As filed with the Securities and Exchange Commission on January 7, 1997
Registration No. 33-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 Number) Identification Number)
</TABLE>
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:
IRA L. KOTEL
Roberts, Sheridan & Kotel
A Professional Corporation
640 Fifth Avenue, 15th Floor
New York, New York 10019
(212) 262-5700
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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
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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
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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," 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.
<PAGE>
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DISCOVERY LABORATORIES, INC.
CROSS-REFERENCE SHEET
Showing Location in Prospectus of Information
Required by Items of Form SB-2
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Form SB-2 Registration Statement and Heading Heading or Location in Prospectus
-------------------------------------------- ---------------------------------
1. Front of Registration Statement and Outside Front Front of Registration Statement and Outside Front
Cover of Prospectus .................................. Cover of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front Cover Page of Prospectus; Additional
Prospectus............................................ 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 Management's Discussion and Analysis of
Operation............................................. 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 Prospectus Summary; Description of Securities;
Stockholder Matters................................... 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
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<PAGE>
PROSPECTUS
Subject to Completion, Dated January 7, 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. (the "Company"): (i) 2,200,256 shares of the
Company'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 the Company ("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 of the Company issuable upon exercise of
certain warrants issued to the placement agent of such Unit Offering (the
"Preferred Placement Warrants" and collectively 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.
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
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.
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. See "Plan of Distribution."
The Company will inform the Selling Securityholders that the anti-manipulation
provisions of Rules 10b-6 and 10b-7 under the Securities Exchange Act of 1934
may apply to the sales of their shares offered hereby. The Company also will
advise the Selling Securityholders of the requirement for delivery of this
Prospectus in connection with any sale of the shares offered hereby.
The Company is in the research and development stage, has not had any operating
revenues, and at November 8, 1996, had an accumulated deficit of approximately
$435,627. The Company 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. The Company 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 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. See "Risk Factors,"
"Description of Securities" and "Plan of Distribution."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
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 January __, 1997
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 State.
<PAGE>
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.
<PAGE>
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") to 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 has approved, subject to certain modifications, 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 is currently in discussions
with the University of Utah Health Sciences Center ("UHSC") regarding a clinical
research agreement and, if such agreement is concluded, the Company intends to
initiate the clinical trial by the end of the first quarter of 1997 at UHSC.
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.
KL(4)-Surfactant
KL(4)-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 KL(4)-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 October 1996, Discovery's majority-owned subsidiary, ATI,
acquired the exclusive worldwide sublicense to the KL(4)- Surfactant technology.
1
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The Company is currently developing KL(4)-Surfactant for the treatment of
meconium aspiration syndrome ("MAS") and adult respiratory distress syndrome
("ARDS"). The Company may also develop KL(4)-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 KL(4)-Surfactant for
the treatment of ARDS, and also to amend the existing IRDS IND for the use of
KL(4)-Surfactant to treat MAS, both in 1997.
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 late 1995. 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) 794-0824.
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
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: 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."
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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) 50,000 shares of Common Stock reserved for issuance
upon exercise of outstanding options at a weighted average exercise price of
$0.10 per share of Common Stock, all 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.
See "Description of Securities" for a description of the events giving rise to
a Reset and the manner in which the conversion price applicable to the Series
A Preferred Stock is to be determined in such event.
3
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SUMMARY OF FINANCIAL DATA
The following table presents historical financial information derived from the
financial statements of the Company.
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Period from
Nine Months January 1, 1996
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Year Ended Ended to
December 31, September 30, November 8,
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1994 1995 1995 1996 1996
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Statement of Operations Data:
Total expenses............................ $ 437 $ 16,923 $ 16,852 $ 258,633 $ 434,139
Net income (loss)......................... (437) (16,923) (16,852) (258,633) (417,762)
Net income (loss) per common share........ (.00) (.01) (.01) (.07)
Weighted average number of shares
outstanding............................... 1,132,500 1,468,787 1,458,269 3,574,164
<CAPTION>
December 31, September 30, November 8,
1995 1996 1996
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Balance Sheet Data:
Cash and cash equivalents................. $ 2,851 $ 6,170,971 $ 18,158,101
Current assets............................ 2,851 6,171,395 18,891,858
Total assets.............................. 2,851 6,288,696 21,072,853
Total current liabilities................. 0 8,685 200,000
Deficit accumulated during development
stage..................................... (17,865) (276,498) (435,627)
Stockholders equity ...................... 2,851 6,280,011 18,670,853
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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. 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 NDA filing objectives and goals 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 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, but may take longer, to complete.
The regulatory status of the Company's three products under development is as
follows:
5
<PAGE>
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. In addition to the proposed 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.
KL(4)-Surfactant:
In July 1992, an IND submitted by Scripps relating to the use of
KL(4)-Surfactant to treat IRDS was approved by the FDA. A Phase II clinical
trial was subsequently completed by J&J/Scripps. ATI intends to seek FDA
approval to amend an approved IND and re-initiate Phase II clinical trials
of KL(4)-Surfactant for the treatment of ARDS, and also to amend the
existing IRDS IND to permit the initiation of Phase II clinical trials of
KL(4)-Surfactant to treat MAS, both in 1997. The Company has not had any
discussions with the FDA regarding clinical trials of KL(4)-Surfactant for
the treatment of ARDS and MAS.
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.")
After completion of clinical trials of a new product, FDA and foreign regulatory
authority marketing approval must be obtained. 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 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.
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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), KL(4)-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),
KL(4)-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), KL(4)-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 between the Company and
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. To date, there has emerged no consistent policy at the 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. 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.
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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.
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
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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.
ATI has acquired from J&J experimental compounds, the KL(4) peptides and
manufacturing equipment needed to produce and meet the Company's requirements
for clinical supplies of KL(4)-Surfactant. ATI is currently in discussions with
a third party manufacturer to produce KL(4)-Surfactant on an ongoing basis.
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 KL(4)-Surfactant and could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company is in negotiations 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,
manufacture, market and commercialize certain of the Company's 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 is in discussions with the University of Utah Health Sciences Center
regarding a clinical research agreement prior to the latter's initiation of the
proposed clinical trial of SuperVent(TM) in CF. Presently no definitive
agreement has been entered into. There can be no assurance that the Company will
succeed in negotiating and entering into such agreement or in entering into
additional or alternative agreements, if necessary.
ATI and Scripps are in the process of negotiating a sponsored research agreement
(the "Sponsored Research Agreement") supporting continuing research by Dr.
Charles Cochrane and Ms. Susan Revak of Scripps. However, the agreement, if
concluded, will be subject to the consent of certain third parties who have
agreements with Scripps. Under the terms of the proposed agreement, ATI would
contribute $460,000 annually to Scripps' KL(4)-Surfactant research efforts for
an initial two-year period. ATI would have an option to acquire an exclusive
worldwide license to make, have made, sell or use technology developed under the
agreement, which it would be required to exercise within 90 days from receipt of
notice from Scripps of the development of such technology. Scripps would own all
technology that it develops pursuant to work performed under the proposed
Sponsored Research Agreement. ATI would have the right to receive 50% of the net
royalty income received by Scripps for inventions jointly developed by ATI and
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Scripps. The proposed Sponsored Research Agreement would be subject to renewal
for an additional two years at the discretion of ATI. There can be no assurance
that the proposed Sponsored Research Agreement will be executed. Failure to
execute the Sponsored Research Agreement could have a material adverse effect on
the Company's ability to develop the KL(4)-Surfactant technology.
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 nine persons, one of which devotes only a portion of his time to the business
of the Company. 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. 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.
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), KL(4)-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 be using a higher dosage of tyloxapol, the Company will have
to demonstrate tyloxapol safety at a dose significantly higher than the
historical rate.
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
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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. 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.
Preclinical studies of KL(4)-Surfactant conducted by the Company have revealed
no local or systemic toxicity associated with test material well in excess of
the concentrations 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 KL(4)-Surfactant at a safe dosage level prior
to marketing KL(4)-Surfactant for the treatment of MAS, ARDS and/or IRDS.
CONTROL BY CURRENT OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
The Company's directors, executive officers and principal stockholders
beneficially own approximately 24.12% of the outstanding shares of Common Stock,
assuming 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. 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 entering the fields of
CF, respiratory, anti-inflammatory and anti-oxidant research, MAS, ARDS and 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
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 enjoy 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 does not presently carry product liability insurance. The Company
may be required to obtain product liability insurance coverage prior to
initiation of clinical trials of its 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.
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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 an affiliate of Paramount, and Steve Birnbaum, Project
Manager for the ST-630 program, was formerly a Technology Associate of Paramount
Capital Investments, LLC ("Paramount Investments"), an affiliate of Paramount.
See "Management." 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 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.
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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 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) total assets of at least $4 million; (ii) total stockholder
equity of $2 million; (iii) a market value of its publicly held shares of at
least $1 million; (iv) the Common Stock be held by at least 300 shareholders;
(v) at least two market makers; and (vi) and an initial minimum bid price of at
least $3.00. 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 requires
that: (i) the Company maintain at least $4,000,000 in net tangible assets if it
has sustained losses from continuing operations and/or net losses in three of
its four most recent fiscal years; (ii) a market value of its publicly held
shares of at least $1 million; (iii) the minimum bid price for the Common Stock
be at least $1.00 per share or, in the alternative, the market value of the
Company's publicly held shares must be at least $3 million and the Company have
at least $4 million of net tangible assets; (iv) the public float of the Common
Stock consist of at least 200,000 shares; (v) the Common Stock have at least two
active market makers; and (vi) the Common Stock be held by at least 400 holders
or 300 round lots. 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."
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
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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 the 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 without regard to the
volume limitations described above. In addition, the Company currently has
issued and outstanding options to purchase an aggregate of 50,000 shares of
Common Stock (excluding the Placement Agent Warrants).
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
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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 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 compete successfully
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 unaudited capitalization of the Company at
November 8, 1996. This table should be read in conjunction with the Company's
financial statements, and the related notes thereto. See "Financial Statements."
November 8, 1996
----------------
(unaudited)
Liabilities:
- ------------
Accrued Expenses $ 200,000
---------
Minority interest in stock of subsidiary 2,202,000
---------
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) 2,200
Common Stock, $0.001 par value
50,000,000 shares authorized;
6,712,256 shares issued and
outstanding (2) 6,712
Additional paid-in capital 19,097,568
Deficit accumulated during development stage (435,627)
---------
Total stockholders' equity (deficit) 18,670,853
----------
Total capitalization $21,072,853
===========
(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 50,000 shares of Common
Stock held by certain directors 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 Dr. Robert J. Capetola
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 $435,627 as of November 8, 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 KL(4)-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
KL(4)-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. 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
KL(4)-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 KL(4)-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), KL(4)-Surfactant and
ST-630 products, including, without limitation, a Phase I/II clinical trial of
SuperVent(TM) for the treatment of CF (and, assuming the successful completion
of such clinical trial, a Phase II clinical trial of SuperVent(TM) for the
treatment of chronic bronchitis) and a Phase II clinical trial of KL(4)-
Surfactant for use in 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 ortechnologies 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
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necessary to acquire and develop such products and technologies. Furthermore,
there can be no assurance 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 four new employees to serve as Vice-President of
Clinical Affairs, Vice-President of Regulatory Affairs, Director of Business
Development and project manager, respectively. The timing and cost of hiring any
additional employees may vary depending on need and cannot currently be
predicted with any certainty. It is also anticipated that, over the next 12
months, ATI may enter into an agreement with a third party for the purpose of
supplying KL(4)-Surfactant to ATI.
LIQUIDITY AND CERTAINTY
The Company anticipates that its current resources will permit it to meet its
business objectives until approximately December 1997. Accordingly, the Company
expects that it will be required to raise additional capital in the next 12
months. 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 December 1997 or, in general, that the Company will be able to achieve
its business objectives.
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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") to two issued United States
patents and three pending United States and related foreign use patents covering
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 intends to clinically test SuperVent(TM) for the
treatment of CF and 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 or hospital to preserve pulmonary function and
aid mucus expectoration.
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 has allowed most patients
with the disease to live until the age of 29. The progressive destruction of CF
lungs is the major 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.
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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 results 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 is currently
in discussions with the University of Utah Health Sciences Center ("UHSC")
regarding a clinical research agreement and, if such agreement is concluded, the
Company intends to begin a randomized, double- blinded, placebo-controlled Phase
I/II clinical trial for the treatment of CF by the end of the first quarter of
1997 at UHSC. 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 to confirm a lack of airway toxicity and establish the
safe inhaled concentration of SuperVent(TM).
Part B. An open study will be undertaken to establish the effects of
aerosolized SuperVent(TM) on airway physiology and lung
inflammation in ten patients with cystic fibrosis. Patients will be
followed for two weeks while receiving 3 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, randomized, double-blinded,
placebo-controlled trial, aerosolized SuperVent(TM) will be studied
in up to 120 patients with cystic fibrosis with measures of outcome
including respiratory function and physical exercise criteria.
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.
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 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.
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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.
Tyloxapol is the active compound in the Company's SuperVent(TM) product under
development, as well as a component of Exosurf(TM), a product that has been used
to treat chronic bronchitis.
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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. 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 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. 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 < 0.01)
decreased by tyloxapol in a dose-dependent manner.
Anti-oxidant Activity
In vitro and in vivo 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 < 0.01).
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
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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.
KL(4)-Surfactant Technology
Background
Lung surfactants are protein-phospholipid complexes which coat the alveoli (air
sacs) of the lungs. Lung surfactants lower surface tension in expiration and
raise it during inspiration to prevent the collapse of alveoli. Alveoli are
delicate, balloonlike sacs in the lungs where gaseous exchange occurs.
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 a surfactant insufficiency that leads to a
life-threatening loss of pulmonary function.
KL(4)-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. KL(4)-Surfactant is an aqueous suspension of lipid vesicles
containing the novel synthetic peptide KL(4) (KLLLLKLLLLKLLLLK). The "K"
represents the water-soluble amino acid lysine and the "L" represents the
fat-soluble amino acid leucine. KL(4)-Surfactant is patterned after human
Surfactant Protein B, shown to have the greatest surfactant activity in humans
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 has led its development since 1991. J&J has
completed a multi-center, Phase II clinical trial of KL(4)-Surfactant in 47
infants with IRDS. This trial demonstrated safety and efficacy comparable to
that of the bovine-derived surfactant, Survanta(TM), marketed by Ross
Laboratories.
Discovery's majority-owned subsidiary, ATI, has acquired the exclusive worldwide
sublicense to the KL(4)-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, KL(4)-Surfactant will
be superior to the non-protein-containing surfactant, Exosurf(TM), marketed by
Glaxo-Wellcome. The Company further believes that KL(4)-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 raise the
viral/prion 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 KL(4)-Surfactant technology for the
treatment of MAS and ARDS. The Company may also develop the KL(4)-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.
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
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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.
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 the
treatment of 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, and 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 KL(4)-Surfactant.
Development Status
Infant Respiratory Distress Syndrome
In July 1992, an IND was submitted to the FDA by Dr. Charles Cochrane of
Scripps, the inventor of KL(4)-Surfactant and a consultant to ATI. The IND
sought to evaluate the safety and efficacy of KL(4)-Surfactant in the treatment
of IRDS. A total of 47 infants with IRDS were treated with KL(4)-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 (>0.4) 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, KL(4)-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 KL(4)-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 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.
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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 KL(4)-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 KL(4)-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 KL(4)-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
75.0% of the outstanding voting securities of ATI following such transaction.
Pursuant to escrow agreements with the founding management of ATI, Discovery
will have the right to vote and also possibly receive an additional 5.1% of the
voting securities of ATI, represented by Common Stock of ATI issued to the
founding management which is to be held in escrow and released to the founding
management or Discovery, as the case may be, upon certain specified events.
Concurrently 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 KL(4)-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
KL(4)-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,
or Consideration Received in, the Percentage of Total Restricted
Acceleration Event Option 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
have 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.
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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 initiate a Phase II clinical trial in ARDS, and
also to amend the existing IRDS IND to permit the initiation of Phase II
clinical trials in MAS, both in 1997. The Company has not had any discussions
with the FDA regarding clinical trials of KL(4)- Surfactant for the treatment of
ARDS and MAS, however, and there can be no assurance that such approvals will be
granted. Orphan drug status for MAS, ARDS and IRDS has been granted by the FDA.
ATI and Scripps are in the process of negotiating a sponsored research agreement
(the "Sponsored Research Agreement") supporting continuing research by Dr.
Charles Cochrane and Ms. Susan Revak of Scripps. However, the agreement, if
concluded, will be subject to the consent of certain third parties who have
agreements with Scripps. Under the terms of the proposed agreement, ATI would
contribute $460,000 annually to Scripps' KL(4)-Surfactant research efforts for
an initial two-year period. ATI would have an option to acquire an exclusive
worldwide license to make, have made, sell or use technology developed under the
agreement, which it would be required to exercise within 90 days from receipt of
notice from Scripps of the development of such technology. Scripps would own all
technology that it develops pursuant to work performed under the proposed
Sponsored Research Agreement. ATI would have the right to receive 50% of the net
royalty income received by Scripps for inventions jointly developed by ATI and
Scripps. The proposed Sponsored Research Agreement would be subject to renewal
for an additional two years at the discretion of ATI. There can be no assurance
that the proposed Sponsored Research Agreement will be executed. Failure to
execute the Sponsored Research Agreement could have a material adverse effect on
the Company's ability to develop the KL(4)-Surfactant technology.
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 generates 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. No vitamin D
analogs are marketed for osteoporosis in the United States. 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.
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 to this effect. 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 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 patent covering ST-630 expires in 2001. A patent covering
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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 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 side 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,
increases the risk of breast and uterine cancer. Estrogen must also be
continually taken or the accumulated bone mass is quickly lost.
Fosamax(TM)
Fosamax or alendronate, from Merck, is the first approved osteoporosis drug in
the United States of the bisphosphonate class. 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 esophogitis 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.
Nasal Calcitonin
Miacalcin (TM) as sold by Sandoz Pharmaceuticals is a nasally administered
calcitonin. While the injectable form 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.
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 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
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previously studied in a non slow-release formulation, caused peptic ulcers and
built brittle bone. 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) 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, but may take longer, to complete.
After completion of clinical trials of a new 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
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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 KL(4)-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
KL(4)-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 KL(4)-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 KL(4)-Surfactant though they are intended for use
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
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 three 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 three 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.
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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: KL(4)-Surfactant
Pursuant to the J&J License Agreement, ATI has received an exclusive, worldwide
license to commercialize KL(4)-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 "KL(4) Patent Rights"). In addition to granting an
exclusive sublicense to ATI, J&J has agreed to transfer its existing
KL(4)-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
KL(4)-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 KL(4) 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 KL(4)-Surfactant),
certain related polypeptides and a method of treating respiratory distress
syndrome with these surfactants. Each 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, 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 KL(4)-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 to
commercialize ST-630 within all countries located in the Western hemisphere
(except Japan), including the right to sublicense, 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 also has a nonexclusive license to commercialize ST-630 within all
countries located in the Western hemisphere under certain U.S. and foreign
patents and patent applications covering certain processes relating to the
manufacture of vitamin D analogs. By virtue of the Company's exclusive license
under the ST-630 Patent and the ST-630 Use Patent, the processes covered by such
patents may not be used by any other party for the purpose of producing ST-630
except in Japan.
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<PAGE>
The Company paid a one-time license issue 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
milestone payments in accordance with the following schedule for each of the
licensed territories:
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 (which to be
exercised, must be exercised prior to the initiation of development work in
Europe or January 1, 2002, whichever is earlier); 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 (which may be exercised no later than January 1, 2002). 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 (which may 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 has claims covering methods of treating postmenopausal
osteoporosis in humans which are licensed to the Company under the WARF License
Agreement. Corresponding foreign patent applications have also been filed in
certain countries, and such applications and any resulting patents are licensed
to the Company under the WARF License Agreement. The United States and foreign
patents covering certain processes relating to 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.
The ST-630 Use Patent is limited to claims relating to a method of treating
postmenopausal osteoporosis 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. The Company intends to ask WARF to file a continuation or
divisional 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.
Uncertainty of Biotechnology Patents
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 also will
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
33
<PAGE>
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 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.
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 study 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
34
<PAGE>
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 is in negotiations with Tetrionics, Inc. 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 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 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.
35
<PAGE>
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, the Company has only nine full-time employees.
James S. Kuo, M.D. joined Discovery in April 1996 as President, Chief Executive
Officer and a Director. David Crockford joined Discovery in November 1996 as
Vice-President for Regulatory Affairs. Saul Bodenheimer 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 1997. During 1996, Mr. Myrianthopoulos devoted only a
portion of his time to the business of the Company. Steven Birnbaum joined
Discovery in November 1996 as the Project Manager for the ST-630 program.
Robert J. Capetola, Ph.D. joined ATI in October 1996 as
President, Chief Executive Officer and Chairman of the Board. Harry
G. Brittain, Ph.D., joined ATI as Vice President for
Pharmaceutical and Clinical 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.
Discovery employs two other employees who devote only a portion of their time
to the business of the Company: Mr. Kanzer, the Company's Chairman, and
Kenneth Johnson, the Company's Director of Business Development.
See "Risk Factors--Dependence on Key Personnel and Consultants."
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 Incorporated ("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 up to $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) 794-8612.
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.
36
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of January 2, 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>
Shares Percentage of Class
Name and Address of Beneficial Owner (1) Title of Stock Beneficially Owned Beneficially Owned
- ---------------------------------------- -------------- -------------------- ---------------------
<S> <C>
RAQ, LLC(2) 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 436,750 6.51%
787 Seventh Avenue, 44th Floor
New York, New York 10019
James S. Kuo, M.D. (4) Common Stock 340,000 5.07%
787 Seventh Avenue, 44th Floor
New York, New York 10019
Evan Myrianthopoulos Common Stock 187,000 2.79%
787 Seventh Avenue, 44th Floor
New York, New York 10019
Juerg F. Geigy, Esq. Common Stock 25,000 *
44 Elisabethenstrasse
CH-4051 Basel, Switzerland
Herbert H. McDade, Jr. (5) Common Stock 25,000 *
Access Pharmaceuticals
660 White Plains Road, Suite 400
Tarrytown, NY 10591
Max Link, Ph.D. Common Stock 25,000 *
230 Central Park West
Apt. 14A
New York, NY 10024
Mark C. Rogers, M.D. (5) Common Stock 25,000 *
4406 W. Cornwallis Road
Durham, NC 27705
All Officers and Directors Common Stock 1,063,750 15.73%
as a Group (9 persons)
</TABLE>
- -----------------------------
* Less than one percent (1%)
37
<PAGE>
(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) Does not include an additional 85,000 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.
(5) Represents 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.
38
<PAGE>
The following table sets forth certain information regarding ownership of
capital stock, as of January 2, 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>
Discovery Laboratories, Inc. ATI Series A 600,000 100%
787 Seventh Avenue, 44th Floor Preferred
New York, New York 10019 Stock
Robert J. Capetola, Ph.D. (1) ATI Common 67,500 33.8%
6097 Hidden Valley Drive Stock
Doylestown, PA 18901
Charles Cochrane, M.D. (2) ATI Common 30,000 15.0%
The Scripps Research Institute Stock
Department of Immunology,
IMM12
10550 North Torrey Pines Road
La Jolla, CA 92037
Johnson & Johnson ATI Common 40,000 20.0%
Development Corporation Stock
920 Route 202, P.O. Box 300
Raritan, NJ 08869
The Scripps Research Institute ATI Common 30,000 15.0%
Department of Immunology, Stock
IMM12
10550 North Torrey Pines Road
La Jolla, CA 92037
The Sage Group ATI Common 15,000 7.5%
245 Route 22 West Stock
Bridgewater, NJ 08807
Susan Revak ATI Common 12,000 6.25%
The Scripps Research Institute Stock
Department of Immunology,
IMM12
10550 North Torrey Pines Road
La Jolla, CA 92037
The Scripps Research Institute ATI Common 15,000 15.0%
Department of Immunology, Stock
IMM12
10550 North Torrey Pines Road
La Jolla, CA 92037
All Officers and Directors ATI Common 195,000 97.5%
as a Group (11 persons) Stock
</TABLE>
39
<PAGE>
- ---------------------------------
(1) Does not include (i) options to purchase 25,000 shares of ATI Common
Stock exercisable 6 months after the date of grant or (ii) 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--KL(4)-Surfactant Technology--Investment in Acute
Therapeutics, Inc.; License of KL(4)- Surfactant Technology."
(2) Does not include (i) options to purchase 7,500 shares of ATI Common
Stock exercisable 6 months after the date of grant or (ii) 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--KL(4)-Surfactant Technology--Investment in Acute
Therapeutics, Inc.; License of KL(4)- Surfactant Technology."
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:
Discovery Laboratories, Inc.
<TABLE>
<CAPTION>
Name Age Positions with Discovery
<S> <S> <S>
James S. Kuo, M.D. 32 President, Chief
Executive Officer and
a Director
Steve H. Kanzer, C.P.A., Esq. 32 Chairman of the Board
of Directors
Evan Myrianthopoulos 32 Chief Operating
Officer, Secretary
and a Director
Saul Bodenheimer, M.D. 46 Vice President of
Clinical Affairs
David Crockford 51 Vice President of
Regulatory Affairs
Juerg F. Geigy, Esq. 61 Director
Max Link, Ph.D.
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
Harry Brittain 47 Vice President of
Pharmaceutical and
Chemical Development
Steve H. Kanzer, C.P.A., Esq. 32 Director
Lawrence B. Katz, Ph.D. 42 Vice President of
Project Management
and Clinical
Administration
James S. Kuo, M.D. 32 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
Chris Schaber 30 Vice President of
Regulatory Affairs
and Quality Assurance
</TABLE>
James S. Kuo, M.D. has served as President, Chief Executive Officer and a
Director of Discovery since March 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
40
<PAGE>
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.
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 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 the
Company since his election in 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 currently serves as Vice President of Regulatory Affairs of
the Company. 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,
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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., is presently the Vice President for Pharmaceutical and
Chemical Development of ATI. He is a graduate of Queens College (B.S., 1970;
M.S. 1972), and of the City University of New York (Ph.D. in physical chemistry,
1975). He was a postdoctoral fellow at the University of Virginia, and has held
faculty positions at Ferrum College and Seton Hall University. Prior to joining
ATI, Dr. Brittain served as Director of Pharmaceutical Development for the
Pharmaceutical 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.
Laurence B. Katz, Ph.D. has served as Vice President of Project Management and
Clinical Administration 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 Jan. 1990 to April 1993, and as a Principal Scientist in the
Drug Discovery Department from Feb. 1983 to Jan. 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 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 the Company since his election in
August 1996 and as a Director of ATI since his election in October 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 the Company 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.
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Herbert H. McDade, Jr. has served as a Director of the Company 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 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 the Company since his election
in June 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 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 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 in a variety of roles since 1992 and currently is
the Dickinson W. Richards, Jr. Professor of Medicine, Professor of Pharmacology,
Chief of the Division of Circulatory Physiology at the Columbia University
College of Physicians and Surgeons, and Director of the Heart Failure Center at
the Presbyterian Hospital. 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.
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
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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.
The Company has nine full time 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
Currently, directors of the Company do not receive compensation for service on
the Board of Directors or any committee thereof but are reimbursed for travel
expenses incurred in attending board and committee meetings. Discovery expects
that in the future it will compensate its directors on a per meeting basis and
through the granting of stock options. 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 $1.25 per share. These options will be subject to
vesting over a period of three years.
Executive Compensation
The following Summary Compensation Table sets forth the compensation earned by
the person serving as the Company's chief executive officer during 1995. No
other executive officer earned compensation in excess of $100,000 for services
rendered to the Company for the 1995 fiscal year, and no executive officer who
would have otherwise been included in such table resigned or terminated
employment during that year.
Summary Compensation Table
Annual Compensation
--------------------------
Name and Principal Position Year Salary All Other Compensation
Steve H. Kanzer, C.P.A., Esq. 1995 -0- -0-
Employment and Consulting Agreements of Discovery Laboratories, Inc.
In March 1996, the Company entered into a three-year employment agreement with
Dr. James S. Kuo, 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. Dr. Kuo is also entitled to receive a minimum cash bonus of $20,000
on the first anniversary of his employment with the Company and health coverage
for his family. 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.
In June 1996, the Company entered into employment agreements with Mr. Steve
Kanzer, the Chairman of the Board of Directors of the Company, 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,
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respectively, while the Manager Agreements remain in effect. The Manager
Agreements are terminable at any time by the Company. Mr. Kanzer devotes only a
portion of his time to the business of the Company.
Employment and Consulting Agreements of ATI
In October 1996, ATI entered into a four-year employment agreement with Dr.
Robert J. Capetola, 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 KL(4)-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 Dr. Charles
Cochrane, Ms. Susan Revak, Ms. Zenaida Oades, Ms. Monica Cochrane and The Sage
Group. Dr. Cochrane's two-year consulting agreement (the "Cochrane Agreement")
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.
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.
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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 5,000 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.
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, Professor 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.
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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.
Mike 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 MB BS from University College Hospital in London and a BSc from
University 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, Professor of Department of Biochemistry at
the University of Wisconsin-Madison. Dr. DeLuca received his Ph.D. and M.S. in
Biochemistry from the University of Wisconsin-Madison. Dr. DeLuca is the
inventor of ST-630, and has authored over 1,000 publications in the fields of
vitamin A, vitamin D, parathyroid hormone and calcitonin.
KL(4)-Surfactant Technology Scientific Advisory Board (ARDS)
Dr. Charles Cochrane, Chairman, The Scripps Research Institute. See
"--Executive Officers and Directors".
Dr. Charles Rice, 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.
Dr. Michael Mathey, 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.
Dr. Thomas Martin, 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.
KL(4)-Surfactant Technology Scientific Advisory Board (MAS)
Dr. Charles Cochrane, Chairman, The Scripps Research Institute. See
"--Executive Officers and Directors".
Dr. Neil Finer, Director, Professor of Pediatrics, University of California at
San Diego. Dr. Finer received his M.D. from the University of Toronto.
Dr. Frank Marino, Director, Professor of Pediatrics, University of California at
San Diego. Dr. Mannino received his M.D. from Washington University, St. Louis.
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Dr. Alan Merritt, Director, Professor of Pediatrics, University of Oregon. Dr.
Merritt received his M.D. from the University of Kansas.
Dr. Thomas Wiswell, Director, Thomas Jefferson University.
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 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, 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
KL(4)-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. See "Management--Executive Compensation" and
"Employment and Consulting Agreements."
In April 1996, the Company entered into a three-year employment agreement with
Dr. James Kuo, 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.,
49
<PAGE>
the President, Chief Executive Officer and Chairman of the Board of ATI. See
"Management--Employment and Consulting Agreements of ATI."
In September 1996 in connection with Dr. Max Link's serving on the Board of
Directors of the Company, the Company issued him 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. Mr. Birnbaum was previously employed by Paramount Capital
Investments, LLC, an affiliate of Paramount, as a Technology Associate.
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 up to
$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.
50
<PAGE>
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
51
<PAGE>
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.
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.
52
<PAGE>
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.
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 1,125,000 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
53
<PAGE>
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.
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 Dr. Thomas Kennedy and Dr. John Hoidal, 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.
54
<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>
<CAPTION>
Percentage
Shares Owned Amount to Shares Owned Owned after
Name of Shareholder(1) prior to Offering be Offered after Offering Offering
- ---------------------- ----------------- ---------- -------------- --------
<S> <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 125,843 125,843 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 *
55
<PAGE>
Cotler, Ira 6,250 6,250 0 *
Cox, Archibald 125,000 125,000 0 *
Darcy, Ltd. 12,500 12,500 0 *
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 12,500 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 *
56
<PAGE>
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 *
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 *
57
<PAGE>
Schonzeit, Andrew 25,000 25,000 0 *
Schuhsler, Helmut 10,000 10,000 0 *
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 12,500 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 49,158 49,158 0 *
Verner, Jules 25,000 12,500 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 12,101,404.00 12,101,404.00 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.
58
<PAGE>
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 Dr. Lindsay A. Rosenwald, 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. See "Certain Transactions." Harris Kanzer is the
father of Steve H. Kanzer, the Chairman of the Board of Directors and a
stockholder of the Company. Marc Florin and Martin Kratchman are registered
representatives of Paramount.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALES
Upon completion of the Offering, the Company will have 16,713,409 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 12,101,404 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 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 without regard to the volume limitations described above.
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 of 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."
60
<PAGE>
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. See "Plan of Distribution."
The Company will inform the Selling Securityholders that the anti-manipulation
provisions of Rules 10b-6 and 10b-7 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.
61
<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.
62
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Discovery Laboratories, Inc.
New York, New York
We have audited the accompanying balance sheets of Discovery
Laboratories, Inc. (a development stage company) as at December 31, 1995 and
September 30, 1996, and the related statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 1995 and
December 31, 1994, the nine months ended September 30, 1996 and September 30,
1995 and the period from May 18, 1993 (inception) through September 30, 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 financial statements enumerated above present
fairly, in all material respects, the financial position of Discovery
Laboratories, Inc. at December 31, 1995 and September 30, 1996, and the results
of their operations and cash flows for the years ended December 31, 1995 and
December 31, 1994, the nine months ended September 30, 1996 and September 30,
1995 and the period from May 18, 1993 (inception) through September 30, 1996 in
conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
November 8, 1996
F-1
<PAGE>
DISCOVERY LABORATORIES, INC.
(a development stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30, November 8,
A S S E T S 1995 1996 1996
----------- ------ ------ -----
<S> <C>
(consolidated)
(Unaudited)
Cash. . . . . . . . . . . . . . . . . . . $ 2,851 $6,170,971 $18,158,101
Inventory (Note G). . . . . . . . . . . . 733,333
Common stock subscriptions receivable . . 424 424
-------- ----------- -----------
Total current assets. . . . . . 2,851 6,171,395 18,891,858
Inventory . . . . . . . . . . . . . . . . 1,466,667
Deferred offering costs . . . . . . . . . 2,973
Computer equipment (Note B) . . . . . . . 5,428 5,428
License, net of amortization (Note D) . . 108,900 708,900
-------- ----------- -----------
T O T A L . . . . . . . . . . . $ 2,851 $6,288,696 $21,072,853
======== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses. . . . . . . . . . . . . $ 8,685 $ 200,000
----------- -----------
Commitments and contingencies (Note D)
Minority interest in stock of subsidiary. 2,202,000
-----------
Stockholders' equity:
Series A preferred stock, $.001 par
value; 7,000,000 shares authorized; shares outstanding 746,232 at September
30, 1996 and 2,200,256 at November 8, 1996 (liquidation preference
$10,074,119 at September 30, 1996 and $29,703,443
at November 8, 1996) . . . . . . . . 746 2,200
Other preferred stock, $.001 par value
3,000,000 shares authorized, none
outstanding. . . . . . . . . . . . .
Common stock - $.001 par value, shares authorized 50,000,000 shares
outstanding 3,000,000 at December 31, 1995, 5,133,232 at September 30, 1996
and 6,712,256
at November 8, 1996. . . . . . . . . $ 3,000 5,233 6,712
Additional paid-in capital . . . . . . 17,716 6,550,530 19,097,568
Deficit accumulated during the
development stage. . . . . . . . . . (17,865) (276,498) (435,627)
-------- ----------- ------------
Total stockholders' equity. . . 2,851 6,280,011 18,670,853
-------- ----------- ------------
T O T A L . . . . . . . . . . . $ 2,851 $6,288,696 $21,072,853
======== =========== ============
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
F-2
<PAGE>
DISCOVERY LABORATORIES, INC.
(a development stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From Inception
(May 18, 1993) to
For the Year Ended For the Nine Months ---------------------------
December 31, Ended September 30, December 31, September 30,
---------------------- ---------------------------- 1995 1996
1994 1995 1995 1996 ------ -----
------ ------ ------ ------
<S> <C>
Expenses:
Research and development . . . . . 136,670 136,670
General and administrative . . . . $ 437 $ 16,923 $ 16,852 116,567 $ 17,865 134,432
Interest . . . . . . . . . . . . . 5,396 5,396
------ --------- --------- ---------- --------- ---------
Total expenses. . . . . . . 437 16,923 16,852 258,633 17,865 276,498
------ --------- --------- ---------- --------- ---------
NET (LOSS). . . . . . . . . . . . . . $(437) $(16,923) $(16,852) $(258,633) $(17,865) $(276,498)
====== ========= ========= ========== ========= ==========
Net (loss) per share. . . . . . . . . $ (.00) $(.01) $(.01) $(.07)
====== ====== ====== ======
Weighted average common shares
outstanding. . . . . . . . . . . . 1,132,500 1,468,787 1,458,269 3,574,154
========= ========== ========== =========
</TABLE>
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
(CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
Common Stock Preferred Stock
Shares Amount Shares Amount
-------- -------- -------- --------
<S> <C>
Issuance of common shares, May 1993. . . . . . . . . 1,132,500 $1,133
Net loss . . . . . . . . . . . . . . . . . . . . . .
Expenses paid on behalf of the Company . . . . . . .
---------- -------
Balance - December 31, 1993. . . . . . . . . . . . . 1,132,500 1,133
Net loss . . . . . . . . . . . . . . . . . . . . . .
Expenses paid on behalf of the Company . . . . . . .
---------- -------
Balance - December 31, 1994. . . . . . . . . . . . . 1,132,500 1,133
Issuance of common shares, February 1995 . . . . . . 367,500 367
Net loss . . . . . . . . . . . . . . . . . . . . . .
Expenses paid on behalf of the Company . . . . . . .
---------- -------
Balance - December 31, 1995. . . . . . . . . . . . . 1,500,000 1,500
Issuance of common shares, March 1996. . . . . . . . 2,750,000 2,750
Issuance of private placement units at $10 per unit,
August 1996 . . . . . . . . . . . . . . . . . . . 746,232 746 746,232 $ 746
Issuance of common shares for cash and compensation,
September 1996. . . . . . . . . . . . . . . . . . 212,000 212
Exercise of stock option, July 1996. . . . . . . . . 25,000 25
Net loss . . . . . . . . . . . . . . . . . . . . . .
---------- ------- --------- -------
Balance - September 30, 1996 . . . . . . . . . . . . 5,233,232 5,233 746,232 746
Exercise of stock option, October 1996 . . . . . . . 25,000 25
Issuance of private placement units at $10 per
unit, October and November 1996 . . . . . . . . . 1,454,024 1,454 1,454,024 1,454
Net loss . . . . . . . . . . . . . . . . . . . . . .
---------- ------- --------- -------
BALANCE - NOVEMBER 8, 1996 (UNAUDITED) . . . . . . . 6,712,256 $6,712 2,200,256 $2,200
========== ======= ========= =======
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
F-4
<PAGE>
DISCOVERY LABORATORIES, INC.
(a development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(CAPITAL DEFICIENCY)
(continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Stock Additional During the
Subscriptions Paid-in Development
Receivable Capital Stage Total
------------ --------- ------- ------
<S> <C>
Issuance of common shares, May 1993. . . . . . . . . $(2,265) $ 1,132 $ - 0 -
Net loss . . . . . . . . . . . . . . . . . . . . . . $ (505) (505)
Expenses paid on behalf of the Company . . . . . . . 505 505
-------- ----------- ---------- ----------
Balance - December 31, 1993. . . . . . . . . . . . . (1,760) 1,132 (505) - 0 -
Net loss . . . . . . . . . . . . . . . . . . . . . . (437) (437)
Expenses paid on behalf of the Company . . . . . . . 437 437
-------- ----------- ---------- ----------
Balance - December 31, 1994. . . . . . . . . . . . . (1,323) 1,132 (942) - 0 -
Issuance of common shares, February 1995 . . . . . . (735) 368 - 0 -
Net loss . . . . . . . . . . . . . . . . . . . . . . (16,923) (16,923)
Expenses paid on behalf of the Company . . . . . . . 2,058 17,716 19,774
-------- ----------- ---------- -----------
Balance - December 31, 1995. . . . . . . . . . . . . - 0 - 19,216 (17,865) 2,851
Issuance of common shares, March 1996. . . . . . . . 2,750 5,500
Issuance of private placement units at $10 per unit,
August 1996 . . . . . . . . . . . . . . . . . . . 6,483,901 6,485,393
Issuance of common shares for cash and compensation,
September 1996. . . . . . . . . . . . . . . . . . 42,188 42,400
Exercise of stock option, July 1996. . . . . . . . . 2,475 2,500
Net loss . . . . . . . . . . . . . . . . . . . . . . (258,633) (258,633)
-------- ----------- ---------- ------------
Balance - September 30, 1996 . . . . . . . . . . . . 6,550,530 (276,498) 6,280,011
Exercise of stock option, October 1996 . . . . . . . 4,975 5,000
Issuance of private placement units at $10 per
unit, October and November 1996 . . . . . . . . . 12,542,063 12,544,971
Net loss . . . . . . . . . . . . . . . . . . . . . . (159,129) (159,129)
-------- ----------- ---------- ------------
BALANCE - NOVEMBER 8, 1996 (UNAUDITED) . . . . . . . $- 0 - $19,097,568 $(435,627) $18,670,853
======== =========== ========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
F-5
<PAGE>
DISCOVERY LABORATORIES, INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From
Inception
(May 18,
For the Year Ended For the Nine Months 1993) to
December 31, Ended September 30, September 30,
1994 1995 1995 1996 1996
------ ------ ------ ------ -----
<S> <C>
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . $(437) $(16,923) $(16,852) $ (216,657) $ (234,522)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Amortization. . . . . . . . . . . . . . . . . . 2,500 2,500
Increase in accrued expenses. . . . . . . . . . 8,685 8,685
Expenses on behalf of company . . . . . . . . . 437 16,852 16,852 17,794
------ --------- --------- ----------- ----------
Net cash (used in) operating activities. . . - 0 - (71) - 0 - (205,472) (205,543)
------ --------- ------- ----------- -----------
Cash flows from investing activities:
Acquisition of computer equipment . . . . . . . . . (5,428) (5,428)
Acquisition of license. . . . . . . . . . . . . . . (111,400) (111,400)
----------- -----------
Net cash (used in) investing activities. . . (116,828) (116,828)
----------- -----------
Cash flows from financing activities:
Private placement of units. . . . . . . . . . . . . 6,482,420 6,482,420
Payment on stock subscriptions and proceeds on
issuance of common stock. . . . . . . . . . . . . 2,922 8,000 10,922
--------- ----------- ----------
Net cash provided by financing activities. . 2,922 6,490,420 6,493,342
--------- ----------- ----------
NET INCREASE IN CASH . . . . . . . . . . . . . . . . . - 0 - 2,851 - 0 - 6,168,120 6,170,971
Cash - beginning of period . . . . . . . . . . . . . . - 0 - - 0 - - 0 - 2,851 - 0 -
------ --------- -------- ----------- --------
CASH - END OF PERIOD . . . . . . . . . . . . . . . . . $- 0 - $ 2,851 $ - 0 - $6,170,971 $6,170,971
====== ========= ======== =========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
F-6
<PAGE>
DISCOVERY LABORATORIES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to November 8, 1996
and the period then ended)
(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.
In November 1996 the Company completed a private placement of its
securities and received aggregate net proceeds of approximately $19,000,000,
approximately $6,500,000 of which was received through September 30, 1996 (see
Note F).
(NOTE B) - Summary of Significant Accounting Policies:
[1] 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).
[2] License fees:
License fees are capitalized and amortized over their
respective terms.
[3] Research and development:
Research and development costs are charged to operations as
incurred.
[4] 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.
[5] Interim financial statements:
The accompanying balance sheet as at November 8, 1996 and
statement of changes in stockholders' equity for the period then ended are
unaudited. In the opinion of management, they reflect all adjustments
(consisting only of normal and recurring adjustments) necessary for a fair
presentation of the Company's financial position.
(continued)
F-7
<PAGE>
DISCOVERY LABORATORIES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to November 8, 1996
and the period then ended)
(NOTE B) - Summary of Significant Accounting Policies: (continued)
[6] 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 $145,000 through April 15, 1997 increasing to $165,000 through
April 15, 1999.
(NOTE D) - Income Taxes:
At September 30, 1996, the Company has available for federal income tax
purposes net operating loss carryforwards of approximately $120,000 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 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 $50,000 and
general and administrative costs of approximately $45,000 since the likelihood
of realization cannot be determined. The valuation reserve increased by
approximately $88,000 and $7,000 for the period from January 1, 1996 to
September 30, 1996 and for the year ended 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.
(continued)
F-8
<PAGE>
DISCOVERY LABORATORIES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to November 8, 1996
and the period then ended)
(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
Super Vent, a therapy which the Company intends to clinically test. 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 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.
(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. The shares of preferred stock
are convertible at the option of the holders thereof into shares of common stock
of the Company, at an initial conversion price of $2.50 per share. The
conversion price will be adjusted under certain circumstances as described in
the private placement memorandum. Pursuant to the offering, the Company agreed
to use its best efforts to file, as soon as practicable but no later than 60
days following the final closing date (November 8, 1996), a registration
statement under the Securities Act of 1933, as amended. From August 1996 through
November 1996, the Company received net proceeds of approximately $19,000,000
for the sale of approximately 44 units.
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.
(continued)
F-9
<PAGE>
DISCOVERY LABORATORIES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to November 8, 1996
and the period then ended)
(NOTE G) - Investment in 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 is due 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 was valued at $2,200,000. 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 84,800 shares of common stock of ATI.
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 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 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
(continued)
F-10
<PAGE>
DISCOVERY LABORATORIES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to November 8, 1996
and the period then ended)
(NOTE G) - Investment in Acute Therapeutics, Inc.: (continued)
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 issuance under these plans.
(NOTE H) - Stock Options:
In November 1996, the Company adopted its 1996 Stock Option/Stock
Issuance Plan which includes three equity programs. 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.
In July and August, 1996, options to purchase 100,000 shares of the
Company's common stock were granted (all of which were 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.
F-11
<PAGE>
- -------------------------------------------------------------------------------
No dealer, salesman or any other person has
been 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 related or an offer to sell, or
a solicitation of an offer 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.
--------------------
TABLE OF CONTENTS
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
MANAGEMENT..........................................40
CERTAIN TRANSACTIONS................................49
PRINCIPAL STOCKHOLDERS..............................37
DESCRIPTION OF SECURITIES........................51-54
SELLING SECURITYHOLDERS..........................55-58
SHARES ELIGIBLE FOR FUTURE SALES...................60
PLAN OF DISTRIBUTION................................61
EXPERTS.............................................62
LEGAL COUNSEL.......................................62
ADDITIONAL INFORMATION..............................62
FINANCIAL STATEMENTS.............................. F-1
12,101,409 Shares
DISCOVERY
LABORATORIES, INC.
Common Stock
__________________
PROSPECTUS
_______, 1997
------------------
- --------------------------------------------------------------------------------
<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>
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.
<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").
3.1 Certificate of Incorporation of the Registrant, as amended to date.
3.2 By-Laws of the Registrant, as amended to date.
3.3 Certificate of Incorporation of ATI, as amended to date.
3.4 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.
+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: [***]
Schedule B: [***]
Exhibit A: See Exhibit 4.5
Exhibit B: See Exhibit 4.6
Exhibit C: See Exhibit 3.3
Exhibit D: See Exhibit 3.3
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.
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
[***] Confidential treatment requested.
<PAGE>
<CAPTION>
<S> <C>
5.1 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.
+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.
+10.6 Sublicense Agreement dated October 28, 1996 between ATI, Johnson &
Johnson, Inc. and Ortho.
+10.7 License Agreement between the Registrant and The Charlotte-Mecklenburg
Hospital Authority dated March 20,1996.
*10.8 Letter of Intent dated September 4, 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.
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.
+10.15 Consulting Agreement dated 1996 between ATI and Dr. Charles Cochrane.
+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 8, 1996 between the Registrant and
Paramount Capital Incorporated.
23.1 Consent of Roberts, Sheridan & Kotel, a Professional Corporation. Reference is
made to Exhibit 5.1.
<PAGE>
<CAPTION>
<S> <C>
23.2 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.
27.1 Financial Data Schedule.
</TABLE>
--------------
* To be supplied by amendment.
+ Confidential treatment requested as to certain
portions of these exhibits, which have been redacted.
<PAGE>
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>
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 7th day of
January, 1997.
DISCOVERY LABORATORIES, INC.
By: /s/ Evan Myrianthopoulos
---------------------------
Evan Myrianthopoulos
Chief Operating Officer,
Secretary and Director
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints, jointly and severally, Evan Myrianthopoulos
his attorney-in-fact, with the power of substitution, for him in any and all
capacities, to sign any and all amendments to this Registration Statement
(including post-effective amendments), and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said attorney-
in-fact, or his substitute or substitutes, may do or cause to be done by
virtue hereof.
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. January 7, 1997
___________________________________ President, Chief Executive Officer and Director
/s/ Steve H. Kanzer, C.P.A., Esq. Steve H. Kanzer, C.P.A., Esq. January 7, 1997
____________________________________ Chairman of the Board of Directors
/s/ Evan Myrianthopoulos Evan Myrianthopoulos January 7, 1997
____________________________________ Chief Operating Officer, Secretary and Director
(Principal Financial and Accounting Officer)
/s/ Herbert H. McDade, Jr. Herbert H. McDade, Jr. January 7, 1997
____________________________________ Director
</TABLE>
<PAGE>
EXHIBIT INDEX
<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").
3.1 Certificate of Incorporation of the Registrant, as amended to date.
3.2 By-Laws of the Registrant, as amended to date.
3.3 Certificate of Incorporation of ATI, as amended to date.
3.4 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.
+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: [***]
Schedule B: [***]
Exhibit A: See Exhibit 4.5
Exhibit B: See Exhibit 4.6
Exhibit C: See Exhibit 3.3
Exhibit D: See Exhibit 3.3
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.
4.14 Founder/Employee Stock Purchase Agreement dated October 10,1996, between
ATI and Susan Revak
[***] Confidential treatment required.
<PAGE>
<CAPTION>
<S> <C>
4.15 Founder/Employee Stock Purchase Agreement dated October 10, 1996, between
ATI and Sage Partners
5.1 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.
+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.
+10.6 Sublicense Agreement dated October 28, 1996 between ATI, Johnson &
Johnson, Inc. and Ortho.
+10.7 License Agreement between the Registrant and The Charlotte-Mecklenburg
Hospital Authority dated March 20,1996.
*10.8 Letter of Intent dated September 4, 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.
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.
+10.15 Consulting Agreement dated 1996 between ATI and Dr. Charles Cochrane.
+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 8, 1996 between
the Registrant and Paramount Capital Incorporated.
<PAGE>
<CAPTION>
<S> <C>
23.1 Consent of Roberts, Sheridan & Kotel, a Professional Corporation. Reference is
made to Exhibit 5.1.
23.2 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.
27.1 Financial Data Schedule.
</TABLE>
--------------
* To be supplied by amendment.
+ Confidential treatment requested as to certain
portions of these exhibits, which have been redacted.
<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>
EXECUTION COPY
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made this 28th day of October, 1996, by and
between ACUTE THERAPEUTICS, INC., a Delaware corporation (the "Company"),
and DISCOVERY LABORATORIES, INC., a Delaware corporation ("Purchaser").
WHEREAS, Purchaser desires to purchase shares of Series A Preferred
Stock of the Company (the "Series A Stock"), par value $0.001 per share, for
a purchase price of $7,500,000;
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. Purchase of Shares. Subject to the terms hereof, the Company
shall sell to Purchaser and Purchaser shall purchase from the Company, subject
to Section 4 hereof, 600,000 shares of Series A Stock of the Company (the
"Shares") for a purchase price of $7,500,000 ("Purchase Price").
2. Payment of Purchase Price. The Purchaser shall pay the Purchase
Price by delivering to the Company at the time of execution of this Agreement
a check or wire transfer for $7,500,000.
3. Issuance of Shares. Upon receipt by the Company of the Purchase
Price, the Company shall issue a duly executed certificate evidencing the
Shares in the name of Purchaser.
4. "Market Stand-Off" Agreement. Purchaser 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"), Purchaser 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
<PAGE>
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 common stock held by Purchaser until
the end of such period.
5. Representations and Warranties of Purchaser.
a. Investment Intent. This Agreement is made with Purchaser in
reliance upon its representation to the Company, which by acceptance hereof
Purchaser confirms, that the Shares have been acquired with Purchaser's
own funds for investment for its account, not as a nominee or agent, and not
with a view to the sale or distribution of any part thereof, and that Purchaser
has no present intention of selling, granting participation in, or otherwise
distributing the same. By executing this Agreement, Purchaser further
represents that it does not have any contract, undertaking, agreement or
arrangement with any person or entity to sell, transfer, or grant
participations, to such person or entity or to any third person or entity,
with respect to any of the Shares.
b. Restricted Securities. Purchaser 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 Purchaser's
representations set forth herein.
Purchaser 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, Purchaser may be required to hold the Shares for
an indeterminate period. Purchaser also acknowledges that it understands that
any sale of the Securities that might be made by Purchaser 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 Purchaser may not be able to
sell the Shares at the time or in the amount Purchaser so desires. Purchaser
is familiar with Rule 144 and understands that the Shares constitute
"restricted securities" within the meaning of that Rule.
c. Investment Experience. In connection with the investment
representations made herein Purchaser 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 Purchaser has requested and
deems appropriate to its investment decision.
2
<PAGE>
d. Limitations on Disposition. Purchaser agrees that in no
event will it make a disposition of any of the Shares, unless and until (a)
Purchaser 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) Purchaser 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 5(d) shall cease and 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
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.
Purchaser 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.
e. 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):
(i) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SERIES A 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."
(ii) "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
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<PAGE>
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."
(iii) Any legend required to be placed thereon by
applicable state laws.
6. Miscellaneous.
a. Further Instruments and Actions. The parties agree to execute
such further instruments and to take such further action as may reasonably
be necessary to carry out the intent of this Agreement.
b. 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, 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.
c. Governing Law, Assignment and Enforcement. This Agreement is
governed by the internal law of California and shall inure to the benefit of
the successors and assigns of the Company and, subject to the restrictions
on transfer herein set forth, be binding upon Purchaser, his or her heirs,
executors, administrators, guardians, successors and assigns. The prevailing
party in any action to enforce this Agreement shall be entitled to attorneys'
fees and costs. The parties agree that damages are not an adequate remedy for
Purchaser's breach hereof and the Company shall accordingly be entitled to
specific performance of this Agreement.
d. 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.
e. Cooperation. Purchaser agrees to cooperate affirmatively with
the Company, to the extent reasonably requested by the Company, to enforce
rights and obligations pursuant to this Agreement.
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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.
By: (Sig of Robert J. Capetola, Ph.D.)
Robert J. Capetola, Ph.D.
President
Purchaser:
DISCOVERY LABORATORIES, INC.
By: (Sig of James S. Kuo, M.D.)
James S. Kuo, M.D.
President
5
<PAGE>
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>
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>
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 corporation 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,
employer, 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 here)
Incorporator
3
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 am 11/13/1995
950262145 - 2336746
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:
1. 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, per value $.001 per share
(the "Preferred
<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>
(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>
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>
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: /s/ Steve Kanzer
_______________________
President
5
Exhibit A
[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
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<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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<PAGE>
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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<PAGE>
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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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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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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
-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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<PAGE>
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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<PAGE>
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.
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<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
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<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.
-4-
<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
-5-
<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>
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
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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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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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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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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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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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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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SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (this "Agreement") made as of the date set forth on
the signature page hereof between Discovery Laboratories, Inc., a Delaware
corporation (the "Company") and the undersigned (the "Subscriber").
WITNESSETH:
WHEREAS, the Company desires to issue a minimum (the "Minimum Offering") of
five (5) units (the "Units") and a maximum (the "Maximum Offering") of
thirty-six (36) Units, with an option in favor of the Placement Agent to offer
up to an additional twelve (12) Units to cover over-allotments, in a private
placement offering (the "Offering"), each Unit consisting of (a) 50,000 shares
of Series A Convertible Preferred Stock of the Company, par value of $.001 per
share, (the "Preferred Stock"), initially convertible into shares of common
stock of the Company, par value $.001 per share (the "Common Stock"), and (b)
50,000 shares of Common Stock (collectively with the Preferred Stock and the
Common Stock underlying the Preferred Stock, the "Shares"), and the Subscriber
desires to purchase that number of Units set forth on the signature page hereof
on the terms and conditions hereinafter set forth;
WHEREAS, the Company has engaged Paramount Capital, Inc. (the "Placement
Agent") as Placement Agent for the Offering on a "best-efforts" basis.
NOW, THEREFORE, in consideration of the premises and the mutual
representations and covenants hereinafter set forth, the parties hereto do
hereby agree as follows:
I SUBSCRIPTION FOR UNITS AND REPRESENTATIONS BY SUBSCRIBER
1 Subject to the terms and conditions hereinafter set forth, the
Subscriber hereby subscribes for and agrees to purchase from the
Company such number of Units or fractions thereof and the Company
agrees to sell such Units to the Subscriber as is set forth upon the
signature page hereof. The Units will be offered at $500,000 per Unit
(the "Initial Offering Price"). The purchase price is payable by
personal or business check, wire transfer of immediately available
funds or money order made payable to "Fleet Bank, Escrow Agent, F/B/O
Discovery Laboratories, Inc." contemporaneously with the execution and
delivery of this Agreement. The Units will be delivered by the Company
within ten (10) days following the consummation of the Offering as set
forth in Article III hereof.
<PAGE>
2 The Subscriber recognizes that the purchase of Units involves a high
degree of risk in that (i) the Company remains a development stage
business with limited operating history and requires substantial funds
in addition to the proceeds of the Offering; (ii) an investment in
the Company is highly speculative, and only investors who can afford
the loss of their entire investment should consider investing in the
Company and the Units; (iii) the Subscriber may not be able to
liquidate his investment; (iv) transferability of the Shares is
extremely limited; and (v) in the event of a disposition, the
Subscriber could sustain the loss of his entire investment. Such risks
are more fully set forth in the Confidential Private Placement
Memorandum (as defined below) furnished by the Company to the
Subscriber.
3 The Subscriber represents that the Subscriber is an "accredited
investor" as such term is defined in Rule 501 of Regulation D
promulgated under the Securities Act of 1933, as amended (the "Act"),
as indicated by his responses to the questions contained in Article
VIII hereof, and that the Subscriber is able to bear the economic risk
of an investment in the Units.
4 The Subscriber hereby acknowledges and represents that (i) the
Subscriber has prior investment experience, including investment in
non-listed and unregistered securities, or the Subscriber has employed
the services of an investment advisor, attorney and/or accountant to
read all of the documents furnished or made available by the Company
both to the Subscriber and to all other prospective investors in the
Units and to evaluate the merits and risks of such an investment on
the Subscriber's behalf; (ii) the Subscriber recognizes the highly
speculative nature of this investment; and (iii) the Subscriber is
able to bear the economic risk which the Subscriber hereby assumes.
5 The Subscriber hereby acknowledges receipt and careful review of the
Confidential Private Placement Memorandum (the "Memorandum") dated
June 17, 1996, as supplemented and amended, and the attachments and
exhibits thereto (including the Certificate of Designations of the
Series A Convertible Preferred Stock, all of which constitute an
integral part of the Memorandum (the "Memorandum") and hereby
represents that the Subscriber has been furnished by the Company
during the course of this transaction with all information regarding
the Company which the Subscriber has requested or desired to know, has
been afforded the opportunity to ask questions of and receive answers
from duly authorized officers or other representatives of the Company
concerning the terms and conditions of the Offering and has received
any additional information which Subscriber has requested.
6 (a) The Subscriber has relied solely upon the information provided by
the Company in the Memorandum in making the decision to invest in the
Units. To
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the extent necessary, the Subscriber has retained, at the expense of
the Subscriber, and relied upon appropriate professional advice
regarding the investment, tax and legal merits and consequences of
this Agreement and its purchase of the Units hereunder. The Subscriber
acknowledges and agrees that the Placement Agent has not supplied any
information for inclusion in the Memorandum other than information
furnished in writing to the Company by the Placement Agent
specifically for inclusion in the Memorandum relating to the Placement
Agent, that the Placement Agent has no responsibility for the accuracy
or completeness of the Memorandum and that the Subscriber has not
relied upon the independent investigation or verification, if any,
which may have been undertaken by the Placement Agent.
(b) To the best of its knowledge, (i) the Subscriber was contacted
regarding the sale of the Units by the Placement Agent, (or an
authorized agent or representative thereof) with whom the Subscriber
had a prior substantial pre-existing relationship and (ii) no Units
were offered or sold to it by means of any form of general
solicitation or general advertising, and in connection therewith the
Subscriber: did not (A) receive or review any advertisement, article,
notice or other communication published in a newspaper or magazine or
similar media or broadcast over television or radio whether closed
circuit, or generally available; or (B) attend any seminar meeting or
industry investor conference whose attendees were invited by any
general solicitation or general advertising.
7 The Subscriber hereby represents that the Subscriber either by reason of
the Subscriber's business or financial experience or the business or
financial experience of the Subscriber's professional advisors (who are
unaffiliated with and who are not compensated by the Company or any
affiliate or selling agent of the Company, including the Placement Agent,
directly or indirectly) has the capacity to protect the Subscriber's own
interests in connection with the transaction contemplated hereby. The
Subscriber hereby acknowledges that the Offering has not been reviewed by
the United States Securities and Exchange Commission (the "SEC") because of
the Company's representations that this is intended to be exempt from the
registration requirements of Section 5 of the Act pursuant to Sections 4(2)
of the Act and Regulation D promulgated thereunder. The Subscriber agrees
that the Subscriber will not sell or otherwise transfer the Shares unless
they are registered under the Act or unless an exemption from such
registration is available.
8 The Subscriber understands that the Shares comprising the Units have not
been registered under the Act by reason of a claimed exemption under the
provisions of the Act which depends, in part, upon the Subscriber's
investment intention. In this connection, the Subscriber hereby represents
that the Subscriber is purchasing the Shares comprising the Units for the
Subscriber's own account for investment and not with a view toward the
resale or distribution to others. The Subscriber, if an entity, was not
formed for the purpose of purchasing the Shares.
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9 The Subscriber understands that although there currently is a public
market for the Common Stock, Rule 144 promulgated under the Act requires,
among other conditions, a two-year holding period prior to the resale (in
limited amounts) of securities acquired in a non-public offering without
having to satisfy the registration requirements under the Act. The
Subscriber understands and hereby acknowledges that the Company is under no
obligation to register the Units or any of the Shares comprising the Units
under the Act or any state securities or "blue sky" laws other than as set
forth in Article V. The Subscriber consents that the Company may, if it
desires, permit the transfer of the Shares comprising the Units under or
issuable upon exercise thereof out of the Subscriber's name only when the
Subscriber's request for transfer is accompanied by an opinion of counsel
reasonably satisfactory to the Company that neither the sale nor the
proposed transfer results in a violation of the Act or any applicable state
"blue sky" laws (collectively, "Securities Laws"). The Subscriber agrees to
hold the Company and its directors, officers, employees, controlling
persons and agents (including the Placement Agent and its officers,
directors, employees and controlling persons) and controlling persons and
their respective heirs, representatives, successors and assigns harmless
and to indemnify them against all liabilities, costs and expenses incurred
by them as a result of any misrepresentation made by the Subscriber
contained in this Agreement (including the Confidential Investor
Questionnaire contained in Article VIII herein) or any sale or distribution
by the Subscriber in violation of the Securities Laws.
10 The Subscriber consents to the placement of a legend on any certificate or
other document evidencing the Shares that such Shares have not been
registered under the Act or any state securities or "blue sky" laws and
setting forth or referring to the restrictions on transferability and sale
thereof contained in this Agreement. The Subscriber is aware that the
Company will make a notation in its appropriate records with respect to the
restrictions on the transferability of such Shares.
11 The Subscriber understands that the Company will review this Agreement and
is hereby given authority by the Subscriber to call Subscriber's bank or
place of employment or otherwise review the financial standing of the
Subscriber; and it is further agreed that the Company reserves the
unrestricted right to reject or limit any subscription, to accept
subscriptions for fractional Units and to close the Offering to the
Subscriber at any time.
12 The Subscriber hereby represents that the address of the Subscriber
furnished by the Subscriber on the signature page hereof is the
Subscriber's principal residence if the Subscriber is an individual or its
principal business address if it is a corporation or other entity.
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13 The Subscriber represents that he or it has full power and authority
(corporate, statutory and otherwise) to execute and deliver this Agreement
and to purchase the Units. This Agreement constitutes the legal, valid and
binding obligation of the Subscriber, enforceable against the Subscriber in
accordance with its terms.
14 If the Subscriber is a corporation, company, trust, employee benefit plan,
individual retirement account, Keogh Plan, or other tax-exempt entity, it
is authorized and qualified to become an investor in the Company and the
person signing this Agreement on behalf of such entity has been duly
authorized by such entity to do so.
15 The Subscriber acknowledges that if he is a Registered Representative of an
NASD member firm, he must give such firm the notice required by the NASD's
Rules of Fair Practice, receipt of which must be acknowledged by such firm
in Section 8.4 below.
16 The Subscriber acknowledges that at such time, if ever, as the Shares are
registered, sales of the Shares will be subject to state securities laws,
including those of the State of New Jersey which requires any securities
sold in New Jersey to be sold through a registered broker-dealer or in
reliance upon an exemption from registration.
17 Subject to the proviso below, the Subscriber hereby agrees that from the
date hereof and continuing for a period (the "Lock-Up Period") of twelve
(12) months from the first date on which the shares of Common Stock become
publicly traded (the "Initial Trading Date"), Subscriber will not, without
the prior written consent of Placement Agent, offer, pledge, sell, contract
to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any Shares provided however that, following each
three month period after the Initial Trading Date, an amount of Shares
equal to 25 % of the number of Shares purchased by the Subscriber shall
become exempt from the lock-up provisions contained in this sentence. In
addition, the Subscriber agrees that while it holds any Shares, the
Subscriber will not directly or indirectly, through related parties,
affiliates or otherwise sell "short" or "short against the box" (as those
terms are generally understood) any equity security of the Company;
provided, however, that it shall not be a violation of this Section 1.17,
if the Subscriber places a sell order for Registrable Securities prior to
the conversion of the Preferred Stock, relies on the Company to deliver
such Registrable Securities in accordance with Section 5.4(h) and completes
the sale of such Registrable Securities before the Company delivers the
Registrable Securities to the Subscriber.
II REPRESENTATIONS BY AND COVENANTS OF THE COMPANY
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Except as set forth on the Schedule of Exceptions attached hereto as Exhibit A,
the Company hereby represents and warrants to the Subscriber that:
1 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 full corporate power and authority to conduct its
business as described in the Memorandum. The Company is duly qualified to
do business as a foreign corporation and is in good standing in the State
of New York.
2 Capitalization and Voting Rights. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Memorandum under
"Capitalization"; all issued and outstanding shares of the Company are
validly issued, fully paid and nonassessable. The Shares comprising the
Units have been duly and validly authorized and, when issued and paid for
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable. Except as set forth in the Memorandum, there are no
outstanding options, warrants, agreements, convertible securities,
preemptive rights or other rights to subscribe for or to purchase any
shares of capital stock of the Company. Except as set forth in the
Memorandum and in this Agreement and as otherwise required by law, there
are no restrictions upon the voting or transfer of the Shares pursuant to
the Company's Certificate of Incorporation, By-Laws or other governing
documents or any agreement or other instruments to which the Company is a
party or by which the Company is bound.
3 Authorization; Enforceability. This Agreement has been duly and validly
authorized by the Company and is enforceable against the Company in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought
in a proceeding in equity or at law). The Company has full power and lawful
authority to authorize, issue and sell the Units to be sold by it hereunder
on the terms and conditions set forth herein.
4 Certificate of Designations of Preferred Stock. The Preferred Stock has the
rights, preferences and privileges substantially as set forth in the Form
of Certificate of Designations attached as Exhibit A to the Memorandum with
the initial conversion rate of 4.0 and initial conversion price (the
"Initial Conversion Price") of $2.50.
5 No Conflict; Governmental Consents.
(i) The execution and delivery by the Company of this Agreement and the
consummation of the transactions contemplated hereby will not result
in the violation of any
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law, statute, rule, regulation, order, writ, injunction, judgment or
decree of any court or governmental authority to or by which the
Company is bound, or of any provision of the Certificate of
Incorporation or By-Laws of the Company, and will not conflict with,
or result in a breach or violation of, any of the terms or provisions
of, or constitute (with due notice or lapse of time or both) a default
under, any lease, loan agreement, mortgage, security agreement, trust
indenture or other agreement or instrument to which the Company is a
party or by which it is bound or to which any of its properties or
assets is subject, nor result in the creation or imposition of any
lien upon any of the properties or assets of the Company.
(ii) No consent, approval, authorization or other order of any governmental
authority is required to be obtained by the Company in connection with
the authorization, execution and delivery of this Agreement or with
the authorization, issue and sale of the Units or the Shares
comprising the Units, except such filings as may be required to be
made with the SEC and Nasdaq and with any state or foreign blue sky or
securities regulatory authority.
6 Licenses. Except as set forth in the Memorandum, the Company has sufficient
licenses, permits and other governmental authorizations currently required
for the conduct of its business or ownership of properties and is in all
material respects complying therewith.
7 Litigation. Except as set forth in the Memorandum, the Company knows of no
pending or threatened legal or governmental proceedings against the Company
which could materially adversely affect the business, property, financial
condition or operations of the Company.
8 Memorandum; Disclosure. No information set forth in the Memorandum contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained therein, in light of
the circumstances under which they were made, not misleading.
9 Investment Company. The Company is not an "investment company" within the
meaning of such term under the Investment Company Act of 1940 and the rules
and regulations of the SEC thereunder.
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III TERMS OF SUBSCRIPTION
1 The Company shall issue a minimum of five (5) Units and a maximum of
thirty-six (36) Units. The Placement Agent, at its sole option, may offer
and sell up to an additional twelve (12) Units to cover over-allotments.
The Offering Period shall begin June 17, 1996. Upon receipt of the Minimum
Offering amount, the Placement Agent may conduct a closing (the "Initial
Closing Date") and may conduct subsequent closings on an interim basis
(each a "Closing") until the Maximum Offering amount (including any
over-allotment amount) has been reached (the "Final Closing Date"). The
Offering Period shall terminate on or about August 15, 1996, subject to an
extension, at the sole option of the Placement Agent, for an additional
one-hundred and twenty (120) days. The Units will be offered on a "best
efforts" basis. The purchase price is payable by personal or business
check, wire transfer of immediately available funds or money order made
payable to "Fleet Bank, Escrow Agent, F/B/O Discovery Laboratories, Inc."
2 Placement of the Units will be made by the Placement Agent, who will
receive (i) a commission equal to nine percent (9%) of the aggregate
purchase price of the Units sold and (ii) a non-accountable expense
allowance (the "Expense Allowance") equal to four percent (4%) of the
aggregate purchase price of the Units sold. In addition, upon the closing
of the sale of the Units being offered, the Company will grant to the
Placement Agent and/or its designees (i) preferred stock warrants (the
"Preferred Stock Warrants") to purchase a number of newly issued shares of
Preferred Stock equal to 10% of the number of shares of Preferred Stock
issued in the Offering, exercisable for a period of 10 years from the Final
Closing Date at an exercise price equal to 110% of the stated value per
share of Preferred Stock sold in the Offering, and (iv) Common Stock
warrants (the "Common Stock Warrants") to purchase a number of newly issued
shares of Common Stock equal to 10% of the number of shares of Common Stock
issued in the Offering exercisable for a period of 10 years from the Final
Closing Date at an exercise price equal to 10% of the Initial Conversion
Price (the Preferred Stock Warrants and the Common Stock Warrants being
collectively referred to as the "Placement Warrants"). The Placement
Warrants will contain a cashless exercise feature, certain antidilution
provisions and the right to have the Common Stock underlying the Placement
Warrants included in the registration statement required pursuant to
Section V hereof.
3 Pending the sale of the Units, all funds paid hereunder shall be deposited
by the Company in escrow with the Fleet Bank N.A., 300 Broad Hollow Road,
Third Floor, Melville, NY 11747. If the Company shall not have obtained
subscriptions (including this subscription) for purchases of 5 Units on or
before the Final Closing Date, then this subscription shall be void and all
funds paid hereunder by the
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Subscriber shall be promptly returned to the Subscriber, without interest,
subject to paragraph 3.5 hereof.
4 The Subscriber hereby authorizes and directs the Company to deliver the
Shares comprising the Units to be issued to the Subscriber pursuant to this
Agreement directly to the Subscriber's account maintained by the Placement
Agent, if any, or if no such account exists, to the residential or business
address indicated on the signature page hereto.
5 The Subscriber hereby authorizes and directs the Company to return any
funds for unaccepted subscriptions to the same account from which the funds
were drawn, including any customer account maintained with the Placement
Agent.
IV CONDITIONS TO OBLIGATIONS OF THE SUBSCRIBERS
1 The Subscribers' obligation to purchase the Units at the Closing is subject
to the fulfillment on or prior to each Closing Date of the following
conditions, which conditions may be waived at the option of each Subscriber
to the extent permitted by law:
a Representations and Warranties Correct. The representations and
warranties made by the Company in Section 2 hereof shall be true and
correct in all material respects when made, and shall be true and
correct in all material respects on each Closing Date with the same
force and effect as if they had been made on and as of said date.
b Covenants. All covenants, agreements and conditions contained in this
Agreement to be performed by the Company on or prior to such purchase
shall have been performed or complied with in all material respects.
c Listing. The Company will promptly file an Application for Listing of
Additional Shares with the Nasdaq SmallCap Market in accordance with
Rule 10b-7 under the Securities Exchange Act of 1934 and hereby
represents and warrants to the Placement Agent and to the Subscribers
that it will take all action reasonably necessary to list all Shares
(excluding the Preferred Stock but including the Common Stock into
which the Preferred Stock is convertible) in accordance with the rules
of the Nasdaq SmallCap Market.
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d No Legal Order Pending. There shall not then be in effect any legal or
other order enjoining or restraining the transactions contemplated by
this Agreement.
e No Law Prohibiting or Restricting Such Sale. There shall not be in
effect any law, rule or regulation prohibiting or restricting such
sale or requiring any consent or approval of any person which shall
not have been obtained to issue the Shares (except as otherwise
provided in this Agreement).
f Minimum Subscriptions. The Company shall have received binding
subscriptions for at least 5 Units.
g Legal Opinion. On each Closing Date, Counsel to the Company shall have
delivered to the Placement Agent for the benefit of the Placement
Agent and the Subscribers, legal opinions to such effect with respect
to legal matters relating to this Agreement and the Memorandum as the
Placement Agent may require.
(h) Comfort Letter. On the Closing Date, the Company's auditors shall
have delivered to the Placement Agent for the benefit of the Placement Agent and
the Subscribers, a comfort letter to such effect as the Placement Agent may
require.
V REGISTRATION RIGHTS
1 As used in this Agreement, the following terms shall have the following
meanings:
a "Affiliate" shall mean, with respect to any person, any other person
controlling, controlled by or under direct or indirect common control
with such person (for the purposes of this definition "control," when
used with respect to any specified person, shall mean the power to
direct the management and policies of such person, directly or
indirectly, whether through ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled"
shall have meanings correlative to the foregoing).
b "Business Day" shall mean a day Monday through Friday on which banks
are generally open for business in New York.
c "Holders" shall mean the Subscribers and any person holding
Registrable Securities to whom the rights under Section 5 have been
transferred in accordance with Section 5.9 hereof.
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d "Person" shall mean any person, individual, corporation, partnership,
trust or other nongovernmental entity or any governmental agency,
court, authority or other body (whether foreign, federal, state, local
or otherwise).
e The terms "register," "registered" and "registration" refer to the
registration effected by preparing and filing a registration statement
in compliance with the Securities Act, and the declaration or ordering
of the effectiveness of such registration statement.
f "Registrable Securities" shall mean (A) the Common Stock, (B) the
shares of Common Stock issuable upon the conversion of the Preferred
Stock, (C) the shares of Common Stock underlying the Placement
Warrants and (E) any shares of Common Stock issued as (or issuable
upon the conversion of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to or in
replacement of the Shares; provided, however, that securities shall
only be treated as Registrable Securities if and only for so long as
they (I) have not been disposed of pursuant to a registration
statement declared effective by the SEC, (II) have not been sold in a
transaction exempt from the registration and prospectus delivery
requirements of the Securities Act so that all transfer restrictions
and restrictive legends with respect thereto are removed upon the
consummation of such sale or (III) are held by a Holder or a permitted
transferee pursuant to subsection 5.9.
g "Registration Expenses" shall mean all expenses incurred by the
Company in complying with Section 5.2 hereof, including, without
limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and expenses of counsel for the Company,
blue sky fees and expenses (for a reasonable number of states) and the
expense of any special audits incident to or required by any such
registration (but excluding the fees of legal counsel for any Holder).
h "Registration Statement" shall have the meaning ascribed to such term
in Section 5.2.
i "Registration Period" shall have the meaning ascribed to such term in
Section 5.4.
j "Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all
tees and expenses of legal counsel for any Holder.
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2 No later than 60 days after the Final Closing Date (the "Filing Date"), the
Company will file a shelf registration statement (the "Registration
Statement") with the SEC and use its reasonable best efforts to effect the
registration, qualifications or compliances (including, without limitation,
the execution of any required undertaking to file post-effective
amendments, appropriate qualifications under applicable blue sky or other
state securities laws and appropriate compliance with applicable securities
laws, requirements or regulations) as may be so reasonably requested and as
would permit or facilitate the sale and distribution of all Registrable
Securities. Notwithstanding the foregoing, the Company will not be
obligated to enter into any underwriting agreement for the sale of any of
the Shares .
3 All Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 5.2 shall be borne by the
Company. All Selling Expenses relating to the sale of securities registered
by or on behalf of Holders shall be borne by such Holders pro rata on the
basis of the number of securities so registered.
4 In the case of the registration, qualification or compliance effected by
the Company pursuant to this Agreement, the Company will, upon reasonable
request, inform each Holder as to the status of such registration,
qualification and compliance. At its expense the Company will:
a use its reasonable best efforts to keep such registration, and any
qualification or compliance under state securities laws which the
Company determines to obtain, continuously effective until at
least the third anniversary of the Closing Date or until the
Holders have completed the distribution described in the
registration statement relating thereto, whichever first occurs.
The period of time during which the Company is required
hereunder to keep the Registration Statement effective is
referred to herein as "the Registration Period." Notwithstanding
the foregoing at the Company's election, the Company may cease
to keep such registration, qualification or compliance effective
with respect to any Registrable Securities, and the registration
rights of a Holder shall expire, at such time as the Holder may
sell under Rule 144 under the Securities Act (or other
exemption from registration acceptable to the Company) in a
three-month period all Registrable Securities then held by such
Holder; and
b advise the Holders:
(i) when the Registration Statement or any amendment thereto has been
filed with the Commission and when the registration statement or any
post-effective amendment thereto has become effective;
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(ii) of any request by the Commission for amendments or supplements to the
Registration Statement or the prospectus included therein or for
additional information;
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for such purpose;
(iv) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Shares included therein for
sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and
(v) of the happening of any event that requires the making of any changes
in the Registration Statement or the prospectus so that, as of such
date, the statements therein are not misleading and do not omit to
state a material fact required to be stated therein or necessary to
make the statements therein (in the case of the prospectus, in the
light of the circumstances under which they were made) not misleading;
C make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of any Registration Statement
at the earliest possible time;
d furnish to each Holder, without charge, at least one copy of such
Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, and, if the Holder
so requests in writing, all exhibits (including those
incorporated by reference) in the form filed with the Commission;
e during the Registration Period, deliver to each Holder, without
charge, as many copies of the prospectus included in such
Registration Statement and any amendment or supplement thereto as
such Holder may reasonably request; and the Company consents to
the use, consistent with the provisions hereof, of the prospectus
or any amendment or supplement thereto by each of the selling
Holders of Registrable Securities in connection with the offering
and sale of the Registrable Securities covered by the prospectus
or any amendment or supplement thereto. In addition, upon the
reasonable request of the Subscriber and subject in all cases to
confidentiality protections reasonably acceptable to the Company,
the Company will meet with a Subscriber or a representative
thereof at the Company's headquarters to discuss all information
relevant for disclosure in the Registration Statement covering
the Registrable Securities, and will
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<PAGE>
otherwise cooperate with any Subscriber conducting an
investigation for the purpose of reducing or eliminating such
Subscriber's exposure to liability under the Securities Act,
including the reasonable production of information at the
Company's headquarters;
f during the Registration Period, deliver to each Holder, without
charge, (i) as soon as practicable (but in the case of the annual
report of the Company to its stockholders, within 120 days after
the end of each fiscal year of the Company) one copy of: (A) its
annual report to its stockholders (which annual report shall
contain financial statements audited in accordance with generally
accepted accounting principles in the United States of America by
a firm of certified public accountants of recognized standing);
(B) if not included in substance in its annual report to
stockholders, its annual report on Form lO-K (or similar form);
(C) each of its quarterly reports to its stockholders, and, if
not included in substance in its quarterly reports to
stockholders, its quarterly report on Form lO-Q (or similar
form), and (D) a copy of the full Registration Statement (the
foregoing, in each case, excluding exhibits); and (ii) upon
reasonable request, all exhibits excluded by the parenthetical to
the immediately preceding clause (D), and all other information
that is generally available to the public;
g prior to any public offering of Registrable Securities pursuant
to any Registration Statement, register or qualify for offer and
sale under the securities or blue sky laws of such jurisdictions
as any such Holders reasonably request in writing, provided that
the Company shall not for any such purpose be required to qualify
generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction, and do any
and all other acts or things necessary or advisable to enable the
offer and sale in such jurisdictions of the Registrable
Securities covered by such Registration Statement;
h cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Registrable Securities
to be sold pursuant to any Registration Statement free of any
restrictive legends to the extent not required at such time and
in such denominations and registered in such names as Holders may
request at least three business days prior to sales of
Registrable Securities pursuant to such Registration Statement;
i upon the occurrence of any event contemplated by Section
5.4(b)(v) above, the Company shall promptly prepare a
post-effective amendment to the Registration Statement or a
supplement to the related prospectus, or file any other required
document so that, as thereafter delivered to purchasers of the
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<PAGE>
Registrable Securities included therein, the prospectus will not
include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; and
j use its reasonable efforts to comply with all applicable rules
and regulations of the Commission, and will make generally
available to the Holders not later than 45 days (or 90 days if
the fiscal quarter is the fourth fiscal quarter) after the end of
its fiscal quarter in which the first anniversary date of the
effective date of the Registration Statement occurs, an earnings
statement satisfying the provisions of Section 11(a) of the Act.
5 The Holders shall have no right to take any action to restrain, enjoin or
otherwise delay any registration pursuant to Section 5.2 hereof as a result
of any controversy that may arise with respect to the interpretation or
implementation of this Agreement.
6
a To the extent permitted by law, the Company will indemnify each
Holder, each underwriter of the Shares and each person controlling
such Holder within the meaning of Section 15 of the Securities Act,
with respect to which any registration, qualification or compliance
has been effected pursuant to this Agreement, against all claims,
losses, damages and liabilities (or action in respect thereof),
including any of the foregoing incurred in settlement of any
litigation, commenced or threatened (subject to Section 5.6(c) below),
arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus or offering circular, or any amendment or supplement
thereof, incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in light of the
circumstances in which they were made, and will reimburse each Holder,
each underwriter of the Shares and each person controlling such
Holder, for reasonable legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim,
loss, damage, liability or action as incurred, provided that the
Company will not be liable in any such case to the extent that any
untrue statement or omission or allegation thereof is made in reliance
upon and in conformity with written information furnished to the
Company by or on behalf of such Holder and stated to be specifically
for use in preparation of such registration statement, prospectus or
offering circular; provided that the Company will not be liable in any
such case where the claim, loss, damage or liability arises out of or
is related to the failure of the Holder to
15
<PAGE>
comply with the covenants and agreements contained in this Agreement
respecting sales of Registrable Securities, and except that the
foregoing indemnity agreement is subject to the condition that,
insofar as it relates to any such untrue statement or alleged untrue
statement or omission or alleged omission made in the preliminary
prospectus but eliminated or remedied in the amended prospectus on
file with the SEC at the time the registration statement becomes
effective or in the amended prospectus filed with the SEC pursuant to
Rule 424(b) or in the prospectus subject to completion and term sheet
under Rule 434 of the Securities Act, which together meet the
requirements of Section lO(a) of the Securities Act (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit
of any such Holder, any such underwriter or any such controlling
person, if a copy of the Final Prospectus was not furnished to the
person or entity asserting the loss, liability, claim or damage at or
prior to the time such furnishing is required by the Securities Act.
b Each Holder will severally, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company,
each of its directors and officers, each underwriter of the Shares and
each person who controls the Company within the meaning of Section 15
of the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof), including any of the
foregoing incurred in settlement of any litigation, commenced or
threatened (subject to Section 5.6(c) below), arising out of or based
on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus or offering
circular, or any amendment or supplement thereof, incident to any such
registration, qualification or compliance, or based on any omission
(or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, in light of the circumstances in which they were made, and
will reimburse the Company, such directors and officers, each
underwriter of the Shares and each person controlling the Company for
reasonable legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss,
damage, liability or action as incurred, in each case to the extent,
but only to the extent, that such untrue statement or omission or
allegation thereof is made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the
Holder and stated to be specifically for use in preparation of such
registration statement, prospectus or offering circular; provided that
the indemnity shall not apply to the extent that such claim, loss,
damage or liability results from the fact that a current copy of the
prospectus that was made available to the Holder was not sent or given
to the person asserting any such claim, loss,
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<PAGE>
damage or liability at or prior to the written confirmation of the
sale of the Registrable Securities confirmed to such person if such
current copy of the prospectus would have cured the defect giving rise
to such loss, claim, damage or liability. Notwithstanding the
foregoing, in no event shall a Holder be liable for any such claims,
losses, damages or liabilities in excess of the proceeds received by
such Holder in the offering, except in the event of fraud by such
Holder.
c Each party entitled to indemnification under this Section 5.6 (the
"Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be approved by
the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense
at such Indemnified Party's expense, and provided further that the
failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this
Agreement, unless such failure is prejudicial to the Indemnifying
Party in defending such claim or litigation. An Indemnifying Party
shall not be liable for any settlement of an action or claim effected
without its written consent (which consent will not be unreasonably
withheld).
d If the indemnification provided for in this Section 5.6 is held by a
court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense
referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party thereunder, shall contribute to
the amount paid or payable by such Indemnified Party as a result of
such loss, liability, claim, damage or expense in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party
on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such
loss, liability, claim, damage or expense as well as any other
relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the
Indemnified Party and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission.
17
<PAGE>
7
a Each Holder agrees that, upon receipt of any notice from the Company
of the happening of any event requiring the preparation of a
supplement or amendment to a prospectus relating to Registrable
Securities so that, as thereafter delivered to the Holders, such
prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, each Holder
will forthwith discontinue disposition of Registrable Securities
pursuant to the registration statement contemplated by Section 5.2
until its receipt of copies of the supplemented or amended prospectus
from the Company and, if so directed by the Company, each Holder shall
deliver to the Company all copies, other than permanent file copies
then in such Holder's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
b Each Holder agrees to suspend, upon request of the Company, any
disposition of Registrable Securities pursuant to the registration
statement and prospectus contemplated by Section 5.2 during (A) 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 (B) any period, not to exceed one
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
an adverse effect on the Company or is otherwise inadvisable. In the
event of an initial public offering of the Company's securities by the
Company prior to or concurrent with the effectiveness of the
Registration Statement, at the request of the underwriter (the "IPO
Underwriter") of such initial public offering, each Holder shall be
prohibited from selling any share of Common Stock that is not included
in the IPO Underwriter's offering for a period of 180 days or such
longer period following such initial public offering as the IPO
Underwriter shall require.
c As a condition to the inclusion of its Registrable Securities, each
Holder shall furnish to the Company such information regarding such
Holder and the distribution proposed by such Holder as the Company may
request in writing or as shall be required in connection with any
registration, qualification or compliance referred to in this Article
V.
d Each Holder hereby covenants with the Company (l) not to make any sale
of the Registrable Securities without effectively causing the
18
<PAGE>
prospectus delivery requirements under the Securities Act to be
satisfied, and (2) if such Registrable Securities are to be sold by
any method or in any transaction other than on Nasdaq (or other
national securities exchange), in the over-the-counter market, in
privately negotiated transactions, or in a combination of such
methods, to notify the Company at least five business days prior to
the date on which the Holder first offers to sell any such Shares .
e Each Holder acknowledges and agrees that the Registrable Securities
sold pursuant to the registration statement described in this Section
are not transferable on the books of the Company unless the stock
certificate submitted to the transfer agent evidencing such Shares is
accompanied by a certificate reasonably satisfactory to the Company to
the effect that (A) the Registrable Securities have been sold in
accordance with such registration statement and (B) the requirement of
delivering a current prospectus has been satisfied.
f Each Holder agrees not to take any action with respect to any
distribution deemed to be made pursuant to such registration
statement, that constitutes a violation of Rule lO(b)-6 under the
Exchange Act or any other applicable rule, regulation or law.
g At the end of the period during which the Company is obligated to keep
the registration statement current and effective as described above,
the Holders of Registrable Securities included in the registration
statement shall discontinue sales of shares pursuant to such
registration statement upon receipt of notice from the Company of its
intention to remove from registration the shares covered by such
registration statement which remain unsold, and such Holders shall
notify the Company of the number of shares registered which remain
unsold immediately upon receipt of such notice from the Company.
8 With a view to making available to the Holders the benefits of certain
rules and regulations of the SEC which at any time permit the sale of the
Registrable Securities to the public without registration, the Company
agrees to use its reasonable best efforts to:
a make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act at all
times;
b file with the SEC in a timely manner all reports and other documents
required of the Company under the Exchange Act; and
19
<PAGE>
c so long as a Holder owns any unregistered Registrable Securities,
furnish to such Holder upon any reasonable request a written statement
by the Company as to its compliance with Rule 144 under the Securities
Act, and of the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents
of the Company as such Holder may reasonably request in availing
itself of any rule or regulation of the SEC allowing a Holder to sell
any such securities without registration.
9 The rights to cause the Company to register Registrable Securities granted
to the Holders by the Company under Section 5.1 may be assigned in full by
a Holder, provided, that: (i) such transfer may otherwise be effected in
accordance with applicable securities laws; (ii) such transfer involves not
less than the lesser of all of such Holder's Shares or 100,000 Shares (iii)
such Holder gives prior written notice to the Company; and (iv) such
transferee agrees to comply with the terms and provisions of this
Agreement, and such transfer is otherwise in compliance with this
Agreement. Except as specifically permitted by this Section 5.9, the rights
of a Holder with respect to Registrable Securities as set out herein shall
not be transferable to any other Person, and any attempted transfer shall
cause all rights of such Holder therein to be forfeited.
10 With the written consent of the Company and the Holders holding at least a
majority of the Registrable Securities that are then outstanding, any
provision of this Article V may be waived (either generally or in a
particular instance, either retroactively or prospectively and either for a
specified period of time or indefinitely) or amended. Upon the effectuation
of each such waiver or amendment, the Company shall promptly give written
notice thereof to the Holders, if any, who have not previously received
notice thereof or consented thereto in writing.
VI MISCELLANEOUS
1 Any notice or other communication given hereunder shall be deemed
sufficient if in writing and sent by registered or certified mail,
return receipt requested, or delivered by hand against written receipt
therefor, addressed to Discovery Laboratories, Inc., 375 Park Avenue,
Suite 1501, New York, NY 10021, Attn: Chairman, and to the Subscriber
at his address indicated on the signature page of this Agreement.
Notices shall be deemed to have been given or delivered on the date of
mailing, except notices of change of address, which shall be deemed to
have been given or delivered when received.
2 This Agreement shall not be changed, modified or amended except by a
writing signed by the parties to be charged, and this Agreement may
not be discharged
20
<PAGE>
except by performance in accordance with its terms or by a writing
signed by the party to be charged.
3 Subject to the provisions of Section 5.9, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and to
their respective heirs, legal representatives, successors and assigns.
This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter hereof and merges and
supersedes all prior discussions, agreements and understandings of any
and every nature among them.
4 Upon the execution and delivery of this Agreement by the Subscriber,
this Agreement shall become a binding obligation of the Subscriber
with respect to the purchase of Units as herein provided; subject,
however, to the right hereby reserved to the Company to enter into the
same agreements with other subscribers and to add and/or delete other
persons as subscribers.
5 NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY ANY
OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT ALL THE TERMS
AND PROVISIONS HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
6 In order to discourage frivolous claims the parties agree that unless
a claimant in any proceeding arising out of this Agreement succeeds in
establishing his claim and recovering a judgment against another party
(regardless of whether such claimant succeeds against one of the other
parties to the action), then the other party shall be entitled to
recover from such claimant all of its/their reasonable legal costs and
expenses relating to such proceeding and/or incurred in preparation
therefor.
7 The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect
any other provision of this Agreement, which shall remain in full
force and effect. If any provision of this Agreement shall be declared
by a court of competent jurisdiction to be invalid, illegal or
incapable of being enforced in whole or in part, such provision shall
be interpreted so as to remain enforceable to the maximum extent
permissible consistent with applicable law and the remaining
conditions and provisions or portions thereof shall nevertheless
remain in full force and effect and enforceable to the extent they are
valid, legal and enforceable, and no provisions shall be deemed
dependent upon any other covenant or provision unless so expressed
herein.
21
<PAGE>
8 It is agreed that a waiver by either party of a breach of any
provision of this Agreement shall not operate, or be construed, as a
waiver of any subsequent breach by that same party.
9 The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as
may be necessary or appropriate to carry out the purposes and intent
of this Agreement.
10 This Agreement may be executed in two or more counterparts each of
which shall be deemed an original, but all of which shall together
constitute one and the same instrument.
11 (a) The Subscribers severally agree not to issue any public statement
with respect to the Subscribers' investment or proposed investment in
the Company or the terms of any agreement or covenant between them and
the Company without the Company's prior written consent, except such
disclosures as may be required under applicable law or under any
applicable order, rule or regulation.
(b) The Company agrees not to disclose the names, addresses or any
other information about the Subscribers, except as required by law;
provided, that the Company may use the name (but not the address) of
the Subscriber in the Registration Statement.
12 (a) Each Subscriber severally represents and warrants that it has not
engaged, consented to or authorized any broker, finder or intermediary
to act on its behalf, directly or indirectly, as a broker, finder or
intermediary in connection with the transactions contemplated by this
Agreement. Each Subscriber hereby severally agrees to indemnify and
hold harmless the Company from and against all fees, commissions or
other payments owing to any such person or firm acting on behalf of
such Subscriber hereunder.
(b) The Company has engaged, consented to and authorized the Placement
Agent in connection with the transactions contemplated by this
Agreement. The Company hereby agrees to pay the Placement Agent a
commission and to reimburse expenses in accordance with the Placement
Agency Agreement dated June 17, 1996 (the "Placement Agency
Agreement"), and the Company agrees to indemnify and hold harmless the
Subscribers from and against all fees, commissions or other payments
owing by the Company to any other person or firm acting on behalf of
the Company hereunder.
13 Nothing in this Agreement shall create or be deemed to create any
rights in any person or entity not a party to this Agreement, except
(a) for the holders of Registrable Securities and (b) for the
Placement Agent pursuant to Sections 1.6(a) and 6.12(b) hereof.
22
<PAGE>
VII NOTICE TO, AND REPRESENTATIONS AND COVENANTS OF, CERTAIN STATE
RESIDENTS
1 Connecticut Residents: The undersigned acknowledges that the Units
have not been registered under the Connecticut Uniform Securities Act,
as amended (the "Act") and are subject to restrictions on
transferability and sale of securities as set forth herein. The
undersigned hereby agrees that such Units will not be transferred or
sold without registration under the Act or exemption therefrom.
2 Maine Residents: These Units are being sold pursuant to an exemption
from registration with the bank superintendent of the State of Maine
under Section 10502(2)(r) of Title 32 of the Maine revised statutes.
These Units may be deemed restricted securities and as such the holder
may not be able to resell the Units unless pursuant to registration
under the state or federal securities laws or unless an exemption
under such laws exists.
3 Missouri Residents: The undersigned acknowledges that the Units are
not registered under the Missouri Uniform Securities Act, as amended
(the "Act") and are subject to restrictions on transferability and
sale of securities as set forth herein. The undersigned hereby
acknowledges that such Units may be disposed of only through a
licensed broker-dealer. It is a felony to sell securities in violation
of the Missouri Uniform Securities Act.
4 Pennsylvania Residents: The undersigned hereby acknowledges that the
Company is relying upon the exemption from registration of securities
set forth in Section 203(d) of the Pennsylvania Securities Act of
1972, as amended (the "Pennsylvania Act") in connection with the sale
of the Units to the undersigned.
In accordance with the requirements of Section 203(d) of the
Pennsylvania Act, the undersigned hereby agrees not to sell his Units within
twelve (12) months from the date of purchase except pursuant to Section 204.01
of the Blue Sky Regulations of the Pennsylvania Securities Act of 1972.
Additionally, the undersigned is aware of the right of withdrawal under Section
207(m) of the Act described in the introductory pages of the Memorandum.
5 Texas Residents: The undersigned hereby acknowledges that the Units
cannot be sold unless they are subsequently registered under the
Securities Act of 1933, as amended and the Texas Securities Act, or an
exemption from registration is available. The undersigned further
acknowledges that because the Units are not readily transferable, he
must bear the economic risk of his investment for an indefinite period
of time.
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<PAGE>
VIII CONFIDENTIAL INVESTOR OUESTIONNAIRE
1 The Subscriber represents and warrants that he, she or it comes within
one category marked below, and that for any category marked, he or she
has truthfully set forth, where applicable, the factual basis or
reason the Subscriber comes within that category. ALL INFORMATION IN
RESPONSE TO THIS SECTION WILL BE KEPT STRICTLY CONFIDENTIAL. The
undersigned agrees to furnish any additional information which the
Company deems necessary in order to verify the answers set forth
below.
Category A The undersigned is an individual (not a partnership,
corporation, etc.) whose individual net worth, or joint net
worth with his or her spouse, presently exceeds $1,000,000.
Explanation. In calculating net worth you may include
equity in personal property and real estate, including
your principal residence, cash, short-term investments,
stock and securities. Equity in personal property and
real estate should be based on the fair market value of
such property less debt secured by such property.
Category B The undersigned is an individual (not a partnership,
corporation, etc.) who had an income in excess of $200,000
in each of the two most recent years, or joint income with
his or her spouse in excess of $300,000 in each of those
years (in each case including foreign income, tax exempt
income and full amount of capital gains and loses but
excluding any income of other family members and any
unrealized capital appreciation) and has a reasonable
expectation of reaching the same income level in the current
year.
Category C The undersigned is a director or executive officer of the
Company which is issuing and selling the Units.
Category D The undersigned is a bank; a savings and loan association;
insurance company; registered investment company; registered
business development company; licensed small business
investment company ("SBIC"); or employee benefit plan within
the meaning of Title 1 of ERISA and (a) the investment
decision is made by a plan fiduciary which is either a bank,
savings and loan association, insurance company or
registered investment advisor, or (b) the plan has total
assets in excess of $5,000,000 or is a self directed plan
with investment decisions made solely by persons that are
accredited investors.
_______________________________________
_______________________________________
(describe entity)
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<PAGE>
Category E The undersigned is a private business development company
as defined in section 202(a)(22) of the Investment Advisors
Act of 1940.
_______________________________________
(describe entity)
Category F The undersigned is either a corporation, partnership,
Massachusetts business trust, or non-profit organization
within the meaning of Section 501(c)(3) of the Internal
Revenue Code, in each case not formed for the specific
purpose of acquiring the Units and with total assets in
excess of $5,000,000.
_______________________________________
_______________________________________
(describe entity)
Category G The undersigned is a trust with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring
the Units, where the purchase is directed by a
"sophisticated person" as defined in Regulation
506(b)(2)(ii).
Category H The undersigned is an entity (other than a trust) all the
equity owners of which are "accredited investors" within one
or more of the above categories. If relying upon this
Category alone, each equity owner must complete a separate
copy of this Agreement.
_______________________________________
_______________________________________
(describe entity)
Category I The undersigned is not within any of the categories above
and is therefore not an accredited investor.
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<PAGE>
The undersigned agrees that the undersigned will notify the Company at any time
on or prior to the Closing Date in the event that the representations and
warranties in this Agreement shall cease to be true accurate and complete.
2 SUITABILITY (please answer each question)
(a) For an individual Subscriber, please describe your current employment,
including the company by which you are employed and its principal business:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(b) For an individual Subscriber, please describe any college or graduate
degrees held by you:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(c) For all Subscribers, please list types of prior investments:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(d) For all Subscribers, please state whether you have you participated in other
private placements before:
YES _______ NO________
(e) For all Subscribers, please indicate frequency of such prior participation
in private placements of:
Public Private Public or Private
Companies Companies Biotechnology Companies
Frequently _________ _____________ __________
Occasionally _________ _____________ __________
Never _________ _____________ __________
(f) For individual Subscribers, do you expect your current level of income to
significantly decrease in the foreseeable future:
YES _______ NO _______
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<PAGE>
(g) For trust, corporate, partnership and other institutional Subscribers, do
you expect your total assets to significantly decrease in the foreseeable
future:
YES _______ NO _______
(h) For all Subscribers, do you have any other investments or contingent
liabilities which you reasonably anticipate could cause you to need sudden cash
requirements in excess of cash readily available to you:
YES _______ NO _______
(i) For all Subscribers, are you familiar with the risk aspects and the
non-liquidity of investments such as the securities for which you seek to
subscribe?
YES _______ NO _______
(j) For all Subscribers, do you understand that there is no guarantee of
financial return on this investment and that you run the risk of losing your
entire investment?
YES _______ NO _______
3 Manner In Which Title to be Held. (circle one)
a Individual Ownership
b Community Property
c Joint Tenant with Right of Survivorship
(both parties must sign)
d Partnership*
e Tenants in Common
f Company*
g Trust*
h Other
*If Units are being subscribed for by an entity, the attached Certificate of
Signatory must also be completed.
27
<PAGE>
4 NASD Affiliation.
Are you affiliated or associated with an NASD member firm (please check one):
YES _______ NO _______
If Yes, please describe:
______________________________________________________________
______________________________________________________________
______________________________________________________________
*If Subscriber is a Registered Representative with an NASD member firm, have the
following acknowledgment signed by the appropriate party:
The undersigned NASD member firm acknowledges receipt of the notice required by
Article 3, Sections 28(a) and (b) of the Rules of Fair Practice.
____________________________________
Name of NASD Member Firm
By: ________________________________
Authorized Officer
Date: ______________________________
5 The undersigned is informed of the significance to the Company of the
foregoing representations and answers contained in the Confidential
Investor Questionnaire contained in this Section 8 and such answers
have been provided under the assumption that the Company will rely on
them.
28
<PAGE>
[Signature Page]
NUMBER OF UNITS _______ X $ _______ = _______ (the "Purchase Price")
________________________________ ________________________________
Signature Signature (if purchasing jointly
________________________________ ________________________________
Name Typed or Printed Name Typed or Printed
________________________________ ________________________________
Address Address
________________________________ ________________________________
City, State and Zip Code City, State and Zip Code
________________________________ ________________________________
Telephone-Business Telephone--Business
________________________________ ________________________________
Telephone-Residence Telephone--Residence
________________________________ ________________________________
Facsimile-Business Facsimile--Business
________________________________ ________________________________
Facsimile-Residence Facsimile--Residence
________________________________ ________________________________
Tax ID # or Social Security # Tax ID # or Social Security #
Name in which securities should be issued: _____________________________
Dated: _________________________, 1996
This Subscription Agreement is agreed to and accepted as of , 1996.
DISCOVERY LABORATORIES, INC.
By:_____________________________
Name: James S. Kuo, M.D.
29
<PAGE>
Title: President
30
<PAGE>
CERTIFICATE OF SIGNATORY
(To be completed if Units are
being subscribed for by an entity)
I, __________________, am the __________________ of
____________________________________________________ (the "Entity" ).
I certify that I am empowered and duly authorized by the Entity to execute
and carry out the terms of the Subscription Agreement and to purchase and hold
the Units, and certify further that the Subscription Agreement has been duly and
validly executed on behalf of the Entity and constitutes a legal and binding
obligation of the Entity.
IN WITNESS WHEREOF, I have set my hand this ________ day of _____________, 1996.
_________________________________
(Signature)
31
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<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.
<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.
<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.
<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
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (this "Agreement") is made as
of March 20, 1996, by and between Discovery Laboratories, Inc., a Delaware
corporation (the "Company"), and RAQ, LLC, a New York limited liability
company (the "Investor").
RECITALS
WHEREAS, the Company and the Investor are parties to the
Subscription Agreement of even date herewith (the "Subscription Agreement")
relating to the purchase by the Investor of the common stock, par value $.001
per share, of the Company (the "Common Stock");
WHEREAS, in order to induce the Company to enter into the
Subscription Agreement and to induce the Investor to invest funds in the Company
pursuant to the Subscription Agreement, the Investor and the Company hereby
agree that this Agreement shall govern the rights of the Investor to cause the
Company to register the shares of Common Stock issued to the Investor and
certain other matters as set forth herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS
FOLLOWS:
1. Registration Rights. The Company covenants and
agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act
of 1933, as amended.
1
<PAGE>
(b) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 2.2 hereof.
(c) The term "1934 Act" shall mean the Securities Exchange Act
of 1934, as amended.
(d) The terms "register", "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration or
order of effectiveness of such registration statement or document.
(e) The term "Registrable Securities" means (i) any shares of
Common Stock held by the Investor, whether, previously acquired owned now or
hereafter acquired and (ii) any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of the shares referenced in (i) above, excluding
in all cases any Registrable Securities sold by a person in a transaction in
which his rights under this Section 1 are not assigned or are assigned in
violation of this Agreement.
(f) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
(g) The term "SEC" shall mean the Securities and
Exchange Commission.
1.2 Request for Registration.
(a) If, at any time following the closing date of the Initial
Public Offering of the Common Stock of the Company (the "IPO"), the Company
shall receive a written request from any Holder of the Registrable Securities
requesting that the Company file a registration statement on Form S-3 under the
Act covering the registration of the Registrable Securities, provided that the
2
<PAGE>
anticipated aggregate offering price, net of underwriting discounts and
commissions, will exceed $250,000 (an "S-3 Registration") then, in each case,
provided that the Company is eligible to file a registration statement on Form
S-3 under the Act, subject to the limitations set forth in this Agreement
(including the limitations of subsection 1.2(b)), (x) within twenty (20) days of
the receipt thereof, give written notice of such request to all Holders (the
"Notice of Request for Registration") and (y) as soon as practicable, use its
best efforts to effect such registration under the Act covering all Registrable
Securities which the Holders request to be registered by notice to the Company
within twenty (20) days of the mailing of the Notice of Request for Registration
by the Company in accordance with this subsection 1.2(a) and Section 2.6.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as part of their request made pursuant to subsection 1.2(a) and the
Company shall include such information in the written notice referred to in
subsection 1.2(a). The underwriter will be selected by the Initiating Holders.
In such event, the right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2 to the contrary, if the underwriter advises the Initiating Holders
in writing that marketing factors require a limitation of the number of shares
to be underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including
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the Initiating Holders, in proportion (as nearly as practicable) to the amount
of Registrable Securities of the Company owned by each Holder or, in the event
holders of other securities of the Company request inclusion in such
registration, pro rata as to all holders of securities of the Company requesting
inclusion in such registration.
(c) Notwithstanding the foregoing, the Company shall not be
obligated to effect any registration pursuant to this Section 1.2 if at the time
of any request to register Registrable Securities pursuant to this Section 1.2,
the Company is engaged, or has fixed plans to engage within ninety (90) days of
the time of the request, in a registered public offering or is engaged, or has
fixed plans to engage within ninety (90) days of time of the request, in any
other activity that, in the good faith determination of the Board of Directors
of the Company, would be adversely affected by the requested registration to the
material detriment of the Company, then the Company may at its option direct
that such request be delayed for a period not in excess of one hundred twenty
(120) days from the effective date of such offering, or the date of commencement
of such other material activity, as the case may be, such rights to delay a
request to be exercised by the Company not more than once in any twelve month
period.
(d) In addition, the Company shall not be obligated to effect,
or to take any action to effect, any registration pursuant to this Section 1.2:
(i) in the case of an S-3 Registration, during a
calendar year in which the Company has effected
two S-3 Registrations in such year and each
registration has been declared or ordered
effective; or
(ii) within one hundred and twenty (120) days after
the effective date of any registration statement
effected by the Company whether for its own
account or for the account of others.
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1.3 "Piggy-back" Registration Rights. If (but without
any obligation to do so), at any time after the IPO, the Company proposes to
register (including for this purpose a registration effected by the Company for
stockholders other than the Holders) any of its stock or other equity securities
under the Act in connection with the public offering of such securities solely
for cash (other than a registration relating solely to the sale of securities to
participants in a Company stock plan, a registration on any form which does not
include substantially the same information as would be required to be included
in a registration statement covering the sale of the Registrable Securities or a
registration in which the only Common Stock being registered is Common Stock
issuable upon conversion of debt securities which are also being registered),
the Company shall, at such time, promptly give each Holder written notice of
such registration. Upon the written request of each Holder given within ten
(10) days after mailing of such notice by the Company in accordance with Section
2.6, the Company shall, subject to the limitations set forth in this Agreement
(including the limitations of Section 1.2(b) and the provisions of Section 1.8),
include in the Company's registration statement under the Act all of the
Registrable Securities that each such Holder has requested to be registered;
provided, however, that nothing in this Section 1.3 shall prevent the Company
from at any time abandoning or delaying any such registration without obligation
to any Holder.
1.4 Obligations of the Company. Whenever required under
this Section 1 to effect the registration of any Registrable Securities or to
include Registrable Securities in a Company registration statement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its reasonable
best efforts to cause such registration statement to become effective, and, upon
the request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such registration statement effective for a period
of up to one hundred twenty (120) days or until the distribution contemplated in
the Registration Statement has been completed; provided, however, that such
120-day period shall be extended for a period of time equal to the
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period the Holder refrains from selling any securities included in such
registration at the request of an underwriter of Common Stock (or other
securities) of the Company, and provided further that if applicable rules under
the Act governing the obligation to file a post-effective amendment permits, in
lieu of filing a post-effective amendment which (x) includes any prospectus
required by Section 10(a)(3) of the Act or (y) reflects facts or events
representing a material or fundamental change in the information set forth in
the registration statement, the Company may incorporate by reference information
required to be included in (x) and (y) above to the extent such information is
contained in periodic reports filed pursuant to Section 13 or 15(d) of the 1934
Act in the registration statement.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its reasonable best efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Act.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each
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Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
1.5 Furnish Information.
(a) It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding the Holder, the Registrable Securities
held by the Holder, and the intended method of disposition of such securities as
shall be required to effect the registration of such Holder's Registrable
Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 if, due to the operation of
subsection 1.5(a), the number of shares or the anticipated aggregate offering
price of the Registrable Securities to be included in the registration does not
equal or exceed the number of shares or the anticipated aggregate offering price
required to originally trigger the Company's
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obligation to initiate such registration as specified in subsection 1.2(a).
1.6 Expenses of S-3 Registrations. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees and fees and disbursements of counsel for the Company shall
be borne by the Company; provided, however, that the Company shall not bear the
cost of any professional fees or costs of accounting, financial or legal
advisors to any of the Holders; provided, further, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered in which case all Participating Holders shall bear such expenses),
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to one S-3 Registration, as the case may be, pursuant to Section
1.2. Notwithstanding the foregoing, each Holder shall pay all registration
expenses which such Holder is required to pay under applicable law.
1.7 Expenses of Company Registration. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder, including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto, but excluding underwriting discounts and
commissions relating to Registrable Securities; provided, however, that the
Company shall not bear the cost of any professional fees or costs of accounting,
financial or legal advisors to any of the Holders. Notwithstanding the
foregoing, each Holder shall pay all registration expenses which such Holder is
required to pay under applicable law.
1.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the
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Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (or by other persons entitled to select the underwriters), and then only in
such quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
selling stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders). For purposes of the preceding parenthetical
concerning apportionment, for any selling stockholder that is a holder of
Registrable Securities and that is a partnership or corporation, the partners,
retired partners and stockholders of such holder, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of any of the foregoing persons shall be deemed to be a single "selling
stockholder", and any pro-rata reduction with respect to such "selling
stockholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling stockholder", as defined in this sentence.
1.9 Delay of Registration. No Holder shall have any
right to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable
Securities are included in a registration statement under this Section 1:
9
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
or the 1934 Act, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Act, the 1934 Act, or any
rule or regulation promulgated under the Act, or the 1934 Act, and the Company
will pay to each such Holder, underwriter or controlling person, as incurred,
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.10(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
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person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, or the 1934 Act, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereto) arise out of or
are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will pay, as incurred, any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 1.10(b), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 1.10(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld; provided, that, in no event
shall any indemnity under this subsection 1.10(b) exceed the gross proceeds from
the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party shall, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.10,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly notified, to assume the defense thereof with counsel selected by
the indemnifying party and approved by the indemnified party (whose approval
shall not be unreasonably withheld); provided, however, that an indemnified
party (together with all other indemnified parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and
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any other party represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.10, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
1.10.
(d) If the indemnification provided for in this Section 1.10
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a
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registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With
a view to making available to the Holders the benefits of Rule 144 promulgated
under the Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the registration statement filed in connection with
an IPO by the Company;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the registration
statement filed by the Company in connection with an IPO), the Act and the 1934
Act (at any time after it has become subject to such reporting requirements),
(ii) a copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested in availing any Holder of any rule or
regulation of the SEC which permits the selling of any such securities without
registration or pursuant to such form.
1.12 Lock-Up Provision. In connection with the IPO, the
Investor hereby agrees to be subject to a lock-up for 365 days following the
IPO. In connection with any subsequent public offering of the Company's
securities, the Investor hereby agrees to be subject to a lock-up for 60 days or
such longer period following such public offering as required by the underwriter
or underwriters of such public offering. During such periods, the Investor
agrees not to directly or indirectly sell, offer to sell, contract to sell
(including,
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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 held by it at any time during such period except
Common Stock included in such registration without the prior written consent of
such underwriter or underwriters. This Section 1.12 shall be binding upon any
transferee of the Securities.
In order to enforce the foregoing covenant, the Company may
impose stock-transfer instructions with respect to the Registrable Securities of
each Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligation described in
this Section 1.12 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-4 or similar forms which may be promulgated in the future.
1.13 Termination of Registration Rights. In addition,
the right of any Holder to request registration pursuant to Section 1.2 or
inclusion in any registration pursuant to Section 1.3 shall terminate on the
closing of the IPO if all shares of Registrable Securities held or entitled to
be held upon conversion by such Holder may immediately be sold under Rule 144 or
Rule 701 during any 90-day period, or on such date after the IPO as all shares
of Registrable Securities held or entitled to be held upon conversion by such
Holder may immediately be sold under Rule 144 or Rule 701 during any 90-day
period; provided, however, that the provisions of this Section 1.13 shall not
apply to any Holder who owns more than two percent (2%) of the Company's
outstanding stock until such time as such Holder owns less than two percent (2%)
of the outstanding stock of the Company.
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2. Miscellaneous.
2.1 Successors and Assigns. Except as otherwise provided
in section 2.2 below and elsewhere herein, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties (including transferees of any shares of
Registrable Securities). Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
2.2 Transfer of Rights.
(a) The rights granted to the Investor pursuant to
Section 1 may not be transferred or assigned, except that such rights are
assignable to anyone who acquires at least such number of shares of Common Stock
as equals the lesser of (i) eighty percent (80%) of the aggregate number of
shares of Common Stock held by such Holder and (ii) 50,000 shares of Common
Stock; provided, however, that the Company is given written notice by the
transferee at the time of any such permitted transfer stating the name and
address of the transferee and identifying the shares of Common Stock with
respect to which such rights are being assigned.
(b) Notwithstanding anything to the contrary herein,
if the Investor is a partnership, it may transfer rights granted pursuant to
Section 1 to any of its partners to whom shares of Common Stock are transferred.
In the event of such transfer, such partner shall be deemed to be the Holder of
such shares of Common Stock and may, subject to paragraph (a) above, again
transfer such right to any other person or entity which acquired such shares
from such partner.
2.3 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of New York as applied to agreements among
Delaware residents entered into and to be performed entirely within New York
without regard to principles of conflicts of law.
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2.4 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.
2.5 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified, upon
confirmed delivery by a recognized courier or messenger service or upon deposit
with the United States Post Office, by registered or certified mail, postage
prepaid and addressed to the party to be notified at the address indicated for
such party on the signature page hereof, or at such other address as such party
may designate by ten (10) days' advance written notice to the other parties.
2.7 Expenses. 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 such party may be entitled.
2.8 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
2.9 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, 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
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shall be enforceable in accordance with its terms. The parties hereto shall
endeavor to replace any such unenforceable provision or provisions with a valid
and enforceable provision or provisions which shall have substantially the same
economic effect as the unenforceable provision or provisions.
2.10 Aggregation of Stock. All shares of Registrable
Securities held or acquired by affiliated entities or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
2.11 Entire Agreement; Amendment; Waiver. This Agreement
(including the Exhibits hereto, if any) constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
DISCOVERY LABORATORIES, INC.
By: (signature of Steve H. Kanzer appears here)
Steve H. Kanzer
Chairman
Discovery Laboratories, Inc.
375 Park Avenue, Suite 1501
New York, NY 10152
INVESTOR:
RAQ, LLC
By:
Lindsay A. Rosenwald, M.D., President
375 Park Avenue, Suite 1501
New York, NY 10152
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EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the 28th day of
October, 1996, by and among ACUTE THERAPEUTICS, INC., a Delaware corporation,
(the "Company"), JOHNSON & JOHNSON DEVELOPMENT CORPORATION, a New Jersey
Corporation ("J&J") and THE SCRIPPS RESEARCH INSTITUTE, a California
not-for-profit organization ("Scripps") (J&J and Scripps are herein collectively
referred to as the "Investors").
RECITALS
WHEREAS, the Company and Scripps are parties to the Scripps Stock
Purchase Agreement of even date herewith (the "Scripps Agreement"), pursuant to
which Scripps is acquiring 40,000 shares of the Company's common stock, $0.001
par value per share (the "Common Stock");
WHEREAS, J&J, its affiliate, Ortho Pharmaceutical Corporation ("Ortho")
and the Company are parties to the Inventory Transfer/Stock Purchase Agreement
of even date herewith (the "Inventory Transfer Agreement"), pursuant to which
the Company is issuing to J&J 2,200 shares of its Non-Voting Series B Preferred
Stock, $0.001 par value per share (the "Series B Preferred Stock") and 40,000
shares of Common Stock;
WHEREAS, in order to induce Scripps to enter into the Scripps Agreement
and J&J and Ortho to enter into the Inventory Transfer Agreement, the Investors
and the Company hereby agree that this Registration Rights Agreement
("Agreement") shall govern the rights of the Investors to cause the Company to
register the shares of Common Stock held by the Investors;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
<PAGE>
(b) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.8 hereof.
(c) The term "1934 Act" shall mean the Securities Exchange Act of 1934,
as amended.
(d) The term "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(e) The term "Registrable Securities" means (i) the Common Stock issued
by the Company pursuant to the Scripps Purchase Agreement, (ii) the Common Stock
issued by the Company pursuant to the Inventory Transfer Agreement, (iii) any
Common Stock issued upon redemption of the Series B Preferred Stock issued by
the Company pursuant to the Inventory Transfer Agreement and (iv) any Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of the shares
referenced in (i)-(iii) above, that cannot be publicly resold by the holder
thereof without registration under the Act or sold in a single transaction
exempt from the registration and prospectus delivery requirement of the Act
pursuant to Rule 144 thereunder, it being understood, for the purposes of this
Agreement, that Registrable Securities shall cease to be Registrable Securities
when (l) a registration statement covering such Registrable Securities has been
declared effective and they have been disposed of pursuant to such effective
registration statement, (2) they are transferred on the open market pursuant to
any available exemption under the Act, (3) they have been otherwise transferred
and the Company has delivered new certificates or other evidences of ownership
for them not subject to any stop transfer order or other restriction on transfer
and not bearing any legend restricting transfer in the absence of an effective
registration or an exemption from the registration requirements of the Act, (4)
they have been sold, assigned, pledged, hypothecated or otherwise disposed of by
the Holder in a transaction in which the Holder's rights under this Agreement
are not assigned or assignable, or (5) the rights of the Holder under Section
1.2 have terminated pursuant to Section 1.9.
(f) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are Registrable Securities.
(g) The term "SEC" shall mean the Securities and Exchange Commission.
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1.2 Company Registration.
(a) If (but without any obligation to do so) the Company proposes to
register (including for this purpose a registration effected by the Company for
stockholders other than the Holders) any of its stock or other securities under
the Act in connection with the public offering of such securities solely for
cash (other than a registration relating to the Company's initial public
offering of its securities, a registration relating solely to the sale of
securities to participants in a Company stock plan, a registration on any form
which does not include substantially the same information as would be required
to be included in a registration statement covering the sale of the Registrable
Securities or a registration in which the only Common Stock being registered is
Common Stock issuable upon conversion of debt securities which are also being
registered), the Company shall, at such time, promptly give each Holder written
notice of such registration. Upon the written request of each Holder given
within twenty (20) days after mailing of such notice by the Company in
accordance with Section 2.5, the Company shall cause to be registered under the
Act all of the Registrable Securities that each such Holder has requested to be
registered.
(b) Notwithstanding any other provision of this Section 1.2, if the
managing underwriter of an underwritten distribution advises in writing the
Company and the Holders of the Registrable Securities requesting participation
in such registration that in its good faith judgment the number of shares of
Registrable Securities and the other securities requested to be registered under
this Section 1.2 exceeds the number of shares of Registrable Securities and
other securities which can be sold in such offering, then (i) the number of
shares of Registrable Securities and other securities so requested to be
included in the offering shall be reduced to that number of shares which in the
good faith judgment of the managing underwriter can be sold in such offering
(except for shares to be issued by the Company in its initial public offering,
which shall have priority over the Registrable Securities), and (ii) such
reduced number of shares shall be allocated among all participating Holders of
Registrable Securities and holders of other securities in proportion, as nearly
as practicable, to the respective number of shares of Registrable Securities and
other securities held by such Holders at the time of filing the registration
statement; provided, however, that a minimum of thirty percent (30%) of the
shares to be underwritten shall be allocated, on a pro rata basis, to the
Holders requesting inclusion in such offering (the "selling stockholders"). For
purposes of clause (ii) above concerning apportionment, for any selling
stockholder which is a holder of Registrable Securities and which is a
partnership or corporation, the affiliates (as defined in the rules and
regulations promulgated under the Act), partners, retired partners and
stockholders of such holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "selling stockholder", and any
pro-rata reduction with respect to such "selling stockholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling stockholder", as defined in
this sentence.
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1.3 Obligations of the Company. Whenever required under this Section 1
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect
to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty (120)
days or until the distribution contemplated in the Registration Statement has
been completed; provided, however, that (i) such 120-day period shall be
extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Act, permits an offering on a continuous or delayed
basis, and provided further that applicable rules under the Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment which (I) includes any prospectus required by Section
lO(a)(3) of the Act or (II) reflects facts or events representing a material or
fundamental change in the information set forth in the registration statement,
the incorporation by reference of information required to be included in (I) and
(II) above to be contained in periodic reports filed pursuant to Section 13 or
15(d) of the 1934 Act in the registration statement.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities covered
by such registration statement under such other securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by the Holders; provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions, unless the Company is already
subject to service in such jurisdiction and except as may be required by the
Act.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form,
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with the managing underwriter of such offering. Each Holder participating in
such underwriting shall also enter into and perform its obligations under such
an agreement.
(f) Cause all such Registrable Securities registered pursuant hereunder
to be listed on each securities exchange on which similar securities issued by
the Company are then listed.
(g) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(h) Notify the participating Holders at any time when a prospectus
relating to any Registrable Securities covered by such registration statement is
required to be delivered under the Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing and promptly
file such amendments and supplements as may be necessary so that, as thereafter
delivered to such Holders of such Registrable Securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing and use its best
efforts to cause each such amendment and supplement to become effective.
(i) Furnish on the closing date of an underwritten public offering (i)
an opinion, dated such date, of the counsel representing the Company, for
purposes of such registration, in form and substance as is customarily given by
company counsel to the underwriters in an underwritten public offering,
addressed to the underwriters, and (ii) a letter dated such date, from the
independent certified public accountants of the Company, in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters.
1.4 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.5 Expenses of Company Registration. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.2 for each Holder (which right may be assigned as provided
in Section 1.8), including (without limitation) all federal and state
registration, filing, qualification fees, printers and accounting fees relating
or apportionable thereto and reasonable fees and disbursements
5
<PAGE>
of one counsel for the participating Holders together, but excluding
underwriting discounts and commissions relating to Registrable Securities.
1.6 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.7 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, any underwriter (as defined in the Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Act or the 1934 Act, and each officer, director, employee and
agent thereof against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, or the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, or the 1934 Act or any state securities
law; and the Company will pay to each such Holder, underwriter or controlling
person, and each officer, director, employee and agent thereof as incurred, any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.7(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder (severally and
not jointly) will indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed the registration statement, each
person, if any, who controls the Company within the meaning of the Act, any
underwriter, any other Holder selling securities in such registration statement
and any controlling person of any such underwriter or other Holder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Act, or the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or
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liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will pay, as incurred, any legal or other expenses
reasonably incurred by any person intended to be indemnified pursuant to this
subsection 1.7(a), in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 1.7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this subsection 1.10(b) exceed the gross proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.7 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 1.7, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.7, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.7.
(d) If the indemnification provided for in this Section 1.7 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent,
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knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control.
(f) The obligations of the Company and Holders under this Section 1.7
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.8 Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Section 1 may be assigned
(but only with all related obligations) by a Holder to a transferee or assignee
of such securities, provided: (a) the Company is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement; and (c) such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by the
transferee or assignee is restricted under the Act.
1.9 Termination of Registration Rights. No Holder shall be entitled to
exercise any right provided for in this Section 1 after five 5 years following
the consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the initial firm
commitment underwritten offering of its securities to the general public.
1.10 Reports Under 1934 Act. With a view to making available to the
Holders the benefits of Rule 144 promulgated under the Act and any other rule or
regulation of the SEC that may at any time permit a Holder to sell Registrable
Securities to the public without registration, the Company agrees to:
(a) make and keep available public information, as those terms
are understood and defined in Rule 144, at all times after the effective date of
the first registration statement under the Act filed by the Company for an
offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to a Holder owning any Registrable Securities upon
request (i) a written statement by the Company that it has complied with the
reporting requirements of Rule 144 (at any time after 90 days after the
effective date of the first registration statement filed by the Company for an
offering of its securities to the
8
general public), the Act and the 1934 Act (at any time after the Company has
become subject to the reporting requirements of the 1934 Act), (ii) a copy of
the most recent annual or quarterly report of the company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably required in availing any Holder of Registrable Securities of any
rule or regulation of the SEC which permits the selling of any such Registrable
Securities without registration or pursuant to such form (at any time after the
company has become subject to the reporting requirements of the 1934 Act).
1.11 Granting of Registration Rights. The Company shall not, without the prior
written consent of the Holders of at least 50.1% of the Registrable Securities
then outstanding, grant any rights to any persons to register any shares of
capital stock or other securities of the Company that would limit the Holders'
proportional rights under Section 1.2(b). The grant of registration rights to
any person that would entitle such person to participate on a pro rata basis in
an offering under Section 1.2(b) shall not be deemed a limitation to the
Holders' proportional rights under Section 1.2(b), pursuant to this Section
1.11; provided that in no circumstance will fewer than ten percent (10%) of the
shares to be underwritten pursuant to Section 1.2(b) be allocated to the
Holders, regardless of any subsequent registration rights granted by the
Company.
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2. Miscellaneous.
2.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
2.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New York.
2.3 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.
2.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
2.6 Expenses. 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 such party may be entitled.
2.7 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
2.8 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, 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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2.9 Aggregation of Stock. All shares of Registrable Securities held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
2.10 Entire Agreement; Amendment: Waiver. This Agreement (including the
Exhibits hereto, if any) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ACUTE THERAPEUTICS, INC.
By: (Sig of Robert J. Capetola, Ph.D.)
___________________________________
Robert J. Capetola, Ph.D.
President
Address: 6097 Hidden Valley Dr.
Doylestown, PA 18901
Investors:
JOHNSON & JOHNSON DEVELOPMENT
CORPORATION
By:__________________________________
Address:__________________________________
__________________________________
THE SCRIPPS RESEARCH INSTITUTE
By:__________________________________
Address:__________________________________
__________________________________
11
<PAGE>
<PAGE>
EXECUTION COPY
CO-SALE AGREEMENT
This Co-Sale Agreement is made as of the 28th day of October, 1996 by and
among Acute Therapeutics, Inc. (the "Company") and the shareholders set forth
on Schedule A attached hereto (the "Shareholders").
In consideration of the mutual covenants set forth herein, the parties
agree as follows:
1. Definitions.
(a) "Stock" shall mean all shares of capital stock of the Company held
by the Shareholders, whether now owned or hereafter acquired. For purposes of
the co-sale right granted to the Shareholders pursuant to this Agreement, all
shares of Preferred Stock of the Company shall be deemed to have been converted
into Common Stock of the Company.
(b) "Common Stock" shall mean the Company's Common Stock, $0.001 par
value.
(c) "Preferred Stock" shall mean the Company's Series A Convertible
Preferred Stock, $0.001 par value.
2. Right of Co-Sale.
(a) If any Shareholder of the Company proposes to sell any shares of
Stock of the Company, then such Shareholder (the "Selling Shareholder") shall
promptly give written notice (the "Notice") to the other Shareholders (the
"Non-Selling Shareholders") at least twenty (20) days prior to the closing of
such sale or transfer. The Notice shall describe in reasonable detail the
proposed sale or transfer including, without limitation, the number and class
of shares of Stock to be sold or transferred, the nature of such sale or
transfer, the consideration to be paid, and the name and address of each
prospective purchaser or transferee.
(b) Each Non-Selling Shareholder shall have the right, exercisable upon
written notice to the Selling Shareholder within ten (10) days after receipt of
the Notice, to participate in such sale of Stock on the same terms and
conditions set forth in the Notice.
<PAGE>
(c) Each Non-Selling Shareholder may sell all or any part of that
number of shares of Stock equal to the product obtained by multiplying
(i) the aggregate number of shares of Stock covered by the Notice by (ii) a
fraction the numerator of which is the number of shares of Stock owned by
such Non-Selling Shareholder at the time of the sale or transfer and the
denominator of which is the total number of shares of Stock owned by the
Selling Shareholder and the Non-Selling Shareholders at the time of the sale
or transfer (treating all shares of Preferred Stock as if they had been
converted into Common Stock).
(d) If any Non-Selling Shareholder elects to participate in the Selling
Shareholder's sale pursuant to this Section 2, the Non-Selling Shareholder shall
effect its participation in the sale by promptly delivering to the Selling
Shareholder for transfer to the prospective purchaser one or more certificates,
properly endorsed for transfer, which represent the type and number of shares of
Stock which the Non-Selling Shareholder elects to sell.
(e) The stock certificate or certificates that the Non-Selling
Shareholder delivers to the Selling Shareholder pursuant to paragraph 2(d)
shall be transferred to the prospective purchaser in consummation of the sale
of the Stock pursuant to the terms and conditions specified in the Notice, and
the Selling Shareholder shall concurrently therewith remit to the Non-Selling
Shareholder that portion of the sale proceeds to which the Non-Selling
Shareholder is entitled by reason of its participation in such sale. To the
extent that any prospective purchaser or purchasers prohibits such assignment
or otherwise refuses to purchase shares or other securities from the Non-Selling
Shareholder, the Selling Shareholder shall not sell to such prospective
purchaser or purchasers any Stock unless and until, simultaneously with such
sale, the Selling Shareholder shall purchase such shares or other securities
from the Non-Selling Shareholder for the same consideration and on the same
terms and conditions as the proposed transfer described in the Notice.
(f) The exercise or non-exercise of the rights of the Shareholders
hereunder to participate in one or more sales of Stock made by a Shareholder
shall not adversely affect their rights to participate in subsequent sales of
Stock subject to paragraph 2(a).
(g) If any Non-Selling Shareholder does not elect to participate in
the sale of the Stock subject to the Notice, the Selling Shareholder may, not
later than thirty (30) days following delivery to the Company and the
Non-Selling Shareholders of the Notice, conclude a transfer of not less than
all of the Stock covered by the Notice on terms and conditions not more
favorable to the transferor than those described in the Notice. Any proposed
transfer on terms and conditions more favorable than those described in the
Notice, as well as any subsequent proposed transfer of any of the Stock by a
Shareholder, shall again be subject to the co-sale rights of the Shareholders
and shall require compliance by the Shareholders with the procedures described
in this Section 2.
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3. Exempt Transfers.
(a) Notwithstanding the foregoing, the co-sale rights of the
Shareholders shall not apply to (i) any pledge of Stock made pursuant to a
bona fide loan transaction that creates a mere security interest, (ii) any
transfer of Stock by a Shareholder to an affiliate of that Shareholder, where
"affiliate" refers to any person or entity that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with the Shareholder, (iii) any transfer of Stock pursuant to those
certain Stock Transfer Agreements between The Scripps Research Institute and
each of Dr. Charles Cochrane and Ms. Susan Revak, each dated the date hereof,
attached hereto as Exhibit A (iv) any transfer of Stock in connection with the
sale of all or substantially all of the assets or Stock of the Company, by
merger, sale of assets or otherwise, (v) any transfer to the ancestors,
descendants or spouse of the Shareholder or to trusts for the benefit of such
persons or (vi) any bona fide gift; provided that, in any such case, (A) the
transferring Shareholder shall inform the other Shareholders of such pledge,
transfer or gift prior to effecting it and (B) the pledgee, transferee or
donee shall furnish the other Shareholders with a written agreement to be bound
by and comply with all provisions of this Agreement. Such transferred Stock
shall remain "Stock" hereunder, and such pledgee, transferee or donee shall be
treated as a "Shareholder" for purposes of this Agreement.
(b) Notwithstanding the foregoing, the provisions of Sections 2 shall
not apply to the sale of any Stock (i) to the public pursuant to a registration
statement filed with, and declared effective by, the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Securities Act")
or (ii) to the Company.
4. Prohibited Transfers.
(a) In the event a Shareholder (a "Transferring Shareholder") should
sell any Stock in contravention of the co-sale rights of the Shareholders under
this agreement (a "Prohibited Transfer"), the other Shareholders (the
Non-Transferring Shareholders"), in addition to such other remedies as may be
available at law, in equity or hereunder, shall have the put option provided
below, and the Transferring Shareholder shall be bound by the applicable
provisions of such option.
(b) In the event of a Prohibited Transfer, any Non-Transferring
Shareholder shall have the right to sell to the Transferring Shareholder the
type and number of shares of Stock equal to the number of shares the
Non-Transferring Shareholders would have been entitled to transfer to the
purchaser under Section 2(c) hereof had the Prohibited Transfer been effected
pursuant to and in compliance with the terms hereof. Such sale shall be made on
the following terms and conditions:
(i) The price per share at which the shares are to be sold to the
Transferring Shareholder shall be equal to the price per share paid by the
purchaser to the Transferring Shareholder in the Prohibited Transfer. The
Transferring Shareholder shall also reimburse the Non-Transferring Shareholders
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<PAGE>
for any and all fees and expenses, including legal fees and expenses, incurred
pursuant to the exercise or the attempted exercise of the Non-Transferring
Shareholder's rights under Section 2.
(ii) Within ninety (90) days after the later of the dates on which
any Non-Transferring Shareholder (A) received notice of the Prohibited Transfer
or (B) otherwise become aware of the Prohibited Transfer, the Non-Transferring
Shareholder shall, if exercising the option created hereby, deliver to the
Transferring Shareholder the certificate or certificates representing shares to
be sold, each certificate to be properly endorsed for transfer.
(iii) The Transferring Shareholder shall, upon receipt of the
certificate or certificates for the shares to be sold by any Non-Transferring
Shareholder, pursuant to this subparagraph 4(b), pay the aggregate purchase
price therefor and the amount of reimbursable fees and expenses, as specified
in subparagraph 4(b)(i), in cash or by other means acceptable to the
Non-Transferring Shareholder.
5. Legend.
(a) Each certificate representing shares of Stock now or hereafter
owned by the Shareholders shall be endorsed with the following legend:
"THE SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
IS SUBJECT TO THE TERMS AND CONDITIONS OF A CO-SALE AGREEMENT
BY AND BETWEEN THE CORPORATION AND CERTAIN HOLDERS OF STOCK
OF THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED
UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."
(b) Each Shareholder agrees that the Company may instruct its transfer
agent to impose transfer restrictions on the shares represented by certificates
bearing the legend referred to in Section 5(a) above to enforce the provisions
of this Agreement and the Company agrees to promptly do so. The legend shall be
removed upon termination of this Agreement.
6. Miscellaneous.
6.1 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New York.
4
<PAGE>
6.2 Amendment. Any provision may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only by the written consent of (i) the
Company and (ii) a majority in interest of the Shareholders, provided that any
Shareholder may waive any of its rights hereunder without obtaining the consent
of any other Shareholder. Any amendment or waiver effected in accordance with
clauses (i) and (ii) of this paragraph shall be binding upon the Company and
each Shareholder.
6.3 Assignment of Rights. This Agreement and the rights and obligations
of the parties hereunder shall inure to the benefit of, and be binding upon,
their respective successors, assigns and legal representatives. The rights of
the Shareholders hereunder are not assignable without the express, written
consent of the Company.
6.4 Liability of Third Parties. Any claim for liability which arises
out of this Agreement shall attach solely to the parties to this Agreement and
their successors. No party shall have a claim against any third party with
respect to this Agreement.
6.5 Term. This Agreement shall terminate immediately prior to the
earlier of (i) the closing of an underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of the Company's Common Stock (ii) the
closing of the Company's sale of all or substantially all of its assets or the
acquisition of the Company by another entity by means of merger or consolidation
resulting in the exchange of the outstanding shares of the Company's Stock for
securities or consideration issued, or caused to be issued, by the acquiring
entity or its subsidiary or (iii) the execution by the Company of a general
assignment for the benefit of creditors or the appointment of a receiver or
trustee to take possession of the property and assets of the Company.
6.6 Ownership. Each Shareholder represents and warrants that such
Shareholder is the sole legal and beneficial owner of the shares of stock
subject to this Agreement and that no other person has any interest (other
than a community property interest) in such shares.
6.7 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given upon personal delivery to the
party to be notified or five (5) days after deposit in the United States mail,
by registered or certified mail, postage prepaid and properly addressed to the
party to be notified as set forth on the signature page hereof or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties hereto.
6.8 Severability. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
5
<PAGE>
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
6.9 Attorney Fees. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
6.10 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.
6.11 Stock Split. All references to numbers of shares in this Agreement
shall be appropriately adjusted to reflect any stock dividend, split,
combination or other recapitalization of shares by the Company occurring after
the date of this Agreement.
6.12 Aggregation of Stock. All shares of Stock held or acquired by
affiliated entities or persons shall be aggregated together for the purpose
of determining the availability of any rights under this Agreement.
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Co-Sale Agreement as
of the date first above written.
ACUTE THERAPEUTICS, INC.
By: (Signature of Robert J. Capetola
Ph.D. appears here)
Name: Robert J. Capetola, Ph.D.
Title: President
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Co-Sale Agreement
as of the date first above written.
SHAREHOLDERS:
(Signature of James S. Kuo, M.D.
appears here)
Discovery Laboratories, Inc.
By: James S. Kuo, M.D.
Address: 787 Seventh Ave., 44th Floor
New York, NY 10019
(Signature of Robert J. Capetola
appears here)
Robert J. Capetola
Address:
(Signature of Charles Cochrane
appears here)
Charles Cochrane
Address:
(Signature of Susan Revak
appears here)
Susan Revak
Address:
(Signature of Peter S. Galloway
appears here)
Johnson & Johnson Development Corporation
By:
Address:
(Signature of Richard G. Power
appears here)
Sage Partners
By:
Address:
(Signature appears here)
The Scripps Research Institute
By:
Address:
<PAGE>
SCHEDULE A
Discovery Laboratories, Inc.
Robert J. Capetola
Charles Cochrane
Susan Revak
Johnson & Johnson Development Corporation
The Scripps Research Institute
Sage Partners
<PAGE>
<PAGE>
EXECUTION COPY
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made this 28th day of October, 1996, by and between ACUTE
THERAPEUTICS, INC., a Delaware corporation (the "Company"), and The Scripps
Research Institute ("Purchaser").
WHEREAS, Purchaser desires to purchase shares of Common Stock of the
Company, par value $0.001 per share;
WHEREAS, Discovery Laboratories, Inc. is a party to a Letter of Intent,
dated October 18, 1996 (the "Letter of Intent"), in which Discovery has proposed
to purchase shares of Series A Preferred Stock for a purchase price of
$7,500,000;
WHEREAS, Purchaser is granting consent to Johnson & Johnson ("J&J") to
enter into a licensing agreement (the "License Agreement") with the Company
pursuant to which J&J will provide Company with an exclusive worldwide license
to the KL4-Technology (the "License"); and
WHEREAS, Purchaser desires to transfer 5,000 shares of Common Stock of the
Company to Dr. Charles Cochrane and 5,000 shares of Common Stock of the Company
to Ms. Susan Revak;
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. Purchase of Shares. Subject to the terms hereof, in consideration for
Purchaser's consent to the License Agreement, the Company, subject to Section 3
and Section 4 hereof, agrees to sell and issue to purchaser 40,000 shares of
common stock of the Company (the "Shares").
2. Issuance of Shares. Upon grant of the License by J&J to Company, the
Company shall issue a duly executed certificate evidencing the Shares in the
name of Purchaser.
3. Registration Rights Agreement. Purchaser shall be granted certain
registration rights pursuant to the Registration Rights Agreement attached
hereto as Exhibit A.
4. "Market Stand-Off" Agreement. Purchaser hereby agrees that, during the
period specified by the Company and the underwriter or underwriters of common
stock
<PAGE>
(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"), Purchaser 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 common stock held by Purchaser
until the end of such period.
5. Representations and Warranties of Purchaser.
a. Investment Intent. This Agreement is made with Purchaser in
reliance upon its representation to the Company, which by acceptance hereof
Purchaser confirms, that the Shares have been acquired with Purchaser's own
funds for investment for its account, not as a nominee or agent, and not with a
view to the sale or distribution of any part thereof, and that Purchaser has no
present intention of selling, granting participation in, or otherwise
distributing the same, except for the transfer of shares pursuant to those
certain Stock Transfer Agreements, between Purchaser and each of Dr. Charles
Cochrane and Ms. Susan Revak, each dated on the date hereof attached hereto as
Exhibit B. By executing this Agreement, Purchaser further represents, except as
described above in this Section 5(a), 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.
b. Restricted Securities. Purchaser 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 Purchaser's
representations set forth herein.
Purchaser 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, Purchaser may be required to hold the Shares for an indeterminate
period. Purchaser also acknowledges that it understands that any sale of the
Securities that might be made by Purchaser 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 Purchaser may not be able to sell the Shares at
the time or in the amount Purchaser so desires. Purchaser is familiar with Rule
144 and understands that the Shares constitute "restricted securities" within
the meaning of that Rule.
<PAGE>
c. Investment Experience. In connection with the investment representations
made herein Purchaser 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 Purchaser has requested and deems appropriate to its investment
decision.
d. Limitations on Disposition. Purchaser agrees that in no event will it
make a disposition of any of the Shares, unless and until (a) Purchaser 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) Purchaser 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 5(d) shall cease and
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 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. Purchaser 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.
e. 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):
(i) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A CERTAIN STOCK PURCHASE AGREEMENT WHICH INCLUDES A
REGISTRATION RIGHTS AGREEMENT MARKET STAND-OFF AGREEMENT ON THE SALE OF THE
3
<PAGE>
SECURITIES. COPIES OF THE AGREEMENTS MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
SECRETARY OF THE CORPORATION.
(ii) "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."
(iii) Any legend required to be placed thereon by applicable state
laws.
6. Miscellaneous.
a. Further Instruments and Actions. The parties agree to execute such
further instruments and to take such further action as may reasonably be
necessary to carry out the intent of this Agreement.
b. 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, 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.
c. Governing Law, Assignment and Enforcement. This Agreement is
governed by the internal law of New York and shall inure to the benefit of the
successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon Purchaser, his or her heirs,
executors, administrators, guardians, successors and assigns.
d. 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.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ACUTE THERAPEUTICS, INC.
By: /s/ Robert J. Capetola
___________________________
Robert J. Capetola, Ph.D.
President
Purchaser:
/s/ Arnold LaGuardia
_______________________________
(Signature) Arnold LaGuardia
THE SCRIPPS RESEARCH INSTITUTE
Address: _______________________________
_______________________________
5
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
DISCOVERY LABORATORIES, INC.
60,000,000 AUTHORIZED SHARES
SEE REVERSE FOR
CERTAIN DEFINITIONS
50,000,000 COMMON STOCK SERIES A PREFERRED STOCK
10,000,000 Preferred Stock including
7,000,000 Series A Preferred Stock
THIS IS TO CERTIFY THAT ________________________________ IS THE OWNER OF
________________________________________________________ fully paid and
non-assessable shares of the above Corporation transferable only on the books
of the Corporation by the holder hereof in person or by duly authorized Attorney
upon surrender of this Certificate properly endorsed.
WITNESS, the seal of the Corporation and the signatures of its duly authorized
officers.
DATED
<PAGE>
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM-as tenants in common UNIF GIFT MIN ACT - ....Custodian........
(Cust) (Minor)
TEN ENT-as tenants by the entireties under Uniform Gifts to Minors
Act...........................
(State)
JT TEN-as joint tenants with right of
survivorship and not as tenants
in common
Additional abbreviations may also be used though not in the above list
FOR VALUE RECEIVED _________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
<TABLE>
<S> <C>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
|
|
_____________________________________ |__________________________________________
_________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE)
_________________________________________________________________________________
_________________________________________________________________________________
_____________________________________________________________ SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE
AND APPOINT
_____________________________________________________________ ATTORNEY
BY TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION
WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
</TABLE>
DATED________________________ 19___
In presence of
_______________________________
______________________________
The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended (the "Act"), and may not be offered,
sold, pledged, hypothecated, exchanged, transferred or otherwise disposed of
unless such shares are (1)(A) registered under such Act and any applicable
state securities or "blue sky" laws or (B) an opinion satisfactory to counsel
of the Company that the registration of such shares is not necessary has been
delivered to the Company or (ii) sold pursuant to and in compliance with
Rule 144 of such Act and applicable state securities or "blue sky" laws.
The corporation has more than one class of stock authorized to be issued. The
corporation will furnish without charge to each stockholder upon written request
a copy of the full text of the preferences, voting powers, qualifications and
special and relative rights of the shares of each class of stock (and any series
thereof) authorized to be issued by the corporation as set forth in the
Certificate of Incorporation of the corporation and amendments thereto filed
with the Secretary of State of Delaware.
<PAGE>
EXECUTION COPY
FOUNDER/EMPLOYEE STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 10th day of October 1996, by and between
ACUTE THERAPEUTICS, INC., a Delaware corporation (the "Company"), and Robert
Capetola, Ph.D. ("Founder").
WHEREAS, the Founder and several other persons and entities (collectively,
the "Founders") desire to purchase shares of Common Stock of
the Company, par value $0.001 per share, (the "Common Stock") at a price of
$0.01 per share;
WHEREAS, each Founder has agreed to enter into an agreement substantially
similar to this Agreement (collectively, the "Founder/Employee Purchase
Agreements");
NOW THEREFORE, IT IS HEREBY AGREED:
1. Purchase of Shares. Subject to the terms hereof, the Company
hereby sells to Founder and Founder hereby purchases from the Company 67,500
shares of the Common Stock (the "Shares") at a price of $0.01 per share
("Purchase Price"). Following the purchase of Common Stock by the Founder and
all other Founders, the initial outstanding Shares of the Company shall be
held in accordance with Schedule I attached hereto.
2. Payment of Purchase Price. The Founder has paid the Purchase Price
by delivering to the Company at the time of execution of this Agreement a
check for $675.
3. Issuance of Shares. Upon receipt by the Company of the Purchase Price,
the Company shall issue a duly executed certificate evidencing the Shares in
the name of Founder.
4. "Market Stand-Off" Agreement. Founder 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"), Founder 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.
<PAGE>
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to securities held by Founder until
the end of such period.
5. Representations and Warranties of Founder.
a. Investment Intent. This Agreement is made with Founder in reliance
upon his or her representation to the Company, which by his or her acceptance
hereof he or she confirms, that the Shares have been acquired with his or her
own funds for investment for an indefinite period for his or her own account,
not as a nominee or agent, and not with a view to the sale or distribution of
any part thereof, and that he or she has no present intention of selling,
granting participation in, or otherwise distributing the same. By executing
this Agreement, Founder further represents that he or she does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer, or grant participations, to such person or to any third person,
with respect to any of the Shares.
b. Restricted Securities. Founder 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 his or her
representations set forth herein.
Founder 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, he or she may be required to hold the Shares for an
indeterminate period. The Founder also acknowledges that he or she understands
that any sale of the Securities that might be made by him or her 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 he or she may not be able
to sell the Shares at the time or in the amount he or she so desires. Founder
is familiar with Rule 144 and understands that the Shares constitute
"restricted securities" within the meaning of the Rule.
c. Investment Experience. In connection with the investment
representations made herein Founder represents that he or she is able to fend
for himself or herself 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 his or her investment and has been
furnished with and has had access to such information as he or she has
requested and deems appropriate to his or her investment decision.
d. Limitations on Disposition. Founder agrees that in no event will
he or she make a disposition of any of the Shares, unless and until (a) her or
she 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) he or she shall
2
<PAGE>
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 Company shall not be required (i) to transfer on its book 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. Founder shall,
during the term of this Agreement, exercise all rights and privileges of a
shareholder of the Company with respect to the Shares after this issuance, and
prior to the repurchase, thereof. The restrictions on disposition imposed by
this Section 7(d) shall cease and 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 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.
This paragraph d. is in addition to any restrictions imposed on the
Escrowed Shares under this Agreement and the Escrow Agreement.
e. 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):
(i) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE TERMS AND CONDITIONS OF A CERTAIN EMPLOYEE STOCK PURCHASE AGREEMENT
WHICH INCLUDE RESTRICTIONS RELATING TO A MARKET STAND-OFF AGREEMENT ON THE SALE
OF THE SECURITIES. COPIES OF THE AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST
TO THE SECRETARY OF THE CORPORATION."
(ii) "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
3
<PAGE>
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."
(iii) Any legend required to be placed thereon by applicable
state laws.
6. Miscellaneous.
a. Further Instruments and Actions. The parties agree to execute
such further instruments and to take such further action as may reasonably be
necessary to carry out the intent of this Agreement.
b. 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, 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.
c. Governing Law, Assignment and Enforcement. This Agreement is
governed by the internal law of New York and shall inure to the benefit of the
successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon Founder, his or her heirs, executors,
administrators, guardians, successors and assigns. The prevailing party in any
action to enforce this Agreement shall be entitled to attorneys' fees and costs.
The parties agree that damages are not an adequate remedy for Founder's breach
hereof and the Company shall accordingly be entitled to specific performance of
this Agreement.
d. 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, or their
successors or assigns, and no oral waiver or amendment shall be effective under
any circumstances whatsoever.
e. Cooperation. Founder agrees to cooperate affirmatively with the
Company, to the extent reasonably requested by the Company, to enforce rights
and obligations pursuant to this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ACUTE THERAPEUTICS, INC.
By: /s/ Linda B. Capetola
Linda B. Capetola
Secretary
Address: 6097 Hidden Valley Drive
Doylestown, PA 18901
Founder:
/s/ Robert Capetola, Ph.D.
Robert Capetola, Ph.D.
Address: 6097 Hidden Valley Dr.
Doylestown, PA 18901
<PAGE>
EXECUTION COPY
FOUNDER/EMPLOYEE STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 10th day of October 1996, by and
between ACUTE THERAPEUTICS, INC., a Delaware corporation (the "Company"), and
Charles Cochrane, M.D. ("Founder").
WHEREAS, the Founder and several other persons and entities
(collectively, the "Founders") desire to purchase shares of Common Stock of the
Company, par value $0.001 per share, (the "Common Stock") at a price of $0.01
per share;
WHEREAS, each Founder has agreed to enter into an agreement
substantially similar to this Agreement (collectively, the "Founder/Employee
Purchase Agreements");
NOW THEREFORE, IT IS HEREBY AGREED:
1. Purchase of Shares. Subject to the terms hereof, the Company hereby
sells to Founder and Founder hereby purchases from the Company 30,000 shares of
the Common Stock (the "Shares") at a price of $0.01 per share ("Purchase
Price"). Following the purchase of Common Stock by the Founder and all other
Founders, the initial outstanding Shares of the Company shall be held in
accordance with Schedule I attached hereto.
2. Payment of Purchase Price. The Founder has paid the Purchase Price
by delivering to the Company at the time of execution of this Agreement a check
for $300.
3. Issuance of Shares. Upon receipt by the Company of the Purchase
Price, the Company shall issue a duly executed certificate evidencing the
Shares in the name of Founder.
4. "Market Stand-Off" Agreement. Founder 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"), Founder shall not, to the extend 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
<PAGE>
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 securities held by Founder until
the end of such period.
5. Representations and Warranties of Founder.
a. Investment Intent. This Agreement is made with Founder in
reliance upon his or her representation to the Company, which by his or her
acceptance hereof he or she confirms, that the Shares have been acquired with
his or her own funds for investment for an indefinite period for his or her own
account, not as a nominee or agent, and not with a view to the sale or
distribution of any part thereof, and that he or she has no present intention
of selling, granting participation in, or otherwise distributing the same. By
executing this Agreement, Founder further represents that he or she does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer, or grant participations, to such person or to any third
person, with respect to any of the Shares.
b. Restricted Securities. Founder 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 his or her
representations set forth herein.
Founder 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, he or she may be required to hold the Shares for an
indeterminate period. The Founder also acknowledges that he or she understands
that any sale of the Securities that might be made by him or her 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 he or she may not be
able to sell the Shares at the time or in the amount he or she so desires.
Founder is familiar with Rule 144 and understands that the Shares constitute
"restricted securities" within the meaning of that Rule.
c. Investment Experience. In connection with the investment
representations made herein Founder represents that he or she is able to fend
for himself or herself 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 his or her investment and has been
furnished with and has had access to such information as he or she has requested
and deems appropriate to his or her investment decision.
2
<PAGE>
d. Limitations on Disposition. Founder agrees that in no event
will he or she make a disposition of any of the Shares, unless and until (a)
he or she 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) he or she 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 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. Founder
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. The restrictions on disposition imposed
by this Section 7(d) shall cease and 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 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.
This paragraph d. is in addition to any restrictions imposed on the
Escrowed Shares under this Agreement and the Escrow Agreement.
e. 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):
(i) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN EMPLOYEE STOCK PURCHASE
AGREEMENT WHICH INCLUDE RESTRICTIONS RELATING TO A MARKET STAND-OFF AGREEMENT
ON THE SALE OF THE SECURITIES. COPIES OF THE AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."
3
<PAGE>
(ii) "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,
ANY 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."
(iii) Any legend required to be placed thereon by
applicable state laws.
6. Miscellaneous.
a. Further Instruments and Actions. The parties agree to execute
such further instruments and to take such further action as may reasonably
be necessary to carry out the intent of this Agreement.
b. 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, 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.
c. Governing Law, Assignment and Enforcement. This Agreement is
governed by the internal law of New York and shall inure to the benefit of the
successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon the Founder, his or her heirs,
executors, administrators, guardians, successors and assigns. The prevailing
party in any action to enforce this Agreement shall be entitled to attorneys'
fees and costs. The parties agree that damages are not an adequate remedy for
Founder's breach hereof and the Company shall accordingly be entitled to
specific performance of this Agreement.
d. 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, or
their successors or assigns, and no oral waiver or amendment shall be
effective under any circumstances whatsoever.
e. Cooperation. Founder agrees to cooperate affirmatively with
the Company, to the extent reasonably requested by the Company, to enforce
rights and obligations pursuant to this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
ACUTE THERAPEUTICS, INC.
By: (Signature of Robert J. Capetola, Ph.D.)
Robert J. Capetola, Ph.D.
President
Address: 6097 Hidden Valley Drive
Doylestown, PA 18901
Founder:
(Signature of Charles Cochrane, M.D.)
Charles Cochrane, M.D.
Charles G. Cochrane, M.D.
Address: 7782 Ludington Place
La Jolla, CA 92037
<PAGE>
EXECUTION COPY
FOUNDER/EMPLOYEE STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 10th day of October 1996, by and
between ACUTE THERAPEUTICS, INC., a Delaware corporation (the "Company"), and
Susan Revak ("Founder").
WHEREAS, the Founder and several other persons and entities
(collectively, the "Founders") desire to purchase shares of Common Stock of
the Company, par value $0.001 per share, the ("Common Stock") at a price of
$0.01 per share;
WHEREAS, each Founder has agreed to enter into an agreement
substantially similar to his Agreement (collectively, the "Founder/Employee
Purchase Agreements");
NOW THEREFORE, IT IS HEREBY AGREED:
1. Purchase of Shares. Subject to the terms hereof, the Company
hereby sells to Founder and Founder hereby purchases from the Company 7,500
shares of the Common Stock (the "Shares") at a price of $0.01 per share
("Purchase Price"). Following the purchase of Common Stock by the Founder and
all other Founders, the initial outstanding Shares of the Company shall be
held in accordance with Schedule I attached hereto.
2. Payment of Purchase Price. The Founder has paid the Purchase Price
by delivering to the Company at the time of execution of this Agreement a
check for $75.
3. Issuance of Shares. Upon receipt by the Company of the Purchase
Price, the Company shall issue a duly executed certificate evidencing the
Shares in the name of Founder.
4. "Market Stand-Off" Agreement. Founder 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"), Founder 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
<PAGE>
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 securities held by Founder until
the end of such period.
5. Representations and Warranties of Founder.
a. Investment Intent. This Agreement is made with Founder in
reliance upon his or her representation to the Company, which by his or
her acceptance hereof he or she confirms, that the Shares have been acquired
with his or her own funds for investment for an indefinite period for his or
her own account, not as a nominee or agent, and not with a view to the
sale or distribution of any part thereof, and that he or she has no present
intention of selling, granting participation in, or otherwise distributing
the same. By executing this Agreement, Founder further represents that he or
she does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer, or grant participations, to such person or
to any third person, with respect to any of the Shares.
b. Restricted Securities. Founder 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 his or her
representations set forth herein.
Founder 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, he or she may be required to hold the Shares for an indeterminate
period. The Founder also acknowledges that he or she understands that any
sale of the Securities that might be made by him or her 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 he or she may be able to sell the
Shares at the time or in the amount he or she so desires. Founder is familiar
with Rule 144 and understands that the Shares constitute "restricted
securities" within the meaning of that Rule.
c. Investment Experience. In connection with the investment
representations made herein Founder represents that he or she is able to fend
for himself or herself 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 his or her investment and has been furnished
with and has had access to such information as he or she has requested and
deems appropriate to his or her investment decision.
2
<PAGE>
d. Limitations on Disposition. Founder agrees that in no event
will he or she make a disposition of any of the Shares, unless and until (a)
he or she 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) he or she 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 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. Founder
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. The restrictions on disposition imposed
by this Section 7(d) shall cease and 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 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.
This paragraph d. is in addition to any restrictions imposed on the
Escrowed Shares under this Agreement and the Escrow Agreement.
e. 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):
(i) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN EMPLOYEE STOCK PURCHASE
AGREEMENT WHICH INCLUDE RESTRICTIONS RELATING TO A MARKET STAND-OFF AGREEMENT
ON THE SALE OF THE SECURITIES. COPIES OF THE AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."
3
<PAGE>
(ii) "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."
(iii) Any legend required to be placed thereon by
applicable state laws.
6. Miscellaneous.
a. Further Instruments and Actions. The parties agree to execute
such further instruments and to take such further action as may reasonably
be necessary to carry out the intent of this Agreement.
b. 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, addressed to the other party hereto at 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.
c. Governing Law, Assignment and Enforcement. This Agreement is
governed by the internal law of New York and shall inure to the benefit of the
successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon the Founder, his or her heirs,
executors, administrators, guardians, successors and assigns. The prevailing
party in any action to enforce this Agrement shall be entitled to attorney's
fees and costs. The parties agree that damages are not an adequate remedy for
Founder's breach hereof and the Company shall accordingly be entitled to
specific performance of this Agreement.
d. 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, or
their successors or assigns, and no oral waiver or amendment shall be
effective under any circumstances whatsoever.
e. Cooperation. Founder agrees to cooperate affirmatively with
the Company, to the extent reasonably requested by the Company, to enforce
rights and obligations pursuant to this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
ACUTE THERAPEUTICS, INC.
By: (Signature of Robert J. Capetola, Ph.D.)
Robert J. Capetola, Ph.D.
President
Address: 6097 Hidden Valley Drive
Doylestown, PA 18901
Founder:
(Signature of Susan D. Revak)
Susan Revak
Susan D. Revak
Address: 6561 Cascade Street
San Diego, CA 92122
<PAGE>
EXECUTION COPY
FOUNDER/EMPLOYEE STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 10th day of October 1996, by and between
ACUTE THERAPEUTICS, INC., a Delaware corporation (the "Company"), and Sage
Partners ("Founder").
WHEREAS, the Founder and several other persons and entities (collectively,
the "Founders") desire to purchase shares of Common Stock of the Company, par
value $0.001 per share, (the "Common Stock") at a price of $0.01 per share;
and
WHEREAS, each Founder has agreed to enter into an agreement substantially
similar to this Agreement (collectively, the "Founder/Employee Purchase
Agreements");
NOW THEREFORE, IT IS HEREBY AGREED:
1. Purchase of Shares. Subject to the terms hereof, the Company hereby
sells to Founder and Founder hereby purchases from the Company 15,000 shares
of the Common Stock (the "Shares") at a price of $0.01 per share ("Purchase
Price"). Following the purchase of Common Stock by the Founder and all other
Founders, the initial outstanding Shares of the Company shall be held in
accordance with Schedule I attached hereto.
2. Payment of Purchase Price. The Founder has paid the Purchase Price
by delivering to the Company at the time of execution of this Agreement a
check for $150.
3. Issuance of Shares. Upon receipt by the Company of the Purchase
Price, the Company shall issue a duly executed certificate evidencing the
Shares in the name of Founder.
4. "Market Stand-Off" Agreement. Founder 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"), Founder 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
<PAGE>
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 securities held by Founder until
the end of such period.
5. Representations and Warranties of Founder.
a. Investment Intent. This Agreement is made with Founder in
reliance upon his or her representation to the Company, which by his or her
acceptance hereof he or she confirms, that the Shares have been acquired with
his or her own funds for investment for an indefinite period for his or her
own account, not as a nominee or agent, and not with a view to the sale or
distribution of any part thereof, and that he or she has no present intention
of selling, granting participation in, or otherwise distributing the same.
By executing this Agreement, Founder further represents that he or she does
not have any contract, undertaking, agreement or arrangement with any person
to sell, transfer, or grant participations, to such person or to any third
person, with respect to any of the Shares.
b. Restricted Securities. Founder 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 his or
her representations set forth herein.
Founder 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, he or she may be required to hold the Shares for an
indeterminate period. The Founder also acknowledges that he or she understands
that any sale of the Securities that might be made by him or her 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 he or she may not be able
to sell the Shares at the time or in the amount he or she so desires. Founder
is familiar with Rule 144 and understands that the Shares constitute
"restricted securities" within the meaning of that Rule.
c. Investment Experience. In connection with the investment
representations made herein Founder represents that he or she is able to fend
for himself or herself 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 his or her investment and has been
furnished with and has had access to such information as he or she has
requested and deems appropriate to his or her investment decision.
2
<PAGE>
d. Limitations on Disposition. Founder agrees that in no event will
he or she make a disposition of any of the Shares, unless and until (a) he or
she 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) he or she 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 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. Founder
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. The restrictions on disposition imposed
by this Section 7(d) shall cease and 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 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.
This paragraph d. is in addition to any restrictions imposed on the
Escrowed Shares under this Agreement and the Escrow Agreement.
e. 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):
(i) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE TERMS AND CONDITIONS OF A CERTAIN EMPLOYEE STOCK PURCHASE AGREEMENT
WHICH INCLUDE RESTRICTIONS RELATING TO A MARKET STAND-OFF AGREEMENT ON THE
SALE OF THE SECURITIES. COPIES OF THE AGREEMENT MAY BE OBTAINED UPON WRITTEN
REQUEST TO THE SECRETARY OF THE CORPORATION."
3
<PAGE>
(ii) "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."
(iii) Any legend required to be placed thereon by applicable
state laws.
6. Miscellaneous.
a. Further Instruments and Actions. The parties agree to execute
such further instruments and to take such further action as may reasonably be
necessary to carry out the intent of this Agreement.
b. 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, 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.
c. Governing Law, Assignment and Enforcement. This Agreement is
governed by the internal law of New York and shall inure to the benefit of the
successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon Founder, his or her heirs, executors,
administrators, guardians, successors and assigns. The prevailing party in any
action to enforce this Agreement shall be entitled to attorneys' fees and costs.
The parties agree that damages are not an adequate remedy for Founder's breach
hereof and the Company shall accordingly be entitled to specific performance of
this Agreement.
d. 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, or their
successors or assigns, and no oral waiver or amendment shall be effective under
any circumstances whatsoever.
e. Cooperation. Founder agrees to cooperate affirmatively with the
Company, to the extent reasonably requested by the Company, to enforce rights
and obligations pursuant to this Agreement.
4
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ACUTE THERAPEUTICS, INC.
By: /s/ Robert J. Capetola, Ph.D.
Robert J. Capetola, Ph.D.
President
Address: 6097 Hidden Valley Drive
Doylestown, PA 18901
Founder:
(Signature appears here)
Sage Partners
Address: The Sage Group Inc.
245 Route 22 West
Suite 304
Bridgewater, N.J. 08807
<PAGE>
EXHIBIT 5.1
[Form of Opinion of Roberts, Sheridan & Kotel]
January 7, 1997
Discovery Laboratories, Inc.
787 Seventh Avenue, 44th Floor
New York, NY 10019
Discovery Laboratories, Inc.
Registration on Form SB-2
Dear Sirs:
We have acted as counsel for Discovery Laboratories, Inc., a Delaware
corporation (the "Issuer"), in connection with the preparation of the
registration statement on Form SB-2 (the "Registration Statement") filed with
the Securities and Exchange Commission (the "Commission") on January 7, 1997,
Registration Number 33-________ under the Securities Act of 1933 (the "Act") for
the registration under the Act of the following securities of the Issuer:
(i) 2,200,256 currently outstanding shares of common stock, par value
$.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 of $.001 per share ("Series A Preferred Stock"); and
(iii) 1,100,129 shares of Common Stock issuable upon (a) the
conversion of shares of Series A Preferred Stock of the Company
issuable upon exercise of certain warrants (the "Preferred Placement
Warrants") issued to Paramount Capital Incorporated, as placement
agent (the "Placement Agent"), and/or its designees relating to the
offering of units (the "Units) consisting of Series A Preferred Stock
and Common Stock and (b) exercise of certain other warrants (the
"Common Placement Warrants" and, together with the Preferred Placement
Warrants, the "Placement Agent Warrants") issued to the Placement
Agent and/or its designees relating to the offering of the Units.
In that connection, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of certificates of public officials
and corporate records, instruments and documents of or affecting the Issuer,
including, without limitation, (i) the Certificate of Incorporation of the
Issuer, as amended to date; (ii) the Bylaws of the Issuer, as amended to date;
(iii) resolutions adopted by the Board of Directors and Stockholders of the
Issuer; (iv) the Certificate of Designations for the Series A Preferred Stock;
(v) a form of specimen stock certificate for the Common Stock; (vi) a form of
specimen stock certificate for the Series A Preferred Stock; (vii) a form of the
Preferred Placement Warrant; and (viii) a form of the Common Placement Warrant.
We have also examined originals or copies, certified or otherwise identified to
our satisfaction, of certificates of officers of the Issuer, and have reviewed
such questions of law and made such other inquiries, as we have deemed necessary
or appropriate for the
<PAGE>
purpose of rendering this opinion.
In rendering our opinion, we have relied, as to matters of fact, upon
representations and warranties of the Issuer and upon such certificates and
other instruments of officers of the Issuer and public officials as we have
deemed necessary or appropriate for the purpose of rendering this opinion, in
each case without independent investigation or verification. Additionally,
without any independent investigation or verification, we have assumed (i) the
genuineness of all signatures, (ii) the authenticity of all documents submitted
to us as originals and the conformity with the original documents of all
documents submitted to us as certified, conformed or photostatic copies, (iii)
the authority of all persons signing any document other than the officers of the
Issuer, where applicable, signing in their capacity as such, (iv) the
enforceability of all the agreements we have reviewed in accordance with their
respective terms against the parties thereto, and (v) the truth and accuracy of
all matters of fact set forth in all certificates and other instruments
furnished to us.
Based upon the foregoing, and subject to the limitations, qualifications
and assumptions set forth herein, we are of the opinion that:
1.The Issuer is a corporation duly incorporated and is in good standing
under the laws of the State of Delaware.
2. The 2,200,256 currently outstanding shares of Common Stock which may be
sold in accordance with the provisions of the Registration Statement have been
legally issued and are fully paid and nonassessable.
3.The aggregate of 8,801,024 shares of Common Stock issuable upon
conversion of currently outstanding shares of Series A Preferred Stock have been
duly authorized for issuance, and when issued upon conversion of the Series A
Preferred Stock will be legally issued, fully paid and nonassessable.
4.The aggregate of 880,103 shares of Common Stock issuable upon
conversion of the Series A Preferred Stock after exercise of the Preferred
Placement Warrants have been duly authorized for issuance, and when issued upon
conversion of the Series A Preferred Stock after exercise of the Preferred
Placement Warrants, and the payment of the applicable exercise price thereof or
the use of the cashless exercise provision thereof will be legally issued, fully
paid and nonassessable.
5.The aggregate of 220,026 shares of Common Stock issuable upon
exercise of the Common Placement Warrants have been duly authorized for
issuance, and when issued upon exercise of the Common Placement Warrants, and
the payment of the applicable exercise price thereof or the use of the cashless
exercise provision thereof will be legally issued, fully paid and
non-assessable.
Members of this Firm are admitted to practice law only in the State of New
York and do not purport to be experts on, and are not expressing any opinion
with respect to, any laws other than the laws of the State of New York, the
General Corporation Law of the State of Delaware and the Federal laws of the
United States of America.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and the reference to us under the heading "Legal Counsel"
in the Prospectus included in Part I of the Registration Statement. In giving
such consent, we do not thereby admit that we are in the category of persons
whose consent is required
<PAGE>
under Section 7 of the Act.
Very truly yours,
SCIENTIFIC ADVISORY AND CONSULTING AGREEMENT
This Agreement dated March 20, 1996 effective as of
March 20, 1996, is by and between Dr. Thomas Kennedy, residing at 213 Grand
Drive, Richmond, Virginia 23229 (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.
1
<PAGE>
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
<PAGE>
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.
3
<PAGE>
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
<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
<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
6
<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
<PAGE>
of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement by proper persons thereunto duly authorized.
TRIAD PHARMACEUTICALS, INC.
(Signature of Steve Kanzer)
-----------------------------
By: Steve Kanzer
Date: March 20, 1996
CONSULTANT:
(Signature of Thomas Kennedy, M.D.
-----------------------------
By: Thomas Kennedy, M.D.
Date: March 20, 1996
8
<PAGE>
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>
(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 [***]
[***] Confidential treatment requested.
Page 2 of 26
<PAGE>
[***]
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
<PAGE>
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
<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
<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 [***]
E. Minimum Royalty.
Discovery further agrees to pay to WARF a minimum royalty of [***]
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
<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
<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
<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: [***]
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: [***]
[***] Confidential treatment requested.
Page 9 of 26
<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
<PAGE>
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
<PAGE>
(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
<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
<PAGE>
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. [***]
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 [***]
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
[***] Confidential treatment requested.
Page 14 of 26
<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
<PAGE>
APPENDIX C
USE PATENTS AND PATENT APPLICATIONS
[***]
[***] Confidential treatment requested.
Page 16 of 26
<PAGE>
APPENDIX D
ANCILLARY PATENTS AND PATENT APPLICATIONS
[***]
[***] Confidential treatment requested.
Page 17 of 26
<PAGE>
[***]
[***] Confidential treatment requested.
Page 18 of 26
<PAGE>
[***]
[***] Confidential treatment requested.
Page 19 of 26
<PAGE>
[***]
[***] Confidential treatment requested.
Page 20 of 26
<PAGE>
[***]
[***] Confidential treatment requested.
Page 21 of 26
<PAGE>
[***]
[***] Confidential treatment requested.
Page 22 of 26
<PAGE>
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
<PAGE>
APPENDIX F
DIAGRAM
26,26,26,27,27,27-hexafluoro-1 alpha,25-dihydroxycholecalciferol
Page 24 of 26
<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
<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.
<PAGE>
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
----------------------------------------------- ------- --
Richard H. Leazer, Managing Director
DISCOVERY LABORATORIES, INC.
By: Date: , 19
----------------------------------------------- ------- --
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
<PAGE>
<PAGE>
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;
<PAGE>
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:
2
<PAGE>
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.
3
<PAGE>
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;
[***]
[***] Confidential treatment requested.
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[***]
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. [***]
[***] Confidential treatment requested.
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[***] 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.
[***] Confidential treatment requested.
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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, [***]
[***] 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:
[***]
[***] Confidential treatment requested.
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[***]
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. [***]
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.
[***] Confidential treatment requested.
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10.3 [***]
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
[***] Confidential treatment requested.
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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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APPENDIX 1
PATENT RIGHTS
1(a) SCRIPPS PATENT RIGHTS
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<TABLE>
<CAPTION>
<S><C>
[***]
</TABLE>
[***] Confidential treatment requested.
<PAGE>
<TABLE>
<CAPTION>
<S><C>
[***]
</TABLE>
[***] Confidential treatment requested.
<PAGE>
<TABLE>
<CAPTION>
<S><C>
[***]
</TABLE>
[***] Confidential treatment requested.
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[***]
[***] Confidential treatment requested.
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APPENDIX 3
DEVELOPMENT PLAN
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Appendix 3
Acute Therapeutics, Inc.
[***]
[***] Confidential treatment requested.
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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>
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.
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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 $[***];
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 [***]
[***] Confidential treatment requested.
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[***]
3.5 [***]
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
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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; [***]
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 [***]
4.1.5 [***]
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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.
- 10 -
<PAGE>
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.
- 11 -
<PAGE>
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
- 12 -
<PAGE>
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.
- 13 -
<PAGE>
[***]
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.
- 14 -
<PAGE>
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
- 15 -
<PAGE>
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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<PAGE>
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.
- 17 -
<PAGE>
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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<PAGE>
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.
- 19 -
<PAGE>
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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<PAGE>
APPENDIX I
----------
Interinstitutional Agreement
<PAGE>
APPENDIX II
-----------
1. U.S. Patent No. 5,474,760;
[***]
[***] Confidential treatment requested.
- 22 -
EMPLOYMENT AGREEMENT
Agreement, dated April 4, 1996, effective as of April 15, 1996, by and
between Discovery Pharmaceuticals, Inc., a Delaware corporation having a
place of business at 375 Park Avenue, Suite 1501, New York, New York 10151 (the
"Corporation"), and James S. Kuo, M.D., an individual residing at 429 East 52nd
Street Apt. 30D, New York, N.Y. 10022 ("CEO").
W I T N E S S E T H:
WHEREAS, the Corporation desires to employ the CEO as President,
Chief Executive Officer and Director, and the CEO desires to be employed
by the Corporation as President, Chief Executive Officer and Director,
all pursuant to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and convenants herein contained, it is agreed as follows:
1. EMPLOYMENT; DUTIES
(a) The Corporation engages and employs the CEO, and the CEO hereby
accepts engagement and employment, as Chief Executive Officer, President
and Director of the Corporation, to direct, supervise and have responsibility
for the daily operations of the Corporation, including, but not limited
to: (i) directing and supervising the business and research and development
efforts of the Corporation; (ii) managing the other executives and personnel
of the Corporation; (iii) evaluating, negotiating, structuring and
implementing business transactions with the Corporation's customers
and suppliers; (iv) to attend meetings of the Board of Directors of the
Corporation; and to perform such other services and duties as the Board
of Directors of the Corporation shall determine.
(b) The CEO shall perform his duties hereunder from the Corporation's
executive offices, provided, however, that the CEO acknowledges and agrees
that the performance by the CEO of his duties hereunder may require significant
domestic and international travel by the CEO.
(c) The CEO shall devote substantially all of his professional
time to the faithful and high quality performance of his duties and
responsibilities under this Agreement.
2. TERM
The CEO's employment hereunder shall be for a term of three
years commencing on April 15, 1996 and continuing through the third
anniversary of such date.
3. COMPENSATION
(a) As compensation for the performance of his duties on behalf
of the Corporation, the CEO shall be compensated as follows:
(i) Upon the next meeting of the Corporation's Board of Directors,
the CEO shall be entitled to purchase Eight Percent (8%) of the
common stock of the Corporation outstanding on the effective date
of this Agreement for $0.001 per share (the "Founders Stock");
(ii) The Founders Stock shall be subject to a repurchase option in
favor of the Corporation at $0.001 per share (the "Repurchase
Option"). The Repurchase Option shall expire only in advance
in twelve equal installments each April 15, July 15, October
15, and January 15, 1996, 1997, and 1998 (the "Vesting Dates"),
provided that the CEO has not terminated this Agreement other
than with "Cause" (as defined in Paragraph 7(a)(ii) hereof)
and that the Corporation has not terminated this Agreement
with "Cause" (as defined in Paragraph 7(a)(iii)). In the event
of a merger or acquisition of the corporation in which a party
previously unaffiliated with the corporation acquires at least
fifty percent (50%) of the voting stock of the corporation,
then following six (6) months after such merger or acquisition,
the repurchase option shall immediately expire with respect
to any of the CEO's Founders' stock still subject to repurchase;
(iii) The Corporation shall pay the CEO an annual base salary ("Base
Salary") of $145,000 per annum during the first year of this
Agreement and $165,000 per annum during the second year and third
year of this Agreement subject to increase for the second and third
years of this Agreement according to the federally published cost of
living adjustment, payable in accordance with the usual payroll
period of the Corporation;
(iv) The CEO shall also be entitled to receive a one time minimum annual
bonus of $20,000, payable on April 15, 1997, and additional annual
bonuses in the sole discretion of the Board of Directors of the
Corporation.
2
The Corporation shall withhold all applicable federal, state and local taxes,
social security and workers' compensation contributions and such other amounts
as may be required by law or agreed upon by the parties with respect
to the compensation payable to the CEO pursuant to section 3(a) hereof.
(b) The Corporation shall reimburse the CEO for all normal, usual
and necessary expenses incurred by the CEO in furtherance of the business and
affairs of the Corporation, including reasonable travel and entertainment,
against receipt by the Corporation of appropriate vouchers or other proof
of the CEO's expenditures and otherwise in accordance with such Expense
Reimbursement Policy as may from time to time be adopted by the Board
of Directors of the Corporation.
(c) The CEO shall be, during the term of this Agreement, entitled
to vacations of not less than four (4) weeks per annum.
(d) The Corporation shall make available to the CEO and his dependents,
such medical, disability, life insurance and such other health benefits
as it makes available to its senior officers and directors, which shall
include at minimum, HMO coverage pursuant to New York Life/Sanus or
other mutually agreeable healthcare provider.
(e) The appointment of an initial Chairman of the Corporation
shall be mutually agreeable to the CEO. The Corporation shall adopt
a stock option plan for the benefit of employees, directors, and consultants
comprising fifteen percent (15%) of the corporation's initial outstanding
shares.
4. REPRESENTATIONS AND WARRANTIES BY THE CEO AND CORPORATION
The CEO hereby represents and warrants to the Corporation as follows:
(a) Neither the execution and delivery of this Agreement nor the
performance by the CEO of his duties and other obligations hereunder violate or
will violate any statute, law, determination or award, or conflict with or
constitute a default under (whether immediately, upon the giving of notice or
lapse of time or both) any prior employment agreement, contract, or other
instrument to which the CEO is a party or by which he is bound.
(b) The CEO has the full right, power and legal capacity to enter
and delivery this Agreement and to perform his duties and other obligations
hereunder. This Agreement constitutes the legal, valid and binding obligation of
the CEO enforceable against him in accordance with its terms. No approvals or
consents of any persons or entities are required for the CEO to execute and
deliver this Agreement or perform his duties and other obligations hereunder.
The Corporation hereby represents and warrants to the CEO as follows:
(a) The Corporation is duly organized, validly existing and in good standing
under the laws of the State of Delaware, with all requisite corporate power and
authority to own its properties and conduct its business in the manner presently
contemplated.
(b) The Corporation has full power and authority to enter into this
Agreement and to incur and perform its obligations hereunder.
(c) The execution, delivery and performance by the Corporation of this
Agreement does not conflict with or result in a breach or violation of or
constitute a default under (whether immediately, upon the giving of notice
or lapse of time or both) the certificate of incorporation or by-laws of the
Corporation, or any agreement or instrument to which the Corporation is a party
or by which the Corporation of any of its properties may be bound of affected.
5. NON-COMPETITION
(a) The CEO understands and recognizes that his services to the Corporation
are special and unique and agrees that, during the term of this Agreement and,
unless such termination is by the CEO pursuant to 7(a)(iii) below, for a period
of one (1) year from the date of termination of his employment hereunder, he
shall not in any manner, directly or indirectly, on behalf of himself of any
person, firm, partnership, joint venture, corporation or other business entity
("Person"), enter into or engage in any business competitive with the
Corporation's business, proposed business or research activities, either as
an individual for his own account, or as a partner, joint venturer, executive,
agent, consultant, salesperson, officer, director or shareholder of a Person
operating or intending to operate in the areas of cystic fibrosis therapy,
Tyloxapol or respiratory surfactants, or any additional area of business listed
in Schedule A attached hereto (as shall be amended from time to time by the
parties to take into account additional areas of business in which the
Corporation may become engaged), within the geographic area of the Corporation's
business.
(b) During the term of this Agreement and for one (1) year thereafter, CEO
shall not, directly or indirectly, without the prior written consent of the
Corporation:
(i) solicit or induce any employee of the Corporation
or any affiliate to leave the employ of the Corporation or any affiliate
or hire for any purpose any employee of the Corporation or any affiliate
or any employee who has left the employment of the Corporation or any
affiliate within six months of the termination of said employee's
employment with the Corporation; or
(ii) solicit or accept employment or be retained by any party who, at
any time during the term of this Agreement, was a customer or supplier of
the Corporation any affiliate where his position will be related to the
business of the Corporation; or
(iii) solicit or accept the business of any customer or supplier of the
Corporation or any affiliate with respect to products similar to those
supplied by the Corporation.
(c) In the event that the CEO breaches any provisions of this Section 5 or
there is a threatened breach, then, in addition to any other rights which the
Corporation may have, the Corporation shall be entitled, without the posting of
a bond or other security, to injunctive relief to enforce the restrictions
contained herein. In the event that an actual proceeding is brought in equity
to enforce the provisions of this Section 5, the CEO shall not urge as a defense
that there is an adequate remedy at law nor shall the Corporation be prevented
from seeking any other remedies which may be available.
6. CONFIDENTIAL INFORMATION
The CEO agrees that during the course of his employment or at any time after
termination, he will not disclose or make accessible to any other person, the
Corporation's products, services and technology, both current and under
development, promotion and marketing programs, lists, trade secrets and other
confidential and proprietary business information of the Corporation or any of
its clients. The CEO agrees: (i) not to use any such information for himself
or others; and (ii) not to take any such material or reproductions thereof
from the Corporation's facilities at any time during his employment by the
Corporation, except as required in the CEO's duties to the Corporation. The
CEO agrees immediately to return all such material and reproductions thereof
in his possession to the Corporation upon request and in any event upon
termination of employment.
(b) Except with prior written authorization by the Corporation, the CEO
agrees not to disclose or publish any of the confidential, technical or
business information or material of the Corporation, its clients or any other
party to whom the Corporation owes an obligation or confidence, at any time
during or after his employment with the Corporation.
(c) CEO hereby assigns to the Corporation all right, title and interest
he may have or acquire in all inventions (including patent rights) developed
by the CEO during the term of this Agreement ("Inventions") and agrees that
all Inventions shall be the sole property of the Corporation and its assigns,
and the Corporation and its assigns shall be the sole owner of all patents,
copyrights and other rights in connection therewith. CEO further agrees to
assist the Corporation in every proper way (but at the Corporation's expense)
to obtain and from time to time enforce patents, copyrights or other rights
on said Inventions in any and all countries.
7. TERMINATION
(a) This CEO's employment hereunder shall begin on April 15, 1996
and shall continue for the period set forth in Section 2 hereof unless sooner
terminated upon the first to occur of the following events:
(i) The death of the CEO;
(ii) Termination by the Board of Directors of the Corporation for just
cause. Any of the following actions by the CEO shall constitute just cause:
(A) Material breach by the CEO of Section 5 or Section 6 of this
Agreement;
(B) Material breach by the CEO of any provision of this
Agreement other than Section 5 or Section 6 which is not
cured by the CEO within fifteen (15) days of notice thereof
from the Corporation; or
(C) Any action by the CEO to intentionally harm the Corporation.
(iii) Termination by the CEO for just cause. Any of the following actions
or omissions by the Corporation shall constitute just cause:
(A) Material breach by the Corporation of any provision of this
Agreement which is not cured by the Corporation within
fifteen (15) days of notice thereof from the CEO; or
(B) Any action by the Corporation to intentionally harm the CEO;
(iv) Termination by the Board of Directors of the Corporation without
just cause, or death provided that the Corporation continues to pay the CEO's
base salary, for a period of twelve (12) months, and also the CEO's bonus
described in Section 3(a)(iv) hereof or his estate.
(b) Upon termination pursuant to subparagraph (ii) of paragraph (a)
above, the CEO (or his estate in the event of termination pursuant to
subparagraph (i)), shall be entitled to receive the Base Salary accrued but
unpaid as of the date of termination.
8. NOTICES
Any notice or other communication under this Agreement shall be in writing
and shall be deemed to have been given: when delivered personally against
receipt therefor; one (1) day after being sent by Federal Express or similar
overnight delivery; or three (3) days after being mailed registered or
certified mail, postage prepaid, return receipt requested, to either party at
the address set forth above, or to such other address as such party shall give
by notice hereunder to the other party.
9. RENEWAL OF AGREEMENT
Upon expiration of the term of this Agreement, this agreement may be renewed
for additional one (1) year periods by the parties by mutual written agreement.
10. SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be declared by a court of competent
jurisdiction to be invalid, illegal or incapable of being enforced in whole
or in part, such provision shall be interpreted so as to remain enforceable to
the maximum extent permissible consistent with applicable law and the remaining
conditions and provisions or portions thereof shall nevertheless remain in full
force and effect and enforceable to the extent they are valid, legal and
enforceable, and no provision shall be deemed dependent upon any other covenant
or provision unless so expressed herein.
11. ENTIRE AGREEMENT MODIFICATION
This Agreement contains the entire agreement of the parties relating to the
subject matter hereof, and the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this Agreement
which are not set forth herein. No modification of this Agreement shall be
valid unless made in writing and signed by the parties hereto.
12. BINDING EFFECT
The rights, benefits, duties and obligations under this Agreement shall
inure to, and be binding upon, the Corporation, its successors and assigns,
and upon the CEO and is legal representatives. This Agreement constitutes a
personal service agreement, and the performance of the CEO's obligations
hereunder may not be transferred or assigned by the CEO.
13. NON-WAIVER
The failure of either party to insist upon the strict performance of any
of the terms, conditions and provisions of this Agreement shall not be
construed as a waiver or relinquishment of future compliance therewith, and
said terms, conditions and provisions shall remain in full force and effect.
No waiver of any term or condition of this Agreement on the part of either
party shall be effective for any purpose whatsoever unless such waiver is in
writing and signed by such party.
14. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York without regard to
principles of conflict of laws.
15. HEADINGS
The headings of paragraphs are inserted for convenience and shall not
affect any interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
DISCOVERY PHARMACEUTICAL, INC.
By: /s/ signature illegible
------------------------------
Title: President
/s/ signature illegible
---------------------------------
---------------------------------
MANAGEMENT AGREEMENT
This Management Agreement (the "Agreement") is entered into as
of June 1, 1996 by and between Discovery Laboratories, Inc., a Delaware
corporation (the "Company"), and Evan Myrianthopoulos ("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. Executive's Duties and Obligations.
a. Duties. Executive shall serve as Chief
Operating Officer of the Company. Executive shall be responsible for handling
the day to day operations of the Company. Executive shall at all times report
to, and shall be subject to the policies established by, the Company's Board of
Directors or any Executive Committee thereof.
b. 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.
2. Compensation and Benefits.
a. Base Compensation. During the term of this
Agreement, the Company shall pay to Executive monthly compensation of fifteen
hundred dollars ($1,500), less all required withholdings.
<PAGE>
b. Benefits. During his employment with the
Company, Executive will be entitled to all such family health and medical
benefits and disability insurance as are provided to other officers of the
Company. The Company reserves the right to modify, amend or terminate any
benefits listed above at any time for any reason (provided such modification,
amendment or termination is applicable to all executives receiving such
benefits) but shall, in any case, provide reasonable health and disability
benefits to Executive while Executive is an employee of the Company.
3. Termination of Employment. Executive's
employment with the Company shall be "at will" and may be terminated by either
Executive or the Company at any time for any reason, with or without cause.
4. 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.
<PAGE>
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 4.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.
<PAGE>
IN WITNESS WHEREOF, the parties have executed
this Agreement as of the date set forth above.
DISCOVERY LABORATORIES
By: James Kuo
(Signature of James Kuo)
------------------------
Address: 375 Park Avenue, Suite 1501
New York, New York 10152
EXECUTIVE:
(Signature of Evan Myrianthopoulos)
------------------------
Evan Myrianthopoulos
Address: 32-32 46th Street Apt. 2
Long Island City, NY 11103
<PAGE>
MANAGEMENT AGREEMENT
This Management Agreement (the "Agreement") is entered into as
of June 1, 1996 by and between Discovery Laboratories, Inc., a Delaware
corporation (the "Company"), and Steve H. Kanzer ("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. Executive's Duties and Obligations.
a. Duties. Executive shall serve as Chairman
of the Board of Directors. Executive shall be responsible for assisting in the
development of the Company's business strategy and the development of the
Company's technology. Executive shall at all times report to, and shall be
subject to the policies established by, the Company's Board of Directors or any
Executive Committee thereof.
b. 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.
2. Compensation and Benefits.
a. Base Compensation. During the term of this
Agreement, the Company shall pay to Executive monthly compensation of three
thousand dollars ($3,000),
<PAGE>
less all required withholdings.
b. Benefits. During his employment with the
Company, Executive will be entitled to all such family health and medical
benefits and disability insurance as are provided to other officers of the
Company. The Company reserves the right to modify, amend or terminate any
benefits listed above at any time for any reason (provided such modification,
amendment or termination is applicable to all executives receiving such
benefits) but shall, in any case, provide reasonable health and disability
benefits to Executive while Executive is an employee of the Company.
3. Termination of Employment. Executive's
employment with the Company shall be "at will" and may be terminated by either
Executive or the Company at any time for any reason, with or without cause.
4. 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.
<PAGE>
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 4.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.
<PAGE>
IN WITNESS WHEREOF, the parties have executed
this Agreement as of the date set forth above.
DISCOVERY LABORATORIES
By: James Kuo
(James Kuo Signature)
------------------------
Address: 375 Park Avenue, Suite 1501
New York, New York 10152
EXECUTIVE:
(Signature of Steve H.Kanzer)
------------------------
Steve H. Kanzer
Address: 210 Central Pk. So.(handwritten)
NY NY 10019 (handwritten)
------------------
<PAGE>
DISCOVERY LABORATORIES, INC.
1996 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1996 Stock Option/Stock Issuance Plan is intended to
promote the interests of Discovery Laboratories, Inc., a Delaware corporation,
by providing eligible persons with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
as an incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate
equity programs:
(i) the Discretionary Option Grant
Program under which eligible persons may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common Stock,
(ii) the Stock Issuance Program under
which eligible persons may, at the discretion of the Plan
Administrator, be issued shares of Common Stock directly, either
through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary), and
(iii) the Automatic Option Grant Program
under which Eligible Directors shall automatically receive option
grants at periodic intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Five shall
apply to all equity programs under the Plan and shall accordingly govern the
interests of all persons under the Plan.
<PAGE>
III. ADMINISTRATION OF THE PLAN
A. Until the Section 12(g) Registration Date, both the
Discretionary Option Grant and Stock Issuance Programs shall be administered by
the Board. Beginning with the Section 12(g) Registration Date, the Primary
Committee shall have sole and exclusive authority to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders.
B. Beginning with the Section 12(g) Registration Date,
administration of the Discretionary Option Grant and Stock Issuance Programs
with respect to all other persons eligible to participate in those programs may,
at the Board's discretion, be vested in the Primary Committee or a Secondary
Committee, or the Board may retain the power to administer those programs with
respect to all such persons. The members of the Secondary Committee may be Board
members who are Employees eligible to receive discretionary option grants or
direct stock issuances under the Plan or any other stock option, stock
appreciation, stock bonus or other stock plan of the Corporation (or any Parent
or Subsidiary).
C. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Discretionary Option Grant and Stock Issuance Programs and
to make such determinations under, and issue such interpretations of, the
provisions of such programs and any outstanding options or stock issuances
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the
Discretionary Option Grant or Stock Issuance Program under its jurisdiction or
any option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
2.
<PAGE>
F. Administration of the Automatic Option Grant Program shall
be self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to option
grants made thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or
the board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent
advisors who provide services to the Corporation (or any
Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to the
provisions of the Plan) to determine, (i) with respect to the option grants
under the Discretionary Option Grant Program, which eligible persons are to
receive option grants, the time or times when such option grants are to be made,
the number of shares to be covered by each such grant, the status of the granted
option as either an Incentive Option or a Non-Statutory Option, the time or
times at which each option is to become exercisable, the vesting schedule (if
any) applicable to the option shares and the maximum term for which the option
is to remain outstanding and (ii) with respect to stock issuances under the
Stock Issuance Program, which eligible persons are to receive stock issuances,
the time or times when such issuances are to be made, the number of shares to be
issued to each Participant, the vesting schedule (if any) applicable to the
issued shares and the consideration to be paid for such shares.
C. The Plan Administrator shall have the absolute discretion
either to grant options in accordance with the Discretionary Option Grant
Program or to effect stock issuances in accordance with the Stock Issuance
Program.
D. The individuals eligible to participate in the Automatic
Option Grant Program shall be limited to (i) those individuals who first become
non-employee Board members on or after the Underwriting Date, whether through
appointment by the Board or election by the Corporation's stockholders and (ii)
those individuals who are to continue to serve as non-employee Board members
after one or more Annual Stockholders Meetings held after the Underwriting Date.
A non-employee Board member who has
3.
<PAGE>
previously been in the employ of the Corporation (or any Parent or Subsidiary)
shall not be eligible to receive an initial option grant under the Automatic
Option Grant Program on the Underwriting Date or (if later) at the time he or
she first becomes a non-employee Board member, but such individual shall be
eligible to receive periodic option grants under the Automatic Option Grant
Program upon his or her continued service as a non-employee Board member after
one or more Annual Stockholders Meetings.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed 1,250,000
shares.
B. No one person participating in the Plan may
receive options, separately exercisable stock appreciation rights and
direct stock issuances for more than 600,000 shares of Common
Stock in the aggregate over the term of the Plan.
C. Shares of Common Stock subject to outstanding options shall
be available for subsequent issuance under the Plan to the extent (i) the
options expire or terminate for any reason prior to exercise in full or (ii) the
options are cancelled in accordance with the cancellation-regrant provisions of
Article Two. Unvested shares issued under the Plan and subsequently repurchased
by the Corporation, at the original issue price paid per share, pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the number
of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants or direct stock issuances under the Plan. In addition, should the
exercise price of an option under the Plan be paid with shares of Common Stock
or should shares of Common Stock otherwise issuable under the Plan be withheld
by the Corporation in satisfaction of the withholding taxes incurred in
connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance.
D. Should any change be made to the Common Stock by
reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration, appropriate adjustments shall be made to (i) the
maximum number and/or class of securities issuable under
4.
<PAGE>
the Plan, (ii) the number and/or class of securities for which any one
person may be granted options, separately exercisable stock appreciation rights
and direct stock issuances over the term of the Plan, (iii) the number and/or
class of securities for which automatic option grants are to be made
subsequently per Eligible Director under the Automatic Option Grant Program and
(iv) the number and/or class of securities and the exercise price per share in
effect under each outstanding option in order to prevent the dilution or
enlargement of benefits thereunder. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.
5.
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed
by the Plan Administrator but shall not be less than eighty-five percent (85%)
of the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall, subject to the provisions of Section
I of Article Five and the documents evidencing the option, be payable in one or
more of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(iii) to the extent the option is exercised
for vested shares, through a special sale and remittance procedure
pursuant to which the Optionee shall concurrently provide irrevocable
written instructions to (a) a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the
purchased shares plus all applicable Federal, state and local income
and employment taxes required to be withheld by the Corporation by
reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
6.
<PAGE>
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
B. Exercise and Term of Options. Each option shall
be exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, no option shall have a term in excess
of ten (10) years measured from the option grant date.
C. Effect of Termination of Service.
1. The following provisions shall govern the
exercise of any options held by the Optionee at the time of cessation of
Service or death:
(i) Any option outstanding at the time of
the Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined
by the Plan Administrator and set forth in the documents evidencing the
option, but no such option shall be exercisable after the expiration of
the option term.
(ii) Any option exercisable in whole or in
part by the Optionee at the time of death may be exercised subsequently
by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and
distribution.
(iii) During the applicable post-Service
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of Service. Upon
the expiration of the applicable exercise period or (if earlier) upon
the expiration of the option term, the option shall terminate and cease
to be outstanding for any vested shares for which the option has not
been exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding
to the extent the option is not otherwise at that time exercisable for
vested shares.
(iv) Should the Optionee's Service be
terminated for Misconduct, then all outstanding options held by the
Optionee shall terminate immediately and cease to be outstanding.
7.
<PAGE>
2. The Plan Administrator shall have the
discretion, exercisable either at the time an option is granted or at any time
while the option remains outstanding, to:
(i) extend the period of time for which
the option is to remain exercisable following the Optionee's cessation
of Service from the period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option term,
and/or
(ii) permit the option to be exercised,
during the applicable post-Service exercise period, not only with
respect to the number of vested shares of Common Stock for which such
option is exercisable at the time of the Optionee's cessation of
Service but also with respect to one or more additional installments in
which the Optionee would have vested under the option had the Optionee
continued in Service.
D. Stockholder Rights. The holder of an option
shall have no stockholder rights with respect to the shares subject to
the option until such person shall have exercised the option, paid the exercise
price and become a holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of
the Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee's death. However, a
Non-Statutory Option may, in connection with the Optionee's estate plan, be
assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established exclusively
for the benefit of one or more such family members. The assigned portion may
only be exercised by the person or persons who acquire a proprietary interest in
the option pursuant to the assignment. The terms applicable to the assigned
portion shall be the same as those in effect for the option immediately prior to
such assignment and shall be set forth in such
8.
<PAGE>
documents issued to the assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Five shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted
to Employees.
B. Exercise Price. The exercise price per share
shall not be less than one hundred percent (100%) of the Fair Market Value per
share of Common Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one (1) calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% Stockholder. If any Employee to whom an Incentive
Option is granted is a 10% Stockholder, then the exercise price per share shall
not be less than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock on the option grant date, and the option term shall not
exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall NOT so accelerate
if and to the extent: (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation (or parent
thereof) or to be replaced with a
9.
<PAGE>
comparable option to purchase shares of the capital stock of the successor
corporation (or parent thereof), (ii) such option is to be replaced with a cash
incentive program of the successor corporation which preserves the spread
existing on the unvested option shares at the time of the Corporate Transaction
and provides for subsequent payout in accordance with the same vesting schedule
applicable to such option or (iii) the acceleration of such option is subject
to other limitations imposed by the Plan Administrator at the time of the
option grant. The determination of option comparability under clause (i) above
shall be made by the Plan Administrator, and its determination shall be final,
binding and conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. The Plan Administrator shall have the discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options (and the automatic termination of one or more
outstanding repurchase rights with the immediate vesting of the shares of Common
Stock subject to those rights) upon the occurrence of a Corporate Transaction,
whether or not those options are to be assumed or replaced (or those repurchase
rights are to be assigned) in the Corporate Transaction. The Plan Administrator
shall also have the discretion to grant options which do not accelerate whether
or not such options are assumed (and to provide for repurchase rights that do
not terminate whether or not such rights are assigned) in connection with a
Corporate Transaction.
D. Immediately following the consummation of the
Corporate Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following
10.
<PAGE>
the consummation of such Corporate Transaction, (ii) the exercise price payable
per share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same and (iii) the maximum number
of securities and/or class of securities for which any one person may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under the Plan.
F. The Plan Administrator shall have the discretion,
exercisable at the time the option is granted or at any time while the option
remains outstanding, to provide for the automatic acceleration of any options
which are assumed or replaced in a Corporate Transaction and do not otherwise
accelerate at that time (and the termination of any of the Corporation's
outstanding repurchase rights which do not otherwise terminate at the time of
the Corporate Transaction) in the event the Optionee's Service should
subsequently terminate by reason of an Involuntary Termination within eighteen
(18) months following the effective date of such Corporate Transaction. Any
options so accelerated shall remain exercisable for fully-vested shares until
the earlier of (i) the expiration of the option term or (ii) the expiration of
the one (1)-year period measured from the effective date of the Involuntary
Termination.
G. The Plan Administrator shall have the discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to (i) provide for the automatic acceleration of one
or more outstanding options (and the automatic termination of one or more
outstanding repurchase rights with the immediate vesting of the shares of Common
Stock subject to those rights) upon the occurrence of a Change in Control or
(ii) condition any such option acceleration (and the termination of any
outstanding repurchase rights) upon the subsequent Involuntary Termination of
the Optionee's Service within a specified period following the effective date of
such Change in Control. Any options accelerated in connection with a Change in
Control shall remain fully exercisable until the expiration or sooner
termination of the option term.
H. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction or Change in Control shall remain
exercisable as an Incentive Option only to the extent the applicable One Hundred
Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be
exercisable as a Non- Statutory Option under the Federal tax laws.
I. The grant of options under the Discretionary Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital
11.
<PAGE>
or business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Discretionary
Option Grant Program (including outstanding options incorporated from the
Predecessor Plan) and to grant in substitution new options covering the same or
different number of shares of Common Stock but with an exercise price per share
based on the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and
authority to grant to selected Optionees tandem stock
appreciation rights and/or limited stock appreciation rights.
B. The following terms shall govern the grant and
exercise of tandem stock appreciation rights:
(i) One or more Optionees may be granted
the right, exercisable upon such terms as the Plan Administrator may
establish, to elect between the exercise of the underlying option for
shares of Common Stock and the surrender of that option in exchange for
a distribution from the Corporation in an amount equal to the excess of
(a) the Fair Market Value (on the option surrender date) of the number
of shares in which the Optionee is at the time vested under the
surrendered option (or surrendered portion thereof) over (b) the
aggregate exercise price payable for such shares.
(ii) No such option surrender shall be
effective unless it is approved by the Plan Administrator, either at
the time of the actual option surrender or at any earlier time. If the
surrender is so approved, then the distribution to which the Optionee
shall be entitled may be made in shares of Common Stock valued at Fair
Market Value on the option surrender date, in cash, or partly in shares
and partly in cash, as the Plan Administrator shall in its sole
discretion deem appropriate.
(iii) If the surrender of an option is not
approved by the Plan Administrator, then the Optionee shall retain
whatever rights the Optionee had under the surrendered option (or
surrendered portion thereof) on
12.
<PAGE>
the option surrender date and may exercise such rights at any time
prior to the later of (a) five (5) business days after the receipt of
the rejection notice or (b) the last day on which the option is
otherwise exercisable in accordance with the terms of the documents
evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and
exercise of limited stock appreciation rights:
(i) One or more Section 16 Insiders may
be granted limited stock appreciation rights with respect to their
outstanding options.
(ii) Upon the occurrence of a Hostile
Take-Over, each such individual holding one or more options with such a
limited stock appreciation right shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile
Take-Over) to surrender each such option to the Corporation, to the
extent the option is at the time exercisable for vested shares of
Common Stock. In return for the surrendered option, the Optionee shall
receive a cash distribution from the Corporation in an amount equal to
the excess of (a) the Take-Over Price of the shares of Common Stock
which are at the time vested under each surrendered option (or
surrendered portion thereof) over (b) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within
five (5) days following the option surrender date.
(iii) Neither the approval of the Plan
Administrator nor the consent of the Board shall be required in
connection with such option surrender and cash distribution.
(iv) The balance of the option (if any)
shall continue in full force and effect in accordance with the
documents evidencing such option.
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ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. Purchase Price.
1. The purchase price per share shall be fixed
by the Plan Administrator, but shall not be less than eighty-five percent (85%)
of the Fair Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of
Article Five, shares of Common Stock may be issued under the Stock Issuance
Program for any of the following items of consideration which the Plan
Administrator may deem appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the
Corporation (or any Parent or Subsidiary).
B. Vesting Provisions.
1. Shares of Common Stock issued under the
Stock Issuance Program may, in the discretion of the Plan Administrator, be
fully and immediately vested upon issuance or may vest in one or more
installments over the Participant's period of Service or upon attainment of
specified performance objectives. The elements of the vesting schedule
applicable to any unvested shares of Common Stock issued under the Stock
Issuance Program, namely:
(i) the Service period to be completed by
the Participant or the performance objectives to be attained,
(ii) the number of installments in which
the shares are to vest,
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(iii) the interval or intervals (if any)
which are to lapse between installments, and
(iv) the effect which death, Permanent
Disability or other event designated by the Plan
Administrator is to have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.
2. Any new, substituted or additional
securities or other property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive with respect to
the Participant's unvested shares of Common Stock by reason of any stock
dividend, stock split, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration shall be issued subject to
(i) the same vesting requirements applicable to the Participant's unvested
shares of Common Stock and (ii) such escrow arrangements as the Plan
Administrator shall deem appropriate.
3. The Participant shall have full stockholder
rights with respect to any shares of Common Stock issued to the Participant
under the Stock Issuance Program, whether or not the Participant's interest in
those shares is vested. Accordingly, the Participant shall have the right to
vote such shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in
Service while holding one or more unvested shares of Common Stock issued under
the Stock Issuance Program or should the performance objectives not be attained
with respect to one or more such unvested shares of Common Stock, then those
shares shall be immediately surrendered to the Corporation for cancellation, and
the Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion
waive the surrender and cancellation of one or more unvested shares of Common
Stock (or other assets attributable thereto) which would otherwise occur upon
the cessation of the Participant's Service or the non-attainment of the
performance objectives applicable to those shares. Such waiver shall result in
the immediate vesting of the Participant's interest in the shares of Common
Stock as to
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which the waiver applies. Such waiver may be effected at any time, whether
before or after the Participant's cessation of Service or the attainment or
non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All outstanding cancellation rights under the Stock
Issuance Program shall terminate automatically, and all the shares of Common
Stock subject to those terminated rights shall immediately vest in full, in the
event of any Corporate Transaction, except to the extent (i) those cancellation
rights are assigned to the successor corporation (or parent thereof) in
connection with such Corporate Transaction or (ii) such accelerated vesting is
precluded by other limitations imposed in the Stock Issuance Agreement.
B. The Plan Administrator shall have the discretion,
exercisable either at the time the unvested shares are issued or at any time
while the Corporation's cancellation rights remain outstanding, to provide that
any cancellation rights that are assigned in the Corporate Transaction shall
automatically terminate, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event the Participant's
Service should subsequently terminate by reason of an Involuntary Termination
within eighteen (18) months following the effective date of such Corporate
Transaction.
C. The Plan Administrator shall have the discretion
to provide for cancellation rights with terms different from those in
effect under this Section II in connection with a Corporate Transaction.
D. The Plan Administrator shall have the discretion,
exercisable either at the time the unvested shares are issued or at any time
while the Corporation's cancellation right remains outstanding, to (i) provide
for the automatic termination of one or more outstanding cancellation rights and
the immediate vesting of the shares of Common Stock subject to those rights upon
the occurrence of a Change in Control or (ii) condition any such accelerated
vesting upon the subsequent Involuntary Termination of the Participant's Service
within a specified period following the effective date of such Change in
Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
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ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the
dates specified below:
1. Each individual who is first elected or
appointed as a non-employee Board member on or after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 25,000 shares of Common Stock, provided such
individual has not previously been in the employ of the corporation (or any
Parent or Subsidiary).
2. On the date of each Annual Stockholders
Meeting held after the Underwriting Date, each individual who is to continue to
serve as an Eligible Director, shall automatically be granted a Non-Statutory
Option to purchase an additional 5,000 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 5,000-share option grants
any one Eligible Director may receive over his or her period of Board service
and non-employee Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) shall be eligible to receive one or
more such annual grants over their period of continued Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal
to one hundred percent (100%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall be payable in one
or more of the alternative forms authorized under the Discretionary Option Grant
Program. Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.
C. OPTION TERM. Each option shall have a term of
ten (10) years measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per
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share, upon the Optionee's cessation of Board service prior to vesting in those
shares. Each initial grant shall vest, and the Corporation's repurchase right
shall lapse, in a series of four (4) successive equal annual installments over
the Optionee's period of continued service as a Board member, with the first
such installment to vest upon the Optionee's completion of one (1) year of
Board service measured from the option grant date. Each annual grant shall
vest, and the Corporation's repurchase right shall lapse, upon the Optionee's
completion of one (1) year of Board service measured from the option grant date.
E. EFFECT OF TERMINATION OF BOARD SERVICE. The
following provisions shall govern the exercise of any options held
by the Optionee at the time the Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's
death, the personal representative of the Optionee's estate or the
person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and
distribution) shall have a twelve (12)-month period following the date
of such cessation of Board service in which to exercise each such
option.
(ii) During the twelve (12)-month exercise period,
the option may not be exercised in the aggregate for more than the
number of vested shares of Common Stock for which the option is
exercisable at the time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board
member by reason of death or Permanent Disability, then all shares at
the time subject to the option shall immediately vest so that such
option may, during the twelve (12)-month exercise period following such
cessation of Board service, be exercised for all or any portion of
those shares as fully-vested shares of Common Stock.
(iv) In no event shall the option remain exercisable
after the expiration of the option term. Upon the expiration of the
twelve (12)-month exercise period or (if earlier) upon the expiration
of the option term, the option shall terminate and cease to be
outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee's
cessation of Board service for any reason other than death or Permanent
Disability, terminate and cease to be outstanding to the
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extent the option is not otherwise at that time exercisable for vested
shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of
Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
C. In connection with any Change in Control, the shares of
Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Change in Control, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Each such option shall remain exercisable
for such fully-vested option shares until the expiration or sooner termination
of the option term or the surrender of the option in connection with a Hostile
Take-Over.
D. Upon the occurrence of a Hostile Take-Over, the Optionee
shall have a thirty (30)-day period in which to surrender to the Corporation
each of his or her outstanding automatic options. The Optionee shall in return
be entitled to a cash distribution from the Corporation in an amount equal to
the excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to the surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. No approval or consent
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of the Board or any Plan Administrator shall be required in connection with such
option surrender and cash distribution.
E. The grant of options under the Automatic Option
Grant Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
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ARTICLE FIVE
MISCELLANEOUS
I. FINANCING
A. The Plan Administrator may permit any Optionee or
Participant to pay the option exercise price under the Discretionary Option
Grant Program or the purchase price for shares issued under the Stock Issuance
Program by delivering a promissory note payable in one or more installments. The
terms of any such promissory note (including the interest rate and the terms of
repayment) shall be established by the Plan Administrator in its sole
discretion. Promissory notes may be authorized with or without security or
collateral. In all events, the maximum credit available to the Optionee or
Participant may not exceed the sum of (i) the aggregate option exercise price or
purchase price payable for the purchased shares plus (ii) any Federal, state and
local income and employment tax liability incurred by the Optionee or the
Participant in connection with the option exercise or share purchase.
B. The Plan Administrator may, in its discretion, determine
that one or more such promissory notes shall be subject to forgiveness by the
Corporation in whole or in part upon such terms as the Plan Administrator may
deem appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common
Stock upon the exercise of options or upon the issuance or vesting of such
shares under the Plan shall be subject to the satisfaction of all applicable
Federal, state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any
or all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan (other than the options granted or the shares issued under the
Automatic Option Grant Program) with the right, exercisable after the Section
12(g) Registration Date, to use shares of Common Stock in satisfaction of all or
part of the Taxes incurred by such holders in connection with the exercise of
their options or the vesting of their shares. Such right may be provided to any
such holder in either or both of the following formats:
(i) Stock Withholding: The election to
have the Corporation withhold, from the shares of Common Stock
otherwise issuable upon the exercise of such Non-
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Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of
the Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
(ii) Stock Delivery: The election to
deliver to the Corporation, at the time the Non-Statutory Option is
exercised or the shares vest, one or more shares of Common Stock
previously acquired by such holder (other than in connection with the
option exercise or share vesting triggering the Taxes) with an
aggregate Fair Market Value equal to the percentage of the Taxes (not
to exceed one hundred percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective on the Plan Effective Date.
Options may be granted under the Discretionary Option Grant Program at any time
on or after the Plan Effective Date. The Automatic Option Grant Program shall
become effective on the Underwriting Date and the initial options under that
program shall be made to the Eligible Directors at that time. However, no
options granted under the Plan may be exercised, and no shares shall be issued
under the Plan, until the Plan is approved by the Corporation's stockholders. If
such stockholder approval is not obtained within twelve (12) months after the
date the Plan is adopted by the Board, then all options previously granted under
this Plan shall terminate and cease to be outstanding, and no further options
shall be granted and no shares shall be issued under the Plan.
B. The Plan shall terminate upon the earliest of (i) October
29, 2006, (ii) the date on which all shares available for issuance under the
Plan shall have been issued pursuant to the exercise of the options or the
issuance of shares (whether vested or unvested) under the Plan or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction. Upon such Plan termination, all outstanding options and unvested
stock issuances shall continue to have force and effect in accordance with the
provisions of the documents evidencing such options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power
and authority to amend or modify the Plan in any or all respects. However, no
such amendment or modification shall adversely affect any rights and obligations
with respect to options, stock appreciation rights or unvested stock issuances
at the time outstanding under the Plan unless the Optionee or the Participant
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consents to such amendment or modification. In addition, amendments to the Plan
shall be subject to approval of the Corporation's stockholders to the extent
required by applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant Program and shares of Common Stock may be
issued under the Stock Issuance Program that are in each instance in excess of
the number of shares then available for issuance under the Plan, provided any
excess shares actually issued under those programs are held in escrow until
there is obtained stockholder approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance under the Plan. If
such stockholder approval is not obtained within twelve (12) months after the
date the first such excess grants or issuances are made, then (i) any
unexercised options granted on the basis of such excess shares shall terminate
and cease to be outstanding and (ii) the Corporation shall promptly refund to
the Optionees and the Participants the exercise or purchase price paid for any
excess shares issued under the Plan and held in escrow, together with interest
(at the applicable Short Term Federal Rate) for the period the shares were held
in escrow, and such shares shall thereupon be automatically cancelled and cease
to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option
or stock appreciation right under the Plan and the issuance of any shares of
Common Stock (i) upon the exercise of any option or stock appreciation right or
(ii) under the Stock Issuance Program shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options and stock appreciation rights
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall
be issued or delivered under the Plan unless and until there shall have been
compliance with all applicable requirements of Federal and state securities
laws, including the filing and effectiveness of the Form S-8 registration
statement for the shares of Common Stock issuable under the Plan, and all
applicable listing requirements of any stock exchange (or the Nasdaq National
Market, if applicable) on which Common Stock is then listed for trading.
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VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
24.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the
automatic option grant program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or
control of the Corporation effected through either of the
following transactions:
(i) the acquisition, directly or indirectly, by any
person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's stockholders which
the Board does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time the Board approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as
amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's
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outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
transaction; or
(ii) the sale, transfer or other disposition of
all or substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
G. CORPORATION shall mean Discovery Laboratories, Inc., a
Delaware corporation, and any corporate successor to all or substantially all
of the assets or voting stock of Discovery Laboratories, Inc. which shall by
appropriate action adopt the Plan.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.
I. ELIGIBLE DIRECTOR shall mean a non-employee Board
member eligible to participate in the Automatic Option Grant Program in
accordance with the eligibility provisions of Article One.
J. EMPLOYEE shall mean an individual who is in the
employ of the Corporation (or any Parent or Subsidiary), subject to the
control and direction of the employer entity as to both the
work to be performed and the manner and method of performance.
K. EXERCISE DATE shall mean the date on which the
Corporation shall have received written notice of the option exercise.
L. FAIR MARKET VALUE per share of Common Stock on any
relevant date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any successor system. If there
is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price
on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
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composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal to
the price per share at which the Common Stock is sold in the initial
public offering pursuant to the Underwriting Agreement.
(iv) For purposes of any option grants made prior to the
Underwriting Date, the Fair Market Value shall be determined by the
Plan Administrator after taking into account such factors as the Plan
Administrator shall deem appropriate.
M. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
N. INCENTIVE OPTION shall mean an option which satisfies
the requirements of Code Section 422.
O. INVOLUNTARY TERMINATION shall mean the termination of
the Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than
Misconduct, or
(ii) such individual's voluntary resignation following
(A) a change in his or her position with the Corporation which
materially reduces his or her level of responsibility, (B) a reduction
in his or her level of compensation (including base salary, fringe
benefits and participation in corporate-performance based bonus or
incentive programs) by more than fifteen percent (15%) or (C) a
relocation of such individual's place of employment by more than fifty
(50) miles, provided and only if such change, reduction or relocation
is effected by the Corporation without the individual's consent.
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P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
S. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant or Automatic Option Grant Program.
T. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
V. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for the purposes of the Automatic Option
Grant Program, Permanent Disability or Permanently Disabled shall mean the
inability of the non-employee Board member to perform his or her usual duties as
a Board member by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more.
W. PLAN shall mean the Corporation's 1996 Stock Option/Stock
Issuance Plan, as set forth in this document.
A-4.
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X. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Y. PLAN EFFECTIVE DATE shall mean the date on which the
Plan is adopted by the Board.
Z. PRIMARY COMMITTEE shall mean the committee of two (2)
or more non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to officers
and directors.
AA. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
BB. SECTION 12(g) REGISTRATION DATE shall mean the date on which the
Common Stock is first registered under Section 12(g) of the 1934 Act.
CC. SECTION 16 INSIDER shall mean an officer or director of
the Corporation subject to the short-swing profit liabilities of Section 16 of
the 1934 Act.
DD. SERVICE shall mean the performance of services to the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
EE. STOCK EXCHANGE shall mean either the American Stock
Exchange or the New York Stock Exchange.
FF. STOCK ISSUANCE AGREEMENT shall mean the agreement entered
into by the Corporation and the Participant at the time of issuance
of shares of Common Stock under the Stock Issuance Program.
GG. STOCK ISSUANCE PROGRAM shall mean the stock issuance
program in effect under the Plan.
HH. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the
A-5.
<PAGE>
total combined voting power of all classes of stock in one of the other
corporations in such chain.
II. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take- Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
JJ. TAXES shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of those options or the
vesting of those shares.
KK. 10% STOCKHOLDER shall mean the owner of stock (as
determined under Code Section 424(d)) possessing more than ten
percent (10%) of the total combined voting power of all classes
of stock of the Corporation (or any Parent or Subsidiary).
LL. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
MM. UNDERWRITING DATE shall mean the date on which the
Underwriting Agreement is executed and the initial public offering price of the
Common Stock is established.
A-6.
<PAGE>
DISCOVERY LABORATORIES, INC.
STOCK OPTION AGREEMENT
RECITALS
A. The Board has approved the issuance of stock option grants for the
purpose of retaining the services of selected Employees, non-employee members of
the Board or the board of directors of any Parent or Subsidiary and consultants
and other independent advisors who provide services to the Corporation (or any
Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a Parent
or Subsidiary), and this Agreement is executed pursuant to, and is intended to
carry out the purposes of, the Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning assigned
to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. The Corporation hereby grants to Optionee, as of
the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. Option Term. This option shall have a term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. Limited Transferability. This option shall be neither transferable
nor assignable by Optionee other than by will or by the laws of descent and
distribution following Optionee's death and may be exercised, during Optionee's
lifetime, only by Optionee. However, if this option is designated a
Non-Statutory Option in the Grant Notice, then this option may also be assigned
in whole or in part in accordance with the terms of a Qualified Domestic
Relations Order. The assigned portion shall be exercisable only by the person or
persons who acquire a proprietary interest in the option pursuant to such
Qualified Domestic Relations Order. The terms applicable to the assigned portion
shall be the same as those in effect for this option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Compensation Committee of the Board of Directors may deem appropriate.
<PAGE>
4. Dates of Exercise. This option shall become exercisable for the
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes exercisable for such installments, those installments shall
accumulate and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
5. Cessation of Service. The option term specified in Paragraph 2 shall
terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(i) Should Optionee cease to remain in Service for any reason
(other than death or Permanent Disability) while this option is
outstanding, then Optionee shall have a period of three (3) months
(commencing with the date of such cessation of Service) during which to
exercise this option, but in no event shall this option be exercisable
at any time after the Expiration Date.
(ii) Should Optionee die while this option is outstanding,
then the personal representative of Optionee's estate or the person or
persons to whom the option is transferred pursuant to Optionee's will
or in accordance with the laws of descent and distribution shall have
the right to exercise this option. Such right shall lapse and this
option shall cease to be outstanding upon the earlier of (A) the
expiration of the twelve (12)-month period measured from the date of
Optionee's death or (B) the Expiration Date.
(iii) Should Optionee cease Service by reason of Permanent
Disability while this option is outstanding, then Optionee shall have a
period of twelve (12) months (commencing with the date of such
cessation of Service) during which to exercise this option. In no event
shall this option be exercisable at any time after the Expiration Date.
(iv) Should Optionee's Service be terminated for Misconduct,
then this option shall terminate immediately and cease to remain
outstanding.
(v) During the limited post-Service exercise period, this
option may not be exercised in the aggregate for more than the number
of vested Option Shares for which the option is exercisable at the time
of Optionee's cessation of Service. Upon the expiration of such limited
exercise period or (if earlier) upon the Expiration Date, this option
shall terminate and cease to be outstanding for any vested Option
Shares for which the option has not been exercised. To the extent
Optionee is not vested in the Option Shares at the time of Optionee's
cessation of Service, this option shall immediately terminate and cease
to be outstanding with respect to those shares.
<PAGE>
(vi) In the event of an Involuntary Termination following a
Corporate Transaction or Change in Control, the provisions of Paragraph
6 shall govern the period for which this option is to remain
exercisable following Optionee's cessation of Service and shall
supersede any provisions to the contrary in Paragraph 5.
6. Special Acceleration of Option.
(a) This option, to the extent outstanding at the time of a Corporate
Transaction but not otherwise fully exercisable, shall automatically accelerate
so that this option shall, immediately prior to the effective date of the
Corporate Transaction, become exercisable for all of the Option Shares at the
time subject to this option and may be exercised for any or all of those Option
Shares as fully-vested shares of Common Stock. No such acceleration of this
option, however, shall occur if and to the extent: (i) this option is, in
connection with the Corporate Transaction, either to be assumed by the successor
corporation (or parent thereof) or to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation (or parent
thereof) or (ii) this option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing on the Option
Shares for which this option is not exercisable at the time of the Corporate
Transaction (the excess of the Fair Market Value of those Option Shares over the
aggregate Exercise Price payable for such shares) and provides for subsequent
pay-out in accordance with the same exercise schedule in effect for the option
pursuant to the option exercise schedule set forth in the Grant Notice. The
determination of option comparability under clause (i) shall be made by the
Compensation Committee of the Board of Directors and such determination shall be
final, binding and conclusive.
(b) Immediately following the Corporate Transaction, this option shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) in connection with the Corporate
Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
(d) Should there occur an Involuntary Termination of Optionee's
Service within eighteen (18) months following a Corporate Transaction in which
this option is assumed or replaced, then this option, to the extent outstanding
at such time but not otherwise exercisable, shall automatically accelerate so
that this option shall immediately become exercisable for all the Option Shares
at the time subject to this option and may be exercised for any or all of those
Option Shares as fully-vested shares. The option shall remain so exercisable
-3-
<PAGE>
until the earlier of (i) the Expiration Date or (ii) the expiration of the one
(1)-year period measured from the effective date of such Involuntary
Termination.
(e) Upon an Involuntary Termination of Optionee's Service within
eighteen (18) months following a Change in Control, this option, to the extent
outstanding at such time but not otherwise fully exercisable, shall
automatically accelerate so that this option shall immediately become
exercisable for all the Option Shares at the time subject to this option and may
be exercised for any or all of those Option Shares as fully-vested shares. The
option shall remain so exercisable until the earlier of (i) the Expiration Date
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination.
(f) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. Adjustment in Option Shares. Should any change be made to the Common
Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. Stockholder Rights. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
9. Manner of Exercising Option.
(a) In order to exercise this option with respect to all or
any part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a Notice
of Exercise for the Option Shares for which the option is
exercised.
(ii) Pay the aggregate Exercise Price for the
purchased shares in one or more of the following forms:
(A) cash or check made payable to the
Corporation;
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<PAGE>
(B) a promissory note payable to the
Corporation, but only to the extent authorized by the
Compensation Committee of the Board of Directors in
accordance with Paragraph 13;
(C) shares of Common Stock held by Optionee
(or any other person or persons exercising the
option) for the requisite period necessary to avoid a
charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on
the Exercise Date; or
(D) through a special sale and remittance
procedure pursuant to which Optionee (or any other
person or persons exercising the option) shall
concurrently provide irrevocable written instructions
(I) to a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and
remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to
cover the aggregate Exercise Price payable for the
purchased shares plus all applicable Federal, state
and local income and employment taxes required to be
withheld by the Corporation by reason of such
exercise and (II) to the Corporation to deliver the
certificates for the purchased shares directly to
such brokerage firm in order to complete the sale
transaction.
Except to the extent the sale and remittance
procedure is utilized in connection with the option
exercise, payment of the Exercise Price must
accompany the Notice of Exercise delivered to the
Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the option
(if other than Optionee) have the right to exercise this
option.
(iv) Make appropriate arrangements with the
Corporation (or Parent or Subsidiary employing or retaining
Optionee) for the satisfaction of all Federal, state and local
income and employment tax withholding requirements applicable
to the option exercise.
(b) As soon as practical after the Exercise Date, the Corporation shall
issue to or on behalf of Optionee (or any other person or persons exercising
this option) a certificate for the purchased Option Shares, with the appropriate
legends affixed thereto.
(c) In no event may this option be exercised for any fractional shares.
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<PAGE>
10. Compliance with Laws and Regulations.
(a) The exercise of this option and the issuance of the Option Shares
upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
11. Successors and Assigns. Except to the extent otherwise provided in
Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee's assigns and the legal representatives, heirs and legatees
of Optionee's estate.
12. Notices. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
13. Financing. The Compensation Committee of the Board of Directors may,
in its absolute discretion and without any obligation to do so, permit Optionee
to pay the Exercise Price for the purchased Option Shares by delivering a
promissory note. The terms of any such promissory note (including the interest
rate, the requirements for collateral and the terms of repayment) shall be
established by the Compensation Committee of the Board of Directors in its sole
discretion.(1)
14. Construction. This Agreement and the option evidenced hereby are made
and granted pursuant to the authority vested in the Compensation Committee of
the Board of Directors. All decisions of the Compensation Committee of the Board
of Directors with respect
_____________
(1) Authorization of payment of the Exercise Price by a promissory note under
such provisions may, under currently proposed Treasury Regulations, result in
the loss of incentive stock option treatment under the Federal tax laws.
-6-
<PAGE>
to any question or issue arising under this Agreement shall be conclusive and
binding on all persons having an interest in this option.
15. Governing Law. The interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of Delaware without resort
to that State's conflict-of-laws rules.
16. Excess Shares. If the Option Shares covered by this Agreement exceed,
as of the Grant Date, the number of shares of Common Stock which may without
stockholder approval be issued, then this option shall be void with respect to
such excess shares, unless stockholder approval of an amendment sufficiently
increasing the number of shares of Common Stock issuable.
17. Additional Terms Applicable to an Incentive Option. In the event this
option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
(i) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is
exercised for one or more Option Shares: (A) more than three (3) months
after the date Optionee ceases to be an Employee for any reason other
than death or Permanent Disability or (B) more than twelve (12) months
after the date Optionee ceases to be an Employee by reason of Permanent
Disability.
(ii) No installment under this option shall qualify for
favorable tax treatment as an Incentive Option if (and to the extent)
the aggregate Fair Market Value (determined at the Grant Date) of the
Common Stock for which such installment first becomes exercisable
hereunder would, when added to the aggregate value (determined as of
the respective date or dates of grant) of any earlier installments of
the Common Stock and any other securities for which this option or any
other Incentive Options granted to Optionee prior to the Grant Date
(whether by the Corporation or any Parent or Subsidiary) first become
exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. Should such One Hundred Thousand
Dollar ($100,000) limitation be exceeded in any calendar year, this
option shall nevertheless become exercisable for the excess shares in
such calendar year as a Non-Statutory Option.
(iii) Should the exercisability of this option be accelerated
upon a Corporate Transaction or Involuntary Termination, then this
option shall qualify for favorable tax treatment as an Incentive Option
only to the extent the aggregate Fair Market Value (determined at the
Grant Date) of the Common Stock for which this option first becomes
exercisable in the calendar
-7-
<PAGE>
year in which the Corporate Transaction or Involuntary Termination
occurs does not, when added to the aggregate value (determined as of
the respective date or dates of grant) of the Common Stock or other
securities for which this option or one or more other Incentive Options
granted to Optionee prior to the Grant Date (whether by the Corporation
or any Parent or Subsidiary) first become exercisable during the same
calendar year, exceed One Hundred Thousand Dollars ($100,000) in the
aggregate. Should the applicable One Hundred Thousand Dollar ($100,000)
limitation be exceeded in the calendar year of such Corporate
Transaction or Involuntary Termination, the option may nevertheless be
exercised for the excess shares in such calendar year as a
Non-Statutory Option.
(iv) Should Optionee hold, in addition to this option, one or
more other options to purchase Common Stock which become exercisable
for the first time in the same calendar year as this option, then the
foregoing limitations on the exercisability of such options as
Incentive Options shall be applied on the basis of the order in which
such options are granted.
-8-
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify Discovery Laboratories, Inc. (the "Corporation") that I elect to
purchase _______ shares of the Corporation's Common Stock (the "Purchased
Shares") at the option exercise price of $_________ per share (the "Exercise
Price") pursuant to that certain option (the "Option") granted to me by the
Corporation on _________, 199___.
Concurrently with the delivery of this Exercise Notice to the Corporation, I
shall hereby pay to the Corporation the Exercise Price for the Purchased Shares
in accordance with the provisions of my agreement with the Corporation (or other
documents) evidencing the Option and shall deliver whatever additional documents
may be required by such agreement as a condition for exercise. Alternatively, I
may utilize the special broker-dealer sale and remittance procedure specified in
my agreement to effect payment of the Exercise Price.
_____________________, l99__
Date
_______________________________
Optionee
Address:_______________________
_______________________________
Print name in exact manner
it is to appear on the
stock certificate: _______________________________
Address to which certificate
is to be sent, if different
from address above: _______________________________
_______________________________
Social Security Number: _______________________________
Employee Number: _______________________________
<PAGE>
APPENDIX
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Option Agreement.
B. Board shall mean the Corporation's Board of Directors.
C. Change in Control shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to
accept.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
E. Common Stock shall mean the Corporation's common stock.
F. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of
the Corporation.
G. Corporation shall mean Discovery Laboratories, Inc., a Delaware
corporation.
H. Domestic Relations Order shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
A-l.
<PAGE>
I. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
J. Exercise Date shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
K. Exercise Price shall mean the exercise price per share as specified in
the Grant Notice.
L. Expiration Date shall mean the date on which the option expires as
specified in the Grant Notice.
M. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as the price is reported by
the National Association of Securities Dealers on the Nasdaq National
Market or any successor system. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by
[the Plan] Administrator to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of transactions on
such exchange. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
N. Grant Date shall mean the date of grant of the option as specified in
the Grant Notice.
O. Grant Notice shall mean the Notice of Grant of Stock Option accompanying
the Agreement, pursuant to which Optionee has been informed of the basic terms
of the option evidenced hereby.
P. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.
A-2.
<PAGE>
Q. Involuntary Termination shall mean the termination of Optionee's Service
which occurs by reason of:
(i) Optionee's involuntary dismissal or discharge by the Corporation
for reasons other than Misconduct, or
(ii) Optionee's voluntary resignation following (a) a change in
Optionee's position with the Corporation (or Parent or Subsidiary employing
Optionee) which materially reduces Optionee's level of responsibility, (b)
a reduction in Optionee's level of compensation (including base salary,
fringe benefits and participation in corporate-performance based bonus or
incentive programs) by more than fifteen percent (15%) or (c) a relocation
of Optionee's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the
Corporation without Optionee's consent.
R. Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by Optionee adversely affecting
the business or affairs of the Corporation (or any Parent or Subsidiary) in a
material manner. The foregoing definition shall not be deemed to be inclusive of
all the acts or omissions which the Corporation (or any Parent or Subsidiary)
may consider as grounds for the dismissal or discharge of Optionee or any other
individual in the Service of the Corporation (or any Parent or Subsidiary).
S. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
T. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
U. Notice of Exercise shall mean the notice of exercise in the form
attached hereto as Exhibit I.
V. Option Shares shall mean the number of shares of Common Stock subject to
the option as specified in the Grant Notice.
W. Optionee shall mean the person to whom the option is granted as
specified in the Grant Notice.
X. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
A-3.
<PAGE>
Y. Permanent Disability shall mean the inability of Optionee to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has lasted
or can be expected to last for a continuous period of twelve (12) months or
more.
Z. Qualified Domestic Relations Order shall mean a Domestic Relations Order
which substantially complies with the requirements of Code Section 414(p). The
Compensation Committee of the Board of Directors shall have the sole discretion
to determine whether a Domestic Relations Order is a Qualified Domestic
Relations Order.
AA. Service shall mean Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor.
AB. Stock Exchange shall mean the American Stock Exchange or the New York
Stock Exchange.
AC. Subsidiary shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
A-4.
EXECUTION COPY
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of
October 1, 1996 by and between Acute Therapeutics, Inc. a Delaware corporation
(the "Company"), and Robert Capetola, 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 four (4) years commencing
on October 1, 1996 (the "Commencement Date") and continuing until September
30, 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 Chairman of the Board of
Directors ("Chairman") and Chief Executive Officer of the Company. Executive
shall be responsible for overall management of the Company and all operating
managers of the
<PAGE>
Company shall report to Executive. Executive shall at all times report to,
and shall be subject to the policies established by, the Company's Board of
Directors or any Executive Committee thereof. Company may recruit and appoint
an independent individual to serve as Chairman in place of Executive; provided,
however, that Executive shall remain a member of the Board of Directors for
the duration of this Employment Agreement.
b. Location of Employment. Executive's principal place of business
shall be an office, to be established by Executive with the consent of the Board
of Directors of the Company, in Doylestown, Pennsylvania. Such office shall
serve as the primary location for research, development, sales and marketing
activities and such other activities as Executive and the Board of Directors of
the Company shall agree.
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.
2
<PAGE>
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) 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 Two Hundred
Twenty Five Thousand dollars ($225,000), less all required withholdings.
Company shall pay to Executive an initial sign-on bonus of $50,000 to be paid
the first week of January 1997.
b. Benefits. During his employment with the Company, Executive will
be entitled to all such family health and
3
<PAGE>
medical benefits and disability insurance as are provided to other officers of
the Company. In addition, the Company will provide to Executive (i) term life
insurance on behalf of Executive's beneficiaries in the amount of $2,000,000
for the term of this Agreement, and (ii) long-term disability insurance,
subject to a combined premium cap of $15,000 per year. In addition, the
Company shall provide reasonable health and disability benefits to Executive
while Executive is a full-time employee of the Company.
c. Incentive Bonus. Executive shall be eligible for an incentive
bonus as follows:
(i) $50,000 upon the execution of the first license agreement
with a pharmaceutical company relating to KL4-Surfactant providing
for upfront license fees [***];
(ii) $100,00 upon the closing of an initial public offering with
gross proceeds of at least $10 million.
(iii) Additional bonuses at the discretion of the Board of
Directors.
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
[***] Confidential treatment requested.
4
<PAGE>
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 received severance payments
equal to his base compensation, payable on normal Company payroll dates, for
a twelve-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 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'
5
<PAGE>
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.
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
6
<PAGE>
effective upon personal delivery or two days after deposit in the United
States Post Office, by registered or certified mail, postage prepaid,
addressed prepaid, addressed to the other party at the address shown below
such party's signatures, 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.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
ACUTE THERAPEUTICS, INC.
/s/ James S. Kuo, M.D.
________________________________
By: James S. Kuo, M.D.
Its: Director (on behalf of
the Board of Directors)
Address: 787 Seventh Avenue
44th Floor
New York, New York 10019
EXECUTIVE:
/s/ Robert Capetola, Ph.D.
___________________________
Robert Capetola, Ph.D.
Address: 6097 Hidden Valley Drive
Doylestown, PA 18901
8
<PAGE>
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>
to [***] 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.
2
<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.
3
<PAGE>
(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
<PAGE>
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
<PAGE>
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>
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.
7
<PAGE>
EXHIBIT B
SCRIPPS UNIFORM CONSULTING AGREEMENT PROVISIONS
8
<PAGE>
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>
to [***] 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,
2
<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.
3
<PAGE>
(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
<PAGE>
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
5
<PAGE>
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>
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
<PAGE>
EXHIBIT B
Scripps Uniform Consulting Agreement Provisions
8
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. Zenaida Oades (the "Consultant"). Any capitalized
terms used but not otherwise defined herein shall have the meanings set forth
in the KL4z 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 a consulting fee at the annual rate of
$10,000, payable monthly in installments of $833.34 on or before the 15th day of
each month.
<PAGE>
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, 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
2
<PAGE>
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.
(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 Consultants 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.
3
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.
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
4
<PAGE>
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
b. To Consultant:
Ms. Zenaida Oades
11760 Madrugada Ct
San Diego, CA 92124
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.
5
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: Zenaida G. Oades
<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
<PAGE>
EXHIBIT B
Scripps Uniform Consulting Agreement Provisions
8
<PAGE>
CONSULTING SERVICES AGREEMENT
This Consulting Agreement (the "Agreement") is entered into the day of ,
1996 by and between Acute Therapeutics, Inc., a Delaware corporation (the
"Company") and Ms. Monica 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 her consulting services hereunder,
the Company shall pay to Consultant a consulting fee at the annual rate of
$15,000, payable monthly in installments of $1,250 on or before the 15th day of
each month.
<PAGE>
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, 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
2
<PAGE>
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.
(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.
3
<PAGE>
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.
8. Obliations. 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
4
<PAGE>
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 Areement. 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 Companv:
Acute Therapeutics, Inc.
3359 Durham Road
Doylestown, PA 18901
Attention: Robert J. Capetola
b. To Consultant:
Ms. Monica Cochrane
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.
5
<PAGE>
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:
Title:
CONSULTANT
By:
<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
<PAGE>
EXHIBIT B
Scripps Uniform Consulting Agreement Provisions
8
The
Sage
Group
October 28, 1996 Healthcare Business Strategy
Robert J. Capetola 245 Route 22 West
President/CEO Suite 304
Acute Therapeutics, Inc. Bridgewater, NJ 08807
6097 Hidden Valley Drive Phone: 908-231-9644
Doylestown, PA Fax: 908-231-9692
Dear Bob,
As discussed I am revising our Valere agreement of June 25, 1996 to reflect the
changes anticipated given the Castle Group (Discovery Labs) financing and
corporate name change to Acute Therapeutics, Inc. (ATI).
This letter sets out some of the key aspects of a proposed arrangement between
ATI and The Sage Group and addresses more specifically some of the issues we
discussed. The objective of working closely with ATI is to play a key role in
helping to establish the company via a J & J license and subsequently to
assisting management in the strategic, product development and commercialization
aspects required to successfully develop and grow the business. We view the role
of The Sage Group essentially as serving the Business Development Department of
ATI with at least the general activities shown below included in our
responsibilities:
(bullet) Develop a formal business plan in conjunction with management and
assist in implementation.
(bullet) Design corporate development plan in conjunction with company and
direct implementation of partnering activities.
(bullet) Assist management in operational business activities as needed.
To provide ATI flexibility and reduced risk, we propose the term be 18 months,
renewable upon mutual agreement, and that this agreement be non-cancelable, by
ATI, during the first term except for non-performance by The Sage Group.
Non-performance would be defined as failure of The Sage Group to carry out the
above activities in a reasonably due diligent fashion. We suggest that there be
formalized quarterly reviews to track performance.
In recognition of our past efforts on behalf of the founders and in anticipation
of The Sage Group future involvement with ATI, Sage Partners has been fully
vested in equity in the newly formed company, i.e., 15,000 total shares @ $0.01
per share, plus each of Daniel Tripodi, Wayne Pambianchi, Gordon Ramseier, R.
Douglas Hulse and Richard G. Power has received options to purchase 1,000 shares
of ATI Common Stock exercisable six (6) months after October 28, 1996
<PAGE>
and options to purchase 1,120 shares of ATI stock Common Stock exercisable upon
certain acceleration events as defined in the Notice of Grant to the stock
option agreements entered into by the Company and each of Messrs. Pambianchi,
Ramseier, Hulse, Power and Tripodi as of October 10, 1996.
In addition, The Sage Group will receive a monthly management fee of $7500
payable on the first of each month beginning November 1, 1996. ATI also will
reimburse The Sage Group for all out-of-pocket expenses with significant travel
and related expenses pre-approved by ATI.
Bob, I trust that this revised letter of agreement reflects the general
discussions we have had and that it is acceptable to you. If it meets with your
approval, kindly countersign this letter and return it to me.
We look forward to a successful endeavor with Valere.
Nov. 4, 1996 /s/ Richard G. Power
- ---------------------- --------------------
Date Richard G. Power
Executive Director
THE SAGE GROUP
/s/ Robert Capetola
- ---------------------- --------------------
Date Robert Capetola
President/CEO
Acute Therapeutics, Inc.
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Prospectus constituting a part of
this Registration Statement of our report dated November 8, 1996 relating to the
financial statements of Discovery Laboratories, Inc. 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
January 2, 1997
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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