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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 1997
REGISTRATION NO. 333-19375
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO.1
TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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DISCOVERY LABORATORIES, INC.
(Name of Small Business Issuer in Its Charter)
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DELAWARE 8731 13-3754369
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Identification
Number) Number)
787 SEVENTH AVENUE, 44TH FLOOR
NEW YORK, NEW YORK 10019
(212) 554-4364
(Address and telephone number of Small Business Issuer's principal
executive offices and principal place of business)
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JAMES S. KUO, M.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
787 SEVENTH AVENUE, 44TH FLOOR
NEW YORK, NEW YORK 10019
(212) 554-4364
(Name, address and telephone number of agent for service)
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COPY TO:
KENNETH G. ALBERSTADT
ROBERTS, SHERIDAN & KOTEL
A PROFESSIONAL CORPORATION
12 EAST 49TH STREET, 30TH FLOOR
NEW YORK, NEW YORK 10017
(212) 299-8600
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APPROXIMATE DATE OF PROPOSED SALE TO
THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF
THIS REGISTRATION STATEMENT.
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If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act
Registration statement number of the earlier effective registration
statement for the same offering: |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: |_|
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CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
TITLE OF EACH CLASS OF Amount to Offering Price Aggregate Amount of
SECURITIES TO BE REGISTERED be Registered Per Security (1) Offering Price (1) Registration Fee
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value(2) . . . . . 2,200,256 $3.00 $6,600,768.00 $2,000.23
Common Stock, $0.001 par value(3) . . . . 8,801,024 $3.00 $26,403,072.00 $8,000.93
Common Stock, $0.001 par value(4) . . . . . 220,026 $3.00 $660,078.00 $200.02
Common Stock, $0.001 par value(5) . . . . . 880,103 $3.00 $2,640,309.00 $800.09
Total . . . . . . . . . . . . . . .. . . 12,101,409 $3.00 $36,304,227.00 $11,001.28
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
(2) Represents shares of Common Stock currently owned directly by Selling
Securityholders.
(3) Represents shares of Common Stock issuable upon conversion of currently
outstanding shares of Series A Preferred Stock of the Company owned
directly by Selling Securityholders.
(4) Represents shares of Common Stock issuable upon exercise of certain warrants
issued to the placement agent of the Unit Offering described herein (the
"Common Placement Warrants").
(5) Represents shares of Common Stock issuable upon the conversion of shares of
Series A Preferred Stock of the Company issuable upon exercise of certain
warrants issued to the placement agent of such Unit Offering (the "Preferred
Placement Warrants" and, together with the Common Placement Warrants, the
"Placement Agent Warrants").
Pursuant to Rule 416, there are also being registered hereunder an
indeterminable number of shares of Common Stock which may be issued pursuant to
antidilutive provisions of (i) the Common Placement Warrants, (ii) the Preferred
Placement Warrants and (iii) the Series A Preferred Stock, including shares of
Series A Preferred Stock issuable upon exercise of Preferred Placement Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<TABLE>
<CAPTION>
DISCOVERY LABORATORIES, INC.
CROSS-REFERENCE SHEET
Showing Location in Prospectus of Information
Required by Items of Form SB-2
FORM SB-2 REGISTRATION STATEMENT AND HEADING HEADING OR LOCATION IN PROSPECTUS
<S> <C> <C>
1. Front of Registration Statement and Outside Front
Cover of Prospectus .................................. Front of Registration Statement and Outside
Front Cover of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus ........................................... Inside Front Cover Page of Prospectus; Additional
Information
3. Summary Information and Risk Factors.................. Prospectus Summary; Risk Factors
4. Use of Proceeds....................................... Use of Proceeds
5. Determination of Offering Price....................... Inapplicable
6. Dilution.............................................. Inapplicable
7. Selling Securityholders............................... Selling Securityholders
8. Plan of Distribution.................................. Plan of Distribution
9. Legal Proceedings..................................... Business--Legal Proceedings
10. Directors, Executive Officers, Promoters and
Control Persons....................................... Management
11. Security Ownership of Certain Beneficial Owners
and Management........................................ Principal Stockholders
12. Description of Securities............................. Description of Securities
13. Interest of Named Experts and Counsel................. Legal Counsel
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities........ Management
15. Organization Within Last Five Years................... Certain Transactions
16. Description of Business............................... Prospectus Summary; Management's Discussion
and Analysis of Financial Condition and Plan of
Operations; Business
17. Management's Discussion and Analysis or Plan of
Operation ............................................ Management's Discussion and Analysis of Financial
Condition and Plan of Operations
18. Description of Property............................... Business--Facilities
19. Certain Relationships and Related Transactions........ Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters............................................... Prospectus Summary; Description of Securities; Selling
Securityholders; Shares Eligible for Future Sales;
Plan of Distribution
21. Executive Compensation................................ Management--Executive Compensation
22. Financial Statements.................................. Financial Statements
23. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure................ Inapplicable
</TABLE>
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(This redherring language appears on the left side of
the page rotated 90 degrees)
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not
be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such State.
PROSPECTUS
Subject to Completion, Dated April 18, 1997
12,101,409 SHARES
DISCOVERY LABORATORIES, INC.
COMMON STOCK
This Prospectus relates to the offer (the "Offering") by the securityholders
named herein under the caption "Selling Securityholders" (collectively, the
"Selling Securityholders") for sale to the public of the following securities of
Discovery Laboratories, Inc. ("Discovery"): (i) 2,200,256 shares of Discovery's
common stock, par value $0.001 per share ("Common Stock"); (ii) 8,801,024 shares
of Common Stock issuable upon conversion of currently outstanding shares of
Series A Convertible Preferred Stock, par value $0.001 per share, of Discovery
("Series A Preferred Stock"); (iii) 220,026 shares of Common Stock issuable upon
exercise of certain warrants issued to the placement agent of the Unit Offering
described herein (the "Common Placement Warrants") and (iv) 880,103 shares of
Common Stock issuable upon the conversion of shares of Series A Preferred Stock
issuable upon exercise of certain warrants issued to the placement agent of such
Unit Offering (the "Preferred Placement Warrants" and, together with the Common
Placement Warrants, the "Placement Agent Warrants"). The number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock is subject
to adjustment in certain events.
Discovery will not receive any proceeds from the sale of shares of Common Stock.
Discovery is not expected to receive any proceeds from the exercise of the
Placement Agent Warrants since the Placement Agent Warrants may be exercised
pursuant to cashless exercise provisions. In the event that the Placement Agent
Warrants are exercised for cash, Discovery intends to use such net cash proceeds
(after estimated offering expenses of the Offering of approximately $300,000)
for general working capital purposes. Proceeds, if any, from the exercise for
cash of all the Placement Agent Warrants, before deduction of estimated expenses
of the Offering, would be approximately $2,475,000. Whether and to what extent
any of the Placement Agent Warrants will be exercised, and whether the Placement
Agent Warrants are exercised for cash or not, cannot be predicted by Discovery.
The Selling Securityholders have advised Discovery that they may sell, directly
or through brokers, all or a portion of the securities offered hereby in
negotiated transactions or in one or more transactions in the market at the
price prevailing at the time of sale. In connection with such sales, the Selling
Securityholders and any participating brokers may be deemed to be "underwriters"
of the Common Stock within the meaning of the Securities Act of 1933. It is
anticipated that usual and customary brokerage fees will be paid by the Selling
Securityholders in all open market transactions. Discovery will pay all other
expenses of this Offering. See "Plan of Distribution."
Discovery will inform the Selling Securityholders that the anti-manipulation
provisions of Regulation M under the Securities Exchange Act of 1934
may apply to the sales of their shares offered hereby. Discovery also will
advise the Selling Securityholders of the requirement for delivery of this
Prospectus in connection with any sale of the shares offered hereby.
Discovery is in the research and development stage, has not had any operating
revenues, and at December 31, 1996, had an accumulated deficit of approximately
$3,254,000. Discovery is continuing to incur losses and expects to incur
significantly increasing additional losses for the foreseeable future.
Prior to the Offering, there has been no public market for the Common Stock and
there can be no assurance that such a market will develop or, if developed, that
it will be sustained. Discovery intends to apply for listing of the Common Stock
on the National Association of Securities Dealers Automated Quotation Small-Cap
Market(R) ("Nasdaq Small-Cap Market") under the symbol "DSCO". The prices of the
Common Stock which may be obtained on any such market are not necessarily
related to Discovery's assets, book value, results of operations or any other
established criteria of value, and should not be regarded as any indication of
future market price of the Common Stock. See "Risk Factors," "Description of
Securities" and "Plan of Distribution."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS", P. 5.
THE COMMON STOCK HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS ____, 1997
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (together with all
amendments and exhibits thereto being herein referred to as the "Registration
Statement") under the Securities Act of 1933. The Registration Statement, as
well as other reports and other information filed by the Company, can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at 7 World Trade Center, New York, New York
10048. Copies of such material can be obtained upon written request addressed to
the Commission, Public Reference Section, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Commission maintains a site on the World
Wide Web at http://www.sec.gov that contains reports, proxy and other
information statements regarding registrants that file electronically with the
Commission.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION AND THE FINANCIAL
STATEMENTS AND NOTES THERETO, INCLUDING, WITHOUT LIMITATION, THE INFORMATION
UNDER "RISK FACTORS," APPEARING ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED
HEREIN BY REFERENCE, AND, ACCORDINGLY, SHOULD BE READ IN CONJUNCTION THEREWITH.
REFERENCES IN THIS PROSPECTUS TO "DISCOVERY" REFER TO DISCOVERY LABORATORIES,
INC., AND REFERENCES TO THE "COMPANY" REFER TO DISCOVERY LABORATORIES, INC. AND
ITS MAJORITY-OWNED SUBSIDIARY, ACUTE THERAPEUTICS, INC. ("ATI"), UNLESS THE
CONTEXT OTHERWISE REQUIRES.
COMPANY SUMMARY
The Company is a development stage pharmaceutical company that is focused on
acquiring, developing and commercializing proprietary investigational drugs that
have previously been tested in humans or animals. The Company's strategy is to
conduct preclinical and clinical studies on investigational drugs licensed from
third parties, either on its own or in collaboration with corporate partners.
The Company may also seek to enter into collaborations with corporate partners
for manufacturing and marketing of such drugs. The Company currently has three
licensed investigational drug candidates under development.
SUPERVENT(TM)
The Company is developing SuperVent(TM) as a stable aerosolized,
multidimensional therapy for airway diseases characterized by inflammation,
injurious oxidation and excessive sputum. SuperVent's(TM) active compound is
tyloxapol, a compound which has been safely used as an emulsifying agent in drug
formulations by the pharmaceutical industry for over 40 years. Experimental
research has led to the discovery that tyloxapol appears to possess biological
activities beyond its well-recognized emulsification properties. In March 1996,
the Company obtained an exclusive, worldwide license from The
Charlotte-Mecklenburg Hospital Authority ("CMHA") which covers two issued United
States patents, three pending United States patent applications, and
corresponding foreign patent applications, relating to pharmaceutical
preparations containing high concentrations of tyloxapol and to the use of
tyloxapol for the treatment of a variety of respiratory and other diseases
involving inflammation and oxidative damage. The United States Food and Drug
Administration (the "FDA") has granted orphan drug status for the use of
tyloxapol to treat cystic fibrosis ("CF").
The Company intends to clinically test SuperVent(TM) for the treatment of CF and
chronic bronchitis. CF is a progressive respiratory disease that afflicts
approximately 23,000 patients in the United States and a comparable number of
patients in Europe. It is the most common lethal genetic disease among
Caucasians. The FDA, subject to certain modifications, has approved a
physician-sponsored Investigational New Drug ("IND") application for a proposed
randomized, double-blinded, placebo-controlled Phase I/II clinical trial of
SuperVent(TM) for the treatment of CF. The Company entered into a clinical
research agreement with the University of Utah Health Sciences Center ("UHSC")
and began the aforementioned trial on March 17, 1997, pursuant to such
agreement. Assuming the successful completion of the trial, the Company intends
to commence a multi-center, Phase III clinical trial in CF and to file an
additional IND to commence a Phase II clinical trial for the treatment of
chronic bronchitis. Chronic bronchitis is a disease characterized by
inflammation of the airways leading to coughing and excessive mucus production.
There are an estimated 14,000,000 chronic bronchitis patients in the United
States, many of whom are habitual smokers. If successfully developed and
approved, SuperVent(TM) is intended to be used daily by CF and chronic
bronchitis patients in the home or hospital to preserve pulmonary function and
aid mucus expectoration.
KL4-SURFACTANT
KL4-Surfactant is a proprietary, synthetic lung surfactant invented at
The Scripps Research Institute ("Scripps"). The product was exclusively
licensed to Johnson & Johnson, Inc. ("J&J"), which completed a
multi-center, Phase II clinical trial of KL4-Surfactant for the treatment of
infant respiratory distress syndrome ("IRDS"). The Phase II trial demonstrated
safety and efficacy comparable to that of the bovine-derived surfactant,
Survanta(TM), marketed by Ross Laboratories. In
1
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October 1996, Discovery's majority-owned subsidiary, ATI, acquired the exclusive
worldwide sublicense to the KL4- Surfactant technology.
The Company is currently developing KL4-Surfactant for the treatment of meconium
aspiration syndrome ("MAS") and adult respiratory distress syndrome ("ARDS").
The Company may also develop KL4-Surfactant for IRDS. MAS is a disease affecting
approximately 26,000 newborn babies per year in the United States that results
from the release of fetal bowel contents into the amniotic fluid and its
subsequent aspiration into the fetal lung. ARDS is a generalized inflammatory
disease of the lungs marked by intense leukocytic infiltration, edema and
atelectasis (partial lung collapse) resulting from sepsis, smoke inhalation and
other inflammatory lung conditions. IRDS is a disease of pre-term infants who
are born prior to the synthesis of adequate amounts of pulmonary surfactant
proteins. ATI intends to seek FDA approval to amend an approved IND and to
initiate Phase II clinical trials of KL4-Surfactant for the treatment of ARDS in
1997. ATI has amended an existing IRDS IND to permit the initiation of Phase II
clinical trials for the use of KL4-Surfactant to treat MAS. ATI met with the FDA
on March 10, 1997, to discuss its MAS development program. ATI received
constructive feedback from the FDA and intends to commence its MAS development
program on schedule.
ST-630
In October 1996, the Company acquired an exclusive license from the Wisconsin
Alumni Research Foundation ("WARF") relating to an active vitamin D analog,
ST-630, and its potential use in treating postmenopausal osteoporosis.
Osteoporosis is a disease characterized by decreased bone mass that leads to
reduced bone strength and an increased risk of fractures. Postmenopausal
osteoporosis is a major public health threat for approximately 7 to 20 million
American women. As a class, vitamin D analogs are commonly used therapies in
Europe and Japan for osteoporosis. Sumitomo Pharmaceuticals ("Sumitomo") and
Taisho Pharmaceuticals ("Taisho") have jointly licensed the right to develop,
manufacture and market ST-630 in Japan for the treatment of osteoporosis and are
presently conducting the equivalent of a Phase II clinical trial in Japan. The
Company believes that ST-630 may have an improved pharmacological profile
compared to earlier active vitamin D analogs. As a result of the execution of
the WARF license agreement, the Company has access to preclinical data generated
by Sumitomo and Taisho. The Company intends to seek FDA permission to initiate
clinical studies of ST-630 in the United States as a once-daily, orally
administered drug for the treatment of postmenopausal osteoporosis.
The Company was incorporated in Delaware on May 18, 1993, as MicroBio, Inc. and
subsequently changed its name to Discovery Laboratories, Inc. on May 23, 1996.
The Company did not commence its current operations until early 1996. The
Company's executive offices are located at 787 Seventh Avenue, 44th Floor, New
York, New York 10019. Its telephone number is (212) 554-4364 and its facsimile
number is (212) 554-4490. ATI was incorporated on September 11, 1996. Its
principal offices are located at 3359 Durham Road, Doylestown, PA, 18901. Its
telephone number is (215) 794-3064 and its facsimile number is (215) 794-3239.
SUPERVENT(TM) IS A TRADEMARK OF THE COMPANY. SURVANTA(TM) IS A TRADEMARK OF
ROSS LABORATORIES, INC. THIS PROSPECTUS INCLUDES PRODUCT NAMES, TRADEMARKS AND
TRADE NAMES OF COMPANIES OTHER THAN THOSE OF THE COMPANY.
2
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OFFERING SUMMARY
<TABLE>
<CAPTION>
<S> <C>
Common Stock Outstanding
as of January 2, 1997: 6,712,256 shares of Common Stock, including 2,200,256 currently outstanding shares of
Common Stock directly held by the Selling Securityholders.1
Preferred Stock Outstanding
as of January 2, 1997: 2,200,256 shares of Series A Preferred Stock.
Common Stock Offered
by Selling Securityholders: Up to 12,101,409 shares of Common Stock.2
Risk Factors: The securities offered hereby involve a high degree of risk. See "Risk Factors."
Proposed Nasdaq Symbol: "DSCO."
Use of Proceeds: The Company will not receive any proceeds from the sale of shares of Common Stock. The
Company is not expected to receive any proceeds from the exercise of the Placement Agent
Warrants since the Placement Agent Warrants may be exercised pursuant to a cashless
exercise provision. In the event that the Placement Agent Warrants are exercised for cash,
the Company intends to use such net cash proceeds (after estimated offering expenses of
this Offering of approximately $300,000) for general working capital purposes. Proceeds,
if any, from the exercise for cash of all the Placement Agent Warrants, before deduction
of estimated expenses of this Offering, would be approximately $2,475,000. Whether, how
and to what extent any of the Placement Agent Warrants will be exercised, and whether
the Placement Agent Warrants are exercised for cash or not, cannot be predicted by the
Company. See "Use of Proceeds," "Certain Transactions," "Selling Securityholders" and
"Description of Securities."
</TABLE>
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1 Does not include (i) 8,801,024 shares of Common Stock issuable upon
conversion of currently outstanding shares of Series A Preferred
Stock; (ii) 880,103 shares of Common Stock issuable upon conversion of
Series A Preferred Stock issuable upon exercise of certain warrants issued
to Paramount Capital Incorporated ("Paramount") in connection with its
services as placement agent for a private offering of the Company's
equity securities during June through November 1996 (the "Preferred
Placement Warrants"); (iii) 220,026 shares of Common Stock issuable
upon exercise of certain other warrants issued to Paramount in connection
with such private placement (the "Common Placement Warrants" and, together
with the Preferred Placement Warrants, the "Placement Agent Warrants");
and (iv) 685,500 shares of Common Stock reserved for issuance upon
exercise of outstanding options at a weighted average exercise price
of $0.19 per share of Common Stock, 332,375 of which are vested.
2 Represents (i) 2,200,256 currently outstanding shares of Common
Stock; (ii) 8,801,024 shares of Common Stock issuable upon
conversion of currently outstanding shares of Series A Preferred
Stock; (iii) 220,026 shares of Common Stock issuable upon exercise
of the Common Placement Warrants; and (iv) 880,103 shares of Common
Stock issuable upon the conversion of shares of Series A Preferred Stock
issuable upon exercise of the Preferred Placement Warrants.
3
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SUMMARY OF FINANCIAL DATA
The following table presents historical financial information derived from the
financial statements of the Company.
Period from
May 18, 1993
Year Ended (inception) to
December 31, December 31,
1996 1995 1996
STATEMENT OF OPERATIONS DATA:
INTEREST INCOME ...................... $ 205,000 $ 0 $ 205,000
Total expenses........................ 3,433,000 17,000 3,461,000
Net income (loss) .................... (3,236,000) (17,000) (3,254,000)
Net income (loss) per common share .. . (0.76) (.01)
Weighted average number of shares
outstanding........................... 4,234,597 1,468,787
December 31,
1996
BALANCE SHEET DATA:
Cash and cash equivalents ..... $ 4,336,000
Current assets ................ 17,419,000
Total assets .................. 18,189,000
Total current liabilities ..... 231,000
MINORITY INTEREST IN PREFERRED
STOCK OF SUBSIDIARY ........... 2,200,000
Deficit accumulated during
development stage ............. (3,254,000)
Stockholders equity............ 15,758,000
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(1) See Note 1 to Financial Statements for an explanation of the determination
of shares used in computing net income (loss) per common share.
4
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RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS HIGHLY SPECULATIVE IN NATURE,
INVOLVES A HIGH DEGREE OF RISK AND SHOULD ONLY BE MADE BY AN INVESTOR WHO CAN
BEAR THE ECONOMIC RISK OF THE INVESTMENT FOR AN INDEFINITE PERIOD OF TIME AND
WHO CAN AFFORD A LOSS OF THE ENTIRE INVESTMENT. EACH PROSPECTIVE INVESTOR SHOULD
CAREFULLY CONSIDER THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE COMPANY,
INCLUDING, WITHOUT LIMITATION, THE FOLLOWING RISK FACTORS, AS WELL AS OTHER
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT.
DEVELOPMENT STAGE COMPANY; NO DEVELOPED OR APPROVED PRODUCTS; UNCERTAINTY OF
FUTURE PROFITABILITY
The Company is at an early stage of development and has had almost no operations
to date. The potential products upon which the Company intends to focus its
development efforts are in the research and development stage and accordingly
the Company has not begun to market or generate revenues from the
commercialization of any of these products under development. The Company's
products under development will require significant time-consuming and costly
research, development, preclinical studies, clinical testing, regulatory
approval and significant additional investment prior to their commercialization,
which may never occur. Such clinical testing activities, together with resultant
increases in general and administrative expenses, are expected to result in
significant additional operating losses for the foreseeable future. The Company
currently is not profitable and does not anticipate generating significant
product revenues for the foreseeable future, if at all. The Company expects to
incur significant increasing operating losses over the next several years. To
achieve profitable operations, the Company, alone or with others, must
successfully develop and obtain regulatory approval for marketing its products.
The Company's operations are subject to numerous risks associated with the
establishment and development of products based upon innovative or novel
technologies. As a result, the Company must be evaluated in light of the
problems, delays, uncertainties and complications encountered in connection with
newly founded businesses. Some of these unanticipated problems may include
development, regulatory, manufacturing, distribution and marketing difficulties
that may be beyond the Company's financial or technical abilities to
satisfactorily resolve. In particular, there can be no assurance that the
Company's proposed drug products will not cause adverse effects that may prevent
them from being marketed, regardless of their efficacy. Certain of the Company's
initial drug candidates have not been the subject of Phase I clinical trials,
the purpose of which include identifying adverse effects, or have not been the
subject of such clinical trials at the dosage levels at which the Company
anticipates they will be administered in treating the indications for which the
Company is exploring their use. Moreover, those that have been the subject of
previous clinical trials may be shown to have previously undetected adverse
effects during the more extensive clinical trials that will be required prior to
their becoming candidates for marketing approval by the FDA. There can be no
assurance that the research and development activities funded by the Company
will be successful, that products under development will prove to be safe and
effective, that any of the preclinical or clinical development work will be
completed, that the Company will ever achieve any of its New Drug Application
("NDA") filing objectives with the FDA, that FDA approval will be attained for
such products, that the anticipated products will be commercially viable or
successfully marketed, that third parties do not hold proprietary rights that
preclude the Company from marketing its products, if any, or that, if the
products under development are approved by the FDA, the Company will ever
achieve significant revenues or profitable operations. See "Business."
EXTENSIVE GOVERNMENT REGULATION; UNCERTAINTY OF FDA AND OTHER GOVERNMENTAL
APPROVAL OF PRODUCTS UNDER DEVELOPMENT
The testing, manufacture, distribution, advertising and marketing of drug
products are subject to extensive regulation by governmental authorities in the
United States and other countries. Prior to marketing, any pharmaceutical
products developed or licensed by the Company must undergo an extensive
regulatory approval process required by the FDA and by comparable agencies in
other countries. This process, which includes preclinical studies and clinical
trials of each pharmaceutical compound to establish its safety and effectiveness
and confirmation by the FDA that good laboratory, clinical and manufacturing
practices were maintained during testing and manufacturing, can take many years,
requires the expenditure of substantial resources and gives larger companies
with greater financial resources a competitive advantage
5
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over the Company. The FDA review process can be lengthy and unpredictable, and
the Company may encounter delays or rejections of its applications when
submitted. If questions arise during the FDA review process, approval may take a
significantly longer period of time. Generally, in order to gain FDA approval, a
company must conduct preclinical studies in a laboratory and in animal models to
obtain preliminary information on a compound's efficacy and to identify any
safety problems. The results of these studies are submitted as part of an IND
application that the FDA must review before human clinical trials of an
investigational drug can start. Clinical trials are normally done in three
phases and generally take two to five years or longer to complete.
The regulatory status of the Company's three products under development is as
follows:
SuperVent(TM):
The FDA has approved, subject to certain modifications, a physician-
sponsored IND for a randomized, double-blinded, placebo-controlled
Phase I/II clinical trial of the Company's drug candidate, SuperVent(TM),
for the treatment of CF. The Company entered into a clinical research
agreement with the University of Utah Health Sciences Center ("UHSC") and
began the aforementioned trial on March 17, 1997, pursuant to such
agreement. Assuming successful completion of the Phase I/II clinical trial
of SuperVent(TM), the Company anticipates that, at a minimum, at least one
additional large-scale, multi-center, Phase III clinical trial will be
necessary before the Company will be able to submit an NDA to the FDA
requesting marketing approval for SuperVent(TM) for the treatment of CF.
KL4-Surfactant:
In July 1992, an IND submitted by Scripps relating to the use of
KL4-Surfactant to treat IRDS was approved by the FDA. A Phase II clinical
trial was subsequently completed by J&J. In 1991, an IND was submitted by
J&J relating to the use of KL4-Surfactant to treat ARDS and was subsequently
approved by the FDA. Both the IRDS IND and ARDS IND have been transferred to
ATI. ATI intends to seek FDA approval to amend the approved ARDS IND and
re-initiate Phase II clinical trials of KL4-Surfactant for the treatment of
ARDS in 1997. ATI has amended the existing IRDS IND to permit the initiation
of Phase II clinical trials of KL4-Surfactant to treat MAS. ATI met with the
FDA on March 10, 1997, to discuss its MAS development program. ATI received
constructive feedback from the FDA and intends to commence its development
of KL4-Surfactant for MAS on schedule. The Company has not had any
discussions with the FDA regarding clinical trials of KL4-Surfactant for the
treatment of ARDS.
ST-630:
The Company intends to seek IND approval to initiate Phase I clinical
studies of ST-630 as a once-daily, orally administered drug for the
treatment of postmenopausal osteoporosis in the United States during 1997.
Following receipt of FDA approval, if granted, the Company intends to
conduct an initial dose-ranging study of ST-630 in humans. Based upon the
results of the dose-ranging study, the Company may then either seek to
further optimize the delivery of ST-630 by testing one or more alternative
means of delivery or, assuming acceptable results, seek to initiate a
large-scale, multi-center clinical trial in the United States. The Company
has access to preclinical data generated by Sumitomo and Taisho with respect
to ST-630 pursuant to the terms of the licensing arrangements described
herein with respect to ST-630. The Company has not had any discussions with
the FDA regarding ST-630. See "Business--Products and Technologies Under
Development--Vitamin D Analog for Treatment of Osteoporosis--ST-630."
Upon completion of clinical trials of a new drug product, FDA and foreign
regulatory authority marketing approval must be obtained before the new drug
product can be sold. NDAs submitted to the FDA generally take one to three years
to be approved. If questions arise during the FDA review process, approval may
take a significantly longer period of time. The testing and approval processes
require substantial time and effort and there can be no assurance that any
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approval will be granted on a timely basis, if at all. Even if regulatory
clearances are obtained, a marketed product is subject to continual review, and
later discovery of previously unknown problems or failure to comply with the
applicable regulatory requirements may result in restrictions on the marketing
of a product or withdrawal of the product from the market as well as possible
civil or criminal sanctions. For marketing outside the United States, the
Company also will be subject to foreign regulatory requirements governing human
clinical trials and marketing approval for pharmaceutical products. The
requirements governing the conduct of clinical trials, product licensing,
pricing and reimbursement vary widely from country to country. None of the
Company's products under development have been approved for marketing in the
United States or elsewhere (nor has testing been completed). No assurance can be
given that the Company will be able to obtain regulatory approval for any such
products under development. Failure to obtain requisite governmental approvals
or failure to obtain approvals of the scope requested will delay or preclude the
Company or its licensees or marketing partners from marketing the Company's
products under development, or limit the commercial use of such products, and
thereby could have a material adverse effect on the Company's business,
financial condition and results of operations.
TECHNOLOGICAL UNCERTAINTY AND OBSOLESCENCE
The market for biotechnology is characterized by rapidly changing technology and
evolving industry standards. The Company's future success will depend upon its
ability to develop and commercialize its existing products and to develop new
products and applications. There can be no assurance that the Company will
successfully complete the development of SuperVent(TM), KL4-Surfactant, ST-630
or any future product or that the Company's current or future products will
achieve market acceptance. Any delay or failure of SuperVent(TM),
KL4-Surfactant, ST-630 or any future product which the Company may develop in
achieving market acceptance would adversely affect the Company's business.
The Company's products under development are intended to treat diseases for
which other technologies and proposed treatments are rapidly developing. There
can be no assurance that any results of the Company's research and product
development efforts will not be rendered obsolete by research efforts and
technological activities of others, including the efforts and activities of
governments, major research facilities and large multinational corporations.
NEED FOR ADDITIONAL FINANCING; ISSUANCE OF SECURITIES; FUTURE DILUTION
In the future, the Company will require substantial additional funding to
conduct its research and product development activities and to manufacture and
market, if approved by the FDA or corresponding foreign regulatory authorities,
SuperVent(TM), KL4-Surfactant, ST-630 and any other products that the Company
may develop in the future. The Company anticipates that further funds may be
raised through collaborative ventures entered into with potential corporate
partners and/or additional debt or equity financings. While the Company may seek
to enter into collaborative ventures with corporate sponsors to fund some or all
of its research and development activities, as well as to manufacture or market
any products which may be successfully developed, the Company currently does not
have any such arrangements with corporate sponsors. The Company also has not
made arrangements to obtain any additional financing and there can be no
assurance that the Company will be able to obtain adequate additional financing
on acceptable terms, if at all, or that any such additional financing would not
result in significant dilution of stockholders' interests. Failure by the
Company to enter into collaborative ventures or to receive additional funding to
complete its proposed product development programs would have a material adverse
effect on the Company. If additional financing is not otherwise available, the
Company will be required to modify its business development plans or reduce or
cease certain or all of its operations.
DEPENDENCE ON PATENTS, LICENSES AND PROTECTION OF PROPRIETARY RIGHTS; RISK OF
LOSS OF TECHNOLOGY
In order to justify the substantial investment of time and expense required to
develop and commercialize its products, the Company will seek proprietary
protection for its drug candidates so as to prevent others from commercializing
equivalent products in substantially less time and at substantially lower
expense. The pharmaceutical industry places considerable importance on obtaining
patent and trade secret protection for new technologies, products and processes.
The Company's success will depend in part on the ability of the Company and the
Company's licensors to obtain effective patent protection for the Company's
proprietary technologies and products, defend such patents, preserve its trade
secrets and operate without infringing upon the proprietary rights of others,
both in the United States and in other countries. The patent position of firms
relying upon biotechnologies is highly uncertain and involves complex legal and
factual questions.
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To date, there has emerged no consistent policy at the United States Patent and
Trademark Office regarding the breadth of claims allowed in biotechnology
patents or the degree of protection afforded under such patents.
There are various combinations of United States and foreign patents and patent
applications (including international applications filed under the Patent
Cooperation Treaty) that have been issued or filed with respect to the products
and technologies under development by the Company. See "Business--Licensing
Arrangements." These patents and patent applications have been licensed to the
Company (with certain limited exceptions, on an exclusive worldwide basis).
Although the licensors under such licenses have retained control of the patent
prosecution process, the Company is responsible for the expenses of prosecuting
the patents and patent applications (i.e., the fees of patent counsel and any
domestic or foreign filing fees that are applicable). Patent applications may be
expected to remain pending for several years before the issuance of a patent, if
any, and the prosecution of patent applications with respect to the Company's
products may entail considerable expense to the Company.
There can be no assurance that patents will issue as a result of any of the
pending patent applications relating to the Company's products and technologies
or that the issued patents and any patents resulting from the pending patent
applications will be sufficiently broad to afford protection to the Company
against competitors with similar products and technologies. In addition, there
can be no assurance that such patents will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide competitive
advantages to the Company. The commercial success of the Company will also
depend upon its avoidance of infringement of patents issued to competitors. A
United States patent application is maintained under conditions of
confidentiality while the application is pending, so the Company cannot
determine the inventions being claimed in pending patent applications filed by
third parties. Litigation may be necessary to defend or enforce the Company's
patent and license rights or to determine the scope and validity of the
proprietary rights of others. Defense and enforcement of patent claims can be
expensive and time-consuming, even in those instances in which the outcome is
favorable to the Company, and can result in the diversion of substantial
resources from the Company's other activities. An adverse outcome could subject
the Company to significant liabilities to third parties, require the Company to
obtain licenses from third parties, or require the Company to alter its products
or processes or cease altogether any related research and development activities
or product sales, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Patents, Licenses and Proprietary Rights."
The Company requires all employees to enter into confidentiality agreements that
prohibit the disclosure of confidential information to third parties and require
disclosure and assignment to the Company of rights to such employees' ideas,
developments, discoveries and inventions. In addition, the Company seeks to
obtain such agreements from its consultants, advisors and research
collaborators. To the extent that consultants, key employees or other third
parties apply technological information independently developed by them or by
others to any of the proposed projects of the Company, disputes may arise as to
the proprietary rights to such information which may not be resolved in favor of
the Company. In addition, the Company also relies on trade secrets and
proprietary know-how that it seeks to protect in part by its confidentiality
agreements with its employees, consultants, advisors or others. There can be no
assurance that these agreements will not be breached, that the Company would
obtain adequate remedies for any breach, or that the Company's trade secrets or
proprietary know-how will not otherwise become known or be independently
developed by competitors in such a manner that the Company has no legal
recourse. See "Business--Patents, Licenses and Proprietary Rights."
The Company is dependent on licensing arrangements for access to its products
under development, and the Company is required to make certain payments and
satisfy certain performance obligations in order to maintain the effectiveness
of such licensing arrangements. The Company is further responsible for the cost
of filing and prosecuting patent applications and maintaining issued patents.
See "Business--Patents, Licenses and Proprietary Rights." If the Company does
not meet its due diligence and/or financial obligations under its license
agreements in a timely manner, the Company could lose the rights to its
proprietary technology, which would have a material adverse effect on the
Company.
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DEPENDENCE ON THIRD PARTY SUPPLIERS; LACK OF MANUFACTURING CAPABILITY
The Company does not have any manufacturing capacity of its own but instead
intends to rely on outside manufacturers to produce appropriate clinical grade
material for its use in clinical studies for certain of its products. To be
successful, the Company's products must be manufactured in commercial quantities
under good manufacturing practice ("GMP") requirements presented by the FDA at
acceptable costs. The FDA periodically inspects manufacturing facilities in the
United States in order to assure compliance with applicable GMP requirements.
Foreign manufacturers are also inspected by the FDA if their drugs are marketed
in the United States. Failure of the foreign or domestic suppliers of the
Company's products or failure of the manufacturers of the Company's products to
comply with GMP regulations or other FDA regulatory requirements would have a
material adverse effect on the Company's business, financial condition and
results of operations.
The active compound in the Company's SuperVent(TM) product under development,
tyloxapol, is presently manufactured for several third parties pursuant to GMP
standards by an affiliate of Sanofi-Winthrop, Inc. ("Sanofi"), a multinational
pharmaceutical company. Sanofi is the sole supplier of tyloxapol with GMP
standard manufacturing capabilities and there are few alternative non-GMP
approved sources of supply. The Company does not presently have an agreement
with Sanofi to supply any additional material either in connection with a Phase
III clinical trial or, following regulatory approval, for marketing purposes. In
addition, the Company does not intend to enter into an agreement for supply of
the formulated drug containing tyloxapol until the Company plans to initiate a
Phase III clinical trial. There can be no assurance that the Company will be
able to enter into a supply agreement with Sanofi or a supplier of the
formulated drug on terms acceptable to the Company, if at all. In such case, the
Company would be required to seek alternate manufacturing sources capable of
producing tyloxapol and the formulated drug. There can be no assurance that the
Company will be able to identify and contract with alternative manufacturers on
terms acceptable to it, if at all. Any interruption in the supply of tyloxapol
would have a material adverse effect on the Company's business, financial
condition and results of operations. The Company has entered into an agreement
with Cook Imaging Corporation for the packaging and storage, under sterile and
stable conditions, of tyloxapol.
ATI has acquired from J&J experimental compounds, the KL4 peptides and
manufacturing equipment needed to produce and meet the Company's requirements
for clinical supplies of KL4-Surfactant. ATI has entered into an agreement with
Cook Imaging Corporation for the development of the manufacturing process to be
employed in the KL4-Surfactant program. ATI intends to seek an agreement with a
third party manufacturer to produce KL4-Surfactant on an ongoing basis during
1997. There can be no assurance that agreement for such production will be
reached. Failure to identify and reach an agreement with a third party
manufacturer would substantially delay the Company's development of
KL4-Surfactant and could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company is in the process of negotiating an exclusive supply agreement with
Tetrionics, Inc. ("Tetrionics") to manufacture and supply the Company with
ST-630 for the Company's investigational and commercial purposes. Tetrionics
presently manufactures and supplies ST-630 to Penederm, Inc. for investigational
topical use for the treatment of psoriasis. There can be no assurance that the
Company will be able to reach an agreement with Tetrionics on terms acceptable
to the Company, if at all. Failure to achieve an agreement could substantially
delay the Company's development of ST-630.
DEPENDENCE ON OTHERS FOR CLINICAL DEVELOPMENT OF, REGULATORY APPROVALS FOR AND
MANUFACTURING AND MARKETING OF PHARMACEUTICAL PRODUCTS
The Company's strategy is to seek to enter into collaborative agreements with
pharmaceutical companies for the research and development, clinical testing,
manufacturing, marketing and commercialization of certain of its products. The
Company will therefore be dependent upon the expertise and dedication of
sufficient resources by third parties to develop and commercialize certain of
its proposed products. The Company may in the future grant to its collaborative
partners, if any, rights to license and commercialize any pharmaceutical
products developed under these collaborative agreements and such rights would
limit the Company's flexibility in considering alternatives for the
commercialization of such products. Under such agreements, the Company expects
to rely on its collaborative partners to conduct research and clinical trials,
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manufacture, market and commercialize certain of its products. Although the
Company believes that its collaborative partners may have an economic motivation
to commercialize the pharmaceutical products which they may license from the
Company, the amount and timing of resources devoted to these activities
generally will be controlled by each such individual partner. There can be no
assurance that the Company will be successful in establishing any collaborative
arrangements, or that, if established, such future partners will be successful
in developing and commercializing products or that the Company will derive any
revenues from such arrangements.
The Company has recently entered into a clinical research agreement with the
University of Utah Health Sciences Center for clinical trials of SuperVent(TM)
in the treatment of CF. This Phase I/II clinical trial began on March 17, 1997.
ATI and Scripps have entered into a sponsored research agreement (the "Sponsored
Research Agreement") supporting continuing research by Charles G. Cochrane,
M.D., and Susan Revak of Scripps. Pursuant to the Sponsored Research Agreement,
ATI will contribute $460,000 annually to Scripps' KL4-Surfactant research
efforts for an initial two-year period. ATI has an option to acquire an
exclusive worldwide license to make, have made, sell or use technology developed
under the agreement, which it is required to exercise within 180 days from
receipt of notice from Scripps of the development of such technology. Scripps
will own all technology that it develops pursuant to work performed under the
Sponsored Research Agreement. ATI has the right to receive 50% of the net
royalty income received by Scripps for inventions jointly developed by ATI and
Scripps to the extent ATI does not exercise its option with respect to such
inventions. ATI has entered into consulting agreements with certain key research
personnel at Scripps. See "Executive Compensation and Employment and Consulting
Agreements."
The Company has not entered into any collaborative arrangements with respect to
its ST-630 product.
LACK OF MARKETING CAPABILITY AND EXPERIENCE
It is the Company's long-term goal to manufacture and market SuperVent(TM) for
CF and possibly certain of its other products through a direct sales force (or,
in the case of CF, possibly through the distribution capabilities of the Cystic
Fibrosis Foundation), if and when necessary regulatory approvals are obtained.
The Company currently has no marketing and sales experience and no marketing or
sales personnel. Unless a sales force is established, the Company will be
dependent on corporate partners or other entities for the marketing and selling
of its products. There can be no assurance that the Company will be able to
enter into any satisfactory arrangements for the marketing and sale of its
products. The inability of the Company to successfully establish a sales force
or enter into third party distribution, marketing and selling arrangements for
its anticipated products would have a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE UPON KEY PERSONNEL AND CONSULTANTS
The Company will be highly dependent upon its officers and directors, as well as
its medical advisory board and scientific advisory board members, consultants
and collaborating scientists. The management of the Company currently consists
of 11 persons. The loss of the services of any of these individuals or of any of
its medical advisory board or scientific advisory board members, consultants
and/or collaborating scientists could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
has not obtained, and does not intend to obtain, key-man life insurance on any
of its key personnel.
Since competent management personnel are in great demand, there can be no
assurance that the Company will be able to attract and retain such personnel on
a timely basis and on terms acceptable to the Company. The Company believes that
its success will depend in large part upon attracting and retaining
highly-skilled managerial and other employees.
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NO ASSURANCE OF ADDITIONAL PRODUCTS; RISKS ASSOCIATED WITH CERTAIN DRUG
CANDIDATES
Although the Company intends to devote substantial resources to the development
and commercialization of SuperVent(TM), KL4-Surfactant and ST-630, it will
explore the acquisition and subsequent development and commercialization of
additional pharmaceutical products and technologies. There can be no assurance
that the Company will be able to identify any additional products or
technologies, that it will be able to license any such technologies on
acceptable terms or that, even if suitable products or technologies are
identified, the Company will have sufficient resources to pursue any such
products or technologies to commercialization.
Each of the Company's products may represent risks that are presently unknown to
the Company and which may be the basis of an adverse regulatory determination
with regard to the development and commercialization of such products. Tyloxapol
has been used in low concentrations by the pharmaceutical industry for over 40
years without any reported significant adverse effects. However, since
SuperVent(TM) will likely be using a higher dosage of tyloxapol, the Company
will have to demonstrate safety at a tyloxapol dose significantly higher than
that used previously.
Preclinical studies of KL4-Surfactant have revealed no local or systemic
toxicity associated with test material having KL4-Surfactant concentrations well
in excess of those intended to be clinically tested. These studies also revealed
a lack of mutagenicity and immunogenicity. However, the Company will have to
demonstrate the effectiveness of KL4-Surfactant at a safe dosage level prior to
marketing KL4-Surfactant for the treatment of MAS, ARDS and/or IRDS.
The Company will have to demonstrate the effectiveness of ST-630 at a safe
dosage level in order to receive marketing approval in the United States for the
treatment of postmenopausal osteoporosis. Prior studies of vitamin D analogs
such as ST-630, which are administered in their active form, have been
associated with hypercalcemia in a number of patients. Hypercalcemia is
characterized by elevated calcium levels in the blood above a generally accepted
range. The Company believes that this risk of hypercalcemia may be the primary
reason why active vitamin D analogs have only been tested on a limited basis in
the United States, which is generally considered to be a high calcium
consumption country. The Company has not yet conducted the clinical studies that
will be required to determine whether ST-630 presents this same risk of
hypercalcemia. Although the Company believes that, based upon the results of
prior studies of ST-630, this compound may have a higher potency and greater
therapeutic window as compared to other active vitamin D analogs, there can be
no assurance that the Company will be able to demonstrate a dosage level for
ST-630 that will be both safe and effective.
CONTROL BY CURRENT OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
The Company's directors, executive officers and principal stockholders
beneficially own approximately 24.40% of the outstanding shares of Common Stock,
assuming (a) the conversion of all outstanding shares of Series A Preferred
Stock and assuming issuance of the shares of Common Stock (i) subject to the
Common Placement Warrants and (ii) issuable upon conversion of the Series A
Preferred Stock subject to the Preferred Placement Warrants and (b) the exercise
of all outstanding vested options. Accordingly, the Company's executive
officers, directors, principal stockholders and certain of their affiliates will
have the ability to exert substantial influence over the election of the
Company's Board of Directors and the outcome of issues submitted to the
Company's stockholders. Such a concentration of ownership may have the effect of
delaying or preventing a change in control of the Company, including
transactions in which shareholders might otherwise recover a premium for their
shares over their current market prices. See "Principal Stockholders."
COMPETITION
The Company is engaged in a highly competitive field of pharmaceutical research.
Competition from numerous existing companies and others in respiratory,
anti-inflammatory and anti-oxidant research and the fields of CF, MAS, ARDS,
IRDS and postmenopausal osteoporosis is intense and expected to increase. In
addition, the Company expects to compete with conventional pharmaceutical
companies. Most of these companies have substantially greater research and
development, manufacturing, marketing, financial, technological, personnel and
managerial resources than the Company. Acquisitions of competing companies by
large pharmaceutical or health care companies could further enhance such
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competitors' financial, marketing and other resources. Moreover, competitors
that are able to complete clinical trials, obtain required regulatory approvals
and commence commercial sales of their products before the Company could have a
significant competitive advantage. There can be no assurance that any products
developed by the Company's competitors will not be more effective than any
developed by the Company.
RISK OF PRODUCT LIABILITY; NO INSURANCE COVERAGE
Should the Company develop any products, the marketing of such products, through
third party arrangements or otherwise, may expose the Company to product
liability claims in the event that the use or misuse of pharmaceutical products
manufactured by, or under license from, the Company results in adverse effects.
The Company presently carries product liability insurance which covers adverse
events in connection with its Phase I/II clinical trial of SuperVent(TM) at the
University of Utah Health Science Center. The Company may be required to obtain
additional product liability insurance coverage prior to initiation of clinical
trials of its other proposed products. In addition, the Company intends to
obtain product liability insurance coverage before commercialization of its
proposed products. There can be no assurance that adequate insurance coverage
will be available at an acceptable cost, if at all. In addition, there can be no
assurance that a product liability claim, even if the Company has insurance
coverage, would not materially adversely affect the Company's business,
financial condition and results of operations.
UNCERTAINTY OF PRODUCT PRICING AND REIMBURSEMENT; HEALTH CARE REFORM AND RELATED
MEASURES
The levels of revenues and profitability of pharmaceutical and/or biotechnology
products and companies may be affected by efforts of governmental and third
party payers to contain or reduce the costs of health care through various
means. For example, in certain foreign markets, pricing or profitability of
prescription pharmaceuticals is subject to government control. In the United
States, there have been, and the Company expects that there will continue to be,
a number of federal and state proposals to implement similar government control.
Presently, the United States Congress is considering a number of legislative and
regulatory reforms that may affect companies engaged in the health care industry
in the United States. Pricing constraints on the Company's products, if
approved, could have a material adverse effect on the Company. Although the
Company cannot predict whether these proposals will be adopted or what effects
such proposals may have on its business, the existence and pendency of such
proposals could in general have a material adverse effect on the Company. In
addition, the Company's ability to commercialize potential pharmaceutical and/or
biotechnology products may be adversely affected to the extent that such
proposals have a material adverse effect on other companies that are prospective
collaborators with respect to any of the Company's product candidates.
In the United States and elsewhere, successful commercialization of the
Company's products will depend in part on the availability of reimbursement to
the consumer from third party health care payers, such as government and private
insurance plans. There can be no assurance that such reimbursement will be
available or will permit price levels sufficient to realize an appropriate
return on the Company's investment in product development. Third party health
care payers are becoming increasingly cost conscious in determining which
pharmaceutical products they will and will not reimburse. If the Company
succeeds in bringing one or more products to the market, there can be no
assurance that these products will be considered cost effective and that
reimbursement to the consumer will be available or will be sufficient to allow
the Company to sell its products on a competitive basis. See "Risk Factors--
Extensive Government Regulation; Uncertainty of FDA and Other Governmental
Approval of Products under Development."
CERTAIN INTERLOCKING RELATIONSHIPS; POTENTIAL CONFLICTS OF INTEREST
The Chairman of the Company is a full-time officer of Paramount. In addition,
Kenneth Johnson, the Director of Business Development of the Company, is a
Technology Associate of Paramount Capital Investments, LLC ("Paramount
Investments"), an affiliate of Paramount. See "Management" and "Certain
Transactions". Each of these individuals devotes only a portion of his time to
the business of the Company. Paramount acted as placement agent for the Company
in a private placement of its equity securities conducted during June through
November 1996 (the "Unit Offering"), pursuant to which the Selling
Securityholders acquired their Common Stock and Series A Preferred Stock. The
Company currently shares its office space with Paramount. Paramount Investments
is a merchant banking firm specializing in biotechnology companies. In the
regular course of its business, Paramount Investments identifies, evaluates and
pursues
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investment opportunities in biomedical and pharmaceutical products, technologies
and companies. Delaware corporate law requires that any transactions between the
Company and any of its affiliates be on terms that, when taken as a whole, are
substantially as favorable to the Company as those then reasonably obtained from
a person who is not an affiliate in an arm's-length transaction. Nevertheless,
Paramount Investments is not obligated pursuant to any agreement or
understanding with the Company to make any additional products or technologies
available to the Company, and there can be no assurance, and purchasers of the
Common Stock should not expect, that any biomedical or pharmaceutical product or
technology identified by Paramount Investments or any other affiliates of
Paramount or Paramount Investments in the future will be made available to the
Company. The Company maintains a policy that, subject to the approval of a
majority of the disinterested directors of the Company, the Company may
compensate directors of the Company in the form of cash bonuses and/or stock
options, in connection with new drug candidates licensed or acquired by the
Company which were identified and introduced to the Company by such persons. In
addition, certain of the officers, directors, consultants, and advisors to the
Company may from time to time serve as officers, directors, consultants or
advisors to other biopharmaceutical or biotechnology companies. There can be no
assurance that such other companies will not in the future have interests in
conflict with those of the Company.
ABSENCE OF MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
To date, there has been no public market for the securities of the Company. The
market price, if any, of the Common Stock, like that of many other
development-stage public pharmaceutical or biotechnology companies, may be
highly volatile. Factors such as announcements of technological innovations or
new commercial products by the Company or its competitors, disclosure of results
of preclinical and clinical testing, adverse reactions to products, governmental
regulation and approvals, developments in patent or other proprietary rights,
public or regulatory agency concerns as to the safety of any products developed
by the Company and general conditions may have a significant or adverse effect
on the market price of the Common Stock.
UNCERTAINTY OF LISTING ON NASDAQ SMALL-CAP MARKET; POSSIBLE DELISTING FROM
NASDAQ SMALL-CAP MARKET; MARKET ILLIQUIDITY
The Company intends to apply for listing of the Common Stock on the Nasdaq
Small-Cap Market under the symbol "DSCO". The Company believes that it will meet
the currently proposed criteria for such listing on such market at the time of
effectiveness of the registration statement of which this Prospectus is a part,
including, without limitation: (i) net tangible assets of at least $4 million;
(ii) an operating history of over one year; (iii) a market value of its publicly
held shares of at least $5 million; (iv) at least 300 holders of the Common
Stock; (v) at least three market makers; and (vi) and an initial minimum bid
price of at least $4.00. However, there can be no assurance that the Common
Stock will be listed on the Nasdaq Small-Cap Market. The prices of the Common
Stock which may be obtained on the Nasdaq Small-Cap Market are not necessarily
related to the Company's assets, book value, results of operations or any other
established criteria of value, and should not be regarded as any indication of
future market price of the Common Stock.
Assuming the Nasdaq Small-Cap Market listing of the Common Stock is approved,
continued inclusion of the Common Stock on the Nasdaq Small-Cap Market is
proposed to require: (i) that the Company maintain at least $2,000,000 in net
tangible assets, a market capitalization of $35 million or $500,000 of net
income in two out of three years; (ii) a market value of its publicly held
shares of at least $1 million; (iii) that the minimum bid price for the Common
Stock be at least $1.00 per share; (iv) that the public float of the Common
Stock consist of at least 500,000 shares; (v) that the Common Stock have at
least two active market makers; and (vi) that the Common Stock be held by at
least 300 holders. If the Company is unable to satisfy such maintenance
requirements, the Common Stock may be delisted from the Nasdaq Small-Cap Market.
In such event, trading, if any, in the Common Stock would thereafter be
conducted in the over-the-counter market in the "pink sheets" or the OTC
Bulletin Board. Consequently, the liquidity of the Common Stock could be
materially and adversely impaired, not only in the number of securities that
can be bought and sold at a given price, but also through delays in the timing
of transactions and reduction in security analysts' and the media's coverage of
the Company, which could result in lower prices for the Common Stock than might
otherwise be attained and could also result in a larger spread between the bid
and asked prices for the Common Stock. See "Risks of Low Price Stock; Possible
Effect of "Penny Stock" Rules on Liquidity for the Common Stock."
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RISKS OF LOW-PRICED STOCK; POSSIBLE EFFECT OF "PENNY STOCK" RULES ON LIQUIDITY
FOR THE COMMON STOCK
The Securities Exchange Act of 1934, as amended (the "Exchange Act") requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a penny stock. The Commission's regulations
generally define a penny stock to be any equity security that has a market price
of less than $5.00 per share, subject to certain exceptions. Such exceptions
include any equity security listed on a national securities exchange or quoted
on Nasdaq and any equity security issued by an issuer that has (i) net tangible
assets of at least $2 million, if such issuer has been in continuous operation
for three years, (ii) net tangible assets of at least $5 million, if such issuer
has been in continuous operation for less than three years, or (iii) average
annual revenue of at least $6 million, if such issuer has been in continuous
operation for less than three years. There can be no assurance that the Company
will meet the requirements of the foregoing exceptions.
In addition, if the Company's securities are not listed on a national securities
exchange or quoted on Nasdaq or fail to meet the net tangible asset or annual
revenue tests set forth above, but are quoted on the OTC Bulletin Board (as to
which there can be no assurance), then trading in the Company's securities would
be regulated pursuant to Rules 15-g-1 through 15-g-6 and 15-g-9 promulgated
under the Exchange Act for non-Nasdaq and non-exchange listed securities. Under
such rules, broker-dealers who recommend such securities to persons other than
established customers and "accredited investors" must make a special written
suitability determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser's written agreement to this transaction.
Consequently, such Exchange Act rules may affect the ability of broker-dealers
to make a market in such shares and may affect the ability of holders of Common
Stock to sell such stock in the secondary market. Securities are exempt from
these rules if the market price of such securities is at least $5.00 per share.
Unless exempt, the rules require delivery, prior to any transaction in a penny
stock, of a disclosure schedule prepared by the Commission relating to the penny
stock market. Disclosure is also required to be made about sales commissions
payable to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.
If the Common Stock is subject to the rules on penny stocks, the market
liquidity for such securities could be materially and adversely affected.
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
As of December 13, 1996, 6,712,256 shares of Common Stock were issued and
outstanding, 4,512,000 of which the Company believes are "restricted securities"
and under certain circumstances may, in the future, be sold in compliance with
Rule 144. Assuming the availability of Rule 144, the Company believes that of
the outstanding shares of Common Stock, 1,132,500 "restricted" shares of Common
Stock are currently eligible for sale and up to 3,379,500 "restricted" shares
will be eligible in 1998 and 1999, in each case subject to certain volume
limitations and manner of sale requirements imposed by Rule 144. In general,
under Rule 144, subject to the satisfaction of certain other conditions, a
person, including an affiliate of the Company, who beneficially owned restricted
shares of Common Stock for at least two years is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of one
percent of the total number of outstanding shares of the same class, or if the
Common Stock is quoted on Nasdaq, a national securities exchange or the OTC
Bulletin Board, the average weekly trading volume during the four calendar weeks
immediately preceding the sale. A person who presently is not and who has not
been an affiliate of the Company for at least three months immediately preceding
the sale and who has beneficially owned the shares of Common Stock for at least
three years is entitled to sell such shares under Rule 144(k) without regard to
the volume limitations described above. In addition, the Company currently has
issued and outstanding options to purchase an aggregate of 685,500 shares of
Common Stock (excluding the Placement Agent Warrants), 481,125 of which are
subject to vesting over the next 33 months. The Commission has recently adopted
revisions to Rule 144 and Rule 144(k), the effect of which will be to shorten
the holding period under Rule 144 from two years to one year and to shorten the
holding period under Rule 144(k) from three years to two years.
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No prediction can be made as to the effect, if any, that sales of shares of
Common Stock or the availability of such shares for sale will have on the market
prices that may be quoted from time to time on the OTC Bulletin Board, or Nasdaq
if quoted thereon. Nevertheless, the possibility that substantial amounts of
Common Stock may be sold in the public market may adversely effect the
prevailing market prices for the Common Stock and could impair the Company's
ability to raise capital in the future through the sale of equity securities.
Actual sales or the prospect of future sales of shares of Common Stock under
Rule 144 or otherwise may have a depressive effect upon the price of the Common
Stock and the market therefor.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
DELAWARE LAW
The Company's Certificate of Incorporation, as amended, authorizes the issuance
of up to 10,000,000 shares of preferred stock, of which 2,200,256 shares are
currently outstanding (without giving effect to any shares issuable upon
exercise of the Placement Agent Warrants). The Board of Directors has been
granted the authority to fix and determine the relative rights and preferences
of preferred shares, as well as the authority to issue such shares, without
further stockholder approval. As a result, the Board of Directors could
authorize the issuance of a series of preferred stock which would grant to
holders the preferred right to the assets of the Company upon liquidation, the
right to receive dividend coupons before dividends would be declared to Common
Stockholders, and the right to the redemption of such shares, together with a
premium, prior to the redemption of Common Stock. Common stockholders have no
redemption rights. In addition, the Board could issue large blocks of preferred
stock to fend against unwanted tender offers or hostile takeovers without
further shareholder approval. See "Description of Securities." The Company is
subject to Section 203 of the General Corporation Law of the State of Delaware
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person affiliated
with or controlling or controlled by such entity or person. The foregoing
provisions could have the effect of discouraging others from making tender
offers for the Company's shares and, as a consequence, they also may inhibit
fluctuations in the market price of the Company's shares that could result from
actual or rumored takeover attempts. Such provisions also may have the effect of
preventing changes in the management of the Company.
DIVIDENDS UNLIKELY
The Company has never paid cash dividends on its capital stock and does not
anticipate paying any cash dividends for the foreseeable future.
POTENTIAL CONVERSION PRICE RESET OF SERIES A PREFERRED STOCK
Pursuant to the Unit Offering, the Company consummated an offering of Units
consisting of Series A Preferred Stock and Common Stock. 2,200,256 shares of
Series A Preferred Stock were included in the Units sold in the Unit Offering.
Shares of Series A Preferred Stock are convertible at the option of the holders
thereof into shares of Common Stock of the Company, at an initial conversion
rate corresponding to a conversion price equal to $2.50 per share. The
conversion price in effect immediately prior to the date that is 12 months after
the first date on which the shares of Common Stock are publicly traded (the
"Reset Date") will be adjusted effective as of the Reset Date if the average
closing bid price of the Common Stock for the 30 consecutive trading days
immediately preceding the Reset Date is less than 135% of the then applicable
conversion price. Any such reset of the conversion price applicable to the
Series A Preferred Stock would have a dilutive effect on purchasers of the
Common Stock offered hereby.
FORWARD LOOKING STATEMENTS
Certain of the statements set forth in this Prospectus, including, without
limitation, the Company's research and development programs, the seeking of
joint development or licensing arrangements with pharmaceutical companies, the
research and development of particular compounds and technologies for particular
indications and the period of time for which the Company's existing resources
will enable the Company to fund its operations and to meet the initial listing
requirements for the quotation of its securities on the Nasdaq Small-Cap Market,
are forward-looking and based upon the
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Company's current belief as to the outcome, occurrence and timing of future
events or current expectations and plans. All such statements involve
significant risks and uncertainties. Many important factors affect the Company's
ability to achieve the stated outcomes and to successfully develop and
commercialize its product candidates including, among other things, the ability
to obtain substantial additional funds, to obtain and maintain all necessary
patents or licenses, to demonstrate the safety and efficacy of product
candidates at each state of development, to meet applicable regulatory standards
and receive required regulatory approvals, to meet obligations under its license
agreements, to be capable of producing drug candidates in commercial quantities
at reasonable costs, to successfully compete against other products and to
market products in a profitable manner. As a result, there also can be no
assurance that these statements included in the Prospectus will prove to be
accurate. In light of the significant uncertainties inherent in these statements
included herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
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CAPITALIZATION
The following table sets forth the capitalization of the Company at December 31,
1996. It is derived from the Company's audited financial statements included
elsewhere herein. This table should be read in conjunction with the Company's
financial statements, and the related notes thereto. See "Financial Statements."
December 31,1996
Liabilities
Minority interest in preferred stock of subsidiary $2,200,000
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value 10,000,000 shares authorized;
2,200,256 shares of Series A Preferred Stock outstanding (1) 2,000
Common Stock, $0.001 par value 50,000,000 shares authorized;
6,712,256 shares issued and outstanding (2) 7,000
Additional paid-in capital 19,003,000
Deficit accumulated during development stage (3,254,000)
Total stockholders' equity (deficit) 15,758,000
Total capitalization $17,958,000
At December 31, 1996, there were approximately 254 holders of the Common Stock.
- ----------------
(1) Does not include 220,026 shares of Series A Preferred Stock issuable upon
exercise of the Preferred Placement Warrants which were issued to the
Placement Agent and/or its designees in connection with the Unit Offering.
See "Certain Transactions" and "Description of Securities--Placement Agent
Warrants."
(2) Does not include options to purchase up to 685,500 shares of Common Stock
held by certain directors, officers and employees of the Company. Excludes
an additional aggregate of 1,100,129 shares of Common Stock issuable upon
exercise of the Common Placement Warrants and issuable upon conversion of
Series A Preferred Stock issuable upon exercise of the Preferred Placement
Warrants, which warrants were in each case issued to the Placement Agent
and/or its designees in connection with the Unit Offering.
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USE OF PROCEEDS
The Company will not receive any proceeds from the sale of shares of Common
Stock. The Company is not expected to receive any proceeds from the exercise of
the Placement Agent Warrants since the Placement Agent Warrants may be exercised
pursuant to cashless exercise provisions. In the event that the Placement Agent
Warrants are exercised for cash, the Company intends to use such net cash
proceeds (after estimated offering expenses of this Offering of approximately
$300,000) for general working capital purposes. Proceeds, if any, from the
exercise for cash of all the Placement Agent Warrants, before deduction of
estimated expenses of this Offering, would be approximately $2,475,000. Whether,
how and to what extent any of the Placement Agent Warrants will be exercised,
and whether the Placement Agent Warrants are exercised for cash or not, cannot
be predicted by the Company.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since its
formation. The payment of dividends, if any, in the future, with respect to the
Common Stock, is within the discretion of the Board of Directors of the Company
and will depend on the Company's earnings, capital requirements, financial
condition and other relevant factors. The Board of Directors of the Company does
not presently intend to declare any dividends on the Common Stock in the
foreseeable future.
The Company anticipates that all earnings and other resources of the Company,
if any, will be retained by the Company for investment in its business.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATIONS
GENERAL
The Company was originally organized as MicroBio, Inc. on May 18, 1993. The
Company had limited operations prior to January 1995. In May 1996, the Company
amended its Certificate of Incorporation to effect a name change to its current
name, Discovery Laboratories, Inc. In April 1996, the Company entered into a
three-year employment agreement with James S. Kuo, M.D., whereby Dr. Kuo agreed
to serve as President and Chief Executive Officer of Discovery. In October 1996,
ATI entered into a four-year employment agreement with Robert J. Capetola,
Ph.D., whereby Dr. Capetola became the President, Chief Executive Officer and
Chairman of the Board of ATI.
Since its inception, the Company has concentrated its efforts and resources in
the development and commercialization of pharmaceutical products and
technologies. The Company has been unprofitable since its founding and has
incurred a cumulative net loss of approximately $3,254,000 as of December 31,
1996. The Company expects to incur significantly increasing operating losses
over the next several years, primarily due to the expansion of its research and
development programs, including clinical trials for the SuperVent(TM) and ST-630
products, the KL4-Surfactant technology and other products and technologies that
it may acquire or develop. The Company's ability to achieve profitability
depends upon, among other things, its ability to discover and develop products,
obtain regulatory approval for its proposed products, and enter into agreements
for product development, manufacturing and commercialization. None of the
Company's products currently generate revenues and the Company does not expect
to achieve revenues for the foreseeable future. Moreover, there can be no
assurance that the Company will ever achieve significant revenues or profitable
operations from the sale of the SuperVent(TM) and ST-630 products, the
KL4-Surfactant technology or any other products or technologies that it may
acquire or develop. See "Risk Factors--Development Stage Company; No Developed
or Approved Products; Uncertainty of Future Profitability."
PLAN OF OPERATION
The Company is currently engaged in the development and commercialization of
investigational drugs that have previously been tested in humans or animals. In
March 1996, the Company executed a license agreement with CMHA as owner and
licensor of the Company's tyloxapol patents and patent applications. The Company
paid $86,400 as a license issue fee to CMHA to obtain its license, which fee was
capitalized and is being amortized over the term of the license. In September
1996, the Company entered into a license agreement (the "WARF License
Agreement") with WARF relating to an active vitamin D analog, ST-630, and its
potential use in treating postmenopausal osteoporosis. The Company paid a
$400,000 initial fee to WARF upon execution of the WARF License Agreement. In
October 1996, ATI executed a sublicense agreement with J&J and J&J's
wholly-owned subsidiary, Ortho Pharmaceutical Corporation, granting an exclusive
sublicense of the KL4-Surfactant technology to ATI in exchange for an initial
$200,000 license fee, additional milestone payments, royalties and common stock
of ATI. J&J is contributing its existing KL4-Surfactant raw material inventory
and specialized manufacturing equipment, with an estimated original cost of $3.3
million, to ATI in exchange for shares of nonvoting Series B Preferred Stock of
ATI having a $2.2 million liquidation preference.
The Company anticipates that during the next 12 months it will conduct
substantial research and development of the SuperVent(TM), KL4-Surfactant and
ST-630 products, including, without limitation, a Phase I/II clinical trial of
SuperVent(TM) for the treatment of CF that was commenced on March 17, 1997 (and,
assuming the successful completion of such clinical trial, a Phase II clinical
trial of SuperVent(TM) for the treatment of chronic bronchitis) and Phase II
clinical trials of KL4-Surfactant for the treatment of MAS and ARDS. The Company
also intends to initiate clinical studies of ST-630 as a once-daily, orally
administered drug for the treatment of postmenopausal osteoporosis in the United
States during the next 12 months. Certain of the planned clinical trials of the
Company's products in development require the receipt of FDA approvals, and
there can be no assurance as to the receipt or the timing of receipt of such
approvals. See "Business--Products and Technologies Under Development," and
"--Government Regulation; Orphan Drug Designation." The Company may seek to
acquire additional products and technologies in the future. Should the Company
acquire such additional products or technologies, it is anticipated that such
additional products or technologies will require substantial resources for
research, development and clinical evaluation. However, there can be no
assurance that the Company will be able to obtain the additional financing
necessary to acquire and develop such products and technologies. Furthermore,
there can be no assurance
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that changes in the Company's research and development plans or other changes
which would or could alter the Company's operating expenses will not require the
Company to reallocate funds among its planned activities and curtail certain
planned expenditures. In such event, the Company may need additional financing.
There can be no assurance as to the availability or the terms of any required
additional financing, when and if needed. In the event that the Company fails to
raise any funds it requires, it may be necessary for the Company to
significantly curtail its activities or cease operations.
The Company has recently hired seven new employees to serve as Vice President of
Clinical Affairs, Vice President of Regulatory Affairs, Director of Business
Development and Project Manager, respectively, of Discovery, and Vice President
of Biometrics, Vice President of Clinical Research and Director of Clinical
Research, respectively, of ATI. The timing and cost of hiring any additional
employees may vary depending on need and cannot currently be predicted with any
certainty.
ATI has entered into an agreement with Cook Imaging Corporation for the
development of the manufacturing process to be employed in the KL4-Surfactant
program. It is also anticipated that, over the next 12 months, ATI will enter
into an agreement with a third party for the purpose of supplying KL4-Surfactant
to ATI. No specific supplier has been identified to date.
LIQUIDITY AND CERTAINTY
The Company anticipates that its current resources will permit it to meet its
business objectives until approximately June 1998. The Company's working capital
requirements will depend upon numerous factors, including, without limitation,
progress of the Company's research and development programs, preclinical and
clinical testing, timing and cost of obtaining regulatory approvals, levels of
resources that the Company devotes to the development of manufacturing and
marketing capabilities, technological advances, status of competitors and
abilities of the Company to establish collaborative arrangements with other
organizations, and as such there can be no assurance that the Company will not
be required to raise additional capital prior to June 1998 or, in general, that
the Company will be able to achieve its business objectives.
The Company experienced a substantial increase in expenses during 1996 as
compared to earlier periods due to expenses incurred in connection with the
Unit Offering. See "Certain Transactions."
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BUSINESS
Discovery Laboratories, Inc. ("Discovery" and together with its majority-owned
subsidiary, Acute Therapeutics, Inc. ("ATI"), the "Company") is a development
stage pharmaceutical company that is focused on acquiring, developing and
commercializing proprietary, investigational drugs that have previously been
tested in humans or animals. The Company's strategy is to conduct preclinical
and clinical studies on investigational drugs licensed from third parties,
either alone or in collaboration with corporate partners. The Company may also
seek to enter into collaborations with corporate partners for manufacturing and
marketing of such drugs.
PRODUCTS AND TECHNOLOGIES UNDER DEVELOPMENT
SUPERVENT(TM)
BACKGROUND
The Company is developing SuperVent(TM) as a stable aerosolized,
multidimensional therapy for airway diseases characterized by inflammation,
injurious oxidation and excessive sputum. SuperVent's(TM) active compound is
tyloxapol, a non-anionic, alkylaryl polyether alcohol polymer which has been
safely used as an emulsifying agent in drug formulations by the United States
pharmaceutical industry for over 40 years. Tyloxapol is a slightly viscous,
amber liquid that is slowly but freely soluble in water and has a pleasant,
slightly aromatic odor. The compound is generally recognized as relatively
non-toxic to human cells and the mammalian lung. Tyloxapol had no reported
respiratory toxicity in rhesus monkeys when administered daily by aerosol for a
year at 15% weight/volume. The compound is not orally absorbed. Experimental
research conducted by the Company's scientific founders has led to the discovery
that tyloxapol appears to possess biological activities beyond its
well-recognized emulsification properties. Tyloxapol is thought to have three
mechanisms of action:
o Anti-inflammatory activity
o Anti-oxidant activity
o Mucolytic activity
The combination of the above pharmacologic activities is not presently found in
any single, safe, effective therapy for cystic fibrosis or chronic bronchitis.
If successfully developed and approved, SuperVent(TM) is intended to be used
daily by cystic fibrosis and chronic bronchitis patients in the home and
hospital to preserve pulmonary function and aid mucus expectoration.
The Company has obtained an exclusive, worldwide license from The
Charlotte-Mecklenburg Hospital Authority ("CMHA") which covers two issued United
States patents and two pending United States and corresponding foreign patent
applications relating to pharmaceutical preparations containing high
concentrations of tyloxapol and the use of tyloxapol for the treatment of a
variety of respiratory and other diseases involving inflammation and oxidative
damage. The United States Food and Drug Administration (the "FDA") has granted
orphan drug status for the use of tyloxapol to treat cystic fibrosis ("CF"). See
"Government Regulation; Orphan Drug Designation." The Company has commenced
clinical testing of SuperVent(TM) for the treatment of CF and intends to
clinically test SuperVent(TM) for the treament of chronic bronchitis. Because
Phase I clinical studies of tyloxapol have not been completed, the Company has
not yet determined what adverse effects, if any, may be produced by tyloxapol at
the concentrations in which it will be present in the Company's SuperVent(TM)
product.
CYSTIC FIBROSIS AND ITS PATHOLOGY
CF is a progressive, lethal respiratory disease that occurs in about one out of
every 2,000 live births in the United States and Europe. CF afflicts
approximately 23,000 patients in the United States and a comparable number in
Europe. It is the most common lethal genetic disease among Caucasians. A
revolutionary improvement in the medical management of CF has allowed most
patients with the disease to live until the age of 29. The progressive
destruction of CF lungs is the major
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impediment to even longer survival and improved health. A new therapy which
minimizes the pulmonary complications of CF would have a major impact on the
length and quality of life of its patients.
CF results from a genetic defect in the CFTR gene. The CFTR gene codes for a
membrane protein responsible for the transport of chloride ions. Because of this
genetic defect, CF mucus is excessively viscous and adherent to airway walls.
Destruction of the lungs of CF patients occurs gradually as the inability to
clear mucus from the lungs leads to blockage of the airways usually beginning in
the smaller airways and alveoli. Impacted mucus traps foreign particles and
pathogens and becomes a source of bacterial colonization, typically with
PSEUDOMONAS AERUGINOSA ("PSEUDOMONAS"). The patient's immune system responds to
the chronic infection by sending macrophages into the airways which recognize
and attempt to destroy the bacteria. These macrophages then recruit legions of
neutrophils to the lungs which activate the inflammatory transcriptional factor
Nuclear Factor-kappa B ("NF-[kappa]B") and initiate a cytokine-mediated
inflammatory response. The activated immune cells secrete inflammatory
cytokines, oxidative chemicals and destructive enzymes into the lungs. Repeated
inflammatory and oxidative processes initiated by macrophages and neutrophils to
clear the infection are typically ineffective and result in collateral damage to
the alveoli and small airways. Destroyed airway cells, neutrophils and
macrophages then spill their DNA and actin into the alveoli and markedly
increase the viscosity and adhesiveness of airway sputum. This debris-laden
mucus, rich in proteases and oxidants, causes the alveoli to collapse and are
then replaced with nonfunctional fibrous tissue. Eventually, a critical number
of alveoli, small airway cells and large airway cells are destroyed so that the
respiratory function of CF patients becomes insufficient to sustain life.
CLINICAL DEVELOPMENT PLAN FOR SUPERVENT(TM) FOR CF
The Company's clinical development plan for SuperVent(TM) is to focus first on
CF, for which few safe and effective therapies exist. The Company has completed
a clinical research agreement with the University of Utah Health Sciences Center
("UHSC") and has commenced a clinical trial pursuant to such agreement. The
principal investigator of this clinical trial is Bruce C. Marshall, M.D.,
Director of the CF center of the UHSC. The co-investigators are John R. Hoidal,
M.D., Chief of the Pulmonary and Pediatric Pulmonary Divisions at UHSC, and
Wayne Samuelson, M.D., Director of the asthma center at UHSC. In September 1995,
the FDA approved, subject to certain modifications, Dr. Hoidal's
physician-sponsored Investigational New Drug ("IND") application to begin this
trial. The trial is designed to determine whether aerosolized SuperVent(TM)
holds promise as a low toxicity, anti-inflammatory, anti-oxidant and mucolytic
agent for the treatment of CF. The specific aims of the initial clinical study,
which is presently designed in three parts, are as follows:
PART A. A dose-ranging study will be performed in ten normal human
volunteers receiving 4 ml of aerosolized SuperVent(TM) once
daily to confirm a lack of airway toxicity and establish the
safe inhaled concentration of SuperVent(TM). Assessment of
outcomes will include various measures of respiratory
function.
PART B. An open study will be undertaken to establish the effects of
aerosolized SuperVent(TM) airway physiology and lung
inflammation in ten patients with cystic fibrosis. Patients will
be followed for two weeks while receiving 4 ml of aerosolized
SuperVent(TM) once daily. Assessment of outcomes will include
various measures of respiratory function.
PART C. In the format of a six-week, multi-center, randomized,
double-blinded, placebo-controlled trial, 4 ml of aerosolized
SuperVent(TM)once daily will be studied in up to 120 patients
with cystic fibrosis with measures of outcome including
respiratory function and
physical exercise criteria.
The Company began the aforementioned Phase I/II clinical trial for the treatment
of CF on March 17, 1997 at UHSC. Assuming the successful completion of the Phase
I/II trial, the Company intends to commence a multi-center, randomized,
double-blinded, placebo-controlled, Phase III clinical trial in CF and to file
an additional IND to commence a Phase II clinical trial for the treatment of
chronic bronchitis.
COLLABORATION WITH THE CYSTIC FIBROSIS FOUNDATION
The Company is collaborating with the Cystic Fibrosis Foundation in assembling a
CF medical advisory board to advise on the design of the Phase I/II clinical
trial in CF. The Cystic Fibrosis Foundation does not endorse investigational
drugs but does lend its support to companies conducting clinical trials in CF.
If successful in obtaining such support, the Company intends
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to utilize the assistance of the Cystic Fibrosis Foundation's patient registry
to coordinate a multi-center Phase III clinical trial. If the Phase III trial is
successful and regulatory approval to market SuperVent(TM) is obtained, the
Company plans to utilize the Cystic Fibrosis Foundation to distribute the
product in the United States and Canada.
CURRENT RESPIRATORY THERAPIES FOR CYSTIC FIBROSIS
SUPPORTIVE CARE AND TRADITIONAL DRUG THERAPIES
The standard treatment for enhancing expectoration of CF sputum is postural
drainage and chest percussion. In this daily procedure, patients lie in an
inclined position with their head below their chest. The patient's chest is then
repeatedly and gently pounded for several minutes with a cupped hand by a care
giver. While modestly efficacious, postural drainage and chest percussion is
labor intensive and requires a care giver.
When mucus becomes colonized with bacteria such as PSEUDOMONAS and other
pathogens, a variety of intensive oral, intravenous and aerosolized antibiotics
are administered. Repeated use of these antibiotics to clear the infection often
results in strains of PSEUDOMONAS which are resistant to the antibiotics. Over
time, many CF patients become chronically colonized with drug resistant
PSEUDOMONAS. The ensuing cytokine-mediated inflammatory and oxidative process
then accelerates the destruction of the lungs.
PULMOZYME(TM)
Standard daily pharmacologic therapy for airway obstruction in CF presently
consists largely of inhaled Pulmozyme(TM) (recombinant human rhDNase or dornase
alfa). This drug has been marketed by Genentech in the United States and Canada
since early 1994. Pulmozyme(TM) reduces the viscosity of CF mucus by cleaving
the DNA released from destroyed inflammatory, epithelial and bacterial cells
which collect in mucus and contribute to its abnormal viscosity and adherence.
The drug provides a small improvement in lung function and a slight reduction in
the number of days requiring intravenous antibiotics for respiratory infections.
The approximate yearly cost of Pulmozyme(TM) treatment for an average patient is
$11,000. Genentech's 1995 sales of Pulmozyme(TM) are estimated to have been
approximately $110 million.
LUNG TRANSPLANT
Lung transplantation is the final option for CF patients suffering from severely
compromised respiratory function. However, there is an extremely limited supply
of transplantable lungs and the operation is very costly. In addition, there is
an increased risk of death from such a major surgical procedure and a long and
painful recovery. Furthermore, patients who do recover must take
immunosuppressive drugs for the rest of their life to prevent organ rejection,
making them vulnerable to infections.
SUPERVENT(TM) FOR CHRONIC BRONCHITIS
Assuming the successful completion of the Phase I/II trial of SuperVent(TM) in
CF, the Company intends to file an IND to commence a Phase II clinical trial for
the use of SuperVent(TM) to treat chronic bronchitis. Chronic bronchitis is a
major medical problem that is characterized by inflammation of the airways
leading to cough and increased mucus production. The condition afflicts
approximately 14,000,000 patients in the United States. Two primary causes of
chronic bronchitis are habitual smoking and air pollution. Non-specific
irritants contained in cigarette smoke and air pollution result in an increased
number of macrophages entering into the lungs. The macrophages become activated
and secrete inflammatory cytokines which recruit neutrophils that together
release oxidants and elastase, an enzyme which degrades a structural component
of the lungs, elastin. These released oxidants and free radicals oxidize
alpha1-antitrypsin which normally inactivates elastase. In addition, elastin
repair may be inhibited by cigarette smoke leading to structural changes in the
lung that may significantly compromise respiratory function.
Based on clinical studies and other studies conducted by persons affiliated and
unaffiliated with the Company, the Company believes that high concentrations of
tyloxapol may improve pulmonary function in chronic bronchitis patients.
SuperVent's(TM) active compound , tyloxapol, is also a component of Exosurf(TM),
a product that has been clinically tested to treat chronic bronchitis. The
chemical composition of the Company's SuperVent(TM) product is substantially
different from that of Exosurf(TM). SuperVent(TM) contains a substantially
higher concentration of tyloxapol in a phosphate-
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buffered saline solution. Exosurf(TM) is composed of tyloxapol, cetyl alcohol,
dipalmetoylphosphatitylcholine and sodium chloride. Exosurf(TM), as prepared for
use in treating chronic bronchitis, was, to the Company's knowledge, difficult
to satisfactorily aerosolize. SuperVent(TM) can be aerosolized and successfully
delivered through a nebulizer.
HISTORY OF SAFE USE
Tyloxapol has been safely used by the pharmaceutical industry for over 40 years
as an emulsifying agent in various drug formulations containing concentrations
of tyloxapol lower than those intended to be present in the Company's
SuperVent(TM) product. Sterling Pharmaceuticals ("Sterling") previously marketed
in the United States a formulation containing low concentrations of tyloxapol
(0.125% by volume) as an expectorant for chronic bronchitis under the trade name
Alevaire(TM). Alevaire(TM) was first approved for use in the United States in
the late 1940's in children with pulmonary tuberculosis as an aerosol delivery
vehicle for streptomycin, an antibiotic. At that time, IN VITRO (i.e., non-
animal) studies indicated that sodium bicarbonate and tyloxapol increased
susceptibility of tuberculosis to streptomycin. Alevaire(TM) has been inhaled by
children with tuberculosis for two hours a day for up to six months without
adverse effects. In a group of adult tuberculosis patients, Alevaire's(TM)
expectorant properties were noted when it was reported that thick, viscous mucus
became thin and watery upon administration. Alevaire(TM) has been used as a
mucolytic treatment for a variety of respiratory conditions. Based on published
literature, Alevaire(TM) has no reported adverse effect on bacterial
host-defense mechanisms and has even been locally infused into humans to hasten
resolution of infected joints and pacemaker pockets.
Alevaire's(TM) marketing was discontinued by Sterling in 1981. At that time,
passage of the Harris-Kefauver amendment to the Food and Drug Act mandated that
older drugs previously approved only on the basis of safety, the regulatory
standard at the time, were required to demonstrate efficacy to continue to be
marketed. Because only anecdotal reports of efficacy and not controlled studies
were available to support Alevaire's(TM) use in respiratory diseases, it was
ruled that there was insufficient data to permit the product's continued use
without further studies. Sterling apparently elected to withdraw the drug from
the United States market, presumably because its patent had expired.
Alevaire(TM) is still marketed in Japan by Nippon Shoju Co., Ltd. At the present
time, tyloxapol, in addition to being used in the surfactant Exosurf(TM), is
included as an "inactive" ingredient in the over-the-counter medications Vicks
Sinex(TM) and Visex(TM), which are marketed by Procter & Gamble, Inc. A review
of the literature by the Company does not indicate that Alevaire(TM) was ever
tested as an anti-oxidant or used to treat CF.
MECHANISMS OF ACTION
ANTI-INFLAMMATORY ACTIVITY
Experimental studies suggest that SuperVent(TM) is a potent inhibitor of the
inflammatory transcriptional factor NF-[kappa]B. Inhibition of NF-[kappa]B is an
area of intense pharmaceutical research as it is a central transcriptional
regulation element by which monocytes and macrophages regulate the expression of
multiple inflammatory cytokines and growth factors implicated in the destruction
of CF lungs. In preclinical studies, secretion of TNF-[alpha], IL-1(beta), IL-6,
IL-8 and GM-CSF by LPS-stimulated human monocytes was significantly (p <0.010)
decreased by tyloxapol in a dose-dependent manner.
ANTI-OXIDANT ACTIVITY
IN VITRO and IN VIVO (i.e., animal) experimental studies conducted by the
Company's scientific founders suggest that SuperVent(TM) is a potent
anti-oxidant capable of scavenging injurious hydroxyl radicals and hypochlorous
acid. These toxic chemicals are produced in abundance by activated inflammatory
cells in the airway. Two IN VITRO models testing the oxidant scavenging activity
of tyloxapol showed that the addition of tyloxapol to the reaction mixture
inhibited oxidant generation in a concentration dependent manner. In an
additional IN VITRO model, tyloxapol was shown to be an effective oxidant
scavenger through its ability to prevent oxidant-mediated conversion of
diethanolamine to its corresponding chloramine. The Company's scientific
founders have further shown in an IN VIVO model that tyloxapol protects against
oxidant-mediated lung injury. Intratracheal instillation of oxidants in rats
caused acute lung injury as demonstrated by a marked increase in protein
concentration and neutrophil percentage in lung lavage fluid. Post-exposure
treatment with tyloxapol significantly reduced both lavage protein concentration
(p < 0.001) and neutrophil percentage (p < 0.010).
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MUCOLYTIC ACTIVITY
IN VITRO studies of the sputum from CF patients suggest that the surface tension
reducing properties of SuperVent(TM) may be an effective agent in decreasing
mucus adherence and facilitating expectoration. The Company believes that
SuperVent's(TM) ability to modify the biophysical properties of the abnormally
thick mucus in CF patients should, in concert with postural percussion and
drainage, offer respiratory benefit.
KL4-SURFACTANT TECHNOLOGY
BACKGROUND
Lung surfactants are protein-phospholipid complexes which coat the alveoli (air
sacs) of the lungs. Alveoli are delicate, balloon-like sacs in the lungs where
gaseous exchange occurs. Lung surfactants lower surface tension in expiration
and raise it during inspiration to prevent the collapse of alveoli. Replacement
surfactants are currently used mainly to treat infant respiratory distress
syndrome ("IRDS"). Infants with this condition, as well as infants born with
meconium in their lungs, which can lead to meconium aspiration syndrome ("MAS"),
and patients with adult respiratory distress syndrome ("ARDS"), typically suffer
from insufficient surfactant that leads to a life-threatening loss of pulmonary
function.
KL4-Surfactant is a proprietary, synthetic lung surfactant that was originally
invented at The Scripps Research Institute ("Scripps") by Charles G. Cochrane,
M.D., et al. KL4-Surfactant is an aqueous suspension of lipid vesicles
containing the novel synthetic peptide KL4 (KLLLLKLLLLKLLLLK). The "K"
represents the water-soluble amino acid lysine and the "L" represents the
fat-soluble amino acid leucine. KL4-Surfactant is patterned after human
Surfactant Protein B, shown to have the greatest surfactant activity in humans .
Human Surfactant Protein B acts by forming a stable monolayer on the inner
surface of the pulmonary alveoli and preventing their collapse. The product was
exclusively licensed to Johnson & Johnson, Inc. ("J&J"), which led its
development from 1991 until its license to ATI. J&J completed a multi-center,
Phase II clinical trial of KL4-Surfactant in 47 infants with IRDS. This trial
demonstrated safety and efficacy comparable to that of the bovine-derived
surfactant, Survanta(TM), markete by Ross Laboratories.
Discovery's majority-owned subsidiary, ATI, has acquired the exclusive worldwide
sublicense to the KL4-Surfactant technology from J&J and J&J's wholly owned
subsidiary, Ortho Pharmaceutical Corporation ("Ortho"). The Company believes
that as a peptide-containing, synthetic lung surfactant, KL4-Surfactant will be
superior to the non- protein-containing surfactant, Exosurf(TM), marketed by
Glaxo-Wellcome. The Company further believes that KL4- Surfactant will be as
effective as or superior to the animal-derived, protein-containing surfactants,
Survanta(TM) (bovine-derived) and InfaSurf(TM) (calf-derived, being developed by
Forest Laboratories). In addition, the Company believes that synthetic
surfactants will be far less expensive to produce and will not have the
viral/prion (suspected to cause "Mad Cow Disease") contamination and
immunogenicity concerns associated with animal- derived proteins. The Company
further believes that a lower cost of production may make the use of lung
surfactants economically feasible for adult indications such as ARDS.
TARGET DISEASE INDICATIONS
The Company intends to initially develop the KL4-Surfactant technology for the
treatment of MAS and ARDS. The Company may also develop the KL4-Surfactant
technology for the treatment of IRDS.
MECONIUM ASPIRATION SYNDROME.
MAS affects approximately 26,000 newborn infants per year in the United States
alone. The disease results from the release of meconium, a greenish, pasty
constituent of the fetal bowel, into the amniotic fluid. Meconium is then
aspirated into the fetal lungs. The presence of meconium in the infant's lung
after delivery often leads to pneumonitis, a generalized inflammation of the
lungs, which can result in death. This inflammation degrades lung surfactant and
results in insufficient pulmonary function. Presently, there are no products
specifically approved for this condition. Treatment consists of general
supportive care. Approximately one-third of the infants with MAS require
extra-corporeal membrane oxygenation therapy ("ECMO").
ADULT RESPIRATORY DISTRESS SYNDROME.
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ARDS is a generalized inflammatory disease of the lungs marked by intense
leukocytic infiltration, edema and atelectasis (partial lung collapse).
Endogenous surfactant in the lung is degraded from this inflammatory cascade
leading to further loss of the epithelial cells that make surfactant. The
initiating factors of ARDS are numerous and include sepsis, head injury,
aspiration of gastric contents and other noxious fluids, trauma, smoke
inhalation and broken bones. Patients typically require mechanical ventilation
and are at risk of developing multiple organ failure. Mortality has remained at
approximately 50%. There is no FDA-approved therapy outside of general
supportive care. The incidence is approximately 150,000 patients per year in the
United States.
INFANT RESPIRATORY DISTRESS SYNDROME.
IRDS is primarily a disease of premature infants. These infants are born prior
to the synthesis of adequate amounts of pulmonary surfactant proteins. The
disease affects 40,000 to 50,000 infants per year in the United States and an
equal number in Europe. Twenty to forty percent of infants with IRDS develop
debilitating bronchopulmonary dysplasia requiring extended ventilatory support
and hospitalization. The cost of caring for these infants can exceed $100,000
per patient. Therapy shortly after birth with animal-derived surfactants has
proven to be effective in liberating infants from mechanical ventilation or
abbreviating the period of ventilation. Surfactant therapy has reduced the
historical mortality rate by more than a half to about 10%.
COMPETITIVE ASSESSMENT
Presently, there are no approved drugs that are specifically indicated for MAS
or ARDS. Current therapy consists of general supportive care and mechanical
ventilation. Three products are specifically approved for the treatment of IRDS.
Exosurf(TM), which contains only phospholipids and synthetic organic detergents
and no stabilizing protein or peptides, is marketed by Glaxo Wellcome.
Survanta(TM), which has been shown to be more effective than Exosurf(TM) in
clinical trials, is an extract of bovine lung that contains the cow version of
Surfactant Protein B. Survanta(TM) is marketed by Ross Laboratories, a division
of Abbott Laboratories, a had estimated 1995 annual sales of approximately $60
million. Recently, Forest Laboratories obtained an approvable letter from the
FDA for its calf lung surfactant, Infasurf, for use in IRDS. Although none of
the three approved surfactants for IRDS is approved for ARDS, which is a
significantly larger market, there are a significant number of other potential
therapies in development for the treatment of ARDS that are not surfactant
related. Any of these various drugs or devices could significantly impact the
commercial opportunity for KL4-Surfactant.
DEVELOPMENT STATUS
INFANT RESPIRATORY DISTRESS SYNDROME
In July 1992, an IND was submitted to the FDA by Charles G. Cochrane, M.D., of
Scripps, the inventor of KL4-Surfactant and a consultant to ATI. The IND sought
to evaluate the safety and efficacy of KL4-Surfactant in the treatment of IRDS.
A total of 47 infants with IRDS were treated with KL4-Surfactant in this
multi-center, Phase II clinical trial. The pulmonary function of the infants,
measured as a ratio (a/A) of arterial oxygen concentration (a) as a function of
the concentration of the inspired oxygen (A), averaged 0.14 (severe respiratory
distress) and rose to the normal range (>0.40) within 12 hours of treatment.
Airway pressures were reduced over this period and the infants were removed from
supportive mechanical ventilation in a mean time of five days. There were no
IRDS-related deaths in the trial.
ADULT RESPIRATORY DISTRESS SYNDROME
Dr. Cochrane and his colleagues at Scripps have developed an adult animal model
of ARDS. In every case with this model, KL4-Surfactant treatment appeared to
re-expand the lungs and induce an elevation of arterial oxygen partial pressure
from <100 mmHg to > 400 mmHg within two hours. These experimental results
suggest that KL4-Surfactant has the potential to treat patients with this
life-threatening condition. In addition, pilot clinical studies on ARDS patients
conducted by researchers unaffiliated with the Company or its scientific
founders using animal-derived sufactants demonstrated safety and efficacy.
Scientists at Justus-Liebig University in Germany conducted a clinical study and
concluded that the bronchoscopic application
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of a high dose of surfactant, aimed at overcoming inhibitory factors in the
alveolar space of the patients, may offer a feasible and safe approach to
improving gas exchange in severe ARDS patients. The results of this study were
published during 1996 in the American Journal of Critical Care Medicine.
MECONIUM ASPIRATION SYNDROME
Dr. Cochrane and his colleagues at Scripps have developed a potential method of
preventing MAS by lavaging meconium-filled lungs with diluted KL4-Surfactant. In
the lungs of adult rabbits and newborn rhesus monkeys, the lavage not only
removed much of the meconium, but it also immediately expanded the lungs and
allowed for greater respiration within minutes. The results of these
experimental studies suggest that prophylactic KL4-Surfactant administration has
the potential to eliminate MAS in newborn infants at risk of developing this
life-threatening condition.
INVESTMENT IN ACUTE THERAPEUTICS, INC.; LICENSE OF KL4-SURFACTANT TECHNOLOGY
On October 28, 1996, Discovery completed a transaction pursuant to which it
invested $7.5 million in a new majority-owned subsidiary, ATI, in exchange for
600,000 shares of Series A Convertible Preferred Stock of ATI, representing
75% of the outstanding voting securities of ATI following such transaction.
Concurrent with Discovery's investment in ATI, J&J, Ortho and ATI
entered into an agreement (the "J&J License Agreement") granting an exclusive
sublicense of the KL4-Surfactant technology to ATI in exchange for certain
license fees, royalties and 40,000 shares of Common Stock of ATI, representing
approximately 5% of the outstanding voting securities of ATI. J&J contributed
its existing KL4-Surfactant raw material inventory and specialized manufacturing
equipment, with an estimated original cost of $3.3 million, to ATI in exchange
for shares of nonvoting Series B Preferred Stock of ATI having a $2.2 million
liquidation preference. In exchange for its consent to the J&J License
Agreement, Scripps received shares of Common Stock of ATI comprising
approximately 5% of the outstanding voting securities of ATI.
Pursuant to agreements entered into by the founding management of ATI, members
of founding management were granted options to purchase an aggregate of 84,800
shares of Common Stock of ATI. Each founder was granted two options: a
Restricted Option and a Basic Option (each as defined below). The "Restricted
Options" cover an aggregate of 44,800 shares of Common Stock of ATI, at an
exercise price of $0.01 per share, and will be exercisable on the fifth
anniversary of the date of grant (or earlier upon the occurrence of an
Acceleration Event as defined below). An "Acceleration Event" includes any
equity financing of ATI, certain debt financings, or a merger or sale of
substantially all of the assets of ATI. If an Acceleration Event occurs prior to
the fifth anniversary of the grant date, the Restricted Options will be
exercisable based on the valuation of ATI in the Acceleration Event, as set
forth below:
Valuation of ATI Following, Percentage of Total
or Consideration Received in, the Restricted Option
Acceleration Event Shares Accelerated
Less than $65 million 0%
Over $65 million 25%
Over $75 million 50%
Over $85 million 75%
Over $95 million 100%
The "Basic Options" cover an aggregate of 40,000 shares of Common Stock of ATI
at an exercise price of $0.32 per share, and will become exercisable in full
upon the expiration of six months following the date of grant. However, in the
event that a founder's service terminates prior to the six month anniversary by
reason of death, permanent disability or termination for cause, the founder's
option shall accelerate and become exercisable as of the date of such
termination event.
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In connection with Discovery's investment in ATI, all of the shareholders of ATI
entered into a Co-Sale Agreement. Under the terms of the Co-Sale Agreement, if a
shareholder of ATI proposes to sell any shares of stock of ATI (with certain
exceptions), each other shareholder has the right to participate PRO RATA in
such sale. The Co- Sale Agreement terminates upon the consummation of an
underwritten public offering of Common Stock of ATI, an acquisition of ATI or
certain insolvency proceedings.
DEVELOPMENT PLAN/SPONSORED RESEARCH AGREEMENT
ATI currently has an approved IND for ARDS. ATI intends to seek FDA approval to
amend the approved IND and to re-initiate Phase II clinical trials of
KL4-Surfactant for the treatment of ARDS in 1997. ATI has amended its existing
IRDS IND to permit the initiation of Phase II clinical trials in MAS. ATI met
with the FDA on March 10, 1997, to discuss its MAS development program. ATI
received constructive feedback from the FDA and intends to commence its MAS
development program on schedule. The Company has not had any discussions with
the FDA regarding clinical trials of KL4-Surfactant for the treatment of ARDS,
however, and there can be no assurance that approval to amend the ARDS IND will
be granted. Orphan drug status for MAS, ARDS and IRDS has been granted by the
FDA.
ATI and Scripps have entered into a sponsored research agreement (the "Sponsored
Research Agreement") supporting continuing research by Charles G. Cochrane,
M.D., and Susan Revak of Scripps. Pursuant to the Sponsored Research Agreement,
ATI will contribute $460,000 annually to Scripps' KL4-Surfactant research
efforts for an initial two-year period. ATI has an option to acquire an
exclusive worldwide license to make, have made, sell or use technology developed
under the agreement, which it is required to exercise within 180 days from
receipt of notice from Scripps of the development of such technology. Scripps
will own all technology that it develops pursuant to work performed under the
proposed Sponsored Research Agreement. ATI has the right to receive 50% of the
net royalty income received by Scripps for inventions jointly developed by ATI
and Scripps to the extent ATI does not exercise its option with respect to such
inventions.
ATI has entered into consulting agreements with certain key research personnel
at Scripps. See "Executive Compensation and Employment and Consulting
Agreements."
ST-630
BACKGROUND
ST-630 is an analog of the active circulating vitamin D hormone calcitriol
modified to increase its potency and lengthen its circulating half-life. As a
class, vitamin D analogs are commonly used therapies in Europe and Japan for
osteoporosis. In aggregate, this class of compounds is believed to generate
about $750 million in worldwide sales for osteoporosis. Published studies have
confirmed the efficacy of vitamin D analogs in increasing bone mass and
decreasing fractures. Vitamin D analogs, however, have not been well accepted in
the United States due to certain side effects in the compounds currently
marketed. Specifically, prior studies of vitamin D analogs have been associated
with hypercalcemia in a percentage of patients. Hypercalcemia is elevated
calcium levels in the blood above a generally accepted range. The Company
believes that this risk of hypercalcemia may be the primary reason why active
vitamin D analogs have only been tested on a limited basis in the United States,
which is generally considered to be a high calcium consumption country.
No vitamin D analogs are currently marketed for osteoporosis in the United
States. Because the Company has not completed a Phase I clinical study of
ST-630, the Company has not yet determined whether ST-630 represents a risk of
hypercalcemia at any dosage levels that may prove efficacious for treating
postmenopausal osteoporosis.
The Company has a license agreement (the "WARF License Agreement") with the
Wisconsin Alumni Research Foundation ("WARF") relating to ST-630 and its use in
treating postmenopausal osteoporosis. The Company believes that ST-630 may have
an improved pharmacological profile compared to earlier, active vitamin D
analogs, although there can be no assurance of this. Sumitomo Pharmaceuticals
("Sumitomo") and Taisho Pharmaceuticals ("Taisho") have jointly licensed the
right to develop, manufacture and market ST-630 in Japan for the treatment of
osteoporosis and are presently conducting the equivalent of a Phase II clinical
study of this drug in Japan. The Company has access to the preclinical data
generated by Sumitomo and Taisho pursuant to the terms of the WARF License
Agreement. The Company intends to seek FDA approval to initiate a Phase I
clinical study of ST-630 as a once-daily, orally administered drug for the
treatment of osteoporosis in the
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United States. The Company has not had any discussions with the FDA
regarding ST-630, however, and there can be no assurance that such approval will
be granted. The Company believes that ST-630 could be administered in
combination with other approved drugs for osteoporosis. The composition of
matter patent covering ST-630 expires in 2001. A patent covering the use of
ST-630 to treat postmenopausal osteoporosis recently issued in the United
States. See "Patents, Licenses and Proprietary Rights."
POSTMENOPAUSAL OSTEOPOROSIS
Postmenopausal osteoporosis is a disease of postmenopausal women characterized
by decreased bone mass which leads to reduced bone strength and an increased
risk of fractures. Typically, fractures occur in the weight-bearing bones of the
vertebrae and the hip. On average, women have 10% to 25% less bone mass than men
at maturity. When menopause occurs, the production of estrogen diminishes and
women experience accelerated bone loss. In the United States, 7 to 20 million
women are at risk for developing postmenopausal osteoporosis. In the context of
other diseases, a woman's risk of developing a hip fracture is equal to her
combined risk of developing breast, uterine and ovarian cancer. One out of every
five persons who has a hip fracture will not survive more than one year. In
addition, one-third of all patients with hip fractures will become totally
dependent and one-half will need assistance with walking. The annual cost of
acute care associated with osteoporosis in the United States is estimated to be
in excess of $10 billion.
APPROVED THERAPIES FOR OSTEOPOROSIS
ESTROGEN
Estrogen is of proven benefit in treating osteoporosis in postmenopausal women.
However, it is associated with significant adverse effects which limit its use
for osteoporosis. Estrogen replacement therapy for postmenopausal women can
cause hot flashes, menstruation (when taken with progesterone) and, more
seriously, may increase the risk of breast and uterine cancer. Extensive use of
Vitamin D analogs in Europe and Japan has not revealed any association of
Vitamin D analogs with any of these significant adverse side effects. Estrogen
must be continually taken or the accumulated bone mass is quickly lost.
FOSAMAX(TM)
Fosamax(TM) or alendronate, from Merck, is the first approved osteoporosis drug
in the United States of the bisphosphonate class. (Bisphosphonates are
inhibitors of bone resorption mediated by a class of cells called osteoclasts.)
The drug is incorporated into bone and prevents calcium in bone from being
reabsorbed. While clinical studies have demonstrated increases in bone mass
leading to decreased hip and vertebral fractures when the drug is taken for
three years, the long-term safety questions of the drug, which is believed to
remain in the body for up to a decade are unknown. Many other bisphosphonates
are in late-stage clinical testing for osteoporosis. Fosamax(TM) has also been
associated with acute esophagitis in some patients. To limit the risk of
developing this painful and dangerous condition, patients must take the pill
upon awakening in the morning with a full glass of water, remain in a standing
position, avoid food for at least half an hour and then consume a full
breakfast. Vitamin D analogs have not been associated with acute esophagitis.
NASAL CALCITONIN
Miacalcin(TM) as sold by Sandoz Pharmaceuticals is a nasally administered
calcitonin. While the injectable form of calcitonin has proven to be safe and
effective for reducing bone pain associated with vertebral fractures, the amount
of increase in bone mass is relatively modest. Miacalcin(TM) has never been
shown to decrease the risk of fractures.
VITAMIN D AND CALCIUM SUPPLEMENTATION
Currently, vitamin D and calcium supplementation is being studied in a 45,000
patient Women's Health Initiative open label study. Given earlier, smaller
studies which have been completed, the Company believes that this study will
most likely confirm a modest benefit to increasing bone mass when administered
to younger women. Older women and men will probably not
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benefit from this therapy as it is thought that the kidney's ability to convert
vitamin D to the active form is compromised with age.
THERAPIES IN DEVELOPMENT FOR OSTEOPOROSIS
SLOW-RELEASE SODIUM FLUORIDE
Slow-release sodium fluoride is being developed by Mission Pharmacal. In a small
study, women on this compound increased bone in their hip and spine and had
fewer fractures. However, high doses of sodium fluoride, which had been
previously studied in a non slow-release formulation, caused peptic ulcers and
built brittle bone. Vitamin D analogs are not known to cause any of these side
effects. It is thought that patients taking sodium fluoride will need to be
monitored to ensure that their blood fluoride levels stay below toxic levels.
SMALL MOLECULE ESTROGEN AGONISTS/ANTAGONISTS
Raloxifene (being developed by Eli Lilly) and droloxifene (being developed by
Pfizer) are small molecule estrogen agonists\antagonists which may offer
estrogen's therapeutic benefit to bone without increasing the risk of breast and
uterine cancer. The efficacy and adverse effect profile of these compounds in
comparison to estrogen are still being studied in late stage clinical trials.
DEVELOPMENT PLAN
The Company has access for regulatory purposes to preclinical data already
generated by Sumitomo and Taisho with respect to ST-630 pursuant to the terms of
the WARF License Agreement. See "Business--Products and Technologies Under
Development--Vitamin D Analog for Treatment of Osteoporosis--ST-630." The
Company intends to seek FDA approval to initiate clinical studies of ST-630 as a
once-daily, orally administered drug for the treatment of postmenopausal
osteoporosis in the United States. Following FDA clearance, if given, the
Company intends to conduct an initial dose-ranging study of ST-630 in humans.
Based upon the results of the dose-ranging study, the Company may then either
seek to further optimize the delivery of ST-630 by testing one or more
alternative means of delivery or, assuming acceptable results, seek to initiate
a large-scale clinical trial in the United States with effect on bone mineral
density being the primary endpoint. The Company has had no interaction with the
FDA to date regarding ST-630 and there can be no assurance that the Company's
planned clinical trial of ST-630 will receive the requisite regulatory
approvals.
GOVERNMENT REGULATION; ORPHAN DRUG DESIGNATION
The testing, manufacture, distribution, advertising and marketing of drug
products are subject to extensive regulation by governmental authorities in the
United States and other countries. Prior to marketing, any pharmaceutical
products developed or licensed by the Company must undergo an extensive
regulatory approval process required by the FDA and by comparable agencies in
other countries. This process, which includes preclinical studies and clinical
trials of each pharmaceutical compound to establish its safety and efficacy and
confirmation by the FDA that good laboratory, clinical and manufacturing
practices were maintained during testing and manufacturing, can take many years,
requires the expenditure of substantial resources and gives larger companies
with greater financial resources a competitive advantage over the Company. The
FDA review process can be lengthy and unpredictable, and the Company may
encounter delays or rejections of its applications when submitted. If questions
arise during the FDA review process, approval may take a significantly longer
period of time. Generally, in order to gain FDA approval, a company first must
conduct preclinical studies in a laboratory and in animal models to obtain
preliminary information on a compound's efficacy and to identify any safety
problems. The results of these studies are submitted as part of an IND
application that the FDA must review before human clinical trials of an
investigational drug can start.
Clinical trials are normally done in three phases and generally take two to five
years or longer to complete. Typically, clinical testing involves a three-phase
process. Phase I consists of testing the drug product in a small number of
humans to determine preliminary safety and tolerable dose range. Phase II
involves larger studies to evaluate the effectiveness of the drug product in
humans having the disease or medical condition for which the product is
indicated
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and to identify possible common adverse effects in a larger group of subjects.
Phase III consists of additional controlled testing to establish clinical safety
and effectiveness in an expanded patient population of geographically dispersed
test sites, to evaluate the overall benefit-risk relationship for administering
the product and to provide an adequate basis for product labeling.
After completion of clinical trials of a new drug product, FDA and foreign
regulatory authority marketing approval must be obtained. NDAs submitted to the
FDA generally take one to three years to obtain approval. If questions arise
during the FDA review process, approval may take a significantly longer period
of time. The testing and approval processes require substantial time and effort
and there can be no assurance that any approval will be granted on a timely
basis, if at all. Even if regulatory clearances are obtained, a marketed product
is subject to continual review, and later discovery of previously unknown
problems or failure to comply with the applicable regulatory requirements may
result in restrictions on the marketing of a product or withdrawal of the
product from the market as well as possible civil or criminal sanctions. For
marketing outside the United States, the Company also will be subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for pharmaceutical products. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country. None of the Company's products under development have been approved for
marketing in the United States or elsewhere. No assurance can be given that the
Company will be able to obtain regulatory approval for any such products under
development. Failure to obtain requisite governmental approvals or failure to
obtain approvals of the scope requested will delay or preclude the Company or
its licensees or marketing partners from marketing their products, or limit the
commercial use of the products, and thereby could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Risk Factors--Extensive Government Regulation; Uncertainty of FDA and Other
Governmental Approval of Products Under Development."
In March 1995, the Company's scientific founders obtained from the FDA an orphan
drug designation for the use of tyloxapol to treat CF. In addition, orphan drug
status for the use of KL4-Surfactant to treat MAS, ARDS and IRDS has been
granted by the FDA. Under the Orphan Drug Act, the FDA may grant orphan drug
designation to drugs intended to treat a "rare disease or condition," which
generally is defined as a disease or condition that affects populations of fewer
than 200,000 individuals in the United States. If the Company is the first
sponsor to receive FDA approval to market tyloxapol to treat CF, or to market
KL4-Surfactant to treat MAS, ARDS or IRDS, the orphan drug designation will,
under current law, entitle the Company to a seven-year period of marketing
exclusivity in the United States during which the FDA, subject to certain
limitations, will not approve another application for the same drug for the same
indication. There can be no assurance that the Company will ever receive FDA
approval to market SuperVent(TM) to treat CF or to market KL4-Surfactant to
treat MAS, ARDS or IRDS, and thus there can be no assurance that the Company
will obtain the benefits of any of the aforementioned orphan drug designations.
While orphan drug designation and marketing approval may be advantageous to the
Company, if achieved, there can be no assurance that the scope of protection or
the level of exclusivity that is currently afforded by such designation and
approval will remain in effect in the future. In addition, competitors of the
Company may obtain orphan drug designation for product candidates that are not
the same as SuperVent(TM) or KL4-Surfactant though they are intended to treat
the same indications. The Company may request orphan drug designation, if
applicable, for more of its products or additional indications as part of its
overall regulatory strategy in the future.
PATENTS, LICENSES AND PROPRIETARY RIGHTS
The Company's success will depend in part on patent and trade secret protection
for its technologies, products and processes, and on its ability to operate
without infringing the proprietary rights of other parties both in the United
States and in foreign countries. Because of the substantial length of time and
expenses associated with bringing new products through development to the
marketplace, the pharmaceutical industry places considerable importance on
obtaining and maintaining patent and trade secret protection for new
technologies, products and processes. The failure to obtain and maintain patent
protection could mean that the Company would face increased competition in the
United States and in foreign countries.
LICENSING ARRANGEMENTS
CMHA LICENSE AGREEMENT: SUPERVENT(TM)/TYLOXAPOL
31
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The Company depends on its license with CMHA (the "CMHA License Agreement") for
the core technology relating to its SuperVent(TM) product under development. The
CMHA License Agreement grants the Company an exclusive worldwide license
(including the right to sublicense) to develop, make and sell products which are
covered in whole or in part by a valid claim contained in the two issued United
States patents (United States Patent No. 5,474,760 issued December 12, 1995 and
United States Patent No. 5,512,270 issued April 30, 1996) and two pending United
States patent applications held by CMHA and licensed to the Company under the
CMHA License Agreement, and any later-issued United States and any foreign
patents based on or issuing from the issued patents and the pending patent
applications. The United States patents cover methods of using tyloxapol, the
active compound in SuperVent(TM), to treat cystic fibrosis and methods of
treating disease caused by oxidant species, such as myocardial infarction,
stroke and ARDS. The two pending United States patent applications relate to the
use of tyloxapol as an anti-inflammatory and anti-oxidant agent. Two
international applications have been filed under the Patent Cooperation Treaty,
and certain corresponding foreign national applications are pending. These
applications claim, INTER ALIA, the use of tyloxapol to treat cystic fibrosis
and the use of tyloxapol as an anti-oxidant and anti-inflammatory agent. CMHA's
United States patents expire in 2013. The CMHA License Agreement is terminable
by CMHA: (i) on 60 days' prior notice upon the Company's failure to make timely
payments, reimbursements or reports, if the failure is not cured by the Company
within 60 days, or (ii) on 90 days' prior notice upon any material breach or
default by the Company, if the default or breach is not cured by the Company
within 90 days. The termination of the CMHA License Agreement, or the failure to
obtain and maintain patent protection for the Company's technologies, would have
a material adverse effect on the Company's business, financial condition and
results of operations.
In consideration of the license granted to the Company by CMHA, the Company (i)
has agreed to pay CMHA (a) royalties on net sales by the Company and by any
sublicensees of the Company of products covered by the licensed technology, and
(b) a percentage of any sublicense fees or similar amounts (other than research
and development payments) paid to the Company by any sublicensees, and (ii) is
responsible for the cost of filing and prosecuting patent applications and
maintaining issued patents. The CMHA License Agreement will terminate upon the
expiration of the last to expire of the licensed patents.
J&J LICENSE AGREEMENT: KL4-SURFACTANT
Pursuant to the J&J License Agreement, ATI has received an exclusive, worldwide
license to commercialize KL4-Surfactant and the other licensed technology for
the diagnosis, prevention or treatment of disease, including the right to
further sublicense such technology. The exclusive license granted to ATI is a
sublicense under certain patent rights previously licensed to J&J by Scripps
(the "Scripps Patent Rights") and a license under certain other patent rights
held by J&J's Ortho division (the "Ortho Patent Rights" and, together with the
Scripps Patent Rights, the "KL4 Patent Rights"). In addition to granting an
exclusive sublicense to ATI, J&J has transferred its existing KL4-Surfactant raw
material inventory and specialized manufacturing equipment to ATI in exchange
for Non-Voting Series B Preferred Stock of ATI.
ATI paid a $200,000 license fee to J&J upon execution of the J&J License
Agreement. In addition, ATI will pay J&J a royalty on net sales of
KL4-Surfactant sold by it or its sublicensees. The J&J License Agreement further
provides for the making of milestone payments as follows: $250,000 upon the
filing of the first New Drug Application ("NDA") for a product in a neonatal
indication; $500,000 upon approval of the first NDA for a product in a neonatal
indication; $500,000 upon filing of the first NDA for a product in the ARDS
indication; and $1,500,000 upon approval of the first NDA for a product in the
ARDS indication. Royalties are payable for a minimum period of ten years from
the first commercial sale of a product in each country and, thereafter (if
applicable) until expiration of the last to expire of the KL4 Patent Rights in
such country, after which time ATI will have a fully paid license.
The Scripps Patent Rights consist of three issued United States patents and two
pending United States applications. The three issued patents are United States
Patent No. 5,407,914, issued April 18, 1995; U.S. Patent No. 5,260,273, issued
November 9, 1993; and U.S. Patent No. 5,164,369, issued November 17, 1992. These
patents relate to synthetic pulmonary surfactants (including KL4-Surfactant),
certain related polypeptides and a method of treating respiratory distress
syndrome with these surfactants. The first of these patents will expire in 2009.
The two pending United States applications relate to pulmonary surfactants,
related polypeptides, liposomal surfactant compositions and methods of treating
respiratory distress syndromes with these surfactants and compositions.
Corresponding foreign patent applications are pending in the European Patent
Office, certain European countries, Canada and Japan. Two patents have issued in
Australia and one patent has issued in Norway. The Company believes that the
respiratory distress syndromes covered by these patents and patent applications
include MAS,
32
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ARDS and IRDS. Scripps is responsible for filing, prosecuting and maintaining
the Scripps Patent Rights and J&J is required to reimburse Scripps for the costs
of such filings, prosecution and maintenance. The Ortho Patent Rights consist of
certain pending United States patent applications which relate to methods of
manufacturing certain peptides which may be used in the manufacture of
KL4-Surfactant. J&J is responsible for filing, prosecuting and maintaining the
Ortho Patent Rights.
WARF LICENSE AGREEMENT: ST-630
Pursuant to the WARF License Agreement, the Company has an exclusive license
within all countries in the Western hemisphere, including the right to
sublicense, in the field of prevention, treatment, amelioration or cure of bone
disease, under U.S. Patent No. 4,358,406 (the "ST-630 Patent") covering the
compound ST-630 and U.S. Patent No. 5,571,802 covering a method for treating
postmenopausal osteoporosis (the "ST-630 Use Patent"). In addition, the Company
has an option to extend the exclusive license to the remaining countries of the
world with the exception of Japan. The Company's option expires on January 1,
2002 and, with respect to Argentina, Spain, Portugal and Korea, must be
exercised prior to the commencement of product development therein.
The Company paid a one-time fee of $400,000 to WARF upon execution of the WARF
License Agreement. The Company is obligated to pay WARF a royalty on net sales
of ST-630 sold by it or its sublicensees in the licensed territories. In
addition, the Company is obligated to pay WARF a percentage of its income from
sublicensees. The WARF License Agreement also provides for the making of the
following milestone and option payments:
For the exclusive license to the Western hemisphere: $150,000 upon
completion of Phase II studies in the United States; and $1 million upon NDA
submission in the United States. For the option for an exclusive license to
Belgium, France, Germany, Italy, the Netherlands, Switzerland and the United
Kingdom: $200,000 upon exercise of the Company's option and $1 million upon
the first submission of an NDA with any European country. For the option for
an exclusive license for the remaining countries of the world (other than
Argentina, Spain, Portugal, Korea and Japan): $500,000 upon exercise of the
Company's option. For the option for an exclusive license for Argentina,
$10,000; for Spain, $170,000; for Portugal, $50,000; and for Korea, $15,000,
in each case upon exercise of the Company's option. Each such option must be
exercised no later than January 1, 2002.
To maintain the license, the Company is required to pay minimum royalties of
$100,000 per year beginning in calendar year 2002. The WARF License Agreement
shall remain in effect and royalties shall be payable for a period of fifteen
years from the date approval is received in the United States for the sale of
ST-630, after which time the Company shall have a fully paid license.
So long as the WARF License Agreement remains in effect, WARF is prohibited from
granting a license to any other party (other than in Japan) with respect to
ST-630 or certain proprietary information relating thereto for any indication,
with the exception of WARF's existing license agreement with Penederm, Inc.
The ST-630 Patent will expire in July 2001, which the Company anticipates will
be prior to receipt of any marketing approval for ST-630 in the United States .
The ST-630 Use Patent, which expires in 2014, is limited to claims relating to a
method of treating postmenopausal osteoporosis in humans having such disease
with an effective dosage of ST-630. These claims do not include claims relating
to the use of ST-630 to treat other metabolic bone disorders, such as
age-related osteoporosis (which occurs in men and women) and renal
osteodystrophy. At the Company's request, WARF recently filed an application to
pursue additional claims relating to the use of ST-630 to treat other metabolic
bone diseases. However, there can be no assurance that any patent containing
such additional claims will issue in the United States or elsewhere.
Foreign patent applications corresponding to the ST-630 Patent and/or the ST-630
Use Patent have also been filed in certain countries, and such applications and
any resulting patents are licensed to the Company under the WARF License
Agreement. United States and foreign patents covering certain processes relating
to the manufacture of vitamin D analogs, which have been nonexclusively licensed
to the Company under the WARF License Agreement, will expire on various dates up
to 2005.
UNCERTAINTY OF BIOTECHNOLOGY PATENTS
33
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The patent position of firms relying upon biotechnologies is highly uncertain
and involves complex legal and factual questions. To date, there has emerged no
consistent policy regarding the breadth of claims allowed in biotechnology
patents or the degree of protection afforded under such patents. The patent
application and issuance process can be expected to take several years and could
entail considerable expense to the Company. There can be no assurance that
patents will issue as a result of any applications filed or that the existing
patents or patents issued from existing applications will be sufficiently broad
to afford protection against competitors with similar technology. In addition,
there can be no assurance that such patents will not be challenged, invalidated
or circumvented, or that the rights granted thereunder will provide competitive
advantages to the Company. The commercial success of the Company will also
depend upon its avoidance of infringement of patents issued to competitors. A
United States patent application is maintained under conditions of
confidentiality while the application is pending, so the Company cannot
determine the inventions being claimed in pending patent applications filed by
third parties. Litigation may be necessary to defend or enforce the Company's
patent and license rights or to determine the scope and validity of the
proprietary rights of others. Defense and enforcement of patent claims can be
expensive and time consuming, even in those instances in which the outcome is
favorable to the Company, and can result in the diversion of substantial
resources from the Company's other activities. An adverse outcome could subject
the Company to significant liabilities to third parties, require the Company to
obtain licenses from third parties, or require the Company to alter its products
or processes, or cease altogether any related research and development
activities or product sales, any of which may have a material adverse effect on
the Company's business, financial condition and results of operations.
Tyloxapol, the active compound in SuperVent(TM), was the subject of an issued
U.S. composition of matter patent which expired in 1965. The patents and patent
applications licensed to the Company differ from the expired patent, inter alia,
in that one patent application covers proprietary pharmaceutical formulations
containing high concentrations of tyloxapol and the other patents and patent
applications cover uses of tyloxapol to treat certain diseases. Although the
Company believes that high concentration formulations of tyloxapol will
represent the most practical means to deliver the active compound, there can be
no assurance that any patent application covering this formulation will issue or
that the compound will not prove similarly effective in lower concentrations
which are not covered by any of the Company's patent applications.
CONFIDENTIALITY; ASSIGNMENT OF INVENTIONS
The Company requires all employees to enter into confidentiality agreements that
prohibit the disclosure of confidential information to third parties and require
disclosure and assignment to the Company of rights to their ideas, developments,
discoveries and inventions. In addition, the Company seeks to obtain such
agreements from its consultants, advisors and research collaborators; however,
such agreements may not be possible where such persons are employed by
universities or other academic institutions that require assignment of employee
inventions to them. To the extent that consultants, key employees, or other
third parties apply technological information independently developed by them or
by others to any of the proposed projects of the Company, disputes may arise as
to the proprietary rights to such information which may not be resolved in favor
of the Company. In addition, the Company also relies on trade secrets and
proprietary know-how, that it seeks to protect in part by its confidentiality
agreements with its employees, consultants, advisors or others. There can be no
assurance that these agreements will not be breached, that the Company would
obtain adequate remedies for any breach, or that such trade secrets or
proprietary know-how will not otherwise become known or be independently
developed by competitors in such a manner that the Company has no legal
recourse.
THIRD PARTY SUPPLIERS
To be successful, the Company's products must be manufactured in commercial
quantities under good manufacturing practice ("GMP") requirements set by the FDA
at acceptable costs. The FDA periodically inspects manufacturing facilities in
the United States in order to assure compliance with applicable GMP
requirements. Foreign manufacturers also are inspected by the FDA if their drugs
are marketed in the United States. Failure of the foreign or domestic suppliers
of the Company's products or failure of the manufacturers of the Company's
products to comply with GMP regulations or other FDA regulatory requirements
would have a material adverse effect on the Company's business, financial
condition and results of operations. The Company does not have any manufacturing
capacity of its own but instead intends to rely on outside manufacturers to
produce appropriate clinical grade material for its use in clinical studies for
certain of its products.
34
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The active compound in SuperVent(TM) is presently manufactured for several third
parties pursuant to GMP standards by an affiliate of Sanofi-Winthrop, Inc.
("Sanofi"), a multinational pharmaceutical company. Sanofi is the sole supplier
of tyloxapol with GMP standard manufacturing capabilities and there are few
alternative non-GMP approved sources of supply. Although Sanofi has sold a
quantity of tyloxapol sufficient for the Company's proposed Phase I/II clinical
trial of SuperVent(TM), the Company does not presently have an agreement with
Sanofi to supply any additional material, either in connection with a Phase III
clinical trial or, following regulatory approval, for marketing purposes. In
addition, the Company does not intend to enter into an agreement for supply of
the formulated drug containing tyloxapol unless it plans to initiate a Phase III
clinical trial of tyloxapol for the treatment of CF. There can be no assurance
that the Company will be able to enter into a supply agreement with Sanofi or a
supplier of the formulated drug on terms acceptable to the Company, if at all.
In such case, the Company would be required to seek alternate manufacturing
sources capable of producing tyloxapol and the formulated drug. There can be no
assurance that the Company will be able to identify and contract with
alternative manufacturers on terms acceptable to it, if at all. Any interruption
in the supply of tyloxapol would have a material adverse effect on the Company's
business, financial condition and results of operations. The Company has entered
into an agreement with Cook Imaging Corporation for the packaging and storage,
under sterile and stable conditions, of purchased tyloxapol.
The Company is in negotiations with Tetrionics, Inc. ("Tetrionics") to
manufacture, formulate and supply the Company with GMP-grade ST-630 for the
Company's investigational and commercial purposes. Tetrionics presently
manufactures and supplies ST-630 to Penederm Inc. in the United States for
investigational topical use for the treatment of psoriasis. There can be no
assurance that the Company will be able to reach agreement with this proposed
manufacturer on terms acceptable to the Company, if at all. Any failure to
achieve agreement may substantially delay the Company's development of ST-630.
MARKETING AND SALES
It is the Company's long-term goal to market SuperVent(TM) for CF and possibly
certain of its other products through a direct sales force (or, in the case of
CF, possibly through the distribution capabilities of the Cystic Fibrosis
Foundation), if and when any necessary regulatory approvals are obtained.
The Company currently has no marketing and sales experience and no marketing or
sales personnel. Unless a sales force is established, the Company will be
dependent on corporate partners or other entities for the marketing and selling
of its products. There can be no assurance that the Company will be able to
enter into any satisfactory arrangements for the marketing and selling of its
products. The inability of the Company to enter into such third party
distribution, marketing and selling arrangements for its anticipated products
could have a material adverse effect on the Company's business, financial
condition and results of operations.
EMPLOYEES
The Company utilizes a product development strategy that involves contracting
out research, development and manufacturing functions to third parties in order
to minimize the expense and overhead associated with full-time employees.
Consistent with this strategy, Discovery has only nine employees. James S. Kuo,
M.D., joined Discovery in April 1996 as President, Chief Executive Officer and a
Director. David R. Crockford joined Discovery in November 1996 as Vice President
of Regulatory Affairs. Saul S. Bodenheimer, M.D., joined Discovery in December
1996 as Vice President of Clinical Affairs. Evan Myrianthopoulos joined
Discovery in June 1996 and has served as Chief Operating Officer and a Director
since that time. Mr. Myrianthopoulos became a full-time employee of Discovery as
of January 1, 1997. During 1996, Mr. Myrianthopoulos devoted only a portion of
his time to the business of the Company. Steve Birnbaum joined Discovery in
November 1996 as the Project Manager for the ST-630 program. Discovery employs
two other full-time employees and two employees who devote only a portion of
their time to the business of the Company: Steve H. Kanzer, C.P.A., Esq., the
Company's Chairman, and Kenneth Johnson, the Company's Director of Business
Development. ATI has only eight employees. Robert J. Capetola, Ph. D., joined
ATI in October 1996 as President, Chief Executive Officer and Chairman of the
Board. Thomas E. Wiswell, M.D. joined ATI as Vice President of Clinical Research
in September 1996. Harry G. Brittain, Ph.D., joined ATI as Vice President of
Pharmaceutical and Chemical Development in November 1996. Laurence B. Katz,
Ph.D., joined ATI as Vice President of Project Management and Clinical
Administration in November 1996. Christopher J. Schaber joined ATI as Vice
President of Regulatory Affairs and Quality Assurance in November 1996. ATI
employs three other full-time employees, including Huei Tsai, Ph.D., who joined
ATI as Vice President of Biometrics in February 1997, and Lisa Mastroianni, who
joined ATI as Director of Clinical Research in February 1997. See "Risk
Factors--Dependence on Key Personnel and Consultants."
35
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FACILITIES
Discovery currently has its executive offices at 787 Seventh Avenue, 44th Floor,
New York, New York 10019. The Company's telephone number is (212) 554-4364 and
its facsimile number is (212) 554-4490. These executive offices are shared
office space with Paramount Capital, Inc. ("Paramount"), which acted as
placement agent for the Company in connection with its recent private equity
placement. (See "Certain Transactions."). The Company and Paramount have entered
into an office services agreement pursuant to which the Paramount will provide
certain office services to the Company including, without limitation, office
space, dedicated phone lines, shared duplicating, facsimile and courier
services, and conference facilities. Pursuant to such agreement, Paramount will
receive monthly rent and reimbursement of $6,000 per month.
ATI currently has its executive offices at 3359 Durham Road, Doylestown, PA
18901. ATI's telephone number is (215) 794-3064 and its facsimile number is
(215) 794-3239.
The Company presently has no research or manufacturing facilities. The Company
intends to rely upon third party manufacturers to produce pharmaceutical
material and third party contract research organizations to conduct research and
clinical testing with regard to its proposed products.
LEGAL PROCEEDINGS
The Company is not aware of any pending or threatened legal actions.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of March 31, 1997,
regarding the ownership of the capital stock of the Company by (i) each person
known by the Company to beneficially own more than five percent of any class of
such capital stock, (ii) each director and officer of the Company and (iii) all
directors and officers of the Company as a group. The information presented
below assumes the conversion of all outstanding shares of Series A Preferred
Stock into Common Stock at the initial conversion price of $2.50.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE OF CLASS
BENEFICIAL OWNER1 TITLE OF STOCK BENEFICIALLY BENEFICIALLY OWNED
OWNED
<S> <C> <C> <C>
RAQ, LLC2 Common Stock 2,727,600 40.64%
787 Seventh Avenue, 44th Floor
New York, New York 10019
Lindsay A. Rosenwald, M.D.2 Common Stock 2,727,600 40.64%
787 Seventh Avenue, 44th Floor
New York, New York 10019
Steve H. Kanzer, C.P.A., Esq.3 Common Stock 450,917 6.70%
787 Seventh Avenue, 44th Floor
New York, New York 10019
James S. Kuo, M.D.4 Common Stock 410,833 6.06%
787 Seventh Avenue, 44th Floor
New York, New York 10019
Evan Myrianthopoulos 5 Common Stock 192,725 2.87%
787 Seventh Avenue, 44th Floor
New York, New York 10019
Saul S. Bodenheimer, M.D.6 Common Stock 35,416 *
787 Seventh Avenue, 44th Floor
New York, New York 10019
David Crockford 6 Common Stock 35,416 *
787 Seventh Avenue, 44th Floor
New York, New York 10019
Juerg F. Geigy, Esq. Common Stock 25,000 *
44 Elisabethenstrasse
CH-4051 Basel, Switzerland
Max Link, PH.D. Common Stock 25,000 *
230 Central Park West, Apt. 14A
New York, NY 10024
Herbert H. McDade, Jr.7 Common Stock 25,000 *
Access Pharmaceuticals
660 White Plains Road, Suite 400
Tarrytown, NY 10591
Mark C. Rogers, M.D.7 Common Stock 37,500 *
4406 W. Cornwallis Road
Durham, NC 27705
All Officers and Directors Common Stock 1,187,807 17.14%
as a Group (9 persons)
</TABLE>
- -----------------------------
* Less than one percent (1%)
37
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(1) Beneficial ownership is determined in accordance with rules promulgated
by the Securities and Exchange Commission, and includes voting and
investment power with respect to shares of Common Stock. Shares of
Common Stock subject to options or warrants currently exercisable or
exercisable within 60 days of the date hereof, are deemed outstanding
for purposes of computing the percentage ownership of the person
holding such options or warrants, but are not deemed outstanding for
purposes of computing the percentage ownership of any other person.
(2) Dr. Rosenwald is the Chief Executive Officer of RAQ, LLC and therefore
may be deemed to be the beneficial owner of such shares by virtue of
his right to vote and/or dispose of shares held by RAQ LLC. Dr.
Rosenwald is the Chairman, Chief Executive Officer and sole stockholder
of Paramount. Dr. Rosenwald disclaims beneficial ownership of any
securities issuable upon exercise of warrants granted to employees of
the Placement Agent. See "Certain Transactions."
(3) Includes options exercisable at $0.20 per share to purchase 14,167
shares of the Common Stock, all of which are exercisable within 60 days
of the date hereof. Does not include an additional 91,000 shares of
the Common Stock owned by certain family members of Mr. Kanzer as to
which Mr. Kanzer disclaims beneficial ownership.
(4) Includes 255,000 shares that are subject to the Company's right to
repurchase in the event Dr. Kuo's employment with the Company is
terminated prior to March 1999 and may not be sold or transferred prior
to the lapse of the Company's right to repurchase. Also includes
options exercisable at $0.20 per share to purchase 70,833 shares of the
common stock, all of which are exercisable within 60 days of the date
hereof.
(5) Includes options exercisable at $0.20 per share to purchase 10,625
shares of the Common Stock, all of which are exercisable within 60 DAYS
of the date hereof. Does not include an additional 4,900 shares of
common stock owned by Mr Myrianthopoulos' brother, as to which Mr.
Myrianthopoulos disclaims beneficial ownership.
(6) Represents options exercisable at $0.20 per share to purchase 35,416
share of Common Stock, all of which are exercisable within 60 days of
the date hereof.
(7) Represents or includes options exercisable at $0.10 per share to
purchase 25,000 shares of the Common Stock, all of which are
exercisable within 60 days of the date hereof.
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The following table sets forth certain information regarding ownership of
capital stock, as of March 31, 1997, of (i) each person known by ATI to
beneficially own more than five percent of any class of the capital stock of
ATI, (ii) each director and officer of ATI and (iii) all directors and officers
of ATI as a group. The information presented below assumes the conversion of all
shares of Preferred Stock into Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE OF CLASS
BENEFICIAL OWNER TITLE OF STOCK BENEFICIALLY OWNED BENEFICIALLY OWNED
- ---------------- -------------- ------------------ ------------------
<S> <C> <C>
Discovery Laboratories, Inc. ATI Series A 600,000 75.00%
787 Seventh Avenue, 44th Floor Preferred
New York, New York 10019 Stock
Johnson & Johnson ATI Series B 2,200 *
Development Corporation Preferred
920 Route 202, P.O. Box 300 Stock
Raritan, NJ 08869
Robert J. Capetola, Ph.D. 1 ATI Common 90,000 10.94%
6097 Hidden Valley Drive Stock
Doylestown, PA 18901
Charles G. Cochrane, M.D.2 ATI Common 45,000 5.56%
The Scripps Research Institute Stock
Department of Immunology,
IMM12
10550 North Torrey Pines Road
La Jolla, CA 92037
Max Link, Ph.D., 3 ATI Common 2,000 *
c/o Acute Therapeutics, Inc. Stock
3359 Durham Road
Doylestown, Pennsylvania 18901
Milton Packer 4 ATI Common 500 *
c/o Acute Therapeutics, Inc. Stock
3359 Durham Road
Doylestown, Pennsylvania 18901
Richard. G. Power 5 ATI Common 1,000 *
c/o Acute Therapeutics, Inc. Stock
3359 Durham Road
Doylestown, Pennsylvania 18901
Mark C. Rogers, M.D., 6 ATI Common 2,000 *
c/o Acute Therapeutics, Inc. Stock
3359 Durham Road
Doylestown, Pennsylvania 18901
Marvin E. Rosenthale, 4 ATI Common 500 *
c/o Acute Therapeutics, Inc. Stock
3359 Durham Road
Doylestown, Pennsylvania 18901
Harry G. Brittain, Ph.D., 7 ATI Common 4,000 *
c/o Acute Therapeutics, Inc. Stock
3359 Durham Road
Doylestown, Pennsylvania 18901
Lawrence B. Katz, 7 ATI Common 4,000 *
c/o Acute Therapeutics, Inc. Stock
3359 Durham Road
Doylestown, Pennsylvania 18901
Chris Schaber, 7 ATI Common 4,000 *
c/o Acute Therapeutics, Inc. Stock
3359 Durham Road
Doylestown, Pennsylvania 18901
Huei Tsai, Ph.D, 7 ATI Common 4,000 *
c/o Acute Therapeutics, Inc. Stock
3359 Durham Road
Doylestown, Pennsylvania 18901
Thomas E. Wiswell, M.D., 8 ATI Common 4,000 *
c/o Acute Therapeutics, Inc. Stock
3359 Durham Road
Doylestown, Pennsyvania 18901
All Officers and Directors 9 ATI Common 116,000 13.67%
as a Group (13 persons) Stock
</TABLE>
- ---------------------------------
* Less than 1%
(1) Includes options to purchase 22,500 shares of ATI Common Stock, all
of which are exercisable within 60 DAYS OF the date hereof. Does
not include options to purchase 25,200 shares of ATI Common Stock
exercisable five years after date of grant or earlier upon certain
acceleration events. See "Business--KL4-Surfactant Technology--
Investment in Acute Therapeutics, Inc.; License of KL4-Surfactant
Technology."
(2) Includes options to purchase 10,000 shares of ATI Common Stock, all
of which are exercisable within 60 DAYS OF the date hereof. Does
not include options to purchase 11,200 shares of ATI Common Stock
exercisable five years after date of grant or earlier upon certain
acceleration events. See "Business--KL4-Surfactant Technology--
Investment in Acute Therapeutics, Inc.; License of KL4-Surfactant
Technology."
(3) Includes options exercisable at $0.32 per share for the purchase of
2,000 shares of ATI Common Stock, all of which are exercisable within
60 days of the date hereof.
(4) Includes options exercisable at $0.32 per share for the purchase of 500
shares of ATI Common Stock all of which are exercisable within 60 days
of the date hereof.
(5) Includes options exercisable at $0.32 per share for the purchase of
1,000 shares of ATI Common Stock all of which are exercisable within 60
days of the date hereof.
(6) Includes options exercisable at $0.32 per share for the purchase of
2,000 shares of ATI Common Stock all of which are exercisable within 60
days of the date hereof.
(7) Includes options exercisable at $0.32 per share for the purchase of
4,000 shares of ATI Common Stock all of which are exercisable within 60
days of the date hereof.
(8) Includes options exercisable at $0.75 per share for the purchase of
4,000 shares of ATI Common Stock, all of which are exercisable within
60 days of the date hereof.
(9) Includes options exercisable at $0.32 per share for the purchase of
44,500 shares of ATI Common Stock and options exercisable at $0.75
per share for the purchase of 4,000 shares of ATI Common Stock, all
of which are exercisable within 60 days of the date hereof.
39
<PAGE>
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names and positions of all of the executive
officers and directors of Discovery Laboratories, Inc. and Acute Therapeutics,
Inc. as of January 2, 1997:
<TABLE>
<CAPTION>
DISCOVERY LABORATORIES, INC.
<S> <C> <C>
Name Age Positions with Discovery
James S. Kuo, M.D. 32 President, Chief Executive Officer and a Director
Steve H. Kanzer, C.P.A., Esq. 33 Chairman of the Board of Directors
Evan Myrianthopoulos 32 Chief Operating Officer, Secretary and a Director
Saul S. Bodenheimer, M.D. 46 Vice President of Clinical Affairs
David R. Crockford 51 Vice President of Regulatory Affairs
Juerg F. Geigy, Esq. 61 Director
Max Link, Ph.D. 53 Director
Herbert H. McDade, Jr. 69 Director
Mark C. Rogers, M.D. 53 Director
ACUTE THERAPEUTICS, INC.
Name Age Positions with ATI
Robert J. Capetola, Ph.D. 47 President, Chief Executive Officer and
Chairman of the Board of Directors
Steve H. Kanzer, C.P.A., Esq. 32 Director
James S. Kuo, M.D. 33 Director
Max Link, Ph.D. 53 Director
Milton Packer, M.D. 45 Director
Richard G. Power 67 Director
Mark C. Rogers, M.D. 53 Director
Marvin E. Rosenthale, Ph.D. 62 Director
Harry G. Brittain, Ph.D. 47 Vice President of Pharmaceutical and Chemical Development
Lawrence B. Katz, Ph.D. 42 Vice President of Project Management and Clinical Administration
Chris Schaber 30 Vice President of Regulatory Affairs and Quality Assurance
Huei Tsai, Ph.D 55 Vice President of Biometrics
Thomas E. Wiswell, M.D. 45 Vice President of Clinical Research
JAMES S. KUO, M.D., has served as President, Chief Executive Officer and a
Director of Discovery since March 1996 and a director of ATI Since November
1996. Prior to joining Discovery, Dr. Kuo was employed from May 1995 to April
1996 by Pfizer, Inc., a multinational pharmaceutical company, as Associate
Director of the Corporate Licensing and Development Division. At Pfizer, Dr. Kuo
was directly responsible for cardiovascular licensing and development, a
business segment with approximately $2.9 billion in sales in 1995. Prior to his
employment with Pfizer, Dr. Kuo, from September 1992 to May 1995, was Managing
Director of Venture Analysis at HealthCare Investment Corporation, a venture
capital fund which managed over $375 million in venture funds predominantly
devoted to start up biopharmaceutical companies. Prior to his employment at
HealthCare Investment Corporation, Dr. Kuo was Vice President of The Castle
Group Ltd., a medical venture capital group. Dr. Kuo received his M.D. from The
University of Pennsylvania School of Medicine and obtained his M.B.A. from The
Wharton School of Business where he concentrated in health care management and
finance. He received his B.A. in molecular biology from Haverford College and
has conducted and published research at The Wistar Institute in Philadelphia.
40
<PAGE>
<PAGE>
STEVE H. KANZER, C.P.A., ESQ., has served as Chairman of the Board of Directors
since his election in June 1996 and was the Chief Executive Officer of the
Company from May 1993 until March 1996. Mr. Kanzer has served as a director of
ATI since November 1996. Mr. Kanzer is also a Senior Managing Director of
Paramount Capital, Inc., a biotechnology investment bank and Senior Managing
Director--Head of Venture Capital of Paramount Capital Investments, LLC, a
biotechnology venture capital group. Mr. Kanzer is a founder and a director of
Boston Life Sciences, Inc. and Atlantic Pharmaceuticals, Inc. He is also a
director of Endorex Corporation. Mr. Kanzer has been a founder and director of
several other public and private biotechnology companies including Avigen, Inc.,
Titan Pharmaceuticals, Inc. and Xenometrix, Inc. Prior to 1995, Mr. Kanzer was
General Counsel of The Castle Group Ltd. Before joining Paramount Capital, Inc.
and The Castle Group Ltd., Mr. Kanzer was an attorney at the law firm of
Skadden, Arps, Meagher, Slate, & Flom. Mr. Kanzer received his J.D. from New
York University School of Law and a B.B.A. in accounting from Baruch College.
EVAN MYRIANTHOPOULOS has served as Chief Operating Officer, Secretary and a
Director of Discovery since June 1996. Prior to joining Discovery, Mr.
Myrianthopoulos devoted only a portion of his time to the Company and was also a
Technology Associate of Paramount Capital Investments, LLC. Before joining
Paramount Capital Investments, LLC, Mr. Myrianthopoulos managed a hedge fund for
S+M Capital Management in Englewood Cliffs, New Jersey. The fund specialized in
syndicate and secondary stock issues and also engaged in arbitrage of municipal
and mortgage bonds. Prior to his employment with S+M Capital Management, Mr.
Myrianthopoulos was employed at the New York Branch of National Australia Bank
where he was Assistant Vice President of Foreign Exchange trading. Mr.
Myrianthopoulos received his B.A. in economics and psychology from Emory
University.
SAUL S. BODENHEIMER, M.D., has served as Vice President of Medical Affairs of
DISCOVERY since December 1996. Prior to joining the Company, Dr. Bodenheimer
served as Director of Immunology at Knoll Pharmaceuticals Company^ where he was
responsible for the clinical development of a sepsis therapeutic. From 1988 to
1996, Dr. Bodenheimer was Corporate Director of Clinical Investigation at Forest
Laboratories, Inc. and was responsible for all clinical development activities.
Dr. Bodenheimer received his BSc. Med. and M.D. from the University of Manitoba
Medical School in Canada.
DAVID R. CROCKFORD has served as Vice President of Regulatory Affairs of
Discovery since November 1996. From December 1991 to November 1996, Mr.
Crockford served as Vice President of Regulatory Affairs at Oncologix, Inc. and
at Alpha 1 Biomedicals, Inc., where he was responsible for product development
planning activities, from preclinical testing through clinical development and
regulatory strategies and submissions of pulmonary and cancer therapeutics. From
1986 to December 1991, Mr. Crockford served as Vice President of Research and
Development and Regulatory Affairs for the Neoprobe Corporation. From 1980
through 1985 he co-founded and presided over NeoBionics, Inc., the first U.S.
publicly-held monoclonal antibody development company, and privately-held
Chromagencics, Inc. From 1975 to 1980 he served as Director of Research and
Development and Regulatory Affairs for Ares-Serono, where he pioneered the
commercial application of monoclonal antibodies for use in cancer. From 1971 to
1975, he directed the Research and Development and Regulatory Affairs for
Cambridge Nuclear Corporation, where he developed and obtained approval of
numerous radiopharmaceutical products. He is an inventor of patents for cancer
diagnosis and treatment and has developed and obtained approval to market over
18 pharmaceuticals. Mr. Crockford received his B.A. from Boston University and
completed graduate course studies at Princeton, Wayne State and UCLA Medical
Schools.
ROBERT J. CAPETOLA, PH.D., has served as Chairman and Chief Executive Officer of
ATI since its inception in October 1996. From February 1994 to May 1996, Dr.
Capetola was Managing Director of Delta Biotechnology, a subsidiary of Ohmeda
Pharmaceutical Products Division, a division of The BOC Group, plc ("Ohmeda"),
in Nottingham, U.K. He also served on the Board of Directors of Delta
Biotechnology. From December 1992 to September 1996, Dr. Capetola served as Vice
President of Research and Development at Ohmeda. He served on Ohmeda's operating
board and was responsible for all aspects of Ohmeda's research and development,
including preclinical research and development, clinical development,
biometrics, and regulatory affairs. From 1977 to 1992, Dr. Capetola held a
variety of positions as a drug discovery scientist at Johnson & Johnson
Pharmaceutical Research Institute, including Senior Worldwide Director of
Experimental Therapeutics. Dr. Capetola received his B.S. from the Philadelphia
College of Pharmacy & Science and his Ph.D. in pharmacology from Hahnemann
Medical College.
HARRY G. BRITTAIN, PH.D., has served AS Vice President for Pharmaceutical and
Chemical Development of ATI Since November, 1996. Prior to joining ATI, Dr.
Brittain served as Director of Pharmaceutical Development for the Pharmaceutical
41
<PAGE>
<PAGE>
Products Division of Ohmeda, Inc. Before that, he worked at Bristol-Myers
Squibb, where he led a variety of groups within the analytical R&D department.
His research interests include studies of molecular optical activity and
chirality, development of pharmaceutical dosage forms, and the physical
characterization of pharmaceutical materials. He has authored approximately 195
research publications, and is a member of the editorial boards of Pharmaceutical
Technology, the Saudi Pharmaceutical Journal, Chirality, and Instrumentation
Science and Technology. Dr. Brittain is also the series editor for the
Analytical Profiles of Drug Substances and Excipients, and is an associate
editor for the Journal of Pharmaceutical and Biomedical Analysis. In 1991, Dr.
Brittain was elected as a fellow of AAPS. Dr. Brittain received his B.S. and
M.S. from Queens College and his PH.D. in Physical Chemistry from the City
University of New York. He was a postdoctoral fellow at the University of
Virginia, and has held faculty positions at Ferrum College and Seton Hall
University.
LAURENCE B. KATZ, PH.D., has served as Vice President of Project Management and
Clinical Administration OF ATI since November 1996. Prior to joining the
Company, Dr. Katz was employed from April 1993 to November 1996 by Ohmeda
Pharmaceutical Products Division, a division of The BOC Group, as Senior
Director of Project Management and Clinical Administration. At Ohmeda, Dr. Katz
was project team leader for the inhaled nitric oxide project and was responsible
for the administration of all clinical trials within the company. Previously,
Dr. Katz was employed by Ortho Pharmaceutical Corporation and the R.W. Johnson
Pharmaceutical Research Institute, divisions of Johnson & Johnson. While there
he served as Senior Project Manager in the Project Planning & Management
department from January 1990 to April 1993, and as a Principal Scientist in
the Drug Discovery Department from February 1983 to January 1990. Dr. Katz
received a B.S. degree in biology from the University of Pennsylvania, his M.S.
and Ph.D. degrees in pharmacology from the Philadelphia College of Pharmacy &
Science, and was a postdoctoral research fellow at the University of
Wisconsin-Madison.
CHRISTOPHER J. SCHABER has served as Vice President of Regulatory Affairs and
Quality Assurance of ATI since November 1996. Prior to joining the Company, Mr.
Schaber was employed from October 1994 to November 1996 by Ohmeda Pharmaceutical
Products Division, a division of The BOC Group, as Director of Regulatory
Affairs. At Ohmeda, Mr. Schaber was directly responsible for all regulatory
strategies with the Food and Drug Administration and other Health Authority
bodies. From 1989 to 1994, Mr. Schaber held a variety of regulatory positions of
increasing importance with The Liposome Company, Inc. and Elkins-Sinn Inc., a
division of Wyeth-Ayerst Laboratories. Mr. Schaber received his B.A. from
Western Maryland College and his M.S. in Pharmaceutics from Temple University.
Mr. Schaber is currently pursuing his Ph.D. in Pharmaceutical Sciences
Regulatory Affairs with the Union Graduate School and is estimated to complete
his doctoral program in May 1998. In 1994, Mr. Schaber also received his
Regulatory Affairs Certification (RAC) from the Regulatory Affairs Professional
Society.
MAX LINK, PH.D., has served as a Director of Discovery since his election in
August 1996 and as a Director of ATI since his election in August 1996.Dr.
Link has held a number of executive positions with pharmaceutical and health
care companies. He currently serves on the Board of Directors of three
publicly-traded life science companies: Alexion Pharmaceuticals, Inc., Protein
Design Labs, Inc. and Human Genome Sciences, Inc. From May 1993 until June 1994,
Dr. Link was Chief Executive Officer of Corange Limited, the parent company of
Boehringer Mannheim and DePuy, an orthopedic company. Prior to joining Corange,
he served in a number of positions within Sandoz Pharma, Ltd., including Chief
Executive Officer from 1990 until April 1992, and Chairman from April 1992 until
May 1993.
JUERG F. GEIGY, ESQ., has served as a Director of Discovery since his election
in June 1996. Dr.Geigy is an attorney at law in Basel, Switzerland specializing
in corporate and tax law, portfolio management and venture capital consulting.
Dr. Geigy is a director of the following companies: Pitney Bowes (Switzerland)
AG, U.S. Ventures S.A., Strategic Healthcare Investment Fund and Rothschild Bank
AG. Dr. Geigy has been a director of J. Henry Schroder Bank AG, Biogen S.A.,
Bank Julius Baer International Limited, Baer Holding AG, Great Pacific Capital
S.A. and Petroferm N.V. Dr. Geigy has also been a member of the Advisory Board
of Massey Burch Investment Group, a Vice-Chairman and CEO of Rothschild
Corporate Finance Ltd., Chief Executive Officer of Julius Baer Atlantic Limited
and a member of the Management Committee of Bank Julius Baer & Co. AG. Dr. Geigy
has held the position of Treasurer of the parent company of Ciba-Geigy Ltd. and
Group Treasurer of J.R. Geigy Limited. Dr. Geigy received his doctoral law
degree from The Law School of Basel University.
HERBERT H. MCDADE, JR., has served as a Director of DISCOVERY since his
election in June 1996. Mr. McDade is the Chairman of Access Pharmaceuticals and
a member of the Boards of Directors of Cytrx Corporation, Shaman Pharmaceuticals
and Clarion Pharmaceuticals, all of which are publicly traded except for
Clarion. Mr. McDade also is on the Board of Governors of Thomas Aquinas College.
Mr. McDade was employed with Upjohn Company for 20 years and with Revlon for
42
<PAGE>
<PAGE>
14 years as President of their worldwide pharmaceutical subsidiary, Revlon Health
Care International. He also has been Chairman and CEO of Armour Laboratories, a
wholly owned subsidiary of Rorer Group, Inc., a pharmaceutical company now part
of Rhone-Poulenc Rorer, a French multinational pharmaceutical company. Mr.
McDade received his B.S. from the University of Notre Dame and has a graduate
degree from the University of Laval in Quebec City.
MARK C. ROGERS, M.D., has served as a Director of Discovery since his election
in June 1996 and a director of ATI since his election in November 1996. Dr.
Rogers is Senior Vice President, Corporate Development, and Chief Technology
Officer at Perkin-Elmer Corporation. Prior to Perkin-Elmer, Dr. Rogers was the
Vice Chancellor for Health Affairs, Executive Director and Chief Executive
Officer of Duke University Hospital and Health Network. Prior to his employment
at Duke, Dr. Rogers was on the faculty of Johns Hopkins University for 15 years
where he served as Distinguished Faculty Professor and Chairman of the
Department of Anesthesiology and Critical Care Medicine, Associate Dean for
Clinical Practice, Director of the Pediatric Intensive Care Unit and Professor
of Pediatrics. Dr. Rogers received his M.D. from Upstate Medical Center and his
M.B.A. from The Wharton School of Business. He received his B.A. from Columbia
University and held a Fulbright Scholarship.
RICHARD G. POWER has served as a Director of ATI since his election in October
1996. HE currently is a Principal and Executive Director of The Sage Group,
founded in 1994, which specializes in providing usable strategic and
transactional services to the management boards and investors of health care
companies. He serves on the Board of Directors of The Quantum Group and
Neuromedica, Inc. Previously, from 1980 to 1994, Mr. Power served as Founder and
President of R.G. Power & Associates, Inc., which specialized in worldwide
business development and financing strategy for the health care industry. From
1955 to 1980, Mr. Power held senior management positions with several
pharmaceutical industry firms, including SmithKline, Searle and as a corporate
officer at Johnson & Johnson. Mr. Power received his B.A. from Loras College and
attended graduate school at the University of Wisconsin.
MARVIN E. ROSENTHALE, PH.D., has served as a director of ATI since his election
in October 1996. He currently IS President and Chief Executive Officer of
Allergan Ligand Retinoid Therapeutics, Inc. ("ALRT") since December 1994. He
joined the Joint Venture formed by Allergan and Ligand, the entity through which
they combined their resources to pursue the development of retinoid research and
development prior to ALRT, in August 1993 as Vice President. Prior to joining
the Allergan Ligand Joint Venture, Dr. Rosenthale served as Vice President, Drug
Discovery Worldwide, at R.W. Johnson Pharmaceutical Research Institute from 1990
to 1993. From 1977 to 1990, Dr. Rosenthale served in a variety of positions in
drug discovery research for Ortho Pharmaceutical Corporation, including director
of the divisions of pharmacology and of biological research and executive
director of drug discovery research. From 1960 to 1977, he served in various
positions with Wyeth Laboratories. Dr. Rosenthale received a Ph.D. in
pharmacology from Hahnemann Medical College & Hospital, a M.S. in pharmacology
from Philadelphia College of Pharmacy and Science and a B.S. in pharmacy from
Philadelphia College of Pharmacy.
MILTON PACKER, M.D., has served as a Director of ATI since his election in
October 1996. He has been a Professor of Pharmacology AT Columbia University
College of Physicians and Surgeons ("CUCPS") since 1994 and Dickinson W.
Richards Professor of Medicine at CUCPS Since 1992. Dr. Packer has also held the
appointments of Chief, Division of Circulatory Physiology, Director, Heart
Failure Center, and head of the Center for Heart Failure research, all at
Columbia-Presbyterian Medical Center in New York, since 1992. He is also an
Irving Clinical Research Scholar at Columbia. Dr. Packer's major research is
focused on the pathophysiology and treatment of heart failure. He is on the
Executive Committee of both the American Heart Association and the American
College of Cardiology. He is a primary consultant to the National Institutes of
Health and the Food and Drug Administration on the management of heart failure
and on matters related to cardiovascular research and drug development and
health care policy. From 1988 to 1992, Dr. Packer was Professor of Medicine at
the Mt. Sinai School of Medicine. Dr. Packer received his B.S. from Pennsylvania
State University and his M.D. from Jefferson Medical College.
HUEI TSAI, PH.D., has served as Vice President of Biometrics of ATI since March
1997. From 1995 to 1996, he was Director of Biometrics and Clinical Information
for Ohmeda, PPD. Between 1994 and 1995, he was a statistical consultant for
Janssen Pharmaceuticals Inc. and Vimrx Pharmaceuticals Inc. From 1989 to 1993,
he was employed by the Robert Wood Johnson Pharmaceutical Research Institute
where he was Director of Clinical Pharmacology Biostatics from 1991 to 1993 and
Director of Biostatics and Computer Information from 1989 to 1991. Dr. Tsai
received his Ph.D. in Statistics from Oklahoma State University, a M.A. in
Statistics from University of Missouri, and a B.A. in Economics from Tunghai
University in Taiwan.
THOMAS E. WISWELL, M.D., has served as Vice President of Clinical Research of
ATI since April 1997. Since 1993,he has been a Professor of Pediatrics at
Jefferson Medical College at Thomas Jefferson University in Philadelphia,
Pennsylvania. From 1988 to 1993, he was an Associate Professor of Pediatrics at
the F. Edward Herbert School of Medicine in Bethesda, Maryland. From 1982 to
1988, he held various assistant professorships. Since 1993, he has been the
Staff Neonatologist and Director of Neonatal Research at Thomas Jefferson
University Hospital. He has published numerous articles on neonatal medicine. He
retired as a Lieutenant Colonel from the U.S. Army on June 30, 1993 after twenty
years on active duty. Dr. Wiswell received his M.D. from The University of
Pennsylvania School of Medicine and a B.S. from the United States Military
Academy.
All directors hold office until the next annual meeting of stockholders of
Discovery or ATI, as the case may be, or until their successors have been
elected and qualified. Officers serve at the discretion of the applicable Board
of Directors. The Bylaws of each of Discovery and ATI provide that directors and
officers shall be indemnified against liabilities arising from their service as
directors or officers to the fullest extent permitted by the laws of the State
of Delaware, which generally requires that the individual act in good faith and
in a manner he or she reasonably believes to be in or not opposed to the best
interests of Discovery or ATI, as the case may be. Insofar as indemnification
for liabilities arising under the Securities Act of 1933
43
<PAGE>
<PAGE>
(THE "SECURITIES ACT") MAY BE PERMITTED TO DIRECTORS, OFFICERS AND CONTROLLING
PERSONS OF THE COMPANY PURSUANT TO THE FOREGOING PROVISIONS, OR OTHERWISE, THE
COMPANY HAS BEEN ADVISED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE
COMMISSION SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE
SECURITIES ACT AND IS, THEREFORE, UNENFORCEABLE. IN THE EVENT THAT A CLAIM FOR
INDEMNIFICATION AGAINST SUCH LIABILITIES (OTHER THAN THE PAYMENT BY THE COMPANY
OF EXPENSES INCURRED OR PAID BY A DIRECTOR, OFFICER OR CONTROLLING PERSON OF THE
COMPANY IN THE SUCCESSFUL DEFENSE OF ANY ACTION, SUIT OR PROCEEDING) IS ASSERTED
BY SUCH DIRECTOR, OFFICER OR CONTROLLING PERSON IN CONNECTION WITH THE
SECURITIES BEING REGISTERED HEREBY, THE COMPANY WILL, UNLESS IN THE OPINION OF
ITS COUNSEL THE MATTER HAS BEEN SETTLED
BY CONTROLLING PRECEDENT, SUBMIT TO A COURT OF APPROPRIATE JURISDICTION THE
QUESTION WHETHER SUCH INDEMNIFICATION BY IT IS AGAINST PUBLIC POLICY AS
EXPRESSED IN THE SECURITIES ACT AND WILL BE GOVERNED BY THE FINAL ADJUDICATION
OF SUCH ISSUE.
The Company has 17 employees. Two employees, Messrs. Kanzer and Johnson,
currently devote only a portion of their time to the Company. Certain of the
officers and directors of the Company currently do and may from time to time in
the future serve as officers or directors of other biopharmaceutical or
biotechnical companies. There can be no assurance that such other companies will
not in the future have interests in conflict with those of the Company. See
"Risk Factors--No Assurance of Additional Products; Risks Associated with
Products in Development" and "--Certain Interlocking Relationships; Potential
Conflicts of Interest."
DIRECTOR COMPENSATION
Independent directors of Discovery received compensation for service on the
Board of DIRECTOR AND are reimbursed for travel expenses incurred in attending
board and committee meetings. Their compensation consists of a $1,000 per
meeting fee, a $1,000 quarterly fee and an annual grant of options to purchase
10,000 shares of Discovery's Common Stock. Discovery has not yet determined
whether the exercise price with respect to such options will be at or below the
market. ATI will not pay cash compensation to its directors (except for
reimbursement of expenses) but intends to make an initial option grant of 2,000
shares of ATI Common Stock to each director pursuant to the Automatic Option
Grant portion of the ATI 1996 Stock Option/Stock Issuance Plan. See "--ATI
Option Plan."
In connection with the organization of ATI, Drs. Rogers and Link, members of the
Board of Directors of Discovery and ATI, were granted options, exercisable for
ten years from the date of grant, to purchase 8,000 shares each, of ATI Common
Stock at an exercise price of $0.32 per share. Subsequently, Mark Rogers,
a member of the Board of Directors of Discovery and ATI, and Milton
Packer, a member of the Board of Directors of ATI, were granted options
exercisable at $0.32 per share for 8,000 and 2,000 shares, respectively
of ATI Common Stock. All such options are subject to vesting over a
period of three years from the date of the grant. Richard G. Power, a
Director of ATI, was granted options exercisable at $0.32 per share for the
purchase of 1,000 shares of ATI Common Stock. Such options are exercisable
commencing April 28, 1997.
44
<PAGE>
<PAGE>
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation paid and
accrued by the Company during its last three fiscal years to its chief executive
officer AND TO other executive OFFICERS TO WHOM IT PAID AND ACCRUED in
excess of $100,000 INCLUDING CASH AND ISSUANCES OF SECURITIES.
</TABLE>
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
Name and Position Year Salary Bonus Stock Awards
====================================== ============== ============== ============= =========================
<S> <C> <C> <C> <C>
James S. Kuo, M.D., 1996 $102,708 $30,000 --1
Chief Executive Officer 1995 -- -- --
(March 1996 to present) 1994 -- -- --
--
Steve H. Kanzer, C.P.A., Esq. 1996 $24,000 $7,000 --2
CHAIRMAN (JUNE 1996 TO 1995 $0 $0 --3
PRESENT) 1994 $0 $0 --
CHIEF EXECUTIVE OFFICER
(MAY 1993 TO MARCH 1996)
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Shares of % of Total Exercise
Common Stock Options/SARs or Base
Underlying Granted to Price
Options/SARs Employees in ($/share)
Name Granted Fiscal Year Expiration Date
- -------------------------------------- --------------------- -------------------- --------------- ----------------------
James S. Kuo, M.D. 200,000 26.74% $0.20 January 1, 2007
Steve H. Kanzer, C.P.A., Esq. 40,000 5.35% $0.20 January 1, 2007
- --------
1 In March 1996, the Company issued 340,000 shares of Common Stock to Dr. Kuo.
There presently is no trading market for the Common Stock.
2 In March 1996, the Company issued 242,500 shares of Common Stock to Mr.
Kanzer. There presently is no trading market for the Common Stock.
3 In February 1995, the Company issued 194,250 shares of Common Stock to Mr.
Kanzer. There presently is no trading market for the Common Stock.
45
<PAGE>
<PAGE>
EMPLOYMENT AND CONSULTING AGREEMENTS OF DISCOVERY LABORATORIES, INC.
In March 1996, the Company entered into a three-year employment agreement with
James S. Kuo, M.D., the Chief Executive Officer, President and a Director of the
Company (the "Kuo Employment Agreement"). Pursuant to the Kuo Employment
Agreement, the Company has agreed to pay Dr. Kuo a salary of $145,000 during his
first year with the Company and a minimum salary of $165,000 per annum during
his second and third years with the Company, subject to cost of living
increases. IN THE EVENT OF TERMINATION WITHOUT CAUSE, DR. KUO WILL RECEIVE, AS
SEVERANCE, HIS BASE SALARY FOR TWELVE MONTHS. CURRENTLY, DR. KUO'S ANNUAL SALARY
IS $175,000. DURING 1996, DR. KUO WAS PAID A BONUS OF $30,000. Dr. Kuo is also
entitled to receive health coverage for his family AND DISABILITY AND LIFE
INSURANCE. Under the Kuo Employment Agreement, Dr. Kuo purchased 340,000 shares
of Common Stock of the Company for $0.002 per share. Such shares are subject to
the Company's right of repurchase over three years in the event that Dr. Kuo's
employment is terminated prior to the end of the three-year term of the Kuo
Employment Agreement. DR. KUO ALSO RECEIVED OPTIONS EXERCISABLE AT $0.20 FOR THE
PURCHASE OF 200,000 SHARES OF COMMON STOCK AS PART OF HIS 1996 COMPENSATION.
THESE OPTIONS ARE SUBJECT TO A THREE-YEAR VESTING SCHEDULE.
In June 1996, the Company entered into employment agreements with Steve H.
Kanzer, C.P.A., ESQ., the Chairman of the Board of Directors of DISCOVERY, and
Mr. Evan Myrianthopoulos, the Chief Operating Officer, Secretary and a Director
of the Company (the "Manager Agreements"). Pursuant to the Manager Agreements,
Messrs. Kanzer and Myrianthopoulos are entitled to receive $3,000 and $1,500 per
month, respectively, while the Manager Agreements remain in effect. The Manager
Agreements are terminable at any time by the Company. IN JANUARY, 1997, MR.
MYRIANTHOPOULOS' MANAGER AGREEMENT WAS TERMINATED WHEN HE BECAME A FULL-TIME
EMPLOYEE OF THE COMPANY. MR. MYRIANTHOPOULOS' ANNUAL SALARY IS CURRENTLY
$80,000. Mr. Kanzer devotes only a portion of his time to the business of the
Company.
ON NOVEMBER 20, 1996, THE COMPANY ENTERED INTO AN EMPLOYMENT AGREEMENT WITH SAUL
S. BODENHEIMER (THE "BODENHEIMER EMPLOYMENT AGREEMENT"), PURSUANT TO WHICH DR.
BODENHEIMER BECAME THE VICE PRESIDENT OF CLINICAL AFFAIRS OF THE COMPANY.
PURSUANT TO THE TERMS OF THE BODENHEIMER EMPLOYMENT AGREEMENT, DR. BODENHEIMER
WILL RECEIVE AN ANNUAL SALARY OF $155,000, AND A PERFORMANCE BONUS OF $38,750,
PAYABLE ON DECEMBER 31, 1997. DR. BODENHEIMER ALSO RECEIVED OPTIONS TO ACQUIRE
100,000 SHARES OF COMMON STOCK AT AN EXERCISE PRICE OF $0.20. SUCH OPTIONS SHALL
VEST AS FOLLOWS: 25,000 OF SUCH OPTIONS SHALL VEST ON THE DATE OF THE
BODENHEIMER EMPLOYMENT AGREEMENT AND 25,000 OF SUCH OPTIONS SHALL VEST ON EACH
OF THE FIRST THREE ANNIVERSARIES OF THE AGREEMENT.
ON NOVEMBER 25, 1996, THE COMPANY ENTERED INTO AN EMPLOYMENT AGREEMENT WITH
DAVID R. CROCKFORD (THE "CROCKFORD EMPLOYMENT AGREEMENT"), PURSUANT TO WHICH MR.
CROCKFORD BECAME THE VICE PRESIDENT OF REGULATORY AFFAIRS OF THE COMPANY.
PURSUANT TO THE TERMS OF THE CROCKFORD EMPLOYMENT AGREEMENT, MR. CROCKFORD WILL
RECEIVE AN ANNUAL SALARY OF $140,785. MR. CROCKFORD WILL RECEIVE A PERFORMANCE
BONUS AT THE END OF EACH CALENDAR YEAR, WHICH BONUS SHALL BE NO LESS THAN 5% AND
NO GREATER THAN 20% OF HIS ANNUAL SALARY. MR. CROCKFORD ALSO RECEIVED OPTIONS TO
ACQUIRE 100,000 SHARES OF COMMON STOCK AT AN EXERCISE PRICE OF $0.20. SUCH
OPTIONS SHALL VEST AS FOLLOWS: 25,000 OF SUCH OPTIONS SHALL VEST ON THE DATE OF
THE BODENHEIMER EMPLOYMENT AGREEMENT AND 25,000 OF SUCH OPTIONS SHALL VEST ON
EACH OF THE FIRST THREE ANNIVERSARIES OF THE AGREEMENT.
EMPLOYMENT AND CONSULTING AGREEMENTS OF ATI
In October 1996, ATI entered into a four-year employment agreement with Robert
J. Capetola, PH.D., the President, Chief Executive Officer and Chairman of the
Board of Directors of ATI (the "Capetola Employment Agreement"). Pursuant to the
Capetola Employment Agreement, Dr. Capetola will receive a base salary of
$225,000 per year. In the event of termination without cause, Dr. Capetola will
receive, as severance, his base salary for twelve months, subject to set off for
other employment income. Dr. Capetola also will receive an initial sign-on bonus
of $50,000 to be paid the first week of January 1997, with the following
incentive bonuses: (i) $50,000 for the first corporate licensing transaction
with a pharmaceutical company relating to KL4-Surfactant, (ii) $100,000 upon
ATI's completion of an initial public offering with gross proceeds of at least
$10 million and (iii) other bonuses at the discretion of ATI's Board of
Directors. During the term of the Capetola Employment Agreement and for 18
months after its termination, Dr. Capetola has agreed not to (i) compete with
ATI in the business or research areas of surfactant replacement therapy and
other areas in which ATI may enter while he remains employed or (ii) directly or
indirectly solicit or employ any employees of ATI.
In October 1996, ATI entered into consulting agreements with each of Charles
G. Cochrane, M.D., Susan Revak, Zenaida Oades, Monica Cochrane and The
Sage Group. Dr. Cochrane's two-year consulting agreement (the "Cochrane
Agreement")
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will provide that ATI shall pay to Dr. Cochrane (a) a consulting fee at the
annual rate of $195,000, payable monthly in installments of $16,250 on or before
the 15th day of each month, and (b) an earned royalty on net commercial sales of
licensed products sold by ATI or its sublicensees.
The consulting agreement with each of Ms. Revak, Ms. Oades and Ms. Cochrane has
a term of two years. Such consulting agreements provide for annual consulting
fees, payable monthly, of $80,000, $10,000, and $15,000 respectively. In
addition, Ms. Revak's agreement provides for a royalty on net commercial sales
of licensed products sold by ATI or its sublicensees.
The consulting agreement with The Sage Group provides that The Sage Group will
be paid a monthly consulting fee of $7,500 for a period of 18 months, subject to
quarterly performance evaluation by the Chief Executive Officer of ATI.
IN FEBRUARY 1997, ATI ENTERED INTO AN EMPLOYMENT AGREEMENT WITH HUEI TSAI,
PH.D., (THE "TSAI EMPLOYMENT AGREEMENT"), PURSUANT TO WHICH DR. TSAI BECAME THE
VICE PRESIDENT OF BIOMETRICS OF ATI. PURSUANT TO THE TERMS OF THE TSAI
EMPLOYMENT AGREEMENT, DR. TSAI WILL RECEIVE AN ANNUAL SALARY OF $140,000. DR.
TSAI WILL BE ELIGIBLE FOR AN INCENTIVE BONUS AT THE DISCRETION AND IN AN AMOUNT
TO BE DETERMINED BY THE BOARD OF DIRECTORS OF ATI. DR. TSAI ALSO RECEIVED
OPTIONS TO ACQUIRE 16,000 SHARES OF COMMON STOCK AT AN EXERCISE PRICE OF $0.32.
IN CONNECTION WITH THE TSAI EMPLOYMENT AGREEMENT, ATI AND DR. TSAI ENTERED INTO
AN INTELLECTUAL PROPERTY AND CONFIDENTIAL INFORMATION AGREEMENT.
IN APRIL 1997, ATI ENTERED INTO AN EMPLOYMENT AGREEMENT WITH THOMAS E.
WISWELL, M.D., (THE "WISWELL EMPLOYMENT AGREEMENT"), PURSUANT TO WHICH DR.
WISWELL BECAME THE VICE PRESIDENT OF CLINICAL RESEARCH OF ATI. PURSUANT TO THE
TERMS OF THE WISWELL EMPLOYMENT AGREEMENT, DR. WISWELL WILL RECEIVE AN ANNUAL
SALARY OF $200,000. DR. WISWELL ALSO RECEIVED OPTIONS TO ACQUIRE 16,000 SHARES
OF COMMON STOCK AT AN EXERCISE PRICE OF $0.75. IN CONNECTION WITH THE WISWELL
EMPLOYMENT AGREEMENT, ATI AND DR. WISWELL ENTERED INTO AN INTELLECTUAL PROPERTY
AND CONFIDENTIAL INFORMATION AGREEMENT.
DISCOVERY OPTION PLAN
Discovery has adopted the 1996 Stock Option/Stock Issuance Plan consisting of a
Discretionary Option Grant Program for employees, a Stock Issuance Program for
employees and an Automatic Option Grant Program under which option grants will
automatically be made at periodic intervals to eligible non-employee directors
to purchase shares of Common Stock. The exercise price under options issued
pursuant to the Discretionary Option Grant Program and the Automatic Option
Grant Program shall equal at least 85% of the fair market value of the Common
Stock on the grant date (and, in the case of incentive stock options, 100%).
Under the Discretionary Option Grant Program, options will be granted to
employees either as incentive stock options or non-statutory options and will
vest over a specified period of time (generally three to five years) as
determined by the Discovery Board of Directors. Discovery has reserved 1,125,000
shares for issuance under these plans.
Under the Stock Issuance Program, shares of Common Stock may be issued directly
without any intervening option grant in consideration for cash or past services
rendered to Discovery (or any parent or subsidiary of Discovery). Shares of
Common Stock issued under the Stock Issuance program may vest immediately or may
vest in one or more installments or upon the recipient's attainment of specified
performance objectives. Unvested shares held by the grantee may be canceled (or,
if issued for cash, repurchased at their original purchase price) in the event
the recipient ceases to remain in the service of Discovery or fails to attain
specified performance objectives.
Under the Automatic Option Grant Program, each non-employee director of
Discovery will automatically be granted an option for 25,000 shares of Common
Stock on the date of his or her election or appointment to the Board of
Directors, and each eligible non-employee director who is to continue to serve
as a director shall be granted an option to purchase an additional 10,000 shares
of Common Stock on the date of each annual meeting of stockholders (provided
such eligible non-employee director has served for at least 6 months). Such
options shall vest over four years. Each option will have a term of ten years,
subject to earlier termination following the optionee's cessation of service
on the Board of Directors. Each option will be immediately exercisable; however,
any shares purchased upon exercise of the option will be subject to repurchase
should the optionee's service as a non-employee director cease prior to vesting
of the shares.
Should Discovery be acquired by merger or asset sale or should there occur a
hostile change in control or ownership of Discovery, each outstanding stock
option will immediately vest in full either at the time of such acquisition or
hostile take-over (subject to certain exceptions) or upon the subsequent
termination of the individual's service with Discovery.
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ATI OPTION PLAN
ATI has adopted the 1996 Stock Option/Stock Issuance Plan consisting of a
Discretionary Option Grant Program for employees and an Automatic Option Grant
Program under which option grants will automatically be made at periodic
intervals to eligible non-employee directors to purchase shares of Common Stock,
in either case at an exercise price equal to at least 85% of the fair market
value of the Common Stock on the grant date. Under the Discretionary Option
Grant Program, options will be granted to employees either as incentive stock
options or non-statutory options and will vest over a specified period of time
(generally three to five years) as determined by the ATI Board of Directors. ATI
has reserved 234,800 shares for issuance under these plans.
Under the Automatic Option Grant Program, each eligible non-employee director of
ATI will automatically be granted an option for 2,000 shares of Common Stock on
the date of his or her election or appointment to the Board of Directors. Such
options shall vest over three years. Each option will have a term of ten years,
subject to earlier termination following the optionee's cessation of service on
the Board of Directors. Each option will be immediately exercisable; however,
any shares purchased upon exercise of the option will be subject to repurchase
should the optionee's service as a non-employee director cease prior to vesting
of the shares. Each automatic share grant will vest in successive equal annual
installments over a three-year period.
Should ATI be acquired by merger or asset sale or should there occur a hostile
change in control or ownership of ATI, each outstanding stock option will
immediately vest in full either at the time of such acquisition or hostile
take-over (subject to certain exceptions) or upon the subsequent termination of
the individual's service with ATI.
MEDICAL/SCIENTIFIC ADVISORY BOARDS
The Company's various Medical/Scientific Advisory Boards currently consist of
the following members:
SUPERVENT(TM) MEDICAL ADVISORY BOARD
JOHN R. HOIDAL, M.D., Co-chairman, Chairman of Medicine, Chief of the Pulmonary
Division and Chief of the Pediatric Pulmonary Division at the University of Utah
Health Sciences Center. Dr. Hoidal received his M.D. from the University of
Minnesota School of Medicine and trained in internal medicine at the University
of Colorado Medical Center and the University of Minnesota. Dr. Hoidal is a
co-investigator in connection with the Company's planned Phase I/II clinical
trial for the treatment of CF using SuperVent(TM). See "Business--Products and
Technologies under Development--Clinical Development Plan for SuperVent(TM) for
CF."
THOMAS P. KENNEDY, M.D., Co-chairman, Clinical Professor of Medicine at the
University of North Carolina and a pulmonary/critical care physician at
Carolinas Medical Center. Dr. Kennedy received his M.D. from Vanderbilt
University and a Masters in Public Health from The Johns Hopkins School of
Hygiene and Public Health. Dr. Kennedy trained in pulmonary/critical care
medicine at The Johns Hopkins Hospital.
BONNIE RAMSEY, M.D., Director, Cystic Fibrosis Center at the Children's Hospital
and Medical Center, Seattle, Washington, and Associate Professor of Pediatrics
at the University of Washington School of Medicine. Dr. Ramsey received her
undergraduate degree from Stanford University and her M.D. from Harvard Medical
School. Dr. Ramsey is an expert in cystic fibrosis and the author of numerous
articles including, "Management of Pulmonary Disease in Patients with Cystic
Fibrosis", which was published on July 18, 1996, in THE NEW ENGLAND JOURNAL OF
MEDICINE.
MICHAEL NEWHOUSE, M.D., Director, Barnett Medical Aerosol Research Laboratory,
St. Joseph's Hospital/McMaster University, Ontario, Canada, and Clinical
Professor of Medicine and Principal Investigator, Medicine/Respirology, at
McMaster School of Medicine. Dr. Newhouse received his M.D. from Queen's
University and a M.S. in experimental medicine from McGill University. Dr.
Newhouse serves as president of the Society for Aerosolized Medicine. Dr.
Newhouse is the author of numerous articles, books and book chapters in the
field of respiratory medicine.
ROBERT W. WILMOTT, M.D., Director, Division of Pulmonary Medicine, Allergy and
Clinical Immunology at the Children's Hospital Medical Center, Associate
Professor of Pediatrics at the University of Cincinnati College of Medicine and
the Hubert and Dorothy Campbell Professor of Pediatric Pulmonology at the
Children's Hospital Medical Center. Dr. Wilmott received his M.D. from London
University, a M.B. B.S. from University College Hospital in London and a BSc
from University
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College in London. Dr. Wilmott is the editor of THE PEDIATRIC LUNG, to be
published in the Respiratory Pharmacology and Pharmacotherapy series and by
Birkhauser Verlag AG of Basel, Switzerland.
ST-630 MEDICAL ADVISORY BOARD
HECTOR F. DELUCA, PH.D., Chairman. Chairman of the Department of Biochemistry
and Henry Steenbach, Research Professor at the University of
Wisconsin-Madison. Dr. DeLuca received his PH. D. and M.S. in Biochemistry
from the University of Wisconsin-Madison and a B.A. from the University of
Colorado. Dr. DeLuca is the inventor of CALCITRIOL AND ST-630, and has
authored over 1,000 publications in the fields of vitamin A, vitamin D,
parathyroid hormone and calcitonin. Dr. Deluca is the originator of over 150
U.S. patents and the recipient of numerous honors and awards.
KL4-SURFACTANT TECHNOLOGY SCIENTIFIC ADVISORY BOARD (ARDS)
CHARLES G. COCHRANE, M.D., Chairman. FELLOW, The Scripps Research Institute. See
"Executive Officers and Directors".
CHARLES RICE, M.D., Director. Professor of Surgery and Vice Dean, College of
Medicine, University of Illinois at Chicago. Dr. Rice received his M.D. from the
Medical College of Georgia.
MICHAEL MATHEY, M.D., Director. Associate Professor/Profesor of Medicine and
Anasthesia and Associate Director, Intensive Care Unit, University of California
at San Francisco. Dr. Mathey received his M.D. from the University of
Pennsylvania and his A.B. from Harvard College.
THOMAS MARTIN, M.D., Director. Associate Professor/Full Professor of Medicine,
Division of Pulmonary Critical Care Medicine, University of Washington School of
Medicine. Dr. Martin received his M.D. from the University of Pennsylvania.
KL4-SURFACTANT TECHNOLOGY SCIENTIFIC ADVISORY BOARD (MAS)
CHARLES G. COCHRANE, M.D., Chairman. FELLOW, The Scripps Research Institute See
"Executive Officers and Directors."
NEIL FINER, M.D., Director. Professor of Pediatrics, University of California at
San Diego. Dr. Finer received his M.D. from the University of Toronto.
FRANK MARINO, M.D., Director. Professor of Pediatrics, University of California
at San Diego. Dr. Mannino received his M.D. from Washington University, St.
Louis.
ALAN MERRITT, M.D., Director. , University of Oregon. Dr.
Merritt received his M.D. from the University of Kansas.
THOMAS E. WISWELL, M.D., Director. Professor of Pediatrics, Thomas Jefferson
University. Dr. Wiswell received his M.D. from the University of Pennsylvania
School of Medicine.
The Company expects that its MAB's and SAB's will meet as a board with
management and key scientific employees and consultants of the Company, as
applicable, on a semi-annual basis and in smaller groups or individually from
time to time on an informal basis. The Company anticipates that MAB and SAB
members will review and provide advice to management on clinical trial design,
scientific planning and research and development. The Company expects that in
the future it will compensate certain of its medical advisors on a per-meeting
basis and/or through the granting of stock options.
MAB and SAB members may be employed by or have consulting agreements with
entities other than the Company, some of which may conflict or compete with the
Company, or which may limit a particular member's availability to the Company.
Certain of the institutions with which MAB and SAB members are affiliated may
have regulations or policies which are unclear with respect to the ability of
such personnel to act as part-time consultants or in other capacities for a
commercial enterprise. Regulations or policies now in effect or adopted in the
future might limit the ability of MAB and SAB members to consult with the
Company. The loss of the services of MAB or SAB members could have a material
adverse effect on the Company.
Although each current MAB and SAB member has the customary contractual
obligation to keep confidential and not to disclose nor use any confidential or
proprietary information of the Company, inventions or processes discovered by
any MAB or SAB member, unless otherwise agreed, will not become the property of
the Company but will remain the property of such
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person or of such person's full-time employers. In addition, the institutions
with which the MAB and SAB members are affiliated may make available the
research services of their scientific and other skilled personnel, including the
MAB and SAB members to entities other than the Company. In rendering such
services, such institutions may be obligated to assign or license to a
competitor of the Company patents and other proprietary information which may
result from such services, including research performed by an advisor or
consultant for a competitor of the Company.
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CERTAIN TRANSACTIONS
Pursuant to a private offering held during June through November 1996, the
Company consummated an offering of Units consisting of Series A Preferred Stock
and Common Stock (the "Unit Offering") pursuant to which the Company raised
aggregate gross proceeds of approximately $22,002,550. In connection with
services rendered by Paramount as placement agent for the Unit Offering, and
pursuant to a placement agency agreement entered into by the Company and
Paramount, the Company paid Paramount cash commissions of approximately
$1,980,230, a non-accountable expense allowance of approximately $880,102 and
placement warrants to acquire 220,026 shares of Series A Preferred Stock,
exercisable until November 8, 2006 at an exercise price of $11 per share of
Series A Preferred Stock and 220,026 shares of Common Stock, exercisable until
November 8, 2006 at an exercise price of $0.25 per share. See "Description of
Securities--Placement Agent Warrants."
Pursuant to such placement agency agreement, on November 7, 1996, the Company
and Paramount entered into a Financial Advisory Agreement, pursuant to which
Paramount will act as the Company's financial advisor. Such engagement provides
that Paramount will receive a monthly retainer of $4,000 per month for a minimum
of 24 months, plus expenses and success fees.
The Company has agreed to indemnify Paramount and certain related parties with
respect to liabilities arising out of the Unit Offering under the Federal
securities laws pursuant to the Placement Agency Agreement entered into by the
Company and Paramount. The Company has also agreed to indemnify Paramount and
certain related parties with respect to liabilities arising out of services
rendered pursuant to the Financial Advisory Agreement.
Steve H. Kanzer, C.P.A., ESQ., the Chairman of the Board of Directors and a
stockholder of the Company, is a Senior Managing Director of Paramount. Kenneth
Johnson, the Director of Business Development and a stockholder of the Company,
is a Technology Associate of an affiliate of Paramount. In addition, Lindsay A.
Rosenwald, M.D., who is the Chief Executive Officer of RAQ, LLC, the controlling
stockholder of the Company, is also the Chairman of the Board of Directors,
Chief Executive Officer, President and the sole stockholder of Paramount.
In May 1993, the Company issued a total of 1,132,500 shares of Common Stock to
Lindsay A. Rosenwald, M.D., for $0.002 per share. Dr. Rosenwald subsequently
transferred these shares to RAQ, LLC, the controlling stockholder of the
Company. In March 1996, the Company issued an additional 1,595,100 shares of
Common Stock to RAQ, LLC for $0.002 per share. Dr. Rosenwald is the Chief
Executive Officer of RAQ, LLC. During 1995 and the first quarter of 1996, Dr.
Rosenwald provided loans to the Company in the aggregate amount of $17,794, the
proceeds of which were used for salary and administrative purposes. Dr.
Rosenwald contributed such loans to the capital of the Company prior to the
initiation of the Unit Offering. Dr. Rosenwald had guaranteed a credit facility
provided by Fleet Bank in favor of the Company in an amount up to $350,000. The
proceeds of these loans were used by the Company in connection with its entry
into the CMHA License Agreement and for general operating and working capital
purposes. The outstanding balance of such loans, $201,000, was repaid in
September 1996 using a portion of the proceeds of the Unit Offering.
In February 1995, the Company issued a total of 194,250 shares of Common Stock
for $0.002 per share to Mr. Kanzer and an additional 85,000 shares for $0.002
per share to certain family members of Mr. Kanzer. In March 1996, the Company
issued an additional 242,500 shares of Common Stock to Mr. Kanzer for $0.002 per
share. In February 1995, the Company issued 1,500 shares of Common Stock and in
March 1996 issued an additional 123,500 shares of Common Stock to Evan
Myrianthopoulos, the Chief Operating Officer, Secretary and a Director of the
Company, for $0.002 per share. In September 1996, the Company issued an
additional 62,000 shares of Common Stock to Mr. Myrianthopoulos for $0.002 per
share in recognition of his identification and introduction of the
KL4-Surfactant technology to the Company, which preceded his employment by the
Company. In May 1996, the Company entered into employment agreements with
Messrs. Kanzer and Myrianthopoulos. MR. MYRIANTHOPOULOS' EMPLOYMENT AGREEMENT
WAS TERMINATED WHEN HE BECAME A FULL-TIME EMPLOYEE OF THE COMPANY EFFECTIVE
JANUARY 1, 1997.
In April 1996, the Company entered into a three-year employment agreement with ^
James S. Kuo, M.D., the Chief Executive Officer and President and a Director of
the Company. See "Management--Executive Compensation" and " --Employment and
Consulting Agreements of Discovery Laboratories, Inc." In October 1996, ATI
entered into a four-year employment agreement with Robert J. Capetola, Ph.D.,
the President, Chief Executive Officer and Chairman of the Board of ATI. See
"Management-- Employment and Consulting Agreements of ATI."
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In connection with Dr. Max Link's serving on the Board of Directors of the
Company, the Company issued him, IN SEPTEMBER 1996, 25,000 options exercisable
at $0.20 per share. The Company has issued 50,000 shares of Common Stock for
$0.002 per share to Steve Birnbaum. Mr. Birnbaum has joined the Company as
Project Manager for the ST-630 program for postmenopausal osteoporosis at an
annual salary of $29,000. CURRENTLY, HIS ANNUAL SALARY IS $30,000. Mr. Birnbaum
was previously employed by Paramount Capital Investments, LLC, an affiliate of
Paramount, as a Technology Associate.
IN OCTOBER 1996, HARRIS KANZER, WHO IS THE FATHER OF STEVE H. KANZER, PURCHASED
6,000 SHARES OF COMMON STOCK AND 6,000 SHARES OF SERIES A PREFERRED STOCK FROM
THE COMPANY IN THE UNIT OFFERING.
IN FEBRUARY 1997, THE COMPANY GRANTED OPTIONS EXERCISABLE AT $0.20 PER SHARE FOR
THE PURCHASE OF 200,000 SHARES OF THE COMMON STOCK TO DR. KUO, FOR THE PURCHASE
OF 40,000 SHARE OF THE COMMON STOCK TO MR. KANZER; AND FOR THE PURCHASE OF
30,000 SHARES OF THE COMMON STOCK TO MR. MYRIANTHOPOULOS. TWENTY-FIVE PERCENT OF
THE FOREGOING OPTIONS VESTED IMMEDIATELY AND THE REMAINDER OF SUCH OPTIONS ARE
SUBJECT TO VESTING ON A MONTHLY BASIS OVER A 36-MONTH PERIOD THAT COMMENCED
JANUARY 31, 1997.
The Company and Paramount have entered into an office services agreement
pursuant to which Paramount provides certain office services to the Company,
including, without limitation, office space, dedicated phone lines, shared
duplicating, facsimile and courier services, and conference facilities. Pursuant
to such agreement, Paramount receives monthly rent and reimbursement of ^ $6,000
per month.
Pursuant to the Company's Certificate of Incorporation and Bylaws, the Company
has agreed to indemnify the Directors of the Company to the maximum extent
permissible under Delaware law.
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DESCRIPTION OF SECURITIES
The Company is authorized to issue up to 50,000,000 shares of Common Stock, par
value $0.001 per share, and 10,000,000 shares of Preferred Stock, par value,
$0.001 per share. As of January 2, 1997, 6,712,256 shares of Common Stock and
2,200,256 shares of Series A Preferred Stock were issued and outstanding.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held of
record. There is no right to cumulative voting of shares for the election of
Directors. The shares of Common Stock are not entitled to preemptive rights and
are not subject to redemption or assessment. Subject to the rights of holders of
Preferred Stock of the Company, each share of Common Stock is entitled to share
ratably in distributions to stockholders and to receive ratably such dividends
as may be declared by the Board of Directors out of funds legally available
therefor. Subject to the rights of holders of Preferred Stock of the Company,
upon liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to receive, pro-rata, the assets of the Company which
are legally available for distribution to stockholders. The issued and
outstanding shares of Common Stock are validly issued, fully paid and
non-assessable.
PREFERRED STOCK
The preferred stock of the Company can be issued in one or more series as may be
determined from time-to-time by the Board of Directors. In establishing a
series, the Board of Directors shall give to it a distinctive designation so as
to distinguish it from the shares of all other series and classes, and shall fix
the number of shares in such series and the preferences, rights and restrictions
thereof. All shares of any one series shall be alike in every particular. The
Board of Directors has the authority, without stockholder approval, to fix the
rights, preferences, privileges and restrictions of any series of preferred
stock including, without limitation: (a) the rate of distribution; (b) the price
at which and the terms and conditions on which shares shall be redeemed; (c) the
amount payable upon shares for distributions of any kind; (d) sinking fund
provisions for the redemption of shares; (e) the terms and conditions on which
shares may be converted if the shares of any series are issued with the
privilege of conversion; and (f) voting rights except as limited by law.
Although the Company currently does not have any fixed plans to designate any
series of preferred stock other than the Series A Preferred Stock or to issue
additional shares of preferred stock other than the shares of Series A Preferred
Stock issuable upon exercise of the Preferred Placement Warrants, there can be
no assurance that the Company will not do so in the future. As a result, the
Company could authorize the issuance of a series of preferred stock which would
grant to holders preferred rights to the assets of the Company upon liquidation,
the right to receive dividend coupons before dividends would be declared to
holders of Common Stock, and the right to the redemption of such shares,
together with a premium, prior to the redemption of Common Stock. The current
stockholders of the Company have no redemption rights. In addition, the Board of
Directors could issue large blocks of voting stock to fend off unwanted tender
offers or hostile takeovers without further stockholder approval.
SERIES A PREFERRED STOCK
The following is a brief summary of certain provisions of the Series A Preferred
Stock, but this summary does not purport to be complete and is qualified in all
respects by reference to the actual text of the Certificate of Designations for
the Series A Preferred Stock, a copy of which has been included as an Exhibit to
the Registration Statement and is incorporated herein by reference.
The Board of Directors of the Company has authorized the issuance of up to
7,000,000 shares of Series A Preferred Stock, the rights, preferences and
characteristics of which are as follows:
DIVIDENDS
The holders of Series A Preferred Stock will be entitled to receive dividends
if, as and when declared by the Board of Directors of the Company out of funds
legally available therefor. No dividend or distribution, as the case may be,
will be declared or paid on any junior stock (including the Common Stock) unless
the dividend also is paid to holders of the Series A Preferred Stock. The
Company does not intend to pay cash dividends on the Series A Preferred Stock or
the underlying Common Stock for the foreseeable future.
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CONVERSION
Each share of Series A Preferred Stock may be converted, in whole or in part, at
the option of the holder at any time after the initial issuance date into four
shares of Common Stock based upon an initial conversion price equal to $2.50 per
share of Common Stock (the "Preferred Conversion Price"). The Preferred
Conversion Price is subject to adjustment upon the occurrence of certain
mergers, reorganizations, consolidations, reclassifications, stock dividends or
stock splits that will result in an increase or decrease in the number of shares
of Common Stock outstanding. In addition, the Preferred Conversion Price is
subject to adjustment on the date which is 12 months after the first date on
which shares of the capital stock (or securities received in exchange for the
capital stock) are traded on a national securities exchange for the capital
stock, or are quoted on the National Association of Securities Dealers Automated
Quotation System, the OTC Electronic Bulletin Board or the "Pink Sheets," (the
"Reset Date") if the average closing bid trading price of the Common Stock for
the 30 consecutive trading days immediately preceding the Reset Date (the
"Twelve Month Trading Price") is less than 135% of the then applicable Preferred
Conversion Price ("Reset Event"). Upon the occurrence of a Reset Event, the then
applicable Preferred Conversion Price will be reduced to equal the greater of
(i) the Twelve Month Trading Price divided by 1.35 and (ii) 50% of the then
applicable Preferred Conversion Price.
MANDATORY CONVERSION
The Company has the right at any time after the Reset Date to cause the Series A
Preferred Stock to be converted in whole or in part, on a PRO RATA basis, into
shares of Common Stock at the applicable Preferred Conversion Price if the
closing price of the Common Stock exceeds 150% of the then applicable Preferred
Conversion Price for at least 20 trading days in any 30 consecutive trading day
period.
LIQUIDATION PREFERENCE
Upon a (i) liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, (ii) sale or other disposition of all or substantially
all of the assets of the Company or (iii) merger or consolidation in which the
Company is not the surviving entity and voting power of the Company's
stockholders after such transaction is less than 50% (a "Merger Transaction")
((i), (ii) and (iii) being collectively referred to as a "Liquidation Event"),
after payment or provision for payment of the debts and other liabilities of the
Company, the holders of the Series A Preferred Stock then outstanding will first
be entitled to receive, PRO RATA, and in preference to the holders of the Common
Stock and any other series of Preferred Stock of the Company, an amount per
share equal to $13.50, subject to adjustment, plus accrued but unpaid dividends,
if any; PROVIDED, HOWEVER, that in the case of a Merger Transaction, such $13.50
per share may be paid in cash and/or securities of the surviving entity in such
Merger Transaction.
VOTING RIGHTS
The holders of the Series A Preferred Stock have the right at all meetings of
stockholders to the number of votes equal to the number of shares of Common
Stock issuable upon conversion of the Series A Preferred Stock at the record
date for determination of the stockholders entitled to vote. So long as a
majority of the shares of Series A Preferred Stock remain outstanding, the
holders of 66.67% of the Series A Preferred Stock are required to approve (i)
the issuance of any securities of the Company senior to or on parity with the
Series A Preferred Stock, (ii) any material alteration or change in the rights
or preferences or privileges of the Series A Preferred Stock and (iii) the
declaration or payment of any dividend on any junior stock or the repurchase of
any securities of the Company. Except as provided above or as required by
applicable law, the holders of the Series A Preferred Stock, other than in
connection with vesting provisions of employee and consultant agreements, vote
together with the holders of the Common Stock and not as a separate class.
LOCK-UP AND BLACKOUT PERIODS
The holders of shares of Common Stock issuable upon conversion of shares of
Series A Preferred Stock (the "Conversion Shares") have agreed pursuant to their
subscription agreements with the Company executed in connection with the Unit
Offering not to offer, pledge, sell, contract to sell, grant any option for the
sale of, or otherwise dispose of, directly or indirectly, any Conversion Shares,
without the prior written consent of Paramount. Such restrictions apply until
(i) three months after the first date on which the shares of Common Stock become
publicly traded (the "Initial Trading Date") with respect to 100% of each of the
holders' Conversion Shares, (ii) six months after the Initial Trading Date with
respect to 75% of such Conversion Shares, (iii) nine months after the Initial
Trading Date with respect to 50% of such Conversion Shares, and (iv) 12 months
after the Initial Trading Date with respect to the remaining 25% of such
Conversion Shares.
54
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<PAGE>
The holders of Series A Preferred Stock issuable upon exercise of the Preferred
Placement Warrants and the Common Stock issuable upon conversion thereof
(collectively, the "Placement Conversion Shares") are bound, pursuant to the
terms of such Preferred Placement Warrants, not to offer, pledge, sell, contract
to sell, grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any of the Placement Conversion Shares prior to 12 months after the
initial trading date of such Placement Conversion Shares.
In addition, any shares of Common Stock issuable upon conversion of the Series A
Preferred Stock shall be subject to a blackout period with respect to the
Registration Statement for the following periods: (i) any period not to exceed
two 30-day periods within any one 12-month period the Company requires in
connection with a primary underwritten offering of equity securities and (ii)
any period, not to exceed a 60-day period per circumstance or development, when
the Company determines in good faith that offers and sales pursuant thereto
should not be made by reason of the presence of material undisclosed
circumstances or developments with respect to which the disclosure that would be
required in such a prospectus is premature, would have a material adverse effect
on the Company or is otherwise inadvisable.
STOCK OPTIONS
A total of 1,250,000 shares of Common Stock has been reserved for issuance
under the Company's 1996 Stock Option Plan (the "Option Plan"). The Option Plan
was adopted by the Board of Directors in October 1996. The Option Plan expires
by its own terms in 2006. See "Management--Discovery Option Plan." Such options
do not confer upon holders thereof any voting or any other rights of a
stockholder of the Company. The shares of Common Stock issuable upon exercise of
the options and warrants in accordance with the terms thereof, will be fully
paid and nonassessable.
Any issuance of stock pursuant to the Stock Option Plan may dilute the value of
the shares of Common Stock.
PLACEMENT AGENT WARRANTS
The following summaries are qualified in their entirety by the text of the
warrants, copies of which have been filed as exhibits to the Registration
Statement.
In connection with services rendered by Paramount, as placement agent in the
Unit Offering, and pursuant to a placement agency agreement entered into by the
Company and Paramount, the Company issued to Paramount and/or its designees
warrants to acquire approximately 220,026 newly issued shares of Series A
Preferred Stock (the "Preferred Placement Warrants"). Each Preferred Placement
Warrant entitles the registered holder thereof to purchase Series A Preferred
Stock at a price of $11 per share, at any time until November 8, 2006. In
connection therewith, the Company also issued to Paramount and/or its designees
warrants to acquire approximately 220,026 newly issued shares of Common Stock
(the "Common Placement Warrants," and collectively with the Preferred Placement
Warrants, the "Placement Agent Warrants"). Each Common Placement Warrant
entitles the registered holder thereof to purchase Common Stock at a price of
$0.25 per share, at any time until November 8, 2006.
The Placement Agent Warrants may be exercised in whole or in part and may be
exercised on a "net exercise" basis pursuant to a provision that does not
require the payment of any cash to the Company. The Common Stock issuable upon
conversion of the Series A Preferred Stock issuable upon exercise of the
Preferred Placement Warrants, and such Series A Preferred Stock, are subject to
certain lock-up restrictions. See "Series A Preferred Stock--Lock-up and
Blackout Periods."
The Placement Agent Warrants contain provisions to protect the holders thereof
against dilution by adjusting the price at which the Placement Agent Warrants
are exercisable and the number of shares issuable upon exercise thereof upon the
occurrence of certain events, including the payment of stock dividends and
distributions, stock splits, recapitalization, reclassifications and
reorganizations affecting the Company's securities and issuances of shares at
below the then market price.
55
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<PAGE>
The Company is not required to issue fractional shares of common Stock upon
exercise of any such warrants. In lieu thereof, an amount of cash equal to the
same fraction of the then current market value of a share of Common Stock will
be paid. No adjustment as to dividends will be made upon any exercise of any
such warrants. The holder of any such warrant will not have any rights as a
holder of Common Stock unless and until the applicable warrant is exercised for
the Common Stock issuable upon such exercise.
REGISTRATION RIGHTS
Pursuant to an investor rights agreement, RAQ, LLC, the holder of 2,727,600
shares of Common Stock has unlimited "piggyback" registration rights and two
demand Form S-3 registration rights per year subsequent to an initial public
offering of the Common Stock with respect to such shares. These registration
rights are subject to certain conditions and limitations, including a "lock-up"
provision for a period of 12 months following the Initial Trading Date and the
right of the underwriters to restrict the number of shares offered in a
registration.
In March 1996, RAQ, LLC entered into separate Co-Sale and Co-Registration
Agreements with Thomas P. Kennedy, M.D., and John R. Hoidal, M.D., pursuant
to which RAQ, LLC, among other things, agreed not to sell or transfer certain of
its securities of the Company unless Dr. Kennedy or Dr. Hoidal, as applicable,
was given the opportunity to participate in such transaction. RAQ, LLC also
agreed to use its best efforts to grant Dr. Kennedy or Dr. Hoidal, as
applicable, access to such registration rights as RAQ, LLC may have with respect
to securities of the Company.
TRANSFER AGENT
The Transfer Agent for the shares of Common Stock is American Stock Transfer &
Trust Company of New York.
56
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<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth (i) the name of each Selling
Securityholder, (ii) the amount of shares of Common Stock owned, whether
outstanding or issuable, by such holder before the Offering, (iii) the amount of
shares of Common Stock which may be offered by each Selling Securityholder and
(iv) the amount and percentage of shares of Common Stock to be owned by each
such holder following the completion of the Offering. The amounts of Common
Stock set forth above under the caption "Amount to be Offered" represents the
aggregate number of shares of (A) Common Stock owned by each Selling
Securityholder, (B) Common Stock issuable upon conversion of the Series A
Preferred Stock owned by each Selling Securityholder, (C) Common Stock issuable
upon conversion of the Series A Preferred Stock issuable upon exercise of the
Preferred Placement Warrants owned by each Selling Securityholder and (D) Common
Stock issuable upon exercise of the Common Placement Warrants owned by each
Selling Securityholder, assuming, for purposes of (B) and (C), that there is no
reset of the conversion price applicable to the Series A Preferred Stock.
</TABLE>
<TABLE>
<CAPTION>
Percentage
Shares Owned Amount to Shares Owned Owned after
Name of Shareholder(1) prior to Offering be Offered after Offering Offering
<S> <C> <C> <C>
126736 Canada, Inc. 486,775 486,775 0 *
A.M. Group, LLC, The 40,000 40,000 0 *
Adams, Leonard 25,000 25,000 0 *
Ain, Ross 7,500 7,500 0 *
Alberstadt, Kenneth 5,000 5,000 0 *
Albert Fried & Co. LLC 250,000 250,000 0 *
Applebaum, Aaron 25,000 25,000 0 *
Aries Domestic Fund, The 337,500 337,500 0 *
Aries Trust, The 787,500 787,500 0 *
Atrix-Ventana Inv. Co. LP 125,845 125,845 0 *
Atticus Advisors Ltd. 25,000 25,000 0 *
Atticus International Ltd. 75,000 75,000 0 *
Atticus Partners LP 75,000 75,000 0 *
Bagley, Frederick 6,250 6,250 0 *
Banque SCS Alliance 250,000 250,000 0 *
Banque Unigestion 62,500 62,500 0 *
Bareket, Kathryn & Henry 12,500 12,500 0 *
Barness, Amnon/Caren 25,000 25,000 0 *
Batkin, Alan 25,000 25,000 0 *
Belldegrun, Arie 50,000 50,000 0 *
Benrubi, Katherine 12,500 12,500 0 *
Bershad, David 100,000 100,000 0 *
Bollag, Michael 150,000 150,000 0 *
Buehler, Seymour 12,500 12,500 0 *
Calivllo, M. Rafael Gonzalez 5,000 5,000 0 *
Callahan, Patrick 12,500 12,500 0 *
Cameron, Robert 50,000 50,000 0 *
Candor Holdings 50,000 50,000 0 *
Canelo, Peter 5,000 5,000 0 *
Cantor, Michael 50,000 50,000 0 *
Capotorto, Vito 12,500 12,500 0 *
Carter, Donald 250,000 250,000 0 *
Cerrone, Gabriel 50,000 50,000 0 *
Chanin, Richard IRA 25,000 25,000 0 *
Churchpark Finance Ltd. 125,000 125,000 0 *
Cichelli, Andrew & Barbara 7,500 7,500 0 *
Cinco de Mayo, Ltd. 25,000 25,000 0 *
Coleman, Roger & Margaret 12,500 12,500 0 *
Colony Patners 25,000 25,000 0 *
Concordia Partners LP 250,000 250,000 0 *
Conrads, Robert 25,000 25,000 0 *
Cotler, Ira 6,250 6,250 0 *
Cox, Archibald 125,000 125,000 0 *
Darcy, Ltd. 12,500 12,500 0 *
57
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<PAGE>
Davis, I.G. 12,500 12,500 0 *
De Hoop Investment Inc. 50,000 50,000 0 *
De Ramirez, Elke 5,000 5,000 0 *
Deutsch, Rory 5,000 5,000 0 *
Diversified Fund Ltd. 100,000 100,000 0 *
Dominguez, Rene & Carol 5,000 5,000 0 *
Drapkin, Donald 50,000 50,000 0 *
Edelstein, Lee IRA 12,500 12,500 0 *
Fabiani, Joseph & Theresa 25,000 25,000 0 *
Fabiani, Joseph MD 10,000 10,000 0 *
Fairbairn, Malcolm 25,000 25,000 0 *
Faisal Finance (Switzerland) SA 250,000 250,000 0 *
Farb, Thomas 12,500 12,500 0 *
Federbush, Daniel 25,000 25,000 0 *
Feingold, Aaron 5,000 5,000 0 *
Feshbach, Joseph & Hilary 25,000 25,000 0 *
Financeria e Inversionista 125,000 125,000 0 *
Fisher, Norman 25,000 25,000 0 *
Florin, Marc Keogh PSP 12,500 12,500 0 *
Folino, Peter 12,500 12,500 0 *
Forcart, Dietrich 12,500 12,500 0 *
G.P.S. Fund Limited 12,500 12,500 0 *
Garnick, Michael J. 50,000 50,000 0 *
Gifford Fund, The 125,000 125,000 0 *
Ginieris, Jefferson/Donna 5,000 5,000 0 *
Gittis, Howard UIT-Goldstein TTEE 50,000 50,000 0 *
Gmuer, Adrian 10,000 10,000 0 *
Gold, Laura 12,500 12,500 0 *
Gonzalez M., Roberto 25,000 25,000 0 *
Gordon, Michael 12,500 12,500 0 *
Gordon, Robert 50,000 50,000 0 *
Granovsky, Robert 12,500 12,500 0 *
Harpel, James W. 75,000 75,000 0 *
Harrison, Brian 12,500 12,500 0 *
Hecht, Thomas 30,000 30,000 0 *
Heptagon Investments 62,500 62,500 0 *
Heritage Finance & Trust 150,000 150,000 0 *
Heymann, Jerry 12,500 12,500 0 *
Hoffner, Herbert 12,500 12,500 0 *
Holding Company, The 25,000 25,000 0 *
Holstern Securities Ltd. 50,000 50,000 0 *
IASD Health Services 125,000 125,000 0 *
J.F. Shea Co., Inc. 250,000 250,000 0 *
Jackson Hole Inv Acq LP 50,000 50,000 0 *
Jensen, Peter 25,000 25,000 0 *
K.F.Chemical Co. Ltd. 25,000 25,000 0 *
Kane, Patrick 25,000 25,000 0 *
Kanzer, Harris 30,000 30,000 0 *
Kass, Amram DBPP 40,000 40,000 0 *
Kass, Amram MPPP 60,000 60,000 0 *
Kendall, Donald 25,000 25,000 0 *
Kessel, Daniel 12,500 12,500 0 *
Kessel, Lawrence 12,500 12,500 0 *
Keys Foundation 250,000 250,000 0 *
Kim, Guen-Eun 12,500 12,500 0 *
Klein, R./Gluck, M. 50,000 50,000 0 *
Knox, Robert 100,000 100,000 0 *
Koffman, Steven 12,500 12,500 0 *
Kotel, Ira 5,000 5,000 0 *
Kratchman, Martin 5,000 5,000 0 *
Kubin, Michael & Nicole 50,000 50,000 0 *
Lambert, Jeffrey 25,000 25,000 0 *
Lambert, Michael 6,250 6,250 0 *
Lash, Roger 12,500 12,500 0 *
58
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<PAGE>
Leason, Hayden 125,000 125,000 0 *
Leland Corp. 12,500 12,500 0 *
Lemer, Albert 12,500 12,500 0 *
Lemor, Susan Tauber 12,500 12,500 0 *
Lenchner, Gregory 12,500 12,500 0 *
Linton Lake S.A 25,000 25,000 0 *
Little Wing LP 125,000 125,000 0 *
Livas, Alfredo 7,500 7,500 0 *
Loeb, John 12,500 12,500 0 *
Lombardi, Joseph 25,000 25,000 0 *
Magnum Capital Growth Fund 25,000 25,000 0 *
Marathon Agents 12,500 12,500 0 *
Marcus, Michael 250,000 250,000 0 *
May, Peter 125,000 125,000 0 *
MBS Investors 37,500 37,500 0 *
MDBC Capital Corp. 25,000 25,000 0 *
Melohn, Alfons 50,000 50,000 0 *
Milch, F./Speaker, M. 12,500 12,500 0 *
Mintz, Paulette Tauber 12,500 12,500 0 *
Mitani, Hideki 2,500 2,500 0 *
Molinsky, Richard 25,000 25,000 0 *
Monument Trust Co., The 50,000 50,000 0 *
Morrow, Richard 12,500 12,500 0 *
Mosberg, Robert 12,500 12,500 0 *
Mova Investments 50,000 50,000 0 *
Murphy, Charles 12,500 12,500 0 *
Nagle, Arthur 12,500 12,500 0 *
Neuhaus, Edmund IRA 5,000 5,000 0 *
NR Atticus, Ltd. 50,000 50,000 0 *
O'Connor, Ralph 31,250 31,250 0 *
Oberrotman, Alain 12,500 12,500 0 *
Obregon, Cecilia/Raul 22,000 22,000 0 *
Old Oly 25,000 25,000 0 *
Osterweis Rev Trust 12,500 12,500 0 *
Ostrovksy, Paul & Rebecca 12,500 12,500 0 *
Ostrovsky, Steven 12,500 12,500 0 *
Palmetto Partners Ltd. 200,000 200,000 0 *
Paramount Capital Incorporated (3) 1,100,129 1,100,129 0 *
Peltz, Nelson 125,000 125,000 0 *
Plancarte, C./De Marvan, L. 12,500 12,500 0 *
Porlana Capital Corp. 50,000 50,000 0 *
Prager, Tis 40,000 40,000 0 *
Premero Investments 32,500 32,500 0 *
Quezada, A./M. 5,000 5,000 0 *
Reichstetter, Arthur 75,000 75,000 0 *
Richmont Capital Partners I, LP 25,000 25,000 0 *
Roberts, Bruce 3,750 3,750 0 *
Roberts, Douglas 3,750 3,750 0 *
Roberts, Todd IRA 10,000 10,000 0 *
Robinson, Linda Gosden 25,000 25,000 0 *
Rosen, J. Philip 25,000 25,000 0 *
Rothenberg, Jeffrey 15,000 15,000 0 *
Ruttenberg, David 12,500 12,500 0 *
Sabbah, M.D. 250,000 250,000 0 *
Sacks, Lee 12,500 12,500 0 *
Sacks, Selig IRA 25,000 25,000 0 *
Saker, Wayne 25,000 25,000 0 *
Sandler, Scott 10,000 10,000 0 *
Sanger Investments II 10,000 10,000 0 *
Schonzeit, Andrew 25,000 25,000 0 *
Schuhsler, Helmut 10,000 10,000 0 *
59
<PAGE>
<PAGE>
Sehgal, Evan 10,000 10,000 0 *
Selz, Bernard 100,000 100,000 0 *
Sheridan, L. Kevin 10,000 10,000 0 *
Silverman, Eugene 5,000 5,000 0 *
Singman, Brad 15,000 15,000 0 *
Slovin, Bruce 50,000 50,000 0 *
Speisman, Aaron 25,000 25,000 0 *
Spivak, Robert Retirement Plan 12,500 12,500 0 *
Stein, Herbert 12,500 12,500 0 *
Steinberg, Edward 12,500 12,500 0 *
Stevens Knox & Assoc. Inc. 7,500 7,500 0 *
Stourbridge Investments Ltd. 15,000 15,000 0 *
Strauss, Gary 12,500 12,500 0 *
Strome, Mark IRA 100,000 100,000 0 *
Suan Investments 50,000 50,000 0 *
Sunshine Charitable Trust 100,000 100,000 0 *
Taub, Hindy 25,000 25,000 0 *
Teitelbaum, Myron 12,500 12,500 0 *
Termtec, Ltd. 25,000 25,000 0 *
Turtur, Marino 20,000 20,000 0 *
Turtur, Marino IRA TR 40,000 40,000 0 *
Umbach, Joseph 25,000 25,000 0 *
Ventana Growth Capital Fund V 49,160 49,160 0 *
Verner, Jules 25,000 25,000 0 *
Vivaldi, Ltd. 50,000 50,000 0 *
Warshawsky, Alan 12,500 12,500 0 *
Wayne, Laurel 12,500 12,500 0 *
Webster, John 5,000 5,000 0 *
Weiner, Mark 12,500 12,500 0 *
Weingarten, Palomba 25,000 25,000 0 *
Weiss, Melvyn 50,000 50,000 0 *
Whetten, Robert 50,000 50,000 0 *
Williams, Esther 50,000 50,000 0 *
Windward Venture Partners 100,000 100,000 0 *
Wise, Alan/Terri 12,500 12,500 0 *
Wolfson Equities 500,000 500,000 0 *
Wong, Lap Yan Eddy 12,500 12,500 0 *
Wood, Kenton 12,500 12,500 0 *
Zabludowicz Trust, The 50,000 50,000 0 *
Zapco Holdings Inc. DCPT 50,000 50,000 0 *
Zucker, Uzi 25,000 25,000 0 *
TOTAL 12,101,409 12,101,409 0 *
</TABLE>
* Represents less than 1.0 %.
(1) Unless otherwise indicated, includes all shares of Common Stock
issuable upon conversion of the Series A Preferred Stock at the initial
conversion rate of $2.50 per share. See "Description of
Securities--Series A Preferred Stock."
(2) Includes Common Stock issuable upon conversion of the shares of Series
A Preferred Stock issuable upon exercise of the Preferred Placement
Warrants.
(3) Includes 220,026 shares of Common Stock issuable upon exercise of the
Common Placement Warrants and 880,103 shares of Common Stock issuable
upon conversion of the Series A Preferred Stock issuable upon exercise
of the Preferred Placement Warrants.
60
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Each Selling Securityholder may, but is not required to, sell all of the shares
of Common Stock shown in the column entitled "Amount of Shares to be Offered"
subject, in certain instances, to lock-up provisions. See "Description of
Securities--Series A Preferred Stock--Lock-Up and Blackout Periods." The Selling
Securityholders and any broker-dealers that act in connection with the sale of
the Common Stock as principals may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of such securities as principals might be
deemed to be underwriting discounts and commissions under the Act. The Selling
Securityholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of such securities certain
liabilities, including liabilities arising under the Securities Act. The Company
will not receive any proceeds from the sales of the Common Stock by the Selling
Securityholders, although the Company may receive proceeds from the exercise of
the Placement Agent Warrants. Sales by the Selling Securityholders, or even the
potential for such sales, would likely have an adverse effect on the market
price of the Common Stock.
At the time a particular offer for Common Stock is made, except as herein
contemplated, by or on behalf of the Selling Securityholder, to the extent
required, a Prospectus will be distributed by the Selling Securityholder which
will set forth the number of shares of Common Stock being offered and the terms
of the Offering, including the name or names of any underwriters, dealers or
agents, if any, the purchase price paid by any underwriter for shares purchased
from the Selling Securityholder and any discounts, commissions or concessions
allowed or reallowed or paid to dealers.
Except as noted below, none of the Selling Securityholders named in the
preceding table has had any position, office or other material relationship with
the Company or any of its affiliates within the past three years. The Aries
Domestic Fund, L.P. and The Aries Fund, a Cayman Island Trust are private
investment funds managed by ^ Lindsay A. Rosenwald, M.D., the Chief Executive
Officer of RAQ, LLC, the controlling stockholder of the Company and the Chairman
of the Board of Directors, Chief Executive Officer, President and sole
stockholder of Paramount. PARAMOUNT ACTED AS PLACEMENT AGENT FOR THE COMPANY'S
PRIVATE EQUITY PLACEMENT CONDUCTED DURING JUNE THROUGH NOVEMBER OF 1996. SEVERAL
EMPLOYEES OF THE COMPANY ARE OR PREVIOUSLY WERE AFFILIATED WITH PARAMOUNT. See
"Certain Transactions." Harris Kanzer is the father of Steve H. Kanzer, C.P.A.,
ESQ., the Chairman of the Board of Directors and a stockholder of the Company.
Marc Florin and Martin Kratchman are registered representatives of Paramount.
SHARES ELIGIBLE FOR FUTURE SALES
Upon completion of the Offering, the Company will have 17,298,909 shares of
Common Stock outstanding or issuable upon the conversion of the Series A
Preferred Stock and the exercise of all outstanding options and warrants as of
January 2, 1997. Of these shares, the 12,101,409 shares registered in the
Offering will be freely tradeable without restriction or further registration
under the Securities Act, except that (i) any shares purchased by "affiliates"
of the Company, as the term is defined under the Securities Act ("Affiliates"),
may generally only be sold in compliance with the limitations of Rule 144
described below and (ii) such registered shares that are subject to certain
lock-up provisions discussed below. In addition, the Company believes that there
are no shares of Common Stock that are eligible for sale without restriction or
further registration under the Securities Act, subject to certain requirements.
See "Risk Factors--Potential Adverse Effect of Shares Eligible For Future
Sales."
SALES OF RESTRICTED SHARES
The Company believes that 4,512,000 outstanding shares of Common Stock are
"restricted securities" and under certain circumstances may, in the future, be
sold in compliance with Rule 144. Assuming the availability of Rule 144, the
Company believes that 1,132,500 "restricted" shares of Common Stock are
currently eligible for sale and that an additional 3,379,500 "restricted" shares
of Common Stock will be eligible for sale in 1998 and 1999, in each case so long
as there is adequate current public information with respect to the Company as
contemplated by Rule 144, as well as, certain volume limitations and manner of
sale requirements imposed by Rule 144.
In general, under Rule 144, subject to the satisfaction of certain other
conditions, a person, including an affiliate of the Company, who beneficially
owned restricted shares of Common Stock for at least two years is entitled to
sell, within any three-month period, a number of shares that does not exceed the
greater of one percent of the total number of outstanding shares of the same
class, or if the Common Stock is quoted on the Nasdaq Small-Cap Market or a
national securities
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exchange, the average weekly trading volume during the four calendar weeks
immediately preceding the sale. A person who presently is not and who has not
been an affiliate of the Company for at least three months immediately preceding
the sale and who has beneficially owned the shares of Common Stock for at least
three years is entitled to sell such shares under Rule 144(K) without regard to
the volume limitations described above. THE COMMISSION HAS RECENTLY ADOPTED
REVISIONS TO RULE 144 AND RULE 144(K), THE EFFECT OF WHICH WILL BE TO SHORTEN
THE HOLDING PERIOD UNDER RULE 144 FROM TWO YEARS TO ONE YEAR AND TO SHORTEN THE
HOLDING PERIOD UNDER RULE 144(K) FROM THREE YEARS TO TWO YEARS.
Prior to the Offering, there has been no public market for the Common Stock and
no predictions can be made of the effect, if any, that the sale or availability
for sale of "RESTRICTED" SHARES OR locked-up shares will have on the market
price of the Common Stock. Nevertheless, sales of substantial amounts of such
shares in the public market, or the perception that such sales could occur,
could adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities.
For a description of the Company's outstanding warrants and options, See
"Description of Securities--Stock Options" and "--Placement Agent Warrants."
62
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PLAN OF DISTRIBUTION
The Selling Securityholders may, but are not required to, sell, directly or
through brokers, the shares of Common Stock in negotiated transactions or in one
or more transactions in the market at the price prevailing at the time of sale.
(Certain of the Common Stock is subject to a lock-up agreement. See "Description
of Securities--Lock-Up Agreements".) In connection with such sales, the Selling
Securityholders and any participating broker may be deemed to be "underwriters"
of the shares of Common Stock within the meaning of the Securities Act, although
the offering of these securities will not be underwritten by a broker-dealer
firm. Sales in the market may be made to broker-dealers making a market in the
Common Stock or other broker-dealers, and such broker-dealer, upon their resale
of such securities, may be deemed to be "Selling Securityholders" in this
offering. The Company will not receive any of the proceeds from the sale of the
Common Stock by the Selling Securityholders. Pursuant to the terms under which
the Common Stock, the Series A Preferred Stock and Placement Agent Warrants were
issued and sold, the Company has agreed to indemnify the Selling Securityholders
against such liabilities they may incur as a result of any untrue statement of a
material fact in the Registration Statement of which this Prospectus forms a
part, or any omission herein or therein to state a material fact necessary in
order to make the statements made, in the light of the circumstances under which
they were made, not misleading. Such indemnification includes liabilities that
the Selling Securityholders may incur under the Securities Act.
The Company will bear all costs and expenses of the registration under the
Securities Act and certain state securities laws of the Common Stock and any
discounts or commissions payable with respect to sales of such securities.
From time to time, this Prospectus will be supplemented and amended as required
by the Securities Act. During any time when a supplement or amendment is so
required, after notice from the Company, the Selling Securityholders are
required to cease sales until the Prospectus has been supplemented or amended.
The Selling Securityholders have advised the Company that they may sell,
directly or through brokers, all or a portion of the securities offered hereby
in negotiated transactions or in one or more transactions in the market at the
price prevailing at the time of sale. In connection with such sales, the Selling
Securityholders and any participating broker may be deemed to be "underwriters"
of the Common Stock within the meaning of the Securities Act of 1933. It is
anticipated that usual and customary brokerage fees will be paid by the Selling
Securityholders in all open market transactions. The Company will pay all other
expenses of this Offering. The Company will advise the Selling Securityholders
that no NASD member participating in the offering of the shares of Common
Stock being offered hereby by the Selling Securityholders may receive
compensation in excess of 8% of the proceeds of the sale of such shares. In
addition, the terms and arrangements of any underwritten offering must be
filed with the NASD for its review pursuant to Section 2710 of the NASD's
Corporate Financing Rules.
The Company will inform the Selling Securityholders that the anti-manipulation
provisions of Regulation M under the Securities Exchange Act of 1934
may apply to the sales of their shares offered hereby. The Company will advise
the Selling Securityholders of the requirement for delivery of this Prospectus
in connection with any sale of the Common Stock offered hereby.
Certain Selling Securityholders may from time to time purchase shares of Common
Stock in the open market. These Selling Securityholders have been notified
that they should not commence any distribution of Common Stock unless they
have terminated their purchasing and bidding for Common Stock in the open
market as provided in applicable securities regulations, including,
without limitation, Regulation M.
63
<PAGE>
<PAGE>
EXPERTS
The audited consolidated financial statements of the Company included herein and
elsewhere in the Registration Statement have been audited by Richard A. Eisner &
Company LLP, independent certified public accountants, for the periods and to
the extent set forth in their reports appearing herein and elsewhere in the
Registration Statement. Such financial statements have been so included in
reliance upon the report of such firm given upon their authority as experts in
auditing and accounting.
LEGAL COUNSEL
Legal matters relating to the Offering will be passed upon for the Company by
Roberts, Sheridan & Kotel, a Professional Corporation, New York, New York,
counsel to the Company. Members of such firm beneficially own an aggregate of
35,000 shares of Common Stock assuming the conversion of all shares of Series A
Preferred Stock owned by them at the initial conversion price applicable
thereto. All of such shares of Common Stock owned directly or issuable upon
conversion of shares of Series A Preferred Stock are included in this
Registration Statement.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a Registration Statement on Form SB-2 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules to the Registration Statement. For further information with respect to
the Company and such Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed as a part of the
Registration Statement. Statements contained in this Prospectus concerning the
contents of any contract or any other document referred to are not necessarily
complete; reference is made in each instance to the copy of such contract or
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in all respects by such reference to such exhibit. The Company has
filed with the Securities and Exchange Commission (the "Commission") a
Registration Statement on Form SB-2 (together with all amendments and exhibits
thereto being herein referred to as the "Registration Statement") under the
Securities Act of 1933. The Registration Statement, as well as other reports and
other information filed by the Company, can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at 7 World Trade Center, New York, New York 10048. Copies of such material can
be obtained upon written request addressed to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a site on the World Wide Web at http://www.sec.gov that
contains reports, proxy and other information statements regarding registrants
that file electronically with the Commission. Prior to the effective date of the
Registration Statement, the Company was not a reporting company under the
Exchange Act.
64
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Discovery Laboratories, Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of
Discovery Laboratories, Inc. and subsidiary (a development stage company) as at
December 31, 1996, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the two years ended December
31, 1996, and the period from May 18, 1993 (inception) to December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements enumerated above
present fairly, in all material respects, the financial position of Discovery
Laboratories, Inc. and subsidiary at December 31, 1996, and the results of their
operations and their cash flows for the two years ended December 31, 1996, and
the period from May 18, 1993 (inception) to December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ Richard A. Eisner & Company, LLP
New York, New York
February 12, 1997
F-1
<PAGE>
DISCOVERY LABORATORIES, INC.
(a development stage company)
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 1996
A S S E T S
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 4,336,000
Investments in United States government obligations
(at market value) . . . . . . . . . . . . . . . . . . 13,064,000
Prepaid expenses. . . . . . . . . . . . . . . . . . . . 19,000
-----------
Total current assets . . . . . . . . . . . . . . 17,419,000
Computer equipment, net of depreciation (Note B) . . . . . 69,000
Licenses, net of amortization (Note E) . . . . . . . . . . 701,000
-----------
T O T A L. . . . . . . . . . . . . . . . . . . . $18,189,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses . . . . . . . . . . . . . . . . . . . . . $ 231,000
-----------
Commitments and contingencies (Notes E and G)
Minority interest in preferred stock of subsidiary
(Note G). . . . . . . . . . . . . . . . . . . . . . . . 2,200,000
-----------
Stockholders' equity (Notes F, H and I):
Series A convertible preferred stock, $.001
par value; 7,000,000 shares
authorized; 2,200,256 shares outstanding
(liquidation preference ($29,703,000) . . . . . . . . . . 2,000
Other preferred stock, $.001 par value 3,000,000
shares authorized, none outstanding
Common stock - $.001 par value, 50,000,000 shares
authorized, 6,712,256 shares outstanding. . . . . . . 7,000
Additional paid-in capital. . . . . . . . . . . . . . . 19,003,000
Deficit accumulated during the
development stage . . . . . . . . . . . . . . . . . . (3,254,000)
------------
Total stockholders' equity . . . . . . . . . . . 15,758,000
-----------
T O T A L. . . . . . . . . . . . . . . . . . . . $18,189,000
===========
- ---------------------------------------------------------------------------
The accompanying notes to financial statements are an integral part hereof.
F-2
<PAGE>
DISCOVERY LABORATORIES, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
May 18, 1993
(Inception)
Year Ended to
December 31, December 31,
1995 1996 1996
------ ------ -----
Interest income . . . . . . . . $ 205,000 $ 205,000
------------ -----------
Expenses:
Research and development . . 2,740,000 2,740,000
General and administrative . $ 17,000 692,000 710,000
Interest . . . . . . . . . . 11,000 11,000
--------- ----------- -----------
Total expenses. . . . 17,000 3,443,000 3,461,000
--------- ------------ -----------
(17,000) (3,238,000) (3,256,000)
Minority interest in net loss
of subsidiary. . . . . . . . 2,000 2,000
------------ -----------
NET (LOSS). . . . . . . . . . . $(17,000) $(3,236,000) $(3,254,000)
========= ============ ============
Net (loss) per share. . . . . . $(.01) $(.76)
====== ======
Weighted average common shares
outstanding. . . . . . . . . 1,468,787 4,234,597
========== =========
The accompanying notes to financial statements are an
integral part hereof.
F-3
<PAGE>
DISCOVERY LABORATORIES, INC.
(a development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Stock Additional
Common Stock Preferred Stock Subscriptions Paid-in
Shares Amount Shares Amount Receivable Capital
-------- -------- -------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Issuance of common shares, May 1993. . . . . . . 1,132,500 $1,000 $(2,000) $ 1,000
Net loss . . . . . . . . . . . . . . . . . . . .
Expenses paid on behalf of the Company . . . . . 1,000
---------- ------- -------- ------------
Balance - December 31, 1993. . . . . . . . . . . 1,132,500 1,000 (1,000) 1,000
Net loss . . . . . . . . . . . . . . . . . . . .
Expenses paid on behalf of the Company . . . . . - 0 -
---------- ------- --------- ------------
Balance - December 31, 1994. . . . . . . . . . . 1,132,500 1,000 (1,000) 1,000
Issuance of common shares, February 1995 . . . . 367,500 1,000 (1,000)
Net loss . . . . . . . . . . . . . . . . . . . .
Payment on stock subscriptions . . . . . . . . . 2,000
Expenses paid on behalf of the Company . . . . . 18,000
---------- ------- --------- ------------
Balance - December 31, 1995. . . . . . . . . . . 1,500,000 2,000 - 0 - 19,000
Issuance of common shares, March 1996. . . . . . 2,750,000 3,000 3,000
Issuance of private placement units August,
October and November 1996 . . . . . . . . . . . 2,200,256 2,000 2,200,256 $2,000 18,932,000
Issuance of common shares for cash and
compensation, September 1996. . . . . . . . . . . 212,000 42,000
Exercise of stock options, July and October 1996 50,000 7,000
Net loss . . . . . . . . . . . . . . . . . . . .
---------- ------- ---------- ------- --------- ------------
BALANCE - DECEMBER 31, 1996. . . . . . . . . . . 6,712,256 $7,000 2,200,256 $2,000 $ - 0 - $19,003,000
========== ======= ========== ======= ========= ============
</TABLE>
Deficit
Accumulated
During the
Development
Stage Total
------- ------
Issuance of common shares, May 1993. . . . . . $ - 0 -
Net loss . . . . . . . . . . . . . . . . . . . (1,000) (1,000)
Expenses paid on behalf of the Company . . . . 1,000
------------ -----------
Balance - December 31, 1993. . . . . . . . . . (1,000) - 0 -
Net loss . . . . . . . . . . . . . . . . . . . - 0 - - 0 -
Expenses paid on behalf of the Company . . . . - 0 -
------------ ---------
Balance - December 31, 1994. . . . . . . . . . (1,000) - 0 -
Issuance of common shares, February 1995 . . . - 0 -
Net loss . . . . . . . . . . . . . . . . . . . (17,000) (17,000)
Payment on stock subscriptions . . . . . . . . 2,000
Expenses paid on behalf of the Company . . . . 18,000
------------ -----------
Balance - December 31, 1995. . . . . . . . . . (18,000) 3,000
Issuance of common shares, March 1996. . . . . 6,000
Issuance of private placement units August,
October and November 1996 . . . . . . . . . . 18,936,000
Issuance of common shares for cash and
compensation, September 1996. . . . . . . . . . 42,000
Exercise of stock options, July and October 1996 7,000
Net loss . . . . . . . . . . . . . . . . . . . (3,236,000) (3,236,000)
------------ ------------
BALANCE - DECEMBER 31, 1996. . . . . . . . . . $(3,254,000) $15,758,000
============ ===========
The accompanying notes to financial statements are an
integral part hereof.
F-4
<PAGE>
DISCOVERY LABORATORIES, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
May 18, 1993
(Inception)
Year Ended to
December 31, December 31,
1995 1996 1996
------ ------ -----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . .$(17,000) $ (3,236,000) $ (3,254,000)
Adjustments to reconcile net loss to
net cash (used in) operating activities:
Write-off of acquired research and
development supplies . . . . . . . . . 2,200,000 2,200,000
Depreciation and amortization. . . . . . 24,000 24,000
(Increase) in prepaid expenses . . . . . (18,000) (18,000)
Increase in accrued expenses . . . . . . 230,000 230,000
Expenses paid on behalf of company . . . 17,000 18,000
Employee stock compensation. . . . . . . 42,000 42,000
-------- ------------- ------------
Net cash (used in) operating
activities. . . . . . . . . . . . . - 0 - (758,000) (758,000)
--------- ------------- -------------
Cash flows from investing activities:
Acquisition of computer equipment. . . . . . (83,000) (83,000)
Acquisition of license . . . . . . . . . . . (711,000) (711,000)
Purchase of investments in United states
government obligations . . . . . . . . . . (13,064,000) (13,064,000)
------------- -------------
Net cash (used in) investing
activities. . . . . . . . . . . . . (13,858,000) (13,858,000)
------------- -------------
Cash flows from financing activities:
Private placement of units . . . . . . . . . 18,936,000 18,936,000
Payment on stock subscriptions and proceeds
on issuance of common stock. . . . . . . . 3,000 13,000 16,000
--------- ------------- ------------
Net cash provided by financing
activities. . . . . . . . . . . . . 3,000 18,949,000 18,952,000
--------- ------------- ------------
NET INCREASE IN CASH . . . . . . . . . . . . . 3,000 4,333,000 4,336,000
Cash - beginning of period . . . . . . . . . . - 0 - 3,000 - 0 -
--------- ------------- ---------
CASH - END OF PERIOD. . . . . . . . . . . . . .$ 3,000 $ 4,336,000 $ 4,336,000
========= ============= ============
</TABLE>
The accompanying notes to financial statements are an
integral part hereof.
F-5
<PAGE>
DISCOVERY LABORATORIES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and Basis of Presentation:
Discovery Laboratories, Inc. (the "Company") was incorporated in
Delaware on May 18, 1993 as MicroBio, Inc. The Company is a development stage
company formed to license and develop pharmaceutical products to treat a variety
of human diseases. The consolidated financial statements include the accounts of
the Company and its 75% owned subsidiary Acute Therapeutics, Inc. (see Note G).
Intercompany balances and transactions have been eliminated.
In November 1996 the Company completed a private placement of its
securities and received aggregate net proceeds of approximately $19,000,000 (see
Note F).
(NOTE B) - Summary of Significant Accounting Policies:
[1] Cash and cash equivalents:
The Company considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents.
[2] Computer equipment:
Computer equipment is recorded at cost. Depreciation is
computed using the straight-line method over the useful lives of the assets
(five years).
[3] License fees:
License fees are capitalized and are being amortized on a
straight-line basis over their respective terms of 15 to 17 years.
[4] Research and development:
Research and development costs are charged to operations as
incurred.
[5] 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 reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.
Actual results could differ from those estimates.
(continued)
F-6
<PAGE>
DISCOVERY LABORATORIES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Summary of Significant Accounting Policies: (continued)
[6] Stock-based compensation:
During 1996, the Company adopted Statement of Financial
Accounting Standards, No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). The provisions of SFAS No. 123 allow companies to either expense the
estimated fair value of stock options or to continue to follow the intrinsic
value method set forth in APB Opinion 25, "Accounting for Stock Issued to
Employees" ("APB 25") but disclose the pro forma effects on net income (loss)
had the fair value of the options been expensed. The Company has elected to
continue to apply APB 25 in accounting for its stock option incentive plans. See
Note H to the financial statements for further information.
[7] Net loss per share:
Net loss per share is computed based on the weighted average
number of common shares outstanding for the periods. Common stock equivalents
are antidilutive and therefore excluded from the calculation.
(NOTE C) - Employment Agreements:
An employment agreement with the Company's president provides for an
annual salary of $175,000 through April 1999. Employment agreements with two
executive officers provide for aggregate annual salaries of $295,000 through
December 1999, subject to certain increases.
(NOTE D) - Income Taxes:
At December 31, 1996, the Company has available for federal income tax
purposes net operating loss carryforwards of approximately $350,000 expiring
through 2011, that may be used to offset future taxable income.
The principal difference between the deficit accumulated during the
development stage for financial reporting purposes and the net operating loss
carryforward for tax purposes is primarily due to the write-off of the acquired
research and development supplies and to certain general and administrative
costs which are not currently deductible for tax purposes. The Company has
provided a valuation reserve against the full amount of the deferred tax asset
arising from net operating loss benefit of approximately $130,000, the research
and
(continued)
F-7
<PAGE>
DISCOVERY LABORATORIES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(NOTE D) - Income Taxes: (continued)
development write-off of approximately $850,000 and general and administrative
costs of approximately $250,000 since the likelihood of realization cannot be
determined. The valuation reserve increased by approximately $1,223,000 and
$7,000 for the years ended December 31, 1996 and December 31, 1995,
respectively. Pursuant to Section 382 of the Internal Revenue Code, the
utilization of this carryforward may be limited due to ownership changes which
have occurred or may occur.
(NOTE E) - License Agreements:
[1] The Company entered into a license agreement with the
Charlotte-Mecklenburg Hospital Authority for the use of the active compound in
SuperVent, a therapy which the Company is clinically testing. The Company paid a
license issue fee of $86,400 and has agreed to pay royalties on future sales and
to pay future patent- related costs. The license expires upon expiration of the
underlying patents.
[2] The Company entered into a license agreement with the Wisconsin
Alumni Research Foundation ("WARF") for the use of the patented compound ST-630
in the treatment of post-menopausal osteoporosis. The Company paid WARF an
option fee of $25,000 in June 1996 and a license issue fee of $400,000 in
October 1996 and is obligated to make future milestone payments aggregating
$3,095,000 and pay royalties on future sales. The license expires upon
expiration of the underlying patents.
[3] See Note G[1] with respect to a sublicense agreement with Johnson &
Johnson, Inc.
(NOTE F) - Private Placement:
Pursuant to a private placement memorandum, the Company offered for
sale units, each unit consisting of 50,000 shares of Series A convertible
preferred stock and 50,000 shares of common stock. Each share of preferred stock
is initially convertible at the option of the holders thereof into four shares
of common stock of the Company. The conversion rate will be adjusted under
certain circumstances as described in the private placement memorandum. From
August 1996 through November 1996, the Company received net proceeds of
approximately $19,000,000 for the sale of approximately 44 units.
(continued)
F-8
<PAGE>
DISCOVERY LABORATORIES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - Private Placement: (continued)
Paramount Capital, Inc. ("Paramount") acted as the placement agent for
the offering and received a 9% commission plus a 4% nonaccountable expense
allowance aggregating $2,860,332. The Company also issued to Paramount warrants
to acquire 220,026 shares of Series A preferred stock at a price of $11 per
share, through November 8, 2006 and warrants to acquire 220,026 shares of common
stock at a price of $.25 per share, through November 8, 2006. The warrants
contain certain anti-dilution provisions and may be exercised on a "net
exercise" basis pursuant to a provision that does not require the payment of any
cash to the Company.
(NOTE G) - Investment in Acute Therapeutics, Inc.:
[1] Formation of Acute Therapeutics, Inc.:
On October 28, 1996, the Company invested $7.5 million in a
newly formed subsidiary, Acute Therapeutics, Inc. ("ATI"), in exchange for
600,000 shares of Series A convertible preferred stock of ATI, representing 75%
of the outstanding voting securities of ATI following such transaction.
Concurrently with the Company's investment in ATI, Johnson &
Johnson, Inc. ("J & J"), J & J's wholly-owned subsidiary, Ortho Pharmaceuticals,
Inc., and ATI entered into an agreement (the "J & J License Agreement") granting
an exclusive license of KL4-Surfactant technology to ATI in exchange for certain
license fees ($200,000 of which was paid in November 1996), milestone payments
aggregating $2,750,000, royalties and 40,000 shares of ATI common stock. J & J
contributed its KL4-Surfactant raw material inventory and manufacturing
equipment to ATI in exchange for 2,200 shares of nonvoting Series B preferred
stock of ATI having a $2.2 million liquidation preference and a $100 per share
cumulative dividend. The inventory and equipment were valued at $2,200,000 (the
value of the preferred shares issued to J & J) and were charged to expense as
their intended use is for research and development activities. The Scripps
Research Institute received 40,000 shares of common stock of ATI in exchange for
its consent to the J & J License Agreement.
The founders of ATI purchased an aggregate of 120,000 shares
of ATI common stock for $.01 per share and were granted options to purchase an
aggregate of 44,800 shares of common stock of ATI at an exercise price of $.01
per share vesting after a five-year term, subject to acceleration and 40,000
shares of common stock of ATI at an exercise price of $.32 per share vesting in
April 1997.
(continued)
F-9
<PAGE>
DISCOVERY LABORATORIES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(NOTE G) - Investment in Acute Therapeutics, Inc.: (continued)
[2] Commitments:
ATI entered into a four-year employment agreement with its
President, Chief Executive Officer and Chairman of the Board of Directors
providing for a base salary of $225,000 per year plus an initial sign-on bonus
of $50,000 to be paid the first week of January 1997, plus certain incentive
bonuses.
ATI also entered into various two-year consulting agreements
providing for aggregate annual fees of $300,000 plus royalties on net commercial
sales of licensed products sold by ATI or its sublicensees and an 18-month
consulting agreement providing for monthly fees of $7,500.
ATI leases its office and laboratory space pursuant to an
operating lease requiring aggregate annual payments of approximately $67,000
through November 2001.
[3] ATI stock option plan:
ATI adopted the 1996 Stock Option/Stock Issuance Plan (the
"ATI Plan") consisting of a Discretionary Option Grant program for employees and
an Automatic Option Grant Program under which option grants will automatically
be made at periodic intervals to eligible nonemployee directors to purchase
shares of common stock, in either case at an exercise price equal to at least
85% of the fair market value of the common stock on the grant date. Under the
Discretionary Option Grant program, options will be granted to employees either
as incentive stock options or nonstatutory options and will vest over a
specified period of time (generally three to five years) as determined by the
ATI Board of Directors. ATI has reserved 234,800 shares of common stock for
issuance under these plans. Options for 173,800 shares of common stock have been
granted through January 1997.
(NOTE H) - Stock Options:
In November 1996, the Company adopted its 1996 Stock Option/Stock
Issuance Plan which includes three equity programs (the "Discovery Plan"). Under
the Discretionary Option Grant Program, options to acquire shares of the
Company's common stock may be granted to eligible persons who are employees,
nonemployee directors, consultants and other independent advisors. Pursuant to
the Stock Issuance Program, such eligible persons may be issued shares of the
Company's common stock directly and under the Automatic Option Grant Program,
eligible directors will automatically receive option grants at periodic
intervals. The maximum number of shares of common stock which maybe issued over
the term of plan shall not exceed 1,250,000.
(continued)
F-10
<PAGE>
DISCOVERY LABORATORIES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(NOTE H) - Stock Options: (continued)
In July and August, 1996, options to purchase 100,000 shares of the
Company's common stock were granted (all of which were immediately exercisable),
with a weighted average exercise price of $.125 per share. Options to purchase
25,000 shares at $.10 per share were exercised in July 1996 and options to
purchase 25,000 shares at $.20 per share were exercised in November 1996.
The Company applies APB 25 in accounting for the Discovery Plan and the
ATI Plan and, accordingly, recognizes compensation expense for the difference
between the fair value of the underlying common stock and the exercise price of
the option at the date of grant. The effect of applying SFAS No. 123 on pro
forma net loss is not necessarily representative of the effects on reported net
income or loss for future years due to, among other things, (1) the vesting
period of the stock options and the (2) fair value of additional stock options
in future years. Had compensation cost for the Company's stock option plans been
determined based upon the fair value of the options at the grant date of awards
under the plans consistent with the methodology prescribed under SFAS No. 123,
the Company's net loss in 1996 would have been approximately $3,248,000 or $.77
per share. The fair value of the options granted are estimated as $.06 and $7
per share for the Discovery Plan and the ATI Plan, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions: dividend yield 0%, volatility of 0%, risk-free interest
rate of 6.7% for 1996, and expected life of ten years.
Additional information with respect to the Discovery Plan stock option
activity is summarized as follows:
Year Ended December 31, 1996
Weighted- Weighted-
Average Average
Exercise Contractual
Shares Price Life
Options granted . . . . . 100,000 $ .125 10 years
Options exercised . . . . (50,000) .15 10 years
--------
Outstanding at end of
year . . . . . . . . . 50,000 .10 9.1 years
========
Options exercisable at
year end . . . . . . . 50,000 .10 9.1 years
========
(continued)
F-11
<PAGE>
DISCOVERY LABORATORIES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(NOTE H) - Stock Options: (continued)
Additional information with respect to the ATI Plan stock option
activity is summarized as follows:
Year Ended December 31, 1996
Weighted- Weighted-
Average Average
Exercise Contractual
Shares Price Life
Outstanding at beginning
of year. . . . . . . . - 0 -
Options granted . . . . . 168,800 $.25 10 years
--------
Outstanding at end of
year . . . . . . . . . 168,800 .25 9.8 years
========
Options exercisable at
year end . . . . . . . - 0 -
======
(NOTE I) - Stockholders' Equity:
Common shares reserved for issuance:
The Company has reserved shares of common stock for issuance upon
conversion of preferred stock and exercise of options as follows:
(i) Preferred stock (Note F) . . . . . . . 17,602,048
(ii) Stock option plan - Discovery Plan . . 1,200,000
(iii) Placement agent warrants (Note F):
Conversion of preferred stock . . . 880,103
Common stock. . . . . . . . . . . . 220,026
1. Number of shares issuable assuming maximum conversion rate
adjustment.
F-12
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
No dealer, salesman or any other person has been 12,101,409 Shares
authorized to give information or to make nay
representations not contained in this Prospectus and,
if given or made, such information or representations
must not be relied upon as having been authorized by
the Company. This Prospectus does not constitute an
offer of any securities other than those to which it DISCOVERY
related or an offer to sell, or a solicitation of an offer LABORATORIES, INC.
or solicitation would be unlawful. Neither the
delivery of this Prospectus nor any sales made
hereunder shall, under any circumstances, create any
implication that the information contained herein is
correct as of any time subsequent to the date hereof.
Common Stock
--------------------
--------------------
TABLE OF CONTENTS
PROSPECTUS
_______, 1997
--------------------
PROSPECTUS SUMMARY...................................1
COMPANY SUMMARY.....................................1
OFFERING SUMMARY....................................3
SUMMARY OF FINANCIAL DATA...........................4
RISK FACTORS........................................5
USE OF PROCEEDS....................................17
DIVIDEND POLICY....................................17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATIONS........18
BUSINESS............................................20
PRINCIPAL STOCKHOLDERS.............................36
MANAGEMENT.........................................38
CERTAIN TRANSACTIONS...............................47
DESCRIPTION OF SECURITIES..........................49
SELLING SECURITYHOLDERS............................53
SHARES ELIGIBLE FOR FUTURE SALES..................58
PLAN OF DISTRIBUTION..............................59
EXPERTS............................................60
LEGAL COUNSEL......................................60
ADDITIONAL INFORMATION.............................60
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . F-1
- ---------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("Section 145") authorizes a
court to award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article Tenth of Discovery's Certificate of
Incorporation provides that the Corporation shall indemnify and advance expenses
to its directors ands officers to the fullest extent permitted by Section 145 of
the Delaware General Corporation Law. Article Ninth of Discovery's Certificate
of Incorporation provides that the liability of its directors is eliminated to
the fullest extent permitted by Section 102(b)(7) of the Delaware General
Corporation Law. These provisions in the Certificate of Incorporation do not
eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Company for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provisions also do not affect a director's responsibilities under any other law,
such as the federal securities laws or state or federal environmental laws.
Reference is made to Section 5.6 of the Subscription Agreements relating to the
Unit Offering (Exhibit 4.3), Section of the Common Placement Warrant (Exhibit
4.7) and Section of the Preferred Placement Warrant (Exhibit 4.8)
indemnifying against certain liabilities certain of the Company's stockholders
or Paramount Capital, Inc., a company wholly owned by Lindsay A. Rosenwald,
M.D., who also is the Chief Executive Officer of and a shareholder in RAQ, LLC,
a substantial shareholder of the Company.
<PAGE>
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of securities being registered. The following table includes costs
and expenses relating to securities being registered for resale by certain
securityholders, all of which will be paid by the Company. All amounts are
estimates except the SEC registration fee and the Nasdaq filing fees.
SEC Registration fee..................................... $11,001.28
Nasdaq filing fee........................................ *
Printing and engraving................................... *
Legal fees and expenses of the Company................... *
Accounting fees and expenses............................. *
Blue sky fees and expenses............................... *
Transfer agent fees and expenses......................... *
Miscellaneous............................................ *
------------
Total............................................... $300,000
------------
------------
- --------------------------------------------------------------------------------
*To be filed by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
IN THE LAST THREE YEARS, THE COMPANY HAS ISSUED AND SOLD THE FOLLOWING:
1. ON AUGUST 29, OCTOBER 18 AND NOVEMBER 8, 1996 (THE "CLOSING
DATES"), THE COMPANY CONSUMMATED A PRIVATE PLACEMENT OF AN
AGGREGATE OF APPROXIMATELY $22,000,000 IN GROSS PROCEEDS FOR
("UNITS") OF SERIES A PREFERRED STOCK AND COMMON STOCK (THE "SERIES
A OFFERING"). THE ISSUANCE OF THE ABOVE REFERENCED SECURITIES WAS
DEEMED TO BE EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT IN
RELIANCE ON SECTION 4(2) THEREOF AND RULE 506 OF REGULATION D
PROMULGATED THEREUNDER.
THE OFFER AND SALE OF UNITS WERE CONDUCTED THROUGH THE
COMPANY'S PLACEMENT AGENT (AS DEFINED BELOW). IN OFFERING THE
UNITS, THE PLACEMENT AGENT CONFINED ITS ACTIONS TO ACTIVITIES
SANCTIONED BY REGULATION D AND DID NOT ENGAGE IN ANY FORM OF
GENERAL ADVERTISING OR GENERAL SOLICITATION IN OFFERING THE UNITS.
ALL INVESTORS OF THE UNITS REPRESENTED TO THE COMPANY THAT THEY
WERE ACCREDITED INVESTORS AND THE COMPANY HAD NO REASON TO BELIEVE
THAT SUCH INVESTORS WERE NOT ACCREDITED INVESTORS. THE CLOSING
DATES WERE THE ONLY DATES THAT THE COMPANY SOLD UNITS. EACH OF THE
PURCHASERS OF THE UNITS REPRESENTED THEIR INTENTIONS TO ACQUIRE THE
SECURITIES FOR INVESTMENT ONLY AND NOT WITH A VIEW TO, OR FOR SALE
IN CONNECTION WITH, ANY DISTRIBUTION THEREOF AND APPROPRIATE
LEGENDS WERE AFFIXED TO THE SHARE CERTIFICATES ISSUED IN SUCH
TRANSACTIONS. THE PURCHASERS IN SUCH OFFERING OF UNITS WERE ALL THE
SELLING SECURITY HOLDERS LISTED AS SUCH IN THE REGISTRATION
STATEMENT.
2. IN CONNECTION WITH SERVICES RENDERED BY PARAMOUNT CAPITAL, INC.,
AS PLACEMENT AGENT IN THE OFFERING (THE "PLACEMENT AGENT"), THE
COMPANY ISSUED TO THE PLACEMENT AGENT OR ITS DESIGNEES WARRANTS TO
PURCHASE AN AGGREGATE OF APPROXIMATELY 220,026 SHARES OF SERIES A
PREFERRED STOCK AND APPROXIMATELY 220,026 SHARES OF COMMON STOCK.
THE ISSUANCE OF THE ABOVE REFERENCED SECURITIES WAS DEEMED TO BE
EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT IN RELIANCE ON
SECTION 4(2) THEREOF AND RULE 506 OF REGULATION D PROMULGATED
THEREUNDER. EACH OF SUCH RECIPIENTS HAD THE SOPHISTICATION,
KNOWLEDGE AND EXPERIENCE IN FINANCIAL MATTERS AS TO BE CAPABLE OF
EVALUATING THE MERITS AND RISKS OF ITS INVESTMENT IN THE COMPANY,
AND HAD ACCESS TO INFORMATION, AND THE OPPORTUNITY PRIOR TO ITS
INVESTMENT TO ASK QUESTIONS OF AND RECEIVE ANSWERS FROM
REPRESENTATIVES OF THE COMPANY, IN EACH CASE CONCERNING THE
FINANCES, OPERATIONS AND BUSINESS OF THE COMPANY. IN ADDITION, THE
RECIPIENTS OF SECURITIES IN EACH SUCH TRANSACTION REPRESENTED THEIR
INTENTIONS TO ACQUIRE THE SECURITIES FOR INVESTMENT ONLY AND NOT
WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION
THEREOF AND APPROPRIATE LEGENDS WERE AFFIXED TO THE CERTIFICATES
ISSUED IN SUCH TRANSACTIONS.
<PAGE>
<PAGE>
3. IN MARCH 1996, THE COMPANY ISSUED 242,500 SHARES OF COMMON STOCK
TO STEVE H. KANZER, THE CHAIRMAN (AND THEN THE CHIEF EXECUTIVE
OFFICER) OF THE COMPANY FOR $0.002 PER SHARE. THE ISSUANCE OF THE
ABOVE REFERENCED SECURITIES WAS DEEMED TO BE EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT IN RELIANCE ON SECTION 4(2)
THEREOF. MR. KANZER HAD THE SOPHISTICATION, KNOWLEDGE AND
EXPERIENCE IN FINANCIAL MATTERS AS TO BE CAPABLE OF EVALUATING THE
MERITS AND RISKS OF HIS INVESTMENT IN THE COMPANY, AND HAD ACCESS
TO INFORMATION, AND HAD EXTENSIVE KNOWLEDGE OF THE FINANCES,
OPERATIONS AND BUSINESS OF THE COMPANY BY VIRTUE OF HIS
RELATIONSHIP TO THE COMPANY. IN ADDITION, MR. KANZER REPRESENTED
HIS INTENTION TO ACQUIRE THE SECURITIES FOR INVESTMENT ONLY AND NOT
WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION
THEREOF AND APPROPRIATE LEGENDS WERE AFFIXED TO THE CERTIFICATES
ISSUED IN SUCH TRANSACTIONS.
4. IN FEBRUARY 1995, THE COMPANY ISSUED 1,500 SHARES OF COMMON
STOCK AND IN MARCH 1996 ISSUED AN ADDITIONAL 123,500 SHARES OF
COMMON STOCK TO EVAN MYRIANTHOPOULOS, THE CHIEF OPERATING OFFICER,
SECRETARY AND A DIRECTOR OF THE COMPANY, FOR $0.002 PER SHARE. IN
SEPTEMBER 1996, THE COMPANY ISSUED AN ADDITIONAL 62,000 SHARES OF
COMMON STOCK TO MR. MYRIANTHOPOULOS FOR $0.002 PER SHARE IN
RECOGNITION OF HIS IDENTIFICATION AND INTRODUCTION OF THE
KL4-SURFACTANT TECHNOLOGY TO THE COMPANY, WHICH PRECEDED HIS
EMPLOYMENT BY THE COMPANY. EACH OF THE ABOVE REFERENCED ISSUANCES
OF SECURITIES WAS DEEMED TO BE EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT IN RELIANCE ON SECTION 4(2). MR. MYRIANTHOPOULOS HAD
THE SOPHISTICATION, KNOWLEDGE AND EXPERIENCE IN FINANCIAL MATTERS
AS TO BE CAPABLE OF EVALUATING THE MERITS AND RISKS OF HIS
INVESTMENT IN THE COMPANY, AND HAD ACCESS TO INFORMATION, AND HAD
EXTENSIVE KNOWLEDGE OF THE FINANCES, OPERATIONS AND BUSINESS OF THE
COMPANY BY VIRTUE OF HIS RELATIONSHIP TO THE COMPANY. IN ADDITION,
MR. MYRIANTHOPOULOS REPRESENTED HIS INTENTION TO ACQUIRE THE
SECURITIES FOR INVESTMENT ONLY AND NOT WITH A VIEW TO OR FOR SALE
IN CONNECTION WITH ANY DISTRIBUTION THEREOF AND APPROPRIATE LEGENDS
WERE AFFIXED TO THE CERTIFICATES ISSUED IN SUCH TRANSACTIONS.
5. IN FEBRUARY 1995, THE COMPANY ISSUED A TOTAL OF 194,250 SHARES
OF COMMON STOCK FOR $0.002 PER SHARE TO MR. KANZER, AND AN
ADDITIONAL 85,000 SHARES FOR $0.002 PER SHARE TO CERTAIN FAMILY
MEMBERS OF MR. KANZER. THE ISSUANCE OF THE ABOVE REFERENCED
SECURITIES WAS DEEMED TO BE EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT IN RELIANCE ON SECTION 4(2) THEREOF. IN ADDITION,
MR. KANZER REPRESENTED HIS INTENTION TO ACQUIRE THE SECURITIES FOR
INVESTMENT ONLY AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION
WITH ANY DISTRIBUTION THEREOF AND APPROPRIATE LEGENDS WERE AFFIXED
TO THE CERTIFICATES ISSUED IN SUCH TRANSACTIONS.
<PAGE>
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
*2.1 SERIES A PREFERRED STOCK PURCHASE AGREEMENT DATED OCTOBER 28,1996 BETWEEN THE
REGISTRANT AND ACUTE THERAPEUTICS, INC. ("ATI").
o3.1 CERTIFICATE OF INCORPORATION OF THE REGISTRANT, AS AMENDED TO DATE.
o3.2 BY-LAWS OF THE REGISTRANT, AS AMENDED TO DATE.
o3.3 CERTIFICATE OF INCORPORATION OF ATI, AS AMENDED TO DATE.
o3.4 BY-LAWS OF ATI, AS AMENDED TO DATE.
4.1 REFERENCE IS MADE TO EXHIBITS 3.1 AND 3.2.
* 4.2 FORM OF SUBSCRIPTION AGREEMENT BY AND BETWEEN THE
REGISTRANT AND CERTAIN PURCHASERS OF SERIES A
CONVERTIBLE PREFERRED STOCK AND COMMON STOCK.
o+4.3 INVENTORY TRANSFER/STOCK PURCHASE AGREEMENT DATED OCTOBER 28,1996, AMONG
ATI, JOHNSON & JOHNSON DEVELOPMENT CORPORATION ("JJDC"), THE R.W. JOHNSON
PHARMACEUTICAL RESEARCH INSTITUTE AND ORTHO PHARMACEUTICAL CORPORATION
("ORTHO").
SCHEDULE A: SUMMARY OF SIGNIFICANT AVAILABLE INVENTORY [***]
Schedule B: RADIOLABELLED MATERIALS INVENTORY [***]
Exhibit A (FORM OF REGISTRATION RIGHTS AGREEMENT): See Exhibit 4.5
Exhibit B (FORM OF CO-SALE AGREEMENT): See Exhibit 4.6
Exhibit C (CERTIFICATE OF DESIGNATIONS FOR SERIES B
PREFERRED STOCK):
INCLUDED IN Exhibit 3.3
Exhibit D (CERTIFICATE OF DESIGNATIONS FOR SERIES A
PREFERRED STOCK):
INCLUDED IN Exhibit 3.3
SCHEDULE I: CAPITALIZATION
*4.4 INVESTOR RIGHTS AGREEMENT DATED MARCH 20, 1996, BETWEEN THE REGISTRANT AND
RAQ, LLC.
*4.5 REGISTRATION RIGHTS AGREEMENT DATED OCTOBER 28,1996, BETWEEN ATI, JJDC, ORTHO
AND THE SCRIPPS RESEARCH INSTITUTE ("SCRIPPS").
*4.6 CO-SALE AGREEMENT DATED OCTOBER 28,1996, BETWEEN ATI AND CERTAIN
SHAREHOLDERS.
*4.7 STOCK PURCHASE AGREEMENT DATED OCTOBER 28,1996, BETWEEN ATI AND SCRIPPS.
++4.8 SPECIMEN OF COMMON STOCK CERTIFICATE OF THE REGISTRANT.
*4.9 SPECIMEN OF SERIES A CONVERTIBLE PREFERRED STOCK.
++4.10 FORM OF PLACEMENT AGENT WARRANT EXERCISABLE FOR COMMON STOCK.
++4.11 FORM OF PLACEMENT AGENT WARRANT EXERCISABLE FOR SERIES A CONVERTIBLE PREFERRED
STOCK.
*4.12 FOUNDER/EMPLOYEE STOCK PURCHASE AGREEMENT DATED OCTOBER 10,1996, BETWEEN
ATI AND ROBERT CAPETOLA, PH.D.
*4.13 FOUNDER/EMPLOYEE STOCK PURCHASE AGREEMENT DATED OCTOBER 10,1996, BETWEEN
ATI AND CHARLES COCHRANE, M.D.
<PAGE>
<PAGE>
*4.14 FOUNDER/EMPLOYEE STOCK PURCHASE AGREEMENT DATED OCTOBER 10,1996, BETWEEN
ATI AND SUSAN REVAK
*4.15 FOUNDER/EMPLOYEE STOCK PURCHASE AGREEMENT DATED OCTOBER 10, 1996, BETWEEN
ATI AND SAGE PARTNERS
*5.1 FORM OF Opinion of Roberts, Sheridan & Kotel, a Professional Corporation.
10.1 REFERENCE IS MADE TO EXHIBIT 2.1.
*10.2 SCIENTIFIC ADVISORY & CONSULTING AGREEMENT DATED MARCH 20,1996, BETWEEN THE
REGISTRANT AND DR. THOMAS KENNEDY.
10.3 SCIENTIFIC ADVISORY & CONSULTING AGREEMENT DATED MAY 1,1996, BETWEEN THE
REGISTRANT AND DR. JOHN HOIDAL.
o+10.4 LICENSE AGREEMENT DATED SEPTEMBER 6, 1996, BETWEEN THE
REGISTRANT AND THE WISCONSIN ALUMNI RESEARCH FOUNDATION.
*10.5 AMENDMENT TO THE LICENSE AGREEMENT DATED OCTOBER 31, 1996, BETWEEN THE
REGISTRANT AND THE WISCONSIN ALUMNI RESEARCH FOUNDATION.
o+10.6 SUBLICENSE AGREEMENT DATED OCTOBER 28, 1996 BETWEEN ATI, JOHNSON & JOHNSON,
INC AND ORTHO.
o+10.7 LICENSE AGREEMENT BETWEEN THE REGISTRANT AND THE CHARLOTTE-MECKLENBURG
HOSPITAL AUTHORITY DATED MARCH 20,1996.
+10.8 LETTER OF INTENT DATED OCTOBER 17, 1996, BETWEEN THE REGISTRANT AND ROBERT
CAPETOLA, PH.D.
*10.9 EMPLOYMENT AGREEMENT BY AND BETWEEN THE COMPANY AND JAMES S. KUO M.D.
DATED APRIL 4, 1996
*10.10 MANAGEMENT AGREEMENT DATED JUNE 1, 1996 BY AND BETWEEN THE REGISTRANT AND
EVAN MYRIANTHOPOULOS.
*10.11 MANAGEMENT AGREEMENT DATED JUNE 1, 1996 BY AND BETWEEN THE REGISTRANT AND
STEVE KANZER.
<PAGE>
<PAGE>
*10.12 THE REGISTRANT'S 1996 STOCK OPTION/STOCK ISSUANCE PLAN.
*10.13 THE REGISTRANT'S 1996 STOCK OPTION AGREEMENT.
+*10.14 EMPLOYMENT AGREEMENT DATED OCTOBER 1, 1996 BETWEEN ATI
AND ROBERT J. CAPETOLA, PH.D.
o+10.15 CONSULTING AGREEMENT DATED 1996 BETWEEN ATI AND DR. CHARLES COCHRANE.
o+10.16 CONSULTING AGREEMENT DATED 1996, BETWEEN ATI AND SUSAN REVAK.
*10.17 CONSULTING AGREEMENT DATED 1996 BETWEEN ATI AND ZENAIDA OADES.
*10.18 CONSULTING AGREEMENT DATED 1996 BETWEEN ATI AND MONICA COCHRANE.
*10.19 CONSULTING AGREEMENT DATED 1996 BETWEEN ATI AND THE SAGE GROUP.
10.20 FINANCIAL ADVISORY AGREEMENT DATED NOVEMBER 7, 1996 BETWEEN THE REGISTRANT
AND PARAMOUNT CAPITAL INCORPORATED.
+10.21 AGREEMENT DATED JANUARY 29, 1997, BETWEEN THE COMPANY AND COOK IMAGING
CORPORATION.
+10.22 AGREEMENT DATED JANUARY 3, 1997, BETWEEN ATI AND COOK IMAGING
CORPORATION.
+10.23 RESEARCH FUNDING AND OPTION AGREEMENT DATED OCTOBER 28, 1996, BETWEEN
THE SCRIPPS RESEARCH INSTITUTE AND ATI.
10.24 EMPLOYMENT AGREEMENT DATED NOVEMBER 20, 1996, BETWEEN THE COMPANY
AND SAUL S. BODENHEIMER.
10.25 EMPLOYMENT AGREEMENT DATED NOVEMBER 25, 1996, BETWEEN THE COMPANY
AND DAVID CROCKFORD.
10.26 EMPLOYMENT AGREEMENT DATED AS OF FEBRUARY 16, 1997 BETWEEN ATI AND
HUEI TSAI, PH.D.
10.27 EMPLOYMENT AGREEMENT DATED AS OF FEBRUARY 16, 1997 BETWEEN ATI AND
THOMAS E. WISWELL, M.D.
+10.28 Clinical Testing Agreement dated as of February 24, 1997 between
the Registrant and the University of Utah.
21.1 Subsidiaries of the Registrant.
23.1 CONSENT OF ROBERTS, SHERIDAN & KOTEL, A PROFESSIONAL CORPORATION. REFERENCE IS
MADE TO EXHIBIT 5.1.
o23.2 CONSENT OF RICHARD A. EISNER & COMPANY, LLP, INDEPENDENT AUDITORS.
24.1 POWER OF ATTORNEY. REFERENCE IS MADE TO THE SIGNATURE PAGE TO THE REGISTRATION
STATEMENT.
o27.1 FINANCIAL DATA SCHEDULE.
</TABLE>
- --------------
* Previously filed with the Registration Statement on Form SB-2 filed with the
Commission on January 7, 1997
o Supersedes such exhibit as previously filed with the Registration Statement
on Form SB-2 filed with the Commission on January 7, 1997.
++ To be filed by amendment.
+ Confidential treatment requested as to certain portions of these exhibits.
Such portions have been redacted.
ITEM 28. UNDERTAKINGS
The Company hereby undertakes that it will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in the volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial BONA FIDE offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the By-Laws of the Company, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer, or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The Company hereby undertakes that it will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1), or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of such securities at that time as the initial BONA FIDE
offering of those securities.
<PAGE>
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Company certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on this 18th day
of April, 1997.
DISCOVERY LABORATORIES, INC.
By: /s/ Evan Myrianthopoulos
Evan Myrianthopoulos
CHIEF OPERATING OFFICER,
Secretary and Director
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE Name & Title Date
<S> <C> <C>
/s/ James S. Kuo, M.D.* James S. Kuo, M.D. APRIL 18,
President, Chief Executive Officer and Director 1997
/s/ Steve H. Kanzer, C.P.A., Esq.* Steve H. Kanzer, C.P.A., Esq. APRIL 18,
Chairman of the Board of Directors 1997
/s/ Evan Myrianthopoulos Evan Myrianthopoulos April 18, 1997
CHIEF OPERATING OFFICER,
Secretary and Director
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
/s/ Herbert H. McDade, Jr.* Herbert H. McDade, Jr. APRIL 18,
Director 1997
* BY /S/EVAN MYRIANTHOPOULOS
ATTORNEY-IN-FACT
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
<S> <C>
*2.1 SERIES A PREFERRED STOCK PURCHASE AGREEMENT DATED OCTOBER 28,1996 BETWEEN THE
REGISTRANT AND ACUTE THERAPEUTICS, INC. ("ATI").
o3.1 CERTIFICATE OF INCORPORATION OF THE REGISTRANT, AS AMENDED TO DATE.
o3.2 BY-LAWS OF THE REGISTRANT, AS AMENDED TO DATE.
o3.3 CERTIFICATE OF INCORPORATION OF ATI, AS AMENDED TO DATE.
o3.4 BY-LAWS OF ATI, AS AMENDED TO DATE.
4.1 REFERENCE IS MADE TO EXHIBITS 3.1 AND 3.2.
* 4.2 FORM OF SUBSCRIPTION AGREEMENT BY AND BETWEEN THE
REGISTRANT AND CERTAIN PURCHASERS OF SERIES A
CONVERTIBLE PREFERRED STOCK AND COMMON STOCK.
o+4.3 INVENTORY TRANSFER/STOCK PURCHASE AGREEMENT DATED OCTOBER 28,1996, AMONG
ATI, JOHNSON & JOHNSON DEVELOPMENT CORPORATION ("JJDC"), THE R.W. JOHNSON
PHARMACEUTICAL RESEARCH INSTITUTE AND ORTHO PHARMACEUTICAL CORPORATION
("ORTHO").
SCHEDULE A: SUMMARY OF SIGNIFICANT AVAILABLE INVENTORY [***]
Schedule B: RADIOLABELLED MATERIALS INVENTORY [***]
Exhibit A (FORM OF REGISTRATION RIGHTS AGREEMENT): See Exhibit 4.5
Exhibit B (FORM OF CO-SALE AGREEMENT): See Exhibit 4.6
Exhibit C (CERTIFICATE OF DESIGNATIONS FOR SERIES B
PREFERRED STOCK):
INCLUDED IN Exhibit 3.3
Exhibit D (CERTIFICATE OF DESIGNATIONS FOR SERIES A
PREFERRED STOCK):
INCLUDED IN Exhibit 3.3
SCHEDULE I: CAPITALIZATION
*4.4 INVESTOR RIGHTS AGREEMENT DATED MARCH 20, 1996, BETWEEN THE REGISTRANT AND
RAQ, LLC.
*4.5 REGISTRATION RIGHTS AGREEMENT DATED OCTOBER 28,1996, BETWEEN ATI, JJDC, ORTHO
AND THE SCRIPPS RESEARCH INSTITUTE ("SCRIPPS").
*4.6 CO-SALE AGREEMENT DATED OCTOBER 28,1996, BETWEEN ATI AND CERTAIN
SHAREHOLDERS.
*4.7 STOCK PURCHASE AGREEMENT DATED OCTOBER 28,1996, BETWEEN ATI AND SCRIPPS.
++4.8 SPECIMEN OF COMMON STOCK CERTIFICATE OF THE REGISTRANT.
*4.9 SPECIMEN OF SERIES A CONVERTIBLE PREFERRED STOCK.
++4.10 FORM OF PLACEMENT AGENT WARRANT EXERCISABLE FOR COMMON STOCK.
++4.11 FORM OF PLACEMENT AGENT WARRANT EXERCISABLE FOR SERIES A CONVERTIBLE PREFERRED
STOCK.
*4.12 FOUNDER/EMPLOYEE STOCK PURCHASE AGREEMENT DATED OCTOBER 10,1996, BETWEEN
ATI AND ROBERT CAPETOLA, PH.D.
*4.13 FOUNDER/EMPLOYEE STOCK PURCHASE AGREEMENT DATED OCTOBER 10,1996, BETWEEN
ATI AND CHARLES COCHRANE, M.D.
<PAGE>
<PAGE>
*4.14 FOUNDER/EMPLOYEE STOCK PURCHASE AGREEMENT DATED OCTOBER 10,1996, BETWEEN
ATI AND SUSAN REVAK
*4.15 FOUNDER/EMPLOYEE STOCK PURCHASE AGREEMENT DATED OCTOBER 10, 1996, BETWEEN
ATI AND SAGE PARTNERS
*5.1 FORM OF Opinion of Roberts, Sheridan & Kotel, a Professional Corporation.
10.1 REFERENCE IS MADE TO EXHIBIT 2.1.
*10.2 SCIENTIFIC ADVISORY & CONSULTING AGREEMENT DATED MARCH 20,1996, BETWEEN THE
REGISTRANT AND DR. THOMAS KENNEDY.
10.3 SCIENTIFIC ADVISORY & CONSULTING AGREEMENT DATED MAY 1,1996, BETWEEN THE
REGISTRANT AND DR. JOHN HOIDAL.
o+10.4 LICENSE AGREEMENT DATED SEPTEMBER 6, 1996, BETWEEN THE
REGISTRANT AND THE WISCONSIN ALUMNI RESEARCH FOUNDATION.
*10.5 AMENDMENT TO THE LICENSE AGREEMENT DATED OCTOBER 31, 1996, BETWEEN THE
REGISTRANT AND THE WISCONSIN ALUMNI RESEARCH FOUNDATION.
o+10.6 SUBLICENSE AGREEMENT DATED OCTOBER 28, 1996 BETWEEN ATI, JOHNSON & JOHNSON,
INC AND ORTHO.
o+10.7 LICENSE AGREEMENT BETWEEN THE REGISTRANT AND THE CHARLOTTE-MECKLENBURG
HOSPITAL AUTHORITY DATED MARCH 20,1996.
+10.8 LETTER OF INTENT DATED OCTOBER 17, 1996, BETWEEN THE REGISTRANT AND ROBERT
CAPETOLA, PH.D.
*10.9 EMPLOYMENT AGREEMENT BY AND BETWEEN THE COMPANY AND JAMES S. KUO M.D.
DATED APRIL 4, 1996
*10.10 MANAGEMENT AGREEMENT DATED JUNE 1, 1996 BY AND BETWEEN THE REGISTRANT AND
EVAN MYRIANTHOPOULOS.
*10.11 MANAGEMENT AGREEMENT DATED JUNE 1, 1996 BY AND BETWEEN THE REGISTRANT AND
STEVE KANZER.
<PAGE>
<PAGE>
*10.12 THE REGISTRANT'S 1996 STOCK OPTION/STOCK ISSUANCE PLAN.
*10.13 THE REGISTRANT'S 1996 STOCK OPTION AGREEMENT.
+*10.14 EMPLOYMENT AGREEMENT DATED OCTOBER 1, 1996 BETWEEN ATI
AND ROBERT J. CAPETOLA, PH.D.
o+10.15 CONSULTING AGREEMENT DATED 1996 BETWEEN ATI AND DR. CHARLES COCHRANE.
o+10.16 CONSULTING AGREEMENT DATED 1996, BETWEEN ATI AND SUSAN REVAK.
*10.17 CONSULTING AGREEMENT DATED 1996 BETWEEN ATI AND ZENAIDA OADES.
*10.18 CONSULTING AGREEMENT DATED 1996 BETWEEN ATI AND MONICA COCHRANE.
*10.19 CONSULTING AGREEMENT DATED 1996 BETWEEN ATI AND THE SAGE GROUP.
10.20 FINANCIAL ADVISORY AGREEMENT DATED NOVEMBER 7, 1996 BETWEEN THE REGISTRANT
AND PARAMOUNT CAPITAL INCORPORATED.
+10.21 AGREEMENT DATED JANUARY 29, 1997, BETWEEN THE COMPANY AND COOK IMAGING
CORPORATION.
+10.22 AGREEMENT DATED JANUARY 3, 1997, BETWEEN ATI AND COOK IMAGING
CORPORATION.
+10.23 RESEARCH FUNDING AND OPTION AGREEMENT DATED OCTOBER 28, 1996, BETWEEN
THE SCRIPPS RESEARCH INSTITUTE AND ATI.
10.24 EMPLOYMENT AGREEMENT DATED NOVEMBER 20, 1996, BETWEEN THE COMPANY
AND SAUL S. BODENHEIMER.
10.25 EMPLOYMENT AGREEMENT DATED NOVEMBER 25, 1996, BETWEEN THE COMPANY
AND DAVID CROCKFORD.
10.26 EMPLOYMENT AGREEMENT DATED AS OF FEBRUARY 16, 1997 BETWEEN ATI AND
HUEI TSAI, PH.D.
10.27 EMPLOYMENT AGREEMENT DATED AS OF FEBRUARY 16, 1997 BETWEEN ATI AND
THOMAS E. WISWELL, M.D.
+10.28 Clinical Testing Agreement dated as of February 24, 1997 between
the Registrant and the University of Utah.
21.1 Subsidiaries of the Registrant.
23.1 CONSENT OF ROBERTS, SHERIDAN & KOTEL, A PROFESSIONAL CORPORATION. REFERENCE IS
MADE TO EXHIBIT 5.1.
o23.2 CONSENT OF RICHARD A. EISNER & COMPANY, LLP, INDEPENDENT AUDITORS.
24.1 POWER OF ATTORNEY. REFERENCE IS MADE TO THE SIGNATURE PAGE TO THE REGISTRATION STATEMENT.
o27.1 FINANCIAL DATA SCHEDULE.
</TABLE>
- --------------
* Previously filed with the Registration Statement on Form SB-2 filed with the
Commission on January 7, 1997
o Supersedes such exhibit as previously filed with the Registration Statement
on Form SB-2 filed with the Commission on January 7, 1997.
++ To be filed by amendment.
+ Confidential treatment requested as to certain portions of these exhibits.
Such portions have been redacted.
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
EXHIBITS
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
DISCOVERY LABORATORIES, INC.
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "MICROBIO INC.", FILED IN THIS OFFICE ON THE EIGHTEENTH
DAY OF MAY. A.D. 1993, AT 9 O'CLOCK A.M.
(Signature of Edward J. Freel)
(Seal) EDWARD J. FREEL, SECRETARY OF STATE
AUTHENTICATION:
2336746 8100 DATE: 8040253
960216214 07-24-96
<PAGE>
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AN 05/18/1993
753138007 - 2336746
CERTIFICATE OF INCORPORATION
OF
MicroBio Inc.
The undersigned, a natural person, for the purpose of
organizing a corporation for conducting the business and promoting the purposes
hereinafter stated, under the provisions and subject to the requirements of the
laws of the State of Delaware (particularly Chapter 1, Title 8 of the Delaware
Code and the acts amendatory thereof and supplemental thereto, and known,
identified, and referred to as the "General Corporation Law of the State of
Delaware"), hereby certifies that:
FIRST: The name of the corporation (hereinafter called the
"corporation") is MicroBio Inc.
SECOND: The address, including street, number, city, and
county, of the registered office of the corporation in the State of Delaware is
32 Loockerman Square, Suite L-100, City of Dover 19901, County of Kent; and the
name of the registered agent of the corporation in the State of Delaware at
such address is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the corporation is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the
corporation shall have authority to issue is ten million. The par value of
each of such shares is one mill. All such shares are of one class and are
shares of Common Stock.
FIFTH: The name and the mailing address of the incorporator are
as follows:
NAME MAILING ADDRESS
Athena Amaxas 15 Columbus Circle
New York, N.Y. 10023-7773
SIXTH: The corporation is to have perpetual existence.
-1-
<PAGE>
<PAGE>
SEVENTH: Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them and/or between
this corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in
a summary way of this corporation or of any creditor or stockholder thereof or
on the application of any receiver or receivers appointed for this corporation
under the provisions of ss. 291 of Title 8 of the Delaware Code or on
the application of trustees in dissolution or of any receiver or
receivers appointed for this corporation under the provisions of ss. 279 of
Title 8 of the Delaware Code order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three fourths in value
of the creditors or class of creditors, and/or of the stockholders or class
of stockholders of this corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of this corporation as
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors
or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
EIGHTH: For the management of the business and for the conduct
of the affairs of the corporation, and in further definition, limitation,
and regulation of the powers of the corporation and of its directors and of
its stockholders or any class thereof, as the case may be, it is further
provided:
1. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall
be fixed by, or in the manner provided in, the Bylaws. The phrase
"whole Board" and the phrase "total number of directors" shall be
deemed to have the same meaning, to wit, the total number of directors
which the corporation would have if there were no vacancies. No
election of directors need be by written ballot.
2. After the original or other Bylaws of the corporation have been
adopted, amended, or repealed, as the case may be, in accordance
with the provisions of ss. 109 of the General Corporation Law of the
State of Delaware, and, after the corporation has received any
payment for any of its Stock, the power to adopt, amend, or repeal the
Bylaws of the corporation may be exercised by the Board of Directors
of the corporation; provided, however, that any provision for the
classification of directors of the corporation for staggered terms
pursuant to the provisions of subsection (d) of ss. 141 of the
General Corporation Law of the State of Delaware shall be set forth in
an initial Bylaw or in a Bylaw adopted by the stockholders entitled to
vote of the
-2-
<PAGE>
<PAGE>
corporation unless provisions for such classification shall be set forth in
this certificate of incorporation.
3. Whenever the corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder
thereof to notice of, and the right to vote at, any meeting of
stockholders. Whenever the incorporation shall be authorized to
issue more than one class of stock, no outstanding share of any
class of stock which is denied voting power under the provisions of
the certificate of incorporation shall entitle the holder thereof to
the right to vote at any meeting of stockholders except as the
provisions of paragraph (2) of subsection (b) of ss. 242 of the General
Corporation Law of the State of Delaware shall otherwise require;
provided, that no share of any such class which is otherwise denied
voting power shall entitle the holder thereof to vote upon the increase
or decrease in the number of authorized shares of said class.
NINTH: The personal liability of the directors of the
corporation is hereby eliminated to the fullest extent permitted by the
provisions of paragraph (7) of subsection (b) of ss. 102 of the General
Corporation Law of the State of Delaware, as the same may be amended and
supplemented.
TENTH: The corporation shall, to the fullest extent permitted
by the provisions of ss. 145 of the General Corporation Law of the State
of Delaware, as the same may be amended and supplemented, indemnify any and
all persons whom it shall have power to indemnify under said section from
and against any and all of the expenses, liabilities, or other matters
referred to in or covered by said section, and the indemnification provided
for herein shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any Bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this
certificate of incorporation may be amended, altered, or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said
laws, and all rights at any time conferred upon the stockholders of the
corporation by this certificate of incorporation are granted subject to the
provisions of this Article ELEVENTH.
Signed on May 17, 1993
Signature of
Incorporator
-3-
<PAGE>
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "MICROBIO INC.", CHANGING ITS NAME FROM "MICROBIO INC." TO "ALPHA
1 ACQUISITION CORP.", FILED IN THIS OFFICE ON THE THIRTEENTH DAY OF NOVEMBER,
A.D. 1995, AT 9 O'CLOCK A.M.
(Seal) Signature of Edward J. Freel
EDWARD J. FREEL, SECRETARY OF STATE
AUTHENTICATION:
2336746 8100 DATE: 8040254
960216214 07-24-96
<PAGE>
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
MICROBIO INC.
Pursuant to Section 242 of the General Corporation Law the
undersigned, STEVE H. KANZER, the President of MicroBio Inc. (the
" corporation"), a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY THAT:
l. The name of the corporation is MICROBIO INC.
2. The Certificate of Incorporation of the corporation is hereby
amended as follows:
A. Article FIRST of the Certificate of
Incorporation is deleted in its entirety and replaced by the following new
paragraph:
The name of the Corporation (hereinafter called
the "corporation") is Alpha 1 Acquisition Corp.
B. Article FOURTH of the Certificate of
Incorporation is deleted in its entirety and there shall be substituted
therefor the following new paragraph:
(a) Authorization. The total number of shares of all
classes of stock which the corporation shall have authority to issue is
70,000,000 consisting of 20,000,000 shares of Preferred Stock, par value $.001
per share (the "Preferred
<PAGE>
<PAGE>
Stock"), and 50,000,000 shares of Common Stock, par value $.001
per share (the "Common Stock").
(b) Designation of Preferred Stock. The Board of
Directors of the corporation (the "Board of Directors") is hereby expressly
authorized to provide for, designate and issue, out of the authorized but
unissued shares of Preferred Stock, one or more series of Preferred Stock
subject to the terms and conditions set forth herein. Before any shares of
any such series are issued, the Board of Directors shall fix, and hereby is
expressly empowered to fix, by resolution or resolutions, the following
provisions of the shares of any such series:
(1) the designation of such series, the
number of shares to constitute such series and the stated value thereof, if
different from the par value thereof;
(2) whether the shares of such series shall
have voting rights or powers in addition to any voting rights required by law
and, if so, the terms of such voting rights or powers, which may be full or
limited;
(3) the dividends, if any, payable on such
series, whether any such dividends shall be cumulative, and, if so, from what
dates, the conditions and dates upon which such dividends shall be payable,
the preference or relation which such dividends shall bear to the dividends
payable on any series of stock of any other class or series;
2
<PAGE>
<PAGE>
(4) whether the shares of such class or series
shall be subject to redemption by the corporation, and, if so, the times,
prices and other conditions of such redemption;
(5) the amount or amounts payable with respect
to shares of such class or series upon, and the rights of the holders of such
class or series in, the voluntary or involuntary liquidation, dissolution or
winding up, or upon any distribution of the assets, of the corporation;
(6) whether the shares of such class or series
shall be subject to the operation of a retirement or sinking fund and, if so,
the extent to and manner in which any such retirement or sinking fund
shall be applied to the purchase or redemption of the shares of such class or
series for retirement or other corporate purposes and the terms and
provisions relative to the operation thereof;
(7) whether the shares of such class or series
shall be convertible into, or exchangeable for, shares of stock of any other
class or series of any other securities and, if so, the price or prices or the
rate or rates of conversion or exchange and the method, if any, of adjusting
the same, and any other terms and conditions of conversion or exchange;
(8) the limitations and restrictions, if any,
to be effective while any shares of such class or series are outstanding upon
the payment of dividends or the making of other distributions on, and upon the
purchase, redemption or other
3
<PAGE>
<PAGE>
acquisition by the corporation of the Common stock or shares of
stock of any other class or series;
(9) the conditions or restrictions, if any, to be effective
while any shares of such class or series are outstanding upon the creation of
indebtedness of the corporation or upon the issue of any additional stock,
including additional shares of such class or series or of any other class or
series; and
(10) any other powers, designations, preferences and relative,
participating, optional or other special rights, and any qualifications,
limitations or restrictions thereof.
The powers, designations, preferences and relative,
participating, optional or other special rights of each series of Preferred
Stock, and the qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time outstanding. The
Board of Directors is hereby expressly authorized from time to time to
increase (but not above the total number of authorized shares of Preferred
Stock) or decrease (but not below the number of shares thereof then
outstanding) the number of shares of stock of any series of Preferred
Stock so designated pursuant to this Article Fourth (b).
3. By unanimous written consent of the Board of
Directors of the corporation in lieu of a meeting pursuant to Section 141 of
the General Corporation Law of the State of
4
<PAGE>
<PAGE>
Delaware, resolutions were duly adopted setting forth the foregoing amendment
to the Certificate of Incorporation, declaring said amendment to be advisable
and seeking the written consent of stockholders of the corporation to such
amendment.
4. Said amendment was duly adopted by written
consent of the stockholders of the corporation in lieu of a meeting in
accordance with the provisions of Section 228 of the General Corporation
Law of the State of Delaware by a majority in voting power of the shares of the
capital stock of the corporation's stockholders and written notice of
such action has been given to the corporation's stockholders who have
not given their consent thereto; and said amendment was duly adopted in
accordance with Sections 228 and 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, said Board of Directors of MicroBio Inc.
has caused this Certificate to be signed by Steve H. Kanzer, its President.
MICROBIO INC.
By: (Signature of Steve Kanzer)
President
5
<PAGE>
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF AMENDMENT OF "ALPHA 1 ACQUISITION CORP.", CHANGING
ITS NAME FROM "ALPHA 1 ACQUISITION CORP." TO "TRIAD PHARMACEUTICALS, INC.",
FILED IN THIS OFFICE ON THE SEVENTH DAY OF MARCH, A.D. 1996, AT 9 O'CLOCK A.M
(Signature of Edward J. Freel)
(Seal) EDWARD J. FREEL, SECRETARY OF STATE
AUTHENTICATION
2336746 8100 DATE: 8040255
960216214 07-24-96
<PAGE>
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/07/1996
960067141 - 2336746
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
ALPHA 1 ACQUISITION CORP.
Pursuant to Section 242 of the General Corporation Law, the
undersigned, Steve H. Kanzer, the President of Alpha I Acquisition Corp. (the
"Corporation"), a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY THAT:
1. The name of the corporation is Alpha 1 Acquisition Corp.
2. The Certificate of Incorporation of the Corporation, as amended, is
hereby amended as follows:
A. Article FIRST of the amended Certificate of Incorporation is deleted
in its entirety and replaced by the following new paragraph:
The name of the Corporation (hereinafter called the "Corporation") is
Triad Pharmaceuticals, Inc.
3. By unanimous written consent of the Board of Directors of the
Corporation in lieu of a meeting pursuant to Section 141 of the General
Corporation Law of the State of Delaware, resolutions were duly adopted
setting forth the foregoing amendment to the Certificate of
Incorporation, declaring said amendment to be advisable and seeking the
written consent of stockholders of the Corporation to such amendment.
2
<PAGE>
<PAGE>
4. Said amendment was duly adopted by written consent of the stockholders of
the Corporation in lieu of the meeting in accordance with the provisions of
Section 228 of the General Corporation Law of the State of Delaware by a
majority in voting power of the shares of the capital stock of the Corporation's
stockholders and written notice of such action has been given to the
Corporation's stockholders who have not given their consent thereto; and said
amendment was duly adopted in accordance with Sections 228 and 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Board of Directors of Alpha 1 Acquisition Corp.
has caused this certificate to be signed by Steve H. Kanzer, its President.
Dated: March 5, 1996
ALPHA 1 ACQUISITION CORP.
By: (signature of Steve H. Kanzer)
--------------------
Steve H. Kanzer - President
<PAGE>
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "TRIAD PHARMACEUTICALS, INC.", CHANGING ITS NAME FROM "TRIAD
PHARMACEUTICALS, INC." TO "DISCOVERY LABORATORIES, INC.", FILED IN THIS OFFICE
ON THE TWENTY-SECOND DAY OF MAY, A.D. 1996, AT 9 O'CLOCK A.M.
Logo here /S/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8040256
2336746 8100 DATE: 07-24-96
960216214
<PAGE>
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 05/22/1996
960148973 - 2336746
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
0F
TRIAD PHARMACEUTICALS, INC.
Pursuant to Section 242 of the General Corporation Law, the undersigned, Steve
H. Kanzer, the President of Triad Pharmaceuticals, Inc. (the "Corporation"),
a corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, DOES HEREBY CERTIFY THAT:
1. The name of the corporation is Triad Pharmaceuticals, Inc.
2. The certificate of Incorporation of the Corporation, as amended,
is hereby amended as follows:
A. Article FIRST of the amended Certificate of Incorporation is
deleted in its entirety and replaced by the following new paragraph:
The name of the corporation (hereinafter called the "Corporation")
is Discovery Laboratories, Inc.
3. By unanimous written consent of the Board of Directors of the
Corporation in lieu of a meeting pursuant to Section 141 of the General
Corporation Law of the State of Delaware, resolutions were duly adopted
setting forth the foregoing amendment to the Certificate of Incorporation,
declaring said amendment to be advisable and seeking the written consent of
stockholders of the Corporation to such amendment.
<PAGE>
<PAGE>
4. Said amendment was duly adopted by written consent of the
stockholders of the Corporation in lieu of the meeting in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware by a majority in voting power of the shares of the capital stock of the
Corporation's stockholders and written notice of such action has been given to
the Corporation's stockholders who have not given their consent thereto; and
said amendment was duly adopted in accordance with Sections 228 and 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Board of Directors of Triad Pharmaceuticals,
Inc. has caused this certificate to be signed by Steve H. Kanzer, its
President.
Dated: May 22, 1996
TRIAD PHARMACEUTICALS, INC.
By: /s/ Steve H. Kanzer
---------------------------
Steve H. Kanzer - President
2
<PAGE>
[FORM OF]
CERTIFICATE OF DESIGNATIONS
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
DISCOVERY LABORATORIES, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
DISCOVERY LABORATORIES, INC., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), does
hereby certify that, pursuant to the authority conferred on the Board of
Directors of the Corporation by the Certificate of Incorporation, as amended, of
the Corporation and in accordance with Section 151 of the General Corporation
Law of the State of Delaware, the Board of Directors of the Corporation adopted
the following resolution establishing a series of 3,000,000 shares of Preferred
Stock of the Corporation designated as "Series A Convertible Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the
Board of Directors of this Corporation by the Certificate of
Incorporation, as amended, a series of Preferred Stock, par value $.001
per share, of the Corporation is hereby established and created, and
that the designation and number of shares thereof and the voting and
other powers, preferences and relative, participating, optional or
other rights of the shares of such series and the qualifications,
limitations and restrictions thereof are as follows:
Series A Convertible Preferred Stock
1. Designation and Amount. There shall be a series of Preferred Stock designated
as "Series A Convertible Preferred Stock" and the number of shares constituting
such series shall be 3,000,000. Such series is referred to herein as the "Series
A Convertible Preferred Stock". Such number of shares may be increased or
decreased by resolution of the Board of Directors of the Corporation; provided,
however, that no decrease shall reduce the number of shares of Series A
Convertible Preferred Stock to less than the number of shares then issued and
outstanding.
2. Dividends. Subject to the prior and superior rights of the
holders of any shares of any series or class of capital stock ranking prior and
superior to the shares of Series A Convertible Preferred Stock with respect to
dividends and distributions, the holders of shares of Series A Convertible
Preferred Stock, shall
-1-
<PAGE>
be entitled to receive dividends and distributions, when, as and if declared by
the Board of Directors out of funds legally available for such purpose. If the
Corporation declares a dividend or distribution on the common stock, par value
$.001 per share (the "Common Stock"), of the Corporation, the holders of shares
of Series A Convertible Preferred Stock shall be entitled to receive for each
share of Series A Convertible Preferred Stock a dividend or distribution in the
amount of the dividend or distribution that would be received by a holder of the
Common Stock into which such share of Series A Convertible Preferred Stock is
convertible on the record date for such dividend or distribution. If the
Corporation declares a dividend or distribution on any other class or series of
preferred stock, the holders of shares of Series A Convertible Preferred Stock
shall be entitled to receive a dividend or distribution in an amount per share
in proportion to the dividend or distribution declared on a share of such other
class or series based upon the liquidation preference of a share of the Series A
Convertible Preferred Stock relative to that of a share of such other class or
series, unless the holders of at least 66.67% of the outstanding shares of
Series A Convertible Preferred Stock consent otherwise. In any such case, the
Corporation shall declare a dividend or distribution on the Series A Convertible
Preferred Stock at the same time that it declares a dividend or distribution on
the Common Stock or such other class or series of preferred stock and shall
establish the same record date for the dividend or distribution on the Series A
Convertible Preferred Stock as is established for such dividend or distribution
on the Common Stock or such other class or series of preferred stock. Each such
dividend or distribution will be payable to holders of record of the Series A
Convertible Preferred Stock as they appeared on the records of the Corporation
at the close of business on the record date declared for such dividend or
distribution, as shall be fixed by the Board of Directors. Any dividend or
distribution payable to the holders of the Series A Preferred Stock pursuant to
this Section 2 shall be paid to such holders at the same time as the dividend or
distribution on the Common Stock by which it is measured or paid. If the
corporation declares or pays a dividend or distribution on the Series A
Convertible Preferred Stock as a result of the declaration or payment of a
dividend or distribution on the Common Stock or any other class or series of
preferred stock as described above, the holders of the Series A Convertible
Preferred Stock shall not be entitled to any additional dividend or distribution
solely because such first dividend or distribution also required the declaration
or payment of a dividend or distribution on any other class or series of
preferred stock. Any reference to "dividend" or "distribution" contained in this
Section 2 shall not be deemed to include any dividend or distribution made in
connection with or in lieu of any Liquidation Event (as defined below).
3. Liquidation Preference. In the event of a (i) liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
(ii) a sale or other disposition of all or substantially all of the assets of
the Corporation or (iii) any consolidation, merger, combination, reorganization
or other transaction in which the Corporation is not the surviving entity or the
shares of Common Stock constituting in excess of 50% of the voting power of the
Corporation are exchanged for or changed into other stock or securities, cash
and/or any other property (a "Merger Transaction") (subparagraphs (i), (ii) and
(iii) being collectively referred to as a "Liquidation Event"), after payment or
provision for payment of debts and other liabilities of the Corporation, the
holders of the Series A Convertible Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its shareholders, whether such assets are capital, surplus, or
earnings, before any payment or declaration and setting apart for payment of any
amount shall be made in respect of the stock junior to the Series A Convertible
Preferred Stock, an amount equal to $13.50 per share plus an amount equal to all
declared and unpaid dividends thereon; provided, however, in the case of Section
3(iii) above, such $13.50 per share may be paid in cash and/or securities
(valued at the closing price (as defined in Section 5) of such security) of the
entity surviving such Merger Transaction. If upon any Liquidation Event, whether
voluntary or involuntary, the assets to be distributed to the holders of the
Series A Convertible Preferred Stock shall be insufficient to permit the payment
to such shareholders of the full preferential amounts aforesaid, then all of the
assets of the Corporation to be distributed shall be so distributed ratably to
the holders of the Series A Convertible Preferred Stock on the basis of the
number of shares of Series A Convertible Preferred Stock held. A consolidation
or merger of the Corporation with or into another corporation, other than in a
transaction described in Section 3(iii) above, shall not be considered a
liquidation, dissolution or winding up of the
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Corporation or a sale or other disposition of all or substantially all of the
assets of the Corporation and accordingly the Corporation shall make appropriate
provision to ensure that the terms of this Certificate of Designations survive
any such transaction. All shares of Series A Convertible Preferred Stock shall
rank as to payment upon the occurrence of any Liquidation Event senior to the
Common Stock as provided herein and, unless the terms of such series shall
provide otherwise, senior to all other series of the Corporation's preferred
stock.
4. Conversion.
(a) Right of Conversion. The shares of Series A Convertible
Preferred Stock shall be convertible, in whole or in part, at the option of the
holder thereof and upon notice to the Corporation as set forth in paragraph (b)
below, into fully paid and nonassessable shares of Common Stock and such other
securities and property as hereinafter provided. The shares of Series A
Convertible Preferred Stock shall be convertible initially at the rate of 4.0
shares of Common Stock for each full share of Series A Convertible Preferred
Stock and shall be subject to adjustment as provided herein. The initial
conversion price per share of Common Stock is $2.50 and shall be subject to
adjustment as provided herein. For purposes of this resolution, the "conversion
rate" applicable to a share of Series A Convertible Preferred Stock shall be the
number of shares of Common Stock and number or amount of any other securities
and property as hereinafter provided into which a share of Series A Convertible
Preferred Stock is then convertible and shall be determined by dividing the then
existing conversion price into $10.00.
The conversion price (subject to adjustments pursuant to the
provisions of paragraph (c) below) in effect immediately prior to the date (the
"Reset Date") that is 12 months after the effective date of the shelf
registration statement covering the shares of Common Stock issuable upon
conversion of the Series A Convertible Preferred Stock shall be adjusted and
reset effective as of the Reset Date if the average closing bid price of the
Common Stock for the 30 consecutive trading days immediately preceding the Reset
Date (the "12-Month Trading Price") is less than 135% of the then applicable
conversion price (a "Reset Event"). Upon the occurrence of a Reset Event, the
conversion price shall be reduced to be equal to the greater of (A) the 12-Month
Trading Price divided by 1.35 and (B) 50% of the then applicable conversion
price. If there is any change in the conversion price as a result of the
preceding sentence, then the conversion rate shall be changed accordingly, and
shall be determined by dividing the new conversion price into $10.00. The
Corporation shall prepare a certificate signed by the principal financial
officer of the Corporation setting forth the conversion rate as of the Reset
Date, showing in reasonable detail the facts upon which such conversion rate is
based, and such certificate shall be forthwith filed with the transfer agent of
the Series A Convertible Preferred Stock. Notwithstanding the provisions of
subparagraph (vi) of paragraph (c) below, a notice stating that the conversion
rate has been adjusted pursuant to this paragraph, or that no adjustment is
necessary, and setting forth the conversion rate in effect as of the Reset Date
shall be mailed as promptly as practicable after the Reset Date by the
Corporation to all record holders of the Series A Convertible Preferred Stock at
their last addresses as they shall appear in the stock transfer books of the
Corporation.
The "closing bid price" for each trading day shall be the
reported closing bid price on the NASDAQ Small-Cap Market or the NASDAQ National
Market System (collectively referred to as, "NASDAQ") or, if the Common Stock is
not quoted on NASDAQ, on the principal national securities exchange on which the
Common Stock is listed or admitted to trading (based on the aggregate dollar
value of all securities listed or admitted to trading) or, if not listed or
admitted to trading on any national securities exchange or quoted on NASDAQ, the
closing bid price in the over-the-counter market as furnished by any NASD member
firm selected from time to time by the Corporation for that purpose, or, if such
prices are not available, the fair market value set by, or in a manner
established by, the Board of Directors of the Corporation in good faith.
"Trading day" shall mean a day on which the national securities exchange or
NASDAQ used to determine the closing bid price is open
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for the transaction of business or the reporting of trades or, if the closing
bid price is not so determined, a day on which NASDAQ is open for the
transaction of business.
(b) Conversion Procedures. Any holder of shares of Series A
Convertible Preferred Stock desiring to convert such shares into Common Stock
shall surrender the certificate or certificates evidencing such shares of Series
A Convertible Preferred Stock at the office of the transfer agent for the Series
A Convertible Preferred Stock, which certificate or certificates, if the
Corporation shall so require, shall be duly endorsed to the Corporation or in
blank, or accompanied by proper instruments of transfer to the Corporation or in
blank, accompanied by irrevocable written notice to the Corporation that the
holder elects so to convert such shares of Series A Convertible Preferred Stock
and specifying the name or names (with address) in which a certificate or
certificates evidencing shares of Common Stock are to be issued. The Corporation
need not deem a notice of conversion to be received unless the holder complies
with all the provisions hereof. The Corporation will instruct the transfer agent
(which may be the Corporation) to make a notation of the date that a notice of
conversion is received, which date shall be deemed to be the date of receipt for
purposes hereof.
The Corporation shall, as soon as practicable after such
deposit of certificates evidencing shares of Series A Convertible Preferred
Stock accompanied by the written notice and compliance with any other conditions
herein contained, deliver at such office of such transfer agent to the person
for whose account such shares of Series A Convertible Preferred Stock were so
surrendered, or to the nominee or nominees of such person, certificates
evidencing the number of full shares of Common Stock to which such person shall
be entitled as aforesaid, together with a cash adjustment of any fraction of a
share as hereinafter provided. Subject to the following provisions of this
paragraph, such conversion shall be deemed to have been made as of the date of
such surrender of the shares of Series A Convertible Preferred Stock to be
converted, and the person or persons entitled to receive the Common Stock
deliverable upon conversion of such Series A Convertible Preferred Stock shall
be treated for all purposes as the record holder or holders of such Common Stock
on such date; provided, however, that the Corporation shall not be required to
convert any shares of Series A Convertible Preferred Stock while the stock
transfer books of the Corporation are closed for any purpose, but the surrender
of Series A Convertible Preferred Stock for conversion during any period while
such books are so closed shall become effective for conversion immediately upon
the reopening of such books as if the surrender had been made on the date of
such reopening, and the conversion shall be at the conversion rate in effect on
such date. No adjustments in respect of any dividends on shares surrendered for
conversion or any dividend on the Common Stock issued upon conversion shall be
made upon the conversion of any shares of Series A Convertible Preferred Stock.
All notices of conversion shall be irrevocable; provided,
however, that if the Corporation has sent notice of an event pursuant to
Sections 4(f) and (g) hereof, a holder of Series A Convertible Preferred Stock
may, at its election, provide in its notice of conversion that the conversion of
its shares of Series A Convertible Preferred Stock shall be contingent upon the
occurrence of the record date or effectiveness of such event (as specified by
such holder), provided that such notice of conversion is received by the
Corporation prior to such record date or effective date, as the case may be.
(c) Certain Adjustments of Conversion Rate. In addition to
adjustment pursuant to paragraph (a) above, the conversion rate (and the
corresponding conversion price) shall be subject to adjustment from time to time
as follows:
(i) In case the Corporation shall (A) pay a dividend in Common
Stock or make a distribution in Common Stock, (B) subdivide its
outstanding Common Stock, (C) combine its outstanding Common Stock into
a smaller number of shares of Common Stock or (D) issue by
reclassification of its Common Stock other securities of the
Corporation, then in each such case the conversion rate in effect
immediately prior thereto shall be adjusted so that the holder of any
shares of
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Series A Convertible Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the kind and number of shares
of Common Stock or other securities of the Corporation which such
holder would have owned or would have been entitled to receive
immediately after the happening of any of the events described above
had such shares of Series A Convertible Preferred Stock been converted
immediately prior to the happening of such event or any record date
with respect thereto. Any adjustment made pursuant to this subparagraph
(i) shall become effective immediately after the effective date of such
event retroactive to the record date, if any, for such event.
(ii) In case the Corporation shall issue rights, options,
warrants or convertible securities to all or substantially all holders
of its Common Stock, without any charge to such holders, entitling them
to subscribe for or purchase Common Stock at a price per share which is
lower at the record date mentioned below than both (A) the then
effective conversion price and (B) the closing bid price (as defined in
Section 4) for the trading day immediately prior to such record date
(the "Current Market Price"), then the conversion rate shall be
determined by multiplying the conversion rate theretofore in effect by
a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such
rights, options, warrants or convertible securities plus the number of
additional shares of Common Stock offered for subscription or purchase,
and of which the denominator shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such rights,
options, warrants or convertible securities plus the number of shares
which the aggregate offering price of the total number of shares
offered would purchase at such Current Market Price. Such adjustment
shall be made whenever such rights, options, warrants or convertible
securities are issued, and shall become effective immediately and
retroactive to the record date for the determination of stockholders
entitled to receive such rights, options, warrants or convertible
securities. Notwithstanding any of the foregoing, no adjustment shall
be made pursuant to the provisions of this subsection (ii), if such
adjustment would result in a decrease of the conversion rate.
(iii) In case the Corporation shall distribute to all or
substantially all holders of its Common Stock evidences of its
indebtedness or assets (excluding cash dividends or distributions out
of earnings) or rights, options, warrants or convertible securities
containing the right to subscribe for or purchase Common Stock
(excluding those referred to in subparagraph (ii) above), then in each
case the conversion rate shall be determined by multiplying the
conversion rate theretofore in effect by a fraction, of which the
numerator shall be the then fair value as determined in good faith by
the Corporation's Board of Directors on the date of such distribution,
and of which the denominator shall be such fair value on such date
minus the then fair value (as so determined) of the portion of the
assets or evidences of indebtedness so distributed or of such
subscription rights, options, warrants or convertible securities
applicable to one share. Such adjustment shall be made whenever any
such distribution is made and shall become effective on the date of
distribution retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
(iv) Upon the expiration of any rights, options, warrants or
conversion privileges, if such shall not have been exercised, the
conversion rate shall, upon such expiration, be readjusted and shall
thereafter be such as it would have been had it been originally
adjusted (or had the original adjustment not been required, as the case
may be) on the basis of (A) the fact that Common Stock, if any,
actually issued or sold upon the exercise of such rights, options,
warrants or conversion privileges, and (B) the fact that such shares of
Common Stock, if any, were issued or sold for the consideration
actually received by the Corporation upon such exercise plus the
consideration, if any, actually received by the Corporation for the
issuance, sale or grant of all such rights, options, warrants or
conversion privileges whether or not exercised.
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(v) No adjustment in the conversion rate shall be required
unless such adjustment would require an increase or decrease of at
least 1% in such rate; provided, however, that the Corporation may make
any such adjustment at its election; and provided, further, that any
adjustments which by reason of this subparagraph (v) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 4 shall be
made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be.
(vi) Whenever the conversion rate is adjusted as provided in
any provision of this Section 4:
(A) the Corporation shall compute (or may retain a
firm of independent public accountants of recognized national
standing (which may be any such firm regularly employed by the
Corporation) to compute) the adjusted conversion rate in
accordance with this Section 4 and shall prepare a certificate
signed by the principal financial officer of the Corporation
(or cause any such independent public accountants to execute a
certificate) setting forth the adjusted conversion rate and
showing in reasonable detail the facts upon which such
adjustment is based, and such certificate shall forthwith be
filed with the transfer agent of the Series A Convertible
Preferred Stock; and
(B) a notice stating that the conversion rate has
been adjusted and setting forth the adjusted conversion rate
shall forthwith be required, and as soon as practicable after
it is required, such notice shall be mailed by the Corporation
to all record holders of Series A Convertible Preferred Stock
at their last addresses as they shall appear in the stock
transfer books of the Corporation.
(vii) In the event that at any time, as a result of any
adjustment made pursuant to this Section 4, the holder of any shares of
Series A Convertible Preferred Stock thereafter surrendered for
conversion shall become entitled to receive any shares of the
Corporation other than shares of Common Stock or to receive any other
securities, the number of such other shares or securities so receivable
upon conversion of any share of Series A Convertible Preferred Stock
shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions contained
in this Section 4 with respect to the Common Stock.
(d) No Fractional Shares. No fractional shares or scrip
representing fractional shares of Common Stock shall be issued upon conversion
of Series A Convertible Preferred Stock. If more than one certificate evidencing
shares of Series A Convertible Preferred Stock shall be surrendered for
conversion at one time by the same holder, the number of full shares issuable
upon conversion thereof shall be computed on the basis of the aggregate number
of shares of Series A Convertible Preferred Stock so surrendered. Instead of any
fractional share of Common Stock which would otherwise be issuable upon
conversion of any shares of Series A Convertible Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fractional interest
in an amount equal to the same fraction of the market price per share of Common
Stock (which shall be the closing price as defined in Section 5) at the close of
business on the day of conversion.
(e) Reservation of Shares; Transfer Taxes; Etc. The
Corporation shall at all times reserve and keep available, out of its authorized
and unissued stock, solely for the purpose of effecting the conversion of the
Series A Convertible Preferred Stock, such number of shares of its Common Stock
free of preemptive rights as shall from time to time be sufficient to effect the
conversion of all shares of Series A Convertible Preferred Stock from time to
time outstanding. The Corporation shall use its best efforts from time to time,
in accordance with the laws of the State of Delaware, to increase the authorized
number of shares of Common Stock if at any time the number of shares of Common
Stock not outstanding shall not be sufficient to permit the
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conversion of all the then-outstanding shares of Series A Convertible Preferred
Stock.
The Corporation shall pay any and all issue or other taxes
that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of the Series A Convertible Preferred Stock. The Corporation
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue or delivery of Common Stock (or other
securities or assets) in a name other than that in which the shares of Series A
Convertible Preferred Stock so converted were registered, and no such issue or
delivery shall be made unless and until the person requesting such issue has
paid to the Corporation the amount of such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
Notwithstanding anything to the contrary herein, before taking
any action that would cause an adjustment reducing the conversion rate or before
any such adjustment is made as a result of a Reset Event, in either event, such
that the effective conversion price (for all purposes an amount equal to $10.00
divided by the conversion rate as in effect at such time) would be below the
then par value of the Common Stock, the Corporation shall take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue fully paid and nonassessable shares of
Common Stock at the conversion rate as so adjusted.
(f) Prior Notice of Certain Events. In case:
(i) the Corporation shall declare any dividend (or any other
distribution) on its Common Stock; or
(ii) the Corporation shall authorize the granting to the
holders of Common Stock of rights or warrants to subscribe for or
purchase any shares of stock of any class or of any other rights or
warrants; or
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a change
in par value, or from par value to no par value, or from no par value
to par value), or of any consolidation or merger to which the
Corporation is a party and for which approval of any stockholders of
the Corporation shall be required, or of the sale or transfer of all or
substantially all of the assets of the Corporation or of any compulsory
share exchange whereby the Common Stock is converted into other
securities, cash or other property; or
(iv) of the voluntary or involuntary dissolution, liquidation
or winding up of the Corporation or other Liquidation Event;
then the Corporation shall cause to be filed with the transfer agent for the
Series A Convertible Preferred Stock, and shall cause to be mailed to the
holders of record of the Series A Convertible Preferred Stock, at their last
addresses as they shall appear upon the stock transfer books of the Corporation,
at least 20 days prior to the applicable record date hereinafter specified, a
notice stating (x) the date on which a record (if any) is to be taken for the
purpose of such dividend, distribution or granting of rights or warrants or, if
a record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights or warrants are to
be determined and a description of the cash, securities or other property to be
received by such holders upon such dividend, distribution or granting of rights
or warrants or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding up
is expected to become effective, the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such exchange,
dissolution, liquidation, winding up or other Liquidation Event and the
consideration, including
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securities or other property, to be received by such holders upon such exchange;
provided, however, that no failure to mail such notice or any defect therein or
in the mailing thereof shall affect the validity of the corporate action
required to be specified in such notice.
(g) Other Changes in Conversion Rate. The Corporation from
time to time may increase the conversion rate by any amount for any period of
time if the period is at least 20 days and if the increase is irrevocable during
the period. Whenever the conversion rate is so increased, the Corporation shall
mail to holders of record of the Series A Convertible Preferred Stock a notice
of the increase at least 15 days before the date the increased conversion rate
takes effect, and such notice shall state the increased conversion rate and the
period it will be in effect.
The Corporation may make such increases in the conversion
rate, in addition to those required or allowed by this Section 4, as shall be
determined by it, as evidenced by a resolution of the Board of Directors, to be
advisable in order to avoid or diminish any income tax to holders of Common
Stock resulting from any dividend or distribution of stock or issuance of rights
or warrants to purchase or subscribe for stock or from any event treated as such
for income tax purposes.
(h) Ambiguities/Errors. The Board of Directors of the
Corporation shall have the power to resolve any ambiguity or correct any error
in the provisions relating to the convertibility of the Series A Convertible
Preferred Stock, and its actions in so doing shall be final and conclusive.
5. Mandatory Conversion. At any time on or after the Reset
Date, the Corporation, at its option, may cause the Series A Convertible
Preferred Stock to be converted in whole, or in part, on a pro rata basis, into
fully paid and nonassessable shares of Common Stock and such other securities
and property as herein provided if the closing price of the Common Stock shall
have exceeded 150% of the then applicable conversion price for at least 20
trading days in any 30 consecutive trading day period. Any shares of Series A
Convertible Preferred Stock so converted shall be treated as having been
surrendered by the holder thereof for conversion pursuant to Section 4 on the
date of such mandatory conversion (unless previously converted at the option of
the holder).
Not more than 60 nor less than 20 days prior to the date of
any such mandatory conversion, notice by first class mail, postage prepaid,
shall be given to the holders of record of the Series A Convertible Preferred
Stock to be converted, addressed to such holders at their last addresses as
shown on the stock transfer books of the Corporation. Each such notice shall
specify the date fixed for conversion, the place or places for surrender of
shares of Series A Convertible Preferred Stock, and the then effective
conversion rate pursuant to Section 4.
The "closing price" for each trading day shall be the reported
last sales price regular way or, in case no such reported sale takes place on
such day, the average of the reported closing bid and asked prices regular way,
in either case on the NASDAQ or, if the Common Stock is not quoted on NASDAQ, on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading (based on the aggregate dollar value of all securities
listed or admitted to trading) or, if not listed or admitted to trading on any
national securities exchange or quoted on NASDAQ, the average of the closing bid
and asked prices in the over-the-counter market as furnished by any NASD member
firm selected from time to time by the Corporation for that purpose, or, if such
prices are not available, the fair market value set by, or in a manner
established by, the Board of Directors of the Corporation in good faith.
"Trading day" shall have the meaning given in Section 4 hereof.
Any notice which is mailed as herein provided shall be
conclusively presumed to have been duly given by the Corporation on the date
deposited in the mail, whether or not the holder of the Series A Convertible
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Preferred Stock receives such notice; and failure properly to give such notice
by mail, or any defect in such notice, to the holders of the shares to be
converted shall not affect the validity of the proceedings for the conversion of
any other shares of Series A Convertible Preferred Stock. On or after the date
fixed for conversion as stated in such notice, each holder of shares called to
be converted shall surrender the certificate evidencing such shares to the
Corporation at the place designated in such notice for conversion.
Notwithstanding that the certificates evidencing any shares properly called for
conversion shall not have been surrendered, the shares shall no longer be deemed
outstanding and all rights whatsoever with respect to the shares so called for
conversion (except the right of the holders to convert such shares upon
surrender of their certificates therefor) shall terminate.
6. Voting Rights.
(a) General. Except as otherwise provided herein, in the
Certificate of Incorporation or the By-laws, the holders of shares of Series A
Convertible Preferred Stock, the holders of shares of Common Stock and the
holders of any other class or series of shares entitled to vote with the Common
Stock shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation. In any such vote, each share of Series A
Convertible Preferred Stock shall entitle the holder thereof to cast the number
of votes equal to the number of votes which could be cast in such vote by a
holder of the Common Stock into which such share of Series A Convertible
Preferred Stock is convertible on the record date for such vote, or if no record
date has been established, on the date such vote is taken. Any shares of Series
A Convertible Preferred Stock held by the Corporation or any entity controlled
by the Corporation shall not have voting rights hereunder and shall not be
counted in determining the presence of a quorum.
(b) Class Voting Rights. In addition to any vote specified in
paragraph (a) of this Section 6, so long as 50% of the shares of Series A
Convertible Preferred Stock (including those shares of Series A Convertible
Preferred Stock issued or issuable upon the exercise of the warrants issued to
Paramount Capital, Inc., the placement agent in connection with the offer and
sale of the Series A Convertible Preferred Stock) shall be outstanding, the
Corporation shall not, without the affirmative vote or consent of the holders of
at least 66.67% of all outstanding Series A Convertible Preferred Stock voting
separately as a class, (i) amend, alter or repeal any provision of the
Certificate of Incorporation, as amended, or the Bylaws of the Corporation so as
adversely to affect the relative rights, preferences, qualifications,
limitations or restrictions of the Series A Convertible Preferred Stock, (ii)
declare any dividend or distribution on the Common Stock or any other class or
series of preferred stock or authorize the repurchase of any securities of the
Corporation or (iii) authorize or issue, or increase the authorized amount of,
any additional class or series of stock, or any security convertible into stock
of such class or series, (A) ranking prior to, or on a parity with, the Series A
Convertible Preferred Stock upon liquidation, dissolution or winding up of the
Corporation or a sale of all or substantially all of the assets of the
Corporation or (B) providing for the payment of any dividends or distributions.
A class vote on the part of the Series A Convertible Preferred Stock shall,
without limitation, specifically not be deemed to be required (except as
otherwise required by law or resolution of the Corporation's Board of Directors)
in connection with: (a) the authorization, issuance or increase in the
authorized amount of Common Stock or of any shares of any other class or series
of stock ranking junior to the Series A Convertible Preferred Stock in respect
of distributions upon liquidation, dissolution or winding up of the Corporation;
(b) the authorization, issuance or increase in the amount of the Series A
Convertible Preferred Stock or any bonds, mortgages, debentures or other
obligations of the Corporation (other than bonds, mortgages, debentures or other
obligations convertible into or exchangeable for or having option rights to
purchase any shares of stock of the Corporation the authorization issuance or
increase in amount of which would require the consent of the holders of the
Series B Preferred Stock); or (c) any consolidation or merger of the Corporation
with or into another corporation in which the Corporation is not the surviving
entity, a sale or transfer of all or part of the Corporation's assets for cash,
securities or other property, or a compulsory share exchange.
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7. Outstanding Shares. For purposes of this Certificate of
Designations, all shares of Series A Convertible Preferred Stock shall be deemed
outstanding except (i) from the date, or the deemed date, of surrender of
certificates evidencing shares of Series A Convertible Preferred Stock, all
shares of Series A Convertible Preferred Stock converted into Common Stock, (ii)
from the date of registration of transfer, all shares of Series A Convertible
Preferred Stock held of record by the Corporation or any subsidiary of the
Corporation and (iii) any and all shares of Series A Convertible Preferred Stock
held in escrow prior to delivery of such stock by the Corporation to the initial
beneficial owners thereof.
8. Status of Acquired Shares. Shares of Series A Convertible
Preferred Stock received upon conversion pursuant to Section 4 or Section 5 or
otherwise acquired by the Corporation will be restored to the status of
authorized but unissued shares of Preferred Stock, without designation as to
class, and may thereafter be issued, but not as shares of Series A Convertible
Preferred Stock.
9. Preemptive Rights. The Series A Convertible Preferred Stock
is not entitled to any preemptive or subscription rights in respect of any
securities of the Corporation.
10. No Amendment or Impairment. The Corporation shall not
amend its Certificate of Incorporation or participate in any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, for the purpose of avoiding or seeking
to avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in carrying out all such action as may be reasonably necessary or
appropriate in order to protect the conversion rights of the holders of the
Series A Preferred Stock against impairment.
11. Severability of Provisions. Whenever possible, each
provision hereof shall be interpreted in a manner as to be effective and valid
under applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid under
applicable law.
IN WITNESS WHEREOF, Discovery Laboratories, Inc. has caused
this certificate to be signed on its behalf by ___________________, its
________________, this ___ day of __________, 1997.
DISCOVERY LABORATORIES, INC.
By:
Name:
Title:
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<PAGE>
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
DISCOVERY LABORATORIES, INC.
PURSUANT TO SECTIONS 228 AND 242
OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE
******************************
Discovery Laboratories, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation") DOES HEREBY CERTIFY:
FIRST: That Article FOURTH, Section (a) of the Certificate of
Incorporation of the Corporation is amended by deleting the first paragraph
thereof in its entirety and inserting in lieu thereof the following new
paragraph:
(a) Authorization. The total number of shares of classes of stock
which the Corporation shall have the authority to issue is 60,000,000
consisting of 50,000,000 shares of Common Stock, par value $.001 per share (the
"Common Stock"), and 10,000,000 shares of Preferred Stock, par value $.001 per
share (the "Preferred Stock").
SECOND: That the foregoing amendment has been duly adopted in
accordance with the provisions of Sections 228 and 242 of the General
Corporation Law of the State of Delaware.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this
certificate to be signed by James S. Kuo, its President, and Evan
Myrianthopoulos, its Secretary, this ___ day of October, 1996.
By: (signature of James S. Kuo)
-----------------------
James S. Kuo, President
ATTEST: (signature of Evan Myrianthopoulos)
-------------------------------
Evan Myrianthopoulos, Secretary
BYLAWS
OF
MicroBio Inc.
(a Delaware corporation)
-------------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in
the corporation shall be signed by, or in the name of, the corporation by the
Chairman or Vice-Chairman of the Board of Directors, if any, or by the President
or a Vice-President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a 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 he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one class
of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance
of any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the General
Corporation Law, the Board of Directors of the corporation may provide by
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resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall be uncertificated shares. Within a reasonable
time after the issuance or transfer of any uncertificated shares, the
corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by
a certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate
for a fractional share or an uncertificated fractional share shall, but scrip
or warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in
any of the assets of the corporation in the event of liquidation. The Board
of Directors may cause scrip or warrants to be issued subject to the
conditions that they shall become void if not exchanged for certificates
representing the full shares or uncertificated full shares before a specified
date, or subject to the conditions that the shares for which scrip or warrants
are exchangeable may be sold by the corporation and the proceeds thereof
distributed to the holders of scrip or warrants, or subject to any other
conditions which the Board of Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers
or registration of transfers of shares of stock of the corporation shall be
made only on the stock ledger of the corporation by the registered holder
thereof, or by his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the corporation or with a transfer
agent or a registrar, if any, and, in the case of shares represented by
certificates, on surrender of the certificate or certificates for such shares
of stock properly endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
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stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled to consent
to corporate action in writing without a meeting, the Board of Directors may
fix a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining the stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required
by the General Corporation Law, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by the General Corporation Law, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting shall be at the close of business on the day on which
the Board of Directors adopts the resolution taking such prior action. In order
that the corporation may determine the stockholders entitled to receive payment
of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action.
If no record date is fixed, the record date for determining stockholders for
any such purpose shall be at the close of business on the day on which the Board
of Directors adopts the resolution relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate or incorporation may provide for more than
one class or series of shares of stock, one or more
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<PAGE>
of which are limited or denied such rights thereunder; provided, however, that
no such right shall vest in the event of an increase or a decrease in the
authorized number of shares of stock of any class or series which is otherwise
denied voting rights under the provisions of the certificate of incorporation,
except as any provision of law may otherwise require.
7. STOCKHOLDER MEETINGS.
-TIME. The annual meeting shall be held on the date and at the time fixed,
from time to time, by the directors, provided, that the first annual meeting
shall be held on a date within thirteen months after the organization of the
corporation, and each successive annual meeting shall be held on a date within
thirteen months after the date of the preceding annual meeting. A special
meeting shall be held on the date and at the time fixed by the directors.
-PLACE. Annual meetings and special meetings shall be held at such place,
within or without the State of Delaware, as the directors may, from time to
time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
-CALL. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
-NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual
meeting shall state that the meeting is called for the election of directors and
for the transaction of other business which may properly come before the
meeting, and shall (if any other action which could be taken at a special
meeting is to be taken at such annual meeting) state the purpose or purposes.
The notice of a special meeting shall in all instances state the purpose or
purposes for which the meeting is called. The notice of any meeting shall also
include, or be accompanied by, any additional statements, information, or
documents prescribed by the General Corporation Law. Except as otherwise
provided by the General Corporation Law, a copy of the notice of any meeting
shall be given, personally or by mail, not less than ten days nor more than
sixty days before the date of the meeting, unless the lapse of the prescribed
period of time shall have been waived, and directed to each stockholder at his
record address or at such other address which he may have furnished by request
in writing to the Secretary of the corporation. Notice by mail shall be deemed
to be given when deposited, with postage thereon prepaid, in the United States
Mail. If a meeting is adjourned to another time, not more than thirty days
hence, and/or to another place, and if an announcement of the adjourned time
and/or place is made at the meeting, it shall not be necessary to give notice
of the adjourned meeting unless the directors, after adjournment, fix a new
record date for
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<PAGE>
the adjourned meeting. Notice need not be given to any stockholder who submits
a written waiver of notice signed by him before or after the time stated
therein. Attendance of a stockholder at a meeting of stockholders shall
constitute a waiver of notice of such meeting, except when the stockholder
attends the meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice.
-STOCKHOLDER LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city or other municipality or community
where the meeting is to be held, which place shall be specified in the notice
of the meeting, or if not so specified, at the place where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
-CONDUCT OF MEETING. Meetings of the stockholders shall be presided over
by one of the following officers in the order of seniority and if present and
acting - the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice-President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the stockholders.
The Secretary of the corporation, or in his absence, an Assistant Secretary,
shall act as secretary of every meeting, but if neither the Secretary nor an
Assistant Secretary is present the Chairman of the meeting shall appoint a
secretary of the meeting.
-PROXY REPRESENTATION. Every stockholder may authorize another person or
persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is
coupled with an interest sufficient in law to support an irrevocable power.
A proxy may be
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made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
-INSPECTORS. The directors, in advance of any meeting, may, but need not,
appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, if any, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties of inspectors at such
meeting with strict impartiality and according to the best of his ability.
The inspectors, if any, shall determine the number of shares of stock
outstanding and the voting power of each, the shares of stock represented at
the meeting, the existence of a quorum, the validity and effect of proxies,
and shall receive votes, ballots, or consents, hear and determine all challenges
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots, or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the person presiding at the meeting, the inspector or inspectors,
if any, shall make a report in writing of any challenge, question, or matter
determined by him or them and execute a certificate of any fact found by him
or them. Except as otherwise required by subsection (e) of Section 231 of the
General Corporation Law, the provisions of that Section shall not apply to the
corporation.
-QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction
of any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
-VOTING. Each share of stock shall entitle the holder thereof to one vote.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors. Any other action shall be authorized by a majority of
the votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the General
Corporation Law to be taken at any annual or special meeting of stockholders, or
any action which may be taken at any annual or special meeting of stockholders,
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be
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necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking
of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Action taken pursuant to this paragraph shall be subject to the provisions of
Section 228 of the General Corporation Law.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the corporation
shall be managed by or under the direction of the Board of Directors of the
corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of one person. Thereafter the number
of directors constituting the whole board shall be at least one. Subject to the
foregoing limitation and except for the first Board of Directors, such number
may be fixed from time to time by action of the stockholders or of the
directors, or, if the number is not fixed, the number shall be one. The number
of directors may be increased or decreased by action of the stockholders or of
the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected
and qualified or until their earlier resignation or removal. Any director
may resign at any time upon written notice to the corporation. Thereafter,
directors who are elected at an annual meeting of stockholders, and directors
who are elected in the interim to fill vacancies and newly created
directorships, shall hold office until the next annual meeting of stockholders
and until their successors are elected and qualified or until their earlier
resignation or removal. Except as the General Corporation Law may otherwise
require, in the interim between annual meetings of stockholders or of special
meetings of stockholders called for the election of directors and/or for the
removal of one or more directors and for the filling of any vacancy in that
connection, newly created directorships and any vacancies in the Board of
Directors, including unfilled vacancies resulting from the removal of directors
for cause or without cause, may be filled by the vote of a majority of the
remaining directors then in office, although less than a quorum, or by the sole
remaining director.
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4. MEETINGS.
-TIME. Meetings shall be held at such time as the Board shall fix, except
that the first meeting of a newly elected Board shall be held as soon after its
election as the directors may conveniently assemble.
-PLACE. Meetings shall be held at such place within or without the State
of Delaware as shall be fixed by the Board.
-CALL. No call shall be required for regular meetings for which the time
and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, of the President, or of a majority of the directors in office.
-NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required for
regular meetings for which the time and place have been fixed. Written, oral,
or any other mode of notice of the time and place shall be given for special
meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
-QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon
a majority of the directors in office shall constitute a quorum, provided,
that such majority shall constitute at least one-third of the whole Board.
A majority of the directors present, whether or not a quorum is present, may
adjourn a meeting to another time and place. Except as herein otherwise
provided, and except as otherwise provided by the General Corporation Law,
the vote of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board. The quorum and voting
provisions herein stated shall not be construed as conflicting with any
provisions of the General Corporation Law and these Bylaws which govern a
meeting of directors held to fill vacancies and newly created directorships in
the Board or action of disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any
such committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
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-CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the
Vice-Chairman of the Board, if any and if present and acting, or the
President, if present and acting, or any other director chosen by the Board,
shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have
and may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception
of any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a Secretary,
a Treasurer, and, if deemed necessary, expedient, or desirable by the Board of
Directors, a Chairman of the Board, a Vice-Chairman of the Board, an Executive
Vice-President, one or more other Vice-Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, and such other officers with
such titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing him, no officer other than the Chairman or
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Vice-Chairman of the Board, if any, need be a director. Any number of offices
may be held by the same person, as the directors may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the
Board of Directors following the next annual meeting of stockholders and
until his successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors designating and
choosing such officers and prescribing their authority and duties, and shall
have such additional authority and duties as are incident to their office
except to the extent that such resolutions may be inconsistent therewith. The
Secretary or an Assistant Secretary of the corporation shall record all of the
proceedings of all meetings and actions in writing of stockholders, directors,
and committees of directors, and shall exercise such additional authority and
perform such additional duties as the Board shall assign to him. Any officer
may be removed, with or without cause, by the Board of Directors. Any vacancy
in any office may be filled by the Board of Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors shall
prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
ARTICLE VI
CONTROL OVER BYLAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter, or repeal
these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors
or by the stockholders.
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I HEREBY CERTIFY that the foregoing is a full, true, and correct copy of
the Bylaws of MicroBio Inc., a Delaware corporation, as in effect on the date
hereof.
Dated:
-----------------------------------
Secretary of
MicroBio Inc.
(SEAL)
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<PAGE>
CERTIFICATE OF INCORPORATION
OF
ACUTE THERAPEUTICS, INC.
FIRST. The name of the Corporation is: Acute Therapeutics, Inc.
SECOND. The address of its registered office in the State of Delaware
is 1013 Centre Road, City of Wilmington, County of New Castle, Delaware 19805.
The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which the Corporation shall
have authority to issue is 10,000,000 shares of Common Stock, $0.001 par value
per share (the "Common Stock") and 2,000,000 shares of Preferred Stock, $0.001
par value (the "Preferred Stock").
FIFTH. The name and mailing address of the sole incorporator is as
follows:
NAME MAILING ADDRESS
Bradley A. Feuer c/o Brobeck, Phleger & Harrison LLP
1301 Avenue of the Americas
New York, NY 10019
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of
<PAGE>
Delaware may, on the application in a summary way of this corporation or of any
creditor or stockholder thereof, or on the application of any receiver or
receivers appointed for this corporation under the provisions of section 291 of
Title 8 of the Delaware Code or on the application of trustees in dissolution or
of any receiver or receivers appointed for this corporation under the provisions
of section 279 of Title 8 of the Delaware Code order a meeting of the creditors
or class of creditors, and/or of the stockholders or class of stockholders of
this corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
EIGHTH. Except to the extent that the General Corporation Law of
Delaware prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any provision of law
imposing such liability. No amendment to or repeal of this provision shall apply
to or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
NINTH. The Corporation may, to the fullest extent permitted by section
145 of the General Corporation Law of Delaware, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the Corporation, or
is or was serving, or has agreed to serve, at the request of the Corporation, as
a director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan), or by reason of any action alleged to have been
taken or omitted in such capacity, against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this Article, which undertaking may be
accepted without reference to the financial ability of such person to make such
repayment.
-2-
<PAGE>
The Corporation shall not indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person unless
the initiation thereof was approved by the Board of Directors of the
Corporation.
The indemnification rights provided in this Article Ninth (i) shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this Article.
TENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
EXECUTED at New York, New York, on September 11, 1996.
(Signature of Bradley A. Feuer)
Bradley A. Feuer
Sole Incorporator
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<PAGE>
CERTIFICATE OF DESIGNATION
of
SERIES A PREFERRED STOCK
of
ACUTE THERAPEUTICS, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
ACUTE THERAPEUTICS, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), does hereby certify that,
pursuant to the authority conferred on the Board of Directors of the Corporation
by the Certificate of Incorporation of the Corporation and in accordance with
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the Corporation adopted the following resolution establishing a
series of 600,000 shares of Preferred Stock of the Corporation designated as
"Series A Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the Board
of Director of this Corporation by the Certificate of Incorporation a
series of Preferred Stock, par value $.001 per share, of the Corporation
is hereby established and created, and that the designation and number
of shares therefor and the voting and other powers, preferences and
relative, participating, optional or other rights of the shares of such
series and the qualifications, limitations and restrictions thereof are
as follows:
<PAGE>
A. SERIES A PREFERRED STOCK.
The Series A Preferred Stock shall have the following rights, preferences,
powers, privileges and restrictions, qualifications and limitations.
1. Dividends.
When and if the Board of Directors shall declare a dividend
payable with respect to the then outstanding shares of Common Stock of the
Corporation, the holders of the Series A Preferred Stock shall be entitled to
the amount of dividends per share as would be payable on the largest number of
whole shares of Common Stock into which each share of Series A Preferred Stock
could then be converted pursuant to Section 4 hereof (such number to be
determined as of the record date for the determination of holders of Common
Stock entitled to receive such dividend).
2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations
and Asset Sales.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series
A Preferred Stock then outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to its stockholders after
and subject to the payment in full of all amounts required to be distributed to
the holders of any other class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series A Preferred Stock
(collectively referred to as "Senior Preferred Stock"), but before any payment
shall be made to the holders of Common Stock or any other class or series of
stock ranking on liquidation junior to the Series A Preferred Stock (the Common
Stock and any other class or series of stock ranking on liquidation junior to
the Series A Preferred Stock being collectively referred to as "Junior Stock")
by reason of their ownership thereof, an amount equal to $12.50 per share
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares),
plus any dividends declared or accrued but unpaid thereon. If upon any such
liquidation, dissolution or winding up of the Corporation the remaining assets
of the Corporation available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Series A Preferred Stock the full
amount to which they shall be entitled, the holders of shares of Series A
Preferred Stock and any class or series of stock ranking on liquidation on a
parity with the Series A Preferred Stock shall share ratably in any distribution
of the remaining assets and funds of the Corporation in proportion to the
respective amounts which would otherwise be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with respect to
such shares were paid in full.
(b) After the payment of all preferential amounts required to
be paid to the holders of Senior Preferred Stock, Series A Preferred Stock
and any other class or series of stock of the Corporation ranking on liquidation
on a parity with the Series A Preferred Stock, upon the dissolution,
liquidation or winding up of the Corporation, the holders of shares of Junior
Stock then outstanding shall be entitled to receive the remaining assets and
funds of the Corporation available for distribution to its stockholders.
(c) The consolidation or merger of the Corporation into or with
any other entity or entities or the consummation of any transaction or series
of transactions which results in either (i) the exchange by the holders of
outstanding shares of the Corporation of 50% or more of either (x) the then
outstanding shares of Common Stock or (y) the combined voting power of the
Corporation's then outstanding securities entitled to vote generally in the
election of directors or other general matters, (ii) the holders of outstanding
shares of the Corporation immediately prior to the consummation of such
<PAGE>
transaction or transactions holding less than 50% of the outstanding securities
of the resulting entity entitled to vote generally in the election of directors
or other general matters (either of (i) and (ii) being hereinafter referred to
as a "Change-in-Control Event") or (iii) the sale or transfer by the Corporation
of all or substantially all its assets (a "Consolidation Event"), shall be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of the provisions of this Section 2. The consolidation or merger of
the Corporation into or with any entity or entities which results in the
exchange of outstanding shares of the Corporation for securities or other
consideration issued or paid or caused to be issued or paid by any such entity
or affiliate thereof which does not result in a Change-of-Control Event or a
Consolidation Event shall not be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of the provisions of this
Section 2.
3. Voting.
(a) Each holder of outstanding shares of Series A Preferred
Stock shall be entitled to the number of votes equal to the number of
whole shares of Common Stock into which the shares of Series A Preferred Stock
held by such holder are then convertible (as adjusted from time to time pursuant
to Section 4 hereof), at each meeting of stockholders of the Corporation (and
written actions of stockholders in lieu of meetings) with respect to any and all
matters presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law, by the provisions of Subsection 3(b)
below or by the provision establishing any other series of Preferred Stock,
holders of Series A Preferred Stock shall vote together with the holders of
Common Stock as a single class.
(b) The Corporation shall not (i) amend, alter or repeal the
preferences, special rights or other powers of the Series A Preferred Stock so
as to affect adversely such series, or (ii) increase the authorized number of
shares of such series. In either case without the written consent or affirmative
vote of the holders of a majority of the then outstanding shares of such series,
given in writing or by vote at a meeting, commencing or voting (as the case may
be) separately as a class. For this purpose, without limiting the generality of
the foregoing, the authorization of any shares of capital stock with preference
or priority over Series A Preferred Stock as to the right to receive either
dividends or amounts distributable upon liquidation, dissolution or winding up
of the Corporation shall be deemed to affect adversely such series, and the
authorization of any shares of capital stock on a parity with such series as to
the right to receive either dividends or amounts distributable upon liquidation,
dissolution or winding up of the Corporation shall not be deemed to affect
adversely such series.
4. Optional Conversion. The holders of the Series A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and
from time to time, and without the payment of additional consideration by the
holder thereof, into one (1) fully paid and nonassessable share of Common Stock
(the "Ratio"). The Ratio at which shares of Series A Preferred Stock may be
converted into shares of Common Stock shall be subject to adjustment as provided
below.
In the event of a liquidation of the Corporation, the Conversion
Rights shall terminate at the close of business on the first full day preceding
the date fixed for the payment of any amounts distributable on liquidation to
the holders of Series A Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Series A Preferred Stock. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
<PAGE>
Corporation shall pay cash equal to such fraction multiplied by the then fair
market value of the Common Stock into which the Series A Preferred Stock is
being converted, as determined in good faith by the Board of Directors.
(c) Mechanics of Conversion.
(i) In order for a holder of Series A Preferred Stock to
convert shares of Series A Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for such shares of Series
A Preferred Stock, at the office of the transfer agent for the Series A
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice that
such holder elects to convert all or any number of the shares of the Series A
Preferred Stock represented by such certificate or certificates. Such notice
shall state such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
If required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
his, her or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practical after the
Conversion Date, issue and deliver at such office to such holder of Series A
Preferred Stock, or to his, her or its nominees, a certificate or certificates
for the number of shares of Common Stock, to which such holder shall be
entitled, together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series A
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Series A Preferred Stock, such number of its duly authorize shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Series A Preferred Stock.
(iii) Upon any such conversion, no adjustment to the Ratio
shall be made for any declared or executed buy unpaid dividends on the Series A
Preferred Stock surrendered for conversion or on the Common Stock delivered upon
conversion.
(iv) All shares of Series A Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be deemed to
be outstanding and all rights with respect to such shares, including the rights,
if any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any dividends
declared or accrued but unpaid thereon. Any shares of Series A Preferred Stock
so converted shall be retired and cancelled and shall not be redeemed, and the
Corporation (without the need for stockholder action) may from time to time take
such appropriate action as may be necessary to reduce the authorized Series A
Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of shares of
Common Stock upon conversion of shares of Series A Preferred Stock pursuant to
this Section 4. The Corporation shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Series A Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or
<PAGE>
early requesting such issuance has paid to the Corporation the amount of any
such tax or has established, to the satisfaction of the Corporation, that such
tax has been paid.
(e) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after October 21, (the "Original Issue
Date") affect a subdivision of the outstanding Common Stock, the Ratio then in
effect immediately before that subdivision shall be proportionately described.
If the Corporation shall at any time or from time to time after the Original
Issue Date of the Series A Preferred Stock combine the outstanding shares of
Common Stock, the Ratio then in effect immediately before the combination
shall be proportionately increased. Any adjustment under this paragraph
shall become effective at the close of business on the date the subdivision
or combination becomes effective.
(a) Adjustment for Certain Dividends and Distributions. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Ratio for
the Series A Preferred Stock then in effect shall be decreased as of the time
of such issuance or, in the event such a record date shall have been fixed, as
of the close of business on such record date, by multiplying the Ratio for the
Series A Preferred Stock then in effect by a fraction:
(1) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution;
provided, however; if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
thereafter, the Ratio for the Series A Preferred Stock shall be recomputed
accordingly as of the close of business on such record date and thereafter
the Ratio for the Series A Preferred Stock shall be adjusted pursuant to this
paragraph as of the time of actual payment of such dividends or distributions.
(f) Adjustments for Other Dividends and Distributions. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of Series A
Preferred Stock shall receive upon conversion thereof in addition to the
number of shares of Common Stock receivable thereupon, the amount of securities
of the Corporation that they would have received had the Series A Preferred
Stock been converted into Common Stock on the date of such event and had
thereafter, during the period from the date of such event to and including
the conversion date, retained such securities receivable by them as aforesaid
during such period, giving application to all adjustments called for during
such period under this paragraph with respect to the rights of the holders
of Series A Preferred Stock.
(g) Adjustment for Reclassification, Exchange or Substitution. If
the Common Stock issuable upon the conversion of the Series A Preferred Stock
shall be changed into the same or a different number of shares of any class
or classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holders of Series A
Preferred Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and property receivable
upon such reorganization, reclassification, or other change, by holders of the
number of shares of Common Stock into which such shares of Series A Preferred
Stock might have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as provided
herein.
(h) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation
or the sale of all or substantially all of the assets of the Corporation to
another corporation (other than a consolidation, merger or sale which is
covered by Subsection 2(e)), each share of Series A Preferred Stock shall
thereafter be convertible (or shall be converted into a security which shall
be convertible) into the kind and amount of shares of stock or other securities
or property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Series A Preferred Stock would
have been entitled upon such consolidation, merger or sale; and, in such case,
appropriate adjustment (as determined in good faith by the Board of Directors)
shall be made in the application of the provisions in this Section 4 set forth
with respect to the rights and interest thereafter of the holders of the
Series A Preferred Stock, to the end that the provisions set forth in
this Section 4 (including provisions with respect to changes
in and other adjustments of the Ratio) shall thereafter be applicable,
as nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Series A
Preferred Stock.
(i) No Impairment. The Corporation will not, by amendment of its
Restated Certificate of Incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all the
provisions of this Section 4 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A Preferred Stock against impairment.
5. Status of Acquired Shares. All shares of Series A Preferred Stock
which shall have been surrendered for conversion as herein provided shall no
longer be deemed to be outstanding and all rights with respect to such shares,
including the rights, if any, to receive notices and to vote, shall immediately
cease and terminate on the Conversion Date, except only the right of the holders
thereof to receive shares of Common Stock in exchange therefor and payment of
any dividends declared but unpaid thereon. Any shares of Series A Preferred
Stock so converted shall be retired and cancelled and shall not be released,
and the Corporation (without the need for stockholder action) may from time
to time take such appropriate action as may be necessary to reduce the
authorized Series A Preferred Stock accordingly.
6. Preemptive Rights. The Series A Convertible Preferred Stock is
not entitled to any preemptive or subscription rights in respect of any
securities of the Corporation.
7. No Amendment or Impairment. The Corporation shall not amend its
Certificate of Incorporation or participate in any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities
or any other voluntary action, for the purpose of avoiding or seeking to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will on all issues in good faith
assist in carrying out all such action as may be reasonably necessary or
appropriate in order to protect the conversion rights of the holders of the
Series A Preferred Stock against impairment.
8. Invalidity of Provisions. Whenever possible, each provision
hereof shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a part of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were improved or dissolved, then such officer may make such
change as shall be necessary to render the provisions in question effective
and valid under applicable law.
IN WITNESS WHEREOF, Acute Therapeutics, Inc. has caused this
certificate to be signed on its behalf by Robert J. Capetola, its President
and Chief Executive Officer, this 21st day of October, 1996.
ACUTE THERAPEUTICS, INC.
By: /s/ Robert J. Capetola
Name, Robert J. Capetola, Ph. D.
Title: President and Chief Executive Officer
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:01 AM 10/22/1996
960306301 - 2661891
CERTIFICATE OF DESIGNATION
of
SERIES B PREFERRED STOCK
of
ACUTE THERAPEUTICS, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
ACUTE THERAPEUTICS, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), does hereby certify that,
pursuant to the authority conferred on the Board of Directors of the
Corporation by the Certificate of Incorporation of the Corporation and in
accordance with Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Corporation adopted the following
resolution establishing a series of 2,200 shares of Preferred Stock of the
Corporation designated as "Series B Preferred Stock";
RESOLVED, that pursuant to the authority conferred on the Board of
Directors of this Corporation by the Certificate of Incorporation a series
of Preferred Stock, par value $.001 per share, of the Corporation is hereby
established and created, and that the designation and number of shares
thereof and the voting and other powers, preferences and relative,
participating, optional or other rights of the shares of such series and
the qualifications, limitations and restrictions thereof are as follows:
<PAGE>
The Series B Preferred Stock shall have the following rights, preferences,
powers, privileges and restrictions, qualifications and limitations.
1. Dividends.
The holders of shares of Series B Preferred Stock shall be entitled
to receive, out of funds legally available therefor, dividends at the rate of
$100 per share per annum (subject to appropriate adjustment in the event of any
stock dividend, stock split, combination or other similar recapitalization
affecting such shares) prior to and in preference to any declaration or payment
of any dividend on the Junior Stock (as defined below). Such dividends shall be
cumulative from the date of issuance of each share of Series B Preferred Stock
and shall accrue annually; provided, however, that such dividends shall be due
and payable only upon and in the event of (i) a liquidation dissolution or
winding up of the Corporation under Section 2(a) hereof, or (ii) the redemption
of the Series B Preferred Stock pursuant to Section 4 hereof.
2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations
and Asset Sales.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series
B Preferred Stock then outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to its stockholders after
and subject to the payment in full of all amounts required to be distributed to
the holders of any other class or series of stock of the Corporation ranking
on liquidation prior and in preference to the Series B Preferred Stock
(collectively referred to as "Senior Preferred Stock"), but before any payment
shall be made to the holders of Common Stock, the Series A Preferred Stock,
or any other class or series of stock ranking on liquidation junior to the
Series B Preferred Stock (the Common Stock, the Series A Preferred Stock and
any other class or series of stock ranking on liquidation junior to the Series
B Preferred Stock being collectively referred to as "Junior Stock") by reason
of their ownership thereof, an amount equal to $1000 per share (subject
to appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), plus
any dividends declared or accrued but unpaid thereon. If upon any such
liquidation, dissolution or winding up of the Corporation the remaining assets
of the Corporation available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Series B Preferred Stock the full
amount to which they shall be entitled, the holders of shares of Series B
Preferred Stock and any class or series of stock ranking on liquidation on a
parity with the Series B Preferred Stock shall share ratably in any
distribution of the remaining assets and funds of the Corporation in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
(b) After the payment of all preferential amounts required to be paid
to the holders of Senior Preferred Stock, Series B Preferred Stock and any
other class or series of stock of the Corporation ranking on liquidation on
a parity with the Series B Preferred Stock, upon the dissolution, liquidation or
-2-
<PAGE>
winding up of the Corporation, the holders of shares of Junior Stock then
outstanding shall be entitled to receive the remaining assets and funds of the
Corporation available for distribution to its stockholders.
(c) The consolidation or merger of the Corporation into or with any
other entity or entities or the consummation of any transaction or series of
transactions which results in either (i) the exchange by the holders of
outstanding shares of the Corporation of 50% or more of either (x) the then
outstanding shares of Common Stock or (y) the combined voting power of the
Corporation's then outstanding securities entitled to vote generally in the
election of directors or other general matters, (ii) the holders of outstanding
shares of the Corporation immediately prior to the consummation of such
transaction or transactions holding less than 50% of the outstanding securities
of the resulting entity entitled to vote generally in the election of directors
or other general matters (either of (i) and (ii) being hereinafter referred
to as a "Change-in-Control Event") or (iii) the sale or transfer by the
Corporation of all or substantially all its assets (a "Consolidation Event"),
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of the provisions of this Section 2. The
consolidation or merger of the Corporation into or with any entity or entities
which results in the exchange of outstanding shares of the Corporation for
securities or other considerations issued or paid or caused to be issued or
paid by any such entity or affiliate thereof which does not result in a Change-
of-Control Event or a Consolidation Event shall not be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning
of the provisions of this Section 2.
3. Voting Rights Except as required by law, the Series B Preferred Stock
shall not have any voting rights with respect to any matters presented to the
stockholders of the Corporation for their action or consideration.
4. Mandatory Redemption
(a) The Corporation will, upon the first to occur of (i) the approval
of the first New Drug Application filed by the Corporation relating to or
incorporating the KL4-Surfactant approved by the United States Food and Drug
Administration or (ii) the closing of an initial public offering of the
Corporation's Common Stock (the "Mandatory Redemption Date"), redeem from
each holder of shares of Series B Preferred Stock, at a price equal to $1000
per share, plus any dividends declared or accrued but unpaid thereon, subject
to appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares, all of the
outstanding shares of Series B Preferred Stock held by such holder on the
applicable Mandatory Redemption Date payable, at the option of the Corporation,
either (1) in cash, or (2) if (and only if) the Corporation's Common Stock
is publicly quoted on a national securities exchange or otherwise (as more
fully described below), in shares of Common Stock valued at the Current
Market Price. The "Current Market Price" of the Company's Common Stock
shall be determined as follows: (a) with respect to an event under clause
(ii) above, the Current Market Price shall be price per share paid by the
public in such initial public offering or (b) with respect to an event under
clause (i) above the Current Market Price shall mean the average closing
price for the Corporation's Common Stock for the twenty (20) consecutive
business day period ending as of the date three (3) business days prior
to the Mandatory Redemption Date whether or not the sale price of the
Common Stock was reported on any business day on the trading day immediately
preceding the date of such determination. The closing price shall be the
reported sales price regular way, in each case
-3-
<PAGE>
on the principal national securities exchange or the Nasdaq National Market
System on which the shares of the Corporation's Common Stock are listed or
admitted to trading, or if not listed or admitted to trading thereon, the
average of the closing bid and asked prices of the Common Stock in the
over-the-counter market as reported by Nasdaq or any comparable system, or
if the Common Stock is not listed on Nasdaq or a comparable system, the
average of the closing bid and asked prices on such day in the domestic
over-the-counter market as reported on the NASD Electronic Bulletin Board,
or, if not reported on such bulletin board, in the "pink-sheets" published
by the National Quotation Bureau, Incorporated.
(b) If the funds of the Corporation legally available for redemption
of Series B Preferred Stock on any Mandatory Redemption Date are insufficient
to redeem the number of shares of Series B Preferred Stock required under this
Section 4 to be redeemed on such date, those funds which are legally available
will be used to redeem the maximum possible number of such shares of Series B
Preferred Stock ratably on the basis of the number of shares of Series B
Preferred Stock which would be redeemed on such date if the funds of the
Corporation legally available therefor had been sufficient to redeem all shares
of Series B Preferred Stock required to be redeemed on such date. At any time
thereafter when additional funds of the Corporation become legally available
for the redemption of Series B Preferred Stock, such funds will be used, at the
end of the next succeeding fiscal quarter, to redeem the balance of the shares
which the Corporation was theretofore obligated to redeem, ratably on the basis
set forth in the preceding sentence.
(c) The Corporation shall provide notice of any redemption of Series B
Preferred Stock pursuant to this Section 4 specifying the time and place of
redemption and the Mandatory Redemption Price, by first class or registered
mail, postage prepaid, to each holder of record of Series B Preferred Stock
at the address for such holder last shown on the records of the transfer
agent therefor (or the records of the Corporation, if it serves as its own
transfer agent), not more than 60 nor less than 30 days prior to the date on
which such redemption is to be made. If less than all Series B Preferred
Stock owned by such holder is then to be redeemed, the notice will also
specify the number of shares which are to be redeemed. Upon mailing any
such notice of redemption, the Corporation will become obligated to redeem
at the time of redemption specified therein all Series B Preferred Stock
specified therein.
(d) Unless there shall have been a default in payment of the Mandatory
Redemption Price, no share of Series B Preferred Stock shall be entitled
to any dividends declared after its Mandatory Redemption Date, and on such
Mandatory Redemption Date all rights of the holder of such share as a
stockholder of the Corporation by reason of the ownership of such share
will cease, except the right to receive the Mandatory Redemption Price of
such share, without interest, upon presentation and surrender of the
certificate representing such share, and such share will not from and after
such Mandatory Redemption Date be deemed to be outstanding.
(e) Any Series B Preferred Stock redeemed pursuant to this Section 4
will be cancelled and will not under any circumstances be reissued, sold or
transferred and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the authorized Series B Preferred Stock
accordingly.
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<PAGE>
5. No Conversion Rights. The Series B Preferred Stock shall have
no rights of conversion in respect of any securities of the Corporation.
6. No Reissuance of Series B Preferred Stock. No share or shares of Series
B Preferred Stock acquired by the Corporation by reason of redemption, purchase
or otherwise shall be reissued, and all such shares shall be cancelled, retired
and eliminated from the shares which the Corporation shall be authorized to
issue.
7. Redemptive Rights. The Series B Preferred Stock is not entitled to
any preemptive or subscription rights in respect of any securities of the
Corporation.
8. Reorganizations and Recapitalizations. If at any time or from time to
time there shall be a reorganization or recapitalization of the Common Stock,
then, as a condition of such reorganization or recapitalization, provision shall
be made so that the holders of the Series B Preferred Stock shall thereafter
be entitled to receive in exchange for the Series B Preferred Stock the
number of shares of stock or other securities or property of the corporation
or otherwise, to which a holder of Common Stock deliverable upon redemption
would have been entitled on such reorganization or recapitalization.
9. Notice of Record Date. In the event of any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holder thereof who are entitled to receive any dividend or
other distribution, any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right, the corporation shall mail to each holder of Series
B Preferred Stock, at least twenty (20) days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of any dividend (other than a cash dividend) or other distribution,
any right to such dividend, distribution or right.
10. No Amendment or Impairment. The Corporation shall not amend its
Certificate of Incorporation or participate in any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities
or any other voluntary action, for the purpose of avoiding or seeking to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in carrying out all such action as may be reasonably necessary or
appropriate in order to protect the conversion rights of the holders of the
Series B Preferred Stock against impairment.
11. Protective Provisions. So long as any shares of Series B Preferred
Stock are outstanding, the Corporation shall not, without first obtaining
the approval (by vote or written consent, as provided by law) by majority
vote of the Board of Directors and of the holders of at least a majority
of the outstanding shares of the Series B Preferred Stock:
(a) amend or repeal any provisions of the Corporation's Certificate
Incorporation or Bylaws which in any manner adversely affects the holders of
Series B Preferred Stock; or
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<PAGE>
(b) Alter or change the designations, powers, rights, preferences
or privileges, or the qualifications. limitations or restrictions of the
Series B Preferred Stock; or
(c) Increase the authorized number of shares of Series B Preferred
Stock; or
(d) Authorize, create or issue any class or series of stock or any
other securities convertible into equity securities of the corporation having
a preference over, or being on a party with, the Series B Preferred Stock
with respect to dividends, redemptions or upon liquidation or dissolution
of the corporation; or
(e) Reclassify the shares of Common Stock or any other shares of any
class or series of capital stock hereafter created junior to the Series B
Preferred Stock into shares of any class or series of capital stock
(i) ranking either as to payment of dividends, distributions of assets or
redemptions, prior to or on parity with the Series B Preferred Stock, or
(ii) which in any manner adversely affects the holders of Series B
Preferred Stock.
12. Severability of Provisions. Whenever possible, each provision
hereof shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provisions hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating or
otherwise adversely affecting the remaining provisions hereof. If a court of
competent jurisdiction should determine that a provision hereof would be
valid or enforceable if a period of time were extended or shortened or a
particular percentage were increased or decreased, then such court may
make such change as shall be necessary to render the provision in question
effective and valid under applicable law.
IN WITNESS WHEREOF, Acute Therapeutics, Inc. has caused this
certificate to be signed on its behalf by Robert J. Capetola, its
President and Chief Executive Officer, this 21st day of October, 1996.
ACUTE THERAPEUTICS, INC.
By: /s/ Robert J. Capetola
Name: Robert J. Capetola, Ph.D.
Title: President and Chief Executive Officer
<PAGE>
<PAGE>
BY-LAWS
OF
ACUTE THERAPEUTICS, INC.
<PAGE>
BY-LAWS
TABLE OF CONTENTS
Page
ARTICLE 1 - Stockholders ................................................... 1
1.1 Place of Meetings.................................................. 1
1.2 Annual Meeting..................................................... 1
1.3 Special Meetings................................................... 1
1.4 Notice of Meetings................................................. 1
1.5 Voting List........................................................ 1
1.6 Quorum............................................................. 2
1.7 Adjournments....................................................... 2
1.8 Voting and Proxies................................................. 2
1.9 Action at Meeting.................................................. 2
1.10 Action without Meeting ........................................... 3
ARTICLE 2 - Directors ...................................................... 3
2.1 General Powers ................................................. 3
2.2 Number; Election and Qualification ............................. 3
2.3 Enlargement of the Board ....................................... 3
2.4 Tenure ......................................................... 3
2.5 Vacancies....................................................... 3
2.6 Resignation .................................................... 4
2.7 Regular Meetings ............................................... 4
2.8 Special Meetings ............................................... 4
2.9 Notice of Special Meetings ..................................... 4
2.10 Meetings by Telephone Conference Calls ......................... 4
2.11 Quorum.......................................................... 4
2.12 Action at Meeting .............................................. 5
2.13 Action by Consent .............................................. 5
2.14 Removal ........................................................ 5
2.15 Committees ..................................................... 5
2.16 Compensation of Directors ...................................... 5
ARTICLE 3 - Officers ....................................................... 6
3.1 Enumeration ....................................................... 6
3.2 Election........................................................... 6
3.3 Qualification...................................................... 6
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<PAGE>
3.4 Tenure............................................................. 6
3.5 Resignation and Removal............................................ 6
3.6 Vacancies.......................................................... 6
3.7 Chairman of the Board and Vice-Chairman of the Board............... 7
3.8 President.......................................................... 7
3.9 Vice Presidents.................................................... 7
3.10 Secretary and Assistant Secretaries............................... 7
3.11 Treasurer and Assistant Treasurers................................ 8
3.12 Salaries.......................................................... 8
ARTICLE 4 - Capital Stock .................................................. 8
4.1 Issuance of Stock.................................................. 8
4.2 Certificates of Stock.............................................. 8
4.3 Transfers.......................................................... 9
4.4 Lost, Stolen or Destroyed Certificates............................. 9
4.5 Record Date........................................................ 9
ARTICLE 5 - Indemnification ................................................ 10
ARTICLE 6 - General Provisions ............................................. 11
6.1 Fiscal Year........................................................ 11
6.2 Corporate Seal .................................................... 11
6.3 Waiver of Notice .................................................. 11
6.4 Voting of Securities .............................................. 11
6.5 Evidence of Authority ............................................. 12
6.6 Certificate of Incorporation....................................... 12
6.7 Transactions with Interested Parties .............................. 12
6.8 Severability ...................................................... 12
6.9 Pronouns .......................................................... 13
ARTICLE 7 - Amendments ..................................................... 13
7.1 By the Board of Directors ......................................... 13
7.2 By the Stockholders................................................ 13
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<PAGE>
BY-LAWS
OF
ACUTE THERAPEUTICS, INC.
ARTICLE 1 - Stockholders
1.1 Place of Meeting. All meetings of stockholders shall be held at such
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors or the President or, if not so designated, at the
registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election of
directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors or the President (which date shall not be a legal holiday in the place
where the meeting is to be held) at the time and place to be fixed by the Board
of Directors or the President and stated in the notice of the meeting. If no
annual meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-Laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 Special Meeting. Special meetings of stockholders may be called at any
time by the President or by the Board of Directors. Business transacted at any
special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written notice
of each meeting of stockholders, whether annual or special, shall be given not
less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting. The notices of all meetings shall
state the place, date and hour of the meeting. The notice of a special meeting
shall state, in addition, the purpose or purposes for which the meeting is
called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
1.5 Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete
<PAGE>
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, at a place within the city where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time of the meeting, and may be inspected by any stockholder who is
present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any other
time and to any other place at which a meeting of stockholders may be held under
these By-Laws by the stockholders present or represented at the meeting and
entitled to vote, although less than a quorum, or, if no stockholder is present,
by any officer entitled to preside at or to act as Secretary of such meeting. It
shall not be necessary to notify any stockholder of any adjournment of less than
30 days if the time and place of the adjourned meeting are announced at the
meeting at which adjournment is taken, unless after the adjournment 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.
1.8 Voting and Proxies. Each stockholder shall have one vote for each share
of stock entitled to vote held of record by such stockholder and a proportionate
vote for each fractional share so held, unless otherwise provided in the
Certificate of Incorporation. Each stockholder of record entitled to vote at a
meeting of stockholders, or to express consent or dissent to corporate action in
writing without a meeting, may vote or express such consent or dissent in person
or may authorize another person or persons to vote or act for him by written
proxy executed by the stockholder or his authorized agent and delivered to the
Secretary of the corporation. No such proxy shall be voted or acted upon after
three years from the date of its execution, unless the proxy expressly provides
for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the holders
of shares of stock representing a majority of the votes cast on a matter (or if
there are two or more classes of stock entitled to vote as separate classes,
then in the case of each such class, the holders of shares of stock of that
class representing a majority of the votes cast on a matter) shall decide any
matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. When a quorum is present at any meeting, any
election by stockholders shall be determined by a plurality of the votes cast on
the election.
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<PAGE>
1.10 Action without Meeting. Any action required or permitted to be taken
at any annual or special meeting of stockholders of the corporation may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE 2 - Directors
2.1 General Powers. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election and Qualification. The number of directors which shall
constitute the whole Board of Directors shall be determined by resolution of the
stockholders or the Board of Directors, but in no event shall be less than one.
The number of directors may be decreased at any time and from time to time
either by the stockholders or by a majority of the directors then in office, but
only to eliminate vacancies existing by reason of the death, resignation,
removal or expiration of the term of one or more directors. The directors shall
be elected at the annual meeting of stockholders by such stockholders as have
the right to vote on such election. Directors need not be stockholders of the
corporation.
2.3 Enlargement of the Board. The number of directors may be increased at
any time and from time to time by the stockholders or by a majority of the
directors then in office.
2.4 Tenure. Each director shall hold office until the next annual meeting
and until his successor is elected and qualified, or until his earlier death,
resignation or removal.
2.5 Vacancies. Unless and until filled by the stockholders, any vacancy in
the Board of Directors, however occurring, including a vacancy resulting from an
enlargement of the Board, may be filled by vote of a majority of the directors
then in office, although less than a quorum, or by a sole remaining director. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office, and a director chosen to fill a position resulting
from an increase in the number of directors shall hold office until the next
annual meeting of stockholders and until his successor is elected and qualified,
or until his earlier death, resignation or removal.
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2.6 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.7 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.8 Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.9 Notice of Special Meetings. Notice of any special meeting of directors
shall be given to each director by the Secretary or by the officer or one of the
directors calling the meeting. Notice shall be duly given to each director (i)
by giving notice to such director in person or by telephone at least 48 hours in
advance of the meeting, (ii) by sending a telegram or telex, or delivering
written notice by hand, to his last known business or home address at least 48
hours in advance of the meeting, or (iii) by mailing written notice to his last
known business or home address at least 72 hours in advance of the meeting. A
notice or waiver of notice of a meeting of the Board of Directors need not
specify the purposes of the meeting.
2.10 Meetings by Telephone Conference Calls. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.11 Quorum. A majority of the total number of the whole Board of Directors
shall constitute a quorum at all meetings of the Board of Directors. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each such director so
disqualified; provided, however, that in no case shall less than one-third (1/3)
of the number so fixed constitute a quorum. In the absence of a quorum at any
such meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
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<PAGE>
2.12 Action at Meeting. At any meeting of the Board of Directors at which a
quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these By-Laws.
2.13 Action by Consent. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee of the Board of Directors
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent to the action in writing, and the written consents are
filed with the minutes of proceedings of the Board or committee.
2.14 Removal. Except as otherwise provided by the General Corporation Law
of Delaware, any one or more or all of the directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, except that the directors elected by the holders of
a particular class or series of stock may be removed without cause only by vote
of the holders of a majority of the outstanding shares of such class or series.
2.15 Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of the State of Delaware, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it. Each
such committee shall keep minutes and make such reports as the Board of
Directors may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these By-Laws for the Board of Directors.
2.16 Compensation of Directors. Directors may be paid such compensation for
their services and such reimbursement for expenses of attendance at meetings as
the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
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<PAGE>
ARTICLE 3 - Officers
3.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote of a
majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in any
office for any reason and may, in its discretion, leave unfilled for such period
as it may determine any offices other than those of President, Treasurer and
Secretary. Each such successor shall hold office for the unexpired term of his
predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
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<PAGE>
3.7 Chairman of the Board and Vice-Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. If the Board of Directors
appoints a Vice-Chairman of the Board, he shall, in the absence or disability of
the Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such other
powers as may from time to time be vested in him by the Board of Directors.
3.8 President. The President shall, subject to the direction of the Board
of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform such
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Secretary shall perform such
duties and have such powers as are incident to the office of the secretary,
including without limitation the duty and power to give notices of all meetings
of stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of Directors and keep a record of the
proceedings, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
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<PAGE>
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform such
duties and shall have such powers as may from time to time be assigned to him by
the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the President or the Treasurer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 - Capital Stock
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation shall
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the corporation. Each such certificate shall be signed by, or in the name
of the corporation by, the Chairman or Vice-Chairman, if any, of the Board of
Directors, or the President or a Vice President, and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
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Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the By-Laws,
applicable securities laws or any agreement among any number of shareholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a new
certificate of stock in place of any previously issued certificate alleged to
have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating to such purpose.
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A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - Indemnification
The corporation may, to the fullest extent authorized under the laws of the
State of Delaware, as those laws may be amended and supplemented from time to
time, indemnify any director, officer, employee and/or agent made, or threatened
to be made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director, officer and/or
employee of the corporation or a predecessor corporation or, at the
corporation's request, a director or officer of another corporation, provided,
however, that the corporation shall indemnify any such agent in connection with
a proceeding initiated by such agent only if such proceeding was authorized by
the Board of Directors of the corporation. The indemnification provided for in
this Article 5 shall: (i) not be deemed exclusive of any other rights to which
those indemnified may be entitled under any bylaw, agreement or vote of
stockholders or disinterested directors or otherwise, both as to action in their
official capacities and as to action in another capacity while holding such
office, (ii) continue as to a person who has ceased to be a director, officer,
employee and/or agent, as the case may be, and (iii) inure to the benefit of the
heirs, executors and administrators of such a person. The corporation's
obligation to provide indemnification under this Article 5 shall be offset to
the extent of any other source of indemnification or any otherwise applicable
insurance coverage under a policy maintained by the corporation or any other
person.
Expenses incurred by a director of the corporation in defending a civil or
criminal action, suit or proceeding by reason of the fact that he is or was a
director of the corporation (or was serving at the corporation's request as a
director or officer of another corporation) shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized by relevant sections of the General Corporation Law of
Delaware. Notwithstanding the foregoing, the corporation shall not be required
to advance such expenses to an agent who is a party to an action, suit or
proceeding brought by the corporation and approved by a majority of the Board of
Directors of the corporation which alleges willful misappropriation of corporate
assets by such agent, disclosure of confidential information in violation of
such agent's fiduciary or contractual obligations to the corporation or any
other willful and deliberate breach in bad faith of such agent's duty to the
corporation or its stockholders.
The foregoing provisions of this Article 5 shall be deemed to be a contract
between the corporation and each director who serves in such capacity at any
time while this bylaw is in effect, and any repeal or modification thereof shall
not affect any rights or obligations then
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existing with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought based in whole or
in part upon any such state of facts.
The Board of Directors in its discretion shall have power on behalf of the
corporation to indemnify any person, other than a director, made a party to any
action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Article 5 of all directors, officers
and employees who are determined by the corporation or otherwise to be or to
have been "fiduciaries" of any employee benefit plan of the corporation which
may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Article 5, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation which is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines. "
ARTICLE 6 - General Provisions
6.1 Fiscal Year. Except as from time to time otherwise designated by the
Board of Directors, the fiscal year of the corporation shall end on the last day
of December in each year.
6.2 Corporate Seal. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
6.3 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
6.4 Voting of Securities. Except as the directors may otherwise designate, the
President or Treasurer may waive notice of, and act as, or appoint any person or
persons to act as, proxy or attorney-in-fact for this corporation (with or
without power of substitution)
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at, any meeting of stockholders or shareholders of any other corporation or
organization, the securities of which may be held by this corporation.
6.5 Evidence of Authority. A certificate by the Secretary, or an Assistant
Secretary, or a temporary Secretary, as to any action taken by the stockholders,
directors, a committee or any officer or representative of the corporation
shall as to all persons who rely on the certificate in good faith be conclusive
evidence of such action.
6.6 Certificate of Incorporation. All references in these By-Laws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
6.7 Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum;
(2) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the Board of Directors,
a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
6.8 Severability. Any determination that any provision of these By-Laws is
for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
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6.9 Pronouns. All pronouns used in these By-Laws shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
ARTICLE 7 - Amendments
7.1 By the Board of Directors. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
7.2 By the Stockholders. These By-Laws may be altered, amended or repealed
or new by-laws may be adopted by the affirmative vote of the holders of a
majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
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EXECUTION COPY
INVENTORY TRANSFER/STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made this 28th day of October, 1996, by and between
ACUTE THERAPEUTICS, INC., a Delaware corporation (the "Company"), JOHNSON &
JOHNSON DEVELOPMENT CORPORATION, a New Jersey corporation ("JJDC") and THE
R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE, a division of ORTHO
PHARMACEUTICAL CORPORATION, a Delaware corporation (the "Transferor").
WHEREAS, Transferor has agreed to transfer to the Company its existing
raw material inventory relating to KL4-Surfactant and dedicated equipment used
in the formulation of KL4-Surfactant (as listed on Schedule A and Schedule B
attached hereto - collectively, the "Inventory and Equipment") in exchange for
40,000 shares of the Company's common stock, $0.001 par value per share (the
"Common Stock") and 2,200 shares of the Company's Non-Voting Non-Convertible
Series B Preferred Stock, $0.001 par value per share (the "Series B Preferred
Stock") (the Common Stock and the Series B Preferred stock hereinafter
collectively referred to as the "Shares") which Shares shall be issued to
Transferor's affiliate, JJDC;
WHEREAS, the Company wishes to acquire the Inventory and Equipment in
consideration of the issuance and sales of the Shares; and
WHEREAS, the Company and the Transferor have agreed that, simultaneous
with the transfer to the Company of the Inventory and Equipment, the Transferor
will grant to the Company an exclusive world-wide license, including the right
to sublicense, for the KL4-Surfactant technology;
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. Transfer of Inventory. In consideration for the issuance and sale by
the Company of the Shares, Transferor shall transfer to the Company the
Inventory and Equipment.
2. Issuance of Shares. Upon receipt by the Company of the Inventory and
Equipment, the Company shall issue two (2) duly executed stock certificates
evidencing the Shares. One certificate shall be registered in the name of
JJDC for 40,000 shares of Common Stock. The second certificate shall be
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registered in the name of JJDC for 2,200 shares of Series B Preferred Stock.
3. Representations and Warranties of Transferor or JJDC.
Transferor or JJDC hereby represents and warrants, as to itself only to
the extent indicated below, to the Company that:
a. Authorization. Transferor or JJDC has full corporate power and
authority to enter into and perform its obligations under this Agreement, the
Registration Rights Agreement attached as Exhibit A hereto (the "Registration
Rights Agreement") and the Co-Sale Agreement attached as Exhibit B hereto (the
"Co-Sale Agreement"), and each such Agreement constitutes a valid and legally
binding obligation of Transferor and/or JJDC, enforceable in accordance with
its terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies.
b. Title to Inventory and Equipment. Transferor has good and marketable
title to the Inventory and Equipment free and clear of all easements,
mortgages, pledges, liens, encumbrances, security interests, equities, charges,
claims, clouds and restrictions of any nature whatsoever (collectively,
"Liens").
c. Inventory. Schedule A hereto sets forth a complete and accurate list
and description of the Inventory, which constitutes all inventory owned by
Transferor with respect to its research and development program for the
formulation of KL4-Surfactant.
d. Equipment. Schedule B hereto sets forth a complete and accurate list
and description of the Inventory, which constitutes all equipment owned by
Transferor with respect to its research and development program for the
formulation of KL4-Surfactant.
e. Third Party Consents. No consent, approval, or authorization of any
third party on the part of Transferor is required in connection with the
transfer of the Inventory and Equipment as contemplated by this Agreement.
f. Investment Representations.
(i) Investment Intent. This Agreement is made with Transferor in
reliance upon its representation to the Company, which by acceptance hereof
Transferor confirms, that the Shares have been acquired with Transferor's
own assets for investment for the account of its affiliate, JJDC, not as a
nominee or agent, and not with a view to the sale or distribution of any part
thereof, and that JJDC has no present intention of selling, granting
participation in, or otherwise distributing the same. By executing this
2.
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Agreement, JJDC represents that it does not have any contract, undertaking,
agreement or arrangement with any person or entity to sell, transfer, or grant
participation, to such person or entity or to any third person or entity, with
respect to any of the Shares.
(2) Restricted Securities. JJDC understands that the Shares have
not been registered under the Act, on the ground that the sale provided for
in this Agreement is exempt from the registration requirements of the Act,
and that the Company's reliance on such exemption is predicated on Transferor's
and JJDC's representations set forth herein.
JJDC understands that if the Company does not register with the
Securities and Exchange Commission pursuant to sections 12 or 15 of the
Securities Exchange Act of 1934 or if a registration statement covering the
Shares (or a filing pursuant to the exemption from registration under
Regulation A of the Act) under the Act is not in effect when he or she
desires to sell the Shares, JJDC may be required to hold the Shares for an
indeterminate period. JJDC also acknowledges that it understands that any
sale of the Securities that might be made by JJDC in reliance upon Rule 144
under the Act may be made only in limited amounts in accordance with the
terms and conditions of that rule and that JJDC may not be able to sell the
Shares at the time or in the amount JJDC so desires. JJDC is familiar with
Rule 144 and understands that the Shares constitute "restricted securities"
within the meaning of that Rule.
(3) Investment Experience. In connection with the investment
representations made herein JJDC represents that it is able to fend for itself
in the transactions contemplated by this Agreement, has such knowledge and
experience in financial and business matters as to be capable of evaluating
the merits and risks of his or her investment, has the ability to bear the
economic risks of its investment and has been furnished with and has had
access to such information as JJDC has requested and deems appropriate to its
investment decision.
(4) Limitations on Disposition. JJDC agrees that in no event will it
make a disposition of any of the Shares, unless and until (a) JJDC shall have
notified the Company of the proposed disposition and shall have furnished the
Company with a statement of the circumstances surrounding the proposed
disposition, and (b) JJDC shall have furnished the Company with an opinion
of counsel reasonably satisfactory to the Company to the effect that (i) such
disposition will not require registration of such Shares under the Act, or
(ii) that appropriate action necessary for compliance with the Act has been
taken, or (c) the Company shall have waived, expressly and in writing, its
rights under clauses (a) and (b) of this subparagraph. In addition, prior to
any disposition of any of the Shares, the Company may require the transferee
or assignee to provide in writing investment representations and its agreement
to the market stand-off provisions hereof in a form acceptable to the Company.
The restrictions on disposition imposed by this Section 3(f)(4) shall cease
terminate as to the Shares when: (i) such securities shall have been
effectively registered under the Act and sold by the holder thereof in
accordance with such registration, or (ii) an opinion of
3.
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the kind described in the second preceding sentence states that all future
transfers of such securities by the holder thereof would be exempt from
registration under the 1933 Act.
The Company shall not be required (i) to transfer on its books
any Shares of the Company which shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement, or (ii) to
treat as owner of such shares or to accord the right to vote as such owner
or to pay dividends to any transferee to whom such shares shall have been
so transferred. Transferor shall, during the term of this Agreement, exercise
all rights and privileges of a shareholder of the Company with respect to the
Shares after the issuance, and prior to the repurchase, thereof.
g. Legends. All certificates representing any Shares of the Company
subject to the provisions of this Agreement shall have endorsed thereon the
following legends (except that such certificates shall not be required to
bear such legend after a transfer thereof if the transfer was made in
compliance with Rule 144 or pursuant to a registration statement or, if the
opinion of counsel referred to above is issued and provides that such legend
is not required in order to establish compliance with any provisions of the
1933 Act):
(1) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE TERMS AND CONDITIONS OF A CERTAIN INVENTORY TRANSFER/STOCK PURCHASE
AGREEMENT WHICH INCLUDES A MARKET STAND-OFF AGREEMENT ON THE SALE OF THE
SECURITIES. COPIES OF THE AGREEMENTS MAY BE OBTAINED UPON WRITTEN REQUEST
TO THE SECRETARY OF THE CORPORATION."
(2) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND
MAY NOT BE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SHARES UNDER THE SECURITIES ACT OF 1933, OR PURSUANT TO RULE 144 UNDER THE
ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION
IS NOT REQUIRED UNDER SUCH ACT."
(3) Any legend required to be placed thereon by applicable state
laws.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to Transferor and JJDC that:
4.
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a. Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have
a material adverse effect on its business or properties.
b. Authorization. The Company has full power to execute, deliver
and perform its obligations under this Agreement, the Registration Rights
Agreement and the Co-Sale Agreement collectively, the "Agreements". All
corporate action on the part of the Company, its officers, directors and
stockholders necessary for the authorization, execution and delivery of the
Agreements, the performance of all obligations of the Company hereunder the
thereunder, and the authorization, issuance (or reservation for issuance),
sale and delivery of the Series B Preferred Stock being sold hereunder and
the Common Stock issuable upon redemption of the Series B Preferred Stock
has been taken. The Agreements have been duly executed and delivered by the
Company and constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except (i) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium, and other
laws of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
c. Valid Issuance of Series B Preferred and Common Stock. The
Shares, when issued, sold and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, will be duly and validly
issued and outstanding, fully paid, and nonassessable, free of any liens,
encumbrances, preemptive rights or rights of first refusal and will be issued
in compliance with all applicable federal and state securities laws and will
be free of restrictions on transfer other than restrictions on transfer under
this Agreement and the Co-Sale Agreement and under applicable state and federal
securities laws. The terms of the Series B Preferred Stock are set forth in
the Company's Certificate of Designation of Series B Preferred Stock ("Series
B Certificate") attached hereto as Exhibit C. The Common Stock being sold
hereunder and the Common Stock issuable upon redemption of the Shares purchased
under this Agreement, will, if issued, upon issuance, be duly and validly
issued, fully paid and nonassessable, free of any liens, encumbrances,
preemptive rights or rights of first refusal and will be issued in compliance
with all applicable federal and state securities laws and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement and the Co-Sale Agreement and under applicable state and federal
securities laws.
d. Capitalization. The entire authorized capital stock of the Company
consists of (a) 5,000,000 shares of Common Stock, of which 200,000 shares are
issued and outstanding and (b) 1,000,000 shares of preferred stock (the
"Preferred Stock"), 600,000 of which shares have been designated as Series A
Preferred Stock (the terms of which are set forth in the Certificate of
Designation of Series A Preferred ("Series A Certificate") attached hereto
5.
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as Exhibit D) of which 600,000 are issued and outstanding, and 2,200 of which
shares have been designated Series B Preferred Stock (the terms of which have
been set forth in the Series B Certificate) of which 2,200 are issued and
outstanding. The shares of Common Stock outstanding are duly authorized, validly
issued and outstanding, fully paid and nonassessable, and were issued in
compliance with all applicable federal and state securities laws. No shares of
Common stock or Preferred Stock are held in the Company's treasury. There are no
outstanding securities, warrants, rights of first refusal, options or other
rights to purchase or acquire, or exchangeable for or convertible into, any
shares of Common Stock or Preferred Stock. The Company has reserved 234,800
shares of Common Stock under its stock option plans. There are no preemptive
rights with respect to the issuance or sale by the Company of any of its
securities. The capitalization of the Company, giving effect to the transactions
contemplated hereby including those under Section 5.5 hereof, is as set forth in
Schedule I attached hereto.
e. Securities Laws. Assuming that J&J's representations and warranties
contained in Section 3 of this Agreement are true and correct, the offer,
issuance and sale of the Shares will be exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended
(the "1993 Act"), and have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws. The Company agrees that
neither the Company nor anyone acting on its behalf will offer any of the
Shares or any similar securities for issuance or sale to, or solicit any
offer to acquire any of the same from, anyone so as to make the issuance and
sale of the Shares subject to the registration requirements of Section 5 of
the 1933 Act.
5. Conditions to Transferor's Obligations. The obligations of Transferor
and JJDC under this Agreement are subject to the fulfillment on or before the
date hereof of each of the following conditions:
5.1 Performance. The Company shall have performed and complied with
all agreements, obligations, and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the date
hereof.
5.2 Execution and Delivery of Co-Sale Agreement and Registration
Rights Agreement. The Company shall have executed and delivered the
Registration Rights Agreement and the Co-Sale Agreement.
5.3 Opinion of Special Counsel to the Company Counsel. JJDC shall have
received from Brobeck, Phleger & Harrison LLP, counsel for Discovery
laboratories, Inc. ("Discovery") and Special Counsel to the Company solely
for the purpose of rendering an opinion pursuant to this Section 5.3, an
opinion addressed to JJDC stating that:
a. The Company is a corporation duly organized and validly
existing under, and by virtue of, the laws of the State of Delaware and is
in good standing under such laws. The Company has requisite corporate power
6.
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to own operate its properties and assets, and to carry on its business as
presently conducted.
b. The Company has all requisite legal and corporate power to
execute and deliver the Agreements, to issue the Shares under this Agreement
and to carry out and perform it obligations under the terms of each of the
Agreements.
c. The authorized capital stock of the Company consists of
2,000,000 shares of Common Stock, 200,000 shares of which are issued and
outstanding, and 1,000,000 shares of Preferred Stock, of which 600,000 and
2,200 shares have been designated Series A Preferred Stock and Series B
Preferred Stock, respectively. The Shares when issued under this Agreement
will be validly issued, fully paid and nonassessable and free of any liens,
encumbrances and preemptive or similar rights contained in the Certificate of
Incorporation of the Company, or, to such counsel's knowledge, in any agreement
to which the Company is a party, except as specifically provided in the
Agreements; provided, however, that the Shares may be subject to restrictions
on transfer under state and/or federal securities laws as set forth in the
Agreements. To such counsel's knowledge, except for rights described in the
Agreements and the Certificate of Incorporation, there are no other options,
warrants, conversion privileges or other rights presently outstanding to
purchase or otherwise acquire any authorized but unissued shares of capital
stock or other securities of the Company, or any other agreements to issue
any such securities or rights, except as such counsel may set forth on a
schedule of exceptions to the opinion being rendered pursuant to this
Section 5.3.
d. All corporate action on the part of the Company, its directors
and shareholders necessary for the authorization, execution and delivery of
the Agreements by the Company, the authorization, sale, issuance and
delivery of the Shares and the performance of the Company's obligations under
the Agreements have been taken. The Agreements have been duly and validly
executed and delivered by the Company and constitute valid and binding
obligations of the Company, enforceable against the Company in accordance
with its terms.
e. 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 Agreements or the offer, sale or issuance of the Shares or the consummation
of any other transaction contemplated by the Agreements, other than the filing
of the Certificate of Designation for the Series A Preferred Stock and the
Certificate of Designation for the Series B Preferred Stock with the
Secretary of State for the State of Delaware.
f. Subject to the accuracy of the Transferor's representations in
Section 3 of this Agreement and of the representations made by the other
purchasers of the Company's securities in connection with the formation and
financing of the Company, we are of the opinion that the offer, sale and
issuance of the Shares in conformity with the terms of the Agreement constitutes
7.
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<PAGE>
a transaction exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended.
5.4 Restated Articles. The Company shall have filed with the Secretary
of State of the State of Delaware the Series A Certificate and the Series B
Certificate.
5.5 Discovery Purchase. Discovery shall have contemporaneously
purchased from the Company, for $7,500,000, a total of 600,000 shares of
Series A Preferred Stock of the Company.
5.6 Compliance Certificate. The Chief Executive Officer of the
Company shall have delivered to Transferor a certificate dated the date of
this Agreement certifying that the conditions specified in Sections 5.2, 5.4
and 5.5 hereof have been fulfilled.
6. "Market Stand-Off" Agreement. Transferor hereby agrees that, during
the period specified by the Company and the underwriter or underwriters of
common stock (or other securities) of the Company, following the effective
date of a registration statement of the Company filed under the Securities
Act of 1933, as amended (the "Act"), Transferor shall not to the extent
requested by the Company and such underwriter, but in any case for a period
not to exceed 180 days, directly or indirectly, sell, offer or contract
to sell (including, without limitation, any short sale), grant any option
to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) any securities of the Company at any time during
such period except common stock included in such registration, provided,
however, that (a) such agreement shall be applicable only to the first such
registration statement of the Company which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering
and (b) all other shareholders of the Company holding securities of the
Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to Shares held by JJDC until the end
of such 180-day period.
7. Miscellaneous.
a. Further Instructions and Actions. The Company and Transferor shall
agree to prepare, execute and deliver such instruments of conveyance, sale,
assignment or transfer, and shall take or cause to be taken such other or
further action, as Company shall reasonably request at any time or from time
to time in order to perfect, confirm or evidence in Company title to all or
any part of the Inventory or to consummate, in any other manner, the terms
and provisions of this Agreement.
8.
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<PAGE>
b. Publicity. No party shall originate any publicity, news release,
or other announcement, written or oral, relating to this Agreement, or to
performance hereunder or the existence of an arrangement between the parties
hereto without the prior written consent of the other.
c. Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or
upon deposit in the United States Post Office, by registered or certified
mail with postage and fees prepaid, or upon delivery by overnight courier
service (paid by sender), addressed to the other party hereto at his or her
address hereinafter shown below his or her signature or at such other address
as such party may designate by ten (10) days' advance written notice to the
other party hereto.
d. Governing Law, Assignment and Enforcement. This Agreement is
governed by the internal law of New York and shall insure to the benefit of
the successors and assigns of the Company and, subject to the restrictions
on transfer herein set forth, be binding upon Transferor, his or her heirs,
executors, administrators, guardians, successors and assigns.
e. Amendments and Waivers. This Agreement represents the entire
understanding of the parties with respect to the subject matter hereof and
supersedes all previous understandings, written or oral. This Agreement may
only be amended with the written consent of the parties hereto and the
Company's assignees pursuant to subsection 4(c) and Section 5 hereof, or the
successors or assigns of the foregoing, and no oral waiver or amendment shall
be effective under any circumstances whatsoever.
f. Taxes. Each party hereto shall pay any and all applicable sales,
use, transfer and documentary taxes owed by each such party arising out of
the transfer of the Inventory and Equipment pursuant to this Agreement on
the basis of the applicability of any governing statutes.
g. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ACUTE THERAPEUTICS, INC.
/s/ Robert J. Capetola
By: _______________________________
Robert J. Capetola, Ph.D.
President
Address: 6097 Hidden Valley Drive
Doylestown, Pennsylvania 18901
THE R.W. JOHNSON
PHARMACEUTICAL RESEARCH
INSTITUTE, A DIVISION OF ORTHO
PHARMACEUTICAL CORPORATION
/s/ Kenneth G. Leahy
___________________________________
(Signature)
Kenneth G. Leahy
___________________________________
(Print Name)
Address: Route 202
Raritan, New Jersey 08869
JOHNSON & JOHNSON
DEVELOPMENT CORPORATION
/s/ Peter S. Galloway
___________________________________
(Signature)
Peter S. Galloway
___________________________________
(Print Name)
Address: One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
10.
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<PAGE>
Table 1: Summary of Significant Available Inventory of Stocked Drug
Substances & Equipment for Negotiation with Scripps New
Development Partner
Item Amount Estimated Comments
Value
[***]
[ ] Confidential Treatment Requested
<PAGE>
<PAGE>
Table 2: Radiolabeled Materials Inventory
[***]
[ ] Confidential Treatment Requested
<PAGE>
<PAGE>
SCHEDULE I
Acute Therapeutics, Inc.
Capitalization
(Upon Consummation of Transactions Contemplated Herein)
(Unless noted, all shares are of Common Stock of the Company)
Percentage of
Shares
Number of Beneficially
Shares Owned After
Beneficially Discovery's
Stockholder Owned Investment
- -------------------------------- ------------ -------------
Discovery Laboratories, Inc. ** 600,000 75.0%
Robert J. Capetola, Ph.D. 67,500 8.4
Charles Cochrane, M.D. 30,000 3.8
Johnson & Johnson, Inc.* 40,000 5.0
The Scripps Research Institute 40,000 5.0
Sage Partners 15,000 1.9
Susan Revak 7,500 0.9
==========================================================================
- ---------------
* Does not include 2,200 shares of the Company's Non-Voting Series B
Preferred Stock
** Shares are of the Company's Series A Preferred Stock
SCIENTIFIC ADVISORY AND CONSULTING AGREEMENT
This Agreement dated March 20, 1996 effective as of March 20, 1996,
is by and between Dr. John Hoidal, residing at 4534 Zarahemla Drive, Salt Lake
City, Utah 84124 (hereinafter referred to as "Consultant"), and Triad
Pharmaceuticals, Inc., a Delaware corporation having offices at c/o The Castle
Group Ltd., 375 Park Avenue, New York, New York 10152 ("Company").
W I T N E S S E T H:
WHEREAS, Consultant is an expert in scientific matters of particular
importance to the advancement of Company's technology; and
WHEREAS, Company desires that it be able to utilize Consultant's
expertise in its research and development programs.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereby agree as follows:
ARTICLE I - TERM OF AGREEMENT
This Agreement shall be in effect for a period of three (3) years
from the effective date. During this initial three year period, this Agreement
may be terminated by Consultant upon five (5) days prior written notice to
Company. In the event of a material breach by Consultant of any provision of
this Agreement, the Corporation shall be permitted to terminate this Agreement,
but only after providing written notice to Consultant describing in sufficient
detail Company's understanding of circumstances surrounding such material breach
and affording Consultant fifteen (15) days in which to cure such material
breach.
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ARTICLE II - SCIENTIFIC ADVISOR
Consultant agrees to serve under the term of this Agreement as a
Scientific Advisor to Company and as Co-Chairman of the Scientific Advisory
Board.
ARTICLE III - ADVISORY FUNCTION
Consultant, as a Scientific Advisor to Company, agrees to meet at
least semi-annually at one or more mutually agreeable locations to advise
Company of advances in his field of expertise, and to consult with Company,
assessing the feasibility of research and development programs under
consideration by Company and offering guidance for current and future research
and clinical applications of Company's technology. In addition to these
semi-annual meetings, Consultant further agrees at a reasonable time and
location and with prior notice to meet individually and in groups as called upon
from time to time to review and advise Company on its research, development and
commercialization of its technology, and to consult at reasonable time and
location and upon reasonable prior notice with Company and Company's management,
agents, employees and other Scientific Advisors on projects. Consultant, as a
Scientific Advisor to Company, is expected to make innovative and valuable
contributions to Company. In order to protect the patent rights of Consultant's
primary employer, The Charlotte-Mecklenberg Hospital Authority, any actual
research done by Consultant in the course of this Agreement shall be done at The
Charlotte-Mecklenberg Hospital Authority or at some other location approved in
advance by Company and no
2
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research shall be done by Consultant at the Company's place of business.
ARTICLE IV - COMPENSATION
In consideration for the services of Consultant as a Scientific
Advisor to Company, upon execution of this Agreement Consultant shall receive a
monthly consulting fee of two thousand dollars ($2,000) per month.
ARTICLE V - EXPENSES
Company will promptly reimburse Consultant for all reasonable and
necessary expenses incurred by him in connection with his consulting hereunder,
as approved by Company.
ARTICLE VI - CONFIDENTIALITY AGREEMENT
Consultant recognizes and acknowledges that the technology possessed
and under development by Company is a valuable property right to be kept
confidential and secret, and therefore agrees to keep confidential and not
disclose or use (except in connection with the fulfillment of his consulting
duties with Company under this Agreement) all "Confidential Information" of
Company. "Confidential Information" shall not include, however, information in
the public domain; information disclosed to Consultant by a third party entitled
to disclose it; or, information already known to the Consultant prior to receipt
from Company; or information that is required by law to be disclosed in
connection with any judicial or administrative proceedings.
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ARTICLE VII - PUBLICATION
Notwithstanding the foregoing, Company hereby grants to Consultant
the right to use, only in connection with the non-profit research activities of
Consultant, Confidential Information developed by Consultant in connection with
his consulting activities under this Agreement, and to publish such information
in technical, learned publications of scientific interest to researchers in
Consultant's field, only after submission of such material to Company for its
review at least 60 days prior to submission for publications, and with the prior
written approval of Company, which approval will not be unreasonably withheld.
ARTICLE VIII - REPRESENTATION OF CONSULTANT
Consultant hereby represents that his current principal place of
employment has received full disclosure as to the Consultant's acting as a
Scientific Advisor to Company and of the duties required of the Consultant under
this Agreement, and that such employer consents fully to Consultant's execution
of this Agreement and position of Scientific Advisor for Company. Consultant
further represents that there are no binding agreements to which he is a party
or by which he is bound, forbidding or restricting his activities herein,
provided however, Company recognizes Consultant's agreement with Scandipharm
Corp. attached as an exhibit hereto. Consultant consents to the use of his name
and relationship with company in various reports, brochures or other documents
produced by or on behalf of Company, including any and all documents filed with
the Securities and Exchange Commission.
4
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<PAGE>
ARTICLE IX - OWNERSHIP OF INVENTIONS
In consideration for the compensation paid to Consultant by Company
in Article IV, Consultant hereby agrees:
a. to cooperate fully in the prosecution of any new related patent
applications which are based upon new inventions or discoveries which are
related to nonanionic polymers and/or which may be filed as a
continuation-in-part under the patent applications licensed by Company from
Consultant's employer, The Charlotte-Mecklenberg Hospital Authority. Any such
inventions shall be the property of The Charlotte-Mecklenberg Hospital
Authority, but it is intended that they will be subject to the License Agreement
between Company and The Charlotte-Mecklenberg Hospital Authority. Consultant's
reasonable expenses incurred in connection with Consultant's cooperation shall
be reimbursed by Company; and
b. during the term of this Agreement, not to consult on nonanionic
polyether alcohol polymers for any other commercial, for-profit entity; or, for
any other commercial for-profit entity whose primary business is the development
of nonanionic polyether alcohol polymers; provided, however, that nothing in
this section shall prevent CONSULTANT from consulting on nonanionic polyether
alcohol polymers, for any other entity.
ARTICLE X - SURVIVAL
The provisions of this Agreement relating to confidentiality,
assignment of inventions, and cooperation during patent prosecution shall
survive
5
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<PAGE>
any termination or expiration hereof.
ARTICLE XI - INFORMATION OF OTHERS
Consultant shall keep confidential from Company all technical,
scientific, and other information concerning the business and research plans of
Consultant's other employers. Consultant acknowledges that Consultant is a party
to a confidentiality agreement with Sanofi-Winthrop relating to certain
manufacturing information regarding tyloxapol that has been shared with
Consultant. Consultant agrees not to disclose such information to the Company at
any time so as to permit the Company to source alternate manufacturers of
tyloxapol, if necessary, such as in the event that the Company is unable to
reach satisfactory agreement with Sanofi-Winthrop in the future. Consultant
shall not be limited from sharing or discussing any such information with
regulatory affairs Consultants that shall be deemed an agent of Consultant or
other members of the Company's Scientific Advisory Board.
ARTICLE XII - SEVERABILITY
Every provision of this Agreement is intended to be severable. If
any term or provision hereof is deemed unlawful or invalid in any jurisdiction
for any reason whatsoever, such unlawfulness or invalidity shall not affect the
validity of the remainder of this Agreement or the enforceability of such term
or provision in any other jurisdiction. To the extent that any such term or
provision is held to be unlawful or invalid, the parties agree to reform such
term or provision in such a way which will be enforceable in the jurisdiction to
which such holding applies, and
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<PAGE>
which will reflect, as nearly as permissible, the intention of the parties.
ARTICLE XIII - MISCELLANEOUS
Any notice or other communication between parties shall be
sufficiently given if sent by certified or registered mail, postage prepaid, if
to Company, addressed to it at c/o The Castle Group Ltd., 375 Park Avenue, Suite
1501, New York, New York 10022, Attention: Steve H. Kanzer, or if to Consultant,
addressed to Consultant at the address set forth below Consultant's name on the
signature page hereof, or to such address as may hereafter be designated in
writing by one party to the other. Such notice or other communication shall be
deemed to be given on the date of receipt.
This Agreement embodies the entire agreement and understanding
between Company and Consultant regarding the subject matter hereof and
supersedes any and all negotiations, prior discussions and preliminary and prior
agreements and understandings related to the central subject matter thereof.
This Agreement shall in all respects be governed by, and contained
and enforced in accordance with the internal substantive laws of the State of
New York, and not the law of conflict of laws.
This Agreement may be executed in one or more counterparts, each of
which, when so executed shall be deemed to be an original and all of which
counterparts, taken together, shall constitute one and the same instrument.
Neither this Agreement nor any term hereof may be amended, modified,
supplemented or waived save in a written instrument executed by each
7
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<PAGE>
of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
by proper persons thereunto duly authorized.
TRIAD PHARMACEUTICALS, INC.
/s/ Steve Kanzer
---------------------------
By: Steve Kanzer
Date: 3/20/96
CONSULTANT:
/s/ John Hoidal
---------------------------
By: John Hoidal, M.D.
Date: 3/20/96
8
Exhibit 10.4
Agreement No. 96-0155
STANDARD LICENSE AGREEMENT: DELUCA TECHNOLOGY
This Agreement is made effective the 6th day of September, 1996, by and
between Wisconsin Alumni Research Foundation (hereinafter called "WARF"), a
nonstock, nonprofit Wisconsin corporation, and Discovery Laboratories, Inc.
(hereinafter called "Discovery"), a corporation organized and existing under the
laws of Delaware;
WHEREAS, WARF owns certain inventions relating to processes for
preparing Compounds and to certain intermediates in such processes, and WARF is
willing to grant a license to Discovery with respect to Compounds under certain
patents claiming such inventions, and Discovery desires such a license under
such patents;
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth below, the parties covenant and agree as follows:
Section 1. Definitions.
For the purpose of this Agreement, the Appendix A definitions shall apply.
Section 2. Grant.
A. License.
(i) Patent Licenses
(1) Exclusive License - Compound.
WARF hereby grants to Discovery an exclusive license under the Licensed
Patents to make and use Compounds for the preparation of Products and to make,
have made, use and sell Products in the Licensed Field and Licensed Territory.
(2) Exclusive License - Use.
WARF hereby grants to Discovery an exclusive license under the Use Patents
to use the Compounds, to use and sell Products and practice the methods claimed
by the Use Patents in the Licensed Field and Licensed Territory.
(3) Nonexclusive License - Process.
WARF hereby grants to Discovery a nonexclusive license to practice
Processes of Licensed Patents and Ancillary Patents and to make, have made and
use Ancillary Compounds, but only for the purpose of making Compounds and
Products in the Licensed Field and Licensed Territory.
Page 1 of 26
<PAGE>
<PAGE>
(ii) Product Information License
(1) Nonexclusive License - Information.
WARF hereby grants to Discovery a nonexclusive license to use the Product
Information to make Products in the Licensed Field and Licensed Territory and to
obtain governmental approval of Products in the Licensed Field and Licensed
Territory.
(2) Confidentiality.
Discovery agrees to maintain the Product Information in confidence in
accordance with this Section 2A(ii)(2) both during and after the term of this
Agreement. Discovery may disclose the Product Information to any governmental
agency pursuant to an application for approval of a Product in the Licensed
Field and Licensed Territory if the confidentiality of such Product Information
is reasonably protected under the law or policy of such agency. The law and
policies imposed by the United States FDA shall be deemed acceptable for the
United States. Otherwise, only persons within Discovery's organization and
consultants of Discovery who execute written confidentiality agreements shall be
permitted access to the Product Information, and only on a need-to-know basis.
Discovery may make copies of the Product Information, but all such copies shall
be subject to the terms of this Agreement.
(3) Additional Product Information.
If Discovery requires any existing raw or other data that verifies or
supports any of the Product Information (including raw data contained in
laboratory notebooks and the like) with regard to any governmental approval
process or if required by any governmental approval agency, WARF will use its
best efforts to obtain such raw data from Sumitomo and/or Taisho upon
Discovery's written request to WARF. WARF shall pay the actual cost of the
translation and verification of the translation of such data. Within thirty (30)
days after the receipt of a supported invoice regarding such payments, Discovery
will reimburse WARF for all such payments, provided that the translation is
requested or approved by Discovery. All additional data provided to Discovery
under this Section 2A(ii)(3) shall be considered Product Information hereunder.
B. Sublicenses.
(i) Discovery may grant written, exclusive or nonexclusive
sublicenses to third parties; however, WARF shall not have any direct
enforcement obligations to any such sublicensees under Section 9. Any
agreement granting a sublicense shall state that the sublicense is
subject to the termination of this Agreement. Discovery shall have the
same responsibility for the activities of any sublicensee as if the
activities were directly those of Discovery.
(ii) In respect to sublicenses granted by Discovery under this
Section 2B, Discovery shall pay to WARF [***]. In addition if
Discovery receives any fees, minimum royalties or other payments in
consideration for any rights granted under a sublicense, and such
payments are not based directly upon the amount or value of products
sold by the sublicensee, (hereinafter defined as "Other Sublicensee
Income") then Discovery shall pay to WARF [***] of such Other
Sublicensee Income in the manner specified in Section 3F; provided,
however, that other Sublicensee Income shall exclude the following,
in relation to which no payments shall be due to WARF:
[***] Confidential treatment requested.
Page 2 of 26
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<PAGE>
(a) payments received by Discovery solely for performance of
research and development including, but not limited to, milestone
payments for achievement of objectives in research and
development, but only to the extent that such payments cover the
actual cost of the research and development work conducted by
Discovery or cover the license fees due on the completion of
certain development milestones by Discovery under Sections 3B and
3C hereof;
(b) Investments made by a sublicensee in either Discovery or
one of its affiliates to the extent that such investments are
made at current market value, including but not limited to, any
payments or other consideration representing the current market
value of shares in Discovery or any of its affiliates;
(c) Payments made to Discovery solely to the extent that
they cover the actual costs of conducting clinical testing and
other activities in connection with obtaining regulatory
approvals for Products; or
(d) Reimbursed expenses of Discovery.
For purposes of Subsection (b) above, the "current market value" of the
investment shall be determined as follows: (i) it shall be determined as at the
earlier of (a) the date when the investment is made or (b) the day prior to the
date when the investment is first publicly disclosed on the Dow Jones News Wire
(the "Determination Date"); (ii) if there is no public market for Discovery's
securities that are being purchased by the sublicensee, then the current market
value shall be determined by Discovery's Board of Directors in good faith, and
if WARF disputes such determination, the current market value shall be
determined by an independent investment banker whose fees shall be shared by
Discovery and WARF; (iii) if there is a public market for Discovery's securities
that are being purchased by the sublicensee, then the current market value shall
be determined using the average of the closing bid and asked prices of the
securities in the Over-The-Counter Market Summary or the closing price quoted on
any exchange on which the securities are listed as published in The Wall Street
Journal for the ten (10) trading days prior to the Determination Date.
Notwithstanding the foregoing, in the event the sublicensee is purchasing
Discovery's securities in connection with Discovery's initial public offering of
such securities, the current market value shall be determined using the offering
price of such securities to the public in Discovery's initial public offering.
Discovery shall not receive from sublicensees anything of value in lieu of cash
payments in consideration for any sublicense under this Agreement without the
express prior written permission of WARF.
C. Option.
WARF hereby grants Discovery an option to expand the Licensed Territory to
include all countries of the world except Argentina, Spain, Portugal, Korea and
Japan by paying the appropriate option fees on the schedule set forth in Section
3C of this Agreement.
D. Standstill.
During the term of this Agreement, WARF will not grant a license to any
third party to the Compound or the Product Information for any other indication
in the Licensed Territory, excepting WARF's existing license with Penederm
Incorporated.
[***] Confidential treatment requested.
Page 3 of 26
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E. Grant Forward.
(i) To the extent permitted by applicable law, WARF hereby grants
Discovery a nonexclusive license to make the Compounds under the
claims of future patent applications, and patents which mature from
any such applications, which are owned by WARF if the claimed
inventions are new and useful processes for making the Compounds or
Products. Discovery's rights under such inventions shall be limited to
the practice thereof within the Licensed Field and Licensed Territory
and shall be subject to the intervening rights of third parties that
have funded the research under which the inventions were first
conceived and/or made and to the rights of current licensees. WARF
will promptly notify Discovery of any such invention by mailing a copy
of the U.S. patent application, without claims, directed to such
invention to:
Discovery Laboratories, Inc.
Attn: Mr. Steve Kanzer
375 Park Avenue
New York, New York 10152
Such notification shall be given to Discovery promptly after WARF has
filed the U.S. patent application.
(ii) Sixty (60) days after receipt by Discovery of such
notification, and unless Discovery informs WARF in writing that it has
elected otherwise, such new and useful invention(s) shall become a
part of the Ancillary Patents hereunder. At any time more than two (2)
years after receipt by Discovery of such notification, WARF may
inquire of Discovery as to whether Discovery is in fact then actually
using the added invention(s) to make Compounds. If Discovery is not
doing so, WARF may, at its sole discretion, delete such invention(s)
from Ancillary Patents.
Section 3. Consideration.
A. Development.
Discovery agrees to and warrants that: it has, or will obtain, the
expertise necessary to independently evaluate the inventions of the Licensed
Patents; it will establish and actively and diligently pursue the development
plan (see Appendix H) to the end that the inventions of the Licensed Patents
will be utilized to provide Products for sale in the retail market; and within
one month following the end of each calendar quarter ending on March 31, June
30, September 30 and December 31 and until the date of first commercial sale of
Products, it will supply WARF with a written Development Report. All development
activities and strategies and all aspects of Products design and decisions to
market and the like are entirely at the discretion of Discovery, and Discovery
shall rely entirely on its own expertise with respect thereto. WARF's review of
Discovery's development plan is solely to verify the existence of Discovery's
commitment to development activity and to assure compliance with Discovery's
obligations to utilize the inventions of the Licensed Patents for the
marketplace, as set forth above. The development plan set forth on Appendix H
represents the current plans for the development work to be carried out by
Discovery. The parties recognize and agree that it will be necessary from time
to time to revise the development plan to take account of changes in
circumstances relating to the development work, and that the parties shall work
together in good faith to determine mutually acceptable modifications to the
development plan; provided, however, that such modifications shall only become
effective once a written revised development plan is prepared and signed on
behalf of both parties
Page 4 of 26
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<PAGE>
B. License Fees.
Discovery agrees to pay to WARF license fees for rights granted in the
Western Hemisphere in accordance with the following table:
Event License Fee
----- -----------
Execution of this Agreement (less $25,000 $ 225,000
credit; balance of $200,000 due on
execution)
Upon completion of Phase II studies in the $ 150,000
United States
Upon Date of NDA Submission in the U.S. $1,000,000
In accordance with the terms of the Option Agreement between the parties hereto
dated June 7, 1996, the $25,000 option fee paid under the terms of that
agreement shall be creditable against the fees due and payable by Discovery
under this Section 3B. All fees due under this Section 3B are payable only once,
regardless of the number of Products, clinical studies or NDA submissions made
by Discovery pursuant to this Agreement.
C. Option Fees.
(i) Discovery agrees to pay to WARF option fees in accordance
with the following table to add Belgium, France, Germany, Italy, the
Netherlands, Switzerland and the United Kingdom to the Licensed
Territory:
Event License Fee
----- -----------
Execution of this Agreement $ 200,000
Upon exercise of the option in Europe but in $ 200,000
no event later than January 1, 2002
(Discovery must exercise option if any
development work is done in Europe)
Upon Date of NDA Submission with the first $1,000,000
European country's equivalent of the FDA
The above named countries shall be considered added to the license granted
hereunder by expansion of the Licensed Territory after payment of the $200,000
installment due upon exercise of the option to expand the Licensed Territory.
All fees due under this Section 3C are payable only once, regardless of the
number of Products, or submissions to the European equivalent of the FDA.
(ii) Discovery agrees to pay an option fee of $500,000 on or
before January 1, 2002 to add Australia, New Zealand, Ireland,
Finland, Denmark, Norway, Sweden, Greece and any and all remaining
countries of the world to the Licensed Territory except Argentina,
Spain, Portugal, Korea and Japan.
(iii) In Argentina, Spain, Portugal and Korea, Discovery shall
have the right to prior review and approval of any license agreement
to be entered into by WARF under the Licensed Patents or the Use
Patents in the Licensed Field. Such approval shall not be unreasonably
withheld. Such
Page 5 of 26
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<PAGE>
license agreements shall provide that the licensees for any of the territories
of Argentina, Spain, Portugal and Korea are (i) prohibited from directly or
indirectly making any sales or marketing products containing the Compound
outside of such licensee's territory and (ii) required to mark products
containing the Compound as not for resale outside of such licensee's
territories. In the event that any of such licensees violates the foregoing
prohibition or obligation, WARF shall enforce its contractual rights against
such licensee to the greatest extent permitted under applicable law.
Additionally, WARF may only enter into a license with the following parties in
the following countries:
Argentina - Gador
Spain and Portugal - FAES
Korea - YuYu
If WARF and the above named companies are unable to reach agreement on a license
then Discovery shall have the option to obtain a license under the Licensed
Patents and the Use Patents in the Licensed Field in Argentina, Spain, Portugal
and Korea under the terms of a separate agreement to be negotiated between the
parties. Such agreement shall incorporate the required fees set forth in the
agreement between WARF and Sumitomo and Taisho, No. 93-0052, dated May 1, 1993.
D. Royalty.
In addition to the Section 3 license fee, Discovery or its sublicensee(s)
agree to pay WARF as "earned royalties" a royalty equal to [***] of the
Net Selling Price of Products sold by Discovery in quarters where no Competive
Product is sold in a particular country and [***] of the Net Selling Price of
Products sold by Discovery in quarters when a Competing Product is sold
in a particular country during the period commencing on the date of first
commercial sale and ending on the Royalty Termination Date.
E. Minimum Royalty.
Discovery further agrees to pay to WARF a minimum royalty of $100,000 per
calendar year or part thereof during which this Agreement is in effect starting
in calendar year 2002, against which any earned royalty paid for the same
calendar year will be credited. The minimum royalty for a given year shall be
due at the time payments are due for the calendar quarter ending on December 31.
It is understood that the minimum royalties will apply on a calendar year basis,
and that sales of Products requiring the payment of earned royalties made during
a prior or subsequent calendar year shall have no effect on the annual minimum
royalty due WARF for any given calendar year.
F. Accounting; Payments.
(i) Amounts owing to WARF under Sections 2B and 3D shall be paid
on a quarterly basis, with such amounts due and received by WARF on or
before the thirtieth day following the end of the calendar quarter
ending on March 31, June 30, September 30 or December 31 in which such
amounts were earned. The balance of any amounts which remain unpaid
for more than thirty (30) days after they are due to WARF shall accrue
interest until paid at the rate of the lesser of one percent (1%) per
month or the maximum amount allowed under applicable law. However, in
no event shall this interest provision be construed as a grant of
permission for any payment delays.
(ii) Except as otherwise directed, all amounts owing to WARF
under this Agreement shall be paid in U.S. dollars to WARF at the
address provided in Section 1 5(a). All royalties
[***] Confidential treatment requested.
Page 6 of 26
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<PAGE>
owing with respect to Selling Prices stated in currencies other than
U.S. dollars shall be converted at the rate shown in the Federal
Reserve Noon Valuation - Value of Foreign Currencies on the day
preceding the payment.
(iii) A full accounting showing how any amounts owing to WARF
under Sections 2B and 3D have been calculated shall be submitted to
WARF on the date of each such payment. Such accounting shall be on a
per-country and product line, model or tradename basis and shall be
summarized on the form shown in Appendix E of this Agreement. In the
event no payment is owed to WARF, a statement setting forth that fact
shall be supplied to WARF.
Section 4. Certain Warranties of WARF.
A. WARF warrants that except as otherwise provided under Section 13 of
this Agreement with respect to U.S. Government interests, it is the owner
of the Licensed Patents, Use Patents, and Ancillary Patents or otherwise
has the right to grant the licenses granted to Discovery in this Agreement.
However, nothing in this Agreement shall be construed as:
(i) a warranty or representation by WARF as to the validity or
scope of any of Licensed Patents, Use Patents or Ancillary Patents;
(ii) a warranty or representation that anything made, used, sold
or otherwise disposed of under the license granted in this Agreement
will or will not infringe patents of third parties;
(iii) an obligation to bring or prosecute actions or suits
against third parties for infringement of Licensed Patents, Use
Patents or Ancillary Patents;
(iv) an obligation to furnish any know-how not provided in
Licensed Patents, Use Patents or Ancillary Patents or any services
other than those specified in this Agreement; or
(v) a warranty or representation by WARF that it will not grant
licenses to others to make, use or sell products not-covered by the
claims of the Licensed Patents, Use Patents or Ancillary Patents which
may be similar and/or compete with Products made or sold by Discovery
or its sublicensee(s).
B. WARF MAKES NO REPRESENTATIONS, EXTENDS NO WARRANTIES OF ANY KIND,
EITHER EXPRESS OR IMPLIED, AND ASSUMES NO RESPONSIBILITIES WHATSOEVER WITH
RESPECT TO USE, SALE, OR OTHER DISPOSITION BY DISCOVERY, ITS SUBLICENSEE(S)
OR THEIR VENDEES OR OTHER TRANSFEREES OF PRODUCTS INCORPORATING OR MADE BY
USE OF INVENTIONS LICENSED UNDER THIS AGREEMENT.
Section 5. Recordkeeping.
A. Discovery and its sublicensee(s) shall keep books and records
sufficient to verify the accuracy and completeness of Discovery's and its
sublicensee(s)'s accounting referred to above, including without limitation
inventory, purchase and invoice records relating to the Products or their
manufacture. Such books and records shall be preserved for a period not
less than six years after they are created during and after the term of
this Agreement.
Page 7 of 26
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<PAGE>
B. Discovery and its sublicensee(s) shall take all steps necessary so
that WARF may within thirty days of its request review and copy all the
books and records at a single U.S. location to verify the accuracy of
Discovery's and its sublicensee(s)'s accounting. Such review may be
performed by any employee of WARF as well as by any attorney or registered
CPA designated by WARF, upon reasonable notice and during regular business
hours.
C. If a royalty payment deficiency is determined, Discovery and its
sublicensee(s) shall pay the royalty deficiency outstanding within thirty
(30) days of receiving written notice thereof, plus interest on outstanding
amounts as described in Section 3F(i).
D. If a royalty payment deficiency for a calendar year exceeds five
percent (5%) of the royalties paid for that year, then Discovery or its
sublicensee(s) shall be responsible for paying WARF's out-of-pocket
expenses incurred with respect to such review.
Section 6. Term; Termination.
A. The term of the license granted under this Agreement shall begin on
the execution date and shall end on the Royalty Termination Date at which
time Discovery shall have a paid-up license under this Agreement.
B. Discovery may terminate this Agreement at any time by giving at
least ninety days' written and unambiguous notice of such termination to
WARF. Such a notice shall be accompanied by a statement of the reasons for
termination.
C. If Discovery at any time defaults in the timely payment of any
monies due to WARF or the timely submission to WARF of any Development
Report, fails to actively pursue the development plan, or commits any
material breach of any other material covenant herein contained, and
Discovery fails to remedy any such breach or default within ninety days
after written notice thereof by WARF, WARF may, at its option, terminate
this Agreement by giving notice of termination to Discovery.
D. Upon the termination of this Agreement, Discovery shall remain
obligated to provide an accounting for and to pay royalties earned up to
the date of the termination and any minimum royalties shall be prorated as
of the date of termination by the number of days elapsed in the applicable
calendar year.
Section 7. Assignability.
This Agreement may not be transferred or assigned by Discovery except with
the prior written consent of WARF, which shall not be unreasonably withheld;
provided that Discovery may assign this Agreement (i) to the purchaser of
substantially all of Discovery's stock, assets or business pursuant to the
transaction transferring such assets, and (ii) to an affiliate of Discovery
(meaning any entity which controls, is controlled by or is under common control
with Discovery), provided in each case that the assignee first agrees to assume
all of Discovery's obligations and liabilities under this Agreement.
Section 8. Contest of Validity.
In the event Discovery contests the validity of any Licensed Patent or
Ancillary Patent, Discovery shall continue to pay royalties with respect to that
patent as if such contest were not underway until the patent is adjudicated
invalid or unenforceable by a court of last resort.
Page 8 of 26
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<PAGE>
Section 9. Enforcement.
A. Licensed Patents. WARF intends to protect the Licensed Patents
against infringers or otherwise act to eliminate infringement, when, in
WARF's sole judgment, such action may be reasonably necessary, proper, and
justified. In the event that Discovery believes there is infringement of
any Licensed Patent under this Agreement which is to Discovery's
substantial detriment, Discovery shall provide WARF with written notice
that such infringement is occurring including the following:
(i) reasonable evidence of the infringement, and (ii) [***]; except in
the event that the alleged infringer identified by Discovery's
infringement notice is either (a) any of the entities identified in
Section 3.C.(iii) hereof or (b) any other licensee of WARF's in relation
to the Licensed Patents and/or the Use Patents, [***]. In the event that
WARF does take action to abate the infringement, [***]. If WARF does
not take action to abate the infringement of the Licensed Patents within
[***], Discovery may either reduce the royalty owed on sales of Products
under Section 3D in the country where the infringement is occurring from
[***] to [***] until such infringement is abated or Discovery may, with
WARF's written consent, bring an action to enforce the Licensed Patents.
If Discovery chooses to bring an action against the infringer of the
Licensed Patents, [***].
B. Use Patents. WARF intends to protect the Use Patents against
infringers or otherwise act to eliminate infringement, when, in WARF's sole
judgment, such action may be reasonably necessary, proper, and justified.
In the event that Discovery believes there is infringement of any Use
Patent under this Agreement which is to Discovery's substantial detriment,
Discovery shall provide WARF with written notice that such infringement is
occurring including the following: (i) reasonable evidence of the
infringement, and (ii) [***]; except in the event that the alleged
infringer identified by Discovery's infringement notice is either (a)
any of the entities identified in Section 3.C.(iii) hereof or (b) any
other licensee of WARF's in relation to the Licensed Patents and/or the
Use Patents, [***]. In the event that WARF does take action to abate the
infringement, [***]. If WARF does not take action to abate the infringement
of the Licensed Patents within [***], Discovery may either reduce the
royalty owed on sales of Products under Section 3D in the country
where the infringement is occurring from [***] to [***] until such
infringement is abated or Discovery may bring an action to enforce the Use
Patents. If Discovery chooses to bring an action against the infringer
of the Use Patents, [***].
[***] Confidential treatment requested.
Page 9 of 26
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<PAGE>
[***]
Section 10. Patent Marking.
Discovery shall insure that it and its sublicensee(s) apply patent markings
that meet all requirements of U.S. law, 35 U.S.C. 287, with respect to all
Products subject to this Agreement.
Section 11. Product Liability; Conduct of Business.
A. Discovery shall, at all times during the term of this Agreement and
thereafter, indemnify, defend and hold WARF, the inventors of the Licensed
Patents and Ancillary Patents harmless against all claims and expenses,
including legal expenses and reasonable attorneys fees, arising out of the
death of or injury to any person or persons or out of any damage to
property and against any other claim, proceeding, demand, expense and
liability of any kind whatsoever (other than patent infringement claims and
claims based on WARF's fraudulent conduct) resulting from the production,
manufacture, sale, use, lease, consumption or advertisement of Products,
the Compound, or Ancillary Compounds arising from any right or obligation
of Discovery or any sublicensee hereunder. Notwithstanding the above, WARF
at all times reserves the right to retain counsel of its own to defend its
interests at its own expense.
B. Discovery shall, at all times during the term of this Agreement and
thereafter, indemnify, defend and hold Sumitomo and Taisho harmless against
all claims and expenses, including legal expenses and reasonable attorneys
fees, arising out of the death of or injury to any person or persons or out
of any damage to property and against any other claim, proceeding, demand,
expense and liability of any kind whatsoever (other than patent
infringement claims and claims based on Sumitomo or Taisho's fraudulent
conduct) resulting from the production, manufacture, sale, use, lease,
consumption or advertisement of Products, the Compound, or Ancillary
Compounds arising from any right or obligation of Discovery or any
sublicensee hereunder and relating to the Product Information.
Notwithstanding the above, Sumitomo and Taisho at all times shall have the
right to retain counsel of their own to defend their respective interests
at their own expense.
C. Discovery warrants that it now maintains and will continue to
maintain liability insurance coverage appropriate to the risk involved in
marketing the products subject to this Agreement and that such insurance
coverage lists WARF and the inventors of the Licensed Patents and Ancillary
Patents as additional insureds. Within thirty (30) days after WARF requests
such information (which it may request not more than once per year),
Discovery will present evidence to WARF that the coverage is being
maintained with WARF and its inventors listed as additional insureds.
D. Discovery warrants that it now maintains and will continue to
maintain liability insurance coverage appropriate to the risk of the
Product Information involved in marketing the products subject to this
Agreement and that such insurance coverage lists Sumitomo and Taisho as
additional insureds. Within thirty (30) days after WARF requests such
information (which it may request not more than once per year), Discovery
will present evidence to WARF that the coverage is being maintained with
Sumitomo and Taisho listed as additional insureds.
[***] Confidential treatment requested.
Page 10 of 26
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Section 12. Use of Names.
Discovery and its sublicensee(s) shall not use WARF's name, the name of any
inventor of inventions governed by this Agreement, the name of the University of
Wisconsin, or the name of Sumitomo or Taisho in sales promotion, advertising, or
any other form of publicity without the prior written approval of the entity or
person whose name is being used, except for or in connection with disclosures or
usages required by law (e.g., as a part of or in connection with relevant patent
applications, filings to obtain governmental permits and approvals, disclosures
and filings required by stock exchange or securities laws, rules and
regulations).
Section 13. United States Government Interests.
It is understood that if the United States Government (through any of its
agencies or otherwise) has funded research, during the course of or under which
any of the inventions of the Licensed Patents or Ancillary Patents were
conceived or made, the United States Government is entitled, as a right, under
the provisions of 35 U.S.C. ss 200-212 and applicable regulations of Chapter 37
of the Code of Federal Regulations, to a nonexclusive, nontransferable,
irrevocable, paid-up license to practice or have practiced the invention of such
Licensed Patents or Ancillary Patents for governmental purposes. Any license
granted to Discovery in this Agreement shall be subject to such right.
Section 14. Miscellaneous.
This Agreement shall be construed in accordance with the internal laws of
the State of Wisconsin. If any provisions of this Agreement are or shall come
into conflict with the laws or regulations of any jurisdiction or any
governmental entity having jurisdiction over the parties or this Agreement,
those provisions shall be deemed automatically deleted, if such deletion is
allowed by relevant law, and the remaining terms and conditions of this
Agreement shall remain in full force and effect. If such a deletion is not so
allowed or if such a deletion leaves terms thereby made clearly illogical or
inappropriate in effect, the parties agree to substitute new terms as similar in
effect to the present terms of this Agreement as may be allowed under the
applicable laws and regulations. The parties hereto are independent contractors
and not joint venturers or partners.
Section 15. Notices.
Any notice required to be given pursuant to the provisions of this
Agreement shall be in writing and shall be deemed to have been given at the
earlier of the time when actually received as a consequence of any effective
method of delivery, including but not limited to hand delivery, transmission by
telecopier, or delivery by a professional courier service or the time when sent
by certified or registered mail addressed to the party for whom intended at the
address below or at such changed address as the party shall have specified by
written notice, provided that any notice of change of address shall be effective
only upon actual receipt.
(a) Wisconsin Alumni Research Foundation
Attn: Managing Director
614 Walnut Street
Madison, Wisconsin 53705
Page 11 of 26
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(b) Discovery Laboratories, Inc.
Attn: Mr. Steve Kanzer
375 Park Avenue
New York, New York 10152
Section 16. Integration.
This Agreement constitutes the full understanding between the parties with
reference to the subject matter hereof, and no statements or agreements by or
between the parties, whether orally or in writing, except as provided for
elsewhere in this Section 16, made prior to or at the signing hereof, shall vary
or modify the written terms of this Agreement. Neither party shall claim any
amendment, modification, or release from any provisions of this Agreement by
mutual agreement, acknowledgment, or otherwise, unless such mutual agreement is
in writing, signed by the other party, and specifically states that it is an
amendment to this Agreement.
Section 17. Contract Formation and Authority.
The persons signing on behalf of WARF and Discovery hereby warrant and
represent that they have authority to execute this Agreement on behalf of the
party for whom they have signed.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the dates indicated below.
WISCONSIN ALUMNI RESEARCH FOUNDATION
By: /s/ Richard H. Leazer Date: Sept. 24, 1996
--------------------------------------- --------------
Richard H. Leazer, Managing Director
DISCOVERY LABORATORIES, INC.
By: /s/ Steve H. Kanzar Date: Sept. 10, 1996
--------------------------------------- --------------
Steve H. Kanzar, Chairman
Reviewed by WARF's Attorney:
/s/ Elizabeth L.R. Donley
- ---------------------------
Elizabeth L.R. Donley, Esq.
Sept. 5, 1996
- -------------
(WARF's attorney shall not be deemed a signatory to this Agreement.)
Page 12 of 26
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<PAGE>
APPENDIX A
A. "Licensed Patents" shall refer to and mean those patents and patent
applications listed on Appendix B hereto and all continuations,
continuations-in-part, divisions, reissues, reexaminations, extensions or other
government actions which extend the subject matter of any such patents and
patent applications, and any corresponding foreign patent applications, and any
patents, patents of addition, or other equivalent foreign patent rights issuing,
granted or registered based on or resulting from any of the foregoing that are
in countries in the Licensed Territory.
B. "Use Patents" shall refer to and mean those patents and patent
applications listed on Appendix C hereto and all continuations,
continuations-in-part, divisions, reissues, reexaminations, extensions or other
government actions which extend the subject matter of any such patents and
patent applications, and any corresponding foreign patent applications, and any
patents, patents of addition, or other equivalent foreign patent rights issuing,
granted or registered based on or resulting from any of the foregoing.
C. "Ancillary Patents" shall refer to and mean those patents and patent
applications listed on Appendix D hereto and all continuations, divisions,
reissues, reexaminations, extensions or other government actions which extend
the subject matter of any such patents and patent applications, and any
corresponding foreign patent applications, and any patents, patents of addition,
or other equivalent foreign patent rights issuing, granted or registered based
on or resulting from any of the foregoing that are in countries in the Licensed
Territory.
D. "Product Information" shall mean the information referred to by WARF
Ref. No. P96029US provided to Discovery by WARF pursuant to a confidentiality
agreement to be signed by Discovery and WARF, and all other data and other
information provided to Discovery by WARF, Sumitomo or Taisho that relates to
the Compound, except that Product Information shall exclude any information or
data that becomes publicly known other than through disclosure by Discovery or
that is independently developed by Discovery.
E. "Sumitomo" shall mean Sumitomo Pharmaceuticals, Co. Ltd., a Japanese
Corporation.
F. "Taisho" shall mean Taisho Pharmaceuticals, Co. Ltd., a Japanese
Corporation.
G. "Compounds" shall mean: 26,26,26,27,27,27 -hexafluoro-1 alpha,25-
dihydroxycholecalciferol as further identified in Appendix F, which contains a
structural drawing of each Compound.
H. "Ancillary Compounds" shall mean those compounds described and claimed
in Licensed Patents and Ancillary Patents which are intermediates in Processes.
I. "Processes" shall mean the processes described and claimed in Licensed
Patents and Ancillary Patents.
J. "Products" shall mean and be limited to product(s) containing the
Compound in combination with any other material(s) in any formulation, a dosage
or form suitable for sale to the retail market place, which the parties agree
provides a reasonable and convenient measure of the rights granted to Discovery
under this Agreement.
Page 13 of 26
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K. "Competing Products" shall mean those Products containing the Compound
for which another party has sought and obtained approval from the FDA (or its
foreign equivalent) for treatment of osteoporosis.
L. "Selling Price" shall mean, in the case of Products that are sold, the
invoice price to the retail customer of Products (regardless of uncollectible
accounts) less any shipping costs, allowances because of returned Products, or
sales taxes. The "Selling Price" for a Product that is transferred to a third
party for promotional purposes without charge or at a discount ( a "Free
Sample") shall be the average invoice price to the retail customer of that type
of Product during the applicable calendar quarter; provided, however, that there
shall be deemed to be no "Selling Price" and no royalties due for Free Samples
that represent 2% or less of gross sales during any quarterly period. For
purposes of this subsection, "retail customer" shall mean and be limited to
wholesalers, retailers, and managed care organizations (i.e., McKesson,
Whitmire, Kaiser, Wal-Mart, Walgreens and the like) to which pharmaceutical
products are customarily sold in the United States.
M. "Development Report" shall mean a written account of Discovery's
progress under the development plan having at least the information specified on
Appendix G to this Agreement, and shall be sent to the address specified on
Appendix G.
N. "Licensed Field" shall mean and be limited to the field of prevention,
treatment, amelioration or cure of metabolic bone disease.
O. "Licensed Territory" shall be limited to the Western Hemisphere (which
shall mean the half of the earth including North America, Latin America and
South America) but may be expanded to include all of the countries of the world
except Spain, Portugal, Korea and Japan pursuant to Section 3C of this
Agreement.
P. "Royalty Termination Date" shall refer to and mean fifteen years from
the date approval is received for sale of Products in the United States.
Q. "IND Approval" shall mean approval by the FDA of an Investigational New
Drug application which permits Discovery to conduct clinical studies of the new
drug in the United States.
R. "Date of NDA Submission" shall mean the date when Discovery first
submits an application for New Drug Approval of a Compound or Product to the
FDA.
S. "FDA" shall mean the U.S. Food and Drug Administration
Page 14 of 26
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<PAGE>
APPENDIX B
LICENSED PATENTS AND PATENT APPLICATIONS
APPLIC.
REFERENCE PATENT ISSUE SERIAL
NUMBER COUNTRY NUMBER DATE NUMBER
- --------------------------------------------------------------------------------
26,26,26,27,27,27-hexafluoro-1 alpha,25-Dihydroxycholecalciferol and Process for
Preparing the- Same (DeLuca, Tanaka, Ikekawa & Kobayashi)
P81016US U.S. 4,358,406 11/09/82
Page 15 of 26
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APPENDIX C
USE PATENTS AND PATENT APPLICATIONS
[***]
[***] Confidential treatment requested.
Page 16 of 26
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APPENDIX D
ANCILLARY PATENTS AND PATENT APPLICATIONS
[***]
[***] Confidential treatment requested.
Page 17 of 26
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<PAGE>
[***]
[***] Confidential treatment requested.
Page 18 of 26
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<PAGE>
[***]
[***] Confidential treatment requested.
Page 19 of 26
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[***]
[***] Confidential treatment requested.
Page 20 of 26
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[***]
[***] Confidential treatment requested.
Page 21 of 26
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[***]
[***] Confidential treatment requested.
Page 22 of 26
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APPENDIX E
WARF ROYALTY REPORT
Discovery: Agreement No.:
--------------------------- ------------------
Inventor: P#: P
--------------------------- ----------------------------
Period Covered: From: / /199 Through: / /199
------------------ -------------------------
Prepared By: Date:
--------------------------- ----------------------------
Approved By: Date:
--------------------------- ----------------------------
If license covers several major product lines, please prepare a separate report
for each line. Then combine all product lines into a summary report.
Report Type: [ ] Single Product Line Report: ___________________________________
[ ] Multiproduct Summary Report. Page 1 of _________ Pages
[ ] Product Line Detail. Line: ______ Tradename: ______ Page: __
Report
Currency: [ ] U.S. Dollars [ ] Other ___________________________________
- --------------------------------------------------------------------------------
Gross *Less: Net Royalty Period Royalty Amount
----------------------
Country Sales Allowances Sales Rate: This Year Last Year
- --------------------------------------------------------------------------------
U.S.A.
- --------------------------------------------------------------------------------
Canada
- --------------------------------------------------------------------------------
Europe
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Japan
- --------------------------------------------------------------------------------
Other:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
TOTAL:
================================================================================
Total Royalty: _______ Conversion Rate: _______ Royalty in U.S. Dollars: $______
The following royalty forecast is non-binding and for WARF's internal planning
purposes only:
Royalty Forecast Under This Agreement:
Next Quarter: _____ Q2: _____ Q3: _____ Q4: _____
- --------------------------------------------------------------------------------
* On a separate page, please indicate the reasons for returns or other
adjustments if significant.
Also note any unusual occurrences that affected royalty amounts during this
period.
To assist WARF's forecasting, please comment on any significant expected trends
in sales volume.
- --------------------------------------------------------------------------------
Page 23 of 26
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APPENDIX F
DIAGRAM
26,26,26,27,27,27-hexafluoro-1 alpha,25-dihydroxycholecalciferol
Page 24 of 26
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<PAGE>
APPENDIX G
DEVELOPMENT REPORT
A. Date development plan initiated and time period covered by this report.
B. Development Report (4-8 paragraphs).
1. Activities completed since last report including the object and
parameters of the development, when initiated, when completed and the
results.
2. Activities currently under investigation, i.e., ongoing activities
including object and parameters of such activities, when initiated,
and projected date of completion.
C. Future Development Activities (4-8 paragraphs).
1. Activities to be undertaken before next report including, but nor
limited to, the type and object of any studies conducted and their
projected starting and completion dates.
2. Estimated total development time remaining before a product will be
commercialized.
D. Changes to initial development plan (2-4 paragraphs).
1. Reasons for change.
2. Variables that may cause additional changes.
E. Items to be provided if applicable:
1. Information relating to Product that has become publicly available,
e.g., published articles, competing products, patents, etc.
2. Development work being performed by third parties other than Discovery
to include name of third party, reasons for use of third party,
planned future uses of third parties including reasons why and type of
work.
3. Update of competitive information trends in industry, government
compliance (if applicable) and market plan.
PLEASE SEND DEVELOPMENT REPORTS TO:
Wisconsin Alumni Research Foundation
Attn.: Contract Coordinator
614 Walnut Street
P.O. Box 7365
Madison, W1 53707-7365
Page 25 of 26
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<PAGE>
APPENDIX H
DEVELOPMENT PLAN
Estimated
Start Date Finish Date
---------- -----------
1. Development Program
A. Development Activities to be Undertaken
(Please break activities into subunits with the date of completion of
major milestones)
1.
2.
.
.
.
B. Estimated Total Development Time
II. Governmental Approval
A. Types of submissions required
B. Government agency e.g. FDA, EPA, etc.
III. Proposed Market Approach
IV. Competitive Information
A. Potential Competitors
B. Potential Competitive Devices/Compositions
C. Known Competitor's plans, developments, technical achievements
D. Anticipated Date of Product Launch
Total Length: approximately 2-3 pages
Page 26 of 26
Exhibit 10.5
Agreement No. 96-0155A
AMENDMENT TO LICENSE AGREEMENT
This Amendment to License Agreement ("Amendment") is made effective as of
the 31st day of October, 1996, by and between the Wisconsin Alumni Research
Foundation ("WARF"), a nonstock, nonprofit Wisconsin corporation, and Discovery
Laboratories, Inc. ("Discovery"), a corporation organized and existing under the
laws of Delaware.
WHEREAS, WARF and Discovery entered into a license agreement effective
September 6, 1996 (the "Agreement");
WHEREAS, the parties would like to amend the Agreement as set forth below;
NOW, THEREFORE, in consideration of the mutual promises set forth below and
in the Agreement, the parties agree as follows:
1. Section 2C of the Agreement is amended to read as follows:
C. Option.
WARF hereby grants Discovery an option to expand the Licensed
Territory on a country by country basis to include all countries of the
world except Japan by paying the appropriate option fees on the schedule
set forth in Section 3C of this Agreement.
2. Section 3C(iii) of the Agreement is deleted and replaced with:
(iii) Discovery agrees to pay to WARF option fees as set forth below
for the addition of Argentina, Spain, Portugal and Korea to the Licensed
Territory:
Country Option Fee
------- ----------
Argentina $ 10,000
Spain $ 170,000
Portugal $ 50,000
Korea $ 15,000
Upon payment of each option fee above, the Licensed Territory shall be
expanded to include the associated country. Upon payment of the fourth and
final option fee set forth above, the Licensed Territory shall be expanded
to include all countries of the world except Japan. Such fees shall be paid
prior to commencement of any Product development in such countries. But in
no event may the option fees under this Section 3C(iii) be made later than
January 1, 2002. In addition, any reference to Section 3C(iii) contained in
Section 9 is hereby deleted.
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3. Section O. of Appendix A of the Agreement is amended to read as follows:
"Licensed Territory" shall be limited to the Western Hemisphere (which
shall mean the half of the earth including North America, Latin America and
South America) but may be expanded on a country by country basis to include
all of the countries of the world except Japan pursuant to Section 3C of
this Agreement.
4. All other forms and conditions of the Agreement shall remain the same.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment on
the dates indicated below.
WISCONSIN ALUMNI RESEARCH FOUNDATION
By: Date: , 19
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Richard H. Leazer, Managing Director
DISCOVERY LABORATORIES, INC.
By: Date: , 19
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Name and Office:
------------------------------------------------------
- -------------------------------
Approved in form only for execution (not a signatory to this agreement):
/s/ Elizabeth L.R. Donley Oct. 31, 1996
- ------------------------------- ----------------------
Elizabeth L.R. Donley, Esq.
Quarles & Brady
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SUBLICENSE AGREEMENT
AGREEMENT made effective this 28th day of October, 1996
BY AND BETWEEN:
JOHNSON & JOHNSON, a company organized under the laws of the State of New
Jersey, U.S.A., and having executive offices at One Johnson & Johnson Plaza,
New Brunswick, New Jersey 08933-5501, and its wholly owned subsidiary, ORTHO
PHARMACEUTICAL CORPORATION ("ORTHO"), a company organized under Delaware law,
having its principal office at Route 202, Raritan, New Jersey 08869
(hereinafter collectively called "LICENSOR")
ON THE ONE HAND,
AND:
ACUTE THERAPEUTICS, INC having its executive offices at 6097 Hidden Valley
Drive, Doylestown, Pennsylvania 18901 (hereinafter called "LICENSEE")
ON THE OTHER HAND,
WITNESSETH:
A. WHEREAS, pursuant to Research and License Agreements dated May 1, 1982 and
January 1, 1987 (hereinafter collectively the "SCRIPPS AGREEMENTS") between
LICENSOR and SCRIPPS CLINIC AND RESEARCH FOUNDATION (hereinafter
"SCRIPPS"), SCRIPPS granted LICENSOR an exclusive option to obtain an
exclusive worldwide license (including the right to grant sublicenses) to
certain technology, including certain technology relating to the synthetic
pulmonary surfactant known as KL4 (hereinafter the "INVENTIONS"), and
LICENSOR has exercised its option thereunder;
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B. WHEREAS, patent applications have been filed in the United States and
other territories in the name of SCRIPPS for the granting of letters patent
relating to the said INVENTIONS, further described in Appendix 1 hereto;
and
C. WHEREAS, LICENSOR has developed certain technology relating to the
manufacture of the INVENTIONS and has filed certain patent applications
relating thereto in the name of ORTHO, further described in Appendix 1
hereto; and
D. WHEREAS, LICENSOR desires that the INVENTIONS be developed and made
available to the public; and
E. WHEREAS, LICENSEE represents that it is presently engaged, or intends to
be engaged in the business of research, development, manufacturing and
selling products in fields related to the INVENTIONS; and
F. WHEREAS, LICENSEE wishes to make use of the INVENTIONS for the research,
development, manufacturing and selling of products and wishes to obtain
certain rights to the INVENTIONS under the terms and conditions
hereinafter set forth;
G. WHEREAS, LICENSOR is willing and able to grant such rights to LICENSEE;
H. WHEREAS, LICENSEE and LICENSOR have entered into an agreement
contemporaneously herewith for the transfer of certain common stock in
LICENSEE to LICENSOR.
NOW, THEREFORE, in consideration of the premises and the performance of the
covenants herein contained, IT IS AGREED AS FOLLOWS:
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1. DEFINITIONS
For the purposes of this agreement (hereinafter called the "SUBLICENSE
AGREEMENT"), and solely for such purposes, the terms hereinafter set forth
shall have the following respective meanings:
1.1 "AFFILIATE" or "AFFILIATES" shall mean any corporation(s) or
organization(s) which directly or indirectly CONTROLS, is CONTROLLED by
or is under common control with LICENSEE or LICENSOR.
1.2 "ARDS INDICATION" shall mean the use of LICENSED PRODUCT for the treatment
of Acute Respiratory Distress Syndrome or an equivalent indication
thereto.
1.3 "CONTROL", "CONTROL(S)" OR "CONTROLLED" shall refer to direct or indirect
beneficial ownership of at least fifty percent (50%) of the voting stock
of a corporation or other business entity, or a fifty percent (50%) or
greater interest in the income of such corporation or other business
entity, or the power to direct or cause the direction of the management
or policies of such corporation or other business entity or policies of
such corporation or other business entity whether by ownership of voting
securities by contract or otherwise, or such other relationship as, in
fact, constitutes actual control.
1.4 "EFFECTIVE DATE" shall mean the date at the head of this SUBLICENSE
AGREEMENT.
1.5 "FDA" shall mean the United States Food and Drug Administration.
1.6 "FIELD" shall mean the use of LICENSED PRODUCT for diagnosis, therapy or
preventive treatment of disease in humans or vertebrate animals.
1.7 "INVENTORS" shall mean the named inventors on the PATENT RIGHTS.
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1.8 "LICENSED KNOW-HOW" shall mean all know-how, data, information, technology
or special ability not generally known to the public, including all
experience, data, formulas, procedures, methods, models, assays and
results, and including all chemical, pharmacological, toxicological,
clinical, analytical and quality control data, on the part of the
LICENSOR which are proprietary to the LICENSOR and with respect to which
the LICENSOR has the power and right to grant the licenses provided for
herein which are useful in the development, manufacture or use of LICENSED
PRODUCT.
1.9 "LICENSED PRODUCTS" shall mean surfactant pharmaceutical compositions
defined by one or more claims under a patent contained within the SCRIPPS
PATENT RIGHTS, or made using a product or process covered by one or more
claims under the PATENT RIGHTS, for use in the FIELD, including without
limitation, a composition containing the polypeptide known as KL(4) which
has the amino acid sequence KLLLLKLLLLKLLLLKLLLLK. This definition of
"LICENSED PRODUCT" shall apply on a worldwide basis, regardless of where
SCRIPPS PATENT RIGHTS have been filed.
1.10 "NDA" shall mean a New Drug Application filed with the United States Food
and Drug Administration under 21 USC 355(b) (FDCA Section 505(b)) or its
equivalent filed with the Health Regulatory Authorities in other countries
or jurisdictions.
1.11 "NEONATAL INDICATION" shall mean the use of LICENSED PRODUCT for a
neonatal indication (i.e. Meconium Aspiration Syndrome or Infant
Respiratory Distress Syndrome).
1.12 "NET SALES VALUE" shall mean that sum determined by deducting from the
gross amount billed and collected for LICENSED PRODUCTS by the SELLER
(LICENSEE, SUBLICENSEE OR AFFILIATE) in an arms length transaction to
customers that are not AFFILIATES of the SELLER;
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(i) transportation charges or allowances, including freight
pickup allowances, and packaging costs, if any;
(ii) trade, quantity or cash discounts, service allowances and
independent broker's or agent's commissions, if any, allowed
or paid;
(iii) credits or allowances for the LICENSED PRODUCTS, if any,
given or made on account of price adjustments, returns, bad
debts, off-invoice promotional discounts, rebates,
chargebacks, any and all federal, state or local
government rebates or discounts whether in existence now or
enacted at any time during the term of this SUBLICENSE
AGREEMENT, volume reimbursements, the gross amount billed and
collected for rejected LICENSED PRODUCTS or LICENSED PRODUCTS
subject to recall or destruction (voluntarily made or
requested or made by an appropriate government agency,
sub-division or department); and
(iv) any tax, excise or other governmental charge upon or measured
by the production, sale, transportation, delivery or use of
the LICENSED PRODUCT;
in each case determined in accordance with generally accepted
accounting practices.
1.13 "ORTHO PATENTS RIGHTS" shall mean, the patents and patent applications
identified in Appendix 1(b) hereof, and in respect of such letters
patent, and patent applications, all corresponding national patents
and patent applications, European Patent Convention applications or
applications under similar administrative international conventions,
patent applications in the listed or designated countries, together
with any divisional, continuation, continuation-in-part, substitution,
reissue, extension, supplementary protection certificate or other
application based thereon;
1.14 "PATENT RIGHTS" shall mean:
(i) the SCRIPPS PATENT RIGHTS and the ORTHO PATENT RIGHTS; and
(ii) any other patent or patent applications covering the LICENSED
PRODUCTS, processes for their production, their formulation
into final product and/or the sale or
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use of LICENSED PRODUCTS, owned by LICENSOR or under which
LICENSOR has the right, at any time while this Agreement is
in effect to grant the license herein.
1.15 "PLA" shall mean a Product License Application filed with the FDA or
its equivalent filed with the Health Regulatory Authorities in other
countries or jurisdictions.
1.16 "SCRIPPS AGREEMENTS" shall mean the Research and License Agreements
between LICENSOR and Scripps Clinic and Research Foundation, the
predecessor to The Scripps Research Institute (hereinafter
"SCRIPPS") dated May 1, 1982 and January 1, 1987.
1.17 "SCRIPPS PATENTS RIGHTS" shall mean the patents and patent
applications identified in Appendix 1(a) hereof, and in respect of
such letters patent, and patent applications, all corresponding
national patents and patent applications, European Patent Convention
applications or applications under similar administrative
international conventions, patent applications in the listed or
designated countries, together with any divisional, continuation,
continuation-in-part, substitution, reissue, extension,
supplementary protection certificate or other application based
thereon.
1.18 "SELLER" shall mean one who SELLS.
1.19 "SOLD", "SALE", "SALES", "SELL", "SELLING" AND "SELLS" shall refer to
the act of selling or disposing of for value.
1.20 "SUBLICENSEE" shall mean a third party other than an AFFILIATE to
whom LICENSEE has extended a further sublicense in accordance with
Article 2.3 hereunder.
1.21 "USE", "USES" and "USED" shall refer to the act of using for any
commercial purposes whatsoever.
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1.22 "VALID CLAIM" shall mean a claim of an unexpired patent within the
PATENT RIGHTS which has matured into an issued patent or a claim being
prosecuted in a pending application within the PATENT RIGHTS. In each
case a claim shall be presumed to be valid unless and until it has
been held to be invalid by a final judgement of a court of competent
jurisdiction from which no appeal can be or is taken. [***]
1.23 "WESTERN EUROPEAN TERRITORY" shall mean the countries set forth in
Appendix 2 hereto.
2. LICENSE
2.1 LICENSOR hereby grants to LICENSEE, and LICENSEE hereby accepts from
LICENSOR, upon the terms and conditions herein specified, a worldwide
license and sublicense under the PATENT RIGHTS and LICENSED KNOW-HOW,
to make, to have made, to USE and to SELL LICENSED PRODUCTS in the
FIELD.
2.2 Subject to the terms of this LICENSE AGREEMENT, the license granted
under Article 2.1 shall remain exclusive in the FIELD (i) as to the
PATENT RIGHTS, for their respective lives on a country-by-country
basis, and (ii) as to the LICENSED KNOW-HOW, until the termination
of LICENSEE's obligation to make royalty payments under Article 4.2
hereof, at
[***] Confidential treatment requested.
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which time the license under the LICENSED KNOW-HOW shall
automatically become a fully paid license. Notwithstanding the
foregoing, the license granted hereunder shall be subject to:
(i) SCRIPPS' rights pursuant to the SCRIPPS AGREEMENT to use the
SCRIPPS PATENT RIGHTS for educational and research purposes;
and
(ii) the rights of the United States Government pursuant to 35
U.S.C. 202 et seq. and 37 C.F.R. 401.1 et seq. which may have
arisen or resulted from federal funding of SCRIPPS research
relating to the SCRIPPS PATENT RIGHTS, including the
non-exclusive right of the United States Government to
practice the inventions covered by the SCRIPPS PATENT RIGHTS.
Subject to the foregoing, J&J intends to grant to LICENSEE the
maximum rights allowable under 35 U.S.C. Sec. 202 et seq. and
37 C.F.R. 401.1 et seq.
2.3 The sublicenses granted hereunder shall include the right to grant
further sub-licenses to AFFILIATES or third party SUBLICENSEES,
provided that LICENSEE agrees to be responsible for the performance
hereunder by its AFFILIATES to which the license and rights shall
have been extended, provided that LICENSEE agrees to use diligent
efforts to ensure that SUBLICENSEES abide by any terms of any
licenses or rights extended to them and provided that LICENSEE
complies with the terms of Article 4 hereof.
2.4 The LICENSEE shall be responsible to the LICENSOR for the
enforcement of the terms of the sub-license and for inspecting the
accounts and records kept by the AFFILIATE or SUBLICENSEE. Each
sublicense agreement shall contain provisions with respect to the
keeping and inspection of books of account similar to the provisions
set forth in Article 4.7 hereof.
2.5 No other, further or different license or right and, except as
expressly provided in Article 2 hereof, is hereby granted or implied.
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3. LICENSE FEES
3.1 In consideration of the Licenses granted hereunder, LICENSEE shall pay
to LICENSOR non-refundable License Fees at times and amounts as
follows:
(i) Two Hundred Thousand United States Dollars ($200,000.00) within
thirty (30) days following execution and delivery of this
SUBLICENSE AGREEMENT;
(ii) Two Hundred Fifty Thousand United States Dollars ($250,000)
within thirty (30) days of filing of the first NDA or PLA for a
LICENSED PRODUCT in a NEONATAL INDICATION;
(iii) Five Hundred Thousand United States Dollars ($500,000) within
thirty (30) days of approval of the first NDA or PLA for a
LICENSED PRODUCT in a NEONATAL INDICATION;
(iv) Five Hundred Thousand United States Dollars ($500,000) within
thirty (30) days of filing of the first NDA or PLA for a LICENSED
PRODUCT in the ARDS INDICATION;
(v) One Million Five Hundred Thousand United States Dollars
($1,500,000) within thirty (30) days of approval of the first
NDA or PLA for a LICENSED PRODUCT in the ARDS INDICATION.
4. ROYALTIES, RECORDS AND REPORTS
4.1 For the rights and privileges granted under this SUBLICENSE AGREEMENT,
LICENSEE shall pay to LICENSOR earned royalties equal to [***] of the NET
SALES VALUE of LICENSED PRODUCTS sold by LICENSEE or its AFFILIATES. With
respect to sales by SUBLICENSEES, LICENSEE shall pay to LICENSOR earned
royalties equal to [***]
[***] Confidential treatment requested.
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4.2 Earned royalty shall be paid pursuant to Article 4.1 hereof on all LICENSED
PRODUCTS, on a country-by-country basis for [***] years from first
commercial sale of the first LICENSED PRODUCT in such country. Thereafter,
royalties shall be paid in respect of a given LICENSED PRODUCT until the
expiration of the last to expire of the PATENT RIGHTS containing a VALID
CLAIM covering the LICENSED PRODUCTS in such country. Notwithstanding the
foregoing, however, with respect to any country of the European Union,
royalties on NET SALES of LICENSED PRODUCTS which are payable only by
virtue of the LICENSED KNOW-HOW shall be payable commencing from the date
of first commercial sale of the first LICENSED PRODUCT in such country and
ending on the earlier of (i) the date on which the LICENSED KNOW-HOW
becomes published or generally known to the public through no fault on the
part of LICENSOR, its AFFILIATES or SUBLICENSEES or (ii) the [***]
anniversary of the first commercial sale of the first LICENSED PRODUCT in
any country of the European Union.
4.3 Any LICENSED PRODUCT made under a license granted pursuant to this
SUBLICENSE AGREEMENT prior to the termination or expiration of the
applicable PATENT RIGHTS and not SOLD prior to the termination or
expiration of such PATENT RIGHTS shall be subject to the payment of
royalties hereunder when SOLD, even though such SALE occurs after the
termination or expiration of all pertinent licenses or rights granted
hereunder.
4.4 The earned royalty for any particular LICENSED PRODUCT shall be due upon
the first bona fide arm's length SALE thereof by LICENSEE, an AFFILIATE or
SUBLICENSEE, and any
[***] Confidential treatment requested.
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subsequent SALE of such LICENSED PRODUCT by other than LICENSEE, AFFILIATE
or SUBLICENSEE shall be royalty free. In the case of transfers or SALES of
any LICENSED PRODUCT between LICENSEE and an AFFILIATE or between
AFFILIATES, LICENSEE and SUBLICENSEE, one and only one royalty shall be
payable thereon and such royalty shall become payable upon the final SALE
thereof to a third party other than LICENSEE, AFFILIATE or SUBLICENSEE.
4.5 For the purposes of reporting and making payments of earned royalties under
this SUBLICENSE AGREEMENT, the manufacture, SALE or USE of LICENSED
PRODUCTS by any AFFILIATE to which the license and rights shall have been
extended shall be considered the manufacture, SALE or USE of such LICENSED
PRODUCTS by LICENSEE and any such AFFILIATE may make the pertinent reports
and royalty payments specified in Article 4 hereof directly to LICENSOR on
behalf of LICENSEE; otherwise, such reports and payments on account of
SALES or USES of LICENSED PRODUCTS by each AFFILIATE shall be made by
LICENSEE; and, in any event, the SALES and USES of LICENSED PRODUCTS by
each such AFFILIATE shall be separately shown in the reports to LICENSOR if
such information is readily available to LICENSEE.
4.6 LICENSEE shall keep full, true and accurate books of account containing all
particulars which may be necessary for the purpose of showing the amount
payable to LICENSOR by way of royalty as aforesaid or by way of any other
provision hereunder. Said books of account shall be kept at LICENSEE's
principal place of business. Said books and the supporting data shall be
maintained and kept open at all reasonable times, for three (3) years
following the end of the calendar year to which they pertain (and access
shall not be denied thereafter, if reasonably available), to the inspection
of an independent accountant retained by LICENSOR for the purpose of
verifying LICENSEE's royalty statements, or LICENSEE's compliance in other
respects with this SUBLICENSE AGREEMENT. Names of customers and other
confidential information shall not be disclosed to LICENSOR by such
independent accountant. Such
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accountant shall be retained at LICENSOR's sole expense, unless during any
such inspection a deficiency in payments to LICENSOR of five percent (5%)
or more is determined to exist in which event LICENSEE shall within thirty
(30) days reimburse LICENSOR for the full expense of retaining such
accountant, including but not limited to professional and administrative
fees, travel and subsistence costs.
4.7 LICENSEE within ninety (90) days after the first day of January, April,
July and October of each year shall deliver to LICENSOR a true and accurate
report, giving such particulars of the LICENSED PRODUCTS SOLD by LICENSEE,
AFFILIATES and royalty received from SUBLICENSEES during the preceding
three (3) months ("Accounting Period") under this SUBLICENSE AGREEMENT as
are pertinent to an accounting for royalty under this SUBLICENSE AGREEMENT.
These shall include at least the following, separately stated as to the
LICENSED PRODUCTS:
(i) the quantity of LICENSED PRODUCTS invoiced by LICENSEE or
AFFILIATES during those three(3) months and the billings therefor;
(ii) the allowable deductions therefrom;
(iii) the calculation of royalties thereon.
Simultaneously with the delivery of each such report, LICENSEE shall pay to
LICENSOR the royalty and any other payments due under this SUBLICENSE
AGREEMENT for the period covered by such report. If no royalties are due,
it shall be so reported. Royalties shall be paid to LICENSOR in United
States Dollars at LICENSOR's office specified for the purposes of giving
notice in Article 14.2 hereof.
4.8 The remittance of royalties payable on sales outside the United States will
be payable to LICENSOR in United States Dollar equivalents at the official
rate of exchange of the currency of the country from which the royalties
are payable as quoted by The Wall Street Journal, New
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York Edition, for the day upon which the transfer of funds for the royalty
payment is made. If the transfer or the conversion into United States
Dollar equivalents in any such instance is not lawful or possible, the
payment of such part of the royalties as is necessary shall be made by the
deposit thereof, in the currency of the country where the sales were made
on which the royalty was based, to the credit and account of LICENSOR or
its nominee in any commercial bank or trust company of its choice located
in that country, prompt notice of which shall be given by LICENSEE to
LICENSOR.
4.9 In the event that any taxes, withholding or otherwise, are levied by any
taxing authority in connection with accrual or payment of any royalties
payable to LICENSOR under this SUBLICENSE AGREEMENT, LICENSEE or its
AFFILIATES and/or SUBLICENSEES shall have the right to pay such taxes to
the local tax authorities on behalf of LICENSOR (or, in the case of
SUBLICENSEE SALES, on behalf of LICENSEE), and the payment to LICENSOR of
the net amount due after reduction by the amount of such taxes, together
with evidence of payment of such taxes, shall fully satisfy LICENSEE's
royalty obligations under this SUBLICENSE AGREEMENT. LICENSEE agrees to
make a good faith effort to obtain a refund of any such taxes for LICENSOR
if LICENSOR informs LICENSEE that it believes such taxes have been
improperly levied.
4.10 In the event that any payment required under this SUBLICENSE AGREEMENT
shall be overdue, LICENSEE shall pay interest thereon at an annual rate of
TWO percent (2%) over the United States Clearing Bank Base Lending Rate
computed from the date when the payment became due; provided that if such
rate shall be in excess of that allowed by applicable law, then the highest
rate allowable shall apply. Payment shall be deemed to have been made when
received by LICENSOR.
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5 CONFIDENTIALITY, TRANSFER OF KNOW-HOW
5.1 Disclosures of confidential and proprietary information hereunder by
either party to the other shall be made in writing (or promptly confirmed
in writing if made in another form), and shall be clearly marked
"Confidential". Such confidential information shall be safeguarded by the
recipient, shall not be disclosed to third parties and shall be made
available only to recipient's employees or independent contractors who
agree in writing to equivalent conditions and who have a need to know the
information for the purposes specified under this Agreement. Subject to
the license granted under Article 2, all confidential information shall
remain the property of and be returned to the disclosing party within
thirty (30) days of receipt of a written request by the disclosing party,
or within thirty (30) days of termination of this Agreement. These mutual
obligations of confidentiality shall apply for a period of 3 (three) years
after the termination of this Agreement, but such obligations shall not
apply to any information that:
(i) is or hereafter becomes generally available to the public other
than by reason of any default with respect to a confidentiality
obligation under this Agreement; or
(ii) was already known to the recipient as evidenced by prior written
documents in its possession; or
(iii) is disclosed to the recipient by a third party who is not in
default of any confidentiality obligation to the disclosing party
hereunder; or
(iv) is developed by or on behalf of the receiving party, without
reliance on confidential information received hereunder; or
(v) is provided to third parties under appropriate terms and conditions
including confidentiality provisions equivalent to those in this
Agreement for consulting,
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manufacturing development, manufacturing, external testing and
marketing trials with respect to the products covered by this
Agreement; or
(vi) is used with the consent of the disclosing party (which consent
shall not be reasonably withheld) in applications for patents or
copyrights under the terms of this Agreement; or
(vii) has been approved in writing for publication by each of the
parties; or
(viii) is required to be disclosed in compliance with applicable laws
or regulations in connection with the manufacture or sale of products
covered by this Agreement; or
(ix) is otherwise required to be disclosed in compliance with
applicable laws or regulations or order by a court or other regulatory
body having competent jurisdiction; or
(x) is product-related information which is reasonably required to be
disclosed in connection with marketing of products covered by this
Agreement.
5.2 Within sixty (60) days of the EFFECTIVE DATE, and thereafter throughout the
term of this LICENSE AGREEMENT, LICENSOR will make reasonable efforts to
disclose to LICENSEE all LICENSED KNOW-HOW useful in the FIELD which is in
or comes into LICENSOR'possession or control or of which LICENSOR becomes
aware and which LICENSOR has a right to disclose to LICENSEE. LICENSOR will
transfer its pre-clinical, clinical, manufacturing and marketing data
relating to LICENSED PRODUCTS to LICENSEE, subject to the provisions of
this SUBLICENSE AGREEMENT, and will provide LICENSEE with appropriate
documentation and letters of reference to effectuate such transfer.
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6 DEVELOPMENT and COMMERCIALIZATION
6.1 LICENSEE shall, at its expense, use reasonable commercial efforts (i) to
conduct a research and development program to obtain regulatory approval
inside and outside the U.S. for use of the LICENSED PRODUCTS for at least
one NEONATAL INDICATION and the ARDS INDICATION generally in accordance
with the Development Plan attached hereto as Appendix 3 (the "Development
Program"); and (ii) if, in LICENSEE's opinion, the results of the
Development Program demonstrate acceptable criteria for safety and
efficacy, to file an NDA or PLA in at least the United States for such
LICENSED PRODUCTS for a NEONATAL INDICATION and the ARDS INDICATION.
LICENSOR and LICENSEE shall review the Development Plan from time to time.
With the mutual agreement of LICENSOR and LICENSEE, the Development Plan
may be modified and the milestones set forth in Article 6.2(a) below may be
extended.
6.2 (a) Without limiting the foregoing, achievement of the development
milestones set forth below shall be an objective measure of LICENESEE's use
of reasonable commercial efforts set forth in this Article 6;
(i) the filing of an NDA or PLA for approval of a LICENSED PRODUCT
for marketing in the U.S. [***] provided, however, that if LICENSEE
abandons a NEONATAL INDICATION based on unsatisfactory safety or
efficacy data for such indication. [***]
[***] Confidential treatment requested.
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(ii) commencement of marketing such LICENSED PRODUCT in the U.S. within
[***] and
(iii) no later than [***] commencement by LICENSEE of a program, either
by itself or through a SUBLICENSEE, designed and adequately funded to
obtain approval to market such LICENSED PRODUCT in the WESTERN EUROPEAN
TERRITORY.
[***] Confidential treatment requested.
The time periods specified in clauses (i) and (ii) above shall be subject
to extension with LICENSOR's written consent, which shall not be withheld
if LICENSEE reasonably requires additional time due to unforeseen
regulatory or technical difficulties provided that LICENSEE is otherwise
exercising the efforts recited in the first sentence of paragraph 6.1
above. In such event, LICENSEE shall provide LICENSOR with a description of
its reasons for requesting such extension, its modified schedule and its
revised Development Plan for achieving such Milestones in accordance with
the modified schedule.
(b) Non-performance of this Article 6, including but not limited to, the
failure to meet the deadlines set forth in Article 6.2(a) above, subject to
extensions under Article 6.2(a) above if LICENSEE is using reasonable
commercial efforts, shall be a breach or default under this SUBLICENSE
AGREEMENT, entitling the LICENSOR, in addition to other remedies LICENSOR
may have, to terminate this SUBLICENSE AGREEMENT under Article 7.3
hereunder. In the event LICENSEE elects not to proceed with the Development
Plan, or otherwise abandons one of (i) any of NEONATAL INDICATIONS or (ii)
the ARDS INDICATION but is otherwise pursuing the other indication,
LICENSOR may not terminate this SUBLICENSE AGREEMENT in its entirety, but
LICENSOR shall have the right to partially terminate this SUBLICENSE
AGREEMENT under Article 7.3 for the field of use comprising the abandoned
indication only. Such termination provision shall not apply to an
indication, however, in the event that the Phase II clinical trial for such
indication, as set forth in the Development Plan, fails to demonstrate
acceptable criteria for safety and efficacy. As used in this clause (c),
the term "abandons", in respect of development
[***] Confidential treatment requested.
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of the LICENSED PRODUCTS, shall mean, prior to the first commercial sale of
a LICENSED PRODUCT, the LICENSEE or its SUBLICENSEES have failed for a
period of six (6) or more consecutive months to conduct any development,
testing, regulatory, or manufacturing activity reasonably necessary to
prepare and file an NDA or PLA for such LICENSED PRODUCT for such
indication in the U.S. unless such failure was due to (i) reasons beyond
its or their control (such as circumstances of the type observed in Article
14.10 hereof) or (ii) the failure by LICENSOR to perform its obligation
hereunder. LICENSEE shall give LICENSOR prompt written notice of its
decision not to proceed with, or to abandon the development of LICENSED
PRODUCTS for either indication.
6.3 Within sixty (60) days after the end of each calendar quarter prior to
first commercial sale of LICENSED PRODUCTS, LICENSEE shall submit a summary
report to LICENSOR reporting the progress it, or its SUBLICENSEES, have
made towards commercialization in that quarter. This report will include a
summary of the work done in the development of LICENSED PRODUCTS.
6.4 Promptly following health regulatory approval to market LICENSED PRODUCTS
in such countries where approval is sought, LICENSEE agrees to use diligent
efforts to promote and sell LICENSED PRODUCTS at a level which is
consistent with those marketing efforts normally used for similar products
in the pharmaceutical industry.
7. TERM; TERMINATION
7.1 Unless terminated sooner pursuant to the terms hereof, this LICENSE
AGREEMENT shall become effective as of the EFFECTIVE DATE and shall
continue in full force and effect until the expiration of LICENSEE's
obligation to pay royalties hereunder.
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7.2 If (i) LICENSEE files a petition in bankruptcy or for the appointment of a
receiver or trustee, (ii) LICENSEE proposes a written agreement of
composition or extension of its debts or makes an assignment for the
benefit of its creditors, or (iii) an involuntary petition against LICENSEE
is filed in any insolvency proceeding and such petition is not dismissed
within sixty (60) days after filing, LICENSOR may terminate this SUBLICENSE
AGREEMENT.
7.3 Upon any material breach of or default under this SUBLICENSE AGREEMENT by
LICENSEE, or otherwise upon the abandonment of the entire Development Plan
under Article 6(b)(2) hereof, LICENSOR may terminate this SUBLICENSE
AGREEMENT, partially or in its entirety, by forty-five (45) days written
notice to LICENSEE. Said notice shall become effective at the end of said
period, unless during said period LICENSEE shall cure such breach or
default.
7.4 Notwithstanding any contrary term or implication of this SUBLICENSE
AGREEMENT, LICENSEE may terminate this entire SUBLICENSE AGREEMENT on sixty
(60) days advance written notice to LICENSOR for any reason, whereupon
LICENSEE will not be obligated to make any further payments to LICENSOR
other than those payments accruing prior to such termination. In no event
shall LICENSEE be entitled to a refund for any payments made or accrued
prior to the date of termination.
7.5 Notwithstanding any other provision of this LICENSE AGREEMENT to the
contrary, this LICENSE AGREEMENT may be terminated in countries other than
the United States or the WESTERN EUROPEAN TERRITORY without cause, on a
country-by-country basis, by LICENSEE at any time upon six (6) months prior
written notice to LICENSOR. Upon such termination, those rights granted to
LICENSEE hereunder with respect to the countries for which this LICENSE
AGREEMENT is terminated shall revert to LICENSOR for the benefit of
LICENSOR. Further, in the event of any such termination, LICENSEE shall
comply with the provisions of paragraph 7.7 hereof with respect to the
LICENSED KNOW-HOW and
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regulatory approvals and filings as they relate to such terminated
countries and in addition shall provide LICENSOR with access to any
regulatory filings and approvals outside the terminated countries which are
necessary or useful for LICENSOR, or its designee, to obtain health
regulatory approval to market a LICENSED PRODUCT in the terminated
countries. LICENSEE agrees to provide LICENSOR with any required
authorization letters to effectuate such access.
7.6 Upon termination of this SUBLICENSE AGREEMENT for any reason, other then by
expiry of the PATENT RIGHTS, all rights granted hereunder shall revert to
LICENSOR for the benefit of LICENSOR. Upon termination, at LICENSOR's
written request, LICENSEE agrees to assign any sublicense rights which it
may have granted under the PATENT RIGHTS to LICENSOR, or to such legal
entity specified by LICENSOR, and such sublicense shall survive termination
of this SUBLICENSE AGREEMENT, provided that the SUBLICENSEE continues to
abide by the terms of the sublicense so assigned to LICENSOR.
7.7 Upon termination of this LICENSE AGREEMENT other than by expiration in
accordance with Article 7.1, LICENSEE undertakes:
(i) to deliver to LICENSOR all copies of any LICENSED KNOW-HOW in its
possession;
(ii) not to use the LICENSED KNOW-HOW as long as it has to be kept
confidential under Article 5 hereof;
(iii) to transfer to LICENSOR, at LICENSOR's request, copies of all
KNOW-HOW developed by LICENSEE concerning LICENSED PRODUCT, and all
health regulatory approvals and regulatory filings relating to LICENSED
PRODUCTS;
(iv) to the extent requested by LICENSOR, to transfer to LICENSOR or
its designee responsibility for and control of ongoing LICENSED
PRODUCTS development work, including contracts with Third Parties for
such work, where permissible in accordance with such contracts and only
where such contracts apply solely to development work
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for the LICENSED PRODUCTS, in an expeditious and orderly manner with
the costs for such work to be assumed by LICENSOR or its designee as of
the date of such transfer;
(v) to the extent requested by LICENSOR, to transfer to LICENSOR or its
designee all inventory of LICENSED PRODUCTS and materials and equipment
for manufacture of LICENSED PRODUCTS at a mutually agreeable price not
to exceed LICENSEE's fully amortized standard cost; and
(vi) grant to LICENSOR an irrevocable, exclusive worldwide paid-up
license under any patents or LICENSED KNOW-HOW owned or controlled by
LICENSEE, with the right to grant sublicenses, to make, have made, use
and sell LICENSED PRODUCTS.
7.8 LICENSEE's obligations to report to LICENSOR and to pay royalties to
LICENSOR as to any LICENSED PRODUCT made or USED under a license or an
immunity granted pursuant to this SUBLICENSE AGREEMENT prior to termination
or expiration of this SUBLICENSE AGREEMENT shall survive such termination
or expiration and any termination of this SUBLICENSE AGREEMENT shall be
subject to this Article 7.8.
7.9 Upon any termination of this LICENSE AGREEMENT, Articles 5.1, 7.7, 7.10, 11
and 13 survive such termination and continue in force and effect to the
extent necessary to effectuate such provisions.
7.10 Upon termination of this SUBLICENSE AGREEMENT other than by expiry of the
PATENT RIGHTS, LICENSEE shall have no right under the PATENT RIGHTS to
make, have made, USE or SELL LICENSED PRODUCTS, except that LICENSEE shall
have the right for ninety (90) days following termination to dispose of
LICENSED PRODUCTS on hand and complete any existing contracts requiring
rights under the PATENT RIGHTS which can be completed within the ninety
(90) days. LICENSEE shall comply with the provisions of Article
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4 hereof during the ninety day period following termination exactly as
though termination had not occurred.
8. ASSIGNMENT
This Agreement or any interest herein shall not be assigned or transferred,
in whole or in part, by either party hereto without the prior written
consent of the other party hereto. However, without securing such prior
written consent, either party may assign this Agreement to an AFFILIATE or
a successor of all or substantially all of its business to which this
Agreement relates, provided that no such assignment shall be binding and
valid until and unless the assignee shall have assumed in a writing,
delivered to the non-assigning party, all of the duties and obligations of
the assignor, and, provided, further, that the assignor shall remain liable
and responsible to the non-assigning party hereto for the performance and
observance of all such duties and obligations.
9. INFRINGEMENT
9.1 LICENSOR and LICENSEE shall promptly notify the other in writing if any
infringement of the PATENT RIGHTS by a third party is discovered or comes
to its attention.
9.2 Provided LICENSEE shall have supplied LICENSOR with reasonable evidence of
infringement of the PATENT RIGHTS by a third party hereto SELLING material
quantities of products in competition with LICENSEE's, an AFFILIATE's, or
SUBLICENSEE's SALE of LICENSED PRODUCTS hereunder, LICENSEE shall have the
right, at LICENSEE's sole expense, to bring suit against the infringer for
infringement of the PATENT RIGHTS. In the event that LICENSEE has not
caused such infringement to terminate (for whatever cause) or initiated
legal proceedings against the infringer within three (3) months following
receipt or giving of notice pursuant to this Article 9.2, LICENSOR shall
have the right (but not the obligation), [***] to bring suit against the
infringer for unfringement of the PATENT RIGHTS.
[***] Confidential treatment requested.
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[***]
9.3 In the event either party hereto shall initiate or carry on legal
proceedings to enforce the PATENT RIGHTS against an alleged infringer, as
provided herein, the other party hereto shall render reasonable assistance
to and cooperate with the party initiating or carrying on such proceedings.
9.4 In the event that either party shall institute suit or other legal
proceedings to enforce the PATENT RIGHTS, it shall have sole control of
such suit and the other party shall be entitled to be represented in any
such suit by counsel of its choosing, at its sole expense.
9.5 [***]
9.6 All damages, settlements and awards made or obtained in connection with any
suit or other legal proceeding under this Article 9 shall be shared among
the parties as follows:
(a) The party initiating the suit shall [***] in the event that the suit or
other legal proceeding is initiated by LICENSEE but is later assumed, under
Article 9.5, by LICENSOR, LICENSEE shall [***]
(b) If the LICENSEE initiated the suit and prosecuted it to its conclusion,
[***]
(c) In all other circumstances other than that described in Article 9.6 (b)
above, LICENSOR and LICENSEE shall divide the balance of any damages,
settlements and awards [***] to LICENSOR and [***] to LICENSEE.
[***] Confidential treatment requested.
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<PAGE>
[***]
10. STATUS OF THE PATENT RIGHTS
10.1 Pursuant to the SCRIPPS AGREEMENT, SCRIPPS agreed, with the advice of
LICENSOR, to diligently prepare, file and prosecute the patent applications
filed within the PATENT RIGHTS and LICENSOR agreed to reimburse SCRIPPS for
the reasonable expenses associated therewith. LICENSOR will continue to
ensure the SCRIPPS will file, maintain and prosecute the patents and patent
applications in the PATENT RIGHTS, and to continue to reimburse SCRIPPS for
patent expenses, including expenses associated with any interference or
opposition proceeding, under the SCRIPPS AGREEMENT as LICENSOR considers
appropriate. Furthermore, to the extent not barred by the passage of time,
LICENSOR will continue to file, maintain and prosecute the ORTHO patents
and patent applications within the PATENT RIGHTS in the jurisdiction listed
in Appendix 4.
10.2 LICENSOR will advise, or ensure that SCRIPPS advises, LICENSEE of the
status of all patent applications and patents within the PATENT RIGHTS.
LICENSOR will provide or will ensure that SCRIPPS provides LICENSEE with
copies of any patent applications or amendments or continuations-in-part
that it or SCRIPPS proposes to file with the U.S. Patent and Trademark
Office and shall give LICENSEE the opportunity, for a period of at least
five (5) business days after receipt, to review and comment on such
applications.
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10.3 Should LICENSOR elect not to continue paying the expenses for the
maintenance or prosecution of any patent or patent application under the
PATENT RIGHTS, it shall give LICENSEE ninety (90) days prior written notice
thereof and LICENSEE may thereafter at its own expense, prepare, file,
prosecute and maintain such patent or patent application in such countries
worldwide as it deems appropriate and conduct any interferences,
reexaminations, reissues or oppositions relating hereto. Any expenses which
LICENSEE incurs under this Article 10.3 shall be credited against any
royalties due under Article 3 and 4 of this SUBLICENSE AGREEMENT; provided
that LICENSEE shall supply to LICENSOR reasonable documentation of such
expenses.
10.4 LICENSOR does not represent or warrant that any patent within the PATENT
RIGHTS will be obtained or that any such patent so obtained will be valid
and enforceable. Specifically, LICENSEE acknowledges that the issuance and
enforceability of any patent application or patent within the PATENT RIGHTS
is subject to the outcome of any patent office proceeding, including any
interference or opposition proceeding involving such patent or patent
application and that LICENSOR makes no representation that any such patent
application or patent will prevail in such proceeding. In the event such
patent or patent application is not issued or upheld in such interference
or opposition proceeding, LICENSEE's sole remedy is to terminate this
SUBLICENSE AGREEMENT under Article 7.4 hereof.
10.5 The parties agree to cooperate in order to avoid loss of any rights which
may otherwise be available to the parties under the U.S. Drug Price
Competition and Patent Term Restoration Act of 1984, the Supplementary
Certificate of Protection of the Member States of the European Community
and other similar measures in any other country in the Territory. Without
limiting the foregoing, LICENSEE agrees to notify LICENSOR promptly upon
receipt of an NDA or PLA approval to market any LICENSED PRODUCT in the
United States and to timely supply LICENSOR with all information necessary
to file an application for
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patent term extension within the sixty (60) day period following U.S. NDA
or PLA APPROVAL. The same shall apply with respect to the approval by the
health authorities in a country of the European Community or approval by
the appropriate authorities in any other country in the Territory.
11 NON-USE OF NAMES
11.1 LICENSEE shall not use the name of any INVENTOR, or any institution with
which he has been or is connected, or of LICENSOR, or any adaptation of any
of them, in any advertising, promotional or sales literature, without prior
written consent obtained from LICENSOR in each case. LICENSEE shall require
its AFFILIATES to comply with this Article 11 to the same extent that it
applies to LICENSEE.
11.2 LICENSOR shall not use the name of LICENSEE or its AFFILIATES or any
adaptation thereof, in any advertising, promotional or sales literature or
in any press release without prior written consent of LICENSEE in each
case.
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12 WARRANTIES AND REPRESENTATIONS
12.1 LICENSOR represents and warrants to LICENSEE that:
(i) Except with respect to the rights of the United States Government
pursuant to 35 U.S.C. 202 et seq. and the rights retained by SCRIPPS
for educational and research purposes in the SCRIPPS PATENT RIGHTS,
LICENSOR warrants that it has exclusive rights by agreement, assignment
or license to SCRIPPS' rights to the SCRIPPS PATENT RIGHTS and to the
ORTHO PATENT RIGHTS and that it has full power and authority to
execute, deliver and perform this Agreement and the obligations
hereunder;
(ii) Other than the aforesaid rights of the United States Government,
and SCRIPPS, LICENSOR is not aware of any claims by any third parties
to an ownership interest in the PATENT RIGHTS licensed to LICENSEE
under this Agreement;
(iii) The SCRIPPS AGREEMENT is in full force and effect as of the
EFFECTIVE DATE of this SUBLICENSE AGREEMENT and LICENSOR is not in
material breach of the SCRIPPS AGREEMENT nor has LICENSOR received any
notice of default or termination from SCRIPPS under the SCRIPPS
AGREEMENT, nor is LICENSOR aware of any action or omission which, with
the giving of notice or the passage of time, would constitute a default
under the SCRIPPS AGREEMENT.
12.2 During the term of this Agreement, LICENSOR agrees to comply with the
provisions of the SCRIPPS AGREEMENT to prevent termination of LICENSOR's
rights to the SCRIPPS PATENT RIGHTS and to preserve the rights granted to
LICENSEE hereunder.
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12.3 Each party hereby warrants that the execution, delivery and performance of
this SUBLICENSE AGREEMENT has been duly approved and authorized by all
necessary corporate actions of both parties; do not require any shareholder
approval which has not been obtained or the approval and consent of any
trustee or the holders of any indebtedness of either party; do not
contravene any law, regulation, rules or order binding on either Party, and
do not contravene the provisions of or constitute a default under any
indenture, mortgage contract or other agreement or instrument to which
either party is a signatory.
12.4 Nothing in this SUBLICENSE AGREEMENT shall be construed as a representation
or a warranty by LICENSOR as to the validity or scope of any patent within
the PATENT RIGHTS or that any process practiced or anything made, USED or
SOLD under any license or immunity granted under this SUBLICENSE AGREEMENT
is or will be free from infringement of patents of third parties.
13. INDEMNIFICATION
13.1 LICENSEE agrees to indemnify and hold harmless INVENTORS, SCRIPPS,
LICENSOR, its AFFILIATES and their respective officers, directors,
employees and agents from and against any and all claims, damages and
liabilities, including reasonable attorney's fees and expenses, asserted by
third parties, both government and private, arising from LICENSEE's, its
AFFILIATES' and SUBLICENSEE's manufacture, USE or SALE of LICENSED PRODUCTS
or the USE thereof by others including ultimate consumers. Prior to the
first use of LICENSED PRODUCT in humans, LICENSEE hereby agrees to maintain
in full force and effect general liability and product liability insurance
with a commercial insurance carrier, which policy shall have individual and
aggregate limits appropriate to the conduct of LICENSEE's business covering
the sale and distribution of LICENSED PRODUCTS. LICENSOR shall be named as
an additional insured in such insurance policy. LICENSEE shall provide
a certificate of insurance to LICENSOR evidencing such insurance policy
and providing that such
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insurance will not be canceled, modified or subject to non-renewal without
thirty (30) days' written notice to LICENSOR. This insurance will remain in
effect until three (3) years from termination of this Agreement.
14. GENERAL
14.1 This SUBLICENSE AGREEMENT, including the Appendices hereto attached, and
the Founder Stock Purchase Agreement and Co-Sale Agreement entered into by
the parties contemporaneously herewith constitutes the entire agreement and
understanding between the parties as to the subject matter hereof. All
prior negotiations, representations, agreements, contracts, offers and
earlier understandings of whatsoever kind, whether written or oral between
LICENSOR and LICENSEE in respect of this SUBLICENSE AGREEMENT, are
superseded by, merged into, extinguished by and completely expressed by
this SUBLICENSE AGREEMENT.
No aspect, part or wording of this SUBLICENSE AGREEMENT may be modified
except by mutual agreement between the LICENSOR and LICENSEE taking the
form of an instrument in writing signed and dated by duly authorized
representatives of both LICENSOR and LICENSEE.
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14.2 Any payment, notice or communication required or permitted to be given by
this SUBLICENSE AGREEMENT shall be given by post-paid, first class,
registered or certified mail addressed to:
General Counsel
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08903-5501
and
Chairman
R.W. Johnson Pharmaceutical Research Institute
U.S.Route #202
P.O. Box 300
Raritan, New Jersey 08869-0602
or
Acute Therapeutics, Inc.
6097 Hidden Valley Drive
Doylestown, Pennsylvania 18901
Such addresses may be altered by notice so given. If no time limit is
specified for a notice required or permitted to be given by this SUBLICENSE
AGREEMENT, the time limit therefor shall be ten (10) full business days,
not including the day of mailing. Notice shall be considered made as of the
date of deposit with the United States Post Office.
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14.3 This SUBLICENSE AGREEMENT and its effect are subject to and shall be
construed and enforced in accordance with the laws of the State of New
Jersey, United States, except as to any issue which depends upon the
validity, scope or enforceability of any patent within the PATENT RIGHTS,
which issue shall be determined in accordance with the applicable patent
laws of the country of such patent.
14.4 Any dispute arising between the Parties under this LICENSE AGREEMENT shall
be referred to the President (or an officer designated by the President) of
each Party who shall promptly meet to discuss and resolve the dispute. If
after thirty (30) days, the designated officers of each Party are unable to
resolve the dispute, then the matter shall be fully and finally resolved in
binding arbitration as follows. Arbitration shall be conducted in
accordance with the Commercial Arbitration Rules then in effect of the
American Arbitration Association ("AAA"). Arbitration shall take place in
New York, New York, or such other city as may be agreed upon by the Parties
and shall be conducted by a panel of three (3) arbitrators, one of whom
shall be selected by each Party, and the third by the other two (2)
arbitrators, all within the time limits established by the then existing
rules of the AAA. The Arbitrators may, at their discretion, provide for
discovery by the parties not to exceed six (6) months from the date of
filing of the notice of arbitration and the arbitrators shall render a
decision within thirty (30) days of the completion of the hearing. The
decision of the arbitrators shall be final and without appeal, and may be
enforced in any court having jurisdiction over the Parties or their current
assets. The fees of the arbitrators and the expense incident to the
arbitration proceedings shall be borne equally by the Parties. All other
expenses, such as legal fees, shall be borne by the Party incurring such
expenses.
14.5 Nothing in this SUBLICENSE AGREEMENT shall be construed so as to
require the commission of any act contrary to law, and wherever
there is any conflict between any provision of this SUBLICENSE AGREEMENT
or concerning the legal right of the parties to contract and any statute,
law, ordinance or treaty, the latter shall prevail, but in such event the
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affected provisions of this SUBLICENSE AGREEMENT shall be curtailed and limited
only to the extent necessary to bring it within the applicable legal
requirements.
14.6 LICENSEE shall take all reasonable and necessary steps to register this
SUBLICENSE AGREEMENT in any country where such is required to permit
the transfer of funds and/or payment of royalties to LICENSOR
hereunder or is otherwise required by the government or law of such
country to effectuate or carry out this SUBLICENSE AGREEMENT.
Notwithstanding anything contained herein, but subject to Article 14(e)
hereof, LICENSEE shall not be relieved of any of its obligations under
this SUBLICENSE AGREEMENT by any failure to register this SUBLICENSE
AGREEMENT in any country, and, specifically, LICENSEE shall not be
relieved of its obligation to make any payment due to LICENSOR hereunder
at LICENSOR's address specified in Article 14.2 hereof, where such
payment is blocked due to any failure to register this SUBLICENSE
AGREEMENT.
14.7 It shall be the full and sole responsibility of LICENSEE and its AFFILIATES
to use appropriate care in the practice of any process and the
manufacture and USE of any product pursuant to any license or immunity
granted hereunder and LICENSOR shall have no right to control the manner
in which or the material with which or upon which any process licensed
hereunder is practiced and LICENSOR makes no representation or warranty
whatsoever with respect to any such process or product.
14.8 As used in this SUBLICENSE AGREEMENT, singular includes the plural and
plural includes the singular, wherever so required by the context. The
headings appearing at the beginning of the numbered Articles hereof have
been inserted for convenience only and do not constitute a part of this
SUBLICENSE AGREEMENT.
14.9 Nothing herein shall be deemed to create an agency, joint venture or
partnership between the parties hereto.
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14.10 Notwithstanding any other provisions of this SUBLICENSE AGREEMENT,
neither of the parties hereto shall be liable in damages or have the
right to terminate this SUBLICENSE AGREEMENT for any delay or default in
performing hereunder if such delay or default is caused by conditions
beyond its control including, but not limited to acts of God,
governmental restrictions, wars, or insurrections, strikes, floods,
work stoppages and/or lack of materials; provided, however, that the
party suffering such delay or default shall notify the other party in
writing of the reasons for the delay or default. If such reasons for
delay or default continuously exist for six (6) months, this SUBLICENSE
AGREEMENT may be terminated by either party.
15. GOVERNMENT RIGHTS
15.1 LICENSEE acknowledges and agrees that its respective rights and obligations
pursuant to this SUBLICENSE AGREEMENT shall be subject to SCRIPPS' rights
under the SCRIPPS AGREEMENTS and to the non-exclusive rights of the
GOVERNMENT, which arose or resulted from SCRIPPS' receipt of research
support from the GOVERNMENT.
15.2 LICENSEE shall comply in all respects with the applicable provisions of
any applicable law, requirement, regulation or determination by any
Government relating to the PATENT RIGHTS and shall provide LICENSOR with
any information or report required to comply with any such law,
requirement, regulation or determination.
15.3 Any inconsistency between this SUBLICENSE AGREEMENT and the pertinent
provisions of any law, requirement, regulation or determination by a
Government shall be resolved by conforming this SUBLICENSE AGREEMENT to
such provisions of any such law, requirement, regulation or determination.
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15.4 Any agreement or arrangement relating to the PATENT RIGHTS between LICENSEE
and any third party hereto shall be made expressly subject to the
terms and conditions of this Article 15 and LICENSEE shall require such
other party to comply therewith to the same extent that LICENSEE is
required to comply.
15.5 Any license or other right granted or to be granted pursuant to this
SUBLICENSE AGREEMENT shall be subject to any and all applicable
governmental laws and regulations relating to compulsory licensing.
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IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and duly
executed this SUBLICENSE AGRREEMENT on the date(s) indicated below, to be
effective the day and year first above written.
For and on Behalf of LICENSOR, JOHNSON & JOHNSON and ORTHO PHARMACEUTICAL
CORPORATION
By: /s/ Ronald G. Gelbman
------------------------------------
Name: Ronald G. Gelbman
--------------------------------
Title: Chairman Worldwide Pharmaceutical & Diagnostic Group
------------------------------------------------------------------
Date: 10/28/96
----------------------------------
For and on Behalf of LICENSEE, ACUTE THERAPEUTICS, INC.
By: /s/ Robert J. Capetola
---------------------------------------
Name: Robert J. Capetola
-------------------------------------
Title: President /CEO
--------------------------------------
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<PAGE>
APPENDIX 1
PATENT RIGHTS
1(a) SCRIPPS PATENT RIGHTS
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<PAGE>
<TABLE>
<CAPTION>
<S><C>
[***]
</TABLE>
[***] Confidential treatment requested.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
<S><C>
[***]
</TABLE>
[***] Confidential treatment requested.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
<S><C>
[***]
</TABLE>
[***] Confidential treatment requested.
37
<PAGE>
<PAGE>
[***]
[***] Confidential treatment requested.
38
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<PAGE>
APPENDIX 3
DEVELOPMENT PLAN
39
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<PAGE>
Appendix 3
Acute Therapeutics, Inc.
[***]
[***] Confidential treatment requested.
40
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<PAGE>
APPENDIX 4
PATENT FILING JURISDICTIONS
[***]
[***] Confidential treatment requested.
41
EXHIBIT 10.7
LICENSE AGREEMENT
-----------------
This License Agreement (hereinafter referred to as the "Agreement"),
effective as of the 20th day of March, 1996 is by and between The
Charlotte-Mecklenburg Hospital Authority, a public authority having an address
at P.O. Box 32861, Charlotte, North Carolina 28232-2861 (the "Licensor") and
Triad Pharmaceuticals, Inc., a corporation duly organized and existing under the
laws of the State of Delaware and having an address at 375 Park Avenue, Suite
1501, New York, New York 10152 (the "Licensee").
WHEREAS, Licensor is the joint owner of U.S. Patent No. 5,474,760 and
[***] respectively (the "Patents"); and
WHEREAS, pursuant to the Interinstitutional Agreement dated September 18,
1995, between Licensor and Duke University, a copy of which is annexed hereto as
Appendix I, Licensor has the authority to grant licenses under the Patents; and
WHEREAS, Licensee now desires to obtain a license, under the Patents, upon
the terms and conditions hereinafter set forth; and
WHEREAS, Licensee has represented to Licensor, to induce Licensor to enter
into this Agreement, that it shall commit itself to a thorough, vigorous and
diligent program of developing and exploiting the inventions described in the
Patents, so that public utilization shall result therefrom; and
NOW, THEREFORE, it is agreed as follows:
[***] Confidential treatment requested.
<PAGE>
<PAGE>
ARTICLE 1 - DEFINITIONS
-----------------------
For the purposes of this Agreement, the following words and phrases, if
appearing in this Agreement in capitalized form, shall have the following
meanings:
1.1 "Licensee" shall mean Triad Pharmaceuticals, Inc., a Delaware
corporation.
1.2 "Affiliate" shall mean
(i) any company or entity, the voting control of which is at least
fifty percent (50%), directly or indirectly, owned or controlled by
Licensee, or
(ii) any company or entity that owns or controls at least fifty
percent (50%), directly or indirectly, of Licensee (a "Parent"), or
(iii) any company or entity, the voting control of which is at least
fifty percent (50%), directly or indirectly, owned or controlled by a
Parent of Licensee.
1.3 "Patent Rights" shall mean:
1.3.1 U.S. Patent No. 5,474,760 and U.S. Patent Applications Serial
Nos. [***] respectively, as set forth in Appendix II;
1.3.2 Any later-filed United States and/or foreign patent applications
based on the patent applications and/or patents listed in Appendix II, or
corresponding thereto, including any continuations, continuations-in-part,
divisional, reissues, reexaminations, or extensions thereof; and
1.3.3 Any United States and/or foreign patents issuing from any of the
foregoing.
[***] Confidential treatment requested.
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1.4 "Licensed Product(s)" shall mean:
1.4.1 Any product which is covered in whole or in part by a valid and
unexpired claim contained in the Patent Rights in the country in which the
product is made, used, leased or sold;
1.4.2 Any product which is manufactured by using a process which is
covered in whole or in part by a valid and unexpired claim contained in the
Patent Rights in the country in which the process is used;
1.4.3 Any product which is used according to a method which is covered
in whole or in part by a valid and unexpired claim contained in the Patent
Rights in the country in which the method is used.
1.5 "Licensed Process(es)" shall mean any process or method, which is
covered, in whole, or in part, by a valid and unexpired claim contained in the
Patent Rights in the country in which the process or method is used.
1.6 "Net Sales" shall mean Licensee's, a Sublicensee's, or an Affiliate's
billings for Licensed Products and Licensed Processes less the sum of the
following:
(a) discounts allowed and credited in amounts customary in the trade;
(b) sales, tariff duties and/or use taxes directly imposed and with
reference to particular sales;
(c) outbound transportation prepaid or allowed;
(d) amounts allowed or credited on returns; and
(e) bad debt deductions actually written off during the period.
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No deductions shall be made for commissions paid to individuals whether
they be independent sales agencies or regularly employed by Licensee, the
Sublicensee or the Affiliate, as the case may be. Licensed Products and Licensed
Processes shall be considered "sold" when billed out or invoiced.
1.7 "Sublicensee" shall mean any company or entity directly or indirectly
obtaining a sublicense under this Agreement to practice under the Patent Rights,
or to make, have made, use, lease and/or sell the Licensed Products or tO
practice the Licensed Processes. For purposes of calculating royalties due to
Licensor under Article 4 of this Agreement, the term "Sublicensee" shall include
a buyer of Licensed Products or Licensed Processes sold by Licensee, an
Affiliate or a Sublicensee that is, on the information and belief of the
Licensee, a reseller of such products or processes, other than, resellers
involved in the distribution of Licensed Products or Licensed Processes to
persons that appear to be, on the information and belief of Licensee, the
intended users of such products or processes. The exemption for retailers from
the definition of "Sublicensees" under this Section 1.7 shall only apply to the
extent that a royalty has been paid to make, have made, use, lease, and/or sell
the Licensed Products or to practice the Licensed Processes. For example,
pharmacies, pharmacists, hospitals or doctors that purchase Licensed Products or
Licensed Processes from Licensee, Sublicensee or an Affiliate that, on the
information and belief of Licensee, intend to supply and/or dispense such
products or processes to patients will not be considered Sublicensees for
purposes of calculating royalties due to Licensor under Article 4 of this
Agreement.
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ARTICLE 2 - GRANT
-----------------
2.1 Licensor hereby grants to Licensee a worldwide royalty bearing license
to practice under the Patent Rights, and to make, have made, use, lease and/or
sell the Licensed Products and to practice the Licensed Processes, to the full
end of the term for which the Patent Rights are granted, unless sooner
terminated as hereinafter provided, said license to include the right to
sublicense and to be exclusive to Licensee.
ARTICLE 3 - DUE DILIGENCE
-------------------------
3.1 Licensee shall use its reasonable best efforts to bring Licensed
Products or Licensed Processes to market through a thorough, vigorous and
diligent program for exploitation of the Patent Rights and continue active,
diligent marketing efforts for Licensed Products or Licensed Processes
throughout the life of this Agreement.
3.2 Licensee will begin human clinical trials of tyloxapol in the
indication of cystic fibrosis pursuant to the general protocol described in the
Investigational New Drug application number 48,478 within six months of the date
of this Agreement with an aggregate contracted cost in excess of $250,000;
provided, however, that such six month period shall be extended for any period
in which initiation of the clinical trials is either not technically or legally
possible due to events outside the control of the Licensee.
3.3 Licensee's failure to perform the due diligence obligations described
in Paragraphs 3.1, and 3.2. shall constitute a material breach or default for
purposes of the termination provisions of Paragraph 7.3.
3.4 In the event Licensee fails to file a New Drug Application with the
U.S. FDA for a Licensed Product or Licensed Process by the [***] anniversary of
this Agreement, then on such [***] anniversary, Licensee shall be required
to pay Licensor a nonrefundable, one time, additional license fee in the amount
[***] to maintain its rights under this Agreement. Licensee's failure to pay the
additional license fee shall constitute a material breach or default for
purposes of the termination provisions of Paragraph 7.3.
[***] Confidential treatment requested.
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[***]
3.5 In the event that on the date which is one hundred and eighty (180)
days from the date of this Agreement Licensee has not received aggregate gross
proceeds from a financing or financings which together total at least
[***] (a "Minimum Financing") then in order to maintain this Agreement in
effect Licensee shall be required to pay Licensor a nonrefundable, one
time, additional license fee in the amount of [***] else Licensor shall have
the option to terminate this Agreement in accordance with Section 7.1 hereof. In
the event that after paying such additional license fee, Licensee fails
to complete a Minimum Financing by the first anniversary of this Agreement,
then Licensor shall again have the option to terminate this Agreement in
accordance with Section 7.1 hereof.
ARTICLE 4 - ROYALTIES
---------------------
4.1 For the rights, privileges and license granted hereunder, Licensee
shall pay to Licensor, as set forth below, to the end of the term of the Patent
Rights or until this Agreement shall be terminated as hereinafter provided:
4.1.1 In each calendar year, a royalty in an amount equal to
[***] of Net Sales of the Licensed Products or Licensed Processes
sold by Licensee and its affiliates and [***] of Net Sales of the
Licensed Products or Licensed Processes sold by Sublicensees; and
[***] Confidential treatment requested.
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[***]
4.1.2 In each calendar year, a royalty in an amount equal to [***]
of the license fees or other lump sum payments received by
Licensee and its Affiliates from Sublicensees for the manufacture, use,
lease or sale of Licensed Products and Licensed Processes; provided,
however, this Paragraph 4.1.2 shall specifically not apply to payments
received by Licensee or any Affiliate with respect to sales of Licensed
Products or Licensed Processes to Sublicensees nor payments received by
Licensee or any Affiliate in support of research and/or development of
Licensed Products or Licensed Processes.
4.1.3 Upon execution of this Agreement, Licensee shall pay Licensor a
nonrefundable, one time, license issue fee in the amount of eighty six
thousand four hundred dollars ($86,400).
4.1.4 Immediately upon the filing of the first New Drug Application
with the U.S. FDA for a Licensed Product or Licensed Process, Licensee
shall pay Licensor a nonrefundable, one time, license fee in the amount of
[***].
4.1.5 Within thirty (30) days following receipt by Licensee of the
first New Drug Application approved by the U.S. FDA for a Licensed Product
or Licensed Process, Licensee shall pay Licensor a nonrefundable, one time,
license fee in the amount of [***].
[***] Confidential treatment requested.
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4.2 No multiple royalties shall be payable because the use, lease or sale
of any Licensed Product or Licensed Process is, or shall be, covered by more
than one valid and unexpired claim contained in the Patent Rights.
4.3 Royalty payments shall be paid in United States dollars in New York or
at such other place as Licensor may reasonably designate consistent with the
laws and regulations controlling in any foreign country. If any currency
conversion shall be required in connection with the payment of royalties
hereunder, such conversion shall be made by using the exchange rate prevailing
at Citibank, N.A. in New York, on the last business day of the calendar
quarterly reporting period to which such royalty payments relate.
ARTICLE 5 - REPORTS AND RECORDS
-------------------------------
5.1 Licensee shall keep full, true and accurate books of account containing
all particulars that may be necessary for the purpose of showing the amount
payable by Licensee, Affiliates and Sublicensees to Licensor by way of royalty
as aforesaid. Said books of account shall be kept at Licensee's principal place
of business in the United States. Said books and the supporting data shall be
open upon reasonable notice to Licensee no more than twice per calendar year,
for five (5) years following the end of the calendar year to which they pertain,
for inspection and copying by the Licensor's internal audit division or
corporate officer and/or by an independent certified public accountant employed
by Licensor for the purpose of verifying Licensee's royalty statement or
compliance in other respects with this Agreement.
5.2 Following the first commercial sale of Licensed Products or Licensed
Processes, Licensee, within sixty (60) days after the end of each semi-annual
period of
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each calendar year, shall deliver to Licensor true and accurate reports, giving
such particulars of the business conducted by Licensee during the preceding
half-year under this Agreement as shall be pertinent to a royalty accounting
hereunder. These shall include at least the following:
(a) All Licensed Products and Licensed Processes made, used, leased or
sold, by or for Licensee, its Affiliates and Sublicensees.
(b) Total amounts invoiced for Licensed Products and Licensed Processes
made, used, leased or sold, by or for Licensee, its Affiliates or its
Sublicensees.
(c) Deductions applicable in computed "Net Sales" as defined in Paragraph
1.6.
(e) Total royalties due based on Net Sales by or for Licensee, its
Affiliates or its Sublicensees.
(f) Names and addresses of all Sublicensees and Affiliates of Licensee.
(h) On an annual basis, Licensee's Annual Report.
5.3 With each such report submitted, Licensee shall pay to Licensor the
royalties due and payable under this Agreement. If no royalties shall be due,
Licensee shall so report.
ARTICLE 6 - PATENT PROSECUTION
------------------------------
Licensee, at its own expense and utilizing patent counsel that is mutually
agreeable to Licensee and Licensor, shall have the sole right and responsibility
for the filing, prosecution, and maintenance of any patent applications and
patents contained in the Patent Rights. Licensee, or its patent counsel, shall
provide Licensor with copies of all correspondence and documents filed with, or
received from, the United States Patent
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and Trademark Office or any foreign patent office or patent agent. In addition,
Licensee agrees that any and all official or "ribbon" copies of issued patents
shall be forwarded to, and retained by, Licensor. The parties agree that the law
firm of Bell Seltzer Park & Gibson located in Charlotte, North Carolina, will be
considered to be mutually agreeable patent counsel for purposes of this Article
6.
ARTICLE 7 - TERMINATION
-----------------------
7.1 If Licensee shall become bankrupt or insolvent, or shall file a
petition in bankruptcy, or if the business of Licensee shall be placed in the
hands of a receiver, assignee or trustee for the benefit of creditors, whether
by the voluntary act of Licensee or otherwise, this Agreement shall
automatically terminate.
7.2 Time is of the essence for all payments due. Should Licensee fail in
its payment to Licensor of royalties or license fees due in accordance with the
terms of this Agreement which are not the subject of a bona fide dispute between
Licensor and Licensee, Licensor shall have the right to serve notice upon
Licensee, by certified mail to the address designated in Article 14 hereof, of
its intention to terminate this Agreement within sixty (60) days after receipt
of said notice of termination unless Licensee shall pay to Licensor, within the
sixty (60) day period, all such royalties or license fees due and payable. Upon
the expiration of the sixty (60) day period, if Licensee shall not have paid all
such royalties or license fees due and payable, the rights, privileges and
license granted hereunder shall thereupon immediately terminate. Payments shall
not be delayed, escrowed or otherwise withheld absent a court order prohibiting
such payments.
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7.3 Upon any material breach or default of this Agreement by Licensee,
other than those occurrences set out in Paragraphs 7.1 and 7.2 hereinabove,
which shall always take precedence in that order over any material breach or
default referred to in this Paragraph 7.3, Licensor shall have the right to
terminate this Agreement and the rights, privileges and license granted
hereunder by ninety (90) days' notice to Licensee by certified mail to the
address designated in Article 14 hereof. Such termination shall become effective
unless Licensee shall have cured any such breach or default prior to the
expiration of the ninety (90) day period from receipt of the notice of
termination.
7.4 Licensee shall have the right to terminate this Agreement at any time
on sixty (60) days' notice to Licensor by certified mail to the address
designated in Article 14 hereof.
7.5 Upon termination of this Agreement for any reason, nothing herein shall
be construed to release either party from any obligation that matured prior to
the effective date of such termination. Licensee and/or any Sublicensee thereof
may, however, after the effective date of such termination, sell all Licensed
Products, and complete Licensed Products in the process of manufacture at the
time of such termination, and sell the same, provided that Licensee shall pay to
Licensor the royalties thereon as required by Article 5 of this Agreement and
shall submit the reports required by Article 5 hereof on the sales of Licensed
Products.
7.6 Except as provided in Paragraph 7.5, upon termination, Licensee will
return all technology and rights to the Licensed Products and Licensed
Processes, and both Licensor and Licensee will cooperate in executing the
necessary documentation.
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ARTICLE 8 - ARBITRATION
-----------------------
8.1 Except as to issues relating to the validity, enforceability, or
infringement of any patent contained in the Patent Rights licensed hereunder,
any and all claims, disputes or controversies arising under, out of, or in
connection with this Agreement, which have not been resolved by good faith
negotiations between the parties, shall be resolved by final and binding
arbitration in any United States court or tribunal having jurisdiction thereof
under the rules of the American Arbitration Association then in effect. The
arbitrators shall have no power to add to, subtract from, or modify any of the
terms or conditions of this Agreement. Any award rendered in such arbitration
may be enforced by either party in either the state or federal courts to whose
jurisdiction for such purposes Licensor and Licensee each hereby irrevocably
consents and submits.
8.1.1 The arbitration tribunal shall consist of three arbitrators.
Each party shall nominate in the request for arbitration and the answer
thereto one arbitrator, and these two arbitrators will then jointly appoint
a third arbitrator as chairman of the arbitration tribunal.
8.2 Any claim, dispute, or controversy concerning the validity,
enforceability, or infringement of any patent contained in the Patent Rights
licensed hereunder shall be resolved in any court having jurisdiction thereof.
8.3 In the event that, in any arbitration proceeding, any issue shall arise
concerning the validity, enforceability, or infringement of any patent contained
in the Patent Rights licensed hereunder, the arbitrators shall, to the extent
possible, resolve all issues other than validity, enforceability, and
infringement; in any event, the arbitrators
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shall not delay the arbitration proceeding for the purpose of obtaining or
permitting either party to obtain judicial resolution of such issues, unless an
order staying the arbitration proceeding shall be entered by a court of
competent jurisdiction. Neither party shall raise any issue concerning the
validity, enforceability, or infringement of any patent contained in the Patent
Rights licensed hereunder, in any proceeding to enforce any arbitration award
hereunder, or in any proceeding otherwise arising out of any such arbitration
award.
ARTICLE 9 - INFRINGEMENT AND OTHER ACTIONS
------------------------------------------
9.1 Licensee and Licensor shall promptly provide written notice, to the
other party, of any alleged infringement by a third party of the Patent Rights
and provide such other party with any available evidence of such infringement.
9.2 During the term of this Agreement, Licensee shall have the right, but
not the obligation, to prosecute and/or defend, at its own expense and utilizing
counsel of its choice, any infringement of, and/or challenge to, the Patent
Rights. In furtherance of such right, Licensor hereby agrees that Licensee may
join Licensor as a party in any such suit. [***] No settlement, consent
judgment or other voluntary final disposition of any such suit may be
entered into without the consent of Licensor, which consent shall not
unreasonably be withheld.
9.3 [***]
[***] Confidential treatment requested.
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[***]
9.4 If within six (6) months after receiving notice of any alleged
infringement, Licensee shall have been unsuccessful in persuading the alleged
infringer to desist, or shall not have brought and shall not be diligently
prosecuting an infringement action, or if Licensee shall notify Licensor, at any
time prior thereto, of its intention not to bring suit against the alleged
infringer, then, and in those events only, Licensor shall have the right, but
not the obligation, to prosecute, at its own expense and utilizing counsel of
its choice, any infringement of the Patent Rights, and Licensor may, for such
purposes, join the Licensee as a party plaintiff. [***]
9.5 In any suit to enforce and/or defend the Patent Rights pursuant to this
Agreement, the party not in control of such suit shall, at the request and
expense of the controlling party, cooperate in all respects and, to the extent
possible, have its employees testify when requested and make available relevant
records, papers, information, samples, specimens, and the like.
ARTICLE 10 - REPRESENTATIONS AND INDEMNIFICATION
------------------------------------------------
10.1 Licensor, by this Agreement, represents and warrants that it has the
sole and exclusive, unencumbered, right, title and interest to the Patent Rights
other than as set forth in the Interinstitutional Agreement between Licensor and
Duke University, a
[***] Confidential treatment requested.
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true and complete copy of which is annexed hereto as Appendix I. Licensor, by
this Agreement, makes no representation as to the patentability and/or breadth
of the inventions contained in the Patent Rights. Licensor, by this Agreement,
makes no representation as to patents now held or which will be held by others
in the field of the Licensed Products and Licensed Processes for a particular
purpose. Licensor, by this Agreement, disclaims all warranties and
representations not expressly set forth.
10.2 Licensee agrees to indemnify, hold harmless, and defend Licensor, its
trustees, officers, employees, and agents, against any and all claims, suits,
losses, damages, costs, fees, and expenses, including attorneys fees, resulting
or arising out of the exercise of this license. Licensee shall not be
responsible for the negligence or intentional wrongdoing of Licensor.
10.3 Licensee shall maintain in force at its sole cost and expense with
reputable insurance companies, products liability insurance coverage in an
amount reasonably sufficient to protect against liability under Article 10.2
above. Licensor shall have the right to ascertain from time to time that such
coverage exists, such right to be exercised in a reasonable manner.
10.4 Nothing in this agreement shall be deemed to be a representation or
warranty by Licensor of the validity of any of the patents or the accuracy,
safety, efficacy, or usefulness for any purpose, of any Subject Technology.
Licensor shall have no obligation, express or implied, to supervise, monitor,
review, or otherwise assume responsibility for production, manufacture, testing,
marketing, or sale of any Licensed Product, and Licensor shall have no liability
whatsoever to Licensee or any third parties
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for or on account of any injury, loss, or damage, of any kind or nature,
sustained by, or any damage assessed or asserted against, or any other liability
incurred by or imposed upon licensee or any other person or entity, arising out
of or in connection with or resulting from:
10.4.1 the production, use, or sale of any Licensed Product;
10.4.2 the use of any Subject Technology; or
10.4.3 advertising or other promotional activities with respect to any
of the foregoing.
10.5 Neither party hereto is an agent of the other party for any
purpose whatsoever.
ARTICLE 11 - ASSIGNMENT
-----------------------
Licensee may assign or otherwise transfer this Agreement and the license
granted hereunder and the rights acquired by it hereunder so long as such
assignment or transfer shall be accompanied by a sale or other transfer of
Licensee's entire business or of that part of Licensee's business to which the
license granted hereunder relates; provided further that such assignment or
transfer has the consent of Licensor, which consent shall not be withheld
unreasonably. Upon such assignment or transfer and agreement by such assignee or
transferee, the term Licensee as used herein shall include such assignee or
transferee.
ARTICLE 12 - NON-USE OF NAMES
-----------------------------
Licensee shall not use the name of Licensor or any adaptation thereof in
any advertising, promotional or sales literature without prior written consent
obtained from
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Licensor, in each case, except that Licensee may state that it is licensed by
Licensor, under one or more of the patents and/or applications comprising the
Patent Rights.
ARTICLE 13 - PAYMENTS NOTICES
------------------------------
AND OTHER COMMUNICATIONS
------------------------
Any payment, notice or other communication pursuant to this Agreement shall
be sufficiently made or given on the date of mailing if sent to such party by
certified first class mail, postage prepaid, addressed to it at its address
below or as it shall designate by written notice given to the other party:
In the case of Licensor:
The Charlotte-Mecklenburg Hospital Authority
P.O. Box 32861
Charlotte, North Carolina 28232-2861
Attn: James G. Martin, Ph.D.
In the case of Licensee:
Triad Pharmaceuticals, Inc.
375 Park Avenue, Suite 1501
New York, New York 10152
Attn: Steve H. Kanzer, Esq.
ARTICLE 14 - MISCELLANEOUS PROVISIONS
-------------------------------------
14.1 This Agreement shall be construed, governed, interpreted and applied
in accordance with the laws of the State of North Carolina, except that
questions affecting the validity, enforceability, or infringement of any patent
contained in the Patent Rights shall be determined by the law of the country in
which the patent was granted.
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14.2 The parties hereto acknowledge that this Agreement sets forth the
entire agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change or modification except by
the execution of a written instrument subscribed to by the parties hereto.
14.3 The provisions of this Agreement are severable, and in the event that
any provision of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof.
14.4 Licensee agrees to mark the Licensed Products sold in the United
States with all applicable United States patent numbers. All Licensed Products
shipped to, or sold in, other countries shall be marked in such a manner as to
conform with the patent laws and practice of the country of manufacture or sale.
14.5 The failure of either party to assert a right hereunder or to insist
upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.
ARTICLE 15 - GOVERNMENT CLEARANCE, PUBLICATION, OTHER USE, EXPORT
-----------------------------------------------------------------
15.1 Licensee agrees to use its best efforts to have the Subject Technology
cleared for marketing in those countries in which Licensee intends to sell
Licensed Products by the responsible government agencies requiring such
clearance. To accomplish such clearances at the earliest possible date, Licensee
agrees to file,
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according to the usual practice of Licensee, any necessary data with such
government agencies. Should Licensee cancel this Agreement, Licensee agrees to
assign its full interest and title in such market clearance application,
including all data relating thereto, to Licensor at no cost to Licensor.
15.2 Licensee further agrees that the right of publication of the invention
and such Subject Technology shall reside in the inventor and other staff of
Licensor. Licensor shall use its best efforts to provide a copy of such
publications forty-five (45) days in advance of such submission for review by
Licensee, but such review will be in no way construed as a right to restrict
such publication. Licensee shall also have the right to publish and/or co-author
any publication regarding the application of the Subject Technology.
15.3 It is agreed that, notwithstanding any provisions herein, Licensor is
free to use the Subject Technology and Patent Rights for its own educational,
teaching, research, and clinical purposes without restriction and without
payment of royalties or other fees.
15.4 This Agreement is subject to all of the United States laws and
regulations controlling the export of technical data, computer software,
laboratory prototypes, and other commodities and technology.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement, in
duplicate, by proper persons thereunto duly authorized.
THE CHARLOTTE MECKLENBURG HOSPITAL AUTHORITY
By: /s/ James G. Martin
------------------------------------
James G. Martin, Ph.D.
Vice President of Research
March 5, 1996
TRIAD PHARMACEUTICALS, INC.
By: /s/ Steve Kanzer
------------------------------------
President
------------------------------------
March 20, 1996
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APPENDIX I
----------
Interinstitutional Agreement
<PAGE>
<PAGE>
APPENDIX II
-----------
1. U.S. Patent No. 5,474,760;
[***]
[***] Confidential treatment requested.
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(logo)
DISCOVERY LABORATORIES, INC.
October 17, 1996
CONFIDENTIAL
Dr. Robert Capetola
6097 Hidden Valley Drive
Doylestown, PA 18901
Re: Letter of Intent
Dear Bob:
This letter of intent (the "Letter of Intent") will confirm that Discovery
Laboratories, Inc. ("Discovery") and Robert Capetola Ph.D. have determined to
work toward the negotiation of definitive agreements, including, but not
limited to, stock purchase, license, sponsored research, employment,
consulting and escrow agreements (the "Definitive Agreements") providing for
the formation, funding and development of a new corporation to engage in the
research, development, manufacturing, laboratory and clinical testing and
marketing of products relating to the KL4-Surfactant technology of Johnson &
Johnson ("J&J") and The Scripps Research Institute ("TSRI") developed by Dr.
Charles Cochrane and Susan Revak, et.al., including, but not limited to, U.S.
patent number 5,164,369 (11/17/92); 5,260,273 (11/9/93); 5,407,914 (4/18/95);
U.S. patent applications designated [***] together with corresponding foreign
applications, and certain proprietary know-how relating to the manufacture of
KL4 Surfactant owned by J&J (the "KL4 Technology"), as further described herein.
1. Initial Investment.
Discovery will invest in a new company with a mutually agreeable name to be
jointly formed by Capetola and Discovery ("KL4Co"). Discovery will
immediately contribute $7.5 million cash to KL4Co in exchange for 60% of
the initial outstanding shares of KL4Co.
2. Capetola Employment Agreement.
KL4Co will be headed by Dr. Capetola as Chairman and Chief Executive
Officer, pursuant to a four year employment agreement having the following
terms:
A. Base salary of $225,000 per year. In the event of termination without
cause, as severance, the base salary shall continue to be payable for
twelve months, subject to setoff for other employment income.
[***] Confidential treatment requested.
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Dr. Robert Capetola
Letter of Intent
October 17, 1996
Page 2
B. An initial sign-on bonus of $50,000 to be paid the first week of January,
1997.
C. Incentive bonuses as follows:
I. $50,000 for first corporate licensing transaction with a
pharmaceutical company relating to KL4-Surfactant.
II. $100,000 upon completion of an initial public offering with gross
proceeds of at least $10 million.
III. Other bonuses at the discretion of the Board of Directors.
D. Medical and dental policies for Dr. Capetola and his family for the term
of his employment agreement.
E. Term life insurance for Dr. Capetola on behalf of his beneficiaries in
the amount of $2,000,000 for the term of the employment agreement, as
well as long term disability insurance, subject to a combined premium cap
of $15,000 per year.
F. During the term of the employment agreement and for eighteen months
after its termination, Dr. Capetola will agree not to (i) compete with
KL4Co in the business or research areas of surfactant replacement
therapy and other areas which KL4Co may enter while he remains employed,
nor (ii) directly or indirectly solicit or employ any employees of
KL4Co.
G. Dr. Capetola's employment agreement shall permit KL4Co to recruit and
appoint an independent individual to serve as Chairman of KL4Co.
3. Management Team:
As soon as possible following execution of the proposed license and
ancillary agreements with J&J and TSRI, KL4Co will hire a management team
assembled by Dr. Capetola (together with Dr. Capetola, the "Founding
Personnel") pursuant to the following guidelines:
A. i. Senior Medical Officer $195,000
ii. V.P. Pharmaceutical & Chemical Development $145,000
iii. Head of Biometrics $145,000
<PAGE>
<PAGE>
Dr. Robert Capetola
Letter of Intent
October 17, 1996
Page 3
iv. V.P. Project Manager $140,000
v. Head of Regulatory Affairs $125,000
vi. Junior Medical Officer $ 95,000
B. Annual incentive bonuses will also be awarded by the Chief Executive
Officer and approved by the Board of Directors.
C. The above employees shall be allocated 9% of the initial outstanding
shares of KL4Co and all of such shares shall be subject to annual
vesting over three years.
D. The employment agreements shall provide for six months severance in the
event of termination by KL4Co without cause.
E. The employment agreements shall contain non-compete and non-solicitation
provisions comparable to that of the employment agreement of Dr.
Capetola.
F. The Sage Group will be retained at a monthly consulting level of $7,500
per month, for a period of eighteen months, subject to monthly
performance evaluation by the Chief Executive Officer.
4. Initial Equity Allocation
Immediately prior to the initial investment by Discovery described in
Section 1 hereof, the equity of KL4Co shall be held as follows in
accordance with the following proportions:
Robert Capetola 9/40ths
Reserved for first
six employees 9/40ths
Escrowed Shares 7/40ths
Charles Cochrane 4/40ths
J&J 4/40ths
TSRI 4/40ths
Sage Group 2/40ths
Susan Revak 1/40ths
<PAGE>
<PAGE>
Dr. Robert Capetola
Letter of Intent
October 17, 1996
Page 4
5. Escrowed Shares
Shares comprising 7/40ths of the initial outstanding shares of KL4Co will
be escrowed for the benefit of the Founding Personnel pending completion
of KL4Co's second round of financing (the "Escrowed Shares"). The Escrowed
Shares will be allocated between Discover and the Founding Personnel based
upon the pre-money valuation realized in the second financing round in
accordance with the following schedule:
Percent of
Pre-money Incentive Shares
Valuation to Founding Personnel
Less than $65MM 0%
$65MM 25%
$75MM 50%
$85MM 75%
Over $95MM 100%
A bridge financing in an amount not greater than $2,000,000 in which the
proceeds are required to be repaid upon an initial public offering of KL4Co
shall not be considered a second financing round for purposes of the
Escrowed Shares. The Escrowed Shares will be allocated equally among the
Founding Personnel based upon the ratable equity percentages of each.
6. KL4Co shall establish a stock option plan for the benefit of its officers,
directors, employees and consultants, provided, however, that it is intended
that the Founding Personnel will not expect to receive option grants until
at least 36 months following the formation of KL4Co, unless otherwise agreed
to by the Board of Directors.
7. Development Plan
The development plan will proceed with the intention of conducting
simultaneous phase II clinical trials in the ARDS and MAS indications,
with the potential for additional trials in IRDS subject to discussion with
the FDA.
<PAGE>
<PAGE>
Dr. Robert Capetola
Letter of Intent
October 17, 1996
Page 5
8. License Agreement
KL4Co and J&J will enter into a license agreement (the "License Agreement")
pursuant to which J&J will provide KL4Co with an exclusive worldwide
license to, including the right to sublicense, the KL4 Technology. Pursuant
to the License Agreement, KL4Co shall pay license issue fees and royalties
to J&J as follows (to be allocated between J&J and TSRI at their
discretion):
A. Equity. KL4Co will issue eight percent of its initial outstanding shares
to J&J TSRI.
B. License Issue Fee. Upon execution of the License Agreement, KL4Co shall
pay J&J a non-refundable, non-creditable, license issue fee of $200,000;
C. First Milestone Payment. KL4Co shall pay J&J a non-refundable,
non-creditable, milestone payment of $250,000 upon the first NDA
incorporating the KL4 Technology filed with the U.S. FDA;
D. Second Milestone Payment. KL4Co shall pay J&J an additional
non-refundable, non-creditable, milestone payment of $500,000 upon the
first NDA incorporating KL4 Technology approved by the U.S. FDA;
E. Royalty on Sales. KL4Co shall pay royalties to J&J equal to [***]
of net commercial sales by KL4Co, and with respect to sublicenses, [***].
F. Due Diligence. The License Agreement will contain provisions requiring
KL4Co to diligently develop the KL4 Technology for both the MAS and ARDS
indications. In the event that KL4Co fails to proceed with the agreed
upon development plan for either the MAS or ARDS indications, J&J shall
have the right to terminate the License Agreement upon notice for the
field of use comprising such indication. Such termination provision shall
not apply to an indication, however, in the event that the proposed Phase
II clinical trial for such indication fails to demonstrate acceptable
scientific criteria for safety and efficacy.
[***] Condidential treatment requested.
<PAGE>
<PAGE>
Dr. Robert Capetola
Letter of Intent
October 17, 1996
Page 6
G. Other Material. J&J will agree to share its pre-clinical, clinical,
manufacturing and marketing data relating to KL4-Surfactant with KL4Co,
subject to appropriate confidentiality provisions. In addition, J&J will
contribute to KL4Co, its existing KL4-Surfactant raw material inventory
and any equipment specific for the formulation of KL4-Surfactant in
exchange for shares of preferred stock of KL4Co having a liquidation
preference in an amount up to $2,000,000 but not requiring redemption
until the earlier of (i) the first NDA approved by the FDA for
KL4-Surfactant, or (ii) an initial public offering of KL4Co, and further
providing that such redemption may be made in-kind utilizing marketable
shares of common stock or other securities of equal value.
9. TSRI Sponsored Research Agreement.
KL4Co will enter into a sponsored research agreement with TSRI supporting
the research to be performed by Dr. Charles Cochrane and Susan Revak. KL4Co
will contribute $500,000 annually under this research agreement for two
years, renewable for an additional two years in the discretion of KL4Co.
10. Consulting Agreements.
KL4Co shall enter into separate three-year Consulting Agreements with each
of Dr. Cochrane, Ms. Susan Revak, Ms. Zenaida Oades and Ms. Monica Cochrane
providing for annual consulting fees, payable monthly, of $195,000,
$80,000, $10,000 and $15,000 respectively.
11. Confidentiality.
The parties agree not to reproduce this letter or provide this letter to
any third parties, other than their accountants and lawyers, without the
express prior written-permission of the other party.
It is understood and agreed by the parties that this Letter of Intent merely
constitutes a statement of the mutual intentions of the parties with respect
to the transactions contemplated by this letter (the "Transaction"), does not
contain all matters upon which agreement must be reached in order for the
Transaction to be consummated and, therefore, does not constitute a binding
commitment with respect to the Transaction itself. A binding commitment with
respect to the Transaction itself will result only from execution of the
Definitive Agreements, subject to the conditions expressed therein, and such
execution shall be in the sole and absolute discretion of each party.
<PAGE>
<PAGE>
Dr. Robert Capetola
Letter of Intent
October 17, 1996
Page 7
The parties agree that until the expiration of this Agreement, neither party
will enter into a license with J&J or TSRI for the KL4-Surfactant Technology
except in accordance with the terms of this agreement.
This letter will terminate upon the earlier of (i) the execution the Definitive
Agreements, or (ii) 45 days from the date hereof in the event that the
Definitive Agreements are not entered into. This letter shall not entitle
either party to claim any rights pursuant to this letter in the event that the
other party to this letter completes a license to KL4-Surfactant exclusive of
the other after the expiration or termination of this letter.
The parties expressly agree in advance that any and all further agreements
between them, including any amendments or modifications to this letter of
intent, shall be required to be in writing and signed by both parties.
Notwithstanding the preceding sentences of this paragraph, the provisions of
this paragraph and Section 11 hereof are agreed to be fully binding on the
parties upon the execution of this Letter of Intent.
If the foregoing accurately summarizes our understanding, please kindly so
indicate by executing and dating this letter in the space provided.
Very truly yours,
DISCOVERY LABORATORIES, INC.
/s/ James S. Kuo, MD
James S. Kuo, M.D.
Chief Executive Officer
Agreed and Accepted:
/s/ Robert J. Capetola
Robert Capetola, Ph.D.
Date: 10/15/96
EXHIBIT 10.15
CONSULTING SERVICES AGREEMENT
This Consulting Agreement (the "Agreement") is entered into the 9th day of
December, 1996 by and between Acute Therapeutics, Inc., a Delaware
corporation (the "Company") and Dr. Charles Cochrane (the "Consultant"). Any
capitalized terms used but not otherwise defined herein shall have the meanings
set forth in the KL4 Surfactant Sublicense, by and between Johnson & Johnson and
the Company, dated October 28, 1996 (the "KL4 Sublicense ") .
WHEREAS, Johnson & Johnson ("J&J") is the exclusive licensee of the Scripps
Clinic and Research Foundation ("Scripps"), with respect to certain technology
relating to the synthetic pulmonary surfactant known as KL4 (the "KL4
Technology");
WHEREAS, the Company has been established to obtain the exclusive license
to the KL4 Technology from J&J set forth in the KL4 Sublicense and to
commercialize the KL4 Technology;
WHEREAS, Consultant is affiliated with Scripps and has been engaged in
research and development regarding KL4 Surfactant for a number of years; and
WHEREAS, the Company desires to have the benefit of Consultant's knowledge
and experience and Consultant desires to provide consulting services to the
Company, all as hereinafter provided in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. Term of the Agreement. The Company hereby retains the services of
Consultant and Consultant hereby agrees to render consulting services
("Services") to the Company for a two (2) year period commencing on the date
hereof and continuing until the date which is two (2) years from the date
hereof, subject, however, to prior termination as hereinafter provided in
Section 5.
2. Duties. Consultant's duties shall include, but are not limited to, those
duties set forth in Exhibit A hereto and such other duties as the Company may
from time to time prescribe.
3. Compensation. In consideration for his consulting services hereunder,
the Company shall pay to Consultant (i) a consulting fee at the annual rate of
$195,000, payable monthly in installments of $16,250 on or before the 15th day
of each month and (ii) a royalty equal to [***] of
LICENSED PRODUCTS sold by the Company and, in respect of sales of LICENSED
PRODUCTS by Company's sublicensees, royalties equal
[***] Confidential treatment requested.
<PAGE>
<PAGE>
to [***]. Only one payment shall be due to Consultant in respect of a sale of
LICENSED PRODUCT, regardless of who sells such product and how many patents
relate to such product. Company shall report the sales of LICENSED PRODUCTS and
receipt of royalties from sublicensees to Consultant, and shall pay Consultant
any payments due to Consultant in respect of sales of LICENSED PRODUCTS, at the
same time that Company reports the same and makes payment to J&J pursuant to the
KL4 Sublicense. All payments due to Consultant in respect of sales of LICENSED
PRODUCTS shall generally be subject to the arrangements set forth in the KL4
Sublicense as if Consultant was the LICENSOR thereunder.
4. Proprietary Information.
a. Consultant understands that the Company possesses Proprietary
Information which is important to its business. For purposes of this Agreement,
"Proprietary Information" is information that was developed, created, or
discovered by the Company, or which became known by, or was conveyed to the
Company (including, without limitation, "Results" as defined below), which has
commercial value in the Company's business. "Proprietary Information" includes,
but is not limited to, information about the Company's business operations and
research, programs, technologies, ideas, know-how, processes, formulas,
compositions, techniques, inventions (whether patentable or not), business and
product development plans, customers and other information concerning the
Company's actual or anticipated business, research or development, or which is
received in confidence by or for the Company from any other person. Proprietary
Information does not include information which Consultant demonstrates to the
Company's satisfaction, by written evidence, (i) is in the public domain by
reason of prior publication not directly or indirectly resulting from any act or
omission of Consultant, or (ii) was already known to Consultant at the time of
the Company's disclosure to Consultant and which Consultant was free to use and
disclose without restriction and without breach of any obligation to any person
or entity. Consultant understands that the consulting arrangement creates a
relationship of confidence and trust between Consultant and the Company with
regard to Proprietary Information.
b. Consultant understands that the Company possesses "Company
Materials" which are important to its business. For purposes of this Agreement,
"Company Materials" are documents or other media that contain Proprietary
Information or any other information concerning the business, operations or
plans of the Company, whether such documents have been prepared by Consultant or
by others. "Company Materials" include, but are not limited to, blueprints,
drawings, photographs, charts, graphs, notebooks, customer lists,
[***] Confidential treatment requested.
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<PAGE>
computer disks, tapes or printouts, sound recordings and other printed,
typewritten or handwritten documents.
c. All Proprietary Information and all patents, patent rights,
copyrights, trade secret rights and other rights in connection therewith shall
be the sole property of the Company. At all times, both during the term of this
Agreement and after its termination, Consultant will keep in confidence and
trust and will not use or disclose any Proprietary Information without the prior
written consent of an officer of the Company except as may be necessary in the
ordinary course of performing the Services under this Agreement. Consultant
acknowledges that any disclosure or unauthorized use of Proprietary Information
will constitute a material breach of this Agreement and cause substantial harm
to the Company for which damages would not be a fully adequate remedy, and,
therefore, in the event of any such breach, in addition to other available
remedies, the Company shall have the right to obtain injunctive relief.
d. All Company Materials shall be the sole property of the Company.
Consultant agrees that during the term of this Agreement, Consultant will not
remove any Company Materials from the business premises of the Company or
deliver any Company Materials to any person or entity outside the Company,
except as required to do in connection with performance of the Services under
this Agreement. Consultant further agrees that, immediately upon the Company's
request and in any event upon completion of the Services, Consultant shall
deliver to the Company all Company Materials (including, without limitation, all
Inventions covered by paragraphs 4.e.(i) and 4.e.(ii) below), apparatus,
equipment and other physical property or any reproduction of such property,
excepting only Consultant's copy of this Agreement.
e. For purposes of this Agreement, "Inventions" shall mean all
improvements, inventions, designs, formulas, works of authorship, computer
programs, ideas, processes, techniques, know-how and data, whether or not
patentable) made or conceived or reduced to practice or developed by Consultant,
either alone or jointly with others, as a direct result of services performed
under this Agreement. The parties agree that all Inventions shall be subject to
those certain Scripps Uniform Consulting Agreement Provisions, a copy of which
is attached hereto as Exhibit B (the "Uniform Provisions"). To the extent
permitted by the Uniform Provisions, or in the event that the Uniform Provisions
do not apply in relation to a particular Invention, Consultant agrees that:
(i) he will promptly disclose all such Inventions to the Company
and rights to all such Inventions which Consultant makes, conceives, reduces to
practice or develops (in whole or in part, either alone or jointly with others)
during the term of this Agreement in connection with the course of performing
the Services or which relate to any Proprietary Information shall be the sole
property of the Company. Consultant agrees to assign and hereby assigns to the
Company all rights to any such Inventions. The Company shall be the sole owner
of all patents, copyrights and other intellectual property or other rights in
connection therewith.
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(ii) Consultant agrees to perform, during and after the term of
this Agreement, all acts deemed necessary or desirable by the Company to permit
and assist it, in obtaining, maintaining, defending and enforcing patents,
copyrights, trade secret rights or other rights on such Inventions and
improvements in any and all countries. Such acts may include, but are not
limited to, execution of documents and assistance or cooperation in legal
proceedings. Consultant hereby irrevocably designates and appoints the Company
and its duly authorized officers and agents, as Consultant's agents and
attorneys-in-fact to act for and in behalf and instead of Consultant, to execute
and file any documents and to do all other lawfully permitted acts to further
the above purposes with the same legal force and effect as if executed by
Consultant.
f. Consultant represents that other than previously disclosed to the
Company, Consultant has no inventions or improvements relating to the KL4
Technology.
g. During the term of this Agreement and for one (l) year thereafter,
Consultant will not encourage or solicit any employee of the Company to leave
the Company for any reason.
h. Consultant agrees that during the term of this Agreement, Consultant
will not engage in any employment, business, or activity that is in any way
competitive with the business or proposed business of the Company, and
Consultant will not assist any other person or organization in competing with
the Company or in preparing to engage in competition with the business or
proposed business of the Company.
i. Consultant represents that performance of all the terms of this
Agreement will not breach any agreement to keep in confidence proprietary
information acquired by Consultant in confidence or in trust prior to the
execution of this Agreement. Consultant has not entered into, and Consultant
agrees not to enter into, any agreement either written or oral that conflicts or
might conflict with Consultant's performances of the Services under this
Agreement.
5. Termination. Consultant agrees that this Agreement may be terminated by
either the Company or Consultant at any time, for any reason, with or without
cause, by giving sixty (60) days written notice to the other party.
6. Independent Contractor Status. Consultant is an independent contractor
and is solely responsible for all taxes, withholdings, and other similar
statutory obligations, including, but not limited to, Workers' Compensation
Insurance; and Consultant agrees to defend, indemnify and hold Company harmless
from any and all claims made by any entity on account of an alleged failure by
Consultant to satisfy any such tax or withholding obligations.
7. No AuthoritY. Consultant has no authority to act on behalf of or to
enter into any contract, incur any liability or make any representation on
behalf of the Company.
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8. Obligations. Consultant's performance under this Agreement shall be
conducted with due diligence and in full compliance with the highest
professional standards of practice in the industry. Consultant shall comply with
all applicable laws and Company safety rules in the course of performing the
Services. If Consultant's work requires a license, Consultant has obtained that
license and the license is in full force and effect.
9. Indemnification. Consultant will indemnify and hold Company harmless,
and will defend Company against any and all loss, liability, damage, claims,
demands or suits and related costs and expenses to persons or property that
arise, directly or indirectly, from acts or omissions of Consultant, or breach
of any term or condition of this Agreement.
10. Survival. Consultant agrees that all obligations under paragraphs 4(c)
through 4(e) and paragraphs 4(g), 6 and 9 of this Agreement shall continue in
effect after termination of this Agreement, and that the Company is entitled to
communicate Consultant's obligations under this Agreement to any future client
or potential client of Consultant.
11. Governing Law. Consultant agrees that any dispute in the meaning,
effect or validity of this Agreement shall be resolved in accordance with the
laws of the State of New York without regard to the conflict of laws provisions
thereof. Consultant further agrees that if one or more provisions of this
Agreement are held to be unenforceable under applicable New York law, such
provision(s) shall be excluded from this Agreement and the balance of the
Agreement shall be interpreted as if such provision were so excluded and shall
be enforceable in accordance with its terms.
12. Successors and Assigns. This Agreement shall be binding upon
Consultant, and inure to the benefit of, the parties hereto and their respective
heirs, successors, assigns, and personal representatives; provided, however,
that it shall not be assignable by Consultant.
13. Entire Agreement. This Agreement contains the entire understanding of
the parties regarding its subject matter and can only be modified by a
subsequent written agreement executed by the President of the Company.
14. Notices. All notices required or given herewith shall be addressed to
the Company or Consultant at the designated addresses shown below by registered
mail, special delivery, or by certified courier service:
a. To Company:
Acute Therapeutics, Inc.
3359 Durham Road
Doylestown, PA 18901
Attention: Robert J. Capetola, Ph.D.
5
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b. To Consultant:
Dr. Charles Cochrane
7782 Ludington Place
La Jolla, CA 92037
15. Attorney Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements, in
addition to any other relief to which the party may be entitled.
CONSULTANT HAS READ THIS AGREEMENT CAREFULLY AND UNDERSTANDS AND ACCEPTS
THE OBLIGATIONS WHICH IT IMPOSES UPON CONSULTANT WITHOUT RESERVATION. NO
PROMISES OR REPRESENTATIONS HAVE BEEN MADE TO CONSULTANT TO INDUCE CONSULTANT TO
SIGN THIS AGREEMENT. CONSULTANT SIGNS THIS AGREEMENT VOLUNTARILY AND FREELY, IN
DUPLICATE, WITH THE UNDERSTANDING THAT ONE COUNTERPART WILL BE RETAINED BY THE
COMPANY AND THE OTHER COUNTERPART WILL BE RETAINED BY CONSULTANT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above.
ACUTE THERAPEUTICS, INC.
____________________________
By: Robert J. Capetola, Ph.D.
Title: President
CONSULTANT
____________________________
By: Charles Cochrane, M.D.
<PAGE>
<PAGE>
EXHIBIT A
DUTIES OF CONSULTANT
Consultant shall assist Acute Therapeutics, Inc. ("ATI") with executing ATI's
strategic vision of successfully developing and commercializing pulmonary
surfactants. Consultant shall serve as Chairman of the Scientific Advisory Board
of Acute Therapeutics, Inc. Consultant shall assist ATI with all matters
pertaining to ATI's development strategy, including, but not limited to,
assistance in IND's, preclinical research development, Board of Director
presentations, clinical site selection, principle investigation selection,
investigator meetings and other meetings that ATI might request.
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EXHIBIT B
SCRIPPS UNIFORM CONSULTING AGREEMENT PROVISIONS
8
EXHIBIT 10.16
CONSULTING SERVICES AGREEMENT
This Consulting Agreement (the "Agreement") is entered into the 9th day of
December, 1996 by and between Acute Therapeutics, Inc., a Delaware corporation
(the "Company") and Ms. Susan Revak (the "Consultant"). Any capitalized terms
used but not otherwise defined herein shall have the meanings set forth in the
KL4 Surfactant Sublicense, by and between Johnson & Johnson and the Company,
dated October 28, 1996 (the "KL4 Sublicense ") .
WHEREAS, Johnson & Johnson ("J&J") is the exclusive licensee of the Scripps
Clinic and Research Foundation ("Scripps"), with respect to certain technology
relating to the synthetic pulmonary surfactant known as KL4 (the "KL4
Technology");
WHEREAS, the Company has been established to obtain the exclusive license
to the KL4 Technology from J&J set forth in the KL4 Sublicense and to
commercialize the KL4 Technology;
WHEREAS, Consultant is affiliated with Scripps and has been engaged in
research and development regarding KL4 Surfactant for a number of years; and
WHEREAS, the Company desires to have the benefit of Consultant's knowledge
and experience and Consultant desires to provide consulting services to the
Company, all as hereinafter provided in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. Term of the Agreement. The Company hereby retains the services of
Consultant and Consultant hereby agrees to render consulting services
("Services") to the Company for a two (2) year period commencing on the date
hereof and continuing until the date which is two (2) years from the date
hereof, subject, however, to prior termination as hereinafter provided in
Section 5.
2. Duties. Consultant's duties shall include, but are not limited to, those
duties set forth in Exhibit A hereto and such other duties as the Company may
from time to time prescribe.
3. Compensation. In consideration for her consulting services hereunder,
the Company shall pay to Consultant (i) a consulting fee at the annual rate of
$80,000, payable monthly in installments of $6,666.67 on or before the 15th day
of each month and (ii) a royalty equal to [***] of LICENSED PRODUCTS sold by
the Company and, in respect of sales of LICENSED PRODUCTS by Company's
sublicensees, royalties equal
[***] Confidential treatment requested.
<PAGE>
<PAGE>
to [***]. Only one payment shall be due to Consultant in respect of a sale of a
LICENSED PRODUCT, regardless of who sells such product and how many patents
relate to such product. Company shall report the sales of LICENSED PRODUCTS and
receipt of royalties from sublicensees to Consultant, and shall pay Consultant
any payments due to Consultant in respect of sales of LICENSED PRODUCTS, at the
same time that Company reports the same and makes payment to J&J pursuant to the
KL4 Sublicense. All payments due to Consultant in respect of sales of LICENSED
PRODUCTS shall generally be subject to the arrangements set forth in the KL4
Sublicense as if Consultant was the LICENSOR thereunder.
4. Proprietary Information.
a. Consultant understands that the Company possesses Proprietary
Information which is important to its business. For purposes of this Agreement,
"Proprietary Information" is information that was developed, created, or
discovered by the Company, or which became known by, or was conveyed to the
Company (including, without limitation, "Results" as defined below), which has
commercial value in the Company's business. "Proprietary Information" includes,
but is not limited to, information about the Company's business operations and
research, programs, technologies, ideas, know-how, processes, formulas,
compositions, techniques, inventions (whether patentable or not), business and
product development plans, customers and other information concerning the
Company's actual or anticipated business, research or development, or which is
received in confidence by or for the Company from any other person. Proprietary
Information does not include information which Consultant demonstrates to the
Company's satisfaction, by written evidence, (i) is in the public domain by
reason of prior publication not directly or indirectly resulting from any act or
omission of Consultant, or (ii) was already known to Consultant at the time of
the Company's disclosure to Consultant and which Consultant was free to use and
disclose without restriction and without breach of any obligation to any person
or entity. Consultant understands that the consulting arrangement creates a
relationship of confidence and trust between Consultant and the Company with
regard to Proprietary Information.
b. Consultant understands that the Company possesses "Company
Materials" which are important to its business. For purposes of this Agreement,
"Company Materials" are documents or other media that contain Proprietary
Information or any other information concerning the business, operations or
plans of the Company, whether such documents have been prepared by Consultant or
by others. "Company Materials" include, but are not limited to, blueprints,
drawings, photographs, charts, graphs, notebooks, customer lists,
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computer disks, tapes or printouts, sound recordings and other printed,
typewritten or handwritten documents.
c. All Proprietary Information and all patents, patent rights,
copyrights, trade secret rights and other rights in connection therewith shall
be the sole property of the Company. At all times, both during the term of this
Agreement and after its termination, Consultant will keep in confidence and
trust and will not use or disclose any Proprietary Information without the prior
written consent of an officer of the Company except as may be necessary in the
ordinary course of performing the Services under this Agreement. Consultant
acknowledges that any disclosure or unauthorized use of Proprietary Information
will constitute a material breach of this Agreement and cause substantial harm
to the Company for which damages would not be a fully adequate remedy, and,
therefore, in the event of any such breach, in addition to other available
remedies, the Company shall have the right to obtain injunctive relief.
d. All Company Materials shall be the sole property of the Company.
Consultant agrees that during the term of this Agreement, Consultant will not
remove any Company Materials from the business premises of the Company or
deliver any Company Materials to any person or entity outside the Company,
except as required to do in connection with performance of the Services under
this Agreement. Consultant further agrees that, immediately upon the Company's
request and in any event upon completion of the Services, Consultant shall
deliver to the Company all Company Materials (including, without limitation, all
Inventions covered by paragraphs 4.e.(i) and 4.e.(ii) below), apparatus,
equipment and other physical property or any reproduction of such property,
excepting only Consultant's copy of this Agreement.
e. For purposes of this Agreement, "Inventions" shall mean all
improvements, inventions, designs, formulas, works of authorship, computer
programs, ideas, processes, techniques, know-how and data, whether or not
patentable) made or conceived or reduced to practice or developed by Consultant,
either alone or jointly with others, as a direct result of services performed
under this Agreement. The parties agree that all Inventions shall be subject to
those certain Scripps Uniform Consulting Agreement Provisions, a copy of which
is attached hereto as Exhibit B (the "Uniform Provisions"). To the extent
permitted by the Uniform Provisions, or in the event that the Uniform Provisions
do not apply in relation to a particular Invention, Consultant agrees that:
(i) he will promptly disclose all such Inventions to the Company
and rights to all such Inventions which Consultant makes, conceives, reduces to
practice or develops (in whole or in part, either alone or jointly with others)
during the term of this Agreement in connection with the course of performing
the Services or which relate to any Proprietary Information shall be the sole
property of the Company. Consultant agrees to assign and hereby assigns to the
Company all rights to any such Inventions. The Company shall be the sole owner
of all patents, copyrights and other intellectual property or other rights in
connection therewith.
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(ii) Consultant agrees to perform, during and after the term of
this Agreement, all acts deemed necessary or desirable by the Company to permit
and assist it, in obtaining, maintaining, defending and enforcing patents,
copyrights, trade secret rights or other rights on such Inventions and
improvements in any and all countries. Such acts may include, but are not
limited to, execution of documents and assistance or cooperation in legal
proceedings. Consultant hereby irrevocably designates and appoints the Company
and its duly authorized officers and agents, as Consultant's agents and
attorneys-in-fact to act for and in behalf and instead of Consultant, to execute
and file any documents and to do all other lawfully permitted acts to further
the above purposes with the same legal force and effect as if executed by
Consultant.
f. Consultant represents that other than previously disclosed to the
Company, Consultant has no inventions or improvements relating to the KL4
Technology.
g. During the term of this Agreement and for one (l) year thereafter,
Consultant will not encourage or solicit any employee of the Company to leave
the Company for any reason.
h. Consultant agrees that during the term of this Agreement, Consultant
will not engage in any employment, business, or activity that is in any way
competitive with the business or proposed business of the Company, and
Consultant will not assist any other person or organization in competing with
the Company or in preparing to engage in competition with the business or
proposed business of the Company.
i. Consultant represents that performance of all the terms of this
Agreement will not breach any agreement to keep in confidence proprietary
information acquired by Consultant in confidence or in trust prior to the
execution of this Agreement. Consultant has not entered into, and Consultant
agrees not to enter into, any agreement either written or oral that conflicts or
might conflict with Consultant's performances of the Services under this
Agreement.
5. Termination. Consultant agrees that this Agreement may be terminated by
either the Company or Consultant at any time, for any reason, with or without
cause, by giving sixty (60) days written notice to the other party.
6. Independent Contractor Status. Consultant is an independent contractor
and is solely responsible for all taxes, withholdings, and other similar
statutory obligations, including, but not limited to, Workers' Compensation
Insurance; and Consultant agrees to defend, indemnify and hold Company harmless
from any and all claims made by any entity on account of an alleged failure by
Consultant to satisfy any such tax or withholding obligations.
7. No Authority. Consultant has no authority to act on behalf of or to
enter into any contract, incur any liability or make any representation on
behalf of the Company.
4
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8. Obligations. Consultant's performance under this Agreement shall be
conducted with due diligence and in full compliance with the highest
professional standards of practice in the industry. Consultant shall comply with
all applicable laws and Company safety rules in the course of performing the
Services. If Consultant's work requires a license, Consultant has obtained that
license and the license is in full force and effect.
9. Indemnification. Consultant will indemnify and hold Company harmless,
and will defend Company against any and all loss, liability, damage, claims,
demands or suits and related costs and expenses to persons or property that
arise, directly or indirectly, from acts or omissions of Consultant, or breach
of any term or condition of this Agreement.
10. Survival. Consultant agrees that all obligations under paragraphs 4(c)
through 4(e) and paragraphs 4(g), 6 and 9 of this Agreement shall continue in
effect after termination of this Agreement, and that the Company is entitled to
communicate Consultant's obligations under this Agreement to any future client
or potential client of Consultant.
11. Governing Law. Consultant agrees that any dispute in the meaning,
effect or validity of this Agreement shall be resolved in accordance with the
laws of the State of New York without regard to the conflict of laws provisions
thereof. Consultant further agrees that if one or more provisions of this
Agreement are held to be unenforceable under applicable New York law, such
provision(s) shall be excluded from this Agreement and the balance of the
Agreement shall be interpreted as if such provision were so excluded and shall
be enforceable in accordance with its terms.
12. Successors and Assigns. This Agreement shall be binding upon
Consultant, and inure to the benefit of, the parties hereto and their respective
heirs, successors, assigns, and personal representatives; provided, however,
that it shall not be assignable by Consultant.
13. Entire Agreement. This Agreement contains the entire understanding of
the parties regarding its subject matter and can only be modified by a
subsequent written agreement executed by the President of the Company.
14. Notices. All notices required or given herewith shall be addressed to
the Company or Consultant at the designated addresses shown below by registered
mail, special delivery, or by certified courier service:
a. To Company:
Acute Therapeutics, Inc.
3359 Durham Road
Doylestown, PA 18901
Attention: Robert J. Capetola
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b. To Consultant:
Ms. Susan Revak
6561 Cascade St.
San Diego, CA 92122
15. Attorney Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements, in
addition to any other relief to which the party may be entitled.
CONSULTANT HAS READ THIS AGREEMENT CAREFULLY AND UNDERSTANDS AND ACCEPTS
THE OBLIGATIONS WHICH IT IMPOSES UPON CONSULTANT WITHOUT RESERVATION. NO
PROMISES OR REPRESENTATIONS HAVE BEEN MADE TO CONSULTANT TO INDUCE CONSULTANT TO
SIGN THIS AGREEMENT. CONSULTANT SIGNS THIS AGREEMENT VOLUNTARILY AND FREELY, IN
DUPLICATE, WITH THE UNDERSTANDING THAT ONE COUNTERPART WILL BE RETAINED BY THE
COMPANY AND THE OTHER COUNTERPART WILL BE RETAINED BY CONSULTANT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above.
ACUTE THERAPEUTICS, INC.
________________________________
By: Robert J. Capetola
Title: President/CEO
CONSULTANT
________________________________
By: Susan Revak
<PAGE>
<PAGE>
EXHIBIT A
DUTIES OF CONSULTANT
Consultant shall assist Acute Therapeutics, Inc. ("ATI") with executing ATI's
strategic plan of successfully commercializing pulmonary surfactants. Consultant
generally will take guidance from Dr. Charles G. Cochrane.
7
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EXHIBIT B
Scripps Uniform Consulting Agreement Provisions
8
November 7, 1996
Discovery Laboratories, Inc.
375 Park Avenue, Suite 1501
New York, N.Y. 10152
Dear Sirs:
1. This is to confirm our understanding that Paramount Capital, Inc.
("Paramount") has been engaged as financial advisor of Discovery Laboratories,
Inc. (the "Company") for an initial period of twenty-four (24) months commencing
on the date hereof (as extended pursuant to Paragraph 10 hereto, or by mutual
agreement of the parties hereto, the "Term").
2. The Company will pay Paramount a non-refundable retainer fee for
Paramount's services hereunder of $4,000 per month for twenty-four (24) months,
which such non-refundable retainer fee shall be payable in full in the amount of
$96,000 as of the date hereof.
The Company also agrees to pay in cash all reasonable out-of-pocket
expenses incurred by Paramount in providing its services hereunder, including
fees and disbursements of Paramount's counsel, such expenses to be paid upon
submission of a bill or bills by Paramount from time to time. However, any
single expense over $500 for any month will require the prior written approval
of the Company. Fees and expenses of consultants or experts shall not be
included unless approved by the Company.
3. Upon the Closing of each Investment (as defined below) during the
Term or during the twelve-month period following the expiration or earlier
termination of the Term, the Company shall pay to Paramount a fee in an amount
equal to 9% of the aggregate value of such Investment and shall issue to
Paramount warrants to purchase an amount of securities equal to 10% of the
securities sold as part of such Investment at an exercise price of 110% of the
price of such securities, exercisable until five years from the date of issuance
of such warrants. For the purposes of this Agreement, an Investment shall be any
purchase of securities of the Company which is made during the Term or during
the twelve-month period following the expiration of the Term by an investor
first introduced to the Company by or through Paramount during or prior to the
Term.
4. (a) If the Company enters into an agreement with a party first
introduced to the Company by or through Paramount during or prior to the Term
pursuant to which the Company consummates a sale, merger, consolidation, tender
offer, business combination or similar transaction involving a majority of the
business assets or stock of the Company in which the Company is not the
surviving entity (a "Sale") during the Term, or during the twelve-month
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period following the expiration of such Term, then the Company shall pay
Paramount a fee equal to 7% of the aggregate consideration paid to the Company
by the acquiror, such fee to be payable in cash simultaneously with the closing
of such Sale. With the exception of Acquiror Future Payments in which case such
fees are to be payable at such time, and only if, the Company receives such
Acquiror Future Payments.
(b) If the Company enters into an agreement with a party first
introduced to the Company by or through Paramount during or prior to the Term
pursuant to which the Company consummates a transaction wherein the Company
acquires all or substantially all of the business assets or stock of another
entity in which the Company is the surviving entity (an "Acquisition") during
the Term, or during the twelve-month period following the expiration of such
Term, then the Company shall pay Paramount a fee equal to 7% of the aggregate
consideration paid by the Company to the entity acquired, such fee to be payable
in cash simultaneously with the closing of such Acquisition. With the exception
of Acquiror Future Payments in which case such fees are to be payable at such
time, and only if, the Company receives such Acquiror Future Payments.
(c) For purposes of calculating Paramount's fee under this Paragraph
4, the aggregate consideration paid with respect to the business, assets or
stock of the Company shall be equal to the total of all cash, securities and/or
other assets paid for such business, assets or stock by the acquiror. Aggregate
consideration shall also include: (a) any commercial bank or similar
indebtedness of the Company that is repaid or for which the responsibility to
pay is assumed by the acquiror in connection with such transaction, (b) the
greater of the stated value or the liquidation value of preferred stock of the
Company that is assumed or acquired by the acquiror that is not converted into
common stock upon the consummation of such transaction, and (c) future payments
for which the acquiror is obligated either absolutely or upon the attainment of
milestone or financial results ("Acquiror Future Payments"). In the event a Sale
of the Company or an Acquisition by the Company is consummated through a
multiple-step transaction wherein the acquiror is not obligated either
absolutely or upon the attainment of milestones or financial results to make
future payments to further increase the acquiror's ownership in the Company (the
"Multiple-Step Payments"), the Company agrees to pay Paramount a fee on such
Multiple-Step Payments, and such fee shall be calculated pursuant to this
Paragraph 4. Such fee shall be payable when such Multiple-Step Payments are made
and shall be in addition to the fee paid to Paramount in the first step of such
transaction.
5. If the Company enters into an agreement with a party first
introduced to the Company by or through Paramount during or prior to the Term
pursuant to which the Company consummates a Strategic Alliance(s) (as defined
below) during the Term, or during the twelve-month period following the
expiration of such Term, then the Company shall pay Paramount a fee equal to 6%
of the present value of the Aggregate Consideration (as defined below) to be
received by the Company, its shareholders or employees in each such transaction;
such fee to be payable in cash simultaneously with the closing of each such
transaction. With the exception of payments received by the Company after
closing of such transaction as in Paragraphs 5(c) and
2
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<PAGE>
5(d) below, in which case such fees are to be payable at such time, and only if,
the Company receives such payments. For the purpose of calculating Paramount's
fee under this Paragraph 5, Aggregate Consideration shall include, but not be
limited to: (a) all payments made at closing for equity securities, equity
security rights or similar rights, (b) technology access fees or similar upfront
payments, (c) other future payments, including, without limitation, licensing
fees, royalties and deferred technology access fees, to be made to the Company
or its employees for which the Strategic Alliance partner(s) or other counter
party (each a "Partner") is obligated either absolutely, upon the attainment of
milestones or on a percentage or royalty basis, (d) funding provided, arranged
or introduced by the Partner (through reimbursement or otherwise) relative to
research and development, testing, clinical trials and related expenditures,
whether such work is performed, subcontracted or managed by the Company or the
Partner and (e) the repayment or assumption by the Partner of obligations of the
Company, including indebtness for money borrowed or amounts owed by the Company
to inventors or owners of technology. It is further understood that Aggregate
Consideration shall not be reduced by the amount of the fee due Paramount
hereunder. A "Strategic Alliance" may include, but is not limited to: (a) joint
venture, partnership, license or other contract for the research, development,
manufacturing, marketing, distribution, sale or other activity relating to the
Company's present and/or future products; (b) the purchase of, or commitment to
purchase from the Company, less than a majority of the business, assets or stock
of the Company by a Partner(s); (c) the sale of any of the Company's assets or
rights in respect to its products and/or technology; and (d) a commitment to
provide funding for all or part of the Company's research and development
activities, whether such work is performed or managed by the Company or Partner.
For the purposes of calculating Paramount's fee, securities
constituting part of Aggregate Consideration that are traded on a national
securities exchange or the Nasdaq National Market System shall be valued at the
last closing price thereof prior to the date of the consummation or closing of
any such transaction. Such securities which are traded over-the-counter shall be
valued at the mean between the latest bid and asked prices prior to date.
6. If Paramount introduces the Company to a potential product,
process or technology which is subsequently licensed or otherwise acquired by
the Company, the Company and Paramount shall negotiate in good-faith a fee for
such introduction provided in no event shall be such fee less than $120,000.
7. In the event that the Company, its directors or management
initiate any discussions with a third party in furtherance of any Sale,
Acquisition, Investment or Strategic Alliance or receive any meaningful inquiry
or are aware of the interest if any third party concerning a Sale, Acquisition,
Investment or Strategic Alliance which is the subject of this Agreement, they
will promptly inform Paramount of the party and its interest and, subject to
Paragraph 8, if applicable, Paramount will undertake to provide its services
contemplated hereunder.
8. Any financial advice rendered by Paramount pursuant to this
Agreement
3
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<PAGE>
(and the existence of this Agreement) may not be disclosed publicly in any
manner without Paramount's prior written approval and will be treated by the
Company as confidential. The Company will provide Paramount with all financial
and other information requested by Paramount for the purposes of rendering its
services pursuant to this Agreement.
9. All non-public information given to Paramount by the Company will
be treated by Paramount as confidential. In this regard, Paramount agrees to
enter into such confidentiality agreements which may be reasonably requested by
the Company. Paramount may rely, without independent verification, on the
accuracy and completeness of any information furnished to Paramount by the
Company.
10. In the event that Paramount becomes involved in any capacity in
any action, proceeding, investigation or inquiry in connection with any matter
referred to in this Agreement or arising out of the matters contemplated by this
Agreement, the Company will reimburse Paramount for its legal and other expenses
(including the cost of any investigation and preparation) as they are incurred
by Paramount in connection therewith. The Company also agrees to indemnify each
of Paramount, the directors, officers, employees and agents thereof (the
"Indemnitees"), pay on demand and protect, defend, save and hold each Indemnitee
harmless from and against, on an after-tax basis, any and all liabilities,
damages, losses, settlements, claims, actions, suits, penalties, fines, costs or
expenses (including, without limitation, reasonable attorneys' fees)(any of the
foregoing, a "Claim") incurred by or asserted against any Indemnitee of whatever
kind or nature, arising from, in connection with or occurring as a result of
this Agreement or the matters contemplated by this Agreement, unless it shall be
finally judicially determined that such losses, claims, damages or liabilities
arise solely out of the gross negligence or willful misfeasance of Paramount in
performing the services which are the subject of this Agreement. The foregoing
agreement shall be in addition to any rights that any Indemnitees may have at
common law or otherwise.
11. The Term of this Agreement shall be renewed for consecutive six
month periods upon the execution of a written agreement by both parties to
extend such Term and may be terminated by Paramount Capital, Inc. at any time
with or without notice; provided, however, regardless of any termination, the
right to reimbursement of all expenses incurred by Paramount contained in
Paragraph 2, the rights to compensation contained in Paragraphs 3, 4 and 5 and
to indemnity and reimbursement contained in Paragraph 10 shall survive.
12. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to principles of conflicts
of law.
13. This Agreement shall be binding upon Paramount and the Company
and the successors and assigns thereof. The Company shall not assign or sell all
or substantially all of the Company's business and/or assets without first
requiring in writing that such assignee or successor is bound by the provisions
of this Agreement.
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Please confirm that the foregoing is in accordance with your
understanding by signing and returning to us the enclosed duplicate of this
letter.
Sincerely yours,
PARAMOUNT CAPITAL, INC.
By:_____________________________
Name: Lindsay A. Rosenwald, M.D.
Title: Chairman
Confirmed as of the date hereof:
DISCOVERY LABORATORIES, INC.
By: /s/ James S. Kuo, M.D.
------------------------
Name: James S. Kuo, M.D.
Title: President
5
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Please confirm that the foregoing is in accordance with your
understanding by signing and returning to us the enclosed duplicate of this
letter.
Sincerely yours,
PARAMOUNT CAPITAL, INC.
By: /s/ Lindsay A. Rosenwald
------------------------
Name: Lindsay A. Rosenwald, M.D.
Title: Chairman
Confirmed as of the date hereof:
DISCOVERY LABORATORIES, INC.
By: _____________________________
Name: James S. Kuo, M.D.
Title: President
5
EXHIBIT 10.21
[Letterhead of Cook Imaging]
TO: David Crockford
Discovery Laboratories
787 7th Avenue, 44th Floor
New York, New York 10019
FROM: Joanne W. Daly, Project Coordinator
DATE: January 29, 1997
Product
Description - o Tyloxapol is a detergent used to reduce the viscosity of
bronchopulmonary secretions. It's trade name is SuperVent(R)
Aerosol Solution.
Timing - o Formulate enough product to fill [***] vials for each of the
following concentrations: [***]. The first [***]
concentrations will be formulated on [***] and filled on
[***]. The remaining [***] concentrations will be formulated
on [***] and filled on [***]. NOTE: [***] vials will be
manufactured provided CIC can fill this on their
semi-automated line. If a hand fill is required, [***] vials
will be made.
Storage - o Store the bulk drug substance and finished product at
controlled room temperature.
Special
Issues - o .[***] o NOTE: The finished product will be stored for 60
days free of charge from date of COOK release, after which
CLIENT will accrue a storage fee of [***].
Discovery Labs approval: /s/ [illegible] Date: 1/30/97
--------------------------- ------------
Cook Imaging approval: /s/ Jerry Arthur Date: 1/29/97
--------------------------- ------------
[***] Confidential treatment requested.
<PAGE>
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Page 2 of 5
Raw materials -
1. Tyloxapol (supplied by CLIENT)
[***]
NOTE: COOK will store any remaining bulk drug substance for 30 days after the
fill date (unless another run is scheduled) at which time all the inventory will
be sent back to CLIENT, F.O.B. Bloomington.
Components (supplied by CIC) -
[***]
Development -
[***]
Formulation -
1. One (1) GMP batch will be made consecutively for each of the following
strengths:
[***].
Filtration -
[***]
Discovery Labs approval: /s/ [illegible] Date: 1/30/97
--------------------------- ------------
Cook Imaging approval: /s/ Jerry Arthur Date: 1/29/97
--------------------------- ------------
[***] Confidential treatment requested.
<PAGE>
<PAGE>
Page 3 of 5
Filling -
[***]
Chemistry (NOTE: All final release testing for the [***] strengths will occur
simultaneously)-
[***]
5. Retain samples will be stored for a period of four years past the date of
manufacture if no expiration date is provided. At the end of the four years,
the samples will be destroyed.
Microbiology -
[***]
Discovery Labs approval: /s/ [illegible] Date: 1/30/97
--------------------------- ------------
Cook Imaging approval: /s/ Jerry Arthur Date: 1/29/97
--------------------------- ------------
[***] Confidential treatment requested.
<PAGE>
<PAGE>
Page 4 of 5
Inspection - o Product will be 100% visually inspected per CIC procedures.
o Any rejects will be returned to DL.
Labeling - o CIC to provide computer generated labeling for box and case.
DL to label containers.
Packaging - o Per CLIENT's request, CIC will package 10 vials box. o
Entire batch will be packaged and shipped to DL or DL's
designate. CIC will not sublot and package.
Shipping - o Shipments are F.O.B. Bloomington.
Disposal - o Disposal of product and process waste will be performed by
CIC.
o Any disposal costs incurred by CIC will be charged back to
Client plus 10% for CIC handling.
Documentation provided by CIC -
1. Master batch record for review and approval by CIC and Client.
2. Product specific validation summaries.
3. Executed batch records.
4. Access to CIC DMF
Required from DL -
NOTE: Failure to supply the following will result in a delay of the first
scheduled run and a cost increase.
[***]
Discovery Labs approval: /s/ [illegible] Date: 1/30/97
--------------------------- ------------
Cook Imaging approval: /s/ Jerry Arthur Date: 1/29/97
--------------------------- ------------
[***] Confidential treatment requested.
<PAGE>
<PAGE>
Page 5 of 5
Project price to include
[***] *Will be shipped F.O.B. Bloomington to DL upon completion of project.
Discovery Labs approval: /s/ [illegible] Date: 1/30/97
--------------------------- ------------
Cook Imaging approval: /s/ Jerry Arthur Date: 1/29/97
--------------------------- ------------
[***] Confidential treatment requested.
(Logo of COOK IMAGING appears here)
A COOK GROUP COMPANY
927 SOUTH CURRY PIKE P.O. BOX 3068 BLOOMINGTON, INDIANA 47402 U.S.A.
PHONE: 812-333-0887 TELEFAX 812-332-3079
Clinical Product Development Agreement
THIS AGREEMENT is effective as of the 3rd day of January, 1997.
BY AND BETWEEN:
ACUTE THERAPEUTICS, INC., a corporation organized and existing under the laws
of Pennsylvania, with its principal offices located at 3359 Durham Road,
Doylestown, PA 18901 (hereinafter referred to as "CLIENT")
AND:
COOK IMAGING CORPORATION, a corporation organized under the laws of Indiana,
with its principal place of business located at 927 South Curry Pike in
Bloomington, Indiana 47402 (hereinafter referred to as "COOK");
WHEREAS CLIENT is the owner of patents, trademarks, formulations and know-how
related to the pharmaceutical product KL4 Pulmonary Lung Surfactant
(hereinafter referred to as the "Drug Product");
WHEREAS COOK has the expertise and the manufacturing facility suitable for
the pharmaceutical preparation and production of the Drug Product;
WHEREAS, CLIENT wishes to have COOK manufacture the Drug Product and COOK
wishes to supply the Drug Product to CLIENT;
NOW, THEREFORE, in consideration of the premises and the undertakings, terms,
conditions and covenants set forth below, the parties hereto agree as follows:
DEFINITIONS
1.1 DRUG PRODUCT shall mean the pharmaceutical product "KL4 Pulmonary
Lung Surfactant" as described in the Manual in finished dosage form for
clinical use.
1.2 SPECIFICATIONS shall mean those specifications set forth in Attachment
I to the Manual.
Cook Imaging Corporation Development Agreement - 129; 1/18/97 - 02
l
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1.3 DEVELOPMENT shall mean all work necessary to develop a process to
manufacture the Drug Product in full accord with cGMP and to supply the Drug
Product conforming to the Specifications set forth in Attachment I to the
Manual. Development activities shall include, but not be limited to, research,
pilot batches, scale-up batches, qualification of Cook Quality Control
Laboratories, validation of the manufacturing process, and successful
completion of the Drug Product manufacture and delivery as defined in Schedule
I attached hereto.
1.4 LABELING shall mean all labels and other written, printed, or
graphic matter upon: (i) the Drug Product or any container or wrapper utilized
with the Drug Product or (ii) any written material accompanying the Drug
Product, including without limitation, package inserts.
1.5 IND shall mean an Investigational New Drug Exemption Application
for the Drug Product, as defined in the United States Food and Drug
Administration (FDA) rules and regulations, 21 CFR.
1.6 DMF shall mean Drug Master File, as defined in the FDA rules and
regulations.
1.7 cGMP shall mean current Good Manufacturing Practices as
defined in the FDA rules and regulations, 21 CFR Part 211.
1.8 MANUAL shall mean the Manufacturing Project Manual attached hereto
as Schedule II to this Agreement and reviewed and accepted by CLIENT and COOK,
the terms and provisions of which are incorporated by reference as though fully
set forth herein.
1.9 BULK DRUG SUBSTANCE shall mean the [***] used as the raw material
in the Drug Product.
1.10 STOCK RECOVERY shall mean the removal or correction of a product
that has not been marketed or that has not left the direct control of the
CLIENT, i.e., the product is located on premises owned by, or under the control
of, the firm and no portion of the lot has been released for sale or use.
DEVELOPMENT PROVISIONS
2.1 INITIATION: Upon execution of this Agreement, COOK shall proceed
with the schedule for Development of the Drug Product as set forth in Schedule
I appended hereto.
2.2 DOCUMENTATION: COOK shall provide CLIENT with required supporting
documentation for the Development for the Drug Product in a form suitable for
CLIENT's submission to the FDA.
2.3 BULK DRUG SUBSTANCE SUPPLY: CLIENT, at its sole cost and expense
(including, without limitation, shipping costs), shall supply to COOK, in a
timely manner, all Bulk Drug Substance required to satisfy the terms of this
Agreement.
2.4 SUPPLY OF COMPONENTS: COOK shall be responsible for the supply of
materials (except Bulk Drug Substance) necessary for the Development of the
Drug Product. [***]
2.5 DELIVERY TERMS: COOK shall ship all Drug Product to CLIENT
or to CLIENT's designated consignee, after satisfaction of the conditions in
Paragraph 4.1 hereto. All shipments shall be F.O.B.
Cook Imaging Corporation Development Agreement - 129; 1/8/97 - 02
[***] Confidential treatment requested.
2
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<PAGE>
Bloomington, Indiana. CLIENT shall, within fifteen (15) working days after its
receipt of any shipment, notify COOK in writing, of any claim relating to
non-conforming Drug Product and, failing such notification, notwithstanding
Paragraph 5.1 of this Agreement, CLIENT shall be deemed to have accepted the
Drug Product, holding COOK free and harmless therefrom.
2.6 PAYMENT FOR THE DRUG PRODUCT AND DEVELOPMENT: at the time of each
shipment, COOK shall invoice CLIENT for CLIENT's purchase of the Drug Product
and Development costs, as set forth in Schedule I. Upon execution of this
Agreement, CLIENT shall pay COOK the amount of [***]. The foregoing amount
shall be applied to the first invoice pursuant to the terms and conditions set
forth in Schedule I. Payment not received within thirty (30) days for any
invoice shall bear interest at one and one-half percent (1.5%) per month.
TERM AND TERMINATION
3.1 TERM: This Agreement shall commence on the date first above
written and will continue until the Development, as described in Schedule I,
has been completed, but not more than [***], unless sooner terminated pursuant
to Paragraph 3.2 herein (the "Term").
3.2 TERMINATION: This Agreement may be terminated at any time
upon the occurrence of any of the following events:
(a) Default: Forty-five (45) days written notice, by either party to the other
party, in the event that the other party breaches any provision of this
Agreement, and such party fails to remedy the breach prior to the expiration of
the forty-five (45) day period.
(b) Insolvency: Written notice by either party to the other upon insolvency or
bankruptcy of the other party, and the failure of any such insolvency or
bankruptcy to be dismissed within sixty (60) days.
(c) If, as a result of causes described in Paragraph 7.1, either party is
unable to fully perform its obligations hereunder for a period of sixty (60)
consecutive days, the other party shall have the right to terminate this
Agreement upon at least thirty (30) days prior written notice.
Termination, expiration, cancellation or abandonment of this Agreement, through
any means and for any reason, shall not relieve the parties of any obligation
accruing prior thereto and shall be without the prejudice to the rights and
remedies of either party with respect to any antecedent breach of any of the
provisions of this Agreement or CLIENT's purchase order issued hereunder.
3.3 PAYMENT ON TERMINATION: In the event of the termination or
cancellation of this Agreement, CLIENT shall reimburse COOK for all raw
materials and components, that are unique to this project, ordered prior to
termination and not cancelable at no cost to COOK. CLIENT shall pay prices as
described in Schedule I for (a) all work-in-process commenced by COOK and (b)
all finished goods of COOK. CLIENT shall be responsible for any other expenses
or losses incurred by COOK because of the termination. COOK shall ship such
materials to CLIENT at CLIENT's cost and per CLIENT's instructions. CLIENT
shall make payment for all expenses described in Paragraph 3.3 net thirty (30)
days from the invoice date.
3.4 Survival: Sections headed Warranties, Drug Product Recalls,
Confidentiality, and Indemnification shall survive the termination or
cancellation of this Agreement for any reason.
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CERTIFICATES OF ANALYSIS AND MANUFACTURING COMPLIANCE
4.1 CERTIFICATES OF ANALYSIS: COOK shall test, or cause to be tested,
in accordance with the Specifications, each batch of the Drug Product
manufactured pursuant to this Agreement before delivery to CLIENT. A
certificate of analysis for each batch delivered shall set forth the items
tested, specifications, and test results. COOK shall also indicate on the
certificate of analysis that all batch production and control records have been
reviewed and approved by the appropriate quality control unit. COOK shall send,
or cause to be sent, such certificates to CLIENT prior to the shipment of the
Drug Product. CLIENT shall test, or cause to be tested, for final release, each
batch of the Drug Product as meeting the Specifications. As required by the FDA
(see Paragraph 5.2 below), CLIENT shall assume full responsibility for final
release of each lot of the Drug Product.
4.2 MANUFACTURING COMPLIANCE: COOK shall advise CLIENT immediately if
an authorized agent of any regulatory body visits COOK's manufacturing facility
and makes an inquiry regarding COOK's method of manufacture of the Drug Product
for CLIENT.
WARRANTIES
5.1 CONFORMITY WITH SPECIFICATIONS: COOK warrants that, at the time of
manufacture, the Drug Product is prepared and tested in accordance with the
Specifications, including cGMP. If the drug product does not meet
specifications, and the reason being solely due to COOK's performance, then
CLIENT will not be billed for the batch. Because of individual biological
differences, no product is 100% effective under all circumstances. In addition,
because COOK has no control of the conditions under which the Drug Product is
used, the diagnosis of the patient before or after treatment with the Drug
Product, the method of use or administration of the Drug Product, and handling
of the Drug Product after it leaves COOK's possession, COOK does not warrant
either a good effect, or against an ill effect, following the use of the Drug
Product. The foregoing warranty is exclusive and in lieu of all other
warranties either written, oral, or implied. THERE ARE NO WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. No representative of COOK
may change any of the foregoing warranties and CLIENT accepts the Drug Product
subject to all terms hereof.
5.2 COMPLIANCE: Client assumes responsibility for all contact
with the FDA and other regulatory bodies, pertaining specifically to Drug
Product.
DRUG PRODUCT STOCK RECOVERY
6.1 DRUG PRODUCT STOCK RECOVERY: In the event CLIENT reasonably
determines that the Drug Product should be recovered because the Drug Product
does not conform to Specifications, the parties shall take all appropriate
corrective actions. In no event, however, shall COOK have responsibility for
regulatory compliance in connection with any recovery, except to the extent and
under the circumstances set forth in the Manual or as required by law. All
costs and expenses incurred in connection with such recovery shall be the
responsibility of CLIENT unless caused solely by the negligence of COOK. In no
event shall COOK have any liability for consequential damages incurred by
CLIENT which arise out of, or in connection with, any Drug Product recovery.
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FORCE MAJEURE; FAILURE TO SUPPLY
7.1 FORCE MAJEURE EVENTS: failure of either party to perform under
this agreement (except the obligation to make payments) shall not subject such
party to any liability to the other if such failure is caused by acts such as,
but not limited to, acts of God, fire, explosion, flood, drought, war, riot,
sabotage, embargo, strikes or other labor trouble, compliance with any order or
regulation of any government entity, or by any cause beyond the reasonable
control of the parties, whether or not foreseeable, provided that written
notice of such event is promptly given to the other party.
7.2 FAILURE TO SUPPLY: If COOK fails to supply all or any material
part of the Drug Product ordered by CLIENT, CLIENT may require COOK to
supply the undelivered Drug Product or a lesser quantity at a future date
agreed upon by CLIENT. The provisions of this Paragraph 7.2 shall be without
prejudice to CLIENT's rights under paragraph 3.2 and remedies provided for
thereunder.
IMPROVEMENTS
8.1 CHANGES BY CLIENT: If CLIENT requests a change to the Drug Product
Specifications and COOK agrees that such change is feasible with regard to the
manufacture of the Drug Product, such change shall be incorporated within the
Specifications pursuant to a written amendment to this Agreement. The price of
the Drug Product shall be adjusted for such change, and CLIENT shall pay COOK
the costs associated with such change, including any development work, if
necessary, based upon COOK's then-prevailing development rates. Such prices and
costs shall be set forth in a written amendment to this Agreement. It is the
responsibility of CLIENT to ensure that proper regulatory agencies approve the
suggested changes.
8.2 CHANGES BY COOK: COOK agrees that any changes developed by COOK
which may be incorporated into the Drug Product shall be set forth in a written
amendment to this Agreement prior to such incorporation and approved by CLIENT
in writing. At the time of such incorporation, such changes shall become part
of the Specifications. It is the responsibility of CLIENT to ensure that proper
regulatory agencies approve the suggested changes.
CONFIDENTIALITY
9.1 This Agreement, by reference, incorporates the Confidentiality
Agreement signed by CLIENT and COOK on January 3, 1996, and is made a part
hereof as though fully set forth herein.
9.2 Any invention made, conceived or reduced to practice by COOK in
connection with the performance of the obligations under this Agreement, during
the term of this Agreement or thereafter, whether derived from COOK or CLIENT,
shall be considered confidential information and shall be the exclusive
property of COOK; provided, however, that any invention made, conceived of, or
reduced to practice during the Term of this Agreement, of (a) a pharmaceutical
product with the same composition as the Drug Product, or (b) an improvement to
the Drug Product, shall be the exclusive property of CLIENT. Each party, in its
sole discretion, may file for patent protection of its invention as set forth
above in its own name, and the other party, upon request by the owner, shall
promptly sign and deliver any and all documents or information necessary for
the securing of such invention in any country as determined by the owner.
9.3 The parties agree that contents of this Agreement shall not be
disclosed to any third party except (i) the controlling companies of the
parties, (ii) the companies controlled by the parties, and (iii) governmental
regulatory agencies, including, but not limited to, environmental protection
authorities, without prior written consent of the other party.
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9.4 Upon termination of this Agreement for whatever reason, each party
shall return to the other originals, copies, and derivative forms of disclosed
or developed information relating to the purpose of this Agreement; except that
one copy of such information may be retained as required by regulatory law for
a period of ten (l0) years for future reference. The confidential information
shall remain confidential and not be disclosed by either party for a period of
ten (l0) years following the date of expiration or termination of this
Agreement.
INDEMNIFICATION
10.1 INDEMNIFICATION BY CLIENT: CLIENT shall indemnify and hold COOK
(and any parent, subsidiary, or affiliate company or corporation, and their
officers, directors, shareholders, agents, and the employees and insurers of
any of them and/or their successors and assigns thereto), free and harmless
from any and all claims, demands, liability, actions or causes of actions, or
any fines or penalties, and any and all expenses associated therewith
(including, without limiting the generality of the foregoing, defense costs and
attorney's fees), arising out of or in connection with, are the result of, or
are otherwise related to: (i) any act or omission of CLIENT; (ii) the
promotion, distribution, use, misuse or sale of the Drug Product (including,
without limiting the generality of the foregoing, any claims, express, implied
or statutory, made as to the efficacy or safety thereof); (iii) any Drug
Product labeling or packaging; (iv) CLIENT's compliance or noncompliance with
any applicable Federal or State laws or regulations; or, (v) any failure of
CLIENT to perform, in whole or in part, any of its obligations hereunder,
unless caused solely by the acts or omissions of COOK.
CLIENT also will indemnify and hold COOK (and all others
indemnified in Paragraph l0.1 hereof) free and harmless against any and all
claims, demands, liability, actions or causes of action, and any and all
expenses associated therewith (including, without limiting the generality of
the foregoing, defense costs and attorney's fees), for damages on account of
personal injury (including death) or property damage arising out of or in
connection with CLIENT's manufacture or handling of the Bulk Drug Substance.
10.2 INDEMNIFICATION BY COOK: COOK will indemnify and hold CLIENT free
and harmless against any and all claims, demands, actions or causes of action,
and any and all expenses associated therewith (including, without limiting the
generality of the foregoing, defense costs and attorney's fees), for damages on
account of personal injury (including death) or property damage caused solely
by the acts or omissions of COOK.
10.3 PATENT INDEMNITY: CLIENT further warrants that manufacture, use
and sale of the Drug Product and Bulk Drug Substance will not infringe any
patent or other proprietary rights and that CLIENT will indemnify, defend and
hold COOK free and harmless from any damage, judgment, liability, loss, cost or
expense, including legal expenses, arising from claims that the Drug Product
and Bulk Drug Substance infringe patent or other proprietary rights of a third
party.
10.4 CONDITIONS OF INDEMNIFICATION: If either party seeks
indemnification from the other under Paragraphs l0.1, 10.2, or 10.3, it shall
promptly give written notice to the other party of any such claim or suit
threatened, made or filed against it, which forms the basis for such claim of
indemnification and shall cooperate fully with the other party in the defense
of all such claims or suits. No settlement or compromise shall be binding on a
party hereto without its prior written consent.
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GENERAL PROVISIONS
11.1 NOTICES: Any notice permitted or required by this Agreement may
be sent by facsimile with the original document being sent by certified (or
registered) mail, return receipt requested, or overnight delivery and shall be
effective when received (or refused) via facsimile or mail or overnight if
faxed and sent and addressed as follows (or to such other facsimile number or
address as may be designated by a party in writing):
If to CLIENT: Acute Therapeutics, Inc.
3359 Durham Road
Doylestown, PA 18901
Attn: Dr. Harry Brittain
Telephone: (215) 794-3064
Facsimile: (215) 794-3239
If to COOK: Cook Imaging Corporation
927 South Curry Pike
P.O. Box 3068
Bloomington, IN 47402
Attn: Joanne W. Daly, Project Coordinator
Telephone: (812) 333-0887
Facsimile: (812) 332-3079
11.2 ENTIRE AGREEMENT: AMENDMENT: The parties hereto acknowledge that
this Agreement sets forth the entire agreement and understanding of the parties
and supersedes all prior written or oral agreements or understandings with
respect to the subject matter hereof. No modification of any of the terms of
this Agreement, or any amendments thereto, shall be deemed to be valid unless
in writing and signed by both parties hereto. No course of dealing or usage of
trade shall be used to modify the terms and conditions herein.
11.3 WAIVER: None of the provisions of this Agreement shall be
considered waived by any party hereto unless such waiver is agreed to, in
writing, by both parties. The failure of a party to insist upon strict
conformance to any of the terms and conditions hereof, or failure or delay to
exercise any rights provided herein or by law shall not be deemed a waiver of
any rights of any party hereto.
11.4 OBLIGATIONS TO THIRD PARTIES: Each party warrants and
represents that this Agreement is not inconsistent with any contractual
obligations, expressed or implied, undertaken with any third party.
11.5 ASSIGNMENT: This Agreement shall be binding upon and inure to the
benefit of the successors or permitted assigns of each of the parties and may
not be assigned or transferred by either party without the prior written
consent of the other, which consent will not be unreasonably withheld or
delayed, except that no consent shall be required in the case of a transfer to
a wholly-owned subsidiary or transaction involving the merger, consolidation or
sale of substantially all of the assets of the party seeking such assignment
or transfer and such transaction relates to the business covered by this
Agreement and the resulting entity assumes all the obligations under this
Agreement.
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11.6 INDEPENDENT CONTRACTOR: COOK shall act as an independent
contractor for CLIENT IN providing the services required hereunder and shall
not be considered an agent for joint venture with CLIENT. Unless otherwise
provided herein to the contrary, COOK shall furnish all expertise, labor,
supervision, machining and equipment necessary for performance hereunder and
shall obtain and maintain all building and other permits and licenses required
by public authorities.
11.7 GOVERNING LAW: This Agreement is subject to and shall be
governed by the laws of the State of Indiana.
11.8 SEVERABILITY: In the event that any term or provision of this
Agreement shall violate any applicable statute, ordinance, or rule of law in
any jurisdiction in which it is used, or otherwise be unenforceable, such
provision shall be ineffective to the extent of such violation without
invalidating any other provision hereof.
11.9 HEADINGS, INTERPRETATION: The headings used in this Agreement
are for convenience only and are not part of this Agreement.
11.10 CONFLICT: In the event of a conflict between the terms and
provisions of this Agreement and the terms and provisions of the Manual, the
terms of this Agreement shall control.
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
ACUTE THERAPEUTICS, INC. COOK IMAGING CORPORATION
(Signature of Robert Capetola) (Signature of Jerry C. Arthur)
Authorized Signature Authorized Signature
Robert Capetola Jerry C. Arthur
Printed Name Printed Name
(handwritten January 9, 1997) January 8, 1997
Date Date
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SCHEDULE I
DEVELOPMENT ACTIVITIES AND PRICING
DEVELOPMENT of the Drug Product for use in Clinical Studies will consist of the
following: [***]
[***] Confidential treatment requested.
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[***]
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[***]
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[***]
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[***]
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SCHEDULE II
MANUFACTURING PROJECT MANUAL
The policies and procedures outlined herein have been reviewed and will be
adhered to in the manufacturing and/or finishing of the Drug Product pursuant
to the Clinical Product Development Agreement (the "Agreement").
I. POLICY:
COOK's policy is to assure that the Drug Product manufactured and/or packaged
for CLIENT will be processed under a total quality control system which ensures
that the Drug Product will meet all warranties set forth in Section 5.1 of the
Agreement.
II. PURPOSE:
The purpose of this Manual is to address and delineate the responsibilities
between COOK and CLIENT and to provide a vehicle for implementation of the
policy stated above.
III. SCOPE:
This Manual applies to all contract manufacturing activities for which COOK has
manufacturing and/or finishing responsibility as set forth below.
RAW MATERIALS
All raw materials are defined by the Specifications outlined in Attachment I
hereto which is made a part hereof by reference. An Approved Vendor List shall
be jointly developed and approved by COOK and by CLIENT for the supply of these
raw materials. The Approved Vendor List shall contain, but not be limited to,
the following information:
Raw Material Name
Vendor Name
Manufacturing Location
DMF Information
Acceptance Criteria
More than one vendor may appear on the Approved Vendor List for each raw
material item as long as the material supplied by each listed vendor meets the
Specifications.
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CLIENT shall supply to COOK, in a timely manner, all Bulk Drug Substance
necessary to satisfy COOK's obligations under the Agreement. At some point,
CLIENT wishes for COOK to supply the excipients, namely Palmitic Acid, DPPC,
and POPG. When this occurs, a price will be negotiated and agreed to jointly
by both parties.
COOK will use standard operating procedures which define the sampling
methodology and the analytical methods used to assure that the raw materials
meet the Specifications. COOK and CLIENT agree that a vendor's certificate of
analysis may be used in lieu of testing, where testing by COOK or CLIENT has
validated the vendor. COOK and CLIENT will maintain supporting documentation.
COOK will notify CLIENT in writing of any changes to the Specifications,
sampling, or test methods of those raw materials listed in Attachment I that
are included in the current USP/NF, and of any changes in the Approved Vendor
List.
For all raw materials listed in Attachment I which are not included in the
current USP/NF, and for Bulk Drug Substance supplied by CLIENT or its agents,
COOK shall obtain CLIENT's approval prior to instituting any changes to the
Specifications, sampling, or test methods for that material.
PACKAGING MATERIALS
CLIENT shall be responsible for, and shall provide to COOK, all copy content,
artwork and mechanicals for all printed materials associated with the Drug
Product. This includes, but is not limited to, container labels, container
cartons, package inserts, and promotional material. CLIENT shall be responsible
for compliance with all Federal, State and Local laws and regulations
concerning packaging and labeling materials, and for obtaining any necessary
regulatory approvals of printed materials, artwork, and copy. Refer to Schedule
I for details.
CLIENT shall provide COOK with specifications for all packaging components
including, without limitation, purchase description (general specifications for
a class of packaging supplies; e.g., bottles, caps, cartons, etc.), acceptance
criteria (including incoming inspection and sampling plans), and test methods
used to determine conformance to specifications.
CLIENT shall approve the specifications for product container closure
components.
COOK shall review and certify, by comparison to a master supplied by CLIENT,
each receipt of printed components. Non-printed packaging components shall be
tested by COOK according to COOK specifications.
COOK shall notify CLIENT in writing of any changes to the specifications for
any components used in the Drug Product prior to use in manufacture.
COOK shall obtain prior approval from CLIENT before revising any printed
packaging components, primary container components, and all CLIENT supplied
packaging components used in the Drug Product.
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MASTER PRODUCTION RECORDS
A Master Batch Record (MBR) is the formal set of instructions for the
preparation of the Drug Product. A MBR shall be developed by COOK, using
CLIENT's master formula and technical support provided by CLIENT.
The MBR shall be maintained by the Document Control/Quality Assurance group
within COOK. The MBR shall be written in the standard COOK format.
The MBR shall be reviewed and approved by COOK and by CLIENT. Any change to an
approved MBR will be reviewed and approved by COOK and by CLIENT prior to said
change being implemented. Each batch of the Drug Product is produced by using a
copy of the MBR. Each batch record is assigned a unique batch number.
Any deviation from the specified manufacturing process must be documented in
the batch record. COOK shall have a system to document the deviation, the
investigation that was undertaken, and the conclusion drawn from that
investigation. Appropriate departmental reviews and approvals by COOK shall be
required prior to release of the Drug Product. The documentation associated
with any deviation in the manufacturing process shall become part of the batch
record.
SAMPLING, TESTING AND RELEASE OF THE DRUG PRODUCT
Each batch of the Drug Product manufactured and/or packaged by COOK shall be
sampled in-process and at the completion of the manufacturing and packaging
operations, as agreed to by COOK and CLIENT.
All in-process and completed Drug Product testing shall be conducted by COOK or
a third party designated by COOK using approved test methods, following receipt
of written approval by CLIENT.
All test methodologies shall be validated. For those procedures which appear in
the current USP/NF, or other recognized standard reference, a statement
indicating the reference shall suffice. For those test methods which are
developed by COOK, documentation supporting the validation of the test method
shall be documented. For test methods developed by CLIENT, CLIENT shall supply
COOK with the supporting validation documentation.
COOK shall provide CLIENT with a certificate of analysis indicating each test
parameter, test result, and the corresponding acceptance criteria for each
batch of the Drug Product manufactured or packaged, as well as a statement
indicating that all associated documentation has been reviewed and approved by
the appropriate quality control unit.
Final Drug Product release shall be made by CLIENT pursuant to the provisions
of the Agreement.
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RESERVE SAMPLES AND ANNUAL QUALITY REVIEW
CLIENT Shall Be Responsible For Obtaining And Maintaining Sufficient Quantities
of Bulk Drug Substance and Drug Product Reserve Samples as Defined in Good
Manufacturing Practices Regulations 21 CFR, Section 211.170.
CLIENT shall be responsible for evaluating, at least annually, the quality
standards of the Drug Product to determine the need for changes in the Drug
Product specifications, manufacturing processes, or controlled documents. COOK
shall provide CLIENT with access to all appropriate batch records for each
batch of the Drug Product. CLIENT shall supply to COOK a copy of the
examination results and recommendations, if any.
STABILITY, STORAGE, VALIDATION AND ENVIRONMENTAL MONITORING
Stability: COOK shall be responsible for the stability testing outlined in
Schedule I.
Storage: CLIENT shall indicate the appropriate storage conditions for the Bulk
Drug Substance and the Drug Product. COOK shall comply with these
specifications and will monitor the storage conditions for the Bulk Drug
Substance and the Drug Product. COOK shall provide CLIENT access to the
monitoring records.
Validation: Process/product and cleaning validation shall be performed by COOK
using protocols developed and approved by COOK. COOK shall be responsible for
conducting the validation studies and maintaining validation reports and/or
drug product specific COOK Standard Operating Procedures.
Environmental Monitoring: Where particulate and microbial levels are required
for the Drug Product, then the facilities and raw materials used during the
manufacturing and packaging process shall be monitored for these factors. COOK
will be responsible for the establishment and institution of a monitoring
program to assure that the Drug Product will meet the required particulate and
microbial levels and shall maintain the records obtained from this monitoring
program.
DISTRIBUTION RECORDS AND RETURNS
Distribution Records: COOK shall maintain distribution records which contain
all of the appropriate information as specified in the Good Manufacturing
Practices regulations 21 CFR, Section 211.196.
Product Returns: Returned Drug Product is the responsibility of CLIENT pursuant
to the terms of the Agreement.
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COMPLAINTS
Complaint files, as required by 21 CFR, Section 211.198 of the Good
Manufacturing Practices regulations, shall be maintained by CLIENT. All
complaints received by COOK shall be forwarded to CLIENT. CLIENT shall be
responsible for the review of the complaint to determine the need for an
investigation as specified in 21 CFR, Section 211.192, or the need to report to
the United States Food and Drug Administration (FDA) as required by 21 CFR,
Section 310.305 and 312.32. CLIENT shall send to COOK all Drug Product
performance or manufacturing-related complaints which require investigation.
COOK shall conduct an investigation for each Drug Product performance or
manufacturing-related complaint and shall report the findings and follow-up of
each investigation to CLIENT.
CLIENT shall make these complaint files available to COOK in the event they are
required during an FDA inspection.
STOCK RECOVERY
CLIENT shall be responsible for drug product recoveries pursuant to the terms
of the Agreement.
For manufacturing-related recoveries, COOK shall conduct an investigation to
determine the cause of such Drug Product defect and shall report the findings
to CLIENT.
COOK shall provide to CLIENT distribution records and current inventory levels
for any recalled Drug Product.
AUDITS AND REGULATORY COMPLIANCE
Audits: Except with respect to information and operations which constitute COOK
trade secrets, CLIENT, upon prior written notice and during normal business
hours, shall have the right to inspect COOK batch records and the portions of
COOK'S facility used for the manufacturing, finishing, holding, and testing of
the Drug Product.
Regulatory Compliance: Unless otherwise stated in this document, COOK is
responsible for compliance to all Federal, State and Local laws and regulations
as they apply solely to COOK's business and not to the manufacture of Drug
Product.
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ATTACHMENT I
DRUG PRODUCT SPECIFICATIONS
AND PROCEDURES
[***]
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ACUTE THERAPEUTICS, INC.
[***]
Authorized by: Signature of Harry G. Brittain Date: Handwritten 1/9/97
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ACUTE THERAPEUTICS, INC.
[***]
Authorized by: Signature of Harry G. Brittain Date: Handwritten 1/9/97
[***] Confidential treatment requested.
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ACUTE THERAPEUTICS, INC.
[***]
Authorized by: Signature of Harry G. Brittain Date: Handwritten 1/9/97
[***] Confidential treatment requested.
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ACUTE THERAPEUTICS, INC.
[***]
Authorized by: Signature of Harry G. Brittain Date: Handwritten 1/9/97
[***] Confidential treatment requested.
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EXHIBIT 10.23
RESEARCH FUNDING AND OPTION AGREEMENT
<PAGE>
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TABLE OF CONTENTS
Page
1. DEFINITIONS ....................................................... 1
1.1 Confidential Information .................................... 1
1.2 Core Patent Rights .......................................... 2
1.3 Field ....................................................... 2
1.4 Jointly Developed Technology ................................ 2
1.5 Licensed Product ............................................ 2
1.6 Principal Investigator ...................................... 3
1.7 Proprietary Property ........................................ 3
1.8 Research Program ............................................ 3
1.9 Scripps Patent Rights ....................................... 3
1.10 Scripps Technology .......................................... 3
2. CONDUCT OF RESEARCH PROGRAM ....................................... 3
2.1 Conduct of Research Program ................................. 3
2.2 Supervision of Research Program ............................. 3
2.3 Reports ..................................................... 4
2.4 Contributions of Parties to Research Program ................ 4
3. OPTION FOR EXCLUSIVE LICENSE ...................................... 5
3.1 Grant of Option ............................................. 5
3.2 Disclosure of Scripps Technology ............................ 5
3.3 Disclosure of Jointly Developed Technology .................. 5
3.4 Option Period ............................................... 5
3.5 Exercise of Option .......................................... 6
3.6 Reservation of Rights ....................................... 6
4. WARRANTIES ........................................................ 6
4.1 Warranty of Title; No Other Warranties ...................... 6
4.2 No Other Warranties ......................................... 6
5. INTERESTS IN INTELLECTUAL PROPERTY ................................ 7
5.1 Title ....................................................... 7
5.2 Governmental Interest ....................................... 7
6. CONFIDENTIALITY AND PUBLICATION ................................... 7
6.1 Confidential Information .................................... 8
6.2 Publications ................................................ 8
6.3 Publicity ................................................... 8
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TABLE OF CONTENTS
Page
7. TERM AND TERMINATION .............................................. 8
7.1 Term ........................................................ 8
7.2 Termination by Mutual Agreement ............................. 8
7.3 Termination Upon Default .................................... 8
7.4 Termination Upon Insolvency ................................. 9
7.5 Effect of Expiration or Termination ......................... 9
7.5.1 Termination Upon Default of Optionee .................. 9
7.5.2 Expiration or Termination upon Default of Scripps ..... 9
8. ASSIGNMENT; SUCCESSORS ............................................ 10
8.1 Assignment .................................................. 10
8.2 Binding Upon Successors and Assigns ......................... 10
9. GENERAL PROVISIONS ................................................ 10
9.1 Independent Contractors ..................................... 10
9.2 Arbitration ................................................. 10
9.2.1 Location .............................................. 10
9.2.2 Selection of Arbitrators .............................. 10
9.2.3 Discovery ............................................. 11
9.2.4 Case Management ....................................... 11
9.2.5 Remedies .............................................. 11
9.2.6 Expenses .............................................. 11
9.2.7 Confidentiality ....................................... 11
9.3 Entire Agreement; Modification .............................. 12
9.4 California Law .............................................. 12
9.5 Headings .................................................... 12
9.6 Severability ................................................ 12
9.7 No Waiver ................................................... 12
9.8 Attorneys' Fees ............................................. 12
9.9 Notices ..................................................... 12
9.10 Compliance with U.S. Laws ................................... 13
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RESEARCH FUNDING AND OPTION AGREEMENT
This Agreement is entered into this 28th day of October 1996, by and
between THE SCRIPPS RESEARCH INSTITUTE, 10550 North Torrey Pines Road, La Jolla,
California 92037 ("Scripps"), a California nonprofit public benefit corporation,
and Acute Therapeutics, Inc. ("Optionee"), a Delaware corporation located at
3359 Durham Road, Doylestown, Pennsylvania 18901, with respect to the facts set
forth below.
RECITALS
A. Scripps is engaged in scientific biomedical and biochemical
research, including research relating to synthetic pulmonary surfactants, as
more particularly described herein.
B. Optionee is engaged in research and development of synthetic
pulmonary surfactants.
C. Optionee desires to provide certain funding as part of the Scripps
research activities described above.
D. Scripps has the exclusive right to grant a license in and to any
technology developed pursuant to the research program described herein, subject
to any nonexclusive rights of the U.S. Government, resulting from the receipt
by Scripps of U.S. Government funding, to use such technology for its own
purposes.
E. Scripps is willing to grant to Optionee an option to acquire an
exclusive, worldwide right and license to use, enhance and develop technology
arising from the Research Program and develop, market and sell products in the
field described below, all as is more particularly described herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and conditions
outlined herein, Scripps and Optionee hereby agree as follows:
1. DEFINITIONS.
1.1 Confidential Information. The term "Confidential Information" shall
mean any and all proprietary information of Scripps or Optionee which may be
exchanged between the parties at any time and from time to time during the term
hereof. The
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fact that a party may have marked or identified as confidential or proprietary
any specific information shall be indicative that such party believes such
information to be confidential or proprietary, but the failure to so mark
information shall not conclusively determine that such information was or was
not considered confidential information by such party. Information shall not be
considered confidential to the extent that it:
a. Is publicly disclosed through no fault of any party hereto, either
before or after it becomes known to the receiving party; or
b. Was known to the receiving party prior to the date of this
Agreement, which knowledge was acquired independently and not from the other
party hereto (including such party's employees); or
c. Is subsequently disclosed to the receiving party in good faith by a
third party who has a right to make such disclosure; or
d. Has been published by a third party as a matter of right.
1.2 Core Patent Rights. The term "Core Patent Rights" shall mean the
following issued U.S. patents and pending U.S. patent applications: (a) Patent
No. 5,407,914, issued April 18, 1995; Patent No. 5,260,273, issued November 9,
1993; and Patent No. 5,164,369, issued November 17, 1992, and (b) pending patent
applications Serial Nos. [***].
1.3 Field. The term "Field" shall mean use in research or as a
diagnostic, preventative or therapeutic product in humans or vertebrate animals
and shall specifically exclude any agricultural applications or products.
1.4 Jointly Developed Technology. The term "Jointly Developed
Technology" shall mean any information, process, technology and materials
included within the scope of the Research Program which are developed by both
Scripps and Optionee during the term of this Agreement as a result of the
Research Program and which, under principles arising under the patent laws of
the United States of America, would be found jointly owned by both Scripps and
Optionee thereunder.
1.5 Licensed Product. The term "Licensed Product" shall mean any
research, diagnostic, preventative or therapeutic product or process which
cannot be developed, manufactured, used or sold without utilizing Scripps Patent
Rights, any Scripps Technology not otherwise includable within Scripps Patent
Rights or Jointly Developed Technology.
[***] Confidential treatment requested.
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1.6 Principal Investigator. The term "Principal Investigator" shall
mean the person identified in Section 2.2 below, together with such replacement
persons selected in accordance with the provisions thereof.
1.7 Proprietary Property. The term "Proprietary Property" shall mean,
with respect to any party hereto, any and all technology, now existing or
hereafter arising, in which such party shall have a proprietary interest,
including without limitation, any idea, data, compound, molecule, cell line,
material, know-how, technique, method, process, use, composition, skill,
Confidential Information, trade secret or configuration of any kind, whether or
not any such information would be enforceable as a trade secret, the copying of
which would be enjoined or restrained by a court as constituting copyright
infringement or unfair competition or would be eligible for protection under the
patent laws of the United States or elsewhere.
1.8 Research Program. The term "Research Program" shall mean the
research program to be undertaken by Scripps under the direction and control of
the Principal Investigator set forth in Section 2.2 hereof.
1.9 Scripps Patent Rights. The term "Scripps Patent Rights" shall mean
the rights arising out of or resulting from (i) any and all U.S. and foreign
patent applications and patents covering Scripps Technology, (ii) the patents
proceeding from such applications, and (iii) all continuations, divisions,
continuations-in-part, reissues, reexaminations, and extensions thereof, so long
as said patents have not been held invalid and/or unenforceable by a court of
competent jurisdiction from which there is no appeal or, if appealable, from
which no appeal has been taken.
1.10 Scripps Technology. The term "Scripps Technology" shall mean any
Proprietary Property of Scripps developed, in whole or in part, in the
performance of the Research Program during the term of this Agreement, including
any intellectual property within the scope of the Research Program developed by
any employee of Scripps during the term of this Agreement while such employee is
rendering services to Optionee as a consultant or otherwise.
2. CONDUCT OF RESEARCH PROGRAM.
2.1 Conduct of Research Program. Scripps hereby agrees to conduct the
Research Program as expressly set forth on Exhibit A attached hereto, as amended
from time to time in accordance with its terms, and subject to the provisions of
this Agreement.
2.2 Supervision of Research Program. Scripps agrees that the Research
Program at Scripps shall be conducted by or under the direct supervision of the
following Principal Investigator: Charles Cochrane, M.D. In the event that the
Principal
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Investigator leaves Scripps, or terminates his/her involvement in the Research
Program, Scripps shall use its best efforts to find a replacement Principal
Investigator acceptable to Optionee, which acceptance shall not be unreasonably
withheld. In the event that Scripps shall fail to appoint a replacement
Principal Investigator reasonably acceptable to Optionee, Optionee shall have a
right to terminate this Agreement upon delivery to Scripps of written notice of
intent to terminate pursuant to this Section 2.2, which notice must be delivered
to Scripps not less than 30 days nor more than 90 days after delivery by Scripps
to Optionee of the name of the replacement Principal Investigator.
2.3 Reports.
a. Scripps agrees that within sixty (60) days following the last day of
each calendar year during the term of this Agreement, Scripps shall furnish
Optionee with a written report summarizing the results of the research included
within the scope of the Research Program during the immediately preceding
calendar year conducted by Scripps, including but not limited to all data,
conclusions, results, observations and a detailed description of all procedures.
b. Optionee agrees that within sixty (60) days following the last day
of each calendar year during the term of this Agreement, Optionee shall furnish
Scripps with a written report summarizing the results of the research and
development included within the scope of the Research Program during the
immediately preceding calendar year which Optionee believes constitutes Jointly
Developed Technology, including but not limited to all data, conclusions,
results, observations and a detailed description of all procedures.
c. All such information submitted to Optionee by Scripps, and all such
information submitted to Scripps by Optionee, as a result of the Research
Program under this Agreement is deemed Confidential Information of Scripps, and
shall be kept confidential by Optionee, and shall be used by Optionee only for
the purpose of evaluating whether or not to exercise an option to obtain a
license pursuant to Section 3 hereof, as and when such option is exercisable in
accordance with the terms hereof. Optionee shall not, during the term or after
the termination hereof, use or disclose any of the Confidential Information,
unless and until (i) permitted to do so pursuant to the terms of any license
agreement entered into by Optionee after exercise of option for such technology
or (ii) such information no longer comes within the definition of "Confidential
Information" hereunder and otherwise becomes available as public information.
2.4 Contributions of Parties to Research Program. Contributions in the
form of financial support, equipment, personnel, technology and other necessary
components for the conduct of the Research Program shall be made by the parties
in accordance with the terms set forth on Exhibit B attached to this Agreement.
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3. OPTION FOR EXCLUSIVE LICENSE.
3.1 Grant of Option.
a. It is the intention of the parties hereto that the Proprietary
Property which is the subject of the option described in this Section 3 is
available to Optionee, under the specific terms hereof, on an
application-by-application basis, where each application is with respect to a
specific field. It is the further intention of the parties hereto that Optionee
shall elect to exercise its option from time to time and at multiple times
during the term hereof, as and when Scripps makes the disclosure of each
application of Proprietary Property (whether Scripps Technology, Scripps Patent
Rights covering Scripps Technology, or Scripps' rights in Jointly Developed
Technology). The statement of general intention described in this subparagraph
is qualified in its entirety by the specific provisions of this Section 3.
b. Subject to the terms of this Agreement, Scripps hereby grants to
Optionee an exclusive option to acquire an exclusive worldwide license to make,
have made, sell or use Licensed Products, with exclusive rights of sublicense,
in the Field. Each such license shall be to a specific application of Scripps
Technology, Scripps Patent Rights covering Scripps Technology, or Scripps'
rights in Jointly Developed Technology, as more particularly described in the
disclosure (Sections 3.2 or 3.3). Such option shall be for the period (Section
3.4) and exercised as (Section 3.5) more particularly described below.
3.2 Disclosure of Scripps Technology. As soon as reasonably possible,
either upon conception or reduction to practice, as the case may be, of each and
every application of Scripps Technology, Scripps shall disclose the same in
writing to Optionee. Such disclosure shall contain sufficient detail to enable
Optionee to evaluate the advisability of exercising the option granted hereunder
with respect to such application. All such disclosures shall be maintained in
confidence by Optionee.
3.3 Disclosure of Jointly Developed Technology. As soon as reasonably
feasible, either upon conception or reduction to practice, as the case may be,
of each and every application of Jointly Developed Technology, Optionee shall
disclose the same in writing to Scripps. Such disclosure shall contain
sufficient detail to enable Scripps to evaluate whether such technology is, in
fact, within the definition of Jointly Developed Technology. If Scripps, in the
exercise of its good faith discretion, acknowledges that all or some of such
technology as so described by Optionee falls within the definition of Jointly
Developed Technology, then Scripps shall deliver to Optionee a written notice
describing the Jointly Developed Technology and Scripps' intent to license the
same to Optionee if Optionee exercises its option.
3.4 Option Period. Optionee shall have a period of one hundred eighty
(180) days from receipt of the disclosure from Scripps described in Section 3.2
above
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or from the notice from Scripps described in Section 3.3 within which to
exercise its option to obtain a license in the Field to a particular application
of Scripps Technology or to Scripps' rights to a particular application of
Jointly Developed Technology pursuant to Section 3.1.
3.5 Exercise of Option. Optionee shall exercise its option to obtain a
license hereunder by delivering to Scripps a written notice within the option
period which specifies the particular application of Scripps Technology and
related Scripps Patent Rights or application of Jointly Developed Technology for
which the option is being exercised. Optionee and Scripps shall have a period of
ninety (90) days from the date of exercise of option by Optionee within which to
agree upon the royalty rate and commercial development obligations, all as is
more particularly set forth in the form of License Agreement attached hereto as
Exhibit C. The royalty rate shall be determined by the parties in accordance
with Exhibit D hereto. The specific application of Scripps Technology and
related Scripps Patent Rights, if any, or specific application of Jointly
Developed Technology which is the subject of such License Agreement will be as
set forth in the notice delivered by Scripps and described in Section 3.2 above
or Section 3.3, respectively. The "Field" in such License Agreement shall be no
broader than the Field defined herein.
3.6 Reservation of Rights. Scripps reserves the right to use any
Scripps Technology or Jointly Developed Technology that may be subject to an
option pursuant to this Agreement or covered by a license granted hereunder
solely for Scripps' own educational and research purposes and the educational
and research purposes of any other nonprofit organization, provided that such
nonprofit organization is not using or disclosing the Scripps Technology or
Jointly Developed Technology for research or development purposes for a
for-profit entity, without Scripps or such other nonprofit organization being
obligated to pay Optionee any royalties or other compensation related thereto.
4. WARRANTIES.
4.1 Warranty of Title: No Other Warranties. Scripps hereby warrants and
represents that it has the full right and power to enter into this Agreement and
grant the option of Article 3 to Optionee.
4.2 No Other Warranties. SCRIPPS MAKES NO WARRANTIES CONCERNING THE
RESEARCH PROGRAM OR ANY SCRIPPS TECHNOLOGY, SCRIPPS PATENT RIGHTS OR JOINTLY
DEVELOPED TECHNOLOGY WHICH MAY BE SUBJECT TO THIS AGREEMENT. WITHOUT LIMITING
THE FOREGOING, SCRIPPS DOES NOT REPRESENT OR WARRANT THAT IT WILL SUCCESSFULLY
COMPLETE THE RESEARCH PROGRAM OR THAT, IF COMPLETED, THE RESEARCH PROGRAM WILL
RESULT IN SCRIPPS TECHNOLOGY WHICH WILL BE SUBJECT TO AN OPTION HEREUNDER OR
WHICH OPTIONEE WILL DESIRE TO LICENSE. SCRIPPS MAKES NO EXPRESS OR IMPLIED
WARRANTY, INCLUDING
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BUT NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, AS TO ANY LICENSED PRODUCT. SCRIPPS MAKES NO WARRANTY OR REPRESENTATION
AS TO THE VALIDITY OR SCOPE OF ANY SCRIPPS PATENT RIGHTS OR THAT ANY LICENSED
PRODUCT WILL BE FREE FROM ANY INFRINGEMENT OF PATENTS OF THIRD PARTIES, OR THAT
NO THIRD PARTIES ARE IN ANY WAY INFRINGING SCRIPPS PATENT RIGHTS.
5. INTERESTS IN INTELLECTUAL PROPERTY.
5.1 Title.
a. Scripps shall retain such ownership and title to Scripps Technology
and Scripps Patent Rights as Scripps shall have, subject to the option of
Optionee set forth herein. Scripps shall, in the good faith exercise of its
discretion, undertake reasonable efforts to preserve and maintain its ownership
and title as Scripps deems appropriate. Ownership of and title to Jointly
Developed Technology shall be vested jointly in Scripps and Optionee, with each
owning an undivided one-half interest therein.
b. In the event Optionee does not exercise its option hereunder to
obtain an exclusive license with respect to Scripps' rights in and to any
specific application of Jointly Developed Technology, Optionee hereby assigns to
Scripps all of Optionee's right, title and interest in and to such Jointly
Developed Technology, and Optionee shall have no further rights with respect
thereto, other than a right to receive from Scripps fifty percent (50%) of the
net royalty income received by Scripps with respect to such application, as and
when received. As used herein, "net royalty income" shall mean the gross
royalties and other license fees received under any such license agreement, less
all Scripps out-of-pocket expenses incurred in connection with the licensing of
such Jointly Developed Technology (including without limitation fees of
accountants, attorneys and other consultants engaged in connection with such
licensing).
5.2 Governmental Interest. Optionee and Scripps acknowledge that
Scripps has received and expects to continue to receive funding from the United
States Government in support of Scripps' research activities. Optionee
acknowledges and agrees that its rights and obligations pursuant to this
Agreement with respect to Scripps Technology and Scripps Patent Rights, and to
Scripps' rights to Jointly Developed Technology, as applicable, shall be
subject to Scripps' obligations and the rights of the United States Government,
if any, which arise or result from Scripps' receipt of research support from the
United States Government.
6. CONFIDENTIALITY AND PUBLICATION.
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6.1 Confidential Information. The parties agree that during the term of
and any subsequent extension of this Agreement and for a period of five (5)
years after it terminates or for as long as any Confidential Information not
otherwise includable within Scripps Patent Rights is being utilized within a
Licensed Product, whichever is longer, a party receiving Confidential
Information of another party will not use or intentionally disclose such
Confidential Information to any third party without the prior written consent of
the disclosing party.
6.2 Publications. Optionee acknowledges that it is the general policy
of Scripps to encourage publication of research results in technical or
scientific journals; and subject to Scripps meeting its disclosure obligations
under Section 3.2, Optionee agrees that Scripps shall have a right to publish in
accordance with its general policy. Prior to such publication, Scripps shall
submit to Optionee copies of proposed publications which contain subject matter
relating to Scripps Technology or Jointly Developed Technology and afford
Optionee a period of thirty (30) days to review the publication. Upon written
request by Optionee prior to the expiration of such thirty (30) day period and
provided that Optionee shall have exercised its option to one or more
applications included within the subject matter of such publication, Scripps
shall delay any such publication for up to sixty (60) days from the date of such
request to allow for the preparation and filing of a patent application.
6.3 Publicity. Except as otherwise provided herein or required by law,
no party shall originate any publication, news release or other public
announcement, written or oral, whether in the public press, or stockholders'
reports, or otherwise, relating to this Agreement or to any license granted
hereunder, or to the performance thereunder, without the prior written approval
of the other parties, which approval shall not be unreasonably withheld.
7. TERM AND TERMINATION.
7.1 Term. Unless terminated sooner, the initial term of this Agreement
shall commence on the date set forth above and shall continue for a period of
two (2) years, and thereafter, this Agreement shall be renewable for additional
periods of one (1) years each upon mutual agreement of the parties.
7.2 Termination by Mutual Agreement. This Agreement may be terminated
at any time upon the mutual written agreement of the parties. In the absence of
an agreement to the contrary, no such termination shall have the effect of
relieving Optionee of its monetary obligations to fund the Research Program
which shall have accrued up and to the date of such termination.
7.3 Termination Upon Default. Any one or more of the following events
shall constitute an event of default hereunder: (i) the failure of a party to
pay any
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amounts when due hereunder and the expiration of thirty (30) days thereafter;
and (ii) the failure of a party to perform any obligation required of it to be
performed hereunder, and the failure to cure within sixty (60) days after
receipt of notice from the other party specifying in reasonable detail the
nature of such default. Upon the occurrence of an event of default, the
non-defaulting party may deliver to the defaulting party written notice of
intent to terminate, such termination to be effective upon the date set forth in
such notice. Such termination rights shall be in addition to and not in
substitution for any other remedies that may be available to the non-defaulting
party serving such notice against the defaulting party. Termination pursuant to
this Section 7.3 shall not relieve the defaulting party of liability and damages
to non-defaulting party for breach of this Agreement. Waiver by any party of a
single default or a succession of defaults shall not deprive such party of any
right to terminate this Agreement arising by reason of any subsequent default.
7.4 Termination Upon Insolvency. This Agreement may be terminated as to
any party ("Insolvent Party") by another party giving written notice of
termination to the Insolvent Party upon the filing of bankruptcy or bankruptcy
of the Insolvent Party or the appointment of a receiver of any of the Insolvent
Party's assets, or the making by the Insolvent Party of any assignment for the
benefit of creditors, or the institution of any proceedings against the
Insolvent Party under any bankruptcy law. Termination shall be effective upon
the date specified in this notice.
7.5 Effect of Expiration or Termination.
7.5.1 Termination Upon Default of Optionee. Upon the termination of
this Agreement by reason of a default by Optionee, neither party shall have any
further rights or obligations with respect to this Agreement, other than the
obligation of Optionee to make any and all final payments accrued prior to the
date of termination and the obligation of the parties to make all reports
required hereunder. Upon such termination of this Agreement, the parties shall
continue to abide by their non-disclosure obligations as described in Section
6.1 and each party hereto shall fulfill any other obligations incurred prior to
such termination. Any such termination of this Agreement shall not constitute
the termination of any license or any other agreements between the parties which
are then in effect except as expressly provided therein.
7.5.2 Expiration or Termination upon Default of Scripps. Upon the
expiration of this Agreement at its regularly scheduled expiration date, or upon
a termination of this Agreement on account of a default by Scripps, then Scripps
shall make the disclosures required by Section 3.2 for Scripps Technology
conceived or reduced to practice up to the date of said expiration or
termination; and Optionee shall have the right to exercise its option with
respect to said Scripps Technology in accordance with the schedule and
procedures specified in Sections 3.4 and 3.5 above. Additionally, each party
shall perform all other obligations up to the date of said expiration or
termination; and the parties shall continue
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to abide by their non-disclosure obligations described in Section 6.1; and any
previously existing license agreements or other agreements between the parties
shall continue in effect.
8. ASSIGNMENT: SUCCESSORS.
8.1 Assignment. This Agreement may not be assigned by either party
without the prior written consent of the other party except to a successor in
interest to all or substantially all of the business assets of assigning party,
whether by way of a merger, consolidation, sale of all or substantially all of
the assigning party's assets, change of control or similar transaction.
8.2 Binding Upon Successors and Assigns. Subject to the limitations on
assignment set forth herein, this Agreement shall be binding upon and inure to
the benefit of any successors in interest and assigns of Scripps and Optionee.
Any such successor to or assignee of a party's interest shall expressly assume
in writing the performance of all the terms and conditions of this Agreement to
be performed by such party.
9. GENERAL PROVISIONS.
9.1 Independent Contractors. The relationship between Scripps and
Optionee is that of independent contractors. Scripps and Optionee are not joint
venturers, partners, principal and agent, master and servant, employer or
employee, and have no other relationship other than independent contracting
parties. Scripps and Optionee shall have no power to bind or obligate each
other in any manner, other than as is expressly set forth in this
Agreement.
9.2 Arbitration. Any controversy or claim arising out of or relating
to this Agreement, or the breach thereof, shall be settled by binding
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association ("AAA"), and the procedures set forth below. In the
event of any inconsistency between the Rules of AAA and the procedures set forth
below, the procedures set forth below shall control. Judgment upon the award
rendered by the arbitrators may be enforced in any court having jurisdiction
thereof.
9.2.1 Location. The location of the arbitration shall be in the City of
Philadelphia.
9.2.2 Selection Arbitrators. The arbitration shall be conducted by a
panel of three neutral arbitrators who are independent and disinterested with
respect to the parties, this Agreement, and the outcome of the arbitration. Each
party shall appoint one neutral arbitrator, and these two arbitrators so
selected by the parties shall then select the third arbitrator. If one party
has given written notice to the other party as to the
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identity of the arbitrator appointed by the party, and the party thereafter
makes a written demand on the other party to appoint its designated arbitrator
within the next ten days, and the other party fails to appoint its designated
arbitrator within ten days after receiving said written demand, then the
arbitrator who has already been designated shall appoint the other two
arbitrators.
9.2.3 Discovery. Unless the parties mutually agree in writing to some
additional and specific pre-hearing discovery, the only pre-hearing discovery
shall be (a) reasonably limited production of relevant and non-privileged
documents, and (b) the identification of witnesses to be called at the hearing,
which identification shall give the witness's name, general qualifications and
position, and a brief statement as to the general scope of the testimony to be
given by the witness. The arbitrators shall decide any disputes and shall
control the process concerning these pre-hearing discovery matters. Pursuant to
the Rules of AAA, the parties may subpoena witnesses and documents for
presentation at the hearing.
9.2.4 Case Management. Prompt resolution of any dispute is important to
both parties; and the parties agree that the arbitration of any dispute shall be
conducted expeditiously. The arbitrators are instructed and directed to assume
case management initiative and control over the arbitration process (including
scheduling of events, pre-hearing discovery and activities, and the conduct of
the hearing), in order to complete the arbitration as expeditiously as is
reasonably practical for obtaining a just resolution of the dispute.
9.2.5 Remedies. The arbitrators may grant any legal or equitable
remedy or relief that the arbitrators deem just and equitable, to the same
extent that remedies or relief could be granted by a state or federal court,
provided however, that no punitive damages may be awarded. No court action may
be maintained seeking punitive damages. The decision of any two of the three
arbitrators appointed shall be binding upon the parties.
9.2.6 Expenses. The expenses of the arbitration, including the
arbitrators' fees, expert witness fees, and attorney's fees, may be awarded to
the prevailing party, in the discretion of the arbitrators, or may be
apportioned between the parties in any manner deemed appropriate by the
arbitrators. Unless and until the arbitrators decide that one party is to pay
for all (or a share) of such expenses, both parties shall share equally in the
payment of the arbitrators' fees as and when billed by the arbitrators.
9.2.7 Confidentiality. Except as set forth below, the parties shall
keep confidential the fact of the arbitration, the dispute being arbitrated, and
the decision of the arbitrators. Notwithstanding the foregoing, the parties may
disclose information about the arbitration to persons who have a need to know,
such as directors, trustees, management
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employees, witnesses, experts, investors, attorneys, lenders, insurers, and
others who may be directly affected. Additionally, if a party has stock which is
publicly traded, the party may make such disclosures as are required by
applicable securities laws. Further, if a party is expressly asked by a third
party about the dispute or the arbitration, the party may disclose and
acknowledge in general and limited terms that there is a dispute with the other
party which is being (or has been) arbitrated. Once the arbitration award has
become final, if the arbitration award is not promptly satisfied, then these
confidentiality provisions shall no longer be applicable.
9.3 Entire Agreement; Modification. This Agreement sets forth the
entire agreement and understanding between the parties as to the subject matter
hereof. There shall be no amendments or modifications to this Agreement, except
by a written document which is signed by both parties.
9.4 California Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of California.
9.5 Headings. The headings for each article and section in this
Agreement have been inserted for the convenience of reference only and are not
intended to limit or expand on the meaning of the language contained in the
particular article or section.
9.6 Severability. Should any one or more of the provisions of this
Agreement be held invalid or unenforceable by a court of competent jurisdiction,
it shall be considered severed from this Agreement and shall not serve to
invalidate the remaining provisions thereof. The parties shall make a good faith
effort to replace any invalid or unenforceable provision with a valid and
enforceable one such that the objectives contemplated by them when entering this
Agreement may be realized.
9.7 No Waiver. Any delay in enforcing a party's rights under this
Agreement or any waiver as to a particular default or other matter shall not
constitute a waiver of such party's rights to the future enforcement of its
rights under this Agreement, excepting only as to an express written and
signed waiver as to a particular matter for a particular period of time.
9.8 Attorneys' Fees. In the event of a dispute among the parties hereto
or in the event of any default hereunder, the party prevailing in the resolution
of any such dispute or default shall be entitled to recover its reasonable
attorneys' fees and other costs incurred in connection with resolving such
dispute or default.
9.9 Notices. Any notices required by this Agreement shall be in
writing, shall specifically refer to this Agreement and shall be sent by
registered or certified airmail, postage prepaid, or by telefax, telex or cable,
charges prepaid, or by overnight
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courier, postage prepaid, and shall be forwarded to the respective addresses
set forth below unless subsequently changed by written notice to the other
party:
FOR SCRIPPS: The Scripps Research Institute
10550 North Torrey Pines Road, TPC-9
La Jolla, California 92037
Attn: Vice President, Technology Development
Fax No.: (619) 784-9910
FOR OPTIONEE: Acute Therapeutics, Inc.
3359 Durham Road
Doylsetown, PA 18091
Attn: Mr. Robert Capetola
Fax No.: (215) 794-3239
Notice shall be deemed delivered upon the earlier of (i) when received, (ii)
three (3) days after deposit into the mail, (iii) the date notice is sent via
telefax, telex or cable, or (iv) the day immediately following delivery to
overnight courier (except Sunday and holidays).
9.10 Compliance with U.S. Laws. Nothing contained in this Agreement
shall require or permit Scripps or Optionee to do any act inconsistent with the
requirements of any United States law, regulation or executive order as the same
may be in effect from time to time.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized representatives as of the date set forth above.
SCRIPPS: OPTIONEE:
THE SCRIPPS RESEARCH INSTITUTE ACUTE THERAPEUTICS, INC.
By: /s/ Arnold LaGuardia By: (Signature illegible)
Arnold LaGuardia
Title: Senior Vice President Title: President/CEO
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EXHIBIT A
EXPERIMENTAL PROPOSAL
EFFICACY OF KL4-SURFACTANT IN MODELS OF
PULMONARY INJURY
[***]
EXHIBIT B
EFFICACY OF KL4-SURFACTANT IN MODELS OF
PULMONARY SURFACTANT
BUDGET
[***]
[***] Confidential treatment requested.
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EXHIBIT C
LICENSE AGREEMENT
by and between
THE SCRIPPS RESEARCH INSTITUTE,
a California nonprofit
public benefit corporation
and
ACUTE THERAPEUTICS, INC.,
a Delaware corporation
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TABLE OF CONTENTS
1. Definitions .......................................................... 1
1.1 Affiliate ..................................................... 2
1.2 Confidential Information ...................................... 2
1.3 Core Patent Rights ............................................ 2
1.4 Field ......................................................... 2
1.5 Licensed Product .............................................. 2
1.6 Net Sales ..................................................... 2
1.7 Scripps Patent Rights ......................................... 3
1.8 Scripps Technology ............................................ 3
2. License Terms and Conditions ......................................... 3
2.1 Grant of License .............................................. 3
2.2 Royalties ..................................................... 3
2.2.1 Percentage Royalty ............................................ 3
2.3 Combination Products .......................................... 3
2.3.1 Definition of Combination Product ............................. 4
2.3.2 Royalty Payable on Combination Products ....................... 4
2.4 Quarterly Payments ............................................ 4
2.4.1 Sales by Licensee ............................................. 4
2.4.2 Sales by Sublicensees ......................................... 4
2.5 Term of License ............................................... 5
2.6 Sublicense .................................................... 5
2.7 Aggregate Royalties ........................................... 5
2.8 Duration of Royalty Obligations ............................... 6
2.9 Reports ....................................................... 6
2.10 Records ....................................................... 6
2.11 Foreign Sales ................................................. 7
2.12 Foreign Taxes ................................................. 7
3. Patent Matters ....................................................... 7
3.1 Patent Prosecution and Maintenance ............................ 7
3.2 Information to Licensee ....................................... 8
3.3 Patent Costs .................................................. 8
3.4 Ownership ..................................................... 8
3.5 Scripps Right to Pursue Patent ................................ 8
3.6 Licensee's Right to Pursue Patent ............................. 8
3.7 Infringement Actions .......................................... 9
3.7.1 Prosecution of Infringements .................................. 9
3.7.2 Reasonable Assistance ......................................... 9
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TABLE OF CONTENTS
3.7.3 Control ....................................................... 9
3.7.4 Allocation of Recovery ........................................ 9
4. Obligations Related to Commercialization ............................. 10
4.1 Commercial Development Obligation ............................. 10
4.2 Governmental Approvals and Marketing of Licensed Products ..... 10
4.3 Indemnity ..................................................... 10
4.4 Patent Marking ................................................ 11
4.5 No Use of Name ................................................ 11
4.6 U.S. Manufacture .............................................. 11
4.7 Foreign Registration .......................................... 11
5. Limited Warranty ..................................................... 11
6. Interests in Intellectual Property Rights ........................... 11
6.1 Preservation of Title ......................................... 12
6.2 Royalty-free License to Improvements .......................... 12
6.3 Governmental Interest ......................................... 12
6.4 Reservation of Rights ......................................... 12
7. Confidentiality and Publication ...................................... 12
7.1 Treatment of Confidential Information ......................... 12
7.2 Publications .................................................. 12
7.3 Publicity ..................................................... 12
8. Term and Termination ................................................. 13
8.1 Term .......................................................... 13
8.2 Termination Upon Default ...................................... 13
8.3 Termination Upon Bankruptcy or Insolvency ..................... 13
8.4 Rights Upon Expiration ........................................ 14
8.5 Rights Upon Termination ....................................... 14
8.6 Work-in-Progress .............................................. 14
9. Assignment; Successors ............................................... 14
9.1 Assignment .................................................... 14
9.2 Binding Upon Successors and Assigns ........................... 15
10. General Provisions .................................................. 15
10.1 Independent Contractors ....................................... 15
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TABLE OF CONTENTS
10.2 Arbitration ................................................... 15
10.2.1 Location ...................................................... 15
10.2.2 Selection of Arbitrators ...................................... 15
10.2.3 Discovery ..................................................... 15
10.2.4 Case Management ............................................... 16
10.2.5 Remedies ...................................................... 16
10.2.6 Expenses ...................................................... 16
10.2.7 Confidentiality ............................................... 16
10.3 Entire Agreement; Modification ................................ 16
10.4 California Law ................................................ 17
10.5 Headings ...................................................... 17
10.6 Severability .................................................. 17
10.7 No Waiver ..................................................... 17
10.8 Name .......................................................... 17
10.9 Attorneys' Fees ............................................... 17
10.10 Notices ....................................................... 17
10.11 Compliance with U.S. Laws ..................................... 18
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LICENSE AGREEMENT
This License Agreement is entered into and made effective as of this
day of , 19_, by and between THE SCRIPPS RESEARCH INSTITUTE, a California
nonprofit public benefit corporation ("Scripps") located at 10550 North Torrey
Pines Road, La Jolla, California 92037, and Acute Therapeutics, Inc. a Delaware
corporation ("Licensee") located at 3359 Durham Road, Doylestown, PA 18901 with
respect to the facts set forth below.
RECITALS
A. Scripps is engaged in fundamental scientific biomedical and
biochemical research including research relating to synthetic pulmonary
surfactants.
B. Licensee is engaged in research and development of synthetic
pulmonary surfactants for use in humans and vertebrate animals.
C. Scripps has disclosed to Licensee certain technology described
in , a copy of which is attached hereto as Exhibit A and incorporated
herein by reference (the " ").
D. Scripps has the exclusive right to grant a license to the technology
described in , subject to certain rights of the U.S. Government to use such
technology for its own purposes, resulting from the receipt by Scripps of
certain funding from the U.S. Government.
E. Scripps desires to grant to Licensee, and Licensee wishes to
acquire, an exclusive worldwide right and license to the technology described in
the and to certain patent rights and know-how of Scripps with respect
thereto, subject to the terms and conditions set forth herein, with a view to
developing and marketing [diagnostic and/or therapeutic] products within the
Field (as defined below).
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth herein, Scripps and Licensee hereby agree as follows:
1. Definitions. Capitalized terms shall have the meaning set forth
below.
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1.1 Affiliate. The term "Affiliate" shall mean any entity which
directly or indirectly controls, is controlled by or is under common control
with Licensee. The term "control" as used herein means the possession of 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 Confidential Information. The term "Confidential Information" shall
mean any and all proprietary or confidential information of Scripps or Licensee
which may be exchanged between the parties at any time and from time to time
during the term of this Agreement. Information shall not be considered
confidential to the extent that it:
a. Is publicly disclosed through no fault of any party hereto, either
before or after it becomes known to the receiving party; or
b. Was known to the receiving party prior to the date of this
Agreement, which knowledge was acquired independently and not from the other
party hereto (or such party's employees); or
c. Is subsequently disclosed to the receiving party in good faith by a
third party who has a right to make such disclosure; or
d. Has been published by a third party as a matter of right.
1.3 Core Patent Rights. The term "Core Patent Rights" shall mean the
following issued U.S. patents and pending U.S. patent applications: (a) Patent
No. 5,407,914, issued April 18, 1995; Patent No. 5,260,273, issued November 9,
1993; and Patent No. 5,164,369, issued November 17, 1992; and (b) pending patent
applications Serials Nos. [***].
1.4 Field. The term "Field" shall mean use in research or as a
diagnostic or therapeutic product in humans or vertebrate animals and shall
specifically exclude any agricultural applications or products.
1.5 Licensed Product. The term "Licensed Product" shall mean any
product or process which cannot be developed, manufactured, used or sold without
(i) infringing one or more claims under Scripps Patent Rights or (ii) utilizing
any part of Scripps Technology not otherwise includable within Scripps Patent
Rights.
1.6 Net Sales. The term "Net Sales" shall mean the gross amount
actually received by Licensee, or its Affiliates and sublicensees, or any of
them, on all sales of Licensed Products, less (i) prepaid freight and (ii) sales
taxes or other governmental charges actually paid in connection with sales of
Licensed Products (but excluding what is commonly known as income taxes). Sales
of Licensed Products by Licensee, or an Affiliate or
[***] Confidential treatment requested.
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sublicensee of Licensee to any Affiliate or sublicensee which is a reseller
thereof shall be excluded, and only the subsequent sale of such Licensed
Products by Affiliates or sublicensees of Licensee to unrelated parties shall
be deemed Net Sales hereunder.
1.7 Scripps Patent Rights. The term "Scripps Patent Rights" shall mean
rights arising out of or resulting from (i) any and all U.S. and foreign patent
applications and patents covering Scripps Technology, (ii) the patents
proceeding from such applications, (iii) all claims of continuations-in-part
directed solely to subject matter specifically described in Scripps Technology,
and (iv) divisionals, continuations, reissues, reexaminations, and extensions of
any patent or application set forth in (i)-(iii) above, so long as said patents
have not been held invalid and/or unenforceable by a court of competent
jurisdiction from which there is no appeal or, if appealable, from which no
appeal has been taken.
1.8 Scripps Technology. The term "Scripps Technology" shall mean so
much of the technology as is proprietary to Scripps disclosed in ( ), a
copy of which is attached as Exhibit A hereto and incorporated herein by
reference, together with materials, information and know-how related thereto
[as described on ____________________] whether or not the same is eligible for
protection under the patent laws of the United States or elsewhere, and whether
or not any such processes technology, or information related thereto, would be
enforceable as a trade secret or copying of which would be enjoined or
restrained by a court as constituting unfair competition.
2. License Terms and Conditions.
2.1 Grant of License. Scripps hereby grants to Licensee an exclusive,
worldwide license, including the right to sublicense, to Scripps Technology and
under Scripps Patent Rights, to develop, to make, to have made, to use, to
modify, to market, to sell and to otherwise dispose of Licensed Products in the
Field, subject to the terms of this Agreement.
2.2 Royalties.
2.2.1 Percentage Royalty. As consideration for the license granted
pursuant to Section 2.1 hereof, Licensee shall pay to Scripps a continuing
royalty on a country-by-country basis in the amount of (i) ____ percent ( %) of
Licensed Products which cannot be made, used or sold in such country without or
more valid claims under Scripps Patent Rights and (ii) ____ percent ( %) of Net
Sales of all other Licensed Products.
2.3 Combination Product.
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2.3.1 Definition of Combination Product. As used herein, the term
"Combination Product" shall mean a Licensed Product which cannot be
manufactured, used or sold without infringing Scripps Patent Rights or utilizing
Scripps Technology licensed hereunder, and infringing or utilizing one or more
patents or proprietary technology or know how of (i) Licensee, (ii) a third
party which has licensed the same to Licensee pursuant to an agreement between
Licensee and such third party, or (iii) Scripps under a license agreement other
than this Agreement (referred to herein as "other licensed rights").
2.3.2 Royalty Payable on Combination Products. The royalty payable on
Combination Products shall be the royalty rate set forth in Section 2.2.1 above
based on a pro rata portion of Net Sales of Combination Products in accordance
with the following formula:
A
X = -
B, where
X = the pro rata portion of Net Sales
attributable to Scripps Patent Rights or
other Scripps Technology licensed herein
(expressed as a percentage), and
A = the fair market value of the component in
the Combination Product utilizing Scripps
Technology licensed hereunder, and
B = A plus the fair market value of all other
components in the Combination Product using
other licensed rights.
The fair market values described above shall be determined by the parties hereto
in good faith. In the absence of agreement as to the fair market value of all of
the components contained in a Combination Product, the fair market value of each
component shall be determined by arbitration in accordance with the provisions
of Section 10.2 hereof.
2.4 Quarterly Payments.
2.4.1 Sales by Licensee. With regard to Net Sales made by Licensee or
its Affiliates, royalties shall be payable by Licensee quarterly, within sixty
(60) days after the end of each calendar quarter, based upon the Net Sales of
Licensed Products during such preceding calendar quarter, commencing with the
calendar quarter in which the first commercial sale of any Licensed Product is
made.
2.4.2 Sales by Sublicensees. With regard to Net Sales made by
sublicensees of Licensee or its Affiliates, royalties shall be payable by
Licensee quarterly,
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within ninety (90) days after the end of each calendar quarter, based upon the
Net Sales of Licensed Products by such sublicensee during such preceding
calendar quarter, commencing with the calendar quarter in which the first
commercial sale of any Licensed Product is made by such sublicensee.
2.5 Term of License. Unless terminated sooner in accordance with the
provisions of this Agreement, the term of this license shall expire when the
last of the royalty obligations set forth has expired. Notwithstanding the
foregoing, if applicable government regulations require a shorter term and/or a
shorter term of exclusivity than provided for herein, then the term of this
License Agreement shall be so shortened or this License Agreement shall be
amended to provide for a non-exclusive license, and, in such event, the parties
shall negotiate in good faith to reduce appropriately the royalties payable as
set forth under the section heading "Royalties" hereof.
2.6 Sublicense. Licensee shall have the sole and exclusive right to
grant sublicenses to any party with respect to the rights conferred upon
Licensee under this Agreement, provided, however, that any such sublicense shall
be subject in all respects to the restrictions, exceptions, royalty obligations,
reports, termination provisions, and other provisions contained in this
Agreement and shall not exceed the scope of the license granted to Licensee
hereunder. Promptly after execution of any sublicense agreement, Licensee shall
give written notice to Scripps of the grant of such sublicense and details of
the following material terms: (i) the name of the sublicensee, (ii) the duration
of the sublicense, (iii) the Scripps Patent Rights and Scripps Technology that
are the subject of the sublicense, and (iv) the commercialization obligations
imposed upon the sublicensee. Licensee shall pay Scripps, or cause its Affiliate
or sublicensee to pay Scripps, the same royalties on all Net Sales of such
Affiliate or sublicensee the same as if said Net Sales had been made by
Licensee. Each Affiliate and sublicensee shall report its Net Sales to Scripps
through Licensee, which Net Sales shall be aggregated with any Net Sales of
Licensee for purposes of determining the Net Sales upon which royalties are to
be paid to Scripps.
2.7 Aggregate Royalties. In the event that a percentage of sublicense
income or royalties are paid by the Licensee, an Affiliate or a sublicensee to
an unaffiliated third party or to Scripps under a separate agreement in respect
of a Licensed Product ("Additional Royalties") for which royalties are also due
to Scripps pursuant to this Agreement, then the following provisions shall apply
(either separately or jointly, as applicable):
(a) if the Licensed Product is or was claimed in whole or in part, in
one or more of the Core Patent Rights and the Additional Royalties are due
pursuant to a license agreement between Scripps and Licensee that is executed
pursuant to that certain Research Funding and Option Agreement of even date
herewith between Scripps and Licensee (such licenses are collectively referred
to herein as "Other Research Licenses"):
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(i) until the expiration of the last to expire of the Core Patent
rights, the royalties under this Agreement shall be reduced such that the
aggregate royalties due under this Agreement and the Other Research Licenses do
not exceed Two and One-Half percent (2.5 %) of Net Sales of the Licensed
Product;
(ii) after the expiration of the last to expire of the Core Patent
Rights, the royalties under this Agreement shall be increased such that the
aggregate royalties due under this Agreement and the Other Research Licenses do
not exceed Seven percent (7%) of Net Sales of the Licensed Product.
(b) if the Licensed Product is or was claimed in whole or in part in
one or more of the Core Patent Rights and the Additional Royalties are due under
any license with a third party or any other license agreement between Licensee
and Scripps, or if the Licensed Product is or was not claimed in any of the Core
Patent Rights, then the royalties under this Agreement shall be reduced by the
amount of the payments due to the third party or Scripps under such license
agreements, subject to a maximum reduction of fifty percent (50%) of the
royalties due hereunder.
2.8 Duration of Royalty Obligations. The royalty obligations of
Licensee as to each Licensed Product shall terminate on a country-by-country
basis concurrently with the expiration of the last to expire of Scripps Patent
Rights utilized by or in such Licensed Product in each such country or, with
respect to Licensed Products not utilizing any Scripps Patent Rights, ten (10)
years after the date of first commercial sale of such Licensed Product in such
country.
2.9 Reports. Licensee shall furnish to Scripps at the same time as
each royalty payment is made by Licensee, a detailed written report of Net Sales
of the Licensed Products and the royalty due and payable thereon, including a
description of any offsets or credits deducted therefrom, on a
product-by-product and country-by-country basis, for the calendar quarter upon
which the royalty payment is based.
2.10 Records. Licensee shall keep, and cause its Affiliates and
sublicensees to keep, full, complete and proper records and accounts of all
sales of Licensed Products in sufficient detail to enable the royalties payable
on Net Sales of each Licensed Product to be determined. Scripps shall have the
right to appoint an independent certified public accounting firm approved by
Licensee, which approval shall not be unreasonably withheld, to audit the
records of Licensee, its Affiliates and sublicensees as necessary to verify the
royalties payable pursuant to this Agreement. Licensee, its Affiliates and
sublicensees shall pay to Scripps an amount equal to any additional royalties to
which Scripps is entitled as disclosed by the audit, plus interest thereon at
the rate of one and one-half percent (1.5%) per month. Such audit shall be at
Scripps' expense; provided, however, that if the audit discloses that Scripps
was underpaid royalties with respect to any Licensed Product by at least five
percent (5%) for any calendar quarter, then Licensee, its Affiliates or
sublicensee, as the case
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may be shall reimburse Scripps for any such audit costs. Scripps may exercise
its right of audit as to each of Licensee, its Affiliates or sublicensees no
more frequently than once in any calendar year. The accounting firm shall
disclose to Scripps only information relating to the accuracy of the royalty
payments. Licensee, its Affiliates and sublicensees shall preserve and maintain
all such records required for audit for a period of three (3) years after the
calendar quarter to which the record applies.
2.11 Foreign Sales. The remittance of royalties payable on sales
outside the United States shall be payable to Scripps in United States Dollar
equivalents at the official rate of exchange of the currency of the country from
which the royalties are payable, as quoted in the Wall Street Journal for the
last business day of the calendar quarter in which the royalties are payable. If
the transfer of or the conversion into the United States Dollar equivalents of
any such remittance in any such instance is not lawful or possible, the payment
of such part of the royalties as is necessary shall be made by the deposit
thereof, in the currency of the county where the sale was made on which the
royalty was based to the credit and account of Scripps or its nominee in any
commercial bank or trust company of Scripps' choice located in that country,
prompt written notice of which shall be given by Licensee to Scripps.
2.12 Foreign Taxes. Any tax required to be withheld by Licensee under
the laws of any foreign country for the accounts of Scripps shall be promptly
paid by Licensee for and on behalf of Scripps to the appropriate governmental
authority, and Licensee shall use its best efforts to furnish Scripps with proof
of payment of such tax together with official or other appropriate evidence
issued by the applicable government authority. Any such tax actually paid on
Scripps' behalf shall be deducted from royalty payments due Scripps.
3. Patent Matters.
3.1 Patent Prosecution and Maintenance. From and after the date of this
Agreement, the provisions of this Section 3 shall control the prosecution and
maintenance of any patent included within Scripps Patent Rights. Subject to the
requirements, limitations and conditions set forth in this Agreement, Scripps
shall direct and control (i) the preparation, filing and prosecution of the
United States and foreign patent applications within Scripps Patent Rights
(including any interferences and foreign oppositions) and (ii) maintain the
patents issuing therefrom. Scripps shall select the patent attorney, subject to
Licensee's written approval, which approval shall not be unreasonably withheld.
Both parties hereto agree that Scripps may, at its sole discretion, utilize
Scripps' Office of Patent Counsel in lieu of outside counsel for patent
prosecution and maintenance described herein, and the fees and expenses incurred
by Scripps with respect to work done by such Office of Patent Counsel shall be
paid as set forth below. Licensee shall have will rights of consultation with
the patent attorney so selected on all matters relating to Scripps Patent
Rights. Scripps shall use its best efforts to implement all reasonable
requests made by Licensee with regard to the preparation, filing,
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prosecution and/or maintenance of the patent applications and/or patents within
Scripps Patent Rights.
3.2 Information to Licensee. Scripps shall keep Licensee informed with
regard to the patent application and maintenance processes. Scripps shall
deliver to Licensee copies of all patent applications, amendments, related
correspondence, and other related matters.
3.3 Patent Costs. Licensee acknowledges and agrees that Scripps does
not have independent funding to cover patent costs, and that the license granted
hereunder is in part in consideration for Licensee's assumption of patent costs
and expenses as described herein. Licensee shall pay for all expenses incurred
by Scripps pursuant to Section 3.1 hereof. In addition, Licensee agrees to
reimburse Scripps for all patent costs and expenses paid or incurred by Scripps
to date in connection with Scripps Patent Rights licensed hereunder. Licensee
agrees to pay all such past and future patent expenses directly or to reimburse
Scripps for the payment of such expenses within sixty (60) days after Licensee
receives an itemized invoice therefor. In the event Licensee elects to
discontinue payment for the filing, prosecution and/or maintenance of any patent
application and/or patent within Scripps Patent Rights, any such patent
application or patent shall be excluded from the definition of Scripps Patent
Rights and from the scope of the license granted under this Agreement, and all
rights relating thereto shall revert to Scripps and may be freely licensed by
Scripps. Licensee shall give Scripps at least sixty (60) days' prior written
notice of such election. No such notice shall have any effect on Licensee's
obligations to pay expenses incurred up to the effective date of such election.
3.4 Ownership. The patent applications filed and the patents obtained
by Scripps pursuant to Section 3.1 hereof shall be owned solely by Scripps,
assigned to Scripps and deemed a part of Scripps Patent Rights.
3.5 Scripps Right to Pursue Patent. If at any time during the term of
this Agreement, Licensee's rights with respect to Scripps Patent Rights are
terminated, Scripps shall have the right to take whatever action Scripps deems
appropriate to obtain or maintain the corresponding patent protection at its own
expense. If Scripps pursues patents under this Section 3.5, Licensee agrees to
cooperate fully, including by providing, at no charge to Scripps, all
appropriate technical data and executing all necessary legal documents.
3.6 Licensee's Right to Pursue Patent. If subsequent to filing a
patent application on an invention within the Scripps Patent Rights, Scripps
elects not to direct and control the prosecution or maintenance of such patent
application or ensuing patent Scripps shall give Licensee notice thereof within
a reasonable period prior to allowing such patent application or patent to lapse
or become abandoned or unenforceable and Licensee may direct and control
prosecution or maintenance of such patent application or patent at its expense
and its exclusive benefit. If subsequent to filing of a United States patent
application,
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Scripps chooses not to file in foreign countries, Scripps shall inform Licensee
within six (6) months of the United States filing date and shall permit Licensee
to effect such foreign filings not made by Scripps at Licensee's sole expense.
3.7 Infringement Actions.
3.7.1 Prosecution of Infringements. Scripps and Licensee shall promptly
notify the other in writing if any infringement of the Scripps Patent Rights by
a third party is discovered or comes to its attention. Provided Licensee shall
have supplied Scripps with reasonable evidence of infringement of Scripps Patent
Rights by a third party, Licensee shall have the right, at Licensee's sole
expense to bring suit against the infringer for infringement of the Scripps
Patent Rights. In the event that Licensee has not caused such infringement to
terminate (for whatever cause) or initiated legal proceedings against the
infringer within three (3) months following receipt or giving of notice pursuant
to this Section 3.7, Scripps shall have the right (but not the obligation), at
Scripps's sole expense, to bring suit against the infringer for infringement of
the Scripps Patent Rights.
3.7.2 Reasonable Assistance. In the event either party hereto shall
initiate or carry on legal proceedings to enforce the Scripps Patent Rights
against an alleged infringer, as provided herein, the other party hereto shall
render reasonable assistance to and cooperate with the party initiating or
carrying on such proceedings.
3.7.3 Control. In the event that either party shall institute suit or
other legal proceedings to enforce the Scripps Patent Rights, it shall have sole
control of such suit and the other party shall be entitled to be represented in
any such suit by counsel of its choosing, at its sole expense. Licensee shall
not discontinue or settle any such proceedings brought by it without obtaining
the concurrence of Scripps (which concurrence shall not be unreasonably
withheld) and giving Scripps a timely opportunity to continue such proceedings
in its own name, under its sole control, and at this sole expense. In the event
Scripps does not concur in such settlement, it must continue such proceeding in
its own name, under its sole control and expense within three (3) months of
being given notice by Licensee of its desire to settle or Licensee shall be
entitled to settle without Scripps's concurrence.
3.7.4 Allocation of Recovery. All damages, settlements and awards made
or obtained in connection with any suit or other legal proceeding under this
Section 3.7 shall be shared among the parties as follows:
(a) The party initiating the suit shall first be reimbursed for all
costs and expenses of such suit or legal proceeding; in the event that the suit
or other legal proceeding is initiated by Licensee but is later assumed, under
Section 3.7.3, by Scripps, Licensee shall first be reimbursed its costs and
expenses and then Scripps shall be reimbursed its costs and expenses of such
proceeding.
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(b) If the Licensee initiated the suit and prosecuted it to its
conclusion, Licensee shall be entitled to retain the balance of any damages,
settlements and awards, less the royalty on such amounts due Scripps in
accordance with Article 2.
(c) In all other circumstances other than that described in Section
3.7.4(b) above, Scripps and Licensee shall divide the balance of any damages,
settlements and awards 60% to Scripps and 40% to Licensee.
4. Obligations Related to Commercialization.
4.1 Commercial Development Obligation. In order to maintain the license
granted hereunder in force, Licensee shall use reasonable efforts and due
diligence to develop Scripps Technology and Scripps Patent Rights which are
licensed hereunder into commercially viable Licensed Products, and thereafter
to produce and sell reasonable quantities of Licensed Products. Licensee shall
keep Scripps generally informed as to Licensee's progress in such development,
production and sale, including its efforts, if any and only to the extent it may
do so without breaching the terms of any confidentiality agreement, to
sublicense Scripps Technology and Scripps Patent Rights. Licensee shall deliver
to Scripps a semi-annual written report and such other reports as Scripps may
reasonably request. The parties hereto acknowledge and agree that achievement of
the milestones described in Exhibit C attached hereto on or before the dates set
forth therein shall be evidence of compliance by Licensee with its commercial
development obligations hereunder for the time periods specified in Exhibit C.
In the event Scripps has a reasonable basis to believe that Licensee is not
using reasonable efforts and due diligence as required hereunder, upon notice by
Scripps to Licensee which specifies the basis for such belief, Scripps and
Licensee shall negotiate in good faith to attempt to mutually resolve the issue.
In the event Scripps and Licensee cannot agree upon any matter related to
Licensee's commercial development obligations, the parties agree to utilize
arbitration pursuant to Section 10.2 hereof in order to resolve the matter. If
the arbitrator determines that Licensee has not complied with its obligations
hereunder, and such default is not fully cured within sixty (60) days after the
arbitrator's decision, Scripps may terminate Licensee's rights under this
Agreement.
4.2 Governmental Approvals and Marketing of Licensed Products.
Licensee shall be responsible for obtaining all necessary governmental approvals
for the development, production, distribution, sale and use of any Licensed
Product, at Licensee's expense, including, without limitation, any safety
studies. Licensee shall have sole responsibility for any warning labels,
packaging and instructions as to the use of Licensed Products and for the
quality control for any Licensed Product.
4.3 Indemnity. Licensee hereby agrees to indemnify, defend and hold
harmless Scripps and any parent, subsidiary or other affiliated entity of
Scripps and their trustees, officers, employees, scientists and agents from and
against any liability or expense arising from any product liability claim
asserted by any party as to any Licensed Product or
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any claims arising from the use of any Scripps Patent Rights or Scripps
Technology pursuant to this Agreement. Such indemnity and defense obligation
shall apply to any product liability or other claims, including without
limitation, personal injury, death or property damage, made by employees,
subcontractors, sublicensees, or agents of Licensee, as well as any member of
the general public. Licensee shall use its best efforts to have Scripps and, if
requested in writing by Scripps, any parent, subsidiary or other affiliated
entity of Scripps and their trustees, officers, employees, scientists and agents
named as additional insured parties on any product liability insurance policies
maintained by Licensee its Affiliates and sublicensees applicable to Licensed
Products.
4.4 Patent Marking. To the extent required by applicable law, Licensee
shall mark all Licensed Products or their containers in accordance with the
applicable patent marking laws.
4.5 No Use of Name. The use of the name "The Scripps Research
Institute", "Scripps", or any variation thereof in connection with the
advertising or sale of Licensed Products is expressly prohibited.
4.6 U.S. Manufacture. To the extent required by applicable United
States laws, if at all, Licensee agrees that Licensed Products will be
manufactured in the United States, or its territories, subject to such waivers
as may be required, or obtained, if at all, from the United States Department of
Health and Human Services, or its designee.
4.7 Foreign Registration. Licensee agrees to register this Agreement
with any foreign governmental agency which requires such registration, and
Licensee shall pay all costs and legal fees in connection therewith. In
addition, Licensee shall assure that all foreign laws affecting this Agreement
or the sale of Licensed Products are fully satisfied.
5. Limited Warranty. Scripps hereby represents and warrants that it has
full right and power to enter into this Agreement and grant the licenses to
Licensee granted herein. SCRIPPS MAKES NO OTHER WARRANTIES CONCERNING SCRIPPS
PATENT RIGHTS OR SCRIPPS TECHNOLOGY COVERED BY THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION, ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE AS TO SCRIPPS PATENT RIGHTS, SCRIPPS TECHNOLOGY OR ANY
LICENSED PRODUCT. SCRIPPS MAKES NO WARRANTY OR REPRESENTATION AS TO THE VALIDITY
OR SCOPE OF SCRIPPS PATENT RIGHTS, OR THAT ANY LICENSED PRODUCT WILL BE FREE
FROM AN INFRINGEMENT ON PATENTS OR OTHER INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES, OR THAT NO THIRD PARTIES ARE IN ANY WAY INFRINGING SCRIPPS PATENT
RIGHTS OR SCRIPPS TECHNOLOGY COVERED BY THIS AGREEMENT.
6. Interests in Intellectual Property Rights.
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6.1 Preservation of Title. Scripps shall retain full ownership and
title to Scripps Technology, and Scripps Patent Rights licensed hereunder and
shall preserve and maintain such full ownership and title, subject to Licensee
fully performing all of its obligations under this Agreement.
6.2 Royalty-free License to Improvements. Licensee hereby grants to
Scripps a non-exclusive, royalty-free license to any improvement to Scripps
Technology developed by Licensee, to use for its own noncommercial research
purposes or grant to other nonprofit institutions for their non-commercial
research purposes.
6.3 Governmental Interest. Licensee and Scripps acknowledge that
Scripps has received, and expects to continue to receive, funding from the
United States Government in support of Scripps' research activities. Licensee
and Scripps acknowledge and agree that their respective rights and obligations
pursuant to this Agreement shall be subject to Scripps' obligations and the
rights of the United States Government, if any, which arise or result from
Scripps' receipt of research support from the United States Government,
including without limitation, the grant by Scripps to the United States a
non-exclusive, irrevocable, royalty-free license to Scripps Technology and
Scripps Patent Rights licensed hereunder for governmental purposes.
6.4 Reservation of Rights. Scripps reserves the right to use for any
non-commercial research purposes and the right to allow other nonprofit
institutions to use for any non-commercial research purposes (provided that such
nonprofit institutions are not using or disclosing the Scripps Technology and
Scripps Patent Rights for research or development purposes on behalf of a
for-profit entity) any Scripps Technology and Scripps Patent Rights licensed
hereunder, without Scripps or such other institutions being obligated to pay
Licensee any royalties or other compensation.
7. Confidentiality and Publication.
7.1 Treatment of Confidential Information. The parties agree that
during the term of this Agreement, and for a period of three (3) years after
this Agreement terminates, a party receiving Confidential Information of the
other party will (i) maintain in confidence such Confidential Information to the
same extent such party maintains its own proprietary industrial information,
(ii) not disclose such Confidential Information to any third party without prior
written consent of the other party and (iii) not use such Confidential
Information for any purpose except those permitted by this Agreement.
7.2 Publications. Licensee agrees that Scripps shall have a right to
publish in accordance with its general policies.
7.3 Publicity. Except as otherwise provided herein or required by law,
no party shall originate any publication, news release or other public
announcement,
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written or oral, whether in the public press, stockholders' reports, or
otherwise, relating to this Agreement or to any sublicense hereunder, or to the
performance hereunder or any such agreements, without the prior written approval
of the other party, which approval shall not be unreasonably withheld.
Scientific publications published in accordance with Section 7.2 of this
Agreement shall not be construed as publicity governed by this Section 7.3.
8. Term and Termination.
8.1 Term. Unless terminated sooner in accordance with the terms set
forth herein, this Agreement, and the license granted hereunder, shall terminate
as provided in Section 2.6 hereof.
8.2 Termination Upon Default. Any one or more of the following events
shall constitute an event of default hereunder: (i) the failure of a party to
pay any amounts when due hereunder and the expiration of thirty (30) days
after receipt of a written notice requesting the payment of such amount; (ii)
the failure of a party to perform any material obligation required of it to be
performed hereunder, and the failure to cure within sixty (60) days after
receipt of notice from the other party specifying in reasonable detail the
nature of such default; and, (if applicable) (iii) any material default by
Licensee under the Research Funding and Option Agreement dated October 28, 1996
between Scripps and Licensee and the failure to cure within thirty (30) days
after receipt of notice from the other party specifying in reasonable detail the
nature of such default. Upon the occurrence of any event of default, the
non-defaulting party may deliver to the defaulting party written notice of
intent to terminate, such termination to be effect the upon the date set forth
in such notice.
Such termination rights shall be in addition to and not in substitution
for any other remedies that may be available to the non-defaulting party.
Termination pursuant to this Section 8.2 shall not relieve the defaulting party
from liability and damages to the other party for breach of this Agreement.
Waiver by either party of a single default or a succession of defaults shall not
deprive such party of any right to terminate this Agreement arising by reason of
any subsequent default.
8.3 Termination Upon Bankruptcy or Insolvency. This Agreement may be
terminated by Scripps giving written notice of termination to Licensee upon
occurrence of any of the following events:
(a) Licensee is dissolved or any assignment is made of the Licensee's
business for the benefit of creditors;
(b) A receiver, or similar officer, is appointed to take charge of a
substantial part of the Licensee's assets; or
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(c) Any petition in bankruptcy is filed by the Licensee or any petition
in bankruptcy is filed against the Licensee and which is not dismissed within
ninety (90) days.
8.4 Rights Upon Expiration. Neither party shall have any further rights
or obligations upon the expiration of this Agreement upon its regularly
scheduled expiration date with respect to this Agreement, other than the
obligation of Licensee to make any and all reports and payments for the final
quarter period. Provided, however, that upon such expiration, each party shall
be required to continue to abide by its nondisclosure obligations as described
in Section 7.1, and Licensee shall continue to abide by its obligation to
indemnify Scripps as described in Section 4.3 and by its obligations under
Section 6.2 hereof.
8.5 Rights Upon Termination. Notwithstanding any other provision of
this Agreement, upon any termination of this Agreement prior to the regularly
scheduled expiration date of this Agreement, the license granted hereunder shall
terminate. Except as otherwise provided in Section 8.6 of this Agreement with
respect to work-in-progress, upon such termination, Licensee shall have no
further right to develop, manufacture or market any Licensed Product, or to
otherwise use any Scripps Patent Rights or any Scripps Technology not otherwise
includable therein. Upon any such termination, Licensee shall promptly return
all materials, samples, documents, information, and other materials which were
provided to Licensee by Scripps. Any such termination shall not relieve either
party from any obligations accrued to the date of such termination. Upon such
termination, each party shall be required to abide by its nondisclosure
obligations as described in Section 7.1, and Licensee shall continue to abide by
its obligations to indemnify Scripps as described in Section 4.3.
8.6 Work-in-Progress. Upon any such early termination of the license
granted hereunder in accordance with this Agreement, Licensee shall be entitled
to finish any work-in-progress and to sell any completed inventory of a Licensed
Product covered by such license which remain on hand as of the date of the
termination, so long as Licensee pays to Scripps the royalties applicable to
said subsequent sales in accordance with the terms and conditions as set forth
in this Agreement, provided that no such sales shall be permitted after the
expiration of six (6) months after the date of termination.
9. Assignment; Successors.
9.1 Assignment. Neither this Agreement nor any rights granted hereunder
may be assigned or transferred by Licensee except (i) to an Affiliate of
Licensee, (ii) to any entity with which it may merge or consolidate, or to which
it may transfer all or substantially all of its assets or business to which this
Agreement relates or (iii) as expressly permitted hereunder, without the prior
written consent of Scripps.
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9.2 Binding Upon Successors and Assigns. Subject to the limitations on
assignment herein, this Agreement shall be binding upon and inure to the benefit
of any successors in interest and assigns of Scripps and Licensee. Any such
successor or assignee of Licensee's interest shall expressly assume in writing
the performance of all the terms and conditions of this Agreement to be
performed by Licensee.
10. General Provisions.
10.1 Independent Contractors. The relationship between Scripps and
Licensee is that of independent contractors. Scripps and Licensee are not joint
venturers, partners, principal and agent, master and servant, employer or
employee, and have no other relationship other than independent contracting
parties. Scripps and Licensee shall have no power to bind or obligate each other
in any manner, other than as is expressly set forth in this Agreement.
10.2 Arbitration. Any controversy or claim arising out of or relating
to this Agreement, or the breach thereof, shall be settled by binding
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association ("AAA"), and the procedures set forth below. In the
event of any inconsistency between the Rules of AAA and the procedures set forth
below, the procedures set forth below shall control. Judgment upon the award
rendered by the arbitrators may be enforced in any court having jurisdiction
thereof.
10.2.1 Location. The location of the arbitration shall be in the City
of Philadelphia.
10.2.2 Selection of Arbitrators. The arbitration shall be conducted by
a panel of three neutral arbitrators who are independent and disinterested with
respect to the parties, this Agreement, and the outcome of the arbitration. Each
party shall appoint one neutral arbitrator, and these two arbitrators so
selected by the parties shall then select the third arbitrator. If one party has
given written notice to the other party as to the identity of the arbitrator
appointed by the party, and the party thereafter makes a written demand on the
other party to appoint its designated arbitrator within the next ten days, and
the other party fails to appoint its designated arbitrator within ten days after
receiving said written demand, then the arbitrator who has already been
designated shall appoint the other two arbitrators.
10.2.3 Discovery. Unless the parties mutually agree in writing to some
additional and specific pre-hearing discovery, the only pre-hearing discovery
shall be (a) reasonably limited production of relevant and non-privileged
documents, and (b) the identification of witnesses to be called at the hearing,
which identification shall give the witness's name, general qualifications and
position, and a brief statement as to the general scope of the testimony to be
given by the witness. The arbitrators shall decide any disputes
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and shall control the process concerning these pre-hearing discovery matters.
Pursuant to the Rules of AAA, the parties may subpoena witnesses and documents
for presentation at the hearing.
10.2.4 Case Management. Prompt resolution of any dispute is important
to both parties; and the parties agree that the arbitration of any dispute shall
be conducted expeditiously. The arbitrators are instructed and directed to
assume case management initiative and control over the arbitration process
(including scheduling of events, pre-hearing discovery and activities, and the
conduct of the hearing), in order to complete the arbitration as expeditiously
as is reasonably practical for obtaining a just resolution of the dispute.
10.2.5 Remedies. The arbitrators may grant any legal or equitable
remedy or relief that the arbitrators deem just and equitable, to the same
extent that remedies or relief could be granted by a state or federal court,
provided however, that no punitive damages may be awarded. No court action may
be maintained seeking punitive damages. The decision of any two of the three
arbitrators appointed shall be binding upon the parties.
10.2.6 Expenses. The expenses of the arbitration, including the
arbitrators' fees, expert witness fees, and attorney's fees, may be awarded to
the prevailing party, in the discretion of the arbitrators, or may be
apportioned between the parties in any manner deemed appropriate by the
arbitrators. Unless and until the arbitrators decide that one party is to pay
for all (or a share) of such expenses, both parties shall share equally in the
payment of the arbitrators' fees as and when billed by the arbitrators.
10.2.7 Confidentiality. Except as set forth below, the parties shall
keep confidential the fact of the arbitration, the dispute being arbitrated, and
the decision of the arbitrators. Notwithstanding the foregoing, the parties may
disclose information about the arbitration to persons who have a need to know,
such as directors, trustees, management employees, witnesses, experts,
investors, attorneys, lenders, insurers, and others who may be directly
affected. Additionally, if a party has stock which is publicly traded, the party
may make such disclosures as are required by applicable securities laws.
Further, if a party is expressly asked by a third party about the dispute or
the arbitration, the party may disclose and acknowledge in general and limited
terms that there is a dispute with the other party which is being (or has been)
arbitrated. Once the arbitration award has become final, if the arbitration
award is not promptly satisfied, then these confidentiality, provisions shall no
longer be applicable.
10.3 Entire Agreement: Modification. This Agreement sets forth the
entire agreement and understanding between the parties as to the subject matter
hereof. There shall be no amendments or modifications to this Agreement, except
by a written document which is signed by both parties.
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10.4 California Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of California.
10.5 Headings. The headings for each article and section in this
Agreement have been inserted for convenience of reference only and are not
intended to limit or expand on the meaning of the language contained in the
particular article or section.
10.6 Severability. Should any one or more of the provisions of this
Agreement be held invalid or unenforceable by a count of competent jurisdiction,
it shall be considered severed from this Agreement and shall not serve to
invalidate the remaining provisions thereof. The parties shall make a good faith
effort to replace any invalid or unenforceable provision with a valid and
enforceable one such that the objectives contemplated by them when entering this
Agreement may be realized.
10.7 No Waiver. Any delay in enforcing a party's rights under this
Agreement or any waiver as to a particular default or other matter shall not
constitute a waiver of such party's rights to the future enforcement of its
rights under this Agreement, excepting only as to an express written and signed
waiver as to a particular matter for a particular period of time.
10.8 Name. Whenever there has been an assignment or a sublicense by
Licensee as permitted by this Agreement, the term "Licensee" as used in this
Agreement shall also include and refer to, if appropriate, such assignee or
sublicensee.
10.9 Attorneys' Fees. In the event of a dispute between the parties
hereto or in the event of any default hereunder, the party prevailing in the
resolution of any such dispute or default shall be entitled to recover its
reasonable attorneys' fees and other costs incurred in connection with resolving
such dispute or default.
10.10 Notices. Any notices required by this Agreement shall be in
writing, shall specifically refer to this Agreement and shall be sent by
registered or certified airmail, postage prepaid, or by telefax, telex or cable,
charges prepaid, or by overnight courier, postage prepaid and shall be
forwarded to the respective addresses set forth below unless subsequently
changed by written notice to the other party:
For Scripps The Scripps Research Institute
10550 North Torrey Pines Road, TPC-9
La Jolla, California 92037
Attention: Vice President, Technology Development
Fax No.: (619) 784-9910
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For Licensee: Acute Therapeutics, Inc.
3359 Durham Road
Doylsetown, PA 18901
Attention: Mr. Robert Capetola
Fax No.: (215) 794-3239
Notice shall be deemed delivered upon the earlier of (i) when received, (ii)
three (3) days after deposit into the mail, or (iii) the date notice is sent via
telefax, telex or cable, (iv) the day immediately following delivery to
overnight courier (except Sunday and holidays).
10.11 Compliance with U.S. Laws. Nothing contained in this Agreement
shall require or permit Scripps or Licensee to do any act inconsistent with the
requirements of any United States law, regulation or executive order as the same
may be in effect from time to time.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized representatives as of the date set forth above.
SCRIPPS: LICENSEE:
THE SCRIPPS RESEARCH INSTITUTE
By: By:
Arnold LaGuardia
Title: Senior Vice President Title:
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EXHIBIT D TO THE RESEARCH AGREEMENT
Royalty Rates
[***]
[***] Confidential treatment requested.
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(letterhead of The Scripps Research Institute)
February 26, 1997
Robert J. Capetola, Ph.D.
Acute Therapeutics, Inc.
3359 Durham Road
Doylestown, PA 18901
VIA FEDERAL EXPRESS
Re: TSRI/Acute Therapeutics, Inc. Research Funding and Option
Agreement
Dear Bob:
This is to confirm our understanding that the commencement date for
the initial term as set forth in Section 7.1 of the above-identified
Agreement shall be changed from October 28, 1996 to March 1, 1997. Pleas
acknowledge ATI's agreement to this change by signing where indicated
below and returning one copy of this letter to my office.
Sincerely,
(sig of Douglas A. Bingham)
Douglas A. Bingham
DAB:af
Agreed:
(sig of Robert J. Capetola, Ph.D.)
Robert J. Capetola, Ph.D.
cc: Arnold LaGuardia
<PAGE>
EXHIBIT 10.24
EXECUTION COPY
SAUL S. BODENHEIMER EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of November , 1996 between Discovery
Laboratories, Inc., a Delaware corporation with its principal place of business
at 787 Seventh Avenue, 44th Floor, New York, New York 10019 (the "Company"),
and Saul S. Bodenheimer, M.D., an individual residing at 680 Forest Avenue,
Teaneck, New Jersey 07666 (the "Employee").
WITNESSETH:
WHEREAS, the Company desires to employ the Employee as Vice President
of Clinical Affairs of the Company commencing on a date which shall be mutually
agreed to between the Company and the Employee (the "Employment Date"), on the
terms and conditions herein provided; and
WHEREAS, the Employee desires to accept such employment on the terms
and conditions herein provided.
NOW, THEREFORE, in consideration of the mutual covenants and the
agreements hereinafter set forth, and intending to be legally bound hereby, the
parties hereto covenant and agree as follows:
A. EMPLOYMENT
1. Employment. The Company hereby employs the Employee, and
the Employee hereby accepts such employment, upon the terms and conditions set
forth in this Agreement.
2. Term. The term of the Employee's employment under this
Agreement (the "Base Term") shall commence on the Employment Date, and, unless
terminated earlier as provided in this Agreement, shall continue up to and
including the day immediately preceding the third anniversary date of the
Employment Date.
3. Duties and Services. During the Term, the Employee shall
serve the Company as Vice President of Clinical Affairs which duties shall
include without limitation: (a) overseeing the design and conduct of the
Company's clinical programs, (b) devoting to the affairs of the Company all of
the Employee's business time and attention; (c) rendering services to the
Company in a manner reasonably satisfactory to the Company; (d) using best
efforts to promote the interests of the Company and (e) performing no acts
contrary to such interests.
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4. Salary. For all services rendered by the Employee, the
Company shall pay the Employee an annual salary ( the "Salary" ) in the
following amounts:
(a) From the Employment Date to December 31, 1997, an
annual salary in the amount equal to One Hundred Fifty Five Thousand Dollars
($155,000.00); and
(b) From January 1, 1998 until the end of the Term,
the annual salary shall be the sum of (i) One Hundred Fifty Five Thousand
Dollars ($ 155,000.00), (ii) any adjustments for cost of living expenses using
the percentage difference between the applicable year's "Consumer Price
Index" published by the Bureau of Labor Statistics of the U.S. Department of
Labor, All Items, New York, N.Y.-Northeastern, N.J., all urban consumers
(presently denominated "CPI-U") (the "Price Index") and the Price Index for
the preceding year, and (iii) an increase in Salary comparable to any increases
in compensation received by all other officers of similar position and
responsibilities in the Company solely in connection with the general
compensation policies of the Company. For the avoidance of doubt, any increase
in the compensation of any other officer of the Company arising out of an
agreement with the Company shall not entitle the Employee to a similar increase
pursuant to the terms of this Section (A)(4)(b)(iii).
The salary shall be payable in accordance with the Company's
general payroll practices.
5. Vacation. The Employee shall be entitled each year to three
(3) weeks of paid vacations consistent with the policies of the Company.
6. Other benefits. During the Term, the Employee shall
participate in an equitable manner, and to receive benefits under the Company's
medical and dental insurance plans (if any) now or hereafter made available by
the Company to its employees generally.
7. Reimbursement. The Company shall reimburse the Employee for
the following costs:
(a) All business and traveling expenses reasonably
incurred by the Employee in connection with the performance of the Employee's
services for the Company upon presentation of supporting documentation and
prior approval by the Chief Executive Officer of the Company; provided that,
such expenses shall be consistent with the Company's travel policies; and
(b) Any monthly parking fees which the Employee
incurs in parking his car at or near his office; provided, that, notwithstanding
anything herein to the contrary, in no event shall the Company be required
under this Section 7(b) to reimburse the Employee for any amounts, which in the
aggregate for any month, would exceed Three Hundred Dollars ($300.00).
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8. Bonuses. The Employee shall receive a performance bonus
(the "Bonus") which shall be equal to twenty five percent (25%) of the then
prevailing Salary, prorated for the number of days worked by the Employee in
1996 and 1997 and shall be paid to the Employee on December 31, 1997.
9. Stock Options. So long as this Agreement shall be in full
force and effect, the Company shall agree to sell to the Employee One Hundred
Thousand (100,000) shares of common stock of the Company at an exercise price
of $0.20 per share; provided that, the stock options shall vest on the dates
set forth in the following schedule:
(a) Twenty Five Thousand (25,000) shares shall vest
upon execution and delivery of this Agreement by the parties hereto;
(b) Twenty Five Thousand (25,000) shares shall vest
upon the first anniversary date of the Employment Date;
(c) Twenty Five Thousand (25,000) shares shall vest
upon the second anniversary date of the Employment Date; and
(d) Twenty Five Thousand (25,000) shares shall vest
upon the day immediately preceding the third anniversary date of the Employment
Date.
The Employee shall be permitted to exercise such stock options in accordance
with the Discovery Laboratories, Inc. Stock Option Agreement executed and
delivered by the Company in favor of the Employee, a form of which is attached
hereto as Exhibit B (the "Stock Option Agreement"). For the avoidance of doubt,
in the event that the terms set forth in this Section (A)(9) are inconsistent
with the terms of the Stock Option Agreement, the terms in the Stock Option
Agreement shall govern.
B. TERMINATION OF EMPLOYMENT
1. Termination. The Company may terminate the Employee's
employment and the term of this Agreement, with or without cause, by thirty
(30) days' prior written notice to the Employee; provided however, that the
Company may terminate without any prior notice to the Employee in the event the
Employee fails to perform the Employee's duties and responsibilities in any
material respect or commits any material breach of this Agreement or in the
event the Employee's employment is terminated for cause. The date which the
Company shall terminate the Employee's employment and the term of this
Agreement hereinafter referred to as the "Termination Date. "
The Employee may terminate the Employee's employment and the
term of this Agreement, with or without cause, by thirty (30) days' prior
written notice to the Company; provided however, that the Employee may
terminate without any prior notice to the Company in the event the Company
fails to perform its duties in any material respect or commits any material
breach of this Agreement.
In the event that the Company shall terminate the employee's
employment
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and the term of this Agreement without cause, the Company shall pay to the
Employee an amount equal to one-half of the then prevailing annual Salary of
the Employee, payable in six (6) monthly installments; provided that, (a) the
Employee shall not make any statements to any other person which shall be
contrary to the Company's interests and the Employee shall not have breached
any covenant, term or provision of this Agreement or the Non-Competition
Agreement (as such term is hereinafter defined), and (b) in the event that
Employee shall obtain employment during the six (6) months immediately
succeeding the Termination Date, then the remaining monthly installments which
the Company shall pay the Employee shall be reduced by the monthly compensation
received by the Employee from his successor employer, except that, in no event
shall such amount be less than zero.
2. Disability of Employee. If the Employee is incapacitated or
disabled during the Term by accident, sickness or otherwise so as to render the
Employee physically or mentally incapable of performing in all material
respects the services required to be performed by the Employee under this
Agreement, the Company shall continue to pay the Employee the compensation
provided in Section 1 (A)(4) for the shorter of (i) the remainder of the Term
or (ii) the period ending at the end of the month that is six months from the
date of such incapacitation or disability, unless prior to the end of such
period, the Employee is able to perform in all material respects the services
required to be performed under this Agreement, in which event this Agreement
shall continue in full force and effect to the end of the Term as if the
Employee had not been incapacitated or disabled. If the Employee shall be
unable to resume the performance in all material respects of the services
required to be performed under this Agreement for a period of six months from
the date of such incapacitation or disability, this Agreement shall be deemed
terminated at the end of such six-month period.
3. Death of Employee. If the Employee dies during the Term,
this Agreement shall terminate as of the date of the Employee's death. In the
event of such termination, the Employee's estate shall be entitled to receive
the Employee's regular salary pursuant to Section (A)(4) through the last day
of the month in which the Employee's death occurs.
C. RESTRICTIVE COVENANTS OF THE EMPLOYEE
1. Confidentiality. Non-Solicitation, Non-Competition and
Patents and Copyrights. As a condition precedent to the Company's obligations
under this Agreement, the Employee shall execute and deliver to the Company an
original of the Proprietary Information and Inventions, Non-Solicitation and
Non-Competition Agreement (the "Non-Competition Agreement"), in substantially
the form and substance set forth in Exhibit A hereto. The Employee agrees to
abide by the terms and conditions of the Non-Competition Agreement. Any breach
of the Non-Competition Agreement shall be deemed a material breach of this
Agreement.
2. Injunctive Relief. The Employee acknowledges that a breach
or threatened breach of the Non-Competition Agreement will cause the Company
irreparable injury and damage. The Employee therefore agrees that, in addition
to any other remedies that may be available to the Company, the Company shall
be entitled to an injunction and/or other equitable relief (without the
requirement of posting a bond or other security) to prevent a breach or
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threatened breach of such sections and to secure their enforcement.
D. MISCELLANEOUS
1. Assignabilitv. This Agreement is personal and
non-assignable by the Employee. It shall inure to the benefit of any
corporation or other entity with or into which the Company shall merge or
consolidate or to which the Company shall lease or sell all or substantially
all of its assets.
2. Representations. The Employee represents and warrants to
the Company that the Employee is not now under any obligation to any person,
firm or corporation, and has no other interest, which is inconsistent or in
conflict with this Agreement or the Non-Competition Agreement, or which would
prevent, limit or impair, in any way, the Employee's performance of any of the
covenants or duties hereinabove set forth.
3. Notice. All notices and other communication hereunder shall
be in writing. All notices and communication hereunder shall be deemed to be
given on the date thereof if sent by personal delivery with receipt
acknowledged or by facsimile, or five (5) business days after if sent by
certified mail, return receipt requested. All notices or communications shall
be given to the respective parties at the following addresses, or such other
addresses as the parties may designate in writing, after giving notice in
accordance with this section:
Notice to the Company, to:
Discovery Laboratories, Inc.
787 Seventh Avenue, 44th Floor
New York, New York 10019
Attention: Dr. James S. Kuo
Chief Executive Officer
Telephone: 212-554-4364
Facsimile: 212-554-4490
Notice to the Employee, to:
Dr. Saul Bodenheimer
680 Forest Avenue
Teaneck, New Jersey 07666
Telephone: 201-801-0213
Facsimile:
4. Severability. The provisions of this Agreement shall be
deemed severable, and the invalidity or unenforceability of any provision shall
not affect the validity and enforceability of any other provision. If any
provision of this Agreement is finally held to be invalid or unenforceable by a
court of competent jurisdiction, such provision shall be appropriately
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<PAGE>
limited and reduced (in time, duration, geographical scope, activity or
subject) and given effect to the extent it may be enforceable in accordance
with applicable law.
5. Headings. The headings to the sections of this Agreement
are for convenience of reference only and shall not be given any effect in the
construction or interpretation of this Agreement.
6. Governing Law. This Agreement has been executed and
delivered in the State of New York and shall be interpreted, enforced and
governed by the laws of the State of New York (without regard for the conflict
of laws principles applied by the Courts of the state of New York).
7. Jurisdiction. The Employee hereby irrevocably consents that
any legal action or proceeding against him or any of his assets with respect to
this Agreement or the Non-Competition Agreement may be brought in any
jurisdiction where the Employee or any of his assets may be found, or in any
court of the State of New York or any Federal court of the United States of
America located in New York, New York, United States of America, or both, as
the Company may elect, and by execution and delivery of this Agreement and the
Non-Competition Agreement, the Employee hereby irrevocably submits to and
accepts with regard to any such action or proceeding, for himself and in
respect of his assets, generally and unconditionally, the jurisdiction of the
aforesaid courts. The Company may serve process in any manner permitted by
applicable law or to bring any legal action or proceeding or to obtain
execution of judgment in any jurisdiction. The Employee further agrees that
final judgment against the Employee in any action or proceeding in connection
with this Agreement shall be conclusive and may be enforced in any other
jurisdiction within or outside the United States of America by suit on the
judgment, a certified or exemplified copy of which shall be conclusive evidence
of the fact and the amount of the Employee's indebtedness. The Employee hereby
irrevocably waives, to the fullest extent permitted by applicable law, any
objection which the Employee may now or hereafter have to the laying of venue
of any suit, action or proceeding arising out of or relating to this Agreement
or the Non-Competition Agreement brought in the State of New York, and hereby
further irrevocably waives any claim that any such suit, action or proceeding
brought in the State of New York has been brought in an inconvenient forum.
8. Expenses. If a party to this Agreement shall breach or
threaten to breach this Agreement, the other party agrees to pay on demand all
of the non-breaching party's costs of enforcing this Agreement, including, but
not limited to, reasonable attorneys' fees and expenses and court costs,
provided that, in each case, the party alleging such breach shall prevail in
its claim.
9. Entire Agreement. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous oral and written agreements,
understandings, negotiations and discussions. This Agreement may not be amended
orally, nor shall any purported oral amendment or modification (even if
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<PAGE>
accompanied by partial or complete performance in accordance therewith) be of
any legal force or effect or constitute an amendment or modification of this
Agreement, but rather this Agreement may be amended or modified only by an
agreement in writing signed by the parties hereto
10. WAIVER OF JURY TRIAL THE COMPANY AND THE EMPLOYEE TO THE
EXTENT THEY MAY LEGALLY DO SO, HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR PROCEEDING ARISING UNDER
OR WITH RESPECT TO THIS AGREEMENT OR THE NON-COMPETITION AGREEMENT, OR THE
TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND IRRESPECTIVE OF WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE. TO THE EXTENT THEY MAY LEGALLY DO SO, THE COMPANY AND THE EMPLOYEE
HEREBY AGREE THAT ANY SUCH CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR
PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY
HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 10 WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE OTHER PARTY OR PARTIES HERETO
TO WAIVER OF ITS OR THEIR RIGHT TO TRIAL BY JURY.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed or caused to be
executed this Agreement as of the date first above written.
DISCOVERY LABORATORIES, INC.
By: (Signature of James S. Kuo, M.D. appears here)
Name: James S. Kuo, M.D.
Title: Chief Executive Officer
SAUL S. BODENHEIMER, M.D.
(Signature of Saul S. Bodenheimer, M.D. appears here)
November 20, 1996
<PAGE>
<PAGE>
EXHIBIT 10.25
EXECUTION COPY
DAVID R CROCKFORD EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of November 25, 1996 between Discovery
Laboratories, Inc., a Delaware corporation with its principal place of BUSINESS
AT 787 SEVENTH Avenue, 44th Floor, New York, New York 10019 (the "Company"),
and David R. Crockford, an individual, residing at 113 Record Street,
Frederick, Maryland 21701 (the "Employee").
WITNESSETH:
WHEREAS, the Company desires to employ the Employee as Vice President
of Regulatory Affairs of the Company commencing on a date which shall be
mutually agreed to between the Company and the Employee (the "Employment
Date"), on the terms and conditions herein provided; and
WHEREAS, the Employee desires to accept such employment on the terms
and conditions herein provided.
NOW, THEREFORE, in consideration of the mutual covenants and the
agreements hereinafter set forth, and intending to be legally bound hereby, the
parties hereto covenant and agree as follows:
A. EMPLOYMENT
1. Employment. The Company hereby employs the Employee, and
the Employee hereby accepts such employment, upon the terms and conditions set
forth in this Agreement.
2 Term. The term of the Employee's employment under this
Agreement (the "Base Term") shall commence on the Employment Date, and, unless
terminated earlier as provided in this Agreement, shall continue up to and
including the day immediately preceding the third anniversary date of the
Employment Date; provided that, the Employee and the Company may by mutual
agreement agree to extend this Agreement for an additional three (3) year term
(each~such term, a "Renewal Term" and together with the Base Term and all other
Renewal Terms, the "Term") upon written notice to the Company no less than
ninety (90) days prior to the expiration of the Term.
<PAGE>
3. Duties and Services. During the Term, the Employee shall
serve the Company as Vice President of Regulatory Affairs which duties shall
include without limitation: (a) acting as the Company's liaison with the United
States Food and Drug Administration in connection with any and all of the
projects of the Company, (b) devoting to the affairs of the Company all of the
Employee's business time and attention; (c) rendering services to the Company
in a manner reasonably satisfactory to the Company; (d) using best efforts to
promote the interests of the Company and (e) performing no acts contrary to
such interests.
4. Salary. For all services rendered by the Employee, the
Company shall pay the Employee an annual salary ( the "Salary") in the
following amounts:
(a) From the Employment Date to December 31, 1997, an
annual salary in the amount equal to One Hundred Forty Thousand Seven Hundred
Eighty Five Dollars ($140,785.00); and
(b) From January 1, 1998 until the end ~the Term, the
annual salary shall be the sum of (i) One Hundred Forty Thousand Seven Hundred
Eighty Five Dollars ($140,785.00), (ii) any adjustments for cost of living
expenses using the percentage difference between the applicable year's
"Consumer Price Index" published by the Bureau of Labor Statistics of the U.S.
Department of Labor, All Items, New York, N.Y.-Northeastern, N.J., all urban
consumers (presently denominated "CPI-U") (the "Price Index") and the Price
Index for the preceding year, and (iii) an increase in Salary comparable to any
increases in compensation received by all other officers of similar position
and responsibilities in the Company solely in connection with the general
compensation policies of the Company. For the avoidance of doubt, any increase
in the compensation of any other officer of the Company arising out of an
agreement with the Company shall not entitle the Employee to a similar increase
pursuant to the terms of this Section (A)(4)(b)(iii)
The salary shall be payable in accordance with the Company's
general payroll practices.
5. Vacation. The Employee shall be entitled each year to three
(3) weeks of paid vacations consistent with the policies of the Company.
6. Other benefits. During the Term, the Employee shall be
entitled to the following benefits:
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(a) Term life insurance, which DEATH BENEFITS SHALL
BE IN AN AMOUNT equal to twice the then prevailing Salary of the Employee; and
(b) The Employee shall participate in an equitable
manner, and to receive benefits under the Company's medical and dental
insurance plans (if any) now or hereafter made available by the Company to its
employees generally.
7. Reimbursement. The Company shall reimburse the Employee for
the following costs:
(a) All business and traveling EXPENSES REASONABLY
INCURRED BY THE Employee in connection with the performance of the Employee's
services for the Company upon presentation of supporting documentation and
prior approval by the Chief Executive Officer of the Company; provided that (i)
such expenses shall be consistent with the Company's travel policies, (ii) the
Employee shall reasonably utilize the least expensive mode of transportation in
traveling on behalf of the Company and (iii) the Employee shall share hotel
rooms, if necessary, in traveling on behalf of the Company;
(b) All reasonable moving expenses and costs in
connection with the Employee's relocation of his principal residence to the New
York City metropolitan area; provided that, prior to such move, the Employee
shall submit to the Company three (3) estimates for moving expenses and costs,
and the Company may choose either (x) one of the three (3) estimates provided
by the Employee or (y) an estimate obtained by it from a reputable interstate
mover that complies with Interstate Commerce Commission (ICC) regulations, and
the Employee shall use the estimate chosen by the Company. Furthermore, the
Employee shall complete moving his principal residence to the New York City
metropolitan area within six (6) months from the date of this Agreement,
provided that such time may be extended an additional two (2) months upon
mutual consent of the parties; and
(c) All reasonable costs and expenses in connection
with the sale of the Employee's principal residence including realtor fees and
commissions, legal, bank fees and all applicable federal, state and municipal
taxes; provided that, notwithstanding anything herein to the contrary, in no
event shall the Company pay to the Employee any amounts under this Section
(A)(7)(c) which in the aggregate shall exceed Twenty Thousand Dollars
($20,000.00).
8. Bonuses. The Employee shall receive a performance bonus
(the "Bonus") at the end of each calendar year to be determined by the Chief
Executive Officer of the Company; provided that, (a) in no event shall the
Bonus
be less than five percent (5%) or greater than twenty percent (20%) of the then
prevailing Salary, and (b) the 1996 and 1997 Bonus shall be prorated for the
number of days worked by the Employee in 1996 and 1997, and shall be paid to
the Employee on December 31, 1997.
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<PAGE>
9. Stock Options. So long as this Agreement shall be in full
force and effect, the Company shall agree to sell to the Employee One Hundred
Thousand (100,000) shares of common stock of the Company at an exercise price
of $0.20 per share; provided that, the stock options shall vest on the dates
set forth in the following schedule:
(a) Twenty Five Thousand (25,000) shares shall vest
upon execution and delivery of this Agreement by the parties hereto;
(b) Twenty Five Thousand (25,000) shares shall vest
upon the first anniversary date of the Employment Date,
(c) Twenty Five Thousand (25,000) shares shall vest
upon the second anniversary date of the Employment Date; and
(d) Twenty Five Thousand (25,000) shares shall vest
upon the day immediately preceding the third anniversary date of the Employment
Date.
The Employee shall be permitted to exercise such stock options in accordance
with the Discovery Laboratories, Inc. Stock Option Agreement executed and
delivered by the Company in favor of the Employee, a form of which is attached
hereto as Exhibit B (the "Stock Option Agreement"). For the avoidance of doubt,
in the event that the terms set forth in this Section (A)(9) are inconsistent
with the terms of the Stock Option Agreement, the terms in the Stock Option
Agreement shall govern.
B. TERMINATION OF EMPLOYMENT
1. Termination. The Company may terminate the Employee's
employment and the term of this Agreement, with or without cause, by thirty
(30) days' prior written notice to the Employee; provided however, that the
Company may terminate without any prior notice to the Employee in the event the
Employee fails to perform the Employee's duties and responsibilities in any
material respect or commits any material breach of this Agreement or in the
event the Employee's employment is terminated for cause. The date which the
Company shall terminate the Employee's employment and the term of this
Agreement hereinafter referred to as the "Termination Date." For the purposes
of this Section (B)(1), the term "for cause" shall mean a cause which would
legally justify the Company to terminate the Employee's employment and the term
of this Agreement.
The Employee may terminate the Employee's employment and the
term of this Agreement, with or without cause, by thirty (30) days' prior
written notice to the Company; provided however, that the Employee may
terminate without any prior notice to the Company in
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<PAGE>
the event the Company fails to perform its duties in any material respect or
commits any material breach of THIS AGREEMENT.
In the event that the Company shall terminate the Employee's
employment and the term of this Agreement without cause, the Company shall pay
to the Employee an amount equal to one-half of the then prevailing annual
Salary of the Employee, payable in two (2) consecutive quarterly installments,
the first installment which shall be payable upon the Termination Date and the
second installment shall be payable on the third monthly anniversary date
thereafter (each such quarterly period, hereinafter referred to as a
"Compensation Period"); provided that, (a) the Employee shall not make any
statements to any other person which shall be contrary to the Company's
interests and the Employee shall not have breached any covenant, term or
provision of this Agreement or the Non-Competition Agreement (as such term is
hereinafter defined), and (b) in the event that the Employee shall obtain
employment during the six (6) months immediately succeeding the Termination
Date, then (i) any remaining installment which the Company shall pay to the
Employee shall be reduced by the compensation received by the Employee from his
successor employer during such Compensation Period, except that, in no event
shall such amount be less than zero, and (ii) the Employee shall return to the
Company an- amount equal to the compensation received by the Employee from his
successor employer for any remaining days in any Compensation Period for which
the Company has already paid to the Employee the installment for such
Compensation Period, provided that, in no event shall such amount be greater
than the pro rata portion of the installment received by the Employee from the
Company during such Compensation Period in accordance with this Section (B)(l).
2. Disability of Employee. If the Employee is incapacitated or
disabled during the Term by accident, sickness or otherwise so as to render the
Employee physically or mentally incapable of performing in all material
respects the services required to be performed by the Employee under this
Agreement for any of the following periods: (a) ninety (90) consecutive days,
or (b) ninety (90) days within any six (6) month period (the "Disability
Period"), then the term of this Agreement shall terminate on the last day of
such Disability Period. In the event that this Agreement is terminated pursuant
to this Section (B)(2), the Company shall continue to pay the Employee the
compensation provided in Section (A)(4) for the shorter of (i) the remainder of
the Term or (ii) the period ending at the end of the month that is six months
from the date of such incapacitation or disability.
3. Death of Employee. If the Employee dies during the Term,
this Agreement shall terminate as of the date of the Employee's death. In the
event of such termination, the Employee's estate shall be entitled to receive
the Employee's regular salary pursuant to Section (A)(4) through the last day
of the month in which the Employee's death occurs.
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C. RESTRICTIVE COVENANTS OF THE EMPLOYEE
1. Confidentiality. Non-Solicitation. Non-Competition and
Patents and Copyrights. As a condition precedent to the Company's obligations
under this Agreement, the Employee shall execute and deliver to the Company an
original of the Proprietary Information and Inventions, Non-Solicitation and
Non-Competition Agreement (the "Non-Competition Agreement"), in substantially
the form and substance set forth in Exhibit A hereto. The Employee agrees to
abide by the terms and conditions of the Non-Competition Agreement. Any breach
of the Non-Competition Agreement shall be deemed a material breach of this
Agreement.
2. Injunctive Relief. The Employee acknowledges that a breach
or threatened breach of the Non-Competition Agreement will cause the Company
irreparable injury and damage. The Employee therefore agrees that, in addition
to any other remedies that may be available to the Company, the Company shall
be entitled to an injunction and/or other equitable relief (without the
requirement of posting a bond or other security) to prevent a breach or
threatened breach of such sections and to secure their enforcement.
D. MISCELLANEOUS
1. Assignability. This Agreement is personal and
non-assignable by the Employee. It shall inure to the benefit of any
corporation or other entity with or into which the Company shall merge or
consolidate or to which the Company shall lease or sell all or substantially
all of its assets.
2. Representations. The Employee represents and warrants to
the Company that the Employee is not now under any obligation to any person,
firm or corporation, and has no other interest, which is inconsistent or in
conflict with this Agreement or the Non-Competition Agreement, or which would
prevent, limit or impair, in any way, the Employee's performance of any of the
covenants or duties hereinabove set forth.
3. Notice. All notices and other communication hereunder shall
be in writing. All notices and communication hereunder shall be deemed to be
given on the date thereof if sent by personal delivery with receipt
acknowledged or by facsimile, or five (5) business days after if sent by
certified mail, return receipt requested. All notices or communications shall be
given to the respective parties at the following addresses, or such other
addresses as the parties may designate in writing, after giving notice in
accordance with this Section (D)(3):
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<PAGE>
Notice to the Company, to:
Discovery Laboratories, Inc.
787 Seventh Avenue, 44th Floor
New York, New York 10019
Attention: Dr. James S. Kuo
Chief Executive Officer
Telephone: 212-554-4364
Facsimile: 212-554-4490
Notice to the Employee, to:
David R. Crockford
113 Record Street
Frederick, Maryland 21701
Telephone: 301 -663-3218
Facsimile:
4. Severability. The provisions of this Agreement shall be
deemed severable, and the invalidity or unenforceability of any provision shall
not affect the validity and enforceability of any other provision. If any
provision of this Agreement is finally held to be invalid or unenforceable by a
court of competent jurisdiction, such provision shall be appropriately limited
and reduced (in time, duration, geographical scope, activity or subject) and
given effect to the extent it may be enforceable in accordance with applicable
law.
5. Headings. The headings to the sections of this Agreement
are for convenience of reference only and shall not be given any effect in the
construction or interpretation of this Agreement.
6. Governing Law. This Agreement has been executed and
delivered in the State of New York and shall be interpreted, enforced and
governed by the laws of the State of New York (without regard for the conflict
of laws principles applied by the Courts of the State of New York).
7. Jurisdiction. The Employee hereby irrevocably consents that
any legal action or proceeding against him or any of his assets with respect to
this Agreement or the Non-
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Competition Agreement may be brought in any jurisdiction where the Employee or
any of his assets may be found, or in any court of the State of New York or any
Federal court of the United States of America located in New York, New York,
United States of America, or both, as the Company may elect, and by execution
and delivery of this Agreement and the Non-Competition Agreement, the Employee
hereby irrevocably submits to and accepts with regard to any such action or
proceeding, for himself and in respect of his assets, generally and
unconditionally, the jurisdiction of the aforesaid courts. The Company may
serve process in any manner permitted by applicable law or to bring any legal
action or proceeding or to obtain execution of judgment in any jurisdiction.
The Employee further agrees that final judgment against the Employee in any
action or proceeding in connection with this Agreement shall be conclusive and
may be enforced in any other jurisdiction within or outside the United States
of America by suit on the judgment, a certified or exemplified copy of which
shall be conclusive evidence of the fact and the amount of the Employee's
indebtedness. The Employee hereby irrevocably waives, to the fullest extent
permitted by applicable law, any objection which the Employee may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement or the Non-Competition Agreement brought
in the State of New York, and hereby further irrevocably waives any claim that
any such suit, action or proceeding brought in the State of New York has been
brought in an inconvenient forum.
8. Expenses. If a party to this Agreement shall breach or
threaten to breach this Agreement, the other party agrees to pay on demand all
of the non-breaching party's costs of enforcing this Agreement, including, but
not limited to, reasonable attorneys' fees and expenses and court costs,
provided that, in each case, the party alleging such breach shall prevail in its
claim.
9. Entire Agreement. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous oral and written agreements,
understandings, negotiations and discussions. This Agreement may not be amended
orally, nor shall any purported oral amendment or modification (even if
accompanied by partial or complete performance in accordance therewith) be of
any legal force or effect or constitute an amendment or modification of this
Agreement, but rather this Agreement may be amended or modified only by an
agreement in writing signed by the parties hereto.
10. WAIVER OF JURY TRIAL THE COMPANY AND THE EMPLOYEE TO THE
EXTENT THEY MAY LEGALLY DO SO, HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR PROCEEDING ARISING UNDER
OR WITH RESPECT TO THIS AGREEMENT OR THE NON-COMPETITION AGREEMENT, OR THE
TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND IRRESPECTIVE OF WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE. TO
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THE EXTENT THEY MAY LEGALLY DO SO, THE COMPANY AND THE EMPLOYEE HEREBY AGREE
THAT ANY SUCH CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR PROCEEDING SHALL BE
DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION (D)(10) WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE OTHER PARTY OR PARTIES HERETO TO WAIVER OF ITS
RIGHT TO TRIAL BY JURY.
[THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties have executed or caused to be
executed this Agreement as of the date first above written.
DISCOVERY LABORATORIES, INC.
By: (Signature of James S. Kuo, M.D. appears here)
Name: James S. Kuo, M.D.
Title: Chief Executive Officer
DAVID R. CROCKFORD
(Signature of David R. Crockford appears here)
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<PAGE>
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into
as of February 16, 1997 by and between Acute Therapeutics, Inc. a Delaware
corporation (the "Company"), and Huei Tsai, Ph.D. ("Executive").
WHEREAS, the Company and the Executive desire that the
Executive be employed by the Company and that the terms and conditions of such
employment be defined;
NOW, THEREFORE, in consideration of the employment of the
Executive by the Company, the Company and Executive agree as follows:
1. Term of the Agreement. The Company shall employ Executive
and Executive shall accept employment for a period of three (3) years
commencing on February 16, 1997 (the "Commencement Date") and continuing until
February 15, 2000 (the "Employment Period") subject, however, to prior
termination as hereinafter provided in Section 6.
2. Executive's Duties and Obligations.
a. Duties. Executive shall serve as Vice President of
Biometrics. Executive shall be responsible for assistance and design, execution,
analysis and quality of clinical data.
b. Location of Employment . Executive's principal place
of business shall be at Company's office located at 3359 Durham Road,
Doylestown, Pennsylvania 18901.
<PAGE>
<PAGE>
c. Proprietary Information and Inventions Agreement.
Upon commencement of employment with the Company, Executive shall execute the
Company's standard form of Intellectual Property and Confidential Information
Agreement (the "Confidentiality Agreement") a copy of which is attached to
this Agreement as Exhibit A.
3. Devotion of Time to Company's Business
a. Full-Time Efforts. During his employment with the
Company, Executive shall devote substantially all of his business time,
attention and efforts to the high quality performance of his duties to the
Company.
b. No Other Employment. During his employment with the
Company, Executive shall not, whether directly or indirectly, render any
services of a commercial or professional nature to any other person or
organization, whether for compensation or otherwise, without the prior written
consent of the Company's Executive Committee or Board of Directors.
c. Non-Competition During Employment. During the term
of this Agreement, and for eighteen months after its termination, Executive
shall not, directly or indirectly, either as an employee, employer, consultant,
agent, principal , partner, stockholder, corporate officer, director, or in any
other individual or representative capacity (i) compete with Acute Therapeutics,
Inc. in the business or research areas of surfactant replacement therapy and
other areas which Acute Therapeutics, Inc. may enter while he remains employed,
or (ii)
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<PAGE>
directly or indirectly solicit or employ any employees of the Company.
4. Compensation and Benefits.
a. Base Compensation. During the term of this
Agreement, the Company, shall pay to Executive base annual compensation of One
Hundred Forty thousand dollars ($140,000), less all required withholdings.
b. Benefits. During his employment with the Company,
the Company shall provide reasonable disability benefits to Executive while
Executive is a full-time employee of the Company. In addition, the Company will
provide to Executive term life insurance on behalf of Executive's beneficiaries
in the amount of Executive's annual salary for the term of this Agreement.
Executive shall receive an annual payment of $5,000 per year for the length of
this Agreement in lieu of receiving any health care and dental benefits.
c. Stock Option. The Board of Directors of the Company
has granted to Executive, on the date hereof, an incentive stock option to
purchase 16,000 shares of Common Stock, $.001 par value of the Company, at an
exercise price of $0.32 per share, pursuant to the terms of the Notice of Grant
of Stock Option attached hereto as Exhibit B.
d. Incentive Bonus. Executive shall be eligible for an
incentive bonus at the discretion of the Chief Executive Officer of the Company.
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<PAGE>
5. Termination of Employment
a. Termination for Good Cause. The Company may
terminate Executive's employment at any time for "Good Cause," as herein
defined. For the purposes of this Agreement, "Good Cause" includes, but is not
limited to, gross misconduct, gross neglect of duties, acts involving moral
turpitude, material breach by Executive of this Agreement or the Confidentiality
Agreement or any act or omission involving fraud, embezzlement, or
misappropriation of any property or proprietary information of the Company by
Executive which is not cured by Executive within fifteen (15) days after receipt
of written notice from the Company.
b. Termination without Good Cause. If
Executive's employment is terminated by the Company without Good Cause, the
following provisions shall apply:
i) Executive shall be entitled to any unpaid
compensation accrued through the last day of Executive's employment;
ii) Executive shall be entitled to receive severance
payments equal to his base compensation, payable on normal Company payroll
dates, for a six month period, subject to setoff for other employment or
consulting income received by Executive.
c. Death or Disability. This Agreement shall terminate
if Executive dies or is mentally or physically "Disabled" as herein defined. For
the purposes of this
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<PAGE>
Agreement, "Disabled" shall mean a mental or physical condition that renders
Executive incapable of performing his duties and obligations under this
Agreement for three (3) or more consecutive months or for a total of six (6)
months during any twelve (12) consecutive months; provided, that during such
period the Company shall give Executive at least thirty (30) days' written
notice that it considers the time period for disability to be running. If this
Agreement is terminated under this paragraph 5.d., Executive or his estate
shall be entitled to any unpaid compensation accrued through the last day of
Executive's employment but shall not be entitled to any severance benefits.
6. Miscellaneous
a. Governing Law. This Agreement shall be interpreted,
construed, governed and enforced according to the laws of the State of New York.
b. Amendments. No amendment or modification of the
terms or conditions of this Agreement shall be valid unless in writing and
signed by the parties hereto.
c. Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be construed, if possible, so as to be enforceable under applicable law,
else, such provision shall be excluded from this Agreement and the balance of
the Agreement shall be interpreted as if such provision were so excluded and
shall be enforceable in accordance with its terms.
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d. Successors and Assigns. The rights and obligations
of the Company under this Agreement shall inure to the benefit of and shall be
binding upon the successors and assigns of the Company. Executive shall not be
entitled to assign any of his rights or obligations under this agreement.
e. Notices. All notices required or permitted
under this Agreement shall be in writing and shall be deemed effective upon
personal delivery or two days after deposit in the United States Post
Office, by registered or certified mail, postage prepaid, addressed to the other
party at the address shown below such party's signature, or at such other
address or addresses as either party shall designate to the other in accordance
with this paragraph 6.e.
f. Entire Agreement. This Agreement, including the
exhibits attached hereto, constitutes the entire agreement between the parties
with respect to the employment of Executive.
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IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date set forth above.
ACUTE THERAPEUTICS, INC .
By: Robert Capetola, Ph. D.
Its: President
Address: 3359 Durham Road
Doylestown, Pennsylvania 18901
EXECUTIVE:
Huei Tsai Ph.D.
Address: 53 Worths Mill Lane
Princeton, NJ 08540
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EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as June
1, 1997 by and between Acute Therapeutics, Inc. a Delaware corporation (the
"Company"), and Thomas E. Wiswell, M.D. ("Executive").
WHEREAS, the company and the Executive desire that the Executive
be employed by the Company and that the terms and conditions of such employment
be defined;
NOW, THEREFORE, in consideration of the employment of the Executive
by the Company, the Company and Executive agree as follows:
1. Term of the Agreement. The Company shall employ Executive as Vice
President for Clinical Research and Executive shall accept employment for a
period of three (3) years commencing on June 1, 1997 (the "Commencement Date")
and continuing until May 31, 2000 (the "Employment Period") subject, however, to
prior termination as hereinafter provided Section 5.
2. Executive's Duties and Obligations.
a. Duties. Executive shall serve as Vice President for
Clinical Research. Executive shall be responsible for the overall conduct of
protocol development for existing and future drug candidates within the
Company's pipeline and for overall conduct of clinical trial according to
current Good Clinical practices.
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b. location of Employment. Executive's principal place of
business shall be at Company's office located at 3359 Durham Road, Doylestown,
Pennsylvania 18901.
c. Proprietary Information and Inventions Agreement. Upon
commencement of employment with the Company, Executive shall execute the
Company's standard form of Intellectual Property and Confidential Information
Agreement (the "Confidentiality Agreement") a copy of which is attached to this
Agreement as Exhibit A.
3. Devotion of Time to Company's Business
a. Full Time Efforts. During his employment with the Company,
Executive shall, subject to the provisions set forth in Section 3.b., devote
substantially all of his business time, attention and efforts to the high
quality performance of his duties to the Company.
b. No Other Employment. During his employment with the
company, Executive shall not, whether directly or indirectly, render any
services of a commercial or professional nature to any other person or
organization, whether for compensation or otherwise, without the prior written
consent of the Company's Executive Committee or Board of Directors.
Notwithstanding this Section 3.b., as specifically agreed by the Company and
Executive, Executive may engage in activities related to the field of
neonatology at the hospital of his choice, private patient and research and
attendance at professional meetings, provided that Executive's time spent at
such activities
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shall not interfere with the performance of his contractual obligations under
this Agreement.
c. Non-Competition During Employment. During the term of this
Agreement, and for eighteen months after its termination, Executive shall not,
directly or indirectly, either as an employee, employer, consultant, agent,
principal, partner, stockholder, corporate officer, director, or in any other
individual or representative capacity (i) compete with Acute Therapeutics, Inc.
in the business or research areas of surfactant replacement therapy and other
areas which Acute Therapeutics, Inc. may enter while he remains employed, or
(ii) directly or indirectly solicit or employ any employees of the Company,
provided, however, that Executive shall not be precluded or prohibited from
owning passive investments including passive investments in publicly-held
securities in other institutions so long as such ownership does not require his
participation in any manner with the institution and provided further that the
provisions set forth in Exhibit A, and in this Section 3 shall not be applicable
in the event Executive's employment is terminated by the Company without Good
Cause, or by the Executive for good cause as defined in Section 5.
4. Compensation and Benefits
a. Base Compensation. During the term of this Agreement, the
company shall pay to Executive base annual compensation of Two Hundred Thousand
dollars ($200,000), payable
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in installments according to the Company's payroll schedule, less all required
tax withholdings as required by law.
b. Insurance Benefits. During his employment with the Company,
the Company shall provide reasonable medical and disability benefits to
Executive and to Executive's family. In addition, the Company will provide
Executive with term life insurance upon his life on behalf of Executive's
beneficiaries in the amount of Executive's annual salary for the term of this
Agreement.
c. Stock Option. The Board of Directors of the Company will
grant to Executive an incentive stock option to purchase 16,000 shares of Common
Stock, $.001 par value of the Company, subject to appropriate adjustments in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares, at an exercise price equal to $ 0.75 per
share. The Company shall not make any change in stock option benefit which would
dilute or otherwise adversely effect the percentage of shares offered to the
Executive hereunder.
d. Participation in Benefits. Executive shall be entitled to
participate in and receive the benefits in any plan of the Company, in addition
to those specifically referred to in this Agreement, relating to pension, profit
sharing, stock options, or other retirement benefits, disability and medical
coverage or reimbursement plans that the Company may adopt for the benefit of
its executives and employees which are now in
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existence or may come into existence hereafter. Nothing paid to Executive under
any plan or arrangement presently in effect or made available in the future
shall be deemed to be in lieu of the compensation payable pursuant to Section
4.a.
e. Vacation. Executive shall be entitled to a paid vacation
during each year of the term of this Agreement. The vacation benefit shall
consist of not less than three (3) weeks during each year at times mutually
acceptable between the Company and Executive.
f. Relocation Allowances.
(i) The Company shall pay the amount of Fifteen Thousand
Dollars ($15,000.00) to Executive towards reimbursement of relocation expenses
for which no accounting shall be required from Executive by Company if, and only
if, Executive relocates to a location in or in proximity to Doylestown, Bucks
County, Pennsylvania prior to the consummation of an initial public offering of
the Company's securities
(ii) If and only if the Company has not paid a payment
to Executive pursuant to subsection f(i) above, and the Company has consummated
an initial public offering of the Company's securities, then the Company shall
reimburse Executive or otherwise provide for or pay all reasonable expenses
incurred by Executive in relocating his residence from its existing location to
a location in or in proximity to Doylestown, Bucks County, Pennsylvania,
including settlement costs of selling his present residence, settlement costs
related to the purchase
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of his relocated residence, transportation and costs of moving personalty from
his existing residence to the relocation.
g. Other Expenses. The Company shall reimburse Executive or
otherwise provide for or pay for all expenses (including but not limited to
meals, entertainment, travel, automobile and lodging expenses) incurred by
Executive in the course of performing his duties under this Agreement.
5. Termination of Employment.
a. Termination for Good Cause. The Company may terminate
Executive's employment at any time for "Good Cause," as herein defined. For the
purposes of this Agreement, "Good Cause" shall mean (i) gross misconduct, (ii)
gross neglect of duties, (iii) acts involving moral turpitude, (iv) material
breach by Executive of this Agreement or the Confidentiality Agreement or (v)
any act or omission involving fraud, embezzlement, or misappropriation of any
property or proprietary information of the Company by Executive which is not
cured or cannot be cured by Executive within fifteen (15) days after receipt of
written notice from the Company. if the Company terminates Executive's
employment for Good Cause, Executive shall have a right to unpaid compensation
and other benefits accrued and unpaid through the last day of Executive's
employment.
b. Termination by Executive for Good Cause. Executive may
terminate his employment at any time for "Good Cause" as herein defined. "Good
Cause" shall mean (i) a failure by Company to comply with any material
provisions of the
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Agreement which failure has not been cured in fifteen (15) days
after notice given by Executive to Company, (ii) without Executive's express
written consent, the assignment to Executive of any duties inconsistent with
Executive's position, duties, responsibilities and status with the Company,
(iii) the failure of Company to continue in effect any bonus, benefit or
compensation plan, life insurance plan. health and accident plan, or any other
benefit plan in which Executive is participating, (iv) the taking of any action
by Company which would adversely affect Executive's benefits under such plans,
or (v) any purported termination of Executive's employment which is not
effective pursuant to Section 5.a of this Agreement.
If Executive terminates his employment for Good Cause pursuant to
this Section 5.b., the Company shall immediately pay all compensation and
benefits accrued and unpaid through the last day of Executive's employment. In
addition, Executive shall receive a severance payment equal to Executive's base
compensation, payable at normal Company payroll dates, for a period six months.
Executive shall not be required to set off or mitigate the amount of any payment
provided for under this Section 5.b. for payments received or to be received by
Executive from other employment or consulting income.
c. Death or Disability. This Agreement shall terminate if
Executive dies or is mentally or physically "Disabled" as herein defined. For
the purposes of this Agreement, "Disabled" shall mean a mental or physical
condition
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that renders Executive incapable of performing his duties and obligations under
this Agreement for three (3) or more consecutive months or for a total of six
(6) months during any twelve (12) consecutive months; provided, that during such
period the Company shall give Executive at least thirty (30) days' written
notice that it considers the time period for disability to be running. If this
Agreement is terminated under this paragraph 5.c., Executive or his estate shall
be entitled to any unpaid compensation (illegible) and other (illegible)
disability benefits accrued through the last day of Executive's employment but
shall not be entitled to any severance benefits.
6. Miscellaneous.
a. Governing Law. this Agreement shall be interpreted, construed,
governed and enforced according to the laws of the Commonwealth of Pennsylvania.
b. Amendments. No amendment or modification of the terms or
conditions of this Agreement shall be valid unless in writing and signed by the
parties hereto.
c. Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be
construed, if possible, so as to be enforceable under applicable law, else, such
provisions shall be excluded from this Agreement and the balance of the
Agreement shall be interpreted as if such provision were so excluded and shall
be enforceable in accordance with its terms.
d. Successors and Assigns. The rights and obligations of the Company
under this Agreement shall inure to
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the benefit of and shall be binding upon the successors and assigns of the
Company including, without limitation, any person, partnership or corporation
which may acquire all or substantially all of the Company's assets and business,
or with or into which the Company may be consolidated or merged. Executive shall
not be entitled to assign any of his rights or obligations under this Agreement.
e. Notices. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or two
days after deposit in the United States Post Office, by registered or certified
mail, postage prepaid, addressed to the other party at the address shown below
such party's signature, or at such other address or addresses as either party
shall designate to the other in accordance with this paragraph 6.e.
f. Entire Agreement. This Agreement, including the exhibits attached
hereto, constitutes the entire agreement between the parties with respect to the
employment of Executive.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date set forth above.
ACUTE THERAPEUTICS, INC.
By: /s/ Robert Capetola
-----------------------------------
Robert Capetola, Ph.D.
Its, President
Address: 3359 Durham Road
Doylestown, Pennsylvania 18901
EXECUTIVE:
/s/ Thomas E. Wiswell
---------------------------------------
Thomas E. Wiswell, M.D.
Address: 234 Cuylers Lane
Haverford, PA 19041
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EXHIBIT 10.28
CLINICAL TESTING AGREEMENT
This Clinical Testing Agreement (hereinafter, "Agreement") is entered into
and effective as of February 24,1997 by and between Discovery Laboratories,
Inc., a Company having its principal place of business at 787 Seventh Avenue,
44th Floor, New York, NY 10019 (hereinafter, "Sponsor") and the University of
Utah (Tax ID #87-6000525), a body politic and corporate of the State of Utah, on
behalf of the University of Utah School of Medicine, located at 50 North Medical
Drive, Salt Lake City, Utah 84132 (hereinafter, "University").
RECITALS
WHEREAS, Sponsor wishes to have certain clinical testing services
performed in accordance with the scope of work outlined in this Agreement; and
WHEREAS, the performance of such clinical testing is consistent,
compatible and beneficial to the academic role and mission of University as an
institution of higher education; and
WHEREAS, University is qualified, having personnel and adequate facilities
and equipment, and desires to provide and conduct such clinical testing services
performed in accordance with the approved protocol and scope of work outlined
herein.
AGREEMENT
NOW, THEREFORE, for and in consideration of the mutual covenants,
conditions, and undertakings herein set forth, the parties agree as follows:
1.0 Scope of Work:
1.1 Services. University agrees to perform for Sponsor certain
testing services (hereinafter, the "Services"), described in the Institutional
Review Board (IRB) approved study protocol entitled, Treatment of Cystic
Fibrosis Lung Disease by Inhalation of SuperVent(TM) Aerosol Solutions [the
normal volunteer portion (Part A) of this study], a copy of which has been
provided to the University by Sponsor and which is incorporated herein as
Exhibit A and summarized as Exhibit B.
1.2 Performance and Modification of Services. The Services shall be
performed under the direction and supervision of Bruce C. Marshall, M.D.,
Principal Investigator (hereinafter, "PI"), Department of Medicine. Services
shall be performed by PI, following prior written approval and ongoing review of
a duly constituted IRB. Any modification to the study protocol, recommended by
the PI and/or IRB, prior to initiation of Services or during the performance of
Services shall be brought to the attention of Sponsor. Services may not be
altered without written approval of Sponsor and a subsequent review and approval
by the IRB, as required.
1.3 Enrollment, Data and Review of Services Rendered. University
shall enroll a minimum of [***] evaluable, normal volunteers, pursuant to Part A
of the study protocol and provide to Sponsor no less than [***] complete and
accurate case report forms (CRFs), containing analyzable data, within thirty
(30) days of study completion. Personnel from Sponsor shall visit University
periodically to monitor and determine performance status of the Services,
adherence to the study protocol and retrieve complete and accurate CRFs.
[***] Confidential treatment requested.
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1.4 Access to and Retention of Records. Data and records compiled by
University under this Agreement, including source documentation and study
participant forms, shall be available to Sponsor and any regulatory agency, such
as the U.S. Food and Drug Administration or the like for comparison with
subject/patient CRFs. University agrees to retain medical records and source
documentation, including a copy of all CRFs, for a period of fifteen (15) years.
1.5 Conflicts. In the event of conflict between terms of the
Agreement and the actual study protocol, the terms of the study protocol will
control in all matters affecting the conduct of the Services.
2. Term: The term of this Agreement shall commence upon the effective date
hereof and shall continue until November 30,1997, unless extended or renewed by
mutual consent of the parties.
3. Compensation and Payment:
3.1 Compensation. Sponsor shall pay to University [***]
(hereinafter, "Compensation") for performance of Services under this Agreement.
The budget for providing the Services is outlined and set forth in Exhibit C,
which is attached hereto and incorporated herein by this reference.
3.2 Payment. [***] Completeness and accuracy of CRFs will be
determined by Sponsor during Sponsor's in-process and end of study audits, which
University gives Sponsor the right and support to conduct. Sponsor will use
reasonable efforts to initiate and conclude the end of study audit 30 days
following receipt of complete CRFs.
3.3 Compensation Checks. Compensation checks shall be payable to
"The University of Utah" and shall be delivered to Gary S. Gledhill, Manager,
Research Accounting, 406 Park Building, University of Utah, Salt Lake City,
Utah, 84112.
4.0 Reporting Requirements: University shall document and maintain all
data and other records, such as source documents, collected in connection with
providing the Services hereunder as required by the study protocol, federal
regulations, and this Agreement.
5.0 Equipment and Other Study Materials. All equipment, instruments and
materials purchased or used by the University in connection with performance of
the Services shall at all times remain under the sole control and ownership of
University. All equipment, instruments, and study materials, including study
drug, manufactured for or purchased by Sponsor for use by the University in
connection with performance of the Services shall at all times remain under the
control and ownership of the Sponsor and shall be returned to Sponsor at
Sponsor's request.
[***] Confidential treatment requested.
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6.0 Publication:
6.1 Significant Results. In furtherance of University's role as a
public institution of higher education it is necessary that significant results
of research and testing activities be reasonably available for publication by
the University, and Sponsor acknowledges that University may publish the results
of research and testing conducted in connection with this Agreement.
6.2 Consent to Publish. Notwithstanding the foregoing, University
agrees that it shall not publish the results of research and testing conducted
in connection with this Agreement, without the prior written consent of Sponsor,
until the expiration of six (6) months following the first to occur of either
the termination of this Agreement or submission to Sponsor of at least ten (10)
complete and accurate CRFs, pursuant to Sections 1 and 4, hereof.
6.3 Waiver of Six-Month Waiting Period. In the event University
wishes to publish research and testing results prior to the expiration of the
above described six (6) month period, University shall first provide to Sponsor
written notice of University's intent to publish and a draft of such
publication. Sponsor shall have sixty (60) days after receipt of the draft of
such publication to (1) request in writing the removal of portions deemed by
Sponsor to contain confidential or patentable material owned by Sponsor, (2)
request a delay in submission of the draft for publication pending Sponsor's
application(s) for patent protection, relating to any invention or inventions
made under this Agreement, (3) request a delay in submission of the draft for
publication pending Sponsor's submission of data and results of Services to the
U.S. FDA or the like. In any event, University shall have no obligation to delay
publication of the draft for longer than eight (8) months following delivery of
University's notice to Sponsor of intent to publish. If University does not
receive Sponsor's written response to the notice of intent to publish within the
sixty (60) day period, then Sponsor shall be deemed to have consented to such
publication.
6.4 Proprietary Information. Information supplied to University by
Sponsor and identified by Sponsor as proprietary information shall not be
included in any material published by University without prior written consent
of Sponsor.
7. Confidentiality: Sponsor acknowledges that University is a governmental
entity and thus subject to the Utah Government Records Access and Management
Act, Sec. 63-2-101 et. seq., Utah Code Ann. (1993 and Supp. 1995) ("GRAMA") and
Section 53B 16-301 et. seq., Utah Code Ann. (1993 and Supp. 1995). Pursuant to
GRAMA and Section 53B-16-301 et. seq., this Agreement, and confidential
information provided pursuant hereto, may be subject to public disclosure. Any
person who provides University with records that such person believes should be
protected from disclosure for business reasons must, pursuant to Section
63.2-308 of GRAMA and Section 53B-16-304, provide University with a written
claim of business confidentiality and a concise statement of reasons supporting
such claims.
8. Indemnification:
8.1 Indemnification by University. University is a governmental
entity and is subject to the Utah Governmental Immunity Act, Section 63-30-1 et
seq., Utah Code Ann. (1993 and Supp. 1995) (the "Act"). Section 63-30-34 of this
Act expressly limits judgment against the University, its officers and employees
to $250,000.00 per person and $500,000.00 per occurrence for bodily injury and
death and to $100,000.00 per occurrence for property damage. Subject to the
provisions of the Act, University shall indemnify, defend and hold harmless
Sponsor, its directors, officers, agents and employees against any actions,
suits, proceedings, liabilities and damages that may result solely from
negligent acts or omissions of University, its officers, agents or employees in
connection with this Agreement. Nothing in this Agreement shall be construed as
a waiver of any rights or defenses applicable to University under the Act,
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including without limitation, the provisions of Section 63-30-34 regarding
limitation of judgments. University shall give Sponsor timely notice of any
claim or suit instituted of which it has knowledge that in any way, directly or
indirectly, affects or might affect Sponsor, and Sponsor shall have the right at
its own expense to participate in the defense of the same.
8.2 Indemnification by Sponsor. Sponsor shall indemnify, defend and
hold University, its directors, officers, agents and employees against any
actions, suits, proceedings, liabilities and damages arising from proper use of
drugs or treatments in accordance with the approved protocol in performing the
Services, or from the negligent acts or omissions of Sponsor, its directors,
officers, agents or employees in connection with this Agreement. Sponsor shall
give University timely notice of any claim or suit instituted of which its has
knowledge that in any way, directly or indirectly, affects or might affect
University, and University shall have the right at its own expense to
participate in the defense of the same.
9.0 Injury to Participants:
9.1 Sponsor's Obligations. Without limiting the indemnification
obligations otherwise set forth in this Agreement, Sponsor agrees that in the
event any person or persons participating in the testing in accordance with the
approved study protocol conducted in connection with this Agreement
("Participant") at any time suffers any injury, illness or adverse medical
condition as a result of the Participant's involvement in the testing, Sponsor
shall pay, and hold University harmless from all reasonable medical expenses and
hospital costs which may result from the Participant's involvement in the
testing and which are (1) not otherwise covered by insurance owned by the
Participant or (2) not due to negligent acts or omissions by the University.
Sponsor's obligations under this paragraph shall be continuing and shall survive
the completion of Services and the termination of this Agreement.
9.2 University's Obligations. Without limiting the indemnification
obligations otherwise set forth in this Agreement, University agrees that in the
event any person or persons participating in the testing in accordance with the
approved study protocol conducted in connection with this Agreement
("Participant") at any time suffers any injury, illness or adverse medical
condition as a result of negligent acts or omissions, University shall pay and
hold Sponsor harmless from all reasonable medical expenses and hospital costs
which may result from the Participant's involvement in the testing and which are
not otherwise covered by insurance owned by the Participant. University's
obligations under this paragraph shall be continuing and shall survive the
completion of Services and the termination of this Agreement.
10.0 Compliance with Laws: In performance of the Services, University
shall comply with all applicable federal, state and local laws, codes,
regulations, rules and orders. University shall obtain, at its own expense as a
part of the price for Services, all required government licenses, permits and
approvals for the performance of the Services; with the exception that Sponsor
shall obtain all necessary approvals from appropriate and qualified IRBs for
testing of human subjects and all other licenses, permits and approvals which
the Protocols specify will be obtained by Sponsor. University warrants that
neither it or any person associated with the performance of the Services,
pursuant to this Agreement, has been debarred by the U.S. FDA from the conduct
of clinical trials of drugs, biologics or medical devices in human subjects.
11.0 Relationship of Parties: In assuming and performing the obligations
of this Agreement, University and Sponsor (collectively, the "Parties";
individually, the "Party") are each acting as independent Parties and neither
shall be considered or represent itself as a joint venture, partner, agent or
employee of the other. Neither Party shall include the name or any trademark of
the other Party in any advertising, sales promotion or other publicity matter
without the prior written approval of the other Party.
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12.0 Termination:
12.1 Notice of Termination. This Agreement may be terminated by
either Party at any time and from time to time, by giving written notice thereof
to the other Party. Such termination shall be effective thirty (30) days after
receipt of such notice.
12.2 Obligations of the University. Termination by either Party
shall not relieve the University of its obligations accrued hereunder, prior to
such termination, to provide Sponsor with (a) copies of all data, records,
including source documents, and test results, (b) information, data and test
results that is required be captured and made part of the CRFs by University,
(c) a complete and accurate accounting of the drug (test article) supply and (d)
all used or unused portions of the drug supply, raw materials, reagents, vials,
stoppers, closures, unused nebulizers and all compressors provided University
for the performance of Services, pursuant to this Agreement. University agrees
to comply with its obligations herein within thirty (30) days following receipt
of such notice of termination by either Party.
12.3 Obligations and Liabilities of the Parties. Termination shall
not relieve either Party of (a) any obligation or liability accrued hereunder
prior to such termination, or (b) rescind or give rise to any right to rescind
any payments made prior to the time of such termination.
13.0 Uncontrollable Forces: Neither Sponsor nor University shall be
considered to be in default of this Agreement if delays in or failure of
performance shall be due to uncontrollable forces, the effect of which, by the
exercise of reasonable diligence, the non performing Party could not avoid. The
term "uncontrollable forces" shall mean any event which results in the
prevention or delay of performance by a Party of its obligations under this
Agreement and which is beyond the control of the non performing Party. It
includes, but is not limited to, fire, flood, earthquakes, storms, lightning,
epidemic, war, riot, civil disturbances, sabotage, inability to procure permits,
licenses, or authorizations from any state, local or federal agency or person
for any of the supplies, materials, accesses, or services required to be
provided by either Sponsor or University under this Agreement, strikes, work
slowdowns or other labor disturbances and judicial restraint.
14.0 Miscellaneous:
14.1 Assignment. Neither Party shall assign or transfer any interest
in this Agreement, nor assign any claims for money due or to become due under
this Agreement, without the prior written consent of the other Party.
14.2 Principal Investigator and Protocol Coordinator. The Principal
Investigator and Protocol Coordinator have been selected by the Sponsor to be
Bruce C. Marshall, M.D. and Cathy Pope, R.N., respectively. Replacements or
successors require prior written approval of the Sponsor.
14.3 Entire Agreement. This Agreement, with its Exhibits A and B,
constitutes the entire agreement between the Parties regarding the subject
matter hereof and supersedes any other written or oral understanding of the
parties. This Agreement may not be modified except by written instrument
executed by both parties.
14.4 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties, their successors and permitted assigns.
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14.5 Notices. Except as provided in Section 3 hereof, regarding
payment of invoices, any notice or other communication required or permitted to
be given to either Party hereto shall be in writing and shall be deemed to have
been properly given and effective: (a) on the date of delivery if delivered in
person during recipient's normal business hours; or (b) on the date of delivery
if delivered by courier, express mail service or first-class mail, registered or
certified, return receipt requested. Such notice shall be sent or delivered to
the respective addresses given below, or to such other address as either Party
shall designate by written notice given to the other Party as follows:
In the case of Sponsor:
Discovery Laboratories, Inc.
787 Seventh Avenue, 44th Floor
New York, NY 10019
Attn: David R. Crockford, Vice President
In the case of University:
University of Utah
Office of Sponsored Research
1C47 School of Medicine
50 North Medical Drive
Salt Lake City, UT 84132
Attn: Amy J. Hofheins, Manager Sponsored Projects
14.6 Governing Law. This Agreement shall be interpreted and
construed in accordance with the laws of the State of Utah, without application
of any principles of choice of laws.
14.7 Non waiver. A waiver by either Party of any breach of this
Agreement shall not be binding upon the waiving Party unless such waiver is in
writing. In the event of a written waiver, such a waiver shall not affect the
waiving Party's rights with respect to any other or further breach.
14.8 Execution by Counterpart. This Agreement may be executed
separately or independently in any number of counterparts, each and all of which
together shall be deemed to have been executed simultaneously and for all
purposes to be one Agreement.
14.9 Attorney Fees. The prevailing Party in any action or suit to
enforce the terms or conditions of this Agreement shall be entitled to recover
its costs of court and reasonable attorney's fees incurred in enforcing the
terms or conditions of this Agreement.
6
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives effective as of the day and
year first written above.
UNIVERSITY OF UTAH ("University")
By: /s/ [ILLEGIBLE], ACTING FOR
------------------------------
(signature)
Name: Robert G. Glass
----------------------------
(please print)
Title: Director, Sponsored Projects
Date: FEB 6 1997
DISCOVERY LABORATORIES, INC. ("Sponsor")
By: /s/ James Kuo, M.D.
------------------------------
(signature)
Name: James Kuo, M.D.
----------------------------
(please print)
Title: President and CEO
Date:_____________________________
PRINCIPAL INVESTIGATOR FOR UNIVERSITY
By: /s/ Bruce C. Marshall. M.D.
------------------------------
(signature)
Name: Bruce C. Marshall. M.D.
----------------------------
(please print)
Title: Associate Professor
Date: 2/6/97
7
<PAGE>
<PAGE>
EXHIBIT A - Clinical Protocol
Treatment of Cystic Fibrosis Lung Disease by Inhalation of Supervent(TM)
Aerosol Solution
<PAGE>
<PAGE>
EXHIBIT B - Summary Clinical Protocol - Part A
[***]
[***] Confidential treatment requested.
9
<PAGE>
<PAGE>
EXHIBIT C - Budget for Performance of Services
[***]
[***] Confidential treatment requested.
10
<PAGE>
<PAGE>
[***]
[***] Confidential treatment requested.
11
<PAGE>
<PAGE>
[***]
[***] Confidential treatment requested.
12
<PAGE>
<PAGE>
[***]
[***] Confidential treatment requested.
13
<PAGE>
<PAGE>
[***]
[***] Confidential treatment requested.
14
<PAGE>
<PAGE>
[***]
[***] Confidential treatment requested.
15
<PAGE>
<PAGE>
Subsidiaries of Registrant
1. Acute Therapeutics. Inc.
<PAGE>
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated February 12, 1997 relating to the
consolidated financial statements of Discovery Laboratories, Inc. and subsidiary
which are contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
Richard A. Eisner & Company, LLP
New York, New York
April 16, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The financial statements found in pages F-1 to F-12 of the Registration
statement and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,336,000
<SECURITIES> 13,064,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,419,000
<PP&E> 770,000
<DEPRECIATION> 24,000
<TOTAL-ASSETS> 18,189,000
<CURRENT-LIABILITIES> 231,000
<BONDS> 0
0
2,000
<COMMON> 7,000
<OTHER-SE> 19,003,000
<TOTAL-LIABILITY-AND-EQUITY> 18,189,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,443,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,236,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> (.76)
</TABLE>
