<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 11, 1996
REGISTRATION NO. 333-09929
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ALANEX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
CALIFORNIA 8731 33-0599136
(PRIOR TO (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
REINCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
DELAWARE
(AFTER REINCORPORATION)
(STATE OR JURISDICTION
OF INCORPORATION OR
ORGANIZATION)
</TABLE>
3550 GENERAL ATOMICS COURT
SAN DIEGO, CALIFORNIA 92121
(619) 455-3200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MARVIN R. BROWN, M.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ALANEX CORPORATION
3550 GENERAL ATOMICS COURT
SAN DIEGO, CALIFORNIA 92121
(619) 455-3200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
FREDERICK T. MUTO, ESQ.
CYDNEY S. POSNER, ESQ.
CARL R. SANCHEZ, ESQ.
COOLEY GODWARD LLP
4365 EXECUTIVE DRIVE, SUITE 1100
SAN DIEGO, CA 92121
(619) 550-6000
WILLIAM H. HINMAN, JR., ESQ.
SHEARMAN & STERLING
555 CALIFORNIA STREET
SAN FRANCISCO, CA 94104
(415) 616-1100
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
------------------------
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: / /
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 of 1933, 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. / /
------------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
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 OFFER TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 11, 1996
2,500,000 SHARES
LOGO
COMMON STOCK
------------------------
All the shares of Common Stock offered hereby are being sold by Alanex
Corporation. Prior to this offering, there has been no public market for the
Common Stock. It is currently estimated that the initial public offering price
per share of the Common Stock will be between $10.00 and $12.00. See
"Underwriting."
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol ALNX.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" AT PAGE 6.
------------------------
THESE SECURITIES HAVE 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.
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<CAPTION>
<S> <C> <C> <C>
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Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
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Per Share............................. $ $ $
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Total................................. $ $ $
- ------------------------------------------------------------------------------------------------------
Total Assuming Full Exercise of
Over-Allotment Option(3)............ $ $ $
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</TABLE>
(1) See "Underwriting."
(2) Before deducting expenses estimated at $575,000, which are payable by the
Company.
(3) Assuming exercise in full of the 30-day option granted by the Company to the
Underwriters to purchase up to 375,000 additional shares, on the same terms,
solely to cover over-allotments. See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the Common Stock will be made in New York City on or about
, 1996.
------------------------
PAINEWEBBER INCORPORATED
NEEDHAM & COMPANY, INC.
SUTRO & CO. INCORPORATED
------------------------
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 3
ALANEX INTEGRATED DRUG DISCOVERY PROCESS
[Diagram illustrating the components of Alanex's drug discovery process. The
diagram reflects six equally sized rectangles arranged in two columns. three per
column, with arrows connecting related subjects. Each rectangle contains text
description of the component and photographs of scientists, computers and
chemist apparatus that pertain to each component. At the bottom of the diagram
is a smaller rectangle that contains an illustration of a drug candidate's
chemical structure.]
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<S> <C> <C> <C> <C>
COMBINATORIAL HIGH
CHEMISTRY THROUGHPUT
SCREENING
EXPLORATORY MOLECULAR
LIBRARY TARGETS
Over 150,000 diverse Screening of
individual drug-like compounds or medically
compounds important targets
</TABLE>
<TABLE>
<S> <C> <C> <C>
LIBRARY COMBINATORIAL
DESIGN CHEMISTRY TARGETED LIBRARIES
VIRTUAL LIBRARY Initial optimization of high
Over 140,000,000 throughput screening "hits"
chemical structures into lead compounds
accessible by
proprietary software
</TABLE>
<TABLE>
<S> <C> <C> <C>
PHARMACOLOGY
MEDICINAL
CHEMISTRY DETAILED
CHARACTERIZATION
ANALOG LIBRARIES of lead compounds:
Conversion of lead potency, selectivity,
compounds into drug stability, toxicity
candidates
</TABLE>
DRUG CANDIDATE
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information in this Prospectus assumes (i) the
Underwriters' over-allotment option will not be exercised and (ii) the
reincorporation of the Company in the State of Delaware. Investors should
carefully consider the information set forth under the heading "Risk Factors."
This Prospectus contains forward-looking statements that involve certain risks
and uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" and elsewhere in this Prospectus.
THE COMPANY
Alanex Corporation ("Alanex" or the "Company") is a drug discovery company
that is applying its highly integrated and comprehensive approach to rapidly and
cost-effectively discover and optimize novel, small molecule drug candidates.
The Company's proprietary core drug discovery technology, Pharmacophore Directed
Parallel Synthesis ("PDPS"), accelerates the steps necessary to discover small
molecule drug candidates, from the initial identification of compounds that
exhibit activity against selected biological targets to the progression of these
compounds to drug candidates for human clinical trials. PDPS combines
combinatorial chemistry with computational and medicinal chemistries which, when
used in conjunction with high throughput screening and pharmacology, form an
integrated drug discovery platform that can be broadly applied to a wide array
of biological targets. An important element of the Company's strategy is to
enter into collaborations with pharmaceutical companies. Alanex has
collaboration agreements with Astra Pharma, Inc. ("Astra Pharma"), Novo Nordisk
A/S ("Novo Nordisk") and Roche Bioscience, a division of Syntex (U.S.A.) Inc., a
wholly owned subsidiary of Roche Holding Ltd. ("Roche Bioscience"). To date,
Alanex has used PDPS to identify one preclinical drug development candidate for
the treatment of pain and a number of lead compounds in four other programs that
address diseases or conditions for which existing therapies are inadequate or
unavailable, including diabetes, obesity, depression and anxiety.
A major challenge for the pharmaceutical industry is the rapid and
cost-effective identification of lead compounds and their subsequent development
into drugs. Combinatorial chemistry -- which creates large libraries of
molecules by generating combinations of chemical building blocks -- represents a
significant advance in drug discovery technology, permitting the identification
of lead compounds on a more rapid and cost-effective basis. The Company believes
that a key factor in the successful application of combinatorial chemistry,
however, is the diversity, not simply the number, of compounds comprising a
combinatorial library. Alanex uses its proprietary library design software,
LiBrain, to maximize the diversity of its exploratory library by selecting for
synthesis compounds from Alanex's virtual library of over 140 million chemical
structures. The Company's exploratory library is increasing at an average rate
of 10,000 individual compounds per month and currently consists of over 150,000
synthesized compounds.
Alanex believes that its ability to create a highly diverse library of
individual molecules increases the likelihood of discovering lead compounds. The
Company's drug discovery approach broadens the scope of combinatorial chemistry
to include the transition from lead compound to drug candidate by making
medicinal chemistry an integral part of the PDPS technology and by focusing on
the synthesis of compounds with drug-like structures. Optimization of lead
compounds into drug candidates can be accelerated by Alanex's ability to quickly
design and synthesize thousands of derivatives of a lead compound and purify
them using the Company's proprietary parallel chromatography technology.
The Company's opiate agonist program, its most advanced drug discovery
program, has produced compounds that, in preclinical models, act as potent,
orally active analgesics with a novel mechanism of action for the treatment of
pain. This program is being conducted on behalf of Astra Pharma and is in
preclinical development. From initiation of this program to production of
preclinical compounds required only 14 months. Alanex's diabetes programs, which
are being pursued in conjunction with Novo Nordisk, focus on two distinct
molecular targets and have produced active lead compounds for each target.
Alanex's neuropeptide Y (NPY) antagonist program has produced active lead
compounds for the potential treatment of obesity and cardiovascular disease. In
addition, the Company's corticotrophin releasing factor (CRF) antagonist
3
<PAGE> 5
program has produced active lead compounds that are being evaluated for the
treatment of depression and anxiety. Alanex recently initiated a project to
discover drugs that inhibit the action of gonadotropin releasing hormone (GnRH)
for the treatment of endometriosis and sex hormone-dependent tumors. Most
recently, in collaboration with Roche Bioscience, Alanex initiated a project to
discover an antagonist for an undisclosed target for the treatment for pain.
Alanex intends to continue to develop in-house programs for the discovery of new
drugs. The Company will also continue to seek corporate collaborations with
major pharmaceutical companies in order to capitalize on the emerging trend in
the pharmaceutical industry to outsource those components of drug discovery that
can be more efficiently provided by firms with unique or focused technologies.
The Company commenced operations as Alanex, L.P., a California limited
partnership (the "Partnership"), in May 1991. In November 1993, the Partnership
was converted into a California corporation. The Company intends to
reincorporate in Delaware prior to the completion of this offering. The
Company's principal executive offices are located at 3550 General Atomics Court,
San Diego, California 92121, and its telephone number is (619) 455-3200.
THE OFFERING
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<S> <C>
Common Stock Offered by the Company................... 2,500,000 shares of Common Stock,
$.00l par value ("Common Stock")
Common Stock to be Outstanding after the Offering..... 6,247,635(1) shares
Use of Proceeds....................................... Research and development, facilities
expansion and working capital and
general corporate purposes. See "Use
of Proceeds."
Proposed Nasdaq National Market Symbol................ ALNX
</TABLE>
- ---------------
(1) Excludes 954,724 shares of Common Stock issuable upon exercise of options
outstanding as of September 1, 1996 with a weighted average exercise price
of $0.21 per share and 450,000 shares of Common Stock issuable upon exercise
of an outstanding warrant at an exercise price of $1.51 per share. Also
excludes up to 125,000 shares of Common Stock subject to an offering under
the Company's Employee Stock Purchase Plan that will commence upon the date
hereof. See Note 7 and Note 12 of Notes to Consolidated Financial
Statements, "Management--Stock Option and Equity Incentive Plans,"
"Management--Stock Options Granted Outside of the 1993 Plan and the 1996
Plan," "Management -- Employee Stock Purchase Plan," "Description of Capital
Stock--Warrants" and "Certain Transactions."
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------ ---------------
1993(1) 1994 1995 1995 1996
------ ------ ------ ------ ------
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CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Contract research revenue........................... $ 23 $ 50 $ 944 $ 382 $ 946
Contract research revenue from related party........ -- 1,440 2,565 1,215 1,275
Project initiation fees............................. -- 250 250 -- 2,000
Other revenue....................................... 6 16 7 -- 3
------ ------ ------ ------ ------
Total revenue............................. 29 1,756 3,766 1,597 4,224
------ ------ ------ ------ ------
Operating expenses:
Research and development.......................... 816 2,181 3,685 1,522 2,274
General and administrative........................ 162 585 804 387 562
------ ------ ------ ------ ------
Total operating expenses.................. 978 2,766 4,489 1,909 2,836
------ ------ ------ ------ ------
Income (loss) from operations....................... (949) (1,010) (723) (312) 1,388
Interest income..................................... -- 97 180 84 79
Interest expense.................................... (31) (25) (168) (37) (105)
Loss on sale of property and equipment.............. -- -- (49) -- --
------ ------ ------ ------ ------
Income (loss) before income taxes................... (980) (938) (760) (265) 1,362
Income taxes........................................ (1) (1) (2) (2) (2)
------ ------ ------ ------ ------
Net income (loss)................................... $ (981) $ (939) $ (762) $ (267) $1,360
====== ====== ====== ====== ======
Net income (loss) per share(2)...................... $(0.24) $(0.22) $(0.17) $(0.06) $ 0.30
====== ====== ====== ====== ======
Number of shares used in computing net income (loss)
per share(2)...................................... 4,012 4,364 4,504 4,464 4,545
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------
ACTUAL AS ADJUSTED(3)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and debt securities available for sale.......................... $4,343 $ 29,343
Total assets......................................................... 7,745 32,745
Long-term debt, less current maturities.............................. 3,716 3,716
Accumulated deficit.................................................. (444) (444)
Total stockholders' equity........................................... 1,312 26,312
</TABLE>
- ---------------
(1) Includes operations of the Partnership. See "Certain Transactions."
(2) For an explanation of the determination of the number of shares used in
computing net loss per share, see Note 1 of Notes to Consolidated Financial
Statements.
(3) As adjusted to give effect to the sale of 2,500,000 shares of Common Stock
in this offering assuming an initial public offering price of $11.00 per
share (the midpoint of the range set forth on the cover page of this
Prospectus) and receipt of the net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
------------------------
Alanet(TM), Alanex(TM), LiBrain(TM), PDPS(TM) and Pharmacophore-Directed
Parallel Synthesis(TM) are trademarks of the Company. The Alanex logo is a
servicemark of the Company. This Prospectus also contains trademarks of other
companies.
5
<PAGE> 7
RISK FACTORS
An investment in the shares being offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following Risk
Factors, in addition to the other information contained in this Prospectus,
before purchasing the shares of Common Stock being offered hereby. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements as a result of certain
factors, including those set forth in the following Risk Factors and elsewhere
in this Prospectus.
EARLY STAGE OF PRODUCT DEVELOPMENT; LACK OF COMMERCIAL PRODUCTS; NO ASSURANCE OF
SUCCESSFUL PRODUCT DEVELOPMENT
The Company was founded in 1991 to discover novel small molecule
therapeutics for the treatment of diseases for which existing therapies are
inadequate or unavailable. To achieve profitable operations, the Company,
independently or in collaboration with others, must successfully identify,
develop and market proprietary products. The Company does not have any products
available for sale nor does it expect that any drug development candidates
identified by the Company will become commercially available as approved
pharmaceutical products for at least the next several years, if at all. The
Company's potential products are at very early stages of research and
development, with only one preclinical drug development candidate identified to
date. Under the terms of a collaboration agreement between the Company and Astra
Pharma, Astra Pharma owns all rights to compounds being developed for the
treatment of pain on behalf of Astra Pharma and the Company will not receive any
royalties on the sale of any products developed under the agreement.
The Company's potential products will require significant additional
preclinical and clinical development, regulatory approval and additional
investment prior to commercialization, either by the Company independently or by
others through collaborative arrangements. Potential products that appear to be
promising at early stages of development may be ineffective or be shown to cause
harmful side effects during preclinical testing or clinical trials, fail to
receive necessary regulatory approvals, be difficult to manufacture, be
uneconomical to produce, fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of others. There can be no assurance
that any potential products will be successfully developed, prove to be safe and
efficacious in clinical trials, meet applicable regulatory standards, be capable
of being produced in commercial quantities at acceptable costs or achieve
commercial acceptance.
NEW AND UNCERTAIN TECHNOLOGY AND BUSINESS
The Company's integrated approach to drug discovery and its PDPS technology
are largely new approaches to drug discovery. There can be no assurance that the
Company will be able to employ its methods of drug discovery successfully or
that its technologies and methodologies will lead to the discovery or
development of commercial pharmaceutical products. Although the Company has
developed a number of potential lead compounds, to date, the Company has
developed only one preclinical drug development candidate. There can be no
assurance that any of the Company's product development efforts will be
successfully completed or that any product developed using the Company's
technology will achieve market acceptance. See "Business."
DEPENDENCE ON COLLABORATORS
The Company's strategy involves the formation of collaboration agreements,
principally with pharmaceutical and biotechnology companies. The Company
currently has three such collaboration agreements. Historically, pharmaceutical
and biotechnology companies have conducted lead compound identification and
optimization within their own research departments due to the highly proprietary
nature of the activities, the central importance of these activities to their
drug discovery and development efforts and the desire to obtain maximum patent
and other proprietary protection on the results of their internal programs.
Pharmaceutical and biotechnology companies must be persuaded that the Company's
drug discovery technology and expertise justify entering into collaboration
agreements with the Company. There can be no assurance that the Company will be
able to negotiate additional collaboration agreements in the future on
acceptable terms, if at all, or that such current or future collaboration
agreements will be successful. To the extent that the Company
6
<PAGE> 8
chooses not to or is unable to establish such agreements, it will require
substantially greater capital to undertake the research, development and
marketing of products at its own expense. In addition, in the absence of such
collaboration agreements, the Company may be required to delay or curtail its
research and development activities to a significant extent.
The amount and timing of resources that current and future collaborators,
if any, devote to collaborations with the Company are not within the control of
the Company. There can be no assurance that such collaborators will perform
their obligations as expected or that the Company will derive any additional
revenue from such agreements. Moreover, the Company's collaborations may be
terminated by its collaborators upon three to six months' notice, which
terminations could result in the Company's relinquishing rights to products
developed jointly with its collaborators. In June 1996, the collaboration
agreement between the Company and Amgen Inc. ("Amgen") was terminated by Amgen.
In connection with the termination, the Company redeemed 2,978,182 shares of
Series A Preferred Stock held by Amgen by issuance to Amgen of an unsecured,
non-interest bearing promissory note in the principal amount of $4,500,000, due
June 28, 2001, and issued to Amgen a warrant to purchase 450,000 shares of
Common Stock of the Company at an exercise price of $1.51 per share. In
addition, pursuant to the termination agreement, Alanex is obligated to provide
to Amgen, on a non-exclusive basis, certain compounds that were included in the
Alanex technology licensed to Amgen under the collaboration agreement. In
exchange for such compounds, Amgen agreed to pay Alanex $400,000. Any future
termination of the Company's existing or future collaboration agreements could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Collaboration Agreements and
Licenses" and "Certain Transactions."
The Company's agreements with its collaborators do not obligate the
collaborators to develop or commercialize lead compounds discovered by the
Company. Continued collaborator participation will depend not only on the
achievement of research objectives by the Company and its collaborators, which
cannot be assured, but also on each collaborator's own financial, competitive,
marketing and strategic considerations, all of which are outside the Company's
control. Such strategic considerations may include the relative advantages of
alternative products being marketed or developed by others, including relevant
patent and proprietary positions. There can be no assurance that the interests
and motivations of the Company's collaborators are, or will remain, aligned with
those of the Company, that current or future collaborators will not pursue
alternative technology in preference to that of the Company or that such
collaborators will successfully perform their development, regulatory
compliance, manufacturing or marketing functions. Should a collaborator fail to
develop or commercialize a compound or product to which it has rights from the
Company, the Company may not receive any future milestone payments or royalties
associated with such compound or product, and the Company may have only limited
or no rights to commercialize such compounds or products. In addition, there can
be no assurance any product will be developed and marketed as a result of such
collaborations or that any such development or commercialization would be
successful. See "Business -- Collaboration Agreements and Licenses" and
"Business -- Government Regulation."
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE OPERATING RESULTS
The Company was initially formed as a partnership in May 1991 and was
incorporated in November 1993. Accordingly, the Company has only a limited
operating history upon which an evaluation of the Company and its prospects can
be based. As of June 30, 1996, the Company had an accumulated deficit of
$444,000. The Company incurred net losses for the years ended December 31, 1993,
1994 and 1995 of $981,000, $939,000 and $762,000, respectively. The Company
anticipates that its operating expenses will increase substantially in the
foreseeable future as it expands its operations. The increased expenses
associated with such expansion may not be offset by significant revenue.
Further, the Company's revenue from collaboration agreements is affected by the
timing of efforts expended by the Company and the timing of lead compound
identification. The Company's collaborative agreements provide for milestone
payments and/or royalties only upon significant preclinical and clinical
development, requisite regulatory approvals and successful marketing of
commercialized pharmaceutical products. The Company expects that its ability to
achieve profitability will be dependent upon the success of its current
collaborations as well as its ability to enter into additional collaboration
agreements. The Company has not yet received any significant revenue from the
achievement of milestones, royalties or license fees from the discovery,
development or sale of a commercial drug and, with regard to royalties and
license fees, no such revenue is expected for a number of years, if at all.
7
<PAGE> 9
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING; RISK OF FURTHER
DILUTION TO STOCKHOLDERS
To continue to maintain the competitiveness of its technologies and to
conduct costly and time-consuming research and development, the Company will be
required to raise substantial funds in addition to the proceeds from this
offering. The Company anticipates that the net proceeds from this offering,
together with the Company's existing capital resources, will be adequate to fund
the Company's operations through 1998. The Company's forecast of the period of
time through which its financial resources will be adequate to support its
operations is a forward-looking statement that involves risks and uncertainties,
and actual results could vary as a result of a number of factors, including
those described in these Risk Factors and elsewhere in this Prospectus.
There can be no assurance that the Company's collaboration agreements will
produce revenue adequate to fund the Company's operating expenses. Moreover, the
Company's future capital requirements will depend on many factors, including,
among others, (i) continued scientific progress in its research and development
programs, (ii) the ability of the Company to establish and maintain
collaboration agreements, (iii) the costs involved in developing new
combinatorial chemistry and other capabilities, (iv) the costs involved in
preparing, filing, prosecuting, maintaining and enforcing patent claims, (v)
competing technological and market developments, (vi) progress of preclinical
and clinical trials and (vii) in the long term, effective commercialization
activities and arrangements.
As of June 30, 1996, the Company had aggregate outstanding indebtedness of
approximately $6,507,000, consisting of an unsecured, non-interest bearing
promissory note in the principal amount of $4,500,000 (not discounted for
imputed interest) due June 28, 2001, $715,000 outstanding on its existing line
of credit and a term loan in the principal amount of $1,240,000 and $52,000 of
other indebtedness. The Company anticipates that it will need to raise
additional capital in order to conduct its operations and repay such
indebtedness. Such additional capital may be raised through additional public or
private financings, as well as collaboration agreements, borrowings and other
resources. To the extent that additional capital is raised through the sale of
equity or equity-related securities, the issuance of such securities could
result in dilution to the Company's stockholders. There can be no assurance that
additional funding will be available on favorable terms, if at all. If adequate
funds are not available, the Company may be required to curtail operations
significantly or to obtain funds through entering into arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies or product candidates that the Company
would not otherwise relinquish. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
MANAGEMENT OF MULTIPLE COLLABORATIONS
The Company has three collaboration agreements and the Company's strategy
is to enter into additional collaboration agreements. Accordingly, because the
Company's agreements with its collaborators may result in the development of
similar compounds for multiple parties, there can be no assurance that conflicts
will not arise among collaborators as to rights to particular compounds in the
Company's libraries. Failure to successfully manage existing and future
collaborations, if any, or the occurrence of conflicts could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Collaboration Agreements and Licenses."
GOVERNMENT REGULATION; NO ASSURANCE OF PRODUCT APPROVAL
The U.S. Food and Drug Administration (the "FDA") and comparable agencies
in foreign countries impose substantial requirements on biotechnology and
pharmaceutical companies prior to the introduction of therapeutic products.
These requirements include lengthy and detailed laboratory and clinical testing
procedures, sampling activities and other costly and time-consuming procedures.
In particular, human therapeutic products are subject to rigorous preclinical
and clinical testing and other approval requirements by the FDA and comparable
foreign agencies. Although the time required for completing such testing and
obtaining such approvals is uncertain, satisfaction of these requirements
typically takes a number of years and varies substantially based on the type,
complexity and novelty of the pharmaceutical product. The Company cannot
accurately predict when product applications or submissions for FDA or other
regulatory review may
8
<PAGE> 10
be submitted. The lengthy process of obtaining regulatory approvals and ensuring
compliance with appropriate federal statutes and regulations requires the
expenditure of substantial resources. Any delays or failure by the Company or
its collaborators or licensees to obtain regulatory approval and ensure
compliance with appropriate standards could adversely affect the
commercialization of such products, the Company's ability to earn product or
royalty revenue and its results of operations, liquidity and capital resources.
Any future FDA or other governmental approval of products, developed by the
Company independently or by collaborators, may entail limitations on the
indicated uses for which such products may be marketed. Approved products may be
subject to additional testing and surveillance programs as required by
regulatory agencies. In addition, product approvals may be withdrawn or limited
for noncompliance with regulatory standards or the occurrence of unforeseen
problems following initial marketing. Any party that manufactures therapeutic
products, including collaborators or contract manufacturers, would be required
to adhere to applicable standards for manufacturing practices and to engage in
extensive record keeping and reporting. Any manufacturing facilities, whether of
the Company, its collaborators or contract manufacturers, would be subject to
periodic inspection by state and federal agencies, including the FDA and
comparable agencies in foreign countries. See "Business -- Government
Regulation."
The effect of governmental regulation may be to delay the marketing of new
products for a considerable period of time, to impose costly requirements on the
activities of the Company or its collaborators or to provide a competitive
advantage to other companies that compete with the Company or its collaborators.
There can be no assurance that FDA or other regulatory approval for any products
developed by the Company or its collaborators will be granted on a timely basis,
if at all or, if granted, that compliance with regulatory standards will be
maintained. Adverse clinical results by the Company, its collaborators or by
others could have a negative impact on the regulatory process and timing. A
delay in obtaining, or failure to obtain, regulatory approvals could preclude or
adversely affect the marketing of products and the Company's liquidity and
capital resources. The extent of potentially adverse governmental regulation
that might arise from future legislation or administrative action cannot be
predicted.
The Company is also subject to various federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with its research
work. The extent and character of governmental regulation that might result from
future legislation or administrative action cannot be accurately predicted. See
"-- Potential Liability Regarding Hazardous Materials."
INTENSE COMPETITION; RISK OF OBSOLESCENCE OF TECHNOLOGY
Competition in the pharmaceutical and biotechnology industry is intense.
Many organizations are actively attempting to identify and optimize compounds
for potential pharmaceutical development. The Company competes directly with the
research departments of pharmaceutical companies, biotechnology companies,
chemical companies and with other combinatorial chemistry companies and research
and academic institutions. Many of these competitors have greater financial and
other resources, and more experience in research and development, than the
Company.
Historically, pharmaceutical companies have maintained close control over
their research activities, including the synthesis, screening and optimization
of chemical compounds. Many of these companies, which represent potential
collaborators, are developing their own combinatorial chemistry and other
methodologies to improve productivity. Academic institutions, governmental
agencies and other research organizations are also conducting research in areas
in which the Company is working, either on their own or through collaborative
efforts. In addition, the Company competes with several alternative technologies
in the design and synthesis of new chemical libraries for drug discovery
programs. Such competition is based on the speed and efficiency of lead compound
identification and the efficiency of lead compound optimization. A competitor's
ability to identify or optimize lead compounds more quickly or more efficiently
than the Company could adversely affect the Company. The Company's processes may
be rendered obsolete or uneconomical by technological advances or entirely
different approaches developed by one or more of the
9
<PAGE> 11
Company's competitors. There can be no assurance that the existing approaches of
the Company's competitors or new approaches or technology developed by the
Company's competitors will not be more effective than those of the Company. See
"Business -- Competition."
UNCERTAINTIES ASSOCIATED WITH PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in large part on its ability, and the
ability of its licensees and licensors, to obtain patents for its technologies
and compounds, if any, resulting from the application of such technologies, to
defend patents once obtained and to maintain trade secrets, both in the United
States and in foreign countries. To date, the Company has filed six U.S. patent
applications. The success of the Company will also depend upon avoiding the
infringement of patents issued to competitors. There can be no assurance that
the Company or its collaborators will be able to obtain patent protection for
lead compounds or pharmaceutical products based upon the Company's technology.
Moreover, there can be no assurance that any patents issued to the Company or
its collaborators, or for which the Company has a license, will not be
challenged, invalidated or circumvented or that the rights granted thereunder
will provide competitive advantages to the Company. Litigation, which could
result in substantial cost to the Company, may be necessary to enforce the
Company's patent and license rights or to determine the scope and validity of
others' proprietary rights. If competitors of the Company prepare and file
patent applications in the United States that claim technology also claimed by
the Company, the Company may have to participate in interference proceedings
declared by the U.S. Patent and Trademark Office (the "PTO") to determine the
priority of invention, which could result in substantial cost to the Company,
even if the outcome is favorable to the Company.
Because of the length of time and expense associated with bringing new
products through development and the length of time required for the
governmental approval process, the pharmaceutical industry has traditionally
placed considerable importance on obtaining and maintaining patent and trade
secret protection for significant new technologies, products and processes. The
Company and other biotechnology and pharmaceutical firms have applied, and are
applying, for patents for their products and certain aspects of their
technologies. The enforceability of patents issued to biotechnology and
pharmaceutical firms can be highly uncertain. Federal court decisions
establishing legal standards for determining the validity and scope of patents
in the field are in transition. For example, in a currently pending case, the
U.S. Supreme Court will consider whether to alter or replace the traditional
standard for determining patent infringement under the doctrine of equivalents.
There can be no assurance that the historical legal standards surrounding
questions of validity and scope will continue to be applied or that current
defenses as to issued patents in the field will offer protection in the future.
In addition, there can be no assurance that patents will issue or, if issued, as
to the degree and range of protection any such patents will afford or the extent
to which the Company will be successful in not infringing patents granted to
others.
A number of pharmaceutical and biotechnology companies, and research and
academic institutions, have developed technologies, filed patent applications or
received patents on various technologies that may be related to the Company's
business. Some of these technologies, applications or patents may conflict with
the Company's technologies or patent applications. Such conflicts could also
limit the scope of the patents, if any, that the Company may be able to obtain
or result in the denial of the Company's patent applications.
Many of the Company's competitors have, or are affiliated with companies
having, substantially greater resources than the Company, and such competitors
may be able to sustain the costs of complex patent litigation to a greater
degree and for longer periods of time than the Company. Uncertainties resulting
from the initiation and continuation of any patent or related litigation could
have a material adverse effect on the Company's ability to compete in the
marketplace pending resolution of the disputed matters. Moreover, an adverse
outcome could subject the Company to significant liabilities to third parties
and require the Company to license disputed rights from third parties or cease
using the technology. The Company is aware of a U.S. patent issued to a third
party that broadly claims proprietary rights in the automation of iterative
parallel synthesis technology. Although the Company believes that its current
activities do not infringe this patent, there can be no assurance that the
Company's belief would be affirmed in any litigation over the patent or that the
Company's future technological developments would be outside the scope of this
patent. In the event that
10
<PAGE> 12
third parties have or obtain rights to intellectual property or technology used
or needed by the Company, there can be no assurance that any licenses would be
available to the Company or would be available on terms reasonably acceptable to
the Company.
The Company also relies on certain proprietary technologies, trade secrets
and know-how that are not patentable. Although the Company has taken steps to
protect its unpatented trade secrets and technology, in part through the use of
confidentiality agreements with its employees, consultants and certain of its
contractors, there can be no assurance that (i) these agreements will not be
breached, (ii) the Company would have adequate remedies for any breach or (iii)
the Company's proprietary trade secrets and know-how will not otherwise become
known or be independently developed or discovered by competitors. See "Business
- -- Patents and Proprietary Information."
DEPENDENCE ON KEY EMPLOYEES
The Company is highly dependent on the principal members of its scientific
and management staff. The Company does not maintain key person life insurance on
the life of any employee. The Company's future success also will depend in part
on the continued service of its key scientific personnel in its computational
and medicinal chemistry and pharmacology departments as well as software,
engineering and management personnel and its ability to identify, hire and
retain additional qualified personnel. The Company has entered into an
employment agreement with its Director of Finance. The Company has not entered
into employment agreements with any other key employees.
There is intense competition for qualified personnel in the areas of the
Company's activities, and there can be no assurance that the Company will be
able to continue to attract and retain such personnel necessary for the
development of the Company's business. Because of the intense competition, there
can be no assurance that the Company will be successful in adding technical
personnel as needed to meet the staffing requirements of additional
collaborative relationships. Failure to attract and retain key personnel could
have a material adverse effect on the Company. See "Business -- Employees" and
"Management."
POTENTIAL LIABILITY REGARDING HAZARDOUS MATERIALS
The research and development processes of the Company involve the
controlled use of hazardous materials. The Company is subject to federal, state
and local laws and regulations governing the use, manufacture, storage, handling
and disposal of such materials and certain waste products. The risk of
accidental contamination or injury from hazardous materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any such liability could exceed the financial
resources of the Company. In addition, there can be no assurance that in the
future the Company will not be required to incur significant costs to comply
with environmental laws and regulations relating to hazardous materials. See
"Business -- Government Regulation."
RISK OF PRODUCT LIABILITY; POTENTIAL UNAVAILABILITY OF INSURANCE
The Company's business will expose it to potential product liability risks
that are inherent in the testing, manufacturing and marketing of human
therapeutic products. The Company does not currently have product liability
insurance, and there can be no assurance that the Company will be able to obtain
or maintain such insurance on acceptable terms or, if obtained, that such
insurance will provide adequate coverage against potential liabilities.
CONCENTRATION OF OWNERSHIP
Upon completion of this offering, the current directors, executive officers
and affiliated entities will beneficially own approximately 57.8% of the
outstanding Common Stock (54.5% of the outstanding Common Stock if the
over-allotment option is exercised in full). In particular, upon completion of
this offering, Debar ERA, Inc. ("Debar") and The Jon and Caroline Jessen Family
1990 Trust (the "Jessen Family Trust") will in the aggregate beneficially own
38.7% of the outstanding Common Stock (36.5% of the outstanding Common Stock if
the over-allotment option is exercised in full). Juli Jessen, the daughter of
Jon Jessen, a
11
<PAGE> 13
director of the Company, is the trustee of the Jessen Family Trust. All of the
outstanding shares of Debar are held by the adult children of Jon Jessen and are
subject to a voting trust, the trustee of which is Mark Jessen, a son of Jon
Jessen. Mark Jessen, who is also the President and Chief Executive Officer of
Debar, has sole disposition and voting power over the shares held in the voting
trust. As a result, these stockholders will be able to exercise control over all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. Such concentration of ownership
may also have the effect of delaying, discouraging or preventing tender offers
for the Common Stock or changes in control of the Company unless the terms are
approved by such stockholders. See "Principal Stockholders" and "Description of
Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial numbers of shares of Common Stock in the public market
following this offering could adversely affect the market price for the Common
Stock. Upon completion of this offering, the Company will have outstanding
6,247,635 shares of Common Stock, based upon the number of shares outstanding as
of September 1, 1996. Of these shares, all of the 2,500,000 shares sold in this
offering will be freely tradable (unless such shares are purchased by
"affiliates" of the Company, as that term is defined in Rule 144 ("Rule 144")
under the Securities Act of 1933, as amended (the "Securities Act")), without
restriction or registration under the Securities Act. The remaining 3,747,635
shares of Common Stock held by existing stockholders are "restricted
securities," as that term is defined in Rule 144 under the Securities Act (the
"Restricted Shares"), and are eligible for public sale only if they are
registered under the Securities Act or sold in accordance with Rules 144, 144(k)
or 701 promulgated under the Securities Act ("Rule 701"). As a result of
contractual restrictions and the provisions of Rules 144, 144(k) and 701,
additional shares will be available for sale in the public market as follows:
(i) no Restricted Shares will be eligible for immediate sale in the public
market on the date of this Prospectus; (ii) 2,973,715 Restricted Shares (plus
522,182 shares of Common Stock issuable to employees pursuant to stock options
that are then vested) will be eligible for sale upon expiration of lock-up
agreements 180 days after the date of this Prospectus; and (iii) an additional
773,920 Restricted Shares will be eligible for sale from time to time thereafter
upon expiration of their respective two-year holding periods under Rule 144.
Future sales of shares by existing stockholders pursuant to Rule 144, 144(k) or
701 could have an adverse effect on the market price of the Common Stock or
otherwise impair the Company's ability to raise additional capital. See
"Description of Capital Stock" and "Shares Eligible for Future Sale."
ANTITAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and
Bylaws, as well as provisions of Delaware law, could discourage potential
acquisition proposals and delay or prevent a change in control of the Company.
For example, the Company's Certificate of Incorporation authorizes the Board of
Directors to issue up to 10,000,000 shares of Preferred Stock and to determine
the designations, price, rights, powers, preferences, privileges, and
limitations, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The Certificate of
Incorporation and Bylaws, among other things, provide for a classified Board of
Directors, require that stockholder actions occur at duly called meetings of the
stockholders, limit the persons who may call special meetings of stockholders,
do not permit cumulative voting in the election of directors and require advance
notice of stockholder proposals and director nominations. Certain provisions
contained in the Company's charter documents and certain applicable provisions
of Delaware law could discourage a hostile bid in which stockholders could
receive a premium for their shares. In addition, these provisions could have the
effect of making it more difficult for a third party to acquire a majority of
the outstanding voting stock of the Company, or delay, prevent or deter a
merger, acquisition or tender offer in which the Company's stockholders could
receive a premium for their shares, or a proxy contest for control of the
Company or other change in the Company's management. See "Management" and
"Description of Capital Stock."
NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after this offering.
12
<PAGE> 14
The initial public offering price will be determined by negotiation between the
Company and the Representatives of the Underwriters based on several factors and
may not be indicative of the book value of the Company's assets, market price of
the Common Stock after this offering or any other indicator of financial value.
See "Underwriting."
In addition, the market prices for securities of biotechnology companies
have been highly volatile and the market has experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. Announcements of failure to attain milestones with respect
to the Company's programs, the Company's ability or inability to enter into
additional collaborations, developments concerning proprietary rights, including
patents and litigation matters, publicity regarding actual or potential results
with respect to research or compounds under development by the Company or its
collaborative partners, regulatory developments in both the United States and
foreign countries, public concern as to the efficacy of new technologies,
developments in the field of combinatorial chemistry, general market conditions
and other factors may have a significant impact on the market price of the
Common Stock. Failures by other drug discovery companies, including
combinatorial chemistry companies, could have an adverse effect on the market
price of the Common Stock. In the past, following periods of volatility in the
market price for a company's securities, securities class action litigation has
often been instituted. Such litigation could result in substantial costs and a
diversion of management attention and resources, which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
IMMEDIATE AND SUBSTANTIAL DILUTION; NO DIVIDENDS
The initial public offering price of the Common Stock is substantially
higher than the net tangible book value per share of the Common Stock. At an
assumed initial public offering price of $11.00 per share, (the midpoint of the
range set forth on the cover page of this Prospectus) investors participating in
this offering will incur an immediate, substantial dilution in net tangible book
value of $6.79 per share and may incur additional dilution upon exercise of
outstanding stock options and warrants.
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any and all earnings for use in
its business and does not anticipate paying any dividends within the foreseeable
future. See "Dilution" and "Dividend Policy."
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $25,000,000 ($28,836,000 if the
Underwriters' over-allotment option is exercised in full), based on an assumed
public offering price of $11.00 per share (the midpoint of the range set forth
on the cover page of this Prospectus), and after deducting underwriting
discounts and commissions and estimated offering expenses.
The Company currently intends to use the proceeds of this offering as
follows: approximately 65% for research and development, approximately 10% for
facilities expansion and approximately 25% for general corporate purposes and
working capital. The Company believes the net proceeds of this offering, along
with its existing resources, will be adequate to fund the Company's operations
through 1998. The preceding forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those projected, as set forth in Risk Factors and elsewhere in this
Prospectus. The amounts and timing of expenditures will depend, among other
things, on the rate of progress in expanding the Company's core technologies,
the Company's success in entering into collaboration agreements, the timing of
payments under the Company's current and future collaboration agreements, the
progress of ongoing research and development, the results of preclinical testing
and clinical trials, the rate at which operating losses are incurred, the FDA
regulatory process and other factors, many of which are beyond the Company's
control. The Company's management and Board of Directors have broad discretion
in determining how the proceeds of this offering will be allocated.
In addition, the Company may use a portion of the net proceeds of this
offering to acquire or invest in complementary businesses or technologies,
through mergers, acquisitions, joint ventures or otherwise. However, the Company
currently has no specific agreements or commitments with respect to such
transactions.
Pending the uses described above, the Company intends to invest the net
proceeds of this offering in short-term, investment grade securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings to finance
the growth and development of its business and, therefore, does not anticipate
paying any cash dividends in the foreseeable future.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company (i) at June 30, 1996, and (ii) as adjusted to give effect to the sale of
the 2,500,000 shares of Common Stock offered by the Company at an assumed
initial public offering price of $11.00 per share (the midpoint of the range set
forth on the cover page of this Prospectus) and the application of the estimated
net proceeds therefrom. This table should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, less current maturities(1).............................. $3,716 $ 3,716
Stockholders' equity:
Preferred stock, $.001 par value: 10,000,000 shares authorized; no
shares issued and outstanding, actual and as adjusted.............. -- --
Common Stock, $.001 par value: 40,000,000 shares authorized; 3,736,892
shares issued and outstanding actual and 6,236,892 shares issued
and outstanding as adjusted(2)..................................... 4 6
Additional paid-in capital............................................ 1,924 26,922
Note receivable from officer for Common Stock purchased............... (12) (12)
Deferred compensation................................................. (160) (160)
Accumulated deficit................................................... (444) (444)
------ ------
Total stockholders' equity......................................... 1,312 26,312
------ ------
Total capitalization.......................................... $5,028 $30,028
====== ======
</TABLE>
- ---------------
(1) See Note 5 of Notes to Consolidated Financial Statements.
(2) Excludes (i) 892,700 shares of Common Stock issuable upon exercise of
options outstanding as of June 30, 1996 with a weighted average exercise
price of $0.10 per share and 450,000 shares of Common Stock issuable upon
exercise of an outstanding warrant with an exercise price of $1.51 per share
and (ii) 10,743 shares of Common Stock issued upon exercise of options
subsequent to June 30, 1996 and 72,767 shares of Common Stock (net of
cancellations) issuable upon exercise of options granted subsequent to June
30, 1996. Also excludes 125,000 shares of Common Stock subject to an
offering under the Company's Employee Stock Purchase Plan that will commence
upon the date hereof. See Note 7 and Note 12 to Notes to Consolidated
Financial Statements, "Management--Stock Option and Equity Incentive Plans,"
"Management--Stock Options Granted Outside of the 1993 Plan and the 1996
Plan," "Management--Employee Stock Purchase Plan" and "Description of
Capital Stock--Warrants."
15
<PAGE> 17
DILUTION
The net tangible book value of the Company as of June 30, 1996 was
approximately $1,282,000, or $0.34 per share. Net tangible book value per share
is equal to the Company's total tangible assets less total liabilities, divided
by the number of outstanding shares of Common Stock. After giving effect to the
sale by the Company of the 2,500,000 shares of Common Stock offered hereby (at
an assumed initial public offering price of $11.00 per share, the midpoint of
the range set forth on the cover page of this Prospectus) and after deducting
underwriting discounts and commissions and estimated offering expenses, the net
tangible book value of the Company at June 30, 1996 would have been
approximately $26,282,000 million, or $4.21 per share. This represents an
immediate increase in net tangible book value of $3.87 per share to existing
stockholders and an immediate dilution of $6.79 per share to new investors
purchasing shares in this offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $11.00
Net tangible book value at June 30, 1996.................. $0.34
Increase in net tangible book value attributable to new
investors.............................................. 3.87
Net tangible book value after this offering................. 4.21
-----
Dilution to new investors................................... $ 6.79
=====
</TABLE>
The following table summarizes, as of June 30, 1996, the differences
between existing stockholders and the new investors with respect to the number
of shares of Common Stock purchased from the Company, the total consideration
paid to the Company and the average price per share paid (before deducting
underwriting discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).... 3,736,892 60% $ 198,689 1% $ 0.05
New investors............... 2,500,000 40% 27,500,000 99% $ 11.00
--------- ----- -------- -----
Total....................... 6,236,892 100% $27,698,689 100%
========= ===== ======== =====
</TABLE>
- ---------------
(1) The foregoing tables and calculations exclude (i) 892,700 shares of Common
Stock issuable upon exercise of options outstanding as of June 30, 1996 with
a weighted average exercise price of $0.10 per share and 450,000 shares of
Common Stock issuable upon exercise of a warrant outstanding as of June 30,
1996 with an exercise price of $1.51 per share and (ii) 10,743 shares of
Common Stock issued upon exercise of options subsequent to June 30, 1996 and
72,767 shares of Common Stock (net of cancellations) issuable upon exercise
of options granted subsequent to June 30, 1996. Also excludes up to 125,000
shares of Common Stock subject to an offering under the Company's Employee
Stock Purchase Plan that will commence upon the date hereof. See Note 7 and
Note 12 of Notes to Consolidated Financial Statements. To the extent that
options and warrants are exercised in the future, there will be further
dilution to new investors. See "Management -- Stock Option and Equity
Incentive Plans," "Management -- Stock Options Granted Outside of the 1993
Plan and the 1996 Plan," "Management -- Employee Stock Purchase Plan" and
"Description of Capital Stock -- Warrants."
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The selected consolidated financial data presented below under the captions
"Consolidated Statement of Operations Data" and "Consolidated Balance Sheet
Data" should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto. The Consolidated Statement of Operations Data for
the years ended December 31, 1993, 1994 and 1995 and the Consolidated Balance
Sheet Data as of December 31, 1993, 1994 and 1995 are derived from the
consolidated financial statements of the Company and its subsidiary, which
financial statements have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The consolidated financial statements as of
December 31, 1994 and 1995, and for each of the years in the three-year period
ended December 31, 1995, and the independent auditors' report thereon, are
included elsewhere in this Prospectus. The Consolidated Statement of Operations
Data for the six months ended June 30, 1995 and 1996, and the Consolidated
Balance Sheet Data as of June 30, 1996, are derived from the unaudited
consolidated financial statements of the Company and its subsidiary included
elsewhere in this Prospectus. The results of operations for the six months ended
June 30, 1996 are not necessarily indicative of the results for any future
period or for the full year ending December 31, 1996. The Consolidated Statement
of Operations Data for the periods ended December 31, 1991 and 1992, and the
Consolidated Balance Sheet Data as of December 31, 1991 and 1992, are derived
from unaudited financial statements not included in this Prospectus. The
unaudited financial statements have been prepared on a basis consistent with the
Company's audited financial statements and include all adjustments, consisting
only of normal recurring adjustments, that management believes necessary for a
fair presentation of the Company's financial position and results of operations
for these periods.
<TABLE>
<CAPTION>
INCEPTION SIX MONTHS
(MAY 1991) ENDED
THROUGH YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------------------------ ---------------
1991(1) 1992(1) 1993(1) 1994 1995 1995 1996
------------ ------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Contract research revenue........................ $ -- $ 50 $ 23 $ 50 $ 944 $ 382 $ 946
Contract research revenue from related party..... -- -- -- 1,440 2,565 1,215 1,275
Project initiation fees.......................... -- -- -- 250 250 -- 2,000
Other revenue.................................... 12 13 6 16 7 -- 3
----- ----- ------ ------- ------ ------ ------
Total revenue.......................... 12 63 29 1,756 3,766 1,597 4,224
----- ----- ------ ------- ------ ------ ------
Operating expenses:
Research and development....................... 115 599 816 2,181 3,685 1,522 2,274
General and administrative..................... 18 80 162 585 804 387 562
----- ----- ------ ------- ------ ------ ------
Total operating expenses.................... 133 679 978 2,766 4,489 1,909 2,836
----- ----- ------ ------- ------ ------ ------
Income (loss) from operations.................... (121) (616) (949) (1,010) (723) (312) 1,388
Interest income.................................. -- -- -- 97 180 84 79
Interest expense................................. -- -- (31) (25) (168) (37) (105)
Loss on sale of property and equipment........... -- -- -- -- (49) -- --
----- ----- ------ ------- ------ ------ ------
Income (loss) before income taxes................ (121) (616) (980) (938) (760) (265) 1,362
Income taxes..................................... -- -- (1) (1) (2) (2) (2)
----- ----- ------ ------- ------ ------ ------
Net income (loss)................................ $ (121) $(616) $ (981) $ (939) $ (762) $ (267) $1,360
===== ===== ====== ======= ====== ====== ======
Net income (loss) per share(2)................... -- -- $(0.24) $ (0.22) $(0.17) $(0.06) $ 0.30
===== ===== ====== ======= ====== ====== ======
Number of shares used in computing net income
(loss) per share(2)............................ -- -- 4,012 4,364 4,504 4,464 4,545
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------- JUNE 30,
1991(1) 1992(1) 1993 1994 1995 1996
------- ------- ----- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and debt securities available for sale................ $ 8 $ 6 $ 2 $ 3,346 $ 2,167 $4,343
Total assets............................................... 97 225 331 4,808 5,758 7,745
Long-term debt, less current maturities.................... -- 149 74 43 1,164 3,716
Accumulated deficit........................................ -- -- (100) (1,039) (1,801) (444)
Total partners' capital/stockholders' equity............... 97 76 57 3,629 2,881 1,312
</TABLE>
- ---------------
(1) Includes operations of the Partnership. The 1991 and 1992 partners'
capital/stockholders' equity data reflect the partners' equity interest in
the Partnership. See "Certain Transactions."
(2) See Note 1 of Notes to Consolidated Financial Statements.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve
certain risks and uncertainties. The Company's actual results may differ
materially from the results discussed in the forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus. The following discussion should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
included elsewhere in this Prospectus.
OVERVIEW
The Company has devoted substantially all of its resources to the
development of its highly integrated and comprehensive drug discovery technology
and to its efforts to discover and optimize small molecule drug candidates. The
Company intends to continue to develop in-house programs for the discovery of
new drugs and has established and will continue to seek corporate collaborations
with major pharmaceutical companies and biotechnology companies. Since inception
in May 1991, the Company raised $6.3 million through private sales of equity
securities (including the sale to Amgen of 2,978,182 shares of Series A
Preferred Stock of the Company in April 1994). See "Certain Transactions."
To date, the Company's revenue under collaboration agreements has consisted
of project initiation fees of $2.5 million and contract research revenue of $8.5
million. Contract research revenue is recognized at the time that research and
development activities are performed under the terms of the research contracts.
Contract research payments are generally received in advance of the performance
of the related research activities under the contract at the beginning of each
quarter. Such payments received in excess of amounts earned are recorded as
deferred contract research revenue. Project initiation fees and milestone
payments are nonrefundable and the contracts do not specify any future
performance obligations on the part of the Company related to such fees or
payments. Project initiation fees are recognized under the contract as revenue
when earned, generally when received, upon signing of an agreement. Revenue from
milestone payments will be recognized if and when the results or events
stipulated in the agreement have been achieved. To date, the Company has not
received any milestone payments under any of its collaboration agreements.
The Company earned revenue in 1994 and 1995 under collaboration agreements
with Amgen, Astra Pharma and Novo Nordisk. The Company expects that it will
continue to earn revenue from the collaborations noted, with the exception of
the Amgen collaboration, which was terminated in June 1996. In addition, the
Company expects to earn revenue from a collaboration with Roche Bioscience. See
"Business -- Collaboration Agreements." The Company will be required to conduct
significant research and development activities over the next several years to
fulfill its obligations under its collaboration agreements. The Company has
incurred cumulative net losses of $444,000 through June 30, 1996.
To date, the Company has not earned any revenue related to product sales
and the Company expects that its revenue sources over the next few years will be
limited to contract research payments under collaboration agreements. The timing
and amounts of such revenue will vary based on the terms of such collaboration
agreements. The Company anticipates that its operating expenses will increase
substantially as it expands its research and development efforts and the
increased expenses associated with such expansion may not be offset by
significant revenue.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Total revenue for the six-month period ended June 30, 1996 increased by
164% to $4.2 million from $1.6 million in the six-month period ended June 30,
1995. Of the total revenue, contract research revenue in the six-month period
ended June 30, 1996 increased by 39% to $2.2 million compared to $1.6 million in
the corresponding period of 1995. For the six-month period ended June 30, 1996,
contract research revenue from the Company's collaborative agreements totalled
$1.3 million from Amgen, $386,000 from Astra and
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<PAGE> 20
$560,000 from Novo Nordisk. During the same period, project initiation fees were
$2.0 million, due to the signing of the Roche Bioscience collaboration
agreement.
Research and development expenses for the first six months of 1996
increased by 49% to $2.3 million from $1.5 million in the same period of 1995.
The increase reflects increased research and development expenses incurred both
on behalf of collaborators and under programs funded by the Company.
General and administrative expenses for the six-month period ended June 30,
1996 increased by 45% to $562,000 from $387,000 for the corresponding period of
1995. The increase is primarily due to increased legal expenses related to
contract negotiations and accounting expenses, expenses of recruiting and hiring
of administrative personnel and increased business development activities.
The Company records and amortizes over the related vesting periods deferred
compensation representing the difference between the exercise price of options
granted and the deemed fair market value of its Common Stock at the time of
grant. Options generally vest over four years. Deferred compensation amortized
to expense through June 30, 1996 was $3,000. Amortization of deferred
compensation over the next four fiscal years in connection with options granted
to date, including compensation recognized to date, will aggregate $601,750 as
such options vest.
The Company's net income for the six-month period ended June 30, 1996
compared to a net loss for the comparable period of 1995, is due principally to
the recognition of revenue from the non-refundable project initiation fee
received in connection with the signing of the three-year collaboration
agreement with Roche Bioscience in 1996.
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993.
Total revenue increased by approximately 114% to $3.8 million in 1995 from
$1.8 million in 1994. This increase was due to a higher level of activity
related to collaborative research. Total revenue in 1993 was $29,000. For 1995,
contract research revenue from collaboration agreements totalled $2.6 million
from Amgen, $750,000 from Astra, $186,000 from Novo Nordisk and $8,000 from
miscellaneous research contracts, and a nonrefundable project initiation fee of
$250,000 from Novo Nordisk. The 1994 revenues were primarily attributable to
research support payments of $1.4 million from Amgen and a nonrefundable project
initiation fee of $250,000 from Astra Pharma.
Research and development expenses increased by 69% to $3.7 million in 1995
from $2.2 million in 1994. Research and developments costs totaled $816,000 in
1993. The increases were due to increased levels of research and development
under collaboration agreements and programs funded by the Company and include
costs associated with hiring of research and development personnel, increased
costs associated with depreciation of equipment and facilities expenses and
increased purchases of laboratory supplies and services.
General and administrative expenses increased by 37% to $804,000 in 1995
from $585,000 in 1994 primarily due to increased recruiting and hiring of
administrative personnel and expenses related to increases in travel for
business development, and legal and accounting expenses. General and
administrative expenses totaled $162,000 in 1993.
The Company's net loss decreased by 19% to $762,000 in 1995 from $939,000
1994. The total net operating loss in 1993 was $981,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception through the private
sales of equity securities, revenue from research collaborations and various
term financing arrangements. In 1994, the Company raised $4.5 million from the
private sale of Series A Preferred Stock in connection with a collaboration
agreement with Amgen. The Series A Preferred Stock was redeemed in June 1996 as
part of the termination of the collaboration agreement. In consideration of the
stock redemption, the Company issued to Amgen an unsecured, non-interest bearing
$4.5 million promissory note due on June 28, 2001. In connection with the
termination of the collaboration agreement, Amgen's warrant to purchase 703,636
shares of Common Stock was canceled and the Company issued to Amgen a new
warrant to purchase 450,000 shares of Common Stock at an exercise price of $1.51
per share with a term of seven years. See "Certain Transactions."
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<PAGE> 21
In June 1994, the Company secured $1.2 million in working capital financing
from Merrill Lynch Business Financial Services, Inc. The credit facility
requires $240,000 of the principal balance of the loan to be converted to a term
loan and paid annually. Interest is due monthly at an interest rate of 2.95%
above the 30-day commercial paper rate (8.42% at September 12, 1996). The
repayment of the term note and all amounts outstanding on the credit facility
are secured by the assets of the Company and are also guaranteed by Amgen. At
June 30, 1996, $715,000 was outstanding under the line of credit.
In May 1995, the Company acquired and improved new facilities at a total
cost of $1.9 million. Of this total, $1.4 million was financed by Genesee
Properties, the owner of the property, at 11% payable over a seven-year term.
As of June 30, 1996, the Company had $4.3 million in cash, debt securities
available for sale and interest receivable. Through June 30, 1996, the Company
had invested $4.3 million in research facility improvements, laboratory and
computer equipment and furniture.
Contract research payments under collaboration agreements are generally
received in advance of the performance of the related research activities at the
beginning of each quarter. Nonrefundable project initiation fees are generally
received upon the signing of the collaboration agreement. Under the Company's
collaboration agreements, milestone payments are to be received if and when the
results or events stipulated in the agreement have been achieved.
The Company's net cash provided by operating activities was $2.6 million
for the six-month period ended June 30, 1996. The cash was provided primarily by
the revenue earned in June 1996 with the signing of the Roche Bioscience
collaboration agreement. Net cash provided by financing activities included $1.7
million of long-term financing in 1995 used for facilities expansion, $482,000
in 1994 and $124,000 in 1993. Net borrowings on the Company's line of credit
were $219,000 in 1995 and $506,000 in 1994. The Company's net cash used in
operating activities was $62,000 in 1995, $421,000 in 1994 and $834,000 in 1993.
Cash used for capital expenditures was $134,000 for the six-month period ended
June 30, 1996, $2.6 million in 1995, $1.3 million in 1994 and $3,000 in 1993.
The Company expects to use a portion of the proceeds of this offering for
additional capital expenditures. See "Use of Proceeds."
The Company anticipates that the net proceeds from this offering, together
with its existing capital resources, will be sufficient to fund the Company's
operations and capital requirements through 1998. The Company's forecast of the
period of time through which its financial resources will be adequate to support
its operations is a forward-looking statement that involves risk and
uncertainties and actual results could vary as a result of a number of factors,
including those described herein and included in Risk Factors. There can be no
assurance the Company will not be required to use its available capital
resources sooner than anticipated. The Company's future capital requirements
will depend on many factors, including among others, (i) continued scientific
progress in its research and development programs, (ii) the ability of the
Company to establish and maintain collaboration agreements, (iii) the costs
involved in developing new combinatorial chemistry and other capabilities, (iv)
the costs involved in preparing, filing, prosecuting, maintaining and enforcing
patent claims, (v) competing technological and market developments, (vi)
progress of preclinical and clinical trials and (vii) in the long term,
effective commercialization activities and arrangements.
The Company anticipates that it will need to raise additional capital over
the next several years in order to conduct its operations. Such capital may be
raised through additional public or private financings, as well as collaboration
agreements, borrowings and other available resources. To the extent that
additional capital is raised through the sale of equity or equity-related
securities, the issuance of such securities could result in dilution to the
Company's existing stockholders. There can be no assurance that additional
funding will be available on favorable terms, if at all.
NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," effective for fiscal years beginning after December 15, 1995.
Under the provisions of SFAS 123, the Company is encouraged, but not required,
to measure compensation costs related to its employee stock compensation under
the fair value method. If the Company elects not to recognize compensation
expense under this method, it is required to disclose the pro forma effects
based on the SFAS 123 methodology. The Company anticipates adopting the pro
forma method of disclosure under SFAS 123.
20
<PAGE> 22
BUSINESS
OVERVIEW
Alanex is a drug discovery company that is applying its highly integrated
and comprehensive approach to rapidly and cost-effectively discover and optimize
novel, small molecule drug candidates. The Company's proprietary core drug
discovery technology, Pharmacophore Directed Parallel Synthesis (PDPS),
accelerates the steps necessary to discover small molecule drug candidates, from
the initial identification of compounds that exhibit activity against selected
biological targets to the progression of these compounds to drug candidates for
human clinical trials. PDPS combines combinatorial chemistry with computational
and medicinal chemistries which, when used in conjunction with high throughput
screening and pharmacology, form an integrated drug discovery platform that can
be broadly applied to a wide array of biological targets. An important element
of the Company's strategy is to enter into collaborations with pharmaceutical
companies. Alanex has collaboration agreements with Astra Pharma, Novo Nordisk
and Roche Bioscience. To date, Alanex has used PDPS to identify one preclinical
drug development candidate, which is for the treatment of pain, and a number of
lead compounds in four other programs that address diseases or conditions for
which existing therapies are inadequate or unavailable, including diabetes,
obesity, depression and anxiety.
A major challenge for the pharmaceutical industry is the rapid and
cost-effective identification of lead compounds and their subsequent development
into drugs. Combinatorial chemistry -- which creates large libraries of
molecules by generating combinations of chemical building blocks -- represents a
significant advance in drug discovery technology, permitting the identification
of lead compounds on a more rapid and cost-effective basis. The Company believes
that a key factor in the successful application of combinatorial chemistry,
however, is the diversity, not simply the number, of compounds comprising a
combinatorial library. Alanex uses its proprietary library design software,
LiBrain, to maximize the diversity of its exploratory library by selecting for
synthesis compounds from Alanex's virtual library of over 140 million chemical
structures. The Company's exploratory library is increasing at an average rate
of 10,000 individual compounds per month and currently consists of over 150,000
synthesized compounds.
Alanex believes that its ability to create a highly diverse library of
individual molecules increases the likelihood of discovering lead compounds. The
Company's drug discovery approach broadens the scope of combinatorial chemistry
to include the transition from lead compound to drug candidate by making
medicinal chemistry an integral part of the PDPS technology and by focusing on
the synthesis of compounds with drug-like structures. Optimization of lead
compounds into drug candidates can be accelerated by Alanex's ability to quickly
design and synthesize thousands of derivatives of a lead compound and purify
them using the Company's proprietary parallel chromatography technology.
The Company's opiate agonist program, its most advanced drug discovery
program, has produced compounds that, in preclinical models, act as potent,
orally active analgesics with a novel mechanism of action for the treatment of
pain. This program is being conducted on behalf of Astra Pharma and is in
preclinical development. From initiation of this program to production of
preclinical compounds required only 14 months. Alanex's diabetes programs, which
are being pursued in conjunction with Novo Nordisk, focus on two distinct
molecular targets and have produced active lead compounds for each target.
Alanex's neuropeptide Y (NPY) antagonist program has produced active lead
compounds for the potential treatment of obesity and cardiovascular disease. In
addition, the Company's corticotrophin releasing factor (CRF) antagonist program
has produced active lead compounds that are being evaluated for the treatment of
depression and anxiety. Alanex recently initiated a project to discover drugs
that inhibit the action of gonadotropin releasing hormone (GnRH) for the
treatment of endometriosis and sex hormone-dependent tumors. Most recently, in
collaboration with Roche Bioscience, Alanex initiated a project to discover an
antagonist for an undisclosed target for the treatment for pain. Alanex intends
to continue to develop in-house programs for the discovery of new drugs. The
Company will also continue to seek corporate collaborations with major
pharmaceutical companies in order to capitalize on the emerging trend in the
pharmaceutical industry to outsource those components of drug discovery that can
be more efficiently provided by firms with unique or focused technologies.
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BACKGROUND
The discovery process for small molecule drugs typically includes two
steps: lead discovery and optimization of leads into drug candidates. Lead
discovery is the identification of one or more compounds that are active with
respect to a selected biological target. These compounds are identified through
screening of large collections of chemical compounds, either accumulated over
time or newly synthesized using combinatorial chemistry. A compound with the
most desirable pharmacological features is selected as a lead compound.
Although lead compounds display desirable pharmacological characteristics,
they typically do not initially have sufficient potency and selectivity to
qualify as drug candidates. Lead optimization improves upon a lead compound's
pharmacological characteristics by synthesizing and testing a number of
structural analogs of the lead compound. Typically, the chemical structure of
the lead compound must be significantly modified to optimize bioavailability and
stability and to minimize toxicity and undesirable side effects.
TRADITIONAL DRUG DISCOVERY
Historically, lead discovery and optimization were performed almost
exclusively by the internal research and development departments of large
pharmaceutical companies. In general, pharmaceutical companies' drug discovery
programs were limited to the use of collections of natural products and
compounds developed in previous drug discovery programs. As a result, existing
pharmaceutical libraries typically reflect a lack of chemical diversity and
breadth. Once lead compounds were identified, optimization was performed one
compound at a time using traditional medicinal chemistry. This approach to lead
discovery and optimization has been time consuming, expensive and often
ineffective in yielding a successful drug candidate.
Recently, the pharmaceutical industry has been under pressure to lower the
cost and increase the efficiency of its drug discovery efforts. Cost containment
efforts by governmental agencies, managed care organizations and third-party
payors have reduced profit margins, particularly for drugs that have generic
equivalents or therapeutic alternatives. To overcome pricing pressures,
pharmaceutical companies must develop innovative drugs that address unmet
medical needs or offer improvements over available therapies. At the same time,
advances in molecular biology and genomics have led to the discovery of an
increasing number of novel biological targets. Research efforts at
pharmaceutical and biotechnology companies, universities and other institutions
have identified novel receptors, enzymes and other proteins as drug targets and
have generated information on their potential role in human diseases. The
identification of these targets has expanded the opportunity for the discovery
and development of new drugs.
Despite the proliferation of new drug targets and increased spending on
drug discovery by major pharmaceutical companies, there has not been a
significant increase in the number of new drugs approved by the FDA on an annual
basis over the last 12 years. Furthermore, the time required to develop and
commercialize a drug is, on average, 15 years. Consequently, pharmaceutical
companies have placed high priority on improving their drug discovery
productivity and on capitalizing in an efficient manner on the proliferation of
new molecular targets.
COMBINATORIAL CHEMISTRY
Combinatorial chemistry emerged as a solution to many of the challenges of
traditional drug discovery. Combinatorial chemistry methods are capable of
generating large libraries of diverse molecules by creating combinations of
chemical building blocks. Such methods are intended to significantly shorten the
time and reduce the costs traditionally associated with the drug discovery
process.
Initial combinatorial chemistry methods were based primarily on the use of
oligomeric chemistry in which a single chemical reaction was used to combine
structurally different building blocks in a polymeric fashion. However,
compounds in libraries compiled using oligomeric chemistry methods, typically
oligonucleotides and peptides, are generally not ideal drug candidates because
they are not usually bioavailable and are metabolized quickly.
A significant advance in combinatorial chemistry was the shift to the
synthesis of drug-like, small molecule compounds that would be orally
bioavailable and metabolized at an acceptable rate. However, these
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compounds were typically generated in large mixtures. The use of mixtures makes
it possible to synthesize many compounds simultaneously and to screen them as
mixtures. The large number of compounds present in mixtures, however, requires
elaborate tagging and deconvolution methods to identify the specific compounds
with activity. These methods are generally expensive and time consuming.
Moreover, biological testing of mixtures often generates false positive results,
which can lead to inefficient and unproductive research.
The Company believes that existing combinatorial chemistry technologies
lack robust methods for converting active compounds identified through the
screening of libraries into lead compounds and drug candidates. Screening of
combinatorial libraries usually results in the identification of one or more
active compounds, or "hits." These hits may represent false leads or may be
weakly active predecessors of highly active and desirable drug candidates. Thus,
library screening and hit identification represent only the first in a series of
steps required for successful drug discovery. Combinatorial chemistry must be
integrated with medicinal chemistry and pharmacology to perform not only initial
improvement of activity of identified hits, but also full optimization of other
pharmacological characteristics, such as selectivity, metabolic stability,
bioavailability and safety.
The Company believes that the successful application of combinatorial
chemistry will require an integrated comprehensive approach to drug discovery
that will:
- Produce distinct individual compounds in sufficient numbers to generate
active hits against specific biological targets while avoiding the
limitations associated with the testing of mixtures;
- Generate diverse libraries containing only drug-like small molecules with
a relatively greater likelihood of being developed into drug candidates;
and
- Efficiently develop hits identified through the screening of compound
libraries into lead compounds and drug candidates by integrating
medicinal chemistry and pharmacology.
ALANEX'S DRUG DISCOVERY TECHNOLOGY
OVERVIEW
Alanex's drug discovery process is built around its PDPS technology that
has been designed to produce large numbers of diverse individual small molecule
compounds. PDPS is instrumental not only in the initial identification of active
lead compounds, but also in the efficient optimization of these leads into a
drug candidate. This is achieved by integrating combinatorial, computational and
medicinal chemistries with high throughput screening and
pharmacology -- disciplines that the Company believes are critical for achieving
success in drug discovery.
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<PAGE> 25
MAIN COMPONENTS OF THE ALANEX
INTEGRATED DRUG DISCOVERY PROCESS
[Diagram illustrating the components of Alanex's drug discovery process. The
stylized arrow reflects the direction of the process from lead discovery to lead
optimization into a drug candidate. Chemical contribution to the drug discovery
process is represented by Alanex's PDPS technology for which Library Design,
Combinatorial Chemistry and Medicinal Chemistry components are shown with the
types of libraries they produce. Biological testing is represented by two
components: High Throughput Screening and In-Depth Pharmacology.]
[DIAGRAM]
PDPS
LIBRARY DESIGN
Virtual Library
>140,000,000
chemical structures
COMBINATORIAL MEDICINAL
CHEMISTRY CHEMISTRY
EXPLORATORY LIBRARY TARGETED LIBRARIES ANALOG LIBRARIES
>150,000 cpds Evaluation of hits Optimization
Screening for Selection of lead of lead
initial hits compounds compounds
[arrow pointing to right]
LEAD DISCOVERY LEAD OPTIMIZATION DRUG
CANDIDATE
HIGH
THROUGHPUT IN-DEPTH
SCREENING PHARMACOLOGY
BIOLOGICAL TESTING
Drug discovery at Alanex relies on the generation and screening of
combinatorial libraries. The successful discovery of drug candidates requires
that libraries be intelligently designed to provide a desired range of molecular
diversity and to incorporate available structural information about the selected
biological target. Alanex's proprietary library design software, LiBrain, is
used to create a large "virtual" library from which compounds to be synthesized
are selected, thereby facilitating the design of diverse exploratory, targeted
or analog combinatorial libraries. If no information is available regarding the
requirements for drug activity for a selected target, the initial search for a
hit is performed by screening Alanex's exploratory library, which consists of a
large number of molecules that have been selected to maximize diversity. When
information is available regarding the requirements for drug activity, targeted
or focused libraries are synthesized and screened. In a step-by-step fashion,
increasingly focused libraries are synthesized and screened to yield a drug
candidate with desirable activity. Alanex's PDPS technology produces
combinatorial libraries through high-speed, parallel synthesis of arrays of low
molecular weight individual compounds in a standard 96-well format used in high
throughput screening. Synthesized compounds can be purified using Alanex's
proprietary parallel chromatography technology.
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<PAGE> 26
COMBINATORIAL LIBRARIES
Virtual Library. Alanex has created and is continuing to expand its virtual
library -- a collection of chemical structures that result from the combination
of available reagents with the chemical reactions for library synthesis.
Although the Company's proprietary software can access tens of billions of
molecular structures, the virtual library includes only those structures that
are drug-like and can be synthesized at Alanex within one or two days.
Currently, the Company's virtual library contains over 140 million such
structures, and its size increases as more reactions and more available building
blocks are added. This resource provides Alanex the ability to rapidly create
exploratory, targeted and analog libraries to use in the drug discovery process.
Exploratory Library. Alanex's exploratory library contains a diverse set of
molecules. Compounds in the Company's exploratory library are screened when no
information is available about the structure of the target or about small
molecules that are capable of binding to the target. As of July 1996, Alanex's
exploratory library contained over 150,000 synthesized compounds. The library
continues to grow at an average rate of approximately 10,000 individual
compounds per month.
Targeted Pharmacophore-Directed Libraries. Alanex's targeted libraries are
designed to incorporate all available information about the structural
requirements of a target. Alanex utilizes its targeted libraries either to
perform combinatorial optimization directed at identified hits or to discover
novel leads that are structurally different from known molecules but display
similar pharmacophoric features. A typical Alanex targeted library contains
between several hundred and several thousand compounds.
Analog Libraries. Once an active compound has been identified, related
structural analogs are synthesized to determine which parts of the molecule are
critical for biological activity and which parts can be replaced or modified to
optimize other pharmacological characteristics, such as oral bioavailability.
This task, traditionally performed by medicinal chemists one analog at a time,
is accomplished at Alanex using PDPS to rapidly design and synthesize analog
libraries typically containing between several dozen and several hundred
analogs.
IDENTIFICATION OF LEAD COMPOUNDS
To screen the large numbers of compounds generated through the application
of Alanex's PDPS technology, the Company has established high throughput
screening facilities currently capable of testing thousands of compounds per
day. All screening operations are performed in a standard 96-well format using
commercially available robotic workstations, which allow systematic expansion of
capacity as needed. A dedicated group of pharmacologists develops and supports
new high throughput screening assays. When hits are identified using new high
throughput screening assays, they are subjected to a series of secondary
pharmacological assays to determine their functional activity and selectivity.
Confirmed hits displaying promising pharmacological profiles become chemical
leads.
OPTIMIZATION OF LEAD COMPOUNDS INTO DRUG CANDIDATES
Lead compounds usually require significant structural modification to
optimize their activity, selectivity and bioavailability, or to improve
metabolic stability and minimize toxicity. Lead optimization is an iterative
process in which structural and biological information obtained from each series
of active molecules is used to design and synthesize new compounds with improved
pharmacological characteristics. Alanex has incorporated its medicinal chemistry
expertise into PDPS to significantly accelerate the optimization of lead
compounds into viable drug candidates. New targeted and analog libraries focused
on essential structural and pharmacological features of current leads are
rapidly designed and synthesized. Compounds in these libraries are purified
using Alanex's parallel chromatography technology to obtain reliable data about
structure-activity relationships. In parallel with PDPS, Alanex medicinal
chemists often utilize additional chemistries when such an approach is required
for the efficient modification of the current lead compounds.
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<PAGE> 27
The Company's integrated approach to drug discovery and its PDPS technology
are largely new approaches to drug discovery. There can be no assurance that the
Company will be able to employ its methods of drug discovery successfully or
that its technologies and methodologies will lead to discovery and development
of commercial pharmaceutical products. See "Risk Factors -- New and Uncertain
Technology and Business."
KEY BENEFITS OF ALANEX'S DRUG DISCOVERY APPROACH
VIRTUAL LIBRARY
Alanex's virtual library is comprised of more than 140 million chemical
structures, any one of which can be synthesized and screened by the Company in
one or two days. Access to such a large number of structures allows Alanex to
choose optimal sets of molecules for actual synthesis of both its diverse
exploratory library and targeted libraries.
LIBRARY DESIGN AND INFORMATION MANAGEMENT SOFTWARE
A central feature of Alanex's technology is the Company's proprietary
software, LiBrain, that is integrated into all stages of the drug discovery
process. This software is used to build and access chemical structures from
Alanex's virtual library, to evaluate and choose compounds for the synthesis of
exploratory, targeted and analog libraries, and to track and manage all chemical
and biological data associated with the testing of libraries and discovery of a
drug candidate.
DIVERSITY OF LIBRARY COMPOUNDS
Alanex's exploratory library is composed of multiple sub-libraries (1,000
to 10,000 compounds each) based on a variety of different chemical "templates,"
the fundamental core of the molecules. To create these sub-libraries, Alanex has
adapted over 45 chemical reactions and is continually expanding its list of
chemical reactions. The exploratory library achieves a high level of diversity
because the diversity within each sub-library is compounded by the large number
of templates. The Company believes that this approach to combinatorial
chemistry, as opposed to utilizing larger libraries with fewer templates,
enhances the likelihood of discovery of active compounds.
SYNTHESIS OF DRUG-LIKE STRUCTURES
Alanex designs and synthesizes libraries focused on structures that are
expected to have drug-like characteristics, such as compact heterocylic
structures, low molecular weights and other desirable pharmacological
properties. Compounds with these structures are preferred as drug candidates
because they are more likely to be orally active and typically have longer
duration of action.
SYNTHESIS OF INDIVIDUAL COMPOUNDS
Alanex's combinatorial synthesis technology produces large numbers of
distinct individual compounds and avoids the disadvantages associated with the
testing of mixtures. Individual compounds can be synthesized in larger
quantities than is typical with mixtures, allow for the performance of quality
control and can be used in a wide range of assays. Alanex's library production
is largely automated, and individual compounds are synthesized at an average
rate in excess of 10,000 per month.
ABILITY TO CONVERT LEAD COMPOUNDS INTO DRUG CANDIDATES
Alanex's PDPS' technology integrates combinatorial, computational and
medicinal chemistries with pharmacology and high throughput screening to expand
the scope of combinatorial chemistry by providing efficient tools for the
conversion of lead compounds into drug candidates. Optimization of important
pharmacological characteristics of the lead compounds requires modification of
its chemical structure. Alanex's access to over 45 chemical reactions and its
ability to add new reactions allows it to modify lead compounds in a wide
variety of ways, thus significantly facilitating the process of combinatorial
optimization.
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In addition, Alanex's in-house medicinal chemistry expertise provides access to
chemical structures unavailable through combinatorial chemistry.
ALANEX'S DRUG DISCOVERY PROGRAMS
Alanex is currently advancing seven drug discovery programs in conjunction
with corporate collaborators or independently. In selecting programs, the
Company considers (i) the existence of a characterized molecular target, (ii)
the existence or adequacy of available remedies, (iii) the potential market size
for any product and (iv) a collaborator's area of interest. The table below
identifies current Alanex drug discovery programs and their molecular targets,
indications, program status and commercial rights.
<TABLE>
<CAPTION>
PROGRAM (MOLECULAR TARGET) INDICATION STATUS OF PROGRAM(1) COMMERCIAL RIGHTS
- ---------------------------- ---------------------------- -------------------- -----------------
<S> <C> <C> <C>
Opiate Agonist Pain Preclinical Studies Astra Pharma
Agonist for Undisclosed Diabetes Lead Development Novo Nordisk
Target
Antagonist for Undisclosed Diabetes Preclinical Studies Novo Nordisk
Target
Neuropeptide Y Antagonist Obesity and cardiovascular Lead Development Alanex
disease
CRF Antagonist Depression and anxiety Lead Development Alanex
GnRH Antagonist Endometriosis and sex Lead Discovery Alanex
hormone-dependent tumors
Antagonist for Undisclosed Pain Lead Discovery Roche Bioscience
Target
</TABLE>
- ---------------
(1) "Preclinical Studies" indicates that Alanex is conducting pharmacology and
toxicology testing of chemical leads in animal models and in vitro
(biochemical or cell culture assays). "Lead Development" indicates that
Alanex has identified a compound that meets preselected in vitro criteria
for potency and specificity. "Lead Discovery" includes the development of
assay systems, screening of chemical libraries and discovery of lead
compounds.
ASTRA PHARMA PAIN PROGRAM
The drugs used for the treatment of severe or chronic pain are generally of
limited effectiveness or associated with problems of tolerance, addiction and
gastrointestinal side effects. As a result, there is a substantial need for
effective pain relieving agents with a more favorable side effect profile. The
recent molecular cloning of multiple opiate receptor subtypes affords the
opportunity to discover new classes of analgesics.
On behalf of Astra Pharma, Alanex applied its PDPS technology and
discovered a new class of analgesic compounds that interact with a novel opiate
receptor target. From initiation of the program to production of preclinical
compounds required only 14 months. There can be no assurance that the Company
will be able to develop compounds in other programs as rapidly. These compounds
have been shown to be orally active in preclinical studies and are currently
being considered by Astra Pharma as possible clinical candidates. See
"Collaboration Agreements and Licenses."
NOVO NORDISK DIABETES PROGRAMS
Diabetes is a common and frequently devastating disease that can lead to
the development of debilitating and life threatening cardiovascular disease,
blindness, kidney failure and neurologic disorders. Diabetes affects seven
million to eight million individuals in the United States. Control of blood
glucose levels using insulin and oral hypoglycemic agents are the most common
forms of treatment for diabetes. However, these treatments are frequently
inadequate because they neither provide sufficient control of blood glucose
levels nor prevent the development of the serious complications associated with
the disease. Discovery of drugs that
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augment the synthesis, release and action of insulin could improve the
regulation of blood glucose levels and potentially reduce the severity of the
complications of diabetes.
Two molecular targets have been selected by Alanex and Novo Nordisk as the
basis for discovery of new drugs to treat diabetes. Addressing these two
targets, one with an agonist and one with an antagonist, may offer the
opportunity to introduce drugs with new mechanisms of action to treat diabetes
and its complications. Alanex has discovered and is optimizing lead compounds
for the agonist molecular target and is currently conducting preclinical studies
on compounds for the antagonist molecular target. See "Collaboration Agreements
and Licenses."
NEUROPEPTIDE Y (NPY) ANTAGONIST PROGRAM
Neuropeptide Y (NPY) is a 36-amino acid peptide that is involved in the
regulation of the cardiovascular, immune and gastrointestinal systems. NPY is
also present within nerves of the brain that regulate appetite and mood. Several
different NPY receptors have been identified, providing the opportunity to
discover NPY antagonists that are selective for modulating one among several
possible actions of NPY. Alanex has discovered detailed information on the
molecular requirements for NPY's binding to its receptors and is using this
information to discover NPY receptor antagonists for the treatment of obesity
and cardiovascular disease.
Obesity. Current estimates indicate that over 20% of the United States
population is obese. Obesity is a major risk factor responsible for the
development of hypertension, diabetes, degenerative joint disease, abnormal
wound healing and other major medical problems. Recent reports indicate that
direct and indirect costs associated with obesity were greater than $68 billion
in 1990.
NPY is a powerful known appetite stimulant and has been demonstrated to be
present in abnormally high amounts in the brains of obese animals. Based on
these observations, Alanex believes that a suitable antagonist could block the
effects of NPY, resulting in decreased appetite and normalization of body
weight. In addition, NPY antagonists that control obesity may also serve as
adjunctive therapy in the treatment of obesity-related diseases, such as
diabetes, hypertension and degenerative joint disease. Alanex has discovered a
lead compound that blocks NPY-induced feeding in preclinical models. This
compound is currently being evaluated for its effects on feeding and obesity in
preclinical models.
Cardiovascular Disease. Cardiovascular disease, including hypertension,
ischemic organ disease (such as myocardial infarction and stroke), heart failure
and reperfusion injury, is the leading cause of human morbidity and mortality in
the United States. There are currently over 900,000 deaths per year (43% of
deaths from all causes) in the United States that are attributable to
cardiovascular disease.
In humans, excessive release of NPY may elevate blood pressure, decrease
blood flow to heart muscle and impair heart function. In addition, NPY may play
a role in the development of reperfusion abnormalities that are observed
following angioplasty and stroke. The Company believes that NPY antagonists
could be useful in the treatment of some forms of cardiovascular disease. Alanex
has discovered a lead compound that is active and is being evaluated in
preclinical models for its effects on cardiovascular function.
CORTICOTROPIN RELEASING FACTOR (CRF) ANTAGONIST PROGRAM
Corticotropin releasing factor (CRF) is a 41-amino acid peptide that is
synthesized in the brain and is released following stress. CRF is the primary
regulator of the pituitary gland, the autonomic (involuntary) nervous system and
the behavioral responses that are produced by stress. CRF acts on the pituitary
gland to release adrenocorticotropic hormone, which in turn stimulates steroid
hormone release from the adrenal gland. Within the brain, CRF affects hormones
that control growth and reproduction and activates the autonomic nervous system
to modify cardiovascular, metabolic, gastrointestinal and immune functions.
Under appropriate circumstances, these CRF-induced responses to stress are
important to restore or maintain homeostasis. However, repeated exposure to
stress may produce depression and anxiety, as well as a number of other
disorders that result from the actions of CRF. Two different CRF receptor
subtypes are known to mediate the actions of CRF.
Depression and anxiety represent major health problems throughout the
world. The lifetime prevalence in the United States for any one person of
clinical depression is 10% and of generalized anxiety is 15%. Studies
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<PAGE> 30
performed on preclinical models and human subjects indicate a potential role of
CRF in mediating depression and anxiety. Development of a potent, orally
available drug that blocks the actions of CRF could be useful in the treatment
of these indications.
Alanex is using its drug discovery technologies to develop an antagonist of
CRF that can be used to treat depression and anxiety. Alanex has discovered lead
compounds that are highly active on specific CRF receptor subtypes, and these
compounds are currently being optimized and evaluated in preclinical models for
their effects on depression and anxiety.
GNRH ANTAGONIST PROGRAM
Gonadotropin releasing hormone (GnRH) is a decapeptide that is synthesized
in the brain and controls the pituitary and gonadal hormones that regulate
fertility. In women, this peptide is required for successful ovulation and, in
men, it is necessary for spermatogenesis. Alanex is engaged in a program to
discover orally active small molecule drugs to treat two areas of human disease
that depend on GnRH action -- endometriosis and sex-hormone dependent tumors.
The GnRH project, initiated in July 1996, utilizes a human pituitary GnRH
receptor licensed from Mount Sinai School of Medicine of the City University of
New York ("Mount Sinai"). This project is in the lead discovery phase.
Endometriosis. Endometriosis is an abnormal proliferation of uterine tissue
and is dependent, in part, on the production of sex hormones. Endometriosis
affects 7% of women of reproductive age in the United States and is the major
cause of female infertility. Because GnRH controls sex hormone production,
peptide antagonists of GnRH have been used to successfully treat endometriosis.
However, this treatment involves the use of peptide analogs of GnRH that, due to
the chemical makeup of the drug, may be painful to patients. Orally active
antagonists of GnRH should be less costly, involve less patient pain and
increased patient compliance.
Sex-hormone Dependent Tumors. The growth of certain tumors, such as breast
cancer, is dependent on sex hormones. The Company believes that antagonists of
GnRH may be useful in the treatment of breast cancer in women and prostate
cancer in men. Prostate cancer is the most common form of cancer in men and is
currently diagnosed at a rate of approximately 100,000 new cases per year.
Presently there are an estimated 8.5 million men with prostate cancer in the
United States. Breast cancer is the most common form of cancer in women and has
a 12% cumulative lifetime probability of developing in any particular woman.
ROCHE BIOSCIENCE PAIN PROGRAM
In June 1996, the Company entered into a collaboration with Roche
Bioscience to discover an antagonist for an undisclosed target for the treatment
of pain. This project is in the lead discovery phase. The Company will perform
all aspects of this drug discovery project, including high throughput screening
of its exploratory library and lead optimization to provide Roche Bioscience
with one or more drug candidates. See "-- Collaboration Agreements and
Licenses."
The Company's potential products will require significant additional
preclinical and clinical development, regulatory approval and additional
investment prior to commercialization, either by the Company independently or by
others through collaborative arrangements. There can be no assurance that any
potential products will be successfully developed, prove to be safe and
efficacious in clinical trials, meet applicable regulatory standards, be capable
of being produced in commercial quantities at acceptable costs or achieve
commercial acceptance. See "Risk Factors -- Early Stage of Product Development;
Lack of Commercial Products; No Assurance of Successful Product Development."
STRATEGY
Alanex's objective is to use its integrated combinatorial chemistry drug
discovery technology to rapidly identify lead compounds and to efficiently
optimize these leads into drug development candidates that will address disease
conditions for which existing therapies are inadequate or unavailable. Key
elements of the Company's strategy to achieve this objective include the
following:
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<PAGE> 31
CAPITALIZE ON STRATEGIC COLLABORATIONS WITH PHARMACEUTICAL COMPANIES
Alanex has established and will continue to seek collaborations with major
pharmaceutical companies. Under such collaborations, the Company's intent is to
license to its collaborators the commercial rights to compounds discovered by
the Company in exchange for upfront project initiation fees, research funding,
milestone payments and royalties on drug sales, where appropriate. This approach
is intended to capitalize on the emerging trend in the pharmaceutical industry
to outsource certain components of drug discovery that can be more efficiently
provided by firms that have unique or focused technologies.
ENTER INTO STRATEGIC RELATIONSHIPS WITH BIOTECHNOLOGY COMPANIES
The Company believes that, while a number of biotechnology companies have
identified biological targets, many lack an adequate supply of differentiated
chemical entities for incorporation into their assay systems for the discovery
of drugs. To access these novel targets, the Company intends to establish
collaborations with biotechnology companies that have discovered novel
biological targets. Under these collaborations, Alanex intends to screen its
exploratory library against the collaborator's proprietary targets. Unlike its
collaborations with pharmaceutical companies, the Company anticipates that it
would fund a share of the development costs in return for increased commercial
rights with respect to such products.
DEVELOP AND ADVANCE INTERNAL DRUG DISCOVERY PROGRAMS
Alanex will continue to develop in-house programs for the discovery of new
drugs. Alanex anticipates that it may, where appropriate, advance certain lead
compounds through the early phases of clinical development in order to retain a
larger economic interest in such products. During the course of development, the
Company may enter into a collaboration to continue clinical development or may
license a product, if approved, for manufacturing or marketing. Alanex will
develop the programs internally or, where appropriate, the Company will seek to
license proprietary biological targets from biotechnology companies, academic
and nonprofit research institutions to be the foundation of the Company's
in-house drug discovery programs. In the long term, Alanex may choose to
develop, manufacture and market its products independently.
COLLABORATION AGREEMENTS AND LICENSES
The Company has collaborative agreements with Astra Pharma, Novo Nordisk
and Roche Bioscience, as well as a licensing agreement with Mount Sinai. The
amount and timing of resources that the collaborators devote to the
collaborations are not within the control of the Company. There can be no
assurance that such collaborators will perform their obligations as expected or
that the Company will derive any additional revenue from such collaborations.
See "Risk Factors -- Dependence on Collaborators."
ASTRA PHARMA
In December 1994, the Company and Astra AB entered into a three-year
collaboration agreement for the identification and optimization of lead
compounds that interact with a specific opiate receptor which may have
application in the treatment of pain. The agreement was subsequently assigned to
Astra Pharma, an affiliate of Astra AB. The Company was paid a project
initiation fee of $250,000 and Astra Pharma is obligated to make additional
payments upon the achievement of certain milestones. In addition, Astra Pharma
is obligated to provide up to $2.25 million of additional funding to support
research undertaken in connection with the agreement. To date, Alanex has
received $1.3 million under the collaboration agreement. Under the terms of the
collaboration, Astra Pharma owns all rights in and has title to any and all
compounds discovered and products developed as a result of the research
collaboration. The Company has no right to commercialize and is not entitled to
receive royalties on the sales of any products resulting from the collaboration
agreement. Astra Pharma may terminate the collaboration agreement at any time
upon three months' written notice. In the event of early termination of the
collaboration agreement, Astra Pharma will have exclusive title to all compounds
and associated intellectual property rights discovered as a result of the
collaboration.
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NOVO NORDISK
In October 1995, the Company and Novo Nordisk entered into a three-year
collaboration agreement for the characterization of novel, non-peptide ligands
with desired receptor ligand binding affinities to be used to develop small
molecule drugs for the treatment of diabetes. Novo Nordisk paid the Company a
project initiation fee of $250,000 and is obligated to make additional payments
to the Company upon the achievement of certain milestones. In addition, Novo
Nordisk is obligated to provide up to $4.5 million in additional funding to
support research at the Company in the field of the collaboration. To date,
Alanex has received $1.3 million under the collaboration agreement. The
agreement provides that, in the event the collaboration results in a drug
candidate which Novo Nordisk elects to pursue to commercialization, Novo Nordisk
will be granted an exclusive worldwide license to develop and commercialize such
drug candidate. The Agreement provides for the Company to receive royalties on
the sales of any such drug. Novo Nordisk may, at any time, terminate the
collaboration upon three months' written notice. Upon any such early
termination, any licenses granted to Novo Nordisk by Alanex under the
collaboration agreement will continue in full force and effect, unless otherwise
specifically terminated.
ROCHE BIOSCIENCE
In June 1996, the Company and Roche Bioscience entered into a three-year
collaboration agreement to discover an antagonist for an undisclosed target for
the treatment of pain. The agreement provides for Roche Bioscience to pay to the
Company a nonrefundable project initiation fee of $4.0 million, one-half of
which was paid and recognized as revenue upon execution of the collaboration
agreement and one-half of which Roche will be obligated to pay on October 31,
1996. Roche Bioscience is obligated to make additional payments upon the
achievement of certain milestones. In addition, during the term of the
agreement, Roche Bioscience will provide a minimum of $5.5 million in additional
funding to support research personnel at the Company, and the Company will work
exclusively with Roche Bioscience on the selected molecular target. To date, the
Company has received $2,575,000 under the collaboration agreement. Roche
Bioscience also has the option, until January 15, 1997, to expand the field of
research to include the funding of one or more additional molecular targets. The
agreement provides Roche Bioscience with an exclusive worldwide license to
commercialize any compounds resulting from the research that are selected by
Roche Bioscience for further development and to pay royalties to Alanex on any
sales of products developed from the collaboration. Alanex will retain all
rights to compounds not selected by Roche Bioscience for development, provided
that Roche Bioscience is not developing a structurally-related compound on which
Roche Bioscience will be paying milestones and royalties to the Company, and
Alanex may pursue such compounds following termination of the collaboration.
Upon completion of the first year of the agreement, Roche Bioscience may
terminate the collaboration at any time upon six months' prior written notice.
If the collaboration agreement is terminated prior to its expiration, all
licenses granted by the parties to one another will terminate and revert back to
the respective parties, but Roche Bioscience will retain the right to
commercialize any products resulting from the research efforts under licenses
granted by the Company prior to the termination.
MOUNT SINAI
In June 1996, the Company and Mount Sinai entered into an agreement to
conduct research relating to the human GnRH receptor. Under the agreement, the
Company funded the initial phase of the research and is obligated to provide
additional funding upon the achievement of certain milestones. In connection
with the research agreement, Mount Sinai granted to the Company (i) a
non-exclusive worldwide license to develop and commercialize any products based
upon certain inventions and technologies owned by Mount Sinai relating to the
human GnRH receptor and (ii) an exclusive worldwide license to develop and
commercialize any products based upon know-how or patents or patent applications
covering inventions made during the course of the research. Pursuant to the
terms of the licenses, the Company is obligated to pay Mount Sinai a percentage
of any milestone payments received by the Company from third-party sublicenses
and royalties on sales of products. The Company may terminate the licenses upon
60 days' written notice; however, in the event of such termination, all rights
granted under the licenses will revert to Mount Sinai.
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COMPETITION
The pharmaceutical and biotechnology industries are subject to intense
competition and rapid and significant technological change. Many organizations
are actively attempting to identify and optimize compounds for potential
pharmaceutical development. The Company competes directly with the research
departments of pharmaceutical companies, biotechnology companies, other
combinatorial chemistry companies and research and academic institutions. Many
of these competitors have greater financial and other resources, and more
experience in research and development, than the Company. Historically,
pharmaceutical companies have maintained close control over their research
activities, including the synthesis, screening and optimization of chemical
compounds. Many of these companies, which represent the greatest potential
market for the Company's services and compounds, are developing combinatorial
chemistry and other methodologies to improve productivity. In addition, these
companies may already have large collections of compounds previously synthesized
or ordered from chemical supply catalogs or other sources against which they may
screen new targets. Other sources of compounds include compounds extracted from
natural products, such as plants and microorganisms, and compounds created using
rational drug design. Academic institutions, governmental agencies and other
research organizations are also conducting research in areas in which the
Company is working, either on their own or through collaborative efforts.
The Company competes with several alternative technologies in the design
and synthesis of new chemical libraries for drug discovery programs. Alanex
competes directly with several public companies, including Arris
Pharmaceuticals, Inc., Houghten Pharmaceuticals, Inc. and Pharmacopeia, Inc., as
well as several private companies. Competition is based on the speed and
efficiency of lead compound identification, the efficiency of lead compound
optimization, product efficacy and safety and the relative speed with which the
Company or its collaborators, as appropriate, can complete the preclinical and
clinical testing and approval processes and supply commercial quantities of any
product to the market.
The Company anticipates that it will face increased competition in the
future as new companies enter the market and advanced technologies become
available. The Company's processes may be rendered obsolete or uneconomical by
technological advances or entirely different approaches developed by one or more
of the Company's competitors. The existing approaches of the Company's
competitors or new approaches or technology developed by the Company's
competitors may be more effective than those developed by the Company.
PATENTS AND PROPRIETARY INFORMATION
To date, the Company has filed six U.S. patent applications, five of which
were filed in the third quarter of 1996. Two of the applications include
composition of matter claims relating to compounds in the Company's NPY and CRF
programs. The other applications relate to various aspects of the Company's
technology, including its parallel synthesis technology and related methods and
devices. There can be no assurance, however, that patents will be issued to the
Company as a result of its pending applications or that, if issued, such patents
will be sufficiently broad to afford protection against competitors with similar
technology. The Company's success will depend in large part on its ability, and
the ability of its licensees and its licensors, to obtain patents for its
technologies and the compounds and other products, if any, resulting from the
application of such technology, to defend patents once obtained, to maintain
trade secrets and to operate without infringing upon the proprietary rights of
others, both in the United States and in foreign countries.
The patent positions of pharmaceutical and biotechnology companies,
including the Company, are often uncertain and involve complex legal and factual
questions which are largely unresolved. However, disputes may arise between the
Company and other patent holders as to claims of infringement, which could
involve protracted periods of litigation. Many of the Company's competitors
have, or are affiliated with companies having, substantially greater resources
than the Company, and such competitors may be able to sustain the costs of
complex patent litigation to a greater degree and for longer periods of time
than the Company. Uncertainties resulting from the initiation and continuation
of any patent or related litigation could have a material adverse effect on the
Company's ability to compete in the marketplace pending resolution of the
disputed matters. In the event that third parties have or obtain rights to
intellectual property or technology
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used or needed by the Company, there can be no assurance that any licenses would
be available to the Company on acceptable terms, if at all.
Moreover, there can be no assurance that the Company or its customers will
be able to obtain patent protection for lead compounds or pharmaceutical
products based upon the Company's technology. There can be no assurance that any
patents issued to the Company or its collaborative partners, or for which the
Company has license rights, will not be challenged, invalidated or circumvented,
or that the rights granted thereunder will provide competitive advantages to the
Company. Litigation, which could result in substantial cost to the Company, may
be necessary to enforce the Company's patent and license rights or to determine
the scope and validity of others' proprietary rights. Further, U.S. patents do
not provide any remedies for infringement that occurred before the patent is
granted. Because patent rights are territorial, the Company may not have an
effective remedy against use of its technology in any country in which it does
not, at that time, have an issued patent.
Because of the length of time and expense associated with bringing new
products through development and the length of time required for the
governmental approval process, the pharmaceutical industry has traditionally
placed considerable importance on obtaining and maintaining patent and trade
secret protection for significant new technologies, products and processes. The
Company and other biotechnology and pharmaceutical firms have applied, and are
applying, for patents for their products and certain aspects of their
technologies. The enforceability of patents issued to biotechnology and
pharmaceutical firms can be highly uncertain. Federal court decisions
establishing legal standards for determining the validity and scope of patents
in the field are in transition. For example, in a currently pending case, the
U.S. Supreme Court will consider whether to alter or replace the traditional
standard for determining patent infringement under the doctrine of equivalents.
There can be no assurance that the historical legal standards surrounding
questions of validity and scope will continue to be applied or that current
defenses as to issued patents in the field will offer protection in the future.
In addition, there can be no assurance as to the degree and range of protection
any patents will afford, whether patents will issue or the extent to which the
Company will be successful in not infringing patents granted to others.
The commercial success of the Company will also depend upon avoiding the
infringement of patents issued to competitors and upon maintaining the
technology licenses upon which certain of the Company's current products are, or
any future products under development might be, based. If competitors prepare
and file patent applications in the United States that claim technology also
claimed by the Company, the Company may have to participate in interference
proceedings declared by the PTO to determine the priority of invention, which
could result in substantial cost to the Company, even if the outcome is
favorable to the Company. An adverse outcome could subject the Company to
significant liabilities to third parties and require the Company to license
disputed rights from third parties or cease using the technology. The Company is
aware of a U.S. patent issued to a third party that broadly claims the
automation of iterative parallel synthesis technology. Although the Company
believes that its current activities do not infringe this patent, there can be
no assurance that the Company's belief would be affirmed in any litigation over
the patent or that the Company's future technological developments would be
outside the scope of this patent. A U.S. patent application is maintained under
conditions of confidentiality while the application is pending in the PTO, so
that the Company cannot determine the inventions being claimed in pending patent
applications filed by its competitors in the PTO. Further, U.S. patents do not
provide any remedies for infringement that occurred before the patent is
granted.
The Company currently has certain licenses from a third party and in the
future may require additional licenses from other parties to develop,
manufacture and market commercially viable products effectively. There can be no
assurance that any future licenses will be obtainable on commercially reasonable
terms, if at all, that the patents underlying such licenses will be valid and
enforceable or that the proprietary nature of the patented technology underlying
such licenses will remain proprietary.
The Company relies substantially on certain technologies which are not
patentable and are therefore potentially available to the Company's competitors.
The Company also relies on certain proprietary trade secrets and know-how, which
are not patentable. Although the Company has taken steps to protect its
unpatented technologies, trade secrets and know-how, in part through the use of
confidentiality agreements
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with its employees, consultants and certain of its contractors, there can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known or be independently developed or discovered by
competitors.
GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and foreign
countries is a significant factor in the manufacture and marketing of any
products that may be developed by the Company or a collaborator. The Company's
products will require regulatory approval by governmental agencies prior to
commercialization. In particular, human therapeutic products are subject to
rigorous preclinical and clinical testing and other approval requirements by the
FDA and comparable agencies in foreign countries. The time required for
completing such testing and obtaining such approvals is uncertain, although
satisfaction of these requirements typically takes a number of years and varies
substantially based on the type, complexity and novelty of the pharmaceutical
product. In addition, delays or rejections may be encountered based on changes
in FDA or foreign regulatory policy during the period of product development and
testing. Various federal statutes and regulations also regulate the
manufacturing, safety, labeling, storage, recordkeeping and marketing of such
products. The lengthy process of obtaining regulatory approvals and ensuring
compliance with appropriate federal statutes and regulations requires the
expenditure of substantial resources. Any delay or failure by the Company or its
collaborators or licensees to obtain regulatory approval could adversely affect
the commercialization of such products, the Company's ability to receive product
or royalty revenue and its liquidity and capital resources.
Preclinical studies are generally conducted in the laboratory to evaluate
the potential efficacy and the safety of a therapeutic product. The results of
these studies are submitted to the FDA as part of an Investigational New Drug
application, which must be reviewed by the FDA before human clinical testing can
begin. Once the FDA is satisfied with the submission, the clinical trial process
can commence. Typically, clinical evaluation involves three sequential phases,
which may overlap. During Phase I, clinical trials are conducted with a
relatively small number of subjects to determine the early safety profile of a
drug, as well as the pattern of drug distribution and drug metabolism by the
subject. In Phase II, trials are conducted with groups of patients afflicted by
a specific target disease to determine preliminary efficacy, dosage tolerance
and optimal dosage, and to gather additional safety data. In Phase III,
large-scale, multicenter comparative trials are conducted with patients
afflicted with a specific target disease to provide data for the statistical
proof of efficacy and safety as required by the FDA and others. The FDA, the
clinical trial sponsor or the investigator may suspend clinical trials at any
time if it believes that clinical subjects are being exposed to an unacceptable
health risk.
The results of preclinical and clinical testing are submitted to the FDA in
the form of a New Drug Application ("NDA"). In responding to an NDA, the FDA may
grant marketing approval, request additional information or deny the application
if the FDA determines that the application does not satisfy its regulatory
approval criteria. Furthermore, FDA or governmental approval of any products
developed by the Company, independently or with its collaborators, may entail
limitations on the indicated uses for which such products may be marketed. There
can be no assurance that approvals will be granted on a timely basis, if at all
or, if granted, whether such approvals will be sufficiently broad with respect
to the indicated uses for the product to be of significance to the Company. The
failure to obtain timely permission for clinical testing or timely approval for
product marketing would materially affect the Company. Product approvals may
subsequently be withdrawn if compliance with regulatory standards is not
maintained or if problems occur after the product reaches the market. The FDA
may require testing and surveillance programs to monitor the effect of a new
product and may prevent or limit future marketing of the product based on the
results of these postmarketing programs.
The Company is subject to various federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with the Company's
work. The extent and character of
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governmental regulation that might result from future legislation or
administrative action cannot be accurately predicted.
FACILITIES
The Company currently leases approximately 17,000 square feet of laboratory
and office space in San Diego, California under a seven-year operating lease
which expires in May 2002. The Company has an option to lease an additional
3,000 square feet of administrative space in its current facility. The Company
is exploring alternatives to expand its current facilities to meet its planned
expansion and believes that such facilities will be available on commercially
reasonable terms.
EMPLOYEES
As of September 1, 1996, the Company had 48 full-time employees. Of the 48
full-time employees, 39 were employed in research. Twenty-two of the Company's
employees have Ph.D.s and one has an M.D. None of the Company's employees are
covered by collective bargaining agreements and management considers
relationships with employees to be good.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and certain key employees of the Company,
their ages as of September 1, 1996 and positions held are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- ---------------------------------------
<S> <C> <C>
Marvin R. Brown, M.D. 49 President, Chief Executive Officer and
Chairman of the Board
Alexander Polinsky, Ph.D. 40 Vice President of Chemistry, Chief
Scientific Officer and Director
Michelle A. Youngers 39 Director of Finance and Secretary
Edgardo Baracchini, Ph.D. 36 Director of Business Development and
Strategic Planning
Dale S. Dhanoa, Ph.D. 42 Director of New Lead Discovery
Vlad Gregor, Ph.D. 42 Director of Medicinal Chemistry
Atsuo Kuki, Ph.D. 38 Director of Computational Chemistry
John May, Ph.D. 38 Director of Pharmacology
Arnold T. Hagler, 54 Director
Ph.D.(1)(2)
Jon R. Jessen(1)(2) 62 Director
Timothy J. Rink, M.D. 50 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Marvin R. Brown, M.D., co-founded the Partnership in May 1991 and has
served as President, Chief Executive Officer and director of the Company since
November 1993. Prior to joining the Company, Dr. Brown was on the faculty of the
Salk Institute for Biological Studies (the "Salk Institute") from 1975 to 1986.
In addition, Dr. Brown was a Professor of Medicine and Surgery and Director of
the Peptide Biology Laboratory at the University of California, San Diego
("UCSD") from 1986 through 1991. Dr. Brown received his M.D. from the University
of Arizona, followed by postgraduate medical training at UCSD and post-doctoral
training at the Salk Institute.
Alexander Polinsky, Ph.D., co-founded the Partnership in May 1991 and has
been a director of the Company since November 1993. Dr. Polinsky served as
Secretary of the Company from November 1993 to July 1996. In addition, from
November 1993 to November 1994, Dr. Polinsky served as Chief Financial Officer
of the Company. From 1989 through 1991, Dr. Polinsky was a Visiting Research
Scientist at UCSD. Dr. Polinsky received his Ph.D. in physical chemistry of
polymers from Moscow University in Russia and served on the faculty of the
chemistry department of Moscow University.
Michelle A. Youngers joined the Company as Director of Finance in June
1996. In July 1996, Ms. Youngers also assumed the position of Secretary of the
Company. From 1987 through May 1996, Ms. Youngers was a principal of Youngers &
Company, a tax, accounting and financial management consulting firm. From March
1994 to May 1996, Youngers and Company provided consulting services to the
Company. Ms. Youngers received her B.B.A. in accounting from the University of
San Diego and is a Certified Public Accountant.
Edgardo Baracchini, Ph.D., joined Alanex as Director of Business
Development and Strategic Planning in January 1996. From 1992 through 1995, Dr.
Baracchini was Assistant Director of Business Development at Isis
Pharmaceuticals, Inc., a publicly held biopharmaceutical company. Dr. Baracchini
did his postdoctoral research at UCSD, and at The Scripps Research Institute.
Dr. Baracchini received a B.S. in microbiology from the University of Notre
Dame, a Ph.D. in molecular and cell biology from the University of Texas at
Dallas and an M.B.A. from the University of California, Irvine.
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<PAGE> 38
Dale S. Dhanoa, Ph.D., has served as Director of New Lead Discovery at
Alanex since September 1995. Prior to joining the Company, Dr. Dhanoa held the
position of Group Leader at Synaptic Pharmaceutical Corporation ("Synaptic"), a
publicly held biopharmaceutical company, since 1993. While at Synaptic, he
directed several discovery programs in medicinal and combinatorial chemistry.
Dr. Dhanoa joined Merck & Co. ("Merck") as a senior research chemist in 1987.
Dr. Dhanoa was a research fellow of the Angiotensin II and Endothelin drug
discovery programs at Merck. Dr. Dhanoa received a B.Sc. in chemistry from
D.A.V. College in India, a M.Sc. in organic chemistry from McMaster University
in Canada and a Ph.D. in chemistry from Wayne State University and did
postdoctoral research at the University of Montreal.
Vlad Gregor, Ph.D., joined Alanex as Director of Medicinal Chemistry in
1994. Prior to joining the Company, Dr. Gregor was employed at Parke-Davis
Pharmaceutical Research ("Parke-Davis"), a Warner-Lambert Company, since 1983
where he held positions of increasing responsibility. While at Parke-Davis, he
established and managed several drug discovery efforts in oncology and CNS. He
received his M.S. and a Ph.D. in chemistry from the University of Michigan.
Atsuo Kuki, Ph.D., has served as Director of Computational Chemistry at
Alanex since July 1995. From 1986 to 1995, Dr. Kuki was on the faculty of the
Department of Chemistry of Cornell University, where he led a team engaged in
novel peptide chemistry, molecular design, and theoretical biophysics. While at
Cornell, Dr. Kuki was awarded the Presidential Young Investigator Award
(National Science Foundation) and the Dreyfus Foundation Teacher-Scholar Award.
Dr. Kuki was awarded a National Institutes of Health postdoctoral fellowship and
pursued theoretical chemical physics and biophysics at the University of
Illinois, Urbana-Champaign from 1985 to 1986. Dr. Kuki received a B.S. in
chemistry from Yale University and a Ph.D. in physical chemistry from Stanford
University.
John M. May, Ph.D., joined Alanex as Director of Pharmacology in 1994. From
1988 to 1994, Dr. May held several positions with increasing responsibilities at
Whitby Pharmaceuticals, a privately held pharmaceutical company, most recently
as Project Team Leader for its adenosine and dopamine programs. While at Whitby
Pharmaceuticals, Dr. May contributed to the preclinical development of drug
candidates for the treatment of cardiovascular and CNS disorders. He performed
his postdoctoral research at the University of North Carolina at Chapel Hill.
Dr. May obtained a B.S. in chemistry from Millsaps College and a Ph.D. in
pharmacology from Emory University.
Arnold T. Hagler, Ph.D., has been a director of the Company since January
1994. Dr. Hagler has been the Chief Executive Officer of ScienceMedia, a
start-up interactive science education company, since 1996. Dr. Hagler is the
founder of Biosym Technologies, a molecular modeling software company, and
served as its Chief Executive Officer from its inception in 1984 through 1992
and served as a director until 1995. Dr. Hagler received his B.S. in chemical
engineering from Cornell University and received his Ph.D. in physical chemistry
from Cornell University. Dr. Hagler also served as the chairperson of Biophysics
at the Agouron Institute.
Jon R. Jessen has been a director of the Company since November 1993. Mr.
Jessen is the founder of Debar ERA, Inc., an agricultural chemical supply
company, and from March 1966 to August 1995 served as its President. Mr. Jessen
is also the founder and, since April 1975, has been the Chief Executive Officer
of the Gowan Company. Mr. Jessen received his B.S. in biology from the
University of California, Davis.
Timothy J. Rink, M.D., has been a director of the Company since September
1996. Since February 1996, Dr. Rink has been the President, Chief Executive
Officer and a director of Aurora Biosciences Corporation, a privately held
biotechnology company. From February 1990 through November 1995, Dr. Rink served
as President and Chief Technical Officer of Amylin Pharmaceuticals, Inc., a
publicly held biopharmaceutical company. Currently, Dr. Rink serves on the
Scientific Advisory Board of Amylin. Dr. Rink also serves on the board of
directors of CoCensys, Inc. and NPS Pharmaceuticals, Inc., both publicly held
biopharmaceutical companies. Dr. Rink received his M.A., M.D. and Sc.D. in
Medical Sciences from the University of Cambridge, England.
Each officer serves at the discretion of the Board of Directors. Mr.
Jessen, a director of the Company, is the uncle, by marriage, of Dr. Brown, the
President and Chief Executive Officer of the Company.
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<PAGE> 39
BOARD OF DIRECTORS
The Company currently has authorized five directors. The Company intends to
seek additional members of the Board of Directors upon the completion of this
offering. In accordance with the Company's Certificate of Incorporation to be
effective upon the completion of this offering, the Board of Directors will be
divided into three classes with staggered three-year terms. Class I will consist
of Dr. Brown, Class II will consist of Dr. Polinsky and Dr. Hagler, Class III
will consist of Mr. Jessen and Dr. Rink. At each annual meeting of stockholders
after the initial classification, the successors to directors whose term will
then expire will be elected to serve from the time of election and qualification
until the third annual meeting following election. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of
one-third of the directors. This classification of the Board of Directors may
have the effect of delaying or preventing changes in control or management of
the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors, composed of Dr. Hagler and
Mr. Jessen, was formed in July 1996 to review the internal accounting procedures
of the Company and consult with and review the services provided by the
Company's independent auditors. The Compensation Committee of the Board of
Directors, composed of Dr. Hagler and Mr. Jessen, was also formed in July 1996
to review and recommend to the Board of Directors the compensation and benefits
of all officers of the Company and review general policy relating to
compensation and benefits of employees of the Company. The Compensation
Committee will also administer the issuance of stock options and other awards
under the Company's 1993 Stock Plan and 1996 Equity Incentive Plan.
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation from the Company
for their service as members of the Board of Directors, although they are
reimbursed for certain expenses in connection with attendance at Board of
Directors and Committee meetings.
In January 1994, the Company issued and sold to Dr. Hagler, pursuant to the
Company's 1993 Stock Plan, 140,000 shares of restricted stock, at a price of
$0.10 per share (the then fair market value per share of the Common Stock as
determined in good faith by the Company's Board of Directors). These shares
vested over the 24-month period ended January 1996. In September 1996, the
Company granted to Dr. Rink an option to purchase 60,000 shares of Common Stock
of the Company at an exercise price of $1.50 per share. Such option has a term
of ten years and vests monthly and ratably over a three-year period from the
date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until July 1996, the Company did not have a Compensation Committee of the
Board of Directors, and the entire Board of Directors participated in all
compensation decisions. In July 1996, the Board of Directors formed the
Compensation Committee and appointed Dr. Hagler and Mr. Jessen as its members.
No member of the Compensation Committee was, at any time during the fiscal year
ended December 31, 1995 or at any other time, an officer or employee of the
Company. Three of the Company's directors have acquired shares of Common Stock.
See "Certain Transactions" and "Principal Stockholders."
SCIENTIFIC ADVISORY BOARD
The Company's Scientific Advisory Board (the "SAB") is composed of
scientists with expertise in fields related to the Company's programs. The SAB
advises the Company on specific scientific and technical issues. SAB members are
compensated on a time-and-expenses basis and have from time to time received
options to purchase shares of Common Stock. All of the SAB members are employed
by other companies or institutions and may have commitments to, or consulting or
advisory contracts with, other entities which may conflict with
38
<PAGE> 40
such members' obligations to the Company. The Company does not believe the
termination of any individual consulting agreement would materially affect its
business. The members of the SAB are as follows:
Floyd E. Bloom, M.D., is Chairman of the Neuropharmacology Department at
The Scripps Research Institute. Dr. Bloom has authored numerous books and
articles in the areas of neuropharmacology and biochemistry. Dr. Bloom is a
member of the National Academy of Science and the editor of the journal Science.
Stephen Bloom, M.D., is Professor of Endocrinology and Director of the
Endocrinology Clinical Service at the Royal Postgraduate Medical School and
Hammersmith Hospital, London, England. Dr. Bloom is currently involved in
research relating to the pathophysiology of peptide control of the endocrine
system, focusing on the disease areas of obesity and diabetes.
Charles Perrin, Ph.D., is a Professor of Chemistry at UCSD. Dr. Perrin's
research interests focus on physical organic chemistry and mechanisms of organic
chemical reactions.
Stuart Sealfon, M.D., is an Associate Professor in the Department of
Neurobiology and Neurology, Mt. Sinai Medical School, New York, New York. Dr.
Sealfon was the first to clone the human GnRH and other important G-protein
coupled receptors.
Palmer Taylor, Ph.D., is Chairman of the Department of Pharmacology at
UCSD. Dr. Taylor performed pioneering work on the pharmacology and molecular
biology of acetylcholine receptors.
Claes Wahlestedt, M.D., Ph.D., is the President of The Astra Pain Research
Unit in Montreal, Canada. He was formerly an Associate Professor in the
Department of Neurology and Neuroscience at Cornell University Medical College,
New York, New York. Dr. Wahlestedt is well known for his work concerning
neuropeptide Y and its role in human disease.
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded or paid to, or
earned by, the Company's Chief Executive Officer and the one other executive
officer of the Company who earned in excess of $100,000 in salary and bonus
(collectively, the "Named Executive Officers") for services rendered to the
Company during the fiscal year ended December 31, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
-----------------------
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)
--------------------------------------------------------------- --------- --------
<S> <C> <C>
Marvin R. Brown................................................ $ 158,542(2) --
President and Chief Executive Officer
Alexander Polinsky............................................. $ 125,500(3) $7,459(4)
Vice President of Chemistry and
Chief Scientific Officer
</TABLE>
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), the compensation described in this table does not include
medical, group life insurance or other benefits received by the Named
Executive Officers which are available generally to all salaried employees
of the Company and certain perquisites and other personal benefits received
by the Named Executive Officers which do not exceed the lesser of $50,000 or
10% of any such officer's salary and bonus disclosed in this table. There
were no long-term compensation awards granted to the Named Executive
Officers during the fiscal year ended December 31, 1995.
(2) Effective September 1, 1996, Dr. Brown's annual base salary was increased to
$230,000.
(3) Contingent and effective upon the successful completion of this offering,
Dr. Polinsky's annual base salary will increase to $190,000.
(4) Represents forgiveness of outstanding indebtedness owed by Dr. Polinsky to
the Company. See "Certain Transactions."
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<PAGE> 41
SEVERANCE AGREEMENTS
In July 1996, the Company entered into an agreement with Dr. Brown which
provides that if Dr. Brown is terminated by the Company without cause, he will
be entitled to receive a severance payment in an amount equal to twelve months
of his base salary in effect at the time of his termination. In July 1996, the
Company entered into an agreement with Dr. Polinsky which provides that if Dr.
Polinsky is terminated by the Company without cause, he will be entitled to
receive a severance payment in an amount equal to nine months of his base salary
in effect at the time of his termination.
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted during the fiscal year ended December 31,
1995 to the Named Executive Officers. Subsequent to December 31, 1995, options
to purchase 100,000 shares and 50,000 shares, respectively, of Common Stock at
an exercise price of $0.10 per share were granted to Drs. Brown and Polinsky.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
No options were exercised during the fiscal year ended December 31, 1995 or
held at year end by the Named Executive Officers.
STOCK OPTION AND EQUITY INCENTIVE PLANS
The Company currently maintains two stock option plans. The Company's 1993
Stock Plan (the "1993 Plan"), covering an aggregate of 1,350,000 shares of
Common Stock, was adopted by the Board in November 1993 and amended and restated
in December 1993 and, subject to stockholder approval, in July 1996. The
Company's 1996 Equity Incentive Plan (the "1996 Plan"), covering an aggregate of
500,000 shares of Common Stock, was adopted by the Board, subject to stockholder
approval, in July 1996. Unless sooner terminated by the Board, the 1993 Plan
will terminate in November 2003 and the 1996 Plan will terminate in July 2006.
The 1993 Plan and the 1996 Plan are referred to herein as the "Plans."
The Plans are administered by the Board, unless the Board delegates
authority to a committee composed of members of the Board. Subject to certain
limitations set forth in the Plans, the Board has the authority to select the
persons to whom rights under the Plans (the "Stock Awards") will be granted, to
determine whether a Stock Award will be an incentive stock option (within the
meaning of Section 422 of the Internal Revenue Code (the "Code")) (an "Incentive
Stock Option"), an option that does not qualify as an Incentive Stock Option (a
"Nonqualified Stock Option" and, together with Incentive Stock Options, the
"Options"), a stock bonus, a right to purchase restricted stock or a combination
of the foregoing, and to specify the type of consideration to be paid to the
Company upon exercise of a Stock Award. Incentive Stock Options may be granted
only to employees of the Company and, subject to certain limitations set forth
in the Plans, Stock Awards other than Incentive Stock Options may be granted to
employees and directors of and consultants to the Company.
The maximum term of Options granted under the Plans is ten years. The
exercise price of Incentive Stock Options must be equal to at least 100% of the
fair market value of the Common Stock on the date of grant. The exercise price
of Incentive Stock Options granted under the Plans to any person holding more
than 10% of the total combined voting power of all classes of stock of the
Company must be equal to at least 110% of the fair market value of the Common
Stock on the date of grant and the term of such option cannot exceed five years.
To the extent that the aggregate fair market value of Common Stock with respect
to which Incentive Stock Options granted to any person are first exercisable in
any calendar year exceeds $100,000, the Incentive Stock Options or portions
thereof which exceed such limit shall be treated as Nonqualified Stock Options.
The exercise price of Nonqualified Stock Options must be equal to at least 85%
of the fair market value of the Common Stock on the date of grant. Common Stock
subject to Options granted under the Plans that expire or otherwise terminate
without full exercise shall again become available for issuance under the
respective Plans.
With certain limited exceptions, Options granted under the Plans are
non-transferable. Generally, Options granted under the Plans expire three months
after the termination of an optionee's employment or other service relationship
with the Company, except that Nonqualified Stock Options granted under the 1993
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<PAGE> 42
Plan generally expire six months after such termination. In general, if an
optionee is disabled while in an employment or service relationship with the
Company, Options granted under the Plans may be exercised up to twelve months
following such optionee's disablement. In general, if an optionee dies while in
an employment or service relationship with the Company, Options granted under
the 1993 Plan may be exercised up to twelve months after the death of such
optionee while Options granted under the 1996 Plan may be exercised up to 18
months after the death of such optionee.
Subject to certain limitations contained in the Plans, the purchase price
of Common Stock subject to a stock purchase agreement granted pursuant to the
Plans, as well as the form of consideration to be paid to the Company upon the
exercise of an Option, may be determined by the Board. In addition, the Board
has the authority under the Plans to award stock pursuant to a stock bonus in
consideration of past services actually rendered to the Company. Stock bonuses
and restricted stock purchase awards granted under the Plans are generally
non-transferable and the Common Stock awarded or sold pursuant to a stock bonus
or restricted stock purchase agreement may be subject to a repurchase option in
favor of the Company.
As of September 1, 1996, the Company had granted Options under the 1993
Plan to purchase an aggregate of 852,359 shares (net of cancellations) at
exercise prices ranging from $0.10 to $1.50 per share and 490,000 shares of
Common Stock had been issued as restricted stock under the 1993 Plan, all of
which is currently vested. As of September 1, 1996, no Stock Awards had been
granted under the 1996 Plan.
In the event of a merger or consolidation involving the Company, the Board
has discretion to provide that all Stock Awards outstanding under the Plans will
be assumed by the successor corporation or substituted with similar Stock Awards
or, if such Stock Awards are not assumed or substituted, then, with respect to
Stock Awards held by persons performing services as employees, directors or
consultants, such Stock Awards will vest and become immediately exercisable
prior to such event.
STOCK OPTIONS GRANTED OUTSIDE OF THE 1993 PLAN AND THE 1996 PLAN
The Company has from time to time granted options to purchase shares of
Common Stock outside of the 1993 Plan and the 1996 Plan ("Non-Plan Options") to
certain directors, officers and employees of the Company. As of September 1,
1996, Non-Plan Options were outstanding to purchase an aggregate of 210,000
shares of Common Stock with exercise prices ranging from $0.10 to $1.50 (and a
weighted average exercise price of $0.50 per share), and no Non-Plan Options had
been exercised. These Non-Plan Options vest monthly and ratably over a
three-year period. The Non-Plan Options have a term of ten years, except that
Non-Plan Options generally expire 30 days after the termination of an optionee's
employment or other service relationship with the Company. In general, if an
optionee dies while in an employment or service relationship with the Company,
that person's option may be exercised up to six months after his death.
EMPLOYEE STOCK PURCHASE PLAN
In July 1996, the Board adopted, subject to stockholder approval, the
Employee Stock Purchase Plan (the "Purchase Plan") covering an aggregate of
125,000 shares of Common Stock. The Purchase Plan is intended to qualify as an
employee stock purchase plan within the meaning of Section 423(b) of the Code.
Under the Purchase Plan, the Board may authorize participation by eligible
employees, including officers, in periodic offerings of up to 27 months in
length. The Purchase Plan provides that the Board shall specify certain terms
and conditions that will apply to each such offering within the parameters set
forth in the Purchase Plan. The initial offering under the Purchase Plan will
commence on the date of this Prospectus and terminate on August 31, 1998.
Employees who receive annual compensation in excess of $90,000 (the "Eligibility
Cut-off") will not be eligible to participate in the initial offering. The Board
has the authority to increase or decrease the amount of the Eligibility Cut-off
from time to time.
Except as set forth above, employees who satisfy the applicable length of
service requirement specified by the Board for an offering are eligible to
participate in the Purchase Plan for the period of such offering if they are
customarily employed by the Company or an affiliate of the Company for at least
20 hours per week and at least five months per calendar year. Participating
employees may elect to have up to 15% of their earnings (or such lesser amount
specified by the Board for a particular offering period) withheld from their
paychecks pursuant to the Purchase Plan. The amount withheld is then used to
purchase shares of Common Stock from
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<PAGE> 43
the Company on specified purchase dates determined by the Board. The price of
Common Stock purchased under the Purchase Plan generally will be equal to 85% of
the lower of the fair market value of the Common Stock at the commencement date
of each offering period or the specified purchase date. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the Company.
Under the Purchase Plan, rights of any employee to purchase stock under all
employee stock purchase plans may not accrue at a rate that exceeds $25,000 in
fair market value per calendar year in which rights are outstanding, and no
person may purchase shares to the extent such person owns or would own 5% or
more of the total combined value or voting power of all classes of stock of the
Company and its affiliates (including stock subject to options).
In the event of a merger, reorganization, consolidation or liquidation
involving the Company, the Board has discretion to provide that each right to
purchase Common Stock will be assumed or an equivalent right substituted by the
successor corporation, or the Board may shorten the offering period and provide
for all sums collected by payroll deductions to be applied to purchase stock
immediately prior to such merger or other transaction. The Board has the
authority to amend or terminate the Purchase Plan at any time; however, no such
action may adversely affect any outstanding rights to purchase Common Stock
under the Purchase Plan.
401(k) PLAN
The Company maintains a tax-qualified employee savings and retirement plan
under Section 401(k) of the Code (the "401(k) Plan") covering all of the
Company's employees who have attained the age of 18 years and who have completed
six months of employment. Pursuant to the 401(k) Plan, employees may elect to
reduce their current compensation in an amount not to exceed the statutory
prescribed annual limit ($9,500 in 1996) and have the amount of such reduction
contributed to the 401(k) Plan. The Company may make discretionary contributions
to the 401(k) Plan, including contributions matching all or some portion of the
elective contributions made by employees. The Company does not currently match
employees' contributions. Any contributions made to the 401(k) Plan by the
Company generally vest proportionally over five years of service. The 401(k)
Plan is intended to qualify under Section 401 of the Code so that contributions
by employees or by the Company to the 401(k) Plan, and income earned on plan
contributions, are not taxable to employees until withdrawn from the 401(k)
Plan, and so that contributions by the Company, if any, will be deductible by
the Company when made. The 401(k) Plan may be amended or discontinued at any
time by the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent not prohibited by Delaware law as in effect from
time to time. The Company is also empowered under its Bylaws to enter into
indemnification contracts with its directors and officers and to purchase
insurance on behalf of any person it is required or permitted to indemnify.
Pursuant to this provision, the Company has entered into indemnification
agreements with each of its directors and executive officers.
In addition, the Company's Certificate of Incorporation provides that
directors of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty as a
director, except for liability (i) for any breach of the directors' duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law or (iv) for any transaction from which the director
derives any improper personal benefit. The Certificate of Incorporation also
provides that if the Delaware General Corporation Law is amended after the
approval by the Company's stockholders of the Certificate of Incorporation to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of the Company's directors shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
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<PAGE> 44
CERTAIN TRANSACTIONS
Prior to November 1993, the Company's operations were conducted by the
Partnership. Effective as of November 22, 1993, the Partnership was reorganized
into the Company through a contribution and exchange transaction (the "Roll-Up")
pursuant to which the holders of general and limited partnership interests in
the Partnership received 2,450,000 shares of the Company's Common Stock in
exchange for their respective partnership interests in the Partnership. Of these
shares, Debar, a principal stockholder of the Company and the holder of a
partnership interest in the Partnership, received 2,418,500 shares. In
connection with the Roll-Up, Marvin R. Brown, President, Chief Executive Officer
and a director of the Company and Alexander Polinsky, Vice President of
Chemistry, Chief Scientific Officer and a director of the Company each
contributed his equity interest in Plictrix, Inc., a California corporation and
a general partner of the Partnership ("Plictrix"), to the Company in exchange
for 525,000 shares and 175,000 shares, respectively, of Common Stock, and
Plictrix became a wholly owned subsidiary of the Company. The Roll-Up was
effected to change the form of entity under which the Company's operations were
conducted.
In April 1994, the Company entered into a collaboration agreement with
Amgen under which Alanex granted to Amgen a worldwide exclusive license to drugs
discovered by Alanex to treat neurological diseases and a worldwide
non-exclusive license to Alanet, a proprietary software program developed by the
Company to analyze peptides. In connection with the collaboration agreement, the
Company issued to Amgen 2,978,182 shares of Series A Preferred Stock at a
purchase price of $1.51 per share and a warrant to purchase 703,636 shares of
Common Stock at an exercise price of $0.005 per share. As of June 1996, the
Company had received a total of $5,280,000 in contract research revenue under
the collaboration agreement.
In June 1996, the collaboration agreement between the Company and Amgen was
terminated by Amgen. In connection with the termination of the Amgen agreement,
(i) except as set forth below, all rights to the Company's technology reverted
to the Company, (ii) Amgen's warrant to purchase 703,636 shares of Common Stock
was canceled and the Company issued a new warrant to Amgen to purchase 450,000
shares of Common Stock at an exercise price of $1.51 per share with a term of
seven years and (iii) the Company redeemed Amgen's 2,978,182 shares of Series A
Preferred Stock (representing all of the issued and outstanding Preferred Stock
of the Company), at a repurchase price of $1.51 per share, payable with an
unsecured, non-interest-bearing promissory note for $4,500,000 due June 28,
2001. In addition, under the termination agreement, Alanex is obligated to
provide to Amgen, on a non-exclusive basis, on or before October 28, 1996,
certain compounds that were included in the Alanex technology licensed to Amgen
under the collaboration agreement. In exchange for such compounds, Amgen will
pay Alanex $400,000. In connection with the termination, all licenses, options
and other rights to the Company's technology granted to Amgen under the
collaboration agreement were terminated.
In November 1993, in connection with the purchase of 350,000 shares of
Common Stock, Dr. Polinsky, Vice President of Chemistry, Chief Scientific
Officer and a director of the Company, borrowed $17,500 pursuant to a promissory
note. The promissory note is secured by the shares purchased and bears interest
at the rate of 6.75% per annum. Payments of principal and accrued interest are
payable in three equal annual installments beginning in November 1994; however,
in the event Dr. Polinsky's employment by, or association with, the Company is
terminated for any reason, all remaining unpaid principal and accrued interest
will be accelerated and become due and payable immediately after such
termination or disassociation. The shares of Common Stock pledged to secure the
promissory note will be released from pledge at the rate of 20 shares for each
$1.00 in principal amount of indebtedness paid. In fiscal 1995, the Company
forgave $7,459 of Dr. Polinsky's indebtedness owed to the Company under the
promissory note. As of September 1, 1996, the outstanding principal and accrued
interest under the promissory note was $12,717.
In November 1995, Dr. Polinsky also borrowed $50,000 from the Company
pursuant to an unsecured promissory note bearing interest at the rate of 6.75%
per annum. Accrued interest on the promissory note is payable in three equal
annual installments commencing November 1996, with the entire principal amount
and any accrued and unpaid interest becoming due in November 1998. As of
September 1, 1996, the outstanding principal and accrued interest under the
promissory note was $52,780.
43
<PAGE> 45
In May 1996, Dr. Brown, President, Chief Executive Officer and a director
of the Company, borrowed $60,000 from the Company pursuant to an unsecured
promissory note bearing interest at the rate of 6.75% per annum. Accrued
interest is payable in three equal annual installments commencing May 1997, with
the entire principal amount and any accrued and unpaid interest becoming due in
May 1999. As of September 1, 1996, the outstanding principal and accrued
interest under the promissory note was $62,262.
In May 1996, the Company entered into an employment agreement with Ms.
Youngers, the Director of Finance and Secretary of the Company. Under the
employment agreement, the Company will pay Ms. Youngers an annual base salary of
$108,000. In addition, Ms. Youngers will receive a bonus of $11,250 upon the
successful completion of the Company's initial public offering of Common Stock
and a second bonus of $11,250 upon the completion of one year of service with
the Company. In connection with the employment agreement, the Company granted to
Ms. Youngers an option to purchase 50,000 shares of Common Stock at an exercise
price of $0.10 per share, with such option vesting in equal monthly installments
over a four-year period; however, if Ms. Youngers is terminated by the Company
without cause during the first two years of employment with the Company, the
vesting of the option will be accelerated by a period of two years from the date
of termination and if Ms. Youngers is terminated by the Company without cause at
any time after the first two years of employment with the Company, the option
will accelerate by a period of one year from the date of termination.
The Company has entered into severance agreements with certain of its
executive officers. See "Management -- Severance Agreements."
The Company has entered into indemnification agreements with each of its
executive officers and directors. See "Management -- Limitation of Liability and
Indemnification of Officers and Directors."
44
<PAGE> 46
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the outstanding Common Stock as of September 1, 1996,
and as adjusted to reflect the sale of the 2,500,000 shares of Common Stock
being offered hereby by (i) each person (or group of affiliated persons) who is
known by the Company to own beneficially more than 5% of Common Stock, (ii) each
of the Company's directors, (iii) each of the Named Executive Officers and (iv)
all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) OFFERING(1)
DIRECTORS, OFFICERS AND --------------------- ---------------------
5% STOCKHOLDERS NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Debar ERA, Inc.(2)................................. 2,418,500 64.5% 2,418,500 38.7%
Box 5149
Yuma, AZ 85366
The Jon and Caroline Jessen Family 1990 Trust(3)... 2,418,500 64.5% 2,418,500 38.7%
4269 West County 12th Street
Yuma, AZ 85565
Amgen Inc.(4)...................................... 450,000 12.0% 450,000 7.2%
1840 Dehavilland Drive
Thousand Oaks, CA 91320
Marvin R. Brown(5)................................. 556,857 14.7% 556,857 8.9%
Alexander Polinsky(6).............................. 537,492 14.3% 537,492 8.6%
Arnold T. Hagler................................... 140,000 3.7% 140,000 2.2%
Timothy J. Rink(7)................................. 1,666 * 1,666 *
All directors and executive officers as a group (6
persons)(8)...................................... 1,247,355 32.8% 1,247,355 19.8%
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Except as indicated by footnote, and subject to community
property laws where applicable, to the best of the Company's knowledge, the
persons named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
Shares subject to options that are exercisable within 60 days of September
1, 1996 are deemed to be beneficially owned by the person holding such
options for the purpose of computing the percentage ownership of such
person, but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. Applicable percentage of
beneficial ownership is based on 3,747,635 shares of Common Stock
outstanding as of September 1, 1996, and 6,247,635 shares of Common Stock
outstanding after completion of this offering. Except as set forth above,
the address of each person set forth above is the address of the Company
appearing elsewhere in this Prospectus.
(2) Includes 773,920 shares of Common Stock held by the Jessen Family Trust. All
of the outstanding shares of Common Stock of Debar are held by the four
adult children of Mr. Jessen, a director of the Company, as follows: 25% by
Juli Jessen; 25% by Dirk Jessen; 25% by Mark Jessen; and 25% by Gowan
Deckey. All of the outstanding shares of Debar are subject to the Dune
Company of Yuma Voting Trust dated July 1, 1989 (the "Dune Trust"), the
trustee of which is Mark Jessen. Mark Jessen, who is also the President and
Chief Executive Officer of Debar has sole disposition and voting power over
the shares held in the Dune Trust. The Dune Trust expires on June 30, 1999.
Jon Jessen disclaims beneficial ownership of such shares.
(3) Includes 1,644,580 shares of Common Stock held by Debar. Juli Jessen, the
adult daughter of Jon Jessen, a director of the Company, is the trustee of
the Jessen Family Trust. Jon Jessen disclaims beneficial ownership of such
shares.
45
<PAGE> 47
(4) Includes 450,000 shares of Common Stock issuable pursuant to an outstanding
warrant.
(5) Includes options to purchase 24,993 shares of Common Stock exercisable
within 60 days of September 1, 1996. Also includes options to purchase 6,864
shares of Common Stock exercisable within 60 days of September 1, 1996, held
by Alice Brown, the wife of Dr. Brown.
(6) Includes options to purchase 12,492 shares of Common Stock exercisable
within 60 days of September 1, 1996.
(7) Includes options to purchase 1,666 shares of Common Stock exercisable within
60 days of September 1, 1996.
(8) Includes options to purchase 46,015 shares of Common Stock described in
footnotes (5), (6) and (7) above, as applicable. Also includes options to
purchase 11,340 shares of Common Stock exercisable within 60 days of
September 1, 1996 held by Ms. Youngers, an executive officer of the Company.
DESCRIPTION OF CAPITAL STOCK
The Company intends to reincorporate in Delaware immediately prior to the
completion of this offering. The authorized capital stock of the Company
consists of 40,000,000 shares of Common Stock, $.001 par value, and 10,000,000
shares of Preferred Stock, $.001 par value.
COMMON STOCK
As of September 1, 1996, there were issued and outstanding 3,747,635 shares
of Common Stock held by 15 holders of record.
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding shares of Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared by the Board of Directors out of funds legally available for
the payment of dividends. See "Dividend Policy."
In the event of a liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities and liquidation preferences of any outstanding
shares of Preferred Stock. Holders of Common Stock have no preemptive rights or
rights to convert their Common Stock into any other securities. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are validly issued, fully paid and
nonassessable. All shares of Common Stock issuable upon conversion of the
outstanding shares of Preferred Stock will be validly issued, fully paid and
nonassessable upon such conversion.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 10,000,000 shares of Preferred Stock in one or more
series and to fix the designations, powers, preferences, privileges, and
relative participating, optional or special rights and the qualifications,
limitations or restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption and liquidation preferences, any or
all of which may be greater than the rights of the Common Stock. The Board of
Directors, without stockholder approval, can issue Preferred Stock with voting,
conversion or other rights that could adversely affect the voting power and
other rights of the holders of Common Stock. Preferred Stock could thus be
issued quickly with terms calculated to delay or prevent a change in control of
the Company or make removal of management more difficult. Additionally, the
issuance of Preferred Stock may have the effect of decreasing the market price
of the Common Stock, and may adversely affect the voting and other rights of the
holders of Common Stock. There are currently no shares of Preferred Stock
outstanding, and the Company has no current plans to issue any of the Preferred
Stock.
46
<PAGE> 48
WARRANTS
As of September 1, 1996, there was a warrant outstanding to purchase
450,000 shares of Common Stock (the "Warrant") at an exercise price of $1.51 per
share. The Warrant has a term of seven years. The Warrant was issued to Amgen in
June 1996 in connection with the termination of a collaboration agreement
between the Company and Amgen. See "Certain Transactions."
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Delaware Law"), an antitakeover law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within the three preceding years, did own)
15% or more of the corporation's voting stock.
The Company's Certificate of Incorporation and Bylaws include a number of
provisions that may have the effect of deterring hostile takeovers or delaying
or preventing changes in control of the Company. The Company's Certificate of
Incorporation provides that, upon the completion of this offering, the Board of
Directors will be divided into three classes of directors, with each class
serving a staggered three-year term. The classification system of electing
directors may tend to discourage a third party from making a tender offer or
otherwise attempting to obtain control of the Company and may maintain the
composition of the Board of Directors, as the classification of the Board of
Directors generally increases the difficulty of replacing a majority of
directors. In addition, the Company's Certificate of Incorporation provides that
all stockholder action must be effected at a duly called meeting of stockholders
and not by a consent in writing. The Company's Bylaws limit who may call a
special meetings of the stockholders. Further, the Company's Certificate of
Incorporation does not include a provision for cumulative voting for directors.
Under cumulative voting, a minority stockholder holding a sufficient percentage
of a class of shares may be able to ensure the election of one or more
directors. Finally, the Company's Bylaws establish procedures, including advance
notice procedures with regard to the nomination of candidates for election as
directors and stockholder proposals. These and other provisions of the
Certificate of Incorporation and Bylaws could discourage potential acquisition
proposals and could delay or prevent a change in control of management of the
Company. Such provisions also may have the effect of preventing changes in the
management of the Company. See "Risk Factors -- Antitakeover Provisions."
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company has been appointed as the transfer
agent and registrar for the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for the Common
Stock, and no prediction can be made regarding the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. As described below, only a limited number of
shares are currently available for sale, or will be available for sale shortly
after this offering, due to certain contractual and legal restrictions on
resale. Nevertheless, sales of substantial amounts of Common Stock in the public
market after the restrictions lapse could adversely affect the prevailing market
price.
Upon completion of this offering, the Company will have outstanding
6,247,635 shares of Common Stock. Of these shares, all of the 2,500,000 shares
of Common Stock sold in this offering will be freely tradable (unless such
shares are held by an "affiliate" of the Company as such term is defined in the
Securities Act) without restriction or registration under the Securities Act.
The remaining 3,747,635 shares are Restricted
47
<PAGE> 49
Shares and are eligible for public sale only if registered under the Securities
Act or sold in accordance with Rule 144 or Rule 701 thereunder, which rules are
summarized below. As a result of the contractual restrictions described below
and the provisions of Rule 144 or Rule 701, additional shares will be available
for sale in the public market as follows: (i) no Restricted Shares will be
eligible for immediate sale in the public market on the date of this Prospectus,
(ii) 2,973,715 Restricted Shares (plus 522,182 shares of Common Stock issuable
to employees pursuant to stock options that are then vested) will be eligible
for sale upon expiration of lock-up agreements (as described below) 180 days
after the date of this Prospectus and (iii) an additional 773,920 Restricted
Shares will be eligible for sale from time to time hereafter upon expiration of
their respective two-year holding periods under Rule 144.
The Company's executive officers, directors and stockholders, who own all
of the Restricted Shares, have agreed, subject to certain exceptions, that they
will not, without the prior written consent of PaineWebber Incorporated, offer,
sell, contract to sell, grant any option to purchase or otherwise dispose of any
shares of Common Stock or securities convertible into or exercisable or
exchangeable for Common Stock for a period of 180 days from the date of this
Prospectus (the "Lockup Period"). PaineWebber Incorporated, in its sole
discretion at any time and without notice, may release any or all shares from
the lockup agreements and permit holders of the shares to resell all or any
portion of their shares at any time prior to the expiration of the Lockup
Period.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, any holder of Restricted Shares, including an
affiliate of the Company, as to which at least two years have elapsed since the
later of the date of their acquisition of such Restricted Shares from the
Company or an affiliate, would be entitled, within any three-month period, to
sell a number of shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock (approximately 62,476 shares immediately
after the completion of this offering assuming no exercise of the Underwriters'
over-allotment option) or the average weekly trading volume of the Common Stock
in the over-the-counter market during the four calendar weeks preceding the date
on which notice of the sale is filed with the Commission. Sales under Rule 144
are subject to certain requirements relating to manner of sale, notice and
availability of current public information about the Company. However, a person
(or persons whose shares are aggregated) who is not deemed to have been an
affiliate of the Company at any time during the 90 days immediately preceding
the sale and who owns beneficially Restricted Shares is entitled to sell such
shares under Rule 144(k) without regard to the limitations described above,
provided that at least three years have elapsed since the date the shares were
acquired from either the Company or from an affiliate of the Company.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisers prior to the completion of this
offering, pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. In addition, the Commission has
indicated that Rule 701 will apply to stock options granted by the Company
before this offering, along with the shares acquired upon exercise of such
options. Securities issued in reliance on Rule 701 are deemed to be Restricted
Shares and, beginning 90 days after the date of this Prospectus (unless subject
to the contractual restrictions described above), may be sold by persons other
than affiliates, subject only to the manner of sale provisions of Rule 144 and
by affiliates under Rule 144 without compliance with its two-year minimum
holding period requirements.
The Company intends to file a registration statement under the Securities
Act covering (i) 1,350,000 shares of Common Stock issuable under the 1993 Plan,
(ii) 500,000 shares of Common Stock issuable under the 1996 Plan, (iii) 150,000
shares of Common Stock issuable upon exercise of options issued outside of the
1993 Plan and the 1996 Plan and (iv) 125,000 shares of Common Stock issuable
under the Purchase Plan. Such registration statement is expected to be filed
soon after the date of this Prospectus and will become effective upon filing.
Accordingly, the shares registered under such registration statement will be
available for sale in the public market, unless such shares are subject to
vesting restrictions with the Company or the contractual restrictions described
above.
48
<PAGE> 50
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom PaineWebber
Incorporated, Needham & Company, Inc. and Sutro & Co. Incorporated (the
"Representatives"), have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement by and among the Company and the
Representatives (the "Underwriting Agreement"), to purchase from the Company,
and the Company has agreed to sell to the Underwriters, the number of shares of
Common Stock set forth opposite the name of such Underwriters below at the price
set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
------------------------------------------------------------- ----------------
<S> <C>
PaineWebber Incorporated.....................................
Needham & Company, Inc.......................................
Sutro & Co. Incorporated.....................................
-----------
Total..............................................
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the shares of Common Stock listed above are subject to
certain conditions. The Underwriting Agreement also provides that the
Underwriters are committed to purchase all of the shares of Common Stock offered
hereby, if any are purchased (without consideration of any shares that may be
purchased through the Underwriters' over-allotment option).
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession to other dealers not in excess of $ per share; and that
the Underwriters and such dealers may reallow a concession to other dealers not
in excess of $ per share. After the initial public offering of the Common
Stock, the public offering price, the concessions to selected dealers and
reallowance to other dealers may be changed by the Representatives.
At the request of the Company, the Underwriters have reserved up to 125,000
shares of Common Stock for sale at the initial public offering price to
employees, business associates and related persons of the Company. The number of
shares of Common Stock available for sale to the general public will be reduced
to the extent such persons purchase such reserved shares. Any reserved shares
which are not so purchased will be offered by the Underwriters to the general
public on the same basis as the other shares offered hereby.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
additional 375,000 shares of Common Stock at the initial public offering price,
less the underwriting discounts and commissions set forth on the cover page of
this Prospectus. The Underwriters may exercise such option only to cover
over-allotments, if any, incurred in the sale of the shares of Common Stock that
the Underwriters have agreed to purchase. To the extent the Underwriters
exercise such option, each of the Underwriters will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares of Common Stock as is approximately equal to the percentage of
shares of Common Stock that each is obligated to purchase as shown in the table
set forth above.
The representatives have informed the Company that they do not intend to
confirm sales to any account over which they exercise discretionary authority.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The Company, its directors and executive officers and certain stockholders
have agreed not to offer, sell, contract to sell or grant any option to purchase
or otherwise dispose of any shares of Common Stock owned by them prior to the
expiration of 180 days from the date of this Prospectus, except (i) for shares
of Common Stock offered hereby, (ii) with the prior written consent of
PaineWebber Incorporated, and (iii) in the case of
49
<PAGE> 51
the Company, for the issuance of shares of Common Stock upon the exercise of
options or the grant of options to purchase shares of Common Stock.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Accordingly, the initial public offering price will be
determined by negotiations among the Company and the Representatives. Among the
factors to be considered in determining the initial public offering price will
be the technology base of the Company, the quality and experience of the
Company's scientific talent, the previous experience of the Company's executive
officers, the medical and research applications and potential markets to be
addressed by the Company's product development programs, the market prices of
publicly traded stock of comparable companies in recent periods and the general
condition of the securities markets at the time of the offering.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by its counsel, Cooley Godward LLP, San Diego, California.
Certain legal matters in connection with the offering will be passed upon for
the Underwriters by Shearman & Sterling, San Francisco, California.
EXPERTS
The consolidated financial statements of Alanex Corporation as of December
31, 1994 and 1995, and for each of the years in the three-year period ended
December 31, 1995, have been included herein and in the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the Common Stock offered hereby has been filed by the Company with
the Commission. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to such
Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected by anyone without charge at the Commission's
principal office located at 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, the New York Regional Office located at 7 World Trade Center, 13th
Floor, New York, New York 10048, and the Chicago Regional Office located at
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511, and copies of all or any part thereof may be obtained from the
Public Reference Branch of the Commission upon the payment of certain fees
prescribed by the Commission. The Commission also makes electronic filings
publicly available on the Internet within 24 hours of acceptance. The
Commission's Internet address is http://www.sec.gov. The Commission Web site
also contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the Commission. The Company
intends to furnish its stockholders with annual reports containing audited
financial statements certified by its independent auditors and quarterly reports
containing unaudited financial information for the first three quarters of each
fiscal year.
50
<PAGE> 52
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report......................................................... F-2
Consolidated Balance Sheets.......................................................... F-3
Consolidated Statements of Operations................................................ F-4
Consolidated Statements of Stockholders' Equity...................................... F-5
Consolidated Statements of Cash Flows................................................ F-6
Notes to Consolidated Financial Statements........................................... F-8
</TABLE>
F-1
<PAGE> 53
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Alanex Corporation:
We have audited the accompanying consolidated balance sheets of Alanex
Corporation and subsidiary as of December 31, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 audit 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 statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Alanex
Corporation and subsidiary as of December 31, 1994 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
San Diego, California
July 3, 1996, except for note 12 and the
fourth paragraph of note 6 to the
consolidated financial statements, as to
which the dates are July 17, 1996
and October 11, 1996, respectively
F-2
<PAGE> 54
ALANEX CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996
ASSETS (Note 5)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1994 1995 1996
----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash............................................. $ 375,000 $ 114,000 $2,830,000
Debt securities available for sale............... 2,971,000 2,053,000 1,513,000
Inventory........................................ 64,000 131,000 114,000
Prepaid expenses and other current assets........ 34,000 167,000 141,000
----------- ----------- ----------
Total current assets..................... 3,444,000 2,465,000 4,598,000
=========== =========== ==========
Property and equipment, net (notes 4 and 5)........ 1,265,000 3,122,000 2,929,000
Notes receivable from officers (note 3)............ -- 60,000 110,000
Deposits and other assets.......................... 99,000 111,000 108,000
----------- ----------- ----------
Total assets............................. $ 4,808,000 $ 5,758,000 $7,745,000
=========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit (note 5).......................... $ 506,000 $ 725,000 $ 715,000
Current maturities of long-term debt (note 5).... 199,000 347,000 507,000
Accounts payable and accrued expenses............ 91,000 305,000 334,000
Accrued payroll, payroll taxes and benefits...... 145,000 242,000 301,000
Deferred contract research revenue (note 6)...... 195,000 94,000 860,000
----------- ----------- ----------
Total current liabilities................ 1,136,000 1,713,000 2,717,000
Long-term debt, less current maturities (note 5)... 43,000 1,164,000 3,716,000
----------- ----------- ----------
Total liabilities........................ 1,179,000 2,877,000 6,433,000
Stockholders' equity (notes 7, 8 and 12):
Preferred stock, $0.001 par value, 10,000,000
shares authorized; 2,978,000 Series A shares
issued and outstanding at December 31, 1994
and 1995; none outstanding at June 30, 1996... 4,430,000 4,430,000 --
Common stock, $0.001 par value; 40,000,000 shares
authorized; 3,640,000, 3,723,000 and 3,737,000
shares issued and outstanding at December 31,
1994 and 1995 and June 30, 1996,
respectively.................................. 4,000 4,000 4,000
Additional paid-in capital....................... 252,000 260,000 1,924,000
Note receivable from officer for purchase of
common stock.................................. (18,000) (12,000) (12,000)
Deferred compensation............................ -- -- (160,000)
Accumulated deficit.............................. (1,039,000) (1,801,000) (444,000)
----------- ----------- ----------
Total stockholders' equity............... 3,629,000 2,881,000 1,312,000
----------- ----------- ----------
Commitments (note 10)
Total liabilities and stockholders'
equity................................. $ 4,808,000 $ 5,758,000 $7,745,000
=========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 55
ALANEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995,
AND THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------- -------------------------
1993 1994 1995 1995 1996
--------- ----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Contract research revenue
(note 6)............... $ 23,000 $ 50,000 $ 944,000 $ 382,000 $ 946,000
Contract research revenue
from a related party... -- 1,440,000 2,565,000 1,215,000 1,275,000
Project initiation fees... -- 250,000 250,000 -- 2,000,000
Other revenue............. 6,000 16,000 7,000 -- 3,000
-------- --------- --------- --------- ---------
Total revenue..... 29,000 1,756,000 3,766,000 1,597,000 4,224,000
Operating expenses:
Research and
development............ 816,000 2,181,000 3,685,000 1,522,000 2,274,000
General and administrative
(note 8)............... 162,000 585,000 804,000 387,000 562,000
-------- --------- --------- --------- ---------
Total operating
expenses........ 978,000 2,766,000 4,489,000 1,909,000 2,836,000
-------- --------- --------- --------- ---------
Income (loss) from
operations................ (949,000) (1,010,000) (723,000) (312,000) 1,388,000
-------- --------- --------- --------- ---------
Other income (expense):
Interest income........... -- 97,000 180,000 84,000 79,000
Interest expense.......... (31,000) (25,000) (168,000) (37,000) (105,000)
Loss on sale of property
and equipment.......... -- -- (49,000) -- --
-------- --------- --------- --------- ---------
Other income
(expense)....... (31,000) 72,000 (37,000) 47,000 (26,000)
-------- --------- --------- --------- ---------
Income (loss) before income
taxes..................... (980,000) (938,000) (760,000) (265,000) 1,362,000
Income taxes (note 9)....... (1,000) (1,000) (2,000) (2,000) (2,000)
-------- --------- --------- --------- ---------
Net income
(loss).......... $(981,000) $ (939,000) $ (762,000) $ (267,000) $1,360,000
======== ========= ========= ========= =========
Net income (loss) per
share..................... $ (0.24) $ (0.22) $ (0.17) $ (0.06) $ 0.30
======== ========= ========= ========= =========
Weighted average number of
common and common
equivalent shares
outstanding............... 4,012,000 4,364,000 4,504,000 4,464,000 4,545,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 56
ALANEX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995,
AND THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
NOTE
RECEIVABLE
FOR
PREFERRED STOCK COMMON STOCK ADDITIONAL PURCHASE OF
PARTNERS' ------------------------ --------------------- PAID-IN COMMON
CAPITAL SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK
--------- ---------- ----------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Partners' capital at $ 76,000 -- $ -- -- $ -- $ -- $ --
December 31, 1992...............
Capital contributions............ 962,000 -- -- -- -- -- --
Issuance of stock in exchange for (157,000) -- -- 3,150,000 4,000 153,000 --
partnership interest............
Issuance of common stock in -- -- -- 350,000 -- 18,000 (18,000)
exchange for note receivable
from officer....................
Net loss......................... (881,000) -- -- -- -- -- --
---------- ---------- ---------- ------ ---------- -------- --------
Balance at December 31, 1993..... -- -- -- 3,500,000 4,000 171,000 (18,000)
Issuance of Series A preferred -- 2,978,000 4,430,000 -- -- 67,000 --
stock and common stock warrants
to Amgen........................
Issuance of common stock......... -- -- -- 140,000 -- 14,000 --
Net loss......................... -- -- -- -- -- -- --
---------- ---------- ---------- ------ ---------- -------- --------
Balance at December 31, 1994..... -- 2,978,000 4,430,000 3,640,000 4,000 252,000 (18,000)
Payments received on note -- -- -- -- -- -- 6,000
receivable from officer for
purchase of common stock........
Issuance of common stock on -- -- -- 83,000 -- 8,000 --
exercise of stock options.......
Net loss......................... -- -- -- -- -- -- --
---------- ---------- ---------- ------ ---------- -------- --------
Balance at December 31, 1995..... -- 2,978,000 4,430,000 3,723,000 4,000 260,000 (12,000)
Redemption of Series A preferred
stock (unaudited)............... -- (2,978,000) (4,430,000) -- -- 1,502,000 --
Issuance of common stock on -- -- -- 14,000 -- 2,000 --
exercise of stock options
(unaudited).....................
Deferred compensation related to -- -- -- -- -- 160,000 --
grant of stock options..........
Net income (unaudited)........... -- -- -- -- -- -- --
---------- ---------- ---------- ------ ---------- -------- --------
Balance at June 30, 1996 $ -- -- $ -- 3,737,000 $ 4,000 $1,924,000 $ (12,000)
(unaudited).....................
========== ========== ========== ========= ========== ======== ========
<CAPTION>
DEFERRED ACCUMULATED
COMPENSATION DEFICIT TOTAL
------------ ----------- -----------
<S> <C> <C> <C>
Partners' capital at $ -- $ -- $ 76,000
December 31, 1992...............
Capital contributions............ -- -- 962,000
Issuance of stock in exchange for -- -- --
partnership interest............
Issuance of common stock in -- -- --
exchange for note receivable
from officer....................
Net loss......................... -- (100,000 ) (981,000)
--------- ---------- -----------
Balance at December 31, 1993..... -- (100,000 ) 57,000
Issuance of Series A preferred -- -- 4,497,000
stock and common stock warrants
to Amgen........................
Issuance of common stock......... -- -- 14,000
Net loss......................... -- (939,000 ) (939,000)
--------- ---------- -----------
Balance at December 31, 1994..... -- (1,039,000 ) 3,629,000
Payments received on note -- -- 6,000
receivable from officer for
purchase of common stock........
Issuance of common stock on -- -- 8,000
exercise of stock options.......
Net loss......................... -- (762,000 ) (762,000)
--------- ---------- -----------
Balance at December 31, 1995..... -- (1,801,000 ) 2,881,000
Redemption of Series A preferred
stock (unaudited)............... -- (3,000 ) (2,931,000)
Issuance of common stock on -- -- 2,000
exercise of stock options
(unaudited).....................
Deferred compensation related to (160,000) -- --
grant of stock options..........
Net income (unaudited)........... -- 1,360,000 1,360,000
--------- ---------- -----------
Balance at June 30, 1996 $ (160,000) $ (444,000 ) $ 1,312,000
(unaudited).....................
========= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 57
ALANEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995,
AND THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
--------- ----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................... $(981,000) $ (939,000) $ (762,000) $ (267,000) $1,360,000
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization...... 98,000 274,000 641,000 222,000 327,000
Loss on sale of property and -- -- 49,000 -- --
equipment........................
Changes in assets and liabilities:
Inventory........................ -- (64,000) (67,000) (45,000) 17,000
Prepaid expenses and other (2,000) (72,000) (133,000) (68,000) 26,000
current assets................
Accounts payable and accrued 1,000 90,000 214,000 96,000 29,000
expenses......................
Accrued payroll, payroll taxes -- 145,000 97,000 44,000 59,000
and benefits..................
Deferred contract research 50,000 145,000 (101,000) 480,000 766,000
revenue.......................
--------- ---------- ---------- ---------- ----------
Net cash provided by (used in) (834,000) (421,000) (62,000) 462,000 2,584,000
operating activities........
--------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of property and -- -- 28,000 -- --
equipment..........................
Purchase of property and equipment... (3,000) (1,276,000) (2,568,000) (2,371,000) (134,000)
Purchase of debt securities available -- (4,454,000) (1,495,000) (1,495,000) --
for sale and time deposits.........
Proceeds from sale and maturities of -- 1,526,000 2,413,000 1,939,000 540,000
debt securities available for
sale...............................
Notes receivable from officers, -- -- (54,000) 6,000 (50,000)
net................................
Deposits and other assets............ (14,000) (33,000) (19,000) (31,000) 3,000
--------- ---------- ---------- ---------- ----------
Net cash provided by (used in) (17,000) (4,237,000) (1,695,000) (1,952,000) 359,000
investing activities........
--------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Capital contributions................ 805,000 -- -- -- --
Net borrowings on line of credit..... -- 506,000 219,000 461,000 (10,000)
Proceeds from issuance of long-term 80,000 482,000 1,670,000 1,470,000 --
debt...............................
Payments on long-term debt........... (37,000) (468,000) (401,000) (141,000) (219,000)
Proceeds from issuance of common -- 14,000 -- -- --
stock..............................
Proceeds from issuance of Series A -- 4,430,000 -- -- --
preferred stock....................
Proceeds from issuance of common -- 67,000 8,000 6,000 2,000
stock warrants, options............
--------- ---------- ---------- ---------- ----------
Net cash provided by (used in) 848,000 5,031,000 1,496,000 1,796,000 (227,000)
financing activities........
--------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash........ (3,000) 373,000 (261,000) 306,000 2,716,000
Cash at beginning of period............ 5,000 2,000 375,000 419,000 114,000
--------- ---------- ---------- ---------- ----------
Cash at end of period.................. $ 2,000 $ 375,000 $ 114,000 $ 725,000 $2,830,000
========= ========== ========== ========== ==========
</TABLE>
F-6
<PAGE> 58
ALANEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995,
AND THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
1993 1994 1995 1995 1996
--------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Supplemental cash flow disclosures:
Cash paid during the period for $ 31,000 $ 23,000 $ 163,000 $ 34,000 $ 111,000
interest...........................
Cash paid during the period for $ 1,000 $ 1,000 $ 2,000 $ 2,000 $ 2,000
income taxes.......................
Supplemental schedule of noncash
investing and financing activities:
Common stock issued for limited $ 157,000 $ -- $ -- $ -- $ --
partnership interests............
Redemption of Series A preferred $ -- $ -- $ -- $ -- $2,931,000
stock in exchange for a note
payable and warrants (notes 5 and
7)...............................
Common stock issued in return for $ 18,000 $ -- $ -- $ -- $ --
note receivable from officer.....
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 59
ALANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 (AUDITED) AND JUNE 30, 1996 (UNAUDITED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Reorganization
Alanex Corporation (the "Company") was incorporated in November 1993, under
the laws of the State of California. The Company is a drug discovery company
that is applying its highly integrated and comprehensive approach to rapidly and
cost-effectively discover and optimize novel, small molecule drug candidates.
Prior to November 1993, the Company's operations were conducted through
Alanex, L.P., a California limited partnership ("Alanex") and Plictrix, Inc.
("Plictrix"), the general partner of Alanex. In 1993, the partners approved the
reorganization of Alanex and Plictrix to form the Company effective in November
1993. In conjunction with this transaction, the Company issued 2,450,000 shares
of common stock to the partners of Alanex and 700,000 shares to stockholders of
Plictrix in exchange for their respective ownership interests. The transaction
has been accounted for as a reorganization of entities under common control,
using historical cost. The Company has restated all historical financial
information to reflect the reorganization.
On March 31, 1994, all of the assets and liabilities of Alanex were
transferred to the Company and Alanex was dissolved.
Principles of Consolidation
The consolidated financial statements include the accounts of Alanex
Corporation and its wholly owned subsidiary Plictrix. All significant
intercompany balances have been eliminated in consolidation.
Debt Securities Available for Sale
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS 115). SFAS 115 requires that investments be
classified as "held to maturity," "available for sale" or "trading securities."
Investments held to maturity would be reported at amortized cost. Other
investments in debt and equity securities would be recorded at fair market
value. The Company adopted SFAS 115 effective January 1, 1994. The adoption of
SFAS 115 did not have a material impact on the Company's financial position or
results of operations.
Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates such
determination at each balance sheet date. Debt securities for which the Company
does not have the intent or ability to hold to maturity are classified as
available for sale. As of December 31, 1994 and 1995 and June 30, 1996, debt
securities available for sale consisted of government-backed and corporate debt
instruments. Debt securities available for sale are carried at fair value, which
approximates cost, with any unrealized gains and losses, net of tax, reported as
a separate component of stockholders' equity. These securities mature at various
dates through 1996.
Inventory
Inventory consists of chemical materials and supplies and is stated at the
lower of cost or net realizable value. Cost is determined on a first-in,
first-out basis.
F-8
<PAGE> 60
ALANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 (AUDITED) AND JUNE 30, 1996 (UNAUDITED)
Depreciation and Amortization
Depreciation and amortization are computed using the double declining
balance method over the estimated useful lives of the related assets or over the
terms of the related capital leases, whichever is shorter (three to fifteen
years). Renewals and replacements which extend the useful life of the asset are
capitalized.
Contract Revenue
Contract research revenue is based on an established rate for each
full-time equivalent scientist ("FTE") and is negotiated to include a reasonable
profit. Research revenue is recognized at the time research and development
activities are performed under the terms of the research contracts. Contract
research payments are generally received in advance of the performance of the
related research activities under the contract at the beginning of each quarter.
Such payments received in excess of amounts earned are recorded as deferred
contract research revenue. Project initiation fees and milestone payments are
nonrefundable and the contracts do not specify any future performance
obligations on the part of the Company related to such fees or payments. Project
initiation fees are recognized under the contract as revenue when earned,
generally when received, upon signing of a contract. Revenue from milestone
payments will be recognized if and when the results or events stipulated in the
agreement have been achieved. Through June 30, 1996, the Company has not
received any milestone payments under any of its collaboration agreements.
Research and Development Costs
All research and development costs are expensed in the period incurred.
Net Income (Loss) Per Share
Net income (loss) per share is computed based upon the weighted average
number of common and common equivalent shares (using the treasury stock method)
outstanding after certain adjustments described below. Common equivalent shares
are not included in the per-share calculations where the effect of their
inclusion would be anti-dilutive, except that, in accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 83, all common and common
equivalent shares issued during the twelve-month period prior to the initial
filing of the Company's proposed initial public offering have been included in
the calculation as if they were outstanding for all periods presented using the
treasury stock method and the anticipated public offering price of common stock.
Income Taxes
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). Under the asset and liability method of SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in operations in the period
that includes the enactment date.
Use of Estimates
The preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires management of the Company
to make estimates and assumptions that affect
F-9
<PAGE> 61
ALANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 (AUDITED) AND JUNE 30, 1996 (UNAUDITED)
the reported amounts of assets and liabilities, revenue and expenses, and the
disclosure of contingent assets and liabilities. Actual results could differ
from those estimates.
Consolidated Interim Financial Information
The accompanying interim financial information as of June 30, 1996, and for
the six-month periods ended June 30, 1995 and 1996, is unaudited and, in the
opinion of management, reflects all adjustments that are necessary for a fair
presentation of the Company's financial position, results of operations and cash
flows for the period then ended. All such adjustments are of a normal and
recurring nature.
(2) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires that fair values be disclosed for
the Company's financial instruments. The carrying amount of cash, other current
assets, accounts payable and accrued expenses, and deferred contract research
revenue are considered to be representative of their respective fair values due
to the short-term nature of those instruments. Debt securities available for
sale are carried at fair value. The carrying amount of the line of credit and
longterm debt are reasonable estimates of their fair values as the debt bears
interest based on market rates currently available for debt with similar terms.
(3) RELATED PARTY TRANSACTION
As of December 31, 1995, the Company had a short-term receivable from an
officer of the Company of $10,000, due October 6, 1996. As of May 22, 1996, this
amount was combined with an outstanding note receivable from the officer in the
amount of $50,000 dated January 22, 1996. The new note, in the amount of
$60,000, is due in May 1999 with interest payable annually at the minimum rate
of interest required to avoid imputed interest (6.75% at December 31, 1995).
As of December 31, 1995, the Company also has two notes receivable from
another officer with original principal face values of $17,500 and $50,000. The
balance on the first note of $12,000 is related to the purchase of common stock,
is secured by the stock and is due November 22, 1996. The unsecured note in the
amount of $50,000 is due November 3, 1998. Interest is payable annually at the
minimum rate of interest required to avoid imputed interest (6.75% at December
31, 1995).
(4) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and consist of the following at
December 31, 1994 and 1995 and June 30, 1996:
<TABLE>
<CAPTION>
1996
1994 1995 -----------
---------- ----------- (UNAUDITED)
<S> <C> <C> <C>
Laboratory equipment................................. $1,013,000 $ 1,752,000 $ 1,834,000
Office and computer equipment........................ 527,000 689,000 743,000
Leasehold improvements............................... 126,000 1,747,000 1,732,000
Construction in progress............................. 100,000 -- --
---------- ----------- -----------
1,766,000 4,188,000 4,309,000
Accumulated depreciation and amortization............ (501,000) (1,066,000) (1,380,000)
---------- ----------- -----------
$1,265,000 $ 3,122,000 $ 2,929,000
========== =========== ===========
</TABLE>
F-10
<PAGE> 62
ALANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 (AUDITED) AND JUNE 30, 1996 (UNAUDITED)
Laboratory and office equipment acquired under a capital lease obligation
totaled $193,000, $170,000 and $170,000, net of accumulated amortization of
$152,000, $145,000 and $161,000 at December 31, 1994 and 1995 and June 30, 1996,
respectively.
(5) LONG-TERM DEBT
Long-term debt at December 31, 1994 and 1995 and June 30, 1996 consists of
the following:
<TABLE>
<CAPTION>
JUNE 30,
1994 1995 1996
--------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Unsecured, non-interest bearing, term obligation for
preferred stock redemption, face value of $4,500,000,
discounted to an 8.95% effective rate, due June 28,
2001................................................. $ -- $ -- $ 2,931,000
Term note payable to bank, interest at 30-day
commercial paper rate plus 2.95% (8.95% at December
31, 1995), principal payments of $20,000 plus
interest due monthly through August 1996; secured by
equipment............................................ 160,000 160,000 40,000
Capital lease obligation for equipment, interest at
8.5% per annum, monthly installments due through
October 1996, secured by equipment................... 82,000 36,000 12,000
Term obligation for tenant improvements, interest at
11% per annum, monthly installments of $24,000 due
through 2002; secured by leasehold improvements...... -- 1,315,000 1,240,000
--------- ---------- ----------
242,000 1,511,000 4,223,000
Current maturities................................... (199,000) (347,000) (507,000)
--------- ---------- ----------
$ 43,000 $1,164,000 $ 3,716,000
========= ========== ==========
</TABLE>
Maturities of long-term debt as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
CAPITAL
DEBT LEASE TOTAL
---------- -------- ----------
<S> <C> <C> <C>
1996.................................................... $ 311,000 $ 36,000 $ 347,000
1997.................................................... 171,000 -- 171,000
1998.................................................... 191,000 -- 191,000
1999.................................................... 213,000 -- 213,000
2000.................................................... 589,000 -- 589,000
---------- -------- ----------
1,475,000 36,000 1,511,000
Current maturities...................................... (311,000) (36,000) (347,000)
---------- -------- ----------
$1,164,000 $ -- $1,164,000
========== ======== ==========
</TABLE>
In connection with the secured term note payable, the Company has an
available line of credit for the difference between the balance outstanding on
the term notes and $1,200,000 and $960,000 at December 31, 1994 and 1995,
respectively. The credit facility requires $240,000 of the loan principal
balance to be converted to a term loan and paid annually. The line of credit
bears interest at the 30-day commercial paper rate plus 2.95%. The balance
outstanding on this line of credit was $506,000, $725,000 and $715,000 at
December 31, 1994 and 1995 and June 30, 1996, respectively. Both the term note
payable and line of credit are secured by all of the assets of the Company and
are guaranteed by Amgen Inc. ("Amgen") (Note 7).
F-11
<PAGE> 63
ALANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 (AUDITED) AND JUNE 30, 1996 (UNAUDITED)
(6) RESEARCH AND LICENSE AGREEMENTS
Amgen
In April 1994, the Company and Amgen, a preferred stockholder, entered into
a collaborative research and license agreement to conduct drug research
programs. Under the terms of the agreement, the Company received a negotiated
amount for each research FTE devoted to the programs per year. This research
agreement was terminated by mutual agreement effective in June 1996. Included in
contract revenue for 1994 and 1995 is $1,440,000 and $2,565,000, respectively,
recognized under this agreement (Note 7).
Astra Pharma
In December 1994, the Company and Astra AB entered into a three-year
collaboration agreement for the identification and optimization of lead
compounds that interact with a specific opiate receptor which may have
application in the treatment of pain. The agreement was subsequently assigned to
Astra Pharma, an affiliate of Astra AB. The Company was paid a project
initiation fee of $250,000 and, Astra Pharma is obligated to make additional
payments upon the achievement of certain milestones. In addition, Astra Pharma
is obligated to provide up to $2.25 million of additional funding to support
research undertaken in connection with the agreement. Through June 30, 1996,
Alanex has received $1.3 million under the collaboration agreement. Under the
terms of the collaboration, Astra Pharma owns all rights in and has title to any
and all compounds discovered and products developed as a result of the research
collaboration. The Company has no right to commercialize and is not entitled to
receive royalties on the sales of any products resulting from the collaboration
agreement. Astra Pharma may terminate the collaboration agreement at any time
upon three months' written notice. In the event of early termination of the
collaboration agreement, Astra Pharma shall have exclusive title to all
compounds and associated intellectual property rights discovered as a result of
the collaboration.
Novo Nordisk
In October 1995, the Company and Novo Nordisk entered into a three-year
collaboration agreement for the characterization of novel, non-peptide ligands
with desired receptor ligand binding affinities to be used to develop small
molecule drugs for the treatment of diabetes. Novo Nordisk paid the Company a
project initiation fee of $250,000 and is obligated to make additional payments
to the Company upon the achievement of certain milestones. In addition, Novo
Nordisk is obligated to provide up to $4.5 million of additional funding to
support research at the Company in the field of collaboration. The agreement
provides that, in the event the collaboration results in a drug candidate which
Novo Nordisk elects to pursue to commercialization, Novo Nordisk will be granted
an exclusive worldwide license to develop and commercialize such drug candidate
and the Company will receive royalties on the sales of any such drug. Through
June 30, 1996, Alanex has received $1.3 million under the collaboration
agreement. Novo Nordisk may, at any time, terminate the collaboration upon three
months' written notice. Upon any such early termination, any licenses granted to
Novo Nordisk by Alanex under the collaboration agreement will continue in full
force and effect, unless otherwise specifically terminated.
Roche Bioscience
In June 1996, the Company and Roche Bioscience entered into a three-year
collaboration agreement to discover an antagonist for an undisclosed target for
the treatment of pain. The agreement provides for Roche Bioscience to pay to the
Company a non-refundable project initiation fee of $4.0 million, one-half of
which was paid and recognized as revenue upon execution of the collaboration
agreement and one-half of which
F-12
<PAGE> 64
ALANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 (AUDITED) AND JUNE 30, 1996 (UNAUDITED)
Roche Bioscience will be obligated to pay on October 31, 1996. Roche Bioscience
is obligated to make additional payments upon the achievement of certain
milestones. In addition, during the term of the agreement, Roche Bioscience will
provide a minimum of $5.5 million in additional funding to support research
personnel at the Company, and the Company will work exclusively with Roche
Bioscience on the selected molecular target. Through June 30, 1996, the Company
has received $2,575,000 under the collaboration agreement. Roche Bioscience also
has the option, until January 15, 1997, to expand the field of research to
include the funding of one or more additional molecular targets. The agreement
provides to Roche Bioscience an exclusive worldwide license to commercialize any
compounds resulting from the research that is selected by Roche Bioscience for
further development and to pay royalties on any sales of products developed from
the collaboration. Alanex will retain all rights to compounds not selected by
Roche Bioscience for development, provided that Roche Bioscience is not
developing a structurally-related compound on which Roche Bioscience will be
paying milestones and royalties to the Company and Alanex may pursue such
compounds following termination of the collaboration. Upon completion of the
first year of the agreement, Roche Bioscience may terminate the collaboration at
any time upon six months' prior written notice. If the collaboration agreement
is terminated prior to its expiration, all licenses granted by the parties to
one another will terminate and revert back to the respective parties, but Roche
Bioscience will retain the right to commercialize any products resulting from
the research efforts under licenses granted by the Company prior to the
termination.
Mount Sinai
In June 1996, the Company and Mount Sinai entered into an agreement to
conduct research relating to the human GnRH receptor. Under the agreement, the
Company funded the initial phase of the research and is obligated to provide
additional funding upon the achievement of certain milestones. In connection
with the research the agreement, Mount Sinai granted the Company, (i) a
non-exclusive worldwide license to develop and commercialize any products based
upon certain inventions and technologies owned by Mt. Sinai relating to the
human GnRH receptor and (ii) an exclusive worldwide license to develop and
commercialize any products based upon know-how or patents or patent applications
covering inventions made during the course of the research. Pursuant to the
terms of the licenses, the Company is obligated to pay Mount Sinai a percentage
of any milestone payments received by the Company from third-party sublicenses
and royalties on sales of products. The Company may terminate the licenses upon
60 days' written notice whereupon all rights granted under the licenses will
revert back to Mount Sinai.
(7) STOCKHOLDERS' EQUITY
In April 1994, the Company entered into a collaboration agreement with
Amgen under which Alanex granted to Amgen a worldwide exclusive license to drugs
discovered by Alanex to treat neurological diseases and a worldwide nonexclusive
license to Alanex, a proprietary software program developed by the Company to
analyze peptides. In connection with the collaboration agreement, the Company
issued to Amgen 2,978,182 shares of Series A Preferred Stock at a purchase price
of $1.51 per share and a warrant to purchase 703,636 shares of common stock at
an exercise price of $0.005 per share. As of June 1996, the Company had received
a total of $5,280,000 in contract research revenue under the collaboration
agreement.
In June 1996, the collaboration agreement between the Company and Amgen was
terminated. In connection with the termination of the Amgen agreement, (i)
except as set forth below, all rights to the Company's technology reverted to
the Company, (ii) Amgen's warrant to purchase 703,636 shares of common stock was
canceled and the Company issued a new warrant to Amgen to purchase 450,000
shares of common stock at an exercise price of $1.51 per share with a term of
seven years, and (iii) the Company redeemed Amgen's 2,978,182 shares of Series A
Preferred Stock (representing all of the issued and outstanding Preferred Stock
of the Company), at a repurchase price of $1.51 per share. The Company recorded
an
F-13
<PAGE> 65
ALANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 (AUDITED) AND JUNE 30, 1996 (UNAUDITED)
unsecured, non-interest bearing promissory note in the amount of $4,500,000 due
June 28, 2001. This note has been discounted in the Consolidated Financial
Statements at 8.95% (Note 5). In addition, under the termination agreement,
Alanex is obligated to provide to Amgen on a non-exclusive basis, on or before
October 28, 1996, certain compounds that were included in the Alanex technology
licensed to Amgen under the collaboration agreement. In exchange for such
compounds, Amgen will pay Alanex $400,000. In connection with the termination,
all licenses, options and other rights to the Company's technology granted to
Amgen under the collaboration agreement were terminated.
(8) STOCK OPTIONS
In November 1993, the Company adopted the Alanex Corporation 1993 Stock
Plan (the "Plan"). Upon adoption of the Plan, 1,050,000 shares of common stock
were reserved for issuance under the Plan. In December 1993, the number of
shares of common stock issuable under the Plan was increased to 1,350,000. Under
the Plan, the Board of Directors may grant incentive stock options to purchase
common stock at prices which are not less than the fair market value at the date
of grant. Nonstatutory stock options are granted at prices which are to be
determined by the Board of Directors, but not less than 85% of fair market value
at the date of grant. Other terms and conditions are established by the Board of
Directors at the time of grant. Options under the Plan generally vest over 4
years and have a term of 10 years from the date of grant.
The Company has from time to time granted options to purchase shares of
common stock outside of the Plan ("NonPlan Options") to certain directors,
officers and employees of the Company. As of June 30, 1996, Non-Plan Options,
granted on January 19, 1996, were outstanding to purchase an aggregate of
150,000 shares of common stock at a weighted average exercise price of $0.10 per
share, and no Non-Plan Options had been exercised. These Non-Plan Options vest
monthly and ratably over a three-year period. Non-Plan Options have a term of
ten years, except that Non-Plan Options generally expire 30 days after the
termination of an optionee's employment or other service relationship with the
Company. In general, if an optionee dies while in an employment or service
relationship with the Company, that person's option may be exercised up to six
months after his death.
Information with respect to stock option activity is as follows:
<TABLE>
<CAPTION>
EXERCISE
PRICE
OPTIONS PER SHARE
------- ---------
<S> <C> <C>
Outstanding, December 31, 1993................................... 349,000 $ .10
Options granted.................................................. 171,000 .10
--------
Outstanding December 31, 1994.................................... 520,000 .10
Options granted.................................................. 148,000 .10
Options exercised................................................ (83,000) .10
Options canceled................................................. (29,000) .10
--------
Outstanding December 31, 1995.................................... 556,000 .10
Options granted (unaudited)...................................... 386,000 .10
Options exercised (unaudited).................................... (14,000) .10
Options canceled (unaudited)..................................... (35,000) .10
--------
Outstanding, June 30, 1996 (unaudited)........................... 893,000 .10
========
</TABLE>
During the six-month period ended June 30, 1996, the Company issued 236,100
options under the 1993 plan with an exercise price of $.10 per share. These
options were issued to management, directors and employees. In accordance with
Accounting Principles Board Opinion No. 25, the Company intends to take a
F-14
<PAGE> 66
ALANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 (AUDITED) AND JUNE 30, 1996 (UNAUDITED)
charge to operations of approximately $160,000 over the vesting period of
options to acquire 117,500 shares to record compensation expense incurred as a
result of the issuance of those options. The charge to operations for the six
months ended June 30, 1996 was approximately $3,000. As of June 30, 1996,
377,000 options were vested and exercisable.
(9) INCOME TAXES
The Company's income taxes for 1993, 1994 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Current:
Federal................................................ $ -- $ -- $ --
State.................................................. 1,000 1,000 2,000
------ ------ ------
1,000 1,000 2,000
------ ------ ------
Deferred:
Federal................................................ -- -- --
State.................................................. -- -- --
------ ------ ------
-- -- --
------ ------ ------
$1,000 $1,000 $2,000
====== ====== ======
</TABLE>
The following table summarizes the tax effects of temporary differences
that give rise to significant portions of the deferred tax assets and deferred
tax liability at December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accrued employee benefits.................................. $ 28,000 $ 27,000
Net operating loss carryforwards -- federal................ 327,000 587,000
Net operating loss carryforwards -- state.................. 46,000 109,000
--------- --------
Gross deferred tax assets.......................... 401,000 723,000
Valuation allowance.......................................... (401,000) (723,000)
--------- --------
Net deferred tax asset............................. $ -- $ --
========= ========
</TABLE>
The Company has recorded a valuation allowance against any deferred tax
assets for deductible temporary differences and tax operating loss
carryforwards. The Company increased its valuation allowance by approximately
$40,000, $300,000 and $322,000 for the years ended December 31, 1993, 1994 and
1995, respectively, primarily as a result of the increase in tax operating loss
carryforwards.
As of December 31, 1995, the Company has net operating loss carryforwards
for federal income tax purposes of approximately $1,800,000 which are available
to offset future federal taxable income, if any, through 2010, and net operating
loss carryforwards for state income tax purposes of approximately $900,000 which
are available to offset future state taxable income, if any, through 2000.
In accordance with Internal Revenue Code Section 382, the annual
utilization of net operating loss carryforwards and credits existing prior to a
change in control may be limited.
F-15
<PAGE> 67
ALANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 (AUDITED) AND JUNE 30, 1996 (UNAUDITED)
(10) COMMITMENTS
Leases that do not meet the criteria for capitalization are classified as
operating leases with related rentals charged to operations as incurred. Future
minimum lease payments under noncancelable operating leases (with initial lease
terms in excess of one year) as of December 31, 1994 and 1995 are as follows:
<TABLE>
<S> <C>
1996............................. $ 202,000
1997............................. 202,000
1998............................. 202,000
1999............................. 202,000
2000............................. 202,000
Thereafter....................... 270,000
----------
$1,280,000
==========
</TABLE>
Total 1993, 1994 and 1995 rent expense for operating leases was $78,000,
$128,000 and $258,000, respectively. Rent expense for the six-month periods
ended June 30, 1995 and 1996 was $109,000 and $101,000, respectively.
(11) EMPLOYEE BENEFITS PLAN
Effective January 1, 1995, the Board of Directors approved the Alanex
401(k) Compensation Deferral Savings Plan (the "401k Plan"), adopting provisions
of the Internal Revenue Code Section 401(k). The 401k Plan was approved by the
IRS in 1995. The 401k Plan is for the benefit of all qualifying employees, and
permits employee voluntary contributions and Company profit sharing
contributions. At the discretion of the Board of Directors, the Company may
match employee contributions equal to a discretionary percentage of the
employee's salary reductions, limited to the maximum contribution allowable for
income tax purpose. Employer contributions vest proportionally over five years
of service. No employer contributions have been approved by the Board of
Directors through December 31, 1995.
(12) SUBSEQUENT EVENTS
On July 17, 1996, the Board of Directors of the Company, subject to
approval by the stockholders, approved a reincorporation of the Company as a
Delaware corporation. As a result of the reincorporation, the accounts within
the consolidated financial statements have been retroactively restated for all
periods presented to reflect a par value of $0.001 per share.
The Company's 1996 Equity Incentive Plan (the "1996 Plan"), covering an
aggregate of 500,000 shares of Common Stock, was adopted by the Board, subject
to stockholder approval, in July 1996.
In July 1996, the Board adopted, subject to stockholder approval, the
Employee Stock Purchase Plan (the "Purchase Plan") covering an aggregate of
125,000 shares of Common Stock. The Purchase Plan is intended to qualify as an
employee stock purchase plan within the meaning of Section 423(b) of the Code.
Under the Purchase Plan, the Board may authorize participation by eligible
employees, including officers, in periodic offerings of up to 27 months in
length. The Purchase Plan provides that the Board shall specify certain terms
and conditions that will apply to each such offering within the parameters set
forth in the Purchase Plan.
F-16
<PAGE> 68
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 21
Management............................ 36
Certain Transactions.................. 43
Principal Stockholders................ 45
Description of Capital Stock.......... 46
Shares Eligible for Future Sale....... 47
Underwriting.......................... 49
Legal Matters......................... 50
Experts............................... 50
Additional Information................ 50
Index to Consolidated Financial
Statements.......................... F-1
------------------------
UNTIL , 1996 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATIONS OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------
- --------------------------------------------
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
2,500,000 SHARES
LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
PAINEWEBBER INCORPORATED
NEEDHAM & COMPANY, INC.
SUTRO & CO. INCORPORATED
------------------------
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 69
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates,
except for the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee.................................................................. $ 11,897
NASD filing fee................................................................... 3,500
Nasdaq Stock Market Listing Application fee....................................... 31,867
Blue sky qualification fees and expenses.......................................... 10,000
Printing and engraving expenses................................................... 80,000
Legal fees and expenses........................................................... 275,000
Accounting fees and expenses...................................................... 125,000
Transfer agent and registrar fees................................................. 10,000
Miscellaneous..................................................................... 27,736
-------
Total................................................................... $575,000
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits a corporation
to indemnify its directors, officers, employees and other agents in terms
sufficiently broad to permit indemnification (including reimbursement for
expenses) under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended (the "Act"). The Registrant's Bylaws contain
provisions covering indemnification of corporate directors, officers and other
agents against certain liabilities and expenses incurred as a result of
proceedings involving such persons in their capacities as directors, officers,
employees or agents, including proceedings under the Act or the Securities
Exchange Act of 1934.
The Registrant's Bylaws provide for the indemnification of directors and
executive officers to the fullest extent not prohibited by the Delaware General
Corporation Law and authorize the indemnification by the Company of other
officers, employees and other agents as set forth in the Delaware General
Corporation Law. The Registrant has entered into indemnification agreements with
its directors and executive officers, in addition to indemnification provided
for in the Registrant's Bylaws.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Act or
otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since November 19, 1993, the date of the Registrant's inception, the
Registrant has sold and issued (without payment of any selling commission to any
person) the following unregistered securities:
1. During the period November 19, 1993 to September 1, 1996, the
Registrant granted incentive and non-statutory stock options to employees,
officers and directors of and consultants to the Company under its 1993
Stock Plan (the "1993 Plan") covering an aggregate of 914,200 shares of the
Company's Common Stock. Certain of these option vest over a period of time
following their respective dates of grant.
2. During the period November 19, 1993 to September 1, 1996, the
Registrant granted non-statutory stock options to employees, officers,
directors and consultants of the Company outside of the Company's employee
benefit plans covering an aggregate of 210,000 shares of the Company's
Common Stock. Certain of these options vest over a period of time following
their respective dates of grant.
II-1
<PAGE> 70
3. In November 1993, the Registrant issued 350,000 shares of Common
Stock to a certain executive officer for a promissory note in the amount of
$17,500 bearing interest at the rate of 6.75% per annum.
4. In November 1993, the Registrant issued 3,640,000 shares of the
Company's Common Stock to certain founders of the Company in exchange for
certain partnership interests held by such founders in Alanex, L.P., a
California limited partnership and certain equity interests in Plictrix,
Inc., a California corporation.
5. In December 1993, the Registrant issued 140,000 shares of Common
Stock to a director of the Company for a total purchase price of $1,400.
6. In April 1994, pursuant to the terms of an equity financing of the
Company, the Registrant issued 2,978,182 shares of the Company's Series A
Preferred Stock for $4,497,055 in cash to a certain investor. In connection
with the equity financing, the Registrant granted a warrant to purchase
703,636 shares of the Company's Common Stock at a purchase price of $.005
per share to the same investor.
7. In June 1996, the Registrant canceled the warrant referenced in
paragraph (4) above and granted a warrant to purchase 450,000 shares of the
Company's Common Stock at a purchase price of $1.51 per share to the same
investor.
The sales and issuances of securities in the transactions described in
paragraphs (1) and (2), (3) and (5) above were deemed to be exempt from
registration under the Securities Act by virtue of Rule 701 promulgated
thereunder in that they were offered and sold either pursuant to written
compensatory benefit plans or pursuant to a written contract relating to
compensation, as provided by Rule 701.
The sales and issuances of securities in the transactions described in
paragraphs (4), (6) and (7) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) and/or Regulation D
promulgated thereunder.
The recipients represented their intention to acquire the securities for
investment purposes only and not with a view to the distribution thereof.
Appropriate legends are affixed to the stock certificates issued in such
transactions. Similar legends were imposed in connection with any subsequent
sales of any such securities. All recipients either received adequate
information about the Registrant or had access, through employment or other
relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1* Form of Agreement and Plan of Merger to be used in connection with Registrant's
Reincorporation in Delaware.
3.1* Registrant's Articles of Incorporation.
3.2* Registrant's Certificate of Incorporation to be effective following the closing
of this offering.
3.3* Registrant's Bylaws to be effective after closing.
4.1* Reference is made to Exhibits 3.1 and 3.2.
4.2* Specimen stock certificate.
5.1 Opinion of Cooley Godward LLP.
10.1* Form of Indemnification Agreement entered into between the Registrant and its
directors and executive officers.
</TABLE>
II-2
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -------------------------------------------------------------------------------
<C> <S>
10.2* Registrant's 1993 Stock Plan, as amended.
10.3* Form of Incentive Stock Option Agreement under the 1993 Stock Plan.
10.4* Form of Nonstatutory Stock Option Agreement under the 1993 Stock Plan.
10.5* Registrant's 1996 Equity Incentive Plan (the "1996 Plan")
10.6* Form of Incentive Stock Option Agreement under the 1996 Plan.
10.7* Form of Nonstatutory Stock Option Agreement under the 1996 Plan.
10.8* Registrant's Employee Stock Purchase Plan and related offering document.
10.9+ Termination and Redemption Agreement dated June 28, 1996 between the Registrant
and Amgen Inc.
10.10* Warrant to purchase Common Stock dated June 28, 1996, between the Registrant
and Amgen Inc.
10.11* Promissory Note dated June 28, 1996 in the original principal amount of
$4,500,000 payable to the order of Amgen Inc.
10.12* Amendment to Collaboration Agreement dated December 19, 1994 and among
Registrant, Astra AB and Astra Pharma, Inc.
10.13+ Collaboration Agreement dated December 19, 1994 between the Registrant and
Astra AB.
10.14+ Collaboration Agreement dated October 31, 1995 between the Registrant and Novo
Nordisk.
10.15+ Collaborative Research and License Agreement dated June 27, 1996, between the
Registrant and Roche Bioscience, a division of Syntex (U.S.A.) Inc.
10.16+ Materials Transfer and Research Agreement dated June 27, 1996 between the
Registrant and Roche Bioscience, a division of Syntex (U.S.A.) Inc.
10.17+ Research Agreement dated June 17, 1996 between the Registrant and Mount Sinai
School of Medicine of the City University of New York.
10.18+* Nonexclusive License Agreement dated June 17, 1996 between the Registrant and
Mount Sinai School of Medicine of the City University of New York.
10.19+ Exclusive License Agreement dated June 17, 1996 between the Registrant and
Mount Sinai School of Medicine of the City University of New York.
10.20* Term WCMA Loan on Security Agreement dated June 6, 1994 between the Registrant
and Merrill Lynch Business Financial Services Inc.
10.21* Term WCMA Note dated June 6, 1994 payable by the Company to Merrill Lynch
Business Financial Services Inc. in the original principal amount of
$1,200,000.
10.22* Standard Industrial Lease -- Multi-Tenant dated July 1, 1994 between the
Registrant and General Atomics.
10.23* Promissory Note dated November 22, 1993 in the original principal amount of
$17,500.
10.24* Promissory Note dated November 3, 1995 in the original principal amount of
$50,000.
10.25* Promissory Note dated May 22, 1996 in the original principal amount of $60,000.
10.26* Employment Agreement dated May 1, 1996 between Michelle A. Youngers and the
Company
10.27* Letter Agreement dated July 17, 1996 between Marvin R. Brown and the Company
10.28* Letter Agreement dated July 17, 1996 between Alexander Polinsky and the Company
10.29* Secured Promissory Note dated October 31, 1994 in the original principal amount
of $1,476,640 payable to the order of Genessee Properties, Inc.
</TABLE>
II-3
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -------------------------------------------------------------------------------
<C> <S>
10.30 Form of Non-Plan Stock Option Agreement
11.1* Statement regarding calculation of net income (loss) per share.
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1* Power of Attorney. Reference is made to page II-6.
27.1* Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment requested for portions of the exhibit.
(b) SCHEDULES
All other schedules are omitted because they are not required, are not
applicable, or the information is included in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant, the Registrant 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 Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant 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, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant undertakes that: (1) for purposes of determining
any liability under the Securities Act, the information omitted from the form of
prospectus as filed as part of the registration statement in reliance upon Rule
430A and contained in the form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared effective,
and (2) for the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE> 73
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Diego, County of San Diego, State of California, on the 10th day of October,
1996.
By: /s/ MICHELLE A. YOUNGERS
------------------------------------
Michelle A. Youngers
Director of Finance and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- -----------------
<S> <C> <C>
*/s/ MARVIN R. BROWN President, Chief Executive October 10, 1996
- --------------------------------------------- Officer and Director
Marvin R. Brown, M.D. (Principal Executive Officer)
/s/ MICHELLE A. YOUNGERS Director of Finance and October 10, 1996
- --------------------------------------------- Secretary
Michelle A. Youngers (Principal Financial and
Accounting Officer)
*/s/ ALEXANDER POLINSKY Director October 10, 1996
- ---------------------------------------------
Alexander Polinsky, Ph.D.
*/s/ JON R. JESSEN Director October 10, 1996
- ---------------------------------------------
Jon R. Jessen
*/s/ ARNOLD T. HAGLER Director October 10, 1996
- ---------------------------------------------
Arnold T. Hagler, Ph.D.
*/s/ TIMOTHY J. RINK Director October 10, 1996
- ---------------------------------------------
Timothy J. Rink, M.D., Sc.D.
*By: /s/ MICHELLE A. YOUNGERS
- ---------------------------------------------
Michelle A. Youngers
Attorney-in-fact
</TABLE>
II-5
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
------- --------------------------------------------------------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.....................................
2.1* Form of Agreement and Plan of Merger to be used in connection with
Registrant's Reincorporation in Delaware...........................
3.1* Registrant's Articles of Incorporation.............................
3.2* Registrant's Certificate of Incorporation to be effective following
the closing of this offering.......................................
3.3* Registrant's Bylaws to be effective after closing..................
4.1* Reference is made to Exhibits 3.1 and 3.2..........................
4.2* Specimen stock certificate.........................................
5.1 Opinion of Cooley Godward LLP......................................
10.1* Form of Indemnification Agreement entered into between the
Registrant and its directors and executive officers................
10.2* Registrant's 1993 Stock Plan, as amended...........................
10.3* Form of Incentive Stock Option Agreement under the 1993 Stock
Plan...............................................................
10.4* Form of Nonstatutory Stock Option Agreement under the 1993 Stock
Plan...............................................................
10.5* Registrant's 1996 Equity Incentive Plan (the "1996 Plan")..........
10.6* Form of Incentive Stock Option Agreement under the 1996 Plan.......
10.7* Form of Nonstatutory Stock Option Agreement under the 1996 Plan....
10.8* Registrant's Employee Stock Purchase Plan and related offering
document...........................................................
10.9+ Termination and Redemption Agreement dated June 28, 1996 between
the Registrant and Amgen Inc.......................................
10.10* Warrant to purchase Common Stock dated June 28, 1996, between the
Registrant and Amgen Inc...........................................
10.11* Promissory Note dated June 28, 1996 in the original principal
amount of $4,500,000 payable to the order of Amgen Inc.............
10.12* Amendment to Collaboration Agreement dated December 19, 1994 and
among Registrant, Astra AB and Astra Pharma, Inc...................
10.13+ Collaboration Agreement dated December 19, 1994 between the
Registrant and Astra AB............................................
10.14+ Collaboration Agreement dated October 31, 1995 between the
Registrant and Novo Nordisk........................................
10.15+ Collaborative Research and License Agreement dated June 27, 1996,
between the Registrant and Roche Bioscience, a division of Syntex
(U.S.A.) Inc.......................................................
10.16+ Materials Transfer and Research Agreement dated June 27, 1996
between the Registrant and Roche Bioscience, a division of Syntex
(U.S.A.) Inc.......................................................
10.17+ Research Agreement dated June 17, 1996 between the Registrant and
Mount Sinai School of Medicine of the City University of New
York...............................................................
10.18+* Nonexclusive License Agreement dated June 17, 1996 between the
Registrant and Mount Sinai School of Medicine of the City
University of New York.............................................
10.19+ Exclusive License Agreement dated June 17, 1996 between the
Registrant and Mount Sinai School of Medicine of the City
University of New York.............................................
</TABLE>
<PAGE> 75
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
------- --------------------------------------------------------------------------------
<C> <S> <C>
10.20* Term WCMA Loan on Security Agreement dated June 6, 1994 between the
Registrant and Merrill Lynch Business Financial Services Inc.......
10.21* Term WCMA Note dated June 6, 1994 payable by the Company to Merrill
Lynch Business Financial Services Inc. in the original principal
amount of $1,200,000...............................................
10.22* Standard Industrial Lease -- Multi-Tenant dated July 1, 1994
between the Registrant and General Atomics.........................
10.23* Promissory Note dated November 22, 1993 in the original principal
amount of $17,500..................................................
10.24* Promissory Note dated November 3, 1995 in the original principal
amount of $50,000..................................................
10.25* Promissory Note dated May 22, 1996 in the original principal amount
of $60,000.........................................................
10.26* Employment Agreement dated May 1, 1996 between Michelle A. Youngers
and the Company....................................................
10.27* Letter Agreement dated July 17, 1996 between Marvin R. Brown and
the Company........................................................
10.28* Letter Agreement dated July 17, 1996 between Alexander Polinsky and
the Company........................................................
10.29* Secured Promissory Note dated October 31, 1994 in the original
principal amount of $1,476,640 payable to the order of Genesee
Properties, Inc....................................................
10.30 Form of Non-Plan Stock Option Agreement............................
11.1* Statement regarding calculation of net income (loss) per share.....
23.1 Consent of KPMG Peat Marwick LLP...................................
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1....
24.1* Power of Attorney. Reference is made to page II-6..................
27.1* Financial Data Schedule............................................
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment requested for portions of the exhibit.
<PAGE> 1
EXHIBIT 1.1
ALANEX CORPORATION
Common Stock
UNDERWRITING AGREEMENT
October __, 1996
PAINEWEBBER INCORPORATED
NEEDHAM & COMPANY, INC.
SUTRO & CO. INCORPORATED
As Representatives of the
several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Alanex Corporation, a Delaware corporation (the "Company"),
proposes to sell an aggregate of 2,500,000 shares (the "Firm Shares") of the
Company's Common Stock, par value $0.001 per share (the "Common Stock"), to you
and to the other underwriters named in Schedule I (collectively, the
"Underwriters"), for whom you are acting as representatives (the
"Representatives"). The Company has also agreed to grant to you and the other
Underwriters an option (the "Option") to purchase up to an additional 375,000
shares of Common Stock (the "Option Shares") on the terms and for the purposes
set forth in Section 1(b). The Firm Shares and the Option Shares are
hereinafter collectively referred to as the "Shares."
The initial public offering price per share for the Shares and
the purchase price per share for the Shares to be paid by the several
Underwriters shall be agreed upon by the Company and the Representatives,
acting on behalf of the several Underwriters, and such agreement shall be set
forth in a separate written instrument substantially in the form of Exhibit A
hereto (the "Price Determination Agreement"). The Price Determination
Agreement may take the form of an exchange of any standard form of written
telecommunication among the Company and the Representatives and shall specify
such applicable information as is indicated in Exhibit A hereto. The offering
of the Shares will be governed by this Agreement, as supplemented by the Price
Determination Agreement. From and after the date of the execution and delivery
of the Price Determination Agreement, this
<PAGE> 2
2
Agreement shall be deemed to incorporate, and, unless the context otherwise
indicates, all references contained herein to "this Agreement" and to the
phrase "herein" shall be deemed to include the Price Determination Agreement.
Prior to the execution of this Agreement, Alanex Corporation,
a California corporation ("Alanex California"), was merged with and into the
Company (such transaction being referred to herein as the "Merger"), pursuant
to a Merger Agreement in substantially the form of Exhibit 2.1 to the
Registration Statement (the "Merger Agreement").
The Company confirms as follows its agreements with the
Representatives and the several other Underwriters.
1. Agreement to Sell and Purchase.
(a) On the basis of the representations,
warranties and agreements of the Company herein contained and subject to all
the terms and conditions of this Agreement, the Company agrees to sell to each
Underwriter named below, and each Underwriter, severally and not jointly,
agrees to purchase from the Company at the purchase price per share for the
Firm Shares to be agreed upon by the Representatives and the Company in
accordance with Section 1(c) and set forth in the Price Determination
Agreement, the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I, plus such additional number of Firm Shares which
such Underwriter may become obligated to purchase pursuant to Section 8 hereof.
Schedule I may be attached to the Price Determination Agreement.
(b) Subject to all the terms and conditions of
this Agreement, the Company grants the Option to the several Underwriters to
purchase, severally and not jointly, up to 375,000 Option Shares from the
Company at the same price per share as the Underwriters shall pay for the Firm
Shares. The Option may be exercised only to cover over-allotments in the sale
of the Firm Shares by the Underwriters and may be exercised in whole or in part
at any time (but not more than once) on or before the 30th day after the date
of this Agreement (or, if the Company has elected to rely on Rule 430A, on or
before the 30th day after the date of the Price Determination Agreement), upon
written or telegraphic notice (the "Option Shares Notice") by the
Representatives to the Company no later than 12:00 noon, New York City time, at
least two and no more than five business days before the date specified for
closing in the Option Shares Notice (the "Option Closing Date") setting forth
the aggregate number of Option Shares to be purchased and the time and date for
such purchase. On the Option Closing Date, the Company will issue and sell to
the Underwriters the number of Option Shares set forth in the Option Shares
Notice, and each Underwriter will purchase such percentage of the Option Shares
as is equal to the percentage of Firm Shares that such Underwriter is
purchasing, as adjusted by the Representatives in such manner as they deem
advisable to avoid fractional shares.
<PAGE> 3
3
(c) The initial public offering price per share
for the Firm Shares and the purchase price per share for the Firm Shares to be
paid by the several Underwriters shall be agreed upon and set forth in the
Price Determination Agreement. In the event such price has not been agreed
upon and the Price Determination Agreement has not been executed by the close
of business on the fourteenth business day following the date on which the
Registration Statement becomes effective, this Agreement shall terminate
forthwith, without liability of any party to any other party except that
Section 6 shall remain in effect.
2. Delivery and Payment. Delivery of the Firm Shares
shall be made to the Representatives for the accounts of the Underwriters
against payment of the purchase price by, at the option of the Company, wire
transfer or certified or official bank check payable in New York Clearing House
(same-day) funds to the order of the Company at the office of PaineWebber
Incorporated, 1285 Avenue of the Americas, New York, New York 10019. Such
payments shall be made at 10:00 a.m., New York City time, on the third business
day (or fourth business day, if the Price Determination Agreement is executed
after 4:30 p.m.) after the date on which the first bona fide offering of the
Shares to the public is made by the Underwriters or at such time on such other
date, not later than ten business days after such date, as may be agreed upon
by the Company and the Representatives (such date is hereinafter referred to as
the "Closing Date").
(a) To the extent the Option is exercised,
delivery of the Option Shares against payment by the Underwriters (in the
manner specified above) will take place at the offices specified above for the
Closing Date at the time and date (which may be the Closing Date) specified in
the Option Shares Notice.
(b) Certificates evidencing the Shares shall be
in definitive form and shall be registered in such names and in such
denominations as the Representatives shall request at least two business days
prior to the Closing Date or the Option Closing Date, as the case may be, by
written notice to the Company. For the purpose of expediting the checking and
packaging of certificates for the Shares, the Company agrees to make such
certificates available for inspection at least 24 hours prior to the Closing
Date or the Option Closing Date, as the case may be.
(c) The cost of original issue tax stamps, if
any, in connection with the issuance and delivery of the Firm Shares and Option
Shares by the Company to the respective Underwriters shall be borne by the
Company. The Company will pay and save each Underwriter and any subsequent
holder of the Shares harmless from any and all liabilities with respect to or
resulting from any failure or delay in paying Federal and state stamp and other
transfer taxes, if any, which may be payable or determined to be payable in
connection with the original issuance or sale to such Underwriter of the Firm
Shares and Option Shares.
<PAGE> 4
4
3. Representations and Warranties of the Company. The
Company represents, warrants and covenants to each Underwriter that:
(a) A registration statement (Registration No.
333-09929) on Form S-1 relating to the Shares, including a preliminary
prospectus and such amendments to such registration statement as may have been
required to the date of this Agreement, has been prepared by the Company under
the provisions of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (collectively referred to as the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") thereunder, and
has been filed with the Commission. The term "preliminary prospectus" as used
herein means a preliminary prospectus as contemplated by Rule 430 or Rule 430A
("Rule 430A") of the Rules and Regulations included at any time as part of the
registration statement. Copies of such registration statement and amendments
and of each related preliminary prospectus have been delivered to the
Representatives. The term "Registration Statement" means the registration
statement as amended at the time it becomes or became effective (the "Effective
Date"), including financial statements and all exhibits and any information
deemed to be included by Rule 430A or Rule 434 of the Rules and Regulations.
If the Company files a registration statement to register a portion of the
Shares and relies on Rule 462(b) of the Rules and Regulations for such
registration statement to become effective upon filing with the Commission (the
"Rule 462 Registration Statement"), then any reference to the "Registration
Statement" shall be deemed to include the Rule 462 Registration Statement, as
amended from time to time. The term "Prospectus" means the prospectus as first
filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations
or, if no such filing is required, the form of final prospectus included in the
Registration Statement at the Effective Date.
(b) On the Effective Date, the date the
Prospectus is first filed with the Commission pursuant to Rule 424(b) (if
required), at all times subsequent to and including the Closing Date and, if
later, the Option Closing Date and when any post-effective amendment to the
Registration Statement becomes effective or any amendment or supplement to the
Prospectus is filed with the Commission, the Registration Statement and the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment or supplement thereto), including the financial
statements included in the Prospectus, did or will comply with all applicable
provisions of the Act and the Rules and Regulations and will contain all
statements required to be stated therein in accordance with the Act and the
Rules and Regulations. On the Effective Date and when any post-effective
amendment to the Registration Statement becomes effective, no part of the
Registration Statement or any such amendment did or will contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. At the Effective Date, the date the Prospectus or any amendment or
supplement to the Prospectus is filed with the Commission and at the Closing
Date and, if later, the Option Closing Date, the Prospectus did not or will not
contain any
<PAGE> 5
5
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading. The foregoing representations and warranties
in this Section 3(b) do not apply to any statements or omissions made in
reliance on and in conformity with information relating to any Underwriter
furnished in writing to the Company by the Representatives specifically for
inclusion in the Registration Statement or Prospectus or any amendment or
supplement thereto. For all purposes of this Agreement, the amounts of the
selling concession and reallowance set forth in the Prospectus constitute the
only information relating to any Underwriter furnished in writing to the
Company by the Representatives specifically for inclusion in the Registration
Statement, the preliminary prospectus or the Prospectus. The Company has not
distributed any offering material in connection with the offering or sale of
the Shares other than the Registration Statement, the preliminary prospectus,
the Prospectus or any other materials, if any, permitted by the Act and the
Rules and Regulations.
(c) The Company is, and at the Closing Date will
be, a corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation. The Company has, and at the
Closing Date will have, full corporate power and authority to conduct all the
activities conducted by it, to own or lease all the assets owned or leased by
it and to conduct its business as described in the Registration Statement and
the Prospectus. The Company is, and at the Closing Date will be, duly licensed
or qualified to do business and in good standing as a foreign corporation in
all jurisdictions in which the nature of the activities conducted by it or the
character of the assets owned or leased by it makes such licensing or
qualification necessary, except where any failure to be so licensed or
qualified would not, individually or in the aggregate, have a material adverse
effect on the Company or its business, properties, business prospects,
financial condition or results of operations, taken as a whole (a "Material
Adverse Effect"). Except as disclosed in the Registration Statement, the
Company does not own, and at the Closing Date will not own, directly or
indirectly, any shares of stock or any other equity or long-term debt
securities of any corporation or have any equity interest in any firm,
partnership, joint venture, association or other entity. Complete and correct
copies of the certificate of incorporation and of the by-laws of the Company
and all amendments thereto have been delivered to the Representatives, and no
changes therein will be made subsequent to the date hereof and prior to the
Closing Date or, if later, the Option Closing Date.
(d) The outstanding shares of Common Stock have
been, and the Shares to be issued and sold by the Company upon such issuance
will be, duly authorized, validly issued, fully paid and nonassessable and are
not, and will not be, subject to any preemptive or similar right. The
description of the Common Stock in the Registration Statement and the
Prospectus is, and at the Closing Date will be, accurate in all material
respects and fairly summarizes the information presented. Except as set forth
in the Prospectus, the Company does not have outstanding, and at the Closing
Date will not have outstanding, any options to purchase, or any rights or
warrants to subscribe for, or any
<PAGE> 6
6
securities or obligations convertible into, or any contracts or commitments to
issue or sell, any shares of Common Stock or any such warrants, convertible
securities or obligations.
(e) The financial statements and schedules
included in the Registration Statement or the Prospectus present fairly the
financial condition of the Company as of the respective dates thereof and the
results of operations and cash flows of the Company for the respective periods
covered thereby, all in conformity with generally accepted accounting
principles applied on a consistent basis throughout the entire period involved,
except as otherwise disclosed in the Prospectus. No other financial statements
or schedules of the Company are required by the Act or the Rules and
Regulations to be included in the Registration Statement or the Prospectus.
KPMG Peat Marwick LLP (the "Accountants") who have reported on such financial
statements and schedules, are independent accountants with respect to the
Company as required by the Act and the Rules and Regulations.
(f) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access
to assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(g) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus and prior
to the Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus (including (i) the granting of stock options
pursuant to the Company's 1996 Equity Incentive Plan, (ii) the exercise of
employee stock options outstanding on the date hereof and (iii) the offering of
shares of Common Stock pursuant to the Company's Employee Stock Purchase Plan),
(i) there has not been and will not have been any change in the capitalization
of the Company, (ii) the Company has not incurred nor will it incur any material
liabilities or obligations, direct or contingent, nor has it entered into nor
will it enter into any material transactions other than pursuant to this
Agreement and the transactions referred to herein and (iii) the Company has not
and will not have paid or declared any dividends or other distributions of any
kind on any class of its capital stock.
(h) The Company is not, and after giving effect
to the offering and sale of the Shares and the application of the proceeds
thereof as described in the Registration Statement and Prospectus will not be,
an "investment company" or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company," as such terms are defined
in the Investment Company Act of 1940, as amended.
<PAGE> 7
7
(i) Except as set forth in the Registration
Statement and the Prospectus, there are no actions, suits or proceedings
pending or, to the best knowledge of the Company, threatened against or
affecting the Company or any of its officers in their capacity as such, before
or by any Federal or state court, commission, regulatory body, administrative
agency or other governmental body, domestic or foreign, wherein an unfavorable
ruling, decision or finding would reasonably be expected to have a Material
Adverse Effect.
(j) The Company has, and at the Closing Date will
have, (i) all governmental licenses, permits, consents, orders, approvals and
other authorizations necessary to carry on its business as contemplated in the
Prospectus, (ii) complied in all respects with all laws, regulations and orders
applicable to it or its business and (iii) performed all its obligations
required to be performed by it, and is not, and at the Closing Date will not
be, in default, under any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, bond, debenture, note agreement, lease, contract or
other agreement or instrument (collectively, a "contract or other agreement")
to which it is a party or by which its property is bound or affected, except,
in each case, where the failure to have such license, permit, consent, order,
approval or other authorization, or the failure to comply or perform or where
such default would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. To the best knowledge of the
Company, no other party under any material contract or other agreement to which
it is a party is in default in any material respect thereunder. The Company is
not, nor at the Closing Date will be, in violation of any provisions of its
certificate of incorporation or by-laws.
(k) No consent, approval, authorization or order
of, or any filing or declaration with, any court or governmental agency or body
is required in connection with the authorization, issuance, transfer, sale or
delivery of the Shares by the Company, in connection with the execution,
delivery and performance of this Agreement by the Company or in connection with
the taking by the Company of any action contemplated hereby, except such as
have been obtained under the Act or the Rules and Regulations and such as may
be required under state securities or Blue Sky laws or the by-laws and rules of
the National Association of Securities Dealers, Inc. (the "NASD") in connection
with the purchase and distribution by the Underwriters of the Shares.
(l) The Company has full corporate power and
authority to enter into this Agreement. This Agreement has been duly
authorized, executed and delivered by the Company and constitutes a valid and
binding agreement of the Company and is enforceable against the Company in
accordance with the terms hereof, except as indemnification and contribution
provisions may be limited by applicable law and except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws affecting creditors' rights, and subject to
general equity principles and to limitations on availability of equitable
relief. The
<PAGE> 8
8
performance of this Agreement and the consummation of the transactions
contemplated hereby and the application of the net proceeds from the offering
and sale of the Shares in the manner set forth in the Prospectus under "Use of
Proceeds" will not result in the creation or imposition of any lien, charge or
encumbrance upon any of the assets of the Company pursuant to the terms or
provisions of, or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, or give any other party a right
to terminate any of its obligations under, or result in the acceleration of any
obligation under, the certificate of incorporation or by-laws of the Company,
any contract or other agreement to which the Company is a party or by which the
Company or any of its properties is bound or affected, or violate or conflict
with any judgment, ruling, decree, order, statute, rule or regulation of any
court or other governmental agency or body applicable to the business or
properties of the Company, except, in each case, where such lien, charge,
encumbrance, breach, violation, default, termination, acceleration, or conflict
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(m) The Company has good legal title to all
properties and assets described in the Prospectus as owned by it, free and
clear of all liens, charges, encumbrances or restrictions, except such as are
described in the Prospectus or are not material to the business of the Company.
The Company has valid, subsisting and enforceable leases for the properties
described in the Prospectus as leased by it, with such exceptions as are not
material and do not materially interfere with the use made and proposed to be
made of such properties by the Company.
(n) There is no document or contract of a
character required by the Act and the Rules and Regulations to be described in
the Registration Statement or the Prospectus or to be filed as an exhibit to
the Registration Statement which is not described or filed as required. All
such contracts to which the Company is a party have been duly authorized,
executed and delivered by the Company, constitute valid and binding agreements
of the Company and are enforceable against the Company in accordance with the
terms thereof, except as indemnification and contribution provisions may be
limited by applicable law and except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or
other similar laws affecting creditors' rights, and subject to general equity
principles and to limitations on availability of equitable relief.
(o) No statement, representation or warranty made
by the Company in this Agreement or made in any certificate or document
required by this Agreement to be delivered to the Representatives was or will
be, when made, inaccurate, untrue or incorrect in any material respect (except
that such phrase "in all material respects" shall be disregarded to the extent
any such statement, representation or warranty is qualified by "material,"
"material adverse change," "Material Adverse Effect" or any phrase using any
such term).
<PAGE> 9
9
(p) Neither the Company nor any of its directors,
officers or controlling persons has taken, directly or indirectly, any action
intended, or which might reasonably be expected, to cause or result, under the
Act or otherwise, in, or which has constituted, stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Shares.
(q) No holder of securities of the Company has
rights to the registration of any securities of the Company because of the
filing of the Registration Statement.
(r) The Shares have been approved for quotation
on the Nasdaq National Market, subject to notice of official issuance.
(s) The Company is not involved in any material
labor dispute nor, to the knowledge of the Company, is any such dispute
threatened.
(t) Neither the Company nor, to the Company's
knowledge, any employee or agent of the Company has made any payment of funds
of the Company or received or retained any funds in violation of any law, rule
or regulation or of a character required to be disclosed in the Prospectus.
(u) The Company has complied, and until the
completion of the distribution of the Shares will comply, with all of the
provisions of Section 517.075 of the Florida Securities and Investor Protection
Act and regulation 3E-900.001 issued thereunder with respect to the offering
and sale of the Shares.
(v) The Company owns or possesses adequate
licenses or other rights to use all patents, trademarks, service marks, trade
names, copyrights, technology and know-how necessary to conduct the business
conducted by it as described in the Prospectus and the Company has not received
any notice of infringement of or conflict with (and has no knowledge of any
such infringement of or conflict with) asserted rights of others with respect
to any patents, trademarks, service marks, trade names, copyrights, technology
or know-how which could result in any Material Adverse Effect; and the
Company's discoveries, inventions, products or processes referred to in the
Prospectus do not, to the knowledge of the Company, infringe or conflict with
any right or patent, or any discovery, invention, product or process which is
the subject of a patent application known to the Company, which infringement or
conflict could, individually or in the aggregate, result in a Material Adverse
Effect.
(w) The Company has obtained any permits,
consents and authorizations required to be obtained by it under laws or
regulations relating to the protection of the environment or concerning the
handling, storage, disposal or discharge of
<PAGE> 10
10
toxic materials (collectively "Environmental Laws"), and any such permits,
consents and authorizations remain in full force and effect, except where the
failure to so obtain or maintain any such permits, consents or authorizations
would not, individually or in the aggregate, have a Material Adverse Effect.
The Company is in compliance with the Environmental Laws in all material
respects, and there is no pending or, to the Company's knowledge, threatened,
action or proceeding against the Company alleging violations of the
Environmental Laws.
(x) Except as disclosed in the Registration
Statement or the Prospectus, the Company maintains insurance of the types and
in amounts generally deemed adequate for its businesses and consistent with
insurance coverage maintained by similar companies and businesses, all of which
insurance is in full force and effect.
(y) There are no subsidiaries of the Company.
(z) Each of the Company and Alanex California has
filed or received a deferral relating to all material federal, state and
foreign income and franchise tax returns and has paid all taxes shown as due
thereon, other than taxes which are being contested in good faith and for which
adequate reserves have been established in accordance with GAAP; and the
Company has no knowledge of any tax deficiency which has been or might be
asserted or threatened against either the Company or Alanex California which
would reasonably be expected to have a Material Adverse Effect.
(aa) The Company has and Alanex California had
full corporate power and authority to enter into the Merger Agreement and to
consummate the Merger. The Merger Agreement was duly authorized, executed and
delivered by each of the Company and Alanex California and constituted a valid
and binding agreement of the Company and Alanex California and was enforceable
against the Company and Alanex California in accordance with the terms thereof,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting
creditors' rights, and subject to general equity principles and to limitations
on availability of equitable relief. The performance of the Merger Agreement
and the consummation of Merger and other transactions contemplated thereby did
not result in the creation or imposition of any lien, charge or encumbrance
upon any of the assets of either the Company or Alanex California pursuant to
the terms or provisions of, or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, or give any other party
a right to terminate any of its obligations under, or result in the
acceleration of any obligation under, the respective charters or by-laws of the
Company or Alanex California, any contract or other agreement to which the
Company or Alanex California is a party or by which the Company is or Alanex
California was or any of their respective properties is bound or affected, or
violate or conflict with any judgment, ruling, decree, order, statute, rule or
regulation of any court or other governmental agency or body
<PAGE> 11
11
applicable to the business or properties of the Company or Alanex California
except, in each case, where such lien, charge, encumbrance, breach, violation,
default, termination, acceleration or conflict would not individually or in the
aggregate, have a Material Adverse Effect.
(bb) The Merger was consummated in accordance with
the Merger Agreement without waiver or modification of its terms unless any
such waiver or modification was approved in writing by the Representatives, and
such Merger is effective under applicable law with the effects set forth in
Section 259 of the Delaware General Corporation Law. All consents and
approvals to the Merger, including any necessary regulatory approvals required
for the Company to conduct its business in the same manner as the business of
Alanex California immediately prior to the Merger, have been obtained, except
where the failure to obtain such consent or approval would not have a Material
Adverse Effect; and all actions by or in respect of or filing with any
governmental body, agency, official or authority required to consummate or
permit the consummation of the Merger have been obtained or filed.
4. Agreements of the Company. The Company agrees with
the several Underwriters as follows:
(a) The Company will not, prior to the Effective
Date or thereafter during such period as the Prospectus is required by law to
be delivered in connection with sales of the Shares by an Underwriter or
dealer, file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Representatives within a reasonable period of time prior to the filing thereof
and the Representatives shall not have objected thereto in good faith.
(b) The Company will use its best efforts to
cause the Registration Statement to become effective, and will notify the
Representatives promptly, and will confirm such advice in writing, (1) when the
Registration Statement has become effective and when any post-effective
amendment thereto becomes effective, (2) of any request by the Commission for
amendments or supplements to the Registration Statement or the Prospectus or
for additional information, (3) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, or the threat thereof, (4) of
the happening of any event during the period mentioned in the second sentence
of Section 4(e) that in the judgment of the Company makes any statement made in
the Registration Statement or the Prospectus untrue or that requires the making
of any changes in the Registration Statement or the Prospectus in order to make
the statements therein, in light of the circumstances in which they are made,
not misleading and (5) of receipt by the Company, its counsel or auditors or
any representative of the Company of any other communication from the
Commission relating to the Company, the Registration Statement, any preliminary
prospectus or the Prospectus. If at any time the
<PAGE> 12
12
Commission shall issue any order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible moment. The Company will
use its best efforts to comply with the provisions of and make all requisite
filings with the Commission pursuant to Rule 430A and to notify the
Representatives promptly of all such filings.
(c) The Company will furnish to the
Representatives, without charge, two signed copies of the Registration Statement
and of any post-effective amendment thereto, including financial statements and
schedules, and all exhibits thereto and will furnish to the Representatives,
without charge, for transmittal to each of the other Underwriters, a copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules but without exhibits.
(d) The Company will comply with all the
provisions of the undertakings contained in Part II of the Registration
Statement.
(e) On the Effective Date, and thereafter from
time to time, the Company will deliver to each of the Underwriters, without
charge, as many copies of the Prospectus or any amendment or supplement thereto
as the Representatives may reasonably request. The Company consents to the use
of the Prospectus or any amendment or supplement thereto by the several
Underwriters and by all dealers to whom the Shares may be sold, both in
connection with the offering or sale of the Shares and for any period of time
thereafter during which the Prospectus is required by law to be delivered in
connection therewith. If during such period of time any event shall occur which
in the judgment of the Company or counsel to the Underwriters should be set
forth in the Prospectus in order to make any statement therein, in the light of
the circumstances under which it was made, not misleading, or if it is necessary
to supplement or amend the Prospectus to comply with law, the Company will
forthwith prepare and duly file with the Commission an appropriate supplement or
amendment thereto, and will deliver to each of the Underwriters, without charge,
such number of copies thereof as the Representatives may reasonably request.
(f) Prior to any public offering of the Shares by
the Underwriters, the Company will cooperate with the Representatives and
counsel to the Underwriters in connection with the registration or qualification
of the Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions as the Representatives may request; provided, that in no event
shall the Company be obligated to qualify to do business in any jurisdiction
where it is not now so qualified or to take any action which would subject it to
general service of process in any jurisdiction where it is not now so subject.
(g) During the period of five years commencing on
the Effective Date, the Company will furnish to the Representatives and each
other Underwriter who may so request copies of such financial statements and all
annual reports, quarterly reports and
<PAGE> 13
13
current reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or such
other similar forms as may be designated by the Commission, and such other
documents, reports and information as shall be furnished by the Company to its
stockholders or security holders generally.
(h) The Company will make generally available to
holders of its securities as soon as may be practicable but in no event later
than the last day of the fifteenth full calendar month following the calendar
quarter in which the Effective Date falls, an earnings statement (which need
not be audited but shall be in reasonable detail) for a period of 12 months
ended commencing after the Effective Date, and satisfying the provisions of
Section 11(a) of the Act (including Rule 158 of the Rules and Regulations).
(i) Whether or not the transactions contemplated
by this Agreement are consummated or this Agreement is terminated, the Company
will pay, or reimburse if paid by the Representatives, all costs and expenses
incident to the performance of the obligations of the Company under this
Agreement, including but not limited to costs and expenses of or relating to
(1) the preparation, printing and filing of the Registration Statement and
exhibits to it, each preliminary prospectus, the Prospectus and any amendment
or supplement to the Registration Statement or the Prospectus, (2) the
preparation and delivery of certificates representing the Shares, (3) the
printing of this Agreement, the Agreement Among Underwriters, any Dealer
Agreements and any Underwriters' Questionnaire, (4) furnishing (including costs
of shipping, mailing and courier) such copies of the Registration Statement,
the Prospectus and any preliminary prospectus, and all amendments and
supplements thereto, as may be requested for use in connection with the
offering and sale of the Shares by the Underwriters or by dealers to whom
Shares may be sold, (5) the listing and quotation of the Shares on the Nasdaq
National Market, (6) any filings required to be made by the Underwriters with
the NASD, and the reasonable fees, disbursements and other charges of counsel
for the Underwriters in connection therewith, (7) the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of such jurisdictions designated pursuant to Section 4(f), including the
reasonable fees, disbursements and other charges of counsel to the Underwriters
in connection therewith, and the preparation and printing of preliminary,
supplemental and final Blue Sky memoranda, (8) counsel to the Company, (9) the
transfer agent for the Shares and (10) the Accountants.
(j) If this Agreement shall be terminated (i) by
the Company pursuant to any of the provisions hereof (otherwise than pursuant
to Section 8) or (ii) by the Underwriters pursuant to Section 5 (other than a
termination resulting solely from a failure to satisfy the conditions listed in
paragraph (h) or (n) of Section 5), Section 7(a) or Section 7(b)(i), the
Company will reimburse the several Underwriters for all out-of-pocket expenses
(including the fees, disbursements and other charges of counsel to the
Underwriters) reasonably incurred by them in connection herewith.
<PAGE> 14
14
(k) The Company will not at any time, directly or
indirectly, take any action intended, or which might reasonably be expected, to
cause or result in, or which will constitute, stabilization of the price of the
shares of Common Stock to facilitate the sale or resale of any of the Shares in
violation of the Exchange Act or applicable Nasdaq National Market rules.
(l) The Company will apply the net proceeds from
the offering and sale of the Shares to be sold by the Company substantially in
the manner set forth in the Prospectus under "Use of Proceeds" and shall file
such reports with the Commission with respect to the sale of the Shares and the
application of the proceeds therefrom as may be required in accordance with
Rule 463 under the Act.
(m) During the period of 180 days commencing at
the Closing Date, the Company will not, without the prior written consent of
PaineWebber Incorporated, directly or indirectly, sell, offer to sell, grant
any option for the sale of, or otherwise dispose of, any Common Stock or
securities convertible into Common Stock, other than to the Underwriters
pursuant to this Agreement and other than pursuant to employee benefit plans,
provided, that the Company will not grant options to purchase shares of Common
Stock pursuant to such employee benefit plans at a price less than the initial
public offering price.
(n) The Company will cause each beneficial owner
of outstanding securities of the Company to enter into agreements with the
Representatives in the form set forth in Exhibit B.
5. Conditions of the Obligations of the Underwriters.
In addition to the execution and delivery of the Price Determination Agreement,
the obligations of each Underwriter hereunder are subject to the following
conditions:
(a) Notification that the Registration Statement
has become effective shall be received by the Representatives not later than
5:00 p.m., New York City time, on the date of this Agreement or at such later
date and time as shall be consented to in writing by the Representatives and
all filings required by Rule 424 of the Rules and Regulations and Rule 430A
shall have been made.
(b) (i) No stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall be pending or threatened by the Commission,
(ii) no order suspending the effectiveness of the Registration Statement or the
qualification or registration of the Shares under the securities or Blue Sky
laws of any jurisdiction shall be in effect and no proceeding for such purpose
shall be pending before or threatened or contemplated by the Commission or the
authorities of any such jurisdiction, (iii) any request for additional
information on the part of the staff of the Commission or the authorities of
any jurisdiction shall have been complied with to the
<PAGE> 15
15
satisfaction of the staff of the Commission or such authorities and (iv) after
the date hereof, no amendment or supplement to the Registration Statement or
the Prospectus shall have been filed unless a copy thereof was first submitted
to the Representatives and the Representatives did not object thereto in good
faith, and the Representatives shall have received certificates, dated the
Closing Date and the Option Closing Date and signed by the Chief Executive
Officer or the Chairman of the Board of Directors of the Company and the
Director of Finance of the Company (who may, as to proceedings threatened, rely
upon the best of their information and belief), to the effect of clauses (i),
(ii) and (iii).
(c) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, (i)
there shall not have been a material adverse change in the business, business
prospects, properties, management, financial condition or results of operations
of the Company, taken as a whole, whether or not arising from transactions in
the ordinary course of business, in each case other than as set forth in or
contemplated by the Registration Statement and the Prospectus and (ii) the
Company shall not have sustained any material loss or interference with its
business or properties from fire, explosion, flood or other casualty, whether
or not covered by insurance, or from any labor dispute or any court or
legislative or other governmental action, order or decree, which is not set
forth in the Registration Statement and the Prospectus, if in the judgment of
the Representatives any such development makes it impracticable or inadvisable
to consummate the sale and delivery of the Shares by the Underwriters at the
initial public offering price (a "Material Adverse Change").
(d) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
shall have been no litigation or other proceeding instituted against the
Company or any of its officers or directors in their capacities as such, before
or by any Federal, state or local court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, in which
litigation or proceeding an unfavorable ruling, decision or finding would
materially and adversely affect the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company.
(e) Each of the representations and warranties of
the Company contained herein shall be true and correct in all material respects
(except that such phrase "in all material respects" shall be disregarded to the
extent any such representation and warranty is qualified by "material",
"material adverse change", "Material Adverse Effect" or any phrase using any
such term) at the Closing Date and, with respect to the Option Shares, at the
Option Closing Date, as if made at the Closing Date and, with respect to the
Option Shares, at the Option Closing Date, and all covenants and agreements
herein contained to be performed on the part of the Company and all conditions
herein contained to be fulfilled or complied with by the Company at or prior to
the Closing Date and, with respect to the
<PAGE> 16
16
Option Shares, at or prior to the Option Closing Date, shall have been duly
performed, fulfilled or complied with.
(f) The Representatives shall have received an
opinion, dated the Closing Date and, with respect to the Option Shares, the
Option Closing Date, and reasonably satisfactory in form and substance to
counsel for the Underwriters, from Cooley Godward LLP, counsel to the Company,
to the effect set forth in Exhibit C.
(g) The Representatives shall have received an
opinion, dated the Closing Date, and with respect to the Option Shares, the
Option Closing Date, and reasonably satisfactory in form and substance to
counsel for the Underwriters, from Knobbe, Martens, Olson & Bear, patent
counsel to the Company, to the effect set forth in Exhibit D.
(h) The Representatives shall have received an
opinion, dated the Closing Date and the Option Closing Date, from Shearman &
Sterling, counsel to the Underwriters, with respect to the Registration
Statement, the Prospectus and this Agreement, which opinion shall be reasonably
satisfactory to the Representatives.
(i) On the date of the Prospectus, the
Accountants shall have furnished to the Representatives a letter, dated the
date of its delivery, addressed to the Representatives and in form and
substance satisfactory to the Representatives, confirming that they are
independent accountants with respect to the Company as required by the Act and
the Rules and Regulations and with respect to the financial and other
statistical and numerical information contained in the Registration Statement.
At the Closing Date and, as to the Option Shares, the Option Closing Date, the
Accountants shall have furnished to the Representatives a letter, dated the
date of its delivery, which shall confirm, on the basis of a review in
accordance with the procedures set forth in the letter from the Accountants,
that nothing has come to their attention during the period from the date of the
letter referred to in the prior sentence to a date (specified in the letter)
not more than five days prior to the Closing Date and the Option Closing Date
which would require any change in their letter dated the date of the
Prospectus, if it were required to be dated and delivered at the Closing Date
and the Option Closing Date.
(j) At the Closing Date and, as to the Option
Shares, the Option Closing Date, there shall be furnished to the
Representatives an accurate certificate, dated the date of its delivery, signed
by each of the Chief Executive Officer and the Director of Finance of the
Company, in form and substance satisfactory to the Representatives, to the
effect that:
(i) Each signer of such certificate has
carefully examined the Registration Statement and the Prospectus and
(A) as of the date of such certificate, such documents are true and
correct in all material respects and do not omit to state a
<PAGE> 17
17
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading and (B) since the Effective Date, no
event has occurred as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein not
untrue or misleading in any material respect.
(ii) Each of the representations and
warranties of the Company contained in this Agreement were, when
originally made, and are, at the time such certificate is delivered,
true and correct in all material respects (except that such phrase "in
all material respects" shall be disregarded to the extent any such
representation and warranty is qualified by "material", "material
adverse change", "Material Adverse Effect" or any phrase using any
such term).
(iii) Each of the covenants required
herein to be performed by the Company on or prior to the delivery of
such certificate has been duly, timely and fully performed and each
condition herein required to be complied with by the Company on or
prior to the date of such certificate has been duly, timely and fully
complied with.
(iv) A Material Adverse Change has not
occurred.
(k) On or prior to the Closing Date, the
Representatives shall have received the executed agreements referred to in
Section 4(n).
(l) The Shares shall be qualified for sale in
such states as the Representatives may reasonably request, each such
qualification shall be in effect and not subject to any stop order or other
proceeding on the Closing Date and the Option Closing Date.
(m) Prior to the Closing Date, the Shares shall
have been qualified for quotation on the Nasdaq National Market, subject only
to notice of official issuance.
(n) The NASD shall not have raised any objection
with respect to the fairness and reasonableness of the underwriting terms and
arrangements that has not been resolved to the NASD's satisfaction.
(o) The Company shall have furnished to the
Representatives such certificates, in addition to those specifically mentioned
herein, as the Representatives may have reasonably requested as to the accuracy
and completeness at the Closing Date and the Option Closing Date of any
statement in the Registration Statement or the Prospectus as to the accuracy at
the Closing Date and the Option Closing Date of the representations and
warranties of the Company herein, as to the performance by the Company of its
obligations
<PAGE> 18
18
hereunder, or as to the fulfillment of the conditions concurrent and precedent
to the obligations hereunder of the Representatives.
If any of the conditions specified in this Section 5 shall not
have been fulfilled when and as required by this Agreement, this Agreement may
be terminated by you on notice to the Company at any time at or prior to the
Closing Time, and such termination shall be without liability of any party to
any other party except as provided in Section 4(i) and (j) herein.
6. Indemnification.
(a) The Company will indemnify and hold harmless
each Underwriter, the directors, officers, employees and agents of each
Underwriter and each person, if any, who controls each Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") from and against any and all losses,
claims, liabilities, expenses and damages (including any and all investigative,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding between any of the
indemnified parties and any indemnifying parties or between any indemnified
party and any third party, or otherwise, or any claim asserted), to which they,
or any of them, may become subject under the Act, the Exchange Act or other
Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, liabilities, expenses or damages arise out of
or are based on (i) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment or supplement to the Registration
Statement or the Prospectus, (ii) the omission or alleged omission to state in
such document a material fact required to be stated in it or necessary to make
the statements in it not misleading or (iii) any act or failure to act or any
alleged act or failure to act by an underwriter in connection with, or relating
in any manner to, the Shares or the offering contemplated hereby, and which is
included as part of or referred to in any loss, claim, damage, liability or
action arising out of or based upon matters covered by clause (i) or (ii) above
(provided that the Company shall not be liable under this clause (iii) to the
extent it is determined in a final judgment by a court of competent
jurisdiction that such loss, claim, damage, liability or action resulted
directly from any such acts or failures to act undertaken or omitted to be
taken by such underwriter through its gross negligence or willful misconduct);
provided that the Company will not be liable to the extent that such loss,
claim, liability, expense or damage (i) arises from the sale of the Shares in
the public offering to any person by an Underwriter and is based on an untrue
statement or omission or alleged untrue statement or omission made in reliance
on and in conformity with information relating to any Underwriter furnished in
writing to the Company by the Representatives on behalf of any Underwriter
expressly for inclusion in the Registration Statement, any preliminary
prospectus or the Prospectus or (ii) results solely from an untrue statement of
a material fact contained in, or the omission of a material fact
<PAGE> 19
19
from, such preliminary prospectus, which untrue statement or omission was
completely corrected in the Prospectus (as then amended or supplemented) if the
Company shall sustain the burden of proving that the Underwriters sold Shares
to the person alleging such loss, claim, liability, expense or damage without
sending or giving, at or prior to the written confirmation of such sale, a copy
of the Prospectus (as then amended or supplemented) if the Company had
previously furnished copies thereof to the Underwriters within a reasonable
amount of time prior to such sale or such confirmation, and the Underwriters
failed to deliver the corrected Prospectus, if required by law to have so
delivered it. This indemnity agreement will be in addition to any liability
that the Company might otherwise have.
(b) Each Underwriter will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, each
director of the Company and each officer of the Company who signs the
Registration Statement to the same extent as the foregoing indemnity from the
Company to each Underwriter, but only insofar as losses, claims, liabilities,
expenses or damages arise out of or are based on any untrue statement or
omission or alleged untrue statement or omission made in reliance on and in
conformity with information relating to any Underwriter furnished in writing to
the Company by the Representatives on behalf of such Underwriter expressly for
use in the Registration Statement, the Preliminary Prospectus or the
Prospectus. This indemnity will be in addition to any liability that each
Underwriter may otherwise have.
(c) Any party that proposes to assert the right
to be indemnified under this Section 6 will, promptly after receipt of notice
of commencement of any action against such party in respect of which a claim is
to be made against an indemnifying party or parties under this Section 6,
notify each such indemnifying party of the commencement of such action,
enclosing a copy of all papers served, but the omission so to notify such
indemnifying party will not relieve it from any liability that it may have to
any indemnified party under the foregoing provisions of this Section 6 unless,
and only to the extent that, such omission results in the forfeiture of
substantive rights or defenses by the indemnifying party. If any such action
is brought against any indemnified party and it notifies the indemnifying party
of its commencement, the indemnifying party will be entitled to participate in
and, to the extent that it elects by delivering written notice to the
indemnified party promptly after receiving notice of the commencement of the
action from the indemnified party, jointly with any other indemnifying party
similarly notified, to assume the defense of the action, with counsel
satisfactory to the indemnified party, and after notice from the indemnifying
party to the indemnified party of its election to assume the defense, the
indemnifying party will not be liable to the indemnified party for any legal or
other expenses except as provided below and except for the reasonable costs of
investigation subsequently incurred by the indemnified party in connection with
the defense. The indemnified party will have the right to employ its own
counsel in any such action, but the fees, expenses and other charges of such
counsel will be at the expense of such indemnified
<PAGE> 20
20
party unless (1) the employment of counsel by the indemnified party has been
authorized in writing by the indemnifying party, (2) the indemnified party has
reasonably concluded (based on advice of counsel) that there may be legal
defenses available to it or other indemnified parties that are different from
or in addition to those available to the indemnifying party, (3) a conflict or
potential conflict exists (based on advice of counsel to the indemnified party)
between the indemnified party and the indemnifying party (in which case the
indemnifying party will not have the right to direct the defense of such action
on behalf of the indemnified party) or (4) the indemnifying party has not in
fact employed counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be
at the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable
fees, disbursements and other charges of more than one separate firm admitted
to practice in such jurisdiction at any one time for all such indemnified party
or parties. All such fees, disbursements and other charges will be reimbursed
by the indemnifying party promptly as they are incurred. An indemnifying party
will not be liable for any settlement of any action or claim effected without
its written consent (which consent will not be unreasonably withheld). No
indemnifying party shall, without the prior written consent of each indemnified
party, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action or proceeding relating to the matters
contemplated by this Section 6 (whether or not any indemnified party is a party
thereto) (a "Settlement"), unless such Settlement includes an unconditional
release of each indemnified party from all liability arising or that may arise
out of such claim, action or proceeding. Notwithstanding any other provision
of this Section 6(c), if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel, such indemnifying party agrees that it shall be liable for any
Settlement effected without its written consent if (i) such Settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such Settlement at least 30 days prior to such Settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
Settlement.
(d) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in the
foregoing paragraphs of this Section 6 is applicable in accordance with its
terms but for any reason is held to be unavailable from the Company or the
Underwriters, the Company and the Underwriters will contribute to the total
losses, claims, liabilities, expenses and damages (including any investigative,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim asserted,
but after deducting any contribution received by the Company from persons other
than the Underwriters, such as persons who control the Company within the
meaning of the Act,
<PAGE> 21
21
officers of the Company who signed the Registration Statement and directors of
the Company, who also may be liable for contribution) to which the Company and
any one or more of the Underwriters may be subject in such proportion as shall
be appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other. The relative benefits received by
the Company on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. If, but
only if, the allocation provided by the foregoing sentence is not permitted by
applicable law, the allocation of contribution shall be made in such proportion
as is appropriate to reflect not only the relative benefits referred to in the
foregoing sentence but also the relative fault of the Company, on the one hand,
and the Underwriters, on the other, with respect to the statements or omissions
which resulted in such loss, claim, liability, expense or damage, or action in
respect thereof, as well as any other relevant equitable considerations with
respect to such offering. Such relative fault shall be determined by reference
to whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Representatives on behalf of the Underwriters,
the intent of the parties and their relative knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company
and the Underwriters agree that it would not be just and equitable if
contributions pursuant to this Section 6(d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, liability, expense or
damage, or action in respect thereof, referred to above in this Section 6(d)
shall be deemed to include, for purpose of this Section 6(d), any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 6(d), no Underwriter shall be required to contribute
any amount in excess of the underwriting discounts received by it and no person
found guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) will be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute as provided in this Section 6(d) are several in proportion to their
respective underwriting obligations and not joint. For purposes of this
Section 6(d), any person who controls a party to this Agreement within the
meaning of the Act will have the same rights to contribution as that party, and
each officer of the Company who signed the Registration Statement will have the
same rights to contribution as the Company, subject in each case to the
provisions hereof. Any party entitled to contribution, promptly after receipt
of notice of commencement of any action against such party in respect of which
a claim for contribution may be made under this Section 6(d), will notify any
such party or parties from whom contribution may be sought, but the omission so
to notify will not relieve the party or parties from whom contribution may be
sought from any other
<PAGE> 22
22
obligation it or they may have under this Section 6(d). Except for a
Settlement entered into pursuant to the last sentence of Section 6(c), no party
will be liable for contribution with respect to any action or claim settled
without its written consent (which consent will not be unreasonably withheld).
(e) The indemnity and contribution agreements
contained in this Section 6 and the representations and warranties of the
Company contained in this Agreement shall remain operative and in full force
and effect regardless of (i) any investigation made by or on behalf of the
Underwriters, (ii) acceptance of the Shares and payment therefor or (iii) any
termination of this Agreement.
7. Termination.
(a) If the Company shall fail on the Closing Date
or on the Option Closing Date to sell and deliver the Shares or Option Shares
which it is obligated to sell hereunder then the Underwriters may, at their
option, by notice from the Representatives to the Company terminate this
Agreement without any liability on the part of any Underwriter to the Company.
(b) The obligations of the several Underwriters
under this Agreement may be terminated at any time on or prior to the Closing
Date (or, with respect to the Option Shares, on or prior to the Option Closing
Date), by notice to the Company from the Representatives, without liability on
the part of any Underwriter to the Company, if, prior to delivery and payment
for the Shares (or the Option Shares, as the case may be), in the sole judgment
of the Representatives, (i) there has been, since the respective dates as of
which information is given in the Registration Statement, any Material Adverse
Change, (ii) trading in any of the equity securities of the Company shall have
been suspended by the Commission, the NASD, by an exchange that lists the
Shares or by the NASDAQ Stock Market, (iii) trading in securities generally on
the New York Stock Exchange or in the NASDAQ Stock Market shall have been
suspended or limited or minimum or maximum prices shall have been generally
established on such exchange or over-the-counter market, or additional material
governmental restrictions, not in force on the date of this Agreement, shall
have been imposed upon trading in securities generally by such exchange or
over-the-counter market or by order of the Commission or the NASD or any court
or other governmental authority, (iv) a general banking moratorium shall have
been declared by either Federal or New York State authorities or (v) any
material adverse change in the financial or securities markets in the United
States or in political, financial or economic conditions in the United States
or any outbreak or material escalation of hostilities or declaration by the
United States of a national emergency or war or other calamity or crisis shall
have occurred the effect of any of which is such as to make it, in the sole
judgment of the Representatives, impracticable or inadvisable to market the
Shares on the terms and in the manner contemplated by the Prospectus.
<PAGE> 23
23
8. Substitution of Underwriters. If any one or more of
the Underwriters shall fail or refuse to purchase any of the Firm Shares which
it or they have agreed to purchase hereunder, and the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase is not more than one-tenth of the aggregate number of Firm
Shares, the other Underwriters shall be obligated, severally, to purchase the
Firm Shares which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase, in the proportions which the number of Firm Shares
which they have respectively agreed to purchase pursuant to Section 1 bears to
the aggregate number of Firm Shares which all such non-defaulting Underwriters
have so agreed to purchase, or in such other proportions as the Representatives
may specify; provided, that in no event shall the maximum number of Firm Shares
which any Underwriter has become obligated to purchase pursuant to Section 1 be
increased pursuant to this Section 8 by more than one-ninth of the number of
Firm Shares agreed to be purchased by such Underwriter without the prior
written consent of such Underwriter. If any Underwriter or Underwriters shall
fail or refuse to purchase any Firm Shares and the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase exceeds one-tenth of the aggregate number of the Firm
Shares and arrangements satisfactory to the Representatives and the Company for
the purchase of such Firm Shares are not made within 48 hours after such
default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company for the purchase or sale of any
Shares under this Agreement. In any such case either the Representatives or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. Any action taken pursuant to this Section 8
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
9. Miscellaneous. Notice given pursuant to any of the
provisions of this Agreement shall be in writing and, unless otherwise
specified, shall be mailed or delivered (a) if to the Company, at the office of
the Company, 3550 General Atomics Court, San Diego, California 92121,
Attention: President, or (b) if to the Underwriters, to the Representatives at
the offices of PaineWebber Incorporated, 1285 Avenue of the Americas, New York,
New York 10019, Attention: Corporate Finance Department. Any such notice
shall be effective only upon receipt. Any notice under Section 7 or 8 may be
made by telex or telephone, but if so made shall be subsequently confirmed in
writing.
This Agreement has been and is made solely for the benefit of
the several Underwriters and the Company and of the controlling persons,
directors and officers referred to in Section 6, and their respective
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" as
used in this Agreement shall not include a purchaser, as such purchaser, of
Shares from any of the several Underwriters.
<PAGE> 24
24
All representations, warranties and agreements of the Company
contained herein or in certificates or other instruments delivered pursuant
hereto, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any of its controlling
persons and shall survive delivery of and payment for the Shares hereunder.
Any action required or permitted to be taken by the
Representatives under this Agreement may be taken by them jointly or by
PaineWebber Incorporated.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
CONFLICT OF LAWS PRINCIPLES OF SUCH STATE.
This Agreement may be signed in two or more counterparts with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
In case any provision in this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
The Company and the Underwriters each hereby irrevocably waive
any right they may have to a trial by jury in respect of any claim based upon
or arising out of this Agreement or the transactions contemplated hereby.
This Agreement may not be amended or otherwise modified or any
provision hereof waived except by an instrument in writing signed by the
Representatives and the Company.
<PAGE> 25
25
Please confirm that the foregoing correctly sets forth the
agreement among the Company and the several Underwriters.
Very truly yours,
ALANEX CORPORATION
By:____________________________________
Name:
Title:
Confirmed as of the date first
above mentioned:
PAINEWEBBER INCORPORATED
NEEDHAM & COMPANY, INC.
SUTRO & CO. INCORPORATED
Acting on behalf of themselves
and as the Representatives of the
other several Underwriters
named in Schedule I hereof.
By: PAINEWEBBER INCORPORATED
By: ____________________________
Name:
Title:
<PAGE> 26
SCHEDULE I
UNDERWRITERS
Number of
Name of Firm Shares
Underwriters to be Purchased
PaineWebber Incorporated
Needham & Company, Inc.
Sutro & Co. Incorporated
Total . . . . . . . . . . . . . . . . . . . . . . . ______________________
2,500,000
=========
<PAGE> 27
EXHIBIT A
ALANEX CORPORATION
Common Stock
PRICE DETERMINATION AGREEMENT
October ___, 1996
PAINEWEBBER INCORPORATED
NEEDHAM & COMPANY, INC.
SUTRO & CO. INCORPORATED
As Representatives of the several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Reference is made to the Underwriting Agreement, dated
October ___, 1996 (the "Underwriting Agreement"), among Alanex Corporation, a
Delaware corporation (the "Company"), and the several Underwriters named in
Schedule I thereto or hereto (the "Underwriters"), for whom PaineWebber
Incorporated, Needham & Company, Inc. and Sutro & Co. Incorporated are acting
as representatives (the "Representatives"). The Underwriting Agreement
provides for the purchase by the Underwriters from the Company, subject to the
terms and conditions set forth therein, of an aggregate of 2,500,000 shares
(the "Firm Shares") of the Company's common stock, par value $.001 per share.
This Agreement is the Price Determination Agreement referred to in the
Underwriting Agreement.
Pursuant to Section 1 of the Underwriting Agreement, the
undersigned agree with the Representatives as follows:
<PAGE> 28
2
The initial public offering price per share for the Firm
Shares shall be $_______.
The purchase price per share for the Firm Shares to be paid by
the several Underwriters shall be $_______ representing an amount equal to the
initial public offering price set forth above, less $______ per share.
The Company represents and warrants to each of the
Underwriters that the representations and warranties of the Company set forth
in Section 3 of the Underwriting Agreement are accurate as though expressly
made at and as of the date hereof.
As contemplated by the Underwriting Agreement, attached as
Schedule I is a completed list of the several Underwriters, which shall be a
part of this Agreement and the Underwriting Agreement.
THIS AGREEMENT SHALL BE GOVERNED BY THE LAW OF THE STATE OF
NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE.
If the foregoing is in accordance with your understanding of
the agreement among the Underwriters and the Company, please sign and return to
the Company a counterpart hereof, whereupon this instrument along with all
counterparts and together with the Underwriting Agreement shall be a binding
agreement among the Underwriters and the Company in accordance with its terms
and the terms of the Underwriting Agreement.
Very truly yours,
ALANEX CORPORATION
By:______________________
Name:
Title:
<PAGE> 29
3
Confirmed as of the date first
above mentioned:
PAINEWEBBER INCORPORATED
NEEDHAM & COMPANY, INC.
SUTRO & CO. INCORPORATED
Acting on behalf of themselves
and as the Representatives of the
other several Underwriters
named in Schedule I hereof.
By: PAINEWEBBER INCORPORATED
By: ____________________________
Name:
Title:
<PAGE> 30
EXHIBIT B
June ___, 1996
PAINEWEBBER INCORPORATED
NEEDHAM & COMPANY, INC.
SUTRO & CO. INCORPORATED
As Representatives of the
several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
In consideration of the agreement of the several Underwriters,
pursuant to which PaineWebber Incorporated, Needham & Company, Inc. and Sutro &
Co. Incorporated (the "Representatives") intend to act as Representatives to
underwrite a proposed public offering (the "Offering") of shares of Common
Stock, par value $0.001 per share (the "Common Stock"), of Alanex Corporation,
a Delaware corporation, as contemplated by a registration statement (the
"Registration Statement") with respect to such shares to be filed with the
Securities and Exchange Commission (the "Commission") on Form S-1 or SB-2, as
appropriate, the undersigned hereby agrees that the undersigned will not,
directly or indirectly, for a period of 180 days after the commencement of the
Offering, without the prior written consent of PaineWebber Incorporated, (1)
sell, transfer or otherwise dispose of, or offer, contract or grant an option
to sell, transfer or otherwise dispose of, or make any short sales of, or
require the Company to file with the Commission a registration statement under
the Securities Act of 1933, as amended, to register any shares of Common Stock
or securities convertible into or exchangeable for Common Stock of the Company
or warrants or other rights to acquire shares of Common Stock of the Company of
which the undersigned is now, or may in the future become, the beneficial owner
(within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (other than pursuant to employee stock option plans of the Company or
in connection with other employee incentive compensation arrangements with the
Company)) or (2) enter into any swap or similar agreement that transfers, in
whole or in part, any of the economic consequences of the ownership of the
Common Stock, whether any such transaction described in clause (1) or (2)
<PAGE> 31
2
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise, other than (i) as a bona fide gift or gifts, (ii) by will or
intestacy or to a trust the beneficiaries of which are the undersigned or
members of his or her family or (iii) as a distribution to limited partners or
shareholders of the undersigned, provided that such gift, transfer or
distribution shall be conditioned upon the donee's, transferee's or
distributee's execution and delivery to PaineWebber Incorporated of a Lock-Up
Agreement containing terms identical to the terms contained herein.
The undersigned acknowledges that the Representatives are
relying on the agreements of the undersigned contained herein in carrying out
the Offering and in entering underwriting agreements with respect thereto.
Very truly yours,
By:_________________________________
Print
Name:_______________________________
<PAGE> 32
EXHIBIT C
Form of Opinion of
Cooley Godward LLP*
1. 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 all the activities conducted by
it, to own or lease all the assets and properties owned or leased by it and to
conduct its business as described in the Registration Statement and the
Prospectus.
2. To the best of our knowledge, the Company is duly
qualified to transact business as a foreign corporation and is in good standing
in each state or territory of the United States in which it owns or leases
property of a nature, or transacts business of a type, that would make such
qualification necessary, except to the extent that the failure to so qualify or
be in good standing would not have a Material Adverse Effect.
3. All of the outstanding shares of Common Stock have
been, and the Shares, when paid for by the Underwriters in accordance with the
terms of the Agreement, will be, duly authorized, validly issued, fully paid
and nonassessable. The Shares are not subject to any preemptive or similar
right under (i) the statutes and judicial and administrative decisions of the
State of Delaware, (ii) the Company's certificate of incorporation or by-laws
or (iii) any instrument, contract or other agreement described in the
Registration Statement or any instrument, document, contract or agreement filed
as an exhibit to the Registration Statement. Except as described in the
Registration Statement or the Prospectus, to the best of our knowledge, the
Company has no commitment to issue, and the Company has no outstanding options,
warrants or other rights calling for the issuance of, any share of capital
stock of the Company to any person or any security or other instrument that by
its terms is convertible into, exercisable for or exchangeable for capital
stock of the Company.
4. No consent, approval, authorization or order of, or
any filing or declaration with, any court or governmental agency or body is
required in connection with the authorization, issuance, sale or delivery of
the Shares by the Company, in connection with the execution, delivery and
performance of the Agreement by the Company or in
__________________________________
* All references in this opinion to the Agreement shall include the
Price Determination Agreement. Capitalized terms used herein and not
otherwise defined have the same meanings as in the Underwriting
Agreement.
<PAGE> 33
2
connection with the taking by the Company of any action contemplated thereby,
except such as have been obtained under the Act and the Rules and Regulations
and such as may be required under state securities or "Blue Sky" laws or by the
by-laws and rules of the NASD in connection with the purchase and distribution
by the Underwriters of the Shares.
5. The authorized, issued and outstanding capital stock
of the Company is as set forth in the Registration Statement and the Prospectus
under the caption "Capitalization" except for issuances of common stock upon
exercise of outstanding options and warrants. The Shares conform in all
material respects as to legal matters to the description thereof in the
Prospectus under the caption "Description of Capital Stock--Common Stock" and
the statements made under such caption, to the extent they constitute matters
of law or legal conclusions, are accurate in all material respects and fairly
summarize the information presented therein to the extent required by the Act
and the Rules and Regulations. The form of certificate used to evidence the
Common Stock is in due and proper form and complies with all applicable
statutory requirements of the General Corporation Law of the State of Delaware.
6. The Registration Statement and the Prospectus comply
in all material respects as to form with the requirements of the Act and the
Rules and Regulations (except that we express no opinion as to financial
statements, schedules and other financial data and statistical data derived
therefrom contained in the Registration Statement or the Prospectus). To the
best of our knowledge, any instrument, document, lease, license, contract or
other agreement to which the Company is a party (collectively, "Documents")
required to be described or referred to in the Registration Statement or the
Prospectus has been described or referred to therein to the extent required by
the Act and the Rules and Regulations and any Document required by the Act and
the Rules and Regulations to be filed as an exhibit to the Registration
Statement has been filed as an exhibit thereto.
7. To the best of our knowledge, except as disclosed in
the Registration Statement or the Prospectus, no person or entity has the right
to require the registration under the Act of shares of Common Stock or other
securities of the Company by reason of the filing or effectiveness of the
Registration Statement.
8. All descriptions in the Prospectus of statutes,
regulations or legal or governmental proceedings contained under the caption
"Shares Eligible for Future Sale" are accurate in all material respects and
fairly summarizes the information presented to the extent required by the Act
and the Rules and Regulations.
9. The Company has full corporate power and authority to
enter into the Agreement, and the Agreement has been duly authorized, executed
and delivered by the Company, is a valid and binding agreement of the Company
and, except for the
<PAGE> 34
3
indemnification and contribution provisions thereof, as to which we express no
opinion, is enforceable against the Company in accordance with the terms
thereof.
10. The execution and delivery by the Company of, and the
performance by the Company of its agreements in, the Agreement do not and will
not (i) violate the certificate of incorporation or by-laws of the Company,
(ii) breach or result in a default under, cause the time for performance of any
obligation to be accelerated under, or result in the creation or imposition of
any lien, charge or encumbrance upon any of the assets of the Company pursuant
to the terms of, any Document filed as an exhibit to the Registration Statement
except, in each case, where such breach, default, acceleration, lien, charge or
encumbrance would not have a Material Adverse Effect, (iii) breach or otherwise
violate any existing obligation of the Company under any court or
administrative order, judgment or decree of which we have knowledge or (iv)
violate applicable provisions of any statute or regulation in the
United States or the Delaware General Corporation Law.
11. The Company is not an "investment company," as such
term is defined in the Investment Company Act of 1940, as amended.
12. The Shares have been duly approved for quotation on
the Nasdaq National Market.
13. The Company and Alanex California had full corporate
power and authority to enter into the Merger Agreement and to consummate the
Merger. The Merger Agreement was duly authorized, executed and delivered by
each of the Company and Alanex California and constituted a valid and binding
agreement of the Company and Alanex California and was enforceable against the
Company and Alanex California in accordance with the terms thereof. The
performance of the Merger Agreement and the consummation of Merger did not,
except as would not have a Material Adverse Effect, result in the creation or
imposition of any lien, charge or encumbrance upon any of the assets of either
the Company or Alanex California pursuant to the terms or provisions of, or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, or give any other party a right to terminate any of
its obligations under, or result in the acceleration of any obligation under,
the respective charters or by-laws of the Company or Alanex California, any
Document filed as an exhibit to the Registration Statement, or violate or
conflict with any judgment, ruling, decree, order, statute, rule or regulation
of any court or other governmental agency or body applicable to the business or
properties of the Company or Alanex California.
14. The Merger was consummated in accordance with the
Merger Agreement without waiver or modification of its terms in any material
respect except to the extent any such waiver or modification has been approved
in writing by the Representatives,
<PAGE> 35
4
and such Merger is effective under applicable law with the effects set forth in
Section 259 of the Delaware General Corporation Law.
15. We have been advised by the Staff of the Commission
that the Registration Statement became effective under the Act on
_____________, 1996 and that, to the best of our knowledge, no order suspending
the effectiveness of the Registration Statement has been issued and no
proceeding for that purpose has been instituted or is pending or threatened.
16. The required filing of the Prospectus pursuant to
Rule 424(b) has been made in the manner and within the time period required by
Rule 424(b).
17. To the best of our knowledge, there are no actions,
suits, proceedings or investigations pending or overtly threatened against the
Company before or by any court, governmental agency or arbitrator which (i)
seek to challenge the legality or enforceability of the Agreement or (ii) are
required to be described in the Prospectus under the Act and the Rules and
Regulations that have not been described as required.
In connection with the preparation of the Registration
Statement and the Prospectus, we have participated in conferences with officers
and representatives of the Company and with its certified public accountants
(as you and your counsel have done). At such conferences we have made
inquiries of such officers, representatives and accountants, and discussed the
contents of the Registration Statement and the Prospectus. We have not
ourselves independently verified, and accordingly, do not comment upon, the
accuracy, completeness or fairness of the Registration Statement or the
Prospectus. Based upon the foregoing, nothing has come to our attention that
causes us to believe that, as of the Effective Date, the Registration Statement
[or any amendment thereto] contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus [or any
amendment or supplement thereto,] at the time such Prospectus was issued, [at
the time any such amended or supplemented Prospectus was issued,] at the
Closing Date [and the Option Closing Date], contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances in which they were made, not misleading (except that we express
no comment as to financial statements, schedules and other financial data or
statistical data derived therefrom contained in the Registration Statement or
the Prospectus).
Opinion 9 and 13 are subject to the qualification that the
enforceability of the Agreement, the Documents and the Merger Agreement may be:
(i) subject to bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally; and (ii) subject to general
principles of equity (regardless of whether such enforceability is
<PAGE> 36
5
considered in a proceeding at law or in equity) including principles of
commercial reasonableness or conscionability and an implied covenant of good
faith and fair dealing.
This letter is furnished by us solely for your benefit in
connection with the transactions referred to in the Agreement and may not be
circulated to, or relied upon by, any other person.
In rendering the foregoing opinion, counsel may rely, to the
extent they deem such reliance proper, on the opinions (in form and substance
reasonably satisfactory to Underwriters' counsel) of other counsel reasonably
acceptable to Underwriters' counsel as to matters governed by the laws of
jurisdictions other than the United States and the State of Delaware, and as to
matters of fact, upon certificates of officers of the Company and of government
officials; provided that such counsel shall state that the opinion of any other
counsel is in form satisfactory to such counsel. Copies of all such opinions
and certificates shall be furnished to counsel to the Underwriters on the
Closing Date.
<PAGE> 37
EXHIBIT D
Form of Opinion of
Knobbe, Martens, Olson & Bear
1. The portions of the Registration Statement and the
Prospectus entitled "Risk Factors--Uncertainties Associated with Patents and
Proprietary Rights" and "Business--Patents and Proprietary Information"
(together, the "Patent Paragraphs") are accurate and complete statements or
summaries of the matters set forth therein.
2. There are no legal or governmental proceedings, other
than patent applications pending, relating to patent rights of the Company, to
which the Company is a party, and, to our knowledge, no such proceedings are
threatened or contemplated by governmental authorities or others and no basis
for any such proceedings exist.
3. To our knowledge, the Company has not received any
communication in which it is alleged that the Company is infringing or
violating patent rights of third parties.
4. The Company owns or possesses licenses or other
rights to use all patents, trade secrets, trademarks, service marks or other
proprietary information or materials necessary to conduct the business now
being or proposed to be conducted by the Company as described in the
Prospectus.
5. Although we have not independently verified the
accuracy and completeness of the statements contained in the Registration
Statement and the Prospectus, nothing has come to our attention that would
cause us to believe that, at the time the Registration Statement became
effective under the Securities Act of 1933, as amended, the description and
statements in the Patent Paragraphs of the Registration Statement contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements made therein
not misleading; or as of the date of the Prospectus or the date of this
opinion, the description and statements in the Patent Paragraphs of the
Prospectus contained or contain any untrue statement of a material fact or
omitted or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
<PAGE> 1
[COOLEY GODWARD LLP LETTERHEAD] EXHIBIT 5.1
ATTORNEYS AT LAW San Francisco, CA
415 693-2000
4365 Executive Drive Palo Alto, CA
Suite 1100 415 843-5000
San Diego, CA
92121-2128 Menlo Park, CA
MAIN: 619 550-6000 415 843-5000
FAX: 619 453-3555
Boulder, CO
303 546-4000
Denver, CO
303 606-4800
October 10, 1996 WEB http://www.cooley.com
Alanex Corporation
3550 General Atomics Court FREDERICK T. MUTO
San Diego, California 92121 Direct: (619) 550-6010
Internet: [email protected]
Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Alanex Corporation (the "Company") of a Registration
Statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission, including a related prospectus to be filed with the
Commission pursuant to Rule 424(b) of Regulation C (the "Prospectus")
promulgated under the Securities Act of 1933, as amended, and the underwritten
public offering of up to 2,875,000 shares (including 375,000 shares of Common
Stock for which the underwriters have been granted an over allotment option) of
the Company's Common Stock (the "Common Stock").
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Articles of
Incorporation and Bylaws, and the originals or copies certified to our
satisfaction of such records, documents, certificates, memoranda and other
instruments as in our judgment are necessary or appropriate to enable us to
render the opinion expressed below, (ii) assumed that the shares of Common Stock
will be sold by the underwriters at a price established by the Pricing Committee
of the Board of Directors of the Company and (iii) assumed that the
reincorporation of the Company referred to in the Registration Statement will be
effective prior to the issuance of the Common Stock.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Common Stock, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid, and
nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Yours very truly,
Cooley Godward LLP
Frederick T. Muto
<PAGE> 1
EXHIBIT 10.9
CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4), 200.83
AND 230.406 * INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL
TREATMENT REQUEST THAT IS FILED SEPARATELY WITH THE COMMISSION
TERMINATION AND REDEMPTION AGREEMENT
TERMINATION AND REDEMPTION AGREEMENT (the "Agreement") effective June
28, 1996 (the "Effective Date") by and between Amgen Inc., a corporation
organized under the laws of Delaware ("Amgen") with principal offices located at
Amgen Center, Thousand Oaks, California 91320 and Alanex Corporation, a
corporation organized under the laws of California ("Alanex") with principal
offices located at 3550 General Atomics Court, San Diego, California 92121.
RECITALS
A. Amgen and Alanex entered into a Research and License Agreement
dated April 1, 1994 as amended as of November 8, 1994, as of January 1, 1995 and
as of April 5, 1995 (the "Research Agreement").
B. Amgen and Alanex entered into Series A Preferred Stock Purchase
Agreement dated April 1, 1994 (the "Series A Agreement") pursuant to which Amgen
purchased 2,978,182 shares of Alanex Series A Convertible Preferred Stock (the
"Amgen Shares").
C. Alanex issued to Amgen a Warrant dated April 1, 1994 to purchase
703,636 shares of Alanex Common Stock (the "Prior Warrant").
D. Amgen and Alanex now wish to terminate the Research Programs (as
defined in the Research Agreement) and in full and complete satisfaction of all
of Amgen's and Alanex's remaining obligations under the Research Agreement, the
Series A Agreement and the Prior Warrant, Amgen will (i) pay to Alanex six
hundred thousand dollars ($600,000), (ii) extend to Alanex the option to borrow
from Amgen an amount not to exceed one million dollars ($1,000,000) pursuant
to the terms and conditions set forth herein and (iii) submit the Prior Warrant
to Alanex for cancellation; and Alanex will (i) redeem the shares of Alanex
Series A Convertible Preferred Stock owned by Amgen, and in consideration
therefore, (ii) deliver to Amgen a four million five hundred thousand dollar
($4,500,000)
<PAGE> 2
promissory note in the form attached hereto as Exhibit A (the "Alanex Promissory
Note") and (iii) issue to Amgen a warrant to purchase shares of Alanex Common
Stock in the form attached as Exhibit C (the "Warrant").
E. Alanex has further agreed to provide to Amgen samples of
certain Compounds (as defined below) and Amgen has agreed to pay to Alanex four
hundred thousand dollars ($400,000) in consideration of the receipt of such
samples. Amgen shall have non-exclusive rights to the Compounds but shall
otherwise have no rights to Alanex intellectual property.
NOW THEREFORE, in consideration of the foregoing and the
covenants and promises contained herein, the parties agree as follows:
1. DEFINITIONS. Unless otherwise provided, each capitalized term set forth
herein shall have the meaning assigned to it in the Research Agreement.
1.1 ALANEX PROMISSORY NOTE shall have the meaning set forth in
Recital D and shall mean any promissory note issued in conversion
thereof pursuant to Section 6 hereof.
1.2 ALANEX COLLABORATION TECHNOLOGY shall have the meaning set
forth in the Research Agreement.
1.3 AMGEN SHARES shall have the meaning set forth in Recital B.
1.4 CHEMICAL INFORMATION shall have the meaning set forth in
Section 4 hereof.
1.5 CLOSING shall mean the closing of the Amgen Share
redemption and Alanex Promissory Note and Warrant issuance.
1.6 CLOSING DATE shall mean the date of the Closing determined
in accordance with Section 3.6 hereof.
1.7 COMPOUNDS shall have the meaning set forth in the Research
Agreement.
1.8 DEFAULT shall mean the occurrence of any of the following:
(i) Alanex shall have failed to observe or perform any Alanex covenant
set forth herein, (ii) any representation of Alanex set forth herein
shall prove to have been incorrect when made, (iii) Alanex shall fail to
pay when due any amount owing under the Alanex Promissory Note (or shall
have
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<PAGE> 3
failed to convert the Alanex Promissory Note pursuant to Section 6) or
Option Note within fifteen (15) days after notice thereof from Amgen, or
(iv) Alanex shall commence a voluntary case or shall have an involuntary
case or proceeding commenced against it seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a receiver, trustee, and in the event of
an involuntary case or proceeding, such case or proceeding remains
undismissed, unstayed and in effect for more than sixty (60) days.
1.9 EFFECTIVE DATE shall mean the date set forth in the first
paragraph of this Agreement.
1.10 ELECTION PERIOD shall have the meaning set forth in
Section 5.1a hereof.
1.11 OPTION EXERCISE NOTICE shall have the meaning set forth in
Section 5.1c hereof.
1.12 OPTION NOTE shall mean the Alanex promissory note in the
amount determined in accordance with Section 5.1b hereof in the form
attached hereto as Exhibit B.
1.13 OPTION NOTE CLOSING shall mean the closing of the Option
Note.
1.14 OPTION NOTE CLOSING DATE shall mean the date of the Option
Note Closing determined in accordance with Section 5.1d hereof.
1.15 PARTY shall mean Amgen or Alanex as the case may be and
PARTIES shall mean each of them.
1.16 PRIME RATE shall mean the prime interest rate charged by
Citibank, N.A., as announced or published (being the rate announced for
short-term unsecured loans); provided, however that such rate shall be
adjusted if necessary to make the amount of interest charged not violate
applicable usury laws.
1.17 PRINCIPAL AMOUNT shall have the meaning set forth in
Section 5.1b hereof.
1.18 PRIOR WARRANT shall have the meaning set forth in Recital
C.
1.19 PROCEEDS shall mean and include amounts received by reason
of (i) issuance of any equity or debt securities or securities
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<PAGE> 4
exercisable for or into equity or debt securities, (ii) payments under
technology license agreements, (iii) payments under corporate alliances
or corporate partnering arrangements, (iv) payments for the sale of
assets or property and (v) payments or draws under any lines of credit.
Notwithstanding the foregoing, in no event will Proceeds include amounts
paid to Alanex which are reasonably allocated to the funding of the
conduct of specific research projects by Alanex on behalf of a corporate
sponsor, partner or other third party and which amounts are reasonable
and customary in the industry for the performance of similar research
activities.
1.20 RESEARCH AGREEMENT shall have the meaning set forth in
Recital A.
1.21 SAMPLES shall have the meaning set forth in Section 4
hereof.
1.22 SERIES A AGREEMENT shall have the meaning set forth in
Recital B.
1.23 WARRANT shall have the meaning set forth in Recital D.
1.24 WARRANT SHARES shall mean the shares of Alanex
Common Stock issuable upon exercise of the Warrant.
2. WAIVER; TERMINATION; REVERSION OF LICENSES. Effective as of the Closing
Date:
2.1 WAIVER. The Parties hereby waive the three (3) year
minimum term for the Research Programs as set forth in Section 4.9 of
the Research Agreement.
2.2 TERMINATION. The Research Programs are hereby terminated
in accordance with Section 4.9 of the Research Agreement. The Research
Agreement is hereby terminated in accordance with Section 14.1 thereof.
The Series A Agreement and the Prior Warrant are hereby terminated.
Amgen and Alanex agree that the April 1, 1996 payment made by Amgen to
Alanex of six hundred thousand dollars ($600,000) for Research Program
Funding shall be full and complete satisfaction of all Amgen obligations
pursuant to the Research Agreement.
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<PAGE> 5
2.3 REVERSION OF LICENSES. All license grants, options and
other rights granted to either party in Article 5 of the Research
Agreement hereby revert to the granting party.
3. CLOSING
3.1 REDEMPTION. Alanex agrees to redeem from Amgen and Amgen
agrees to submit for redemption by Alanex, the Amgen Shares.
3.2 WARRANTS. In consideration for the redemption of the
Amgen Shares and other good and valuable consideration set forth herein
(i) the Prior Warrant shall terminate and Amgen shall have no claims of
any nature to the capital stock of Alanex except as provided under the
terms of the Warrant and (ii) Alanex agrees to issue to Amgen the
Warrant.
3.3 ALANEX PROMISSORY NOTE. In consideration for the
redemption of the Amgen Shares, Alanex agrees to issue to Amgen the
Alanex Promissory Note in principal amount of four million five hundred
thousand dollars ($4,500,000). The Parties agree that the value of the
Warrant plus the principal amount of the Alanex Promissory Note is
substantially equivalent to the value of the Amgen Shares.
3.4 REPRESENTATIONS AND WARRANTIES. The Parties represent and
warrant as set forth below:
a. Shares. Amgen represents and warrants that it has
good title, free of any lien or right of any third party, to the
Amgen Shares to be redeemed.
b. Warrant. Alanex represents and warrants that the
Warrant, when delivered, will be fully paid and duly issued.
c. Warrant Shares. Alanex represents and warrants that
the Warrant Shares have been duly authorized and reserved for
issuance upon exercise of the Warrant, will be duly and validly
issued, fully paid and non-assessable and not subject to
preemptive or other similar rights and will be free, at the time
of issuance, of all restrictions on transfer subject to
restrictions on transfer imposed by applicable federal and state
securities laws.
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<PAGE> 6
d. Organization, Standing and Corporate Power and Authority.
Each Party represents and warrants to the other that it is a
corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation and has the full
corporate power and authority to execute, deliver and perform this
Agreement. Alanex represents and warrants that it has the full
corporate power and authority to execute, deliver and perform its
obligations under the Alanex Promissory Note and the Warrant.
e. Creditors of Alanex. Alanex represents and warrants that
attached hereto as Schedule 1 is a complete, accurate and current list
of all of its creditors to whom it is indebted in excess of $25,000.
f. Corporate Authorization; Noncontravention. Alanex represents
and warrants that the execution, delivery and performance of this
Agreement and the Alanex Promissory Note and Warrant have been duly
authorized by all necessary corporate action by Alanex. Alanex
represents and warrants that the execution, delivery and performance of
this Agreement and the Alanex Promissory Note and Warrant, including
without limitation the issuance and delivery of the Alanex Promissory
Note and the issuance and sale of the Warrant and the Warrant Shares,
do not violate in any material respect any provision of law and do not
conflict in any material respect with or result in a breach or default
under articles of incorporation or bylaws of Alanex or of any
agreement, judgment, injunction, order, decree or other instrument
binding upon Alanex. Amgen represents and warrants that the execution,
delivery and performance of this Agreement has been duly authorized by
all necessary corporate action by Amgen. Amgen represents and warrants
that the execution, delivery and performance of this Agreement do not
violate in any material respect any provision of law and do not
conflict in any material respect with or result in a breach or default
under any provision of applicable law or regulation or the certificate
of incorporation or
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<PAGE> 7
by-laws of Amgen or of any agreement, judgment, injunction, order,
decree or other instrument binding upon Amgen.
g. Binding Effect. Alanex represents and warrants that this
Agreement has been duly executed and delivered and constitutes a valid
and binding agreement of Alanex enforceable in accordance with its
terms, subject to bankruptcy or equitable laws that might affect the
enforceability thereof. Alanex represents and warrants that the Alanex
Promissory Note and Warrant, when executed and delivered in accordance
with the terms hereof, will have been duly executed and delivered and
will constitute a valid and binding agreement of Alanex, subject to
bankruptcy or equitable laws that might affect the enforceability
thereof. Amgen represents and warrants that this Agreement constitutes
a valid and binding agreement of Amgen enforceable in accordance with
its terms, subject to bankruptcy or equitable laws that might affect
the enforceability thereof.
3.5 CONDITIONS TO CLOSING. The Parties' obligation to redeem the
Amgen Shares in exchange for the Alanex Promissory Note and Warrant shall
be subject to satisfaction of the following conditions (i) the
representations and warranties of each Party shall be true and correct,
(ii) immediately before and after such redemption and exchange no Default
shall have occurred, (iii) Amgen shall have delivered to Alanex the
certificate or certificates representing the Amgen Shares being redeemed,
duly assigned and a duly executed counterpart of this Agreement and (iv)
Alanex shall have delivered to Amgen, (a) the Warrant duly executed, (b)
the Alanex Promissory Note duly executed, (c) a duly executed counterpart
of this Agreement, (d) an opinion of counsel substantially in the form
attached hereto as Exhibit D, and (e) written consents satisfactory to
Amgen to the transactions contemplated by this Agreement, the Alanex
Promissory Note, the Warrant and the Option Note from all existing
creditors of Alanex to whom Alanex is indebted in excess of $25,000.
3.6 CLOSING DATE. The Closing shall take place at 10:00 a.m. on the
tenth day after the Effective Date at the offices of Alanex at 3550
7
<PAGE> 8
*CONFIDENTIAL TREATMENT REQUESTED
General Atomics Court, San Diego, California, or such other time and place
as the Parties may agree.
4. COMPOUNDS. The Alanex Collaboration Technology developed under the
Research Agreement includes approximately ******************** Compounds. On or
before October 28, 1996, Alanex will provide to Amgen samples of each Compound
included in the Alanex Collaboration Technology (the "Samples"). The Samples
will be provided by Alanex to Amgen in a microtiter plate format consisting of
individual aliquots containing no less than five milligrams (5 mg) of each
Compound in one hundred percent (100%) dimelthysulfoxide at minus 20 degrees
Centigrade (-20 degrees C). Chemical information and chemical structures for
each Compound delivered to Amgen in an electronic chemically intelligent format
will be provided with the Samples (the "Chemical Information"). Upon Amgen's
receipt of the Samples and Chemical Information, Amgen will pay to Alanex, four
hundred thousand dollars ($400,000). Amgen shall have non-exclusive rights to
the Compounds but shall otherwise have no rights to Alanex intellectual
property.
5. OPTION NOTE FUNDING.
5.1 OPTION NOTE. In consideration of the matters described in Section
2 hereof, Amgen agrees to extend to Alanex the option to borrow from Amgen
an amount not to exceed the Principal Amount (as hereinafter defined)
pursuant to the following terms and conditions:
a. Exercise. Alanex shall use its best efforts to obtain third
party financing(s) for its present and future operations prior to
December 1, 1996. If after using such best efforts Alanex is unable to
obtain from such third party or parties Proceeds in an aggregate of one
million dollars ($1,000,000) or more on commercially reasonable terms
(taking into account Alanex's current financial condition and need for
such financing), then Alanex may elect to borrow the Principal Amount
from Amgen at any one time between December 1, 1996 and January 15,
1997 (the "Election Period"). Prior to delivery by Amgen of the
Principal Amount,
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<PAGE> 9
Alanex shall issue and deliver to Amgen the Option Note evidencing such
indebtedness.
b. Principal Amount, Interest and Term. The principal amount of
the Option Note (the "Principal Amount") shall be an amount elected by
Alanex not to exceed one million dollars ($1,000,000), which amount
shall be reduced by the aggregate amount of all Proceeds received by
Alanex between the Effective Date and the Option Note Closing Date. The
Option Note shall bear interest at the Prime Rate effective on the
Option Note Closing Date. The Option Note shall have a term of three
(3) years from the Option Note Closing Date, subject to acceleration as
provided in Section 7 hereof.
c. Notice. Upon Alanex's election to borrow the Principal Amount
from Amgen, Alanex will provide to Amgen during the Election Period
written notice (the "Option Exercise Notice") of its election, the
Principal Amount and the aggregate amount of all Proceeds received by
it on or before the date of such notice. Alanex shall subsequently
provide Amgen with prompt written notice following its receipt of any
Proceeds between the date of the Option Exercise Notice and the Option
Note Closing Date.
d. Option Note Closing Date. The Option Note Closing will take
place at 10:00 a.m. on the tenth day after the date upon which Alanex
shall provide Amgen with the Option Exercise Notice at the offices of
Alanex at 3550 General Atomics Court, San Diego, California, or such
other time and place as the Parties may agree.
e. No Additional Funding. In order to induce Amgen to make
available the Option Note funding, Alanex agrees as follows: (i)
nothing contained herein or in any conduct of the representatives of
Amgen shall obligate Amgen or shall be construed as an obligation of or
commitment by Amgen to loan, advance or arrange to provide any
additional funds and Amgen shall not be obligated to loan, advance or
arrange to provide additional funds, (ii) Amgen shall have no
responsibility whatsoever for Alanex's financial condition or any
changes in Alanex's financial condition; and (iii) Alanex shall
indemnify and hold harmless Amgen and its affiliates and its and their
respective officers, directors, employees and representatives form any
and all
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<PAGE> 10
damages (whether or not arising from third party claims) arising from
the Option Note funding or the Option Note.
5.2 REPRESENTATIONS AND WARRANTIES. Alanex will make the following
representations and warranties on and as of the Option Note Closing Date in
connection with issuance and delivery of the Option Note:
a. Organization, Standing and Corporate Power and Authority. It
is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has the full
corporate power and authority to execute, deliver and perform its
obligations under the Option Note.
b. Corporate Authorization; Noncontravention. The execution,
delivery and performance of the Option Note have been duly authorized
by all necessary corporate action by Alanex. The execution, delivery
and performance of the Option Note do not violate in any material
respect any provision of law and do not conflict in any material
respect with or result in a breach or default under any provision of
applicable law or regulation or the certification of incorporation or
by-laws of Alanex or of any agreement, judgment, injunction, order,
decree or other instrument binding upon Alanex.
c. Binding Effect. The Option Note when executed and delivered
in accordance with the terms hereof, will have been duly executed and
delivered and will constitute a valid and binding agreement of Alanex
enforceable in accordance with its terms, subject to bankruptcy or
equitable laws that might affect the enforceability thereof.
d. Principal Amount. The Principal Amount does not exceed one
million dollars ($1,000,000) less the aggregate amount of all Proceeds
received by Alanex between the Effective Date and the Option Note
Closing Date.
e. Intention. Alanex has no present intention of filing for
protection from creditors under the federal bankruptcy laws.
5.3 COVENANTS. For so long as any amounts shall be due and payable
by Alanex to Amgen under the Option Note, Alanex shall:
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<PAGE> 11
a. Use of Option Note Proceeds. Use the proceeds of the Option
Note only for general corporate purposes.
b. Preservation of Existence. Preserve and maintain its
existence in the jurisdiction of its incorporation and qualifications
and authorizations to transact business in each jurisdiction in which
the conduct of its business requires qualification.
c. Conduct of Business. Continue to engage in business of the
same general type as conducted by Alanex on the Effective Date.
d. Distributions. Make no dividend or distribution, whether from
capital, income or otherwise and whether in cash or property, or
purchase, redeem or otherwise acquire or retire for value any
securities of Alanex.
e. Affiliate Transactions. Make no transaction of any kind with
an affiliate of Alanex, unless the Board of Directors determines that
such transaction is fair to Alanex and is on terms at least as
favorable as could be obtained from an unaffiliated party.
f. Defaults. Notify Amgen within ten (10) days of any officer of
Alanex obtaining knowledge of any Default.
g. Notifications. Notify Amgen in writing within ten (10) days
of Alanex's receipt of or entitlement to any Proceeds.
5.4 CONDITIONS TO FUNDING. Amgen's obligation to provide the Option
Note funding on the Option Note Closing Date shall be subject to
satisfaction of the following conditions: (i) Amgen shall have received
Option Exercise Notice, (ii) the representations and warranties of Alanex
set forth herein shall be true as if made on such date, (iii) immediately
before and after such purchase no Default shall have occurred, (iv) Alanex
shall deliver to Amgen a duly executed Option Note and a certificate of the
Chief Executive Officer or Chief Financial Officer of Alanex certifying as
to the accuracy of the matters set forth in Section 5.2 as of the Option
Note Closing Date, and (v) Alanex shall have performed all of its
obligations under this Agreement.
5.5 REPAYMENT. Until all amounts due under the Option Note are repaid
in full, Alanex will pay to Amgen in repayment of such amounts, fifty
percent (50%) of all Proceeds received by Alanex after the
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<PAGE> 12
Option Note Closing Date not later than ten (10) days following Alanex's
receipt of the same.
6. ALANEX PROMISSORY NOTE CONVERSION. If for any reason Alanex is unable to
repay the entire principal balance of the Alanex Promissory Note when due on
maturity (June 28, 2001), Alanex may prior to the maturity date (upon written
notice provided to Amgen not later than ten (10) days prior to maturity),
convert the Alanex Promissory Note into an interest bearing term note
satisfactory in form to Amgen (Alanex shall in connection therewith also make
representations and warranties to Amgen satisfactory in form and substance to
Amgen) with principal and interest at the Prime Rate effective on the date of
conversion payable to Amgen in monthly installments over three (3) years using a
customary three (3) year amortization schedule.
7. DEFAULT. Upon a Default, all outstanding amounts payable under the Alanex
Promissory Note and the Option Note shall automatically become immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by Alanex, and Amgen may pursue any other remedy
available hereunder or under the Alanex Promissory Note, the Option Note or by
law.
8. MISCELLANEOUS PROVISIONS.
8.1 SURVIVAL OF REPRESENTATIONS, ETC. All representations and
warranties contained herein shall survive the execution and delivery of
this Agreement, the Warrant, the Alanex Promissory Note and the Option Note
and the closing of the transactions contemplated hereby and thereby
indefinitely without regard to any investigation made by any of the parties
hereto. All agreements and covenants contained herein shall survive
indefinitely until, by their respective terms, they are no longer
operative.
8.2 INDEMNIFICATION. Each Party shall, with respect to the
representations, warranties, covenants and agreements made by it herein
indemnify, defend and hold the other Party harmless against all liability,
together with all reasonable costs and expenses related thereto (including
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<PAGE> 13
legal and accounting fees and expenses), arising from the untruth,
inaccuracy or breach of any such representations, warranties, covenants
or agreements.
8.3 FURTHER ACTIONS. Each Party agrees to execute, acknowledge
and deliver such further instruments, and to do all such other acts, as
may be necessary or appropriate in order to carry out the purposes and
intent of the Agreement.
8.4 CONFIDENTIALITY. The Parties agree that the material terms
of this Agreement shall be considered confidential information of both
Parties which shall not be disclosed by either party except on a need to
know basis or as required by law. The Parties will consult with one
another and agree on the provisions of this Agreement to be redacted in
any filings made by the Parties with the Securities and Exchange
Commission or as otherwise required by law.
8.5 NOTICES. All notices and other communications thereunder
shall be in writing and shall be deemed given if delivered personally,
or mailed by registered or certified mail (return receipt requested)
with postage prepaid, or sent by express courier service, to the parties
at the following address ( or at such address for a Party as shall be
specified by like notice):
If to Amgen, addressed to: Amgen Inc.
Amgen Center
1840 DeHavilland Drive
Thousand Oaks, CA 91320
Attn: General Counsel and Secretary
With a copy to: Vice President,
Product Licensing
If to Alanex, addressed to: Alanex Corporation
350 General Atomics Court
San Diego, California 92121
Attn: Dr. Marvin Brown
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<PAGE> 14
8.6 AMENDMENT. No amendment modification or supplement of any
provision of this Agreement shall be valid or effective unless made in wiring
and signed by a duly authorized officer of each Party.
8.7 WAIVER. No provision of this Agreement shall be waived by any
act, omission or knowledge of any Party or its agents or employees except by an
instrument in writing expressly waiving such provision and signed by a duly
authorized officer of the waiving.
8.8 COUNTERPARTS. The Agreement may be executed simultaneously in any
number of counterparts, each of which need not contain the signature of more
than one Party but all such counterparts taken together shall constitute one and
the same agreement.
8.9 DESCRIPTIVE HEADINGS. The descriptive heading of this Agreement
are for convenience only, and shall be of no force or effect in construing or
interpreting any of the provisions of this Agreement.
8.10 GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the substantive laws of the State of California
and the Parties hereby consent to the jurisdiction of the California Courts,
both state and federal.
8.11 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
8.12 ENTIRE AGREEMENT OF THE PARTIES. This Agreement, together with
the Warrant, the Alanex Promissory Note and the Option Note, will constitute and
contain the complete, final and exclusive understanding and agreement of the
Parties and cancels and supersedes any and all other prior negotiations,
correspondence, understandings and agreements whether oral or written, between
the Parties respecting the subject matter hereof.
8.13 ASSIGNMENT. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by Alanex without the prior written
consent of Amgen. Subject to the foregoing, this Agreement shall
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<PAGE> 15
be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
AMGEN INC.
By: /s/ Illegible
-------------------------------
Title: SENIOR VICE PRESIDENT
-----------------------------
ALANEX CORPORATION
By: /s/ MARVIN R. BROWN
--------------------------------
Title: PRESIDENT & CEO
-----------------------------
EXHIBIT A - Alanex Promissory Note
EXHIBIT B - Option Note
EXHIBIT C - Warrant
EXHIBIT D - Form of Opinion of Counsel
Schedule 1 - Alanex Creditors
15
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EXHIBIT A
Submitted As Exhibit 10.11 to Registration Statement
<PAGE> 17
Exhibit B
PROMISSORY NOTE
$1,000,000 San Diego, California
1. FOR VALUE RECEIVED, the undersigned, ALANEX CORPORATION, (the
"Maker"), promises to pay to AMGEN INC., a Delaware corporation ("Lender"), or
place or places which the Lender may designate in writing from time to time, the
principal amount of One Million Dollars ($1,000,000) or such lesser amount as
may actually be advanced to Maker, with interest from the date of advancement on
the unpaid principal balance hereunder at the rate percent ( %) per annum
(on the basis of a 365-day year and the actual number of days elapsed). the
unpaid principal balance of the obligation at any time shall be the total
amount advanced hereunder less the amount of principal repayments made by or
for Maker hereunder. Lender shall undertake to endorse hereon the amount of the
principal advance, repayments and outstanding balances from time to time;
provided, that any failure to make such notation or endorsement shall not affect
Maker's continuing obligations under this Note. In no event shall such
interest be charged under this Note which would violate any applicable usury
law. The principal amount under this Note together with all accrued and unpaid
interest thereon, plus any other amounts then owing pursuant to this Note,
shall be due and payable in full on , (the "Maturity Date") without
notice and without the need for any action or election by Lender; provided,
however, that: (a) if such date is not a normal business day, such payment
shall not be due until the first business day thereafter and (b) upon a Default
(as defined in that certain Termination and Redemption Agreement between Maker
and Lender effective as of June , 1996 (the "Agreement")) all such amounts
shall automatically become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
Maker. All accrued and unpaid interest shall be due and payable in arrears in
monthly installments commencing on and continuing
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<PAGE> 18
thereafter on the same numerical day of each subsequent calendar month, except
as otherwise provided in clauses (a) and (b) of the preceding sentence.
2. Each payment under this note shall first be credited against
accrued and unpaid interest, and any remainder shall be credited against
principal. Any prepayment shall be without penalty except that interest shall
be paid to the date of payment on the principal amount then outstanding.
3. Principal and interest shall be payable in lawful money of the
United States of America by check hand delivered to Lender or by federal funds
wire upon Lender's request, in which case applicable wiring instructions will
be provided.
4. If default occurs with respect to any payment due under this Note,
including, without limitation, failure to pay any principal and accrued
interest when due: (i) interest shall thereafter accrue on the entire unpaid
principal balance hereunder at the same rate as that set forth hereinabove (on
the basis of a 365-day year and the actual number of days elapsed); (ii) Maker
promises to pay all costs and expenses, including attorneys' fees, incurred by
the holder hereof in collecting or attempting to collect the indebtedness under
this Note, whether or not any action or proceeding is commenced; and (iii)
Maker hereby waives the right to plead any and all statutes of limitation as a
defense to a demand hereunder to the full extent permitted by law.
5. None of the provisions hereof and none of the Lender's rights or
remedies hereunder on account of past or future defaults shall be deemed to
have been waived by the Lender's acceptance of any past due installments or by
any indulgence granted by the Lender to Maker.
6. Maker hereby waives presentment, demand, protest and notice thereof
or of dishonor, and agrees that it shall remain liable for all amounts due
hereunder notwithstanding any extension of time or change in the terms of
payment of this Note granted by any holder hereof or any delay or failure by
the holder hereof to exercise any rights under this Note or the Agreement.
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<PAGE> 19
7. This Note shall be governed by and construed in accordance with the
laws of the State of California.
8. Maker acknowledges, represents and agrees that: (a) this Note
evidences indebtedness of Maker due Lender as a result of a loan (the "Loan")
in the aggregate principal amount of One Million Dollars ($1,000,000) or such
lesser aggregate principal amount as may actually be advanced to Maker by
Lender on the date hereof pursuant to the terms of Section 5 of the Agreement;
(b) nothing contained herein, in the Agreement or in any conduct of
representatives of Lender shall obligate Lender or shall be construed as an
obligation of or commitment by Lender to loan, advance, or arrange to provide
any additional funds to Maker; (c) the representations and warranties made by
Maker to Lender as of the date hereof pursuant to Section 5 of the Agreement
are true, complete and correct as of the date hereof; (d) Lender shall have no
responsibility whatsoever for Maker's financial condition or any changes in
Maker's financial condition; and (e) Maker shall indemnify and hold Lender and
its affiliates and its and their respective officers, directors, employees and
representatives harmless from any and all damages (whether or not arising out
of third party claims) arising from this Note or the Loan.
9. Until the unpaid principal and interest is repaid in full, Maker
hereby agrees to repay sums due under this Note (including accrued and unpaid
interest and principal, without any need for Lender to demand repayment) at any
and all such times as Maker receives Proceeds (as defined in the Agreement), by
an amount equal to fifty percent (50%) of all such Proceeds received. Such
amounts shall be paid by Maker to Lender not later than ten (10) days following
Maker's receipt of the same.
10. Maker represents, warrants and covenants to Lender that the
proceeds of the Loan will be used by Maker only as provided in Section 5 of the
Agreement.
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<PAGE> 20
IN WITNESS WHEREOF, Maker has caused this Note to be duly executed the
day and year first above written.
ALANEX CORPORATION,
a California corporation
By:_____________________________
Its: President
By:_____________________________
Its: Secretary
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<PAGE> 21
SCHEDULE
OF
ADVANCES, INTEREST AND PAYMENTS OF PRINCIPAL
Amount Amount of Unpaid Notation
of Interest Principal Principal Made
Date Advance Rate Repaid Balance By
- ---- ------- ------- -------- -------- --------
<PAGE> 22
EXHIBIT C
Submitted As Exhibit 10.10 to this Registration Statement
<PAGE> 23
EXHIBIT D
[COOLEY GODWARD LETTERHEAD]
June 28, 1996
Amgen, Inc.
1840 DeHavilland Drive
Thousand Oaks, CA 91320
Dear Sir or Madam:
We have acted as counsel for Alanex Corporation, a California corporation (the
"Company"), in connection with the issuance and sale of (i) a warrant to
purchase Four Hundred Fifty Thousand (450,000) shares of the Company's Common
Stock (the "New Warrant") and (ii) a promissory note in the principal amount of
Four Million Five Hundred Thousand ($4,500,000) dollars (the "Alanex Promissory
Note"), to Amgen Inc., a Delaware Corporation ("Amgen") (the Alanex Promissory
Note and the New Warrant, collectively, are referred to as the "Related
Agreements"), under the Termination and Redemption Agreement dated as of June
28, 1996 (the "Agreement"). We are rendering this opinion pursuant to Section
3.3(iv)(d) of the Agreement. Except as otherwise defined herein, capitalized
terms used but not defined herein have the respective meanings given to them in
the Agreement.
With your consent, in connection with this opinion, we have examined and relied
upon the representations and warranties as to factual matters contained in and
made pursuant to the Agreement by the parties thereto and upon originals or
copies certified to our satisfaction of such records, documents, certificates,
opinions, memoranda and other instruments as in our judgement are necessary or
appropriate to enable us to render the opinion expressed below. Where we
render an opinion "to the best of our knowledge" or concerning an item "known
to us" or our opinion otherwise refers to our knowledge, it is based solely
upon (i) an inquiry of attorneys within this firm who perform legal services
for the Company, (ii) receipt of a certificate executed by an officer of the
Company covering such matters, and (iii) such other investigation, if any, that
we specifically set forth herein.
In rendering this opinion, we have assumed: the genuineness and authenticity of
all signatures on original documents; the authenticity of all documents
submitted to us as originals; the conformity to originals of all documents
submitted to us as copies; the accuracy, completeness and authenticity of
certificates of public officials; and the due authorization, execution and
delivery of all documents (except the due authorization, execution and delivery
by the Company of the Agreement and the Related Agreements), where
authorization, execution and delivery are prerequisites to the effectiveness of
such documents. We have also assumed: that all individuals executing and
delivering
<PAGE> 24
[COOLEY GODWARD LETTERHEAD]
Amgen Inc.
June 28, 1996
Page Two
documents had the legal capacity to so execute and deliver; that the Agreement
and the Related Agreements are obligations binding upon you; that you have filed
any required California franchise or income tax returns and have paid any
required California Franchise or income taxes; and that there are no extrinsic
agreements or understandings among the parties to the Agreement that would
modify or interpret the terms among of the Agreement or the Related Agreements
or the respective rights or obligations of the parties thereunder.
We have assumed that, at the Closing, Amgen will deliver to the Company
the certificate or certificates representing the Amgen Shares for redemption.
With regard to our opinion in paragraph 3 below, we express no opinion
regarding any law or governmental rule or regulation regarding maximum
allowable interest rates. In addition, in paragraph 3 below, with respect to
enforceability, we express no opinion as to the company's compliance with (i)
Chapter 5 of the California Corporations Code or (ii) the laws relating to
fraudulent conveyances. We have also, for purposes of paragraph 3 below,
assumed (i) the due authorization, execution and delivery by the creditors
named in the Agreement of the consent contemplated by Section 3.5 thereof (the
"Consents"), and (ii) the sufficiency of the consideration received by the
creditors therefor. Any such Consents by the named creditors in no way impair
any rights of any other creditor whose claims may arise from the payment to
Amgen of any amounts under the Alanex Promissory Note to the return of such
amounts.
With regard to our opinion in paragraph 5 below with respect to material
defaults under any material agreement known to us, we have relied solely upon
(i) a list supplied to us by the Company, a copy of which has been supplied to
you, of material agreements to which the Company is a party, or by which it is
bound, and (ii) an examination of the items on the foregoing list; we have made
no further investigation.
Our opinion is expressed only with respect to the federal laws of the
United States of America and the laws of the State of California. We express no
opinion as to whether the laws of any particular jurisdiction apply, and no
opinion to the extent that the laws of any jurisdiction other than those
identified above are applicable to the subject matter hereof. We are not
rendering any opinion as to compliance with any antifraud law, rule or
regulation relation to securities, or to the sale or issuance thereof.
On the basis of foregoing, in reliance thereon and with the foregoing
qualifications, we are of the opinion that:
<PAGE> 25
[COOLEY GODWARD LETTERHEAD]
Amgen Inc.
June 28, 1996
Page Three
1. The Company has been duly incorporated and is a validly existing corporation
in good standing under the laws of the State of California.
2. The Company has the requisite corporate power and authority to own or lease
its property and assets and to conduct its business as it is currently being
conducted and, to the best of our knowledge, is not required to qualify as a
foreign corporation to do business in any other jurisdiction in the United
States. The Company has the corporate power and authority to execute,
deliver and perform its obligations under the Agreement and the Related
Agreements.
3. The Agreement and the Related Agreements have been duly and validly
authorized, executed and delivered by the Company and constitute valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as enforceability may be
subject to or limited by (a) general equity principles and to limitations on
the availability of equitable relief including specific performance; (b) the
effect of applicable bankruptcy, insolvency, reorganization, moratorium or
other laws relating to or affecting the rights of creditors; (c) limitations
on a borrower's ability to waive rights or benefits given by statute or
otherwise; (d) limitations on the right of a lender to impose added charges
for late payments or defaults by the borrower, where it is determined that
such charges bear no reasonable relation to the damage suffered by the
lender as a result of such late payments; and (e) the effect of California
Civil Code Section 1717 on the recovery of attorneys' fees in contract
actions. Any creditors executing the Consent are not entitled under Chapter
5 of the California Corporations Code to recovery of the fair market value
of the Related Agreements or amounts paid to Amgen under the Alanex
Promissory Note.
4. The Warrant Shares issuable upon exercise of the New Warrant have been duly
authorized and reserved for issuances by all necessary corporate action on
the part of the Company, and upon issuance and delivery against payment
therefor in accordance with the terms of the New Warrant, the Warrant Shares
will be duly and validly issued, outstanding, fully paid and nonassessable.
To the best of our knowledge, there are no options, warrants, conversion
privileges, preemptive rights or other rights presently
<PAGE> 26
SCHEDULE 1
ALANEX CREDITORS
(AS OF JUNE 1, 1996)
<TABLE>
<CAPTION>
INTEREST ORIGINAL
NAME OF LENDER REFERENCE DATE RATE DUE AMOUNT BALANCE
- -------------- --------- ---- -------- --- -------- -------
<S> <C> <C> <C> <C> <C> <C>
BA EQUIPMENT LEASING #1347.1 7/1/91 8.50% 8/1/96 193,185 11,657
101 N. FIRST STREET
DEPT. 4420
PHOENIX, AZ 85003
ROBERT HOLEMAN
CREDIT RISK OFFICER
(602) 584-2036
GENESSEE PROPERTIES, INC. N/A 5/1/95 11% 4/1/02 1,430,224 1,253,146
3550 GENERAL ATOMICS CT.
SAN DIEGO, CA 92121
ROSS NYE, CONTROLLER
(619) 455-4274
MERRILL LYNCH 232-07A38 8/1/94 CP+2.95% 8/1/99 960,000 714,737
WCMA LOAN
(SEE BELOW)
MERRILL LYNCH BUSINESS 9406340101 8/1/96 CP+2.95% 8/1/96 240,000 80,000
FINANCIAL SERVICES --------- ---------
35 W. MONROE, 22ND FLOOR 2,823,409 2,038,552
CHICAGO, IL 60603 --------- ---------
(312) 845-1020
LANDLORD:
GENERAL ATOMICS
3350 GENERAL ATOMICS CT.
SAN DIEGO, CA 92121
ROBERT DALRY, FACILITIES DIR.
(619) 455-2130
</TABLE>
<PAGE> 1
EXHIBIT 10.13
CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4), 200.83
AND 230.406 * INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL
TREATMENT REQUEST THAT IS FILED SEPARATELY WITH THE COMMISSION.
COLLABORATION AGREEMENT
This Collaboration Agreement (the "Agreement") is made between ALANEX
Corporation ("ALANEX"), and ASTRA AB ("ASTRA").
RECITALS
A. WHEREAS, ALANEX has developed proprietary molecular design
technology, ALANET(TM), which enables ALANEX to analyze structure affinity
relationships of agonists and antagonists of opioid receptors and to
characterize a 3-D pharmacophore hypothesis;
B. WHEREAS, ALANEX has developed proprietary methods for the rapid
development of banks of diversity organic compounds, Pharmacophore Directed
Parallel Synthesis(TM);
C. WHEREAS, ASTRA intends to supply Chemical Entity Data to ALANEX
to enable ALANEX to apply ALANET(TM)-I to assemble a database which is adequate
for the application of ALANET(TM)-II; and
D. WHEREAS, both parties desire that, in consideration of the
funding provided by ASTRA, ALANEX apply the ALANET(TM) technology to the
Chemical Entity Data supplied by ASTRA and use Pharmacophore Directed Parallel
Synthesis(TM) methods to synthesize, isolate, purify, characterize, and supply
novel, non-peptide ligands with desired opioid receptor ligand binding and
efficacy characteristics (the "Collaboration").
NOW THEREFORE, in consideration of the mutual covenants and promises
herein contained, ALANEX and ASTRA agree as follows:
1. EFFECTIVE DATE
The agreement shall be effective as of December 19th, 1994 (the
"Effective Date").
1
<PAGE> 2
2. DEFINITIONS
2.1 "ALANET(TM)" shall mean ALANEX's proprietary molecular design
technology, including ALANET(TM)-I and ALANET(TM)-II, which can be applied to
develop peptide-like or non-peptide molecules that mimic the actions of
peptides.
2.2 "ALANET(TM)-0" is the system applied to predict the folding of
peptides and proteins and can be used to design new compounds of interest.
2.3 "ALANET(TM)-I" is the process used in the development of a series
of active analogs of the compound of interest.
2.4 "ALANET(TM)-II" is a system that is used once a series of active
analogs is created through the use of ALANET(TM)-I for rational drug design
that allows the formulation of a 3-dimensional (3-D) pharmacophore hypothesis
based on a set of compounds with known biological affinity.
2.5 "PHARMACOPHORE DIRECTED PARALLEL SYNTHESIS(TM) (PDPS(TM))" is an
ALANEX proprietary technology that is used to rapidly generate banks of
relevant organic compounds of interest.
2.6 "CHEMICAL ENTITY DATA" shall mean data supplied by ASTRA regarding
the chemical structures and opioid receptor binding and intrinsic affinity of
compounds discovered by ASTRA prior to the Effective Date, as well as compounds
discovered independent of the Research Program after the Effective Date.
2.7 "FTE" shall mean the equivalent of one full-time researcher.
2.8 "ASTRA PATENT RIGHTS" shall mean any and all patents, patent
applications and patent rights and divisions, continuations,
continuations-in-part, divisional applications, renewals, substitutions,
extensions or additions to such patents or applications, directly or indirectly
owned or controlled by ASTRA, and any corresponding foreign patent
applications or patents which rights existed prior to the Effective Date
hereof or as later created independent of the Research Program and the
Collaboration.
2.9 "ALANEX PATENT RIGHTS" shall mean any and all patents, patent
applications and patent rights and divisions, continuations,
continuations-in-part, divisional applications, renewals, substitutions,
2
<PAGE> 3
extensions or additions to such patents or applications, directly or indirectly
owned or controlled by ALANEX, and any corresponding foreign patent
applications or patents based on such applications or patents which rights
existed prior to the Effective Date hereof or as later created independent of
the Research Program and the Collaboration.
2.10 "NON COLLABORATION PRODUCTS" shall mean any products
incorporating: (a) compounds that have been synthesized and are in the
possession of ASTRA prior to the Effective Date; (b) compounds discovered and
developed by ASTRA and/or third parties independent of the Research Program
that are not compounds discovered or developed as a result of the Research
Program; and (c) those compounds or products covered under any ASTRA Patent
Rights.
2.11 "PROGRAM COMPOUND" shall mean any novel compound discovered and
developed as set forth under Section 3.2 and any compound included or derived
from PDPS-generated banks of organic structures that have been shown to exhibit
opioid receptor binding affinity with a Ki<10uM, for which ALANEX
has developed and provided ASTRA with analytical information including detailed
synthetic procedures, spectroscopic data and physiochemical properties enabling
ASTRA to establish authenticity of the chemical structure, or such compound
developed by ASTRA using pharmacophore information provided by ALANEX pursuant
to Section 3.3.2, that exhibit opioid receptor binding affinity. The term
"Program Compound" includes salts, esters, complexes, chelates, hydrates,
isomers, stereoisomers, crystalline and amorphous forms, prodrugs, metabolites
and metabolic precursors thereof.
2.12 "RESEARCH PROGRAM" shall mean the research program described in
Section 3 below.
2.13 "RESEARCH TERM" shall mean the three year period commencing on the
Effective Date, subject to extension under Section 3.4.
2.14 "CANDIDATE DRUG" shall mean a Program Compound elected by ASTRA
based on dose finding studies for short term GLP toxicological studies and
further development.
2.15 "RESULTS" shall mean all Program Compounds and any and all ideas,
inventions and knowledge related thereto and all intellectual property rights
connected therewith.
3
<PAGE> 4
3. RESEARCH PROGRAM
3.1 PURPOSE AND SCOPE. The purpose of the Collaboration is to
characterize novel, non-peptide ligands with desired opioid receptor ligand
binding affinity. During the Research Term and subject to the terms and
conditions of this Agreement, ALANEX will use its good faith, scientific and
business judgement to conduct the Research Program and to furnish the facilities
and personnel necessary to carry out its responsibilities under the Research
Program pursuant to the funding provided in Section 4 hereof.
3.2 ALANEX RESPONSIBILITIES.
3.2.1 ALANEX shall (i) apply ALANET(TM)-I to the Chemical
Entity Data supplied by ASTRA to assemble a database of analogs of the
compounds for which the Chemical Entity Data was supplied and, (ii) apply
ALANET(TM)-II to that database to identify new compounds with desired affinity
at opioid receptors and to characterize a 3-D pharmacophore based on those
compounds. ALANEX acknowledges that ASTRA will determine the Research Program
direction within the target of development of compounds with opioid receptor
binding activity. The target may be changed subject to mutual agreement by the
parties.
3.2.2 ALANEX will use its peptide, organic and medicinal
chemistry, PDPS(TM) technology, and current and future databases to synthesize,
isolate, purify and characterize novel non-peptide ligands with desired
affinity to opioid receptors.
3.2.3 ALANEX, with the assistance of ASTRA, will set up
specific opioid receptor binding assays for the routine testing of compounds
synthesized at ALANEX.
3.2.4 ALANEX will provide to ASTRA adequate quantities of pure
and characterized compounds identified by ALANEX that exhibit desired binding
affinity to opioid receptors. Adequate Quantities shall mean amounts required
for verification of in vitro affinity, physiochemical properties and early
pharmacology studies.
3.2.5 ALANEX shall provide ASTRA with 3-D pharmacophore
information about peptide-like and/or non-peptide candidates that fulfill the
requirements of the hypothesis. This will be an iterative process that will
require refinement of the pharmacophore hypothesis after the synthesis and
testing of new compounds.
4
<PAGE> 5
3.3 ASTRA RESPONSIBILITIES.
3.3.1 ASTRA shall be responsible for providing, at its own
discretion, the Chemical Entity Data to enable ALANEX to assemble a database
for ALANET(TM)-I that is adequate for the application of ALANET(TM)-II.
3.3.2 ASTRA may carry on an effort independent of ALANEX,
utilizing pharmocophore information supplied by ALANEX, to synthesize organic
compounds with the required characteristics for binding to the opioid receptors
of interest.
3.4 RESEARCH DURATION. The Research Program shall be performed during
the Research Term hereof, subject to extension upon mutual agreement of the
parties.
3.5 RECORD KEEPING. ALANEX will keep accurate scientific records
relating to the Research Program and will make such records available to ASTRA
or its authorized representative throughout the Term of the Agreement during
normal business hours upon reasonable notice.
3.6 ALANEX AGREEMENT REGARDING RESEARCH. ALANEX agrees that during
the Research Term, as may be extended or terminated in accordance with the terms
of this Agreement, and for twelve (12) months thereafter, it will not, alone or
together with any third party, engage in research regarding opioid receptor
ligands. Nothing herein shall limit ALANEX's ability to conduct research
regarding any subject other than opioid receptor ligands during the period
described in the immediately preceding sentence or ALANEX's ability to conduct
research regarding any subject following the expiration of such period.
4. FUNDING
4.1 PROJECT INITIATION FEE. To fund the performance by ALANEX of its
obligations under this Agreement, ASTRA will pay to ALANEX $250,000.00 after
the signing of this Agreement and prior to the initiation of the project. This
fee should be used to purchase equipment needed for the initiation of the
research program and is independent of FTE and milestone payments.
5
<PAGE> 6
*CONFIDENTIAL TREATMENT REQUESTED
4.2 FTE PAYMENTS. ALANEX will be paid *********** per year per FTE,
adjusted annually by the Consumer Price Index of San Diego, California, USA,
over the preceding calendar year starting 1995 (the "FTE Rate"). Payments will
be made on a quarterly basis commencing not later than December 20, 1994. The
initial number of FTE's will be *******. These will include one (1) FTE for a
computational chemist, ************* for synthetic organic-medicinal
chemistry, and one (1) FTE for a pharmacologist to perform receptor ligand
binding assays. The FTE constitutes the entire compensation for the services
performed under this Agreement.
4.3 FUNDING COMMITMENT MODIFICATION. At any time during the term of a
Research Program, either Party may propose in writing an increase or decrease
of the number of FTE's. ALANEX may request a change in the FTE Rate for the
remaining term of such Research Program; after providing competent proof and
explanation that ALANEX's research department cost structure exceeds the FTE
rate set forth in Section 4.2 and upon approval of ASTRA, which approval shall
not be unreasonably withheld, the FTE rate will change accordingly.
Notwithstanding the above, ASTRA is entitled upon three (3) months'
prior written notice to ALANEX to terminate the Research Program for any
reason. Upon such premature termination of the Research Program, the remainder
of this Agreement will continue to be in full force and effect until terminated
in accordance with Article 10 below, and ASTRA will, as entire compensation for
the premature termination of the Research Program, compensate ALANEX for
reasonable and unavoidable wind-up costs not exceeding the FTE rate for six (6)
months.
5. CONSULTATION AND REPORTS
5.1 CONSULTATION. During the Term of the Agreement, ASTRA's
representatives may consult informally with ALANEX's representatives regarding
the Research Program, both personally and by telephone. Access to ASTRA work
carried on in ALANEX laboratories in the course of the Research Program shall
be made available to ASTRA during normal business hours upon reasonable notice.
5.2 RESEARCH COMMITTEE. A Research Committee will be created to manage
the Research Program. Each Party will designate three (3) representatives to
act as members of the Research Committee. Meetings will be held no less than
every three (3) months and their location will
6
<PAGE> 7
alternate between Montreal and San Diego. The chairman of each Research
Committee Meeting will be a member from the host company. The Research
Committee will, within the frames of this Agreement, be responsible for the
formulation and ongoing revision of the Research Plan and for the monitoring
and assessment of the resultant research.
5.3 REPORTS. Routines of reporting will be established by the Research
Committee.
5.3 REPORT USAGE. All reports and information submitted to ASTRA as a
result of the Research Program may be freely utilized by ASTRA.
6. OWNERSHIP: PATENTS
6.1 OWNERSHIP.
6.1.1 ALANEX acknowledges that ALANEX has no ownership rights in or to
any peptide or non-peptide materials furnished by ASTRA or to any ASTRA Patent
Rights or any other ASTRA proprietary rights. ASTRA acknowledges that ASTRA has
no rights in or to any ALANEX Patent Rights or any other ALANEX proprietary
rights referable to ALANET(TM) and PDPS(TM).
6.1.2 The entire right, title and interest in and to the Results shall
be the exclusive proprietary rights of ASTRA, including the right to apply for
patents in its own name and to exploit any part of the Results regardless if
such part originates from ASTRA or ALANEX.
6.2 PATENTS. ASTRA shall be free to determine whether or not it chooses
to file one or more patent applications to obtain patent rights with respect to
any ASTRA Compound or Program Compound. ASTRA shall pay any and all expenses in
connection with filing and maintaining such patents.
6.2.1 ALANEX undertakes at the request of ASTRA to sign any and all
documents necessary or useful in connection with applications for patent or
application for any other industrial property right and further to confirm
ASTRA's proprietary right (ownership) to the Results.
6.2.2 ALANEX undertakes to see to it that employees and other persons
working with ALANEX in such ways, that they can be
7
<PAGE> 8
*CONFIDENTIAL TREATMENT REQUESTED
considered as inventors to any patentable invention generated as a Result, are
obligated as ALANEX to this Agreement.
7. MILESTONE PAYMENTS
7.1 MILESTONE PAYMENTS. ASTRA shall pay to ALANEX the milestone
payments described below within thirty (30) days after attainment by ASTRA of
each described milestone:
(a) For the first Program Compound selected by ASTRA as
Candidate Drug the milestone events and payments are the
following:
<TABLE>
<S> <C>
- upon selection as a Candidate Drug $ *******
- upon the first filing of an IND $ *******
- upon the first filing of an NDA $*********
- upon the first NDA approval in the U.S. $*********
</TABLE>
(b) For each subsequent Program Compound(s) selected by ASTRA as
Candidate Drug(s), the milestone events will be the same as
above under (a), but the payments will be ************
***** the amounts indicated for each milestone
above under (a).
(c) Other than as set forth in section 4 above, and this section
7, ASTRA shall not be obliged to pay any compensation to
ALANEX for services provided or the rights granted to ASTRA
hereunder.
8. PUBLICITY
8.1 PRESS RELEASE AND REQUIRED REPORTING. Neither party shall make
reference to the other in a press release or any other written statement in
connection with this Agreement if it is intended for use in the public media,
except as required by the applicable law or regulation, or with the consent of
the other party.
8
<PAGE> 9
8.2 PUBLICATIONS. With respect to publication of information other
than a press release, ASTRA shall have the right to submit for publication any
information concerning an ASTRA Compound. ASTRA will include appropriate ALANEX
personnel in the preparation and authorship of all resultant publications.
8.2.1 ALANEX undertakes not to make any publications
whatsoever regarding the Results without the prior written consent of ASTRA.
9. CONFIDENTIAL INFORMATION
9.1 The Secrecy Agreement between the parties dated February 28, 1994,
is hereby terminated and replaced by the confidentiality provisions hereinafter
set forth.
9.2 In the collaboration hereunder, it is acknowledged that each party
will disclose to the other ("Receiver") information, which is confidential and
proprietary information of the disclosing party ("Discloser"). Any information
provided hereunder from one party to the other which, by its nature, is
confidential and proprietary information of Discloser is below referred to as
Confidential Information.
9.3 Receiver shall maintain the Confidential Information of Discloser
in confidence, and shall not disclose, divulge or otherwise communicate such
Confidential Information to others, or use it for any purpose, except pursuant
to, and in order to carry out, the terms and objectives of this Agreement, and
hereby agrees to exercise ever reasonable precaution to prevent and restrain
the unauthorized disclosure of such Confidential Information by any of its
employees or other persons working with Receiver.
9.4 The provisions of Article 9 shall not apply to any Confidential
Information disclosed hereunder which:
(a) at the time of disclosure is in the public domain;
(b) after disclosure becomes part of the public domain by
publication or otherwise, except by breach Receiver's
undertakings under this Agreement;
9
<PAGE> 10
(c) Receiver can establish by competent proof was in its
possession at the time of disclosure and was not acquired,
directly or indirectly, from Discloser;
(d) Receiver can establish by competent proof was either
developed by Receiver independently of the Confidential
Information received from Discloser or received from a
third party provided, however, that such information was
not obtained by said third party directly or indirectly
from Discloser; or
(e) ASTRA is required to disclose to relevant authorities in
connection with its development and exploitation of a
Program Compound.
9.5 The confidentiality obligations above will be valid during the
term of this Agreement and seven (7) years thereafter.
10. TERMINATION
10.1 TERM. This Agreement shall remain in full force and effect from
the Effective Date until terminated by operation of law or by acts of the
parties in accordance with the terms of this Agreement.
10.2 EARLY TERMINATION. This Agreement may be terminated:
(a) by the written agreement of both parties;
(b) in the event that either party shall be in default of its
material obligations under this Agreement and upon written
notice thereof, this Agreement shall Terminate upon
expiration of the sixty (60) day period; or
(c) by either party upon the insolvency of, or filing either a
voluntary petition by or an involuntary petition against
(if not dismissed within sixty (60) days after the filing)
the other party.
10.3 EFFECT OF TERMINATION. Upon termination of this Agreement prior
to the expiration of the Research Term, the Research Program set forth in
Section 3 shall cease. Notwithstanding any
10
<PAGE> 11
termination, the provisions of Sections 4, 6, 7, 8 and 9 shall survive to the
extent obligations have accrued thereunder prior to termination and including,
without limitation, the obligation of ASTRA to make milestone payments provided
for herein.
11. DISPUTE RESOLUTION; VENUE AND CHOICE OF LAW
11.1 DISPUTE RESOLUTION. In the event that at any time during the term
of this Agreement a disagreement, dispute, controversy or claim should arise
out of or relating to the interpretation of or performance under, this
Agreement, or the breach or invalidity thereof, the parties will attempt in
good faith to resolve their differences before restoring to the termination
procedures provided in Section 10 of this Agreement by submitting such dispute
to the Chief Executive Officers of the parties (or their designees) for thirty
(30) days, following which either party shall be free to take any action and
seek any remedy it may have at law or in equity including specific performance
and injunctive relief.
11.2 GOVERNING LAW. This Agreement is made in accordance with and
shall be governed and construed under the laws of the State of New York.
11.3 ARBITRATION. Any controversy or claim arising out of or related
to this Agreement shall be determined by arbitration in accordance with the
International Arbitration Rules of the American Arbitration Association.
12. MISCELLANEOUS
12.1 WAIVER. No delay in enforcing a party's rights hereunder or any
waiver as to a particular breach or default of any of the covenants or
agreements herein set forth shall be deemed a waiver as to any subsequent or
similar breach or default.
12.2 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their permitted successors and assigns;
provided, however, other than as contemplated by the Agreement, neither party
shall assign any of its rights and obligations hereunder except as incident to
the merger, consolidation, reorganization, or acquisition of stock or assets
affecting substantially all of the assets or 50% or
11
<PAGE> 12
more of the voting power of the assigned party. The parties may assign their
rights and/or obligations to any of their respective Affiliates.
12.3 ADDITIONAL DOCUMENTS. Each party agrees to execute such further
papers or agreements as may be necessary to effect the purposes of this
Agreement.
12.4 NOTICES. Any notice or other communication required or permitted
to be given and to be effective on the date of delivery if delivered in person
or by facsimile or five (5) days after mailing by registered or certified mail,
postage paid, to the other party at the following address:
In the case of ASTRA:
ASTRA Pain Control
275 bis, boul. Aramand Frappier
Edifice 3000
Laval, Quebec, Canada
H7V 4A7
Attn: Claes Wahlestedt, M.D., Ph.D.
Director of Montreal Research Unit
Phone: 514/973-3020
Fax: 514/973-3031
In the case of ALANEX:
ALANEX Corporation
3550 General Atomics Court
San Diego, CA 92121
Attn: Marvin R. Brown, M.D.
President & Chief Executive Officer
Phone: 619/455-3200
Fax: 619/455-3201
Either party may change its address for communications by a notice to the other
party in accordance with this section.
12.5 AMENDMENT. No amendment or modification hereof shall be valid or
binding upon the parties unless made in writing and signed by both parties.
12.6 FORCE MAJEURE. Any delays in performance by any party under this
Agreement (other than a party's failure to pay money to the other party) shall
not be considered a breach of this Agreement if and
12
<PAGE> 13
to the extent caused by occurrences beyond the reasonable control of the party
affected, including but not limited to acts of God, embargoes, governmental
restrictions, strikes or other concerted acts of workers, fire, flood,
explosion, riots, wars, civil disorder, rebellion or sabotage. The party
suffering such occurrences shall immediately notify the other party and at any
time for performance hereunder shall be extended by the actual time of delay
caused by the occurrence.
12.7 INDEPENDENT CONTRACTORS. In making and performing this Agreement,
ALANEX and ASTRA act and shall act at all times as independent contractors, and
nothing contained in this Agreement shall be construed or implied to create an
agency, partnership or employer and employee relationship between ASTRA and
ALANEX. At no time shall one party make commitments or incur any charges or
expenses for or in the name of the other party.
12.8 SEVERABILITY. If any term, condition or provision of this
Agreement is held to be unenforceable for any reason, it shall, if possible, be
interpreted rather than voided, in order to achieve the intent of the parties
to this Agreement to the extent possible. In any event, all other terms,
conditions and provisions of this Agreement shall be rendered valid and
enforceable to the full extent.
12.9 CUMULATIVE RIGHTS. The rights, powers and remedies hereunder
shall be in addition to, and not in limitation of, all rights, powers and
remedies provided at law or in equity, or under any other agreement between the
parties. All of such rights, powers and remedies shall be cumulative, and may be
exercised successively or cumulatively.
12.10 ENTIRE AGREEMENT. This Agreement and any and all Exhibits
referred to herein embody the entire understanding of the parties with respect
to the subject matter hereof and supersedes all previous communications,
representations or understandings, either oral or written, between the parties
relating to the subject matter hereof.
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IN WITNESS WHEREOF, both ALANEX and ASTRA have executed this Agreement,
in duplicate originals, by their respective officer hereunto duly authorized,
as of the day and year hereinabove written.
ASTRA AB
By: /s/ Claes Wilhelmsson By: /s/ Goran Lerenius
--------------------------------- ----------------------------
Claes Wilhelmsson, M.D., Ph.D. Goran Lerenius
Executive Vice President Vice President
Head, Research & Development Head of Legal Affairs
ALANEX CORPORATION
By: /s/ Marvin R. Brown
---------------------------------
Marvin R. Brown, M.D.
President & Chief Executive Officer
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EXHIBIT 10.14
CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4), 200.83
AND 230.406 * INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL
TREATMENT REQUEST THAT IS FILED SEPARATELY WITH THE COMMISSION.
COLLABORATION AGREEMENT
This Collaboration Agreement (the "Agreement") is made between ALANEX
Corporation ("ALANEX") and NOVO NORDISK ("NOVO NORDISK").
RECITALS
A. WHEREAS, ALANEX has developed proprietary molecular design
technology, ALANET(TM), which enables ALANEX to analyze structure affinity
relationships of **************** receptors and to characterize 3-dimensional
"3-D" pharmacophore hypotheses;
B. WHEREAS, ALANEX has developed proprietary methods for the rapid
development of libraries of diverse organic compounds, Pharmacophore Directed
Parallel Synthesis(TM) "PDPS(TM)"; and
C. WHEREAS, both parties desire that, in consideration of the
funding to be provided by NOVO NORDISK, ALANEX apply the ALANET(TM) technology
to the Chemical Entity Data (as defined below) supplied by NOVO NORDISK and use
PDPS(TM) methods to synthesize, isolate, purify, characterize and supply novel,
non-peptide ligands with desired **************** receptor ligand binding and
efficacy characteristics (the "Collaboration").
NOW THEREFORE, in consideration of the mutual covenants and promises
herein contained, ALANEX and NOVO NORDISK agree as follows:
1. EFFECTIVE DATE
This agreement shall be effective as of October 31, 1995 (the
"Effective Date").
2. DEFINITIONS
2.1 "AFFILIATE" used in connection with any of the parties to this
Agreement shall, unless otherwise specifically indicated, mean any corporation
or other entity controlled by or controlling the party mentioned, or being
under the common control with the party mentioned, directly or indirectly,
through stock ownership, or otherwise. "Control" shall mean the ownership of
more than fifty percent (50%) of the outstanding equity or voting interests in
such entity.
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2.2 "ALANET(TM)" shall mean ALANEX's proprietary molecular design
technology, including ALANET(TM)-0, ALANET(TM)-I and ALANET(TM)-II, which can
be applied to develop peptide-like molecules that mimic the actions of peptides.
2.3 "ALANET(TM)-0" is a system that can be used to predict the
folding of peptides and proteins and can be used to design new compounds of
interest.
2.4 "ALANET(TM)-1" is the process used in the development of a
series of active analogs of the compound of interest.
2.5 "ALANET(TM)-II" is a system that is used once a series of
active analogs is created through the use of ALANET(TM)-I that allows the
formulation of a 3-D pharmacophore hypothesis based on a set of compounds of
interest.
2.6 "Chemical Entity Data" shall mean data supplied by NOVO NORDISK
regarding the chemical structures and **************** receptor binding and
intrinsic affinity of compounds discovered by NOVO NORDISK prior to the
Effective Date, as well as compounds discovered independent of the Research
Program after the Effective Date.
2.7 "FTE" shall mean the equivalent or one full-time researcher.
2.8 "Non collaboration Products" shall mean any products
incorporating: (i) compounds that have been synthesized and are in the
possession of NOVO NORDISK prior to the EFFECTIVE DATE; (ii) compounds
discovered and developed by NOVO NORDISK and/or third parties independent of
the Research Program and the Collaboration and that are not compounds discovered
or developed as a result of the Research Program or the Collaboration; and
(iii) those compounds or products covered under any NOVO NORDISK Patent Rights.
2.9 "NOVO NORDISK Patent Rights" shall mean any and all patents,
patent applications and patent rights and divisions, continuations,
continuations-in-part, divisional applications, renewals, substitutions,
extensions or additions to such patents or applications, directly or indirectly
owned or controlled by NOVO NORDISK, and any corresponding foreign patent
applications or patents based on such applications or patents which rights
existed prior to the Effective Date hereof or as later created independent of
the Research Program and the Collaboration.
2.10 "Pharmacophore Directed Parallel Synthesis(TM) "PDPS(TM)" " is
an ALANEX proprietary technology that is used to rapidly generate libraries of
relevant organic compounds of interest.
2.11 "Preclinical Lead Profile (PLP) Candidate" shall mean a Program
Compound selected by NOVO NORDISK based on dose finding studies for short term
**************** toxicological studies and further development in
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accordance with the current NOVO NORDISK guidelines for selection of lead
candidates (Appendix 1).
2.12 "Program Compound" shall mean (i) any compound discovered and
developed as set forth under Section 3.2; (ii) any compound included or derived
from PDPS-generated banks or organic structures that have been shown to exhibit
**************** receptor binding affinity with a Ki <1uM or structures
necessary to obtain broad patent coverage independent of binding
affinity, for which ALANEX has developed and provided NOVO NORDISK with
analytical information including detailed synthetic procedures, spectroscopic
date and physiochemical properties enabling NOVO NORDISK to establish
authenticity of the chemical structure; or (iii) any compound developed by NOVO
NORDISK using pharmacophore information provided by ALANEX pursuant to Section
3.3, that exhibit *************** receptor binding affinity. The term
"Program Compound" includes salts, esters, complexes, chelates, hydrates,
isomers, stereoisomers, crystalline and amorphous forms, prodrugs, metabolites
and metabolic precursors thereof.
2.13 "Program Compound Option" shall mean Program Compounds that
exhibit activities in addition to or other than *************** binding
activity.
2.14 "Research Program" shall mean the research program described in
Section 3 below.
2.15 "Research Term" shall mean the three-year period commencing on
the Effective Date, subject to extension under Section 3.4.
2.17 "Results" shall mean all Program Compounds and any and all
ideas, inventions and knowledge thereto and all intellectual property rights
connected therewith.
3. RESEARCH PROGRAM
3.1 Purpose and Scope. The purpose of the Collaboration is to
characterize novel, non-peptide ligands with desired ******************
receptor ligand binding affinity. During the Research Term and subject to the
terms and conditions of this Agreement, ALANEX will use its good faith
scientific and business judgment to conduct the Research Program and to furnish
the facilities and personnel necessary to carry out its responsibilities under
the Research Program pursuant to the funding provided in Section 4 hereof.
3.2 ALANEX Responsibilities.
3.2.1 ALANEX shall (i) apply ALANET(TM)-I to the Chemical
Entity Data supplied by NOVO NORDISK to assemble a database of analogs of the
compounds for which the Chemical Entity Data was supplied, and (ii) apply
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* CONFIDENTIAL TREATMENT REQUESTED
ALANET(TM)-II to that database to identify new compounds with desired affinity
at ***************** receptors and to characterize a 3-D pharmacophore based on
those compounds. ALANEX acknowledges that NOVO NORDISK will determine the
Research Program direction within the target of development of compounds with
***************** receptor binding activity. The target may be changed subject
to mutual agreement by the parties.
3.2.2 ALANEX will use its peptide, organic and medicinal chemistry,
PDPS(TM) technology and current and future databases to synthesize, isolate,
purify and characterize novel non-peptide ligands with desired affinity to
***************** receptors.
3.2.3 ALANEX, with the assistance of NOVO NORDISK, will set up specific
***************** receptor binding assays for the routine testing of compounds
synthesized at ALANEX.
3.2.4 ALANEX will provide to NOVO NORDISK adequate quantities of pure
and characterized compounds identified by ALANEX that exhibit desired binding
affinity to ***************** receptors. Adequate quantities shall mean amounts
reasonably required for verification of in vitro affinity, physiochemical
properties and early pharmacology studies.
3.2.5 ALANEX shall provide NOVO NORDISK with 3-D pharmacophore
information about peptide-like and/or non-peptide candidates that fulfill the
requirements of the hypothesis. This will be an interactive process that will
require refinement of the pharmacophore hypothesis after the synthesis and
testing of new compounds.
3.3 NOVO NORDISK RESPONSIBILITIES.
3.3.1 NOVO NORDISK may carry on an effort independent of ALANEX,
utilizing pharmacophore information supplied by ALANEX, to synthesize organic
compounds with the required characteristics for binding to the *********
******* receptors of interest.
3.3.2 NOVO NORDISK will provide ALANEX with cells transfected with
cloned ***************** receptors to be used in in vitro receptor binding and
functional assays.
3.3.3 NOVO NORDISK will perform in vitro profiling including **********
************ receptor binding affinities, and all in vivo pharmacological
characterization studies of Program Compounds.
3.4 RESEARCH DURATION. The Research Program shall be performed during
the Research Term hereof, subject to extension upon mutual agreement of the
parties.
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* CONFIDENTIAL TREATMENT REQUESTED
3.5 RECORD KEEPING. ALANEX will keep accurate scientific records
relating to the Research Program and will make such records available to NOVO
NORDISK or its authorized representative throughout the Term of the Agreement
during normal business hours upon reasonable notice.
3.6 ALANEX AGREEMENT REGARDING RESEARCH. ALANEX agrees that during the
Research Term, as may be extended or terminated in accordance with the terms of
this Agreement, and for six (6) months thereafter, it will not, alone or
together with any third party, engage in research regarding *****************
receptor ligands. Nothing herein shall limit ALANEX's ability to conduct
research regarding any subject other than ***************** receptor ligands
during the period described in the immediately preceding sentence, or ALANEX's
ability to conduct research regarding any subject following the expiration of
such period.
4. FUNDING
4.1 PROJECT INITIATION FEE. To fund the performance ALANEX of its
obligations under this Agreement, NOVO NORDISK will pay to ALANEX $250,000
upon the signing of this Agreement and prior to the initiation of the Research
Program. This fee will be used by ALANEX to purchase equipment needed for the
initiation of the Research Program and is independent of FTE and milestone
payments. All such equipment shall be and shall remain the property of ALANEX,
irrespective of any termination of this Agreement.
4.2 FTE PAYMENTS. ALANEX will be paid ******** per year per FTE,
adjusted annually by the Consumer Price Index of San Diego, California, USA,
over the preceding calendar year starting 1995 (the "FTE Rate"). Payments will
be made on a prepaid quarterly basis commencing not later than one (1) month
after the Effective Date. The initial number of FTE's will be ********. These
will include one (1) FTE for a computational chemist, ********* FTE's for
synthetic organic-medicinal chemistry, one (1) FTE for a peptide chemist, and
******* FTE's for pharmacologists to perform receptor ligand binding assays. The
FTE payments and the milestone payments (if any) contemplated by Section 7
constitute the entire compensation for the services performed under this
Agreement.
4.3 FUNDING COMMITMENT MODIFICATION. At any time during the term of
the Research Program, either Party may propose in writing an increase or
decrease of the number of FTE's. ALANEX may request a change in the FTE Rate
for the remaining term of the Research Program. Upon reasonable demonstration
by ALANEX that ALANEX's research department cost structure exceeds the FTE rate
set forth in Section 4.2 and, with the consent of NOVO NORDISK which shall not
be unreasonably withheld, the FTE rate will be increased accordingly.
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<PAGE> 6
5. CONSULTATION AND REPORTS
5.1 Consultation. During the Term of the Agreement, NOVO NORDISK's
representatives may consult informally with ALANEX's representatives regarding
the Research Program, both personally and by telephone. Access to NOVO NORDISK
work carried on in ALANEX laboratories in the course of the Research Program
shall be made available to NOVO NORDISK during normal business hours upon
reasonable notice.
5.2 Research Committee. A Research Committee will be created to
manage the Research Program. Each Party will designate three (3)
representatives to act as members of the Research Committee. Meetings will be
held no less than every three (3) months and their locations will alternate
between Copenhagen and San Diego. The chairman of each Research Committee
Meeting will be a member from the host company. The Research Committee will,
within the framework of this Agreement, be responsible for the formulation and
ongoing revision of the Research Plan and for the monitoring and assessment of
the resultant research.
5.3 Reports. Routines of reporting will be established by the
Research Committee.
5.4 Report Usage. All reports and information submitted to NOVO
NORDISK as a result of the Research Program may be freely utilized by NOVO
NORDISK for whatever purpose.
6. OWNERSHIP; PATENTS
6.1 Ownership.
6.1.1 ALANEX acknowledges that ALANEX has no ownership rights
in or to any peptide or non-peptide materials furnished by NOVO NORDISK or to
any NOVO NORDISK Patent Rights or any other NOVO NORDISK proprietary rights.
Except as expressly provided for in Sections 8, 12.3 and/or 12.4 of this
Agreement, NOVO NORDISK acknowledges that NOVO NORDISK has no rights in or to
any ALANEX patent rights or any other ALANEX proprietary rights.
6.2 Patents. NOVO NORDISK shall be free to determine whether or
not it chooses to file one or more patent applications to obtain patent rights
with respect to any Program Compound. NOVO NORDISK shall pay any and all
expenses in connection with filing and maintaining such patents.
6.2.1 ALANEX undertakes at the request of NOVO NORDISK to sign
any and all documents necessary or useful in connection with applications for
patent or application for any other intellectual property right to the Program
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<PAGE> 7
Compounds and further to confirm NOVO NORDISK's proprietary right (ownership)
to the Results and Program Compounds.
6.2.2 ALANEX undertakes to see to it that employees and other
persons working with ALANEX in such ways that they can be considered as
inventors to any patentable Results or Program Compound generated pursuant to
the Research Program or the Collaboration, are obligated as ALANEX to this
Agreement.
6.2.3 IF NOVO NORDISK determines not to file a patent
application on a particular compound, ALANEX shall have the right to do so and
such compound shall be the property of ALANEX and deemed not to be a Program
Compound.
6.3 Program Compound Patents. NOVO NORDISK will, on a continuous
basis, maintain a list of all patents and patent applications concerning
Program Compounds.
7. MILESTONE PAYMENTS
7.1 Conditions for Milestone Payments. Milestone payments will be
made by NOVO NORDISK to ALANEX subject to the following conditions:
7.1.1 The selection of a PLP Candidate to enter into clinical
trials is to be determined in accordance with current
NOVO NORDISK guidelines for PLP Candidate selection
(Appendix 1) and will be established at the sole
discretion of NOVO NORDISK.
7.1.2 Payment of IND and NDA milestones will depend on FDA
approval of the first clinical trial and approval of
marketing authorization including all necessary
documentation, respectively.
7.1.3 Milestone events shall be applicable only to second
generation and new indication compounds and not to
back-ups. If a PLP Candidate proceeds into phase II
clinical trials (as defined by FDA NDA guidelines,
Appendix 2), this compound cannot be considered a
back-up.
7.2 Milestone Payments. NOVO NORDISK shall pay to ALANEX the
milestone payments described below within thirty (30) days after attainment of
each described milestone:
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7.2.1 For the first Program Compound selected by NOVO NORDISK
as PLP Candidate, the milestone events and payments are
the following:
- upon selection as PLP Candidate ********
- upon the first filing of an IND ********
- upon the first filing of an NDA ********
- upon the first NDA approval in the U.S. ********
7.2.2 For each subsequent Program Compound(s) selected by NOVO
NORDISK as Preclinical Lead Profile Candidate(s), the
milestone events will be the same as above under Section
7.2.1.
7.2.3 Other than as set forth in Section 4 above, this Section
7 and Section 8 below, NOVO NORDISK shall not be obliged
to pay any compensation to ALANEX for services provided
or the rights granted to NOVO NORDISK hereunder.
8. LICENSING AGREEMENT
It is anticipated that NOVO NORDISK, after completion of the relevant
research and development activities, may produce one or more drug candidates
based, inter alia, on the Results, the Research Program and/or the
Collaboration, the NOVO NORDISK Patent Rights and other intellectual property
rights, know-how and technology belonging to NOVO NORDISK. In addition hereto,
it may be necessary for NOVO NORDISK to carry out such production to have
access, and ALANEX is willing to grant such access, to know-how, trade secrets
and technology belonging to ALANEX necessary to make, have made, use, promote,
and sell one or more candidate drugs. In the event that NOVO NORDISK exercises
the option described in the immediately preceding sentence, the license
acquired shall be sublicenseable and royalty bearing. Unless otherwise agreed,
said license shall be governed by a license agreement which, in all material
respects, shall be identical to the License Agreement attached hereto as
Appendix 3.
In the event that NOVO NORDISK has included in the Research Program a
Non collaboration Product and, in such event, comes under an obligation to pay
royalties or other remuneration to a third party for having obtained the full
rights to commercialize such Non collaboration Product, *** of such royalty or
other remuneration shall be deductible from any royalty payments due to ALANEX;
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provided, however, in no event shall the royalty payable to ALANEX be reduced
by more than ***.
In the event that the Chemical Entity Data supplied by NOVO NORDISK
includes hits with a Ki value lower than one (1) mic.M, the milestone payments
provided for in Section 7 hereof and the royalty payments contemplated in this
Section 8, and the standard License Agreement attached hereto as Exhibit 3,
shall be subject to renegotiation in good faith, it being recognized by ALANEX
that NOVO NORDISK shall be granted more favorable terms in such situation based
on the additional input and know-how, thus provided by NOVO NORDISK towards the
collaboration.
9. PUBLICITY
9.1 Press Release and Required Reporting. Neither party shall make
reference to the other in a press release or any other written statement in
connection with this Agreement if it is intended for use in the public media,
except as required by the applicable law or regulation, or with the consent of
the other party (which consent shall not be unreasonably withheld).
9.2 Publications. With respect to publication of information other
than a press release, NOVO NORDISK shall have the right to submit for
publication any information concerning a NOVO NORDISK Compound. NOVO NORDISK
will include appropriate ALANEX personnel in the preparation and authorship of
all resultant publications.
9.2.1 ALANEX undertakes not to make any publications
whatsoever regarding the Results without the prior written consent of NOVO
NORDISK.
10. CONFIDENTIAL INFORMATION
10.1 Definition. In the Collaboration hereunder, it is acknowledged
that each party will disclose to the other ("Receiver") information which is
confidential and proprietary information of the disclosing party ("Discloser").
Any information provided hereunder from one party to the other which, by
nature, is confidential and proprietary information of Discloser is below
referred to as Confidential Information.
10.2 Protection. Receiver shall maintain the Confidential
Information of Discloser in confidence, and shall not disclose, divulge or
otherwise communicate such Confidential Information to others, or use it for
any purpose, except pursuant to, and in order to carry out, the terms and
objectives of this Agreement, and hereby agrees to exercise every reasonable
precaution to prevent and restrain the unauthorized disclosure of such
Confidential Information by any employees or other persons working with
Receiver.
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10.3 EXCLUSIONS. The provisions of this Section 10 shall not apply to
any information disclosed hereunder which:
10.3.1 at the time of disclosure is in the public domain;
10.3.2 after disclosure becomes part of the public domain by publication
or otherwise, except by breach of Receiver's undertakings under
this Agreement;
10.3.3 Receiver can establish by competent proof was in its possession
at the time of disclosure and was not acquired, directly or
indirectly, from Discloser;
10.3.4 Receiver can establish by competent proof was either developed by
Receiver independently of the Confidential Information received
from Discloser or received from a third party provided, however,
that such information was not obtained by said third party
directly or indirectly from Discloser; or
10.3.5 NOVO NORDISK is required to disclose to relevant authorities in
connection with its development and exploitation of a Program
Compound.
10.4 The confidentiality obligations above will be valid during the
term of this Agreement and seven (7) years thereafter.
11. USE OF PROGRAM COMPOUNDS OPTIONS OUTSIDE THE
SCOPE OF THE COLLABORATION
The terms and conditions for the use of Program Compounds Options by
NOVO NORDISK for activities other than **************** binding affinities
will be negotiated on a case by case good faith basis.
12. TERMINATION
12.1 TERM. This Agreement shall remain in full force and effect from
the Effective Date until terminated by operation of law or by acts of the
parties in accordance with the terms of this Agreement.
12.2 EARLY TERMINATION. This Agreement may be terminated:
12.2.1 by the written agreement of both parties;
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12.2.2 if ALANEX or NOVO NORDISK at any time materially defaults in
fulfilling any of their obligations required hereunder, or in the
payment of any money due hereunder, or in fulfilling any of the
other obligations or conditions hereunder, either party may waive
the default, or if electing to not waive the default, such party
shall notify the other in writing of said default and allow sixty
(60) days for the other to correct the default. If at the end of
said time period the default remains uncorrected, the aggrieved
party may terminate this Agreement by giving written notice of
termination to the other party.
12.2.3 by either party upon the insolvency of, or filing either a
voluntary petition by or an involuntary petition against (if not
dismissed within sixty (60) days after the filing) the other
party.
12.3 NOVO NORDISK ELECTION TO TERMINATE. Notwithstanding Sections 3,
10.1 and 10.2, NOVO NORDISK shall be entitled, at any time during the term of
this Agreement, at its option, to terminate the Research Program upon three
(3)months' prior written notice to ALANEX. Upon such termination of the Research
Program, the remainder of this Agreement will continue in full force and effect
until terminated in accordance with Sections 12.1 or 12.2 above. In the event
that NOVO NORDISK serves notice to ALANEX of such termination of the Research
Program during the first two and one-half years of the term to this Agreement,
NOVO NORDISK shall be liable to pay compensation to ALENEX, such compensation
shall be limited to ALANEX's reasonable, unavoidable and documented costs,
************************************. No other payments shall be due by NOVO
NORDISK to ALANEX, except for any FTE payments due up to and including the
termination date and any milestone or royalty payments which become due as a
result of NOVO NORDISK exercising the option to obtain a license in accordance
with Section-8 hereof.
12.4 EFFECT OF TERMINATION. Upon termination of this Agreement for
whatever reason, the provisions of Sections 6, 8, 9 and 10 shall remain in
force. Furthermore, any payments by NOVO NORDISK having become due as of the
effective date of the termination, shall be effected.
12.5 EXTENSION AGREEMENT. Agreement on extension is to be made no
later than nine (9) months prior to the expiration date.
13. DISPUTE RESOLUTION; VENUE AND CHOICE OF LAW
13.1 DISPUTE RESOLUTION. In the event that at any time during the term
of this Agreement a disagreement, dispute, controversy or claim should arise
out of or relating to the interpretation of or performance under this
Agreement, or the
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breach or invalidity thereof, the parties will attempt in good faith to resolve
their differences before restoring to the termination procedures provided in
Section 12 of this Agreement by submitting such dispute to the Chief Executive
Officers of the parties (or their designees) for thirty (30) days, following
which either party shall be free to invoke the arbitration contemplated by
section 13.3 and seek any remedy it may have at law or in equity including
specific performance and injunctive relief.
13.2 GOVERNING LAW. This Agreement is made in accordance with and
shall be governed and construed under the laws of the State of New York.
13.3 ARBITRATION. The English wording of this Agreement shall prevail.
The parties agree to submit to arbitration under the International Chamber of
Commerce any dispute arising from this Agreement which cannot be solved in an
amicable manner. The arbitration shall take place in New York City, New York,
and shall not include the conciliation procedure. Judgment upon the award
rendered may be entered in any court in any country for execution.
13.4 INDEMNIFICATION.
For the purpose of this Collaboration Agreement and any subsequent
License Agreement entered into according to Section 8 hereof, ALANEX hereby
represents and warrants to NOVO NORDISK that the rights granted to NOVO NORDISK
do not conflict with the rights of any third party the NOVO NORDISK's legal
position shall not be adversely affected by the rights of any third party with
whom ALANEX has entered into an agreement, including the rights of New England
Medical Center Hospitals, Inc., from whom ALANEX has licensed the *************
used by ALANEX in the course of the Research Program. ALANEX agrees to fully
indemnify and hold harmless NOVO NORDISK in the event of any such breach of
the foregoing representation, third party rights adversely affecting NOVO
NORDISK's legal position.
14. MISCELLANEOUS
14.1 WAIVER. No delay in enforcing a party's rights hereunder or any
waiver as to particular breach or default of any of the covenants or agreements
herein set forth shall be deemed a waiver as to any subsequent or similar
breach or default.
14.2 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their permitted successors and assigns;
provided, however, other than as contemplated by the Agreement, neither party
shall assign any of its rights and obligations hereunder except as incident to
the merger, consolidation, reorganization, or acquisition of stock or assets
affecting substantially all of the assets or 50% or more of the voting power of
the assigned
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party. The parties may assign their rights and/or obligations to any of the
respective Affiliates.
14.3 ADDITIONAL DOCUMENTS. Each party agrees to execute such further
papers or agreements as may be necessary to effect the purposes of this
Agreement.
14.4 NOTICES. Any notice or other communication required or permitted
to be given and to be effective on the date of delivery if delivered in person
or by facsimile or five (5) days after mailing by registered or certified mail,
postage paid, to the other party at the following address:
In the case of NOVO NORDISK:
NOVO NORDISK A/S
Novo Alle
2880 Bagsvaerd
Denmark
Executive VP Health Care Discovery &
Development
In the case of ALANEX:
ALANEX Corporation
3550 General Atomics Court
San Diego, CA 92121
Attn: Marvin Brown, M.D.
President & Chief Executive Officer
Phone: 619/455-3200
Fax: 619/455-3201
Either party may change its address for communication by a notice to the other
party in accordance with this section.
14.5 AMENDMENT. No amendment or modification hereof shall be valid or
binding upon the parties unless made in writing and signed by both parties.
14.6 FORCE MAJEURE. Any delays in performance by any party under this
Agreement (other than a party's failure to pay money to the other party) shall
not be considered a breach of this Agreement if and to the extent caused by
occurrences beyond the reasonable control of the party affected, including but
not limited to acts of God, embargoes, governmental restrictions, strikes or
other concerted acts of workers, fire, flood, explosions, riots, wars, civil
disorder, rebellion or sabotage. The party suffering such occurrences shall
immediately notify the other party and at any time for performance hereunder
shall be extended by the actual time of delay caused by the occurrence.
13
<PAGE> 14
14.7 INDEPENDENT CONTRACTORS. In making and performing this
Agreement, ALANEX and NOVO NORDISK shall at all times act as independent
contractors, and nothing contained in this Agreement shall be construed or
implied to create an agency, partnership or employer and employee relationship
between NOVO NORDISK and ALANEX. At no time shall one party make commitments or
incur any charges or expenses for or in the name of the other party.
14.8 SEVERABILITY. If any term, condition or provision of this
Agreement is held to be unenforceable for any reason, it shall, if possible, be
interpreted rather than voided, in order to achieve the intent of the parties
to this Agreement to the extent possible. In any event, all other terms,
conditions and provisions of the Agreement shall be rendered valid and
enforceable to the full extent.
14.9 CUMULATIVE RIGHTS. The rights, powers and remedies hereunder
shall be in addition to, and not in limitation of, all rights, powers and
remedies provided at law or in equity, or under any other agreement between the
parties. All of such rights, powers and remedies shall be cumulative, and may
be exercised successively or cumulatively.
14.10 ENTIRE AGREEMENT. This Agreement and any and all Exhibits
referred to herein embody the entire understanding of the parties with respect
to the subject matter hereof and supersedes all previous communications,
representations or understandings, either oral or written, between the parties
relating to the subject matter hereof.
IN WITNESS WHEREOF, both ALANEX and NOVO NORDISK have executed this
Agreement, in duplicate originals, by their respective officer hereunto duly
authorized, as of the day and year hereinabove written.
NOVO NORDISK
By: /s/ Bruce Carter By: /s/ Mads Krogsgaard Thomsen
----------------------------------- ---------------------------------
Bruce Carter Mads Krogsgaard Thomsen
Executive Vice President Corporate Vice President
ALANEX CORPORATION
By: /s/ Marvin R. Brown, M.D.
-----------------------------------
Marvin R. Brown, M.D.
President & Chief Executive Officer
14
<PAGE> 15
* CONFIDENTIAL TREATMENT REQUESTED
APPENDIX 1
PRECLINICAL LEAD PROFILE CANDIDATE (PLPc) PROPOSAL
Project title and originator:
Project aim:
Project rationale containing a short description of the scientific rationale
behind the project. The latter must include:
* Summary of the biological data in support of the therapeutic claim.
* For ************ a structure analysis of chemical structures in support of
the optimal selection.
* For ********* a justification of the suggested expression system.
Assessment of the potential commercial value of the candidate.
Assessment of the required technical abilities fit to the skills available.
Patent competitor situation.
Strategy and development plan to attain PLP approval and phase 1 clinical
studies.
Budget and resources required to attain PLP approval stage.
15
<PAGE> 16
APPENDIX 2
Phase II clinical studies shall mean open (i.e., non-blinded) and blinded
controlled clinical studies conducted in accordance with applicable FDA
standards, in which patients with diabetes are administered a development
compound for the purpose of evaluating initial safety and efficacy and which
involve a cumulative total of approximately 300 patients.
16
<PAGE> 17
APPENDIX 3
to Collaboration Agreement dated October 31, 1995, between ALANEX Corporation
and NOVO NORDISK A/S.
LICENSE AGREEMENT
This License Agreement (hereinafter referred to as the Agreement) is entered
into between
NOVO NORDISK A/S
Novo Alle
DK-2880 Bagsvaerd
Denmark
(hereinafter referred to as the Licensee)
and
ALANEX Corporation
3550 General Atomics Court
San Diego, CA 92121
USA
(hereinafter referred to as the Licensor)
WITNESSETH:
WHEREAS Licensor is the owner of certain patent rights (hereinafter referred to
as the ALANEX Patent Rights);
WHEREAS Licensee has exercised its option under Section 8 of the Collaboration
Agreement dated October 31, 1995, between the parties hereto (hereinafter
referred to as the Collaboration Agreement) and Licensee desires to obtain a
license under the ALANEX Patent Rights and certain know-how related to the
research performed under the Collaboration Agreement;
NOW, THEREFORE the parties agree as follows:
1. DEFINITIONS
1.1 ALANEX PATENT RIGHTS" shall mean the patents described in
Exhibit 1 attached hereto. (Exhibit 1 to be completed upon exercise of the
option set forth in Section 8 of the Collaboration Agreement. Patents to be
listed shall be patents
1
<PAGE> 18
covering Program Compounds and any other Results discovered through research
funded under the Collaboration Agreement.)
1.2 "PATENTS" shall mean patents and patent applications of all
countries including, but not limited to, additions, divisions, continuations,
continuations-in-part, amendments, amalgamations and reissues of such
applications or patents thereof or therefor, and extensions and renewals of all
such patents or patent applications in whatsoever legal form or by whatsoever
legal title they are granted.
1.3 "AFFILIATE" used in connection with any of the parties to this
Agreement shall, unless otherwise specifically indicated, mean any corporation
or other entity controlled by or controlling the party mentioned, or being under
the common control with the party mentioned, directly or indirectly, through
stock-ownership, or otherwise. "Control" shall mean the ownership of more than
fifty percent (50%) of the outstanding equity or voting interests in such
entity.
1.4 "LICENSED PRODUCT" shall mean any product which is comprised of
a Compound.
1.5 "COMPOUND" shall mean any Program Compound (as defined in the
Collaboration Agreement) or Candidate Drug (as defined in the Collaboration
Agreement).
1.6 "SALE" shall mean a transfer of title in Licensed Product for
money or other consideration from Licensor to a third party not being an
Affiliate of Licensor or from a sub-licensee of Licensor to others than
Licensor or Affiliates thereof.
1.7 "NET PROCEEDS OF SALE" shall mean Licensor's, its Affiliates'
and sub-licensees' gross receipts from the Sale of Licensed Product, less the
sum of trade and quantity rebates, allowances for return of goods, value added
taxes, transport cost and insurance, all to the extent stated on the invoice
and actually paid or allowed. It is understood that, in the case of sale or
combined products or bundling, only the part of the selling price which can
reasonably be allocated towards the Licensed Product itself shall be included
in the Net Proceeds of Sale.
1.8 "TERRITORY" shall mean the entire world.
2. LICENSING OF PATENT RIGHTS AND TECHNOLOGY
2.1 Licensor grants to Licensee the exclusive right and license
under the ALANEX Patent Rights and any related know-how to make, have made, use
or sell Licensed Product within the Territory.
2
<PAGE> 19
* CONFIDENTIAL TREATMENT REQUESTED
The license granted herein shall, subject to third party rights,
include all improvements made by Licensor during the term hereof in the method
of manufacture or administration of Licensed Product.
2.2 Licensor grants to licensee and its Affiliates the unrestricted
right to sub-license any portion or all of the ALANEX Patent Rights and the
related know-how to make, have made, use or sell Licensed Product within the
Territory; provided that prior notice shall be given to Licensor. Licensee
shall remain primarily liable for the performance of such sub-licensees. Each
sub-licensee shall enter into a written sub-license agreement having the same
obligations towards Licensor as those provided for herein.
3. MILESTONE PAYMENTS
3.1 NOVO NORDISK's obligation to make milestone payments in accordance
with Section 7 of the Collaboration Agreement shall not be waived or otherwise
affected by entering into this Agreement.
4. ROYALTIES AND PAYMENT TERMS
4.1 Licensee will pay Licensor a royalty for the Sale of Licensed
Product at a royalty rate based on the amount of Net Proceeds of Sale, according
to the following schedule:
Annual Net Proceeds of Sale Royalty rate applicable to Sales
in described interval
***************** ***
******************** ***
******************** ***
******************** ***
4.2 Only one royalty shall be paid under this Agreement for each
Licensed Product, regardless of the number of claims of patents or patent
applications applicable thereto or the number of Sales of the same Licensed
Product by Licensee or any sublicensee of Licensee.
4.3 While Licensee will have the right to conduct Sales through
Affiliates and sub-licensees, Licensee shall be responsible for the payment of
all royalties and the performance of all other obligations hereunder for such
Sales.
4.4 In the event of the grant of one or more compulsory licenses in a
country in the Territory to a third party under any Patent included in the
ALANEX Patent Rights for a specific Licensed Product, the applicable royalty
rate as provided in Section 4.1 will be reduced by the same royalty payable by
that
3
<PAGE> 20
*CONFIDENTIAL TREATMENT REQUESTED
third party in respect of the sale and manufacture of the specific Licensed
Product in that country of the Territory.
4.5 All royalties and other payments due hereunder shall be paid in
U.S. Dollars. All royalties and other payments due hereunder shall be originated
from a bank located in the U.S.A. and shall be made by bank wire transfer in
immediately available funds to such account as Licensor shall designate before
such payment is due. If at any time legal restrictions in any country in the
Territory prevent the prompt remittance in the manner set forth in this Section
4.5 of part or all royalties owning with respect to Sales of Licensed Product in
such country, then the parties shall meet and mutually determine a lawful manner
of remitting the restricted part of such royalty payment so long as such legal
restrictions exit.
4.6 With respect to Sales of Licensed Product invoiced in a currency
other than U.S. Dollars the Net Proceeds of Sales of licensed Product and the
royalties payable shall be calculated using the average closing buying rate for
such currency quoted in the continental terms method of quoting exchange rates
by the European version of the Wall Street Journal, or, in the absence of quoted
exchange rates from the European version of the Wall Street Journal, a
comparable bank or financial institution, on each of the last business days of
each month in the quarter prior to the date of payment.
4.7 If required to do so by law, Licensee may withhold from royalty
payments due to Licensor any withholding or similar taxes required to be
withheld or collected on behalf of Licensor, provided that any such deductions
for the payment of such taxes are supported by duly executed receipts.
4.8 NOVO NORDISK shall be entitled to deduct any milestone payments
made in respect of the relevant Program Compound from any royalties due
hereunder for the sale of the corresponding Licensed Products, it being
understood, however, that NOVO NORDISK shall in the event be allowed to
withhold more than **************** of the royalty amount otherwise due.
5. RECORD KEEPING PAYMENT AND REPORTS
5.1 Licensee shall keep a complete and correct account of the
amounts sold and Net Proceeds of Sale of Licensed Product, and shall be
obliged to keep such account for three (3) years after the year of making of a
royalty payment as provided in Article 5.2.
5.2 Licensee shall within sixty (60) days after the end of each
calendar quarter send to Licensor a written statement, certified by an
authorized officer of Licensee showing Net Proceeds of Sales of Licensed
Product, the deductions used to calculate such amount, withholding taxes, if
any, required by law to be deducted in respect of such sales, and the applicable
currency exchange
4
<PAGE> 21
* CONFIDENTIAL TREATMENT REQUESTED
calculations. Such statements shall be accompanied by a payment of the total
amount of royalty then due. If no royalty is due, licensee shall nevertheless
render a statement to reflect such fact. Licensee shall also furnish such
additional information as Licensor may reasonably request from time to time to
assure that the proper royalty amount was paid.
5.3 Not more than once in a calendar year, at Licensor's request
and cost, Licensee agrees to allow Licensor's independent auditors to audit the
relevant books and records of Licensee relating to the Net Proceeds of Sale and
the determination of the royalty; provided, however, if any such audit reflects
a discrepancy of greater than 5% in the amount of royalties payable, Licensee
shall bear the cost of such audit.
6. WARRANTIES
6.1 Licensor represents and warrants that, to the best of its
knowledge, upon due investigation, as of the effective date of this Agreement:
6.1.1 it is the sole owner of the entire right, title and
interest in the ALANEX patent Rights and related know-how
and has the right to enter into this Agreement;
6.1.2 there are no administrative or judicial proceedings
contesting the inventorship, ownership, validity of
enforceability of any element of ALANEX patent Rights;
and
6.1.3 except as provided under or in connection with the
Collaboration Agreement, it has granted no prior license
or assignment of the ALANEX Patent Rights and the related
know-how within the Territory.
7. PAID-UP LICENSE
7.1 Licensee's obligation to pay royalties under Section 4.1 shall
cease and this Agreement will remain in effect as a paid-up, non-exclusive,
royalty-free license of the ALANEX Patent Rights and related know-how to make,
have made, use and sell the Licensed Product in a country covered by the
Territory upon the date of the (i) expiration of the last of any Patent (product
patents only) belonging to NOVO NORDISK in that country, or (ii) twelve (12)
years after the first commercial sale (i.e., after all required regulatory and
pricing approvals) of the Licensed Product in such country. If the applicable
ALANEX Patent Rights expire before the end of such twelve (12) years, royalties
payable under Section 4.1 shall be reduced by **************************,
provided that if material generic competition should develop for the Licensed
Product, the royalty rate shall be further reduced by another
************************** on a country-by-country basis.
5
<PAGE> 22
* CONFIDENTIAL TREATMENT REQUESTED
8. TERMINATION
8.1 If Licensee or Licensor at any time materially defaults in
rendering any of the reports required hereunder, or in the payment of any money
due hereunder or in fulfilling any of the other obligations or conditions
hereunder, either party may waive the default, or if electing not to waive the
default, such party shall notify the other in writing of said default and allow
sixty (60) days (or thirty (30) days in the case of non-payment) for the other
to correct the default. If at the end of said time period the default remains
uncorrected, the aggrieved party may terminate this Agreement and any licenses
granted thereunder by giving written notice of termination to the other party.
Upon the giving of such notice, this Agreement and any licenses granted
hereunder shall terminate immediately.
8.2 Licensee shall have the right to terminate this Agreement at any
time upon giving Licensor sixty (60) days' written notice. Licensee shall upon
such termination becoming effective pay to Licensor all royalties accrued prior
to such termination date.
9. LITIGATION
9.1 If any judgment holds claims of the ALANEX Patent Rights covering
such licensed Product, its use or manufacture unenforceable or invalid (whether
or not such judgment is further reviewable), any royalties which are due to be
paid to Licensor after the date of judgment under Section 4.1 shall be reduced
by ***********************; provided that if material generic competition
should develop for the Licensed Product, the royalty rate shall be further
reduced by another ***********************, on a country-by-country basis. In
the event that the validity or enforceability of the claims is reinstated, the
full royalty rate or amount specified in Section 4.1 shall be restored and
Licensee will pay Licensor the difference between the full and reduced royalty,
plus *************** annual interest, for the period when the reduced royalty
rate was in effect.
9.2 Licensor agrees to notify Licensee in writing if the validity,
infringement or priority of invention of any of the ALANEX Patent Rights is put
in issue by any person.
9.3 Upon learning of any infringement of the ALANEX Patent Rights,
Licensee will promptly discuss the matter with Licensor. If such infringement
is likely to materially and adversely affect the sale of the Licensed Product,
Licensee shall have the right at any time upon written notice to Licensor to
take whatever action Licensee in its reasonable discretion deems appropriate,
including appropriate court action, to terminate the infringement or to enter
into a settlement agreement with the infringing party or parties. Such action
shall include the defense of any action in which the validity or infringement
of the
6
<PAGE> 23
ALANEX Patent Rights is placed in issue by a third party, e.g. by way of a
declaratory judgment action. Any such action or defense shall be under the sole
control of Licensee at Licensee's expense and with counsel of Licensee's
choosing and of whom Licensor does not reasonably object. Licensor shall have
the right to participate in such proceedings and to share equally all costs.
Licensor shall also be entitled to have a counsel of its choice observe the
progress of such action. Licensor agrees to cooperate fully with licensee and
provide Licensee with any assistance that Licensee might require in said action
(at Licensee's expense, as regards out-of-pocket expenses) including joining
with Licensee as a named party in any law suit in which licensee may become
involved in its efforts to terminate the infringement or confirm the validity
of the ALANEX Patent Rights. If Licensee does not elect within sixty (60) days
after such notice to so control the defense of such suit, Licensor may
undertake such control at its own expense, and Licensee shall then have the
right to be represented by advisory counsel of its own selection and at its own
expense, and Licensee shall cooperate fully with Licensor and provide Licensor
with any assistance that Licensor might require in said action.
9.4 After deduction of all legal fees and expenses of either party, any
sums received by Licensee, if Licensee controlled the suit, as damages or
settlement for infringement shall be shared equally if Licensor participated in
such proceedings (and shared the legal costs); otherwise, Licensee shall retain
fifty percent (50%) of such net recovery. If licensee does not elect to control
the defense of any suit as provided in Section 9.3 above, the Licensor
undertakes such control, Licensor shall retain such net recovery.
10. CONFIDENTIALITY
10.1 In consideration of disclosure by either of the parties to the
other party of confidential information in written or oral form or in the form
of samples, the recipient and the recipient's Affiliates undertake for a period
of ten (10) years from the date of disclosure to treat received information as
strictly secret and therefore not to disclose it to any third party (except
reliable employees, sub-licensees and Affiliates under similar secrecy
obligations), and to make no commercial use of it except for the purposes of
this Agreement. This obligation does not apply to:
10.1.1 information which, at the time of disclosure, is already
in the public domain;
10.1.2 information which, after disclosure, becomes a part of
the public domain by publication through no violation of this Agreement;
10.1.3 information which the recipient is able to prove to have
been in possession of prior to any disclosure; or
7
<PAGE> 24
10.1.4 information which is hereafter lawfully disclosed by a
third party to the recipient, which third party did not acquire the information
under a still effective secrecy obligation.
11. NOTICES
11.1 All notices required or provided for use in this Agreement shall be
in writing and shall be given by telefax or certified mail prepaid and properly
addressed to the address of the party to be served as shown below. Notice shall
be effective upon the date on which such notice was dispatched. Reports under
Section 5.2 shall not be considered notices.
If to ALANEX: ALANEX CORPORATION
3550 General Atomics Court
San Diego, CA 92121
U.S.A.
Telefax:619/445-3201
If to NOVO NORDISK: NOVO NORDISK A/S
Novo Alle
DK-2880 Bagsvaerd
Denmark
Telefax: +45
12. FORCE MAJEURE
12.1 Each of the parties hereto shall be excused from the performance
of its obligations (other than the obligation to pay monies due) and shall not
be liable for damages to the other in the event that such performance is
prevented by circumstances beyond its effective control. Such excuse from
performance shall continue for so long as the condition responsible for such
excuse continues and for a thirty (30) day period thereafter. For the purposes
of this Agreement, circumstances beyond the control of a party which excuse
that party from performance shall include, but not limited to, acts of God,
acts, regulations or laws of any government, injunction or judgment of any
court, war, civil commotion, destruction of facility or materials by fire,
earthquake, storm or other casualty, labor disturbances, epidemic and failure
of public utilities or common carrier.
13. MISCELLANEOUS
13.1 This Agreement shall be construed and interpreted in accordance
with the laws of the State of New York. The English wording of this Agreement
shall prevail. The parties agree to submit to arbitration under the
International Chamber of Commerce any dispute arising from this Agreement which
cannot
8
<PAGE> 25
be solved in an amicable manner. The arbitration shall take place in New York
City, New York, and shall not include the conciliation procedure. Judgment upon
the award rendered may be entered in any court in any country for execution.
13.2 Both parties hereto agree that it is not the intention to
violate any public policy, statutory or common laws. However, if any sentence,
paragraph, clause or combination of the same is in violation of any state or
federal law or is found to be otherwise unenforceable by a court from which
there is no appeal, or no appeal is taken, such sentences, paragraphs, clauses
or combinations of the same shall be deleted and the remainder of this
Agreement shall remain binding.
13.3 This Agreement and the covenants herein contained shall be
binding and inure to the benefit of the parties hereto and their heirs,
assigns, successors and legal representatives. Except as otherwise provided
herein, this Agreement shall not be assignable.
13.4 This Agreement constitutes the entire understanding between the
parties with respect to the subject matter hereof and shall, except for the
Collaboration Agreement, supersede all previous communications,
representations, understandings and agreements, either oral or written, between
the parties with respect to the subject matter of this Agreement. This
Agreement may be amended or modified only by a written instrument executed by
all of the parties hereto.
13.5 The paragraph headings contained herein are for reference only;
they are not a part of this Agreement nor shall they in any way affect the
interpretation thereof.
13.6 The express or implied waiver by either party of a breach of any
provision of this Agreement shall not constitute a continuing waiver of other
breaches of the same or other provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have affixed their authorized signatures
as of the date given.
Bagsvaerd, 1995 San Diego, 1995
NOVO NORDISK A/S ALANEX CORPORATION
- ------------------------------------ ----------------------------------------
By: By:
9
<PAGE> 26
* Confidential Treatment Requested
Addendum
- --------
HEALTH CARE CHEMISTRY [NOVO NORDISK LETTERHEAD]
Dr. Marvin Brown, President and Executive Officer
Alanex Corporation
3550 General Atomics Court
San Diego, CA 92121
U.S.A.
Addition to Section 4.3: Funding Commitment Modification
in the Collaboration Agreement between Alanex Corporation and Novo Nordisk.
As proposed by Novo Nordisk and accepted by Alanex ********* additional FTE's
will be added per July 1, 1996 by Alanex to the Research Program re.
characterization of novel non-peptide ligands with desired ********************
receptor ligand binding affinity.
The FTE Rate for the Additional FTE's shall follow the FTE Rate in the
Research Agreement.
The number of the Additional FTE's can be modified by the Steering Committee.
Which FTE's will be added to the Research Program is based on the decision of
the Steering Committee.
<PAGE> 27
* Confidential Treatment Requested
2.
As both the **************************************** project has entered a
stage that requires more medicinal chemistry effort and the increased number of
active compounds demands a larger capability in pharmacology the Steering
Committee has decided to add ****** medicinal chemist and ***************** to
the Research Program per July 1, 1996.
Bagsvaerd, 1996 San Diego, 1996
NOVO NORDISK A/S ALANEX CORPORATION
/s/ M. V. THOMSEN /s/ MARVIN R. BROWN
- -------------------------------- --------------------------------
By: M. V. Thomsen By: Marvin R. Brown
Corporate Vice President President & CEO
<PAGE> 1
EXHIBIT 10.15
CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4), 200.83
AND 230.406 * INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL
TREATMENT REQUEST THAT IS FILED SEPARATELY WITH THE COMMISSION
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
BETWEEN
ROCHE BIOSCIENCE
AND
ALANEX CORPORATION
JUNE 27, 1996
<PAGE> 2
*CONFIDENTIAL TREATMENT REQUESTED
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
THIS AGREEMENT is entered into on June 27, 1996 (the "Effective Date"),
by the between ROCHE BIOSCIENCE, a division of Syntex (U.S.A.) Inc., a Delaware
corporation, having offices at 3400 Hillview Avenue, Mail Stop R7-101, Palo
Alto, California 94303 ("Roche Bioscience"), and ALANEX CORPORATION, a
California corporation having offices at 3550 General Atomics Court, San Diego,
California 92121 ("Alanex"). Roche and Alanex may be referred to herein as a
"Party" or, collectively, as "Parties."
WHEREAS, Alanex has developed and owns certain drug discovery
technology and intellectual property rights, including feature extraction and
chemical library design software, combinatorial organic synthesis methods, high
throughput biological screening assays and medicinal chemistry;
WHEREAS, Roche Bioscience, together with its Affiliates, has
substantial experience in the pre-clinical and clinical development of
therapeutic agents and the distribution, marketing and sale of such agents as
pharmaceuticals;
WHEREAS, the Parties desire to engage in collaborative research
regarding a drug discovery and optimization program intended to discover or
identify small molecule antagonists of ***** that have potential for being
developed as therapeutic drugs, as generally described in the Research Plan (as
defined below);
WHEREAS, if the research collaboration is successful, the resulting
compounds may have application in the therapeutic treatment of diseases in
humans; and
WHEREAS, Roche Bioscience and Alanex are interested in entering into a
collaborative research and licensing arrangement under which Roche Bioscience
shall develop and commercialize certain selected compounds resulting from such
research.
NOW, THEREFORE, the Parties agree as follows:
SECTION 1 DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1 "Affiliate" means an individual, trust, business trust, joint
venture, partnership, corporation, association or any other entity which owns,
is owned by or is under common ownership with a Party. For the purposes of this
definition, the term "owns" (including, with correlative meanings, the terms
"owned by" and "under common ownership with") as used with respect to any
Party, shall mean the possession (directly or indirectly) of at least 51% of
the outstanding voting securities of a corporation or comparable equity
interest in any other type of entity; provided, however, Genentech, Inc., with
offices located at 460 Point San Bruno Boulevard, South San Francisco,
California, 94080, shall not be considered an Affiliate of Roche Bioscience.
1
<PAGE> 3
*CONFIDENTIAL TREATMENT REQUESTED
1.2 "Agreement" means the present agreement together with all
appendices and schedules.
1.3 "Alanex Discovery Technology" means Alanex's proprietary drug
discovery technology, pharmacophore directed parallel synthesis, including
AlaSyn)(TM) for parallel organic chemical synthesis, LiBrain(TM) for design of
exploratory and targeted chemical libraries, and Alanet(TM) for pharmacophore
hypothesis generation.
1.4 "Alanex Compound" means any Compound that is synthesized by
Alanex at the direction of the Research Management Committee during the
Research Term and within the scope of the Research Plan.
1.5 "Alanex Know-How" means Know-How which (a) Alanex or an Alanex
Affiliate discloses to Roche Bioscience under this Agreement and (b) is at the
Effective Date or during the Research Term within the control of Alanex or an
Alanex Affiliate.
1.6 "Alanex Compound Patent Rights" means all Patent Rights
Controlled by Alanex or an Affiliate of Alanex necessary or appropriate for the
full exploitation of the Field, where such Patent Rights cover (a) Inventions
related to the Alanex Compounds made by employees or agents of Alanex or an
Affiliate of Alanex after the Effective Date and prior to the end of the
Research Term in connection with activities conducted pursuant to the Research
Plan, or (b) any such Inventions which come under the Control of Alanex or its
Affiliates after the Effective Date and prior to the end of the Research Term.
1.7 "Collaboration" means the activities, rights and obligations of
Alanex and Roche Bioscience encompassed in their relationship in accordance
with the terms and conditions of the Research Plan.
1.8 "Compound" means any compound or agent that exhibits a binding
affinity to a molecular target equal to a pKi of seven (7) or greater
targeted at the ***** receptor, the *** receptors (if the option is
exercised in accordance with Section 5.2 hereof) or any replacement target
substituted for ***** pursuant to Section 2.3 hereof.
1.9 "Confidential Information" means all information and materials
received by either Party from the other Party pursuant to this Agreement and
all information and materials developed in the course of the Collaboration,
including, without limitation, Know-How of each Party.
1.10 "Control" means possession of the ability to grant a license or
sublicense as provided for herein without violating the terms of any agreement
with or other arrangement with any Third Party.
1.11 "FDA" means the United States Food and Drug Administration.
1.12 "Field" means the use of any Compound for the therapeutic
treatment (including prophylactic treatment) of diseases and disorders in
humans.
2
<PAGE> 4
*CONFIDENTIAL TREATMENT REQUESTED
1.13 "FIRST COMMERCIAL SALE" of a Product shall mean the first sale
for use or consumption of such Product in a country after required marketing
and pricing approval has been granted by the governing health regulatory
authority of such country. Sale to an Affiliate or sublicensee shall not
constitute a First Commercial Sale unless the Affiliate or sublicensee is the
end user of the Product.
1.14 "FTE" means one full time-equivalent qualified scientist.
1.15 "INVENTION" means any discovery or invention made during the
course of the Research and within the scope of the Research Plan.
1.16 "KNOW-HOW" means techniques, data, materials and chemicals
relating to the Field, including, without limitation, inventions, techniques,
practices, methods, knowledge, know-how, skill, experience, test data,
including pharmacological, toxicological and clinical marketing, sales and
manufacturing data.
1.17 "LEAD-COMPOUND" means any Roche Bioscience Compound or
Alanex Compound which compound (i) satisfies the Preclinical Development
Criteria and (ii) is selected for development by Roche Bioscience pursuant to
Section 6.1.
1.18 "LEAD COMPOUND PATENT RIGHTS" means all Patent Rights necessary or
appropriate for the full exploitation of the Lead Compound.
1.19 "MAJOR EUROPEAN COUNTRY" means Germany, France, United Kingdom,
Italy, or Spain.
1.20 "NDA" means a New Drug Application or Product License
Application, as appropriate, and all supplements filed pursuant to the
requirements of the FDA, including all documents, data and other information
concerning Products which are necessary for or included in FDA approval to
market a Product, or the equivalent application in any other country.
1.21 "Net Sales"*****************************************************
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1.22 **************** means sub-type selective peptidic and
non-peptidic antagonists and agonists to ************* that have been
identified by Alanex or are in the public domain and are available through
Alanex.
1.23 "PATENT" means (i) valid and enforceable Letters Patent,
including any extension (including Supplemental Protection Certificate),
registration, confirmation, reissue, continuation, divisionals,
continuation-in-part, reexamination or renewal thereof, and (ii) pending
applications for any of the foregoing.
1.24 "PATENT PROTECTED" means that a Product is covered by a Valid
Claim of Roche Bioscience Patent Rights or the Alanex Compound Patent Rights
with respect to such Product.
1.25 "PATENT RIGHTS" means all rights existing during or after the
term of this Agreement under (a) patents (including inventor's certificates)
that include one or more Valid Claims, including without limitation any
substitution, extension, registration, confirmation, reissue, re-examination,
renewal or the like and (b) pending applications for patents, including without
limitation any continuation, division or continuation-in-part thereof and any
provisional applications.
1.26 "PATENT COSTS" means the fees and expenses paid to outside
legal counsel and other Third Parties, and filing, prosecution and maintenance
expenses, incurred in connection with the establishment and maintenance of
rights under Patents.
1.27 "PHASE I" means that portion of the clinical development
program which generally provides for the first introduction into humans of a
product with the primary purpose of determining safety, metabolism and
pharmacokinetic properties and clinical pharmacology of the product, as more
closely defined by the rules and regulations of the FDA and corresponding rules
and regulations in other Major European Countries or Japan.
1.28 "PHASE II" means that portion of the clinical development
program which provides for the initial trials of a product on a limited number
of patients for the primary purpose of evaluating safety, dose ranging and
efficacy in the proposed therapeutic indication, as more closely defined by the
rules and regulations of the FDA and corresponding rules and regulations in
other Major European Countries or Japan.
1.29 "PHASE III" means that portion of the clinical development
program which provides for the continued trials of a product on sufficient
numbers of patients to establish the safety and efficacy of a product for the
desired claims and indications, as more closely defined by the rules and
regulations of the FDA and corresponding rules and regulations in other Major
European Countries or Japan.
1.30 "PRECLINICAL DEVELOPMENT" means the preclinical investigations
and other work performed on a Lead Compound necessary to generate the data
required to initiate clinical development, commencing at such time as the Lead
Compound has been recommended for such preclinical development by the Research
Management Committee and approved by Roche Bioscience.
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1.31 "PRECLINICAL DEVELOPMENT CRITERIA" means the preclinical
development criteria set forth in Appendix A.
1.32 "PRODUCT" means any form or dosage of an Alanex Compound or a
Roche Bioscience Compound discovered or identified using the Alanex Discovery
Technology during the course of this Collaboration or the manufacture, use or
sale of which is otherwise covered by one or more of Alanex Compound Patent
Rights and Alanex Know-How. Without limiting the foregoing, Product includes
any analog of an Alanex Compound or Roche Bioscience Compound or any derivative
compound developed from such compound using the Alanex Discovery Technology.
1.33 "RESEARCH" means all work performed by Alanex and Roche Bioscience
in the Field during the Research Term directed toward or in connection with the
discovery, identification, synthesis and investigation of Compounds in
accordance with the Research Plan.
1.34 "RESEARCH MANAGEMENT COMMITTEE" means a committee of Alanex and
Roche Bioscience employees as described in Section 3 below.
1.35 "RESEARCH TERM" means the period commencing on the first of the
month following the Effective Date and ending on the third anniversary of such
commencement date, subject to extension as contemplated by Section 2.4 and
subject to early termination in accordance with Section 13.
1.36 "ROCHE BIOSCIENCE COMPOUND" means any Compound that is identified
by Roche Bioscience prior to the Effective Date and is part of the Research.
Roche Bioscience Compounds shall be listed on Schedule I and such Schedule I
shall be updated from time to time.
1.37 "ROCHE BIOSCIENCE KNOW-HOW" means Know-How which (a) Roche
Bioscience discloses to Alanex under this Agreement, and (b) is at the
Effective Date or during the Research Term within the Control of Roche
Bioscience; provided, however, that Roche Bioscience Know-How shall not include
Know-How of Affiliates of Roche Bioscience or under the Control of Affiliates
of Roche Bioscience.
1.38 "ROCHE BIOSCIENCE PATENT RIGHTS" means all Patent Rights
Controlled by Roche Bioscience necessary or appropriate for the full
exploitation of the Field, where such Patent Rights cover (a) inventions made
prior to the Effective Date of this Agreement, (b) inventions made solely by
employees or agents of Roche Bioscience after the Effective Date and prior to
the end of the Research Term, or (c) inventions which come under the Control of
Roche Bioscience after the Effective Date and prior to the end of the Research
Term; provided, however, that Roche Bioscience Patent Rights shall not include
Patent Rights of Affiliates of Roche Bioscience or under the Control of
Affiliates of Roche Bioscience. A list of the Roche Bioscience Patent Rights as
of the Effective Date is set forth on Schedule III.
1.39 "ROYALTY TERM" means, in the case of any Product, in any country,
the period of time commencing on the First Commercial Sale and ending upon the
later of (a) ten (10)
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***** from the date of First Commercial Sale in such country; or (b) the
expiration of the last to expire of the rights included in the Roche Patent
Rights or the Alanex Compound Patent Rights covering such Products in such
country.
1.40 "THIRD PARTY" means any entity other than Alanex or Roche
Bioscience or an Affiliate or sublicensee of Alanex or Roche Bioscience.
1.41 "VALID CLAIM" means a claim of an issued patent which claim has
not lapsed, been canceled or become abandoned and has not been declared invalid
by an unreversed and unappealable decision or judgment of a court or other
appropriate body of competent jurisdiction, and which has not been admitted to
be invalid or unenforceable through reissue or disclaimer.
SECTION 2 RESEARCH COLLABORATION
2.1 SCOPE OF COLLABORATION. Roche Bioscience and Alanex will conduct
the Research on a collaborative basis with the goal of identifying Compounds
which are subsequently characterized as Lead Compounds that are suitable for
development into Products for commercialization.
2.2 EXCLUSIVITY. During the Research Term, neither Alanex nor its
Affiliates shall conduct or fund or enter into any agreement with any
sublicensee or Third Party which provides for the conduct or funding of
research, development or commercialization of products directed toward the
Field except pursuant to the terms of this Agreement. During the Research Term,
Roche Bioscience shall not enter into any agreement with a Third Party which
provides for the conducting or funding of any research involving the
application of combinatorial chemistry technologies with the objective of
identifying a lead compound which has its primary mechanism of action through
binding to the *************** (or any replacement target substituted for
******* pursuant to Section 2.3 hereof). If the **** option described in Section
5.2 is exercised by Roche Bioscience, the provisions set forth in this Section
2.2 shall be deemed amended to include the *******. Nothing herein shall
limit the ability of the Parties to enter into agreements with contract
research organizations, academic institutions, and similar entities for the
performance of Research activities in the ordinary course of their respective
businesses.
2.3 TARGET SUBSTITUTION. At any time during the Research Term, the
definition of Compound may be amended upon mutual written agreement of the
Parties to provide for the substitution of a new molecular target.
2.4 EXTENSION OF RESEARCH TERM. The Research Term shall commence on
the first of the month following the Effective Date and shall continue at least
until the third anniversary of the Effective Date. Not fewer than 180 days
prior to the third anniversary of the Effective Date, each Party shall inform
the other whether it wishes to continue the Research. If both Parties wish to
continue the Research, the Parties shall negotiate in good faith during such
180-day period in order to define mutually acceptable terms for an extension of
the Research Period. If the Parties are unable to agree upon mutually agreeable
terms for
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an extension of the Research Period, such failure to agree shall not be
considered a breach of the terms of this Agreement and the Research Term shall
not be extended.
SECTION 3 RESEARCH MANAGEMENT COMMITTEE
3.1 Formation of Research Management Committee. The Research will be
managed by the Research Management Committee comprised of an equal number of
members appointed by each of Roche Bioscience and Alanex; provided that the
size of the Research Management Committee shall not exceed a total of eight
members. Either Party may appoint substitute or replacement members of the
Research Management Committee to serve as their representatives. The initial
members of the Research Management Committee will be appointed by the Parties
within 30 days following the Effective Date. The Research Management Committee
shall have the responsibility and authority to: (a) plan and monitor the
Research, (b) assign tasks and responsibilities under the Research Plan to
Alanex and Roche Bioscience, respectively, subject to the terms and conditions
of this Agreement which may not be amended except in accordance with Section
16.11 hereof (c) review and modify the Research Plan, as it shall deem
appropriate to achieve the Parties' objectives under this Agreement, subject to
the terms and conditions of this Agreement which may not be amended except in
accordance with Section 16.11 hereof (d) review data related to Compounds to
evaluate whether such Compounds satisfy the Preclinical Development Criteria,
and (e) recommend Compounds to Roche Bioscience for selection as Lead
Compounds. Notwithstanding the provisions of this Section 3.1, the Research
Management Committee shall not have the authority to amend the Preclinical
Development Criteria.
3.2 Meetings of Research Management Committee. The Research Management
Committee will initially meet at least three times per year at locations and
times to be determined by the Research Management Committee, with the intent of
meeting at alternating locations in San Diego, California and Palo Alto,
California, with each Party to bear all travel and related costs for its
members.
3.3 Decision-Making Process. All decisions made or actions taken by
the Research Management Committee will be made unanimously by its members with
the Alanex members cumulatively having one vote and the Roche Bioscience
members cumulatively having one vote. Any disagreement which cannot be resolved
by the vote of the Research Management Committee shall be referred to the
appropriate officers of Alanex and Roche Bioscience for resolution under
Section 15.2. If a disagreement is still unresolved, Roche Bioscience shall make
the final decision in its sole discretion. It is the intent of the Parties to
resolve issues through the Research Management Committee whenever possible and
to refer issues to the officers of Alanex and Roche Bioscience only when
resolution through the Research Management Committee cannot be achieved.
SECTION 4 CONDUCT OF RESEARCH
4.1 Research. The Parties agree that the Research shall be conducted
in accordance with the initial Research Plan attached hereto as Exhibit A, as
such Research Plan
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may be amended from time to time in writing by the Research Management
Committee. The Parties currently expect that, under the Research Plan, Alanex
will have primary responsibility for Research relating to the identification of
Compounds and Lead Compounds, and that Roche Bioscience will have primary
responsibility for the pre-clinical development of all Lead Compounds.
4.2 RESEARCH EFFORTS. Each Party shall use commercially reasonable
and diligent efforts (as defined below) to perform its responsibilities under
the Research Plan. In particular, Roche Bioscience will provide Research funding
to Alanex pursuant to Section 8.1 to support at Alanex a minimum of ***********
in Year 1, ************ in Year 2, and ********** in Year 3, all in
accordance with the Research Plan. In addition, Roche Bioscience shall have the
option to increase the number of FTEs in a given year to up to ****** for such
year, upon reasonable notice to Alanex. Except as expressly provided in Section
8.1, or as agreed from time to time by the Parties, each of Roche Bioscience and
Alanex will bear all of its own expenses incurred in connection with the
Research. As used herein, the term "commercially reasonable and diligent
efforts" will mean, unless the Parties agree otherwise, those efforts consistent
with the exercise of prudent scientific and business judgment, as applied to
other products of similar scientific and commercial potential within the
relevant product lines of Roche Bioscience and its Affiliates.
4.3 AVAILABILITY OF RESOURCES. Each Party will maintain laboratories,
offices and all other facilities necessary to carry out the Research. Each
Party agrees to make its employees and non-employee consultants reasonably
available at their respective places of employment to consult with the other
Party on issues arising during the Collaboration and in connection with any
request from any regulatory agency, including, without limitation, regulatory,
scientific, technical and clinical testing issues. Representatives of Alanex
and Roche Bioscience may, upon reasonable notice and at times reasonably
acceptable to the other Party (a) visit the facilities where the Collaboration
is being conducted; and (b) consult informally, during such visits and by
telephone and electronic mail, with personnel of the other Party performing
work on the Collaboration.
4.4 DISCLOSURE; REPORTS. During the Research Term, Roche Bioscience
and Alanex will make available and, upon request, disclose to each other all
Know-How regarding Compounds discovered or synthesized by Roche Bioscience or
Alanex in the course of the Collaboration for use in accordance with this
Agreement. All such Know-How which is significant will be disclosed to the
other Party promptly after it is learned or its significance is appreciated.
Each Party will make summary presentations of Research progress at each meeting
of the Research Management Committee. Each Party will also communicate
informally and through the Research Management Committee to inform the other of
Research done under this Agreement. Each Party will provide the other with raw
data in original form or photocopies thereof for any and all work carried out
under this Agreement as reasonably requested by the other Party hereto. To
avoid potential conflicts of interest, Alanex shall not disclose compound class
or structural data to outside members of its Scientific Advisory Board. In
addition and also to avoid potential conflicts of interest, Alanex shall not
disclose compound class or structural data to outside members of its Board of
Directors except as is necessary in order for the directors to fulfill their
fiduciary duties as directors of Alanex.
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SECTION 5 POTENTIAL EXPANSION OF THE FIELD
5.1 MATERIAL TRANSFER AGREEMENT. The Parties agree to enter into a
Material Transfer Agreement in the form attached hereto as Exhibit B as of the
Effective Date (the "Material Transfer Agreement"). Pursuant to the terms of the
Material Transfer Agreement, Alanex will provide Roche Bioscience with ***
******* for a 90-day period (the "Option Period") commencing on the Effective
Date. During the Option Period, Roche Bioscience will conduct pharmacology
studies employing the *************** After completion of the Option Period,
Roche Bioscience will (i) return all unused materials to Alanex, and (ii)
provide a written summary of research results of the research pharmacology to
Alanex within 30 days of completion of the Option Period. With the written
approval of Alanex, *********** may remain in the possession of the Roche
Bioscience beyond the 90-day period, if both parties agree that additional
testing is needed.
5.2 OPTION TO EXPAND THE FIELD. At any time during the Option Period,
Roche Bioscience may elect to expand the Field to include one or more ***
********************************************** Roche Bioscience shall notify
Alanex of such election in writing. Upon Roche Bioscience's election, (i) the
definition of Compound as set forth in this Agreement shall be expanded as
mutually agreed in writing by the Parties, (ii) the number of appropriately
qualified scientists (measured on a full time equivalent basis) supported by the
Research funding pursuant to Section 4.2 will be increased by an additional
************ in Year 1 and (iii) the Research funding to be provided by Roche
Bioscience pursuant to Section 8.1 shall be increased on a pro-rata basis of
******** per FTE per year. At the end of year 1, the parties will address
amending the Research Plan and the number of FTEs per year in order to further
the Research with a comparable level of support to what is currently in the
Research Plan.
SECTION 6 DEVELOPMENT
6.1 SELECTION OF LEAD COMPOUNDS. Following the identification of a
Compound, the further optimization and characterization of such Compound and
the collection of data on such Compound, the Research Management Committee
shall determine whether such Compound satisfies the Preclinical Development
Criteria. The Research Management Committee shall notify Roche Bioscience in
writing when a Compound is determined to have satisfied the Preclinical
Development Criteria (the "RMC Notice"). Roche Bioscience shall have a 90-day
period beginning on the date of the RMC Notice in which to select such Compound
for development by providing written notice of such election to Alanex. If
Roche Bioscience selects such Compound, the Compound will then be considered a
Lead Compound for purposes of this Agreement and Roche Bioscience shall have
the exclusive license to such Lead Compound, its analogues, all
structurally-related compounds, and progenitors of the Lead Compound back to
and including the predecessor Compound, as contemplated by Section 7.2. If
Roche Bioscience does not select such Compound and if Roche Bioscience is not
developing a structurally-related compound on which Roche Bioscience will be
paying Milestones and Royalties under this Agreement, Alanex shall retain all
rights to such Compound; provided, however, that Alanex cannot conduct any
research with respect to or sublicense such Compound in the Field until
termination of this Collaboration. If Roche
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Bioscience (or its Affiliates or sublicensees) terminates the development of a
Lead Compound and if Roche Bioscience (or its Affiliates or sublicensees) is
not developing any other Lead Compound under this Agreement directed at the
same molecular target, Alanex shall retain all rights to such Lead Compound;
provided, however, that Alanex cannot conduct any research with respect to or
sublicense such Lead Compound in the Field until termination of this
Collaboration. Roche Bioscience can discontinue the development of a Lead
Compound or Product at any time in its sole discretion.
6.2 DEVELOPMENT ACTIVITIES. All preclinical and clinical development
necessary or appropriate for the registration of Lead Compounds shall be
designed and conducted by Roche Bioscience or its designees. Roche Bioscience
will keep Alanex informed of the progress of development of each Lead Compound
and Alanex may provide input with respect to development matters, as
appropriate. Roche Bioscience will be responsible for selecting Lead Compounds
for development. The expenses of all preclinical and clinical development of the
Lead Compounds shall be paid by Roche Bioscience.
6.3 DILIGENCE. Roche Bioscience shall use commercially reasonable and
diligent efforts (as defined in Section 4.2 above) to develop each Lead
Compound and commercialize each Product, taking into account the scientific and
commercial potential for such Product. Alanex may provide 90 days written
notice to Roche Bioscience if, in its opinion, Roche Bioscience is not using
commercially reasonable and diligent efforts, in order for the Parties to
discuss the situation and for Roche Bioscience to make diligent and continuing
efforts to rectify the situation during such 90 day period. In the event that
the Parties are unable to resolve their differences within such 90 day period,
such dispute shall be submitted for resolution in accordance with Section 15.
SECTION 7 GRANT OF LICENSES
7.1 RESEARCH LICENSE. Roche Bioscience grants to Alanex, during the
Research Term, the non-exclusive paid-up worldwide license in the Field, with
the right to grant sublicenses to Affiliates only, under the Roche Bioscience
Patent Rights and Roche Bioscience Know-How to make and use methods and
materials for the sole purpose of carrying out the Research.
7.2 COMMERCIALIZATION LICENSE. Alanex hereby grants to Roche
Bioscience an exclusive, worldwide, royalty-bearing license, with the right to
grant sublicenses subject to Section 7.3 below, under the Alanex Compound
Patent Rights and Alanex Know-How related to the Lead Compounds, to develop,
make, have made, use, offer for sale, sell and import Products; provided,
however, that except as specifically contemplated by Sections 6.1 and 6.2,
Alanex shall have no right to use such Alanex Compound Patent Rights and Alanex
Know-How related to the Lead Compounds, to develop, make, have made, use, offer
for sale, sell and import Products during the term of this Agreement. No rights
or licenses, express or implied, are granted to Roche Bioscience for the Alanex
Discovery Technology.
7.3 SUBLICENSES. Any sublicenses under this Section 7 shall contain
terms comparable to Section 11, and no sublicense shall relieve Roche
Bioscience or Alanex of any
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obligation under this Agreement. Within 30 days after the grant of any
sublicense, Roche Bioscience will provide written notice to Alanex of the
granting of the sublicense.
SECTION 8 PAYMENT OBLIGATIONS
8.1 RESEARCH FUNDING. Roche Bioscience agrees to fund the Research at
Alanex during the Research Term in the amount of ******** per FTE per year.
Such annual funding shall be payable in advance in four equal quarterly
installments during each calendar year on or before January 1, April 1, July 1,
and October 1. Any payment for a portion of a quarter shall be made on a pro
rata basis. The first such payment shall be made on the Effective Date. Such
annual Research funding shall be increased appropriately in the event that the
Research Management Committee determines that the number of scientists
conducting Research at Alanex should be increased.
8.2 PROJECT INITIATION FEE. Roche Bioscience shall pay Alanex a
non-refundable, non-contingent project initiation fee of $4,000,000, payable in
two installments. The first payment of $2,000,000 shall be made upon the
execution of this Agreement. The second payment of $2,000,000 shall be made on
October 31, 1996.
8.3 MILESTONE PAYMENTS. Within 30 days after receipt of notice that
each of the milestones set forth below has been completed by Alanex, Roche
Bioscience or any sublicensee of Roche Bioscience, Roche Bioscience shall pay
to Alanex the non-refundable milestone payment set forth below:
(a) upon the identification by Alanex of the first Compound
directed at a particular molecular target, such as ********* with a Ki <100nM
<TABLE>
<CAPTION>
<S> <C>
if ***************************************************** ********
if ***************************************************** ********
if ****************************************************** ********
</TABLE>
(b) ******** upon the selection by Roche Bioscience of the
first Lead Compound directed at a particular molecular target, such as *****
(c) ******* upon the initiation of Phase I for the first
Product containing a Lead Compound directed at a particular molecular target,
such as *****
(d) ******* upon the initiation of Phase II for the first
therapeutic indication for each Product containing a Lead Compound;
(e) ********** upon the initiation of Phase III for the
first therapeutic indication for each Product containing a Lead Compound;
(f) ********** upon the first NDA approved for the first
therapeutic indication for each Product containing a Lead Compound in the U.S.;
and
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(g) ********** upon the first NDA-equivalent filing approved
for the first therapeutic indication for any Product containing a Lead Compound
in a Major European Country or Japan.
The first achievement of each of the milestone events described in Section
8.3(a)-(c) need not be by the same Compound. Roche Bioscience will be obligated
to make the milestone payments set forth above in Section 8.3(a)-(c) only one
time with respect to each molecular target, such as *****. Notwithstanding the
foregoing, separate Milestone Payments with respect to Section 8.3(d)-(g) shall
not be paid with respect to any particular Product if it represents a change in
form or dosage of such product for which Milestones have previously been paid.
8.4 ROYALTIES
(a) Roche Bioscience shall pay to Alanex the following royalty
on Net Sales of each Product based on or incorporating any Lead Compound and
sold by Roche Bioscience or its Affiliates or sublicensees:
(i) ** of Net Sales in all countries where Patent
Protected on the portion of aggregate annual worldwide Net Sales up to
************* and
(ii) ** of Net Sales in all countries where Patent
Protected on the portion of aggregate annual worldwide Net Sales exceeding
*************
(iii) **** of Net Sales in all countries where a
Product is not Patent Protected.
(b) If Roche Bioscience is required to pay royalties to a
third party (other than an Affiliate of Roche Bioscience), to make, use or sell
Product for which Roche Bioscience is currently paying royalties to Alanex to
avoid infringing such third party's patent rights (the "Additional Royalties"),
then the Royalties to be paid to Alanex by Roche Bioscience pursuant to this
Agreement shall be ************************** of the amount of the Additional
Royalties, provided, however, that at no time during the Royalty Term will
Alanex receive less than a **** royalty on Net Sales whether or not there is
Patent Protection.
(c) Royalties for Net Sales of any Product in any given
country shall be paid for a period equal to the Royalty Term for such Product
in such country.
SECTION 9 PAYMENT; RECORDS; AUDITS
9.1 PAYMENT; REPORTS. All royalty payments due to either Party under
this Agreement shall be paid within 60 days of the end of each calendar
quarter, unless otherwise specifically provided herein. Each payment of
royalties shall be accompanied by a report of Net Sales of Products in
sufficient detail to permit confirmation of the accuracy of the royalty
payment made.
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9.2 EXCHANGE RATE; MANNER AND PLACE OF PAYMENT. Royalty payments and
reports for the sale of Products shall be calculated and reported for each
calendar quarter. With respect to each quarter, for countries other than the
United States, whenever for the purpose of calculating royalties conversion
from any foreign currency shall be required, such conversion shall be made as
follows:
(i) when calculating the Adjusted Gross Sales, the amount of such
sales in foreign currencies shall be converted into Swiss Francs as computed in
the central Roche's Swiss Francs Sales Statistics for the countries concerned,
using the average monthly rate of exchange at the time for such currencies as
retrieved from the Reuters System;
(ii) when calculating the royalties on Net Sales, such conversion
shall be at the average rate of the Swiss Franc to the United States dollar as
retrieved from the Reuters System for the applicable calendar quarter.
All payments owed under this Agreement shall be made by wire transfer, unless
otherwise specified by the receiving Party.
9.3 LATE PAYMENTS. In the event that any payment, including royalty,
milestone and research payments, due hereunder is not made when due, the
payment shall accrue interest from the date due at the rate of 1.5% per month;
provided that in no event shall such rate exceed the maximum legal annual
interest rate. The payment of such interest shall not limit any Party from
exercising any other rights it may have as a consequence of the lateness of any
payment.
9.4 RECORDS AND AUDIT.
(a) During the term of this Agreement and for a period of two
years thereafter, Roche Bioscience shall keep complete and accurate records
pertaining to the sale or other disposition of Products in sufficient detail to
permit Alanex to confirm the accuracy of all payments due hereunder. Alanex
shall have the right to cause an independent, major (big six) certified public
accountant firm reasonably acceptable to Roche to audit such records to confirm
Roche Bioscience's Net Sales for the preceding year. Any information obtained
during such audit shall be treated as Confidential Information. Such audits may
be exercised during normal business hours once a year upon at least thirty (30)
working days' prior written notice to Roche Bioscience. Alanex shall bear the
full cost of such audit unless such audit discloses a variance of more than 5%
from the amount of the Net Sales reported by Roche Bioscience for such audited
period. In such case, Roche Bioscience shall bear the full cost of such audit.
The terms of this Section 9.4 shall survive any termination or expiration of
this Agreement for a period of two years.
(b) During the term of this Collaboration and for a period of two
years thereafter, Alanex shall keep complete and accurate records documenting
the time spent by Alanex employees in direct support of the Collaboration.
Roche Bioscience shall have the right to audit such records to confirm Alanex
time records and research costs for the preceding year upon thirty (30) working
days' prior written notice. Such audits may be exercised during normal business
hours once a year upon notice to Alanex.
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9.5 TAXES. All turnover and other taxes levied on account of the
royalties and other payments accruing to each Party under this Agreement shall
be paid by the Party receiving such royalty or other payment for its own
account, including taxes levied thereon as income to the receiving Party. If
provision is made in law or regulation for withholding, such tax shall be
deducted from the royalty or other payment made by the Party making such
payment to the proper taxing authority and a receipt of payment of the tax
secured and promptly delivered to the Party entitled to the royalty. Each Party
agrees to assist the other Party in claiming exemption from such deductions or
withholdings under any double taxation or similar agreement or treaty from time
to time in force.
SECTION 10 PATENT RIGHTS AND INFRINGEMENT
10.1 OWNERSHIP OF ROCHE BIOSCIENCE PATENTS AND ALANEX COMPOUND
PATENTS. Alanex shall retain all right, title and interest in and to any Alanex
Compound Patents and to the Alanex Discovery Technology, subject only to the
exclusive licenses expressly granted herein. Roche Bioscience shall retain all
right, title and interest in and to any Roche Bioscience Patents, subject only
to the licenses expressly granted herein.
10.2 DISCLOSURE OF PATENTABLE INVENTIONS. In addition to the
disclosures required under Section 4.4, each Party shall provide to the other
any invention disclosure submitted in the normal course and disclosing an
Invention arising in the course of the Collaboration. Such Invention
disclosures shall be provided to the other Party promptly after submission and
in no event later than 30 days after the disclosure was submitted to patent
counsel. In addition, the Research Management Committee will from time to time
provide information relating to Inventions and will recommend to the Parties
the filing of applications for Inventions it believes are patentable.
10.3 PATENT FILINGS.
(a) Alanex Compounds.
(i) The Parties intend to establish broad patent protection
for Alanex Compounds and other patentable inventions arising from the Research.
The parties intend that Roche Bioscience shall file and prosecute all patent
applications covering the Lead Compounds, but the parties recognize that some
initial patent work may need to be performed prior to the selection of Alanex a
Compound as a Lead Compound. Subject to the above, Alanex shall file and
prosecute all patent applications covering Inventions containing claims which
cover Alanex Compounds or other patentable inventions arising from the Research,
provided, however, that Alanex shall give Roche Bioscience the right of first
refusal to file and prosecute such Alanex Compound Patents on behalf of Alanex.
If Roche Bioscience declines such opportunity, Alanex shall file and prosecute
such Alanex Compound Patents, using counsel reasonably acceptable to Roche
Bioscience. Upon selection of such Compound as a Lead Compound (the "Selection
Date"), Alanex shall turn over to Roche Bioscience all files relating to such
Patent filing and prosecution and Roche Bioscience shall have full
responsibility for such Patent filing and prosecution. Roche Bioscience shall
pay Alanex for all Patent Costs incurred up to the Selection Date of filing,
prosecuting and maintaining such
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<PAGE> 16
Patents necessary to protect such Lead Compound. Alanex shall provide invoices
of Patent Costs as costs are incurred and Roche Bioscience shall reimburse
Alanex within 30 days of the invoice date. The Parties shall each bear their
own internal costs and expenses of filing, prosecuting and maintaining such
Alanex Compound Patents. Roche Bioscience shall maintain all Patents that issue
on such applications.
(ii) If Roche Bioscience elects not to handle the filing or
prosecution of such Patent, Alanex shall provide Roche Bioscience with drafts
of any patent application covering Alanex Compounds or other patentable
inventions arising from the Research prior to filing that application, allowing
adequate time for review and comment by Roche if possible; provided, however,
that Alanex shall not be obligated to delay the filing of any patent
application. Roche shall maintain any such patent application in confidence,
pursuant to Section 11.
(iii) If Alanex decides, at any time, not to file or maintain
an application or a Patent as provided hereunder, it shall give Roche notice to
this effect and upon such notice Roche shall have the right, but not the
obligation, to file and maintain, such application or Patent, in its own name
and at its own expense, and, if it so elects to file and maintain, Alanex shall
assign to such other Party the rights in such application or Patent.
(b) Lead Compounds.
(i) To the extent not previously filed in accordance with
Subsection 10.3(a) above, Roche Bioscience shall file and prosecute all patent
applications covering Inventions containing claims which cover Lead Compounds
or other patentable inventions arising from the Research. Roche Bioscience
shall bear all Patent Costs of filing, prosecuting and maintaining such Lead
Compound Patents. Roche Bioscience shall maintain all Patents that issue on
such applications.
(ii) Roche Bioscience shall provide Alanex with drafts of any
patent application covering Lead Compounds prior to filing that application,
allowing adequate time for review and comment by Alanex if possible; provided,
however, that Roche Bioscience shall not be obligated to delay the filing of
any patent application. Alanex shall maintain any such patent application in
confidence, pursuant to Section 11.
(iii) If Roche Bioscience decides on a world-wide basis, at any
time, not to file or maintain an application on all Lead Compound Patents as
provided hereunder, it shall give Alanex notice to this effect and upon such
notice Alanex shall have the right, but not the obligation, to file and
maintain, such applications or Patents, in its own name and at its own expense,
and, if it so elects to file and maintain, Roche Bioscience shall assign to
such other Party the rights in such applications or Patents.
10.4 ENFORCEMENT RIGHTS.
(a) DEFENSE AND SETTLEMENT OF THIRD PARTY CLAIMS. If a Third Party
asserts that a patent or other right owned by it is infringed by the
manufacture, use or sale of any Product, Roche Bioscience shall be solely
responsible for defending against any such
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<PAGE> 17
assertions at its cost and expense.
(b) INFRINGEMENT BY THIRD PARTIES WITH RESPECT TO PRODUCTS. If
any Patent is infringed by a Third Party in any country in connection with the
manufacture, use and sale of any Product in such country, the Party to this
Agreement first having knowledge of such infringement shall promptly notify the
other in writing. The notice shall set forth the facts of that infringement in
reasonable detail. Roche Bioscience shall have the primary right, but not the
obligation, to institute, prosecute, and control any action or proceeding with
respect to such infringement, by counsel of its own choice against such third
party in the name of Alanex and/or in the name of Roche Bioscience, and to join
Alanex as a party plaintiff (at Roche Bioscience's expense) if required, and
Alanex shall have the right, at its own expense, to be represented in any
action involving an Alanex Patent by counsel of its own choice. If Roche
Bioscience fails to bring an action or proceeding within a period of 120 days
after having knowledge of infringement of an Alanex Patent, Alanex shall have
the right to bring and control any such action by counsel of its own choice, and
Roche Bioscience shall have the right to be represented in any such action by
counsel of its own choice at its own expense. If one Party brings any such
action or proceeding, the other Party agrees to be joined as a Party plaintiff
if necessary to prosecute the action and to give the first Party reasonable
assistance and authority to file and prosecute the suit.
(c) MONETARY AWARDS. Any damages or other monetary awards
recovered shall be allocated first to the costs and expenses of the Party
bringing suit, then to the costs and expenses, if any, of the other Party. Any
amounts remaining shall be allocated two-thirds to the Party bringing suit and
one-third to the other Party. A settlement or consent judgment or other
voluntary final disposition of a suit under Sections 10.4(b) may be entered
into only with the consent of the Party not bringing the suit, which consent
shall not be unreasonably withheld.
SECTION 11 CONFIDENTIALITY
11.1 NONDISCLOSURE. During the term of this Agreement and for a period
of five years after termination thereof, each Party will maintain all
Confidential Information in trust and confidence and will not disclose any
Confidential Information to any third Party or use any Confidential Information
for any purpose except (i) as expressly authorized by this Agreement, (ii) as
required by law or court order, (iii) as provided in Section 11.3, or (iv) to
its Affiliates. Each Party may use such Confidential Information only to the
extent required to accomplish the purposes of this Agreement. Each Party will
use at least the same standard of care as it uses to protect proprietary or
confidential information of its own to ensure that its Affiliates, employees,
agents, consultants and other representatives do not disclose or make any
unauthorized use of the Confidential Information. Each Party will promptly
notify the other upon discovery of any unauthorized use or disclosure of
the Confidential Information.
11.2 EXCEPTIONS. Confidential Information shall not include any
information which the receiving Party can prove by competent evidence:
(a) is now, or hereafter becomes, through no act or failure to
act on the part
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<PAGE> 18
of the receiving Party, generally known or available;
(b) is known by the receiving Party at the time of receiving
such information, as evidenced by its records;
(c) is hereafter furnished to the receiving Party by a third
Party, as a matter of right and without restriction on disclosure;
(d) is independently developed by the receiving Party without
the aid, application or use of Confidential Information; or
(e) is the subject of a written permission to disclose provided
by the disclosing Party.
11.3 FINANCIAL TERMS. The Parties agree that the material financial
terms of this Agreement will be considered Confidential Information of both
Parties. Notwithstanding the foregoing, either Party may disclose such terms as
are required to be disclosed in its financial statements or under strictures of
confidentiality to bona fide potential sublicensees. Either Party shall have
the further right to disclose the material financial terms of this Agreement
under strictures of confidentiality to any potential acquiror or merger
partner.
11.4 PUBLICATIONS. Each Party to this Agreement recognizes that the
publication of papers regarding results of Research hereunder and other
information resulting from the Collaboration, including oral presentations and
abstracts, may be beneficial to both Parties provided such publications are
subject to reasonable controls to protect Confidential Information. In
particular, it is the intent of the Parties to maintain the confidentiality of
any Confidential Information included in any foreign patent application until
such foreign patent application has been published. Accordingly, each Party
shall have the right to review and approve any paper proposed for publication
by the other Party, including oral presentations and abstracts, which utilizes
data generated from the Collaboration and/or includes Confidential Information
of the other Party. Before any such paper is submitted for publication, the
Party proposing publication shall deliver a complete copy to the other Party at
least 45 days prior to submitting the paper to a publisher. The receiving Party
shall review any such paper and give its comments to the publishing Party
within 30 days of the delivery of such paper to the receiving Party. With
respect to oral presentation materials and abstracts, the Parties shall make
reasonable efforts to expedite review of such materials and abstracts, and
shall return such items as soon as practicable to the publishing Party with
appropriate comments, if any, but in no event later than 30 days from the date
of delivery to the receiving Party. The publishing Party shall comply with the
other Party's request to delete references to such other Party's Confidential
Information in any such paper and agrees to withhold publication of same for an
additional 180 days in order to permit the Parties to obtain patent protection,
if either of the Parties deem it necessary, in accordance with the terms of
this Agreement.
SECTION 12 REPRESENTATIONS, WARRANTIES AND COVENANTS
12.1 CORPORATE POWER. Each Party hereby represents and warrants that
such Party
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is duly organized and validly existing under the laws of the state of its
incorporation and has full corporate power and authority to enter into this
Agreement and to carry out the provisions hereof.
12.2 DUE AUTHORIZATION. Each Party hereby represents and warrants that
such Party is duly authorized to execute and deliver this Agreement and to
perform its obligations hereunder.
12.3 BINDING AGREEMENT. Each Party hereby represents and warrants
that this Agreement is a legal and valid obligation binding upon it and is
enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement by such Party does not conflict with any
agreement, instrument or understanding, oral or written, to which it is a Party
or by which it may be bound, nor violate any law or regulation of any court,
governmental body or administrative or other agency having authority over it.
12.4 DISCLAIMER OF WARRANTIES. The Parties understand that the
Research will involve technologies that have not been approved by any
regulatory authority and that neither Party guarantees the safety or usefulness
of any Alanex Compound, Roche Bioscience Compound, Lead Compound or Product.
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
REPRESENTATION OR WARRANTY TO THE OTHER PARTY OF ANY NATURE, EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF NONINFRINGEMENT,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
12.5 MUTUAL INDEMNIFICATION. Each Party hereby agrees to save, defend
and hold the other Party and its officers, directors, employees, consultants
and agents harmless from and against any and all suits, claims, actions,
demands, liabilities, expenses and losses, including reasonable legal expense
and attorneys' fees ("Losses") resulting directly or indirectly from the
manufacture, development, use, handling, storage, sale or other disposition of
chemical agents, Compounds or Products by such Party, its Affiliates or
sublicensees except to the extent such Losses result from the gross negligence
or willful misconduct of the Party claiming a right of indemnification under
this Section 12.5. In the event either Party seeks indemnification under this
Section 12.5, it shall inform the other Party of a claim as soon as reasonably
practicable after it receives notice of the claim, shall permit the other Party
to assume direction and control of the defense of the claim (including the
right to settle the claim solely for monetary consideration), and shall
cooperate as requested (at the expense of the other Party) in the defense of
the claim.
SECTION 13 TERM AND TERMINATION
13.1 TERM. The term of this Agreement will begin on the Effective Date
and terminate at the end of the Royalty Term unless terminated earlier in
accordance with the provisions of Section 13.2 or 13.3 or 13.4.
13.2 TERMINATION BY MUTUAL AGREEMENT. After the expiration of the
Research Term, the Parties may terminate this Agreement by written agreement
executed by both
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*CONFIDENTIAL TREATMENT REQUESTED
Alanex and Roche Bioscience.
13.3 TERMINATION FOR CAUSE. Either Party may terminate this Agreement
upon 60 days' written notice upon the occurrence of any of the following:
(a) Upon or after the bankruptcy, insolvency, dissolution or
winding up of the other Party (other than dissolution or winding up for the
purposes of reconstruction or amalgamation); or
(b) Upon or after the breach of any material provision of this
Agreement by the other Party if the breaching Party has not cured such breach
within the 60-day period following written notice of termination by the other
Party.
13.4 TERMINATION WITHOUT CAUSE. Following the end of the first twelve
month of this Agreement, Roche Bioscience may terminate this Agreement at any
time without cause upon six months notice, provided, however, that for the first
three months of the notice period, Roche Bioscience shall ********************
********************************************************************************
previously agreed upon by the Research Management Committee for such **********
********************************************************************************
************************************************************* in existence at
the time notice was given or (ii) the ******** previously agreed upon by the
Research Management Committee for such ****************** period. At the end
of the notice period, Roche Bioscience shall ******************************
*********************.
13.5 EFFECT OF EXPIRATION OR TERMINATION.
(a) Expiration or termination of this Agreement shall not
relieve the Parties of any obligation accruing prior to such expiration or
termination. Except as otherwise specifically set forth in this Section 13 or
elsewhere in this Agreement, the obligations and rights of the Parties under
Sections 7.2, 7.3, 8.4, 11, 12.4, 12.5, 13.5, 15 and 16 shall survive
termination or expiration of this Agreement.
(b) In the event that the Parties terminate this Agreement
under Section 13.2 or Roche Bioscience terminates this Agreement under Section
13.3, without limiting any remedies otherwise available to Roche Bioscience,
(i) all licenses granted by Roche Bioscience to Alanex hereunder shall
terminate and revert to Roche Bioscience, (ii) the licenses set forth in
Section 7.2 shall continue, and (iii) Alanex shall return to Roche Bioscience
all Confidential Information of Roche Bioscience. The royalties owed by Roche
Bioscience to Alanex shall be as set forth in Section 8.4, if Roche Bioscience
terminates this agreement under Section 13.3.
(c) In the event that the Parties terminate this Agreement
under Section 13.2 or Alanex terminates this Agreement under Section 13.3,
without limiting any remedies otherwise available to Alanex, (i) all licenses
granted by Alanex to Roche hereunder shall terminate and revert to Alanex, and
(ii) Roche Bioscience shall return to Alanex all
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Confidential Information of Alanex.
SECTION 14 PUBLICITY
14.1 PUBLICITY REVIEW. Roche Bioscience and Alanex will jointly
discuss and agree, based on the principles of Section 14.2, on any statement to
the public regarding the execution and the subject matter of this Agreement,
the Research to be conducted by the Parties under this Agreement, or any other
aspect of this Agreement, except with respect to disclosures required by law or
regulation. Within 30 days following the Effective Date, the Parties shall
issue a joint press release. Neither party shall use the name of the other
party in any public statement, prospectus, annual report, or press release
without the prior written approval of the other party, which may not be
unreasonably withheld or delayed, provided, however, that both parties shall
endeavor in good faith to give the other party a minimum of five business days
to review such press release, prospectus, annual report, or other public
statement; and provided, further, that either party may use the name of the
other party in any public statement, prospectus, annual report, or press
release without the prior written approval of the other party, if such party is
advised by counsel that such disclosure is required to comply with applicable
law.
14.2 STANDARDS. In the discussion and agreement referred to in
Section 14.1, the principles observed by Roche Bioscience and Alanex will be
accuracy, the requirements for confidentiality under Section 11, the advantage
a competitor of Roche Bioscience or Alanex may gain from any public or Third
Party statements under Section 14.1, the requirements of disclosure under any
securities laws or regulations of the United States, including those associated
with public offerings, and the standards and customs in the pharmaceutical
industry for such disclosures by companies comparable to Roche Bioscience and
Alanex.
SECTION 15 DISPUTE RESOLUTION
15.1 DISPUTES. The Parties recognize that disputes as to certain
matters may from time to time arise during the term of this Agreement which
relate to either Party's rights and/or obligations hereunder or thereunder. It
is the objective of the Parties to establish procedures to facilitate the
resolution of disputes arising under this Agreement in an expedient manner by
mutual cooperation and without resort to litigation. To accomplish this
objective, the Parties agree to follow the procedures set forth in this Section
15 if and when a dispute arises under this Agreement between the Parties or
among the Research Management Committee.
15.2 DISPUTE RESOLUTION PROCEDURES. If the Parties or the Research
Management Committee cannot resolve the dispute within 20 days of formal
request by either Party to the other, any Party may, by written notice to the
other, have such dispute referred to their respective officers designated below
or their successors, for attempted resolution by good faith negotiations within
30 days after such notice is received. Said designated officers are as follows:
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For Roche Bioscience: Head of Neurobiology Business Unit
For Alanex: Chief Executive Officer
15.3 ARBITRATION. Any such dispute arising out of or relating to this
Agreement which is not resolved between the Parties or the Research Management
Committee or the designated officers of the Parties pursuant to the foregoing
shall be resolved by final and binding arbitration conducted in San Diego
County, California under the then current Licensing Agreement Arbitration Rules
of the American Arbitration Association ("AAA"); provided, however, that
depositions shall be permitted as follows: each Party may take no more than
three depositions with a maximum of six hours of examination time per
deposition, and each such deposition shall take place in San Diego County,
California, unless otherwise agreed by the Parties. The arbitration shall be
conducted by one arbitrator who is knowledgeable in the subject matter which is
at issue in the dispute and who is selected by mutual agreement of the Parties
or, failing such agreement, shall be selected according to the AAA rules. In
conducting the arbitration, the arbitrator shall apply the California Evidence
Code, and shall be able to decree any and all relief of an equitable nature,
including but not limited to such relief as a temporary restraining order, a
preliminary injunction, a permanent injunction, or replevin of property. The
arbitrator shall also be able to award actual, general or consequential
damages, but shall not award any other form of damage (e.g., punitive damages).
The Parties shall share equally the arbitrator's fees and expenses pending the
resolution of the arbitration unless the arbitrator, pursuant to its right but
not its obligations, requires the non-prevailing Party to bear all or any
portion of the costs of the prevailing Party. The decision of the arbitrator
shall be final and may be sued on or enforced by the Party in whose favor it
runs in any court of competent jurisdiction at the option of such Party.
SECTION 16 MISCELLANEOUS
16.1 ASSIGNMENT
(a) Notwithstanding any provision of this Agreement to the
contrary, either Party may assign any of its rights or obligations under this
Agreement in any country in any Affiliates; provided, however, that such
assignment shall not relieve the assigning Party of its responsibilities for
performance of its obligations under this Agreement.
(b) Either Party may also assign its rights or obligations under
this Agreement in connection with the sale of all or substantially all of its
assets, or may otherwise assign its rights or obligations under this Agreement
with the prior written consent of the other Party. This Agreement shall survive
any merger of either Party with or into another Party and no consent for a
merger or similar reorganization shall be required hereunder; provided, that in
the event of such merger or in the event of a sale of all assets, no
intellectual property rights of the acquiring corporation shall be included in
the technology licensed hereunder.
(c) This Agreement shall be binding upon and inure to the benefit
of the successors and permitted assigns of the Parties. Any assignment not in
accordance with this
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Agreement shall be void.
16.2 FORCE MAJEURE. Neither Party shall lose any rights hereunder or
be liable to the other Party for damages or losses on account of failure of
performance by the defaulting Party if the failure is occasioned by government
action, war, fire, explosion, flood, strike, lockout, embargo, act of God, or
any other similar cause beyond the control of the defaulting Party, provided
that the Party claiming force majeure has exerted all reasonable efforts to
avoid or remedy such force majeure.
16.3 PAYMENT IN U.S. DOLLARS. All payments due to either Party under
this Agreement shall be paid in U.S. Dollars.
16.4 RETAINED RIGHTS. Nothing in this Agreement shall limit in any
respect the right of either Party to conduct research and development with
respect to and market products outside the Field using such Party's technology
including Know-How and Patent Rights.
16.5 NOTICES. Any notices or communications provided for in this
Agreement to be made by either of the Parties to the other shall be in writing,
in English, and shall be made by prepaid air mail with return receipt addressed
to the other at its address set forth above. Any such notice or communication
may also be given by hand, or facsimile to the appropriate designation. Either
Party may by like notice specify an address to which notices and communications
shall thereafter be sent. Notices sent by mail, facsimile or cable shall be
effective upon receipt and notices given by hand shall be effective when
delivered.
16.6 GOVERNING LAW. This Agreement shall be governed by the laws of
the State of California, as such laws are applied to contracts entered into and
to be performed within such state.
16.7 WAIVER. Except as specifically provided for herein, the waiver
from time to time by either of the Parties of any of their rights or their
failure to exercise any remedy shall not operate or be construed as a
continuing waiver of same or of any other of such Party's rights or remedies
provided in this Agreement.
16.8 SEVERABILITY. If any term, covenant or condition of this
Agreement or the application thereof to any Party or circumstance shall, to any
extent, be held to be invalid or unenforceable, then (a) the remainder of this
Agreement, or the application of such term, covenant or condition to Parties or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant or condition of this
Agreement shall be valid and be enforced to the fullest extent permitted by
law; and (b) the Parties hereto covenant and agree to renegotiate any such
term, covenant or application thereof in good faith in order to provide a
reasonably acceptable alternative to the term, covenant or condition of this
Agreement or the application thereof that is invalid or unenforceable, it being
the intent of the Parties that the basic purposes of this Agreement are to be
effectuated.
16.9 INDEPENDENT CONTRACTORS. It is expressly agreed that Alanex and
Roche Bioscience shall be independent contractors and that the relationship
between the two Parties
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shall not constitute a partnership or agency of any kind. Neither Alanex nor
Roche Bioscience shall have the authority to make any statements,
representations or commitments of any kind, or to take any action, which shall
be binding on the other, without the prior written authorization of such other
Party to do so.
16.10 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.
16.11 ENTIRE AGREEMENT. This Agreement and the Material Transfer
Agreement between the Parties of even date herewith set forth all of the
covenants, promises, agreements, warranties, representations, conditions and
understandings between the Parties hereto and supersede and terminate all prior
agreements and understandings between the Parties. There are no covenants,
promises, agreements, warranties, representations conditions or understandings,
either oral or written, between the Parties other than as set forth herein and
therein. No subsequent alteration, amendment, change or addition to this
Agreement shall be binding upon the Parties hereto unless reduced to writing
and signed by the respective authorized officers of the Parties.
IN WITNESS WHEREOF, the Parties have executed this Agreement in
duplicate originals by their proper officers as of the date and year first
above written.
ROCHE BIOSCIENCE, A DIVISION OF ALANEX CORPORATION
SYNTEX (U.S.A.) INC.
By: /s/ James N. Woody By: /s/ Marvin R. Brown
-------------------------------- ------------------------
James N. Woody, M.D., Ph.D. Marvin R. Brown, M.D.
President President and Chief
Executive Officer
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APPENDIX A
Pre-clinical Development Criteria
All of the following criteria must be met to be considered a lead compound:
<TABLE>
<S> <C>
Affinity pKi of 8 or greater
Selectivity At least 100 fold affinity over other receptor
subtypes of the same receptor family or other
receptors as designated by the Research
Management Committee
Oral Bioavailability Oral bioavailability in rat and one other
species of (greater than or equal to) 25%
Plasma Half-Life Plasma half-life in rat greater than 4 hours
</TABLE>
Appendix A - Page 1
<PAGE> 26
*CONFIDENTIAL TREATMENT REQUESTED
SCHEDULE 1
************
*******
Schedule 1 - Page 1
<PAGE> 27
*CONFIDENTIAL TREATMENT REQUESTED
Exhibit A
******* RESEARCH PLAN
GOAL: To identify and initiate the clinical development of a selective
**************** antagonist.
Phase I: Evaluate relevant pharmacophore information, establish high
throughput assays, and initiate screening of Alanex compound
database. Initiate development of new chemistry methodology for
the synthesis targeted libraries.
Alanex computational chemistry will begin an analysis of the pharmacophore
requirements for binding to the various ************** in order to facilitate
the design of new combinatorial libraries with the goal of creating compounds
that display selectivity for the ****************.
Alanex will obtain from Roche Bioscience cell lines that have been transfected
with the human **************** and the protocol for the binding assay in
order to adapt the assay for high throughput screening at Alanex. If necessary
to expedite the project, Alanex will purchase membrane preparations prepared
from cells that contain the receptor. Alanex will establish the **************
binding assay within six weeks of receiving the appropriate cell line
from Roche Bioscience. Once the high throughput screen for ****************
is established, testing of the Alanex compound database for activity at
**************** will commence.
Alanex will begin development of new synthetic strategies in preparation for
the development of targeted libraries, and in order to extend the range of
exploratory libraries.
Phase II: Complete screening of Alanex database. Design, synthesize and
screen targeted libraries. Initial determination of receptor
selectivity.
Based on the results of screening and the computational modeling of known
compounds, Alanex will design novel targeted libraries, using precursors
synthesized at Alanex as well as those obtained from commercial sources. Active
compounds will be tested for binding activity in a variety of assay systems in
order to determine the selectivity profiles for different chemical series. The
types of assays will be determined by the Research Management Committee.
Modification of active compounds by both combinatorial and medicinal chemistry
methods will proceed.
Phase III: Optimization of active compounds. Detailed pharmacological
analysis of most active compounds. Establish optimization plan
for most active series.
Highly active compounds will be extensively characterized and further optimized
according to a plan established by the Research Management Committee.
Exhibit A - Page 1
<PAGE> 28
THE RESEARCH MANAGEMENT COMMITTEE
Based on the Research Drug Discovery Plan, the Research Management Committee
will hold an initial meeting, within 30 days of the signing of the Research
Collaboration Agreement, to define the specific goals for the first 6 months of
the collaboration.
The Initial representatives from Alanex will be:
Alex Polinsky, Ph.D. Vice President, Chemistry
John May, Ph.D. Director, Pharmacology
Dale Dhanoa, Ph.D. Director, New Lead Discovery
The Initial representatives from Roche Bioscience will be:
Robin Clark, Ph.D. Distinguished Scientist
Graeme Martin, Ph.D. Department Head, Receptor/Ion Channel Group
Third Member Open
Exhibit A - Page 2
<PAGE> 29
EXHIBIT B
Material Transfer Agreement
Submitted as Exhibit 10.16 to this Registration Statement
EXHIBIT B - PAGE 1
<PAGE> 30
<PAGE> 1
CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4), 200.83
AND 230.406 * INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL
TREATMENT REQUEST THAT IS FILED SEPARATELY WITH THE COMMISSION
EXHIBIT 10.16
MATERIALS TRANSFER AND RESEARCH AGREEMENT
This Agreement is made as of June 27, 1996 (the "EFFECTIVE DATE"), by
and between ALANEX CORPORATION, a California corporation having offices at 3550
General Atomics Court, San Diego, California 92121 (the "COMPANY") and ROCHE
BIOSCIENCE, a division of Syntex (USA), Inc., a Delaware corporation, having
offices at 3401 Hillview Avenue, Mail Stop R7-101, Palo Alto, California 94303
("ROCHE BIOSCIENCE"), with respect to the following:
WHEREAS, the Company desires to transfer to Roche Bioscience, and Roche
Bioscience desires to receive, certain materials described in Exhibit A hereto
(the "MATERIALS") for the purpose of carrying out certain research (the
"RESEARCH") as more fully described in Section 5.1 of the Collaborative Research
and License Agreement between the Company and Roche Bioscience of even date
herewith.
NOW THEREFORE, in consideration of the foregoing premises and the
mutual covenants set forth below, the Company and Roche Bioscience hereby agree
as follows:
1. USE OF MATERIALS BY ROCHE BIOSCIENCE. Roche Bioscience shall use the
Materials solely for the purpose of carrying out the Research and shall not
attempt to reverse engineer, deconstruct or in any way determine the structure
or composition of the Materials. Roche Bioscience shall not sell, transfer,
disclose or otherwise provide access to the Materials to any person or entity
without the prior express written consent of the Company, except that Roche
Bioscience may allow access to the Materials to employees and agents for
purposes consistent with this Agreement provided that prior to such disclosure,
such individuals shall have been apprised of the proprietary nature of the
Materials and shall have executed written agreements consistent with the terms
hereof. Roche Bioscience will take all reasonable steps to ensure that such
employees and agents will use the Materials in a manner that is consistent with
the terms of this Agreement.
2. CONDUCT OF RESEARCH. Upon receipt of the Materials, Roche Bioscience
shall perform the Research utilizing its expertise and facilities in strict
accordance with all applicable laws, regulations and guidelines, including
without limitation, those regulations and guidelines promulgated by the U.S.
Food and Drug Administration and the U.S. Department of Agriculture. Roche
Bioscience understands that the Materials may have biological and/or chemical
properties that are unpredictable and unknown at the time of transfer, that they
are to be used with caution and prudence, and are not to be used for testing in
or treatment of humans.
1.
<PAGE> 2
3. RESEARCH RESULTS. Roche Bioscience shall, in accordance with its
established practice, keep complete, accurate and authentic accounts, notes,
data and records of the Research performed under this Agreement. Roche
Bioscience shall promptly and fully disclose to the Company any and all
information, data and results obtained from conducting the Research or relating
to the use of the Materials (the "RESULTS"), which disclosure shall include,
without limitation, copies of relevant data, summaries and reports. Upon request
by the Company and in any event upon the conclusion of the Research, Roche
Bioscience shall prepare a summary report detailing the Results and the
underlying data, which report shall be delivered within thirty (30) days of the
termination of this Agreement. The Company shall have the right to use all such
Results for any purpose, including without limitation, referencing such Results
in any regulatory filings or patent applications. Roche Bioscience shall have
the right to use all such Results solely for research and other non-commercial
purposes.
4. PROPRIETARY RIGHTS.
a. COMPANY PROPRIETARY RIGHTS. Roche Bioscience agrees and
acknowledges that Roche Bioscience shall acquire no rights of any kind
whatsoever with respect to any patents, copyrights, trademarks, trade secrets or
other proprietary rights of the Company as a result of Roche Bioscience's
performance under this Agreement or otherwise and that the Company is, and shall
remain at all times, the sole owner of the Materials and related know-how.
b. INVENTIONS IN THE COURSE OF RESEARCH. In performing the
Research, Roche Bioscience may develop ideas, inventions, techniques and other
technology and associated intellectual property, whether or not patentable
(collectively, "INVENTIONS"). The Company and Roche Bioscience agree that all
Inventions shall be owned by Roche Bioscience; provided, however, that if Roche
Bioscience fails to exercise its option pursuant to Section 5.2 of the
Collaborative Research and License Agreement, Roche Bioscience shall assign all
of its right, title and interest in and to such Inventions to the Company at the
end of the Option Period (as defined therein). Roche Bioscience shall promptly
disclose to the Company all Inventions made in the course of the Research and,
where applicable, shall perform, or ensure that its personnel and students shall
perform any and all acts necessary to assist the Company in perfecting its right
to any and all such Inventions, including executing or having executed any
documents effecting the assignment to the Company of all rights to the same.
5. CONFIDENTIAL INFORMATION. Anything in this Agreement to the contrary
notwithstanding, any and all knowledge, know-how, practices, processes or other
information (hereinafter referred to as "CONFIDENTIAL INFORMATION") disclosed or
submitted in writing or in other tangible form by one party to the other and
which is designated as Confidential Information shall be received and maintained
by such other
2.
<PAGE> 3
party in strict confidence and shall not be disclosed to any third party. Roche
Bioscience expressly acknowledges that the Results shall be considered the
Company's Confidential Information. Neither party shall use said Confidential
Information for any purpose other than those purposes specified in this
Agreement. Each party may disclose Confidential Information to employees,
consultants or agents requiring access thereto for the purposes of this
Agreement, provided, however, that prior to making any such disclosures, each
such individual shall be apprised of the obligation to maintain Confidential
Information in confidence and not to use such information for any purpose other
than in accordance with the terms and conditions of this Agreement. Each party
further agrees to take all steps necessary to ensure that the Confidential
Information received will be maintained in confidence including such steps as it
takes to prevent the disclosure of its own proprietary and confidential
information of like character. Each party agrees that this Agreement shall be
binding upon its affiliates, and upon the employees and associates of each party
and its affiliates. Each party will take all steps necessary to ensure that its
affiliates, employees and associates will comply with the terms and conditions
of this Agreement. This obligation of confidentiality shall survive, and remain
in effect for a period of five (5) years from, the termination of this
Agreement.
6. EXCLUSIONS FROM NONDISCLOSURE OBLIGATION. The nondisclosure
obligation in Section 5 shall not apply to Confidential Information which, to
the extent that either party can establish by competent written proof: (a) is
now, or hereafter becomes, part of the public domain by publication or
otherwise, except by breach of this Agreement by the receiving party; (b) was in
the receiving party's possession in documentary form at the time of disclosure;
(c) is received by the receiving party from a third party who has the lawful
right to disclose the Confidential Information and who shall not have obtained
the Confidential Information either directly or indirectly from the disclosing
party; or (d) is disclosed as required by law or regulation.
In the event that Confidential Information is required to be disclosed
pursuant to subsection (d), the party under such obligation shall notify the
other party to allow such other party to assert whatever exclusions or
exemptions may be available to it under such law or regulation.
7. INDEMNITY. In no event shall the Company be liable for any use by
Roche Bioscience of the Materials. Roche Bioscience hereby agrees to indemnify,
defend and hold the Company harmless from damages for any loss, claim, injury
liability or the like, which may arise from Roche Bioscience's use, handling or
storage of the Materials.
8. DISCLAIMER OF WARRANTIES. ROCHE BIOSCIENCE ACKNOWLEDGES AND AGREES
THAT THE MATERIALS ARE BEING SUPPLIED TO ROCHE BIOSCIENCE WITH NO WARRANTIES OF
ANY KIND, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY
3.
<PAGE> 4
OR FITNESS FOR A PARTICULAR PURPOSE OR THAT THEY ARE FREE FROM THE RIGHTFUL
CLAIM OF ANY THIRD PARTY, BY WAY OF INFRINGEMENT OR THE LIKE. NEITHER PARTY
MAKES REPRESENTATIONS THAT THE USE OF THE MATERIALS WILL NOT INFRINGE ANY PATENT
OR PROPRIETARY RIGHTS OF ANY THIRD PARTIES.
9. TERM. This Agreement, and Roche Bioscience's Research hereunder,
shall commence on the Effective Date and shall run until ninety (90) days from
the Effective Date.
10. TERMINATION. The rights and obligations under Sections 1, 4, 5 and
7 shall survive any termination, expiration or completion of this Agreement with
respect to information generated and activities and events occurring prior
thereto. Upon expiration or any termination of this Agreement, Roche Bioscience
shall promptly return to the Company or destroy, as the Company directs, all
remaining Materials and all Confidential Information of the Company.
11. INDEPENDENT CONTRACTORS. The parties shall perform their
obligations under this Agreement as independent contractors and nothing
contained in this Agreement shall be construed to be inconsistent with such
relationship or status. This Agreement shall not constitute, create or in any
way be interpreted as a joint venture or partnership of any kind.
12. ENTIRE AGREEMENT. This Agreement, together with the exhibits
attached hereto and the Collaborative Research and License Agreement between the
Company and Roche Bioscience of even date herewith, set forth the complete and
entire agreement of the parties hereto with respect to the subject matter hereof
and supersedes and terminates all prior agreements and understandings between
the parties hereto. No subsequent amendment or addition to this Agreement shall
be binding upon the parties hereto unless reduced to writing and signed by the
respective authorized officers of the parties hereto.
13. GOVERNING LAW. This Agreement shall be governed by the laws of
the State of California as those laws are applied to contracts entered into and
to be performed entirely in California by California residents.
14. NOTICES. Any notices required or permitted hereunder shall be given
to the appropriate party at the address specified below or at such other address
as the party shall specify in writing. Such notice shall be deemed given upon
personal delivery, or three (3) days after the date of mailing when sent by
certified or registered mail, postage prepaid.
4.
<PAGE> 5
IN WITNESS WHEREOF, the parties have by duly authorized persons,
executed this Agreement, as of the date first above written.
ROCHE BIOSCIENCE ALANEX CORPORATION
By: By: /s/
----------------------------- -----------------------------
Title: Title: President & CEO
----------------------------- -----------------------------
Date: Date: 06/27/96
----------------------------- -----------------------------
5.
<PAGE> 6
IN WITNESS WHEREOF, the parties have by duly authorized persons,
executed this Agreement, as of the date first above written.
ROCHE BIOSCIENCE ALANEX CORPORATION
By: /s/ James N. Woody By: /s/ Marvin R. Brown
----------------------------- -----------------------------
Title: President Roche Bioscience Title: President & CEO
----------------------------- -----------------------------
Date: 06/27/96 Date: 06/27/96
----------------------------- -----------------------------
5.
<PAGE> 7
EXHIBIT A
MATERIALS
Materials supplied to Roche Bioscience by Alanex:
************
************
************
************
************
************
* Confidential Treatment Requested
6.
<PAGE> 1
EXHIBIT 10.17
CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4), 200.83
AND 230.406 * INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL
TREATMENT REQUEST THAT IS FILED SEPARATELY WITH THE COMMISSION
RESEARCH AGREEMENT
THIS RESEARCH AGREEMENT, effective the 17th day of June, 1996
(the "Effective Date"), is entered into by and between ALANEX CORPORATION, a
California Corporation (hereinafter "Sponsor") and the MOUNT SINAI SCHOOL OF
MEDICINE OF THE CITY UNIVERSITY OF NEW YORK, a New York corporation (hereinafter
"Mount Sinai").
RECITALS:
WHEREAS, Sponsor desires to obtain the services of Dr. Stuart Sealfon
(the "PRINCIPAL INVESTIGATOR"), a Mount Sinai researcher, and the members of his
laboratory at Mount Sinai to conduct research relating to the human GnRH
receptor;
WHEREAS, Sponsor is willing to fund such research and Mount Sinai is
willing to perform such research under the terms set forth in this Agreement and
an Exclusive License Agreement between the parties of even date herewith (the
"EXCLUSIVE LICENSE AGREEMENT"); and
WHEREAS, Under the Exclusive License Agreement, Mount Sinai grants to
Sponsor certain rights to technology developed in the course of the Research
Program;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree to the following:
1. DEFINITIONS
(A) "FIELD" shall mean the research and development of novel ligands to
the GnRH receptor, using the GnRH receptor, for the diagnosis, prevention or
treatment of human diseases and disorders.
(B) "RESEARCH PROGRAM" shall mean the research program described in
Exhibit A hereto, as established under Articles 2 through 4 of this Agreement.
(C) "RESEARCHER OR RESEARCHERS" shall mean individually and
collectively the Principal Investigator and such postdocs, graduate students,
technicians and other Mount Sinai personnel as the Principal Investigator may
designate pursuant to Section 2(b) to conduct work under the Research Program.
1.
<PAGE> 2
*CONFIDENTIAL TREATMENT REQUESTED
2. CONDUCT OF THE RESEARCH PROGRAM
(A) Sponsor hereby engages the services of Mount Sinai as an
independent contractor to conduct the Research Program in accordance with the
terms of this Agreement. Mount Sinai will use its best efforts to conduct the
Research Program. During the term of this Agreement, the Principal Investigator
will collaborate with Sponsor in the Field on an exclusive basis; he will not
consult, perform work or otherwise engage in activities in the Field with any
other for-profit entity. This provision shall not restrict in any manner the
Researchers' rights to engage in academic, non-commercial scientific discourse
regarding the Field, including applying to the federal government for grants.
(B) The Principal Investigator shall exercise technical direction of
the Research Program. Sponsor shall have the right to consult with the Principal
Investigator at times reasonably agreed upon and to comment on the performance
of the Research Program. If Dr. Stuart Sealfon becomes unavailable to direct the
Research Program for any reason, and if the parties are unable to agree on a
suitable replacement within thirty (30) days of notice from Sponsor, Sponsor may
terminate this Agreement immediately upon notice.
(C) Unless Sponsor agrees otherwise in advance, the Principal
Investigator shall assign work under the Research Program only to those
Researchers who are bound to assign any inventions made by such Researcher in
the course of the Research Program (alone or jointly with others) to Mount
Sinai. The Principal Investigator shall not disclose to any Researcher any
Confidential Information (as defined in Section 7) of Sponsor relating to the
structure of ligands to the GnRH receptor (or the activity of such ligands on
the GnRH receptor or mutants of such receptor), unless such Researcher agrees in
writing not to disclose such Confidential Information to any third party except
in accordance with this Agreement or use such information for any purpose other
than the Research Program.
3. PHASE I FUNDING
Within ten (10) days of the Effective Date, Sponsor shall pay Mount
Sinai ******** to fund Phase I of the Research Program. The parties agree that
******* of such amount shall be used directly in the Research Program and the
remainder constitutes institutional overhead at the rate of ******************
*****. Promptly upon receipt
of such funding, Mount Sinai shall commence Phase I of the Research Program as
described on Exhibit A.
4. PHASE II FUNDING
(A) Provided that at least one stable transfected cell line described
under Phase I on the attached Exhibit A is delivered to Sponsor within six
months of the Effective Date, Sponsor shall pay Mount Sinai ******* to fund
Phase II of the Research Program. Such
2.
<PAGE> 3
*CONFIDENTIAL TREATMENT REQUESTED
payment shall be due on or before the date six (6) months from the Effective
Date. The parties agree that ******* of such amount shall be used directly in
the Research Program and the remainder constitutes institutional overhead at the
rate of ************************. Promptly upon receipt of such funding, Mount
Sinai will commence Phase II of the Research Program as described on Exhibit A.
If the above milestone is not achieved and Sponsor elects not to make the
******* payment, this Agreement shall expire on the date six (6) months from the
Effective Date.
(B) During Phase II of the Research Program, the Principal Investigator
shall make himself available to provide reasonable assistance to Sponsor in the
preparation of an application for an SBIR grant of approximately $94,500
relating to further research in the Field.
5. SPONSOR'S PROGRAM; PHASE III
Concurrently with the Research Program, Sponsor intends to perform
chemical synthesis and pharmacological testing of compounds to initiate studies
to discover novel small molecule GnRH receptor agonists or antagonists, using
cells transfected with DNA coding for the human GnRH receptor provided by Mount
Sinai. If Sponsor identifies a lead drug candidate, the parties anticipate that
they may wish to provide for further research to be carried out at Mount Sinai.
The parties currently envision that such research might require up to $200,000
in research funding for up to two years. Prior to the conclusion of the Research
Program established under this Agreement, the parties shall meet to discuss the
progress of the parties' efforts in this area and the need for further research
at Mount Sinai.
6. REPORTS AND CONFERENCES
(A) Mount Sinai agrees to keep complete and accurate scientific records
of the work conducted under the Research Program and to provide Sponsor, upon
request, with access to such records for review during normal business hours
upon reasonable notice and subject to confidentiality restrictions. During the
Research Program, Mount Sinai will provide Sponsor with informal reports (which
may be oral) as reasonably requested by Sponsor. A final written report shall be
submitted by Mount Sinai to Sponsor within forty-five (45) days after the
completion of the Research Program.
(B) During the term of this Agreement, the Principal Investigator shall
be available to meet with representatives of Sponsor at time and places mutually
agreed upon to discuss the Research Program.
3.
<PAGE> 4
7. CONFIDENTIAL INFORMATION; PUBLICATION
(A) All knowledge, know-how, practices, processes or other information
disclosed by one party to the other (the "RECEIVING PARTY") hereunder and which
is designated in writing as Confidential Information or, if disclosed orally, is
reduced to writing within thirty (30) days of disclosure and designated as
Confidential Information ("CONFIDENTIAL INFORMATION"), shall be received and
maintained by such party in strict confidence and shall not be disclosed to any
third party except in accordance with Section 7(b). The Receiving Party shall
not use said Confidential Information for any purpose other than those purposes
specified in this Agreement. The Receiving Party may disclose Confidential
Information for the purposes of this Agreement to affiliates, employees or
consultants who are obliged to comply with this confidentiality provision.
Sponsor may disclose Confidential Information to potential sublicensees,
collaborators, investors or other third parties in connection with commercial
transactions, provided that such third parties are required to not disclose such
Confidential Information further. This Section 7(a) shall survive for a period
of three (3) years from expiration or termination of this Agreement. The
nondisclosure obligations of this Section 7(a) shall not apply to Confidential
Information which the Receiving Party can establish by competent evidence (i) is
in the public domain prior or subsequent to disclosure without breach by the
Receiving Party, (ii) was in the Receiving Party's possession at the time of
disclosure, (iii) is received by Receiving Party from a third party who has the
lawful right to disclose it, (iv) is disclosed as required by law or regulation
or with the written consent of the other party or (v) is independently developed
by the Receiving Party without the aid or use of such Confidential Information.
(B) Sponsor recognizes that the publication of papers, including oral
presentations and abstracts, regarding the results of the Research Program,
subject to reasonable controls to protect Sponsor's Confidential Information, is
part of Mount Sinai's academic mission. Accordingly, Mount Sinai shall have the
right to disclose the results of the Research Program as follows. At least ten
(10) days before any paper is submitted for publication or any presentation or
other disclosure made, a complete version of the substance of such disclosure
shall be given to Sponsor. Sponsor shall have ten (10) days to review such paper
or presentation in order to identify Confidential Information provided by
Sponsor relating to the structure of ligands to the GnRH receptor (or the
activity of such ligands on the GnRH receptor or mutants of such receptor) to be
deleted from such paper, and/or to require delay of disclosure for up to ninety
(90) days in order to file for patent protection.
8. OWNERSHIP OF INVENTIONS
All right and title to inventions made by Mount Sinai personnel in the
course of the Research Program shall belong to Mount Sinai and shall be subject
to the terms and
4.
<PAGE> 5
conditions of the Exclusive License Agreement. All right and title to inventions
made by Sponsor personnel during the term of this Agreement shall belong to
Sponsor. All right and title to inventions made jointly by Sponsor and Mount
Sinai shall be owned jointly by Sponsor and Mount Sinai and shall be subject to
the terms and conditions of the Exclusive License Agreement. Inventorship shall
be determined in accordance with U.S. patent laws.
9. TERM AND TERMINATION
(A) This Agreement shall become effective upon the date first written
above and shall continue until the final written report described in Section
6(a) is delivered to Sponsor, unless it expires early pursuant to Section 4(a).
(B) Sponsor may terminate this Agreement as provided in Section 2(b).
In such event, Mount Sinai shall reimburse to Sponsor all funds provided
hereunder except to the extent such funds have already been expended or
committed (without the ability to cancel) in performing the Research Program.
(C) Either party may terminate this Agreement for material breach by
the other party upon thirty (30) days written notice to the breaching party;
provided that such termination shall not be effective if such breach is cured
during such thirty (30) day period. In the event of termination by Sponsor
pursuant to this subsection (c), Mount Sinai shall reimburse to Sponsor all
funds provided hereunder except to the extent such funds have already been
expended or committed (without the ability to cancel) in performing the Research
Program.
(D) Upon any expiration or termination of this Agreement, Section 7 and
all accrued rights and obligations shall survive.
10. USE OF NAME
Sponsor agrees that it will not use the name, trademark or any other
identifier of Mount Sinai in any advertising or promotion without the prior
approval of Mount Sinai, except to disclose the existence of this Agreement and
as otherwise required by law.
11. INDEMNIFICATION AND INSURANCE
Alanex agrees to indemnify, hold harmless and defend Mount Sinai, its
trustees, officers, medical and professional staff, the Principal Investigator,
employees, students and agents, and their respective successors and assigns (the
"Indemnitees"), against any liability, damage, loss or expense (including
reasonable attorneys fees and expenses of litigation) incurred or imposed upon
Indemnitees in connection with any claims, suits, actions, demands or judgments
resulting or arising out of the Research Program. Alanex
5.
<PAGE> 6
or its sublicensees agree to carry and keep in force commercial general
liability insurance of not less than $1 million per occurrence and $2 million in
aggregate to cover liability for damages on account of bodily or personal injury
or death to any person or damage to property of any person. In addition, Alanex
or its sublicensees shall keep in force product liability insurance of not less
than $2 million per occurrence and $4 million in aggregate prior to any
commercial distribution of any products arising out of the Research Program;
provided, however, such limits shall be increased in Mount Sinai can demonstrate
that higher amounts are customary for businesses the size of Alanex or engaged
in the businesses in which Alanex is engaged. Mount Sinai will be named as an
additional insured on any such insurance and such insurance shall not be
canceled without at least thirty (30) days notice to Mount Sinai. Alanex shall
provide a certificate of insurance evidencing that all required coverage is in
effect stating the limits of such coverage. Such insurance shall be written to
include coverage for any claims incurred in connection with Alanex's activities
under the Research Program, regardless of when such claims are brought. Mount
Sinai shall promptly notify Alanex of any claim for which Mount Sinai may seek
indemnification under this Section 11. Alanex shall have the right to control
the defense of such claim and may enter into any settlement that does not
adversely affect the rights of Mount Sinai. Mount Sinai shall fully cooperate
with Alanex in the defense of such claim, with out-of-pocket costs reimbursed by
Alanex as part of the indemnification.
12. NOTICES
All notices or communications to either party by the other party shall
be delivered personally or sent by first-class or express mail, postage prepaid,
addressed to such party at the following addresses for each and shall be deemed
given on the date so delivered.
If to Mount Sinai,
Mount Sinai School of Medicine of
the City University of New York
One Gustave L. Levy Place
New York, New York 10029-6574
Attn: Director, Office of Science
and Technology Development
If to Sponsor,
Alanex Corporation
3550 General Atomics Court
San Diego, CA 92121
Attn: Chief Executive Officer
6.
<PAGE> 7
13. ASSIGNMENT
Neither party to this Agreement may assign or transfer any rights or
obligations arising from this Agreement without the prior written consent of the
other party, not to be unreasonably withheld; provided, however, that Sponsor
may assign all of its rights and obligations under this Agreement in connection
with a merger, sale of assets or other transaction involving a change of control
of the line of Sponsor's business to which this Agreement relates.
14. ENTIRE AGREEMENT; AMENDMENTS
The Agreement sets forth all the promises, conditions, understandings
and agreements between the parties relative to the subject matter hereof, and
there are no promises, conditions, understandings or agreements, oral or
written, between the parties relative to the subject matter hereof other than as
set forth herein. This Agreement may only be modified or amended by a written
agreement signed by both parties.
15. CHOICE OF LAW; COUNTERPARTS
The Agreement shall be governed by and construed in accordance with the laws of
the State of California, as applied to contracts entered into between California
residents and performed entirely within California. This Agreement may be
executed in two or more counterparts, all of which together shall constitute one
original.
MOUNT SINAI SCHOOL OF MEDICINE
OF THE CITY UNIVERSITY OF NEW YORK ALANEX CORPORATION
By: /s/ ILLEGIBLE By: /s/ MARVIN R. BROWN
---------------------- --------------------------
Title: Dean Title: President
------------------- -----------------------
Date: May 24, 1996 Date: 6/14/96
-------------------- ------------------------
Acknowledged by:
/s/ STUART SEALFON
- -------------------------
DR. STUART SEALFON
7.
<PAGE> 8
*CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT A
RESEARCH PROGRAM
PHASE I (from Effective Date until 6 months thereafter)
Mount Sinai will make a best effort to achieve coupling of a reporter
molecule such as ********* to the GnRH receptor second messenger system, thus
allowing detection of GnRH receptor agonists or antagonists in a
high-throughput screening system. When available, Mount Sinai will provide such
reporter system to Sponsor.
Mount Sinai will make a best effort to achieve transfection of cell
lines with the human GnRH receptor and stable expression of the human GnRH
receptor in such cell lines. When available, Mount Sinai will provide such
stable transfected cell lines to Sponsor.
PHASE II (from 6 months after Effective Date to 1 year after Effective
Date)
Mount Sinai will make a best effort to perform mutagenesis and initiate
molecular modelling studies on the human GnRH receptor. When available, Mount
Sinai will provide mutant cell lines and data from modelling studies to
Sponsor.
<PAGE> 1
EXHIBIT 10.18
CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4), 200.83
AND 230.406 * INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL
TREATMENT REQUEST THAT IS FILED SEPARATELY WITH THE COMMISSION
NONEXCLUSIVE LICENSE
AGREEMENT
THIS NONEXCLUSIVE LICENSE AGREEMENT (the "AGREEMENT") is made and
entered into this 17th day of June, 1996 (the "EFFECTIVE DATE"), by and between
ALANEX CORPORATION, a California corporation having its principal place of
business at 3550 General Atomics Court, San Diego, CA 9212-1994 ("ALANEX"), and
the MOUNT SINAI SCHOOL OF MEDICINE OF THE CITY UNIVERSITY OF NEW YORK, a New
York corporation having its principal place of business at One Gustave L. Levy
Place, New York, New York 10029-6574 ("LICENSOR").
WHEREAS, Licensor owns rights to certain inventions and technologies
regarding the human GnRH receptor; and
WHEREAS, Alanex desires to obtain a nonexclusive license to such
inventions and technologies in accordance with the terms and conditions
contained herein; and
WHEREAS, Licensor is willing to grant a nonexclusive license to Alanex
in accordance with the terms and conditions contained herein;
NOW, THEREFORE, Licensor and Alanex hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "AFFILIATE" means any entity that directly or indirectly owns, is
owned by or is under common ownership, with Alanex, where "owns" or "ownership"
means direct or indirect possession of at least 50% of the outstanding voting
securities of Alanex.
1.2 "FIELD" shall mean the research and development of novel ligands
to the GnRH receptor, using the GnRH receptor, for the diagnosis, prevention or
treatment of human diseases and disorders.
1.3 "LICENSED KNOW-HOW" means all know-how, technology, data,
processes, protocols, procedures, methods, formulas, compositions of matter,
materials (including biological materials, such as cell lines, vectors, reagents
or assays), information and other subject matter which is related to the
inventions claimed in the Licensed Patents.
1.4 "LICENSED PATENTS" means (i) the patent applications listed on
the attached Exhibit A (ii) all patents issuing from such patent applications,
(iii) all divisionals, substitute applications, continuations and
continuations-in-part derived from such patent applications, (iv)
1.
<PAGE> 2
all reissues, renewals, re-examinations and inventors' certificates derived from
patents issuing on such applications and (v) all foreign counterparts of the
foregoing.
1.5 "LICENSED PRODUCT" means any product discovered, developed or
manufactured by Alanex, its Affiliates or sublicensees using any Licensed
Know-how or any invention covered by a Licensed Patent.
1.6 "LICENSED TECHNOLOGIES" means the Licensed Patents and Licensed
Know-how.
1.7 "NET SALES" means the gross receipts received by Alanex, its
Affiliates or sublicensees, as appropriate, for the commercial sale of Licensed
Products to independent third parties, less the following: transportation
charges, discounts actually allowed (including distributor discounts), credits
allowed for defective or returned goods, and other allowances (actually paid or
allowed, including but not limited to, prompt payment and volume discounts,
charge backs from wholesalers and other allowances granted to the end commercial
customer of the Licensed Product, whether in cash or trade), costs of insurance
and sales and other taxes based on sales prices when included in gross sales,
but not including taxes assessed on income derived from such sales.
ARTICLE 2
TECHNOLOGY RIGHTS AND TRANSFER
2.1 LICENSE GRANT. Licensor hereby grants to Alanex a non-exclusive
license, worldwide license under the Licensed Technologies to discover, develop,
manufacture, use, offer for sale, sell and import Licensed Products in the
Field. Alanex may sublicense such rights in connection with other rights owned
or held by Alanex as part of strategic transactions for the development of
Licensed Products. Alanex may not sublicense such rights separately, apart from
Alanex technology. Licensor shall have the right to approve the identity of any
sublicensee that is not a "Fortune 500" pharmaceutical company or on Fortune
Magazine's comparable international list. Licensor shall not unreasonably
withhold or delay any such approval.
Alanex acknowledges that the United States Government may retain
certain rights under 35 U.S.C. 200-212 with respect to the Licensed
Technologies. The license granted to Alanex hereunder is subject to such rights.
Alanex agrees to use its reasonable best efforts to cause Licensed Products to
be manufactured in the United States.
2.2 DISCLOSURE OF LICENSED KNOW-HOW. Promptly following the
Effective Date, Licensor shall use reasonable efforts to provide Alanex with all
tangible and intangible components of the Licensed Know-how.
2.
<PAGE> 3
*CONFIDENTIAL TREATMENT REQUESTED
ARTICLE 3
CONSIDERATION
3.1 MILESTONE PAYMENTS. Alanex agrees to pay to Mount Sinai an amount
equal to **************** of any milestone payments which Alanex may receive
from third party sublicensees upon the achievement of human clinical or
regulatory milestones with Licensed Products. Such milestones shall include the
filing of an IND with the U.S. FDA, events during Phase I, II or III clinical
trials, and the filing or approval of an application for regulatory approval of
a Licensed Product. License fees, equity investments, at bona fide loans,
payments for research and development by Alanex and payments other than the
milestones described above shall not be subject to this Section 3.1. If Alanex
receives consideration in a form other than cash, Alanex may pay Licensor
pursuant to this Section 3.1 either in kind or in cash based upon the fair
market value of such consideration.
3.2 ROYALTIES. Alanex agrees to pay Licensor during the term of this
Agreement a royalty equal to ************************** of Net Sales of
Licensed Products.
3.3 PAYMENTS; REPORTS. Payments made pursuant to Sections 3.1 and 3.2
above shall be payable in U.S. dollars. Payments made under Section 3.1 above
shall be made within thirty (30) days of Alanex' receipt of milestone payments
from its third party sublicensees. The first royalty payment under Section 3.2
shall cover all royalties due on Net Sales of Licensed Products during the
calendar quarter when such sales commence and shall be made forty-five (45) days
after the end of such quarter. Thereafter royalty payments shall be due
forty-five (45) days after each succeeding calendar quarter and shall cover the
royalties earned during such calendar quarter. Alanex agrees to provide written
reports to Licensor with such royalty payments setting forth the total number of
Licensed Products sold during the applicable period. In the event that Alanex is
required to withhold taxes imposed on such payments in any country, Alanex will
remit such taxes to the proper authorities, reduce payment to Licensor
accordingly and supply Licensor with all relevant documentation in Alanex's
possession so that Licensor may recover such taxes to the extent permissible.
3.4 RECORDS RETENTION. Alanex will keep, and will cause its
Affiliates and sublicensees to keep, complete and accurate records pertaining to
the sale of Licensed Products in sufficient detail to permit Licensor to confirm
the accuracy of calculations of all payments due hereunder. Such records will be
maintained for a three (3) year period following the year in which any such
payments were made hereunder.
3.5 AUDIT REQUEST. No more frequently than once a year, Licensor will
have the right to engage, at its own expense, an independent certified public
accountant reasonably acceptable to Alanex to examine Alanex's records to
determine, with respect to any calendar year, the correctness of any report or
payment made under this Agreement. Any such audit will be conducted under
reasonable confidentiality restrictions. In the event that any such examination
reveals that payments made to Licensor hereunder are incorrect by more than
seven percent (7%) in any audited period, Alanex shall reimburse Licensor for
the costs of such audit in addition to promptly remitting the amount of any
underpayment with interest at the prime rate
3.
<PAGE> 4
reported in the Wall Street Journal on the last day of the month prior to the
date of such remittance.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 DUE AUTHORIZATION. Each party represents and warrants that it is
duly authorized to execute and deliver this Agreement and to perform its
obligations hereunder.
4.2 BINDING AGREEMENT. Each party represents and warrants that this
Agreement is a legal and valid obligation binding upon it and enforceable in
accordance with its terms. Licensor has all rights to the Licensed Patents, and
no such rights have been granted to any third party.
ARTICLE 5
TERM; TERMINATION
5.1 TERM. This Agreement will commence as of the Effective Date and,
unless sooner terminated as provided in this Article 5, will expire upon the
later of (a) ten (10) years from first commercial sale of any Licensed Product
or (b) the date of expiration of the last-to-expire patent included in the
Licensed Patents.
5.2 TERMINATION BY ALANEX. Alanex will have the right to terminate
this Agreement for any reason upon sixty (60) days prior written notice to
Licensor. In the event of material breach by Licensor, Alanex may elect to
terminate this Agreement upon sixty (60) days prior written notice or continue
this Agreement while pursuing its legal remedies, including the receipt of
damages related to such breach. Any damages finally awarded may, at Alanex's
option, be deducted from any payments owed to Licensor pursuant to Article 3
hereof.
5.3 TERMINATION BY LICENSOR. Licensor will have the right to
terminate this Agreement, in addition to pursuing any remedies available under
law or in equity, upon sixty (60) days written notice to Alanex if Alanex is in
material breach of this Agreement, unless within such sixty (60) day period
Alanex cures such breach.
5.4 EFFECT OF TERMINATION; SURVIVAL. Upon any termination of this
Agreement, Alanex will pay Licensor all accrued payments due Licensor through
the expiration or termination date and all licenses shall revert to Licensor.
Sections 3.4 and 3.5 shall survive for three (3) years following termination,
and Articles 6 and 7 shall survive indefinitely.
4.
<PAGE> 5
ARTICLE 6
CONFIDENTIALITY
6.1 CONFIDENTIALITY.
(a) For purposes of this Agreement, "Confidential
Information" means any information or material disclosed or provided by Alanex
to Licensor pursuant to Article 3 of this Agreement, except:
(1) information that is known to or
independently developed by Licensor prior to the time of disclosure, as
evidenced by Licensor's records;
(2) information disclosed to Licensor by a third
party that has a right to make such disclosure;
(3) information that becomes patented, published
or otherwise part of the public domain other than through breach of this
Agreement; or
(4) information that is required to be disclosed
by law.
(b) Licensor shall, for the term of this Agreement, maintain
Confidential Information in confidence and shall not disclose Confidential
Information to any third party or use Confidential Information for any purpose
not contemplated under this Agreement, except with the written consent of
Alanex.
ARTICLE 7
INDEMNIFICATION AND INSURANCE
Alanex agrees to indemnify, hold harmless and defend Licensor, its
trustees, officers, medical and professional staff, employees, students and
agents, and their respective successors and assigns (the "Indemnitees"), against
any liability, damage, loss or expense (including reasonable attorneys fees and
expenses of litigation) incurred or imposed upon Indemnitees in connection with
any claims, suits, actions, demands or judgments resulting or arising out of the
development, distribution, possession, manufacture, use, sale or administration
of Licensed Products by Alanex, its Affiliates or sublicensees, or by any third
party. Alanex or its sublicensees agree to carry and keep in force commercial
general liability insurance of not less than $1 million per occurrence and $2
million in aggregate to cover liability for damages on account of bodily or
personal injury or death to any person or damage to property of any person. In
addition, Alanex or its sublicensees shall keep in force product liability
insurance of not less than $2 million per occurrence and $4 million in aggregate
prior to any commercial distribution of Licensed Products; provided, however,
such limits shall be increased if Licensor can demonstrate that higher amounts
are customary for businesses the size of Alanex or engaged in the business in
which Alanex is engaged. Licensor will be named as an additional insured on
5.
<PAGE> 6
any such insurance and such insurance shall not be canceled without at least
thirty (30) days notice to Licensor. Alanex shall provide a certificate of
insurance evidencing that all required coverage is in effect stating the limits
of such coverage. Such insurance shall be written to include coverage for any
claims incurred in connection with the matters which are the subject of this
Agreement regardless of when such claims are brought. Licensor shall promptly
notify Alanex of any claim for which Licensor may seek indemnification under
this Article 7. Alanex shall have the right to control the defense of such claim
and may enter into any settlement that does not adversely affect the rights of
Licensor. Licensor shall fully cooperate with Alanex in the defense of such
claim, with out-of-pocket costs reimbursed by Alanex as part of the
indemnification.
ARTICLE 8
GENERAL
8.1 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of California, as applied to contracts
executed and performed entirely within the State of California, without regard
to conflicts of laws rules.
8.2 USE OF NAME. Alanex agrees that it will not use the name,
trademark or any other identifier of Licensor in any advertising or promotion
without the prior approval of Licensor, except to disclose the existence of this
Agreement and as otherwise required by law.
8.3 NOTICES. All notices or communications to either party by the
other party shall be delivered personally or sent by first-class or express
mail, postage prepaid, addressed to such party at the following addresses for
each and shall be deemed given on the date so delivered.
If to Licensor,
Mount Sinai School of Medicine of
the City University of New York
One Gustave L. Levy Place
New York, New York 10029-6574
Attn: Director, Office of Science
and Technology Development
If to Alanex,
Alanex Corporation
3550 General Atomics Court
San Diego, CA 92121
Attn: Chief Executive Officer
6.
<PAGE> 7
8.4 ASSIGNMENT. Neither party to this Agreement may assign or
transfer any rights or obligations arising from this Agreement without the prior
written consent of the other party, not to be unreasonably withheld; provided,
however, that Alanex may assign all of its rights and obligations under this
Agreement in connection with a merger, sale of assets or other transaction
involving a change of control of Alanex's business.
8.5 AMENDMENT. No amendment, modification or supplement of any
provision of the Agreement will be valid or effective unless made in writing and
signed by an authorized representative of each party.
8.6 WAIVER. No waiver of any provision of this Agreement in a
particular instance shall be deemed to be a waiver of any provision of this
Agreement in a later instance.
8.7 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of the Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
the Agreement.
8.8 ENTIRE AGREEMENT OF THE PARTIES. This Agreement will constitute
and contain the complete, final and exclusive understanding and agreement of the
parties and cancels and supersedes any and all prior negotiations,
correspondence, understandings and agreements, whether oral or written, between
the parties respecting the subject matter hereof.
8.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the Effective Date.
ALANEX CORPORATION MOUNT SINAI SCHOOL OF MEDICINE
OF THE CITY UNIVERSITY OF NEW YORK
By: /s/ Marvin R. Brown By: /s/ Nathan Kase, M.D.
------------------- ---------------------
Name: Marvin R. Brown Name: Nathan Kase, M.D.
------------------- ---------------------
Title: President & CEO Title: Dean
------------------- ---------------------
7.
<PAGE> 8
EXHIBIT A
LICENSED PATENTS
Title: GnRH RECEPTOR
Serial No.: 07/938,189
Filed: August 28, 1992
Status: Abandoned In Favor Of CIP
Title: CLONING AND EXPRESSION OF GONADOTROPIN-RELEASING
HORMONE RECEPTOR
Pat. Type: CIP
Serial No.: 08/080,386
Filed: June 21, 1993
Status: Pending
Title: CLONING AND EXPRESSION OF GONADOTROPIN-RELEASING
HORMONE RECEPTOR
Pat. Type: CIP
Serial No.: 08/390,000
Filed: February 17, 1995
Status: Pending
Titled: CLONING AND EXPRESSION OF GONADOTROPIN-RELEASING
HORMONE RECEPTOR
Appln. No.: PCT/US93/05965
Filed: June 23, 1992
Status: Published on January 6, 1994
Publ. No.: W094/00590
Title: CLONING AND EXPRESSION OF GONADOTROPIN-RELEASING
HORMONE RECEPTOR
Country: Canada
Appln. No.: 2,138,999
Filed: June 22, 1993
Status: Request For Examination Due: June 22, 2000
i.
<PAGE> 9
Title: CLONING AND EXPRESSION OF GONADOTROPIN-RELEASING
HORMONE RECEPTOR
Country: Japan
Appln. No.: 6-502535
Filed: June 22, 1993
Status: Request For Examintation Due: June 22, 2000
Title: CLONING AND EXPRESSION OF GONADOTROPIN-RELEASING
HORMONE RECEPTOR
Country: EPC (designating Austria, Belgium, France, Germany, Italy,
Lulxembourg, Netherlands, Sweden, Switzerland, United
Kingdom, Greece, Spain, Liechtenstein, Denmark, Ireland,
Monaco, and Portugal)
Appln. No.: 9315447.2
Filed: June 22, 1993
Status: Request For Examination Filed
ii.
<PAGE> 1
EXHIBIT 10.19
CONFIDENTIAL TREATMENT REQUESTED UNDER 17 C.F.R. SECTIONS 200.80(b)(4), 200.83
AND 230.406 * INDICATES OMITTED MATERIAL THAT IS THE SUBJECT OF A CONFIDENTIAL
TREATMENT REQUEST THAT IS FILED SEPARATELY WITH THE COMMISSION
EXCLUSIVE LICENSE AGREEMENT
THIS EXCLUSIVE LICENSE AGREEMENT (the "AGREEMENT") is made and entered
into this 17th day of June, 1996 (the "EFFECTIVE DATE"), by and between
ALANEX CORPORATION, a California corporation having its principal place of
business at 3550 General Atomics Court, San Diego, CA 92121-1994 ("ALANEX"), and
the MOUNT SINAI SCHOOL OF MEDICINE OF THE CITY UNIVERSITY OF NEW YORK, a New
York corporation having its principal place of business at One Gustave L. Levy
Place, New York, New York 10029-6574 ("LICENSOR").
RECITALS:
WHEREAS, Alanex and Licensor have entered into a Research Agreement of
even date herewith (the "RESEARCH AGREEMENT"), under which Licensor shall
perform research directed toward the human GnRH receptor (the "RESEARCH
PROGRAM"); and
WHEREAS, Alanex and Licensor have also entered into a Nonexclusive
License Agreement of even date herewith, under which Alanex has obtained
nonexclusive rights to certain inventions and technologies relating to the human
GnRH receptor that Licensor owned as of the Effective Date; and
WHEREAS, Alanex desires to obtain an exclusive license under inventions
and technologies developed by Licensor in the course of Research Program; and
WHEREAS, Licensor is willing to grant such a license to Alanex in
accordance with the terms and conditions contained herein;
NOW, THEREFORE, Licensor and Alanex hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "AFFILIATE" means any entity that directly or indirectly owns, is
owned by or is under common ownership, with Alanex, where "owns" or "ownership"
means direct or indirect possession of at least 50% of the outstanding voting
securities of Alanex.
1.2 "LICENSED KNOW-HOW" means all know-how, technology, data,
processes, protocols, procedures, methods, formulas, compositions of matter,
materials (including biological materials, such as cell lines, vectors, reagents
or assays), information and other subject matter which is developed in the
course of the Research Program. Licensed Know-how shall include without
limitation the reporter system, transfected cell lines and mutant cell lines
described on Exhibit A to the Research Agreement, when provided to Alanex by
Licensor.
1.
<PAGE> 2
1.3 "LICENSED PATENTS" means (i) all domestic patents and patent
applications (including provisional applications) covering inventions made in
the course of the Research Program, (ii) all patents issuing from such patent
applications, (iii) all divisionals, substitute applications, continuations and
continuations-in-part derived from such patent applications, (iv) all reissues,
renewals, re-examinations and inventors' certificates derived from such patents
and (v) all foreign counterparts of the foregoing.
1.4 "LICENSED PRODUCT" means any product discovered, developed or
manufactured by Alanex, its Affiliates or sublicensees using any Licensed
Know-how or any invention covered by a Licensed Patent.
1.5 "LICENSED TECHNOLOGIES" means the Licensed Patents and Licensed
Know-how.
1.6 "NET SALES" means the gross receipts received by Alanex, its
Affiliates or sublicensees, as appropriate, for the commercial sale of Licensed
Products to independent third parties, less the following: transportation
charges, discounts actually allowed (including distributor discounts), credits
allowed for defective or returned goods, and other allowances (actually paid or
allowed, including but not limited to, prompt payment and volume discounts,
charge backs from wholesalers and other allowances granted to the end commercial
customer of the Licensed Product, whether in cash or trade), costs of insurance
and sales and other taxes based on sales prices when included in gross sales,
but not including taxes assessed on income derived from such sales.
ARTICLE 2
TECHNOLOGY RIGHTS AND TRANSFER
2.1 LICENSE GRANT. Licensor hereby grants to Alanex an exclusive (even
as to Licensor), worldwide license under the Licensed Technologies to discover,
develop, manufacture, use, offer for sale, sell and import Licensed Products.
Licensor retains the right to practice the Licensed Technologies for
noncommercial academic and educational purposes. Alanex may grant sublicenses
under such rights, provided that Licensor approves the identity of any
sublicensee that is not a "Fortune 500" pharmaceutical company or on Fortune
Magazine's comparable international list. Licensor shall not unreasonably
withhold or delay any such approval.
Alanex acknowledges that the United States Government may retain
certain rights under 35 U.S.C. 200-212 with respect to the Licensed
Technologies. The license granted to Alanex hereunder is subject to such rights.
Alanex agrees to use its reasonable best efforts to cause Licensed Products to
be manufactured in the United States.
2.2 UPDATES OF LICENSED TECHNOLOGIES. As reasonably requested by
Alanex, the Principal Investigation and Licensor shall update Alanex as to
Licensed Patents and Licensed Know-how developed in the course of the Research
Program. Exhibit A shall be periodically updated by the parties to include all
such Licensed Patents and Licensed Know-how. Such list
2.
<PAGE> 3
*CONFIDENTIAL TREATMENT REQUESTED
shall be maintained for convenience only. The definitions set forth in Sections
1.2 and 1.3 shall define the Licensed Know-how and Licensed Patents covered by
this Agreement at all times.
2.3 LICENSED PATENTS. Licensor shall notify Alanex of each new
patentable invention subject to this Agreement at least thirty (30) days in
advance of filing any patent application on such invention. If Alanex notifies
Licensor within such thirty (30) day period that Alanex will not be responsible
for reimbursement of patent costs related to such invention, then such patents
shall not be included within the Licensed Patents and shall not be subject to
the terms of this Agreement.
2.4 DISCLOSURE OF LICENSED KNOW-HOW. During the term of this Agreement,
Licensor shall use reasonable efforts to provide Alanex with all tangible and
intangible components of the Licensed Know-how.
ARTICLE 3
CONSIDERATION
3.1 PATENT COSTS. Alanex agrees to reimburse Licensor in accordance
with Section 4.1 for all documented costs incurred by Licensor in connection
with the filing, prosecution and maintenance of the Licensed Patents. Alanex
will reimburse Licensor within thirty (30) days of receipt of such
documentation.
3.2 MILESTONE PAYMENTS. Alanex agrees to pay to Mount Sinai an amount
equal to **************** of any milestone payments which Alanex may receive
from third party sublicensees upon the achievement of human clinical or
regulatory milestones with Licensed Products. License fees, equity investments,
bona fide loans, payments for research and development by Alanex and payments
other than the milestones described above shall not be subject to this Section
3.2. If Alanex receives consideration in a form other than cash, Alanex may pay
Licensor pursuant to this Section 3.2 either in kind or in cash based upon the
fair market value of such consideration.
3.3 ROYALTIES. Alanex agrees to pay Licensor during the term of this
Agreement a royalty equal to ************************** of Net Sales of
Licensed Products.
3.4 PAYMENTS; REPORTS. Payments made pursuant to Sections 3.2 and 3.3
above shall be payable in U.S. dollars. Payments made under Section 3.2 above
shall be made within thirty (30) days of Alanex' receipt of milestone payments
from its third party sublicensees. The first royalty payment under Section 3.3
shall cover all royalties due on Net Sales of Licensed Products during the
calendar quarter when such sales commence and shall be made forty-five (45) days
after the end of such quarter. Thereafter royalty payments shall be due
forty-five (45) days after each succeeding calendar quarter and shall cover the
royalties earned during such calendar quarter. Alanex agrees to provide written
reports to Licensor with such royalty payments setting forth the total number of
Licensed Products sold during the applicable period. In the event that Alanex is
required to withhold taxes imposed on such payments in any country, Alanex will
remit such taxes to the proper authorities, reduce payment to Licensor
accordingly
3.
<PAGE> 4
and supply Licensor with all relevant documentation in Alanex's possession so
that Licensor may recover such taxes to the extent permissible.
3.5 RECORDS RETENTION. Alanex will keep, and will cause its Affiliates
and sublicensees to keep, complete and accurate records pertaining to the sale
of Licensed Products in sufficient detail to permit Licensor to confirm the
accuracy of calculations of all payments due hereunder. Such records will be
maintained for a three (3) year period following the year in which any such
payments were made hereunder.
3.6 AUDIT REQUEST. No more frequently than once a year, Licensor will
have the right to engage, at its own expense, an independent certified public
accountant reasonably acceptable to Alanex to examine Alanex's records to
determine, with respect to any calendar year, the correctness of any report or
payment made under this Agreement. Any such audit will be conducted under
reasonable confidentiality restrictions. In the event that any such examination
reveals that payments made to Licensor hereunder are incorrect by more than
seven percent (7%) in any audited period, Alanex shall reimburse Licensor for
the costs of such audit in addition to promptly remitting the amount of any
underpayment with interest at the prime rate reported in the Wall Street Journal
on the last day of the month prior to the date of such remittance.
ARTICLE 4
PATENTS AND INFRINGEMENT
4.1 PATENT PROSECUTION AND MAINTENANCE. Licensor shall have the right,
but not the obligation, to file, prosecute and maintain all patent applications
and patents included in the Licensed Patents using counsel reasonably acceptable
to Alanex. Licensor and Alanex shall cooperate to determine appropriate
prosecution strategy with respect to each Licensed Patent, including the
countries in which such patent will be pursued. Licensor will provide Alanex
with copies of all correspondence with patent authorities promptly after receipt
or delivery. Licensor will provide Alanex with a reasonable opportunity to
review and comment on all patent filings in advance of filing. Alanex shall
reimburse Licensor for all documented costs, fees and expenses incurred by
Licensor in connection with the filing, prosecution and maintenance of the
Licensed Patents. In the event Licensor declines to file, prosecute or maintain
any application or patent within the Licensed Patents in any country, Licensor
shall give Alanex notice of such decision reasonably in advance of any filing
deadline applicable to such application or patent. Thereafter, Alanex may, at
its own expense, continue to prosecute or maintain such application or patent.
4.2 PATENT ENFORCEMENT. Alanex shall have the first right, but not the
obligation, to enforce the Licensed Patents in infringement, interference or
other proceedings and to file suit in its own name or in the name of Licensor.
All costs, fees and/or expenses incurred in connection with such enforcement of
the Licensed Patents shall be borne by Alanex. To the extent that damages are
awarded to Alanex in any suit for infringement, such damages shall be applied
first to reimburse Alanex for its enforcement expenses and the remainder will be
treated as Net Sales of Alanex subject to royalties under Section 3.3. In the
event that Alanex declines
4.
<PAGE> 5
to prosecute infringement of any Licensed Patents pursuant to this Section 4.2,
Licensor shall have the right to prosecute such infringement at its own expense
and to retain any recovery obtained in such action.
4.3 ASSISTANCE. Licensor shall provide any assistance reasonably
requested by Alanex in exercising its rights under this Article 4, subject to
reimbursement of Licensor's out-of-pocket costs in providing such assistance.
Without limitation, to the extent possible Licensor will execute any documents
necessary for Alanex to bring suit to enforce the Licensed Patents and will make
employees and other personnel associated with Licensor reasonably available to
assist with patent prosecution or to give testimony relating to the Licensed
Patents.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 DUE AUTHORIZATION. Each party represents and warrants that it is
duly authorized to execute and deliver this Agreement and to perform its
obligations hereunder.
5.2 BINDING AGREEMENT. Each party represents and warrants that this
Agreement is a legal and valid obligation binding upon it and enforceable in
accordance with its terms. The execution, delivery and performance of this
Agreement by such party does not conflict with any agreement, instrument or
understanding, oral or written, to which it is a party or by which it may be
bound, nor violate any law or regulation of any court, governmental body or
administrative or other agency having jurisdiction over it.
ARTICLE 6
TERM; TERMINATION
6.1 TERM. This Agreement will commence as of the Effective Date and,
unless sooner terminated as provided in this Article 6, will expire upon the
later of (a) ten (10) years from first commercial sale of any Licensed Product
or (b) the date of expiration of the last-to-expire patent included in the
Licensed Patents.
6.2 TERMINATION BY ALANEX. Alanex will have the right to terminate this
Agreement for any reason upon sixty (60) days prior written notice to Licensor.
In the event of material breach by Licensor, Alanex may elect to terminate this
Agreement upon sixty (60) days prior written notice or continue this Agreement
while pursuing its legal remedies, including the receipt of damages related to
such breach. Any damages finally awarded may, at Alanex's option, be deducted
from any payments owed to Licensor pursuant to Article 3 hereof.
6.3 TERMINATION BY LICENSOR. Licensor will have the right to terminate
this Agreement, in addition to pursuing any remedies available under law or in
equity, upon sixty (60) days written notice to Alanex if Alanex is in material
breach of this Agreement, unless
5.
<PAGE> 6
within such sixty (60) day period Alanex initiates good faith efforts reasonably
calculated to cure such breach.
6.4 EFFECT OF TERMINATION; SURVIVAL. Upon any termination of this
Agreement, Alanex will pay Licensor all accrued payments due Licensor through
the expiration or termination date and all licenses shall revert to Licensor.
Sections 3.5 and 3.6 and Articles 7 and 8 shall survive for three (3) years
following termination.
ARTICLE 7
CONFIDENTIALITY
7.1 CONFIDENTIALITY.
(a) For purposes of this Agreement, "Confidential Information"
means any information or material disclosed or provided by Alanex to Licensor
pursuant to Article 3 or 4 of this Agreement, except:
(1) information that is known to or independently developed
by Licensor prior to the time of disclosure, as evidenced by Licensor's records;
(2) information disclosed to Licensor by a third party that
has a right to make such disclosure;
(3) information that becomes patented, published or
otherwise part of the public domain other than through breach of this Agreement;
or
(4) information that is required to be disclosed by law.
(b) Licensor shall, for the term of this Agreement, maintain
Confidential Information in confidence and shall not disclose Confidential
Information to any third party or use Confidential Information for any purpose
not contemplated under this Agreement, except with the written consent of
Alanex.
ARTICLE 8
INDEMNIFICATION AND INSURANCE
Alanex agrees to indemnify, hold harmless and defend Licensor, its
trustees, officers, medical and professional staff, employees, students and
agents, and their respective successors and assigns (the "Indemnitees"), against
any liability, damage, loss or expense (including reasonable attorneys fees and
expenses of litigation) incurred or imposed upon Indemnitees in connection with
any claims, suits, actions, demands or judgments resulting or arising out of the
development, distribution, possession, manufacture, use, sale or administration
of Licensed Products by Alanex, its affiliates or sublicensees, or by any third
party. Alanex or its
6.
<PAGE> 7
sublicensees agree to carry and keep in force general commercial liability
insurance of not less than $1 million per occurrence and $2 million in aggregate
to cover liability for damages on account of bodily or personal injury or death
to any person or damage to property of any person. In addition, Alanex or its
sublicensees shall keep in force product liability insurance of not less than $2
million per occurrence and $4 million in aggregate prior to any commercial
distribution of Licensed Products; provided, however, such limits shall be
increased if Licensor can demonstrate that higher amounts are customary for
businesses the size of Alanex or engaged in the business in which Alanex is
engaged. Licensor will be named as an additional insured on any such insurance
and such insurance shall not be canceled without at least thirty (30) days
notice to Licensor. Alanex shall provide a certificate of insurance evidencing
that all required coverage is in effect stating the limits of such coverage.
Such insurance shall be written to include coverage for any claims incurred in
connection with the matters which are the subject of this Agreement regardless
of when such claims are brought. Licensor shall promptly notify Alanex of any
claim for which Licensor may seek indemnification under this Article 8. Alanex
shall have the right to control the defense of such claim and may enter into any
settlement that does not adversely affect the rights of Licensor. Licensor shall
fully cooperate with Alanex in the defense of such claim, with out-of-pocket
costs reimbursed by Alanex as part of the indemnification.
ARTICLE 9
GENERAL
9.1 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of California, as applied to contracts
executed and performed entirely within the State of California, without regard
to conflicts of laws rules.
9.2 USE OF NAME. Alanex agrees that it will not use the name, trademark
or any other identifier of Licensor in any advertising or promotion without the
prior approval of Licensor, except to disclose the existence of this Agreement
and as otherwise required by law.
9.3 NOTICES. All notices or communications to either party by the other
party shall be delivered personally or sent by first-class or express mail,
postage prepaid, addressed to such party at the following addresses for each and
shall be deemed given on the date so delivered.
If to Licensor,
Mount Sinai School of Medicine of
the City University of New York
One Gustave L. Levy Place
New York, New York 10029-6574
Attn: Director, Office of Science
and Technology Development
7.
<PAGE> 8
If to Alanex,
Alanex Corporation
3550 General Atomics Court
San Diego, CA 92121
Attn: Chief Executive Officer
9.4 ASSIGNMENT. Neither party to this Agreement may assign or transfer
any rights or obligations arising from this Agreement without the prior written
consent of the other party, not to be unreasonably withheld; provided, however,
that Alanex may assign all of its rights and obligations under this Agreement in
connection with a merger, sale of assets or other transaction involving a change
of control of Alanex's business.
9.5 AMENDMENT. No amendment, modification or supplement of any
provision of the Agreement will be valid or effective unless made in writing and
signed by an authorized representative of each party.
9.6 WAIVER. No waiver of any provision of this Agreement in a
particular instance shall be deemed to be a waiver of any provision of this
Agreement in a later instance.
9.7 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of the Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
the Agreement.
9.8 ENTIRE AGREEMENT OF THE PARTIES. This Agreement will constitute and
contain the complete, final and exclusive understanding and agreement of the
parties and cancels and supersedes any and all prior negotiations,
correspondence, understandings and agreements, whether oral or written, between
the parties respecting the subject matter hereof.
9.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which together shall constitute one instrument.
8.
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the Effective Date.
ALANEX CORPORATION MOUNT SINAI SCHOOL OF MEDICINE
OF THE CITY UNIVERSITY OF NEW YORK
By:/s/ Marvin R. Brown By:/s/ Nathan Kase
--------------------------- -------------------------------
Name: Marvin R. Brown Name: Nathan Kase, M.D.
------------------------- -----------------------------
Title: President & CEO Title: Dean
------------------------ ----------------------------
9.
<PAGE> 10
EXHIBIT A
LICENSED TECHNOLOGY
I. LICENSED PATENTS
EXHIBIT A
LICENSED PATENTS
Title: GnRH RECEPTOR
Serial No.: 07/938,189
Filed: August 28, 1992
Status: Abandoned In Favor Of CIP
Title: CLONING AND EXPRESSION OF GONADOTROPIN-RELEASING
HORMONE RECEPTOR
Pat. Type: CIP
Serial No.: 08/080,386
Filed: June 21, 1993
Status: Pending
Title: CLONING AND EXPRESSION OF GONADOTROPIN-RELEASING
HORMONE RECEPTOR
Pat. Type: CIP
Serial No.: 08/390,000
Filed: February 17, 1995
Status: Pending
Titled: CLONING AND EXPRESSION OF GONADOTROPIN-RELEASING
HORMONE RECEPTOR
Appln. No.: PCT/US93/05965
Filed: June 23, 1992
Status: Published on January 6, 1994
Publ. No.: W094/00590
Title: CLONING AND EXPRESSION OF GONADOTROPIN-RELEASING
HORMONE RECEPTOR
Country: Canada
Appln. No.: 2,138,999
Filed: June 22, 1993
Status: Request For Examination Due: June 22, 2000
Title: CLONING AND EXPRESSION OF GONADOTROPIN-RELEASING
HORMONE RECEPTOR
Country: Japan
Appln. No.: 6-502535
Filed: June 22, 1993
Status: Request For Examination Due: June 22, 2000
Title: CLONING AND EXPRESSION OF GONADOTROPIN-RELEASING
HORMONE RECEPTOR
Country: EPC (designating Austria, Belgium, France, Germany, Italy,
Luxembourg, Netherlands, Sweden, Switzerland, United
Kingdom, Greece, Spain, Liechtenstein, Denmark, Ireland,
Monaco, and Portugal)
Appln. No.: 9315447.2
Filed: June 22, 1993
Status: Request For Examination Filed
II. LICENSED KNOW-HOW
NONE
i.
<PAGE> 1
Exhibit 10.30
NONSTATUTORY STOCK OPTION
_______________________, Optionee:
ALANEX CORPORATION (the "Company") has this day granted to you, the
optionee named above, an option to purchase shares of the common stock of the
Company ("Common Stock"). This option is not intended to qualify as and will not
be treated as an "incentive stock option" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers, directors and consultants) and is intended to comply with
the provisions of Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act") and to satisfy the
requirements of Section 25102(f) of the California Corporate Securities Law of
1968, as amended.
The details of your option are as follows:
1. NUMBER OF OPTION SHARES AND VESTING. The total number of shares of
Common Stock subject to this option is __________________ (________). Subject to
the limitations contained herein, this option shall vest and become exercisable
[INSERT VESTING SCHEDULE].
2. (a) EXERCISE PRICE. The exercise price of this option is
_____________ ($_______) per share.
(b) METHOD OF PAYMENT. Payment of the exercise price per share is
due in full upon exercise of all or any part of each installment which has
accrued to you. You may elect, to the extent permitted by applicable statutes
and regulations, to make payment of the exercise price under one of the
following alternatives:
(i) Payment of the exercise price per share in cash (including
check) at the time of exercise;
(ii) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which, prior to the issuance of
Common Stock, results in either the receipt of cash (or check) by the Company or
the receipt of irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds;
1.
<PAGE> 2
(iii) Provided that at the time of exercise the Company's Common
Stock is publicly traded and quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of Common Stock, held for the period
required to avoid a charge to the Company's reported earnings, and owned free
and clear of any liens, claims, encumbrances or security interests, which Common
Stock shall be valued at its fair market value on the date of exercise of the
option, or portion thereof, granted hereunder;
(iv) Provided that the option exercise price for the
installment, or portion thereof, being purchased is at least one thousand
dollars ($1,000), payment pursuant to the deferred payment alternative as
described in paragraph 2(c) hereof; or
(v) Payment by a combination of the methods of payment permitted
by subparagraph 2(b)(i) through 2(b)(iv) above.
(C) CONDITIONS OF DEFERRED PAYMENT. In the event that you elect to
make payment of the exercise price pursuant to the deferred payment alternative:
(i) Not less than twenty-five percent (25%) of the aggregate
exercise price shall be due at the time of exercise, not less than twenty-five
percent (25%) of said exercise price, plus accrued interest, shall be due each
year after the date of exercise, and final payment of the remainder of the
exercise price, plus accrued interest, shall be due three (3) years from the
date of exercise or, at the Company's election, upon termination of your
employment with the Company or an affiliate of the Company;
(ii) Interest shall be payable at least annually and shall be
charged at the minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any portion of any
amounts other than amounts stated to be interest under the deferred payment
arrangement; and
(iii) In order to elect the deferred payment alternative, you
must, as a part of your written notice of exercise, give notice of the election
of this payment alternative and, in order to secure the payment of the deferred
exercise price to the Company hereunder, if the Company so requests, you must
tender to the Company a promissory note and a security agreement covering the
purchased shares, both in form and substance satisfactory to the Company, and
such other or additional documentation as the Company may request.
3. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Act or, if such
shares are not then so registered, the Company has determined that such exercise
and issuance would be exempt from the registration requirements of the Act. You
represent that you (i) are an officer or
2.
<PAGE> 3
director of the Company, or (ii) have a preexisting personal or business
relationship with the Company or one or more of its officers, directors, or
controlling persons, or (iii) by reason of your business or financial experience
or the business or financial experience of your professional advisors who are
unaffiliated with and who are not directly or indirectly compensated by the
Company or any affiliate of the Company, you have the capacity to protect your
own interests in connection with the grant of this option. You also represent
that you are acquiring this option for your own account and not with a view to
or for sale in connection with any distribution of this security. You also
represent that you have acquired this option unaccompanied by the publication of
any advertisement. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued pursuant to the exercise of this option as
such counsel deems necessary and appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of stock.
4. MINIMUM EXERCISE. The minimum number of shares with respect to which
this option may be exercised at any one time is one hundred (100), except (a) as
to an installment subject to exercise, as set forth in paragraph 1, which
amounts to fewer than one hundred (100) shares, in which case, as to the
exercise of that installment, the number of shares in such installment shall be
the minimum number of shares, and (b) with respect to the final exercise of this
option this minimum shall not apply. In no event may this option be exercised
for any number of shares which would require the issuance of anything other than
whole shares.
5. TERM. The term of this option commences on _____________ (the date
of grant) and, unless sooner terminated as set forth below, terminates on
____________ (the "Expiration Date" which date shall be no more than ten (10)
years from the date this option is granted). In no event may this option be
exercised on or after the date on which it terminates. This option shall
terminate prior to the expiration of its term as follows: three (3) months after
the termination of your continuous service to the Company as an employee,
consultant or director (your "Termination Date") for any reason or for no reason
unless:
(a) such termination of service is due to your permanent and total
disability (within the meaning of Section 422(c)(6) of the Code), in which event
the option shall terminate on the earlier of the Expiration Date set forth above
or twelve (12) months following your Termination Date; or
(b) such termination of service is due to your death, in which
event the option shall terminate on the earlier of the Expiration Date set forth
above or eighteen (18) months after your death; or
3.
<PAGE> 4
(c) during any part of such three (3) month period the option is
not exercisable solely because of the condition set forth in paragraph 3 above,
in which event the option shall not terminate until the earlier of the
Expiration Date set forth above or until it shall have been exercisable for an
aggregate period of three (3) months after your Termination Date; or
(d) exercise of the option within three (3) months after your
Termination Date would result in liability under section 16(b) of the Securities
Exchange Act of 1934, in which case the option will terminate on the earlier of
(i) the Expiration Date set forth above, (ii) the tenth (10th) day after the
last date upon which exercise would result in such liability or (iii) six (6)
months and ten (10) days after your Termination Date with the Company or an
affiliate of the Company.
This option may be exercised following your Termination Date only
as to that number of shares as to which it was exercisable on your Termination
Date under the provisions of paragraph 1 of this option.
6. EXERCISE. (a) This option may be exercised, to the extent specified
above, by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then reasonably
require.
(b) By exercising this option you agree that:
(i) as a precondition to the completion of any exercise of this
option, the Company may require you to enter an arrangement providing for the
cash payment by you to the Company of any tax withholding obligation of the
Company arising by reason of: (1) the exercise of this option; (2) the lapse of
any substantial risk of forfeiture to which the shares are subject at the time
of exercise; or (3) the disposition of shares acquired upon such exercise; and
(ii) the Company (or a representative of the underwriters) may,
in connection with the first underwritten registration of the offering of any
securities of the Company under the Act, require that you not sell or otherwise
transfer or dispose of any shares of Common Stock or other securities of the
Company during such period (not to exceed one hundred eighty (180) days)
following the effective date (the "Effective Date") of the registration
statement of the Company filed under the Act as may be requested by the Company
or the representative of the underwriters. You further agree that the Company
may impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such period.
4.
<PAGE> 5
7. COVENANT OF COMPANY. During the term of this option, the Company
shall keep available at all times the number of shares of stock required to
satisfy the exercise of such option.
8. ADJUSTMENT UPON CHANGES IN STOCK. (a) If any change is made in the
stock subject to this option (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), this option will be appropriately adjusted in the
type(s) and number of securities and price per share of stock subject to the
option. Such adjustments shall be made by the Board of Directors, the
determination of which shall be final, binding and conclusive. (The conversion
of any convertible securities of the Company shall not be treated as a
"transaction not involving the receipt of consideration by the Company.")
(b) In the event of: (i) a merger or consolidation in which the
Company is not the surviving corporation; or (ii) a reverse merger in which the
Company is the surviving corporation but the shares of the Company's common
stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise; or (iii) a sale of all or substantially all of the assets of the
Company, then, to the extent permitted by applicable law: (1) any surviving
corporation shall assume this option or shall substitute a similar option
(including an option to acquire the same consideration paid to stockholders in
the transaction described in this subparagraph 8(b)), if this option is still
outstanding, or (2) in the event any surviving corporation refuses to assume or
continue this option, or to substitute a similar option for this option (if
still outstanding), then this option shall become fully vested and exercisable
prior to such event and shall terminate after such acceleration of vesting if
not exercised at or prior to such corporate event. In the event of a dissolution
or liquidation of the Company, this option (if still outstanding) shall
terminate if not exercised prior to such event.
9. TRANSFERABILITY. This option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. By delivering written notice to the Company, in a form satisfactory
to the Company, you may designate a third party who, in the event of your death,
shall thereafter be entitled to exercise this option.
10. OPTION NOT A SERVICE CONTRACT. This option is not an employment
contract and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In the event
that this option is granted to you in connection with the performance of
services as a consultant or director, or in the
5.
<PAGE> 6
event that this option is granted to you in connection with the performance of
services as an employee and you subsequently perform services as a consultant or
director, references to employment, employee and similar terms shall be deemed
to include the performance of services as a consultant or a director, as the
case may be, provided, however, that no rights as an employee shall arise by
reason of the use of such terms.
11. NOTICES. Any notices provided for in this option shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the address specified
below or at such other address as you hereafter designate by written notice to
the Company.
12. AMENDMENT. This option may be amended by the Board of Directors at
any time; provided, however, that any change that would adversely affect your
rights in this option must first be approved by you in writing before becoming
effective.
13. ADMINISTRATION. This option is subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted by the Company. This authority shall be exercised by the Board, or by a
committee of one or more members of the Board in the event that the Board
delegates its authority to a committee. The Board, in exercise of this
authority, may correct any defect, omission or inconsistency in this option in a
manner and to the extent the Board shall deem necessary or desirable to make
this option fully effective. References to the Board shall mean the committee if
a committee has been appointed by the Board. Any interpretations, amendments,
rules and regulations promulgated by the Board shall be final and binding upon
the Company and its successors in interest as well as you and your heirs,
assigns, and other successors in interest.
6.
<PAGE> 7
14. RIGHTS AS STOCKHOLDER. Neither you nor any person to whom this
option is transferred under paragraph 8 of this option shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to this option unless and until such person has satisfied all
requirements for exercise of this option pursuant to its terms.
Dated as of _________________.
Very truly yours,
ALANEX CORPORATION
By:_______________________
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS:
Notice of Exercise
7.
<PAGE> 8
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option; and
(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock option plans of the Company, and (ii) the following agreements only:
NONE __________
(Initial)
OTHER ___________________
___________________
___________________
_______________________________
[NAME______________], OPTIONEE
Address:_______________________
_______________________________
_______________________________
8.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Alanex Corporation:
We consent to the use of our report included herein and to the references
to our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the prospectus.
KPMG PEAT MARWICK LLP
San Diego, California
October 10, 1996
2
