UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Date
of
report (date of earliest event reported): September 13, 2005
ZIOPHARM
Oncology, Inc.
(Exact
name of registrant as specified in its charter)
|
Delaware
|
0-32353
|
84-1475642
|
|
(State
or other jurisdiction of
incorporation)
|
(Commission
File Number)
|
(IRS
Employer Identification No.)
|
1180
Avenue of the Americas, 19th
Floor
New
York, NY 10036
(Address
of principal executive offices) (Zip Code)
(646)
214-0700
(Registrant’s
telephone number, including area code)
EasyWeb,
Inc.
6025
S. Quebec Street, Suite 135
Englewood,
Colorado
(Former
name or former address, if changed since last report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
o
Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
2.01. Completion of Acquisition or Disposition of Assets.
Reverse
Merger Transaction; Acquisition of ZIOPHARM, Inc.
Pursuant
to an Agreement and Plan of Merger dated August 3, 2005 (the “Merger
Agreement”),
by
and among EasyWeb, Inc. (now known as ZIOPHARM Oncology,
Inc.)(the “Company”),
ZIO
Acquisition Corp., a Delaware corporation and wholly owned subsidiary of
the
Company, and ZIOPHARM, Inc., a Delaware corporation whose business is the
development and commercialization of drugs for the treatment of cancer
(“ZIOPHARM”),
ZIO
Acquisition Corp. merged with and into ZIOPHARM, with ZIOPHARM remaining
as the
surviving entity and a wholly owned operating subsidiary of the Company.
This
transaction is referred to throughout this report as the “Merger.” The
Merger was effective as of September 13, 2005, upon the filing of a certificate
of merger with the Delaware Secretary of State.
At
the
effective time of the Merger, the legal existence of ZIO Acquisition Corp.
ceased and all of the 13,908,772 shares of ZIOPHARM capital stock that were
outstanding immediately prior to the Merger were cancelled, with one share
of
ZIOPHARM common stock issued to the Company. Simultaneously, the former holders
of ZIOPHARM capital stock received an aggregate of 6,967,941 shares of the
Company’s common stock, representing approximately 97.3% of the Company’s common
stock outstanding after the Merger. In addition, all securities convertible
into
and exercisable for shares of ZIOPHARM capital stock outstanding immediately
prior to the Merger were cancelled, and the holders thereof received similar
securities convertible into an aggregate of 1,366,846 shares of the Company’s
common stock.
Prior
to
the Merger, the Company effected a 1-for-40 share combination (i.e., reverse
stock split) of its capital stock. The share combination was approved by
Company’s stockholders at a special stockholder meeting held on February 28,
2005. As a result of the share combination, the Company had 189,922 shares
of
common stock outstanding immediately prior to the Merger.
The
Merger represents a change in control of the Company inasmuch as greater
than
50% of the issued and outstanding voting stock of Company on a post-Merger
basis
is now held by the former holders of ZIOPHARM capital stock. As of the date
of
this report, there were 7,157,863 shares of Company capital stock outstanding,
all of which is common stock.
The
Merger Agreement was filed as Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission on August 9, 2005,
and is incorporated herein by reference. The foregoing description of the
Merger
Agreement and the transactions contemplated thereby do not purport to be
complete and are qualified in their entireties by reference to the Merger
Agreement.
On
September 13, 2005, the Company’s board of directors approved a transaction
pursuant to which ZIOPHARM merged with and into the Company, leaving the
Company
as the surviving corporation. In connection with this merger, the Company
relinquished its corporate name and assumed in its place the name “ZIOPHARM
Oncology, Inc.” The merger and name change became effective on September 14,
2005, upon the filing of a certificate of ownership with the Delaware Secretary
of State.
Unless
otherwise provided in this report, all references in this report to
“we,”“us,”“our company,”“our,” or the “Company” refer to the combined ZIOPHARM
Oncology, Inc. entity.
1
Description
of Business of ZIOPHARM Oncology, Inc.
General
ZIOPHARM
Oncology, Inc. is a development-stage company that is seeking to develop
and
commercialize a diverse, risk-sensitive portfolio of in-licensed cancer drugs
that address unmet medical needs. The Company’s management and advisors are
focused on licensing proprietary drug candidate families that are related
to
cancer therapeutics on the market where the application of new biological
understanding and the Company’s drug development expertise will lead to a lower
risk for clinical development failure while expediting clinical registration.
The Company expects to commercialize its products on its own in North America
but recognizes that promising clinical trial results in cancers with a high
incidence and prevalence might also be addressed in a commercial partnership
with another company with the requisite financial resources. Currently, the
Company is in U.S. Phase I studies for two product candidates known as ZIO-101
and ZIO-201. The Company currently intends to continue with clinical development
of ZIO-101 for advanced myeloma and ZIO-201 for advanced sarcoma.
The
Company’s corporate office is located at 1180 Avenue of the Americas, 19th
Floor, New York, NY 10036, with a telephone number of (646) 214-0700. The
Company’s business and development operations are located in Charlestown,
Massachusetts.
Cancer
Overview
Cancer
is
a group of diseases characterized by either the runaway growth of cells or
the
failure of cells to die normally. Often, cancer cells spread to distant parts
of
the body, where they can form new tumors. Cancer can arise in any organ of
the
body and, according to the American Cancer Society, strikes one of every
two
American men and one of every three American women at some point in their
lives.
It
is
reported that there are more than 100 different varieties of cancer divided
into
six major categories. Carcinomas, the most common type of cancer, originate
in
tissues that cover a surface or line a cavity of the body. Sarcomas begin
in
tissue that connects, supports or surrounds other tissues and organs. Lymphomas
are cancers of the lymph system, the circulatory system that bathes and cleanses
the body’s cells. Leukemias involve blood-forming tissues and blood cells. As
their name indicates, brain tumors are cancers that begin in the brain, and
skin
cancers, including dangerous melanomas, originate in the skin. Cancers are
considered metastatic if they spread via the blood or lymphatic system to
other
parts of the body to form secondary tumors.
Cancer
is
caused by a series of mutations, or alterations, in genes that control cells’
ability to grow and divide. Some mutations are inherited; others arise from
environmental factors such as smoking or exposure to chemicals, radiation,
or
viruses that damage cells’ DNA. The mutations cause cells to divide relentlessly
or lose their normal ability to die.
The
cost
of cancer to the healthcare system is significant. The National Institute
of
Health estimates that the overall cost of cancer in 2003 was $189.5 billion.
This cost includes an estimate of $64.2 billion in direct medical expenses,
$16.3 billion in indirect morbidity costs, and $109 billion in indirect
mortality costs.
Cancer
Treatments
Major
treatments for cancer include surgery, radiotherapy, and chemotherapy. There
are
many different drugs that are used to treat cancer, including cytotoxics
or
antineoplastics, hormones, and biologics. There are also many experimental
treatments under investigation including radiation sensitizers, vaccines,
gene
therapy and immunotoxins. The Company believes cancer treatment represents
a
significant unmet medical need.
2
Scientists
are also looking for ways to increase the effectiveness of radiation therapy.
Two types of investigational drugs are being studied for their effect on
cells
exposed to radiation. Radiosensitizers increase the damage done to tumor
cells
by radiation; and radioprotectors protect normal tissues from the effects
of
radiation.
Cytotoxics.
Cytotoxics
are anticancer drugs that destroy cancer cells by stopping them from
multiplying. Healthy cells can also be harmed with the use of cytotoxics,
especially those that divide quickly. Harm to healthy cells is what causes
side
effects. These cells usually repair themselves after chemotherapy. Chemotherapy
can be used for different purposes which include curing cancer (when the
patient
remains free of evidence of cancer cells), controlling cancer (by preventing
the
cancer from spreading), and to relieving symptoms of cancer (such as pain,
helping patients live more comfortably).
Cytotoxic
agents act primarily on macromolecular synthesis, repair or activity, which
affects the production or function of DNA, RNA or protein. Although there
are
many cytotoxic agents, there is a considerable amount of overlap in their
mechanisms of action. As such, the choice of a particular agent or group
of
agents is generally not a consequence of a prior prediction of antitumor
activity by the drug, but instead the result of empirical clinical
trials.
Supportive
Care.
The
treatment of a cancer may include the use of chemotherapy, radiation therapy,
biologic response modifiers, surgery, or some combination of all of these
or
other therapeutic options. All of these treatment options are directed at
killing or eradicating the cancer that exists in the patient’s body.
Unfortunately, the delivery of many cancer therapies adversely affects the
body’s normal organs. The undesired consequence of harming an organ not involved
with cancer is referred to as a complication of treatment or a side
effect.
Side
effects, or complications, of treatment cause inconvenience, discomfort,
and
occasionally, may even be fatal. Additionally and perhaps more importantly,
side
effects may also prevent doctors from delivering the prescribed dose of therapy
at the specific time and schedule of the treatment plan. Therefore, side
effects
not only cause discomfort, but may also limit a patient’s ability to achieve the
best outcome from treatment by preventing the delivery of therapy at its
optimal
dose and time.
In
addition to anemia, fatigue, hair-loss, reduction in blood platelets and
white
and red blood cells, and bone pain, one of the most common side effects of
chemotherapy is nausea and vomiting. Several drugs have been developed to
help
prevent and control chemotherapy-induced nausea and vomiting, which have
led to
improvements in the management of symptoms associated with this cancer
treatment, allowing for greater accuracy and consistency concerning the
administration of cancer treatment. Nausea and vomiting induced by chemotherapy
are treated by drugs such as 5HT3 receptor antagonists, like ondansetron,
which
is a selective blocking agent of the hormone serotonin.
3
ZIO-101
General.
ZIO-101
is an organic arsenic compound covered by an issued U.S. patent and applications
internationally. A form of commercially available inorganic arsenic (arsenic
trioxide (Trisenox®) or ATO) has been approved for the treatment of acute
promyelogenous leukemia (APL), a precancerous condition, and has been studied
for the treatment of various cancers. Nevertheless, ATO has been shown to
be
toxic to the heart and liver, limiting its use as an anti-cancer agent.
Inorganic arsenic has also been shown to cause cancer of the skin and lung
in
humans. The toxicity of arsenic generally is correlated to its accumulation
in
organs and tissues. The Company’s preclinical studies demonstrated that ZIO-101
(and organic arsenic in general) is considerably less toxic than inorganic
arsenic, particularly with regard to heart toxicity.
In
vitro
testing
of ZIO-101 using the National Cancer Institute’s human cancer cell panel
detected activity against lung, colon, brain, melanoma, ovarian and kidney
cancer. Moderate activity was detected against breast and prostate
cancer.
In
addition to solid tumors, in
vitro
testing
in both the National Cancer Institute’s cancer cell panel and in
vivo
testing
in a leukemia animal model demonstrated substantial activity against
hematological cancers (cancers of the blood and blood-forming tissues) such
as
leukemia, lymphoma, myelodysplastic syndromes and multiple myeloma. Leukemia
is
a cancer that begins in blood-forming tissue such as the bone marrow and
causes
large numbers of blood cells to be produced and enter the bloodstream. Lymphomas
are cancers that begin in cells of the immune system. Myelodysplastic syndromes,
also called preleukemia or smoldering leukemia, are diseases in which the
bone
marrow does not function normally.
Clinical
Lead Indications: Multiple Myeloma.
Multiple myeloma, a common hematological malignancy, is among a group of
plasma
cell cancers associated with the overproduction of monoclonal immunoglobulin
(M-protein). Primary treatment for multiple myeloma is systemic chemotherapy.
Approximately 15-20% of patients who have the disease are resistant to
aggressive primary treatment. Even with prompt institution of systemic
treatment, the drug-sensitive phase of the disease usually lasts only two
to
three years for most patients before resistance appears (although in a small
patient population sensitivity to systemic therapy can last for five to ten
years). The median survival of patients with progressive or resistant disease
is
three to four years.
The
standard of care for progressive or resistant multiple myeloma may be in
transition. Recent clinical trials offer evidence supporting the use of
thalidomides and proteosome inhibitors, either alone or in combination with
other agents. Unfortunately, neither treatment is universally effective,
each
can be quite toxic, and all patients who receive them will likely develop
progressive disease. As a result, the Company expects that the medical community
will continue to embrace new agents that provide incremental benefit to patients
without undue toxicity. The Company is hopeful that the novel mechanism of
action of ZIO-101, combined with its anticipated safety profile, will encourage
its use in the treatment of advanced myeloma and possibly a variety of other
tumors. Currently, the Company expects that advanced myeloma will be the
indication for which it is most likely to seek initial regulatory approval
for
ZIO-101.
Clinical
Development Plan for ZIO-101.
The
Company has commenced two phase I clinical trials (hematological and solid
tumor) at the University of Texas M.D. Anderson Cancer Center using ZIO-101
in
refractory disease. Phase I testing is primarily focused on assessing drug
safety; however, one patient in the solid tumor trial has evidenced a response
without toxicity (as reported by the investigator). The starting dose in
both
phase I trials was about 14 times the labeled dose of inorganic arsenic.
The
dose has been escalated to the next level in one trial, and to date has been
well tolerated.
4
The
solid
tumor trial is seeking to confirm data collected during
pre-clinical studies that indicated activity in a variety of solid
tumors.
We have elected to conduct a separate phase I clinical trial for solid cancers
based on our belief that the maximum tolerated dose of ZIO-101 in patients
with
solid cancers may be substantially higher than patients with blood cancers.
While the current focus for product registration is myeloma, these phase
I study
results will be instructive for further development plans in solid
tumors.
ZIO-201
General.
ZIO-201, or isophosphoramide mustard (IPM), is a proprietary stabilized
metabolite of ifosfamide that is also related to cyclophosphamide. A patent
application for pharmaceutical composition has been filed. Cyclophosphamide
and
ifosfamide are alkylating agents. Cyclophosphamide is the most widely used
alkylating agent in cancer therapy and is used to treat breast cancer and
non-Hodgkin’s lymphoma. Ifosfamide has been shown to be effective in high dose
by itself, or in combination in treating sarcoma and lymphoma. Although
ifosfamide-based treatment generally represents the standard of care for
sarcoma, it is not licensed for this indication by the U.S. Food and Drug
Administration (FDA).
The
Company’s pre-clinical studies have shown that, in animal and laboratory models,
IPM evidences activity against leukemia and solid tumors. These studies also
indicate that ZIO-201 has a better pharmacokinetic and safety profile than
ifosfamide or cyclophosphamide, offering the possibility of safer and more
efficacious therapy with ZIO-201.
Ifosfamide
is metabolized to IPM. In addition to IPM, another metabolite of ifosfamide
is
acrolein, which is toxic to the kidneys and bladder. The presence of acrolein
can mandate extensive in-hospital hydration and the administration of a
protective agent called Mesna®,
which
is inconvenient and expensive. Chloroacetaldehyde is another metabolite of
ifosfamide and is toxic to the central nervous system, causing “fuzzy brain”
syndrome for which there is currently no protective measure. Similar toxicity
concerns pertain to high-dose cyclophosphamide, which is widely used in bone
marrow and blood cell transplantation. Because ZIO-201 is independently
active—without acrolein or chloroacetaldehyde metabolites—the Company believes
that the administration of ZIO-201 may avoid the toxicities of ifosfamide
and cyclophosphamide without compromising efficacy.
In
addition to anticipated lower toxicity, ZIO-201 may have other advantages
over
ifosfamide and cyclophosphamide. ZIO-201 likely cross-links DNA differently
than
ifosfamide or cyclophosphamide metabolites, resulting in a different activity
profile. Moreover, in some instances ZIO-201 appears to show activity in
ifosfamide- and/or cyclophosphamide-resistant cancer cells.
Potential
Lead Indications for ZIO-201: Sarcomas.
Sarcomas are cancers of the bone, cartilage, fat, muscle, blood vessels,
or
other connective or supportive tissue. Soft tissue sarcomas, the expected
lead
indication for ZIO-201, are relatively rare; there are 6,000 to 8,000 thousand
new cases each year in adults in the United States. On the other hand, in
children, soft tissue sarcomas account for approximately 10% of all childhood
cancers. There are more than 50 histological or tissue types of soft tissue
sarcomas. The prognosis for patients with adult soft tissue sarcomas depends
on
several factors, including the patient’s age, size of the primary tumor,
histological grade, and stage of the tumor. Factors associated with a poorer
prognosis include age greater than 60 years, tumors larger than five
centimeters, and high-grade histology. While small, low-grade tumors are
usually
curable by surgery alone, higher-grade or larger sarcomas are associated
with
higher local treatment failure rates and increased metastatic potential.
Ifosfamide-based chemotherapy is a frequent standard of care for the treatment
of metastatic tumors. It may also used in the adjuvant setting for high-risk
primary tumors.
5
Clinical
Development Plan for ZIO-201.
A phase
I clinical trial is being conducted at two centers with the objective of
establishing maximum tolerated dose. The current dose level in this phase
I
trial is believed to be comparable to a relatively high dose of ifosfamide.
The
drug is being administered without Mesna®.
Furthermore, one patient has evidence of stable disease. The Company intends
to
initiate a phase I/II trial in advanced sarcoma and expects early results
in the
first half of 2006. The Company is also planning to implement a high
dose
phase I study in sarcoma and is exploring a phase II study in pediatric sarcoma.
These trials would support the design and implementation of a phase III
registration study in early 2007.
Competition
The
development and commercialization for new products to treat cancer is highly
competitive, and there will be considerable competition from major
pharmaceutical, biotechnology, and specialty cancer companies. Many of our
competitors have substantially more resources than the Company, including
both
financial and technical. In addition, many of these companies have more
experience than the Company in preclinical and clinical development,
manufacturing, regulatory, and global commercialization. The Company is also
competing with academic institutions, governmental agencies and private
organizations that are conducting research in the field of cancer. Competition
for highly qualified employees is intense.
There
are
a number of companies developing chemotherapies for cancer and in particular
for
multiple myeloma and sarcoma. Millennium Pharmaceuticals, Inc. and Celgene
Corporation have marketed products to treat multiple myeloma, and many other
product candidates are in clinical trials and preclinical research. There
are a
more limited number of competitors developing new approaches to treat sarcoma,
Ariad Pharmaceuticals principal among them.
License
Agreements and Intellectual Property
The
Company’s goal is to obtain, maintain and enforce patent protection for our
products, formulations, processes, methods and other proprietary technologies,
to preserve our trade secrets, and to operate without infringing the proprietary
rights of other parties, both in the United States and in other countries.
Our
policy is to actively seek the broadest possible intellectual property
protection for our product candidates through a combination of contractual
arrangements and patents, both in the United States and abroad.
Patent
and Technology License Agreement — University of Texas M. D. Anderson Cancer
Center and the Texas A&M University System.
On
August 24, 2004, the Company entered into a Patent and Technology License
Agreement with The Board of Regents of the University of Texas System, acting
on
behalf of the University of Texas M. D. Anderson Cancer Center and the Texas
A&M University System (collectively, the “Licensors”). Under this agreement,
the Company was granted an exclusive, worldwide license to rights (including
rights to U.S. and foreign patent and patent applications and related
improvements and know-how) for the manufacture and commercialization of two
classes of organic arsenicals (water- and lipid-based) for human and animal
use.
The class of water-based organic arsenicals includes ZIO-101.
6
In
October 2004, we received a notice of allowance for U.S. Patent Application
No.
10/337969, entitled “S-dimethylarsino-thiosuccinic acid
S-dimethylarsino-2-thiobenzoic acid S-(simethylarsino) glutathione as treatments
for cancer.” The patent was granted on June 28, 2005. The patent application
claims both therapeutic uses and pharmaceutical compositions containing a
novel
class of organic arsenicals, including ZIO-101, for the treatment of cancer.
As
partial consideration for the license rights obtained by the Company, we
paid
the Licensors an upfront, nonrefundable $125,000 fee and issued 250,487 shares
of our common stock to University of Texas M. D. Anderson Cancer Center and
granted it an option to purchase an additional 50,222 shares of our common
stock
for approximately $0.002 per share (such share amounts and option exercise
price
have been adjusted to reflect to the Merger). The option will vest and become
exercisable with respect to 50% of its shares upon completion of the dosing
of
the last patient for both the blood and solid tumor phase I trials for ZIO-101.
Another 25% of the shares subject to the option will vest upon enrollment
of the
first patient in a multi-center pivotal clinical trial (i.e., a human clinical
trial intended to provide the substantial evidence of efficacy necessary
to
support the filing of an approvable New Drug Application ("NDA") ) for ZIO-101,
with the remaining 25% vesting upon the filing of an Investigational New
Drug
(“IND”) for ZIO-101. As additional consideration for the license, the Licensors
are entitled to receive up to an aggregate of $4.85 million in cash payments,
payable in varying amounts, upon the achievement of certain milestones,
including a $100,000 that the Company paid upon the commencement of the phase
I
clinical trial for ZIO-101 in May 2005. The Licensors are entitled to receive
royalty payments from sales of a licensed product (should such a product
be
approved for commercial sale), as well and a portion of any fees that we
may
receive from a sublicensee. Finally, the license agreement provides that
the
Company will enter into two separate sponsored research agreements with the
Licensors, each of which will require that we make annual payments of $100,000
for no less than two years. The Company will have the exclusive right to
all
intellectual property rights resulting from such research pursuant to the
terms
of the agreements.
The
agreement also contains other provisions customary and common in similar
agreements within the industry, such the Company’s right to sublicense our
rights under the agreement. Nevertheless, if the Company sublicenses its
rights
prior to the commencement of a pivotal clinical trial (i.e., a human clinical
trial intended to provide the substantial evidence of efficacy necessary
to
support the filing of an approvable NDA), the Licensors will generally be
entitled to receive a share of the payments it receives in exchange for the
sublicense (subject to certain exceptions).
License
Agreement with DEKK-TEC, Inc.
On
October 15, 2004, the Company entered into a license agreement with DEKK-TEC,
Inc., pursuant to which the Company was granted an exclusive, worldwide license
to the second of our lead product candidates, ZIO-201.
In
consideration for the Company’s license rights, DEKK-TEC is entitled to
receive cash payments in the aggregate amount of up to $3.90 million,
which
are payable in varying amounts upon the occurrence of certain milestone events.
The majority of these milestone payments will be creditable
against
future royalty payments, as referenced below. We also issued DEKK-TEC an
option
to purchase up to 27,616 shares of our common stock for approximately $0.02
per
share (such share amount and option exercise price have been adjusted to
reflect
to the Merger), which option vested with respect to 6,904 post-Merger shares
upon the execution of the license agreement. The option will vest with respect
to the remaining shares upon certain milestone events culminating with final
FDA
approval of the first NDA submitted by us (or by our sublicensee) for ZIO-201.
Finally, DEKK-TEC also is entitled to receive royalty payments on the sales
of
ZIO-201 should it be approved for commercial sale. The license agreement
also
contains other provisions customary and common in similar agreements within
the
industry.
7
Option
Agreement with Southern Research Institute (“SRI”).
On
December 22, 2004, we entered into an Option Agreement with SRI, pursuant
to
which we were granted an exclusive option to obtain an exclusive license
to
SRI’s interest in certain intellectual property, including exclusive rights
related to certain isophosphoramide mustard analogs. Also on December 22,
2004,
we entered into a Research Agreement with SRI pursuant to which we agreed
to
spend a sum not to exceed $200,000 between the execution of the agreement
and
December 21, 2006, including a $25,000 payment that we made simultaneously
with
the execution of the agreement, to fund research and development work by
SRI in
the field of isophosphoramide mustard analogs. Under the terms of the option
agreement, our exclusive right to exercise the option will expire 60 days
after
the termination or expiration of the SRI’s research and development work in the
field of isophosphoramide mustard analogs, and the delivery of the certain
required reports.
Other
Intellectual Property Rights and Protection.
The
Company depends upon the skills, knowledge and experience of its scientific
and
technical personnel, as well as those of its advisors, consultants and other
contractors, none of which is patentable. To help protect proprietary know-how,
which is not patentable, and for inventions for which patents may be difficult
to enforce, the Company currently relies, and in the future rely, on trade
secret protection and confidentiality agreements to protect our interests.
To
this end, the Company generally requires employees, consultants, advisors
and
other contractors to enter into confidentiality agreements that prohibit
the
disclosure of confidential information and, where applicable, require disclosure
and assignment to us of the ideas, developments, discoveries and inventions
important to our business.
Governmental
Regulation
The
research, development, testing, manufacture, labeling, promotion, advertising,
distribution, and marketing, among other things, of our products are extensively
regulated by governmental authorities in the United States and other countries.
In the United States, the FDA regulates drugs under the Federal Food, Drug,
and
Cosmetic Act, or the “FDCA,” and its implementing regulations. Failure to comply
with the applicable U.S. requirements may subject us to administrative or
judicial sanctions, such as FDA refusal to approve pending New Drug
Applications, warning letters, product recalls, product seizures, total or
partial suspension of production or distribution, injunctions, and/or criminal
prosecution.
8
Drug
Approval Process.
None of
our drugs may be marketed in the U.S. until the drug has received FDA approval.
The steps required before a drug may be marketed in the U.S.
include:
| · |
Preclinical
laboratory tests, animal studies, and formulation
studies;
|
| · |
Submission
to the FDA of an IND for human clinical testing, which must become
effective before human clinical trials may
begin;
|
| · |
Adequate
and well-controlled human clinical trials to establish the safety
and
efficacy of the drug for each
indication;
|
| · |
Submission
to the FDA of an NDA;
|
| · |
Satisfactory
completion of an FDA inspection of the manufacturing facility or
facilities at which the drug is produced to assess compliance with
current
good manufacturing practices, or “cGMPs”;
and
|
| · |
FDA
review and approval of the NDA.
|
Preclinical
tests include laboratory evaluation of product chemistry, toxicity, and
formulation, as well as animal studies. The conduct of the preclinical tests
and
formulation of the compounds for testing must comply with federal regulations
and requirements. The results of the preclinical tests, together with
manufacturing information and analytical data, are submitted to the FDA as
part
of an IND, which must become effective before human clinical trials may begin.
An IND will automatically become effective 30 days after receipt by the FDA,
unless before that time the FDA raises concerns or questions about issues
such
as the conduct of the trials as outlined in the IND. In such a case, the
IND
sponsor and the FDA must resolve any outstanding FDA concerns or questions
before clinical trials can proceed. The Company cannot be sure that submission
of an IND will result in the FDA allowing clinical trials to begin.
Clinical
trials involve the administration of the investigational drug to human subjects
under the supervision of qualified investigators. Clinical trials are conducted
under protocols detailing the objectives of the study, the parameters to
be used
in monitoring safety, and the effectiveness criteria to be evaluated. Each
protocol must be submitted to the FDA as part of the IND.
Clinical
trials typically are conducted in three sequential phases, but the phases
may
overlap. The study protocol and informed consent information for study subjects
in clinical trials must also be approved by an Institutional Review Board
for
each institution where the trials will be conducted. Study subjects must
sign an
informed consent form before participating in a clinical trial. Phase I usually
involves the initial introduction of the investigational drug into people
to
evaluate its short-term safety, dosage tolerance, metabolism, pharmacokinetics
and pharmacologic actions, and, if possible, to gain an early indication
of its
effectiveness. Phase II usually involves trials in a limited patient population
to (i) evaluate dosage tolerance and appropriate dosage; (ii) identify possible
adverse effects and safety risks; and (iii) evaluate preliminarily the efficacy
of the drug for specific indications. Phase III trials usually further evaluate
clinical efficacy and test further for safety by using the drug in its final
form in an expanded patient population. There can be no assurance that phase
I,
phase II, or phase III testing will be completed successfully within any
specified period of time, if at all. Furthermore, a company or the FDA may
suspend clinical trials at any time on various grounds, including a finding
that
the subjects or patients are being exposed to an unacceptable health
risk.
The
FDCA
permits FDA and the IND sponsor to agree in writing on the design and size
of
clinical studies intended to form the primary basis of an effectiveness claim
in
an NDA application. This process is known as Special Protocol Assessment.
These
agreements may not be changed after the clinical studies begin, except in
limited circumstances.
9
Assuming
successful completion of the required clinical testing, the results of the
preclinical studies and of the clinical studies, together with other detailed
information, including information on the manufacture and composition of
the
drug, are submitted to the FDA in the form of an NDA requesting approval
to
market the product for one or more indications. The testing and approval
process
requires substantial time, effort, and financial resources. The agencies
review
the application and may deem it to be inadequate to support the registration,
and companies cannot be sure that any approval will be granted on a timely
basis, if at all. The FDA may also refer the application to the appropriate
advisory committee, typically a panel of clinicians, for review, evaluation
and
a recommendation as to whether the application should be approved. The FDA
is
not bound by the recommendations of the advisory committee.
The
FDA
has various programs, including fast track, priority review, and accelerated
approval, that are intended to expedite or simplify the process for reviewing
drugs, and/or provide for approval on the basis surrogate endpoints. Generally,
drugs that may be eligible for one or more of these programs are those for
serious or life-threatening conditions, those with the potential to address
unmet medical needs, and those that provide meaningful benefit over existing
treatments. A company cannot be sure that any of its drugs will qualify for
any
of these programs, or that, if a drug does qualify, that the review time
will be
reduced.
Section
505(b)(2) of the FDCA allows the FDA to approve a follow-on drug on the basis
of
data in the scientific literature or a prior FDA approval of an NDA for a
related drug. This procedure potentially makes it easier for generic drug
manufacturers to obtain rapid approval of new forms of drugs based on
proprietary data of the original drug manufacturer.
Before
approving an NDA, the FDA usually will inspect the facility or the facilities
at
which the drug is manufactured and will not approve the product unless cGMP
compliance is satisfactory. If the FDA evaluates the NDA and the manufacturing
facilities as acceptable, the FDA may issue an approval letter, or in some
cases, an approvable letter followed by an approval letter. Both letters
usually
contain a number of conditions that must be met in order to secure final
approval of the NDA. When and if those conditions have been met to the FDA’s
satisfaction, the FDA will issue an approval letter. The approval letter
authorizes commercial marketing of the drug for specific indications. As
a
condition of NDA approval, the FDA may require post-marketing testing and
surveillance to monitor the drug’s safety or efficacy, or impose other
conditions.
After
approval, certain changes to the approved product, such as adding new
indications, making certain manufacturing changes, or making certain additional
labeling claims, are subject to further FDA review and approval. Before a
company can market products for additional indications, it must obtain
additional approvals from FDA. Obtaining approval for a new indication generally
requires that additional clinical studies be conducted. A company cannot
be sure
that any additional approval for new indications for any product candidate
will
be approved on a timely basis, or at all.
Post-Approval
Requirements.
Often
times, even after a drug has been approved by the FDA for sale, the FDA may
require that certain post-approval requirements be satisfied, including the
conduct of additional clinical studies. If such post-approval conditions
are not
satisfied, the FDA may withdraw its approval of the drug. In addition, holders
of an approved NDA are required to: (i) report certain adverse reactions
to the
FDA, (ii) comply with certain requirements concerning advertising and
promotional labeling for their products, and (iii) continue to have quality
control and manufacturing procedures conform to cGMP after approval. The
FDA
periodically inspects the sponsor’s records related to safety reporting and/or
manufacturing facilities; this latter effort includes assessment of compliance
with cGMP. Accordingly, manufacturers must continue to expend time, money,
and
effort in the area of production and quality control to maintain cGMP
compliance. We intend to use third party manufacturers to produce our products
in clinical and commercial quantities, and future FDA inspections may identify
compliance issues at the facilities of our contract manufacturers that may
disrupt production or distribution, or require substantial resources to correct.
In addition, discovery of problems with a product after approval may result
in
restrictions on a product, manufacturer, or holder of an approved NDA, including
withdrawal of the product from the market.
10
Employees.
As
of the
date of this current report, the Company had 11 employees, all of which are
full-time employees. The Company intends to hire an additional 3 to 4 employees
prior to the end of 2005.
Description
of Property
The
Company’s corporate office is located at 1180 Avenue of the Americas, 19th
Floor, New York, NY 10036. The New York office space is subject to a five-year
lease agreement that expires in June 2010. Under the terms of the lease,
the
Company leases approximately 2,580 square feet and is required to make monthly
rental payments of approximately $10,100 until December 31, 2007, with such
payment increasing to approximately $11,000 thereafter through the remainder
of
the term of the lease. The Company’s business and development operations are
located as 197 Eighth Street, Suite 300, Charlestown, Massachusetts 02129.
The
Charlestown office space is subject to a five-year lease agreement that expires
in October 2009. Under the terms of the lease, the Company leases approximately
2,800 square feet and is required to make monthly rental payments that range
from $4,200 during the first year of the lease to $4,900 during the last
year of
the lease. The Company is presently intending to expand its commercial space
in
Charlestown, Massachusetts by approximately 1,000 square feet.
Legal
Proceedings
The
Company is not currently involved in any material legal
proceedings.
Cautionary
Note Regarding Forward-Looking Statements
This
report contains certain statements that are “forward-looking statements” under
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act
of 1934, as amended, and includes, among other things, discussions of our
business strategies, future operations and capital resources. Words such
as, but
not limited to, “may,”“likely,”“anticipate,”“expect” and “believes” indicate
forward-looking statements.
Forward-looking
statements are included in the section of this report entitled “Description of
Business of ZIOPHARM Oncology, Inc.” Although we believe that the expectations
reflected in such forward-looking statements are generally reasonable, we
cannot
assure you that such expectations will ultimately prove to be correct.
Generally, these statements relate to our business plans and strategies,
projected or anticipated benefits or other consequences of market conditions
and
opportunities, business plans or strategies, projections involving anticipated
sales and revenues, expenses, projected future earnings and other aspects
of
operational results. All Phases of our operations are subject to a number
of
uncertainties, risks and other influences, most of which are outside our
control, and any one or combination of which could materially and adversely
affect the results of our operations, and also, could affect whether any
such
forward-looking statements contained herein ultimately prove to be accurate.
Important factors that could cause actual results to differ materially from
our
current expectations are summarized in the section captioned “Risk Factors”
immediately following.
11
The
purchase of shares of our common stock is very speculative and involves a
very
high degree of risk. An investment in the Company is suitable only for the
persons who can afford the loss of their entire investment. Accordingly,
investors should carefully consider the following risk factors, as well as
other
information set forth herein, in making an investment decision with respect
to
our securities.
We
currently have no product revenues and will need to raise additional capital
to
operate our business.
To
date, we have generated no product revenues. Until and unless we receive
approval from the U.S. Food and Drug Administration and/or other regulatory
authorities for our product candidates, we cannot sell our drugs and will
not
have product revenues. Currently, our only product candidates are
ZIO-101(organic arsenic) and ZIO-201 (isophosphoramide mustard), and they
are
not approved by the FDA for sale.
We
will
need to seek additional sources of financing which may not be available on
favorable terms, if at all. Currently, we expect that we will have sufficient
cash to fund our operations into the second quarter of 2006. However, changes
may occur that would consume our existing capital prior to that time, including
the progress of our research and development efforts, changes in governmental
regulation and acquisitions of additional product candidates. If we do not
succeed in raising additional funds on acceptable terms, we may be unable
to
complete planned preclinical and clinical trials or obtain approval of any
product candidates from the FDA and other regulatory authorities. In addition,
we could be forced to discontinue product development, reduce or forego sales
and marketing efforts or forego attractive business opportunities. Any
additional sources of financing will likely involve the issuance of our equity
securities, which will have a dilutive effect on our existing
stockholders.
We
are not currently profitable and may never become profitable.
We have
a history of losses and expect to incur substantial losses and negative
operating cash flow for the foreseeable future, and we may never achieve
or
maintain profitability. Even if we succeed in developing and commercializing
one
or more product candidates, we expect to incur substantial losses for the
foreseeable future and may never become profitable. We expect also to continue
to incur significant operating and capital expenditures and anticipate that
our
expenses will increase substantially in the foreseeable future as
we:
| · |
Continue
to undertake preclinical development and clinical trials for product
candidates;
|
| · |
Scale
up the formulation and manufacturing of our product candidates;
|
| · |
Seek
regulatory approvals for product
candidates;
|
| · |
Implement
additional internal systems and infrastructure;
and
|
| · |
Hire
additional personnel.
|
We
also
expect to experience negative cash flow for the foreseeable future as we
fund
our operating losses and capital expenditures. This may result in a negative
impact on the value of our Common Stock.
12
We
have a limited operating history upon which to base an investment
decision.
Prior
to the Merger, ZIOPHARM was a development-stage company that was incorporated
in
September 2003. To date, we have not demonstrated an ability to perform the
functions necessary for the successful commercialization of any product
candidates. The successful commercialization of any product candidates will
require us to perform a variety of functions, including:
| · |
Continuing
to undertake preclinical development and clinical
trials;
|
| · |
Participating
in regulatory approval processes;
|
| · |
Formulating
and manufacturing products; and
|
| · |
Conducting
sales and marketing activities.
|
Our
operations have been limited to organizing and staffing our company, acquiring,
developing and securing our proprietary product candidates, undertaking
preclinical trials and clinical trials of our product candidates ZIO-101
and
ZIO-201, and manufacturing ZIO-101 and ZIO- 201. These operations provide
a
limited basis for you to assess our ability to commercialize our product
candidates and the advisability of investing in our securities.
We
may not obtain the necessary U.S. or worldwide regulatory approvals to
commercialize any product candidate.
We may
not be able to obtain the approvals necessary to commercialize our product
candidates, ZIO-101 and ZIO-201, or any product candidate that we may acquire
or
develop in the future for commercial sale. We will need FDA approval to
commercialize our product candidates in the U.S. and approvals from regulatory
authorities in foreign jurisdictions equivalent to the FDA to commercialize
our
product candidates in those jurisdictions. In order to obtain FDA approval
of
any product candidate, we must submit to the FDA a New Drug Application,
or
“NDA,” demonstrating that the product candidate is safe for humans and effective
for its intended use. This demonstration requires significant research and
animal tests, which are referred to as pre-clinical studies, as well as human
tests, which are referred to as clinical trials. Satisfaction of the FDA’s
regulatory requirements typically takes many years, depending upon the type,
complexity and novelty of the product candidate, and will require substantial
resources for research, development and testing. We cannot predict whether
our
research, development, and clinical approaches will result in drugs that
the FDA
considers safe for humans and effective for their intended uses. The FDA
has
substantial discretion in the drug approval process and may require us to
conduct additional pre-clinical and clinical testing or to perform
post-marketing studies. The approval process may also be delayed by changes
in
government regulation, future legislation or administrative action or changes
in
FDA policy that occur prior to or during our regulatory review. Delays in
obtaining regulatory approvals may:
| · |
Delay
commercialization of, and our ability to derive product revenues
from, our
product candidates;
|
| · |
Impose
costly procedures on us; and
|
| · |
Diminish
any competitive advantages that we may otherwise
enjoy.
|
Even
if
we comply with all FDA requests, the FDA may ultimately reject one or more
of
our NDAs. We cannot be sure that we will ever obtain regulatory clearance
for
our product candidates, ZIO-101 and ZIO-201. Failure to obtain FDA approval
of
our product candidates will severely undermine our business by leaving us
without a saleable product, and therefore without any potential revenue source,
until another product candidate can be developed. There is no guarantee that
we
will ever be able to develop or acquire another product candidate.
13
In
foreign jurisdictions, we similarly must receive approval from applicable
regulatory authorities before we can commercialize any drugs. Foreign regulatory
approval processes generally include all of the risks associated with the
FDA
approval procedures described above.
Our
product candidates are in early stages of clinical trials, and we cannot
be
certain when we will be able to file an NDA with the FDA.
Our
product candidates, ZIO-101 and ZIO-201, are in early stages of development
and
require extensive clinical testing. In April 2005 we initiated two ZIO-101
phase
I clinical trials; one in hematological cancers and the other in solid tumors.
A
phase I trial for ZIO-201 in up to 25 patients has been initiated, in which
10
patients already have been treated with ZIO-201. Notwithstanding our current
clinical trial plans for each of our existing product candidates, we may
not be
able to commence additional trials or see results from these trials within
our
anticipated timelines. As such, we cannot predict with any certainty if or
when
we might submit an NDA for regulatory approval of our product candidates
or
whether such an NDA will be accepted.
Clinical
trials are very expensive, time-consuming and difficult to design and
implement.
Human
clinical trials are very expensive and difficult to design and implement,
in
part because they are subject to rigorous regulatory requirements. The clinical
trial process is also time consuming. We estimate that clinical trials of
our
product candidates will take at least several years to complete. Furthermore,
failure can occur at any stage of the trials, and we could encounter problems
that cause us to abandon or repeat clinical trials. The commencement and
completion of clinical trials may be delayed by several factors,
including:
| · |
Unforeseen
safety issues;
|
| · |
Determination
of dosing issues;
|
| · |
Lack
of effectiveness during clinical
trials;
|
| · |
Slower
than expected rates of patient
recruitment;
|
| · |
Inability
to monitor patients adequately during or after treatment;
and
|
| · |
Inability
or unwillingness of medical investigators to follow our clinical
protocols.
|
We
are
hopeful that we may be able to obtain “Fast Track” status from the FDA for one
or more of our product candidates. Fast Track status means that the FDA will
perform an expedited review of our data upon the completion of clinical trials,
which will thereby decrease the amount of time it will take a product candidate
that has achieved such designation to reach the commercial market. However,
there is no guarantee that any of our product candidates will be granted
Fast
Track status by the FDA or that, even if such product candidate is granted
such
status, the product candidate’s clinical development and regulatory approval
process will not be delayed or will be successful.
In
addition, we or the FDA may suspend our clinical trials at any time if it
appears that we are exposing participants to unacceptable health risks or
if the
FDA finds deficiencies in our IND submission or in the conduct of these trials.
Therefore, we cannot predict with any certainty the schedule for future clinical
trials.
The
results of our clinical trials may not support our product candidate
claims.
Even if
our clinical trials are completed as planned, we cannot be certain that their
results will support approval of our product candidates. Success in pre-clinical
testing and early clinical trials does not ensure that later clinical trials
will be successful, and we cannot be sure that the results of later clinical
trials will replicate the results of prior clinical trials and pre-clinical
testing. The clinical trial process may fail to demonstrate that our product
candidates are safe for humans and effective for indicated uses. This failure
would cause us to abandon a product candidate and may delay development of
other
product candidates. Any delay in, or termination of, our clinical trials
will
delay the filing of our NDAs with the FDA and, ultimately, our ability to
commercialize our product candidates and generate product revenues. In addition,
our clinical trials involve small patient populations. Because of small sample
size, the results of these clinical trials may not be indicative of future
results.
14
Physicians
and patients may not accept and use our drugs.
Even if
the FDA approves our product candidates, physicians and patients may not
accept
and use them. Acceptance and use of our products will depend upon a number
of
factors including:
| · |
Perceptions
by members of the health care community, including physicians,
regarding
the safety and effectiveness of our
drugs;
|
| · |
Cost-effectiveness
of our products relative to competing
products;
|
| · |
Availability
of reimbursement for our products from government or other healthcare
payers; and
|
| · |
Effectiveness
of marketing and distribution efforts by us and our licensees and
distributors, if any.
|
Because
we expect sales of our current product candidates, if approved, to generate
substantially all of our product revenues for the foreseeable future, the
failure of a drug to find market acceptance would harm our business and could
require us to seek additional financing in order to fund the development
of
future product candidates.
Our
drug-development program materially depends upon third-party researchers
who are
outside our control.
We
materially rely upon independent investigators and collaborators, such as
universities and medical institutions, to conduct our preclinical and clinical
trials under agreements with us. These collaborators are not our employees
and
we cannot control the amount or timing of resources that they devote to our
programs. These investigators may not assign as great a priority to our programs
or pursue them as diligently as we would if we were undertaking such programs
ourselves. If outside collaborators fail to devote sufficient time and resources
to our drug development programs, or if their performance is substandard,
the
approval of our FDA applications, if any, and our introduction of new drugs,
if
any, will be delayed. These collaborators may also have relationships with
other
commercial entities, some of whom may compete with us. If our collaborators
assist our competitors to our detriment, our competitive position would be
harmed.
We
rely exclusively on third parties to formulate and manufacture our product
candidates.
We do
not have experience in drug formulation or manufacturing and do not intend
to
establish our own manufacturing facilities. We lack the resources and expertise
to formulate or manufacture our own product candidates. We currently are
contracting for the commercial scale manufacture of our product candidates.
We
intend to contract with one or more manufacturers to manufacture, supply,
store
and distribute drug supplies for our clinical trials. If a product candidate
we
develop or acquire in the future receives FDA approval, we will rely on one
or
more third-party contractors to manufacture our drugs. Our anticipated future
reliance on a limited number of third-party manufacturers exposes us to the
following risks:
15
| · |
We
may be unable to identify manufacturers on acceptable terms or
at all
because the number of potential manufacturers is limited and the
FDA must
approve any replacement contractor. This approval would require
new
testing and compliance inspections. In addition, a new manufacturer
would
have to be educated in, or develop substantially equivalent processes
for,
production of our products after receipt of FDA approval, if
any.
|
| · |
Our
third-party manufacturers might be unable to formulate and manufacture
our
drugs in the volume and of the quality required to meet our clinical
needs
and commercial needs, if any.
|
| · |
Our
future contract manufacturers may not perform as agreed or may
not remain
in the contract manufacturing business for the time required to
supply our
clinical trials or to successfully produce, store and distribute
our
products.
|
| · |
Drug
manufacturers are subject to ongoing periodic unannounced inspection
by
the FDA, the DEA, and corresponding state agencies to ensure strict
compliance with good manufacturing practices and other government
regulations and corresponding foreign standards. We do not have
control
over third-party manufacturers’ compliance with these regulations and
standards.
|
| · |
If
any third-party manufacturer makes improvements in the manufacturing
process for our products, we may not own, or may have to share,
the
intellectual property rights to the
innovation.
|
Each
of
these risks could delay our clinical trials, the approval, if any, of our
product candidates by the FDA or the commercialization of our product candidates
or result in higher costs or deprive us of potential product
revenues.
We
do
not have experience selling, marketing or distributing products and no internal
capability to do so.
We
currently have no marketing, sales or distribution capabilities. If and when
we
become reasonably certain that we will be able to commercialize our current
or
future products, we anticipate allocating resources to the marketing, sales
and
distribution of our proposed products in North America However, we cannot
assure
that we will be able to market, sell and distribute our products successfully.
Our future success also may depend, in part, on our ability to enter into
and
maintain collaborative relationships for such capabilities, the collaborator’s
strategic interest in the products under development and such collaborator’s
ability to successfully market and sell any such products. Although we intend
to
pursue collaborative arrangements regarding the sale and marketing of our
products, there can be no assurance that we will be able to establish or
maintain our own sales operations or affect collaborative arrangements, or
that
if we are able to do so, our collaborators will have effective sales forces.
There can also be no assurance that we will be able to establish or maintain
relationships with third party collaborators or develop in-house sales and
distribution capabilities. To the extent that we depend on third parties
for
marketing and distribution, any revenues we receive will depend upon the
efforts
of such third parties, and there can be no assurance that such efforts will
be
successful. In addition, there can also be no assurance that we will be able
to
market and sell our products in the United States or overseas.
If
we
cannot compete successfully for market share against other drug companies,
we
may not achieve sufficient product revenues and our business will
suffer.
The
market for our product candidates, ZIO-101 and ZIO-201, is characterized
by
intense competition and rapid technological advances. If a product candidate
receives FDA approval, it will compete with a number of existing and future
drugs and therapies developed, manufactured and marketed by others. Existing
or
future competing products may provide greater therapeutic convenience or
clinical or other benefits for a specific indication than our products, or
may
offer comparable performance at a lower cost. If our products fail to capture
and maintain market share, we may not achieve sufficient product revenues
and
our business will suffer.
16
We
will
compete against fully integrated pharmaceutical companies and smaller companies
that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research
organizations. Many of these competitors have products already approved or
in
development. In addition, many of these competitors, either alone or together
with their collaborative partners, operate larger research and development
programs or have substantially greater financial resources than we do, as
well
as significantly greater experience in:
| · |
Developing
drugs;
|
| · |
Undertaking
pre-clinical testing and human clinical
trials;
|
| · |
Obtaining
FDA and other regulatory approvals of
drugs;
|
| · |
Formulating
and manufacturing drugs; and
|
| · |
Launching,
marketing and selling drugs.
|
If
we
fail to adequately protect or enforce our intellectual property rights or
secure
rights to patents of others, the value of our intellectual property rights
would
diminish.
Our
success, competitive position and future revenues will depend in part on
our
ability and the abilities of our licensors to obtain and maintain patent
protection for our products, methods, processes and other technologies, to
preserve our trade secrets, to prevent third parties from infringing on our
proprietary rights and to operate without infringing the proprietary rights
of
third parties.
To
date,
we have exclusive rights to certain U.S. and foreign intellectual property.
We
anticipate filing additional patent applications both in the U.S. and in
other
countries, as appropriate. However, we cannot predict:
| · |
The
degree and range of protection any patents will afford us against
competitors, including whether third parties will find ways to
invalidate
or otherwise circumvent our
patents;
|
| · |
If
and when patents will issue;
|
| · |
Whether
or not others will obtain patents claiming aspects similar to those
covered by our patents and patent applications;
or
|
| · |
Whether
we will need to initiate litigation or administrative proceedings
which
may be costly whether we win or
lose.
|
Our
success also depends upon the skills, knowledge and experience of our scientific
and technical personnel, our consultants and advisors as well as our licensors
and contractors. To help protect our proprietary know-how and our inventions
for
which patents may be unobtainable or difficult to obtain, we rely on trade
secret protection and confidentiality agreements. To this end, it is our
policy
generally to require our employees, consultants, advisors and contractors
to
enter into agreements which prohibit the disclosure of confidential information
and, where applicable, require disclosure and assignment to us of the ideas,
developments, discoveries and inventions important to our business. These
agreements may not provide adequate protection for our trade secrets, know-how
or other proprietary information in the event of any unauthorized use or
disclosure or the lawful development by others of such information. If any
of
our trade secrets, know-how or other proprietary information is disclosed,
the
value of our trade secrets, know-how and other proprietary rights would be
significantly impaired and our business and competitive position would
suffer.
17
If
we
infringe the rights of third parties we could be prevented from selling
products, forced to pay damages, and defend against litigation.
If our
products, methods, processes or other technologies infringe the proprietary
rights of other parties, we could incur substantial costs and we may have
to:
| · |
Obtain
licenses, which may not be available on commercially reasonable
terms, if
at all;
|
| · |
Abandon
an infringing drug candidate;
|
| · |
Redesign
our products or processes to avoid
infringement;
|
| · |
Stop
using the subject matter claimed in the patents held by
others;
|
| · |
Pay
damages; or
|
| · |
Defend
litigation or administrative proceedings which may be costly whether
we
win or lose, and which could result in a substantial diversion
of our
valuable management resources.
|
Our
ability to generate product revenues will be diminished if our drugs sell
for
inadequate prices or patients are unable to obtain adequate levels of
reimbursement.
Our
ability to commercialize our drugs, alone or with collaborators, will depend
in
part on the extent to which reimbursement will be available from:
| · |
Government
and health administration
authorities;
|
| · |
Private
health maintenance organizations and health insurers;
and
|
| · |
Other
healthcare payers.
|
Significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products. Healthcare payers, including Medicare, are challenging the prices
charged for medical products and services. Government and other healthcare
payers increasingly attempt to contain healthcare costs by limiting both
coverage and the level of reimbursement for drugs. Even if our product
candidates are approved by the FDA, insurance coverage may not be available,
and
reimbursement levels may be inadequate, to cover our drugs. If government
and
other healthcare payers do not provide adequate coverage and reimbursement
levels for our products, once approved, market acceptance of such products
could
be reduced.
We
may not be able to successfully manage our growth.
Our
success will depend upon the expansion of our operations and the effective
management of our growth, which will place a significant strain on our
management and on our administrative, operational and financial resources.
To
manage this growth, we must expand our facilities, augment our operational,
financial and management systems and hire and train additional qualified
personnel. If we are unable to manage our growth effectively, our business
may
be harmed.
18
Our
business will subject us to the risk of liability claims associated with
the use
of hazardous materials and chemicals.
Our
contract research and development activities may involve the controlled use
of
hazardous materials and chemicals. Although we believe that our safety
procedures for using, storing, handling and disposing of these materials
comply
with federal, state and local laws and regulations, we cannot completely
eliminate the risk of accidental injury or contamination from these materials.
In the event of such an accident, we could be held liable for any resulting
damages and any liability could have a materially adverse effect on our
business, financial condition and results of operations. In addition, the
federal, state and local laws and regulations governing the use, manufacture,
storage, handling and disposal of hazardous or radioactive materials and
waste
products may require our contractors to incur substantial compliance costs
that
could materially adversely affect our business, financial condition and results
of operations.
We
rely on key executive officers and scientific and medical advisors, and their
knowledge of our business and technical expertise would be difficult to
replace.
We are
highly dependent on our principal scientific, regulatory and medical advisors.
We do not have “key person” life insurance policies on any of our officers. The
loss of the technical knowledge and management and industry expertise of
any of
our key personnel could result in delays in product development, loss of
customers and sales and diversion of management resources, which could adversely
affect our operating results.
If
we
are unable to hire additional qualified personnel, our ability to grow our
business may be harmed.
We will
need to hire additional qualified personnel with expertise in pre-clinical
testing, clinical research and testing, government regulation, formulation
and
manufacturing, as well as sales and marketing. We compete for qualified
individuals with numerous biopharmaceutical companies, universities and other
research institutions. Competition for such individuals is intense, and we
cannot be certain that our search for such personnel will be successful.
Attracting and retaining qualified personnel will be critical to our
success.
We
may incur substantial liabilities and may be required to limit commercialization
of our products in response to product-liability lawsuits.
The
testing and marketing of medical products entail an inherent risk of product
liability. If we cannot successfully defend ourselves against product-liability
claims, we may incur substantial liabilities or be required to limit
commercialization of our products. Our inability to obtain sufficient
product-liability insurance at an acceptable cost to protect against potential
product liability claims could prevent or inhibit the commercialization of
pharmaceutical products we develop, alone or with collaborators. We currently
carry clinical trial insurance and product-liability insurance.
There
are certain interlocking relationships among us and certain affiliates of
Paramount, which may present potential conflicts of interest.
Lindsay
A. Rosenwald, M.D., who may be deemed to beneficially own approximately 20.13%
of our common stock, is Chairman and Chief Executive Officer of Paramount
BioCapital, Inc., an investment banking firm that served as placement agent
in
connection with a private placement of ZIOPHARM’s Series A Convertible Preferred
Stock that terminated in May 2005. Paramount also served as a finder in
connection with the Company’s option agreement with Southern Research Institute.
The Company paid fees and issued securities to Paramount or its designees
in
connection with these transactions and Paramount currently has a right of
first
refusal to act as the placement agent for the private sale of our securities
until May 31, 2008. Dr. Michael Weiser and Timothy McInerney, each of whom
is a
member of the Company’s board of directors, are also full-time employees
of
Paramount. See “Certain Transactions and Relationships - ZIOPHARM Transactions
and Relationship.”
19
Paramount,
Dr. Rosenwald, Dr. Weiser, and Mr. McInerney are
not obligated pursuant to any agreement or understanding with us to
make
any additional products or technologies available to us, nor can there be
any
assurance that any biomedical or pharmaceutical products or technologies
identified in the future by such parties will be made available to us. In
addition, certain of our current officers and directors, as well as officers
or
directors that may be hereafter appointed, may from time to time serve as
officers or directors of other biopharmaceutical or biotechnology companies.
There can be no assurance that such other companies will not have interests
in
conflict with our own.
Because
we became public by means of a reverse merger, we may not be able to attract
the
attention of major brokerage firms.
Additional
risks may exist as a result of our becoming a public reporting company through
a
“reverse merger.” Security analysts of major brokerage firms may not provide
coverage of the Company. Because
we
became public through a reverse merger,
there is
no incentive to brokerage firms to recommend the purchase
of our
common stock. No assurance can be given that brokerage firms will want to
provide analyst coverage of our Company in the future.
We
are subject to Sarbanes-Oxley and the reporting requirements of federal
securities laws, which can be expensive.
As a
public reporting company, we are subject to the Sarbanes-Oxley Act of 2002,
as
well as the information and reporting requirements of the Securities Exchange
Act of 1934, as amended, and other federal securities laws. The costs of
compliance with the Sarbanes-Oxley Act and of preparing and filing annual
and
quarterly reports, proxy statements and other information with the SEC, and
furnishing audited reports to stockholders, will cause our expenses to be
higher
than they would be if ZIOPHARM had remained privately held and did not
consummate the Merger.
Our
common stock trades only in an illiquid trading market.
Trading
of our common stock is conducted on the over-the-counter bulletin board.
This
has an adverse effect on the liquidity of our common stock, not only in terms
of
the number of shares that can be bought and sold at a given price, but also
through delays in the timing of transactions and reduction in security analysts’
and the media’s coverage of our Company and its common stock. This may result in
lower prices for our common stock than might otherwise be obtained and could
also result in a larger spread between the bid and asked prices for our common
stock.
There
is not now, and there may not ever be an active market for shares of our
common
stock.
In
general, there has been very little trading activity in shares of the Company’s
common stock. The small trading volume will likely make it difficult for
our
stockholders to sell their shares as and when they choose. Furthermore, small
trading volumes generally depress market prices. As a result, you may not
always
be able to resell shares of our common stock publicly at the time and prices
that you feel are fair or appropriate.
Because
it is a “penny stock,” you may have difficulty selling shares of our common
stock.
Our
common stock is a “penny stock” and is therefore subject to the requirements of
Rule 15g-9 under the Securities and Exchange Act of 1934. Under this rule,
broker-dealers who sell penny stocks must provide purchasers of these stocks
with a standardized risk- disclosure document prepared by the Securities
and
Exchange Commission. Under applicable regulations, our common stock will
generally remain a “penny stock” until and for such time as its per-share price
is $5.00 or more (as determined in accordance with SEC regulations), or until
we
meet certain net asset or revenue thresholds. These thresholds include the
possession of net tangible assets (i.e., total assets less intangible assets
and
liabilities) in excess of $2,000,000 in the event we have been operating
for at
least three years or $5,000,000 in the event we have been operating for fewer
than three years, and the recognition of average revenues equal to at least
$6,000,000 for each of the last three years. We do not anticipate meeting
any of
the foregoing thresholds in the foreseeable future.
20
The
penny
stock rules severely limit the liquidity of securities in the secondary market,
and many brokers choose not to participate in penny-stock transactions. As
a
result, there is generally less trading in penny stocks. If you become a
holder
of our common stock, you may not always be able to resell shares of our common
stock publicly at the time and prices that you feel are fair or
appropriate.
We
have never paid dividends and do not intend to do so for the foreseeable
future.
We have
never paid dividends on our capital stock and we do not anticipate that we
will
pay any dividends for the foreseeable future. Accordingly, any return on
an
investment in our Company will be realized, if at all, only when you sell
shares
of our common stock.
21
Management’s
Discussion and Analysis or Plan of Operation
ZIOPHARM
Oncology Inc. (the “Company”) is a development-stage company that is seeking to
develop and commercialize a diverse, risk-sensitive portfolio of in-licensed
cancer drugs that address unmet medical needs. The Company’s management and
advisors are focused on licensing proprietary drug candidate families that
are
related to cancer therapeutics on the market where the application of new
biological understanding and the Company’s drug development expertise will lead
to a lower risk for clinical development failure while expediting clinical
registration. The Company expects to commercialize its products on its own
in
North America but recognizes that promising clinical trial results in cancers
with a high incidence and prevalence might also be addressed in a commercial
partnership with another company with the requisite financial resources.
Currently, the Company is in U.S. phase I studies for two product candidates
known as ZIO-101 and ZIO-201. The Company currently intends to continue with
clinical development of ZIO-101 for advanced multiple myeloma and ZIO-201
for
advanced sarcoma.
The
Company’s corporate office is located at 1180 Avenue of the Americas, 19th
Floor, New York, NY 10036 with a telephone number of (646) 214-0700. The
Company’s business and development operations are located in Charlestown,
Massachusetts.
Plan
of Operation
Our
plan
of operation for the twelve month period commencing on September 13, 2005,
the
date of this report, is to continue implementing our business strategy,
including the clinical development of our two lead product candidates, ZIO-101
and ZIO-201. We also intend to expand our drug candidate portfolio by seeking
additional drug candidates through in-licensing arrangements. We expect our
principal expenditures during the next 12 months to include:
| · |
Fees
and milestone payments required under the license agreements
relating to
our existing product candidates;
|
| · |
Clinical
trial expenses, including the costs incurred with respect to the
conduct
of clinical trials in the United States for ZIO-101 and ZIO-201
and
preclinical costs associated with back-up candidates ZIO-102 and
ZIO-202;
|
| · |
Costs
related to the scale-up and manufacture of ZIO-101 and ZIO-201;
|
| · |
Rent
for our facilities; and
|
| · |
General
corporate and working capital, including general and administrative
expenses.
|
As
part
of our plan for additional employees, we anticipate hiring at least 3 to
4
additional full-time employees in medical, regulatory and administrative
support. In addition, we intend to use senior advisors, consultants, clinical
research organizations and third parties to perform certain aspects of product
development, manufacturing, clinical and preclinical development, and regulatory
and quality assurance functions.
At
our
current and desired pace of clinical development of our two product candidates,
over the next 12 months we expect to spend approximately $4.6 million on
clinical trials (including milestone payments that we expect to be triggered
under the license agreements relating to our product candidates), approximately
$3.7 million on manufacturing costs, $215,000 on facilities rent,
and
approximately $6.8 million on general corporate and working capital.
22
We
believe we currently have sufficient capital to fund development and
commercialization activities of ZIO-101 and ZIO-201 into the second quarter
of
2006. Because our business does not generate any cash flow, however, we will
need to raise additional capital to continue development of the product
candidates beyond that time. We expect to raise such additional capital by
either borrowing money or by selling shares of our capital stock. To the
extent
additional capital is not available when we need it, we may be forced to
abandon
our development and commercialization efforts, which would have a material
adverse effect on the prospects of our business. Further, our assumptions
relating the expected costs of development and commercialization and timeframe
for completion are dependent on numerous factors other than available financing,
including significant unforeseen delays in the clinical trial and regulatory
approval process, which could be extremely costly. In addition, our estimates
assume that we will be able to enroll a sufficient number of patients in
each
clinical trial.
Product
Candidate Development and Clinical Trials
ZIO-101,
organic arsenic, is being developed presently to treat advanced myeloma.
As
follow-on to the ongoing phase I trials, a phase I/II trial in advanced multiple
myeloma is in the advanced planning stage. With the completion of this trial
in
2006, the Company expects to initiate a registration trial in advanced multiple
myeloma. The Company will continue to explore the use of ZIO-101 in solid
tumors
as well as a phase II trial in advanced multiple myeloma using a different
dosing regimen. Preclinical development will continue with a back-up compound
designated as ZIO-102. Additional compounds are being synthesized under our
agreement with the University of Texas M.D. Anderson Cancer Center and the
Texas
A&M University System. Technology transfer and scale-up for the commercial
manufacture of the active pharmaceutical ingredient, its lyophilization,
and
final product specification will continue through the period leading to the
expected registration trial in early 2007.
ZIO-201,
stabilized isophosphoramide mustard, is being developed presently to treat
advanced sarcoma. As follow-on to the ongoing phase I trial, a phase I/II
trial
or a phase II trial in advanced sarcoma is in the advanced planning stage.
With
the completion of this trial in 2006, the Company expects to initiate a
registration trial in advanced sarcoma in early 2007. The Company will explore
the potential to test ZIO-201 in pediatric sarcoma in a phase II trial.
Preclinical development will continue with back-up analogues, one of which
we
would expect to be designated ZIO-202. Technology transfer and scale-up for
the
commercial manufacture of the active pharmaceutical ingredient, its
lyophilization, and final product specification will continue through the
period
leading to the expected registration trial in early 2007.
Off-Balance
Sheet Arrangements
The
Company has no off-balance sheet arrangements.
23
Security
Ownership of Certain Beneficial Owners and Management
The
following table summarizes certain information regarding the beneficial
ownership (as such term is defined in Rule 13d-3 under the Securities Exchange
Act of 1934) of the Company’s outstanding common stock as of September 13, 2005
(after giving effect to the Merger) by (i) each person known by the Company
to
be the beneficial owner of more than 5% of the Company’s outstanding common
stock, (ii) each director of the Company, (iii) each of the Company’s named
executive officers (as defined in Item 402(a)(3) of Regulation S-B under
the
Securities Act of 1933), and (iv) all executive officers and directors as
a
group. Except as indicated in the footnotes below, the security and stockholders
listed below possess sole voting and investment power with respect to their
shares. Except as otherwise indicated, the address of the security
and
stockholders listed below is 1180 Avenue of the Americas, 19th
Floor,
New York, NY 10036.
|
Name
and Address of Beneficial Owner
|
Shares
of
Common
Stock
Beneficially
Owned (#)(1)
|
Percentage
of
Common
Stock
Beneficially
Owned (%)
|
||
|
Dr.
Jonathan Lewis (2)
|
136,868
|
1.88%
|
||
|
Richard
Bagley (3)
|
80,428
|
1.11%
|
||
|
Robert
Peter Gale (4)
|
8,371
|
*
|
||
|
Murray
Brennan
|
0
|
*
|
||
|
James
Cannon
|
0
|
*
|
||
|
Hon.
Wyche Fowler
|
0
|
*
|
||
|
Gary
Fragin
|
0
|
*
|
||
|
Timothy
McInerney (5)
|
79,972
|
1.11%
|
||
|
Michael
Weiser (6)
|
119,011
|
1.65%
|
||
|
All
executive officers and directors
as
a group (7)
|
424,650
|
5.71%
|
||
|
Mibars,
LLC
365
West End Avenue
New
York, NY 10024
|
1,214,456
|
16.97%
|
||
|
Lindsay
A. Rosenwald (8)
787
Seventh Avenue, 48th Floor
New
York, NY 10019
|
1,498,087
(8)
|
20.13%
|
||
|
Atlas
Equity I, Ltd.
181
W. Madison, Suite 3600
Chicago,
IL 60602
|
695,797
|
9.72%
|
||
|
Lester
E. Lipschutz
1650
Arch Street, 22nd
Floor
Philadelphia,
PA 19103
|
463,864
(9)
|
6.48%
|
||
|
* Less than 1% |
|
(1)
|
Beneficial
ownership is determined in accordance with SEC rules, beneficial
ownership
includes any shares as to which the security or stockholder has
sole or
shared voting power or investment power, and also any shares which
the
security or stockholder has the right to acquire within 60 days
of the
date hereof, whether through the exercise or conversion of any
stock
option, convertible security, warrant or other right. The indication
herein that shares are beneficially owned is not an admission on
the part
of the security or stockholder that he, she or it is a direct or
indirect
beneficial owner of those shares.
|
24
|
(2)
|
Includes
136,868 shares issuable upon the exercise of stock options that
are
currently exercisable or will become exercisable within the next
60
days.
|
|
(3)
|
Includes
80,428 shares issuable upon the exercise of stock options that
are
currently exercisable or will become exercisable within the next
60
days.
|
|
(4)
|
Includes
8,371 shares issuable upon the exercise of stock options that are
currently exercisable or will become exercisable within the next
60
days.
|
|
(5)
|
Includes
20,767 shares issuable upon the exercise of warrants that are currently
exercisable or will become exercisable within the next 60
days.
|
|
(6)
|
Includes
35,566 shares issuable upon the exercise of warrants that are currently
exercisable or will become exercisable within the next 60
days.
|
|
(7)
|
Includes
282,000 shares issuable upon the exercise of convertible securities
that
are currently exercisable or will become exercisable within the
next 60
days.
|
|
(8)
|
Excludes
463,864 shares held by certain trusts for the benefit of Dr. Rosenwald
and
his family for which Dr. Rosenwald disclaims beneficial ownership.
Includes 221,011 shares issuable upon the exercise of warrants
granted to
Dr. Rosenwald and 62,621 shares issuable upon the exercise of warrants
granted to Paramount BioCapital Investments, LLC, of which Dr.
Rosenwald
is the managing member, both such warrants are currently exercisable
or
will become exercisable within the next 60 days. Also includes
737,777
shares that Dr. Rosenwald has the right to acquire from existing
stockholders under certain circumstances pursuant to the terms
of pledge
agreements between Dr. Rosenwald and such
stockholders.
|
|
(9)
|
Includes
463,864 shares held by separate trusts for the benefit of Dr. Rosenwald
or
his family with respect to which Mr. Lipschutz is either trustee
or
investment manager and has investment and voting power. Dr. Rosenwald
disclaims beneficial ownership of these shares.
|
25
Management
and Certain Security Holders
At
the
effective time of the Merger, the Company’s board of directors was reconstituted
by the appointment of Jonathan Lewis, Richard Bagley, Murray Brennan, James
Cannon, Senator Wyche Fowler, Jr., Gary S. Fragin, Timothy McInerney and
Michael
Weiser as directors (all of whom were directors of ZIOPHARM immediately prior
to
the Merger), and the resignations of David C. Olson and David Floor from
their
roles as directors of the Company. The Company’s executive management team was
also reconstituted and David C. Olson resigned from his positions as the
Company’s President, Treasurer and Secretary. The
following table sets forth the name and position of each of the Company’s
directors and executive officers after the Merger.
|
Name
|
Age
|
Positions
|
||
|
Jonathan
Lewis, M.D., Ph.D.
|
47
|
Director
& Chief Executive Officer
|
||
|
Richard
Bagley
|
62
|
Director,
President, Chief Operating Officer & Treasurer
|
||
|
Robert
Peter Gale, M.D., Ph.D, DSc.
|
59
|
Chief
Scientific Officer, Head of Research
|
||
|
Murray
Brennan, M.D.
|
65
|
Director
|
||
|
James
Cannon
|
67
|
Director
|
||
|
Senator
Wyche Fowler, Jr., JD.
|
64
|
Director
|
||
|
Gary
S. Fragin
|
59
|
Director
|
||
|
Timothy
McInerney
|
44
|
Director
|
||
|
Michael
Weiser, M.D., Ph.D.
|
43
|
Director
|
The
biographies of the directors and executive officers listed above are set
forth
below, all of whom began serving the Company in their respective positions
as of
the effective time of the Merger:
Jonathan
Lewis,
47, is
our Chief Executive Officer and a director, and has served as Chief Executive
Officer and a director of ZIOPHARM since January 2004. From July 1994 until
June
2001, Dr. Lewis served as Professor of Surgery and Medicine at Memorial
Sloan-Kettering Cancer Center and he served as Chief Medical Officer and
Chairman of the Medical Board at Antigenics, Inc. from June 2000 until November
2003. He serves as a director on the Board of POPPA (the Police Organization
Providing Peer Assistance) of the New York Police Department
(NYPD).
Richard
Bagley,
62,
serves as our President, Chief Operating Officer and Treasurer and a director
of
the Company, and has served ZIOPHARM
in those capacities since July 2004. Prior to that, he served as a consultant
to
ZIOPHARM while serving as a senior advisor to The University of Texas M.D.
Anderson Cancer Center. Mr. Bagley served in several capacities at Squibb
Corporation from 1985-1990, including as President of E. R. Squibb & Sons,
U.S. in 1988 and 1989. He served as Director, Chief Executive Officer and
President of ImmuLogic Pharmaceutical Corporation from 1990 to 1994, as
Director, Chief Executive Officer and Chairman of ProScript, Inc. from 1994
to
1998, as Director, President and Chief Executive Officer of AltaRex Corp.
from
1998 to May 2003, and thereafter as a part time consultant and advisor in
life
sciences until joining ZIOPHARM full time. Mr. Bagley initiated a career
in
pharmaceuticals in 1968 with Smith Kline and French Laboratories, leaving
in
1985 after serving as President of the consumer products division.
Robert
Peter Gale,
59, is
our Chief Scientific Officer and Head of Research and has served ZIOPHARM
in
that capacity since January 2004. Dr. Gale is also on the medical staff of
UCLA
School of Medicine in the Department of Medicine, Division of Hematology
and
Oncology and is Visiting Professor of Hematology at Imperial College of Science,
Technology and Medicine, Hammersmith Hospital, London. Dr. Gale served as
Senior
Vice President for Medical Affairs at Antigenics, Inc. from April 2001 until
May
2002 and as a consultant to that company from May 2002 through May
2004.
26
Murray
Brennan,
65, is
a director of the Company and has served as a member of ZIOPHARM’s board of
directors since December 22, 2004. Dr. Brennan has been Chairman of Memorial
Sloan-Kettering Cancer Center’s Department of Surgery since 1985, and is a
former Vice
President of the American College of Surgeons, a position he held from 2004
to
2005. Dr. Brennan is also a member of the National Academy of
Sciences.
He
served as director of the American Board of Surgery from 1984 to 1990,
Chairman
of the American College of Surgeons’ Commission on Cancer from 1992 to 1994,
President of the Society of Surgical Oncology from 1995 to 1996, and President
of the American Surgical Association from 2002 to 2003.
James
Cannon,
67, is
a director of the Company and has served as a member of ZIOPHARM’s board of
directors since December 22, 2004. Mr. Cannon is Vice
Chairman, Chief Financial Officer and a member of the board of directors
of BBDO
Worldwide. Mr. Cannon
joined BBDO in 1967, was appointed Chief Financial Officer of the agency
in
1984, and was elected to its board of directors in 1985. In 1986,
Mr.
Cannon
was appointed Comptroller
and a
member of the board of directors of Omnicom, a company affiliated with BBDO
Worldwide, and served in those capacities through May 2002. In 1987, Mr.
Cannon
also served as Director of Financial Operations of the Omnicom Group from
1987
to 1989, when he rejoined BBDO Worldwide as Executive
Vice President and Chief Financial Officer. Mr. Cannon was appointed Vice
Chairman of BBDO Worldwide in 1990.
Senator
Wyche Fowler, Jr.,
64, is
a director of the Company and has served as a member of ZIOPHARM’s board of
directors since December 22, 2004. Senator Fowler has been engaged in an
international business and law practice since May 2001, and has served as
chairman of the board of the Middle East Institute, a non-profit foundation
in
Washington, DC, since September 2001. Senator Fowler served as U.S. Senator
from
Georgia from January 1987 to January 1993, and had previously served in the
U.S.
House of Representatives from 1977 until his senatorial election. During
his
time in the U.S. Senate, Senator Fowler served as a member of the Senate
Appropriations, Budget, Energy and Agriculture Committees. While in the U.S.
House of Representatives, he was a member of the House Ways and Means and
Foreign Affairs Committees, as well as the Select Committee on Intelligence.
President Clinton appointed Senator Fowler as Ambassador to the Kingdom of
Saudi
Arabia in 1996, where he served through 2001. Senator Fowler is a member
of the
board of directors of Brandywine Realty Trust, a real estate investment trust
traded on the New York Stock Exchange.
Gary
S. Fragin,
59, is
a director of the Company and has served as a member of ZIOPHARM’s board of
directors since December 22, 2004. Mr. Fragin is currently managing partner
of
Osborn Partners, LP and managing partner of Fragin Asset Management, LP,
positions. Mr. Fragin was the General
Partner and Chief Administrative/Operating Officer of Steinhardt Organization,
prior to which he was a partner, Director
of Trading
and
member of the Management Committee and Executive Committee at Oppenheimer
and
Co.
Timothy
McInerney,
44, is
a director of the Company and has served on ZIOPHARM’s board of directors since
July 20, 2005. Since 1992, Mr. McInerney has been a Managing Director of
Paramount BioCapital, Inc. where he oversees the overall distribution of
Paramount’s private equity product. Prior to 1992, Mr. McInerney was a research
analyst focusing on the biotechnology industry at Ladenburg, Thalman & Co.
Prior to that, Mr. McInerney held equity sales positions at Bear, Stearns
&
Co. and Shearson Lehman Brothers, Inc. Mr. McInerney also has worked in sales
and marketing for Bristol-Myers Squibb.
27
Michael
Weiser,
43, is
a director of the Company and has served on ZIOPHARM’s board of directors since
ZIOPHARM’s inception. Dr. Weiser is the Director of Research of Paramount
BioCapital. In addition to serving on the boards of directors of several
privately-held companies, Dr. Weiser currently serves on the board of directors
of Manhattan Pharmaceuticals, Inc., VioQuest Pharmaceuticals, Inc., Hana
BioSciences, Inc. and Chelsea Therapeutics, Inc., all publicly-traded
biotechnology companies.
Audit
Committee
Immediately
following the Merger, the Company formed an audit committee of the board
of
directors. The current members of the audit committee are Mr. James Cannon,
who
serves as the committee’s Chairman, and Messrs. Fragin and Bagley. The audit
committee assists the board of directors in fulfilling its responsibilities
of
ensuring that management is maintaining an adequate system of internal controls
such that there is reasonable assurance that assets are safeguarded and that
financial reports are properly prepared; that there is consistent application
of
generally accepted accounting principles; and that there is compliance with
management’s policies and procedures. In performing these functions, the audit
committee will meet periodically with the independent auditors and management
to
review their work and confirm that they are properly discharging their
respective responsibilities. In addition, the audit committee recommends
the
independent auditors for appointment by the board of directors. Prior to
the
Merger, the Company did not have an audit committee. Two members of the audit
committee, Messrs. Cannon and Fragin, are independent, as independence is
defined in Rule 4200(a)(15) of the Nasdaq listing standards and Rule 10A-3
under
the Securities Exchange Act of 1934.
The
board
of directors has determined that each of the audit committee members is able
to
read and understand fundamental financial statements. In addition, the board
of
directors has determined that at least one member of the audit committee,
Mr.
James Cannon, is an “audit committee financial expert” as that term is defined
in Item 401(e)(2) of Regulation S-B promulgated under the Securities and
Exchange Act of 1934. Mr. Cannon’s relevant experience includes his current
service as the Chief Financial Officer of BBDO Worldwide, a position he has
held
for the past 20 years, and his past service as director of financial operations
of the Omnicom Group.
28
Executive
Compensation
Summary
Compensation Table
The
following table sets forth the cash and non-cash compensation awarded to
or
earned by (i) each individual serving as chief executive officer of ZIOPHARM
during the fiscal year ended December 31, 2004; and (ii) each other individual
that served as an executive officer of ZIOPHARM at the conclusion of the
fiscal
year ended December 31, 2004 and who received in excess of $100,000 in the
form
of salary and bonus during such fiscal year (collectively, the “named
executives”).
|
Annual
Compensation
|
Long-Term
Compensation
Awards
|
|||||
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Other
Annual Compensation
($)
|
Securities
Underlying Options
(#)
|
|
|
Dr.
Jonathan Lewis,
|
2004
|
344,167
|
500,000
|
9,099
|
268,653
|
|
|
Chief
Executive Officer (1)
|
||||||
|
Richard
Bagley,
|
2004
|
43,750
|
75,000
|
4,057
|
150,668
|
|
|
President,
Chief Operating
|
||||||
|
Officer
and Treasurer (2)
|
||||||
| Dr. Robert Peter Gale, |
2004
|
239,583
|
150,000
|
2,543
|
25,110
|
|
|
Chief
Scientific Officer,
|
||||||
|
Head
of Research (3)
|
||||||
| (1) |
Dr.
Lewis became the Chief Executive Officer of the Company effective
as of
the Merger. Dr. Lewis received a sign-on bonus of $250,000 paid
on
February 23, 2004 and a guaranteed bonus of $250,000 that was paid
on
April 22, 2005.
|
| (2) |
Mr.
Bagley became the President, Chief Operating Officer and Treasurer
of the
Company effective as of the Merger. Mr. Bagley received a sign-on
bonus of
$50,000 on July 15, 2004 and was due $25,000, a portion of his
guaranteed
bonus, as of December 31, 2004.
|
| (3) |
Mr.
Gale became the Company’s Chief Scientific Officer, Head of Research
effective as of the Merger. Mr. Gale received a guaranteed bonus
of
$150,000 on April 16, 2005.
|
Stock
Options
Upon
the
Merger, the Company assumed ZIOPHARM’s 2003 Stock Option Plan as the Company’s
Stock Option Plan. This plan has 1,252,436 shares authorized for issuance,
of which 847,469 shares are subject to options currently outstanding. Prior
to the Merger, the Company had an Incentive Stock Option Plan of EasyWeb,
Inc.
under which 175,000 shares of common stock were reserved for issuance. That
stock option plan was terminated effective as of the Merger.
29
Option
Grants in Last Fiscal Year
The
following table sets forth the information concerning individual grants of
stock
options to the named executives made during the fiscal year ended December
31,
2004 by ZIOPHARM. All share numbers and dollar amounts are set forth on a
post-Merger basis.
|
Name
|
Number
of Securities Underlying
Options
Granted
(#)
|
Percent
of Total Options
Granted
to Employees In
Fiscal
Year
|
Exercise
of
Base
Price
($/share)
|
Expiration
Date(s)
|
|||||||||
|
Dr.
Jonathan Lewis (1)
|
25,674
|
5.2
|
%
|
$
|
0.08
|
1/8/14
|
|||||||
|
Dr.
Jonathan Lewis (1)
|
242,979
|
48.9
|
%
|
$
|
0.08
|
1/27/14
|
|||||||
|
Richard
Bagley (2)
|
150,668
|
30.4
|
%
|
$
|
1.70
|
7/1/14
|
|||||||
|
Dr.
Robert Peter Gale
|
2,567
|
0.5
|
%
|
$
|
0.44
|
|
1/15/14
|
||||||
| Dr. Robert Peter Gale | 22,543 | 4.5 | % | $ | 0.44 | 1/27/14 | |||||||
|
(1)
|
The
number of securities underlying options is subject to an anti-dilution
provision pursuant to which Dr. Lewis is entitled to purchase no
less than
5% of the Company’s common stock until such time as the Company has raised
$25 million in financing.
|
|
(2)
|
The
number of securities underlying options is subject to an anti-dilution
provision pursuant to which Mr. Bagley is entitled to purchase
no less
than 3% of the Company’s common stock until such time as the Company has
raised $25 million in financing.
|
Aggregated
Option Exercises and Fiscal Year-End Option Values
The
following table sets forth the total amount of shares acquired by the named
executives upon exercises of stock options during fiscal year 2004, the
aggregate dollar value realized upon such exercise, the total number of
securities underlying unexercised options held at the conclusion of fiscal
year
2004 (separately identifying then-exercisable and unexercisable options),
and
the aggregate dollar value of in-the-money, unexercised options held at the
conclusion of fiscal year 2004 (separately identifying then-exercisable and
unexercisable options). All share numbers and dollar amounts are set forth
on a
post-Merger basis.
|
Name
|
Shares
Acquired
on
Exercise (#)
|
Value
Realized ($)
|
Number
of
Unexercised
Securities
Underlying
Options
at FY-
End
(#)
Exercisable
/
Unexercisable
|
Value
of
Unexercised
In-
the-Money
Options
at FY-
End
($)
Exercisable
/
Unexercisable(1)
|
|||||||||
|
Dr.
Jonathan Lewis
|
0
|
0
|
0
/
268,653
|
(1)
|
0
/
558,798
|
||||||||
|
Richard
Bagley
|
0
|
0
|
0
/
150,668
|
(2)
|
0
/
69,307
|
||||||||
|
Dr.
Robert Peter Gale
|
0
|
0
|
0
/
25,110
|
(3)
|
0
/
43,189
|
||||||||
|
(1)
|
Value
of unexercised in-the-money options on December 31, 2004 is based
on a
value of ZIOPHARM, Inc. stock equal to $2.16 per share, as determined
by
the ZIOPHARM, Inc. Board of Directors at such time. As of December
31,
2004, no trades of the Company’s common stock had been conducted on the
Over-the-Counter Bulletin Board.
|
30
Employment
and Change-in-Control Agreements
On
December 9, 2004, the Company entered into an employment agreement with David
C.
Olson. Under the terms of the agreement, we agreed to pay Mr. Olson a one-time
fee of $100,000 if and when we completed a merger, acquisition, or related
transaction. In connection with the Merger, Mr. Olson agreed to reduce this
amount to the extent that the unconsolidated liabilities of the Company
immediately following the Merger exceeded $425,000. On December 10, 2004,
the
Company entered into a management consulting services agreement with David
Floor. Under the terms of the agreement, we agreed to pay Mr. Floor a one-time
fee of $10,000 plus expenses, upon the closing of any transaction leaving
the
Company with a positive business direction and available finances. In connection
with the Merger, we paid Messrs. Olson and Floor $57,500 and $100,000,
respectively, under the terms of their agreements with us. Each such agreement
was terminated in its entirety in connection with the Merger.
On
January 8, 2004, the Company entered into a three-year employment agreement
with
Dr. Jonathan Lewis. Under the agreement, Dr. Lewis receives an annual base
salary of $350,000 and a guaranteed annual bonus of $250,000. In addition,
Dr.
Lewis is eligible to receive an annual discretionary bonus of up to 100%
of his
base salary, as determined by the Company’s board of directors. The Company also
paid Dr. Lewis a one-time bonus of $250,000 upon execution of his employment
agreement. Depending upon the events surrounding a possible termination of
Dr.
Lewis’ employment, he may continue to receive his base salary and, in certain
circumstances, his guaranteed bonus for one year following such termination.
In
addition, the vesting of Dr. Lewis’ stock options may accelerate in whole or in
part upon such termination. Dr. Lewis has agreed not to compete with ZIOPHARM
during the term of the employment agreement and for a one-year period
thereafter, provided that we continue to pay his base salary and guaranteed
bonus for that one-year period.
Pursuant
to the terms of his employment agreement, the Company has granted Dr. Lewis
options to purchase up to 410,603 shares of common stock at $0.08 per share
(adjusted to give effect to the Merger). The options vest in three equal
annual
installments, the first of which vested on January 8, 2005, with the remaining
installments vesting on January 8, 2006 and January 8, 2007. The option is
subject to anti-dilution protection from the issuance of equity securities
in
financing transactions to the extent that Dr. Lewis will maintain potential
equity ownership of at least 5% of the Company until such time as the Company
has received $25 million in gross proceeds from such transactions. The options
are governed by the Company’s 2003 Stock Option Plan.
On
July
21, 2004, the Company entered into a three-year employment agreement with
Mr.
Richard Bagley. Under the agreement, Mr. Bagley receives an annual base salary
of $250,000 and a guaranteed annual bonus of $50,000. In addition, Mr. Bagley
is
eligible to receive an annual discretionary bonus, as determined by the
Company’s board of directors. The Company also paid Mr. Bagley a one-time bonus
of $50,000 upon execution of his employment agreement. Depending upon the
events
surrounding a possible termination of Mr. Bagley’s employment, he may continue
to receive his base salary and, in certain circumstances, his guaranteed
bonus
for one year following such termination. In addition, the vesting of Mr.
Bagley’s stock options may accelerate in whole or in part upon such termination.
Mr. Bagley has agreed not to compete with the Company during the term of
the
employment agreement and for a one-year period thereafter, provided that
we
continue to pay his base salary for that one-year period.
Pursuant
to the terms of his employment agreement, the Company granted Mr. Bagley
options
to purchase up to 241,282 shares common stock at $1.70 per share (adjusted
to
give effect to the Merger). The options vest in three equal annual installments,
the first of which vested on July 1, 2005, with the remaining installments
vesting on July 1, 2006 and July 1, 2007. The option is subject to certain
anti-dilution protections from the issuance of equity securities in financing
transactions so that Mr. Bagley will maintain potential equity ownership
of at
least 3% of the Company until such time as the Company has received $25 million
in gross proceeds from such transactions. The options are governed by the
Company’s 2003 Stock Option Plan.
31
On
January 14, 2004, the Company entered into a three-year employment agreement
with Dr. Robert Peter Gale. Under the agreement, Dr. Gale receives an annual
base salary of $250,000 and a guaranteed annual bonus of $150,000. In addition,
Dr. Gale is eligible to receive an annual discretionary bonus, as determined
by
the Company’s board of directors. Depending upon the events surrounding a
termination of Dr. Gale’s employment, he may continue to receive his base salary
and, in certain circumstances, his guaranteed bonus for one year following
such
termination. In addition, the vesting of Dr. Gale’s stock options may accelerate
in whole or in part upon such termination. Dr. Gale has agreed not to compete
with the Company during the term of the employment agreement and for one-year
following the expiration of his employment agreement.
Pursuant
to the terms of his employment agreement, the Company granted Dr. Gale options
to purchase up to 25,110 shares of common stock at $0.44 per share, respectively
(adjusted to give effect to the Merger). The options vest in three equal
annual
installments, the first of which vested on January 15, 2005, with the remaining
installments vesting on January 15, 2006 and January 15, 2007. The options
are
governed by the Company’s 2003 Stock Option Plan.
Compensation
of Directors
Prior
to
the Merger, our directors received no compensation pursuant to any standard
arrangement for their services as directors. Nevertheless, during the year
ended
December 31, 2004, we issued Mr. David Floor 5,000 shares of our common stock
(adjusted to reflect to the 1-for-40 share combination effected immediately
prior to the Merger) in exchange for directors fees.
Effective
as of the Merger, the Company’s Board of Directors schedules monthly telephonic
board meetings and quarterly in-person meetings held at the Company’s principal
corporate office. Each director receives quarterly compensation of $3,000
in
arrears. The non-management members of the Board also receive stock options
as
granted from time to time and as recommended by the compensation committee.
32
Certain Transactions and Relationships
Pre-Merger
Company Transactions and Relationships
Because
of their management positions, organizational efforts and/or percentage share
ownership in EasyWeb, Messrs. Olson and Zappa may be deemed to be “promoters” of
the Company, as those terms are defined in the Securities Act of 1933 and
the
applicable Rules and Regulations under the Securities Act of 1933. Because
of
the above-described relationships, transactions between and among EasyWeb
and
Messrs. Olson and Zappa, such as the sale of our common stock to each of
them as
described herein, should not be considered to have occurred at
arm's-length.
Common
Stock Transactions.
During
July 2005, the Company sold 333,333 shares of its common stock to David Floor
for $10,000, or $.03 per share.
In
August
and December 2004, David Olson loaned us a total of $1,300 for working capital.
During May 2005, Mr. Olson advanced us an additional $788. The loans carried
no
interest rate and were due on demand. On June 28, 2005, we issued Mr. Olson
69,600 shares of common stock as full repayment of the amounts stated above.
The
shares were valued at $.03 per share, or $2,088, based on contemporaneous
common
stock sales to unrelated third parties.
On
May
13, 2004, the Company issued 400,000 shares of common stock to Summit Financial
Relations, Inc. (“Summit”) valued at $10,000, at $.025 per share as repayment
for expenses paid on behalf of the Company. The shares were valued based
on
contemporaneous sales to unrelated third party investors. David Olson, our
President, Treasurer and one of our directors is also Summit’s President,
director and sole stockholder. The shares were issued pursuant to the exemption
from the registration requirements of the Securities Act provided by Section
4(2) of the Act for transactions by an issuer not involving a public offering.
During
May 2004, the Company issued 200,000 shares of common stock to Thomas Olson,
the
brother of David Olson, in exchange for corporate governance services. The
shares were valued based on contemporaneous sales to unrelated third party
investors, at $.025 per share. The Company recorded stock-based compensation
of
$5,000 related to the transaction. The shares were issued pursuant to the
exemption from the registration requirements of the Securities Act provided
by
Section 4(2) of the Act for transactions by an issuer not involving a public
offering.
During
May 2004, the Company issued 200,000 shares of common stock to David Floor
in
exchange for director fees. The shares were valued based on contemporaneous
sales to unrelated third party investors, at $.025 per share. The Company
recorded stock-based compensation of $5,000 related to the transaction. The
shares were issued pursuant to the exemption from the registration requirements
of the Securities Act provided by Section 4(2) of the Act for transactions
by an
issuer not involving a public offering.
At
December 31, 2004, the Company owed Summit $12,268 for professional fees
and
other administrative expenses paid on our behalf. David Olson, our President,
Treasurer and one of our directors, is also Summit’s President, director and
sole shareholder. During the six months ended June 30, 2005, Summit paid
an
additional $1,007 in expenses on our behalf. On February 4, 2005, the Company
repaid Summit $7,000 and on June 28, 2005 the Company issued Summit 209,180
shares of common stock as full repayment of all amounts stated above. The
shares
issued to Summit were valued at $.03 per share, or $6,275, based on
contemporaneous common stock sales to unrelated third parties.
33
During
January 2002, we sold 33,333 and 16,667 shares of our common stock to David
Olson and Barbara Petrinsky, respectively, at $.03 per share (gross proceeds
totaling $1,500). At the time of issuance, both Mr. Olson and Ms. Petrinsky
were
officers of EasyWeb. In addition to the 50,000 shares sold to Mr. Olson and
Ms.
Petrinsky, we sold 500,000 shares of our common stock to unrelated third
parties
for gross proceeds totaling $15,000, or $.03 per share. The shares were issued
pursuant to the exemption from the registration requirements of the Securities
Act provided by Section 4(2) of the Act for transactions by an issuer not
involving a public offering.
Office
Space and Administrative Support.
Summit
has contributed the use of office space and administrative support (including
reception, secretarial and bookkeeping services) to us for the years ended
December 31, 2004 and 2003. David Olson, our President, Treasurer and one
of our
directors, is also the President, director and sole stockholder of
Summit.
The
office space and administrative support contributed by Summit has a fair
market
value of approximately $500 and $1,000 per month, respectively. We have
recognized expenses for rent and administrative support based on fair market
value. Any period in which the amount paid to Summit for office space and
administrative support was below the fair market value, the remaining balance
was considered contributed by Summit and recorded as a credit to additional
paid-in capital in our financial statements. During the years ended December
31,
2004 and 2003, we did not pay Summit for office space and we paid Summit
$173
and $510, respectively, for administrative support. Accordingly, Summit
contributed the remaining fair values for the use of the office space and
administrative support. Contributed office space totaled $6,000 and $6,000,
and
contributed administrative support totaled $11,827 and $11,490 for the years
ended December 31, 2004 and 2003, respectively.
Related
Party Liabilities.
In
August
and December 2004, Mr. Olson loaned us a total of $1,300 for working capital.
The loans carried no interest rate and were due on demand.
At
December 31, 2003, the Company owed Summit $18,111 for professional fees
and
other administrative expenses it paid on our behalf. During the year ended
December 31, 2004, Summit paid expenses totaling $4,187 on our behalf. A
portion
of the May 13, 2004 issuance of 400,000 restricted common described above
under
“Certain Relationships and Related Transactions
- Common
Stock Transactions”
was
used to repay Summit for these fees. As of December 31, 2004, we owed Summit
$12,298.
We
owed
Barbara Petrinsky, our former Secretary and Treasurer, $10,000 for the work
she
performed over the previous five years to keep our books and records, assist
in
all of our filings with regulatory authorities, states and the Internal Revenue
Service, among others.
All
of
the above referenced liabilities were satisfied in their entirety immediately
follwing the Merger.
Consulting
Agreement with Summit Financial.
On
December 10, 2004, we entered into a consulting services fee agreement whereby
Summit provides certain services to us including, but not limited to
consultation related to mergers and acquisitions, reorganizations and
divestitures. Pursuant to the agreement, Summit has lent us funds and helped
us
raise funds at no extra cost. Under the terms of the agreement, we agreed
to pay
Summit a one-time fee of $120,000 on the date of closing of any transaction
that
leaves us with a positive business directive and available finances,
non-detrimental to our survival. In connection with the Merger, Summit agreed
to
reduce this amount to the extent that the unconsolidated liabilities of the
Company immediately following the Merger exceeded $425,000. Upon the Merger,
the
Company paid $106,697.90 to Summit and terminated the agreement in its entirety.
34
Under
the
terms of the Merger Agreement, the consolidated EasyWeb entity will pay our
identified liabilities that are then due. A portion of such liabilities will
be
payable to David Olson under his employment agreement and to Summit under
its
consulting services fee agreement. However, Mr. Olson and Summit have agreed
to
reduce the amount of the payments to which they are otherwise entitled to
the
extent that our unconsolidated liabilities immediately following the Merger
exceed $425,000.
ZIOPHARM
Transactions and Relationships
In
connection with a private placement of its Series A Convertible Preferred
Stock
that terminated in May 2005, ZIOPHARM and Paramount BioCapital, Inc.
(“Paramount”) entered into an introduction agreement in January 2005. Upon the
Merger, we succeeded to ZIOPHARM’s rights and obligation under such agreement.
Pursuant to the introduction agreement, ZIOPHARM agreed to compensate Paramount
or its designees for their services through the payment of (a) cash commissions
equal to 7% of the gross proceeds from the offering, and (b) warrants to
acquire
an aggregate of 837,956 share of ZIOPHARM’s Series A Convertible Preferred Stock
a per share exercise price of $2.38. Upon the Merger, this warrant was exchanged
for a warrant to purchase an aggregate of 419,772 shares of our common stock
at
a per share exercise price of $4.75. Cash commissions will also be payable
by us
if we sell additional of our securities, prior to May 31, 2006, to investors
introduced to ZIOPHARM by the Paramount. Pursuant to the introduction agreement,
Paramount has the right of first refusal to act as the placement agent for
the
private sale of our securities until May 31, 2008.
In
connection with ZIOPHARM’s December 22, 2004 Option Agreement with Southern
Research Institute (“SRI”), ZIOPHARM entered into an Finders Agreement dated
December 23, 2004 with Paramount, pursuant to which ZIOPHARM agreed to
compensate Paramount for services in connection with the ZIOPHARM’s introduction
to SRI through the payment of (a) a cash fee of $60,000 and (b) a warrant
to
purchase 125,000 shares of ZIOPHARM’s common stock at a price of $2.38 per
share. Upon the Merger, this warrant was exchanged for a warrant to purchase
an
aggregate of 62,621 shares of our common stock at a per share exercise price
of
$4.75.
Lindsay
A. Rosenwald, M.D., who may be deemed to beneficially own approximately 20.13%
of our common stock, is Chairman and Chief Executive Officer of Paramount
and
its affiliates. Dr. Michael Weiser and Timothy McInerney, each of whom is
a
member of ZIOPHARM’s Board of Directors, are also full-time employees
of
Paramount.
35
Description
of Securities
Our
authorized capital stock consists of 280,000,000 shares of common
stock, $.001 value per share. All shares of common stock have equal
voting
rights and are entitled to one vote per share on all matters to be voted
upon by
our stockholders. The shares of common stock have no preemptive, subscription,
conversion or redemption rights and may be issued only as fully-paid and
non-assessable shares. Cumulative voting in the election of directors is
not
permitted. In the event of our liquidation, each holder of our common stock
is
entitled to receive a proportionate share of our assets available for
distribution to stockholders after the payment of liabilities. All shares
of our
common stock issued and outstanding are fully-paid and
non-assessable.
Holders
of our common stock are entitled to share pro
rata
in
dividends and distributions with respect to the common stock when, as and
if
declared by our board of directors out of funds legally available therefor.
We
have not paid any dividends on our common stock and intend to retain earnings,
if any, to finance the development and expansion of our business. Future
dividend policy is subject to the discretion of our board of directors and
will
depend upon a number of factors, including future earnings, capital requirements
and our financial condition.
The
transfer agent and registrar for our common stock is American Stock Transfer
and
Trust, 6201 15th Avenue, Brooklyn, New York, 11219. As of the date of this
report, we had 7,157,863 shares of common stock outstanding held by 305 holders
of record. Our common stock is listed for trading on the over-the-counter
bulletin board under the symbol “ESWB.OB.” Nevertheless, there has been no
established public trading market for the common stock since our inception.
As a
result changing our corporate name to ZIOPHARM Oncology, Inc., we expect
that
our ticker symbol will change to be consistent with our new corporate
name.
Recent
Sales of Unregistered Securities
The
following summarizes all sales of unregistered securities by ZIOPHARM since
inception in September 2003.
On
September 25, 2003, in connection with ZIOPHARM’s incorporation, ZIOPHARM issued
500,000 shares of common stock for aggregate consideration of $500,000.
On
October 7, 2003, ZIOPHARM issued 12,500 shares of common stock to a consultant
in exchange for certain consulting services. On March 14, 2004, ZIOPHARM
issued
an additional 4,500,000 shares of common stock in exchange for aggregate
consideration of $4,500,000. On August 31, 2004, ZIOPHARM issued 500,000
shares
of common stock to the University of Texas M.D. Anderson Cancer Center
pursuant
to the terms of the license agreement dated August 24, 2004.
In
connection with ZIOPHARM’s license agreements with the University of Texas M. D.
Anderson Cancer Center and DEKK-TEC, Inc., ZIOPHARM issued warrants to
such
parties to acquire an aggregate of 155,375 shares of common stock.
In
connection with ZIOPHARM’s December 22, 2004 Option Agreement with SRI, ZIOPHARM
issued a warrant to purchase 125,000 shares of common stock to Paramount.
In
connection with an offering of Series A Convertible Preferred Stock of
ZIOPHARM
that was completed on May 30, 2005, ZIOPHARM issued an aggregate of 8,379,564
shares of such Series A Convertible Preferred Stock in exchange for a purchase
price per share equal to $2.16. ZIOPHARM issued to the placement agents
in
connection with the offering warrants to purchase up to an aggregate of
837,956
share of ZIOPHARM’s Series A Convertible Preferred Stock.
Since
ZIOPHARM’s inception to the Merger, ZIOPHARM issued to directors, officers,
employees and consultants options to purchase an aggregate of 1,626,797
shares
of common stock at exercise prices ranging from $0.04 to $2.16 per share
with a
weighted average exercise price of $0.77 per share. The issuances of these
options were deemed to be exempt from registration under the Securities
Act by
virtue of Rule 701 promulgated under Section 3(b) of the Securities Act
as
transactions pursuant to compensation benefits plans and contracts relating
to
compensation.
Except
as
noted above, the sales of the securities identified above were made pursuant
to
privately negotiated transactions that did not involve a public offering
of
securities and, accordingly, ZIOPHARM believes that these transactions
were
exempt from the registration requirements of the Securities Act pursuant
to
Section 4(2) thereof and rules promulgated thereunder. Each of the
above-referenced investors in ZIOPHARM’s stock represented to ZIOPHARM in
connection with their investment that they were “accredited investors” (as
defined by Rule 501 under the Securities Act) and were acquiring the shares
for
investment and not distribution, that they could bear the risks of the
investment and could hold the securities for an indefinite period of time.
The
investors received written disclosures that the securities had not been
registered under the Securities Act and that any resale must be made pursuant
to
a registration or an available exemption from such registration. All of
the
foregoing securities are deemed restricted securities for purposes of the
Securities Act.
The
following summarizes the sales of unregistered securities by EasyWeb, Inc.
(now
known as ZIOPHARM, Oncology, Inc.) during the three years prior to and
including
the closing of the Merger.
In
connection with the Merger, EasyWeb, Inc. issued an aggregate of 6,967,941
shares of its common stock to the former holders of ZIOPHARM capital stock,
and
other securities having the right to purchase approximately an additional
1,366,846 shares of EasyWeb’s common stock, all of which were unregistered. For
these issuances, EasyWeb relied on the exemption from federal registration
under
Section 4(2) of the Securities Act of 1933. EasyWeb relied on this exemption
based on the fact that there were approximately only 230 (excludes options
and
warrants) stockholders of ZIOPHARM who were recipients of such unregistered
shares in connection with the Merger, all of whom, either alone or through
a
purchaser representative, had knowledge and experience in financial and
business
matters such that each was capable of evaluating the risks of the investment,
and had access to information regarding ZIOPHARM, EasyWeb and the Merger
transaction.
For
other
sales of unregistered securities made by EasyWeb during the three-year
period
prior to the Merger, please refer to EasyWeb’s quarterly reports on Form 10-QSB
filed on November 13, 2002, May 13, 2003, August 14, 2003, October 30,
2003, May
10, 2004, August 23, 2004, November 15, 2004, May 13, 2005, and August
15, 2005
(amended); and EasyWeb’s registration statement on Form 10-SB/A filed on
December 28, 2001.
36
Indemnification
of Directors and Officers
Pursuant
to our articles of incorporation and bylaws, we may indemnify an officer
or
director who is made a party to any proceeding, because of his position as
such,
to the fullest extent authorized by Delaware General Corporation Law, as
the
same exists or may hereafter be amended. In certain cases, we may advance
expenses incurred in defending any such proceeding.
To
the
extent that indemnification for liabilities arising under the Securities
Act may
be permitted to directors, officers or persons controlling our company pursuant
to the foregoing provisions, we have been informed that, in the opinion of
the
SEC, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. If a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred
or
paid by a director, officer or controlling person of our company in the
successful defense of any action, suit or proceeding) is asserted by any
of our
directors, officers or controlling persons in connection with the securities
being registered, we will, unless in the opinion of our counsel the matter
has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by us is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of that issue.
Item
3.02. Unregistered Sales of Equity Securities.
As
disclosed under Item 2.01 above, in connection with the Merger, the Company
issued an aggregate of 6,967,941 shares of its common stock to the former
holders of ZIOPHARM capital stock, and other securities having the right
to
purchase approximately an additional 1,366,846 shares of our common stock,
all
of which were unregistered. For these issuances, the Company relied on the
exemption from federal registration under Section 4(2) of the Securities
Act of
1933. The Company relied on this exemption based on the fact that there were
approximately 230 stockholders of ZIOPHARM who were recipients of such
unregistered shares in connection with the Merger, all of whom, either alone
or
through a purchaser representative, had knowledge and experience in financial
and business matters such that each was capable of evaluating the risks of
the
investment, and had access to information regarding ZIOPHARM, the Company
and
the Merger transaction.
37
Item
5.01. Changes in Control of Registrant.
The
disclosures set forth in Item 2.01 above are hereby incorporated by reference
into this Item 5.01.
Item
5.02. Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers.
The
disclosures set forth in Item 2.01 regarding the reconstitution of the Company’s
board of directors, the resignation of the Company’s executive officers, and the
appointment of new executive officers, are hereby incorporated by reference
into
this Item 5.02.
Item
5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal
Year.
On
September 13, 2005, the Company’s board of directors adopted bylaws applicable
to the Company. Such bylaws are filed as Exhibit 3.3 to this
report.
On
September 14, 2005, the Company filed a Certificate of Ownership with the
Secretary of State of the State of Delaware pursuant to which the Company’s
wholly-owned subsidiary, ZIOPHARM, Inc., merged with and into the Company
with
the Company remaining as the surviving corporation to the merger. In connection
with this merger, and as set forth in the Certificate of Ownership, the Company
changed its corporate name to “ZIOPHARM Oncology, Inc.” The Certificate of
Ownership is filed as Exhibit 3.2 to this report.
Item
9.01. Financial Statements and Exhibits.
(a) As
a
result of its acquisition of ZIOPHARM described in Item 2.01, the registrant
is
filing ZIOPHARM’s audited financial information as Exhibit 99.1 to this
report.
(b) As
a
result of its acquisition of ZIOPHARM described in Item 2.01, the registrant
is
filing certain pro
forma
financial information as
Exhibit 99.2 to this report.
(c) Exhibits.
|
Exhibit
|
Description
|
|
|
2.1
|
Agreement
and Plan of Merger and Reorganization dated August 3, 2005, by
and among
EasyWeb, Inc., a Delaware corporation (the registrant), ZIO Acquisition
Corp., a Delaware corporation and wholly owned subsidiary of the
registrant, and ZIOPHARM, Inc., a Delaware corporation (incorporated
by
reference to exhibit 10.1 to the registrant’s current report on Form 8-K
filed on August 9, 2005).
|
|
|
3.1
|
Certificate
of Merger dated September 13, 2005 relating to the merger of ZIO
Acquisition Corp. with and into ZIOPHARM, Inc.
|
|
|
3.2
|
Certificate
of Ownership of ZIOPHARM Oncology, Inc. dated as of September 14,
2005.
|
|
|
3.3
|
Bylaws
of ZIOPHARM Oncology, Inc.
|
|
|
99.1
|
Audited
financial statements of ZIOPHARM, Inc.
|
|
| 99.2 | Pro forma unaudited combined financial statements. | |
|
99.3
|
Press
Release dated September 15,
2005.
|
38
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
|
EASYWEB,
INC.:
(Registrant)
|
||
| |
|
|
| Date: September 19, 2005 | By: | /s/ Jonathan Lewis |
|
Jonathan Lewis, Chief Executive Officer |
||
39
|
EXHIBIT
INDEX
|
||
| 3.1 | Certificate of Merger dated September 13, 2005 relating to the merger of ZIO Acquisition Corp. with and into ZIOPHARM, Inc. | |
| 3.2 | Certificate of Ownership of ZIOPHARM Oncology, Inc. dated as of September 14, 2005. | |
| 3.3 | Bylaws of ZIOPHARM Oncology, Inc. | |
| 99.1 |
Audited
financial statements of ZIOPHARM, Inc.
|
|
| 99.2 | Pro forma unaudited combined financial statements | |
| 99.3 | Press Release dated September 15, 2005. |
40
CERTIFICATE
OF MERGER
of
ZIO
ACQUISITION CORP.
and
ZIOPHARM,
INC.
In
accordance with Section 251 of the General Corporation Law of the State of
Delaware, ZIOPHARM, Inc. hereby certifies as follows:
FIRST:
That the
name and state of incorporation of each of the constituent corporations of
the
merger is as follows:
|
NAME
|
STATE
OF INCORPORATION
|
|
|
ZIO
Acquisition Corp
|
Delaware
|
|
|
ZIOPHARM,
Inc.
|
Delaware
|
SECOND:
That an
Agreement and Plan of Merger has been approved, adopted, certified, executed
and
acknowledged by each of the constituent corporations in accordance with the
requirements of Section 251 of the General Corporation Law of the State of
Delaware.
THIRD:
That the
name of the surviving corporation of the merger is ZIOPHARM, Inc.
FOURTH:
The
certificate of incorporation of ZIOPHARM, Inc., as amended to date, will
be the
certificate of incorporation of the surviving corporation; provided,
however,
that
such certificate of incorporation shall be amended and restated in its entirety
read as set forth on Exhibit A to this Certificate of Merger
FIFTH:
The
executed Agreement and Plan of Merger is on file at an office of the surviving
corporation, the address of which is:
1180
Avenue of the Americas, Suite 1920
New
York,
New York 10036
SIXTH:
That a
copy of the Agreement and Plan of Merger will be furnished by the surviving
corporation, on request and without cost, to any stockholder of any constituent
corporation.
The
undersigned corporation has caused this certificate of merger to be signed
on
September 13, 2005.
| ZIOPHARM, INC. | ||
| |
|
|
| By: | /s/ Richard Bagley | |
|
Name: Richard Bagley |
||
|
Title:
President, Chief Operating Officer and Treasurer
|
||
Exhibit
A
Certificate
of Incorporation
of
ZIOPHARM,
Inc.
|
FIRST:
|
The
name of this corporation shall be ZIOPHARM,
Inc.
|
|
SECOND:
|
Its
registered office in the State of Delaware is to be located at:
3500 South
Dupont Highway, Dover DE 19901, County of Kent and its registered
agent at
such address is: Blumberg Excelsior Corporate Services,
Inc.
|
|
THIRD:
|
The
purpose of the corporation is to engage in any lawful act or
activity.
|
|
FOURTH:
|
The
total number of shares of stock which this corporation is authorized
to issue is: TWO HUNDRED (200) common shares with no par
value.
|
|
FIFTH:
|
The
name and address of the incorporator is as
follows:
|
Justin
T.
Reed,
c/o
Blumberg
Excelsior
Corporate Services, Inc.
62
White
Street
New
York,
NY 10013
|
SIXTH:
|
The
Directors shall have power to make and to alter or amend the By-Laws;
to
fix the amount to be reserved as working capital, and to authorize
and
cause to be executed, mortgages and liens without limit as to the
amount,
upon the property and franchise of this
corporation.
|
|
With
the consent in writing, and pursuant to a majority vote of the
holders of
the capital stock issued and outstanding, the Directors shall have
authority to disclose, in any manner, of the whole property of
this
corporation.
|
|
The
By-Laws shall determine whether and to what extent the account
and books
of this corporation, or any of them, shall be open to the inspection
of
the stockholders; no stockholder shall have any right of inspecting
any
account, or book, or document of this corporation except as conferred
by
the law or the By-Laws, or by resolution of the stockholders. The
stockholders and directors shall have power to hold their meetings
and
keep the books, documents and papers of the corporation outside
of the
State of Delaware, at such places as may be, from time to time,
designated
by the By-Laws or by resolution of the stockholders or directors,
except
as otherwise required by the laws of
Delaware.
|
It
is the
intention that the objects, purposes and powers specified in the paragraph
hereof shall, except where otherwise specified in said paragraph, be in no
way
limited or restricted by reference to or inference from the terms of any
other
clause or paragraph in this certificate of incorporation, but that the objects,
purposes and powers specified in the paragraph and in each of the clauses,
or
paragraphs of this charter shall be regarded as independent objects, purposes
and powers.
No
director of this corporation shall be liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director’s duty of loyalty of the
corporation or its stockholders (ii) for acts or omissions not in good faith
or
which involve intentional misconduct or a knowing violation of law, (iii)
under
Section 174 of the General Corporation Law, or (iv) for any transaction from
which the director derived an improper personal benefit.
Exhibit
3.2
STATE
OF
DELAWARE
CERTIFICATE
OF OWNERSHIP
SUBSIDIARY
INTO PARENT
Section
253
CERTIFICATE
OF OWNERSHIP
MERGING
ZIOPHARM,
INC.
INTO
EASYWEB,
INC.
(Pursuant
to Section 253 of the General Corporation Law of Delaware)
EasyWeb,
Inc., a corporation incorporated on the 16th
day of
May, 2005 (the “Corporation”), pursuant to the provisions of the General
Corporation Law of the State of Delaware;
DOES
HEREBY CERTIFY
that the
Corporation owns 100% of the capital stock of ZIOPHARM, Inc., a corporation
incorporated on the 9th
day
September, 2003 (“ZIOPHARM”), pursuant to the provisions of the General
Corporation Law of the State of Delaware and that the Corporation, by a
resolution of its Board of Directors duly adopted at a meeting held on the
13th
day of
September, 2005, determined to and did merge into itself said ZIOPHARM, Inc.,
which resolution is in the following words to wit:
WHEREAS,
pursuant to the terms of a Merger Agreement dated August 3, 2005, ZIO
Acquisition Corp., formerly a Delaware corporation and wholly-owned subsidiary
of the Corporation, has merged with and into ZIOPHARM, Inc., a Delaware
corporation (“ZIOPHARM”), with ZIOPHARM remaining as a wholly-owned subsidiary
of the Corporation;
WHEREAS,
the
Board desires to cause ZIOPHARM to merge with and into the Corporation (the
“Merger”), with the Corporation remaining as the surviving corporation to the
Merger;
WHEREAS,
following the Merger, the Corporation shall succeed to all of the estate,
property, rights, privileges and franchises of ZIOPHARM and shall assume
all of
ZIOPHARM’s liabilities and obligations; and
WHEREAS,
pursuant to the Merger, and as permitted by Section 253 of the Delaware General
Corporation Law, the name of Corporation shall be changed to “ZIOPHARM Oncology,
Inc.”.
NOW,
THEREFORE, BE IT HEREBY RESOLVED,
that
ZIOPHARM merge with and into the Corporation, with the Corporation remaining
as
the surviving corporation to the Merger;
RESOLVED
FURTHER,
that
following the Merger, the Corporation succeed to all of the estate, property,
rights, privileges and franchises of ZIOPHARM and assume all of ZIOPHARM’s
liabilities and obligations;
RESOLVED
FURTHER,
pursuant to the Merger, and as permitted by Section 253 of the Delaware General
Corporation Law, the Corporation relinquishes its corporate name and assumes
in
its place the name “ZIOPHARM Oncology, Inc.”; and
RESOLVED
FURTHER,
that
the Corporation’s officers are hereby authorized and directed to prepare or
cause to be prepared all necessary documents, agreements, instruments and
certificates to effectuate the Merger, including without limitation a
Certificate of Ownership to be filed with Secretary of State of the State
of
Delaware (the Certificate of Ownership); and to execute and deliver such
documents, agreements, instruments and certificates, and to make such filings
as
they deem necessary or advisable to effectuate the Merger, including without
limitation filing a Certificate of Ownership with the Secretary of State
of the
State of Delaware, and a certified copy thereof in the office of the Recorder
of
Deeds of New Castle County.
IN
WITNESS WHEREOF, said
parent corporation has caused this certificate to be signed by an authorized
officer this 14th
day of
September, 2005.
| |
|
|
| /s/ Richard Bagley | ||
|
Richard Bagley, President, Chief Operating Officer, Chief Financial Officer and Secretary |
||
BY-LAWS
of
ZIOPHARM
ONCOLOGY, INC.
(A
Delaware Corporation)
________________________
ARTICLE
1
DEFINITIONS
As used
in these By-laws, unless the context otherwise requires, the term:
1.1 “Assistant
Secretary” means an Assistant Secretary of the Corporation.
1.2 “Assistant
Treasurer” means an Assistant Treasurer of the Corporation.
1.3 “Board”
means the Board of Directors of the Corporation.
1.4 “By-laws”
means the initial by-laws of the Corporation, as amended from time to
time.
1.5 “Certificate
of Incorporation” means the initial certificate of incorporation of the
Corporation, as amended, supplemented or restated from time to
time.
1.6 “Chairman”
means the Chairman of the Board of Directors of the Corporation.
1.7 “Corporation”
means ZIOPHARM Oncology, Inc.
1.8 “Directors”
means directors of the Corporation.
1.9 “Entire
Board” means all then authorized directors of the Corporation.
1.10 “General
Corporation Law” means the General Corporation Law of the State of Delaware, as
amended from time to time.
1.11 “Office
of the Corporation” means the executive office of the Corporation, anything in
Section 131 of the General Corporation Law to the contrary
notwithstanding.
1.12 “President”
means the President of the Corporation.
1.13 “Secretary”
means the Secretary of the Corporation.
1.14 “Stockholders”
means stockholders of the Corporation.
1.15 “Treasurer”
means the Treasurer of the Corporation.
1.16 “Vice
President” means a Vice President of the Corporation.
ARTICLE
2
STOCKHOLDERS
2.1 Place
of Meetings. Every
meeting of Stockholders may be held at such place, within or without the State
of Delaware, as may be designated by resolution of the Board from time to time.
2.2 Annual
Meeting. If
required by applicable law, a meeting of Stockholders shall be held annually for
the election of Directors at such date and time as may be designated by
resolution of the Board from time to time. Any other business may be transacted
at the annual meeting.
2.3 Special
Meetings. Unless
otherwise prescribed by applicable law, special meetings of Stockholders may be
called at any time by the Board and may not be called by any other person or
persons. Business transacted at any special meeting of Stockholders shall be
limited to the purpose stated in the notice.
2.4 Fixing
Record Date. For the
purpose of (a) determining the Stockholders entitled (i) to notice of
or to vote at any meeting of Stockholders or any adjournment thereof,
(ii) unless otherwise provided in the Certificate of Incorporation, to
express consent to corporate action in writing without a meeting or
(iii) to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock; or (b) any other lawful action, the Board
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date was adopted by the Board and which record
date, unless otherwise required by applicable law, shall not be (x) in the
case of clause (a)(i) above, more than 60 nor less than 10 days before
the date of such meeting, (y) in the case of clause (a)(ii) above,
more than 10 days after the date upon which the resolution fixing the
record date was adopted by the Board and (z) in the case of
clause (a)(iii) or (b) above, more than 60 days prior to such action.
If no such record date is fixed:
2.4.1 the
record date for determining Stockholders entitled to notice of or to vote at a
meeting of Stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held;
2.4.2 the
record date for determining Stockholders entitled to express consent to
corporate action in writing without a meeting (unless otherwise provided in the
Certificate of Incorporation), when no prior action by the Board is required by
applicable law, shall be the first day on which a signed written consent setting
forth the action taken or proposed to be taken is delivered to the Corporation
in accordance with applicable law; and when prior action by the Board is
required by applicable law, the record date for determining Stockholders
entitled to express consent to corporate action in writing without a meeting
shall be at the close of business on the date on which the Board adopts the
resolution taking such prior action; and
2
2.4.3 the
record date for determining Stockholders for any purpose other than those
specified in Sections 2.4.1 and 2.4.2 shall be at the close of business on the
day on which the Board adopts the resolution relating thereto. When a
determination of Stockholders of record entitled to notice of or to vote at any
meeting of Stockholders has been made as provided in this Section 2.4, such
determination shall apply to any adjournment thereof unless the Board fixes a
new record date for the adjourned meeting.
2.5 Notice
of Meetings of Stockholders.
Whenever under the provisions of applicable law, the Certificate of
Incorporation or these By-laws, Stockholders are required or permitted to take
any action at a meeting, notice shall be given stating the place ,if any, date
and hour of the meeting ,the means of remote communication, if any, by which
Stockholders and proxy holders may be deemed to be present in person and vote at
such meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Unless otherwise provided by applicable law, the
Certificate of Incorporation or these By-laws, notice of any meeting shall be
given, not less than 10 nor more than 60 days before the date of the meeting, to
each Stockholder entitled to vote at such meeting. If mailed, such notice shall
be deemed to be given when deposited in the United States mail, with postage
prepaid, directed to the Stockholder at his or her address as it appears on the
records of the Corporation. An affidavit of the Secretary or an Assistant
Secretary or of the transfer agent of the Corporation that the notice required
by this Section 2.5 has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. Any meeting of Stockholders, annual
or special, may adjourn from time to time to reconvene at the same or some other
place. When a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken, and at the adjourned meeting any
business may be transacted that might have been transacted at the meeting as
originally called. If, however, the adjournment is for more than 30 days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each Stockholder of record
entitled to vote at the meeting.
2.6 Waivers
of Notice.
Whenever the giving of any notice to Stockholders is required by applicable law,
the Certificate of Incorporation or these By-laws, a waiver thereof, given by
the person entitled to said notice, whether before or after the event as to
which such notice is required, shall be deemed equivalent to notice. Attendance
by a Stockholder at a meeting shall constitute a waiver of notice of such
meeting except when the Stockholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
on the ground that the meeting has not been lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the Stockholders need be specified in any waiver of notice unless so
required by applicable law, the Certificate of Incorporation or these
By-laws.
2.7 List
of Stockholders. The
Secretary shall prepare and make, at least 10 days before every meeting of
Stockholders, a complete list of the Stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
Stockholder and the number of shares registered in the name of each Stockholder.
Such list shall be open to the examination of any Stockholder, the Stockholder’s
agent, or attorney, at the Stockholder’s expense, for any purpose germane to the
meeting, for a period of at least 10 days prior to the meeting, during ordinary
business hours at the principal place of business of the Corporation, or on a
reasonably accessible electronic network as provided by applicable law. If the
meeting is to be held at a place, the list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any Stockholder who is present. If the meeting is held solely by
means of remote communication, the list shall also be open for examination as
provided by applicable law. Upon the willful neglect or refusal of the Directors
to produce such a list at any meeting for the election of Directors, they shall
be ineligible for election to any office at such meeting. Except as provided by
applicable law, the stock ledger shall be the only evidence as to who are the
Stockholders entitled to examine the stock ledger, the list of Stockholders or
the books of the Corporation, or to vote in person or by proxy at any meeting of
Stockholders.
3
2.8 Quorum
of Stockholders; Adjournment. Except
as otherwise provided by applicable law, the Certificate of Incorporation or
these By-laws, at each meeting of Stockholders, the presence in person or by
proxy of the holders of a majority in voting power of all outstanding shares of
stock entitled to vote at the meeting of Stockholders, shall constitute a quorum
for the transaction of any business at such meeting. In the absence of a quorum,
the holders of a majority in voting power of the shares of stock present in
person or represented by proxy at any meeting of Stockholders, including an
adjourned meeting, whether or not a quorum is present, may adjourn such meeting
to another time and place. Shares of its own stock belonging to the Corporation
or to another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes; provided,
however, that
the foregoing shall not limit the right of the Corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary
capacity.
2.9 Voting;
Proxies. Unless
otherwise provided in the Certificate of Incorporation, every Stockholder
entitled to vote at any meeting of Stockholders shall be entitled to one vote
for each share of stock held by such Stockholder which has voting power upon the
matter in question. At any meeting of Stockholders, all matters, except as
otherwise provided by the Certificate of Incorporation, these By-laws, the rules
and regulations of any stock exchange applicable to the Corporation, applicable
law or pursuant to any rules or regulations applicable to the Corporation or its
securities, shall be decided by the affirmative vote of a majority in voting
power of shares of stock present in person or represented by proxy and entitled
to vote thereon. At all meetings of Stockholders for the election of Directors,
a plurality of the votes cast shall be sufficient to elect. Each Stockholder
entitled to vote at a meeting of Stockholders or to express consent or dissent
to corporate action in writing without a meeting may authorize another person or
persons to act for such Stockholder by proxy but no such proxy shall be voted or
acted upon after three years from its date, unless the proxy provides for a
longer period. A proxy shall be irrevocable if it states that it is irrevocable
and if, and only so long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A Stockholder may revoke any proxy that is not
irrevocable by attending the meeting and voting in person or by delivering to
the Secretary a revocation of the proxy or by delivering a new proxy bearing a
later date.
2.10 Voting
Procedures and Inspectors of Election at Meetings of
Stockholders. The
Board, in advance of any meeting of Stockholders, may, and shall if required by
applicable law, appoint one or more inspectors, who may be employees of the
Corporation, to act at the meeting and make a written report thereof. The Board
may designate one or more persons as alternate inspectors to replace any
inspector who fails to act. If no inspector or alternate is able to act at a
meeting, the person presiding at the meeting may, and shall if required by
applicable law, appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his or her duties, shall take
and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspectors
shall (a) ascertain the number of shares outstanding and the voting power
of each, (b) determine the shares represented at the meeting and the validity of
proxies and ballots, (c) count all votes and ballots, (d) determine
and retain for a reasonable period a record of the disposition of any challenges
made to any determination by the inspectors, and (e) certify their
determination of the number of shares represented at the meeting and their count
of all votes and ballots. The inspectors may appoint or retain other persons or
entities to assist the inspectors in the performance of their duties. Unless
otherwise provided by the Board, the date and time of the opening and the
closing of the polls for each matter upon which the Stockholders will vote at a
meeting shall be determined by the person presiding at the meeting and shall be
announced at the meeting. No ballot, proxies or votes, or any revocation thereof
or change thereto, shall be accepted by the inspectors after the closing of the
polls unless the Court of Chancery of the State of Delaware upon application by
a Stockholder shall determine otherwise. In determining the validity and
counting of proxies and ballots cast at any meeting of Stockholders, the
inspectors may consider such information as is permitted by applicable law. No
person who is a candidate for office at an election may serve as an inspector at
such election.
4
2.11 Conduct
of Meetings; Organization. The
Board may adopt by resolution such rules and regulations for the conduct of the
meeting of Stockholders as it shall deem appropriate. Unless another officer is
designated by the Board, at each meeting of Stockholders, the President, or in
the absence of the President, the Chairman, or if there is no Chairman or if
there be one and the Chairman is absent, a Vice President, and in case more than
one Vice President shall be present, that Vice President designated by the Board
(or in the absence of any such designation, the most senior Vice President,
based on age, present), shall preside over the meeting. Except to the extent
inconsistent with such rules and regulations as adopted by the Board, the person
presiding over any meeting of Stockholders shall have the right and authority to
convene and to adjourn the meeting, to prescribe such rules, regulations and
procedures and to do all such acts as, in the judgment of such person, are
appropriate for the proper conduct of the meeting. Such rules, regulations or
procedures, whether adopted by the Board or prescribed by the presiding officer
of the meeting, may include, without limitation, the following: (i) the
establishment of an agenda or order of business for the meeting; (ii) rules and
procedures for maintaining order at the meeting and the safety of those present;
(iii) limitations on attendance at or participation in the meeting to
Stockholders of record of the Corporation, their duly authorized and constituted
proxies or such other persons as the person presiding over the meeting shall
determine; (iv) restrictions on entry to the meeting after the time fixed for
the commencement thereof; and (v) limitations on the time allotted to questions
or comments by participants. The presiding officer at any meeting of
Stockholders, in addition to making any other determinations that may be
appropriate to the conduct of the meeting, shall, if the facts warrant,
determine and declare to the meeting that a matter or business was not properly
brought before the meeting and if such presiding officer should so determine,
such person shall so declare to the meeting and any such matter or business not
properly brought before the meeting shall not be transacted or considered.
Unless and to the extent determined by the Board or the person presiding over
the meeting, meetings of Stockholders shall not be required to be held in
accordance with the rules of parliamentary procedure. The Secretary, or in his
or her absence, one of the Assistant Secretaries, shall act as secretary of the
meeting. In case none of the officers above designated to act as the person
presiding over the meeting or as secretary of the meeting, respectively, shall
be present, a person presiding over the meeting or a secretary of the meeting,
as the case may be, shall be designated by the Board, and in case the Board has
not so acted, in the case of the designation of a person to act as secretary of
the meeting, designated by the person presiding over the meeting.
2.12 Order
of Business. The
order of business at all meetings of Stockholders shall be as determined by the
person presiding over the meeting.
5
2.13 Written
Consent of Stockholders Without a Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required by
the General Corporation Law to be taken at any annual or special meeting of
Stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered (by hand or by certified or registered mail, return
receipt requested) to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the Corporation having custody of the book in which proceedings of meetings
of Stockholders are recorded. Every written consent shall bear the date of
signature of each Stockholder who signs the consent and no written consent shall
be effective to take the corporate action referred to therein unless, within
60 days of the earliest dated consent delivered in the manner required by
this Section 2.13, written consents signed by a sufficient number of
holders to take action are delivered to the Corporation as aforesaid. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall, to the extent required by applicable law, be
given to those Stockholders who have not consented in writing, and who, if the
action had been taken at a meeting, would have been entitled to notice of the
meeting if the record date for such meeting had been the date that written
consents signed by a sufficient number of holders to take the action were
delivered to the Corporation.
ARTICLE
3
DIRECTORS
3.1 General
Powers. Except
as otherwise provided in the Certificate of Incorporation, the business and
affairs of the Corporation shall be managed by or under the direction of the
Board. The Board may adopt such rules and regulations, not inconsistent with the
Certificate of Incorporation or these By-laws or applicable law, as it may deem
proper for the conduct of its meetings and the management of the
Corporation.
3.2 Number;
Qualification; Term of Office. The
Board shall consist of one or more members, the number thereof to be determined
from time to time by resolution of the Board. Directors need not be
Stockholders. Each Director shall hold office until a successor is duly elected
and qualified or until the Director’s earlier death, resignation,
disqualification or removal.
6
3.3 Newly
Created Directorships and Vacancies. Unless
otherwise provided by applicable law or the Certificate of Incorporation, any
newly created directorships resulting from an increase in the authorized number
of Directors and vacancies occurring in the Board for any cause, may be filled
by the affirmative votes of a majority of the remaining members of the Board,
although less than a quorum, or by a sole remaining Director, or may be elected
by a plurality of the votes cast. A Director so elected shall be elected to hold
office until the expiration of the term of office of the Director whom he or she
has replaced or until a successor is elected and qualified, or until the
Director’s earlier death, resignation or removal.
3.4 Resignation. Any
Director may resign at any time by notice given in writing or by electronic
transmission to the Corporation. Such resignation shall take effect at the time
therein specified, and, unless otherwise specified in such resignation, the
acceptance of such resignation shall not be necessary to make it
effective.
3.5 Regular
Meetings. Regular
meetings of the Board may be held without notice at such times and at such
places within or without the State of Delaware as may be determined from time to
time by resolution of the Board.
3.6 Special
Meetings. Special
meetings of the Board may be held at such times and at such places within or
without the State of Delaware whenever called by the Chairman, the President or
the Secretary or by any two or more Directors then serving as Directors on at
least 24 hours’ notice to each Director given by one of the means specified in
Section 3.9 hereof other than by mail, or on at least three days’ notice if
given by mail. Special meetings shall be called by the Chairman, President or
Secretary in like manner and on like notice on the written request of any two or
more of the Directors then serving as Directors.
3.7 Telephone
Meetings.
Directors or members of any committee designated by the Board may participate in
a meeting of the Board or of such committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
Section 3.7 shall constitute presence in person at such
meeting.
3.8 Adjourned
Meetings. A
majority of the Directors present at any meeting of the Board, including an
adjourned meeting, whether or not a quorum is present, may adjourn such meeting
to another time and place. At least 24 hours’ notice of any adjourned meeting of
the Board shall be given to each Director whether or not present at the time of
the adjournment, if such notice shall be given by one of the means specified in
Section 3.9 hereof other than by mail, or at least three days’ notice if by
mail. Any business may be transacted at an adjourned meeting that might have
been transacted at the meeting as originally called.
3.9 Notice
Procedure. Subject
to Sections 3.6 and 3.10 hereof, whenever, under applicable law, the
Certificate of Incorporation or these By-laws, notice is required to be given to
any Director, such notice shall be deemed given effectively if given in person
or by telephone, by mail addressed to such Director at such Director’s address
as it appears on the records of the Corporation, with postage thereon prepaid,
or by telegram, telecopy or, if consented to by the Director to whom notice is
given, by other means of electronic transmission.
7
3.10 Waiver
of Notice.
Whenever the giving of any notice to Directors is required by applicable law,
the Certificate of Incorporation or these By-laws, a waiver thereof, given by
the Director entitled to said notice, whether before or after the event as to
which such notice is required, shall be deemed equivalent to notice. Attendance
by a Director at a meeting shall constitute a waiver of notice of such meeting
except when the Director attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business on the
ground that the meeting has not been lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the Directors or a committee of Directors need be specified in any waiver of
notice unless so required by applicable law, the Certificate of Incorporation or
these By-laws.
3.11 Organization. At each
meeting of the Board, the Chairman, or in the absence of the Chairman, the
President, or in the absence of the President, a chairman chosen by a majority
of the Directors present, shall preside. The Secretary shall act as secretary at
each meeting of the Board. In case the Secretary shall be absent from any
meeting of the Board, an Assistant Secretary shall perform the duties of
secretary at such meeting; and in the absence from any such meeting of the
Secretary and all Assistant Secretaries, the person presiding at the meeting may
appoint any person to act as secretary of the meeting.
3.12 Quorum
of Directors. The
presence in person of a majority of the Entire Board shall be necessary and
sufficient to constitute a quorum for the transaction of business at any meeting
of the Board.
3.13 Action
by Majority Vote. Except
as otherwise expressly required by applicable law, the Certificate of
Incorporation or these By-laws, the vote of a majority of the Directors present
at a meeting at which a quorum is present shall be the act of the
Board.
3.14 Action
Without Meeting. Unless
otherwise restricted by the Certificate of Incorporation or these By-laws, any
action required or permitted to be taken at any meeting of the Board or of any
committee thereof may be taken without a meeting if all Directors or members of
such committee, as the case may be, consent thereto in writing or by electronic
transmission, and the writing or writings or electronic transmission or
transmissions are filed with the minutes of proceedings of the Board or
committee.
ARTICLE
4
COMMITTEES
OF THE BOARD
The Board
may, by resolution, designate one or more committees, each committee to consist
of one or more of the Directors of the Corporation. The Board may designate one
or more Directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of such committee. If a member of a
committee shall be absent from any meeting, or disqualified from voting thereat,
the remaining member or members present at the meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may, by a
unanimous vote, appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member. Any such committee, to the
extent permitted by applicable law and to the extent provided in the resolution
of the Board designating such committee, shall have and may exercise all the
powers and authority of the Board in the management of the business and affairs
of the Corporation, and may authorize the seal of the Corporation to be affixed
to all papers that may require it. Unless otherwise specified in the resolution
of the Board designating a committee, at all meetings of such committee, a
majority of the then authorized members of the committee shall constitute a
quorum for the transaction of business, and the vote of a majority of the
members of the committee present at any meeting at which there is a quorum shall
be the act of the committee. Each committee shall keep regular minutes of its
meetings. Unless the Board otherwise provides, each committee designated by the
Board may make, alter and repeal rules for the conduct of its business. In the
absence of such rules each committee shall conduct its business in the same
manner as the Board conducts its business pursuant to Article 3 of these
By-laws.
8
ARTICLE
5
OFFICERS
5.1 Positions. The
officers of the Corporation shall be a President, a Secretary, a Treasurer and
such other officers as the Board may elect, including a Chairman, one or more
Vice Presidents and one or more Assistant Secretaries and Assistant Treasurers,
who shall exercise such powers and perform such duties as shall be determined
from time to time by resolution of the Board. If the Corporation does not have
an officer serving as Secretary, the Treasurer shall perform the duties of the
Secretary described herein. The Board may elect one or more Vice Presidents as
Executive Vice Presidents and may use descriptive words or phrases to designate
the standing, seniority or areas of special competence of the Vice Presidents
elected or appointed by it. Any number of offices may be held by the same person
unless the Certificate of Incorporation or these By-laws otherwise
provide.
5.2 Election. The
officers of the Corporation shall be elected by the Board at its annual meeting
or at such other time or times as the Board shall determine.
5.3 Term
of Office. Each
officer of the Corporation shall hold office for the term for which he or she is
elected and until such officer’s successor is elected and qualifies or until
such officer’s earlier death, resignation or removal. Any officer may resign at
any time upon written notice to the Corporation. Such resignation shall take
effect at the date of receipt of such notice or at such later time as is therein
specified, and, unless otherwise specified, the acceptance of such resignation
shall not be necessary to make it effective. The resignation of an officer shall
be without prejudice to the contract rights of the Corporation, if any. Any
officer may be removed at any time, with or without cause by the Board. Any
vacancy occurring in any office of the Corporation may be filled by the Board.
The removal of an officer with or without cause shall be without prejudice to
the officer’s contract rights, if any. The election or appointment of an officer
shall not of itself create contract rights.
5.4 Fidelity
Bonds. The
Corporation may secure the fidelity of any or all of its officers or agents by
bond or otherwise.
5.5 Chairman. The
Chairman, if one shall have been appointed, shall preside at all meetings of the
Board and shall exercise such powers and perform such other duties as shall be
determined from time to time by resolution of the Board.
9
5.6 President. Unless
a separate Chief Executive Officer has been appointed by the Board, the
President shall be the Chief Executive Officer of the Corporation and shall have
general supervision over the business of the Corporation, subject, however, to
the control of the Board and of any duly authorized committee of the Board.
Except as otherwise provided in Section 2.11, the President shall preside at all
meetings of the Stockholders and shall also preside at all meetings of the Board
at which the Chairman (if there be one) is not present. The President may sign
and execute in the name of the Corporation deeds, mortgages, bonds, contracts
and other instruments, except in cases in which the signing and execution
thereof shall be expressly delegated by resolution of the Board or by these
By-laws to some other officer or agent of the Corporation, or shall be required
by applicable law otherwise to be signed or executed and, in general, the
President shall perform all duties incident to the office of President of a
corporation and such other duties as may from time to time be assigned to the
President by resolution of the Board.
5.7 Vice
Presidents. At the
request of the President, or, in the President’s absence, at the request of the
Board, the Vice Presidents shall (in such order as may be designated by the
Board, or, in the absence of any such designation, in order of seniority based
on age) perform all of the duties of the President and, in so performing, shall
have all the powers of, and be subject to all restrictions upon, the President.
Any Vice President may sign and execute in the name of the Corporation deeds,
mortgages, bonds, contracts or other instruments, except in cases in which the
signing and execution thereof shall be expressly delegated by resolution of the
Board or by these By-laws to some other officer or agent of the Corporation, or
shall be required by applicable law otherwise to be signed or executed, and each
Vice President shall perform such other duties as from time to time may be
assigned to such Vice President by resolution of the Board or by the
President.
5.8 Secretary. The
Secretary shall attend all meetings of the Board and of the Stockholders and
shall record all the proceedings of the meetings of the Board and of the
Stockholders in a book to be kept for that purpose, and shall perform like
duties for committees of the Board, when required. The Secretary shall give, or
cause to be given, notice of all special meetings of the Board and of the
Stockholders and shall perform such other duties as may be prescribed by the
Board or by the President, under whose supervision the Secretary shall be. The
Secretary shall have custody of the corporate seal of the Corporation, and the
Secretary, or an Assistant Secretary, shall have authority to affix the same on
any instrument requiring it, and when so affixed, the seal may be attested by
the signature of the Secretary or by the signature of such Assistant Secretary.
The Board may, by resolution, give general authority to any other officer to
affix the seal of the Corporation and to attest the same by such officer’s
signature. The Secretary or an Assistant Secretary may also attest all
instruments signed by the President or any Vice President. The Secretary shall
have charge of all the books, records and papers of the Corporation relating to
its organization and management, shall see that the reports, statements and
other documents required by applicable law are properly kept and filed and, in
general, shall perform all duties incident to the office of Secretary of a
corporation and such other duties as may from time to time be assigned to the
Secretary by resolution of the Board or by the President.
10
5.9 Treasurer. The
Treasurer, who may also be the Chief Financial Officer, shall have charge and
custody of, and be responsible for, all funds, securities and notes of the
Corporation; receive and give receipts for moneys due and payable to the
Corporation from any sources whatsoever; deposit all such moneys and valuable
effects in the name and to the credit of the Corporation in such depositaries as
may be designated by the Board; against proper vouchers, cause such funds to be
disbursed by checks or drafts on the authorized depositaries of the Corporation
signed in such manner as shall be determined by the Board and be responsible for
the accuracy of the amounts of all moneys so disbursed; regularly enter or cause
to be entered in books or other records maintained for the purpose full and
adequate account of all moneys received or paid for the account of the
Corporation; have the right to require from time to time reports or statements
giving such information as the Treasurer may desire with respect to any and all
financial transactions of the Corporation from the officers or agents
transacting the same; render to the President or the Board, whenever the
President or the Board shall require the Treasurer so to do, an account of the
financial condition of the Corporation and of all financial transactions of the
Corporation; disburse the funds of the Corporation as ordered by the Board; and,
in general, perform all duties incident to the office of Treasurer of a
corporation and such other duties as may from time to time be assigned to the
Treasurer by resolution of the Board or by the President.
5.10 Assistant
Secretaries and Assistant Treasurers.
Assistant Secretaries and Assistant Treasurers shall perform such duties as
shall be assigned to them by the Secretary or by the Treasurer, respectively, or
by resolution of the Board or by the President.
ARTICLE
6
INDEMNIFICATION
6.1 Right
to Indemnification. The
Corporation shall indemnify and hold harmless, to the fullest extent permitted
by applicable law as it presently exists or may hereafter be amended, any person
(a “Covered Person”) who was or is made or is threatened to be made a party or
is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a “Proceeding”), by reason of the
fact that he or she, or a person for whom he or she is the legal representative,
is or was a director or officer of the Corporation or, while a director or
officer of the Corporation, is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust, enterprise or nonprofit entity (an “Other
Entity”), including service with respect to employee benefit plans, against all
liability and loss suffered and expenses (including attorneys’ fees) reasonably
incurred by such Covered Person. Notwithstanding the preceding sentence, except
as otherwise provided in Section 6.3, the Corporation shall be required to
indemnify a Covered Person in connection with a Proceeding (or part thereof)
commenced by such Covered Person only if the commencement of such Proceeding (or
part thereof) by the Covered Person was authorized by the Board.
6.2 Prepayment
of Expenses. The
Corporation shall pay the expenses (including attorneys’ fees) incurred by a
Covered Person in defending any Proceeding in advance of its final disposition,
provided,
however, that,
to the extent required by applicable law, such payment of expenses in advance of
the final disposition of the Proceeding shall be made only upon receipt of an
undertaking by the Covered Person to repay all amounts advanced if it should be
ultimately determined that the Covered Person is not entitled to be indemnified
under this Article 6 or otherwise.
11
6.3 Claims. If a
claim for indemnification or advancement of expenses under this Article 6 is not
paid in full within 30 days after a written claim therefor by the Covered Person
has been received by the Corporation, the Covered Person may file suit to
recover the unpaid amount of such claim and, if successful in whole or in part,
shall be entitled to be paid the expense of prosecuting such claim. In any such
action the Corporation shall have the burden of proving that the Covered Person
is not entitled to the requested indemnification or advancement of expenses
under applicable law.
6.4 Nonexclusivity
of Rights. The
rights conferred on any Covered Person by this Article 6 shall not be exclusive
of any other rights that such Covered Person may have or hereafter acquire under
any statute, provision of this Certificate of Incorporation, the By-laws,
agreement, vote of stockholders or disinterested directors or
otherwise.
6.5 Other
Sources. The
Corporation’s obligation, if any, to indemnify or to advance expenses to any
Covered Person who was or is serving at its request as a director, officer,
employee or agent of an Other Entity shall be reduced by any amount such Covered
Person may collect as indemnification or advancement of expenses from such Other
Entity.
6.6 Amendment
or Repeal. Any
repeal or modification of the foregoing provisions of this Article 6 shall not
adversely affect any right or protection hereunder of any Covered Person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
6.7 Other
Indemnification and Prepayment of Expenses. This
Article 6 shall not limit the right of the Corporation, to the extent and in the
manner permitted by applicable law, to indemnify and to advance expenses to
persons other than Covered Persons when and as authorized by appropriate
corporate action.
ARTICLE
7
GENERAL
PROVISIONS
7.1 Certificates
Representing Shares. Shares
of the Corporation's stock may be certificated or uncertificated, as provided
under Delaware law. Every holder of stock represented by certificates, and upon
request every holder of uncertificated shares, shall be entitled to have a
certificate signed by or in the name of the Corporation by the Chairman, if any,
or the President or a Vice President and by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer, certifying the number of
shares owned by such Stockholder in the Corporation. Any or all of the
signatures upon a certificate may be facsimiles. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon any certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, such certificate may be issued by
the Corporation with the same effect as if such person were such officer,
transfer agent or registrar at the date of issue.
7.2 Transfer
and Registry Agents. The
Corporation may from time to time maintain one or more transfer offices or
agents and registry offices or agents at such place or places as may be
determined from time to time by the Board.
12
7.3 Lost,
Stolen or Destroyed Certificates. The
Corporation may issue a new certificate of stock in the place of any certificate
theretofore issued by it, alleged to have been lost, stolen or destroyed, and
the Corporation may require the owner of the lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
7.4 Form
of Records. Any
records maintained by the Corporation in the regular course of its business,
including its stock ledger, books of account, and minute books, may be kept on,
or by means of, or be in the form of, any information storage device or method,
provided that the records so kept can be converted into clearly legible paper
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect such records pursuant to
applicable law.
7.5 Seal. The
Board may provide for a corporate seal, in which case such corporate seal shall
have the name of the Corporation inscribed thereon and shall be in such form as
may be approved from time to time by the Board. The seal may be used by causing
it or a facsimile thereof to be impressed or affixed or otherwise
reproduced.
7.6 Fiscal
Year. The
fiscal year of the Corporation shall be determined by resolution of the Board
and may be changed by the Board.
7.7 Amendments. These
By-laws may be altered, amended or repealed and new By-laws may be adopted by
the Board, but the Stockholders may make additional By-laws and may alter and
repeal any By-laws whether adopted by them or otherwise.
13
ZIOPHARM,
Inc.
(A
Development Stage Enterprise)
Financial
Statements
Year
Ended December 31, 2004 and
For
the
Periods from Inception
(September
9, 2003)
through
December 31, 2003
and
2004
ZIOPHARM,
Inc.
(A
Development Stage Enterprise)
FINANCIAL
STATEMENTS
Year
Ended December 31, 2004 and
For
the
Periods from Inception
(September
9, 2003)
through
December 31, 2003
and
2004
ZIOPHARM,
Inc.
(A
Development Stage Enterprise)
FINANCIAL
STATEMENTS
Year
Ended December 31, 2004
and
For
the
Periods from Inception
(September
9, 2003)
through
December 31, 2003
and
2004
C
O N
T E N T S
|
Page
|
||
|
Report
of Independent Registered Public Accounting Firm
|
1
|
|
|
Financial
Statements:
|
||
|
Balance
Sheets
|
2
|
|
|
Statements
of Operations
|
3
|
|
|
Statements
of Changes in Stockholders’ Equity (Deficit)
|
4
|
|
|
Statements
of Cash Flows
|
5-6
|
|
|
Notes
to Financial Statements
|
7-20
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Stockholders of
ZIOPHARM,
Inc.
Charlestown,
Massachusetts
We
have
audited the accompanying balance sheets of ZIOPHARM, Inc. (a development
stage
enterprise) as of December 31, 2004 and 2003, and the related statements
of
operations, changes in stockholders’ equity (deficit), and cash flows for the
year ended December 31, 2004 and the periods from inception (September
9, 2003)
through December 31, 2003 and 2004. 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 in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but
not
for expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the
accounting principles used and significant estimates made by management,
as well
as evaluating the overall financial statement presentation. We believe
that our
audits provide a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in
all
material respects, the financial position of ZIOPHARM, Inc. as of December
31,
2004, and the results of its operations and its cash flows for the year
ended
December 31, 2004 and for the periods from inception (September 9, 2003)
through
December 31, 2003 and 2004, in conformity with accounting principles generally
accepted in the United States of America.
Boston,
Massachusetts
August
5,
2005
|
Page
2
|
||
|
ZIOPHARM,
Inc.
|
||
|
(A
Development Stage Enterprise)
|
||
|
Balance
Sheets
|
||
|
December
31, 2004 and 2003
|
||
|
|
|
2004
|
2003
|
||||||
|
ASSETS
|
|||||||
|
Current
assets:
|
|||||||
|
Cash
and cash equivalents
|
$
|
1,026,656
|
$
|
402,363
|
|||
|
Prepaid
expenses and other current assets
|
117,571
|
—
|
|||||
|
Total
current assets
|
1,144,227
|
402,363
|
|||||
|
Property
and equipment, net
|
240,733
|
—
|
|||||
|
Deposits
|
60,046
|
—
|
|||||
|
$
|
1,445,006
|
$
|
402,363
|
||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|||||||
|
Current
liabilities:
|
|||||||
|
Accounts
payable
|
$
|
709,947
|
$
|
62,499
|
|||
|
Accrued
expenses
|
879,376
|
—
|
|||||
|
Total
current liabilities
|
1,589,323
|
62,499
|
|||||
|
Commitments
and contingencies
|
|||||||
|
Stockholders'
equity (deficit):
|
|||||||
|
Series
A convertible preferred stock,
|
|||||||
|
$.001
par value; 20,000,000 shares authorized; no
|
|||||||
|
shares
issued and outstanding at December 31, 2004
|
|||||||
|
and
December 31, 2003, respectively
|
—
|
—
|
|||||
|
Common
stock, $.001 par value; 30,000,000 shares
authorized;
|
|||||||
|
5,512,500
and 500,000 shares issued and outstanding
|
|||||||
|
at
December 31, 2004 and December 31, 2003, respectively
|
5,513
|
500
|
|||||
|
Additional
paid-in capital
|
5,697,603
|
499,500
|
|||||
|
Deficit
accumulated during the development stage
|
(5,847,433
|
)
|
(160,136
|
)
|
|||
|
Total
stockholders' equity (deficit)
|
(144,317
|
)
|
339,864
|
||||
|
$
|
1,445,006
|
$
|
402,363
|
||||
The
accompanying notes are an integral part of these financial
statements.
|
Page
3
|
|||
|
ZIOPHARM,
Inc.
|
|||
|
(A
Development Stage Enterprise)
|
|||
|
Statements
of Operations
|
|||
|
Year
Ended December 31, 2004 and
|
|||
|
For
the Periods from Inception (September 9, 2003) through
December 31, 2003
and 2004
|
|||
|
For
the Period
|
For
the Period
|
|||||||||
|
from
Inception
|
from
Inception
|
|||||||||
|
(September
9, 2003)
|
(September
9, 2003)
|
|||||||||
|
Year
Ended
|
through
|
through
|
||||||||
|
December
31,
|
December
31,
|
December
31,
|
||||||||
|
2004
|
2003
|
2004
|
||||||||
|
Research
contract revenue
|
$
|
—
|
$
|
—
|
$
|
—
|
||||
|
Operating
expenses:
|
||||||||||
|
Research
and development, including
|
||||||||||
|
costs
of research contracts
|
2,126,607
|
—
|
2,126,607
|
|||||||
|
General
and administrative
|
3,581,959
|
160,634
|
3,742,593
|
|||||||
|
Total
operating expenses
|
5,708,566
|
160,634
|
5,869,200
|
|||||||
|
Loss
from operations
|
(5,708,566
|
)
|
(160,634
|
)
|
(5,869,200
|
)
|
||||
|
Interest
income
|
21,269
|
498
|
21,767
|
|||||||
|
Net
loss
|
$
|
(5,687,297
|
)
|
$
|
(160,136
|
)
|
$
|
(5,847,433
|
)
|
|
|
Basic
and diluted net loss per share
|
$
|
(1.19
|
)
|
$
|
(1.02
|
)
|
||||
|
Weighted
average common shares outstanding
|
||||||||||
|
used
to compute basic and diluted net loss per share
|
4,794,692
|
156,336
|
||||||||
The
accompanying notes are an integral part of these financial
statements.
|
Page
4
|
|||||
|
ZIOPHARM,
Inc.
|
|||||
|
(A
Development Stage Enterprise)
|
|||||
|
Statements
of Changes in Stockholders' Equity (Deficit)
|
|||||
|
Year
Ended December 31, 2004 and
|
|||||
|
For
the Periods from Inception (September 9, 2003) through
December 31, 2003
and 2004
|
|||||
|
Deficit
|
||||||||||||||||||||||
|
Series
A
|
Accumulated
|
Total
|
||||||||||||||||||||
|
Convertible
|
Additional
|
during
the
|
Stockholders'
|
|||||||||||||||||||
|
Preferred
Stock
|
Common
Stock
|
Paid-in
|
Development
|
Equity
|
||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Stage
|
(Deficit)
|
||||||||||||||||
|
Stockholders'
contribution, September 9, 2003
|
—
|
$
|
—
|
500,000
|
$
|
500
|
$
|
499,500
|
$
|
—
|
$
|
500,000
|
||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
(160,136
|
)
|
(160,136
|
)
|
|||||||||||||
|
Balance
at December 31, 2003
|
—
|
—
|
500,000
|
500
|
499,500
|
(160,136
|
)
|
339,864
|
||||||||||||||
|
Issuance
of common stock
|
—
|
—
|
4,500,000
|
4,500
|
4,495,500
|
—
|
4,500,000
|
|||||||||||||||
|
Issuance
of common stock for services
|
—
|
—
|
512,500
|
513
|
438,326
|
—
|
438,839
|
|||||||||||||||
|
Fair
value of options/warrants issued for nonemployee services
|
—
|
—
|
—
|
—
|
264,277
|
—
|
264,277
|
|||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
(5,687,297
|
)
|
(5,687,297
|
)
|
|||||||||||||
|
Balance
at December 31, 2004
|
—
|
$
|
—
|
5,512,500
|
$
|
5,513
|
$
|
5,697,603
|
$
|
(5,847,433
|
)
|
$
|
(144,317
|
)
|
||||||||
The
accompanying notes are an integral part of these financial
statements.
|
Page
5
|
|||
|
ZIOPHARM,
Inc.
|
|||
|
(A
Development Stage Enterprise)
|
|||
|
Statements
of Cash Flows
|
|||
|
Year
Ended December 31, 2004 and
|
|||
|
For
the Periods from Inception (September 9, 2003) through
December 31, 2003
and 2004
|
|||
|
For
the Period
|
For
the Period
|
|||||||||
|
from
Inception
|
from
Inception
|
|||||||||
|
(September
9, 2003)
|
(September
9, 2003)
|
|||||||||
|
Year
Ended
|
through
|
through
|
||||||||
|
December
31,
|
December
31,
|
December
31,
|
||||||||
|
2004
|
2003
|
2004
|
||||||||
|
Cash
flows from operating activities:
|
||||||||||
|
Net
loss
|
$
|
(5,687,297
|
)
|
$
|
(160,136
|
)
|
$
|
(5,847,433
|
)
|
|
|
Adjustments
to reconcile net loss to net cash
|
||||||||||
|
used
in operating activities:
|
||||||||||
|
Depreciation
and amortization
|
33,953
|
—
|
33,953
|
|||||||
|
Stock-based
compensation
|
703,116
|
—
|
703,116
|
|||||||
|
Change
in operating assets and liabilities:
|
||||||||||
|
(Increase)
in:
|
||||||||||
|
Prepaid
expenses and other current assets
|
(117,571
|
)
|
—
|
(117,571
|
)
|
|||||
|
Increase
(decrease) in:
|
||||||||||
|
Accounts
payable
|
647,448
|
62,499
|
709,947
|
|||||||
|
Accrued
expenses
|
879,376
|
—
|
879,376
|
|||||||
|
Deposits
|
(60,046
|
)
|
—
|
(60,046
|
)
|
|||||
|
Net
cash used in operating activates
|
(3,601,021
|
)
|
(97,637
|
)
|
(3,698,658
|
)
|
||||
|
Cash
flows from investing activities:
|
||||||||||
|
Purchases
of property and equipment
|
(274,686
|
)
|
—
|
(274,686
|
)
|
|||||
|
Net
cash used in investing activities
|
(274,686
|
)
|
—
|
(274,686
|
)
|
|||||
|
Cash
flows from financing activities:
|
||||||||||
|
Stockholders'
capital contribution
|
—
|
500,000
|
500,000
|
|||||||
|
Proceeds
from issuance of common stock
|
4,500,000
|
—
|
4,500,000
|
|||||||
|
Net
cash provided by financing activities
|
4,500,000
|
500,000
|
5,000,000
|
|||||||
|
Net
increase in cash and cash equivalents
|
624,293
|
402,363
|
1,026,656
|
|||||||
|
Cash
and cash equivalents, beginning of period
|
402,363
|
—
|
402,363
|
|||||||
|
Cash
and cash equivalents, end of period
|
$
|
1,026,656
|
$
|
402,363
|
$
|
1,429,019
|
||||
The
accompanying notes are an integral part of these financial
statements.
|
Page
6
|
|||
|
ZIOPHARM,
Inc.
|
|||
|
(A
Development Stage Enterprise)
|
|||
|
Statements
of Cash Flows…continued
|
|||
|
Year
Ended December 31, 2004 and
|
|||
|
For
the Periods from Inception (September 9, 2003) through
December 31, 2003
and 2004
|
|||
|
For
the Period
|
For
the Period
|
|||||||||
|
from
Inception
|
from
Inception
|
|||||||||
|
(September
9, 2003)
|
(September
9, 2003)
|
|||||||||
|
Year
Ended
|
through
|
through
|
||||||||
|
December
31,
|
December
31,
|
December
31,
|
||||||||
|
2004
|
2003
|
2004
|
||||||||
|
Supplementary
disclosure of cash flow information:
|
||||||||||
|
Cash
paid for interest
|
$
|
—
|
$
|
—
|
$
|
—
|
||||
|
|
||||||||||
|
Cash
paid for income taxes
|
$
|
—
|
$
|
—
|
$
|
—
|
||||
The
accompanying notes are an integral part of these financial
statements.
Page
7
ZIOPHARM,
Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
Year
Ended December 31, 2004 and
For
the
Periods
from
Inception (September 9, 2003) through
December
31, 2003
and
2004
|
1.
|
ORGANIZATION
|
ZIOPHARM,
Inc. (the “Company”) is a development stage biopharmaceutical company that seeks
to acquire, develop and commercialize, on its own or with other commercial
partners, products for the treatment of important unmet medical needs
in
cancer.
The
Company has operated at a loss since its inception in 2003 and has no
revenues.
The Company anticipates that losses may continue for the foreseeable
future. At
December 31, 2004, the Company’s accumulated deficit was approximately $5.8
million. The Company’s ability to continue operations after its current cash
resources are exhausted depends on its ability to obtain additional financing
and achieve profitable operations, as to which no assurances can be given.
Cash
requirements may vary materially from those now planned because of changes
in
the focus and direction of our research and development programs, competitive
and technical advances, patent developments or other developments. Additional
financing will be required to continue operations after we exhaust our
current
cash resources and to continue our long-term plans for clinical trials
and new
product development.
On
June
6, 2005, the Company completed an offering of Series A Convertible Preferred
Stock (Series A Stock) offering. The Company issued 8,379,564 shares
at $2.16
per share for gross proceeds of approximately $18.1 million. In connection
with
the Series A Preferred Stock Offering, the Company compensated Paramount
for its
services in connection with the Offering through the payment of (a) cash
commissions equal to 7% of the gross proceeds from the sale of the shares
of
Series A Preferred Stock, and (b) placement warrants to acquire 837,956
shares
of Series A Preferred Stock (the Series A Stock Warrants), exercisable
for a
period of 7 years from the Closing Date at a per Share exercise price
equal to
110% of the price per Share sold in the Offering. These commissions are
also
payable on additional sales by the Company of securities (other than
in a public
offering) to investors introduced to the Company by Paramount during
the twelve
(12) month period subsequent to the final closing of the Offering. The
Company
also paid Paramount an expense allowance of $50,000 to reimburse Paramount
for
its out-of-pocket expenses (the “Expense Allowance”). Also, for a period of 36
months from the final Closing, Paramount has the right of first refusal
to act
as the placement agent for any private sale of the Company’s securities. Lastly,
the Company has agreed to indemnify Paramount against certain liabilities,
including liabilities under the Securities Act. The net proceeds were
$16.8
million have been allocated between the Series A Stock and the Series
A Stock
warrants, based on their relative fair value. The Company has valued
the
warrants using the Black-Scholes model recording a cost of $1,682,683.
The net
proceeds from the Offering will be used for research and development,
licensing
fees and expenses, and for working capital and general corporate
purposes.
Page
8
ZIOPHARM,
Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
Year
Ended December 31, 2004 and
For
the
Periods
from
Inception (September 9, 2003) through
December
31, 2003
and
2004
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
|
Use
of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 revenues and
expenses
during the reporting period. Actual results could differ from those
estimates.
Cash
and Cash Equivalents
Cash
equivalents consist of short-term, highly liquid investments with a maturity
of
three months or less when purchased.
Concentrations
of Credit Risk
Financial
instruments which potentially subject the Company to concentrations of
credit
risk consist principally of cash and cash equivalents. The Company maintains
cash accounts in commercial banks, which may, at times, exceed federally
insured
limits. The Company has not experienced any losses in such accounts.
The Company
believes it is not exposed to any significant credit risk on cash and
cash
equivalents.
Fair
Value of Financial Instruments
The
carrying amounts of cash equivalents, accounts payable and accrued expenses
approximate their fair value because of their short-term nature. Short-term
investments are carried at aggregate fair value. At December 31, 2004
and 2003,
there were no short-term investments.
Income
Taxes
The
Company recognizes deferred tax assets and liabilities for the expected
future
tax consequences of events that have been included in the Company’s financial
statements or tax returns. Deferred tax assets and liabilities are determined
based upon the difference between the financial reporting basis and the
tax
basis of existing assets and liabilities using enacted tax rates expected
to be
in effect in the year(s) in which the differences are expected to reverse.
A
valuation allowance is provided against deferred tax assets if it is
more likely
than not that such assets will not be realized.
Property
and Equipment
Property
and equipment are stated at cost. Depreciation and amortization are provided
on
the straight-line method over the estimated useful lives of the related
assets,
which is three years.
Page 9
ZIOPHARM,
Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
Year
Ended December 31, 2004 and
For
the
Periods
from
Inception (September 9, 2003) through
December
31, 2003
and
2004
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES…continued
|
Research
and Development Costs
Costs
related to research and development are charged to expense when incurred.
Such
costs include proprietary research and development activities and expenses
associated with research and development contracts, whether performed by
the
Company or contracted with independent third parties.
Accounting
for Stock-Based Compensation
The
Company accounts for stock-based awards to employees using the intrinsic
value
method as prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
The
Company follows the provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, for disclosure purposes (Note 9). All stock-based awards
to
nonemployees are accounted for at their fair value in accordance with SFAS
No.
123 and Emerging Issues Task Force (EITF) 96-18, Accounting for Equity
Instruments that are Issued to Other than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services. The Company has adopted the
disclosure provisions of SFAS No. 148, Accounting for Stock-Based Compensation
-
Transition and Disclosure - an amendment of SFAS No. 123, for all stock-based
awards as of December 31, 2004.
The
following illustrates the effect on net loss had the Company applied the
fair
value recognition provisions of SFAS No. 123:
|
|
|
2004
|
|
2003
|
|
||
|
Net
loss:
|
|
|
|
|
|
||
|
As
reported
|
|
$
|
(5,687,297
|
)
|
$
|
(160,136
|
)
|
|
Stock-based
compensation expense
|
|
|
|
|
|
|
|
|
included
in reported net loss
|
|
|
703,116
|
|
|
—
|
|
|
Stock-based
compensation expense
|
|
|
|
|
|
|
|
|
under
the fair value-based method
|
|
|
(813,095
|
)
|
|
—
|
|
|
Pro
forma net loss
|
|
$
|
(5,797,276
|
)
|
$
|
(160,136
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share:
|
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(1.19
|
)
|
$
|
(1.02
|
)
|
|
Pro
forma
|
|
$
|
(1.21
|
)
|
$
|
(1.02
|
)
|
Page
10
ZIOPHARM,
Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
Year
Ended December 31, 2004 and
For
the
Periods
from
Inception (September 9, 2003) through
December
31, 2003
and
2004
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES…continued
|
Accounting
for Stock-Based Compensation...continued
The
fair
value of each stock option is estimated at the date of grant using the
Black-Scholes option pricing model. The estimated weighted average fair
value of
stock options granted to employees in 2004 was approximately $0.66 per
share.
The following table summarizes the assumptions used in the Black-Scholes
option
pricing model:
|
2004
|
2003
|
||||||
|
Expected
life
|
5
years
|
—
|
|||||
|
Expected
volatility
|
134
|
%
|
—
|
||||
|
Dividend
yield
|
3.6
|
%
|
—
|
||||
|
Weighted
average risk-free interest rate
|
0
|
%
|
—
|
||||
Recently
Issued Pronouncements
In
December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123R, Share-Based Payment
("SFAS
No. 123R"). This Statement is a revision of SFAS No. 123, Accounting for
Stock-Based Compensation, and supersedes Accounting Principles Board Opinion
No.
25, Accounting for Stock Issued to Employees, and its related implementation
guidance. SFAS No. 123R focuses primarily on accounting for transactions
in
which an entity obtains employee services in share-based payment transactions.
The Statement requires entities to recognize stock compensation expense
for
awards of equity instruments to employees based on the grant-date fair
value of
those awards (with limited exceptions). SFAS No. 123R is effective for
the first
fiscal year beginning after December 15, 2005. Based on current options
outstanding, the Company anticipates the adoption of this statement to
result in
approximately $313,009 of additional compensation costs to be recognized
in the
year of adoption.
|
3.
|
PROPERTY
AND EQUIPMENT...continued
|
Property
and equipment at December 31, 2004 and 2003 consisted of the
following:
|
|
Estimated
|
|
|
|||||||
|
|
Useful
Life
|
|
|
|||||||
|
|
(Years)
|
2004
|
2003
|
|||||||
|
|
|
|
|
|||||||
|
Computer
equipment
|
3
|
$
|
78,914
|
$
|
—
|
|||||
|
Office
equipment
|
3
|
179,193
|
—
|
|||||||
|
Software
|
3
|
16,579
|
—
|
|||||||
|
|
|
274,686
|
—
|
|||||||
|
Less
- accumulated
|
|
|
|
|||||||
|
depreciation
and amortization
|
|
33,953
|
—
|
|||||||
|
|
|
$
|
240,733
|
$
|
—
|
|||||
Page
11
ZIOPHARM,
Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
Year
Ended December 31, 2004 and
For
the
Periods
from
Inception (September 9, 2003) through
December
31, 2003
and
2004
|
3.
|
PROPERTY
AND EQUIPMENT...continued
|
Depreciation
and amortization expense was $33,953 and $0 for the year ended December
31, 2004
and for the period from inception (September 9, 2003) to December 31,
2003,
respectively.
|
4.
|
ACCRUED
EXPENSES
|
Accrued
expenses at December 31, 2004 and December 31, 2003, consisted of the
following:
|
|
2004
|
2003
|
|||||
|
|
|
|
|||||
|
Employee
compensation
|
$
|
506,391
|
$
|
—
|
|||
|
Professional
services
|
42,767
|
—
|
|||||
|
Research
and development consulting services
|
258,218
|
—
|
|||||
|
Founders
Fee
|
60,000
|
—
|
|||||
|
Other
|
12,000
|
—
|
|||||
|
|
|
|
|||||
|
$
|
879,376
|
$
|
—
|
||||
|
5.
|
RELATED
PARTY TRANSACTIONS
|
The
Company has engaged Paramount BioCapital, Inc. (“Paramount”) to assist in
placing shares of Series A Preferred Stock on a “best efforts” basis (see Note
10). Lindsay A. Rosenwald, M.D. is Chairman and Chief Executive Officer
of
Paramount. Dr. Rosenwald is also managing member of Horizon BioMedical
Ventures,
LLC (“Horizon”). On December 30, 2004, Horizon authorized the distribution of
4,848,376 shares of Common Stock (such shares, the “Horizon Distributed
Shares”), in equal installments of 2,424,188 shares of Common Stock to Mibars,
LLC (“Mibars”) and to Dr. Rosenwald and his designees (the “Designated Shares”).
The disposition of the Designated Shares will be subject to certain restrictions
as agreed to among Dr. Rosenwald and Dr. Rosenwald’s designees. Among other
things, under certain circumstances set forth in pledge agreements between
Dr.
Rosenwald and his designees, Dr. Rosenwald has the right to re-acquire
the
Designated Shares from his designees. As a result of those rights, Dr.
Rosenwald
may be deemed to be an affiliate of the Company.
In
connection with the December 22, 2004 Option Agreement with Southern Research
Institute (“SRI”), the Company entered into a Finders Agreement, dated December
23, 2004, with Paramount pursuant to which the Company has agreed to compensate
Paramount, for services in connection with the Company’s introduction to SRI
through the payment of (a) a cash fee of $60,000 and (b) warrants to purchase
125,000 shares of the Company’s Common Stock at a price equal to $2.38 per
share. The Company has estimated the fair value of such warrants using
the
Black-Scholes model, using an assumed risk-free rate of 3.93%, and expected
life
of 7 years, volatility of 134% and dividend yield of 0%. In December 2004,
the
Company expensed the $60,000 that was payable to Paramount and recognized
compensation expense in the amount of $251,037 for the issuance of the
warrants.
Page
12
ZIOPHARM,
Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
Year
Ended December 31, 2004 and
For
the
Periods
from
Inception (September 9, 2003) through
December
31, 2003
and
2004
|
5.
|
RELATED
PARTY TRANSACTIONS...continued
|
In
connection with the Series A Preferred Stock Offering (see Note 10), the
Company
and Paramount entered into an Introduction Agreement in January 2005 (the
“Introduction Agreement”), pursuant to which the Company has agreed to
compensate Paramount for its services in connection with the Offering through
the payment of (a) cash commissions equal to 7% of the gross proceeds from
the
sale of the shares of Series A Preferred Stock, and (b) placement warrants
to
acquire a number of shares of Series A Preferred Stock equal to 10% of
the
number of shares of Series A Preferred Stock issued in the Offering, exercisable
for a period of 7 years from the Closing Date at a per Share exercise price
equal to 110% of the price per Share sold in the Offering. These commissions
are
also payable on additional sales by the Company of securities (other than
in a
public offering) to investors introduced to the Company by Paramount during
the
twelve (12) month period subsequent to the final closing of the Offering.
The
Company also agreed to pay to Paramount a non-accountable expense allowance
of
$50,000 to reimburse the Paramount for its out-of-pocket expenses (the
“Expense
Allowance”). Also, for a period of 36 months from the final Closing, Paramount
has the right of first refusal to act as the placement agent for the private
sale of the Company’s securities. Lastly, the Company has agreed to indemnify
Paramount against certain liabilities, including liabilities under the
Securities Act.
Dr.
Michael Weiser, who is a member of the Board of Directors of the Company,
is
also a full-time employee of Paramount. In addition, David M. Tanen, who
is a
member of the Board of Directors of the Company, was a full-time employee
of
Paramount from July 1996 through August 2004. Mr. John Knox, our treasurer,
is a
full time Paramount employee.
|
6.
|
COMMITMENTS
AND CONTINGENCIES
|
Lease
Commitment
The
Company leases office space in two locations under agreements expiring
in 2009.
The leases includes payment increases over the term of the agreements.
The total
amount of the lease payments is being charged to expense using the straight-line
method over the term of the agreement.
Future
minimum lease payments under noncancelable operating and capital leases
as of
December 31, 2004, were as follows:
|
Operating
|
||||
|
Leases
|
||||
|
2005
|
$
|
93,318
|
||
|
2006
|
103,434
|
|||
|
2007
|
114,103
|
|||
|
2008
|
121,455
|
|||
|
2009
|
87,699
|
|||
|
$
|
520,009
|
|||
Page
13
ZIOPHARM,
Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
Year
Ended December 31, 2004 and
For
the
Periods
from
Inception (September 9, 2003) through
December
31, 2003
and
2004
|
6.
|
COMMITMENTS
AND CONTINGENCIES...continued
|
License
Agreement
Patent
and Technology License Agreement- University of Texas M. D. Anderson Cancer
Center and the Texas A&M University System.
On
August
24, 2004, the Company entered into a patent and technology license agreement
with The Board of Regents of the University of Texas System, acting on
behalf of
the University of Texas M. D. Anderson Cancer Center and the Texas A&M
University System (collectively, the “Licensors”). Under this agreement, the
Company was granted an exclusive, worldwide license to rights (including
rights
to US and foreign patent and patent applications and related improvements
and
know-how) for the manufacture and commercialization of two classes of organic
arsenicals (water - and lipid-based) for human and animal use. The class
of
water-based organic arsenicals includes ZIO-101.
In
October 2004, the Company received a notice of allowance for US Patent
Application No. 10/337969, entitled “S-dimethylarsino-thiosuccinic acid
S-dimethylarsino-2-thiobenzoic acid S-(simethylarsino) glutathione as treatments
for cancer.” The patent application claims both therapeutic uses and
pharmaceutical compositions containing a novel class of organic arsenicals,
including ZIO-101, for the treatment of cancer.
As
partial consideration for the license rights obtained, the Company made
an
upfront payment of $125,000 and granted the Licensors 500,000 shares of
our
Common Stock, as well as options to purchase up to an additional 100,250
shares
of our Common Stock for $0.001 per share, following the successful completion
of
certain clinical milestones (the “Anderson Options”). The Company expensed the
$125,000 upfront payment and recognized research and development compensation
expense of $426,339 in connection with the issuance of the Common Stock
in the
year ended December 31, 2004. The Anderson Options will vest and become
immediately exercisable with respect to 25,063 shares of our Common Stock
upon
the filing of an Investigational New Drug Application (“IND”) for ZIO-101, will
vest and become exercisable with respect to an additional 50,125 shares
upon the
completion of dosing of the last patient for both Phase I clinical trials,
and
will vest and become exercisable with respect to an additional 25,062 shares
upon the commencement of a pivotal clinical trial. In
addition, the Licensors are entitled to receive certain milestone payments
(the
"Anderson Milestones"), including $100,000 to be paid upon the commencement
of
phase I clinical trials. The Company may be required to make additional
payments
upon achievement of certain other milestones, in varying amounts which
on a
cumulative basis may total $4,850,000. In
addition, the Licensors are entitled to receive royalty payments on sales
from a
licensed product should such a product be approved for commercial sale
and sales
of a licensed product be effected in the United States, Canada, the European
Union or Japan. The Licensors also will be entitled to receive a portion
of any
fees that the Company may receive from a possible sublicensee. Finally,
the
Company agreed to remit to the Licensors $100,000 for at least each of
the next
two years to be used by the Licensors to conduct scientific research funding.
The Company will have the exclusive right to all intellectual property
rights
resulting from such research pursuant to the terms of the license
agreement.
Page
14
ZIOPHARM,
Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
Year
Ended December 31, 2004 and
For
the
Periods
from
Inception (September 9, 2003) through
December
31, 2003
and
2004
|
6.
|
COMMITMENTS
AND CONTINGENCIES...continued
|
License
Agreement...continued
The
license agreement also contains other provisions customary and common in
similar
agreements within the industry, such as the right to sublicense our rights
under
the agreement. However, if we sublicense our rights prior to the commencement
of
a pivotal study (i.e., a human clinical trial intended to provide the
substantial evidence of efficacy necessary to support the filing of an
approvable NDA), the Licensors will be entitled to receive a share of the
payments we receive in exchange for the sublicense (subject to certain
exceptions).
License
Agreement with DEKK-TEC, Inc.
On
October 15, 2004, the Company entered into a license agreement with DEKK-TEC,
Inc., pursuant to which it was granted an exclusive, worldwide license
to the
second lead product candidate, ZIO-201. As part of the signing of license
agreement with DEKK-TEC, the Company expensed a $50,000 up-front payment
in the
year ended December 31, 2004.
In
consideration for our license rights, DEKK-TEC is entitled to receive milestone
payments upon the occurrence of certain events. In
consideration for our license rights, DEKK-TEC is entitled to receive milestone
payments upon the occurrence of certain events. The Company may be required
to
make payments upon achievement of such milestones, in varying amounts which
on a
cumulative basis may total $3,900,000. Of
the aggregate milestone payments, most of the total amount will be creditable
against future royalty payments, as referenced below. The Company also
issued
DEKK-TEC an option to purchase 55,125 shares of our Common Stock for $0.01
per
share, which option vested with respect to 13,781 shares upon the execution
of
the license agreement. The Company has estimated the fair value of such
options
using the Black-Scholes model, using an assumed risk-free rate of 3.35%,
and
expected life of 5 years, volatility of 134% and dividend yield of 0%.
The
Company recorded a charge of $12,190 to research and development expense
for the
vested options. The option will vest with respect to the remaining shares
upon
certain milestone events, culminating with final FDA approval of the first
NDA
submitted by us (or by our sublicensee) for ZIO-201. Finally, DEKK-TEC
also is
entitled to receive royalty payments on the sales of ZIO-201 should it
be
approved for commercial sale.
The
license agreement also contains other provisions customary and common in
similar
agreements within the industry.
Option
Agreement with Southern Research Institute (“SRI”)
On
December 22, 2004, the Company entered into an Option Agreement with SRI
(the
“Option Agreement”), pursuant to which the Company was granted an exclusive
option to obtain an exclusive license to SRI’s interest in certain intellectual
property, including exclusive rights related to certain isophosphoramide
mustard
analogs (the “SRI Option”).
Page
15
ZIOPHARM,
Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
Year
Ended December 31, 2004 and
For
the
Periods
from
Inception (September 9, 2003) through
December
31, 2003
and
2004
|
6.
|
COMMITMENTS
AND CONTINGENCIES...continued
|
Option
Agreement with Southern Research Institute (“SRI”)...continued
Also
on
December 22, 2004, the Company entered into a Research Agreement with
SRI
pursuant to which the Company agreed to spend a sum not to exceed $200,000
between the execution of the agreement and December 21, 2006, including
a
$25,000 payment that we made simultaneously with the execution of the
agreement,
to fund research and development work by SRI
in
the field of isophosphoramide mustard analogs (the “SRI Research Program”).
Under the terms of the Option Agreement, the Company’s exclusive right to
exercise the SRI Option will expire sixty days after the termination
or
expiration of the SRI Research Program and the delivery of the reports
required
thereunder.
Guarantees
and indemnification Obligations
Certain
officers and employees have agreements with the company that call for
a
guarantee bonus that is payable 30 days after employee’s anniversary date.
Certain officer and employees also have specific severance
agreements.
|
7.
|
INCOME
TAXES
|
The
components of the net deferred tax asset (liability) are as
follows:
|
December
31,
|
December
31,
|
||||||
|
2004
|
2003
|
||||||
|
Net
operating loss carryforwards
|
$
|
494,881
|
$
|
26,118
|
|||
|
Start-up
and organizational costs
|
1,502,217
|
—
|
|||||
|
Research
and development credit carryforwards
|
81,670
|
—
|
|||||
|
Accrued
bonus
|
200,343
|
—
|
|||||
|
Depreciation
|
(4,102
|
)
|
—
|
||||
|
Other
|
8,816
|
—
|
|||||
|
Net
deferred tax assets
|
2,283,825
|
26,118
|
|||||
|
Deferred
tax asset valuation allowance
|
(2,283,825
|
)
|
(26,118
|
)
|
|||
|
|
$ | — |
$
|
—
|
|||
|
8.
|
CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’
EQUITY
|
We
have
authorized capital of 50,000,000 shares, of which 30,000,000 shares have
been
designated as common stock, par value $.001 per share (the “Common Stock”), and
20,000,000 shares have been designated as preferred stock, par value $.001
per
share.
Page
16
ZIOPHARM,
Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
Year
Ended December 31, 2004 and
For
the
Periods
from
Inception (September 9, 2003) through
December
31, 2003
and
2004
|
8.
|
CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’ EQUITY...continued
|
Convertible
Preferred Stock
Voting
Rights
The
holders of Series A Preferred Stock will be entitled to vote together
with all
other holders of the Company’s voting stock on an “as-converted” basis on all
matters submitted to a vote of holders generally. The holders of Series
A
Preferred Stock, voting as a separate class, will also have the right
to approve
by a 66% supermajority certain actions proposed to be taken by the
Company.
Dividend
Rights
The
holders of Series A Preferred Stock will be entitled to receive dividends
on an
equal basis with the holders of Common Stock when, as and if declared
by the
Board of Directors.
Liquidation
Preferences
The
Series A Preferred Stock shall rank senior to the Common Stock and any
future
class of junior securities, and will be entitled to a liquidation preference
equal to the Stated Value, subject to adjustment (as defined in the Certificate
of Designations), upon any liquidation, dissolution or winding up of
the Company
or upon a voluntary or involuntary bankruptcy of the Company.
Conversion
Rights
Each
share of Series A Preferred Stock will be convertible into Common Stock
at any
time at the option of the holder thereof (the Series A Preferred Stock
and the
Common Stock issuable upon conversion of the Series A Preferred Stock
are
sometimes herein collectively referred to as the “Securities”). All of the
outstanding shares of Series A Preferred Stock will automatically convert
into
Common Stock upon the first date (the “Trading Date”) on which the Common Stock
(or securities received in exchange for Common Stock) trades on a national
securities exchange or on NASDAQ, including the Over the Counter Bulletin
Board
(a “Trading Event”). The rate at which shares of Series A Preferred Stock will
convert into Common Stock will initially be one-for-one, subject to adjustment
in connection with certain anti-dilution protections and other
adjustments.
Page
17
ZIOPHARM,
Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
Year
Ended December 31, 2004 and
For
the
Periods
from
Inception (September 9, 2003) through
December
31, 2003
and
2004
|
8.
|
CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’ EQUITY...continued
|
Convertible
Preferred Stock...continued
Conversion
Rights...continued
In
the
event of a reclassification, capital reorganization or other
similar change in
the outstanding shares of Common Stock, a consolidation or
merger of the Company
with or into another entity (other than a consolidation or
merger in which the
Corporation is the continuing entity and which does not result
in a
reclassification, capital reorganization or other change of
outstanding shares
of Common Stock other than the number thereof), or a sale of
the property of the
Company as, or substantially as, an entirety (other than a
sale/leaseback,
mortgage or other financing transaction), the Series A Preferred
Stock will
become convertible into the kind and number of shares of stock
or other
securities or property (including cash) that the holders of
Series A Preferred
Stock would have received if the Series A Preferred Stock had
been converted
into Common Stock immediately prior to such reclassification,
capital
reorganization or other change, consolidation, merger or sale.
Common
Stock
We
currently have issued and outstanding 5,512,500 shares of Common
Stock and no
shares of preferred stock.
In
September 2003, the Company issued 2,000,000 (before the split
discussed below)
shares of Common Stock at $0.25 per share for gross proceeds
of
$500,000.
In
January 2004, the Company issued 18,000,000 (before the split
discussed below)
shares of Common Stock at $0.25 per share for gross proceeds
of
$4,500,000.
In
February 2004, the Company amended its articles of incorporation
to provide for
the combination of the Company’s common stock, par value $0.001 per share on a
1-for-4 basis (all other share amounts presented reflect the
reverse
split).
Page
18
ZIOPHARM,
Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
Year
Ended December 31, 2004 and
For
the
Periods
from
Inception (September 9, 2003) through
December
31, 2003
and
2004
|
9.
|
STOCK
OPTION PLAN
|
We
have
adopted the 2003 Stock Option Plan (the “Plan”), under which we have reserved
for the issuance of 2,500,000 shares of our Common Stock. The Plan was
approved
by our stockholders on December 21, 2004. The Company has issued under
its 2003
Stock Option Plan 1,170,826 shares that are issuable upon exercise of
outstanding options to purchase Common Stock. To date, we have issued to
our
employees options to purchase up to 990,326 shares of the Company’s Common
Stock. In addition, we have issued to our directors options to purchase
up to
180,000 shares of the Company’s Common Stock, as well as options to a consultant
in connection with services rendered to purchase up to 500 shares of the
Company’s Common Stock. The Company has estimated the fair value of such options
using the Black-Scholes model, using an assumed risk-free rate of 4.23%,
and
expected life of 10 years, volatility of 134% and dividend yield of 0%.
The
options issued to the consultant were valued at $1,050, and recorded as
a charge
to compensation expense. We have also reserved an aggregate of 155,375
additional shares for issuance under options granted outside of the 2003
Stock
Option Plan and warrants to purchase 125,000 shares of the Company’s Common
Stock to the Paramount as compensation for services rendered in connection
with
our entering into an option agreement with Southern Research Institute.
In
connection with the warrants issued, the Company recorded a charge of $251,037
to general and administrative expense. The Company has valued the options
using
the Black-Scholes model as of the issue date of the warrants. There are
no other
securities of the Company currently issued or outstanding.
Transactions
under the Plan for the year December 31, 2004 were as follows:
|
|
|
Weighted
|
|||||
|
|
|
Average
|
|||||
|
|
Number
of
|
Exercise
|
|||||
|
|
Shares
|
Price
|
|||||
|
Outstanding,
January 1, 2004
|
—
|
$
|
—
|
||||
|
Granted
|
1,170,826
|
0.63
|
|||||
|
Exercised
|
—
|
—
|
|||||
|
Canceled
|
—
|
—
|
|||||
|
Outstanding,
December 31, 2004
|
1,170,826
|
$
|
0.63
|
||||
|
|
|
|
|||||
|
Options
available for future grants
|
1,329,174
|
|
|||||
Page
19
ZIOPHARM,
Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
Year
Ended December 31, 2004 and
For
the
Periods
from
Inception (September 9, 2003) through
December
31, 2003
and
2004
|
9.
|
STOCK
OPTION
PLAN…continued
|
The
following table summarizes information about stock options outstanding at
December 31, 2004:
|
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||
|
Exercise
Price
|
Number
Outstanding
|
Weighted-Average
Remaining Contractual Life (Years)
|
Weighted-Average
Exercise
Price
|
Number
Exercisable
|
Weighted-
Average
Exercise
Price
|
|||||||||||
|
$0.04
|
536,263
|
9.03
|
$
|
0.04
|
—
|
$
|
—
|
|||||||||
|
$0.22
|
100,250
|
9.08
|
$
|
0.22
|
—
|
$
|
—
|
|||||||||
|
$0.85
|
353,813
|
9.51
|
$
|
0.85
|
—
|
$
|
—
|
|||||||||
|
$2.16
|
180,500
|
9.98
|
$
|
2.16
|
500
|
$
|
2.16
|
|||||||||
|
1,170,826
|
9.33
|
$
|
0.63
|
500
|
$
|
2.16
|
||||||||||
On
August, 3, 2005 the Company entered into an Agreement and Plan of Merger
dated
as of August 3, 2005 (as may be amended from time to time, the “Merger
Agreement”) with EasyWeb, Inc., a Delaware corporation (OTC:ESYW.OB)
(“EasyWeb”), and ZIO Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of EasyWeb (“ZIO Acquisition”). EasyWeb is a company that was
incorporated in September 1998 and has been in the business of designing,
marketing, selling and maintaining customized and template turnkey sites
on the
Internet that are hosted by third parties. Currently, however, EasyWeb
has no
operating business and has limited assets and liabilities. Pursuant to
the
Merger Agreement, ZIO Acquisition will merge with and into ZIOPHARM, with
ZIOPHARM remaining as the surviving company and a wholly-owned subsidiary
of
EasyWeb (the “Merger”). In connection with the Merger, ZIO Acquisition will
cease to exist and the surviving company will change its corporate name
to
ZIOPHARM, Inc. In exchange for all of their shares of capital stock in
ZIOPHARM,
the Stockholders will receive a number of shares of Common Stock of EasyWeb
such
that, upon completion of the Merger, the then-current Stockholders will
hold
approximately 96.8% of the outstanding shares of Common Stock of EasyWeb
on a
fully-diluted basis. Upon completion of the Merger, EasyWeb will cease
all of
its remaining operations, if any, and will adopt and continue implementing
the
business plan of ZIOPHARM. Further, upon completion of the Merger, the
current
officers and directors of EasyWeb will resign, the current officers and
directors of ZIOPHARM will be appointed officers and directors of EasyWeb,
and
EasyWeb will change its name to ZIOPHARM Oncology, Inc. (or such other
name as
the Board of Directors shall determine).
Page
20
ZIOPHARM,
Inc.
(A
Development Stage Enterprise)
Notes
to
Financial Statements
Year
Ended December 31, 2004 and
For
the
Periods
from
Inception (September 9, 2003) through
December
31, 2003
and
2004
On
June
6, 2005, the Company completed its Series A Convertible Preferred Stock
offering. (see Note 1).
On
May
26, 2005, the Company signed a lease for five years with USP 1180 Avenue
of the
Americas to lease approximately 2,580 square feet of office space.
On
April
25, 2005, the company entered into a Surrender and Termination Agreement
and an
Escrow agreement with WE George Street, L.L.C and Cohm Birnbaum & Shea P.C.
relating to the escrow of a termination fee for $90,000, for an early
termination to the New Haven, Connecticut office space.
Notes
to Unaudited Pro Forma Combined Financial Statements for the six months ended
June 30, 2005
| 1. |
Basis
of Presentation
|
The
unaudited Pro Forma combined financial statements present the Pro Forma combined
financial position and results of operations of the companies based upon
historical and projected financial information after giving effect to the
merger
of ZIOPHARM, Inc. (ZIOPHARM) with and into ZIO Acquisition Corp. (ZIO
Acquisition) a wholly owned subsidiary of EasyWeb, Inc. (EasyWeb). The unaudited
pro forma financial statements have been prepared to reflect certain adjustments
to our historical financial information, which are described in the Notes
to
Unaudited Pro Forma Financial Statements, to give effect to the merger, as
if it
had been completed on June 30, 2005 for balance sheet purposes and for January
1, 2005 for the statement of operations.
The
unaudited Pro Forma combined financial statements are based on the balance
sheets of the following:
| a) |
EasyWeb
at June 30, 2005 (unaudited).
|
| b) |
ZIOPHARM,
Inc. at June 30, 2005 (unaudited)
|
The
unaudited Pro Forma combined financial statements included the statements
of
operations for the following:
| a) |
EasyWeb
for the six months ended at June 30, 2005
(unaudited).
|
| b) |
ZIOPHARM,
Inc. for the six months ended June 30, 2005
(unaudited)
|
The
unaudited Pro Forma combined financial statements are not necessarily indicative
of the actual results that would have occurred had the merger occurred on
the
dates indicated and not necessarily indicative of future earnings or financial
position.
This
unaudited combined Pro Forma information should be read in conjunction with
the
annual audited financial statements of EasyWeb as of and for the year ended
December 31, 2004 included in EasyWeb’s Annual Report on From 10-KSB and the
quarterly report of EasyWeb on Form 10-QSB for the quarter ended June 30,
2005.
In addition, this unaudited combined Pro Forma information should be read
in
conjunction with the audited financial statements of ZIOPHARM, Inc. as of
December 31, 2004 and for the year then ended, included as an Exhibit 99.2
in
this Current Report on Form 8-K.
| 2. |
Pro
Forma Adjustments
|
The
unaudited combined financial statements include the following Pro Forma
adjustments:
| A) |
In
connection with the merger, ZIO Acquisition will merge with and
into
ZIOPHARM with ZIOPHARM remaining as the surviving corporation and
a wholly
owned subsidiary of EasyWeb, Inc. following the merger. In exchange
for
the shares of ZIOPHARM, Inc. capital stock, the holders of ZIOPHARM
Common
Stock and ZIOPHARM Preferred Stock received a number of shares
of common
stock, $.001 par value per share of EasyWeb, Inc. such that upon
completion of the Merger, ZIOPHARM’s current stockholders will hold
approximately 97.4% of the outstanding EasyWeb Common Stock on
a
fully-diluted basis. In order that ZIOPHARM, Inc. stockholders
obtain such
percentage of the EasyWeb Common stock following the merger, each
holder
of the ZIOPHARM Common Stock will receive approximately .50097
(the
“Exchange Ratio”) shares of EasyWeb’s Common stock (subject to appropriate
adjustment as provided for in the merger agreement) for each share
of
ZIOPHARM Common Stock held by such holder immediately prior to
the Merger,
and each holder of ZIOPHARM Preferred Stock will receive the number
of
shares of EasyWeb’s Common Stock equal to the product of the Exchange
Ratio multiplied by the number of shares of ZIOPHARM Common Stock
into
which shares of the holder’s ZIOPHARM Preferred Stock are convertible
immediately prior to the Merger.
|
| B) |
In
connection with the merger, EasyWeb will cease all of its remaining
operations, if any, and will adopt and continue implementing the
business
plan of ZIOPHARM.
|
| C) |
In
connection with the merger, the current officers and directors
of EasyWeb,
Inc. will resign, and the current officers and directors of ZIOPHARM,
Inc.
will be appointed officers and directors of EasyWeb. In connection
with
the merger, EasyWeb changed its name to ZIOPHARM Oncology, Inc.
|
| D) |
The
acquisition has been accounted for as a reverse merger of ZIOPHARM
with
and into a shell company, with ZIOPHARM being the surviving company.
|
| E) |
In
connection with the merger, ZIOPHARM, Inc. was to make certain
payments
not to exceed for $425,000.
|
F)
As a
public company, ZIOPHARM Oncology expects to incur, on a Pro Forma basis,
professional fees (legal, accounting and transfer agent fees) and premium
expense for directors and officers insurance of approximately $179,150 per
year,
or $44,787.50 per quarter.
|
ZIOPHARM
Oncology, Inc.
|
|||||
|
(A
Development Stage Enterprise)
|
|||||
|
Pro
Forma Combined Balance Sheet
|
|||||
|
June
30, 2005
|
|||||
|
(Unaudited)
|
|
|
|
EasyWeb,
Inc.
|
|
ZIOPHARM,
Inc.
|
|
Proforma
Adjustments
|
|
|
|
ZIOPHARM Oncology,
Inc. (C) |
|
|||||
|
ASSETS
|
||||||||||||||||
|
Current
assets:
|
||||||||||||||||
|
Cash
and cash equivalents
|
$
|
1,118
|
$
|
13,259,983
|
$
|
(425,000
|
)(E)
|
|
$
|
12,836,101
|
||||||
|
Prepaid
expenses and other current assets
|
—
|
257,217
|
—
|
257,217
|
||||||||||||
|
Total
current assets
|
1,118
|
13,517,200
|
(425,000
|
)
|
13,093,318
|
|||||||||||
|
Property
and equipment, net
|
—
|
193,996
|
—
|
193,996
|
||||||||||||
|
Deposits
|
—
|
56,032
|
—
|
56,032
|
||||||||||||
|
$
|
1,118
|
$
|
13,767,228
|
$
|
(425,000
|
)
|
$
|
13,343,346
|
||||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||||||||||
|
Current
liabilities:
|
||||||||||||||||
|
Accounts
payable
|
$
|
9,914
|
$
|
448,593
|
$
|
—
|
$
|
458,507
|
||||||||
|
Accrued
expenses
|
—
|
993,047
|
—
|
993,047
|
||||||||||||
|
Total
current liabilities
|
9,914
|
1,441,640
|
—
|
1,451,554
|
||||||||||||
|
Commitments
and contingencies
|
||||||||||||||||
|
Stockholders'
equity:
|
||||||||||||||||
|
Convertible
preferred stock
|
—
|
15,076,733
|
(15,076,733
|
)(A)
|
|
(0
|
)
|
|||||||||
|
Convertible
preferred stock warrants
|
—
|
1,682,863
|
(1,682,863
|
)(A)
|
|
—
|
||||||||||
|
Common
stock
|
183,613
|
5,513
|
(181,968
|
)(A)
|
|
7,158
|
||||||||||
|
Additional
paid-in capital
|
118,353
|
5,697,603
|
16,630,802
|
(A) |
|
22,446,758
|
||||||||||
|
Deficit
accumulated during the development stage
|
(310,762
|
)
|
(10,137,124
|
)
|
(114,238
|
)(A)(D)
|
|
(10,562,124
|
)
|
|||||||
|
Total
stockholders' equity
|
(8,796
|
)
|
12,325,588
|
(425,000
|
)
|
11,891,792
|
||||||||||
|
$
|
1,118
|
$
|
13,767,228
|
$
|
(425,000
|
)
|
$
|
13,343,346
|
||||||||
Ziopharm
Oncology, Inc.
(A
Development Stage Enterprise)
Pro
Forma
Combined Statement of Operations Six Months ended June 30, 2005
(Unaudited)
(Unaudited)
|
|
|
EasyWeb,
Inc.
|
|
ZIOPHARM,
Inc.
|
|
Pro
Forma Adjustments |
|
|
|
ZIOPHARM
Oncology,
Inc. Pro
Forma |
||||||
|
Research contract revenue
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||||
|
Operating expenses and other income:
|
||||||||||||||||
|
Research
and development, including
|
||||||||||||||||
|
costs
of research contracts
|
—
|
2,867,919
|
—
|
2,867,919
|
||||||||||||
|
General
and administrative
|
9,954
|
1,505,250
|
514,575
|
(E)(F) |
|
2,029,779
|
||||||||||
|
Total
operating expenses
|
9,954
|
4,373,169
|
514,575
|
4,897,698
|
||||||||||||
|
Operating
loss
|
(9,954
|
)
|
(4,373,169
|
)
|
(514,575
|
)
|
(4,897,698
|
)
|
||||||||
|
Interest
income
|
—
|
(83,479
|
)
|
—
|
(83,479
|
)
|
||||||||||
|
Net
loss
|
$
|
(9,954
|
)
|
$
|
(4,289,690
|
)
|
$
|
(514,575
|
)
|
$
|
(4,814,219
|
)
|
||||
Exhibit
99.3
| Press Release |
Source: ZIOPHARM Oncology,
Inc |
ZIOPHARM,
Inc. and EasyWeb, Inc. Merge to Form ZIOPHARM Oncology,
Inc.
Thursday
September 15, 8:00 am ET
NEW YORK
and ENGLEWOOD, Colo.--(BUSINESS WIRE)--Sept. 15, 2005--ZIOPHARM, Inc. (private)
and EasyWeb, Inc. (OTC Bulletin Board: ESWB.OB -
News) today
announced that they have completed the previously announced merger of the two
companies. The Company's common stock trades on the OTC Bulletin Board under the
symbol "ESWB.OB" until a new ticker symbol has been issued and announced. In
connection with the merger, the combined company has changed its name to
ZIOPHARM Oncology, Inc.
Jonathan
Lewis, M.D., Ph.D. will serve as Chief Executive Officer and as a Board member
of ZIOPHARM Oncology, Inc. along with the remainder of the former Board of
Directors of ZIOPHARM, Inc.
"Given
our stage of development with two products in phase I trials, it is the
appropriate time for the company to be public," commented Dr. Lewis. "We are
excited to leverage the strength of the new public company for continued
development of our current pipeline and for in-licensing additional product
candidates."
The
Company is currently in U.S. phase I studies for two product candidates known as
ZIO-101 and ZIO-201.
| · |
ZIO-101,
subject of an issued U.S. patent and applications internationally, is the
first of a new class of organic arsenicals that are potentially safer and
more active for cancer treatment than approved inorganic arsenicals. The
Company initiated phase I studies in adults with diverse hematologic
cancers in April 2005, and a parallel phase I study in adults and children
with solid tumors in May 2005. The Company is planning for an additional
phase I/II trial in patients with advanced myeloma.
|
| · |
ZIO-201,
subject of U.S. and international patent applications, is a proprietary
formulation of isophosphoramide mustard, the active metabolite of
ifosfamide. Ifosfamide is an alkylating drug used to treat diverse cancers
including testicular cancer, bone and soft-tissue sarcoma, cervical,
breast and lung cancers. A phase I clinical trial is being conducted at
two centers in patients with advanced cancers. The Company expects this
trial to be followed by a targeted phase I/II study in persons with
advanced sarcoma. The Company is also planning a phase I study in sarcoma
and lymphoma with a modified dosing schedule and a phase II study in
pediatric sarcoma. |
"With
early indications of safety and activity in our phase I studies, we continue to
progress confidently toward pivotal trials for both ZIO-101 and ZIO-201 in early
2007," said Dr. Lewis. "We estimate that the market potential of these two
products together at peak year sales could approach $800 million, and we look
forward to the challenge and rewards of being a publicly traded
biopharmaceutical company."
About
ZIOPHARM Oncology, Inc.
ZIOPHARM
Oncology, Inc. is a biopharmaceutical company seeking to acquire, develop and
commercialize a diverse, risk-sensitive portfolio of in-licensed cancer drugs
that address unmet medical needs. Currently, the Company is in U.S. phase I
studies for its two product candidates, ZIO-101 and ZIO-201. For more
information, visit www.ziopharm.com.
Forward-Looking
Safe Harbor Statement:
This
press release contains forward-looking statements for ZIOPHARM Oncology, Inc.
that involve risks and uncertainties that could cause the Company's actual
results to differ materially from the anticipated results and expectations
expressed in these forward-looking statements. These statements are based on
current expectations, forecasts and assumptions that are subject to risks and
uncertainties, which could cause actual outcomes and results to differ
materially from these statements. Among other things, there can be no assurance
that any of the Company's development efforts relating to its product candidates
will be successful, or such product candidates will be successfully
commercialized. Other risks that affect forward-looking information contained in
this press release include the possibility of being unable to obtain regulatory
approval of the Company's product candidates, the risk that the results of
clinical trials may not support the Company's claims, and the Company's reliance
on third parties to develop its product candidates. The Company assumes no
obligation to update these forward-looking statements, except as required by
law.
Contact:
ZIOPHARM
Oncology, Inc.
Kelly
Luethje, 617-259-1975
Manager,
Investor Relations/Communication
Source:
ZIOPHARM Oncology, Inc.