<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
-OR-
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------- -------
Commission File No. 0-24936
ERGO SCIENCE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-3271667
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
CHARLESTOWN NAVY YARD
100 FIRST AVENUE, FOURTH FLOOR
CHARLESTOWN, MASSACHUSETTS 02129
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 241-6800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
At November 1, 1997 there were 13,343,262 shares of common stock, par value
$.01 per share, of the registrant outstanding.
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ERGO SCIENCE CORPORATION
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996...................................... 3
Consolidated Statements of Operations and Deficit
Accumulated During the Development Stage
for the three months and nine months ended
September 30, 1997 and September 30, 1996 and
for the period from inception (January 23, 1990)
to September 30, 1997...................................... 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and September 30, 1996
and for the period from inception (January 23, 1990)
to September 30, 1997...................................... 5
Notes to Consolidated Financial Statements................... 6
ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................ 8
PART II. OTHER INFORMATION................................................. 12
SIGNATURES................................................................. 13
2
<PAGE>
ERGO SCIENCE CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 18,009,544 $ 18,066,884
Short-term investments............................................ 8,710,744 20,550,986
Prepaid and other current assets.................................. 354,704 234,558
------------ ------------
Total current assets........................................... 27,074,992 38,852,428
Equipment and leasehold improvements, net........................... 2,254,133 2,491,866
Other assets........................................................ 47,300 40,986
------------ ------------
Total assets................................................... $ 29,376,425 $ 41,385,280
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............................. $ 1,966,647 $ 1,747,961
Current portion of capital lease obligations...................... 277,907 186,838
------------ ------------
Total current liabilities...................................... 2,244,554 1,934,799
Long-term portion of capital lease obligations...................... 394,457 385,256
Commitments and contingencies....................................... -- --
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized;
6,903 shares of Series D preferred stock issued and outstanding
at September 30, 1997 and December 31, 1996 (liquidation
preferences were $7,963,617 and $7,618,522 at September 30,
1997 and December 31, 1996, respectively)....................... 5,088,947 4,743,852
Common stock, $.01 par value, authorized 50,000,000 at
September 30, 1997 and December 31, 1996; issued and
outstanding 13,200,873 shares at September 30, 1997 and
13,048,036 shares at December 31, 1996.......................... 132,009 130,480
Additional paid-in capital........................................ 97,870,044 97,158,840
Cumulative dividends on preferred stock........................... (3,079,380) (2,734,285)
Deferred compensation............................................. (741,205) (1,172,374)
Deficit accumulated during the development stage.................. (72,533,001) (59,061,288)
------------ ------------
Total stockholders' equity..................................... 26,737,414 39,065,225
------------ ------------
Total liabilities and stockholders' equity........... $ 29,376,425 $ 41,385,280
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
3
<PAGE>
ERGO SCIENCE CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT ACCUMULATED
DURING THE DEVELOPMENT STAGE
<TABLE>
<CAPTION>
Period From
Inception
Three Months Ended September 30, Nine Months Ended September 30, (January 23, 1990)
-------------------------------- ------------------------------- through
1997 1996 1997 1996 September 30,1997
----------- ----------- ------------ ------------ ------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Licensing and supplier fees.... $ 355,671
Interest....................... $ 406,198 $ 373,710 $ 1,325,864 $ 840,025 3,280,871
----------- ----------- ------------ ------------ ------------
406,198 373,710 1,325,864 840,025 3,636,542
Operating expenses:
Research and development....... 3,393,385 2,872,012 9,637,674 8,923,045 41,355,420
Purchase of in-process
research and development..... -- -- -- 168,750 7,188,814
General and administrative..... 1,255,645 2,570,177 5,159,901 4,811,609 27,438,914
----------- ----------- ------------ ------------ ------------
4,649,030 5,442,189 14,797,575 13,903,404 75,983,148
----------- ----------- ------------ ------------ ------------
Net loss.................... (4,242,832) (5,068,479) (13,471,711) (13,063,379) (72,346,606)
Accretion of dividends on
preferred stock................ (116,541) (109,851) (345,095) (325,285) (2,793,313)
Dividends on redeemable
preferred stock................ -- -- -- -- (7,123,536)
Dividends on preferred stock..... -- -- -- -- (2,018,763)
----------- ----------- ------------ ------------ ------------
Net loss to common stockholders.. $(4,359,373) $(5,178,330) $(13,816,806) $(13,388,664) $(84,282,218)
=========== =========== ============ ============ ============
Net loss per common share........ $ (0.33) $ (0.45) $ (1.05) $ (1.26)
=========== =========== ============ ============
Weighted average common
shares outstanding.............. 13,181,249 11,634,943 13,160,469 10,653,569
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
4
<PAGE>
ERGO SCIENCE CORPORATION
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From
Inception
Nine Months Ended September 30, (January 23, 1990)
-------------------------------- through
1997 1996 September 30, 1997
------------ ------------ ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................ $(13,471,711) $(13,063,379) $(72,346,606)
Adjustments to reconcile net loss to cash used
by operating activities:
Depreciation and amortization..................... 1,068,857 782,873 3,868,076
Noncash compensation.............................. 857,427 1,833,450 3,617,575
Noncash purchase of in-process research
and development................................. -- 168,750 5,688,814
Loss on sale of equipment......................... -- -- 28,331
Noncash charge for renegotiated supplier
agreement....................................... -- -- 1,747,931
Other noncash charges............................. -- -- 86,347
Changes in operating assets and liabilities:
Prepaid and other current assets................ (120,146) 174,177 (354,704)
Other assets.................................... (6,314) (8,503) (99,442)
Accounts payable and accrued expenses........... 218,685 (1,470,077) 1,936,646
Deferred revenue................................ -- -- 5,559,714
------------ ------------ -------------
Net cash used in operating activities................. (11,453,202) (11,582,709) (50,267,318)
------------ ------------ -------------
Cash flows from investing activities:
Purchase of short-term investments.................. (31,877,064) (22,285,380) (73,986,208)
Proceeds from sale and maturity of short-term
investments....................................... 43,717,307 10,332,501 65,275,465
Purchase of equipment and leasehold improvements.... (564,920) (1,050,734) (5,591,167)
Proceeds received on sale of equipment.............. 6,000 -- 37,724
------------ ------------ -------------
Net cash provided by (used in) investing
activities.......................................... 11,281,323 (13,003,613) (14,264,186)
------------ ------------ -------------
Cash flows from financing activities:
Proceeds from issuance of convertible debt, net..... -- -- 3,409,552
Distribution paid to S Corp stockholder............. -- -- (186,393)
Principal payments under capital lease
obligations....................................... (171,935) (72,248) (345,321)
Proceeds from issuance of promissory notes.......... -- -- 7,000,000
Repayment of promissory notes....................... -- -- (3,000,000)
Proceeds from issuance of common stock and
Series D redeemable stock......................... -- -- 1,392,686
Proceeds received from capital contributions........ -- -- 102,176
Proceeds from issuance of Series B and C
redeemable convertible preferred stock............ -- -- 18,041,528
Proceeds from issuance of common stock, net of
issuance costs.................................... -- 32,249,817 55,248,963
Proceeds from stock options exercised............... 286,474 22,000 328,139
Proceeds from sale-leaseback agreement.............. -- 549,718 549,718
------------ ------------ -------------
Net cash provided by financing activities............. 114,539 32,749,287 82,541,048
------------ ------------ -------------
Net (decrease) increase in cash and cash
equivalents......................................... (57,340) 8,162,965 18,009,544
Cash and cash equivalents at beginning of period...... 18,066,884 15,896,373 --
------------ ------------ -------------
Cash and cash equivalents at end of period............ $ 18,009,544 $ 24,059,338 $ 18,009,544
============ ============ =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
5
<PAGE>
ERGO SCIENCE CORPORATION
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements are unaudited and have been
prepared by the Company in accordance with generally accepted accounting
principals.
Certain information and footnote disclosure normally included in the
Company's annual financial statements have been condensed or omitted. The
interim financial statements, in the opinion of management, reflect all
adjustments (including normal recurring accruals) necessary for a fair
statement of the results for the interim periods ended September 30, 1997 and
1996.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the fiscal year.
These interim financial statements should be read in conjunction with the
audited financial statements for the year ended December 31, 1996, which are
contained in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31, 1996.
2. CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with maturities of 90 days or less at the date of
purchase to be cash equivalents. Changes in cash and cash equivalents may be
affected by shifts in investment portfolio maturities as well as by actual net
cash receipts or disbursements.
At September 30, 1997 and December 31, 1996, cash equivalents were
composed primarily of investments in money market funds, United States
government obligations and high grade commercial paper that mature within 90
days of purchase.
3. SHORT-TERM INVESTMENTS
The following is a summary of securities with maturities greater
than 90 days at the date of purchase not classified as cash and cash
equivalents. All short-term investments are classified as held-to-maturity.
September 30, 1997 December 31, 1996
------------------ -----------------
Commercial paper $4,721,792 $ 8,844,868
Federal agency notes 3,988,952 11,706,118
---------- -----------
Total short-term investments $8,710,744 $20,550,986
========== ===========
6
<PAGE>
The held-to-maturity securities are short-term in nature. Changes in
market interest rates would not have a significant effect on the fair value of
these securities. These securities are carried at amortized cost, which
approximates fair value.
4. NET LOSS PER COMMON SHARE
Net loss per common share is computed based upon the weighted average
number of common shares outstanding. Common equivalent shares are not
included in the per share calculations where the effect of their inclusion
would be anti-dilutive. In the computation of net loss per common share,
accretion of preferred stock to the redemption amount is included as an
increase to net loss to common stockholders.
Fully diluted net loss per common share is the same as primary net loss
per common share.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion contains forward-looking statements made by the Company.
Forward-looking statements reflect the Company's current views with respect to
such future events. Actual results may vary materially and adversely from
those anticipated, believed, assumed, estimated or otherwise indicated.
Important factors that could cause actual results to differ materially
include, without limitation, (1) that data obtained from clinical trials are
subject to varying interpretations and there can be no assurance that the FDA
(or an FDA panel of experts) will agree with the Company's assessment of
clinical trial results, (2) there can be no assurance of FDA approval to
market ERGOSET/TM/ for Type 2 diabetes or any other indication or that the FDA
will not require additional clinical trials of ERGOSET/TM/, (3) uncertainty
related to the scientific development of a new medical therapy, (4)
competition in the anti-diabetic and anti-obesity markets is intense and other
products have been recently approved by the FDA, (5) the need for additional
funding, (6) the uncertainty relating to patent protection in the
pharmaceutical and biotechnology industries, (7) there can be no assurance
that the Company will be able to establish corporate alliances to market
ERGOSET/TM/ and assist with the development of product candidates and (8)
ERGOSET/TM/ for obesity is at an early stage of development, and there can be
no assurance that it will be shown to be safe and effective in this trial or
in any Phase III trial (if undertaken). Further information and additional
important factors are set forth in reports and other filings of the Company
with the Securities and Exchange Commission, including a Form S-1, as amended,
filed on August 9, 1996 and the 1996 Annual Report on Form 10-K, generally
under the caption "Risk Factors." The Company does not undertake to update
any forward-looking statement that may be made from time to time by or on
behalf of the Company.
OVERVIEW
Since inception, Ergo Science Corporation (the "Company") has been
engaged in the discovery and development of novel treatments for metabolic
disorders, including Type 2 diabetes and obesity, and various cancers. The
Company's technology, based on the principals of chronobiology, uses the timed
administration of oral drugs to modulate the body's neuroendocrine activity.
The Company has dedicated most of its financial resources to research and
development of ERGOSET/TM/, the Company's lead drug candidate, general and
administrative expenses, and the prosecution of patents and patent
applications. To date, the Company has not received any revenues from the sale
of products and does not expect to generate such revenues for at least a year,
if at all. The Company has been unprofitable since its inception, and its
accumulated deficit was $72,533,001 as of September 30, 1997. Although the
Company intends to enter into collaborative relationships which could help
offset its expenses, it expects to incur substantial and increasing expenses
for at least the next several years, due primarily to the expansion of its
research and development programs, including preclinical studies and clinical
trials. The Company expects that losses will fluctuate from quarter to quarter
and that the fluctuations may be substantial.
8
<PAGE>
RESULTS OF OPERATIONS
Three Months and Nine Months Ended September 30, 1996 and 1997
Total revenues increased from $373,710 and $840,025 for the three month
and nine month periods ended September 30, 1996, respectively, to $406,198 and
$1,325,864 for the same periods in 1997. Revenues were derived primarily from
interest income earned on cash, cash equivalents and short-term investments.
The increases in interest income are attributable to an increase in the
average amounts of cash, cash equivalents and short-term investments during
the first three quarters of 1997, compared to the first three quarters of
1996. These amounts increased as a result of proceeds received from the
Company's second public offering in August 1996.
Research and development expenses increased from $2,872,012 and
$9,091,795 for the three month and nine month periods ended September 30,
1996, respectively, to $3,393,385 and $9,637,674 for the same periods in 1997.
In the first nine months of 1996, the Company incurred costs associated with
conducting Phase III clinical trials ("prior year activities") of ERGOSET/TM/
which were completed later that year. In the first nine months of 1997, the
Company incurred costs associated with the preparation and submission of the
New Drug Application (NDA) for ERGOSET/TM/, various new development
activities, and additional research personnel ("current year activities"). In
total, current year activities costs exceeded prior year activities costs for
both the three month and nine month periods.
General and administrative expenses decreased from $2,570,177 to
$1,255,645 for the three month periods ended September 30 1996 and 1997,
respectively. This decrease was due to a $1,277,980 charge in September 1996
related to the resignation of a Company senior executive. Excluding this
charge, expenses for the three months ended September 30, 1996, totaling
$1,292,197, were consistent with expenses for the same period in 1997. For the
nine month periods ended September 30, 1996 and 1997, general and
administrative expenses increased from $4,811,609 to $5,159,901, respectively.
The increase was principally the result of the cost of settling and defending
a lawsuit brought in the first quarter of 1997, costs associated with the
American Diabetes Association (ADA) conference held in Boston in June 1997 and
expenses incurred by the Company's efforts to establish corporate alliances to
market ERGOSET/TM/ and assist with the development of other product
candidates. In March 1997, the Company incurred a charge related to a
severance agreement made with the former Chairman of the Board of Directors,
who was also an officer and employee of the Company. This charge was
approximately $928,000.
As a result of the foregoing items, net loss to common stockholders
decreased from $5,178,330 to $4,359,373 for the three month periods ended
September 30, 1996 and 1997, respectively. For the nine month periods ended
September 30, 1996 and 1997, net loss to common stockholders increased from
$13,388,664 to $13,816,806, respectively. The net loss per common share
decreased from $(0.45) and $(1.26) for the three month and nine month periods
ended September 30, 1996, respectively, to $(0.33) and $(1.05) for the same
periods in 1997. The declines in net loss per common share were attributable
to the increase in weighted average common shares outstanding resulting mainly
from the Company's second public offering in August 1996. For the three month
and nine month periods ended September 30, 1996, the weighted average common
shares outstanding were 11,634,943 and 10,653,569, respectively, compared to
13,181,249 and 13,160,469 for the same periods in 1997.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company's primary source of cash has been from
financing activities, which have consisted of private placements of equity
securities and two public offerings. Private placements of equity securities
provided the Company with aggregate proceeds of $32,999,000. On December 19,
1995, the Company raised $23,030,476 from the sale of stock in an initial
public offering, net of commissions and offering costs. Subsequently, on
August 14, 1996, the Company raised an additional $32,218,487, net of
commissions and offering costs, from the sale of stock in a second public
offering. Cash and cash equivalents were $18,066,884 and $18,009,544, while
short-term investments were $20,550,986 and $8,710,744, at December 31, 1996
and September 30, 1997, respectively. The changes in cash, cash equivalents
and short-term investments at September 30, 1997, were due primarily to the
use of cash in the Company's operating activities and shifts in investment
portfolio balances.
The Company's primary use of cash to date has been in operating
activities to fund research and development, including preclinical studies and
clinical trials, and general and administrative expenses.
Throughout the first nine months of 1997, the Company conducted and
continues to conduct preclinical screens for lead candidates for use in
photodynamic therapy to treat various cancers. In addition, preclinical
screens for lead candidates have been and continue to be conducted for
dopamine agonists to treat Type 2 diabetes and obesity. Treatment with
dopamine agonists is currently the Company's lead preclinical approach for
second-generation therapy for Type 2 diabetes and obesity. The Company expects
to incur increasing research and development costs in connection with
continued development in these areas.
During the first three quarters of 1997, the Company conducted and
continues to conduct several clinical trials for ERGOSET/TM/ in the areas of
Type 2 diabetes, obesity and breast cancer. The most significant of these
trials is a Phase II clinical study to evaluate the safety and efficacy of
ERGOSET/TM/ tablets to treat clinical obesity. This study is being conducted
at approximately 15 clinical sites across the United States in approximately
400 clinically obese subjects. The Company is incurring and will continue to
incur additional research and development expenses associated with its various
clinical trials.
As of September 30, 1997, the Company's net investment in equipment and
leasehold improvements was $2,254,133. The Company expects that additional
equipment and facilities will be needed to the extent it increases its
research and development activities.
The Company believes that its available cash, cash equivalents, short-
term investments and expected interest income, will be adequate to fund its
current and anticipated levels of operations through 1998. Prior to the end of
1998, the Company will need to raise additional capital through the sale of
securities in the public or private equity markets or by entering into a
collaborative arrangement with another company. There can be no assurance,
however, that events in the Company's research and development programs or
other events affecting the Company's operations will not result in accelerated
or unexpected expenditures. The Company is pursuing additional research and
development of ERGOSET/TM/ and other product candidates to treat diabetes,
obesity, cancer and other diseases. The Company will require additional
financing to expand and complete that research and development. To the extent
the Company raises additional capital by issuing equity securities, ownership
dilution to existing stockholders will result and future investors may be
granted rights superior to those of existing
10
<PAGE>
stockholders. There can be no assurance, however, that additional financing
will be available from any source or, if available, will be available on
acceptable terms.
The terms of the Company's Series D Preferred Stock prohibit the Company
from paying dividends on the common stock.
RECENT DEVELOPMENTS
In October 1997, the Company announced that the FDA had accepted for
filing its NDA for ERGOSET/TM/ to treat Type 2 diabetes. In addition, the
Company amended its supply agreement with Geneva Pharmaceuticals, Inc., for
the production of ERGOSET/TM/ tablets. The amended and restated supply
agreement dated October 31, 1997, is included as Exhibit 10.1 to this filing.
11
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
---------
10.1 - Amended and Restated Supply Agreement dated October 31, 1997,
by and among Ergo Science Corporation, a Delaware
corporation, Ergo Research Corporation, a Delaware
corporation that is a wholly-owned subsidiary of Ergo Science
Corporation, and Geneva Pharmaceuticals, Inc., a Colorado
corporation. [Portions of this exhibit have been omitted and
filed separately with the Securities and Exchange Commission
in accordance with Rule 406 of the Securities Act and the
Company's request for confidential treatment.]
27 - Financial Data Schedule
Reports on Form 8-K:
--------------------
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ERGO SCIENCE CORPORATION
By: /s/ Alan T. Barber
------------------
Alan T. Barber
Vice President, Finance and
Administration and Chief Financial
Officer (Principal Financial Officer and
Principal Accounting Officer)
Date: October 14, 1997
----------------
13
<PAGE>
Exhibit 10.1
ERGO SCIENCE CORPORATION,
ERGO RESEARCH CORPORATION,
AND
GENEVA PHARMACEUTICALS, INC.
AMENDED AND RESTATED SUPPLY AGREEMENT
OCTOBER 31, 1997
<PAGE>
TABLE OF CONTENTS
ERGO RESEARCH CORPORATION
AND
GENEVA PHARMACEUTICALS, INC.
AMENDED AND RESTATED SUPPLY AGREEMENT
<TABLE>
<CAPTION>
Article Page
- ------- ----
<C> <S> <C>
1 Definitions 3
2 FDA-Related Responsibilities 8
3 Purchase and Sale Obligations 12
4 Marketing; Forecasting; and Inventory 14
5 Supply Interruption 16
6 Vesting and Issuance of Stock by ESC to Geneva; 17
Payments to Geneva
7 Insurance and Indemnification 20
8 Representations and Warranties 23
9 Force Majeure 24
10 Term and Termination 25
11 Miscellaneous 29
Schedule I Product Specifications
Schedule II Bromocriptine Specifications
</TABLE>
2
<PAGE>
AMENDED AND RESTATED SUPPLY AGREEMENT
This AMENDED AND RESTATED SUPPLY AGREEMENT (the "Agreement") is made and
entered into as of October 31, 1997, by and among Ergo Science Corporation, a
Delaware corporation, having its principal address at 33 Third Avenue, Fourth
Floor, Charlestown, Massachusetts 02129-2051 (hereinafter referred to as "ESC"),
Ergo Research Corporation, a Delaware corporation that is a wholly-owned
subsidiary of ESC, having its principal address at 212 Main Street, Wakefield,
RI 02879 (hereinafter referred to as "Ergo"), and Geneva Pharmaceuticals, Inc.,
a Colorado corporation, having its principal address at 2655 West Midway
Boulevard, Broomfield, Colorado 80038 (hereinafter referred to as "Geneva").
This Agreement amends, restates and supersedes in its entirety that certain
Supply Agreement (the "Original Agreement") dated as of the 1st day of January,
1995 between Ergo Science Incorporated and Geneva.
NOW, THEREFORE, in consideration of the covenants and conditions
contained herein, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
The "Act" shall mean the Federal Food, Drug, and Cosmetic Act, as amended
---
from time to time, and the regulations promulgated thereunder.
3
<PAGE>
"Active Ingredient Cost" [*]
----------------------
"Additional Shares" shall have the meaning set forth in Article 6.
-----------------
"Affiliate" shall mean any individual, corporation, partnership, or other
---------
business entity that directly or indirectly controls, is controlled by, or is
under common control with a party hereto. The term "control" shall mean the
possession of fifty percent (50%) or more of the voting stock or its equivalent
of the controlled party.
"Agreement" shall mean this Amended and Restated Supply Agreement between
---------
Ergo and Geneva, as it may be amended from time to time by its terms.
"Approvable Letter" shall mean a written communication, as defined in 21
-----------------
CFR 314.3(b), from FDA to Ergo, stating that FDA will approve the applicable NDA
if specific additional materials are submitted or specific conditions are met.
"Approval Letter" shall mean a written communication, as defined in 21 CFR
---------------
314.3(b), from FDA to Ergo, approving the applicable NDA, which approval
includes authorization for final packaging, labeling, and marketing of the
Product.
"Bromocriptine" shall mean 2-Bromo--ergocryptine mesylate.
-------------
"Bromocriptine Specifications" shall mean the Specifications listed on
----------------------------
Schedule II to this Agreement.
"Effective Date" shall mean October 31, 1997.
--------------
[*] Confidential information omitted and filed separately with the Commission.
4
<PAGE>
"Ergo Partner" shall mean the entity (or entities) with which Ergo enters
------------
into an agreement (e.g. a co-marketing or sublicense agreement) for commercial
marketing and distribution of the Product. [*]
"Existing Shares" shall have the meaning set forth in Section 6.1.
---------------
"FDA" shall mean the United States Food and Drug Administration.
---
"Fully Loaded Manufacturing Costs" shall mean all costs incurred by Geneva
--------------------------------
in manufacturing Product, including without limitation: [*]
"Good Manufacturing Practices" or "GMP" shall have the meaning ascribed to
---------------------------- ---
it under the Act and the implementing regulations (21 CFR Parts 210 and 211) and
interpretive guidances issued thereunder.
"IND" shall mean the Investigational New Drug Application for the Product
---
for the treatment of Type II diabetes or obesity in human patients that has been
submitted to FDA under Section 505 of the Act.
"Indemnified Party" shall have the meaning set forth in Article 7.
-----------------
"Indemnifying Party" shall have the meaning set forth in Article 7.
------------------
"Launch Date" [*]
-----------
"Marketing Approval" shall mean the approval, pursuant to Section 505 of
------------------
the Act (as evidenced by receipt of the Approval Letter), to market commercially
the Product for the treatment of Type II diabetes or obesity in human patients.
[*] Confidential information omitted and filed separately with the Commission.
5
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"NDA" shall mean the New Drug Application, as defined in Section 505(b) of
---
the Act, for the Product for the indication of treating Type II diabetes or
obesity in human patients, including all amendments and supplements thereto.
"Preliminary Forecast" shall have the meaning set forth in Article 4.
--------------------
"Product" shall mean Bromocriptine in orally-administered dosage form for
-------
the indication of the treatment of Type II diabetes or obesity in human patients
that has been manufactured and packaged according to the Specifications,
including the following dosage strengths: [*]
"Specifications" shall mean: (i) the specifications for the finished
--------------
dosage forms for the Product as set forth in Schedule I attached hereto; and
----------
(ii) the specifications for the active ingredient for the Product, the finished
dosage form for the Product, and the packaging and labeling for the finished
dosage form for the Product as set forth in the NDA and in Geneva's own
specifications for Product release.
"Trailing Inventory Amount" shall have the meaning set forth in Section
-------------------------
4.3(c).
"Updated Preliminary Forecast" shall have the meaning set forth in Article
----------------------------
4.
ARTICLE 2
REGULATORY RESPONSIBILITIES
[*] Confidential information omitted and filed separately with the Commission.
6
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2.1 Submission of NDA. Ergo, or an Ergo Partner, will use its
-----------------
commercially reasonable efforts to obtain Marketing Approval of the Product,
including sponsoring clinical trials, and preparing and submitting the
applicable NDA, if the clinical data supports such submission in Ergo's sole
discretion. Ergo shall not be responsible for those activities that are
designated as Geneva's responsibilities herein.
2.2 Geneva Regulatory Matters. (a) Geneva will qualify, and continue at
-------------------------
all times during the term of this Agreement the qualification of, Geneva's
Broomfield, Colorado manufacturing facility (and any other facility, agreed to
by the parties, in which Product is manufactured) as an FDA approved site for
the manufacture of the Product under the applicable IND and the applicable NDA.
The above stated obligations shall be satisfied pursuant to applicable FDA and
other federal regulations and the regulations of non-U.S. jurisdictions in which
Ergo or its Partner sells or proposes to sell Product during the term of this
Agreement. Geneva's responsibilities in this regard shall include, without
limitation, compliance with GMP, product formulation, manufacturing controls,
packaging, testing, and generation of stability data.
(b) Geneva shall conduct all product formulation and process work for the
Product, and conduct all stability testing for the Product required by FDA to
obtain the applicable NDA approval with an intended shelf-life of not less than
[*] months.
(c) Geneva shall manufacture the Product for Ergo (and the Ergo Partner),
[*] Confidential information omitted and filed separately with the Commission.
7
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as required by Article 3, including (without limitation) manufacturing the
Product to meet the Specifications, performing final product quality control
testing, and final product release in accordance with GMPs. Geneva shall provide
to Ergo for each batch of Product that is released by Geneva a letter stating
that the Product in such batch meets the Specifications, including those listed
on Schedule I attached hereto (and which sets forth the actual values for the
----------
batch for the parameters in the Specifications). Geneva agrees not to make any
---------------------
changes with respect to the manufacture of the Product without obtaining Ergo's
prior written consent (which consent shall not be unreasonably withheld);
provided, however, that Ergo's consent shall not be required for any change
- -----------------
with respect to the manufacture of the Product that pursuant to FDA regulations
may be made without FDA approval. For these changes made by Geneva that do not
require FDA approval, Geneva shall timely notify Ergo of any such changes.
(d) Geneva shall provide copies to Ergo of all communications with FDA (if
written or summaries if oral) relating to the Product as soon as possible.
Geneva shall promptly provide copies to Ergo of all warning letters and FDA-483
Forms that relate to the Product. Ergo shall have the right to review and
comment upon any written response from Geneva to FDA relating to the Product
prior to submission to FDA. In addition, Geneva shall promptly notify Ergo when
Geneva is notified of an FDA audit or inspection relating to the Product. Ergo
shall not revise any portion of the NDA that relates to the manufacture of the
Product without giving prior notice to (including a copy of the proposed
changes), and receiving the written consent of, Geneva (which consent shall not
be unreasonably withheld) unless such change is requested by the FDA. If the
above revision is requested by the FDA, Ergo shall provide Geneva with notice
8
<PAGE>
(including a copy of the requested change) and reasonably assist Geneva in
communicating its position with regards to the requested revision with the FDA.;
(e) In the event that Geneva learns, at any time, that any Product that is
being shipped or has been shipped does not meet, or may not meet, the
Specifications, Geneva shall immediately notify Ergo by phone and in writing,
identifying the shipment and the nonconformance.
2.3 Cooperation on Regulatory Matters. The parties shall cooperate with
---------------------------------
each other and shall provide reasonable assistance to each other in the carrying
out of their respective responsibilities under this Article 2, including
Geneva's providing Ergo with all documents necessary to support filing the
applicable IND or NDA or non-U.S. regulatory submission.
2.4 Clinical Supplies of Product. Geneva will provide Ergo with
----------------------------
reasonable quantities of clinical supplies of Product and matching placebos for
purposes of conducting clinical trials of the Product. The prices for such
supplies shall be calculated in accordance with Section 3.3 below.
2.5 FDA Reports. Beginning on the date of this Agreement, each party
-----------
shall provide to the other the same information that is required to be submitted
to FDA pursuant to 21 CFR 314.80 so that the other party may meet the time
frames for reporting such information set forth therein. Moreover, within sixty
(60) days after the end of every calendar quarter during the term of this
Agreement, each party shall also provide the other with a summary of safety
data, including, but not limited to, clinical safety data and reports of adverse
drug reactions, if any.
9
<PAGE>
2.6 Inspection Rights. Ergo (or its agents) shall have the right one time
-----------------
each calendar year to conduct, at its own expense, a reasonable inspection of
Geneva's facilities used in the manufacture, storage, and shipping of the
Product.
2.7 Record Keeping and Review. Geneva and its Affiliates shall keep true
-------------------------
and correct records of the manufacture, production, testing, storage, shipping,
and delivery of the Product. At the request and expense of Ergo, Geneva shall
permit an independent certified public accountant or regulatory consultant,
appointed by Ergo and reasonably acceptable to Geneva, to examine those records
during ordinary business hours. The results of any such examination shall be
made available to both Ergo and Geneva, provided that the accountant or
consultant shall not disclose to Ergo the business details of Geneva's records.
ARTICLE 3
PURCHASE AND SALE OBLIGATIONS
3.1 Purchase and Sale Obligation of Product. Upon Marketing Approval,
---------------------------------------
Ergo shall purchase from Geneva, and Geneva shall manufacture, sell, and deliver
to Ergo, all of Ergo's requirements (and all of each Ergo Partner's
requirements) of the Product throughout the world.
3.2 Supply of Bromocriptine. Ergo shall purchase and supply to Geneva all
-----------------------
Bromocriptine required for Geneva to manufacture and deliver Product as set
forth in Section 3.1 above. Ergo shall have Bromocriptine delivered to Geneva's
Broomfield, Colorado manufacturing facility. Risk of loss to all Bromocriptine
10
<PAGE>
shall pass to Geneva upon delivery of the Bromocriptine to Geneva. Geneva shall
be responsible for testing each lot of Bromocriptine for conformance with the
Bromocriptine Specifications.
3.3 Price for Manufacturing Product. In consideration for manufacturing
-------------------------------
the Product as set forth herein, Ergo shall pay to Geneva for the Product a
price equal to [*]
3.4 Price for Other Services. [*]
------------------------
3.5 Limit on Other Product Sale. Other than as explicitly permitted in
---------------------------
this Agreement, Geneva shall not manufacture, deliver, or sell the Product or
Bromocriptine or any tablets or drug products containing Bromocriptine, for use
in the treatment of diabetes type II or obesity in human patients in the United
States or in any other country in which Ergo owns or controls a patent covering
the drug product or the use of Bromocriptine to treat Type II diabetes or
obesity, respectively.
3.6 Waste/Usage. Geneva agrees that it will waste no more than [*] of
-----------
the Bromocriptine purchased and supplied by Ergo in the manufacture of Product.
To the extent Geneva wastes more than [*] of the Bromocriptine supplied by Ergo,
Geneva shall reimburse Ergo for the cost of such Bromocriptine at the same price
paid by Ergo.
[*] Confidential information omitted and filed separately with the Commission.
11
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ARTICLE 4
MARKETING, FORECASTING, AND INVENTORY
4.1 Ergo Marketing Obligation. Upon receipt of the applicable Marketing
-------------------------
Approval, Ergo shall use its commercially reasonable efforts (including entering
into an agreement with an Ergo Partner, if deemed appropriate by Ergo) to
develop and expand the market for the Product in the Territory.
4.2 Product Order Forecasts.
-----------------------
(a) At least [*] days before the Launch Date, Ergo shall provide to Geneva
its preliminary forecast for orders for Product (including the Net Sales
Applicable thereto) for each month of the Launch Year (the "Preliminary
Forecast").
(b) At least [*] days before the Launch Date, Ergo shall furnish to
Geneva an update of its Preliminary forecast for orders for Product (including
the Net Sales applicable thereto) for each month of the Launch Year (the
"Updated Preliminary Forecast"). In addition, within [*] days after the receipt
of the Approvable Letter, Ergo shall furnish to Geneva its best estimate of the
Launch Date.
(c) After Delivery of the Updated Preliminary Forecast, by the [*] day of
each month that this Agreement is in effect, Ergo shall provide to Geneva its
sales forecast for orders for Product for each of the next [*] months.
[*] Confidential information omitted and filed separately with the Commission.
12
<PAGE>
4.3 Maintenance of Product Inventory. (a) In order to provide for
--------------------------------
sufficient inventory during the Launch Year, Geneva shall manufacture before the
estimated Launch Date and keep on hand during the Launch Year the Launch Year
Inventory Amount. Geneva shall begin manufacturing Product to provide such
inventory at least [*] days prior to the estimated Launch Date. After the end
of the Launch Year, Geneva shall keep on hand in inventory an amount of the
Product equal to the Post-Launch Year Inventory Amount.
(b) The "Launch Year Inventory Amount" shall mean, (i) as of the first day
of each of the first [*] months of the Launch Year, the total number of units of
Product forecast to be sold during the [*] period beginning on such day, and
(ii) as of the first day of each of the [*] of the Launch Year, the total number
of units of Product forecast to be sold during the [*] period beginning on such
day. The forecast to be relied on for subpart (i) of this section (b) shall be
the Updated Preliminary Forecast. The forecast to be relied on for this subpart
(ii) of this section (b) shall be the most recent forecast sent to Geneva at
least [*] days before the first day of the [*] month period of the Launch Year.
(c) "Post-Launch Year Inventory Amount" shall mean, (i) as of the first
day of any month after the end of the Launch Year, the total number of units of
Product forecast to be sold during the [*] period beginning on such day. The
forecast to be relied on for this section (c) shall be the most recent forecast
sent to Geneva at least [*] days before the first day of the applicable month.
[*] Confidential information omitted and filed separately with the Commission.
13
<PAGE>
(d) Ergo agrees that it or its Partner will purchase all Product which is
ordered and Geneva manufactures pursuant to this Section 4.3. The timing and
amount of such payment shall be as set forth in Section 3.3 above.
4.4 Product Order Fulfillment. Geneva shall deliver all Product requested
-------------------------
in each purchase order within [*] days of the date for delivery specified in
such purchase order; provided, however, for any given month, Geneva shall not be
-------- -------
required (but will use reasonable efforts) to provide Product in excess of [*]
of the forecast sent to Geneva at least [*] days before the first day of the
applicable month.
ARTICLE 5
SUPPLY INTERRUPTION
5.1 Supply Interruption. In the event that for any reason Geneva shall be
-------------------
unable to (a) manufacture and deliver the Product in quantities sufficient to
meet any forecast delivered to Geneva pursuant to this Agreement or any purchase
order received by Geneva or (b) deliver Product that meets the Specifications,
Geneva shall immediately so notify Ergo in writing and notify Ergo of the extent
of estimated shortfall, the product nonconformance (if applicable) and the
length of time of the supply interruption. In the event that (i) Geneva
notifies ergo pursuant to the preceding sentence, (ii) Geneva fails to deliver
any Product within [*] days of the date for delivery set forth in any purchase
order subject to the proviso set forth in section 4.4 above, or (iii) Geneva
fails to deliver Product that meets the
[*] Confidential information omitted and filed separately with the Commission.
14
<PAGE>
Specifications, Ergo or an Ergo partner shall have the right to either obtain
Product from a source (or sources) other than Geneva. As soon as it is able to
demonstrate to Ergo that it is able to provide sufficient quantities of Product
that meets the Specifications, Geneva shall have the right to resume supplying
conforming Product again to and for Ergo (and each Ergo Partner); provided,
---------
however, that this right to resume supplying Product shall be subject to
- -------
agreements to supply Product that Ergo has entered into with alternate suppliers
that Ergo believed in good faith were necessary and that are commercially
reasonable. Ergo shall have the right to qualify at least two alternate sources
of Product under the NDA. Beginning as of the Effective Date, Geneva shall
assist Ergo in qualifying such other sources (including supplying such other
manufacturers with such technical data and advice as may be necessary for such
other manufacturer to manufacture Product for Ergo). Such assistance shall
fall within the meaning of "other services: under Section 3.4(b) above.
ARTICLE 6
VESTING AND ISSUANCE OF STOCK BY ESC TO GENEVA, PAYMENTS
6.1 Vesting of Existing Shares. As of the Effective Date, Geneva owns
--------------------------
[*] shares of ESC common stock, $.01 par value per share (the "Existing
Shares"). All restrictions on the Existing Shares shall lapse and Geneva shall
be free, with respect to Ergo or ESC, to sell such shares, subject to all
applicable S.E.C. rules and regulations, as follows:[*]
6.2 Issuance and Vesting of Additional Shares. (a) Upon payment by Geneva
----------------------------------------------
to ESC of [*] as soon as practical after the Effective Date, ESC shall issue to
Geneva [*] shares of common stock (the "Additional Shares"). All restrictions on
the Existing Shares shall lapse and Geneva shall be free, with respect to Ergo
or ESC, to sell such shares, subject to all applicable S.E.C. rules and
regulations, as follows:[*]
(b) Geneva hereby represents, warrants, and covenants with respect to the
issuance of Shares to it pursuant to this Section that: (i) it is an accredited
investor
[*] Confidential information omitted and filed separately with the Commission.
15
<PAGE>
(as defined in Rule 501 of Regulation D of the Securities Act of 1933, as
amended (the "Securities Act")); and (ii) it is acquiring the Shares for its own
account, not as a nominee or agent, and not with a view to, or for resale in
connection with, any distribution thereof. Geneva acknowledges that the Shares
have not been, and will not be, registered under the Securities Act or the
securities laws of any state by reason of a specific exemption from the
registration or qualification provisions of the Securities Act or said
securities laws, the availability of which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of Geneva's
representations as expressed herein. Geneva acknowledges that the Shares must
be held indefinitely unless subsequently registered under the Securities Act or
unless an exemption from such registration is available. The following legend
shall be placed on the certificates representing the Shares:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES
EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE
ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT
SUCH OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT VIOLATE
APPLICABLE FEDERAL OR STATE SECURITIES LAWS.
6.3 [*] Payment. [*]
-----------
6.4 [*] Payment. [*]
-----------
[*] Confidential information omitted and filed separately with the Commission.
16
<PAGE>
ARTICLE 7
INSURANCE AND INDEMNIFICATION
7.1 Insurance. Ergo shall obtain and carry liability insurance in the
---------
amount of no less than [*] per occurrence and no less than [*] aggregate for any
and all liability arising out of Ergo's obligations pursuant to this Agreement.
Geneva shall obtain and carry liability insurance for any and all liability
arising out of Geneva's obligations under this Agreement consistent with
insurance it carries for products similar to the Product.
7.2 Ergo Indemnity Obligation. Ergo hereby agrees to and shall defend,
-------------------------
indemnify, and hold harmless Geneva and Affiliates of Geneva, and its and their
employees, officers, and directors, and its and their heirs and assigns, from,
against, and in respect of, any and all losses, damages, liabilities, suits,
actions, expenses (including reasonable attorneys' fees), and proceedings
arising from, or in connection with, any breach by Ergo of this Agreement.
7.3 Geneva Indemnity Obligation. Geneva hereby agrees to and shall
---------------------------
defend, indemnify, and hold harmless Ergo, Ergo Partners and Affiliates of Ergo
and Ergo Partners, and their employees, officers, and directors and their heirs
and assigns, from, against, and in respect of, any and all losses, damages,
liabilities, suits, actions, expenses (including reasonable attorneys' fees),
and proceedings arising from, or in connection with, any breach by Geneva of
this Agreement.
7.4 Indemnification Procedure. A party who is entitled to indemnification
-------------------------
hereunder (an "Indemnified Party") shall give prompt written notice to the other
party (for purposes of this Article 7, the "Indemnifying Party") of the
[*] Confidential information omitted and filed separately with the Commission.
17
<PAGE>
commencement or assertion of any action, proceeding, demand or claim by a third
party (collectively, a "third-party action") in respect of which the Indemnified
Party shall seek indemnification hereunder. Any failure so to notify the
Indemnifying Party shall not relieve the Indemnifying Party from any liability
that it may have to the Indemnified Party under this Article 7 unless, and to
the extent that, the failure to give such notice adversely prejudices the
Indemnifying Party. The Indemnifying Party shall have the right to assume
control of the defense of, settle, or otherwise dispose of such third-party
action on such terms as it deems appropriate; provided, however, that:
-------- -------
(a) The Indemnified Party shall be entitled, at the Indemnified Party's
own expense, to participate in the defense of such third-party action (provided,
however, that the Indemnifying Party shall pay the attorneys' fees of the
Indemnified Party if (i) the employment of separate counsel shall have been
authorized in writing by any such Indemnifying Party in connection with the
defense of such third-party action or (ii) the Indemnified Party's counsel shall
have delivered an opinion to the Indemnified Party in writing, with a copy to
the Indemnifying Party, that there is a conflict of interest that will make it
inappropriate under applicable standards of professional conduct to have common
counsel);
(b) The Indemnifying Party shall obtain the prior written approval of the
Indemnified Party before entering into or making any settlement, compromise,
admission, or acknowledgment of the validity of such third-party action or any
liability in respect thereof if, pursuant to or as a result of such settlement,
compromise, admission or acknowledgment, injunctive or other equitable relief
would be imposed against the Indemnified Party or if such settlement,
18
<PAGE>
compromise, admission, or acknowledgment will have a material adverse effect on
its business or, in the case of an Indemnified Party who is a natural person, on
his or her assets or interests;
(c) No Indemnifying Party shall consent to the entry of any judgment or
enter into any settlement that does not include as an unconditional term thereof
the giving by each claimant or plaintiff to each Indemnified Party of a release
from all further liability in respect of such third-party action;
(d) No Indemnifying Party shall be entitled to control (but shall be
entitled to participate at such Indemnifying Party's own expense in the defense
of), and the Indemnified Party shall be entitled to have sole control over, the
defense or settlement, compromise, admission, or acknowledgment of any third-
party action as to which such Indemnifying Party fails to assume the defense
within a reasonable length of time; provided, however, that the Indemnified
-------- -------
Party shall not consent to the entry of any judgment nor make any settlement,
compromise, admission or acknowledgment that would give rise to liability on the
part of any Indemnifying Party without the prior written consent of such
Indemnifying Party; and
(e) The parties hereto shall extend reasonable cooperation in connection
with the defense of any third-party action pursuant to this Article 7 and, in
connection therewith, shall furnish such records, information and testimony and
attend such conferences, discovery proceedings, hearings, trials, and appeals as
may be reasonably requested.
19
<PAGE>
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
8.1 Corporate Authorization. Each of the parties hereto represents and
-----------------------
warrants that: (i) it is a corporation duly organized, existing, and in good
standing under the laws of its state of organization; (ii) it has all requisite
legal and corporate power and authority to enter into this Agreement; (iii)
when executed by the corporate officers whose names appear on the signature
page hereof, this Agreement shall be a valid and binding obligation of the
parties enforceable in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency, and the relief of debtors; and
(iv) the execution and delivery of this Agreement and consummation of the
transactions contemplated hereby will not constitute a breach or default under
any other agreement to which it is party or by which it is bound.
8.2 Product Conforms With Specifications. With respect to Product
------------------------------------
manufactured and delivered by it, Geneva represents, warranties, and covenants
that, at the time of delivery of any Product, such Product shall meet the
Specifications and will fully conform to any and all commitments and
representations made by Geneva relating to the applicable NDA.
ARTICLE 9
FORCE MAJEURE
If either party hereto is prevented from complying, either in whole or in
part, with any of the terms or provisions of this Agreement by reason of fire,
20
<PAGE>
flood, storm, strike or lockout, riot, war, rebellion, lack or failure of
transportation facilities, sources of supply or raw materials or power, any law,
order, proclamation, ordinance, demand, or requirement of the relevant
government or any subdivision, authority, or representative thereof, or Acts of
God, and to the extent that the foregoing are beyond a party's reasonable
control, then, unless conclusive evidence to the contrary is provided, upon
written notice by the party whose performance is so affected to the other, the
requirements of this Agreement so affected (to the extent affected) shall be
suspended during the period of such disability. In particular, Geneva's
obligations to supply Product shall be suspended to the extent of Ergo's failure
to supply Bromocriptine to Geneva necessary for Geneva to meet Ergo's
requirements for Product. Said party shall be excused by reason of said force
majeure only so long as it is exercising reasonable efforts to overcome said
reason. Notwithstanding the foregoing, failure by FDA to approve an NDA shall
not be deemed an act of force majeure.
ARTICLE 10
TERM AND TERMINATION
10.1 Term. This Agreement shall become effective as of the Effective
----
Date, and, unless sooner terminated pursuant to its terms, shall continue in
full force and effect until [*].
10.2 Termination for Material Breach. Subject to the provisions of
-------------------------------
Article 9 above, each party shall have the right to terminate this Agreement at
any time on [*] days written notice to the other party in the event the other
party has
[*] Confidential information omitted and filed separately with the Commission.
21
<PAGE>
materially breached this Agreement and has failed to cure such material breach
within [*] days after receipt of such notice. The term "material breach" shall
include, by way of illustration but not of limitation, the sale, distribution,
or use of the Product by Geneva whether within or without the Territory other
than to or for Ergo or an Ergo Partner.
10.3 Geneva's Right to Terminate. Notwithstanding any other provisions
---------------------------
of this Agreement to the contrary, Geneva shall have the right to terminate this
Agreement:
(a) upon FDA's non-acceptance for filing of an NDA within [*] months
of delivery thereof to FDA;
(b) in the event that an NDA is not approved by FDA within [*] years after
the date the NDA is accepted for filing by FDA;
(c) upon [*] days written notice to Ergo in the event that Geneva fails to
receive orders for delivery for an aggregate amount of [*] tablets of
the Product within [*] years after approval of the applicable NDA; or
(d) Ergo fails to pay to Geneva the amounts set forth in Article 3 or
Article 6 as set forth therein.
10.3 Ergo's Right to Terminate. Notwithstanding any other provisions of
-------------------------
this Agreement to the contrary, Ergo shall have the right to terminate this
Agreement in the event that:
[*] Confidential information omitted and filed separately with the Commission.
22
<PAGE>
(a) Geneva is the subject of regulatory or other legal action which
adversely affects Geneva's ability to fulfill its obligations under
this Agreement;
(b) Geneva fails to deliver sufficient Product within [*] days of the date
for delivery set forth in any purchase order and is unable to deliver
such Product for a period of [*] days after the date for delivery in
such purchase order (whether or not Ergo has exercised its rights
under Article 5.1); provided, however, that (i) Ergo shall not have
-----------------
right to terminate if such order would cause Geneva to provide
Product in excess of [*] of the forecast sent to Geneva at least [*]
days before the first day of the delivery month and (ii) Ergo's right
to terminate this Agreement pursuant to this Section 10.4 (b) shall be
subject to the force majeure clause set forth in Article 9 of this
Agreement.
(c) Geneva delivers any Product that fails to meet the Specifications and
is unable to deliver Product that meets the Specifications within [*]
days of the date Geneva discovers the non-conformity or the non-
conformity in Product is communicated to Geneva (whether or not Ergo
has exercised its rights under Article 5.1);
(d) A majority of the equity securities of Geneva entitled to vote for
directors of Geneva are no longer beneficially owned, directly or
indirectly, by Novartis Ltd.
[*] Confidential information omitted and filed separately with the Commission.
23
<PAGE>
10.5 Effect of Termination. The provisions of this Article as to
---------------------
termination shall not limit or restrict the rights of any party to seek remedies
or take measures that may be otherwise available to it at law or equity in
connection with the enforcement and performance of obligations under this
Agreement including without limitation seeking remedies for breaches of
representations, warranties, and covenants prior to any such termination;
provided, however, the foregoing shall not limit the applicability of the
arbitration provisions of Section 11.7. The effects of termination of this
Agreement shall, however, include the following:
(a) Upon termination for any reason all amounts owing by a party to the
other party shall become immediately due and payable;
(b) Ergo shall have the right to inspect Geneva's books and records
pursuant to Article 2.7 for a period of one (1) year from the date of
termination;
(c) In the event that this Agreement is terminated other than as a result
of Ergo's breach of this Agreement, Geneva shall immediately deliver
at no cost to Ergo any and all drawings, diagrams, schematics,
designs, formulas, specifications, reports, analyses, studies,
memoranda, drug production reports, the Drug Master File, and any
other documents or writings which may relate in any way to the Product
and its formulation, production, manufacture, storage, stability,
validation, sale and delivery; and Geneva agrees to provide other
manufacturers with such technical data, advice and know-how as may be
necessary for such other manufacturers to manufacture Product for Ergo
or an Ergo Partner; and
24
<PAGE>
(d) Covenants to be performed after termination of this Agreement,
including without limitation the indemnification and arbitration
provisions of this Agreement, shall survive for a period of three
years following termination,.
ARTICLE 11
MISCELLANEOUS
11.1 Grant Back. If, during the performance of this Agreement, there are
----------
discovered any inventions or improvements to the Product to which Geneva owns
any rights, including patent rights but excluding inventions Geneva develops in
its manufacturing processes, Geneva shall grant to Ergo a non-exclusive, world-
wide, royalty-free license under such invention or patent rights to make, have
made, use, or sell such invention or improvement.
11.2 Compliance with Laws. Each party will comply with all applicable
--------------------
laws, rules and regulations in the conduct of its responsibilities and
activities under this Agreement. Ergo will comply with all regulations for the
maintenance of the applicable NDA including, but not limited to, the reporting
of adverse reactions.
11.3 Confidentiality. During the term of this Agreement and for a period
---------------
of five (5) years thereafter, both Geneva and Ergo undertake to keep
confidential and not to divulge to any third party, or use for any purpose other
than as is permitted or required by this Agreement, any and all information
which constitutes intellectual property, inventions, works of authorship, trade
25
<PAGE>
secrets, or other confidential information, or which relates to the Product,
Method(s), Know How, and/or the terms and conditions of this Agreement disclosed
by one party to the other, without prior written consent of the other party.
The confidentiality obligation shall not apply to such information that:
(a) is in the possession of the receiving party or its Affiliate prior to
the disclosure thereof by the other party, as evidenced by written
records; or
(b) is or thereafter becomes public knowledge through no fault of the
receiving party; or
(c) is acquired lawfully by the receiving party from a third party who has
no confidentiality or non-disclosure obligation to the disclosing
party; or
(d) is required for governmental registration of the Product or is
otherwise required to be disclosed by law.
11.4 Assistance. The parties will cooperate with each other and offer
----------
reasonable assistance in carrying out their respective responsibilities under
this Agreement.
11.5 Assignment. The rights and obligations of Geneva under this
----------
Agreement may not be assigned by Geneva without the prior written consent of
Ergo. The rights and obligations of Ergo under this Agreement may not be
assigned by Ergo without the prior written consent of Geneva, provided, however,
-------- -------
that Ergo may assign all of its rights and obligations (other than the
obligation of ESC to issue the Additional Shares, and the obligation of ESC or
26
<PAGE>
Ergo to make the payments, to Geneva pursuant to Article 6) to an Ergo Partner
and to Affiliates of an Ergo Partner in the event that an Ergo Partner and Ergo
enter into an agreement for the marketing and commercialization of the Product.
Notwithstanding the foregoing, either party hereto may assign its rights and
obligations under this Agreement to an Affiliate, but no such assignment shall
relieve the assigning party of liability for (i) a breach of this Agreement by
the party to whom such assignment was made and (ii) for making the payment to
non-assigning party provided for in this Agreement.
11.6 Waiver. Any waiver of any term or condition of this Agreement on any
------
one occasion shall not operate as a waiver of any other breach of such term or
condition on any other occasion, or as a waiver of any other term or condition
hereof, nor shall a failure to enforce any provision hereof operate as a waiver
of such provision or any other provision hereof.
11.7 Arbitration.
-----------
(a) Pre-Arbitration Meeting. The parties shall attempt in good faith
-----------------------
to resolve promptly any dispute, controversy, or claim under, arising out of,
relating to, or in connection with this Agreement by negotiations between one
representative designated by each party. If any such dispute, controversy, or
claim should arise, the designated representatives of the parties shall meet at
least once and will attempt to resolve the matter. Either designated
representative may request the other to meet within [*] days after delivery of
written notice to the other party of any such dispute, controversy, or claim, at
a mutually agreed time and place.
[*] Confidential information omitted and filed separately with the Commission.
27
<PAGE>
(b) Arbitration Proceedings. If the matter has not been resolved
-----------------------
pursuant to the foregoing procedures within [*] days after the delivery of the
written notice requesting the first meeting of the parties' designated
representatives (which period may be extended by mutual agreement), the matter
shall be settled exclusively by arbitration (except as provided in Article 12(f)
herein) conducted in accordance with the provisions of the Federal Arbitration
Act (99 U.S.C. (S)(S) 1-16), and in accordance with the Center for Public
Resources, Inc.'s Rules (the "Rules of Arbitration") for Non-Administered
Arbitration of Business Disputes, by three arbitrators, of whom each party shall
appoint one arbitrator, and such appointed arbitrators shall appoint the third
arbitrator. All arbitrators to be selected under this Section 11.7 shall,
unless the parties mutually agree otherwise, be persons: (i) who meet the
qualifications set forth in Rule 7 of the Rules of Arbitration; (ii) who are
retired federal judges; (iii) who are residents of a State other than Colorado,
New Jersey, or Massachusetts; and (iv) who have past experience in settling
complex litigation involving claims relating to supply agreements and/or product
liability issues. The arbitration of such matters, including the determination
of any amount of damages suffered by any party hereto by reason of the acts or
omissions of any party, shall be final and binding upon the parties to the
maximum extent permitted by law. The parties intend that this agreement to
arbitrate be valid, binding, enforceable, and irrevocable.
(c) Place of Arbitration. Any arbitration proceedings hereunder
--------------------
shall be conducted in New York City, New York, or at such other location as the
parties may agree.
[*] Confidential information omitted and filed separately with the Commission.
28
<PAGE>
(d) Judgments. Any arbitration award hereunder shall be final and
---------
binding upon the parties, and judgment may be entered thereon, upon the
application of either party, by any court having jurisdiction.
(e) Expenses. Each party shall be entitled to be reimbursed by the
--------
other party for costs and expenses incurred in connection with commencing any
action hereunder, including reasonable attorneys' fees and arbitrators' fees, if
and to the extent determined by the arbitrator or arbitrators arbitrating any
such action.
(f) Equitable Remedies. Notwithstanding anything else in this
------------------
Section 11.7 to the contrary, Ergo and Geneva shall be entitled to seek any
equitable remedies available under applicable law from any court of competent
jurisdiction, and the order or judgment of any such court shall be binding in
any arbitration proceeding pursuant to this Section 11.7.
11.8 Notice. Any notice or report required or permitted to be given or
------
made under this Agreement by one of the parties hereto to the other shall be in
writing and shall be deemed to have been sufficiently given or made for all
purposes if actually received or if mailed by certified mail, postage prepaid,
addressed to such other party at its respective address as follows:
Geneva Pharmaceuticals, Inc.
2655 West Midway Boulevard
Broomfield, Colorado 80038
Attention: President
Facsimile: (303) 466-6378
29
<PAGE>
Ergo Research Corporation
c/o of Ergo Science Corporation
33 3rd Avenue
Charlestown, MA 02129-2051
Attention: President
Facsimile: (617) 241-8822
11.9 Governing Law. This Agreement shall be construed in accordance with
-------------
the laws of the State of New York.
11.10 Severability. If any one or more of the provisions of this
------------
Agreement shall be held to be invalid, illegal, or unenforceable, the validity,
legality, or enforceability of the remaining provisions hereof shall not in any
way be affected or impaired thereby unless the purposes of the Agreement cannot
be achieved. In the event any provision shall be held invalid, illegal, or
unenforceable the parties shall use best efforts to substitute a valid, legal,
and enforceable provision which insofar as practical implements the purposes
hereof.
11.11 Entire Agreement. This Agreement and the Exhibit hereto constitute
----------------
the full understanding and entire agreement between the parties and supersede
any and all prior oral or written understandings and agreements with respect to
the subject matter hereof. No terms, conditions, understandings, or agreements
purporting to modify, amend, or vary this Agreement shall be binding unless made
in writing and signed by the parties hereto.
11.12 Headings. The headings used in this Agreement are for convenience
--------
of reference only and are not part of this Agreement.
30
<PAGE>
11.13 [*]
11.14 Representations: [*]
----------------
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representative as of the day and year first above
written.
Geneva Pharmaceuticals, Inc.
By: /s/ Charles T. Clay
------------------------------
Charles T. Lay
President
Date: October 24, 1997
- ---------------------------------
ERGO RESEARCH CORPORATION
By: /s/ Ronald H. Abrahams
------------------------------
Ronald H. Abrahams, Ph.D
Chairman of the Board and
Chief Executive Officer
Date: November 4, 1997
- ---------------------------------
[*] Confidential information omitted and filed separately with the Commission.
31
<PAGE>
ERGO SCIENCE CORPORATION
By: /s/ Ronald H. Abrahams
------------------------------
Ronald H. Abrahams, Ph.D
Chairman of the Board and
Chief Executive Officer
Date: November 4, 1997
- ---------------------------------
32
<PAGE>
SCHEDULE I
----------
[*]
[*] Confidential information omitted and filed separately with the Commission.
33
<PAGE>
SCHEDULE II
-----------
[*]
[*] Confidential information omitted and filed separately with the Commission.
34
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