACT AND ALL SUCH APPLICABLE LAWS OR IN THE OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY AN EXEMPTION FROM REGISTRATION IS AVAILABLE."
2
A certificate shall not bear such legend, or such legend shall be promptly removed, if in the opinion of counsel satisfactory to the
Company the securities represented thereby may be publicly sold without registration under the Securities Act and any
applicable state securities laws or the Investor provides the Company with a certificate that such Investor satisfies all the
requirements of Rule 144 (k).
Each certificate for Registrable Stock shall bear the legend set forth in this Section 2, except that such certificate shall not bear
such legend if (i) such transfer is in accordance with the provisions of Rule 144 (or any other rule permitting public sale without
registration under the Securities Act) or pursuant to an effective registration statement, or (ii) an opinion of counsel satisfactory
to the Company to the effect that any proposed transfer of Registerable Stock may be effected without registration under the
Securities Act and any applicable state securities laws and that the transferee and any subsequent transferee (other than an
affiliate of the Company) would be entitled to transfer such securities in a public sale without registration under the Securities
Act.
3. Registration Rights.
3.1 Incidental Registration. Each time the Company shall determine to file a Registration Statement in connection with the
proposed offer and sale for money of any of its securities by it or any of its security holders, the Company will give written
notice thereof to the Investors. Upon the written request of one or more Investors given within twenty (20) days after the giving
of any such notice by the Company, the Company will use its reasonable best efforts to cause all such shares of Registrable
Stock, the Holders of which have so requested registration thereof, to be included in such Registration Statement, all to the
extent requisite to permit the sale or other disposition by the prospective seller or sellers of the Registrable Stock to be so
registered. If the Registration Statement is to cover an underwritten distribution, the Company shall use its reasonable best
efforts to cause the Registrable Stock requested for inclusion pursuant to this Section 3.1 to 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 managing underwriter of such public offering, the inclusion of all of the Registrable Stock requested for inclusion pursuant to
this Section 3.1 would interfere with the successful marketing of a smaller number of shares to be offered, then the number of
shares of Registrable Stock and other securities to be included in the offering (except for shares to be issued by the Company
in an offering initiated by the Company) shall be reduced to the required level by reducing (down to zero in the Company's
Initial Public Offering, or to not less than thirty (30%) percent thereafter, if so required) the participation of the Holders of
Registrable Stock in such offering (such reduction to be made to the amounts of shares requested for inclusion in such offering
by such Holders on a pro rata basis among the Holders of Registrable Stock requesting such registration, based upon the
number of shares of Registrable Stock owned by such Holders). Notwithstanding the foregoing provisions, the Company may,
in its sole discretion, terminate, delay, abandon or withdraw any Registration Statement referred to in this Section 3.1 without
thereby incurring any liability to the Holders of Registrable Stock.
3
3.2 Requested Registration.
(a) At any time beginning six (6) months after an Initial Public Offering, an Investor (the "Initiating Holder") may by notice in
writing to the Company (which notice shall specify the number of shares of Registrable Stock proposed to be sold and the
intended method of disposition thereof) request the Company to register under the Securities Act all or any portion of shares of
Registrable Stock held by such Initiating Holder or Investors for sale in the manner specified in such notice. Notwithstanding
anything to the contrary contained herein, the Company shall not be required to seek to cause a Registration Statement to
become effective pursuant to this Section 3.2: (A) within a period of 90 days after the effective date of any Registration
Statement (other than a Registration Statement on Forms S-4, S-8 or any successors thereto), provided that the Company shall
use its reasonable best efforts to cause a registration requested hereunder to be declared effective promptly following such
period if such request is made during such period; or (B) if the Company shall furnish to the Holders a certificate signed by the
President of the Company stating that in the good faith judgment of t