<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 June 30, 1998
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 Number 0-28402
ARADIGM CORPORATION
(Exact name of registrant as specified in its charter)
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<CAPTION>
California 94-3133088
- -----------------------------------------------------------------------------------------------------------
<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
26219 Eden Landing Road, Hayward, CA 94545
(Address of principal executive offices including zip code)
(510) 783-0100
(Registrant's telephone number, including area code)
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.
Common Stock, no par value 12,091,500 shares
------------------------------- -------------------------------
(Class) (Outstanding at August 1, 1998)
<PAGE> 2
ARADIGM CORPORATION
INDEX
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<CAPTION>
PART I. FINANCIAL INFORMATION
Page No.
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ITEM 1. FINANCIAL STATEMENTS
Statements of Operations (Unaudited)
Three months ended June 30, 1998 and 1997 3
Six months ended June 30, 1998 and 1997 4
Balance Sheets
June 30, 1998 (Unaudited) and December 31, 1997 5
Statements of Cash Flows (Unaudited)
Six months ended June 30, 1998 and 1997 6
Notes to Unaudited Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
13
ITEM 5. OTHER MATTERS 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
Signature 16
Exhibits 17
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARADIGM CORPORATION
STATEMENTS OF OPERATIONS
(In thousands, except share and per share information)
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<CAPTION>
Three months ended
June 30,
------------------------------------
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
Contract revenues $ 4,077 $ 170
Expenses:
Research and development 5,602 3,274
General and administrative 2,673 1,527
------------ ------------
Total expenses 8,275 4,801
------------ ------------
Loss from operations (4,198) (4,631)
Interest income 493 342
Interest expense (127) (22)
------------ ------------
Net loss $ (3,832) $ (4,311)
============ ============
Basic and diluted net loss per share $ (0.32) $ (0.42)
------------ ------------
Shares used in computing basic and
diluted net loss per share 11,868,752 10,201,495
============ ============
</TABLE>
See accompanying notes.
<PAGE> 4
ARADIGM CORPORATION
STATEMENTS OF OPERATIONS
(In thousands, except share and per share information)
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------------------------
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
Contract revenues $ 6,829 $ 740
Expenses:
Research and development 10,009 5,799
General and administrative 5,028 2,442
------------ ------------
Total expenses 15,037 8,241
------------ ------------
Loss from operations (8,208) (7,501)
Interest income 811 724
Interest expense (217) (36)
------------ ------------
Net loss $ (7,614) $ (6,813)
============ ============
Basic and diluted net loss per share $ (0.68) $ (0.67)
------------ ------------
Shares used in computing basic and
diluted net loss per share 11,239,897 10,205,370
============ ============
</TABLE>
See accompanying notes.
<PAGE> 5
ARADIGM CORPORATION
BALANCE SHEETS
(In thousands, except share information)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 25,686 $ 15,517
Short-term investments 14,290 8,788
Receivables 1,155 261
Inventories 242 520
Other current assets 784 409
-------- --------
Total current assets 42,157 25,495
Property and equipment, net 8,586 4,417
Notes receivable from officers 215 303
Other assets 79 79
-------- --------
Total assets $ 51,037 $ 30,294
======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,891 $ 1,505
Accrued clinical and other studies -- --
Accrued compensation 1,173 728
Deferred revenue 13,675 6,339
Other accrued liabilities 634 342
Current portion of capital lease obligations and
equipment loans 1,067 582
-------- --------
Total current liabilities 18,440 9,496
Noncurrent portion of capital lease obligations and
equipment loans 3,755 2,139
Commitments and contingencies
Shareholders' equity:
Common stock, no par value, 40,000,000 shares
authorized; issued and outstanding shares: June 30,
1998 - 12,091,500; December 31, 1997 - 10,632,133
73,233 54,976
Shareholder notes receivable (308) (386)
Deferred compensation (622) (104)
Accumulated deficit (43,461) (35,827)
-------- --------
Total shareholders' equity 28,842 18,659
-------- --------
Total liabilities and shareholders' equity $ 51,037 $ 30,294
======== ========
</TABLE>
See accompanying notes.
<PAGE> 6
ARADIGM CORPORATION
STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(In thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
----------------------------
1998 1997
-------- --------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (7,614) $ (6,813)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 781 280
Warrant expense for services received 323 --
Amortization of deferred compensation 131 102
Changes in assets and liabilities:
Receivables (894) --
Inventories and other current assets (97) (365)
Accounts payable 386 543
Accrued liabilities 737 (455)
Deferred revenue 7,336 (129)
-------- --------
Cash provided by (used in) operating activities 1,089 (6,837)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (4,950) (1,399)
Purchases of available-for-sale investments (16,682) (17,986)
Proceeds from maturities of available-for-sale investments 11,160 21,020
-------- --------
Cash (used in) provided by investing activities (10,472) 1,635
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net 17,302 30
Proceeds from repayments of shareholder notes 72 52
Notes receivable from officers 77 (22)
Proceeds from equipment loans 2,457 --
Payments on lease obligations and equipment loans (356) (156)
-------- --------
Cash provided by (used in) financing activities 19,552 (96)
-------- --------
Net increase (decrease) in cash and cash equivalents 10,169 (5,298)
Cash and cash equivalents at beginning of period 15,517 18,554
-------- --------
Cash and cash equivalents at end of period $ 25,686 $ 13,256
======== ========
SUPPLEMENTAL INVESTING AND FINANCING ACTIVITIES
Common stock repurchased upon cancellation of
shareholder notes $ 17 $ 9
Acquisition of equipment under capital leases $ -- $ 150
</TABLE>
See accompanying notes.
<PAGE> 7
ARADIGM CORPORATION
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
June 30, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Aradigm Corporation (the "Company") was incorporated in California in January
1991. Since inception, Aradigm has been engaged in the development and
commercialization of non-invasive pulmonary drug delivery systems. The Company
does not anticipate receiving significant revenue from the sale of products in
the upcoming year. Principal activities to date have included obtaining
financing, recruiting management and technical personnel, securing operating
facilities, conducting research and development, and expanding commercial
production capabilities. These factors indicate that the Company's ability to
continue its research, development and commercialization activities is
dependent upon the ability of management to obtain additional financing as
required.
In the opinion of management, the financial statements reflect all adjustments,
which are of a normal recurring nature, necessary for a fair presentation. The
accompanying financial statements should be read in conjunction with the
financial statements and notes thereto included with the Company's Annual
Report on Form 10-K. The results of the Company's operations for the interim
periods presented are not necessarily indicative of operating results for the
full fiscal year or any future interim periods.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Cash Equivalents and Investments
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. The Company places
its cash and cash equivalents in money market funds, commercial paper and
corporate master notes. The Company's short-term investments consist of
corporate notes with maturities ranging from three to twelve months.
The Company classifies its investments as available-for-sale.
Available-for-sale investments are recorded at fair value with unrealized gains
and losses reported in the statement of shareholders' equity. Fair values of
investments are based on quoted market prices, where available. Realized gains
and losses, which have been immaterial to date, are included in interest and
other income and are derived using the specific identification method for
determining the cost of investments sold. Dividend and interest income is
recognized when earned.
Depreciation and Amortization
The Company records property and equipment at cost and calculates depreciation
using the straight-line method over the estimated useful lives of the
respective assets, generally four to seven years. Machinery and equipment
acquired under capital leases is amortized over the useful lives of the assets.
Leasehold improvements are amortized over the shorter of the term of the lease
or useful life of the improvement.
Revenue Recognition
Contract revenues consist of revenue from collaboration agreements and
feasibility studies. The Company recognizes revenue ratably under the
agreements as costs are incurred. Deferred revenue represents the portion of
research payments received that has not been earned. In accordance with
contract terms, up-front and milestone payments from collaborative research
agreements are considered
<PAGE> 8
reimbursements for costs incurred under the agreements and, accordingly, are
generally deferred when received and recognized as revenue based on actual
efforts expended over the remaining terms of the agreements. Non-refundable
signing or license fee payments that are not dependent on future performance
under collaborative agreements are recognized as revenue when received. Costs
of contract revenue approximate such revenue and are included in research and
development expenses.
Common Stock and Net Loss Per Share
Basic net loss per share has been computed using the weighted average number of
shares of common stock outstanding during the period. At June 30, 1998 and
1997, outstanding stock options and other stock equivalents are not included as
their effect would be antidilutive.
In April 1998, the Company raised $12 million through a private sale of 1.1
million newly-issued shares of its common stock to a select group of
institutional investors.
Contingencies
In June of 1998, Eli Lilly and Company ("Lilly") filed a complaint against the
Company in the United States District Court for the Southern District of
Indiana. The complaint made various allegations against the Company, arising
from the Company's decision to enter into an exclusive collaboration with Novo
Nordisk A/S, addressing the development and commercialization of a pulmonary
delivery system for insulin and insulin analogs. The complaint seeks a
declaration that Lilly scientists are co-inventors of a patent application
filed by the Company relating to pulmonary delivery of an insulin analog or, in
the alternative, enforcement of an alleged agreement to grant Lilly an
nonexclusive license under such patent application. The complaint also
contains certain other allegations and seeks unspecified damages and injunctive
relief. Management believes that Lilly's claims are without merit and that
this litigation will not have a material adverse effect on the Company's
results of operations, cash flows or financial position. The Company recently
filed an answer denying all material allegations of the complaint.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income," and Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information," which
require additional disclosures to be adopted beginning in the first quarter of
1998 and on December 31, 1998, respectively.
Under SFAS 130, the Company is required to display comprehensive income and its
components as part of the Company's full set of financial statements.
Comprehensive income is comprised of net income and other comprehensive income.
The measurement and presentation of net income will not change. Other
comprehensive income includes certain changes in equity of the Company that are
excluded from net income. Specifically, SFAS 130 requires unrealized holding
gains and losses on the Company's available-for-sale securities, which are
currently reported separately in shareholders' equity, to be included in other
comprehensive income. During the first two quarters of 1998 and 1997, total
comprehensive income did not differ materially from net income reported for
those periods.
SFAS 131 requires that the Company report financial and descriptive information
about its reportable operating segments. The Company is evaluating the impact,
if any, of SFAS 131 on its financial statement disclosures, but does not
believe the additional disclosure will be material to the financial statements.
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion below contains forward-looking statements that are
based on the beliefs of the Company's management, as well as assumptions made
by, and information currently available to, the Company's management. The
Company's future results, performance or achievements could differ materially
from those expressed in, or implied by, any such forward-looking statements as
a result of certain factors, including, but not limited to, those discussed in
this section as well as in the section entitled "Risk Factors" and elsewhere in
the Company's Form 10-K filed with the Securities and Exchange Commission on
March 24, 1998.
The Company's business is subject to significant risks including, but
not limited to, the success of its research and development efforts, its
dependence on corporate partners for marketing and distribution resources,
obtaining and enforcing patents important to the Company's business, clearing
the lengthy and expensive regulatory process and possible competition from
other products. Even if the Company's products appear promising at various
stages of development they may not reach the market or may not be commercially
successful for a number of reasons. Such reasons include, but are not limited
to, the possibilities that the potential products will be found to be
ineffective during clinical trials, fail to receive necessary regulatory
approvals, be difficult to manufacture on a large scale, be uneconomical to
market, be precluded from commercialization by proprietary rights of third
parties or may not gain acceptance from health care professionals and patients.
Readers are cautioned not to place undue reliance on the forward-looking
statements contained herein. The Company undertakes no obligation to publicly
release the results of any revision to these forward-looking statements which
may be made to reflect events or circumstances occurring after the date hereof
or to reflect the occurrence of unanticipated events.
OVERVIEW
Since its inception in 1991, Aradigm has been engaged in the
development of pulmonary drug delivery systems. As of June 30, 1998, the
Company had an accumulated deficit of $43.5 million. The Company has been
unprofitable since inception and expects to incur additional operating losses
over at least the next several years as the Company's research and development
efforts, preclinical and clinical testing activities and manufacturing scale-up
efforts expand and as the Company plans and builds its late-stage clinical and
early commercial production capabilities. To date, Aradigm has not sold any
products and does not anticipate receiving significant revenue from product
sales in 1998. The sources of working capital have been equity financing,
financing of equipment acquisitions, interest earned on investments of cash and
revenues from research and feasibility agreements and development contracts.
The Company has performed and has been compensated for expenses
incurred during initial feasibility work and for work performed under
collaborative agreements. Once feasibility is demonstrated, the Company's
strategy is to enter into development contracts with pharmaceutical corporate
partners. The Company anticipates that these partners will pay for research and
development expenses and will make additional payments to the Company as it
achieves certain significant milestones. The Company also expects to receive
royalties from its corporate partners based on revenues from product sales and
to receive revenue from the manufacturing of unit dose packets and hand-held
devices. However, there can be no assurance that the Company will be able to
generate sufficient product or contract research revenue to become profitable
or to sustain profitability.
<PAGE> 10
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 1998 and 1997
Contract Revenue. Contract revenue for the three-month period ended
June 30, 1998 increased to $4.1 million from $170,000 for the same period in
1997. Contract revenue for the six-month period ended June 30, 1998 increased
to $6.8 million from $740,000 for the same period in 1997. These increases in
revenue were due primarily to increased partner-funded product development
activities. The Company is developing pulmonary delivery systems with
SmithKline Beecham, plc, to manage acute and breakthrough pain using narcotic
analgesics, and Novo Nordisk A/S, to manage diabetes using insulin and other
blood glucose regulating compounds. Costs of contract research revenue
approximate such revenue and are included in research and development expense.
Research and Development Expenses. Research and development expenses
for the three-month period ended June 30, 1998 increased to $5.6 million from
$3.3 million for the same period in 1997. Research and development expenses for
the six-month period ended June 30, 1998 increased to $10.0 million from $5.8
million for the same period in 1997. These increases were attributable
primarily to the hiring of additional scientific personnel and expenses
associated with the expansion of research and development efforts on the AERx
system. These expenses represent proprietary research expenses as well as the
costs related to contract research revenue and include salaries and benefits of
scientific and development personnel, laboratory supplies, consulting services
and the expenses associated with the development of manufacturing processes.
The Company expects research and development spending to increase significantly
over the next few years as the Company continues to expand its development
activities under collaborative agreements and plans, builds and scales up a
late-stage clinical and early-stage commercial manufacturing facility. The
increase in research and development expenditures cannot be predicted
accurately as it depends in part upon future success in obtaining new
collaborative agreements.
General and Administrative Expenses. General and administrative
expenses for the three-month period ended June 30, 1998 increased to $2.7
million from $1.5 million for the same period in 1997. General and
administrative expenses for the six-month period ended June 30, 1998 increased
to $5.0 million from $2.4 million for the same period in 1997. These increases
were attributable primarily to support of the Company's increased research
efforts, additional facilities expense, administrative staffing, business
development and marketing activities. The Company expects to incur greater
general and administrative expenses in the future as it expands its research,
development and manufacturing activities and increases its efforts to develop
collaborative relationships with corporate partners.
Interest Income. Interest income for the three-month period ended
June 30, 1998 increased to $493,000 from $342,000 for the same period in 1997.
Interest income for the six-month period ended June 30, 1998 increased to
$811,000 from $724,000 for the same period in 1997. These increases were due
to the Company maintaining larger cash and investment balances. The higher cash
and investment balances are a result of the Company's receipt of research
funding and milestone payments from collaborative partners, the completion of a
private placement of the Company's Common Stock in April 1998 which raised net
proceeds of $12.0 million, and Novo Nordisk A/S making a $5.0 million equity
investment in Aradigm at a 25% premium-to-market price in conjunction with the
June 1998 development agreement between the Company and Novo Nordisk A/S to
develop insulin products using Aradigm's non-invasive pulmonary drug delivery
system.
Interest Expense. Interest expense for the three-month period ended
June 30, 1998 increased to $127,000 from $22,000 for the same period in 1997.
Interest expense for the six-month period ended June 30, 1998 increased to
$217,000 from $36,000 for the same period in 1997. These increases are a
result of higher outstanding capital lease and equipment loan balances under
the Company's equipment lines of credit.
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily
through private placements and public offerings of its capital stock, proceeds
from financings of equipment acquisitions, contract research revenue and
interest earned on investments. As of June 30, 1998, the Company had received
approximately $72.3 million in net proceeds from sales of its capital stock.
The Company also has a $5.0 million equipment line of credit, of which
approximately $438,000 remains available for purchases through September 1998.
As of June 30, 1998, the Company had cash, cash equivalents and investments of
approximately $40.0 million. The Company also has the right to sell $5 million
of common stock to each of SmithKline Beecham, plc, and Novo Nordisk A/S.
Net cash provided by operating activities in the six months ended June
30, 1998 was $1.1 million compared to net cash used of $6.8 million in the same
period in 1997. The increase resulted primarily from increases in deferred
revenue, accounts payable, accrued liabilities and receivables offset partially
by an increase in net loss of $800,000.
Net cash used in investing activities in the six months ended June 30,
1998 was $10.5 million compared to net cash provided of $1.6 million in the
same period in 1997. The decrease resulted primarily from the Company's
expenditures made for capital equipment and decreased receipts of net proceeds
from investment maturities.
Net cash provided by financing activities in the six months ended June
30, 1998 of $19.6 million resulted primarily from the Company's receipt of
proceeds from the issuance of common stock and net receipt of proceeds from
equipment loans. Net cash used in financing activities in the six months ended
June 30, 1997 of $96,000 resulted primarily from the Company's repayment of
capital lease obligations.
The development of the Company's technology and proposed products will
require a commitment of substantial funds to conduct the costly and
time-consuming research and preclinical and clinical testing activities
necessary to develop and refine such technology and proposed products and to
bring any such products to market. The Company's future capital requirements
will depend on many factors, including continued progress in the research and
development of the Company's technology and drug delivery systems, the ability
of the Company to establish and maintain favorable collaborative arrangements
with others, progress with preclinical studies and clinical trials, the time
and costs involved in obtaining regulatory approvals, the cost of development
and the rate of scale-up of the Company's production technologies, the cost
involved in preparing, filing, prosecuting, maintaining and enforcing patent
claims and the need to acquire licenses or other rights to new technology.
The Company expects its cash requirements to increase due to expected
increases in expenses related to the further research and development of its
technologies resulting from a larger number of collaborative partnerships,
process development for the manufacture of AERx systems, and general and
administrative costs. These expenses include, but are not limited to,
increases in personnel and personnel-related costs, purchases of capital
equipment, construction of prototype devices and facilities expansion including
the planning and building of a late-stage clinical and early-stage commercial
manufacturing facility.
The Company expects that its existing capital resources, committed
funding from its existing corporate partnership with SmithKline Beecham and
Novo Nordisk AS and projected interest income will enable the Company to
maintain current and planned operations through at least 1999. However, there
can be no assurance that the Company will not need to raise substantial
additional capital to fund its operations prior to such time. There can be no
assurance that additional financing will be available on acceptable terms or at
all. The Company's cash requirements, however, may vary materially from those
now planned because of results of research and development efforts, including
capital expenditures and funding preclinical and clinical trials and
manufacturing capacity for preclinical, clinical and full scale
<PAGE> 12
manufacturing requirements of the AERx system. The Company may seek additional
funding through collaborations or through public or private equity or debt
financings. However, there cannot be any assurance that additional financing
can be obtained on acceptable terms, or at all. If additional funds are raised
by issuing equity securities, dilution to shareholders may result. If adequate
funds are not available, the Company may be required to delay, to reduce the
scope of, or to eliminate one or more of its research and development programs,
or to obtain funds through arrangements with collaborative partners or other
sources that may require the Company to relinquish rights to certain of its
technologies or products that the Company would not otherwise relinquish.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June of 1998, Eli Lilly and Company ("Lilly") filed a
complaint against the Company in the United States District Court
for the Southern District of Indiana. The complaint made various
allegations against the Company, arising from the Company's decision
to enter into an exclusive collaboration with Novo Nordisk A/S,
addressing the development and commercialization of a pulmonary
delivery system for insulin and insulin analogs. Management
believes that Lilly's claims are without merit and that this
litigation will not have a material adverse effect on the results of
operations, cash flows or financial position. The Company has
sponsored various studies of the pulmonary delivery of insulin and
insulin analogs using materials supplied by Lilly under a series of
agreements dating from January of 1996. The Company and Lilly had
also conducted negotiations concerning a long-term supply agreement
under which Lilly would supply bulk insulin to the Company for
commercialization in the Company's AERx Diabetes Management System,
and a separate agreement under which the Company would license
certain intellectual property to Lilly. These negotiations were
terminated after the Company proceeded with its agreement with Novo
Nordisk A/S. The complaint seeks a declaration that Lilly
scientists are co-inventors of a patent application filed by the
Company relating to pulmonary delivery of an insulin analog or, in
the alternative, enforcement of an alleged agreement to grant Lilly
an nonexclusive license under such patent application. The
complaint also contains allegations of misappropriation of trade
secrets, breach of fiduciary duty, conversion and unjust enrichment
and seeks unspecified damages and injunctive relief. The Company
recently filed an answer denying all material allegations of the
complaint.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Changes in Securities
Pursuant to a Common Stock Purchase Agreement between the
Company, Deutsche Vermogensbildungsgesellschaft mbH (DVG), FB
Invemed Fund, L.P., GSAM Oracle Fund, Haussmann Holdings, N.V.,
Oracle Institutional Partners, L.P., Oracle Offshore Limited, Oracle
Partners, L.P., and State of Oregon (collectively, the
"Purchasers"), dated April 3, 1998 (the "Purchase Agreement"), the
Company issued 1,111,100 shares of Common Stock (the "Private
Placement Shares") of the Company to the Purchasers in exchange for
an aggregate purchase price of $11,999,880. The Private Placement
Shares were issued in reliance on Rule 506 of Regulation D of the
Securities Act of 1933, as amended. In connection with the Purchase
Agreement, the Company also issued a warrant to purchase 69,433
shares of Common Stock of the Company (the "Invemed Warrant") to
Invemed Fund, L.P. The Invemed Warrant has an exercise price of
$12.42 per share and will be exercisable until June 16, 2003. The
Invemed Warrant was issued in reliance on Rule 506 of Regulation D
of the Securities Act of 1933, as amended.
Pursuant to a Stock Purchase Agreement between the Company and
Novo Nordisk A/S ("Novo"), dated June 2, 1998, the Company issued
312,396 shares of Common Stock (the "Novo Shares") of the Company to
Novo in exchange for an aggregate purchase price of $5,000,015.13.
The Novo Shares were issued in reliance on Rule 506 of Regulation D
of the Securities Act of 1933, as amended.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders of Aradigm Corporation was held
on May 15, 1998.
(b) Burton J. McMurtry, Reid M. Rubsamen, Gordon W. Russell, Fred E.
Silverstein, Richard P. Thompson and Virgil D. Thompson were elected
to the Board of Directors to hold office until the next Annual
Meeting of Shareholders and until their successors are elected and
qualified.
(c) The matters voted upon at the meeting and the voting of the
shareholders with respect thereto were as follows:
(i) The election of Burton J. McMurtry as a Director to hold
office until the next Annual Meeting of Shareholders and
until his successor is elected and qualified:
<PAGE> 14
For: 7,860,099 Withheld: 989,280
(ii) The election of Reid M. Rubsamen as a Director to hold
office until the next Annual Meeting of Shareholders and
until his successor is elected and qualified:
For: 8,842,180 Withheld: 7,199
(iii) The election of Gordon W. Russell as a Director to hold
office until the next Annual Meeting of Shareholders and
until his successor is elected and qualified:
For: 8,842,180 Withheld: 7,199
(iv) The election of Fred E. Silverstein as a Director to hold
office until the next Annual Meeting of Shareholders and
until his successor is elected and qualified:
For: 8,842,180 Withheld: 7,199
(v) The election of Richard P. Thompson as a Director to hold
office until the next Annual Meeting of Shareholders and
until his successor is elected and qualified:
For: 8,699,571 Withheld: 7,199
(vi) The election of Virgil D. Thompson as a Director to hold
office until the next Annual Meeting of Shareholders and
until his successor is elected and qualified:
For: 8,699,571 Withheld: 7,199
(vii) Approval of an amendment to the 1996 Equity Incentive
Plan, increasing the total number of shares of Common
Stock authorized for issuance by 1,000,000 shares.
For: 5,038,245
Against: 1,169,835
Abstain: 1,077,923
Broker Non-Votes: 1,420,767
(viii) Approval of an amendment to the Employee Stock Purchase
Plan, increasing the total number of shares of Common
Stock authorized for issuance by 150,000 shares.
For: 7,235,178
Against: 48,096
Abstain: 2,729
Broker Non-Votes: 1,420,767
(ix) Approval of an amendment to the Company's Bylaws, setting
the range of directors from five to nine.
For: 8,688,645
Against: 13,146
Abstain: 4,979
Broker Non-Votes: 0
(x) Ratification of the selection of Ernst & Young LLP as
independent auditors of the Company for its fiscal year
ending December 31, 1998.
For: 8,552,196
Against: 7,400
Abstain: 147,174
Broker Non-Votes: 0
<PAGE> 15
ITEM 5. OTHER INFORMATION
Pursuant to the Company's bylaws, shareholders who wish to
bring matters or propose nominees for director at the Company's 1999
annual meeting of stockholders must provide specified information to
the Company not later than the close of business on the sixtieth
(60th) day nor earlier than the close of business on the ninetieth
(90th) day prior to the first anniversary of the preceding year's
annual meeting (unless such matters are included in the Company's
proxy statement pursuant to Rule 14a-8 under the Securities Exchange
Act of 1934, as amended).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Item Description
---- -----------
<S> <C>
3.1 Bylaws of the Company, as amended
10.22 Common Stock Purchase Agreement between the Company, Deutsche
Vermogensbildungsgesellschaft mbH (DVG), FB Invemed Fund, L.P., GSAM Oracle Fund,
Haussmann Holdings, N.V., Oracle Institutional Partners, L.P., Oracle Offshore Limited,
Oracle Partners, L.P., and State of Oregon, dated April 3, 1998
10.23* Development and License Agreement by and between Aradigm Corporation and Novo Nordisk
A/S
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
</TABLE>
_____________
* Confidential treatment requested.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K
during the quarter ended June 30, 1998.
<PAGE> 16
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 thereunto duly authorized.
Dated: August 14, 1998
ARADIGM CORPORATION
(Registrant)
/s/ Mark A. Olbert
------------------------------------------
Mark A. Olbert
Vice President, Finance and Administration
and Chief Financial Officer
<PAGE> 17
ARADIGM CORPORATION
FORM 10-Q
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
3.1 Bylaws of the Company, as amended
10.22 Common Stock Purchase Agreement between the Company, Deutsche Vermogensbildungsgesellschaft mbH (DVG),
FB Invemed Fund, L.P., GSAM Oracle Fund, Haussmann Holdings, N.V., Oracle Institutional Partners, L.P.,
Oracle Offshore Limited, Oracle Partners, L.P., and State of Oregon, dated April 3, 1998
10.23* Development and License Agreement by and between Aradigm Corporation and Novo Nordisk A/S
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
</TABLE>
__________________
* Confidential treatment requested.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED BYLAWS
OF
ARADIGM CORPORATION
(A CALIFORNIA CORPORATION)
ADOPTED BY THE BOARD APRIL 26, 1996
APPROVED BY THE SHAREHOLDERS JUNE 5, 1996
AMENDED BY THE BOARD MARCH 12, 1998
APPROVED BY THE SHAREHOLDERS MAY 15, 1998
AMENDED BY THE BOARD JUNE 2, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I OFFICES 1
SECTION 1. PRINCIPAL OFFICE 1
SECTION 2. OTHER OFFICES 1
ARTICLE II CORPORATE SEAL 1
SECTION 3. CORPORATE SEAL 1
ARTICLE III SHAREHOLDERS' MEETINGS AND VOTING RIGHTS 2
SECTION 4. PLACE OF MEETINGS 2
SECTION 5. ANNUAL MEETING 2
SECTION 6. POSTPONEMENT OF ANNUAL MEETING 5
SECTION 7. SPECIAL MEETINGS 5
SECTION 8. NOTICE OF MEETINGS 5
SECTION 9. MANNER OF GIVING NOTICE 7
SECTION 10. QUORUM AND TRANSACTION OF BUSINESS 7
SECTION 11. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS 8
SECTION 12. WAIVER OF NOTICE, CONSENT TO MEETING OR APPROVAL OF MINUTES 9
SECTION 13. NO ACTION BY WRITTEN CONSENT WITHOUT A MEETING 9
SECTION 14. VOTING 9
SECTION 15. PERSONS ENTITLED TO VOTE OR CONSENT 10
SECTION 16. PROXIES 11
SECTION 17. INSPECTORS OF ELECTION 12
ARTICLE IV BOARD OF DIRECTORS 13
SECTION 18. POWERS 13
SECTION 19. NUMBER OF DIRECTORS 13
SECTION 20. ELECTION OF DIRECTORS, TERM, QUALIFICATIONS 14
SECTION 21. RESIGNATIONS 14
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 22. REMOVAL 14
SECTION 23. VACANCIES 14
SECTION 24. REGULAR MEETINGS 15
SECTION 25. PARTICIPATION BY TELEPHONE 15
SECTION 26. SPECIAL MEETINGS 15
SECTION 27. NOTICE OF MEETINGS 15
SECTION 28. PLACE OF MEETINGS 16
SECTION 29. ACTION BY WRITTEN CONSENT WITHOUT A MEETING 16
SECTION 30. QUORUM AND TRANSACTION OF BUSINESS 16
SECTION 31. ADJOURNMENT 17
SECTION 32. ORGANIZATION 17
SECTION 33. COMPENSATION 17
SECTION 34. COMMITTEES 17
ARTICLE V OFFICERS 18
SECTION 35. OFFICERS 19
SECTION 36. APPOINTMENT 19
SECTION 37. INABILITY TO ACT 19
SECTION 38. RESIGNATIONS 19
SECTION 39. REMOVAL 19
SECTION 40. VACANCIES 20
SECTION 41. CHAIRMAN OF THE BOARD 20
SECTION 42. PRESIDENT 20
SECTION 43. VICE PRESIDENTS 20
SECTION 44. SECRETARY 21
SECTION 45. CHIEF FINANCIAL OFFICER 22
SECTION 46. COMPENSATION 23
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE VI CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS 23
SECTION 47. EXECUTION OF CONTRACTS AND OTHER INSTRUMENTS 23
SECTION 48. LOANS 23
SECTION 49. BANK ACCOUNTS 24
SECTION 50. CHECKS, DRAFTS, ETC. 24
ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER 25
SECTION 51. CERTIFICATE FOR SHARES 25
SECTION 52. TRANSFER ON THE BOOKS 25
SECTION 53. LOST, DESTROYED AND STOLEN CERTIFICATES 26
SECTION 54. ISSUANCE, TRANSFER AND REGISTRATION OF SHARES 26
ARTICLE VIII INSPECTION OF CORPORATE RECORDS 27
SECTION 55. INSPECTION BY DIRECTORS 27
SECTION 56. INSPECTION BY SHAREHOLDERS 27
(a) Inspection of Corporate Records 27
(b) Inspection of Bylaws 28
SECTION 57. WRITTEN FORM 28
ARTICLE IX MISCELLANEOUS 29
SECTION 58. FISCAL YEAR 29
SECTION 59. ANNUAL REPORT 29
SECTION 60. RECORD DATE 29
SECTION 61. BYLAW AMENDMENTS 30
SECTION 62. CONSTRUCTION AND DEFINITION 30
ARTICLE X INDEMNIFICATION 31
SECTION 63. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS 31
(a) Directors 31
(b) Officers, Employees and Other Agents 31
(c) Determination by the Corporation 31
</TABLE>
iii
<PAGE> 5
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
(d) Good Faith 32
(e) Expenses 33
(f) Enforcement 33
(g) Non-Exclusivity of Rights 34
(h) Survival of Rights 34
(i) Insurance 34
(j) Amendments 34
(k) Employee Benefit Plans 35
(l) Saving Clause 35
(m) Certain Definitions 35
ARTICLE XI LOANS OF OFFICERS AND OTHERS 24
SECTION 64. CERTAIN CORPORATE LOANS AND GUARANTIES 24
ARTICLE XII RIGHT OF FIRST REFUSAL 24
SECTION 65. RIGHT OF FIRST REFUSAL 24
</TABLE>
iv
<PAGE> 6
AMENDED AND RESTATED BYLAWS
OF
ARADIGM CORPORATION
(A CALIFORNIA CORPORATION)
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal executive office of the
corporation shall be located at such place as the Board of Directors may from
time to time authorize. If the principal executive office is located outside
this state, and the corporation has one or more business offices in this state,
the board of directors shall fix and designate a principal business office in
the State of California.
SECTION 2. OTHER OFFICES. Additional offices of the corporation shall be
located at such place or places, within or outside the State of California, as
the Board of Directors may from time to time authorize.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. If the Board of Directors adopts a corporate
seal such seal shall have inscribed thereon the name of the corporation and the
state and date of its incorporation. If and when a seal is adopted by the
Board of Directors, such seal may be engraved, lithographed, printed, stamped,
impressed upon, or affixed to any contract, conveyance, certificate for shares,
or other instrument executed by the corporation.
ARTICLE III
SHAREHOLDERS' MEETINGS AND VOTING RIGHTS
SECTION 4. PLACE OF MEETINGS. Meetings of shareholders shall be held at
the principal executive office of the corporation, or at any other place,
within or outside the State of California, which may be fixed either by the
Board of Directors or by the written consent of all persons entitled to vote at
such meeting, given either before or after the meeting and filed with the
Secretary of the Corporation.
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the shareholders of the corporation, for
the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors.
1
<PAGE> 7
(b) At an annual meeting of the shareholders, only such business
shall be conducted as shall have been properly brought before the meeting. To
be properly brought before an annual meeting, business must be: (A) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (B) otherwise properly brought before the
meeting by or at the direction of the Board of Directors, or (C) otherwise
properly brought before the meeting by a share-holder. For business to be
properly brought before an annual meeting by a shareholder, the shareholder
must have given timely notice thereof in writing to the Secretary of the
corporation. To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
later than the close of business on the sixtieth (60th) day nor earlier than
the close of business on the ninetieth (90th) day prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that no annual meeting was held in the previous year or the date of
the annual meeting has been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy statement, notice by the
shareholder to be timely must be so received not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to
such annual meeting or, in the event public announcement of the date of such
annual meeting is first made by the corporation fewer than seventy (70) days
prior to the date of such annual meeting, the close of business on the tenth
(10th) day following the day on which public announcement of the date of such
meeting is first made by the corporation. A shareholder's notice to the
Secretary shall set forth as to each matter the shareholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to
be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address, as they appear on
the corporation's books, of the share-holder proposing such business, (iii) the
class and number of shares of the corporation which are beneficially owned by
the shareholder, (iv) any material interest of the shareholder in such business
and (v) any other information that is required to be provided by the
shareholder pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "1934 Act"), in his capacity as a proponent to a
shareholder proposal. Notwithstanding the foregoing, in order to include
information with respect to a shareholder proposal in the proxy statement and
form of proxy for a shareholder's meeting, shareholders must provide notice as
required by the regulations promulgated under the 1934 Act. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted at any
annual meeting except in accordance with the procedures set forth in this
paragraph (b). The chairman of the annual meeting shall, if the facts warrant,
determine and declare at the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this paragraph (b),
and, if he should so determine, he shall so declare at the meeting that any
such business not properly brought before the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of
the corporation may be made at a meeting of shareholders by or at the direction
of the Board of Directors or by any shareholder of the corporation entitled to
vote in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant
to timely notice in writing to the Secretary of the corporation in accordance
with the provisions of paragraph (b) of this Section 5. Such share-
2
<PAGE> 8
holder's notice shall set forth (i) as to each person, if any, whom the
shareholder proposes to nominate for election or re-election as a director:
(A) the name, age, business address and residence address of such person, (B)
the principal occupation or employment of such person, (C) the class and number
of shares of the corporation which are beneficially owned by such person, (D) a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nominations are to be made by the shareholder, and (E)
any other information relating to such person that is required to be disclosed
in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the 1934 Act (including
without limitation such person's written consent to being named in the proxy
statement, if any, as a nominee and to serving as a director if elected); and
(ii) as to such shareholder giving notice, the information required to be
provided pursuant to paragraph (b) of this Section 5. At the request of the
Board of Directors, any person nominated by a shareholder for election as a
director shall furnish to the Secretary of the corporation that information
required to be set forth in the shareholder's notice of nomination which
pertains to the nominee. No person shall be eligible for election as a
director of the corporation unless nominated in accordance with the procedures
set forth in this paragraph (c). The chairman of the meeting shall, if the
facts warrant, determine and declare at the meeting that a nomination was not
made in accordance with the procedures prescribed by these Bylaws, and if he
should so determine, he shall so declare at the meeting, and the defective
nomination shall be disregarded.
(d) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant
to Section 13, 14 or 15(d) of the Exchange Act.
SECTION 6. POSTPONEMENT OF ANNUAL MEETING. The Board of Directors and
the President shall each have authority to hold at an earlier date and/or time,
or to postpone to a later date and/or time, the annual meeting of shareholders.
SECTION 7. SPECIAL MEETINGS.
(a) Special meetings of the shareholders, for any purpose or
purposes, may be called by the Board of Directors, the Chairman of the Board of
Directors, the President, or the holders of shares entitled to cast not less
than ten percent (10%) of the votes at the meeting.
(b) Upon written request to the Chairman of the Board of
Directors, the President, any vice president or the Secretary of the
corporation by any person or persons (other than the Board of Directors)
entitled to call a special meeting of the share-holders, such officer forthwith
shall cause notice to be given to the shareholders entitled to vote, that a
meeting will be held at a time requested by the person or persons calling the
meeting, such time to be not less than thirty-five (35) nor more than sixty
(60) days after receipt of such request. If such notice is not given within
twenty (20) days after receipt of such request, the person or persons calling
the meeting may give notice thereof in the manner provided by law or in these
bylaws. Nothing contained in this Section 7 shall be construed as limiting,
fixing or affecting the time or date when a meeting of share-holders called by
action of the Board of Directors may be held.
3
<PAGE> 9
SECTION 8. NOTICE OF MEETINGS. Except as otherwise may be required by
law and subject to subsection 7(b) above, written notice of each meeting of
shareholders shall be given to each shareholder entitled to vote at that
meeting (see Section 15 below), by the Secretary, assistant secretary or other
person charged with that duty, not less than ten (10) (or, if sent by third
class mail, thirty (30)) nor more than sixty (60) days before such meeting.
Notice of any meeting of shareholders shall state the date, place and
hour of the meeting and,
(a) in the case of a special meeting, the general nature of the
business to be transacted, and no other business may be transacted at such
meeting;
(b) in the case of an annual meeting, the general nature of
matters which the Board of Directors, at the time the notice is given, intends
to present for action by the shareholders;
(c) in the case of any meeting at which directors are to be
elected, the names of the nominees intended at the time of the notice to be
presented by management for election; and
(d) in the case of any meeting, if action is to be taken on any of
the following proposals, the general nature of such proposal:
(1) a proposal to approve a transaction within the provisions
of California Corporations Code, Section 310 (relating to certain transactions
in which a director has an interest);
(2) a proposal to approve a transaction within the provisions
of California Corporations Code, Section 902 (relating to amending the Articles
of Incorporation of the corporation);
(3) a proposal to approve a transaction within the provisions
of California Corporations Code, Sections 181 and 1201 (relating to
reorganization);
(4) a proposal to approve a transaction within the provisions
of California Corporations Code, Section 1900 (winding up and dissolution);
(5) a proposal to approve a plan of distribution within the
provisions of California Corporations Code, Section 2007 (relating to certain
plans providing for distribution not in accordance with the liquidation rights
of preferred shares, if any).
At a special meeting, notice of which has been given in
accordance with this Section, action may not be taken with respect to business,
the general nature of which has not been stated in such notice. At an annual
meeting, action may be taken with respect to business stated in the notice of
such meeting, given in accordance with this Section, and, subject to
sub-section 8(d) above, with respect to any other business as may properly come
before the meeting.
SECTION 9. MANNER OF GIVING NOTICE. Notice of any meeting of
shareholders shall be given either personally or by first-class mail, or, if
the corporation has outstanding shares held of record by 500 or more persons
(determined as provided in California Corporations Code Section
4
<PAGE> 10
605) on the record date for such meeting, third-class mail, or telegraphic or
other written communication, addressed to the shareholder at the address of
that shareholder appearing on the books of the corporation or given by the
shareholder to the corporation for the purpose of notice. If no such address
appears on the corporation's books or is given, notice shall be deemed to have
been given if sent to that shareholder by first-class mail or telegraphic or
other written communication to the corporation's principal executive office, or
if published at least once in a newspaper of general circulation in the county
where that office is located. Notice shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent by telegram or
other means of written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, all
future notices shall be deemed to have been duly given without further mailing
if these shall be available to the shareholder on written demand by the
shareholder at the principal executive office of the corporation for a period
of one year from the date of the giving of the notice.
SECTION 10. QUORUM AND TRANSACTION OF BUSINESS.
(a) At any meeting of the shareholders, a majority of the shares
entitled to vote, represented in person or by proxy, shall constitute a quorum.
If a quorum is present, the affirmative vote of the majority of shares
represented at the meeting and voting (which shares voting affirmatively also
constitute at least a majority of the required quorum) on any matter shall be
the act of the shareholders, unless the vote of a greater number or voting by
classes is required by law or by the Articles of Incorporation, and except as
provided in subsection (b) below.
(b) The shareholders present at a duly called or held meeting of
the shareholders at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave
less than a quorum, provided that any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
(c) In the absence of a quorum, no business other than adjournment
may be transacted, except as described in sub-section (b) above.
SECTION 11. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any
meeting of shareholders may be adjourned from time to time, whether or not a
quorum is present, by the affirmative vote of a majority of shares represented
at such meeting either in person or by proxy and entitled to vote at such
meeting.
In the event any meeting is adjourned, it shall not be necessary to give
notice of the time and place of such adjourned meeting pursuant to Sections 8
and 9 of these bylaws; provided that if any of the following three events
occur, such notice must be given:
(a) announcement of the adjourned meeting's time and place is not
made at the original meeting which it continues or
(b) such meeting is adjourned for more than forty- five (45) days
from the date set for the original meeting or
5
<PAGE> 11
(c) a new record date is fixed for the adjourned meeting.
At the adjourned meeting, the corporation may transact any business which
might have been transacted at the original meeting.
SECTION 12. WAIVER OF NOTICE, CONSENT TO MEETING OR APPROVAL OF
MINUTES.
(a) Subject to subsection (b) of this Section, the transactions of
any meeting of shareholders, however called and noticed, and wherever held,
shall be as valid as though made at a meeting duly held after regular call and
notice, if a quorum is present either in person or by proxy, and if, either
before or after the meeting, each of the persons entitled to vote but not
present in person or by proxy signs a written waiver of notice or a consent to
holding of the meeting or an approval of the minutes thereof.
(b) A waiver of notice, consent to the holding of a meeting or
approval of the minutes thereof need not specify the business to be transacted
or transacted at nor the purpose of the meeting; provided that in the case of
proposals described in subsection (d) of Section 8 of these bylaws, the general
nature of such proposals must be described in any such waiver of notice and
such proposals can only be approved by waiver of notice, not by consent to
holding of the meeting or approval of the minutes.
(c) All waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
(d) A person's attendance at a meeting shall constitute waiver of
notice of and presence at such meeting, except when such person objects at the
beginning of the meeting to transaction of any business because the meeting is
not lawfully called or convened and except that attendance at a meeting is not
a waiver of any right to object to the consideration of matters which are
required by law or these bylaws to be in such notice (including those matters
described in subsection (d) of Section 8 of these bylaws), but are not so
included if such person expressly objects to consideration of such matter or
matters at any time during the meeting.
SECTION 13. NO ACTION BY WRITTEN CONSENT WITHOUT A MEETING. No action
of the shareholders may be taken without a meeting or without prior notice.
SECTION 14. VOTING. Voting at any meeting of shareholders need not be
by ballot; provided, however, that elections for directors must be by ballot if
balloting is demanded by a shareholder at the meeting and before the voting
begins.
Until such time as this corporation becomes a listed corporation within the
meaning of Section 301.5 of the California Corporations Code, every person
entitled to vote at an election for directors may cumulate the votes to which
such person is entitled, i.e., such person may cast a total number of votes
equal to the number of directors to be elected multiplied by the number of
votes to which such person's shares are entitled, and may cast said total
number of votes for one or more candidates in such proportions as such person
thinks fit; provided, however, no shareholder shall be entitled to so cumulate
such shareholder's votes unless the candidates for which such shareholder is
voting have been placed in nomination prior to the voting and a shareholder has
given notice at the meeting, prior to the vote, of an intention to cumulate
votes. In any election of directors, the candidates receiving the highest
number of votes, up to the number of directors to be elected, are elected.
6
<PAGE> 12
Except as may be otherwise provided in the Articles of Incorporation or by
law, and subject to the foregoing provisions regarding the cumulation of votes,
each shareholder shall be entitled to one vote for each share held; provided,
however, that the right to cumulative voting provided for above shall be
eliminated at such time as this corporation becomes a listed corporation within
the meaning of Section 301.5 of the California Corporation Code.
Any shareholder may vote part of such shareholder's shares in favor of a
proposal and refrain from voting the remaining shares or vote them against the
proposal, other than elections to office, but, if the shareholder fails to
specify the number of shares such shareholder is voting affirmatively, it will
be conclusively presumed that the shareholder's approving vote is with respect
to all shares such shareholder is entitled to vote.
No shareholder approval, other than unanimous approval of those entitled to
vote, will be valid as to proposals described in subsection 8(d) of these
bylaws unless the general nature of such business was stated in the notice of
meeting or in any written waiver of notice.
SECTION 15. PERSONS ENTITLED TO VOTE OR CONSENT. The Board of
Directors may fix a record date pursuant to Section 60 of these bylaws to
determine which shareholders are entitled to notice of and to vote at a meeting
as provided in Section 14 of these bylaws. Only persons in whose name shares
otherwise entitled to vote stand on the stock records of the corporation on
such date shall be entitled to vote or consent.
If no record date is fixed:
(a) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day notice is given or, if
notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held; and
(b) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto, or the sixtieth (60th) day
prior to the date of such other action, whichever is later.
A determination of shareholders of record entitled to notice of or to vote
at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned
meeting; provided, however, that the Board of Directors shall fix a new record
date if the meeting is adjourned for more than forty-five (45) days from the
date set for the original meeting.
Shares of the corporation held by its subsidiary or subsidiaries (as
defined in California Corporations Code, Section 189(b)) are not entitled to
vote in any matter.
SECTION 16. PROXIES. Every person entitled to vote may do so either
in person or by one or more agents authorized to act by a written proxy
executed by the person or such person's duly authorized agent and filed with
the Secretary of the corporation; provided that no such proxy shall be valid
after the expiration of eleven (11) months from the date of its execution
unless otherwise provided in the proxy. The manner of execution, suspension,
revocation, exercise and effect of proxies is governed by law.
SECTION 17. INSPECTORS OF ELECTION. Before any meeting of
shareholders, the Board of Directors may appoint any persons, other than
nominees for office, to act as inspectors of election at the meeting or its
adjournment. If no inspectors of election are so appointed, the
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chairman of the meeting may, and on the request of any shareholder or a
shareholder's proxy shall, appoint inspectors of election at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting on the request of one or more shareholders or proxies,
the majority of shares represented in person or proxy shall determine whether
one (1) or three (3) inspectors are to be appointed. If any person appointed
as inspector fails to appear or fails or refuses to act, the chairman of the
meeting may, and upon the request of any shareholder or a shareholder's proxy
shall, appoint a person to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) Receive votes or ballots;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or ballots;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election
or vote with fairness to all shareholders.
ARTICLE IV
BOARD OF DIRECTORS
SECTION 18. POWERS. Subject to the provisions of law or any
limitations in the Articles of Incorporation or these bylaws, as to action
required to be approved by the shareholders or by the outstanding shares, the
business and affairs of the corporation shall be managed and all corporate
powers shall be exercised, by or under the direction of the Board of Directors.
The Board of Directors may delegate the management of the day-to-day operation
of the business of the corporation to a management company or other person,
provided that the business and affairs of the corporation shall be managed and
all corporate powers shall be exercised under the ultimate direction of the
Board of Directors.
SECTION 19. NUMBER OF DIRECTORS. The authorized number of directors
of the corporation shall be not less than a minimum of five (5) nor more than a
maximum of nine (9) (which maximum number in no case shall be greater than two
times said minimum, minus one) and the number of directors presently authorized
is eight (8). The exact number of directors shall be set within these limits
from time to time (a) by approval of the Board of Directors, or (b) by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute at least a majority
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of the required quorum) or by the written consent of shareholders pursuant to
Section 13 hereinabove.
Any amendment of these bylaws changing the maximum or minimum number of
directors may be adopted only by the affirmative vote of a majority of the
outstanding shares entitled to vote; provided, an amendment reducing the
minimum number of directors to less than five (5), cannot be adopted if votes
cast against its adoption at a meeting are equal to more than 16-2/3 percent of
the outstanding shares entitled to vote.
No reduction of the authorized number of directors shall remove any
director prior to the expiration of such director's term of office.
SECTION 20. ELECTION OF DIRECTORS, TERM, QUALIFICATIONS. The
directors shall be elected at each annual meeting of shareholders to hold
office until the next annual meeting. Each director, including a director
elected or appointed to fill a vacancy, shall hold office either until the
expiration of the term for which elected or appointed and until a successor has
been elected and qualified, or until his death, resignation or removal.
Directors need not be shareholders of the corporation.
SECTION 21. RESIGNATIONS. Any director of the corporation may resign
effective upon giving written notice to the Chairman of the Board, the
President, the Secretary or the Board of Directors of the corporation, unless
the notice specifies a later time for the effectiveness of such resignation.
If the resignation specifies effectiveness at a future time, a successor may be
elected pursuant to Section 23 of these bylaws to take office on the date that
the resignation becomes effective.
SECTION 22. REMOVAL. The Board of Directors may declare vacant the
office of a director who has been declared of unsound mind by an order of court
or who has been convicted of a felony.
The entire Board of Directors or any individual director may be removed
from office without cause by the affirmative vote of the holders of a majority
of the outstanding shares entitled to vote on such removal; provided, however,
that unless the entire Board is removed, no individual director may be removed
when the votes cast against such director's removal would be sufficient to
elect that director if voted cumulatively at an election at which the same
total number of votes cast were cast and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.
SECTION 23. VACANCIES. A vacancy or vacancies on the Board of
Directors shall be deemed to exist in case of the death, resignation or removal
of any director, or upon increase in the authorized number of directors or if
shareholders fail to elect the full authorized number of directors at an annual
meeting of shareholders or if, for whatever reason, there are fewer directors
on the Board of Directors, than the full number authorized. Such vacancy or
vacancies may be filled by a majority of the remaining directors, though less
than a quorum, or by a sole remaining director. The shareholders may elect a
director at any time to fill any vacancy not filled by the directors.
If, after the filling of any vacancy by the directors, the directors then
in office who have been elected by the share-holders constitute less than a
majority of the directors then in office, any holder or holders of an aggregate
of five percent (5%) or more of the shares outstanding at that time and having
the right to vote for such directors may call a special meeting of shareholders
to be held to elect the entire Board of Directors. The term of office of any
director shall terminate upon such election of a successor.
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SECTION 24. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times, places and dates as fixed in these
bylaws or by the Board of Directors; provided, however, that if the date for
such a meeting falls on a legal holiday, then the meeting shall be held at the
same time on the next succeeding full business day. Regular meetings of the
Board of Directors held pursuant to this Section 24 may be held without notice.
SECTION 25. PARTICIPATION BY TELEPHONE. Members of the Board of
Directors may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another. Such participation constitutes presence in
person at such meeting.
SECTION 26. SPECIAL MEETINGS. Special meetings of the Board of
Directors for any purpose may be called by the Chairman of the Board or the
President or any vice president or the Secretary of the corporation or any two
(2) directors.
SECTION 27. NOTICE OF MEETINGS. Notice of the date, time and place of
all meetings of the Board of Directors, other than regular meetings held
pursuant to Section 24 above shall be delivered personally, orally or in
writing, or by telephone or telegraph to each director, at least forty-eight
(48) hours before the meeting, or sent in writing to each director by
first-class mail, charges prepaid, at least four (4) days before the meeting.
Such notice may be given by the Secretary of the corporation or by the person
or persons who called a meeting. Such notice need not specify the purpose of
the meeting. Notice of any meeting of the Board of Directors need not be given
to any director who signs a waiver of notice of such meeting, or a consent to
holding the meeting or an approval of the minutes thereof, either before or
after the meeting, or who attends the meeting without protesting prior thereto
or at its commencement such director's lack of notice. All such waivers,
consents and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
SECTION 28. PLACE OF MEETINGS. Meetings of the Board of Directors may
be held at any place within or without the state which has been designated in
the notice of the meeting or, if not stated in the notice or there is no
notice, designated in the bylaws or by resolution of the Board of Directors.
SECTION 29. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action
required or permitted to be taken by the Board of Directors may be taken
without a meeting, if all members of the Board of Directors individually or
collectively consent in writing to such action. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board of
Directors. Such action by written consent shall have the same force and effect
as a unanimous vote of such directors.
SECTION 30. QUORUM AND TRANSACTION OF BUSINESS. A majority of the
authorized number of directors shall constitute a quorum for the transaction of
business. Every act or decision done or made by a majority of the authorized
number of directors present at a meeting duly held at which a quorum is present
shall be the act of the Board of Directors, unless the law, the Articles of
Incorporation or these bylaws specifically require a greater number. A meeting
at which a quorum is initially present may continue to transact business,
notwithstanding withdrawal of directors, if any action taken is approved by at
least a majority of the number of directors constituting a quorum for such
meeting. In the absence of a quorum at any meeting of
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the Board of Directors, a majority of the directors present may adjourn the
meeting, as provided in Section 31 of these bylaws.
SECTION 31. ADJOURNMENT. Any meeting of the Board of Directors,
whether or not a quorum is present, may be adjourned to another time and place
by the affirmative vote of a majority of the directors present. If the meeting
is adjourned for more than twenty-four (24) hours, notice of such adjournment
to another time or place shall be given prior to the time of the adjourned
meeting to the directors who were not present at the time of the adjournment.
SECTION 32. ORGANIZATION. The Chairman of the Board shall preside at
every meeting of the Board of Directors, if present. If there is no Chairman
of the Board or if the Chairman is not present, a Chairman chosen by a majority
of the directors present shall act as chairman. The Secretary of the
corporation or, in the absence of the Secretary, any person appointed by the
Chairman shall act as secretary of the meeting.
SECTION 33. COMPENSATION. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by the Board of Directors.
SECTION 34. COMMITTEES. The Board of Directors may, by resolution
adopted by a majority of the authorized number of directors, designate one or
more committees, each consisting of two (2) or more directors, to serve at the
pleasure of the Board of Directors. The Board of Directors, by a vote of the
majority of authorized directors, may designate one or more directors as
alternate members of any committee, to replace any absent member at any meeting
of such committee. Any such committee shall have authority to act in the
manner and to the extent provided in the resolution of the Board of Directors,
and may have all the authority of the Board of Directors in the management of
the business and affairs of the corporation, except with respect to:
(a) the approval of any action for which shareholders' approval or
approval of the outstanding shares also is required by the California
Corporations Code;
(b) the filling of vacancies on the Board of Directors or any of
its committees;
(c) the fixing of compensation of directors for serving on the
Board of Directors or any of its committees;
(d) the adoption, amendment or repeal of these bylaws;
(e) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable;
(f) a distribution to shareholders, except at a rate or in a
periodic amount or within a price range determined by the Board of Directors;
or
(g) the appointment of other committees of the Board of Directors
or the members thereof.
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Any committee may from time to time provide by resolution for regular
meetings at specified times and places. If the date of such a meeting falls on
a legal holiday, then the meeting shall be held at the same time on the next
succeeding full business day. No notice of such a meeting need be given. Such
regular meetings need not be held if the committee shall so determine at any
time before or after the time when such meeting would otherwise have taken
place. Special meetings may be called at any time in the same manner and by
the same persons as stated in Sections 25 and 26 of these bylaws for meetings
of the Board of Directors. The provisions of Sections 24, 27, 28, 29, 30 and
31 of these bylaws shall apply to committees, committee members and committee
meetings as if the words "committee" and "committee member" were substituted
for the word "Board of Directors", and "director", respectively, throughout
such sections.
ARTICLE V
OFFICERS
SECTION 35. OFFICERS. The corporation shall have a Chairman of the
Board or a President or both, a Secretary, a Chief Financial Officer and such
other officers with such titles and duties as the Board of Directors may
determine. Any two or more offices may be held by the same person.
SECTION 36. APPOINTMENT. All officers shall be chosen and appointed
by the Board of Directors; provided, however, the Board of Directors may
empower the chief executive officer of the corporation to appoint such
officers, other than Chairman of the Board, President, Secretary or Chief
Financial Officer, as the business of the corporation may require. All
officers shall serve at the pleasure of the Board of Directors, subject to the
rights, if any, of an officer under a contract of employment.
SECTION 37. INABILITY TO ACT. In the case of absence or inability to
act of any officer of the corporation or of any person authorized by these
bylaws to act in such officer's place, the Board of Directors may from time to
time delegate the powers or duties of such officer to any other officer, or any
director or other person whom it may select, for such period of time as the
Board of Directors deems necessary.
SECTION 38. RESIGNATIONS. Any officer may resign at any time upon
written notice to the corporation, without prejudice to the rights, if any, of
the corporation under any contract to which such officer is a party. Such
resignation shall be effective upon its receipt by the Chairman of the Board,
the President, the Secretary or the Board of Directors, unless a different time
is specified in the notice for effectiveness of such resignation. The
acceptance of any such resignation shall not be necessary to make it effective
unless otherwise specified in such notice.
SECTION 39. REMOVAL. Any officer may be removed from office at any
time, with or without cause, but subject to the rights, if any, of such officer
under any contract of employment, by the Board of Directors or by any committee
to whom such power of removal has been duly delegated, or, with regard to any
officer who has been appointed by the chief executive officer pursuant to
Section 36 above, by the chief executive officer or any other officer upon whom
such power of removal may be conferred by the Board of Directors.
SECTION 40. VACANCIES. A vacancy occurring in any office for any
cause may be filled by the Board of Directors, in the manner prescribed by this
Article of the bylaws for initial appointment to such office.
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SECTION 41. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
there be such an officer, shall, if present, preside at all meetings of the
Board of Directors and shall exercise and perform such other powers and duties
as may be assigned from time to time by the Board of Directors or prescribed by
these bylaws. If no President is appointed, the Chairman of the Board is the
general manager and chief executive officer of the corporation, and shall
exercise all powers of the President described in Section 42 below.
SECTION 42. PRESIDENT. Subject to such powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be such
an officer, the President shall be the general manager and chief executive
officer of the corporation and shall have general supervision and control over
the business and affairs of the corporation, subject to the control of the
Board of Directors. The President may sign and execute, in the name of the
corporation, any instrument authorized by the Board of Directors, except when
the signing and execution thereof shall have been expressly delegated by the
Board of Directors or by these bylaws to some other officer or agent of the
corporation. The President shall have all the general powers and duties of
management usually vested in the president of a corporation, and shall have
such other powers and duties as may be prescribed from time to time by the
Board of Directors or these bylaws. The President shall have discretion to
prescribe the duties of other officers and employees of the corporation in a
manner not inconsistent with the provisions of these bylaws and the directions
of the Board of Directors.
SECTION 43. VICE PRESIDENTS. In the absence or disability of the
President, in the event of a vacancy in the office of President, or in the
event such officer refuses to act, the Vice President shall perform all the
duties of the President and, when so acting, shall have all the powers of, and
be subject to all the restrictions on, the President. If at any such time the
corporation has more than one vice president, the duties and powers of the
President shall pass to each vice president in order of such vice president's
rank as fixed by the Board of Directors or, if the vice presidents are not so
ranked, to the vice president designated by the Board of Directors. The vice
presidents shall have such other powers and perform such other duties as may be
prescribed for them from time to time by the Board of Directors or pursuant to
Sections 35 and 36 of these bylaws or otherwise pursuant to these bylaws.
SECTION 44. SECRETARY. The Secretary shall:
(a) Keep, or cause to be kept, minutes of all meetings of the
corporation's shareholders, Board of Directors, and committees of the Board of
Directors, if any. Such minutes shall be kept in written form.
(b) Keep, or cause to be kept, at the principal executive office
of the corporation, or at the office of its transfer agent or registrar, if
any, a record of the corporation's shareholders, showing the names and
addresses of all shareholders, and the number and classes of shares held by
each. Such records shall be kept in written form or any other form capable of
being converted into written form.
(c) Keep, or cause to be kept, at the principal executive office
of the corporation, or if the principal executive office is not in California,
at its principal business office in California, an original or copy of these
bylaws, as amended.
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(d) Give, or cause to be given, notice of all meetings of
shareholders, directors and committees of the Board of Directors, as required
by law or by these bylaws.
(e) Keep the seal of the corporation, if any, in safe custody.
(f) Exercise such powers and perform such duties as are usually
vested in the office of secretary of a corporation, and exercise such other
powers and perform such other duties as may be prescribed from time to time by
the Board of Directors or these bylaws.
If any assistant secretaries are appointed, the assistant secretary,
or one of the assistant secretaries in the order of their rank as fixed by the
Board of Directors or, if they are not so ranked, the assistant secretary
designated by the Board of Directors, in the absence or disability of the
Secretary or in the event of such officer's refusal to act or if a vacancy
exists in the office of Secretary, shall perform the duties and exercise the
powers of the Secretary and discharge such duties as may be assigned from time
to time pursuant to these bylaws or by the Board of Directors.
SECTION 45. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall:
(a) Be responsible for all functions and duties of the treasurer
of the corporation.
(b) Keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of account for the corporation.
(c) Receive or be responsible for receipt of all monies due and
payable to the corporation from any source whatsoever; have charge and custody
of, and be responsible for, all monies and other valuables of the corporation
and be responsible for deposit of all such monies in the name and to the credit
of the corporation with such depositaries as may be designated by the Board of
Directors or a duly appointed and authorized committee of the Board of
Directors.
(d) Disburse or be responsible for the disbursement of the funds
of the corporation as may be ordered by the Board of Directors or a duly
appointed and authorized committee of the Board of Directors.
(e) Render to the chief executive officer and the Board of
Directors a statement of the financial condition of the corporation if called
upon to do so.
(f) Exercise such powers and perform such duties as are usually
vested in the office of chief financial officer of a corporation, and exercise
such other powers and perform such other duties as may be prescribed by the
Board of Directors or these bylaws.
If any assistant financial officer is appointed, the assistant
financial officer, or one of the assistant financial officers, if there are
more than one, in the order of their rank as fixed by the Board of Directors
or, if they are not so ranked, the assistant financial officer designated by
the Board of Directors, shall, in the absence or disability of the Chief
Financial Officer or in the event of such officer's refusal to act, perform the
duties and exercise the powers of the Chief Financial Officer, and shall have
such powers and discharge such duties as may be assigned from time to time
pursuant to these bylaws or by the Board of Directors.
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SECTION 46. COMPENSATION. The compensation of the officers shall be
fixed from time to time by the Board of Directors, and no officer shall be
prevented from receiving such compensation by reason of the fact that such
officer is also a director of the corporation.
ARTICLE VI
CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS
SECTION 47. EXECUTION OF CONTRACTS AND OTHER INSTRUMENTS. Except as
these bylaws may otherwise provide, the Board of Directors or its duly
appointed and authorized committee may authorize any officer or officers, agent
or agents, to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the corporation, and such authorization may be
general or confined to specific instances. Except as so authorized or
otherwise expressly provided in these bylaws, no officer, agent, or employee
shall have any power or authority to bind the corporation by any contract or
engagement or to pledge its credit or to render it liable for any purpose or in
any amount.
SECTION 48. LOANS. No loans shall be contracted on behalf of the
corporation and no negotiable paper shall be issued in its name, unless and
except as authorized by the Board of Directors or its duly appointed and
authorized committee. When so authorized by the Board of Directors or such
committee, any officer or agent of the corporation may effect loans and
advances at any time for the corporation from any bank, trust company, or other
institution, or from any firm, corporation or individual, and for such loans
and advances may make, execute and deliver promissory notes, bonds or other
evidences of indebtedness of the corporation and, when authorized as aforesaid,
may mortgage, pledge, hypothecate or transfer any and all stocks, securities
and other property, real or personal, at any time held by the corporation, and
to that end endorse, assign and deliver the same as security for the payment of
any and all loans, advances, indebtedness, and liabilities of the corporation.
Such authorization may be general or confined to specific instances.
SECTION 49. BANK ACCOUNTS. The Board of Directors or its duly
appointed and authorized committee from time to time may authorize the opening
and keeping of general and/or special bank accounts with such banks, trust
companies, or other depositaries as may be selected by the Board of Directors,
its duly appointed and authorized committee or by any officer or officers,
agent or agents, of the corporation to whom such power may be delegated from
time to time by the Board of Directors. The Board of Directors or its duly
appointed and authorized committee may make such rules and regulations with
respect to said bank accounts, not inconsistent with the provisions of these
bylaws, as are deemed advisable.
SECTION 50. CHECKS, DRAFTS, ETC. All checks, drafts or other orders
for the payment of money, notes, acceptances or other evidences of indebtedness
issued in the name of the corporation shall be signed by such officer or
officers, agent or agents, of the corporation, and in such manner, as shall be
determined from time to time by resolution of the Board of Directors or its
duly appointed and authorized committee. Endorsements for deposit to the
credit of the corporation in any of its duly authorized depositaries may be
made, without counter-signature, by the President or any vice president or the
Chief Financial Officer or any assistant financial officer or by any other
officer or agent of the corporation to whom the Board of Directors or its duly
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appointed and authorized committee, by resolution, shall have delegated such
power or by hand-stamped impression in the name of the corporation.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 51. CERTIFICATE FOR SHARES. Every holder of shares in the
corporation shall be entitled to have a certificate signed in the name of the
corporation by the Chairman or Vice Chairman of the Board or the President or a
Vice President and by the Chief Financial Officer or an assistant financial
officer or by the Secretary or an assistant secretary, certifying the number of
shares and the class or series of shares owned by the share-holder. Any or all
of the signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
In the event that the corporation shall issue any shares as only partly
paid, the certificate issued to represent such partly paid shares shall have
stated thereon the total consideration to be paid for such shares and the
amount paid thereon.
SECTION 52. TRANSFER ON THE BOOKS. Upon surrender to the Secretary or
transfer agent (if any) of the corporation of a certificate for shares of the
corporation duly endorsed, with reasonable assurance that the endorsement is
genuine and effective, or accompanied by proper evidence of succession,
assignment or authority to transfer and upon compliance with applicable federal
and state securities laws and if the corporation has no statutory duty to
inquire into adverse claims or has discharged any such duty and if any
applicable law relating to the collection of taxes has been complied with, it
shall be the duty of the corporation, by its Secretary or transfer agent, to
cancel the old certificate, to issue a new certificate to the person entitled
thereto and to record the transaction on the books of the corporation.
SECTION 53. LOST, DESTROYED AND STOLEN CERTIFICATES. The holder of
any certificate for shares of the corporation alleged to have been lost,
destroyed or stolen shall notify the corporation by making a written affidavit
or affirmation of such fact. Upon receipt of said affidavit or affirmation the
Board of Directors, or its duly appointed and authorized committee or any
officer or officers authorized by the board so to do, may order the issuance of
a new certificate for shares in the place of any certificate previously issued
by the corporation and which is alleged to have been lost, destroyed or stolen.
However, the Board of Directors or such authorized committee, officer or
officers may require the owner of the allegedly lost, destroyed or stolen
certificate, or such owner's legal representative, to give the corporation a
bond or other adequate security sufficient to indemnify the corporation and its
transfer agent and/or registrar, if any, against any claim that may be made
against it or them on account of such allegedly lost, destroyed or stolen
certificate or the replacement thereof. Said bond or other security shall be in
such amount, on such terms and conditions and, in the case of a bond, with such
surety or sureties as may be acceptable to the Board of Directors or to its
duly appointed and authorized committee or any officer or officers authorized
by the Board of Directors to determine the sufficiency thereof. The
requirement of a bond or other security may be waived in particular
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cases at the discretion of the Board of Directors or its duly appointed and
authorized committee or any officer or officers authorized by the Board of
Directors so to do.
SECTION 54. ISSUANCE, TRANSFER AND REGISTRATION OF SHARES. The Board
of Directors may make such rules and regulations, not inconsistent with law or
with these bylaws, as it may deem advisable concerning the issuance, transfer
and registration of certificates for shares of the capital stock of the
corporation. The Board of Directors may appoint a transfer agent or registrar
of transfers, or both, and may require all certificates for shares of the
corporation to bear the signature of either or both.
ARTICLE VIII
INSPECTION OF CORPORATE RECORDS
SECTION 55. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect and copy all books, records,
and documents of every kind of the corporation and any of its subsidiaries and
to inspect the physical properties of the corporation and any of its
subsidiaries. Such inspection may be made by the director in person or by
agent or attorney, and the right of inspection includes the right to copy and
make extracts.
SECTION 56. INSPECTION BY SHAREHOLDERS.
(a) INSPECTION OF CORPORATE RECORDS.
(1) A shareholder or shareholders holding at least five
percent in the aggregate of the outstanding voting shares of the corporation or
who hold at least one percent of such voting shares and have filed a Schedule
14B with the United States Securities and Exchange Commission relating to the
election of directors of the corporation shall have an absolute right to do
either or both of the following:
(i) Inspect and copy the record of share-holders' names
and addresses and shareholdings during usual business hours upon five business
days' prior written demand upon the corporation; or
(ii) Obtain from the transfer agent, if any, for the
corporation, upon five business days' prior written demand and upon the tender
of its usual charges for such a list (the amount of which charges shall be
stated to the shareholder by the transfer agent upon request), a list of the
shareholders' names and addresses who are entitled to vote for the election of
directors and their shareholdings, as of the most recent record date for which
it has been compiled or as of a date specified by the shareholder subsequent to
the date of demand.
(2) The record of shareholders shall also be open to
inspection and copying by any shareholder or holder of a voting trust
certificate at any time during usual business hours upon written demand on the
corporation, for a purpose reasonably related to such holder's interest as a
shareholder or holder of a voting trust certificate.
(3) The accounting books and records and minutes of
proceedings of the shareholders and the Board of Directors and of any
committees of the Board of Directors of
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the corporation and of each of its subsidiaries shall be open to inspection,
copying and making extracts upon written demand on the corporation of any
shareholder or holder of a voting trust certificate at any reasonable time
during usual business hours, for a purpose reasonably related to such holder's
interests as a shareholder or as a holder of such voting trust certificate.
(4) Any inspection, copying, and making of extracts under this
subsection (a) may be done in person or by agent or attorney.
(b) INSPECTION OF BYLAWS. The original or a copy of these bylaws
shall be kept as provided in Section 44 of these bylaws and shall be open to
inspection by the shareholders at all reasonable times during office hours. If
the principal executive office of the corporation is not in California, and the
corporation has no principal business office in the state of California, a
current copy of these bylaws shall be furnished to any shareholder upon written
request.
SECTION 57. WRITTEN FORM. If any record subject to inspection
pursuant to Section 56 above is not maintained in written form, a request for
inspection is not complied with unless and until the corporation at its expense
makes such record available in written form.
ARTICLE IX
MISCELLANEOUS
SECTION 58. FISCAL YEAR. Unless otherwise fixed by resolution of the
Board of Directors, the fiscal year of the corporation shall end on the 31st
day of December in each calendar year.
SECTION 59. ANNUAL REPORT.
(a) Subject to the provisions of Section 59(b) below, the Board of
Directors shall cause an annual report to be sent to each shareholder of the
corporation in the manner provided in Section 9 of these bylaws not later than
one hundred twenty (120) days after the close of the corporation's fiscal year.
Such report shall include a balance sheet as of the end of such fiscal year and
an income statement and statement of changes in financial position for such
fiscal year, accompanied by any report thereon of independent accountants or, if
there is no such report, the certificate of an authorized officer of the
corporation that such statements were prepared without audit from the books and
records of the corporation. When there are more than 100 shareholders of record
of the corporation's shares, as determined by Section 605 of the California
Corporations Code, additional information as required by Section 1501(b) of the
California Corporations Code shall also be contained in such report, provided
that if the corporation has a class of securities registered under Section 12 of
the United States Securities Exchange Act of 1934, that Act shall take
precedence. Such report shall be sent to shareholders at least fifteen (15) days
prior to the next annual meeting of shareholders after the end of the fiscal
year to which it relates.
(b) If and so long as there are fewer than 100 holders of record
of the corporation's shares, the requirement of sending of an annual report to
the shareholders of the corporation is hereby expressly waived.
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SECTION 60. RECORD DATE. The Board of Directors may fix a time in the
future as a record date for the determination of the shareholders entitled to
notice of or to vote at any meeting or entitled 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 shares
or entitled to exercise any rights in respect of any other lawful action. The
record date so fixed shall not be more than sixty (60) days nor less than ten
(10) days prior to the date of the meeting nor more than sixty (60) days prior
to any other action or event for the purpose of which it is fixed. If no
record date is fixed, the provisions of Section 15 of these bylaws shall apply
with respect to notice of meetings and votes and the record date for
determining shareholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolutions
relating thereto, or the sixtieth (60th) day prior to the date of such other
action or event, whichever is later.
Only shareholders of record at the close of business on the record date
shall be entitled to notice and to vote or to receive the dividend,
distribution or allotment of rights or to exercise the rights, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after the record date, except as otherwise provided in the Articles of
Incorporation, by agreement or by law.
SECTION 61. BYLAW AMENDMENTS. Except as otherwise provided by law or
Section 19 of these bylaws, these bylaws may be amended or repealed by the
Board of Directors or by the affirmative vote of sixty-six and two-thirds
percent (66-2/3%) of the outstanding shares entitled to vote, including, if
applicable, the affirmative vote of sixty-six and two-thirds percent (66-2/3%)
of the outstanding shares of each class or series entitled by law or the
Articles of Incorporation to vote as a class or series on the amendment or
repeal or adoption of any bylaw or bylaws; provided, however, after issuance of
shares, a bylaw specifying or changing a fixed number of directors or the
maximum or minimum number or changing from a fixed to a variable board or vice
versa may only be adopted by approval of the outstanding shares as provided
herein.
SECTION 62. CONSTRUCTION AND DEFINITION. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions
contained in the California Corporations Code shall govern the construction of
these bylaws.
Without limiting the foregoing, "shall" is mandatory and "may" is
permissive.
ARTICLE X
INDEMNIFICATION
SECTION 63. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
OTHER AGENTS.
(a) DIRECTORS. The corporation shall indemnify its directors to
the fullest extent not prohibited by the California General Corporation Law;
provided, however, that the corporation may limit the extent of such
indemnification by individual contracts with its directors; and, provided,
further, that the corporation shall not be required to indemnify any director
in connection with any proceeding (or part thereof) initiated by such person or
any proceeding by such person against the corporation or its directors,
officers, employees or other agents unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
board of directors of the corporation or (iii) such
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indemnification is provided by the corporation, in its sole discretion,
pursuant to the powers vested in the corporation under the California General
Corporation Law.
(b) OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall
have power to indemnify its officers, employees and other agents as set forth
in the California General Corporation Law.
(c) DETERMINATION BY THE CORPORATION. Promptly after receipt of a
request for indemnification hereunder (and in any event within 90 days thereof)
a reasonable, good faith determination as to whether indemnification of the
director is proper under the circumstances because each director has met the
applicable standard of care shall be made by:
(1) a majority vote of a quorum consisting of directors who
are not parties to such proceeding;
(2) if such quorum is not obtainable, by independent legal
counsel in a written opinion; or
(3) approval or ratification by the affirmative vote of a
majority of the shares of this corporation represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute at least a majority of the required quorum) or by written
consent of a majority of the outstanding shares entitled to vote; where in each
case the shares owned by the person to be indemnified shall not be considered
entitled to vote thereon.
(d) GOOD FAITH.
(1) For purposes of any determination under this bylaw, a
director shall be deemed to have acted in good faith and in a manner he
reasonably believed to be in the best interests of the corporation and its
shareholders, and, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe that his conduct was unlawful, if his action
is based on information, opinions, reports and statements, including financial
statements and other financial data, in each case prepared or presented by:
(i) one or more officers or employees of the corporation
whom the director believed to be reliable and competent in the matters
presented;
(ii) counsel, independent accountants or other persons as
to matters which the director believed to be within such person's professional
competence; and
(iii) a committee of the Board upon which such director
does not serve, as to matters within such committee's designated authority,
which committee the director believes to merit confidence; so long as, in each
case, the director acts without knowledge that would cause such reliance to be
unwarranted.
(2) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably
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believed to be in the best interests of the corporation and its shareholders or
that he had reasonable cause to believe that his conduct was unlawful.
(3) The provisions of this paragraph (d) shall not be deemed
to be exclusive or to limit in any way the circumstances in which a person may
be deemed to have met the applicable standard of conduct set forth by the
California General Corporation Law.
(e) EXPENSES. The corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by any director in connection with such proceeding upon receipt of an
undertaking by or on behalf of such person to repay said amounts if it shall be
determined ultimately that such person is not entitled to be indemnified under
this bylaw or otherwise.
(f) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors under
this bylaw shall be deemed to be contractual rights and be effective to the
same extent and as if provided for in a contract between the corporation and
the director. Any right to indemnification or advances granted by this bylaw
to a director shall be enforceable by or on behalf of the person holding such
right in the forum in which the proceeding is or was pending or, if such forum
is not available or a determination is made that such forum is not convenient,
in any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim
is made within ninety (90) days of request therefor. The claimant in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. The corporation shall be
entitled to raise as a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in connection with any proceeding in
advance of its final disposition when the required undertaking has been
tendered to the corporation) that the claimant has not met the standards of
conduct that make it permissible under the California General Corporation Law
for the corporation to indemnify the claimant for the amount claimed. Neither
the failure of the corporation (including its board of directors, independent
legal counsel or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the California General Corporation Law, nor an actual determination by
the corporation (including its board of directors, independent legal counsel or
its shareholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
(g) NON-EXCLUSIVITY OF RIGHTS. To the fullest extent permitted by
the corporation's Articles of Incorporation and the California General
Corporation Law, the rights conferred on any person by this bylaw shall not be
exclusive of any other right which such person may have or hereafter acquire
under any statute, provision of the Articles of Incorporation, bylaws,
agreement, vote of shareholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity
while holding office. The corporation is specifically authorized to enter into
individual contracts with any or all of its directors, officers, employees or
agents respecting indemnification and advances, to the fullest extent permitted
by the California General Corporation Law and the corporation's Articles of
Incorporation.
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(h) SURVIVAL OF RIGHTS. The rights conferred on any person by
this bylaw shall continue as to a person who has ceased to be a director and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
(i) INSURANCE. The corporation, upon approval by the board of
directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this bylaw.
(j) AMENDMENTS. Any repeal or modification of this bylaw shall
only be prospective and shall not affect the rights under this bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(k) EMPLOYEE BENEFIT PLANS. The corporation shall indemnify the
directors and officers of the corporation who serve at the request of the
corporation as trustees, investment managers or other fiduciaries of employee
benefit plans to the fullest extent permitted by the California General
Corporation Law.
(l) SAVING CLAUSE. If this bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director to the fullest extent
permitted by any applicable portion of this bylaw that shall not have been
invalidated, or by any other applicable law.
(m) CERTAIN DEFINITIONS. For the purposes of this bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement and appeal of any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, arbitrative or
investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding, including expenses
of establishing a right to indemnification under this bylaw or any applicable
law.
(3) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this bylaw with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
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(4) References to a "director," "officer," "employee," or
"agent" of the corporation shall include, without limitation, situations where
such person is serving at the request of the corporation as a director,
officer, employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
ARTICLE XI
LOANS OF OFFICERS AND OTHERS
SECTION 64. CERTAIN CORPORATE LOANS AND GUARANTIES. If the
corporation has outstanding shares held of record by 100 or more persons on the
date of approval by the Board of Directors, the corporation may make loans of
money or property to, or guarantee the obligations of, any officer of the
corporation or its parent or any subsidiary, whether or not a director of the
corporation or its parent or any subsidiary, or adopt an employee benefit plan
or plans authorizing such loans or guaranties, upon the approval of the Board
of Directors alone, by a vote sufficient without counting the vote of any
interested director or directors, if the Board of Directors determines that
such a loan or guaranty or plan may reasonably be expected to benefit the
corporation.
ARTICLE XII
RIGHT OF FIRST REFUSAL
SECTION 65. RIGHT OF FIRST REFUSAL. No shareholder shall sell,
assign, pledge, or in any manner transfer any of the shares of Common Stock of
the corporation or any right or interest therein, whether voluntarily or by
operation of law, or by gift or otherwise, except by a transfer which meets the
requirements hereinafter set forth in this bylaw:
(a) If the shareholder desires to sell or otherwise transfer any
of his shares of Common Stock, then the shareholder shall first give written
notice thereof to the corporation. The notice shall name the proposed
transferee and state the number of shares to be transferred, the proposed
consideration, and all other terms and conditions of the proposed transfer.
(b) For thirty (30) days following receipt of such notice, the
corporation shall have the option to purchase all (but not less than all) of
the shares specified in the notice at the price and upon the terms set forth in
such notice; provided, however, that, with the consent of the shareholder, the
corporation shall have the option to purchase a lesser portion of the shares
specified in said notice at the price and upon the terms set forth therein. In
the event of a gift or property settlement that is not otherwise exempted from
the provisions of this Section 64, the price shall be deemed to be the fair
market value of the Common Stock at such time as deter-mined in good faith by
the Board of Directors. In the event the corporation elects to purchase all of
the shares or, with consent of the shareholder, a lesser portion of the shares,
it shall give written notice to the transferring shareholder of its election
and settlement for said shares shall be made as provided below in subsection
(d). In the event the selling shareholder does not agree with the non-cash
valuation of the shares set by the Board of Directors, the Company shall engage
an independent appraiser to value the price of the shares. The selling
shareholder shall have the right to approve the appraiser. The cost of the
valuation shall be shared equally by the Company and the selling shareholder.
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(c) The corporation may assign its rights hereunder.
(d) In the event the corporation and/or its assignee(s) elect to
acquire any of the shares of the transferring shareholder as specified in said
transferring shareholder's notice, the Secretary of the corporation shall so
notify the transferring shareholder and settlement thereof shall be made in
cash within thirty (30) days after the Secretary of the corporation receives
said transferring shareholder's notice; provided that if the terms of payment
set forth in said transferring shareholder's notice were other than cash
against delivery, the corporation and/or its assignee(s) shall pay for said
shares on the same terms and conditions set forth in said transferring
shareholder's notice.
(e) In the event the corporation and/or its assignees(s) do not
elect to acquire all of the shares specified in the transferring shareholder's
notice, said transferring shareholder may, within the sixty-day period
following the expiration of the option rights granted to the corporation and/or
its assignees(s) herein, transfer the shares specified in said transferring
shareholder's notice which were not acquired by the corporation and/or its
assignees(s) as specified in said transferring shareholder's notice. All
shares so sold by said transferring shareholder shall continue to be subject to
the provisions of this bylaw in the same manner as before said transfer.
(f) Anything to the contrary contained herein notwithstanding, the
following transactions shall be exempt from the provisions of this bylaw:
(1) A shareholder's transfer of any or all shares held either
during such shareholder's lifetime or on death by will or intestacy to such
shareholder's immediate family or to any custodian or trustee for the account
of such shareholder or such shareholder's immediate family. "Immediate family"
as used herein shall mean spouse, lineal descendant, father, mother, brother,
or sister of the shareholder making such transfer.
(2) A shareholder's bona fide pledge or mortgage of any shares
with a commercial lending institution, provided that any subsequent transfer of
said shares by said institution shall be conducted in the manner set forth in
this bylaw.
(3) A shareholder's transfer of any or all of such
shareholder's shares to the corporation or to any other shareholder of the
corporation.
(4) A shareholder's transfer of any or all of such
shareholder's shares to a person who, at the time of such transfer, is an
officer or director of the corporation.
(5) A corporate shareholder's transfer of any or all of its
shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate shareholder, or pursuant to a sale of all or substantially all of the
stock or assets of a corporate shareholder.
(6) A corporate shareholder's transfer of any or all of its
shares to any or all of its shareholders.
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(7) A transfer by a shareholder which is a limited or general
partnership to any or all of its partners or former partners.
In any such case, the transferee, assignee, or other recipient shall
receive and hold such Common Stock subject to the provisions of this bylaw, and
there shall be no further transfer of such Common Stock except in accord with
this bylaw.
(g) The provisions of this bylaw may be waived with respect to any
transfer either by the corporation, upon duly authorized action of its Board of
Directors, or by the share-holders, upon the express written consent of the
owners of a majority of the voting power of the corporation (excluding the
votes represented by those shares to be transferred by the transferring
shareholder). This bylaw may be amended or repealed either by a duly
authorized action of the Board of Directors or by the shareholders, upon the
express written consent of the owners of a majority of the voting power of the
corporation.
(h) Any sale or transfer, or purported sale or transfer, of
securities of the corporation shall be null and void unless the terms,
conditions, and provisions of this bylaw are strictly observed and followed.
(i) The foregoing right of first refusal shall terminate on either
of the following dates, whichever shall first occur:
(1) On September 29, 2002; or
(2) Upon the date securities of the corporation are first
offered to the public pursuant to a registration statement filed with, and
declared effective by, the United States Securities and Exchange Commission
under the Securities Act of 1933, as amended.
(j) The certificates representing shares of Common Stock of the
corporation shall bear on their face the following legend so long as the
foregoing right of first refusal remains in effect:
"HE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF
FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS
ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION."
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EXHIBIT 10.22
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT ("Agreement") is made this 3rd day of
April, 1998, between ARADIGM CORPORATION, a California corporation (the
"Company"), and the purchasers whose names are set forth on Schedule 1 hereof
(each a "Purchaser" and collectively the "Purchasers").
In Consideration of the mutual covenants contained in this Agreement, the
Company and the Purchasers agree as follows:
SECTION 1. CERTAIN DEFINITIONS
For purposes of this Agreement:
"Closing" means the execution and delivery of the Share Certificates and
the receipt of the Purchasers' wire transfer on the Closing Date.
"Closing Date" means April 7, 1998, or such other date as the Company and
the Purchasers shall mutually agree upon.
"Common Stock" means the Common Stock of the Company, no par value.
"Share Certificate" means the duly executed certificate representing the
number of shares of Common Stock being purchased by each Purchaser hereunder.
"Shares" means the aggregate number of shares of Common Stock being
purchased hereunder.
SECTION 2. AUTHORIZATION AND EXECUTION OF AGREEMENT
2.1 AGREEMENT TO PURCHASE THE COMMON STOCK. On the Closing Date,
subject to the terms and conditions of this Agreement, the Company will issue
and sell to each Purchaser, and, in reliance upon the representations and
warranties of the Company contained in this Agreement, each Purchaser,
severally and not jointly, will purchase from the Company the number of shares
of Common Stock for the aggregate purchase price set forth opposite each
Purchaser's name on SCHEDULE 1 hereto. An aggregate of up to One Million One
Hundred Eleven Thousand One Hundred (1,111,100) Shares shall be sold pursuant
to this Agreement for an aggregate purchase price of up to Eleven Million Nine
Hundred Ninety-Nine Thousand Eight Hundred Eighty dollars (11,999,880) (the
"Purchase Price").
2.2 CLOSING. The Closing shall be held at the offices of Cooley
Godward LLP, One Maritime Plaza, 20th Floor, San Francisco, California 94111 at
10:00 a.m. on the Closing Date or at such other time and place upon which the
Company and the Purchasers agree.
<PAGE> 2
2.3 PAYMENT AND DELIVERY. At the Closing, the following shall occur:
(a) Each Purchaser shall remit by wire transfer the purchase price
for the Shares to be purchased by such Purchaser, to the Company pursuant to
wire transfer instructions to be delivered by the Company to the Purchaser at
least one day prior to the Closing.
(b) The Company shall deliver the Share Certificates.
GENERAL REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to, and covenants with,
each Purchaser that the following are and will be true and correct as of the
date hereof and as of the Closing Date.
2.4 ORGANIZATION; QUALIFICATION. The Company is a corporation duly
organized and validly existing under the laws of the State of California and is
in good standing under such laws. The Company has all requisite corporate power
and authority to own, lease and operate its properties and assets, and to carry
on its business as presently conducted. The Company is qualified to do business
as a foreign corporation in each jurisdiction in which the ownership of its
property or the nature of its business requires such qualification, except
where failure to so qualify would not have a material adverse effect on the
Company.
2.5 CAPITALIZATION. The authorized capital stock of the Company
consists of 40,000,000 shares of Common Stock, no par value, of which
10,632,133 shares were issued and outstanding on March 30, 1998, and 5,000,000
shares of Preferred Stock, none of which are issued and outstanding. All issued
and outstanding shares of Common Stock have been duly authorized and validly
issued and are fully paid and nonassessable.
2.6 AUTHORIZATION. The Company has all corporate right, power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. All corporate action on the part of the Company, its
directors and shareholders necessary for the authorization, execution, delivery
and performance of this Agreement by the Company, the authorization, sale,
issuance and delivery of the Common Stock and the performance of the Company's
obligations hereunder has been taken. This Agreement has been duly executed and
delivered by the Company and constitutes a legal, valid and binding obligation
of the Company enforceable in accordance with its terms, (a) except as limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application affecting enforcement of creditors' rights, (b) subject
to general principles of equity that restrict the availability of equitable
remedies, and (c) except to the extent that the enforceability of the
indemnification provisions of Section 7.3 may be limited by applicable law.
Upon issuance and delivery of the Share Certificates, the Shares will be
validly issued, fully paid and nonassessable and will be free of any liens or
encumbrances, except for restrictions under applicable securities laws. The
execution and delivery of this Agreement, and the issuance of the Shares will
not give rise to any preemptive right or right of first refusal or right of
participation on behalf of any person.
2.7 NO CONFLICT. The execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of or default (with or without notice
or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or to a loss of material
benefit, under,
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any provision of the Articles of Incorporation or Bylaws of the Company or any
material mortgage, indenture, lease or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or its properties or
assets.
2.8 ACCURACY OF REPORTS AND INFORMATION. The Company's Common Stock
is registered pursuant to Section 12(g) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). All reports required to be filed by the
Company with the Securities and Exchange Commission ("SEC") during the period
from December 31, 1996 to the date of this Agreement pursuant to Section 13(a)
or 15(d) of the Exchange Act, including the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 (the "Form 10-K"), have been
duly and timely filed, were in compliance with the requirements of their
respective forms, were complete and correct in all material respects as of the
dates at which the information was furnished and as of their respective dates
did not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading. Copies of the
Form 10-K and the Form 10-Qs required to be filed by the Company with the SEC
during the period from December 31, 1996 to the date of this Agreement pursuant
to Section 13(a) or 15(d) of the Exchange Act (the "SEC Reports") have been
made available to the Purchasers and have been furnished to any Purchaser
requesting a copy of such information. The Company is an issuer eligible to
use Form S-3 under the Securities Act of 1933 (the "Securities Act") for the
registration of the resale of the Registrable Shares (as that term is defined
below in Section 7.1 (c)).
2.9 FINANCIAL STATEMENTS AND CHANGES. The audited financial
statements of the Company contained in the Form 10-K, including the notes
relating thereto (the "Financial Statements") have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods covered by such statements (except for normal year end
audit adjustments in the case of the unaudited financials) and present fairly
the Company's financial condition and results of operations and cash flows as
of the respective dates and for the periods indicated. Since December 31, 1997,
there has not been any material adverse change in the business, condition
(financial or otherwise) or results of operations of the Company.
2.10 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization
of or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of the Agreement, or the consummation of any other transaction
contemplated hereby, except the filing of a Form D notice.
2.11 SECURITIES ACT EXEMPTION. Assuming and relying in part on the
truth and accuracy of Purchasers' representations and warranties in Section 4
of this Agreement, the offer, sale and issuance of the Common Stock is exempt
from registration under the Securities Act of 1933, as amended.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS
Each of the Purchasers represents and warrants to, and covenants with, the
Company that the following are and will be, true and correct as of the date
hereof and as of the Closing Date:
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2.12 AUTHORITY. Such Purchaser has full right, power, authority and
capacity to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
such Purchaser and constitutes a legal, valid and binding obligation of such
Purchaser enforceable in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies, and to limitations of public policy as they may apply to
the indemnification provisions set forth in Section 7.3 of this Agreement.
2.13 INVESTMENT EXPERIENCE; INVESTMENT INTENT; ETC. (i) The Purchaser
is knowledgeable, sophisticated and experienced in making, and is qualified to
make, decisions with respect to investments in shares presenting an investment
decision like that involved in the purchase of the Shares; (ii) the Purchaser
is acquiring the number of Shares to be purchased by it in the ordinary course
of its business and for its own account solely for investment and with no
present intention of distributing any of such Shares, and no arrangement or
understanding exists with any other person regarding the distribution of such
Shares; (iii) the Purchaser will not, directly or indirectly, offer, sell,
pledge, transfer or otherwise dispose of (or solicit any offers to buy,
purchase or otherwise acquire or take a pledge of) any of the Shares except in
compliance with the Securities Act, and the rules and regulations promulgated
thereunder; and (iv) the Purchaser is an "accredited investor" within the
meaning of Rule 501 of Regulation D promulgated under the Securities Act.
2.14 PURCHASER UNDERSTANDING AND AGREEMENTS. The Purchaser
acknowledges and agrees that it will acquire the shares being purchased by it
in transactions not involving a public offering and that such shares are
subject to certain restrictions as to resale under the federal and state
securities laws. The Purchaser agrees and understands that, until satisfaction
of the prospectus delivery requirement (pursuant to an effective registration
statement under the Securities Act) in connection with each subsequent transfer
of any of the Shares, stop transfer instructions will be given to the transfer
agent for the Shares and each Share Certificate, and each certificate delivered
on transfer of or in substitution for any such certificate, shall bear a legend
in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
IMPOSED BY THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE
STATE SECURITIES LAW. THE SHARES MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE
SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES LAWS.
The Purchaser agrees that it will not sell, pledge, assign, transfer or
otherwise dispose (collectively, "Transfer") of any of the Shares unless the
Transfer will be made pursuant to an exemption from the registration
requirements of the Securities Act or pursuant to an effective registration
statement under the Securities Act and pursuant to an exemption from any
applicable state securities laws or an effective registration or other
qualification under any applicable state securities laws. The Purchaser
understands that exemptions from such registration requirements are limited.
The Company is under no obligation to register the Shares, except as provided
in Section 7.
2.15 NO LEGAL, TAX OR INVESTMENT ADVICE. The Purchaser understands
that nothing in this Agreement or any other materials presented to the
Purchaser in connection with the purchase of the Common Stock constitutes
legal, tax or investment advice. The Purchaser has consulted such
4
<PAGE> 5
legal, tax and investment advisors as it, in its sole discretion, has deemed
necessary or appropriate in connection with its purchase of the Common Stock.
CONDITIONS TO OBLIGATIONS OF PURCHASER AT CLOSING DATE
The obligation of each Purchaser to purchase the Common Stock is subject to
the fulfillment on or prior to the Closing Date of the following conditions,
any or all of which may be waived in writing at the option of all Purchasers:
2.16 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company in Section 3 shall be true and correct where
made and shall be true and correct in all material requests on the Closing Date
with the same force and effect as if they had been made on and as of said date.
2.17 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to such Closing Date,
shall have been performed or complied with in all material respects.
2.18 NO ORDER PENDING. There shall not then be in effect any order
enjoining or restraining the transactions contemplated by this Agreement.
2.19 LEGAL OPINION. Each Purchaser shall have received a legal opinion
of Cooley Godward LLP, dated the Closing Date, to the effects set forth in
EXHIBIT A.
CONDITIONS TO OBLIGATIONS OF COMPANY AT THE CLOSING DATE
The Company's obligation to execute and deliver the Share Certificates at
the Closing is subject to the fulfillment on or prior to the Closing Date of
the following conditions, any or all of which may be waived in writing at the
option of the Company:
2.20 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Purchasers in Section 4 hereof shall be true and correct
when made, and shall be true and correct in all material respects on the
Closing Date with the same force and effect as if they had been made on and as
of said date.
2.21 RECEIPT OF PAYMENT. The Company shall have received payment, by
wire transfer of immediately available funds, in the full amount of the
Purchase Price.
REGISTRATION OF THE SHARES; COMPLIANCE WITH THE SECURITIES ACT
2.22 DEFINITIONS. For the purpose of this Section 7:
(a) the term "Registration Statement" shall mean any registration
statement required to be filed by Section 7.2 below, and shall include any
preliminary prospectus, final prospectus, exhibit or amendment included in or
relating to such registration statement; and
(b) the term "untrue statement" shall include any untrue statement
or alleged untrue statement, or any omission or alleged omission to state in
the Registration Statement a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
5
<PAGE> 6
(c) the term "Registrable Shares" shall mean the shares of Common
Stock issued pursuant to this Agreement.
2.23 REGISTRATION PROCEDURES AND EXPENSES. The Company shall:
(a) use its best efforts to file a registration statement with the
SEC within thirty (30) days following the Closing Date to register the
Registrable Shares on Form S-3 under the Securities Act (providing for shelf
registration of the Common Stock under SEC Rule 415) or on such other form
which is appropriate to register all of the Registrable Shares for resale from
time to time by the Purchasers;
(b) use its best efforts, subject to receipt of necessary
information from the Purchasers, to cause such Registration Statement to become
effective as promptly after filing as practicable, and in any event, within
ninety (90) days following the Closing Date, and to cause (at the Company's
expense) Cooley Godward LLP, counsel to the Company, to furnish to each
Purchaser an opinion dated as of the effective date to the effects set forth in
EXHIBIT B;
(c) prepare and file with the SEC such amendments and supplements
to such Registration Statement and the prospectus used in connection therewith
as may be necessary to keep such Registration Statement effective until
termination of such obligation as provided in Section 7.5 below, subject to the
Company's right to suspend pursuant to Section 7.4;
(d) furnish to each Purchaser (and to each underwriter, if any, of
such Common Stock) such number of copies of prospectuses in conformity with the
requirements of the Securities Act and such other documents as the Purchasers
may reasonably request, in order to facilitate the public sale or other
disposition of all or any of the Registrable Shares by the Purchasers;
(e) file such documents as may be required of the Company for
normal securities law clearance for the resale of the Registrable Shares in
such states of the United States as may be reasonably requested by each
Purchaser; provided, however, that the Company shall not be required in
connection with this paragraph (e) to qualify as a foreign corporation or
execute a general consent to service of process in any jurisdiction;
(f) advise each Purchaser promptly:
(i) of any request by the SEC for amendments to the
Registration Statement or amendments to the prospectus or for additional
information relating thereto:
(ii) of the issuance by the SEC of any stop order suspending
the effectiveness of the Registration Statement under the Securities Act or of
the suspension by any state securities commission of the qualification of the
Registrable Shares for offering or sale in any jurisdiction, or the initiation
of any proceeding for any of the preceding purposes; and
(iii) of the existence of any fact and the happening of any
event that makes any statement of a material fact made in the Registration
Statement, the prospectus and amendment or supplement thereto, or any document
incorporated by reference therein, untrue, or that requires the making of any
additions to or changes in the Registration Statement or the prospectus in
order to make the statements therein not misleading;
6
<PAGE> 7
(g) in connection with the filing of any document that is to be
incorporated by reference into the Registration Statement or the prospectus
(after the initial filing of the Registration Statement):
(i) use its best efforts to provide copies of such document to
the Purchasers concurrently with such filing; and
(ii) make a Company representative available for discussion of
such document;
(h) use its best efforts to cause all Registrable Shares to be
listed on each securities exchange, if any, on which equity securities by the
Company are then listed; and
(i) bear all expenses in connection with the procedures in
paragraphs (a) through (h) of this Section 7.2 and the registration of the
Registrable Shares on such Registration Statement and the satisfaction of the
blue sky laws of such states.
2.24 INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless Purchaser
from and against any losses, claims, damages or liabilities to which such
Purchaser may become subject (under the Securities Act or otherwise) insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon, any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case on the effective date thereof, or arise out of any
failure by the Company to fulfill any undertaking included in the Registration
Statement, and the Company will, as incurred, reimburse such Purchaser for any
legal or other expenses reasonably incurred in investigating, defending or
preparing to defend any such action, proceeding or claim; provided, however,
that the Company shall not be liable in any such case to the extent that such
loss, claim, damage or liability arises out of, or is based upon, an untrue
statement or omission or alleged untrue statement or omission made in such
Registration Statement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Purchaser
specifically for use in preparation of the Registration Statement or any breach
of this Agreement by Purchaser.
(b) Each Purchaser, severally and not jointly, agrees to indemnify
and hold harmless the Company (and each person, if any, who controls the
Company within the meaning of Section 5 of the Securities Act or Section 20 of
the Exchange Act, each officer of the Company who signs the Registration
Statement and each director of the Company), from and against any losses,
claims, damages or liabilities to which the Company (or any such officer,
director or controlling person) may become subject (under the Securities Act or
otherwise), insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of, or are based upon, any breach
of this Agreement by such Purchaser or any untrue statement of a material fact
contained in the Registration Statement or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading in each case, on the effective date
thereof, if, and to the extent, such untrue statement
7
<PAGE> 8
was made in reliance upon and in conformity with written information furnished
by or on behalf of such Purchaser specifically for use in preparation of the
Registration Statement, and such Purchaser will reimburse the Company (and each
of its officers, directors or controlling persons) for any legal or other
expenses reasonably incurred in investigating, defending or preparing to defend
any such action, proceeding or claim.
(c) Promptly after receipt by any indemnified person of a notice
of a claim or the beginning of any action in respect of which indemnity is to
be sought against an indemnifying person pursuant to this Section 7.3, such
indemnified person shall notify the indemnifying person in writing of such
claim or of the commencement of such action, and, subject to the provisions
hereinafter stated, in case any such action shall be brought against an
indemnified person and such indemnifying person shall have been notified
thereof, such indemnifying person shall be entitled to participate therein,
and, to the extent that it shall wish, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified person. After notice from
the indemnifying person to such indemnified person of its election to assume
the defense thereof, such indemnifying person shall not be liable to such
indemnified person for any legal expenses subsequently incurred by such
indemnified person in connection with the defense thereof; provided, however,
that if there exists or shall exist a conflict of interest that would make it
inappropriate in the reasonable judgment of the indemnified person for the same
counsel to represent both the indemnified person and such indemnifying person
or any affiliate or associate thereof, the indemnified person shall be entitled
to retain its own counsel at the expense of such indemnifying person; provided,
further, that no indemnifying person shall be responsible for the fees and
expenses of more than one separate counsel for all indemnified parties. The
indemnifying party shall not settle an action without the consent of the
indemnified party, which shall not be unreasonably withheld.
(d) If after proper notice of a claim or the commencement of any
action against the indemnified party, the indemnifying party does not choose to
participate, then the indemnified party shall defend itself at its own cost and
expense until there is an adjudication at which point the indemnifying party
shall then reimburse the indemnified party for its costs and expenses.
(e) If the indemnification provided for in this Section 7.3 is
required by its terms but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party in respect of any
losses, claims, damages or liabilities referred to above, then each applicable
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities.
2.25 PROSPECTUS DELIVERY. The Purchaser hereby covenants with the
Company not to make any sale of the Shares after registration without
effectively causing the prospectus delivery requirement under the Securities
Act to be satisfied. The Purchaser acknowledges that there may be times when
the Company must suspend the use of the prospectus forming a part of the
Registration Statement until such time as an amendment to the Registration
Statement has been filed by the Company and declared effective by the SEC, or
until such time as the Company has filed an appropriate report with the SEC
pursuant to the Exchange Act. The Purchaser hereby covenants that it will not
sell any Shares pursuant to said prospectus during the period commencing at the
time at which the Company gives the Purchaser notice of the suspension of the
use of said prospectus and ending at the time the Company gives the Purchaser
notice that the Purchaser may thereafter effect
8
<PAGE> 9
sales pursuant to said prospectus. Such suspension periods shall in no event
exceed 60 days in any 12 month period.
2.26 TERMINATION OF OBLIGATIONS. The obligations of the Company
pursuant to Section 7.2 hereof shall cease and terminate upon the earlier to
occur of (i) such time as all of the Registrable Shares have been re-sold, or
(ii) such time as all of the Registrable Shares may be re-sold pursuant to Rule
144(k).
2.27 REPORTING REQUIREMENTS.
(a) With a view to making available the benefits of certain rules and
regulations of the SEC that may at any time permit the sale of the Shares to the
public without registration or pursuant to a registration statement on Form S-3,
the Company agrees to use its best efforts to:
(i) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(ii) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Securities
Exchange Act of 1934; and
(iii) so long as any of the Purchasers own Registrable
Securities, to furnish to the Purchasers forthwith upon request (1) a written
statement by the Company as to whether it is in compliance with the reporting
requirements of said Rule 144, the Securities Act and Securities Exchange Act
of 1934, or whether it is qualified as a registrant whose securities may be
resold pursuant to SEC Form S-3, and (2) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed
by the Company.
FEES AND EXPENSES
Except as provided in Section 7.2(i), each of the parties shall pay its own
fees and expenses.
NOTICES
All notices, requests, consents and other communications hereunder shall be
in writing, shall be telecopied or mailed by first class registered or
certified airmail (return receipt requested), postage prepaid, and shall be
deemed given when so telecopied or, if mailed, when received:
(b) if to the Company, to
Aradigm Corporation
26219 Eden landing Road
Hayward, California 94545
Attn: Mark Olbert, Chief Financial Officer
Telecopier No.: (510) 783-0410
or to such other person at such other place as the Company shall designate to
the Purchaser in writing;
(c) if to the Purchasers, to the address set forth on SCHEDULE 1
attached hereto, or at such other address or addresses as may have been
furnished to the Company in writing; or
9
<PAGE> 10
(d) if to any transferee or transferees of a Purchaser, at such
address or addresses as shall have been furnished to the Company at the time of
the transfer or transfers, or at such other address or addresses as may have
been furnished by such transferee or transferees to the Company in writing.
MISCELLANEOUS
2.28 ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement or any kind not expressly set forth in this Agreement
shall affect, or be used to interpret, change or restrict, the express terms
and provisions of this Agreement.
2.29 AMENDMENTS. This Agreement may not be modified or amended, except
pursuant to an instrument in writing signed by the Company and by each
Purchaser.
2.30 HEADINGS. The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be part of this Agreement.
2.31 SEVERABILITY. In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
2.32 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California as applied to agreements
among California residents, made and to be performed entirely within
California, without regard to principles of conflict of laws.
2.33 COUNTERPARTS. This Agreement may be executed in counterparts,
each set of which shall constitute an original
2.34 PUBLICITY. No party shall issue any press releases or otherwise
make any public statement with respect to the transactions contemplated by this
Agreement without the prior written consent of the other party, except as may
be required by applicable law or regulation; provided, however, that the
Company may issue a press release in substantially the form attached hereto as
EXHIBIT C on or shortly after the signing of this Agreement.
2.35 SURVIVAL. The representations and warranties in this Agreement
shall survive the Closing.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Common Stock
Purchase Agreement to be signed by their duly authorized representatives as of
the day and year first above written.
COMPANY:
ARADIGM CORPORATION
/s/ Mark A. Olbert
--------------------------------------
Mark A. Olbert
Chief Financial Officer
PURCHASERS:
FB Invemed Fund, L.P.
--------------------------------------
Name
/s/ Cristina H. Kepner
--------------------------------------
Signature
Oracle Offshore Ltd.
--------------------------------------
Name
/s/ Norman Schleifer
--------------------------------------
Signature
Haussman Holdings, N.V.
--------------------------------------
Name
/s/ Norman Schleifer
--------------------------------------
Signature
State of Oregon
--------------------------------------
Name
/s/ Albert L. Zesiger
--------------------------------------
Signature
11
<PAGE> 12
Oracle Partners, L.P.
--------------------------------------
Name
/s/ Norman Schleifer
--------------------------------------
Signature
Oracle Institutional Partners, L.P.
--------------------------------------
Name
/s/ Norman Schleifer
--------------------------------------
Signature
GSAM Oracle Fund
--------------------------------------
Name
/s/ Norman Schleifer
--------------------------------------
Signature
12
<PAGE> 13
SCHEDULE 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES TO PER SHARE AGGREGATE
BE PURCHASED PURCHASE PRICE PURCHASE PRICE
NAME AND ADDRESS OF PURCHASER
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deutsche Vermogensbildungsgesellschaft mbH (DVG) 200,000 $10.80 $2,160,000
61348 Bad Homburg v.d.H.
Feldbergstr. 22, 60323 Frankfurt am Main
Attn: Daniel Endrikat
with a copy to:
Merlin BioMed Asset Management
237 Park Avenue, Suite 801
New York, NY 10017
Attn: Jennifer Stoler
- -----------------------------------------------------------------------------------------------------------------------
FB Invemed Fund, L.P. 462,900 10.80 4,999,320
375 Park Avenue
New York, NY 10152
Attn: Devora Burstein
- -----------------------------------------------------------------------------------------------------------------------
GSAM Oracle Fund 60,000 10.80 648,000
712 Fifth Avenue, 45th Floor
New York, NY 10019
Attn: Norman Schleifer
- -----------------------------------------------------------------------------------------------------------------------
Haussmann Holdings, N.V. 17,600 10.80 190,080
712 Fifth Avenue, 45th Floor
New York, NY 10019
Attn: Norman Schleifer
- -----------------------------------------------------------------------------------------------------------------------
Oracle Institutional Partners, L.P. 25,000 10.80 270,000
712 Fifth Avenue, 45th Floor
New York, NY 10019
Attn: Norman Schleifer
- -----------------------------------------------------------------------------------------------------------------------
Oracle Offshore Limited 7,000 10.80 75,600
712 Fifth Avenue, 45th Floor
New York, NY 10019
Attn: Norman Schleifer
- -----------------------------------------------------------------------------------------------------------------------
Oracle Partners, L.P. 108,600 10.80 1,172,880
712 Fifth Avenue, 45th Floor
New York, NY 10019
Attn: Norman Schleifer
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES TO PER SHARE AGGREGATE
BE PURCHASED PURCHASE PRICE PURCHASE PRICE
NAME AND ADDRESS OF PURCHASER
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
State of Oregon 230,000 10.80 2,484,000
c/o Westcoast & Co. (as nominee)
Chase Manhatten Bank NA
4 New York Plaza, Ground Floor Receiving Window
New York, NY 10004
Attn: Jennifer John
with a copy to:
Zesiger Capital Group LLC
320 Park Avenue, 30th Floor
New York, NY 10022
Attn: Mary Estabil
- -----------------------------------------------------------------------------------------------------------------------
TOTAL 1,111,100 $11,999,880
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
EXHIBIT A
Legal Opinion of Cooley Godward, LLP.
(i) The Company has been duly incorporated and is in good standing
under the laws of the State of California.
(ii) The Agreement has been duly and validly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, (a)
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights; (b) except to the extent that the
enforceability of the indemnification provisions of Section 7.3 may be limited
by applicable law; and (c) subject to general equity principles and to
limitations on availability of equitable relief, including specific
performance.
(iii) The Company's authorized capital stock consists of 40,000,000
shares of Common Stock, no par value, and 5,000,000 shares of Preferred Stock,
no par value. Upon issuance and delivery in accordance with the terms of the
Agreement, the Shares will be validly issued, outstanding, fully paid and
nonassessable. The execution and delivery of the Agreement will not give rise
to any preemptive right or right of first refusal under the General Corporation
Law of the State of California.
(iv) All consents, approvals, authorizations or orders of, and filings,
registrations and qualifications with any regulatory authority or governmental
body of the United States and California required for the consummation by the
Company of the offer and sale of the Shares have been obtained, except for
filing of a Form D notice.
15
<PAGE> 16
EXHIBIT B
Legal Opinion of Cooley Godward LLP Regarding the Registration Statement.
(i) The Registration Statement has become effective under the
Securities Act of 1933, as amended, and, to the knowledge of such counsel, no
stop order suspending the effectiveness of the Registration Statement or
suspending or preventing the use of the Prospectus is in effect and no
proceedings for that purpose have been instituted or are pending or contemplated
by the Commission.
(ii) The Registration Statement and the Prospectus (other than the
financial statements and schedules and other financial and statistical data
contained therein, as to which such counsel need express no opinion) comply as
to form in all material respects with the requirements of the Securities Act of
1933, as amended, and with the rules and regulations of the Commission
thereunder.
1
EXHIBIT C
PRESS RELEASE
16
<PAGE> 1
EXHIBIT 10.23
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. Sections 200.80(b)(4)
200.83 AND 240.24b-2
DEVELOPMENT AND LICENSE AGREEMENT
This Agreement is made this 2nd day of June, 1998 ("the Effective Date") by and
between
ARADIGM CORPORATION
26219 Eden Landing Road
Hayward, California 94545
(hereinafter referred to as ARADIGM)
and NOVO NORDISK A/S
Novo Alle
DK-2880 Bagsvaerd
Denmark
(hereinafter referred to as NOVO NORDISK)
WHEREAS ARADIGM is the owner of, and is beneficially entitled to, a number of
patents and patent applications and Know-How related to the production
and delivery of drugs, including proteins/peptides, via the pulmonary
route using a breath controlled delivery device;
WHEREAS NOVO NORDISK is the owner of, and is beneficially entitled to, a
number of patents and patent applications and Know-How relating to the
development and production of recombinant human insulin, as well as
insulin analogues and other compounds useful in the control of blood
glucose levels in humans;
WHEREAS NOVO NORDISK and ARADIGM wish to enter into a Development and License
Agreement to develop a system for pulmonary delivery of insulin (and
potentially other compounds) and ARADIGM is willing to use its Patent
Rights and Know-How in such a development programme;
WHEREAS NOVO NORDISK and ARADIGM, in addition to the above mentioned
development work, wish to enter into a licensing arrangement under
which ARADIGM will grant to NOVO NORDISK an exclusive, world-wide
license under ARADIGM's Patent Rights and ARADIGM's Know-How, to use,
market, distribute, sell and sublicense products resulting from such
development programme in the Field;
NOW, THEREFORE, it is hereby agreed as follows:
<PAGE> 2
SECTION 1. - DEFINITIONS
In the present Agreement the following definitions shall prevail:
1.1 "Affiliates" of a party hereto shall mean an entity which
controls, is controlled by or is under common control with such party (by
majority ownership or otherwise). For the purposes hereof "control" shall mean
the power to direct or cause the direction of the management and the policies
of an entity, whether through the ownership of a majority of the outstanding
voting securities or by contract or otherwise.
1.2 "ARADIGM" shall mean ARADIGM CORPORATION of 26219 Eden Landing
Road, Hayward, California 94545, and any of its Affiliates.
1.3 "ARADIGM Know-How" shall mean all knowledge, information and
expertise possessed by ARADIGM prior to or at any time during the term of this
Agreement related to the development and production of the Device, Packaged
Products, Formulated Compounds and Programme Compounds, whether or not covered
by ARADIGM Patent Rights or any other industrial or intellectual property right
of ARADIGM, including but not limited to technical data, experimental results,
specifications, techniques, methods, processes and written materials.
1.4 "ARADIGM Patent Rights" shall mean any and all of ARADIGM's
patents and patent applications related to the Device, Packaged Products,
Formulated Compounds and Programme Compounds, including those that relate to
the development, production and use of same, possessed by ARADIGM at any time
during the term of this Agreement. A current and complete list of such rights,
entitled "ARADIGM Patents" and certified by an officer of ARADIGM, has been
delivered to NOVO NORDISK. ARADIGM Patent Rights shall also include all
continuations, continuations-in- part, divisionals or re-issues of such patents
and patent applications and any patents issuing thereon or extensions thereof
or any foreign counterparts thereof. Extensions of patents shall include: a)
extensions under the U.S. Patent Term Restoration Act, b) extensions of patents
under the Japanese Patent Law, c) Supplementary Protection Certificates for
members of the European Patent Convention and other countries in the European
Economic Area and d) similar extensions under any applicable law in the
Territory.
1.5 "Development Costs" shall mean the fully burdened costs of
conducting development activities (including the supply by ARADIGM of clinical
trial quantities of Devices and Packaged Products) pursuant to the Development
Programme, including the costs of labor (including all allocable benefits),
materials, outside consultants and research and development and corporate and
overhead amounts reasonably allocable to such development activities
[...***...].
1.6 "Development Programme" shall mean the pharmaceutical development
of the Packaged Products (including Formulated Compounds and the disposable
unit dose packaging) and the Device, including the pre-clinical and clinical
development programmes required for registration and approval of the Device and
the Packaged Products in the Territory as provided for in this Agreement. The
Development Programme shall initially consist of a development
__________________________________
* CONFIDENTIAL TREATMENT REQUESTED
2
<PAGE> 3
plan addressing the development of the Device and a Packaged Product containing
the Initial Compound, but may be enlarged to include the development of
Packaged Products containing one or more Other Compounds in accordance with
Article 2.1.
1.7 "Device" shall mean any pulmonary delivery device, together with
any accessories, used to administer any Formulated Compounds contained in a
disposable unit dose package, developed in the course of the Development
Programme based on the device technology described in the ARADIGM Patent Rights
or utilizing ARADIGM Know-How.
1.8 "Diligent Efforts" shall mean no less than the efforts that the
applicable party applies to development, manufacture or commercialization of
its own compounds or products with similar regulatory requirements and market
potential.
1.9 "Field" shall mean pulmonary administration of insulin, insulin
analogs and any other compounds whose principal therapeutic effect is
[...***...].
1.10 "First Marketing" shall mean making available for sale the Device
and a Packaged Product in commercial quantities in any country in the
Territory.
1.11 "Formulated Compound" shall mean any formulation of any Programme
Compound developed in the course of the Development Programme for use in a
Packaged Product.
1.12 "Fully Burdened Costs" shall mean the cost of raw materials
(excluding unless otherwise stated the Programme Compound), components, labour
(production), quality control (labour, material and external analysis), third
party royalties, freight, import duties, taxes and reasonably allocated
facilities, depreciation of equipment and manufacturing overheads relating to
the production of the specified item.
1.13 "Gross Profit" shall mean NOVO NORDISK's Net Sales of Packaged
Products and Devices in the Territory minus the Fully Burdened Costs of all
Packaged Products and Devices (including finished goods, components and raw
materials such as Initial Compound that become obsolete or outdated, whether
due to inaccurate forecasting or any other reason) supplied to NOVO NORDISK or
produced by NOVO NORDISK as contemplated by Article 4.7 [...***...] and Article
4.9(a) (secondary packaging), including for this purpose the Fully Burdened
Costs of the applicable Programme Compound, other than product that is so
produced or provided as samples (Article 4.9(f)).
1.14 "Initial Compound" shall mean recombinant human insulin.
1.15 "Minimum Product Profile" shall mean any and all of the essential
minimum product specifications and other criteria for the Device and the
Packaged Products, set forth in a separate document entitled "Minimum Product
Profile" signed by the parties, which the parties have agreed must be met in
the course of the Development Programme to provide justification for commercial
launch and which may provide the basis for termination of this Agreement as set
forth in Article 9.2.
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1.16 "Net Sales" shall mean the invoiced gross revenue from sales of
product made by NOVO NORDISK and/or its sublicensees when invoiced to any third
party in an arm's length transaction less: a) Trade, cash and/or quantity
discounts or rebates, if any; b) Credits or allowances given for rejection or
return of such products previously sold; c) Any tax or governmental charge
other than income tax levied on the sale thereof or customs duties associated
therewith; d) Freight, insurance and other similar expenses billed separately
to the customer. Upon a request by NOVO NORDISK supported by suitable
documentation reflecting actual operating experience, the parties will agree on
a fixed percentage of Net Sales to represent item (d).
1.17 "NOVO NORDISK Know-How" shall mean knowledge, information and
expertise possessed by NOVO NORDISK prior to or at any time during the term of
this Agreement that relates to any Programme Compound or any Formulated
Compound or that NOVO NORDISK otherwise contributes to the Development
Programme, whether or not covered by NOVO NORDISK Patent Rights or other
industrial or intellectual property right of NOVO NORDISK, including but not
limited to technical data, experimental results, specifications, techniques,
methods, processes and written materials.
1.18 "NOVO NORDISK" shall mean NOVO NORDISK A/S, Novo Alle, DK-2880
Bagsvaerd, Denmark, and any of its Affiliates.
1.19 "NOVO NORDISK Patent Rights" shall mean any and all of NOVO
NORDISK's patents and patent applications related to any Programme Compound or
any Formulated Compound, including those that relate to the production,
development and use of same, possessed by NOVO NORDISK at any time during the
term of this Agreement. NOVO NORDISK Patent Rights shall also include all
continuations, continuations-in-part, divisionals or re-issues of such patents
and patent applications and any patents issuing thereon or extensions thereof
or any foreign counterparts thereof. Extensions of patents shall include: a)
extensions under the U.S. Patent Term Restoration Act, b) extensions under the
Japanese Patent Law, c) Supplementary Protection Certificates for members of
the European Patent Convention and other countries in the European Economic
Area and d) similar extensions under any applicable law in the Territory.
1.20 "Other Compounds" shall mean compounds in the Field other than the
Initial Compound.
1.21 "Packaged Products" shall mean the disposable unit dose packages
developed in the course of the Development Programme containing Formulated
Compounds, packaged for use with the Device for pulmonary delivery of such
Formulated Compounds.
1.22 "Programme Compounds" shall mean the Initial Compound and any
Other Compounds that are added to the Development Programme in accordance with
Article 2.1.
1.23 "Regulatory Approval" shall mean the granting of a commercial
marketing authorization for the Packaged Product for delivery of a Formulated
Compound using the Device and for the Device.
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1.24 "Regulatory Submission" shall mean the filing of an application
for a commercial marketing authorization for a Packaged Product for delivery of
a Formulated Compound using the Device and for the Device.
1.25 "Territory" shall include any and all countries of the world.
SECTION 2. - DEVELOPMENT ACTIVITIES AND RESPONSIBILITIES
2.1 NOVO NORDISK and ARADIGM shall jointly conduct the Development
Programme, which shall initially consist of Diligent Efforts by the parties to
carry out a development plan addressing development of the Device and a
Packaged Product containing the Initial Compound for administration using the
Device. The preliminary details of such development plan have been agreed upon
by the parties and are set forth in a separate document entitled "Milestone
Plan." The details of this development plan shall be discussed and agreed on
in good faith between the parties and embodied in a document signed by both
parties, which shall thereafter be subject to further modification from time to
time as approved by the Steering Committee. The product description for the
Packaged Product and the Device, including the Minimum Product Profile as well
as desired target profiles, shall be agreed by NOVO NORDISK and ARADIGM and
shall be included in the document defining the Development Programme. It is
understood between the parties that the specifications for the Packaged Product
and the Device may require some changes during the course of the programme and
that such changes will be made when and as approved by the Steering Committee.
NOVO NORDISK shall specify within [...***...] after the initiation of a Phase
III trial of the initial Packaged Product one or more Other Compounds for study
by the Steering Committee as candidates for the second Packaged Product to be
added to the Development Programme and may from time to time thereafter propose
additional Other Compounds for the Development Programme. Upon agreement by
the parties on a development plan to incorporate the preliminary details for
the development of such Other Compounds and determination by the Steering
Committee that such development is feasible and should be undertaken, such
Other Compounds will be added to the Development Progr*amme. Each time an
Other Compound is added to the Development Programme in this manner, the
parties will agree in good faith on the financial terms not otherwise specified
herein for such development and commercialization, which will provide for a
reasonable sharing of the potential value of the Packaged Product containing
such compound, as well as on such other modifications of the other terms hereof
as may be reasonable under the circumstances.
2.2 A Steering Committee will be established, consisting of an equal
number of people (at least three) from each party, whose responsibility will be
to ensure the Development Programme is carried out to the satisfaction of both
parties. The Steering Committee, [...***...], shall have responsibility for
approval of and release of funds, approving budgets, approving any changes to
the Development Programme, for approving reimbursement of costs for
pharmaceutical development as described in Article 2.5, as well as plans for
production capacity and budgets for capital expenditures associated therewith,
and for the review and approval of product specifications as contemplated by
Article 4.9(d). The Steering Committee will meet each quarter, during the first
year of this Agreement, and then as mutually agreed between the parties. In
the event the Steering Committee is unable to resolve any matter to the
satisfaction of the Steering Committee, the matter will be referred to the
senior managements of the two parties for
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resolution. While in general the parties intend to act by mutual agreement,
with respect to issues concerning the design and implementation of clinical
trials and approval of specifications as provided in Article 4.9(d), the senior
management of NOVO NORDISK shall have the right to make the final decision.
2.3 ARADIGM agrees that it will use Diligent Efforts to develop,
manufacture and supply, to the deadlines included in the Development Programme
agreed between the parties, the Packaged Product and the Device consistent with
Good Manufacturing Practice and any other relevant practices as required to
obtain Regulatory Approval for the Device and the Packaged Product in all major
markets in the Territory. ARADIGM shall use Diligent Efforts to obtain all the
required Regulatory Approvals in the Territory required for NOVO NORDISK
commercialization of the Device with the Packaged Products. However, in such
cases where the Device Regulatory Submission is an integrated part of the
Regulatory Submission, then ARADIGM shall only timely submit to NOVO NORDISK
all the sections of the Regulatory Submission which are required for obtaining
Regulatory Approval of the Device with the Packaged Products. For countries
other than the United States, NOVO NORDISK shall provide reasonable
non-monetary assistance in structuring such Device Regulatory Submission,
provided NOVO NORDISK has the necessary experience to provide such assistance.
The personnel of NOVO NORDISK having relevant expertise in technical areas
affecting ARADIGM's activities directed to product development, production
process development and manufacturing scale-up and cost reduction, including
those pertaining to the Device as well as the Packaged Product, shall
participate or advise in the Development Programme in such manner as is
approved by the Steering Committee.
2.4 The Development Costs necessary for activities after the Effective
Date required to develop the Packaged Product and the Device as specified in
the Development Programme referred to in Article 2.1 shall be allocated and
paid as described below:
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Pre-clinical, clinical and regulatory Development [...***...]
Programme Compound and Formulated Compound [...***...]
Packaged Product development work specific to [...***...]
Development Programme
Packaged Product supply for clinical development [...***...]
Device development and Device regulatory work
specific to Development Programme [...***...]
Device supply for clinical development
(subject to Article 4.6) [...***...]
Production validation and process qualification
specific to Development Programme [...***...]
All other production process development [...***...]
All other Device and Packaged Product Development [...***...]
In addition to the foregoing, and in consideration of ARADIGM's past and future
development activities, NOVO NORDISK agrees to make the following milestone
payments to ARADIGM at first occurrence of each of the following events:
(a) Twenty (20) days after the Effective Date: USD two million
(USD 2,000,000).
(b) Upon initiation of the Phase IIb clinical study (first
patient, first dose) (see development plan): [...***...].
(c) Upon initiation of the Phase III clinical study (first
patient, first dose) (see development plan): [...***...].
(d) At NOVO NORDISK's first Regulatory Submission in the United
States, the EEC or Japan: [...***...].
(e) Upon first Regulatory Approval in the United States:
[...***...].
(f) Upon first Regulatory Approval in the EEC: [...***...].
(g) Upon first Regulatory Approval in Japan: [...***...].
Notwithstanding any other provision of this Agreement, and for the avoidance of
doubt, each of the amounts referred to in [...***...] shall be payable only
once with respect to the development of the
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initial Packaged Product and shall be non-refundable. Consequently, maximum
total milestone payments to be paid by NOVO NORDISK to ARADIGM under this
Agreement in respect of such milestones shall amount to [...***...].
(h) Upon initiation (first patient, first dose) of a Phase IIb
clinical trial of a Packaged Product containing the second Programme Compound:
[...***...].
(i) Upon initiation (first patient, first dose) of a pivotal
Phase III clinical trial of such second Packaged Product: [...***...].
(j) When cumulative Net Sales of Devices and Packaged Products
reach [...***...].
(k) When cumulative Net Sales of Devices and Packaged Products
reach [...***...].
(l) When cumulative Net Sales of Devices and Packaged Products
reach [...***...].
For the avoidance of doubt, each of the amounts referred to in [...***...]
shall be payable only once. Moreover, no further payments in respect of such
milestones will become due once NOVO NORDISK has paid ARADIGM a total of
[...***...]. Consequently, maximum total milestone payments to be paid by NOVO
NORDISK to ARADIGM under this Agreement in respect of such milestones shall
amount to [...***...].
Thus, the total milestone payments in respect of the Packaged Product
containing the second Programme Compound will be [...***...], plus milestone
amounts in respect of regulatory submission and approvals thereof to be agreed
upon at the time it is added to the Development Programme. Upon request by
NOVO NORDISK to develop a third Programme Compound in the Development Programme
pursuant to Article 2.1, the parties will agree in good faith on the milestone
payments to apply to the clinical development of Packaged Products containing
such Other Compound.
Furthermore, NOVO NORDISK shall invest up to a total of USD ten million (USD
10,000,000) equity in ARADIGM at times and under terms as specified in a
separate agreement between the parties.
2.5 Development Costs of ARADIGM to be borne by NOVO NORDISK will be
paid quarterly [...***...] by NOVO NORDISK based on budgeted expenses approved
by the Steering Committee, subject to a reconciliation to actual costs incurred
at the end of each year (based on a presentation to the Steering Committee no
later than sixty (60) days after the end of such year) approved by the Steering
Committee (such approval not to be unreasonably withheld or delayed) or more
frequently if requested by either party. NOVO NORDISK shall pay or ARADIGM
shall refund, as applicable, any difference between amounts advanced and actual
costs incurred within thirty (30) days after such reconciliation is approved.
Any anticipated material deviations from established budgets will be reported
as promptly as practicable to the Steering Committee.
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2.6 NOVO NORDISK and ARADIGM shall use their Diligent Efforts to
obtain all necessary regulatory approvals for pre-clinical and clinical
development work. All regulatory submissions required for clinical development
work in the USA to be filed initially by ARADIGM that are needed by NOVO
NORDISK to continue development will be transferred to NOVO NORDISK as soon as
practicable but in any event prior to the commencement of Phase III trials, and
NOVO NORDISK will thereafter be the holder thereof and will have responsibility
for all further regulatory filings worldwide unless otherwise approved by the
Steering Committee.
2.7 NOVO NORDISK agrees that it will use its Diligent Efforts to
clinically develop and register, to the deadlines included in the Development
Programme agreed between the Parties, and market the Packaged Products for
administration using the Device in the Territory. [...***...].
2.8 All supplies of Programme Compounds (including certificates of
analysis and safety handling data) required for the Development Programme,
shall be supplied by NOVO NORDISK to ARADIGM, [...***...], and in a timely
manner, so as not to adversely affect the expected duration of the Development
Programme.
2.9 All supplies of Packaged Product and the Device plus safety and
handling information and training required for the Development Programme, shall
be supplied by ARADIGM to NOVO NORDISK, [...***...], and in a timely manner, so
as not to adversely affect the expected duration of the Development Programme.
2.10 NOVO NORDISK shall furnish ARADIGM with such data and information
as ARADIGM shall reasonably require regarding each Programme Compound to enable
ARADIGM to carry out the work under the Development Programme.
2.11 ARADIGM shall furnish NOVO NORDISK with such data and information
as NOVO NORDISK shall reasonably require regarding the Packaged Products, the
Devices and components thereof, as well as the manufacturing processes
therefor, to enable NOVO NORDISK to carry out the work under the Development
Programme.
2.12 ARADIGM shall only use Programme Compounds supplied by NOVO
NORDISK and the NOVO NORDISK Know-How as provided for in this Agreement. NOVO
NORDISK shall only use the ARADIGM Know-How as provided for in this Agreement.
Upon termination of this Agreement, ARADIGM undertakes to return, upon NOVO
NORDISK's written request, all written documentation embodying NOVO NORDISK
Know-How and any and all remaining Programme Compound to NOVO NORDISK, except
and to the extent retention thereof is reasonably necessary during any post
termination period in which NOVO NORDISK continues to supply insulin to
ARADIGM. Upon termination of this Agreement, NOVO NORDISK undertakes to
return, upon Aradigm's written request, all written documentation embodying
ARADIGM Know-How to ARADIGM.
2.13 ARADIGM hereby acknowledges that NOVO NORDISK may be
simultaneously conducting exploratory research and development on alternative
pulmonary delivery
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technologies that may be applicable in the Field and that NOVO NORDISK is free
to develop and commercialise such technology outside the Field. NOVO NORDISK
may also supply insulin to third parties free of charge for use in such third
party's clinical studies using such third party's pulmonary delivery technology
in exchange for rights in such technology in the Field. However, NOVO NORDISK
[...***...], and [...***...], provided that NOVO NORDISK has given written
notice (the "Alternative Technology Notice") to ARADIGM of its intention to
commence such commercialization at least one year prior to such commencement.
Notwithstanding the foregoing, in the event NOVO NORDISK proposes to add an
Other Compound to the Development Programme pursuant to Article 2.1, and
ARADIGM is unwilling or unable to do so, NOVO NORDISK may thereafter develop
and commercialize such Other Compound with an alternative pulmonary delivery
technology without being in breach of this Agreement and such Other Compound,
together with equivalent compounds, will thereafter be excluded from the Field.
2.14 During the term of this Agree*ment, in the event NOVO NORDISK
becomes aware of [...***...], it agrees subject to the rights and demands of
the potential licensor, to inform ARADIGM of such opportunity and, [...***...],
then the parties will jointly consider in good faith terms under which ARADIGM
would license such rights for application within pulmonary delivery, further
develop the applicable technology and make it available to a collaboration
between the two parties.
2.15 For so long as the license to NOVO NORDISK under Article 3 is
exclusive, and subject to Article 2.13 above, ARADIGM shall not be entitled to
enter into any other agreement with any third party within the Field, and shall
not conduct any work programme with Initial Compound or any Other Compound from
any third party supplier without the written consent of NOVO NORDISK.
2.16 NOVO NORDISK agrees that, in the event it cannot produce
sufficient quantities of the Initial Compound to satisfy all customer demand on
its capacity, [...***...] form.
SECTION 3. - GRANT OF LICENSE; OPTION
3.1 ARADIGM hereby grants NOVO NORDISK a world-wide sole and exclusive
license under the ARADIGM Patent Rights and ARADIGM Know-How a) to use, market,
distribute, sell, offer for sale, import and export the Packaged Products and
the Device in and from the Territory for use within the Field, with the right
to sublicense, and b) to otherwise exercise and perform its rights and
obligations under this Agreement.
3.2 ARADIGM hereby grants NOVO NORDISK the right to sublicense its
customers to a) use the Packaged Products and the Device, and b) sell, offer to
sell, import or export the Packaged Products and the Device, so long as said
items were bought from NOVO NORDISK.
3.3 Notwithstanding the foregoing and except as set forth herein,
effective one year after NOVO NORDISK gives ARADIGM the Alternative Technology
Notice pursuant to Article 2.13, the licences granted to NOVO NORDISK under
Article 3.1 and 3.2 will [...***...], and ARADIGM shall be entitled from and
after receipt of the Alternative Technology Notice to
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engage marketing partners and other distributors and otherwise prepare itself
to commence commercial marketing of Devices and Packaged Products on the
effective date of such conversion. If at the time of delivery of the
Alternative Technology Notice, NOVO NORDISK is engaged in clinical development
of one or more Packaged Products containing one or more Other Compounds, or
intends to promptly commence clinical development of one or more such Packaged
Products, it may at its option elect to [...***...] with respect to such Other
Compounds by specifying such Other Compounds in the Alternative Technology
Notice. In this case, (a) the parties will proceed promptly under Article 2.1
to add any of such specified Other Compounds to the Development Programme (if
they are not already in development), (b) the parties will thereafter meet
their respective obligations to diligently develop and commercialize such
specified Other Compounds and (c) the terms and conditions of this Agreement,
including but not limited to Articles 2.13 (with NOVO NORDISK's obligation not
to conduct or fund clinical studies to apply until the first Regulatory
Approval of a specified Other Compound), 2.15 and 3.1, shall remain in full
force and effect but only with respect to Packaged Products containing such
specified Other Compounds until NOVO NORDISK provides a supplemental
Alternative Technology Notice at least one year in advance of its commencement
of commercialization of any of such specified Other Compounds using an
[...***...], provided that such supplemental notice may not be given prior to
the end of the fifth year after First Marketing of a Packaged Product
containing a specified Other Compound. ARADIGM shall be granted access to, and
be given sufficient rights under, relevant [...***...], NOVO NORDISK Patents
and NOVO NORDISK Know-How to the extent reasonably necessary to enable it to
commercialise Devices and Packaged Products directly or through marketing
partners. The foregoing notwithstanding, it is expressly understood that
neither ARADIGM nor any marketing partner of ARADIGM shall be granted access to
[...***...]. Moreover, NOVO NORDISK will continue to supply the Initial
Compound in bulk to ARADIGM for use in Packaged Products to be marketed by
ARADIGM during the term of this Agreement at the price specified in Article
9.5.
3.4 In consideration of NOVO NORDISK undertaking the development and
marketing activities hereunder, ARADIGM hereby grants to NOVO NORDISK an
exclusive option to enter into a development and license agreement addressing
the development of a product for pulmonary delivery of [...***...] using the
Device or a modified version of the Device. During the term of this option,
ARADIGM agrees to conduct feasibility studies on compounds covered by this
option, if requested to do so by NOVO NORDISK, [...***...]. Upon exercise of
this option, the parties will negotiate in good faith an agreement for the
development and commercialisation of such products. The parties will negotiate
financial terms for such agreement which take into consideration product
economics and market conditions in the applicable field, which may be different
from those in the Field. This option will expire [...***...]. During the term
of this option, ARADIGM will not enter into any agreement with any third party
concerning the development of any such product without the written consent of
NOVO NORDISK.
SECTION 4. - MANUFACTURING AND SUPPLY
4.1 The parties hereto shall as soon as reasonably practicable after
the Effective Date enter into a supply agreement ("the Supply Agreement") for
the purpose of setting forth terms
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and conditions for ARADIGM's supply of the Packaged Product and the Device to
NOVO NORDISK. The Supply Agreement shall include provisions for arrangements
according to which NOVO NORDISK can maintain a) sufficient supplies of the
Packaged Product and the Device in the event of ARADIGM becoming unable to
perform by reason of insolvency or bankruptcy and b) sufficient supply security
at all other times based on the maintenance of inventories, redundant
production capacity and contingency planning.
4.2 ARADIGM shall, at its sole cost, establish and maintain in
operation at least one (1) fully validated site of manufacture, to all relevant
regulatory requirements within the Territory, to supply the Packaged Products
and the Device to NOVO NORDISK in accordance with the Supply Agreement. NOVO
NORDISK shall have a right to inspect the site of manufacture. NOVO NORDISK
shall supply ARADIGM with any information specifically related to each
Programme Compound that may be required from ARADIGM by the relevant regulatory
authorities and required by ARADIGM to establish said manufacturing site.
4.3 ARADIGM shall supply all clinical trial quantities and all
commercial quantities of the Packaged Products and the Device to NOVO NORDISK
in a timely fashion in accordance with the Supply Agreement.
4.4 For the quantities referred to in Article 4.3 above, NOVO NORDISK
shall [...***...] supply sufficient amounts of each Programme Compound in solid
bulk form for filling and packaging of the Packaged Products by ARADIGM in a
timely fashion.
4.5 ARADIGM shall supply the clinical trial quantities of the Packaged
Products referred to in Article 4.3 above at its Development Cost. As payment
for the commercial quantities of the Packaged Product referred to in Article
4.3 above, NOVO NORDISK shall [...***...]. For clinical trial supplies of the
Packaged Products, the Development Costs will be estimated by the parties and
paid quarterly in advance by NOVO NORDISK based on the forecasted number of
units to be produced for the Development Programme in such quarter, subject to
reconciliation to actual costs and the actual number of units produced at the
end of each year. For commercial supplies of the Packaged Products,
[...***...] will be estimated annually by the parties to establish an interim
transfer price, subject to reconciliation at the end of each year. Payment of
the interim transfer price will be made net 30 days from date of shipment by
ARADIGM.
4.6 As payment for the clinical trial quantities of the Device
referred to in Article 4.3 above, NOVO NORDISK shall [...***...]. The parties
will cooperate to minimize the number of such units required, consistent with
meeting the objectives of the Development Programme, and will provide for
re-use of Devices to the extent practicable. As payment for the commercial
quantities of the Device referred to in Article 4.3 above, NOVO NORDISK shall
[...***...]. For clinical trial supplies of the Device, [...***...] will be
estimated by the parties and NOVO NORDISK's share thereof will be paid
quarterly in advance by NOVO NORDISK based on the forecasted number of units to
be produced for the Development Programme in such quarter, subject to
reconciliation to actual costs and the actual number of units produced at the
end of each year. For commercial supplies of the Device, [...***...] will be
estimated annually by the parties to establish an interim transfer price,
subject to reconciliation at the end of each year. [...***...]. The parties
will reset this component of the interim transfer price at the end of each
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year based on anticipated commercial pricing for the coming year. Payment of
the interim transfer price will be made net thirty (30) days from date of
shipment by ARADIGM.
4.7 NOVO NORDISK may following consultation with ARADIGM, at its sole
cost and for the purpose of ensuring sufficient security of supply, choose to
establish and operate a second commercial production facility for the Packaged
Product or the Device, at a site owned either by NOVO NORDISK or by ARADIGM, at
the election of ARADIGM. The location of the second site of manufacture shall
be negotiated in good faith between the parties hereto, but NOVO NORDISK may
require that it be located at least fifty (50) miles from the first production
facility. ARADIGM will provide NOVO NORDISK with any non-monetary assistance
required to design and construct a second site. All costs directly related to
such transfer of manufacture will be borne by NOVO NORDISK. In the event
ARADIGM elects to own such facility, it will do so through an Affiliate
established for the sole purpose of owning and operating such facility, and
NOVO NORDISK will not bear any such transfer costs or the cost of that portion
of such facility that will be used by ARADIGM to meet the needs of its other
customers. In the event NOVO NORDISK is the owner of such facility, its
license under Article 3.1 above shall be enlarged to include the right to make
Devices and/or Packaged Products, as applicable, at such facility, and ARADIGM
shall continue to share in the Gross Profit as contemplated by Article 5.
Regardless of which party owns such facility, [...***...] of product produced,
[...***...], will be included in the calculation of Gross Profit.
4.8 ARADIGM agrees to keep NOVO NORDISK informed as to its financial
condition during the term of this Agreement. If at any time the financial
resources of ARADIGM are not reasonably sufficient to enable it to continue to
meet its obligations hereunder for at least the next six (6) months, the
parties will meet to review and consider steps that might be taken to ensure
that ARADIGM will be able to perform. Such steps could include, but are not
limited to, the termination of ARADIGM activities that it is not contractually
obligated to perform in order to conserve resources. If steps implemented by
ARADIGM are not sufficient to correct the situation within a sixty (60) day
period and ARADIGM cannot demonstrate to the reasonable satisfaction of NOVO
NORDISK that it will be able to complete any needed financing within the next
thirty (30) days, (a) then NOVO NORDISK shall have the right but not the
obligation to provide such financing on terms and conditions, including
security, that are reasonable under the circumstances and (b) if this situation
arises after Regulatory Approval, NOVO NORDISK may also exercise its right to
have a second commercial facility established pursuant to Article 4.7 and in
this case ARADIGM shall not have the right to elect to own such facility.
4.9 The Supply Agreement will, in addition to the foregoing, contain
terms and conditions consistent with the following principles:
(a) Devices and Packaged Products will be supplied by ARADIGM
in final packaging or, if it is more efficient, in primary
packaging with secondary packaging to be done by NOVO
NORDISK (and [...***...] of any such secondary packaging
will be included in the calculation of Gross Profit).
(b) NOVO NORDISK, as part of its sales and marketing
responsibility, will provide [...***...], but ARADIGM will
provide [...***...] (the costs of which
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will be included in product transfer pricing) as
reasonably requested by NOVO NORDISK.
(c) If for any reason a product recall is required, the
decision to implement the recall will be made by NOVO
NORDISK and ARADIGM will provide support as reasonably
requested. The cost of such recall, including the cost of
replacement product, shall be borne [...***...]; provided,
however, that if upon analysis of actually defective
recalled product the fault or relative fault can be
determined or allocated, then the cost of product to
replace such defective product shall be borne based on such
determination or allocation.
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
[...***...]
(d) The specifications for the Device and Packaged
Products and production processes affecting safety or
efficacy will be subject to the review and approval of
NOVO NORDISK. NOVO NORDISK will accordingly be responsible
for all product liability other than product liability
attributable to the negligence of ARADIGM or any failure
by ARADIGM to manufacture the product in accordance with
applicable standards and practices. Product liabilities
that are incurred will be allocated between the parties
based on the fault or relative fault of the parties. If
negligence or fault cannot be so determined or allocated,
then such liability shall be borne [...***...].
(e) In view of the need to ensure customer satisfaction, NOVO
NORDISK's customer service operation is expected to accept
returns and provide replacements of products in response to
customer complaints often without reference to whether or
not such product was defective. Replacement product will be
pulled from regular inventories [...***...].
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(f) NOVO NORDISK will also have the right to order samples of
product containing active compound or placebo (i.e.,
product that is ordered, labeled and distributed as sample
product), which ARADIGM will supply at [...***...] and such
cost will not be included in the calculation of Gross
Profit.
(g) ARADIGM will carry insurance against such risks and in such
amounts as is reasonable under the circumstances, including
insurance of bulk compound supplied by NOVO NORDISK against
loss and other casualties that can be reasonably insured
against. Since the efficiency with which bulk compound is
packaged into Packaged Product is an important cost factor,
ARADIGM and NOVO NORDISK will jointly develop and review
all aspects of the production process that affect
efficiency. If, notwithstanding these efforts, production
efficiencies are predicted to be below objectives
established by the Steering Committee [...***...], the
parties will meet to consiDEr corrective action, and any
improvements that are reasonable in light of anticipated
capital expenditures and the impact on profitability will
be implemented by ARADIGM.
(h) In the event that this Agreement is terminated by NOVO
NORDISK pursuant to Article 9.7 or by ARADIGM other than
for a breach by NOVO NORDISK and if in such case NOVO
NORDISK elects to continue the commercialization of
Packaged Products and Devices, then NOVO NORDISK shall have
a right to set-up at its sole cost production facilities
for Packaged Products and Devices and ARADIGM shall in such
case provide NOVO NORDISK with access to all necessary or
useful documentation for its existing facilities and
reasonable non-monetary assistance required by NOVO NORDISK
for setting up such production facilities. Furthermore, in
such case NOVO NORDISK shall be granted a license to all
necessary rights under ARADIGM Patents and ARADIGM Know-How
required for production of Packaged Products and Devices in
its facilities. In such case ARADIGM shall continue to be
entitled to receive on an ongoing basis its [...***...] as
specified in Article 5.2, but reduced by the [...***...]
associated with thE transfer prices, as specified in
Articles 4.5 and 4.6, which shall be retained by NOVO
NORDISK as compensation for being required to undertake the
manufacturing function.
4.10 In light of the length of time necessary to establish production
capacity, the Steering Committee will address long range capacity planning as a
part of the Development Programme. Within [...***...] of the Effective Date,
NOVO NORDISK will present to the Steering Committee a non-binding, long-term
forecast [...***...] of projected Device and Packaged Product unit sales on a
worldwide basis. Such forecast will be updated from time to time as part of NOVO
NORDISK's standard strategic planning process and such updates and any interim
forecast changes will be provided to the Steering Committee to ensure that
significant decisions with respect to capacity plans are made on the basis of
the most recent market forecasts. Subject to the review and approval of the
Steering Committee, ARADIGM and NOVO NORDISK will develop plans and associated
time lines for establishing needed
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* CONFIDENTIAL TREATMENT REQUESTED
15
<PAGE> 16
production capacity for [...***...] for at least [...***...] after First
Marketing. Each party will keep the other fully informed as to the status of
implementation of those aspects of such plans for which such party is
responsible. The Steering Committee will also assess the flexibility of the
planned production capacity to respond to changes in market demand and will
supervise the establishment of forecasting and order lead time procedures that
will optimize overall supply chain efficiency. It is the goal of the parties
that the ARADIGM will produce and ship product to NOVO NORDISK substantially as
follows:
(a) Once each quarter, NOVO NORDISK shall provide a [...***...]
rolling forecast to ARADIGM projecting unit volumes for Packaged Product and
Devices on a worldwide basis. The forecast for the first quarter will be binding
and may not be changed from the previous forecast. The second quarter forecast
may be changed by plus or minus [...***...] from the previous forecast. The
third quarter forecast may be changed by plus or minus [...***...] from the
previous forecast. The fourth quarter may be changed by plus or minus
[...***...] from the previous forecast. The fifth and sixth quarters may be
changed without limit subject to the limits of production capacity. The first
six quarter rolling order forecast will be provided to ARADIGM no later than
[...***...] months prior to First Marketing. The Steering Committee will review
and establish actual forecast and order procedures, which will be incorporated
in the Supply Agreement.
(b) NOVO NORDISK and ARADIGM shall use diligent efforts to keep
each other informed concerning changes in demand or capability to meet demand
and shall use diligent efforts to meet requests for changes in the forecast that
do not comply with the foregoing.
(c) The Steering Committee will have the responsibility to
review and approve ARADIGM's inventory policies including the amounts carried at
each level of production. All orders will be shipped on completion and the
maintenance of finished goods inventory will be the responsibility of NOVO
NORDISK. Upon ARADIGM's request, NOVO NORDISK will provide an update of current
inventory levels held in finished goods at all NOVO NORDISK or Affiliate
locations. Likewise, ARADIGM will upon NOVO NORDISK's request provide an update
of current inventory levels of raw materials for Devices and Packaged Product,
including inventory levels of Initial Compound.
(d) NOVO NORDISK shall use diligent efforts to maintain
sufficient production capacity for Initial Compound and shall keep ARADIGM
informed of its plans for increasing capacity as necessary to meet the
requirements of ARADIGM for the production of Packaged Product.
(e) The parties will on a regular basis review long term market
forecasts generated by NOVO NORDISK in its normal internal planning cycle for
the purpose of anticipating the need for expanded production capacity in
sufficient time to develop and implement plans for such expansions.
4.11 If the volume of Packaged Products containing Initial Compound
supplied to NOVO NORDISK exceeds [...***...], NOVO NORDISK shall have the right,
after consultation
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* CONFIDENTIAL TREATMENT REQUESTED
16
<PAGE> 17
with ARADIGM, to establish at its sole cost an additional site for manufacturing
such Packaged Products at an existing NOVO NORDISK site where insulin is already
being processed. In such case, ARADIGM may require that the key production
equipment installed at this site will be [...***...] and that the production
steps involving laser drilling will be maintained and performed by ARADIGM at An
existing or new ARADIGM facility. In such case, ARADIGM will supply [...***...]
to NOVO NORDISK on the teRMs specified in Article 4.5 and in other respects in a
manner that is equivalent to how it provides such [...***...] to its own
Packaged Product production facility, with allocations in the event of a
shortage to be made on a pro rata basis. NOVO NORDISK's license under Article
3.1 above shall be enlarged to include the right to make such Packaged Products
at such facility, and ARADIGM will provide NOVO NORDISK reasonable non-monetary
assistance in establishing such production facility. All costs directly related
to such assistance will be borne by NOVO NORDISK. NOVO NORDISK shall have the
right to [...***...], provided that ARADIGM shall have the right to implemEnt
such improvements in its own facilities and to otherwise use such improvements
outside the Field as well as in its own production of Packaged Products. NOVO
NORDISK acknowledges and agrees that this facility will be used to meet demand
for Packaged Products in excess of the threshold volumes required to trigger
NOVO NORDISK's right to establish such facility and that priority will be given
to maintaining the production levels of ARADIGM at or above such threshold
volumes in order to ensure that ARADIGM's production capacity is used
efficiently. ARADIGM shall continue to share in the Gross Profit associated with
Packaged Products produced in this facility as specified by Article 5 (with the
[...***...] of product produced at such facility to be included in the
calculatIon of Gross Profit). In the event the parties determine that additional
capacity beyond that which has been established by ARADIGM and by NOVO NORDISK
hereunder, such additional capacity will be planned and added on such basis as
the parties agree upon.
SECTION 5. - LICENSE PAYMENTS AND PROFIT SHARING
5.1 In consideration of the licence and marketing rights granted by
ARADIGM in accordance with Article 3 above, NOVO NORDISK shall pay to ARADIGM
the sum of USD two million (USD 2,000,000) within twenty (20) days after the
Effective Date. Such payment is non-refundable and will be in addition to, and
may not be applied toward or otherwise credited against, any other payment
required hereunder, including but not limited to the payments provided for in
Article 2.4.
5.2 In addition to the payments referred to in Article 5.1 above, each
year during the term of this Agreement NOVO NORDISK shall pay to ARADIGM
[...***...] on Net Sales of the Packaged Products and the Devices during such
year; provided, however, that a different percentage may be applicable to
Packaged Products containing Other Compounds as agreed by the parties pursuant
to Article 2.1. Interim payments shall be made to ARADIGM during such year in
the form of a percentage of Net Sales of Packaged Products and Devices intended
to approximate ARADIGM's interest in the Gross Profit. The applicable interim
payment percentage shall be established by agreement of the parties at the
beginning of each calendar year to govern payments during such year and a
reconciliation account established and settled at the end of the year to achieve
the Gross Profit specified above. The interim payments above and the transfer
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* CONFIDENTIAL TREATMENT REQUESTED
17
<PAGE> 18
price profit components referred to in Articles 4.5 and 4.6 shall be credited
against ARADIGM's share in t*he Gross Profit.
5.3 If the parties agree that it is necessary to enter into a Licence
Agreement with a third party to secure intellectual property rights in any
country in the Territory for the Packaged Products or the Device, [...***...].
Notwithstanding the foregoing, NOVO NORDISK shall bear all such costs that may
be payable in respect of any Programme Compound to secure freedom of operation
for that compound.
5.4 NOVO NORDISK shall keep complete and correct records of the Net
Sales of the Packaged Products and the Device and other financial information
necessary to determine the Gross Profit and shall report such information as is
pertinent along with each payment to ARADIGM. ARADIGM will maintain similar
records with respect to its pertinent costs hereunder.
5.5 Interim payments under Article 5.2 of this Agreement shall be due
and payable within [...***...] of each calendar year. To achieve a year-end
reconciliation, ARADIGM will provide NOVO NORDISK with [...***...] NOVO NORDISK
within thirty (30) days after receipt of ARADIGM's report or, if later, within
seventy-five (75) days after the end of the year. NOVO NORDISK shall pay or
ARADIGM shall refund, as applicable, any difference between interim payments
made and actual results within thirty (30) days after delivery of such
reconciliation report, subject to the audit rights of the parties.
5.6 Payments under this Agreement in respect of Net Sales made in
currencies other than USD shall be calculated on the average daily exchange rate
for the applicable year to date period (i.e., from January 1 of each year to the
last business day of the quarter in question) for exchanging the local currency
into USD at the rate for buying USD quoted by Den Danske Bank, and its
successor(s) in Copenhagen, Denmark.
5.7 Not more than once in a calendar year, at ARADIGM's request, NOVO
NORDISK agrees to provide to ARADIGM, at ARADIGM's expense, a statement from an
independent auditor selected by ARADIGM and reasonably acceptable to NOVO
NORDISK, attesting to the correctness of NOVO NORDISK's payments. In the event
such auditor determines that additional amounts are due to ARADIGM, such amounts
shall be promptly paid by NOVO NORDISK, together with the reasonable costs of
conducting the audit, it being understood that ARADIGM will otherwise bear such
audit costs. NOVO NORDISK shall likewise have the right to require an auditor's
statement as to the accuracy of the pertinent costs of ARADIGM. In the event
such auditor determines that additional amounts are due to NOVO NORDISK, such
amounts shall be promptly paid by ARADIGM, together with the reasonable costs of
conducting the audit, it being understood that NOVO NORDISK will otherwise bear
such audit costs. Notwithstanding the foregoing, relevant NOVO NORDISK personnel
shall once a year have a right to review with relevant ARADIGM personnel cost
and investment accounts related to activities under this Agreement.
5.8 NOVO NORDISK agrees to use Diligent Efforts to achieve commercial
success for the Packaged Products and the Device in each country in the
Territory in which Regulatory
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* CONFIDENTIAL TREATMENT REQUESTED
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<PAGE> 19
Approval has been obtained, except for such countries in which it would not be
desirable to market such products in light of the overall commercialisation
strategy therefor. Prior to the initiation of Phase III clinical studies,
reasonably documented sales forecasts for such products for each of the United
States, the EEC and Japan for [...***...] following commercial launch will be
established. The initial [...***...] will be reviewed and approved by the
Steering Committee, provided that if the Steering Committee is unable to agree
on such forecast, the senior managements of the two parties will meet in an
effort to reach agreement. If agreement cannot be reached, NOVO NORDISK will
decide the matter. The initial sales forecasts for the EEC and Japan will be
established by NOVO NORDISK after review and comment by the Steering Committee.
Prior to First Marketing, NOVO NORDISK will update the [...***...] and review
and discuss wIth the Steering Committee the marketing plan by which it intends
to meet its marketing diligence obligation hereunder in respect of product
launch and during the first year after launch. At the end of the first and
second years following First Marketing, updated reasonably documented forecasts
for the [...***...] will be similaRly established and marketing plans will
likewise be reviewed and discussed. If NOVO NORDISK subsequently revises such
forecasts to less than [...***...] of initially forecasted levels for any year
or if actual results in any year are less than [...***...] of the [...***...]
for such year, NOVO NORDISK will develop and review with ARADIGM strAteGIES to
be implemented to ensure that the expected market potential will be realised.
The parties will also discuss the establishment of [...***...] and will likewise
in good faith discuss any failure or anticipated failure to achieve such minimum
pricing. If, notwithstanding such efforts, sales forecasts or actual sales
continue to be materially short of expectations or if pricing continues to be
below targeted minimums for more than a year, NOVO NORDISK agrees that upon
request by ARADIGM it will in good faith negotiate such modifications to this
Agreement or the Supply Agreement as may be reasonably necessary to enable
[...***...] in light of the scale of the forecasTed or actual commercial
results. Alternatively, NOVO NORDISK may at its election after such a
renegotiation request by ARADIGM elect to terminate this Agreement and the
Supply Agreement. At the end of each of the [...***...] commencing with the
third year following First Marketing, NOVO NORDISK will review and discuss its
latest reasonably documented [...***...] forecasts and marketing plans with
ARADIGM.
ARADIGM agrees to use Diligent Efforts to realize its pre-Phase III
cost estimate contemplated by the Minimum Product Profile that is the basis for
a decision to proceed with Phase III trials. If, notwithstanding such efforts,
Aradigm's actual Fully Burdened Cost of producing Packaged Products (excluding
for these purposes the cost of the Initial Compound) and Devices are materially
higher than estimated (for reasons other than lower than expected volume or
externalities such as exchange rates or inflation) and as a result gross margins
contemplated by the Minimum Product Profile are not achieved, ARADIGM will
develop and review with NOVO NORDISK strategies to be implemented to reduce
costs to targeted levels. If, notwithstanding such efforts, ARADIGM costs
continue to be materially higher than targeted levels for more than a year, then
ARADIGM agrees that upon request by NOVO NORDISK it will in good faith negotiate
such modifications to this Agreement or the Supply Agreement as may be
reasonably necessary to enable NOVO NORDISK to realise a reasonable profit on
its sales of Packaged Products and Devices. In no event will NOVO NORDISK be
under any obligation to agree to pay ARADIGM Fully Burdened Cost amounts for
Packaged Products and
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* CONFIDENTIAL TREATMENT REQUESTED
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<PAGE> 20
Devices that do not enable a Gross Profit Margin of at least 70%. Alternatively,
ARADIGM may at its election after such a renegotiation request by NOVO NORDISK
elect to terminate this Agreement and the Supply Agreement. Notwithstanding the
foregoing, if in either of the above situations a party requests a renegotiation
of the terms of the Agreement or the Supply Agreement, it is expressly
understood that neither party will be required to agree to any terms that do not
enable it to realise a reasonable profit on its activities under this Agreement
and the Supply Agreement, it being further understood that the parties
anticipate a termination of this Agreement and the Supply Agreement if it is not
possible for both parties to realise a reasonable profit.
5.9 Under no circumstances shall NOVO NORDISK be required to pay any
amount in excess of or in addition to the payments agreed under this Agreement.
If any payment made by NOVO NORDISK under this Agreement is subject to
withholding tax, such withholding tax shall be borne by ARADIGM and shall be
deducted from the payments made by NOVO NORDISK. Upon ARADIGM's written request,
NOVO NORDISK shall support ARADIGM in its efforts of minimizing any such
withholding taxes, and reasonably provide ARADIGM with relevant information
about documentation needed to reduce the withholding tax to a legal minimum or
to secure applicable credits in respect thereof.
SECTION 6. - INTELLECTUAL PROPERTY
6.1 ARADIGM shall remain the sole owner of all ARADIGM Patent Rights and
ARADIGM Know-How obtained by ARADIGM individually prior to entering into this
Agreement and shall use best efforts to maintain and defend their position.
Furthermore, ARADIGM warrants that it is not aware of any third party patent
rights that would limit in any material respect the parties' freedom of
operation with respect to practicing the ARADIGM Patent Rights.
6.2 NOVO NORDISK shall remain the sole owner of all NOVO NORDISK Patent
Rights and NOVO NORDISK Know-How obtained by NOVO NORDISK prior to entering into
this Agreement.
6.3 (a) ARADIGM shall retain ownership of any and all results,
improvements or inventions ("ARADIGM Programme Inventions") whether patentable
or not made jointly by the parties or individually by one of the parties as a
part of the Development Programme during the term of this Agreement and which
relate solely to [...***...]. ARADIGM shall be responsible for filing,
maintaining and defending any patents filed based on ARADIGM Programme
Inventions and will timely inform NOVO NORDISK of its intentions, activities and
filings in this respect. ARADIGM will grant NOVO NORDISK a royalty free license,
with the right to sublicense, under the ARADIGM Programme Inventions. Such
license will be perpetual but will be limited to applications [...***...]. (b)
Should ARADIGM decide not to patent an ARADIGM Programme Invention in any
country, NOVO NORDISK shall have the right to do so. In such case, NOVO NORDISK
shall be the owner of any patent or patent application based on such ARADIGM
Programme Invention and will grant ARADIGM a royalty free licence thereunder,
with the right to sublicence. Such licence will be for the life of the patent
but will be limited to applications [...***...] for so long as NOVO NORDISK's
rights under Article 3 remain exclusive (and thereafter for so long as NOVO
NORDISK retains exclusivity under Article 3.3
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<PAGE> 21
with respect to specified Packaged Products, to applications other than those
for which there is continuing exclusivity under Article 3.3). Should ARADIGM
decide to abandon any such patent or patent application, in any country, NOVO
NORDISK shall have the option to take over such patent or patent application. In
such case, NOVO NORDISK shall be the owner thereof and will grant ARADIGM a
royalty free licence thereunder, with the right to sublicence. Such licence will
be for the life of the patent but will be limited to applications [...***...]
for so long as NOVO NORDISK's rights under Article 3 remain exclusive (and
thereafter for sO long as NOVO NORDISK retains exclusivity under Article 3.3
with respect to specified Packaged Products, to applications other than those
for which there is continuing exclusivity under Article 3.3). (c) Furthermore,
NOVO NORDISK shall be entitled to enter any litigation in the defence and
enforcement of any such patents by any infringer thereof in the Field and the
parties shall agree in good faith regarding any such defence and enforcement, as
well as how to pay for any costs incurred and how to share any rewards.
6.4 (a) NOVO NORDISK shall retain ownership of any and all results,
improvements or inventions whether patentable or not made jointly by the parties
or individually by one of the parties as a part of the Development Programme
during the term of this Agreement and which relate solely to [...***...].
Inventions relating to the Formulated Compound owned by NOVO NORDISK are
referred to as "NOVO Formulation Inventions." NOVO NORDISK shall be responsible
for filing, maintaining and defending any patents filed based on NOVO
Formulation Inventions and will timely inform ARADIGM of its intentions,
activities and filings in this respect. NOVO NORDISK will grant ARADIGM a
royalty free licence, with the right to sublicence, under the NOVO Formulation
Inventions. Such licence will be perpetual but will be limited to applications
[...***...]. (b) Should NOVO NORDISK decide not to patent a NOVO Formulation
Invention in any country, ARADIGM shall have the right to do so. In such case,
ARADIGM shall be the owner of any patent or patent application based on such
NOVO Formulation Invention and will grant NOVO NORDISK a royalty free licence
thereunder, with the right to sublicence, for the life of the patent. Should
NOVO NORDISK decide to abandon any such patent or patent application, in any
country, ARADIGM shall have the option to take over such patent or patent
application. In such case, ARADIGM shall be the owner of such patent or patent
application and will grant NOVO NORDISK a royalty free licence thereunder, with
the right to sublicence, for the life of the patent. (c) Furthermore, ARADIGM
shall be entitled to enter any litigation in the defence and enforcement of any
such patents by any infringer thereof [...***...] and the parties shall agree in
good faith regarding any such defence and enforcement, as well as how to pay for
any costs incurred and how to share any reward.
6.5 The foregoing is not intended to limit in any respect the rights of
ARADIGM under Articles 3.3, 9.3 and 9.5 to develop and commercialise Devices and
Packaged Products under the circumstances specified therein. NOVO NORDISK will
grant ARADIGM a perpetual royalty free licence, with the right to sublicence,
[...***...] utilized in the Development Programme needed by ARADIGM in order
only to conduct and continue the development, production and commercialisation
activities contemplated by Article 3.3, 9.3 and 9.5 of this Agreement.
SECTION 7. - SECRECY
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7.1 Any information from time to time communicated or delivered by one
of the parties to the other, including, without limitation, trade secrets,
business methods, and cost, supplier, manufacturing and customer information,
and information regarding such party's Patent Rights and Know-How, shall be
treated by NOVO NORDISK and ARADIGM, respectively, as confidential information,
and shall not be disclosed or revealed to any third party whatsoever or used in
any manner except as expressly provided for herein; provided, however, that such
confidential information shall not be subject to the restrictions and
prohibitions set forth in this Article 7 to the extent that such confidential
information:
- is available to the public in public literature or otherwise, or
after disclosure by one party to the other becomes public
knowledge through no default of the party receiving such
confidential information; or
- was known to the party (as demonstrated by the written records
of such party) receiving such confidential information with no
obligation to maintain confidentiality prior to the receipt of
such confidential information by such party, whether received
before or after the date of this Agreement; or
- is obtained by the party receiving such confidential information
from a third party not subject to a requirement of
confidentiality with respect to such confidential information;
or
- is required to be disclosed pursuant to (i) any order of a court
having jurisdiction and power to order such information to be
released or made public; or (ii) any lawful action of a
governmental or regulatory agency.
7.2 Each party shall take all such precautions as it normally takes with
its own confidential information to prevent any improper disclosure of such
confidential information to any third party; provided, however, that such
confidential information may be disclosed within the limits required to obtain
any authorization from any governmental or regulatory agency or, with the prior
written consent of the other party, which shall not be unreasonably withheld, or
as may otherwise be required in connection with the purposes of this Agreement.
7.3 Each party agrees that it will not use, directly or indirectly, any
Know-How or otherwise confidential information received from the other party
pursuant to this Agreement other than as expressly provided herein.
7.4 NOVO NORDISK and ARADIGM will not publicise the existence of this
Agreement in any way without the prior written consent of the other subject to
the disclosure requirements of applicable law and regulations. However, it has
been agreed between the parties that the parties will issue a joint press
release, following signature of the Agreement, including information on the
total potential value of the collaboration and stating that the collaboration
involves the development of formulations for pulmonary administration within the
Field as well as an option to expand the collaboration into two additional
fields.
7.5 As a part of its marketing obligations hereunder, NOVO NORDISK shall
be solely responsible for all publication planning, it being understood that
NOVO NORDISK will endeavor to present to the Steering Committee its overall
publication planning strategy in good time prior to implementation and will in
such event in good faith consider any reasonable suggestion made by ARADIGM for
amendments to such strategy, it being at all times understood that NOVO NORDISK
shall not be entitled to publish any information covered by
22
<PAGE> 23
Article 7.1 without the prior written consent of ARADIGM. For other publications
not covered by NOVO NORDISK's publication planning hereunder, the parties agree
not to publish in any technical or scientific article or otherwise any of the
results of the Development Programme without the review and approval of both
parties such approval not to be unreasonably withheld.
7.6 The confidentiality conditions shall remain in force for seven years from
the day of termination of this Agreement.
SECTION 8. - NOTICE
8.1 Any notice to be given under this Agreement shall be sent in writing
in English by registered airmail or telecopied to:
ARADIGM CORPORATION
26219 Eden Landing Road
Hayward, California 94545
Attention: Chief Financial Officer
Telephone: 01 510-783-0100
Telefax: 01 510-783-0410
NOVO NORDISK A/S
Novo Alle
DK-2880 Bagsvaerd
Denmark
Attention: General Counsel
Telephone: 45 44 44 88 88
Telefax: 45 44 42 18 30
or to such other addresses and telecopier numbers as may from time to
time be notified by either party to the other hereunder.
8.2 Any notice sent by mail shall be deemed to have been delivered within seven
(7) working days after despatch and any notice sent by telex or telecopy shall
be deemed to have been delivered within twenty-four (24) hours of the time of
the despatch. Notice of change of address shall be effective upon receipt.
SECTION 9. - TERM AND TERMINATION
9.1 This Agreement shall commence on the Effective Date and, unless
terminated in accordance with other Articles included in this Agreement, shall
continue to be in full force and legal effect for a period of [...***...] from
First Marketing and shall continue in effect thereafter until terminated by
either party by written notice of termination given at least [...***...] ahead
of the effective date thereof.
9.2 Prior to the Initial Regulatory Approval, NOVO NORDISK shall have
the right to terminate this Agreement, by giving ARADIGM ninety (90) days prior
written notice, for technical or scientific reasons and at agreed time points in
the event that [...***...], which termination notice may be given only (a) if
the Steering Committee has met to review the
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relevant problems and determined that they cannot reasonably be solved, or (b)
if within sixty (60) days after the Steering Committee's initial meeting to
review the relevant problems, such problems have not been solved or the Steering
Committee has not approved development actions reasonably likely to result in a
solution or (c) if such approved development actions fail to solve such problems
to the satisfaction of the Steering Committee. NOVO NORDISK shall reimburse
ARADIGM any reasonable costs and expenses incurred by ARADIGM during the ninety
(90) day notice period referred to above. ARADIGM will use their best efforts to
minimise such costs.
9.3 Should NOVO NORDISK terminate this Agreement, as allowed for in
Article 9.2, or should ARADIGM terminate this Agreement due to a breach by NOVO
NORDISK, before Regulatory Approval in the Territory, ARADIGM shall be entitled
to use the data generated under the Agreement to work with a third party and
shall have full access to the relevant sections of [...***...]. In such case, if
in ARADIGM's reasonable judgement further efforts could result in a commercially
viable product, NOVO NORDISK shall also continue bulk supply of the Initial
Compound to ARADIGM at Fully Burdened Cost for the duration of any continued
development by ARADIGM. The foregoing notwithstanding, it is expressly
understood that neither ARADIGM nor any marketing partner of ARADIGM shall have
access to any [...***...].
9.4 Either party shall be entitled to terminate this Agreement upon
thirty (30) days' written notice in the event that the other party shall commit
a material breach of any of the terms and conditions of this Agreement and shall
fail to remedy such breach within sixty (60) days of notice of such breach.*
9.5 Should ARADIGM terminate this Agreement due to a breach by NOVO
NORDISK following Regulatory Approval in the Territory, ARADIGM will be entitled
to gain ownership of the marketing authorisations in the Territory. In such
case, the Marketing Authorisations, held by NOVO NORDISK, shall be transferred
to ARADIGM at NOVO NORDISK's cost of transfer; and NOVO NORDISK will agree to
supply bulk Initial Compound to ARADIGM at [...***...]. The foregoing
notwithstanding, it is expressly understood that neither ARADIGM nor any
marketing partner of ARADIGM shall have access to any NOVO NORDISK bulk insulin
Regulatory Approval or any [...***...].
9.6 During the six calendar months following the Effective date, NOVO
NORDISK shall have a right to terminate the Agreement, with thirty days (30)
written notice, in the event of [...***...].
9.7 Either party in addition to any other remedies available to it in
law may terminate this Agreement forthwith by written notice to the other party
in the event the other party shall
(a) become insolvent or bankrupt;
(b) make an assignment for the benefit of its creditors;
(c) appoint a trustee or receiver for itself for all or a
substantial part of its property, seek reorganisation,
liquidation, dissolution, a winding arrangement,
composition or readjustment of its debts;
__________________________________
* CONFIDENTIAL TREATMENT REQUESTED
24
<PAGE> 25
(d) have its controlling interests acquired by a third party
manufacturer of an approved insulin product at any time.
(e) [...***...].
9.8 Termination or expiration of this Agreement shall not affect the
continuing validity and enforceability of Articles 6 and 7 of this Agreement.
All confidential information provided under the Agreement shall be returned to
the respective parties within 90 days of the termination date, except as
otherwise contemplated by this Agreement.
SECTION 10. - DISPUTE RESOLUTION AND APPLICABLE LAW
10.1 Both parties will use their best endeavours to settle all matters
in dispute amicably. Any matter in dispute that cannot be resolved by the
Steering Committee will be referred to the senior management of the two parties,
who shall meet in an effort to settle such dispute before further proceedings.
All disputes and differences of any kind related to this Agreement, which cannot
be so solved amicably by the parties, shall be referred to, and finally settled
by, arbitration in New York, New York in accordance with the Arbitration Rules
of the American Arbitration Association. The number of arbitrators shall be
three (3). The award of the arbitrators shall be final and binding on both
parties. The parties bind themselves to carry out the award of the arbitrators.
10.2 This Agreement shall be construed under and interpreted pursuant to
the Laws of New York.
Hayward, 1998- - Bagsvaerd, 1998--
ARADIGM CORPORATION NOVO NORDISK A/S
/s/ RICHARD P. THOMPSON /s/ LARS REBIEN SORENSEN
- -------------------------------- --------------------------------
By: Richard P. Thompson By: Lars Rebien Sorensen
President & CEO Executive Corporate Vice President
Health Care
_________________________________
*CONFIDENTIAL TREATMENT REQUESTED
25
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