<PAGE> 1
As filed with the Securities and Exchange Commission on March 5, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
TRANSCEND THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 2836 04-3174575
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
640 MEMORIAL DRIVE, CAMBRIDGE, MASSACHUSETTS 02139 (617) 374-1200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
HECTOR J. GOMEZ, M.D., PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TRANSCEND THERAPEUTICS, INC.
640 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139 (617) 374-1200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
STEVEN D. SINGER, ESQ. CHARLES W. MULANEY, JR., ESQ.
PHILIP P. ROSSETTI, ESQ. RODD M. SCHREIBER, ESQ.
HALE AND DORR LLP SKADDEN, ARPS, SLATE, MEAGHER
60 State Street & FLOM (ILLINOIS)
Boston, Massachusetts 02109 333 W. Wacker Drive, Suite 2100
(617) 526-6000 Chicago, Illinois 60606
(312) 407-0700
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date hereof.
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, check the following box and list the Securities Act
registration 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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Proposed Maximum Proposed Maximum
Title of each Class of Amount to be Offering Aggregate Amount of
Securities to be Registered Registered(1) Price Per Share(2) Offering Price(2) Registration Fee
<CAPTION>
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share.... 2,300,000 shares $14.00 $32,200,000 $9,758
==================================================================================================================
</TABLE>
(1) Includes 300,000 shares which the Underwriters have the option to purchase
from the Company to cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933.
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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
================================================================================
<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 OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 5, 1997
PROSPECTUS
2,000,000 SHARES
LOGO
COMMON STOCK
All of the 2,000,000 shares of Common Stock offered hereby are being sold
by Transcend Therapeutics, Inc. ("Transcend" or the "Company"). Prior to the
Offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$12.00 and $14.00 per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. The Company
has applied to list the Common Stock for quotation on the Nasdaq National Market
under the symbol "TSND."
In addition to the shares offered hereby, on or prior to the closing of the
Offering, Boehringer Ingelheim International GmbH will purchase $5.0 million of
Common Stock from the Company at the price to public set forth below pursuant to
its collaboration with the Company. See "Business -- Boehringer Ingelheim."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," BEGINNING ON PAGE 7.
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.
================================================================================
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................... $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3)..................................... $ $ $
</TABLE>
================================================================================
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $824,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
300,000 additional shares of Common Stock on the same terms and conditions
set forth above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ , and $ ,
respectively. See "Underwriting."
---------------------------
The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that delivery of such shares will be made at the
offices of the agent of Vector Securities International, Inc., in New York, New
York, on or about , 1997.
---------------------------
Vector Securities International, Inc. EVEREN Securities, Inc.
, 1997
<PAGE> 3
[GRAPHIC]
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE
COVERING TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
Procysteine(R) is a registered trademark and Transcend Therapeutics(TM) is
a trademark of Transcend Therapeutics, Inc. All other trademarks or trade names
referred to in this Prospectus are the property of their respective owners.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus, including information under "Risk Factors."
THE COMPANY
Transcend Therapeutics, Inc. ("Transcend" or the "Company") develops novel
pharmaceuticals for the treatment of diseases associated with oxidative stress
and resultant tissue damage, with a particular therapeutic focus on products for
the critical care market. The Company's lead product candidate, Procysteine(R),
has been evaluated in two Phase II clinical trials involving patients with acute
respiratory distress syndrome ("ARDS"). In the second quarter of 1997, the
Company plans to begin a pivotal Phase III clinical trial of Procysteine to
determine its safety and efficacy in the treatment of ARDS. In addition, by the
end of 1997, the Company plans to initiate a Phase II clinical trial of
Procysteine for the prevention and treatment of multiple organ dysfunction
("MOD"). In February 1997, the Company and Boehringer Ingelheim International
GmbH ("BI") entered into a Development and License Agreement (the "BI
Agreement") relating to the worldwide development and marketing of intravenous
formulations of Procysteine ("Procysteine i.v."). BI has agreed to pay Transcend
up to $46.0 million (consisting of $10.0 million in up-front payments and $36.0
million in contingent milestone payments related to ARDS and MOD), as well as
royalties on any related product sales.
The Company's initial product candidates are small molecule,
glutathione-repleting agents designed to prevent or limit oxidative tissue
damage from reactive oxygen species ("ROS"), highly reactive toxic molecules
produced as part of the body's immune response. Glutathione, a molecule found in
high concentrations throughout the body, is one of the principal mechanisms for
neutralizing ROS. Preclinical and clinical studies have demonstrated that in
some conditions involving massive acute inflammation, including severe
infection, multiple trauma and extensive burns, large quantities of ROS may be
produced. Studies have also indicated decreased levels of glutathione in such
conditions. When the body's production of ROS increases and exceeds the capacity
of glutathione and other antioxidant systems to combat oxidative stress, tissue
damage in the body's major organs can result, leading to organ dysfunction and,
in many cases, death.
ARDS, a disorder characterized by severe lung dysfunction, is a devastating
complication of conditions associated with massive acute inflammation, such as
severe infection, multiple trauma and extensive burns. This disorder affects an
estimated 150,000 patients in the United States annually, and has a mortality
rate of approximately 40 percent. There are currently no commercially available
drug treatments for ARDS. Treatment for patients suffering from ARDS is
administered in a hospital intensive care unit and is generally limited to
supportive care consisting of highly invasive mechanical ventilation. Mechanical
ventilation involves forcing air containing high concentrations of oxygen into
the lungs via an endotracheal tube inserted through a patient's nose or mouth.
Due to the invasive nature of this procedure, mechanical ventilation places a
patient at an increased risk of serious complications, including
hospital-acquired infection with drug resistant organisms.
MOD, the failure of two or more organs, generally has catastrophic
consequences for the patient. Organ systems that are frequently involved in MOD
include the lungs (ARDS), the kidneys (acute renal failure), the liver (acute
hepatic failure) and the heart (cardiovascular collapse). The mortality rate for
MOD patients is approximately 60 percent when two organs fail and exceeds 90
percent when a third organ fails. The Company estimates that there are over
750,000 patients annually in the United States at risk of MOD. Currently, there
are no commercially available drugs to prevent or treat MOD.
Treatment with Procysteine is a novel pharmacological approach to diseases
associated with oxidative stress and resultant tissue damage such as ARDS and
MOD. Procysteine provides a method for introducing into cells the amino acid
cysteine, an essential building block of glutathione. Preclinical studies have
documented Procysteine's ability to increase intracellular levels of glutathione
and
3
<PAGE> 5
prevent ROS damage. The Company has developed intravenous and oral formulations
of Procysteine and has characterized the safety profile and pharmacokinetics of
these formulations in clinical trials involving over 265 subjects in total.
Company-sponsored Phase II trials with intravenously administered
Procysteine have indicated the potential efficacy of Procysteine in the
treatment of patients with ARDS. In the first Phase II trial, which involved 32
patients treated with Procysteine or placebo, Procysteine-treated patients
gained independence from mechanical ventilation a median of five days earlier
than did placebo-treated patients. The second Phase II trial, which involved a
total of 25 patients, indicated a similar reduction in median days on mechanical
ventilation among Procysteine-treated patients as compared with placebo-treated
patients. Procysteine-treated patients also regained efficiency in transporting
oxygen to the blood stream to a greater degree than did placebo-treated
patients, as indicated by an established measure of lung function.
Under the BI Agreement, the Company granted BI an exclusive worldwide
license to use and sell Procysteine i.v. for all pharmaceutical applications.
The Company has principal responsibility for, and will bear all expenses related
to, clinical development of Procysteine i.v. for use in the treatment of ARDS.
The Company has also granted BI the right, at its election, to participate in
the development of and to commercialize Procysteine i.v. worldwide for the
treatment and prevention of MOD. The Company has retained the right to
co-promote Procysteine i.v. in the United States. The Company is responsible for
manufacturing and supplying BI with Procysteine i.v. for clinical trials and
commercial purposes, including responsibility for manufacturing-related
regulatory compliance. Pursuant to the BI Agreement, BI has agreed to make
up-front payments totaling $10.0 million (consisting of a $5.0 million license
fee and a $5.0 million equity investment in Common Stock to be made on or prior
to the closing of the Offering at the initial public offering price). BI has
also agreed to make additional payments to the Company, which could total up to
$36.0 million, upon the achievement of clinical development and regulatory
milestones relating to ARDS and, if BI exercises its participation rights, to
MOD. More than half of the milestone payments are payable with respect to
MOD-related development. In addition, BI will pay the Company royalties (and, if
applicable, co-promotion payments in the United States) on any sales of
Procysteine i.v.
The Company's strategy is to exploit the potential of the
glutathione-repleting agents currently in its portfolio, with a particular
therapeutic focus on products for the critical care market and to enhance its
product pipeline through collaborations with academic and research institutions.
The Company plans to commercialize its product candidates through strategic
alliances, as in its alliance with BI, and to retain strategically important
development, marketing or co-promotion rights in order to enhance its product
development opportunities.
Based on Procysteine's mechanism of action, the Company believes that the
drug has potential applications in other diseases. Transcend has conducted Phase
I/II clinical trials with Procysteine to determine its potential application for
the treatment of amyotrophic lateral sclerosis and atherosclerotic
cardiovascular disease. The Company plans to use the results of these trials to
select at least one indication to advance into expanded Phase II clinical trials
during 1997.
The Company was organized in Delaware in December 1992 under the name Free
Radical Sciences, Inc. and changed its name to Transcend Therapeutics, Inc. in
June 1995. The Company's executive office is located at 640 Memorial Drive,
Cambridge, Massachusetts 02139 and its telephone number is (617) 374-1200.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered.................................... 2,000,000 shares
Common Stock to be purchased by BI...................... 384,615 shares(1)
Common Stock to be outstanding after the Offering....... 6,136,481 shares(2)
Use of proceeds......................................... To fund clinical trials, research and
development programs, to redeem all
outstanding shares of Nonconvertible
Redeemable Preferred Stock, to acquire
and/or license technology rights,
products or businesses and for other
general corporate purposes.
Proposed Nasdaq National Market symbol.................. TSND
</TABLE>
- ---------------
(1) Under the BI Agreement, BI has agreed to make a $5.0 million equity
investment in unregistered Common Stock on or prior to the closing of the
Offering at the initial public offering price. The number of shares set
forth above assumes an initial public offering price of $13.00 per share
(the midpoint of the filing range).
(2) Based on shares outstanding as of December 31, 1996. Includes 384,615 shares
of Common Stock to be purchased by BI pursuant to the BI Agreement, assuming
an initial public offering price of $13.00 per share. Excludes (i) 370,324
shares of Common Stock issuable upon exercise of outstanding options as of
December 31, 1996 at a weighted average exercise price of $1.20 per share;
(ii) 378,295 shares of Common Stock reserved for future grants of options or
awards under the Company's Amended and Restated 1994 Equity Incentive Plan;
(iii) 5,000 shares of Common Stock reserved for issuance upon exercise of a
warrant outstanding as of December 31, 1996 at an exercise price of $5.00
per share; and (iv) $346,300 of Common Stock reserved for issuance upon the
exercise of warrants to purchase such stock at the initial public offering
price (26,639 shares of Common Stock assuming an initial public offering
price of $13.00 per share). See "Management -- Amended and Restated 1994
Equity Incentive Plan," "Certain Transactions" and "Description of Capital
Stock."
5
<PAGE> 7
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1993 1994 1995 1996
------ ------- ------- -------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................ $6,095(1) $ -- $ -- $ --
Total operating expenses........................... 6,123 3,742 4,384 3,802
------ ------- ------- -------
Loss from operations............................... (28) (3,742) (4,384) (3,802)
Other income (expense)............................. -- 139 (66) (325)
------ ------- ------- -------
Net loss........................................... $ (28) $(3,603) $(4,450) $(4,127)
====== ======= ======= =======
Net loss to common stockholders.................... $ (28) $(4,714) $(5,931) $(9,207)
====== ======= ======= =======
Pro forma net loss per common share(2)............. $ (2.35)
=======
Pro forma weighted average common shares
outstanding(2).................................. 3,922
=======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
-------- ------------ -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 640 $ 6,679 $ 34,331
Working capital.................................... 96 6,135 33,862
Total assets....................................... 1,566 7,605 34,847
Redeemable preferred stock......................... 20,176(5) 861 --
Deficit accumulated during the development stage... (19,719) (14,719) (14,897)
Total stockholders' equity (deficit)............... (19,235) 6,119 34,297
</TABLE>
- ---------------
(1) Reflects a one-time contract research fee of $6,095,000 for various research
and development services. See Note 2 of Notes to Financial Statements.
(2) See Note 2 of Notes to Financial Statements for information concerning the
computation of pro forma net loss per common share.
(3) Presented on a pro forma basis to give effect to (i) the sale by the Company
of an aggregate of 1,039,000 shares of Nonconvertible Redeemable Preferred
Stock and warrants to purchase $346,300 of Common Stock, exercisable at the
initial public offering price (26,639 shares of Common Stock assuming an
initial public offering price of $13.00 per share), and the receipt of
approximately $1.0 million in proceeds therefrom in March 1997; (ii) the
automatic conversion of all of the outstanding shares of Series A, Series B
and Series C Convertible Preferred Stock upon the closing of the Offering
into an aggregate of 2,972,485 shares of Common Stock; and (iii) the receipt
of a $5.0 million license fee from BI in March 1997 under the BI Agreement.
See "Business -- Boehringer Ingelheim" and "Certain Transactions."
(4) As adjusted to give effect to (i) the sale of 2,000,000 shares of Common
Stock offered hereby, at an assumed initial public offering price of $13.00
per share (after deducting estimated underwriting discounts and commissions
and estimated expenses of the Offering) and the receipt of the estimated net
proceeds therefrom; (ii) the redemption of all outstanding shares of
Nonconvertible Redeemable Preferred Stock for approximately $1.0 million
from the proceeds of the Offering; and (iii) the sale to BI of $5.0 million
of Common Stock at the initial public offering price on or prior to the
closing of the Offering (384,615 shares of Common Stock assuming an initial
public offering price of $13.00 per share) and the receipt by the Company of
the proceeds therefrom. See "Use of Proceeds" and "Capitalization."
(5) Includes all issued and outstanding shares of Series A, Series B and Series
C Convertible Preferred Stock and Nonconvertible Redeemable Preferred Stock.
See "Capitalization" and "Description of Capital Stock."
------------------------
Except as otherwise noted, all information in this Prospectus, including
financial information, share and per share data: (i) has been adjusted to
reflect the conversion of all outstanding shares of Series A, Series B and
Series C Convertible Preferred Stock into an aggregate of 2,972,485 shares of
Common Stock upon the closing of the Offering; (ii) has been adjusted to reflect
a one-for-five reverse split of the Common Stock effected in February 1997; and
(iii) assumes no exercise of the Underwriters' over-allotment option. See
"Certain Transactions," "Description of Capital Stock" and "Underwriting."
6
<PAGE> 8
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY BY POTENTIAL INVESTORS IN EVALUATING AN
INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH DIFFERENCES
INCLUDE THOSE DISCUSSED BELOW.
EARLY STAGE OF PRODUCT DEVELOPMENT. The Company has not completed
development of any drugs and does not expect that any drugs resulting from its
development efforts will be available for several years, if at all. All of the
Company's potential products are in research, preclinical development or
clinical trials. Product development of new pharmaceuticals, including
Procysteine and the Company's other glutathione-repleting agents (the TR-500
compounds), is highly uncertain, and unanticipated developments, clinical or
regulatory delays, unexpected adverse side effects or inadequate therapeutic
efficacy could slow or prevent the product development efforts of the Company
and have a materially adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the
Company's current potential products or any future potential products will
advance to clinical trials, prove safe and effective in clinical trials, meet
applicable regulatory standards, be capable of being produced in commercial
quantities at acceptable cost or be successfully marketed.
DEPENDENCE ON PROCYSTEINE. Since its inception, the Company has devoted
its efforts almost entirely to the development of its lead product candidate,
Procysteine, which is the only potential product currently under development by
the Company that is in human clinical trials. Procysteine will require
substantial additional clinical testing and substantial further investment to
determine whether it will prove to be safe and effective. Clinical testing of
safety and efficacy can take several years. There can be no assurance that any
such testing, including the Company's Phase III acute respiratory distress
syndrome ("ARDS") clinical trial, will confirm that Procysteine is safe or
efficacious. In addition, the successful commercialization of Procysteine is
subject to the risks of failure inherent in the development of drug and
biological products and products based on new technologies. These risks include
the possibility that the use of Procysteine as an approach to the treatment of
ARDS or other indications targeted by the Company will not be successful; that
Procysteine will not be safer, more effective or more economical than
pharmaceutical or non-pharmaceutical products or treatments currently on the
market or subsequently introduced; that third parties will market superior or
equivalent products for the treatment of ARDS or other indications targeted by
the Company; that Procysteine will not prove safe or effective or will fail to
receive necessary regulatory clearance; that Procysteine will be difficult or
uneconomical to manufacture on a large scale; or that proprietary rights of
third parties will preclude the Company from marketing Procysteine, any of which
would have a material adverse effect on the Company's business, financial
condition and results of operations and could result in the Company being forced
to discontinue operations. The Company does not currently conduct any internal
discovery or research. In addition, the Company's product development efforts
are based on its approach of repleting glutathione to treat or prevent diseases
associated with oxidative tissue damage. As a result, in the event that the
Company is unsuccessful in completing the development and commercialization of
Procysteine as a treatment for ARDS or other indications targeted by the Company
or if such approach is otherwise unsuccessful, the Company will be required to
identify and license or acquire alternative technologies or compounds in order
to develop product candidates, of which there can be no assurance. In the event
that Procysteine does not prove to be safe, effective and commercially
attractive, it is unlikely that the Company would continue to pursue development
of the use of intracellular glutathione-repleting agents for the treatment of
oxidative stress, and the Company's business, financial condition and results of
operations would be materially and adversely affected.
DEPENDENCE ON BOEHRINGER INGELHEIM ("BI"). The Company has entered into a
Development and License Agreement with BI (the "BI Agreement") for the worldwide
development and marketing
7
<PAGE> 9
of intravenous formulations of Procysteine ("Procysteine i.v."). Under the BI
Agreement, the Company granted BI an exclusive worldwide license to use and sell
Procysteine i.v. for all pharmaceutical applications. Although the BI Agreement
requires BI to undertake certain activities relating to the commercialization of
Procysteine i.v., there can be no assurance that BI will commit sufficient
marketing resources to the commercialization of Procysteine i.v. or otherwise
perform its obligations under the BI Agreement. The failure of BI to commit
sufficient marketing resources to the commercialization of Procysteine i.v. or
otherwise perform its obligations under the BI Agreement would have a material
adverse effect on the Company's business, financial condition and results of
operations.
Under the BI Agreement, the Company has principal responsibility for, and
will bear all expenses related to, the clinical development of Procysteine i.v.
for use in the treatment of ARDS in countries other than Japan. BI has certain
rights, exercisable until the end of 1997, to develop and commercialize
Procysteine in Japan. If BI does not exercise its rights during 1997, all rights
to Procysteine i.v. in Japan will revert to the Company. The Company is also
responsible for the expenses of obtaining any necessary regulatory approvals in
these countries. In addition, the Company is responsible for manufacturing and
supplying BI with Procysteine i.v. for clinical trials and commercial purposes,
including responsibility for manufacturing-related regulatory compliance. The
Company's right to receive milestone payments and, ultimately, royalties is
based upon successful performance of such obligations. There can be no assurance
that the Company will have the financial or logistical resources to meet these
obligations or that the Company will achieve the development and regulatory
milestones necessary to earn such payments. Failure to perform these obligations
or achieve such milestones could have a material adverse effect on the Company's
business, financial condition and results of operations.
Pursuant to the BI Agreement, BI has agreed to make up-front payments
totalling $10.0 million, consisting of a $5.0 million license fee (the "BI
License Fee") and a $5.0 million equity investment in Common Stock to be made on
or prior to the closing of the Offering at the initial public offering price
(the "BI Equity Investment"). BI has agreed to make additional payments to the
Company, which could total up to $36.0 million, upon the achievement of clinical
development and regulatory milestones relating to the ARDS and multiple organ
dysfunction ("MOD") indications. Of such amount, more than half is payable only
with respect to development relating to MOD. The Company has the right, but not
the obligation, to participate in the development of and to commercialize
Procysteine i.v. for the treatment and prevention of MOD. The Company intends to
commence a Phase II clinical trial of Procysteine i.v. for the treatment and
prevention of MOD by the end of 1997. If BI exercises its rights with respect to
the MOD indication, it will be required to share in clinical development funding
or reimburse the Company for clinical development costs. However, BI is not
required to exercise its rights until late in the product development process,
if at all. There can be no assurance that BI will exercise its rights with
respect to MOD. As such, there can be no assurance that the Company will be able
to gain access to the resources (financial and other) necessary to conduct a
pivotal MOD trial or complete the development of Procysteine i.v. for MOD if BI
declines to exercise its rights or defers such exercise until later in the
product development process or that the Company will ever receive milestone
payments in connection with its MOD program.
The BI Agreement is subject to termination for breach by either party and
may be terminated unilaterally by BI prior to completion of development and
receipt of regulatory approvals of Procysteine i.v. for ARDS under certain
circumstances. Any such termination could have a material adverse effect on the
Company's business, financial condition and results of operations.
UNCERTAINTY ASSOCIATED WITH CLINICAL TRIALS. Before obtaining regulatory
approvals for the commercial sale of any of the Company's potential products,
the products will be subjected to extensive preclinical and clinical testing to
demonstrate their safety and efficacy in humans. Preclinical studies of product
candidates may not predict and do not ensure safety or efficacy in humans and
are not necessarily indicative of the results that may be achieved in clinical
trials with humans. To date, the Company has tested its lead product candidate,
Procysteine, in limited numbers of subjects in Phase I and Phase II clinical
trials. The results from these clinical trials are not necessarily predictive of
results that will be obtained from subsequent more extensive clinical testing,
including Phase III clinical trials.
8
<PAGE> 10
There can be no assurance that additional clinical trials, including Phase III
clinical trials, will demonstrate the safety and efficacy of Procysteine to the
extent necessary to obtain regulatory approvals. Companies in the biotechnology
industry have suffered significant setbacks in advanced clinical trials, even
after promising results in earlier trials. The dosage level of Procysteine to be
administered in the Phase III clinical trial is higher than that administered in
the earlier human clinical trials. There can be no assurance that administration
of Procysteine at the dosage level required in the Phase III trial planned by
Transcend, or at such other dosage level required for therapeutic efficacy, will
result in a safety profile comparable to or more favorable than earlier studies.
The failure to adequately demonstrate the safety and efficacy of Procysteine or
any other product candidate could delay or prevent regulatory approval and would
have a material adverse effect on the business, financial condition and results
of operations of the Company. See "Business -- Product Development Programs."
The rate of completion of clinical trials is dependent upon, among other
factors, the enrollment of patients. Patient accrual is a function of many
factors, including the size of the patient population, the proximity of patients
to clinical sites, the eligibility criteria for the trial to be performed and
the existence of competitive clinical trials. The protocol for the Company's
Phase III trial of Procysteine for ARDS calls for an interim analysis to confirm
the appropriateness of the sample size. The results of the analysis could lead
the Company to increase the number of patients in the trial. Delays in planned
patient enrollment or increases in the number of required patients in the
Company's Phase III clinical testing of Procysteine or future clinical trials of
Procysteine or other potential products may result in increased costs, program
delays or both, which would have a material adverse effect on the Company. In
addition, the Company has a limited clinical staff and, as a result, will rely
on third parties to assist it in overseeing and monitoring the Phase III
clinical trials, which may result in delays in completing, or failure to
complete, clinical trials if such third parties fail to perform under their
agreements with the Company or fail to meet regulatory standards in the
performance of their obligations under such agreements. There can be no
assurance that, if Phase III clinical trials of Procysteine are completed, the
Company will be able to submit a new drug application ("NDA") or its equivalent
in countries outside the United States as scheduled or that any such application
will be reviewed and approved by the United States Food and Drug Administration
(the "FDA") or comparable agencies in foreign countries in a timely manner, or
at all. See "Business -- Government Regulation." Even if cleared by the FDA or
the regulatory authorities of other countries, Procysteine may later be shown to
be unsafe or to not have its purported effect, thereby preventing its widespread
use or requiring its withdrawal from the market.
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY. The Company is a
development stage company that commenced operations in January 1993. The Company
has incurred operating losses since its inception, and had a deficit accumulated
during the development stage of approximately $19.7 million as of December 31,
1996. No revenues have been generated from product sales, and product sales
revenues are not anticipated for a number of years, if at all. The continued
development of the Company's products will require the commitment of substantial
resources to conduct or contract with others to conduct research and preclinical
development and clinical testing, and to establish sales, marketing, quality
control, regulatory and administrative capabilities. Accordingly, the Company
expects to continue to incur substantial operating losses for at least the next
several years. The size of net losses and the time required by the Company to
reach and to sustain profitability are highly uncertain. To achieve
profitability, the Company must, alone or with others, successfully complete
development of Procysteine, obtain necessary regulatory approvals, establish
manufacturing, sales and marketing capabilities and successfully market such
product. As such, there can be no assurance that the Company will be able to
achieve or, if achieved, sustain, profitability.
NO ASSURANCE OF FDA APPROVAL; COMPREHENSIVE GOVERNMENT REGULATION. The
research, development, clinical testing, manufacturing and marketing of
therapeutic products are subject to extensive regulation by numerous
governmental authorities in the United States and other countries. All of the
Company's potential products will require governmental approvals for
commercialization, which
9
<PAGE> 11
approvals have not yet been obtained and are not expected to be obtained for
several years, if at all. Preclinical and clinical trials and manufacturing of
all of the Company's potential products, including its lead product candidate,
Procysteine, will be subject to the rigorous testing and approval processes of
the FDA and corresponding foreign regulatory authorities. The regulatory
process, which includes preclinical studies and clinical testing of potential
products to establish their safety and efficacy, requires many years to complete
and the expenditure of substantial resources. Data obtained from preclinical and
clinical activities are susceptible to varying interpretations which could
delay, limit or prevent regulatory approval. In addition, delays or rejection
may be encountered based upon changes in, or additions to, regulatory policies
for drug approval during the period of product development and regulatory
review. The Company, an independent Institutional Review Board ("IRB") or the
FDA may suspend clinical trials at any time if the participants in such trials
are being exposed to unacceptable health risks. Delays in obtaining such
approvals could adversely affect the marketing of products developed by the
Company and the Company's ability to generate commercial product revenues. There
can be no assurance that requisite regulatory approvals will be obtained within
a reasonable period of time, if at all. Moreover, if regulatory approval of a
product is granted, such approval may impose limitations on the indicated uses
for which such product may be marketed. Further, even if such regulatory
approval is obtained, a marketed product, its manufacturer and its manufacturing
facilities are subject to continual review and periodic inspections. Among the
conditions for product approval and continued marketing approval is that the
quality control and manufacturing procedures of the Company or its collaborative
partners or contract manufacturers conform to the FDA's current good
manufacturing practice ("cGMP") regulations which must be followed at all times.
In complying with cGMP requirements, manufacturers must expend time, money and
effort on a continuing basis in production, record keeping and quality control.
Manufacturing establishments, both domestic and foreign, are subject to
inspection by or under the authority of the FDA and by other federal, state and
local agencies. Failure to pass such inspections may subject the manufacturer to
possible FDA actions such as the suspension of manufacturing, seizure of the
product, withdrawal of approval or other regulatory sanctions. The FDA also may
require the manufacturer to recall a product from the market. The Company is
responsible for ensuring manufacturing-related regulatory compliance under the
BI Agreement. The failure by the Company, its corporate collaborators or
contract manufacturers to comply with cGMP could result in a breach of the BI
Agreement and could have a material adverse effect on the business, financial
condition and results of operations of the Company.
Discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions on such product or manufacturer, including
withdrawal of the product from the market. Failure to comply with the applicable
regulatory requirements can, among other things, result in fines, suspensions of
regulatory approvals, product recalls, operating restrictions and criminal
prosecution. The Company is also subject to numerous environmental, health and
workplace safety laws and regulations, including those governing laboratory
procedures and the handling of biohazardous materials. Any violation of, and the
cost of compliance with, such laws and regulations could adversely affect the
Company's operations. See "Business -- Government Regulation."
UNCERTAINTY OF MARKET ACCEPTANCE. The Company's success, growth and
profitability will depend primarily on market acceptance of Procysteine, if
cleared for marketing by the FDA, for the treatment of ARDS and other
indications targeted by the Company. Physicians may be reluctant or unwilling to
prescribe a product such as Procysteine unless they determine that the clinical
benefits to the patient and the cost savings achieved through the use of
Procysteine are significant. Such determination will depend, in part, upon
Procysteine's effectiveness, safety, ease of use and level of third-party
reimbursement. Even if the benefits of Procysteine are established as clinically
significant, physicians, pharmacists and other health care providers may elect
not to purchase, prescribe or administer Procysteine for any number of reasons.
As a result, there can be no assurance that demand for Procysteine will be
sufficient to allow for profitable operations. Because Procysteine represents
the Company's primary product focus, if Procysteine does not achieve a
significant level of market acceptance, the Company's business, financial
condition and results of operation would be materially and adversely affected.
10
<PAGE> 12
NEED FOR SUBSTANTIAL ADDITIONAL FUNDS. The Company expects negative
cash-flows from operations to continue and to increase for the foreseeable
future. The Company will need substantial additional funds to fund its existing
and planned preclinical studies and clinical trials, and other operating
expenses. The Company anticipates that the net proceeds from the Offering, and
the proceeds of the $5.0 million BI Equity Investment and the $5.0 million BI
License Fee payment, including interest thereon, together with the Company's
existing funds, will be sufficient to fund its operating expenses and capital
requirements as currently planned for at least the next 24 months. However,
there can be no assurance that the Company's assumptions regarding future
operating losses and operating expenses will be accurate. In addition, $10.0
million in aggregate proceeds from the BI Equity Investment and the BI License
Fee may be used only for the clinical development of Procysteine i.v. for use in
the treatment of ARDS. The Company's actual working capital needs and funding
requirements will depend upon numerous factors, including the progress of the
external research and development programs being supported by the Company, the
magnitude and scope of these activities, the timing and results of preclinical
development and clinical testing, the timing and costs of obtaining regulatory
approvals, the level of resources that the Company commits to the development of
manufacturing, marketing and sales capabilities, if any, whether BI elects to
participate and co-fund the development of the Company's MOD program, the
ability of the Company to establish collaborative arrangements with other
companies to provide funding to the Company, the costs of any acquisitions
and/or licensing of technology rights, products or businesses, the technological
advances and activities of competitors, the cost involved in preparing, filing,
prosecuting, maintaining, enforcing and defending patent claims and other
intellectual property rights, developments related to regulatory and
reimbursement matters and other factors. The Company intends to seek additional
funding through corporate collaborations such as its collaboration with BI.
There can be no assurance that the Company will be able to negotiate such
agreements on acceptable terms, or at all. The Company will also seek additional
funding through public or private financings. If additional funds are raised by
issuing equity securities, further dilution to stockholders will result. Debt
financing, if available, may involve restrictive covenants. If adequate funds
are not available, the Company may be required to delay, scale back or eliminate
certain of its product development programs, license to others rights to
commercialize products or technologies that the Company would otherwise seek to
develop and commercialize itself or cease operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
DEPENDENCE ON RESEARCH AND CLINICAL COLLABORATORS AND SCIENTIFIC
ADVISORS. The Company does not have any research facilities and does not intend
to conduct internal discovery activities. Substantially all of the Company's
research and clinical testing activities are performed by third parties. The
Company's strategy for development and commercialization of products depends
upon the formation of collaborations with academic and other institutions to
perform research, development and clinical testing functions for the Company and
to access technology. The Company is dependent upon creating and maintaining
relationships with collaborators at academic and other institutions who conduct
a substantial portion of the Company's research, development and clinical
testing. Such collaborators are not employees of the Company. All of the
Company's consultants are employed by employers other than the Company and may
have commitments to, or consulting or advisory contracts with other entities
that may limit their availability to the Company. As a result, the Company has
limited control over their activities and, except as otherwise required by its
collaboration and consulting agreements, can expect only limited amounts of
their time to be spent on the Company's activities. The failure of these third
parties to perform their obligations under such agreements or to devote adequate
time to the Company's projects could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
also seeks to protect its proprietary technology, including technology which may
not be patented or patentable, in part by confidentiality agreements and, if
applicable, inventor's rights agreements with its collaborators, advisors,
employees and consultants. There can be no assurance that these agreements will
not be breached, that the Company will have adequate remedies for any breach, or
that the Company's trade secrets will not be otherwise disclosed to or
discovered by competitors. Any unauthorized dissemination of the Com-
11
<PAGE> 13
pany's confidential information could have an adverse effect on the Company's
business. The Company's implementation of the proposed Phase III clinical trial
for Procysteine and the research and development of and access to other
potential products or technologies will depend on continued collaborations with
researchers at academic and other institutions. There can be no assurance that
the Company will be able to negotiate additional acceptable collaborations with
collaborators at academic and other institutions or that its existing
collaborations will be successful.
RAPID TECHNOLOGICAL CHANGE; INTENSE COMPETITION. The biotechnology and
pharmaceutical industries are subject to rapid and significant technological
change. The Company competes with all entities developing and producing
pharmaceuticals for the treatment of ARDS or MOD or other diseases which may be
the subject of future product development efforts of the Company. Competitors of
the Company in the United States and abroad are numerous and include, among
others, pharmaceutical and biotechnology companies, universities and other
research institutions. The Company's competitors may succeed in identifying and
developing products that are more effective than those of the Company or in
obtaining regulatory approvals of their drugs more rapidly than the Company and
such success could render the Company's products obsolete or non-competitive and
have a material adverse effect on the Company's business, financial condition
and results of operations. As a result, the Company's success depends upon
developing and maintaining a competitive position in the development of products
and technologies in its area of focus.
Competition in the pharmaceutical and biotechnology industry is intense and
is expected to continue to increase. Many of the Company's competitors are
actively engaged in the research and development of products in the Company's
targeted areas. Many of these competitors have substantially greater financial
and technical resources and product and marketing capabilities than the Company,
as well as considerable experience in preclinical testing, human clinical trials
and other regulatory approval procedures, and certain of these competitors may
compete with the Company in establishing development and marketing agreements
with pharmaceutical companies. There is currently no commercially available drug
to treat ARDS. However, The Liposome Company, Inc. ("Liposome") initiated in
September 1995 a Phase III study for a drug designed to treat ARDS through a
mechanism different from that of Procysteine. There can be no assurance that
research and development by Liposome or others will not render any of the
Company's planned products obsolete or uneconomical, or result in therapies
superior to any developed by the Company, or that any products developed by the
Company will be preferred to any existing or newly developed technologies or
therapies.
LIMITED SOURCE OF SUPPLY; DEPENDENCE ON THIRD-PARTY MANUFACTURERS. The
Company is responsible for manufacturing and supplying BI with Procysteine i.v.
for clinical and commercial purposes. To be successful, the Company's products,
including Procysteine, if successfully developed, must be manufactured in
commercial quantities in accordance with regulations prescribed by the FDA, at
acceptable costs and on a timely basis and in accordance with the Company's
obligations to any collaborators, including BI. The Company does not have the
capability to manufacture products under cGMP regulations prescribed by the FDA
and does not intend to develop such a capability in the near future.
Accordingly, the Company anticipates that, for the foreseeable future, it will
pursue a strategy of seeking production capability from outside vendors or
corporate collaborators. The Company does not have a long term, fixed price
supply agreement for Procysteine, but rather obtains Procysteine by issuing
purchase orders to its supplier on an as needed basis. There can be no assurance
that the Company's existing or future outside vendors or prospective corporate
collaborators will be able to manufacture Procysteine or any other product which
is successfully developed by the Company on a commercial scale in compliance
with cGMP or other regulatory guidelines or that any collaborator or vendor will
be able to manufacture such products on a timely basis or in quantities of a
quality or at prices which will be commercially viable or beneficial for the
Company or will satisfy the Company's obligations to any collaborators,
including BI. If the Company encounters difficulty in obtaining third-party
manufacturing on commercially acceptable terms and on a timely basis, its
ability to commercial-
12
<PAGE> 14
ize products may be delayed or foreclosed, in which case its business, financial
condition and results of operations would be materially and adversely affected.
LACK OF COMMERCIAL SALES AND MARKETING EXPERIENCE; DEPENDENCE ON STRATEGIC
ALLIANCES. The Company does not have experience in marketing, sales,
distribution or support of commercial products. To succeed in marketing any of
its products, the Company must develop and maintain a sales force with
sufficient marketing and technical expertise to commercialize and provide
support for its products. Alternatively, the Company must obtain such
capabilities through third parties. To date, the Company has entered into one
strategic alliance for the development and marketing of intravenous formulations
of the Company's lead product candidate, Procysteine. See "Risk
Factors -- Dependence on Boehringer Ingelheim." There can be no assurance that
the Company will be able to establish in-house sales and distribution
capabilities or gain market acceptance for its products or enter into other
strategic relationships without undue delays or expenditures. Any such delay or
expenditure could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
current or future collaborators, if any, will commit sufficient marketing and
other resources towards developing, promoting and commercializing its products.
Further, competitive conflicts may arise among these third parties that could
prevent them from working cooperatively with the Company. The amount and timing
of resources devoted to these activities by such parties generally would be
controlled by such partners. In addition, strategic relationships generally
provide the collaborator with the right to terminate an agreement in part or in
full under certain circumstances. Any termination of a strategic relationship
for any reason could substantially reduce the likelihood that the collaborative
product candidate would be developed, would obtain regulatory approvals and be
successfully commercialized on a timely basis, if at all, and any such
termination could, therefore, have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's royalties
from sales of products licensed to collaborators, if any, may be less than the
revenues the Company could have generated had it commercialized and marketed
products itself. There can be no assurance that the Company would be successful
in establishing or maintaining future collaborative arrangements, that any
collaborative partners would be successful in developing and commercializing
products or that the Company would generate revenues from royalties sufficient
to offset the Company's significant investment in research and development and
other costs.
PATENTS AND PROPRIETARY RIGHTS; THIRD-PARTY RIGHTS. The Company's
commercial success will depend, to a significant extent, on the Company's and
any licensor's ability to obtain patent protection for its products and methods,
including methods for treating or preventing human disease. The Company is
conducting research and expects to seek additional patents in the future. The
Company's success will depend to a significant extent on its ability to obtain
and enforce patents, maintain trade secret protection and operate without
infringing the patents and proprietary rights of third parties. The patent
positions of pharmaceutical and biotechnology firms, including the Company, are
uncertain and involve complex legal and factual questions for which important
legal principles are largely unresolved, particularly in regard to methods for
treating or preventing human diseases, and most particularly for diseases such
as ARDS and MOD for which the Company believes there is currently no
commercially available drug for prevention or treatment. Substantial periods of
time pass before the United States Patent & Trademark Office ("USPTO") responds
on the merits to patent applications and submissions on behalf of the inventors.
In addition, the coverage originally claimed in a patent application can be
significantly reduced or modified before and after a patent is issued.
Consequently, there can be no assurance that any of the Company's or any
licensor's pending or future patent applications will result in the issuance of
patents or, if any patents are issued, whether the patents will be subjected to
further proceedings limiting their scope, and whether they will provide
significant proprietary protection or competitive advantage, or will be
circumvented or invalidated. Because patent applications in the United States
are maintained in secrecy until patents issue and patent applications in certain
other countries generally are not published until more than 18 months after they
are filed, and since publication of inventions in scientific or patent
literature often lags behind actual dates of invention, the Company cannot be
certain that it or any licensor was the first inventor of inventions covered by
13
<PAGE> 15
pending patent applications or that it or such licensor was the first to file
patent applications on such inventions.
There can be no assurance that the Company's or any licensor's patents, if
issued, would not be found invalid or unenforceable by a court or that such
patents would cover products or technologies of the Company's competitors.
Competitors or potential competitors may have filed applications for or received
patents, and may obtain additional patents and proprietary rights relating to
products or methods for treating or preventing human disease that are
competitive with those of the Company. To protect its proprietary rights, the
Company may be required to participate in interference proceedings declared by
the USPTO to determine priority of invention, which could result in substantial
cost to the Company. Moreover, even if the Company's patents issue, there can be
no assurance that they will provide sufficient proprietary protection or will
not be later limited, circumvented or invalidated.
There is substantial uncertainty concerning whether human clinical data
will be required for the issuance of patents for methods of treating or
preventing human disease, particularly for diseases such as ARDS and MOD, for
which the Company believes there is currently no commercially available drug for
prevention or treatment. If such data is required, the Company's ability to
obtain patent protection could be delayed or otherwise adversely affected.
Although the USPTO issued new utility guidelines in July 1995 that address the
requirements for demonstrating utility for biotechnology inventions, including
inventions relating to methods for treating or preventing human diseases, there
can be no assurance that USPTO patent examiners will follow such guidelines or
that the USPTO's position will not change with respect to what is required to
establish utility for methods of using Procysteine or future potential products
of the Company in the treatment of human diseases. Nor can it be assured that
compliance with such guidelines will result in patents that are valid and
enforceable. Furthermore, the enactment of legislation implementing the General
Agreement on Trade and Tariffs has resulted in certain changes to United States
patent laws that became effective on June 8, 1995. Most notably, the term of
patents that issue from patent applications filed on or after June 8, 1995 is no
longer a period of 17 years from the date of grant. The new term of United
States patents will commence on the date of issuance and terminate 20 years from
the earliest claimed filing date of the application. Because the time from
filing to issuance of biotechnology patent applications is often more than three
years, a 20-year term from the claimed date of filing may result in a
substantially shortened term of patent protection, which may adversely impact
the Company's patent position. In addition, if this change results in a shorter
period of patent coverage, and if the Company negotiates royalties based on the
existence of a valid patent, the Company's business could be adversely affected.
The Company has obtained from the Cornell Research Foundation ("Cornell"),
an exclusive license (the "Cornell Agreement") under certain patents covering
methods of using Procysteine, the Company's lead product candidate, to increase
intracellular levels of glutathione and/or cysteine. The last of these United
States patents licensed from Cornell expires in 2004. The expiration of such
U.S. patent protection may have a material adverse effect on the ability of the
Company to exclude others from making, using or selling Procysteine for use in
methods of treating or preventing the diseases discussed in this Prospectus. The
Company has also licensed corresponding patents in Canada, United Kingdom,
Germany, France, Austria and Sweden. The Company's rights under the Cornell
Agreement further include an exclusive license under a United States patent to a
composition of matter for the TR-500 series of glutathione-repleting agents. In
addition, the Company owns a United States patent application for the use of
Procysteine in treating pulmonary disease, including ARDS, with a corresponding
European patent, which has issued as national patents in Austria, Belgium,
Denmark, France, Germany, Greece, Italy, Luxembourg, Monaco, Netherlands,
Portugal, Spain, Sweden, Switzerland and the United Kingdom, which national
patents expire in 2011. Corresponding patent applications are pending in Canada,
Australia and Japan. By July 16, 1997, any person may give notice to the
European Patent Office of opposition to the European patent. An adverse decision
in any such opposition may result in revocation of the European patent and the
national patents which issued therefrom. The Company may be required to obtain
licenses to patents or other proprietary rights of third parties in addition to
its license from Cornell. No assurance can be given that any licenses
14
<PAGE> 16
required under any such patents or proprietary rights would be made available on
terms acceptable to the Company, if at all. If the Company does not obtain such
licenses, it could encounter delays in product market introductions while it
attempts to design around such patents or other rights, or it may be unable to
develop, manufacture or sell products.
The Company was independently approached by two individuals, each claiming
to be the first and sole inventor of the use of Procysteine in the treatment of
patients with amyotrophic lateral sclerosis ("ALS"). One of those individuals is
employed by Massachusetts General Hospital, where the Company has sponsored a
clinical trial for the administration of Procysteine to ALS patients. Two
identical patent applications, each naming one of the individuals as sole
inventor, have been filed at the Company's expense and with full disclosure of
the two patent applications to each individual and Massachusetts General
Hospital. There can be no assurance that the subject matter of these patent
applications is patentable over prior art. If the claims are found allowable in
the two applications, it is expected that an interference will be declared
between the two patent applications and the USPTO will determine priority of
invention. There can be no assurance that the Company will be able to obtain a
license to any patent that issues or that any such license, if obtained, would
be on terms acceptable to the Company. If the Company cannot obtain such a
license, the Company will not be able to develop, market and sell Procysteine
for use in the treatment of ALS.
The Company also seeks to protect its proprietary technology, including
technology which may not be patented or patentable, in part by confidentiality
agreements and, if applicable, inventor's rights agreements with its
collaborators, advisors, employees and consultants. There can be no assurance
that these agreements will not be breached, that the Company will have adequate
remedies for any breach, or that the Company's trade secrets will not be
otherwise disclosed to, or discovered by, competitors. Moreover, the Company
conducts a significant amount of research through academic advisors and
collaborators who are prohibited from entering into confidentiality or
inventor's rights agreements by their academic institutions. Any unauthorized
dissemination of the Company's confidential information could have an adverse
effect on the Company's business.
MANAGEMENT OF GROWTH; RISK OF ACQUIRING NEW TECHNOLOGIES. One of the
Company's strategies and potential significant use of the proceeds from the
Offering is to build a product pipeline by acquiring and/or licensing technology
rights, products or businesses. The Company's strategy could involve the
retention of additional personnel, the establishment of new or expanded
facilities and the acquisition of technology rights, products, equipment,
businesses or assets of other companies. There can be no assurance that the
Company's management personnel, systems, procedures and controls will be
adequate to support the expansion of the Company's operations. The acquisition
of additional personnel, technology rights, products, equipment, businesses or
assets of other companies, as well as the entry into new areas of scientific
research, will require the dedication of management resources in order to
achieve the strategic objectives associated with such growth and expansion.
There can be no assurance that the Company will be able to manage successfully
the growth and expansion of its operations. Failure of the Company to manage its
growth, or any specific acquisition of additional capabilities, could have a
material adverse effect on the Company's business, operating results and
financial condition.
POTENTIAL FOR CONFLICT WITH CLINTEC. In connection with the formation of
the Company and the contribution of certain assets and technology to the Company
by Clintec Nutrition Company ("Clintec") and Cornell, the Company holds the
rights to certain patents and related technology covering methods of using
Procysteine and the TR-500 Compounds ("Covered Technology"). The Company has
granted to Clintec an exclusive, royalty-free sub-license to the use of the
Covered Technology for certain clinical nutrition and nutritional applications
while retaining exclusive rights to all pharmaceutical applications. In
addition, the Company agreed, until April 1999, not to develop any other
competitive compounds based on glutathione manipulation ("Other Compounds") for
use in certain clinical nutritional applications, and Clintec agreed, during the
same period, not to develop
15
<PAGE> 17
Other Compounds for use in pharmaceutical applications. Such provision does not
affect the exclusive right of the Company and Clintec to develop and
commercialize the Covered Technology in their respective fields. Although no
disputes have arisen to date regarding the exclusive rights of the Company,
Clintec or its successors in their respective fields, such a dispute could have
a material adverse effect on the Company's ability to enter into corporate
alliances and license arrangements, and if resolved in a manner adverse to the
Company would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Technology and
License Agreements."
PRODUCT LIABILITY. The testing, marketing and sale of human therapeutic
products entail an inherent risk of exposure to product liability claims by
consumers, health care providers, pharmaceutical and biotechnology companies or
other sellers of the Company's products. There can be no assurance that
substantial product liability claims will not be asserted against the Company.
While the Company has liability insurance with respect to clinical trials, there
can be no assurance that the Company will be able to maintain clinical trial
liability insurance on acceptable terms or that such insurance will provide
adequate coverage against potential liabilities. The Company does not have
product liability insurance coverage for the commercial sale of Procysteine, the
Company's lead product candidate. The Company will seek to obtain product
liability insurance coverage for commercial sales if and when its products are
commercialized. However, there can be no assurance that adequate insurance
coverage will be available in sufficient amounts and at acceptable costs, if at
all. In addition, pursuant to the terms of the licensing agreements entered into
by the Company, including the agreement licensing methods of using Procysteine
in the treatment of human diseases, the Company has agreed to indemnify certain
third parties with respect to losses incurred as a result of the manufacture,
supply or sale of potential product candidates. Any indemnification or product
liability claim or product recall could inhibit or prevent commercialization of
products being developed by the Company, and otherwise have a material adverse
effect on the Company's business, financial condition and results of operations.
UNCERTAINTY OF PHARMACEUTICAL PRICING, REIMBURSEMENT AND RELATED
MATTERS. The Company's business, financial condition and results of operations
may be materially adversely affected by the continuing efforts of government and
third-party payors to contain or reduce the costs of health care through various
means. For example, in certain foreign markets, pricing and profitability of
prescription pharmaceuticals are subject to government control. In the United
States, the Company expects that there will continue to be a number of federal
and state proposals to implement similar government control. While the Company
cannot predict whether any such regulatory proposals will be adopted or the
effect such proposals may have on its business, the pendency of such proposals
could have a material adverse effect on the Company's ability to raise capital,
and the adoption of such proposals could have a material adverse effect on the
Company in general. In addition, increasing emphasis on managed care in the
United States will continue to put pressure on the pricing of pharmaceutical
products. Cost control initiatives could decrease the price that the Company or
its strategic partners, if any, receive for any products in the future and could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The ability of the Company to commercialize pharmaceutical products may
depend in part on the extent to which reimbursement for the products will be
available from government and health administration authorities, private health
insurers and other third-party payors. Significant uncertainty exists as to the
reimbursement status of newly approved health care products. Third-party payors,
including Medicare, increasingly are challenging the price and cost
effectiveness of medical products and services. Government and other third-party
payors are increasingly attempting to contain health care costs by limiting both
coverage and the level of reimbursement for new therapeutic products and by
refusing in some cases to provide coverage for uses of approved products for
disease indications for which the FDA has not granted labeling approval. There
can be no assurance that any third-party insurance will cover use by patients of
Procysteine or products developed by the Company or its
16
<PAGE> 18
strategic partners, if any, or that adequate third-party reimbursement will be
available to enable the Company to maintain price levels sufficient to realize
an appropriate return on its investment in product development. Failure to
achieve sufficient price levels for its drugs could adversely affect the
Company's business, financial condition and results of operations. In addition,
if adequate coverage and reimbursement levels are not provided by government and
other third-party payors for the Company's products, the market acceptance of
these products may be reduced, which may have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent on the
members of its management and scientific staff, the loss of one or more of whom
could have a material adverse effect on the Company. The Company's employment
agreements with each of its executive officers may be terminated by the employee
upon short notice. The Company also depends on its scientific collaborators and
advisors, all of whom have commitments that may limit their availability to the
Company. In addition, the Company believes that its future success will depend
in large part upon its ability to attract and retain highly skilled scientific,
managerial and marketing personnel, particularly as the Company expands its
activities in clinical trials, the regulatory approval process and sales and
marketing. The Company faces significant competition for such personnel from
other companies, research and academic institutions, government entities and
other organizations. There can be no assurance that the Company will be
successful in hiring or retaining the personnel it requires for continued
growth. The failure to hire and retain such personnel could materially and
adversely affect the Company's prospects.
MANAGEMENT DISCRETION AS TO USE OF PROCEEDS. Although the Company expects
to use approximately $8.0 million of the net proceeds of the Offering to fund
currently planned clinical trials and research and development programs and for
the redemption of the Nonconvertible Redeemable Preferred Stock, the Company
also may use the net proceeds of the Offering to acquire and/or license
technology rights, products or businesses. As such, the Company's management
will retain broad discretion as to the allocation of a significant portion
(approximately 70%) of the net proceeds of the Offering. As a result of such
discretion, the Company's management could allocate the proceeds of the Offering
to uses which the shareholders may not deem desirable. In addition, there can be
no assurance that the proceeds can or will be invested to yield an acceptable
return. See "Use of Proceeds."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Sales of substantial
amounts of Common Stock in the public market after the Offering, or the
possibility of such sales occurring, could adversely affect prevailing market
prices for the Common Stock or the future ability of the Company to raise
capital through an offering of equity securities. On or prior to the closing of
the Offering, the Company will issue $5.0 million in shares of Common Stock to
BI under the BI Equity Investment. See "Business -- Boehringer Ingelheim."
Assuming an initial public offering price of $13.00 per share, the Company will
sell 384,615 shares of Common Stock to BI on or prior to the Offering. Of the
6,136,481 shares to be outstanding after the Offering (including the 384,615
shares to be issued to BI assuming an initial public offering price of $13.00
per share), the 2,000,000 shares of Common Stock offered hereby will be freely
tradeable without restriction in the public market unless such shares are held
by "affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"). The remaining
4,136,481 shares of Common Stock are restricted securities under the Securities
Act, and may be sold in the public market only if they are registered or if they
qualify for exemption from registration under Rule 144 or Rule 701 under the
Securities Act. Pursuant to "lock-up" agreements, certain of the Company's
stockholders and employees and all of its executive officers and directors, who
collectively hold 3,654,284 of such restricted securities have agreed not to
offer, sell or otherwise dispose of (i) any of their restricted securities for a
period of 180 days from the date of this Prospectus (the "Initial Lock-Up
Period") and (ii) in excess of 50 percent of such restricted securities for a
period of 90 days following the Initial Lock-Up Period (the "Secondary Lock-Up
Period"), without the prior written consent of Vector Securities International,
Inc. ("Vector Securities"). In addition, BI has agreed not to offer, sell or
otherwise dispose of its shares of Common Stock for a period of 360 days from
the date of this Prospectus (the "BI Lock-Up Period"), without the
17
<PAGE> 19
prior written consent of Vector Securities. The Company has also agreed that it
will not offer, sell or otherwise dispose of Common Stock for a period of 180
days from the date of this Prospectus without the prior written consent of
Vector Securities, other than pursuant to existing stock option plans or upon
exercise of outstanding warrants. Upon termination of each of the Initial
Lock-Up Period and the Secondary Lock-Up Period, approximately 1,824,142 shares
of the restricted securities will be available for immediate sale in the public
market, subject to certain volume, manner of sale, and other limitations under
Rule 144. Upon termination of the BI Lock-Up Period, the 384,615 shares
purchased by BI (assuming an initial public offering price of $13.00 per share)
will be eligible for immediate sale in the public market, subject to certain
volume, manner of sale, and other limitations under Rule 144. BI also has the
right to cause the Company to register these shares under the Securities Act at
any time following the BI Lock-Up Period. See "Description of Capital
Stock -- Registration Rights." In addition, of the restricted securities not
subject to lock-up agreements, approximately 46,741 shares will be eligible for
sale without limitation under Rule 144(k) and 56,840 shares will be eligible for
sale beginning 90 days after the date of this Prospectus, subject to certain
volume, manner of sale and other limitations under Rule 144 and Rule 701. Vector
Securities may, in its sole discretion and at any time without notice, release
all or any portion of the shares subject to such lock-up agreements.
After the Offering, holders of an aggregate of 4,037,099 shares of Common
Stock will be entitled to certain rights with respect to the registration of
such shares for resale under the Securities Act. In addition, the Company
intends to file a Registration Statement on Form S-8 after the date of this
Prospectus to register an aggregate of 370,324 shares of Common Stock reserved
for issuance upon exercise of outstanding options and an aggregate of 378,295
shares of Common Stock reserved for issuance pursuant to future option grants
under the Company's Amended and Restated 1994 Equity Incentive Plan. If such
registrations cause a large number of shares to be registered and sold in the
public market, such sales could have an adverse effect on the market price for
the Company's Common Stock. See "Description of Capital Stock -- Registration
Rights" and "Shares Eligible for Future Sale."
CONTROL BY EXISTING STOCKHOLDERS. Following the Offering and the BI Equity
Investment, the Company's directors, executive officers and principal
stockholders and certain of their affiliates will beneficially own approximately
47.8 percent of the outstanding shares of Common Stock (45.6 percent if the
Underwriters' over-allotment option is exercised in full). Accordingly, if
acting in concert, they will have the ability to substantially influence the
election of the Company's directors and other actions requiring stockholder
approval. This concentration of ownership may have the effect of delaying or
preventing a change of control of the Company.
ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK
PRICE. Prior to the 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 the Offering. The initial public
offering price will be determined by negotiations between the Company and
representatives of the Underwriters. The trading price of the Common Stock could
be subject to wide fluctuations in response to quarterly variations in the
Company's operating results, shortfalls in such operating results from levels
forecast by securities analysts, announcements of technological innovations or
new commercial products by the Company or its competitors, progress with
clinical trials, government regulations, changes in third-party reimbursement,
changes in the Company's relationships with BI or with future collaborative
partners, public concern as to the safety and efficacy of drugs developed by the
Company and its competitors and other events or factors. In addition, the stock
market has, from time to time, experienced extreme price and volume fluctuations
that have particularly affected the market prices for companies in the
biotechnology and pharmaceutical industries and that have often been unrelated
to the operating performance of the affected companies. Announcements of changes
in reimbursement policies of third-party payors, regulatory developments,
economic news and other external factors may have a significant impact on the
market price of biotechnology and pharmaceutical stocks. Broad market
fluctuations of this type may adversely affect the future market price of the
Common Stock. See "Underwriting."
18
<PAGE> 20
ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's Restated
Certificate of Incorporation and By-laws, as in effect upon the closing of the
Offering, and Section 203 of the Delaware General Corporate Law may have the
effect of deterring hostile takeovers or delaying or preventing changes in
control or management of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over then
current market prices. In addition, these provisions may limit the ability of
stockholders to approve transactions that they may deem to be in their best
interests. The Restated Certificate of Incorporation provides, among other
things, for a classified Board of Directors, and that members of the Board of
Directors may be removed only for cause upon the affirmative vote of holders of
at least two-thirds of the shares of capital stock of the Company entitled to
vote. The Company's Board of Directors is also authorized to issue up to
5,000,000 shares of Preferred Stock and to determine the price, rights,
preferences and privileges of those shares without further vote or action by the
Company's 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
such shares of Preferred Stock that may be issued in the future. Any such
Preferred Stock may have other rights, including economic rights senior to the
Common Stock, and, as a result, the issuance thereof could have a material
adverse effect on the market value of the Common Stock. Furthermore, the Company
is subject to anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which prohibits the Company from engaging in a "business
combination" with an "interested stockholder," unless the business combination
is approved in a prescribed manner. See "Description of Capital Stock --
Delaware Anti-Takeover Law and Certain Charter and By-Law Provisions."
SUBSTANTIAL DILUTION TO NEW INVESTORS. The initial public offering price
per share of the Company's Common Stock will be substantially higher than the
book value per share of Common Stock. Investors purchasing shares of Common
Stock in the Offering will experience immediate and substantial dilution of
$7.47 per share. To the extent outstanding options and warrants to purchase
Common Stock are exercised, there will be further dilution to new investors. See
"Dilution."
ABSENCE OF DIVIDENDS. The Company has never declared or paid cash
dividends on the Common Stock. The Company currently anticipates that it will
retain all future earnings for use in the operation and growth of its business
and, therefore, does not anticipate paying any cash dividends in the foreseeable
future. See "Dividend Policy."
19
<PAGE> 21
USE OF PROCEEDS
The net proceeds from the sale of the 2,000,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $13.00 per share
are estimated to be $23.4 million ($27.0 million if the Underwriters'
over-allotment option is exercised in full), after deducting estimated
underwriting discounts and commissions and estimated expenses of the Offering.
The Company will use approximately $1.0 million of the net proceeds of the
Offering to redeem all outstanding shares of Nonconvertible Redeemable Preferred
Stock and up to $3.0 million to fund additional costs associated with the Phase
III clinical development of Procysteine i.v. for the treatment of ARDS which are
not otherwise funded by payments from BI under the BI Agreement. In addition,
the Company intends to use up to $3.0 million of the net proceeds of the
Offering to fund costs associated with the Phase II clinical development of
Procysteine i.v. in the treatment and/or prevention of MOD and $2.0 million to
fund costs associated with the Phase II clinical development of oral Procysteine
for the treatment of either ALS or atherosclerotic cardiovascular disease
("ASCVD") and the preclinical development of TR-500 compounds. The Company
intends to use the balance of the net proceeds of the Offering for other
research and development, preclinical and clinical programs, working capital and
general corporate purposes. The Company may also use a portion of the net
proceeds of the Offering to acquire or license products or technologies
complementary to the Company's business, although the Company has no agreements
or commitments for any such acquisitions. See "Risk Factors -- Need for
Substantial Additional Funds."
In February 1997, the Company received the $5.0 million BI License Fee from
BI in connection with the BI Agreement. In addition, on or prior to the closing
of the Offering, the Company expects to issue $5.0 million shares of Common
Stock to BI under the BI Equity Investment. The Company has agreed with BI to
use the aggregate $10.0 million in proceeds from BI only for the clinical
development of Procysteine i.v. for use in the treatment of ARDS.
The Company anticipates that the net proceeds from the Offering and the
proceeds of the BI Equity Investment and the BI License Fee, including interest
thereon together with the Company's existing funds, will be sufficient to fund
its operating expenses and capital requirements as currently planned for at
least the next 24 months. However, there can be no assurance that the Company's
assumptions regarding future operating losses and operating expenses will be
accurate. The Company's actual working capital needs and funding requirements
will depend upon numerous factors, including the progress of the external
research and development programs being supported by the Company, the magnitude
and scope of these activities, the timing and results of preclinical and
clinical testing, the timing and costs of obtaining regulatory approvals, the
level of resources that the Company commits to the development of manufacturing,
marketing and sales capabilities, if any, whether BI elects to participate and
co-fund the development of the Company's MOD program, the ability of the Company
to establish new collaborative arrangements with other companies to provide
funding to the Company, the costs of any acquisitions and/or licensing of
technology rights, products or businesses, the technological advances and
activities of competitors, the costs involved in preparing, filing, prosecuting,
maintaining, enforcing and defending patent claims and other intellectual
property rights, developments related to regulatory and reimbursement matters
and other factors. If adequate funds are not available, the Company may be
required to delay, scale back or eliminate certain of its product development
programs, license to others rights to commercialize products or technologies
that the Company would otherwise seek to develop and commercialize itself, or
cease operations. See "Risk Factors -- Need for Substantial Additional Funds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on the Common Stock.
The Company currently anticipates that it will retain all future earnings for
use in the operation and growth of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future.
20
<PAGE> 22
CAPITALIZATION
The following table sets forth as of December 31, 1996 (i) the actual
capitalization of the Company as if the one-for-five reverse split of the Common
Stock had been effected prior to December 31, 1996; (ii) the pro forma
capitalization of the Company as described in Note 1 below; and (iii) the pro
forma capitalization of the Company as adjusted to reflect the transactions
described in Note 2 below, including the issuance and sale of the 2,000,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $13.00 per share, after deducting estimated underwriting discounts and
commissions and estimated expenses of the Offering and the use of the proceeds
therefrom. See "Use of Proceeds" and "Description of Capital Stock." This table
should be read in conjunction with the Company's Financial Statements and the
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
-------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Redeemable preferred stock:
Series A Redeemable Convertible Preferred Stock, $.01 par value;
12,991,000 shares authorized; 9,916,330 shares issued and
outstanding (actual); no shares authorized, issued and
outstanding (pro forma and pro forma as adjusted).............. $ 9,140 $ -- $ --
Series B Redeemable Convertible Preferred Stock, $.01 par value;
3,000,000 shares authorized; 690,775 shares issued and
outstanding (actual); no shares authorized, issued and
outstanding (pro forma and pro forma as adjusted).............. 1,036 -- --
Series C Redeemable Convertible Preferred Stock, $.01 par value;
4,255,319 shares authorized, issued and outstanding (actual);
no shares authorized, issued and outstanding (pro forma and pro
forma as adjusted)............................................. 10,000 -- --
Nonconvertible Redeemable Preferred Stock, $.01 par value; no
shares authorized, issued and outstanding (actual); 1,039,000
shares authorized, issued and outstanding (pro forma); no
shares authorized, issued and outstanding (pro forma as
adjusted)...................................................... -- 861 --
Stockholders' equity (deficit):
Common Stock, $.01 par value; 25,000,000 shares authorized,
779,381 shares issued and outstanding (actual); 25,000,000
authorized, 3,751,866 shares issued and outstanding (pro
forma); 25,000,000 shares authorized, 6,136,481 shares issued
and outstanding (pro forma as adjusted)(3)..................... 8 37 61
Preferred Stock, $.01 par value; no shares authorized (actual and
pro forma); 5,000,000 shares authorized, no shares issued and
outstanding (pro forma as adjusted)............................ -- -- --
Additional paid-in capital....................................... 1,454 21,779 50,111
Deferred compensation(4)......................................... (978) (978) (978)
Deficit accumulated during the development stage................. (19,719) (14,719) (14,897)
-------- ------------ --------------
Total stockholders' equity (deficit)........................... (19,235) 6,119 34,297
-------- ------------ --------------
Total capitalization......................................... $ 941 $ 6,980 $ 34,297
======== ============== ===============
</TABLE>
- ---------------
(1) Presented on a pro forma basis to give effect to (i) the sale by the Company
of an aggregate of 1,039,000 shares of Nonconvertible Redeemable Preferred
Stock and warrants to purchase $346,300 of Common Stock, exercisable at the
initial public offering price (26,639 shares of Common Stock assuming an
initial public offering price of $13.00 per share), and the receipt of
approximately $1.0 million in proceeds therefrom, in March 1997; (ii) the
automatic conversion of all of the outstanding shares of Series A, Series B
and Series C Convertible Preferred Stock upon the closing of the Offering;
and (iii) the receipt of a $5.0 million license fee from BI in March 1997
under the BI Agreement. See "Business -- Boehringer Ingelheim" and "Certain
Transactions."
(2) As adjusted to give effect to (i) the sale of 2,000,000 shares of Common
Stock offered hereby, at an assumed initial public offering price of $13.00
per share (after deducting estimated underwriting discounts and commissions
and estimated expenses of the Offering) and the receipt of the estimated net
proceeds therefrom; (ii) the redemption of all outstanding shares of
Nonconvertible Redeemable Preferred Stock for approximately $1.0 million
from the proceeds of the Offering; and (iii) the sale to BI of $5.0 million
of unregistered shares of Common Stock at the initial public offering price
(384,615 shares of Common Stock assuming an initial public offering price of
$13.00 per share) and the receipt by the Company of the proceeds therefrom,
which is expected to close on or prior to the Offering.
(3) Excludes (i) 370,324 shares of Common Stock issuable upon exercise of stock
options outstanding as of December 31, 1996, at a weighted average exercise
price of $1.20 per share; (ii) 378,295 additional shares of Common Stock
reserved for future grants of options under the Company's 1994 Equity
Incentive Plan as of December 31, 1996; (iii) 5,000 shares of Common Stock
reserved for issuance upon exercise of a warrant outstanding as of December
31, 1996 at an exercise price of $5.00 per share; and (iv) $346,300 of
Common Stock reserved for issuance upon exercise of warrants to purchase
such stock at the initial public offering price (26,639 shares of Common
Stock assuming an initial public offering price of $13.00 per share).
(4) See Note 7 of Notes to the Financial Statements for information concerning
the computation of deferred compensation.
21
<PAGE> 23
DILUTION
The pro forma net tangible book value of the Company as of December 31,
1996 was $5.3 million or $1.42 per share. Pro forma net tangible book value per
share is equal to the Company's pro forma net tangible assets (pro forma
tangible assets less pro forma total liabilities), divided by the pro forma
number of shares of Common Stock outstanding on December 31, 1996 (as if the
one-for-five reverse stock split of the Company's Common Stock had occurred
prior to December 31, 1996), assuming (i) the sale by the Company of an
aggregate of 1,039,000 shares of Nonconvertible Redeemable Preferred Stock and
warrants to purchase $346,300 of Common Stock at the initial public offering
price (26,639 shares of Common Stock assuming an initial public offering price
of $13.00 per share), and the receipt of approximately $1.0 million in proceeds
therefrom in March 1997; (ii) the receipt of the BI License Fee in March 1997
under the BI Agreement; and (iii) the automatic conversion of all of the
outstanding shares of Series A, Series B and Series C Convertible Preferred
Stock upon the closing of the Offering. Without taking into account any other
changes in pro forma net tangible book value other than to give effect to the
sale of the 2,000,000 shares of Common Stock in the Offering (at an assumed
initial public offering price of $13.00 per share) and the receipt and
application of the estimated net proceeds therefrom and the sale to BI of $5.0
million of Common Stock at the initial public offering price (384,615 shares of
Common Stock assuming an initial public offering price of $13.00 per share) and
the receipt by the Company of the proceeds therefrom, which is expected to occur
on or prior to the Offering, the pro forma net tangible book value of the
Company as of December 31, 1996 would have been approximately $33.9 million or
$5.53 per share. This represents an immediate increase in pro forma net tangible
book value of $4.11 per share to existing stockholders and an immediate dilution
in pro forma net tangible book value of $7.47 per share to new investors. The
following table sets forth the per share dilution to new investors in the
Offering:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $13.00
Pro forma net tangible book value per share as of December 31,
1996 ........................................................ $1.42
Increase per share attributable to new investors................ 4.11
-----
Pro forma net tangible book value per share after the Offering.... 5.53
------
Dilution per share to new investors............................... $ 7.47
======
</TABLE>
The following table sets forth, on a pro forma basis as of December 31,
1996, the differences between existing stockholders and new investors with
respect to the number of shares of Common Stock purchased from the Company, the
total consideration paid and the average price paid per share (at an assumed
initial public offering price of $13.00 per share and before deducting estimated
underwriting discounts and commissions and estimated expenses of the Offering):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... 3,751,866 61% $12,504,000 29% $ 3.33
New investors............................ 2,000,000 33 26,000,000 60 13.00
BI Equity Investment..................... 384,615 6 5,000,000 11 13.00
--------- ------- ----------- -------
Total............................... 6,136,481 100% $43,504,000 100%
========= ======= ============ =======
</TABLE>
The foregoing tables assume no exercise of any outstanding stock options or
warrants subsequent to December 31, 1996, except as described above. As of
December 31, 1996, there were (i) 370,324 shares of Common Stock issuable upon
exercise of outstanding stock options, with a weighted average exercise price of
$1.20 per share; (ii) 5,000 shares of Common Stock issuable upon the exercise of
a warrant at an exercise price of $5.00 per share; and (iii) $346,300 of Common
Stock reserved for issuance upon exercise of warrants to purchase such stock at
the initial public offering price (26,639 shares of Common Stock assuming an
initial public offering price of $13.00 per share). To the extent that these
options or warrants are exercised, there will be further dilution to new
investors. See "Management -- Executive Compensation" and "Certain
Transactions."
22
<PAGE> 24
SELECTED FINANCIAL DATA
The following selected financial data are derived from the audited
financial statements of Transcend Therapeutics, Inc. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and related Notes
thereto, and other financial information included elsewhere herein.
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1993
YEAR ENDED DECEMBER 31, (COMMENCEMENT
------------------------------------------- OF OPERATIONS) TO
1993 1994 1995 1996 DECEMBER 31, 1996
------ ------- ------- -------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................ $6,095(1) $ -- $ -- $ -- $ 6,095(1)
Operating expenses:
Research and development......................... 4,498 2,627 2,739 1,968 11,832
General administration........................... 1,625 1,115 1,645 1,834 6,219
------ ------- ------- -------
Total operating expenses....................... 6,123 3,742 4,384 3,802 18,051
------ ------- ------- -------
Loss from operations............................... (28) (3,742) (4,384) (3,802) (11,956)
Other income (expense)............................. -- 139 (66) (325) (252)
------ ------- ------- -------
Net loss........................................... (28) (3,603) (4,450) (4,127) $ (12,208)
Accretion of Nonconvertible Redeemable Preferred
Stock............................................ -- (1,111) (1,481) (5,080)(2)
------ ------- ------- -------
Net loss to common stockholders.................... $ (28) $(4,714) $(5,931) $ (9,207)
====== ======= ======= =======
Pro forma net loss per common share(3)............. $ (2.35)
=======
Pro forma weighted average common shares
outstanding(3)................................... 3,922
=======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(4) AS ADJUSTED(5)
---------------------------------------- ------------ --------------
1993 1994 1995 1996 1996 1996
------ ------- ------- -------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 66 $ 3,461 $ 1,276 $ 640 $ 6,679 $ 34,331
Working capital (deficit)................... (63) 3,136 733 96 6,135 33,862
Total assets................................ 107 4,257 1,866 1,566 7,605 34,847
Senior secured convertible notes............ -- -- 2,000 -- -- --
Redeemable preferred stock(6)............... -- 8,100 9,581 20,176 861 --
Deficit accumulated during the development
stage..................................... (28) (3,631) (8,081) (19,719) (14,719) (14,897)
Total stockholders' equity (deficit)........ (28) (4,368) (10,297) (19,235) 6,119 34,297
</TABLE>
- ---------------
(1) Reflects a one-time contract research fee of $6,095,000 for various research
and development services. See Note 2 of Notes to Financial Statements.
(2) Includes approximately $4.0 million of additional accretion relating to the
exchange of the Series C Convertible Preferred Stock in September 1996. See
"Certain Transactions."
(3) See Note 1 of Notes to Financial Statements for information concerning the
computation of pro forma net loss per share.
(4) Presented on a pro forma basis to give effect to (i) the sale by the Company
of an aggregate of 1,039,000 shares of Nonconvertible Redeemable Preferred
Stock and warrants to purchase $346,300 of Common Stock, exercisable at the
initial public offering price (26,639 shares of Common Stock assuming an
initial public offering price of $13.00 per share), and the receipt of
approximately $1.0 million in proceeds therefrom in March 1997; (ii) the
automatic conversion of all of the outstanding shares of Series A, Series B
and Series C Convertible Preferred Stock upon the closing of the Offering
into an aggregate of 2,972,485 shares of Common Stock; and (iii) the receipt
of a $5.0 million license fee from BI in March 1997 under the BI Agreement.
See "Business -- Boehringer Ingelheim" and "Certain Transactions."
(5) As adjusted to give effect to (i) the sale of 2,000,000 shares of Common
Stock offered hereby, at an assumed initial public offering price of $13.00
per share (after deducting estimated underwriting discounts and commissions
and estimated expenses of the Offering) and the receipt of the estimated net
proceeds therefrom; (ii) the redemption of all outstanding shares of
Nonconvertible Redeemable Preferred Stock for approximately $1.0 million
from the proceeds of the Offering; and (iii) the sale to BI of $5.0 million
of Common Stock at the initial public offering price (384,615 shares of
Common Stock assuming an initial public offering price of $13.00 per share)
and the receipt by the Company, on or prior to the closing of the Offering,
of the proceeds therefrom. See "Use of Proceeds" and "Capitalization."
(6) Includes all issued and outstanding shares of Series A, Series B and Series
C Convertible Preferred Stock and Nonconvertible Redeemable Preferred Stock.
See "Capitalization" and "Description of Capital Stock."
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations and
financial condition of the Company should be read in conjunction with the
Financial Statements and Notes thereto included elsewhere in this Prospectus.
OVERVIEW
The Company develops novel pharmaceuticals for the treatment of diseases
associated with oxidative stress and resulting tissue damage, with a particular
therapeutic focus on critical care. Since inception, the Company has devoted
substantially all of its resources to the development of Procysteine and related
compounds. The Company has generated no revenue from product sales and has been
dependent upon funding from external financing, contract research and interest
income. In February 1997, BI agreed to purchase $5.0 million of unregistered
shares of Common Stock on or prior to the closing of the Offering at the initial
public offering price.
The Company has not been profitable since inception and has incurred
accumulated net losses of $19.7 million through December 31, 1996. Losses have
resulted principally from costs incurred for clinical and product development
and from general and administrative expenses. The Company expects to incur
additional operating losses over at least the next several years, and expects
such losses to increase as the Company advances its clinical development
programs. The Company's ability to achieve profitability is dependent on its
ability to successfully complete development of, and obtain regulatory approval
for, its planned products, enter into agreements for commercialization of such
products and successfully market such products, as to which there can be no
assurance. See "Risk Factors -- History of Losses; Uncertainty of Future
Profitability."
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The Company earned no revenue in 1996, 1995 and 1994.
The Company's total operating expenses for the years ended December 31,
1996, 1995 and 1994 were $3.8 million, $4.4 million and $3.7 million,
respectively. Research and development expenses for the years ended December 31,
1996, 1995 and 1994 were $2.0 million, $2.7 million and $2.6 million,
respectively. Research and development expenses decreased in 1996 from 1995 due
to completion of the Phase II clinical program in ARDS in June 1996, reduced
clinical costs for oral Procysteine, and reduced assay, formulation, development
and clinical material costs. Research and development expenses increased in 1995
from 1994 due to higher clinical development expenditures for the ARDS and MOD
programs. General and administrative expenses for the years ended December 31,
1996, 1995 and 1994 were $1.8 million, $1.6 million and $1.1 million,
respectively. General and administrative expenses increased in 1996 from 1995
due primarily to increased business development expenses. General and
administrative expenses increased in 1995 from 1994 due primarily to increased
administrative personnel and recruitment costs and higher rent and office
expenses.
Other income (expense) for the years ended December 31, 1996, 1995 and 1994
comprises interest income and interest expense. Interest income for the years
ended December 31, 1996, 1995 and 1994 were $30,000, $111,000 and $139,000,
respectively. Interest income decreased in 1996 and 1995 as compared to 1994
primarily due to reduced cash balances available for investment. The Company
incurred interest expense, payable in shares of Series A and Series B
Convertible Preferred Stock, for the years ended December 31, 1996 and 1995, of
$355,000 and $178,000, respectively, related to the Company's senior secured
convertible notes. There were no senior secured convertible notes outstanding in
the year ended December 31, 1994.
Net loss for the years ended December 31, 1996, 1995 and 1994 were $4.1
million, $4.5 million and $3.6 million, respectively.
24
<PAGE> 26
No income tax provision or benefit has been provided for federal income tax
purposes as the Company has incurred losses since inception. As of December 31,
1996, the Company had deferred tax assets of $5.5 million. Because of
uncertainties surrounding the realization of these favorable tax attributes in
future tax periods, all of the net deferred tax assets have been fully offset by
a valuation allowance. As of December 31, 1996, the Company had total net
operating loss carryforwards of $11.9 million and federal and state tax credits
of approximately $775,000, both of which expire on dates through 2011. The
Company's ability to utilize the net operating loss carryforwards in future
years may be limited in some circumstances, including significant changes in
ownership interests, due to certain provisions of the Internal Revenue Code of
1986, as amended. See Note 5 to Notes to Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily with
$12.6 million (excluding the BI Equity Investment and BI License Fee) from the
private sale of equity securities and convertible notes, $6.1 million in
contract research payments, and $280,000 in interest income. In April 1994, the
Company sold an aggregate of 6,500,000 shares of Series A Convertible Preferred
Stock resulting in proceeds to the Company of $6.5 million. In September 1995,
the Company sold $2.0 million in aggregate principal amount of senior secured
convertible notes due 1997 (the "Series A Notes"). Interest on the Series A
Notes was payable in the form of, and the Series A Notes were convertible into,
shares of the Company's Series A Convertible Preferred Stock. In January 1996,
the Company sold an aggregate of 130,000 shares of Series A Convertible
Preferred Stock resulting in proceeds of $130,000 to the Company. In May 1996,
the Company issued an aggregate of $1.0 million in aggregate principal amount of
senior secured convertible notes due 1997 (the "Series B Notes"). Interest on
the Series B Notes was payable in the form of, and the Series B Notes were
convertible into, shares of the Company's Series B Convertible Preferred Stock.
In April 1994, the Company acquired rights to the Covered Technology from
Clintec and Cornell in exchange for 715,026 shares of Common Stock and 9,000
shares of Nonconvertible Redeemable Preferred Stock issued to Clintec and 35,025
shares of Common Stock (of which 7,025 shares of Common Stock were subsequently
returned to the Company) issued to Cornell. See "Certain Transactions."
In September 1996, the Company sold an aggregate of 851,604 shares of
Series C Convertible Preferred Stock to certain investors of the Company (at a
price of $11.75 per share on a Common Stock equivalent basis) (the "September
1996 Financing"). In addition, in September 1996, the Company entered into an
agreement to issue 3,404,255 shares of Series C Convertible Preferred Stock in
exchange for all of its then outstanding shares of Nonconvertible Redeemable
Preferred Stock (the "Nonconvertible Preferred Stock Exchange"). See "Certain
Transactions."
Upon the closing of the September 1996 Financing, (i) the Series A Notes,
including interest thereon, were converted into an aggregate of 2,098,631 shares
of Series A Convertible Preferred Stock and the Series B Notes, including
interest thereon, were converted into an aggregate of 690,775 shares of Series B
Convertible Preferred Stock; and (ii) Series A Convertible Preferred Stock
warrants (the "Series A Warrants") were exercised pursuant to a net exercise
provision resulting in the issuance of an aggregate of 789,894 shares of Series
A Convertible Preferred Stock. See "Certain Transactions."
In February 1997, the Company entered into a Development and License
Agreement with BI, pursuant to which BI paid the Company an upfront license fee
of $5.0 million in March 1997. Under the BI Equity Investment, BI agreed to
purchase $5.0 million of shares of Common Stock on or prior to the closing of
the Offering at the initial public offering price (384,615 shares of Common
Stock assuming an initial public offering price of $13.00 per share).The Company
has agreed with BI to use the aggregate $10.0 million in proceeds from the BI
License Fee and the BI Equity Investment solely for the development of
Procysteine i.v. for use in the treatment of ARDS.
25
<PAGE> 27
In March 1997, the Company sold an aggregate of 1,039,000 shares of
Nonconvertible Redeemable Preferred Stock and warrants to purchase $346,300 of
Common Stock, exercisable at the initial public offering price (26,639 shares of
Common Stock assuming an initial public offering price of $13.00 per share),
resulting in proceeds to the Company of approximately $1.0 million. All
outstanding shares of Nonconvertible Redeemable Preferred Stock will be redeemed
upon the closing of the Offering for approximately $1.0 million from the
proceeds of the Offering.
The Company expects negative cash flows from operations to continue and to
increase for the foreseeable future. The Company anticipates that the net
proceeds from the Offering and the proceeds of the BI Equity Investment and the
BI License Fee, including interest thereon, together with the Company's existing
funds, will be sufficient to fund its operating expenses and capital
requirements as currently planned for at least the next 24 months. However,
there can be no assurance that the Company's assumptions regarding future
operating losses and operating expenses will be accurate. The Company's actual
working capital needs and funding requirements will depend upon numerous
factors, including the progress of the external research and development
programs being supported by the Company, the magnitude and scope of these
activities, the timing and results of preclinical and clinical testing, the
timing and costs of obtaining regulatory approvals, the level of resources that
the Company commits to the development of manufacturing, marketing and sales
capabilities, if any, whether BI elects to participate and co-fund the
development of the Company's MOD program, the ability of the Company to
establish new collaborative arrangements with other companies to provide funding
to the Company, the costs of any acquisitions and/or licensing of technology
rights, products or businesses, the technological advances and activities of
competitors, the costs involved in preparing, filing, prosecuting, maintaining,
enforcing and defending patent claims and other intellectual property rights,
developments related to regulatory and reimbursement matters and other factors.
The Company intends to seek additional funding through corporate collaborations.
There can be no assurance that the Company will be able to negotiate such
agreements on acceptable terms, or at all. The Company will also seek additional
funding through public or private financings. If additional funds are raised by
issuing equity securities, further dilution to stockholders will result. Debt
financing, if available, may involve restrictive covenants. If adequate funds
are not available, the Company may be required to delay, scale back or eliminate
certain of its product development programs, to license to others rights to
commercialize products or technologies that the Company would otherwise seek to
develop and commercialize itself or cease operations. See "Risk Factors -- Need
for Substantial Additional Funds" and "Use of Proceeds."
26
<PAGE> 28
BUSINESS
The Company develops novel pharmaceuticals for the treatment of diseases
associated with oxidative stress and resultant tissue damage, with a particular
therapeutic focus on critical care. The Company's lead product candidate,
Procysteine, an intracellular glutathione-repleting agent, has been evaluated in
two Phase II clinical trials involving patients with ARDS. In the second quarter
of 1997, the Company plans to begin a pivotal Phase III clinical trial of
Procysteine to determine its safety and efficacy for the treatment of ARDS. In
addition, the Company plans to initiate a Phase II clinical trial of Procysteine
by the end of 1997 for the prevention and treatment of MOD. The Company has also
conducted Phase I/II clinical trials with Procysteine to determine its potential
application for the treatment of ALS and ASCVD.
In February 1997, the Company and BI entered into a collaboration for the
worldwide development and marketing of Procysteine i.v. Under the BI Agreement,
the Company granted BI an exclusive worldwide license to use and sell
Procysteine i.v. for all pharmaceutical applications. The Company has principal
responsibility for, and will bear all expenses related to, clinical development
of Procysteine i.v. for use in the treatment of ARDS. The Company has also
granted BI the right, at its election, to participate in the development of and
to commercialize Procysteine i.v. worldwide for the treatment and prevention of
MOD. The Company has retained the right to co-promote Procysteine i.v. in the
United States. The Company is responsible for manufacturing and supplying BI
with Procysteine i.v. for clinical trials and commercial purposes. Pursuant to
the BI Agreement, BI has agreed to make up-front payments totaling $10.0 million
(consisting of the $5.0 million BI License Fee and the $5.0 million BI Equity
Investment). BI has also agreed to make additional payments to the Company,
which could total up to $36.0 million, upon the achievement of clinical
development and regulatory milestones relating to ARDS and, if BI exercises its
participation rights, to MOD. More than half of the milestone payments are
payable only with respect to MOD-related development. In addition, BI will pay
the Company royalties (and, if applicable, co-promotion payments in the United
States) on any sales of Procysteine i.v.
BACKGROUND ON OXIDATIVE TISSUE DAMAGE
While oxygen is vital to life, it can also be extremely toxic. As a
by-product of normal metabolism, the body produces small amounts of highly
reactive, toxic molecules called reactive oxygen species ("ROS"). In addition,
larger quantities of ROS are produced by activation of neutrophils, a type of
white blood cell, as part of the body's immune response against infection.
Although ROS help kill infectious organisms, the excessive production of ROS, as
part of the inflammatory response to infection, can also cause oxidative tissue
damage. In some conditions associated with massive acute inflammation, such as
severe infection, multiple trauma and extensive burns, activation of neutrophils
may produce such large quantities of ROS that severe tissue damage in organs
occurs, leading to organ dysfunction and in many cases death. In addition,
oxidative tissue damage is believed to play a causative role in a number of
chronic conditions, such as ALS, ASCVD and hemolytic anemias.
The body employs a number of systems to neutralize or inactivate ROS by
converting them into water and other harmless substances. One of the body's
principal means for protecting cells from oxidative tissue damage is the
molecule glutathione, a small peptide found in high concentrations throughout
the body. Glutathione is produced inside cells from three amino acids,
L-cysteine, L-glutamic acid and glycine, and functions as one of the primary
non-enzymatic, ROS-neutralizing compounds made in the body. Other means for
neutralizing ROS include enzymes, such as superoxide dismutase and catalase,
which are produced in the body and are supplemented by ingested vitamins. Most
enzymatic systems can neutralize only certain types of ROS and cannot be
restored rapidly within cells after depletion. The Company believes that
intracellular glutathione repletion may be a more effective method for
neutralizing ROS than other systems because glutathione can be rapidly
constituted and can neutralize all types of ROS.
A number of published studies have indicated decreased levels of
glutathione in conditions where excessive production of ROS has caused severe
tissue damage. In severe inflammatory conditions, the body's production of ROS
increases and exceeds the capacity of glutathione and other antioxidant systems
to combat oxidative stress, resulting in tissue damage.
27
<PAGE> 29
Ideally, direct replacement of glutathione within cells would reduce or
eliminate additional oxidative tissue damage. However, direct administration of
glutathione does not offer intracellular protection against oxidative damage,
because the physico-chemical properties of glutathione inhibit its passage
through cell membranes. Of the three amino acids which comprise glutathione, it
is the lack of availability of cysteine that limits glutathione synthesis.
Increasing available intracellular levels of cysteine to facilitate the
production of glutathione may, therefore, be a viable therapeutic approach.
However, direct administration of cysteine is not practical because it may be
toxic when present outside of cells at the concentrations required to achieve a
therapeutic effect.
PRODUCT DEVELOPMENT PROGRAMS
Transcend is developing small molecule, intracellular glutathione-repleting
agents designed to limit or prevent oxidative tissue damage. Procysteine, the
Company's first product candidate, is a delivery system for the introduction of
the amino acid cysteine into cells. Procysteine readily enters cells, where it
is converted into cysteine that is then available for glutathione synthesis.
The Company has developed intravenous and oral formulations of Procysteine.
The ability of Procysteine to replenish glutathione when given orally or
intravenously has been documented in published preclinical and clinical studies.
In its clinical trials, Transcend is evaluating the use of this approach to
treat or prevent conditions where oxidative stress results in tissue damage. To
date, the safety profile and pharmacokinetics of Procysteine administered
intravenously or orally have been characterized in over 265 subjects in clinical
trials sponsored by Transcend. The observed serious adverse events in these
trials were consistent with the underlying diseases and the Company believes
that none of these adverse events were drug related. See "Business --
Procysteine - Intravenous Formulation -- Acute Respiratory Distress Syndrome --
Clinical Program." The Company also intends to develop one or more of the TR-500
compounds, a group of glutathione derivatives, as additional
glutathione-repleting agents.
The Company's product development programs are described in the table
below.
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
INDICATION PRODUCT CANDIDATE STATUS(1) MARKETING RIGHTS
- ------------------------------------------------------------------------------------------------------------------
Acute Respiratory Distress Syndrome Procysteine i.v. Phase II completed Boehringer Ingelheim(2)
Multiple Organ Dysfunction Procysteine i.v. Phase II(3) Boehringer Ingelheim(2)
Amyotrophic Lateral Sclerosis Procysteine (oral) Phase I/II Transcend Therapeutics
Atherosclerotic Cardiovascular Disease Procysteine (oral) Phase I/II Transcend Therapeutics
Hemolytic Anemias TR-500 compounds Preclinical research Transcend Therapeutics
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) "Preclinical research" includes in vitro studies of product candidates and
evaluation in animals. "Phase I/II" refers to clinical trials in which the
compound is tested in a limited patient population for safety,
pharmacokinetics and preliminary indications of biological activity in
patients with the targeted disease. "Phase II" refers to clinical trials in
which the compound is tested in a limited patient population to assess the
efficacy of the drug for a specific indication and to gather additional
evidence relating to safety and potential adverse effects.
(2) The Company has retained the right to co-promote Procysteine i.v. in the
United States.
(3) Phase II trial data regarding the application of Procysteine for the
prevention of MOD was obtained from the Company's latest Phase II ARDS
trial. Additional trials will be required in order to complete a Phase II
program for MOD. See "Business -- Procysteine - Intravenous Formulation --
Multiple Organ Dysfunction."
PROCYSTEINE - INTRAVENOUS FORMULATION
Acute Respiratory Distress Syndrome
ARDS, a disorder characterized by severe lung dysfunction, is a devastating
complication of conditions associated with massive acute inflammation, such as
severe infection, multiple traumatic injury and extensive burns. The disorder
affects an estimated 150,000 patients in the United States annually, with a
mortality rate of approximately 40 percent. ARDS is often associated with
dysfunction of other organs such as the kidneys, liver and heart.
28
<PAGE> 30
There are currently no commercially available drug treatments for ARDS.
Treatment for patients suffering from ARDS is administered in a hospital
intensive care unit and is generally limited to supportive care, consisting of
highly invasive mechanical ventilation. Mechanical ventilation involves forcing
air containing high concentrations of oxygen into the lungs through an
endotracheal tube inserted through a patient's nose or mouth. Patients must be
sedated because this process usually causes extreme discomfort. Patients
requiring mechanical ventilation for more than two weeks generally require
surgical insertion of a tracheostomy tube to avoid complications of prolonged
nasotracheal or orotracheal intubation. As long as the patient is on mechanical
ventilation, there is an increased risk of serious complications, including
hospital-acquired infection with drug resistant organisms.
ROS play a central role in ARDS. In connection with the onset of ARDS,
neutrophils activate and adhere to the surface of pulmonary capillaries. These
neutrophils then release ROS and protease enzymes which cause the damage to lung
tissue. Glutathione, which is normally present in lung cells and in lung fluid
in high concentrations, neutralizes or inactivates these ROS and limits
oxidative damage. Anti-protease enzymes are present in the lung under normal
conditions and protect the lung against damage. The protective effect of
anti-proteases is lost in the presence of excessive ROS. Preclinical studies
indicate that glutathione may prevent further lung damage indirectly, by
blocking ROS inhibition. The clinical result of excess ROS in the lungs is a
swelling of the normally thin walls lining the air spaces that impedes the
movement of oxygen from the air spaces into the bloodstream. Patients with ARDS
require supplemental oxygen and mechanical ventilation in order to maintain
sufficient oxygen for the body's tissues, but the oxygen rich air provided by
the ventilator has the potential to exacerbate oxidative tissue damage.
The Company believes that increasing glutathione levels by administering
Procysteine may prevent additional ROS damage and speed recovery of lung
function, thereby reducing the need for mechanical ventilation. Because of
multiple complications associated with prolonged mechanical ventilation, the
Company also believes that reduced time on the ventilator is a clinically
important goal in the treatment of ARDS patients and will also likely reduce the
cost of treating these patients.
Clinical Program. Transcend has sponsored two randomized, double-blind
placebo-controlled Phase II trials of Procysteine which have indicated potential
efficacy in the treatment of patients with ARDS. An objective of the first Phase
II trial was to assess the effect of Procysteine on patients with ARDS. Of the
ARDS patients studied, 17 received 189 mg/kg/day (milligrams of drug/kilogram of
body weight/day) of Procysteine for up to ten days, and 15 received a placebo.
The study results provided evidence that Procysteine-treated patients gained
independence from mechanical ventilation a median of five days earlier than did
placebo-treated patients, which was a statistically significant difference.
The objective of the second Phase II trial was to assess the effect of
Procysteine on blood glutathione levels. This study was conducted in 25 patients
with sepsis syndrome and organ dysfunction, 23 of whom suffered from pulmonary
dysfunction (either acute lung injury or ARDS). Of the 25 patients, 19 received
200 mg/kg/day of Procysteine for up to 21 days and six patients received a
placebo. Prior to administration of Procysteine or the placebo, the patients in
the study had lower blood glutathione concentrations than a healthy control
population. Following administration, average glutathione concentration
increased to a greater degree in the patients receiving Procysteine than in
placebo-treated patients.
As in the first Phase II trial, the results of the second Phase II trial
indicated a reduction in median days on mechanical ventilation among
Procysteine-treated patients compared with placebo patients. However, the study
was not designed to provide statistical evidence of efficacy and this trend did
not reach statistical significance. The results of the study also indicated
that, as measured by PaO(2)/FiO(2) (an established measure of lung function),
Procysteine-treated patients regained efficiency of the lungs in transporting
oxygen to the bloodstream to a greater degree than placebo-treated patients.
Based on the results of the Phase II trials and on discussions with the
FDA, Transcend plans to begin a pivotal Phase III trial in patients with ARDS by
the end of the second quarter of 1997. The trial
29
<PAGE> 31
will be a randomized, double-blind, placebo-controlled trial of approximately
350 newly-diagnosed ARDS patients. The protocol calls for an interim analysis to
confirm the sufficiency of the sample size. The results of this analysis could
require an increase in the number of patients in the study. Patients will
receive either 210 mg/kg/day of Procysteine or a placebo for up to 14 days. The
trial will involve approximately 50 centers and the Company expects to complete
enrollment in the trial, once initiated, in approximately 18 months. The trial's
primary endpoint is the number of days patients are alive and off-ventilator
over a 30-day trial period. This endpoint is designed to provide an accurate and
quantifiable measure of the clinical benefit as measured by reduction in
ventilator days, while accounting for the high mortality rate in these patients.
Secondary endpoints in the trial include the effect of Procysteine treatment on
mortality, lung function and other organ function. The Company believes that the
use of non-mortality endpoints has become generally accepted as a measure of
clinical benefit in ARDS treatment studies. In anticipation of its Phase III
trial, the Company has analyzed its initial Phase II trial results using the
proposed Phase III trial primary endpoint and confirmed a trend, although not
statistically significant, in favor of Procysteine-treated patients. The Company
intends to rely on third parties to assist it in monitoring the Phase III trial
and managing data generated in the trial. See "Risk Factors -- Uncertainty
Associated with Clinical Trials."
There can be no assurance that the Company's Phase III trial will be
completed on a timely basis or at all, that the trial will demonstrate the
safety and efficacy of Procysteine to the extent necessary to obtain regulatory
approvals, that, even if the Phase III trial is successful, the FDA will approve
Procysteine for the treatment of ARDS based on the Phase III trial or that the
FDA will not require additional studies to support regulatory approval. In
addition, in earlier trials sponsored by Transcend involving approximately 265
subjects, Procysteine was administered at doses of up to 300 mg/kg/day for one
day and doses of up to 210 mg/kg/day for 21 days. There can be no assurance that
administration of Procysteine at the dosage level contemplated in the Phase III
trial proposed by Transcend, or at any other dosage level required for
therapeutic efficacy, will result in a safety profile comparable to or more
favorable than earlier studies. See "Risk Factors -- Uncertainty Associated with
Clinical Trials."
The Company has been granted orphan-drug designation by the FDA for
Procysteine for the treatment of ARDS. See "Business -- Government Regulation."
Multiple Organ Dysfunction
The failure of one organ, such as the lungs, places other organs at risk of
failure. The failure of two or more organs, known as multiple organ dysfunction
or MOD, generally has catastrophic consequences for the patient. Organ systems
that are frequently affected in MOD include the lungs (ARDS), kidneys (acute
renal failure), the liver (acute hepatic failure) and the heart (cardiovascular
collapse). While the mortality rate of patients with a single organ failure is
30 to 40 percent, the mortality rate rises to more than 60 percent when two
organs fail and exceeds 90 percent when a third organ fails. In addition, MOD
exacts a significant cost on the healthcare system. MOD patients are treated in
intensive care units, with costs averaging $100,000 per patient. The Company
estimates that there are over 750,000 patients annually in the United States at
risk of MOD. These patients include those patients with ARDS as well as those
who suffer from acute conditions such as severe infection, multiple trauma and
extensive burns. Because of the difficulty of determining which patients will
develop MOD and due to the higher rate of mortality that occurs when a single
organ dysfunction progresses to MOD, the Company believes it would be more
effective to administer treatment prophylactically.
Currently, there are no commercially available drugs to treat or prevent
MOD. As in ARDS, mechanical support for other failed organs (e.g., dialysis to
support kidney function), and pharmacological treatments for complications
arising from MOD, are the sole available therapies. Because most methods of
mechanical intervention, such as dialysis, are invasive, they also carry
additional risks to patients.
Published clinical studies have indicated that the same process of
oxidative tissue damage that results in ARDS also contributes to the development
of MOD. The Company believes, based on published and Company-sponsored
preclinical studies, that Procysteine may be effective in the
30
<PAGE> 32
prevention of organ dysfunction in patients with acute conditions such as severe
infection, multiple trauma and extensive burns. In the Company's first ARDS
Phase II trial, there was a statistically significantly lower percentage of
patients with new organ dysfunction (other than lung) in the group receiving
Procysteine compared to the placebo group. In the second trial sponsored by the
Company involving patients with ARDS (and who are at risk of MOD), a reduced
level of glutathione was shown. Additional Phase II work will be required to
complete a Phase II program for the use of Procysteine for the prevention of
MOD. The Company's planned Phase III ARDS trial is also expected to provide data
on the potential of Procysteine to prevent MOD.
The Company plans to initiate a separate Phase II clinical trial of
Procysteine i.v. by the end of 1997 for the prevention of MOD. Under the BI
Agreement, BI has the right to participate in the development of and to
commercialize Procysteine i.v. worldwide for the treatment and prevention of
MOD. If BI exercises this right, it will be required to share in clinical
development funding or reimburse the Company for clinical development costs. See
"Business -- Boehringer Ingelheim." The Company believes that, unlike in ARDS
trials, non-mortality endpoints have not become generally accepted as measures
of clinical benefit in MOD trials, and as a result, additional research will be
necessary to define an appropriate endpoint. Further, since not all patients in
a prevention trial develop MOD, a trial for the prevention of MOD would require
a considerably larger number of patients than a trial for the treatment of ARDS.
If BI does not elect to participate in the development of Procysteine i.v. for
MOD, the Company will be required to raise substantial additional funds to
pursue further research and development. If the Company undertakes the MOD
studies, there can be no assurance that the results of earlier studies on the
use of Procysteine for the prevention of MOD will be predictive of results that
will be obtained from more extensive clinical testing. See "Risk Factors --
Uncertainty Associated with Clinical Trials" and "Risk Factors -- Need for
Substantial Additional Funds."
PROCYSTEINE - ORAL FORMULATION
Transcend has conducted Phase I/II trials with Procysteine to determine its
potential application for the treatment of ALS and ASCVD. The Company plans to
use the results of these trials to select at least one indication to advance
into expanded Phase II clinical trials during 1997.
Amyotrophic Lateral Sclerosis
The inherited form of ALS, a fatal degenerative disorder, is widely
believed to be the result of a malfunctioning enzyme that results in increased
ROS. The Company believes, based on published preclinical studies, that
increasing glutathione levels in nerve cells may reduce or prevent further
oxidative tissue damage. The Company sponsored a Phase I/II clinical trial which
demonstrated that Procysteine entered the cerebrospinal fluid in ALS patients,
indicating that Procysteine is able to gain access to nerve cells. The Company
plans to conduct a Phase II trial to evaluate the efficacy of Procysteine in
limiting neuromuscular degeneration in patients with ALS. There can be no
assurance, however, that the study will be conducted or completed or that the
results of this study will be positive. See "Risk Factors -- Uncertainty
Associated with Clinical Trials" and "Risk Factors -- Patents and Proprietary
Rights; Third-Party Rights."
The Company has been granted orphan drug designation by the FDA for
Procysteine for the treatment of ALS. See "Business -- Government Regulation."
Atherosclerotic Cardiovascular Disease
ASCVD, a major risk factor for heart attack and stroke, is characterized by
a narrowing of the arteries by lipid deposits and the loss of blood vessel
elasticity. There is growing evidence in the medical literature that increased
vascular oxidative stress is a primary mechanism of impaired blood vessel
elasticity in patients with atherosclerosis. The Company believes, based on
preclinical studies, that Procysteine administration may improve blood vessel
elasticity. As a result, it may enhance blood flow, and reduce the risk and
severity of heart attack in patients with coronary artery disease. The Company
has completed a Phase I/II clinical trial in which a single, oral dose of
Procysteine rapidly
31
<PAGE> 33
restored blood vessel elasticity in patients with ASCVD. A similar Phase I/II
trial using multiple doses of Procysteine is planned. There can be no assurance,
however, that the study will be conducted or completed or that the results of
this study will be positive. See "Risk Factors -- Uncertainty Associated with
Clinical Trials" and "Risk Factors -- Patents and Proprietary Rights;
Third-Party Rights."
TR-500 COMPOUNDS (GLUTATHIONE-REPLETING AGENTS)
The TR-500 compounds are a group of glutathione derivatives that enable the
direct delivery of glutathione into cells. The Company believes that in clinical
conditions, where glutathione cannot be repleted efficiently through the use of
Procysteine, the TR-500 compounds may serve as second generation
glutathione-repleting agents. The Company believes, based on preclinical
studies, that the TR-500 compounds may have potential therapeutic application in
hemolytic anemias where ROS may play a role in blood cell damage. These anemias
include inherited disorders such as sickle cell disease and thalassemia, and
acquired anemias such as the hemolytic anemia associated with dialysis. During
1997, the Company plans to select one or more of these compounds for further
preclinical development.
BUSINESS STRATEGY
Transcend's strategy is to develop and commercialize novel pharmaceuticals
to treat or prevent disorders associated with oxidative stress and resulting
tissue damage, with a particular therapeutic focus on products for the critical
care market. The Company's strategy involves the following key elements:
Exploit Glutathione Repletion Methodologies. The Company is currently
concentrating on the preclinical and clinical development of the
glutathione-repleting compounds in its portfolio. Transcend's priority is
advancing the clinical program for Procysteine for the treatment of ARDS.
Leverage Development Expertise. Transcend's management and scientific
personnel have considerable experience in the development of novel
pharmaceutical products. The Company uses this expertise to manage the
development of its products through external resources, such as contract
research organizations and contract manufacturers. The Company believes that the
continued focus on development expertise will allow it to benefit from the
commercialization of products without requiring a substantial investment in
costly infrastructure.
Commercialize Products through Collaborations. The Company intends to
enter into strategic alliances and licensing arrangements with corporate
partners in order to accelerate the development and commercialization of its
product candidates. Specifically, the Company plans to establish alliances with
pharmaceutical companies to complete clinical trials, prepare regulatory
submissions and market and sell the Company's products. Consistent with its
strategy, the Company has formed an alliance with BI for the worldwide
development and marketing of Procysteine i.v. As in its alliance with BI, the
Company intends to retain strategically important development, manufacturing,
marketing or co-promotion rights in order to enhance its product development
opportunities.
Enhance Product Pipeline. The Company plans to build a product pipeline,
with a particular therapeutic focus on critical care, through the licensing or
acquisition of compounds from academic laboratories and research institutions,
such as the compounds it has acquired from Cornell. In pursuing this strategy,
the Company may also acquire and/or license complementary technology rights or
other businesses. Transcend believes its scientific and development expertise
provides the Company with an ability to recognize opportunities for commercial
development at an early stage.
BOEHRINGER INGELHEIM
In February 1997, the Company entered into an agreement with Boehringer
Ingelheim International GmbH for the worldwide development and commercialization
of Procysteine i.v. Under the BI Agreement, the Company granted BI an exclusive
worldwide license to use and sell Procysteine i.v. for all pharmaceutical
applications.
32
<PAGE> 34
The Company has principal responsibility for, and will bear all expenses
related to, the clinical development of Procysteine i.v. for use in the
treatment of ARDS in all countries other than Japan. BI has certain rights,
exercisable until the end of 1997, to develop and commercialize Procysteine i.v.
for the treatment of ARDS in Japan. If BI does not exercise its rights during
1997, all rights to Procysteine i.v. in Japan will revert to the Company. The
Company is also responsible for obtaining at its expense any necessary
regulatory approvals relating to the use of Procysteine i.v. for the treatment
of ARDS (other than in Japan, which remains BI's responsibility if it exercises
its Japanese development rights). BI is responsible for the worldwide marketing,
sale and distribution of Procysteine i.v. for the treatment of ARDS. The Company
has retained the right to co-promote Procysteine i.v. in the United States.
The Company has also granted BI the right to participate in the development
of and to commercialize Procysteine i.v. worldwide for the treatment and
prevention of MOD. The Company intends to commence a Phase II clinical trial of
Procysteine i.v. for the treatment and prevention of MOD by the end of 1997. If
BI exercises its rights with respect to the MOD indication, it will be required
to share in clinical development funding or reimburse the Company for clinical
development costs. However, BI is not required to exercise its rights until late
in the product development process, if at all, and there can be no assurance
that the Company will be able to gain access to the resources (financial and
other) necessary to conduct a pivotal MOD trial if BI declines to exercise its
rights or defers such exercise until later in the product development process.
If BI elects not to exercise its participation rights with respect to the MOD
indication, all rights relating thereto will revert to the Company.
The Company has also granted BI the right to participate in the development
of and to commercialize Procysteine i.v. for use in indications other than ARDS
and MOD. The Company has retained the right, subject to a right of first
negotiation with BI, to develop and commercialize oral formulations of
Procysteine, including for ALS and ASCVD. The Company has agreed not to
commercialize oral formulations of Procysteine for any indication for which BI
is participating in the development and commercialization of Procysteine i.v.
The Company has agreed to manufacture, either directly or through contract
manufacturers, and supply BI with Procysteine i.v. for clinical trials and
commercial purposes.
BI has agreed to make up-front payments totaling $10.0 million, consisting
of the $5.0 million BI License Fee and the $5.0 million BI Equity Investment.
The Company has agreed to use these up-front payments exclusively for the
development of Procysteine i.v. for the treatment of ARDS. BI has also agreed to
make additional payments to the Company, which could total up to $36.0 million,
upon the achievement of clinical development and regulatory milestones relating
to ARDS and, if BI exercises its participation rights, to MOD. More than half of
these milestone payments are payable only with respect to MOD-related
development. Because BI is not required to participate in the development and
commercialization of Procysteine i.v. for MOD, there can be no assurance that BI
will be obligated to make any of the milestone payments relating to the
development of Procysteine i.v. for MOD.
BI has also agreed to pay royalties (and, if applicable, co-promotion
payments in the United States) on any sales of Procysteine i.v.
The BI Agreement is subject to termination for breach by either party and
may be terminated unilaterally by BI prior to the completion of development and
receipt of regulatory approvals of Procysteine i.v. for ARDS under certain
circumstances. Any such termination could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Dependence on Boehringer Ingelheim" and "Lack of Commercial Sales and
Marketing Experience; Dependence on Strategic Alliances."
The Company will be dependent upon the efforts of BI with respect to the
commercialization of Procysteine i.v. There can be no assurance that BI will
commit sufficient marketing resources to the commercialization of the Company's
products. Any failure by BI to commit sufficient marketing resources to the
commercialization of Procysteine i.v. would have a material adverse effect on
the Company's business, financial condition and results of operations. See "Risk
Factors -- Dependence on Boehringer Ingelheim."
33
<PAGE> 35
MANUFACTURING
The Company is responsible for manufacturing and supplying BI with
Procysteine i.v. for clinical trials and commercial purposes. The Company
currently contracts with third-party manufacturers to produce its compounds for
preclinical research and for clinical trials. The Company expects to utilize
third-party manufacturers for commercial production. The Company has established
relationships with a third party to produce bulk quantities of Procysteine and
with other parties to formulate the compound into intravenous and oral forms of
Procysteine for clinical trials. Through third-party manufacturers and
formulators, the Company has produced sufficient Procysteine for use in its
planned Phase III clinical trial for the treatment of ARDS.
The Company believes that it will be able to reach arrangements with
third-party manufacturers and formulators on commercially reasonable terms, and
that it will not be necessary for it to develop internal manufacturing
capability in order to successfully commercialize Procysteine. The manufacturing
process for Procysteine involves established technology, and the Company
believes that other potential suppliers are available should the Company be
unable to obtain reasonable terms in the future from its current vendors.
However, in the event that the Company is unable to obtain contract
manufacturing or formulation services on reasonable terms, it may need to
acquire manufacturing capability or it may be unable to commercialize its
products as planned or satisfy its obligations under the BI Agreement. There can
be no assurance that the Company's existing or future outside vendors or
prospective corporate collaborators will be able to manufacture Procysteine or
any other developed product on a commercial scale or that any collaborator or
vendor will be able to manufacture such products on a timely basis, in
quantities or at prices which will be commercially viable or beneficial for the
Company or necessary to satisfy its obligations under the BI Agreement. See
"Risk Factors -- Limited Source of Supply; Dependence on Third-Party
Manufacturers."
SALES AND MARKETING
The Company has entered into an agreement with BI pursuant to which BI will
be responsible for marketing Procysteine i.v., subject to certain co-promotion
rights in the United States retained by Transcend. The Company plans to form
additional strategic alliances with established pharmaceutical or biotechnology
companies in order to finance the development of certain of its other product
candidates. The Company may elect to establish a sales force to market and
distribute those products for which it retains marketing rights or shares rights
with corporate partners, including its co-promotion rights under the BI
Agreement. There can be no assurance that the Company will be able to establish
in-house sales, marketing or distribution capabilities or enter into or maintain
strategic relationships for sales, marketing and distribution on a timely basis,
or at all. Even if the Company does develop or obtain sales, marketing and
distribution capabilities, there can be no assurance that any product developed
by the Company or its strategic partners, including BI, will be successfully
marketed. See "Risk Factors -- Dependence on Boehringer Ingelheim; -- Lack of
Commercial Sales and Marketing Experience; Dependence on Strategic Alliances"
and "Business -- Boehringer Ingelheim."
PATENTS AND PROPRIETARY RIGHTS
The Company's commercial success will depend to a significant extent on
obtaining and enforcing patent protection for its products and methods,
including methods for treating or preventing human disease, or for such products
and methods licensed from third parties, maintaining trade secret protection and
operating without infringing the proprietary rights of third parties. As of
December 31, 1996, the Company owns or has exclusively licensed 16 United States
patents and nine United States applications as well as counterparts of these
patents and applications in various foreign jurisdictions. Of these, nine United
States patents and two United States applications relate to the Company's
business as described in this Prospectus. Specifically, the Company owns a
pending United States patent application for the use of Procysteine in treating
pulmonary disease, including ARDS. A corresponding European patent has issued,
which has issued as national patents in Austria, Belgium, Denmark, France,
Germany, Greece, Italy, Luxembourg, Monaco, Netherlands, Portugal, Spain,
Sweden, Switzer-
34
<PAGE> 36
land and the United Kingdom, which national patents expire in 2011.
Corresponding patent applications are pending in Canada, Australia and Japan. By
July 16, 1997, any person may give notice to the European Patent Office of
opposition to the European patent. An adverse decision in any such opposition
may result in revocation of the European patent and the national patents which
issued therefrom.
The patent positions of pharmaceutical and biotechnology firms, including
the Company, are uncertain and involve complex legal and factual questions for
which important legal principles are largely unresolved, particularly in regard
to methods for treating or preventing human disease, and most particularly for
diseases such as ARDS and MOD, for which the Company believes there is currently
no commercially available drug for treatment or prevention. Substantial periods
of time pass before the USPTO responds on the merits to patent applications and
submissions on behalf of the inventors. In addition, the coverage claimed in a
patent application can be significantly reduced or modified before and after a
patent is issued. Consequently, there can be no assurance that any of the
Company's or any licensor's pending or future patent applications will result in
the issuance of patents or, if any patents are issued, whether the patents will
be subjected to further proceedings limiting their scope, and whether they will
provide significant proprietary protection or competitive advantage, or will be
circumvented or invalidated. Because patent applications in the United States
are maintained in secrecy until patents issue and patent applications in certain
other countries generally are not published until more than 18 months after they
are filed, and since publication of inventions in scientific or patent
literature often lags behind actual dates of invention, the Company cannot be
certain that it or any licensor was the first inventor of inventions covered by
pending patent applications or that it or such licensor was the first to file
patent applications on such inventions.
There can be no assurance that the Company's or any licensor's patents, if
issued, would not be found invalid or unenforceable by a court or that such
patents would cover products or technologies of the Company's competitors.
Competitors or potential competitors may have filed applications for or received
patents, and may obtain additional patents and proprietary rights relating to
products or methods for treating or preventing human disease that are
competitive with those of the Company. To protect its proprietary rights, the
Company may be required to participate in interference proceedings declared by
the USPTO to determine priority of invention, which could result in substantial
cost to the Company. Moreover, even if the Company's or any licensor's patents
issue, there can be no assurance that they will provide sufficient proprietary
protection or will not be later limited, circumvented or invalidated.
The Company may be required to obtain licenses to patents or other
proprietary rights of third parties. No assurance can be given that any licenses
required under any such patents or proprietary rights would be made available on
terms acceptable to the Company, if at all. If the Company does not obtain such
licenses, it could encounter delays in product market introductions while it
attempts to design around such patents or other rights, or it may be unable to
develop, manufacture or sell products. See "Risk Factors -- Patents and
Proprietary Rights; Third Party Rights."
There is substantial uncertainty concerning whether human clinical data
will be required for the issuance of patents for methods of treating or
preventing human disease, particularly for diseases such as ARDS and MOD, for
which the Company believes there is currently no commercially available drug for
treatment or prevention. If such data is required, the Company's ability to
obtain patent protection could be delayed or otherwise adversely affected.
Although the USPTO issued new utility guidelines in July 1995 that address the
requirements for demonstrating utility for biotechnology inventions, including
for inventions relating to methods for treating or preventing human disease,
there can be no assurance that USPTO patent examiners will follow such
guidelines or that the USPTO's position will not change with respect to what is
required to establish utility for Procysteine or future potential products of
the Company in the treatment of human diseases. In addition, there can be no
assurance that compliance with such guidelines will result in valid and
enforceable patents. Furthermore, the enactment of legislation implementing the
General Agreement on Trade and Tariffs has resulted in certain changes to United
States Patent laws that became effective on June 8, 1995. Most notably, the
35
<PAGE> 37
term of patent protection for patent applications filed on or after June 8, 1995
is no longer a period of 17 years from the date of grant. The new term of United
States patents will commence on the date of issuance and terminate 20 years from
the earliest effective filing date of the application. Because the time from
filing to issuance of biotechnology patent applications is often more than three
years, a 20-year term from the effective date of filing may result in a
substantially shortened term of patent protection, which may adversely impact
the Company's patent position. In addition, if this change results in a shorter
period of patent coverage, and if the Company negotiates royalties based on the
existence of a valid patent, the Company's business could be adversely affected.
The Company also seeks to protect its proprietary technology, including
technology which may not be patented or patentable, in part by confidentiality
agreements and, if applicable, inventor's rights agreements with its
collaborators, advisors, employees and consultants. There can be no assurance
that these agreements will not be breached, that the Company will have adequate
remedies for any breach, or that the Company's trade secrets will not be
otherwise disclosed to, or discovered by, competitors. Moreover, the Company
conducts a significant amount of research through academic advisors and
collaborators who are prohibited from entering into confidentiality or
inventor's rights agreements by their academic institutions. Any unauthorized
dissemination of the Company's confidential information could have an adverse
effect on the Company's business. See "Risk Factors -- Patents and Proprietary
Rights; Third-Party Rights."
TECHNOLOGY AND LICENSE AGREEMENTS
The Company was formed to develop and commercialize the Covered Technology
which was originally developed at Cornell and licensed to Baxter. In 1989,
Baxter and Nestle established Clintec and Baxter assigned its rights in the
Covered Technology to Clintec. From 1988 to 1994, Baxter and Clintec completed
various studies of Procysteine, including preclinical studies, assay
development, toxicology, formulation and several clinical studies. In April
1994, the Company acquired rights to the Covered Technology from Cornell and
Clintec.
Cornell Research Foundation
In connection with a Contribution Agreement dated April 5, 1994 (the
"Contribution Agreement") between the Company and Clintec, the Company obtained
an exclusive worldwide license from Cornell (the "Cornell Agreement") to certain
patents covering methods of using Procysteine to increase intracellular levels
of glutathione and/or cysteine. The Company's rights under the Cornell Agreement
include an exclusive license under a composition of matter patent for the TR-500
series of glutathione-repleting agents.
In consideration for the licenses granted to Transcend under the Cornell
Agreement, Cornell received 35,025 shares of Common Stock (of which 7,025 shares
were returned to the Company in settlement of a dispute). See "Certain
Transactions." In addition, Transcend agreed to (i) provide funding to Cornell
Medical College of an aggregate of $400,000 over a three-year period, which
commenced in July 1994; (ii) pay royalties on sales of products covered by the
licensed patents, if any; and (iii) pay annual minimum royalties which would be
credited in any year against earned royalties due for such year. Under the
Cornell Agreement, Transcend agreed to exercise due diligence in development and
commercialization of products covered by the licensed patents. Any failure to
exercise such diligence with respect to a particular technology licensed under
the Agreement would permit Cornell to cause the license to become non-exclusive.
Clintec Nutrition Company
Pursuant to the Contribution Agreement, the Company granted to Clintec an
exclusive, royalty-free sub-license to the use of the Covered Technology for
certain clinical nutrition and nutritional applications, while retaining
exclusive rights to all pharmaceutical applications of the Covered Technology.
The Company also agreed, until April 1999, not to develop Other Compounds for
use in certain clinical nutritional applications, and Clintec also agreed,
during the same period, not to develop
36
<PAGE> 38
Other Compounds for use in pharmaceutical applications. Such provision does not
affect the exclusive right of the Company and Clintec to develop and
commercialize the Covered Technology in their respective fields. Although no
disputes have arisen to date between the Company and Clintec or its successors
regarding the exclusive right of the Company, Clintec or its successors in their
respective fields, such a dispute could have a material adverse effect on the
Company's ability to enter into corporate alliances and license arrangements,
and if resolved in a manner adverse to the Company would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Risk Factors -- Potential for Conflict with Clintec."
In addition, the Company acquired various clinical supplies, data, records,
contractual and intellectual property rights related to pharmaceutical
applications of the Covered Technology from Clintec in exchange for 680,000
shares of Common Stock and 9,000 shares of Nonconvertible Redeemable Preferred
Stock. As part of the September 1996 Financing by the Company, all shares of
Nonconvertible Redeemable Preferred Stock held by Clintec were exchanged for
3,404,255 shares of Series C Preferred Stock. The agreement also provides that
if the Company should decide not to maintain the patents or decides to abandon
the application which are the subject of the agreement, the Company will assign
such patents and applications to Clintec. See "Certain Transactions."
COMPETITION
The pharmaceutical and biotechnology industries are characterized by
rapidly advancing technologies, intense competition and a strong emphasis on
proprietary products. Many entities, including pharmaceutical and biotechnology
companies, academic institutions and other research organizations are actively
engaged in the discovery and development of products in the therapeutic areas
pursued by the Company. Many of these entities have greater financial,
technical, manufacturing and marketing resources than the Company. In addition,
many of these competitors have become more active in seeking patent protection
and licensing arrangements in anticipation of collecting royalties for use of
technology that they have developed.
The Company's ability to compete effectively will depend on its ability to
advance its core technology, maintain a proprietary position on its technology
and products, obtain required governmental approvals on a timely basis, attract
and retain key personnel and develop effective products that can be manufactured
cost-effectively and marketed successfully. The Company expects that competition
among products approved for sales will be based, among other things, on
efficacy, reliability, product safety, price and patent position.
Currently there are no commercially available drugs to prevent or treat
ARDS. However, Liposome initiated in September 1995 a Phase III trial for a drug
designed to treat ARDS through a mechanism different from that of Procysteine.
There can be no assurance that research and development by Liposome and others
will not render any of the Company's planned products obsolete or uneconomical,
or result in therapies superior to any developed by the Company, or that any
products developed by the Company will be preferred to any existing or newly
developed technologies. See "Risk Factors -- Rapid Technological Change; Intense
Competition."
GOVERNMENT REGULATION
The production, marketing, sales and distribution of the Company's products
and its research and development activities are subject to extensive regulation
for safety, efficacy and quality by numerous governmental authorities in the
United States and other countries. In the United States, drugs and certain
biological products are subject to rigorous FDA regulation under the Federal
Food, Drug and Cosmetic Act (the "FDCA"), and the regulations promulgated
thereunder, as well as other federal and state statutes and regulations that
govern, among others, the testing, manufacture, safety, efficacy, labeling,
storage, record keeping, approval, advertising and promotion of the Company's
products. Product development and approval within this regulatory framework can
take a number of years and
37
<PAGE> 39
requires the expenditure of substantial resources. Any failure by the Company or
its collaborators or licensees to obtain regulatory approval, or any delay in
obtaining such approvals, could adversely affect the marketing of products being
developed by the Company, its ability to receive product or royalty revenues and
its liquidity and capital resources.
Human therapeutics are normally subject to rigorous preclinical and
clinical testing. The standard process required by the FDA before a drug may be
marketed in the United States includes (i) preclinical laboratory tests; (ii)
submission to the FDA of an investigational new drug application ("IND"), which
must be approved before human clinical trials may commence; (iii) adequate and
well-controlled human clinical trials to establish the safety and efficacy of
the drug in its intended indication; (iv) submission to the FDA of an NDA; and
(v) FDA approval of the NDA prior to any commercial sale or shipment of the
drug.
Preclinical animal testing is generally conducted in the laboratory to
evaluate the potential safety and efficacy of a drug. Although the results of
preclinical testing may show the efficacy of a product tested in animals, and
may support an application to begin clinical testing, subsequent clinical
testing may not demonstrate comparable effectiveness in humans. The results of
these animal studies are submitted to the FDA as part of the IND and NDA. See
"Risk Factors -- Uncertainty Associated with Clinical Trials."
Clinical trials involve the administration of the investigational new drug
to healthy volunteers or to patients, under the supervision of a qualified
principal investigator. Clinical trials must be conducted in accordance with
good clinical practices under protocols that detail the objectives of the study,
the parameters to be used to monitor safety and, if applicable, the efficacy
criteria to be evaluated. Each protocol must be submitted to the FDA as part of
the IND. Further, each clinical trial must be conducted under the auspices of an
IRB at the institution at which the trial will be conducted. IRBs will consider,
among other things, ethical factors, the safety of human subjects and the
possible liability of the institution. Typically, clinical evaluation involves a
three-phase process. In Phase I, trials are conducted with a small number of
human subjects to determine the safety profile, the pattern of drug distribution
and metabolism. In Phase II, trials are conducted with a larger group of
patients afflicted with a specific condition in order to determine preliminary
efficacy, optimal dosages and expanded evidence with respect to safety. In Phase
III, large-scale, often multi-center, comparative trials are conducted with
patients afflicted with a target disease in order to provide enough data for the
statistical proof of safety and efficacy required by the FDA and other
regulatory authorities. The pertinent IRB or the FDA may suspend clinical trials
at any time if they believe that the subjects or patients are being exposed to
an unacceptable health risk.
The results of the pharmaceutical development, preclinical studies and
clinical trials are submitted to the FDA in the form of an NDA. The testing and
approval process is likely to require substantial time and effort and there can
be no assurance that any approval will be granted on a timely basis, if at all.
The FDA may deny an NDA if applicable regulatory criteria are not satisfied,
require additional testing or information, or approve an NDA subject to
postmarketing testing and surveillance or limitations on the indicated uses for
which the subject drug may be marketed. Finally, product approvals may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur following initial marketing.
Domestic manufacturing establishments are subject to inspection by the FDA
and must comply with the FDA's cGMP. To supply products for use in the United
States, foreign manufacturing establishments must comply with cGMP and are
subject to periodic inspection by the FDA or by regulatory authorities in such
countries under reciprocal agreements with the FDA.
The Orphan Drug Act of 1983 generally provides incentives to manufacturers
to undertake development and marketing of products to treat relatively rare
diseases or diseases where fewer than 200,000 persons in the United States would
be likely to receive the treatment. A drug that both receives orphan drug
designation by the FDA and is the first product of a chemical moiety to receive
FDA marketing approval for its indication is entitled to receive up to a
seven-year exclusive marketing
38
<PAGE> 40
period in the United States for that indication. A drug that is considered by
the FDA to be different from a particular orphan drug is not barred from sale in
the United States during such exclusive marketing period. Legislation has
previously been introduced in Congress to limit the marketing exclusivity
provided for certain orphan drugs. Although the outcome of that legislation, if
reintroduced, is uncertain, there remains a possibility that future legislation
will limit the incentives currently afforded to the developers of orphan drugs.
The Company has been granted orphan drug designation for Procysteine for
the treatment of ARDS and ALS. There can be no assurance, however, that a
product considered by the FDA to be different from Procysteine will not be
successfully introduced by a competitor of the Company. Any such product would
not be barred from sale in the United States by the designation of Procysteine
as an orphan drug. If such a drug proved to be safer, more effective or less
costly than Procysteine, the Company's business could be materially adversely
affected.
If and when the Company markets its products outside the United States,
whether or not FDA approval has been obtained, approval of a pharmaceutical
product by comparable governmental regulatory authorities in foreign
jurisdictions must be obtained prior to the commencement of human clinical
trials or marketing approval for drugs. The requirements governing the conduct
of clinical trials, product licensing, pricing and reimbursement vary widely
from country to country. In addition, the Company's products may be subject to
export control. See "Risk Factors -- No Assurance of FDA Approval; Comprehensive
Government Regulation."
PRODUCT LIABILITY
The testing, marketing and sale of human therapeutic products entail an
inherent risk of exposure to product liability claims by consumers, health care
providers, pharmaceutical and biotechnology companies or other sellers of the
Company's products. There can be no assurance that substantial product liability
claims will not be asserted against the Company. While the Company has liability
insurance with respect to clinical trials, the Company does not have product
liability insurance coverage for the commercial sale of Procysteine, the
Company's lead product candidate. There can be no assurance that the Company
will be able to maintain clinical trials liability insurance on acceptable terms
or that such insurance will provide adequate coverage against potential
liabilities. The Company will seek to obtain product liability insurance
coverage for commercial sales if and when its products are commercialized.
However, there can be no assurance that adequate insurance coverage will be
available in sufficient amounts and at acceptable costs, if at all. In addition,
pursuant to the terms of certain licensing agreements entered into by the
Company, the Company has agreed to indemnify certain third parties with respect
to losses incurred as a result of the manufacture, supply or sale of potential
product candidates. In addition, the Company has agreed to indemnify BI with
respect to any claims relating primarily to the manufacture of Procysteine i.v.
Any indemnification or product liability claim or product recall could inhibit
or prevent commercialization of products being developed by the Company and
otherwise have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Product Liability."
EMPLOYEES
As of December 31, 1996, the Company employed 13 people, three of whom hold
Ph.D. and/or M.D. degrees. The Company's employees are not members of a union,
and the Company believes that it has good employee relations. All of the
Company's employees have signed agreements obligating them to protect the
proprietary nature of the Company's confidential information. See "Risk Factors
- -- Dependence on Key Personnel."
FACILITIES
The Company currently holds an operating lease on and occupies
approximately 7,700 square feet of leased office and administrative space at 640
Memorial Drive, Cambridge, Massachusetts. The Company pays approximately
$200,000 annually under its facilities lease. The lease on these facilities
expires in December 1999. The Company believes that these facilities should be
sufficient to meet the Company's needs through December 1999.
39
<PAGE> 41
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The current executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- ---- -----------------------------------------------
<S> <C> <C>
Hector J. Gomez, M.D., Ph.D. ........ 58 President, Chief Executive Officer and Director
John J. Whalen, M.D. ................ 50 Senior Vice President and Chief Scientific
Officer
B. Nicholas Harvey .................. 36 Vice President, Finance, Chief Financial
Officer and Secretary
Jerry T. Jackson(1).................. 55 Chairman of the Board
Philippe Chambon, M.D., Ph.D.(1)..... 39 Director
Frank L. Douglas, M.D., Ph.D.(2)..... 53 Director
Richard W. Hunt, C.P.A.(2)........... 42 Director
William C. Mills III(2).............. 41 Director
Gerard M. Moufflet(1)................ 53 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
HECTOR J. GOMEZ, M.D., PH.D. has served as President, Chief Executive
Officer and a director of the Company since November 1994. He previously served
as Vice President of Medical Affairs at Vertex Pharmaceuticals Incorporated, a
rational drug design company, from May 1992 to November 1994. From December 1991
to May 1992, Dr. Gomez served as Associate Vice President at Immunomedics, Inc.,
a biotechnology company. From December 1988 to December 1991, he served as
Executive Director of Cardiovascular Clinical Research at Ciba-Geigy Corporation
("Ciba-Geigy"), a pharmaceutical company. Previously, Dr. Gomez served as
Director of Clinical Research from 1979 to 1984, and as Senior Director of
Clinical Research from 1985 to December 1988, at Merck & Co., Inc. ("Merck"), a
pharmaceutical company. During his tenures at Merck and Ciba-Geigy, Dr. Gomez
successfully directed the clinical development phase of ten NDAs. His
accomplishments include the management of the clinical program, from IND filing
through marketing approval, for enalapril (Vasotec(R)) and lisinopril
(Prinivil(R) and Zestril(R)), cardiovascular products. Dr. Gomez received his
M.D. from National University in Bogota, Colombia, his Ph.D. in Pharmacology
from Marquette University and his Diploma in Clinical Pharmacology from Tulane
University.
JOHN J. WHALEN, M.D. has served as Senior Vice President and Chief
Scientific Officer of the Company since October 1995. In addition, he has served
as Chairman of the Company's Scientific Advisory Board since October 1995. From
1990 to 1995, he served as Senior Vice President and General Manager of the
Pharmaceutical Division at Alpha Therapeutic Corporation, a pharmaceutical
company. He has also held senior management positions as Vice President of
Clinical Research at G.H. Besselaar Associates ("Besselaar") and as Director of
Clinical Research for Cardiovascular/Renal Products at Merck, Sharp & Dohme
Research Laboratories. Dr. Whalen has an extensive background in directing
clinical trials at Besselaar, Merck and Alpha Therapeutic Corporation. Dr.
Whalen's achievements include the clinical development of Fluosol(R),
Lotensin(R), Vasotec I.V.(R), Oncolym(R) and Venoglobulin S(R). Dr. Whalen
received his B.S. in Physics from Rensselaer Polytechnic Institute and his M.D.
from the University of Virginia and participated in a pulmonary fellowship at
New York University.
B. NICHOLAS HARVEY has served as Vice President, Finance, Chief Financial
Officer and Secretary of the Company since December 1992. From February 1992 to
December 1992, he was Treasurer at The Computer Power Group, a computer services
and software company. From May 1986 to February 1989, he was Executive Director
at Brunckhorst & Co., an Australian investment firm that he helped to found.
40
<PAGE> 42
Mr. Harvey received his B.Econ. and LL.B. from the Australian National
University and his M.B.A. from the Harvard Business School in 1991.
JERRY T. JACKSON has served as Chairman of the Board of the Company since
May 1996 and has been a director of the Company since September 1995. He was an
Executive Vice President of Merck from January 1993 until his retirement in
January 1995. During 1994, Mr. Jackson had responsibility for Merck's
International Human Health, Vaccines, AgVet and Astra/Merck U.S. divisions and
for worldwide marketing. In 1993, he also served as President of the Merck Human
Health Division and from February 1986 to December 1992, Mr. Jackson was Senior
Vice President at Merck. Mr. Jackson also serves as a director of Cor
Therapeutics, Inc., SunPharm Corporation and Molecular Biosystems, Inc.
PHILIPPE O. CHAMBON, M.D., PH.D. has been a director of the Company since
November 1995. Dr. Chambon has been with Sprout Group ("Sprout"), a venture
capital firm, since May 1995 and currently serves as General Partner. From May
1993 to April 1995, Dr. Chambon served as a Manager in the Healthcare Practice
of The Boston Consulting Group, a management consulting firm. Dr. Chambon was an
executive with Sandoz Pharmaceuticals Corp., a leading pharmaceutical company,
from September 1987 to April 1993, most recently serving as the Executive
Director of New Product Management.
FRANK L. DOUGLAS, M.D., PH.D. has been a director of the Company since
September 1995. Dr. Douglas is Global Head of Research for Hoechst Marion
Roussel, Inc. since 1995. Prior to its acquisition by Hoechst Marion Roussel,
Dr. Douglas was Executive Vice President of the Research and Development
Division and served as a director at Marion Merrell Dow, Inc. from 1992 to 1995.
In 1992, he was also an Adjunct Professor of Medicine and Pharmacology at the
University of Kansas. In 1991, Dr. Douglas was a Vice President and Partner of
the Biocine Company, a joint venture between Ciba-Geigy and Chiron. From 1988 to
1991, he was Senior Vice President and Director of Research for Ciba-Geigy
Pharmaceutical Corp.
RICHARD W. HUNT, C.P.A. has been a director of the Company since November
1995. Mr. Hunt is Vice President, Finance of Baxter International Inc., a
worldwide developer and manufacturer of health care products and systems. Since
January 1982, Mr. Hunt has held various positions with Baxter International Inc.
From November 1978 to January 1982, Mr. Hunt served in various senior level
financial positions with Searle Pharmaceuticals, Inc.
WILLIAM C. MILLS III has been a director of the Company since April 1994
and was Chairman of the Board from April 1994 to May 1996. He served as interim
Chief Executive Officer of the Company from April 1994 to November 1994. Since
1988, Mr. Mills has been a General Partner of The Venture Capital Fund of New
England ("VCFNE"), a venture capital firm. From 1981 until 1988, he served as a
Managing General Partner and General Partner at PaineWebber Ventures/Ampersand,
a venture capital firm. Mr. Mills also serves as a director of Cytogen
Corporation, where he served as Chairman of the Board from January 1995 to May
1996.
GERARD M. MOUFFLET has been a director of the Company since April 1994.
Since 1989, Mr. Moufflet has been Senior Vice President in charge of the medical
sector for Advent International Corporation ("Advent"), a private equity
investment firm. Mr. Moufflet has served in a number of senior management,
financial and marketing positions at Baxter for the previous 17 years. He also
serves as a director of Curative Health Services, Inc.
Certain of the current directors of the Company were nominated and elected
in accordance with a stockholder's voting agreement. This agreement will
terminate upon the consummation of the Offering. See "Certain Transactions."
Each officer serves at the discretion of the Board of Directors. There are no
family relationships among any of the directors or executive officers of the
Company.
CLASSIFIED BOARD OF DIRECTORS
The Company's Restated Certificate of Incorporation will be amended upon
the closing of the Offering to provide for a classified Board of Directors
consisting of three classes, as nearly equal in number as possible, with the
directors in each class serving staggered three-year terms. The Class I
41
<PAGE> 43
directors are Mr. Mills and Drs. Chambon and Douglas; the Class II directors are
Messrs. Moufflet and Hunt; and the Class III directors are Dr. Gomez and Mr.
Jackson. The terms of the Class I, Class II and Class III Directors will expire
initially in 1998, 1999 and 2000, respectively. At each annual meeting of the
stockholders of the Company, the successors to the class of directors whose term
expires at such meeting will be elected to hold office for a term expiring at
the annual meeting of stockholders held in the third year following the year of
their election. See "Description of Capital Stock -- Delaware Anti-Takeover Law
and Certain Charter and By-Law Provisions."
BOARD COMMITTEES
The Board of Directors has a Compensation Committee which has
responsibility for reviewing the performance of the officers of the Company,
making recommendations to the Board concerning salaries and incentive
compensation for such officers and administering the Company's Amended and
Restated 1994 Equity Incentive Plan. The Compensation Committee consists of
Messrs. Moufflet and Jackson and Dr. Chambon.
The Board of Directors also has an Audit Committee which has responsibility
for reviewing the Company's financial statements and significant audit and
accounting practices with the Company's independent auditors and making
recommendations to the Board of Directors with respect thereto. The Audit
Committee consists of Messrs. Mills and Hunt and Dr. Douglas.
BOARD COMPENSATION
The Company's directors do not currently receive any cash compensation for
service on the Board of Directors or any committee thereof, but directors are
reimbursed for certain expenses in connection with attendance at Board of
Directors and committee meetings. Two of the Company's non-employee directors,
Dr. Douglas and Mr. Jackson, were each granted stock options to purchase 8,000
shares of Common Stock in 1995 with an exercise price of $.50 per share in
connection with their service on the Board of Directors. In addition, in July
1996 Mr. Jackson was granted options to purchase 8,000 shares with an exercise
price of $2.50 per share in connection with his appointment as Chairman of the
Board of the Company. Each option vests 50 percent on the first anniversary of
the date of grant, and the remainder of each option vests monthly over the
following year. The options terminate upon the earlier of the tenth anniversary
of the date of grant or the termination of the director's service on the Board
of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Company's Compensation Committee are Messrs.
Jackson and Moufflet and Dr. Chambon, none of whom is an employee of the
Company.
SCIENTIFIC ADVISORY BOARD
The Company has established a Scientific Advisory Board, whose members
review the Company's research, development and clinical activities and are
available for consultation with the Company's management and scientific staff
relating to their respective areas of expertise. Dr. Whalen, Senior Vice
President and Chief Scientific Officer of the Company, is Chairman of the
Company's Scientific Advisory Board. The other members of the Company's
Scientific Advisory Board and their primary academic or professional
affiliations are listed below:
GORDON R. BERNARD, M.D. chairs the Steering Committee for National
Institutes of Health ("NIH") ARDS Clinical Trials, and is currently a Professor
of Medicine at the Vanderbilt University School of Medicine. In addition, Dr.
Bernard has served as principal investigator for clinical trials of
glutathione-repleting agents in ARDS.
MITCHELL P. FINK, M.D. is Surgeon-in-Chief of Beth Israel Deaconess
Hospital and Professor of Surgery at Harvard Medical School. Dr. Fink serves on
the Editorial Board of several key journals, such as Critical Care Medicine,
Journal of Trauma, and Shock. Dr. Fink's major research interests include the
42
<PAGE> 44
role of neutrophils in septic and traumatic shock and development of novel
therapeutic agents for septic shock.
NORMAN K. HOLLENBERG, M.D., PH.D. is a Professor of Medicine at Harvard
Medical School and the Brigham and Women's Hospital. Dr. Hollenberg's research
interests include renal perfusion and function, and the genetic underpinnings of
hypertension and renal injury.
JOHN E. REPINE, M.D. is the Director of the Webb-Waring Institute for
Biomedical Research, and Professor of Medicine and Associate Dean for Student
Affairs at the University of Colorado Health Sciences Center. Dr. Repine has a
distinguished research record on oxidative stress and disease pathology.
ROBERT T. SCHOOLEY, M.D. is Professor of Medicine and Head of the
Infectious Disease Division at the University of Colorado Health Services
Center. His research includes work on AIDS, immunology, and infectious diseases.
Dr. Schooley served as Chair of numerous groups at the NIH, including the Core
Immunology Committee of the AIDS Clinical Trials Group.
STEVEN R. TANNENBAUM, PH.D. is a Professor of Chemistry and Toxicology at
the Massachusetts Institute of Technology. Dr. Tannenbaum's research efforts
include the chemistry of free radicals in biological systems, and leading work
on N-nitroso compounds and other environmental carcinogens and mutagens.
EXECUTIVE COMPENSATION
The following table sets forth for the fiscal year ended December 31, 1996
the compensation for services rendered to the Company in all capacities with
respect to its Chief Executive Officer and each of its other executive officers
whose cash compensation in 1996 exceeded $100,000 (the Chief Executive Officer
and such other executive officers are hereinafter referred to as the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
--------------------
ANNUAL COMPENSATION NUMBER OF SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- -------------------------------- --------- -------- -------------------- ---------------
<S> <C> <C> <C> <C>
Hector J. Gomez, M.D., Ph.D..... $240,000 $ -- 40,000 $ 1,755(1)
President and
Chief Executive Officer
John J. Whalen, M.D. ........... 160,000 -- 30,000 5,331(2)
Senior Vice President and
Chief Scientific Officer
B. Nicholas Harvey.............. 128,000 -- 30,000 --
Vice President, Finance
and Chief Financial Officer
</TABLE>
- ---------------
(1) Consists of premiums paid by the Company on a term life insurance policy on
behalf of Dr. Gomez.
(2) Consists of relocation expenses reimbursed to Dr. Whalen by the Company.
43
<PAGE> 45
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options to the Named Executive Officers during the fiscal year ended December
31, 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
PERCENT POTENTIAL REALIZABLE
OF TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF
NUMBER OF GRANTED STOCK PRICE
SECURITIES TO FAIR MARKET APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE VALUE ON OPTION TERM($)(2)
OPTIONS IN FISCAL PRICE THE DATE EXPIRATION ------------------------------
NAME GRANTED(#) YEAR(1) ($/SHARE) OF GRANT DATE 0% 5% 10%
- -------------------------------- --------- --------- --------- ----------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hector J. Gomez, M.D., Ph.D. ... 40,000 31% $2.50 $ 11.00 7/25/06 $340,000 $617,000 $1,041,000
John J. Whalen, M.D. ........... 30,000 23 2.50 11.00 7/25/06 255,000 463,000 781,000
B. Nicholas Harvey ............. 30,000 23 2.50 11.00 7/25/06 255,000 463,000 781,000
</TABLE>
- ---------------
(1) Based on options to purchase 129,298 shares of Common Stock granted to
employees in fiscal 1996.
(2) The potential realizable value of each option at 0% is based on the fair
market value of the Common Stock on the date of grant, $11.00 per share,
minus the exercise price times the number of shares underlying the option.
The potential realizable value of each option at 5% and 10% are based on the
term of the option at its time of grant (ten years). Each is calculated by
assuming that the stock price on the date of grant appreciates at 5% or 10%,
as applicable, compounded annually for the entire term of the option, and
that the option is exercised and sold on the last day of its term for the
appreciated stock price. Actual gains, if any, on stock option exercises
will depend on the future performance of the Common Stock and the date at
which the options are exercised.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE
The following table sets forth, for each of the Named Executive Officers,
the number of shares acquired on exercise of options during the fiscal year
ended December 31, 1996, the aggregate dollar value realized upon such exercise
and the number and value of unexercised options held by each such officer on
December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END AT FISCAL YEAR-END(2)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------------- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Hector J. Gomez, M.D., Ph.D. ..... 1,800 $18,900 59,174/90,826 $621,327/$953,673
John J. Whalen, M.D. ............. -- -- 11,879/46,121 124,730/ 484,270
B. Nicholas Harvey ............... -- -- 27,087/32,080 284,414/ 336,840
</TABLE>
- ---------------
(1) Based on the fair market value of the Common Stock on the date of exercise,
less the option exercise price. Such shares have not actually been sold.
(2) Based on the fair market value of the Common Stock on December 31, 1996
($11.00) less the option exercise price.
EMPLOYMENT AGREEMENTS
On November 29, 1994, the Company entered into an employment agreement with
Dr. Gomez, which provides for an annual base salary of $230,000, subject to
increase upon annual review. Under the agreement, Dr. Gomez received an option
to purchase 110,000 shares of Common Stock at an exercise price of $.50 per
share. Such option vests monthly over four years and terminates on November 28,
2004. Upon termination of employment by the Company other than for cause (as
defined in the agreement), the Company will pay Dr. Gomez his then current
salary, less any consulting income earned by Dr. Gomez, until the earlier of six
months from the date of such termination or the date upon which Dr. Gomez
secures other employment. The agreement provides that, for a period of twelve
months following termination of employment for any reason, Dr. Gomez will not
engage, directly or indirectly, in activities which compete with those of the
Company.
44
<PAGE> 46
AMENDED AND RESTATED 1994 EQUITY INCENTIVE PLAN
The Company's 1994 Equity Incentive Plan was initially adopted by the Board
of Directors and approved by the stockholders in April 1994. The 1994 Equity
Incentive Plan was adopted by the Board of Directors and approved by the
stockholders in August 1996. Under the terms of the 1994 Equity Incentive Plan,
the Company is authorized to make awards of restricted stock and to grant
incentive stock options and non-statutory stock options to employees (including
officers and employee directors) and directors of, and consultants and advisors
to, the Company to purchase shares of the Common Stock of the Company. A total
of 370,324 shares of Common Stock have been reserved for issuance upon exercise
of outstanding options granted under the 1994 Equity Incentive Plan. An
additional 378,295 shares of Common Stock have been reserved for future options
or awards under the 1994 Equity Incentive Plan.
Stock option grants under the 1994 Equity Incentive Plan entitle the
optionee to purchase Common Stock from the Company, for a specified exercise
price, during the periods specified in the applicable option agreement. The
Compensation Committee of the Board of Directors will select the persons to whom
options are granted, and determine the number of shares covered by each option,
its exercise price, its vesting schedule and its expiration date. Options are
generally not assignable or transferable except by will or the laws of descent
and distribution.
Restricted stock awards under the 1994 Equity Incentive Plan entitle the
recipient to purchase Common Stock from the Company under terms which provide
for vesting over a period of time and a right of repurchase of unvested stock
when the recipient's relationship with the Company terminates. The Compensation
Committee of the Board of Directors will select the recipients of restricted
stock awards, determine the times at which restricted stock awards are made, and
determine the number of shares of Common Stock subject to the award, the
purchase price (which can be less than the fair market value of the Common
Stock) and the vesting schedule for such shares. The recipients may not sell,
transfer or otherwise dispose of shares subject to a restricted stock award
until such shares are vested. Upon termination of the recipient's relationship
with the Company, the Company will be entitled to repurchase those shares which
are not vested on the termination date at a price equal to their original
purchase price.
As of December 31, 1996, the Company had 13 employees, all of whom were
eligible to participate in the 1994 Equity Incentive Plan. The number of
individuals receiving stock options varies from year to year depending on
various factors, such as the number of promotions and the Company's hiring needs
during the year.
The Compensation Committee may, in its sole discretion, include additional
provisions in any option or award granted or made under the 1994 Equity
Incentive Plan, including without limitation restrictions on transfer,
repurchase rights, commitments to pay cash bonuses, to make, arrange for or
guaranty loans or to transfer other property to optionees upon exercise of
options, or such other provisions as shall be determined by the Compensation
Committee, provided they are not inconsistent with the 1994 Equity Incentive
Plan and applicable law. The Compensation Committee may also, in its sole
discretion, accelerate or extend the date or dates on which all or any
particular option or options granted under the 1994 Equity Incentive Plan may be
exercised. Each of the options granted to date has provided that, upon certain
events constituting a change of control of the Company, the option becomes fully
exercisable. The Board of Directors has approved the accelerated vesting of
certain stock options held by employees of the Company, including the Named
Executive Officers, effective upon the closing of the Offering (the "IPO
Acceleration"). Under the first of three components of the IPO Acceleration, the
vesting of all stock options granted prior to 1996 will accelerate by one year.
Under the second component, the vesting of stock options granted to each of the
Named Executive Officers prior to 1996 will further accelerate by approximately
one month for each four months of such officer's employment, up to a maximum of
one additional year of acceleration. Under the third component, half of the
30,000 shares of Common Stock subject to an option granted to Mr. Harvey on July
25, 1996 will become exercisable upon the closing of the Offering, subject to
the condition of his continued employment for twelve months following the
Offering.
45
<PAGE> 47
CERTAIN TRANSACTIONS
On April 5, 1994, the Company acquired the Covered Technology from Clintec,
in exchange for 680,000 shares of Common Stock and 9,000 shares of the Company's
Nonconvertible Redeemable Preferred Stock which were exchanged in September 1996
for an aggregate of 3,404,255 shares of Series C Convertible Preferred Stock.
Richard W. Hunt, a director of the Company, is Vice President, Finance of Baxter
International Inc. Concurrently, the Company entered into a license agreement
with Cornell related to the Covered Technology in return for 35,025 shares of
Common Stock, payment of minimum royalties and a three-year research agreement
with Cornell Medical College providing for the payment of $133,000 per year
ending in July 1997. On October 4, 1995, Cornell agreed to return to the Company
7,025 shares of Common Stock in settlement of a dispute related to the
abandonment by Cornell of a patent application in Japan. See
"Business -- Technology and License Agreements."
In connection with the organization of the Company in December 1992, the
Company's two founding scientists from Clintec, Dr. Gary Pace and Dr. Dennis
Goldberg, purchased from the Company 100 shares of Common Stock at a price of
$.05 per share. On April 5, 1994, upon the Company's acquisition of the Covered
Technology from Clintec, the previously issued and outstanding shares of Common
Stock held by Dr. Pace and Dr. Goldberg were exchanged for 44,109 shares of
Common Stock, effected in the form of a stock dividend.
Also on April 5, 1994, the Company issued and sold an aggregate of
6,500,000 shares of Series A Convertible Preferred Stock at a price of $1.00 per
share in a private placement to certain institutional investors, including
3,500,000 shares to entities affiliated with Advent, 1,000,000 shares to
entities affiliated with Sprout, 1,000,000 shares to VCFNE, 500,000 shares to
Baxter and 500,000 shares to NCNI, an entity affiliated with Nestle (the "1994
Financing"). Gerard Moufflet, a director of the Company, is a Senior Vice
President of Advent. Philippe Chambon, M.D., Ph.D., a director of the Company,
is a General Partner of Sprout. William C. Mills III, a director of the Company,
is a General Partner of FH & Co. III, L.P., the General Partner of VCFNE. The
Company concurrently issued warrants (the "Series A Warrants") to purchase an
aggregate of 1,625,000 shares of Series A Convertible Preferred Stock to the
same investors at an exercise price of $1.00 per share (including warrants to
purchase 875,000 shares to entities affiliated with Advent, 250,000 shares to
entities affiliated with Sprout, 250,000 shares to VCFNE, 125,000 shares to
Baxter and 125,000 shares to an entity affiliated with Nestle). In accordance
with the terms of such warrants, on September 13, 1995, Series A Warrants for an
aggregate of 250,000 shares of Series A Convertible Preferred Stock were
cancelled. In September 1996, the Series A Warrants were exercised pursuant to a
net exercise provision for an aggregate of 789,894 shares of Series A
Convertible Preferred Stock (including 502,659 shares to Advent, 143,617 shares
to Sprout and 143,617 shares to VCFNE).
In connection with the 1994 Financing, the Company entered into a
Stockholders' Agreement with its stockholders, which was amended and restated on
September 13, 1995 and further amended on May 29, 1996 (as so amended, the
"Stockholders' Agreement"). Each party to the Stockholders' Agreement has agreed
to vote all shares over which such party exercises control to elect as directors
of the Company: (i) one representative designated by VCFNE; (ii) one
representative designated by Advent; (iii) one representative designated by
Sprout; (iv) one representative designated by Clintec; and (v) the Chief
Executive Officer of the Company. Messrs. Mills, Moufflet and Hunt and Dr.
Chambon currently serve as the designees of VCFNE, Advent, Baxter and Nestle,
and Sprout, respectively. The Stockholders' Agreement will terminate upon the
consummation of the Offering.
Also in connection with the 1994 Financing, the Company became a party to a
Right of First Refusal Agreement and a Right of First Refusal and Co-sale
Agreement (collectively, the "Right of First Refusal Agreements") with certain
stockholders of the Company (the "Holders"). The Right of First Refusal
Agreements provide each of the Holders with a right of first refusal with
respect to securities issued by the Company, a right of first refusal with
respect to any proposed transfer of shares by another Holder and a right to
participate in any proposed transfer of shares by any other Holder. The Right of
First Refusal Agreements will terminate upon the consummation of the Offering.
In addition,
46
<PAGE> 48
in connection with the 1994 Financing, the Company agreed to register in certain
circumstances shares of its capital stock held by certain investors. See
"Description of Capital Stock -- Registration Rights."
On September 13, 1995, the Company sold Series A Notes in the aggregate
principal amount of $2.0 million to certain institutional investors, including
notes in the aggregate principal amount of $1.3 million to entities affiliated
with Advent, $363,000 to entities affiliated with Sprout and $364,000 to VCFNE.
Interest on the Series A Notes accrued at 30 percent per annum, payable every
four months in the form of shares of Series A Convertible Preferred Stock (at
one share per $1.00 of interest due and payable). The Series A Notes matured on
January 15, 1997, and were convertible into shares of Series A Convertible
Preferred Stock (at one share per $1.00 of principal outstanding) upon the
closing of a private financing resulting in gross proceeds to the Company of
$2.0 million or more. The Company issued an aggregate of 397,806 shares of
Series A Convertible Preferred Stock in lieu of interest payable on the Series A
Notes through May 13, 1996 to the holders thereof. On September 3, 1996, the
Company issued 98,631 shares of Series A Convertible Preferred Stock in full
payment of accrued and unpaid interest through such date (including 62,765
shares to entities affiliated with Advent; 17,933 shares to entities affiliated
with Sprout; and 17,933 shares to VCFNE) Concurrently, the Series A Notes were
converted into an aggregate of 2,000,000 shares of Series A Convertible
Preferred Stock (including 1,272 shares to entities affiliated with Advent;
363,000 shares to entities affiliated with Sprout; and 364,000 shares to
VCFNE)(the "September 1996 Financing").
In January 1996, the Company issued an aggregate of 130,000 shares of
Series A Convertible Preferred Stock to two of its directors, Dr. Douglas and
Mr. Jackson, and one former director of the Company. Such shares were issued (at
$1.00 per share) for an aggregate of $130,000.
On May 29, 1996, the Company issued Series B Notes in the aggregate
principal amount of $1.0 million to certain institutional investors, including
notes in the aggregate principal amount of $636,363 to entities affiliated with
Advent, $181,818 to entities affiliated with Sprout and $181,818 to VCFNE.
Interest on the Series B Notes accrued at 30 percent per annum, payable every
four months in the form of Series B Convertible Preferred Stock (at one share
per $1.50 of interest due and payable). The Series B Notes matured on January
15, 1997, and were convertible into shares of Series B Convertible Preferred
Stock (at one share per $1.50 of principal) upon the closing of a private
financing of $1.0 million. On September 30, 1996, at the closing of the
September 1996 Financing, the Company issued 24,109 shares of Series B
Convertible Preferred Stock in full payment of accrued and unpaid interest on
the Series B Notes through such date (including 15,342 shares to entities
affiliated with Advent; 4,383 shares to entities affiliated with Sprout; and
4,384 shares to entities affiliated with VCFNE). Concurrently, the Series B
Notes were converted into an aggregate of 666,666 shares of Series B Convertible
Preferred Stock (including 424,242 shares to entities affiliated with Advent,
121,212 shares to entities affiliated with Sprout and 121,212 shares to VCFNE).
In the September 1996 Financing, the Company issued 3,404,255 shares of
Series C Convertible Preferred Stock to Clintec in exchange for all of the
outstanding shares of Nonconvertible Redeemable Preferred Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Pursuant to the September 1996 Financing, the Company issued and sold an
aggregate of 851,064 shares of Series C Convertible Preferred Stock (including
150,205 shares to the Advent Group; 42,953 shares to VCFNE; and 19,342 shares to
Sprout Group) at a price of $11.75 per share. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
In February 1997, the Company entered into an agreement with BI relating to
the worldwide development and commercialization of Procysteine i.v. For a
description of the BI Agreement, see "Business -- Boehringer Ingelheim." In
connection with the execution of the BI Agreement, the Company agreed to issue
and sell $5.0 million of unregistered shares of Common Stock on or prior to the
closing of the Offering at the initial public offering price. Assuming an
initial public offering price of $13.00 per share, BI will purchase 384,615
unregistered shares of Common Stock. In addition, the
47
<PAGE> 49
Company agreed in certain circumstances to register the shares received by BI.
See "Description of Capital Stock -- Registration Rights."
In March 1997, the Company issued and sold an aggregate of 1,039,000 shares
of the Company's Nonconvertible Redeemable Preferred Stock and warrants to
purchase $346,300 of Common Stock, exercisable at the initial public offering
price (26,639 shares of Common Stock, assuming an initial public offering price
of $13.00 per share), to certain institutional investors, including 434,378
shares to entities affiliated with Advent, 85,000 shares to entities affiliated
with Sprout, 100,554 shares to VCFNE, 319,068 shares to Baxter, 38,000 shares to
Dr. Gomez, 12,000 shares to Dr. Whalen and 50,000 shares to Mr. Jackson (the
"Bridge Financing"), resulting in proceeds to the Company of approximately $1.0
million. All outstanding shares of Nonconvertible Redeemable Preferred Stock
will be redeemed upon the closing of the Offering for approximately $1.0 million
from the proceeds of the Offering.
48
<PAGE> 50
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of December 31, 1996, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) each person or entity known to the Company to own beneficially more than 5%
of the Company's Common Stock; (ii) each of the Company's directors; (iii) each
of the Named Executive Officers; and (iv) all directors and executive officers
as a group.
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY
NUMBER OF OWNED(2)(3)
SHARES ---------------------
BENEFICIALLY PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) OFFERING OFFERING
- ------------------------------------------------------------ ------------ -------- --------
<S> <C> <C> <C>
5% STOCKHOLDERS
Advent Group(4)........................................... 1,234,323 32.9% 20.1%
101 Federal Street
Boston, MA 02110
Baxter Healthcare Corporation(5).......................... 908,085 24.2 14.8
One Baxter Parkway
Deerfield, IL 60015
Nestle Clinical Nutrition, Inc. .......................... 780,425 20.8 12.7
900 North Brand Boulevard
Glendale, CA 91203
Clintec International, Inc. .............................. 680,426 18.1 11.1
One Baxter Parkway
Deerfield, IL 60015
Boehringer Ingelheim International GmbH................... 384,615 -- 6.3
D-55216 Ingelheim am Rhein
Germany(6)
The Venture Capital Fund of New England III, L.P. ........ 353,218 9.4 5.8
160 Federal Street, 23rd Floor
Boston, MA 02110
Sprout Capital VI, L.P.(7)................................ 348,490 9.3 5.7
140 Broadway
New York, NY 10005-1295
DIRECTORS
Jerry T. Jackson(8)....................................... 18,670 * *
Philippe Chambon, M.D., Ph.D.(7).......................... 348,490 9.3 5.7
Frank L. Douglas, M.D., Ph.D.(9).......................... 16,000 * *
Richard W. Hunt(10)....................................... 908,085 24.2 14.8
William C. Mills III(11).................................. 353,218 9.4 5.8
Gerard M. Moufflet(4)..................................... 1,234,323 32.9 20.1
NAMED EXECUTIVE OFFICERS
Hector J. Gomez, M.D., Ph.D.(12).......................... 68,548 1.8 1.1
John J. Whalen, M.D.(13).................................. 15,504 * *
B. Nicholas Harvey(14).................................... 30,810 * *
All directors and executive officers as a group
(nine persons)(15)..................................... 2,993,648 77.2 47.8
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated, the address for each beneficial owner is c/o
the Company, 640 Memorial Drive, Cambridge, Massachusetts 02139.
(2) The inclusion herein of any shares of Common Stock as beneficially owned
does not constitute an admission of beneficial ownership of those shares.
Unless otherwise indicated, each person listed above has sole investment
and voting power with respect to the shares listed. In accordance with the
rules of the Securities and Exchange Commission, each person is deemed to
beneficially own any shares issuable upon exercise of stock options held by
such person that are currently exercisable or that become exercisable
within 60 days after December 31, 1996, and any reference in these
footnotes to shares subject to
49
<PAGE> 51
stock options held by the person in question refers only to such shares.
The number and percentage of outstanding shares of Common Stock owned after
the Offering gives effect to the purchase by BI of $5.0 million of Common
Stock at the initial public offering price (384,615 shares assuming an
initial public offering price of $13.00 per share).
(3) The number of shares deemed outstanding for purposes of calculating these
percentages is comprised of the 4,136,481 shares outstanding as of December
31, 1996 (after giving effect to the conversion into shares of Common Stock
of all outstanding shares of Series A, Series B and Series C Preferred
Stock), plus any shares subject to stock options held by the person in
question exercisable within 60 days after December 31, 1996.
(4) Represents 791,981 shares held by Global Private Equity II Limited
Partnership, 318,983 shares held by Rovent II Limited Partnership, 119,827
shares held by Advent Performance Materials Limited Partnership and 3,532
shares held by Advent International Investors II Limited Partnership (the
"Advent Group"). Mr. Moufflet, a director of the Company, is a Senior Vice
President of Advent International Corporation, which is a general partner
of Advent International Investors II Limited Partnership and of Advent
International Limited Partnership, the general partner of each of the other
members of the Advent Group.
(5) Includes 680,426 shares held by Clintec International, Inc., a wholly owned
subsidiary of Baxter.
(6) Includes the $5.0 million of unregistered shares of Common Stock to be
purchased pursuant to the BI Equity Investment at the initial public
offering price (assuming an initial public offering price of $13.00 per
share).
(7) Includes 300,848 shares held by Sprout Capital VI, L.P. and 47,642 shares
held by DLJ Capital Corporation. DLJ Capital Corporation is the managing
general partner of Sprout Capital VI, L.P. Dr. Chambon is General Partner
of Sprout Group.
(8) Includes 8,670 shares subject to stock options held by Mr. Jackson.
(9) Includes 6,000 shares subject to stock options held by Dr. Douglas.
(10) Represents 680,426 shares held by Clintec and 227,659 shares held by
Baxter. Mr. Hunt is Vice President, Finance of Baxter International, Inc.
and shares voting power with respect to shares held by Clintec's sole
stockholder, Baxter.
(11) Includes 353,218 shares held by the VCFNE. Mr. Mills is a general partner
of FH & Co. III, L.P., a general partner of the VCFNE.
(12) Includes 66,748 shares subject to stock options held by Dr. Gomez.
(13) Represents 15,504 shares subject to stock options held by Dr. Whalen.
(14) Represents 30,810 shares subject to stock options held by Mr. Harvey.
(15) Includes 127,732 shares subject to stock options.
50
<PAGE> 52
DESCRIPTION OF CAPITAL STOCK
The Company's current Restated Certificate of Incorporation (the
"Certificate of Incorporation"), authorizes 45,255,319 shares of capital stock,
consisting of 25,000,000 shares of Common Stock, $.01 par value, and 20,255,319
shares of Preferred Stock, $.01 par value. In connection with the Offering, the
Company's Certificate of Incorporation will be amended and restated (the
"Restated Certificate of Incorporation"). Upon completion of the Offering, the
Restated Certificate of Incorporation will authorize the issuance of 30,000,000
shares of capital stock, consisting of 25,000,000 shares of Common Stock, par
value $.01 per share, and 5,000,000 shares of Preferred Stock, par value $.01
per share. Set forth below is a description of the capital stock of the Company.
COMMON STOCK
As of December 31, 1996, assuming the conversion all outstanding shares of
Preferred Stock into Common Stock, there were 3,751,866 shares of Common Stock
issued and outstanding held of record by 20 stockholders and 370,324 shares of
Common Stock issuable upon the exercise of outstanding stock options.
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders and are not entitled to cumulative
voting rights with respect to the election of directors. Accordingly, holders of
a majority of the shares of Common Stock entitled to vote in any election of
directors may elect all of the directors standing for election. 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 therefor,
subject to preferences that may be applicable to any outstanding Preferred
Stock. In the event of liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in all net assets
remaining after payment of liabilities and the liquidation preference of any
outstanding Preferred Stock. Holders of Common Stock have no preemptive,
subscription, redemption, conversion or other subscription rights, and there are
no sinking fund provisions applicable to the Common Stock. All currently
outstanding shares of Common Stock are, and the shares of Common Stock being
issued and sold in the Offering will be, duly authorized, validly issued, fully
paid and nonassessable.
SERIES CONVERTIBLE PREFERRED STOCK
The Company currently has outstanding 9,916,330 shares of Series A
Convertible Preferred Stock and 690,775 shares of Series B Convertible Preferred
Stock, and 4,255,319 shares of Series C Convertible Preferred Stock, $.01 par
value per share (respectively, the "Series A Preferred Stock," "Series B
Preferred Stock" and "Series C Preferred Stock"). See "Certain Transactions."
Because of the one-for-five reverse stock split, effected in February 1997, each
share of Convertible Preferred Stock will automatically convert into one-fifth
of a share of Common Stock upon closing of the Offering.
Following completion of the Offering and the conversion of all of the
outstanding shares of Preferred Stock, the Board of Directors will have the
authority to issue from time to time up to 5,000,000 shares of Preferred Stock
in one or more series and to fix the powers, designations, preferences and
relative, participating, optional or other rights thereof, including dividend
rights, conversion rights, voting rights, redemption terms, liquidation
preferences and the number of shares constituting each such series, without any
further vote or action by the Company's stockholders. The issuance of Preferred
Stock could adversely affect the rights of holders of Common Stock and could
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present plans to issue any of these shares of
Preferred Stock.
NONCONVERTIBLE REDEEMABLE PREFERRED STOCK
The Company has outstanding 1,039,000 shares of Nonconvertible Redeemable
Preferred Stock, $.01 par value per share (the "Nonconvertible Preferred
Stock"). All outstanding shares of Nonconvertible Preferred Stock will be
redeemed upon the closing of the Offering for approximately $1.0
51
<PAGE> 53
million from the proceeds of the Offering. Except as required by law, the
Nonconvertible Redeemable Preferred Stock has no voting rights. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
WARRANTS
In February 1997, upon the issuance of shares of Nonconvertible Preferred
Stock, the Company also issued warrants to purchase $346,300 of Common Stock,
exercisable at the initial public offering price (26,639 shares of Common Stock
assuming an initial public offering price of $13.00 per share). Such warrants
are exercisable upon issuance and expire five years from the date of issuance.
In connection with the execution of a lease of real property from the
Massachusetts Institute of Technology ("MIT") in October 1994, the Company
issued a warrant to MIT to purchase 5,000 shares of Common Stock at a price of
$5.00 per share. This warrant expires on October 28, 1999.
REGISTRATION RIGHTS
At the completion of the Offering, certain stockholders of the Company (the
"Rightsholders") will be entitled to certain rights with respect to the
registration under the Securities Act of a total of 4,037,099 shares of Common
Stock (the "Registrable Shares") pursuant to the terms of an agreement among the
Company and the Rightsholders (the "Registration Rights Agreement"). Under the
Registration Rights Agreement beginning 6 months after the effective date of the
Company's registration statement relating to the Offering, on not more than one
occasion and subject to certain limitations, the Company is required to use its
best efforts to file a registration statement under the Securities Act if
requested by the holders of (i) 35 percent of the outstanding shares of
Preferred Stock held by Rightsholders immediately prior to the Offering (the
"Preferred Rightsholders"); or (ii) 35 percent of the outstanding shares of
Common Stock held by Rightsholders immediately prior to the Offering (the
"Common Rightsholders"). In addition, at any time after the Company becomes
eligible to use Form S-3, or not more than one occasion, the Company is required
to use its best efforts to file a registration statement on Form S-3 if
requested by (i) 35 percent of the Preferred Rightsholders or (ii) 35 percent of
the Common Rightsholders. The Registration Rights Agreement also provides that
in the event the Company proposes to file a registration statement under the
Securities Act with respect to an offering by the Company, the Rightsholders
shall be entitled to include Registrable Shares in such registration, subject to
the right of the managing underwriter of any such offering to exclude some or
all of such Registrable Shares from such registration if and to the extent that
inclusion of such Shares would adversely affect the marketing of the shares to
be sold by the Company. In such event, the amount of Registrable Shares to be
offered for the accounts of the Rightsholders shall be reduced pro rata among
all of the requesting Rightsholders based upon the number of shares requested to
be included in such registration by all requesting Rightsholders. The Company is
required to bear the expenses of the first registration requested by Preferred
Rightsholders and the first registration requested by Common Rightsholders,
except underwriting discounts and commissions and fees of more than one counsel
to the Rightsholders. Prior to the closing of the Offering, the Registration
Rights Agreement will be amended and restated to (i) provide the foregoing
rights to BI with respect to any shares of Common Stock issued pursuant to the
BI Equity Investment, and (ii) provide BI with the right, exercisable once,
beginning one year after the closing of the Offering, to require the Company to
register any shares of Common Stock issued to BI pursuant to the BI Equity
Investment and to bear the expenses of such registration, except underwriting
discounts and commissions and fees of more than one counsel to BI. The
Rightsholders and BI are subject to certain lock-up agreements. See "Shares
Eligible For Future Sale."
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 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
52
<PAGE> 54
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15 percent or more of the
corporation's voting stock.
The Restated Certificate of Incorporation provides for the division of the
Board of Directors into three classes as nearly equal in size as possible with
staggered three-year terms. See "Management." In addition, the Restated
Certificate of Incorporation provides that directors may be removed only for
cause by the affirmative vote of the holders of two-thirds of the shares of
capital stock of the corporation entitled to vote. Under the Restated
Certificate of Incorporation, any vacancy on the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the Board, may
only be filled by vote of a majority of the directors then in office. The
classification of the Board of Directors and the limitations on the removal of
directors and filling of vacancies could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company.
The Restated Certification of Incorporation also provides that after the
closing of the Offering, any action required or permitted to be taken by the
stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting and
may not be taken by written action in lieu of a meeting. The Restated
Certificate of Incorporation further provides that special meetings of the
stockholders may only be called by the Chairman of the Board of Directors, the
Chief Executive Officer or, if none, the President of the Company or by the
Board of Directors. Under the Company's Amended and Restated By-Laws (the
"By-Laws"), in order for any matter to be considered "properly brought" before a
meeting, a stockholder must comply with certain requirements regarding advance
notice to the Company. The foregoing provisions could have the effect of
delaying until the next stockholders meeting stockholder actions which are
favored by the holders of a majority of the outstanding voting securities of the
Company. These provisions may also discourage another person or entity from
making a tender offer for the Company's Common Stock, because such person or
entity, even if it acquired a majority of the outstanding voting securities of
the Company, would be able to take action as a stockholder (such as electing new
directors or approving a merger) only at a duly called stockholders meeting, and
not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. The Restated Certificate of Incorporation and
the By-Laws require the affirmative vote of the holders of at least 66 2/3
percent of the shares of capital stock of the Company issued and outstanding and
entitled to vote to amend or repeal any of the provisions described in the prior
two paragraphs.
The Restated Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts, such as the breach of a director's duty of loyalty or
acts or omissions which involve intentional misconduct or a knowing violation of
law. Further, the Restated Certificate of Incorporation contains provisions to
indemnify the Company's directors and officers to the fullest extent permitted
by the General Corporation Law of Delaware. The Company believes that these
provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chemical Mellon
Shareholder Services.
53
<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has not been any public market for the Common
Stock and there can be no assurance that a significant public market for the
Common Stock will be developed or be sustained after the Offering. Sales of
substantial amounts of Common Stock in the public market after the Offering, or
the possibility of such sales occurring, could adversely affect prevailing
market prices for the Common Stock or the future ability of the Company to raise
capital through an offering of equity securities. See "Risk Factors -- Shares
Eligible for Future Sale; Registration Rights."
After the Offering, the Company will have outstanding 6,136,481 shares of
Common Stock (6,436,481 shares if the Underwriters' over-allotment option is
exercised in full). Such number of shares assumes the issuance of 384,615 shares
of Common Stock to BI as a result of the BI Equity Investment (assuming an
initial public offering price of $13.00 per share). See "Capitalization" and
"Certain Transactions." Of these shares, the 2,000,000 shares offered hereby
will be freely tradable in the public market without restriction under the
Securities Act, unless such shares are held by "affiliates" of the Company, as
that term is defined in Rule 144 under the Securities Act.
The remaining 4,136,481 shares of Common Stock outstanding upon completion
of the Offering will be "restricted securities" as that term is defined in Rule
144 (the "Restricted Shares"). The Restricted Shares were issued and sold by the
Company in private transactions in reliance upon exemptions from registration
under the Securities Act. Restricted Shares may be sold in the public market
only if they are registered or if they qualify for an exemption from
registration under the Securities Act, including an exemption under Rule 144 or
701, which are summarized below.
Pursuant to "lock-up" agreements, all of the Company's executive officers
and directors and certain employees and stockholders of the Company, who
collectively hold 3,654,284 of such Restricted Shares (excluding BI), have
agreed not to offer, sell, or otherwise dispose of (i) any of their Restricted
Shares for a period of 180 days from the date of this Prospectus (the "Initial
Lock-Up Period"), and (ii) in excess of 50 percent of such Restricted Shares for
a period of 90 days following such 180-day period (the "Secondary Lock-Up
Period") without the prior written consent of Vector Securities. In addition, BI
has agreed not to offer, sell or otherwise dispose of the 384,615 Restricted
Shares to be purchased in the BI Equity Investment (assuming an initial public
offering price of $13.00 per share) for a period of 360 days from the date of
this Prospectus without the prior written consent of Vector Securities (the "BI
Lock-Up Period"). The Company has also agreed that it will not offer, sell or
otherwise dispose of Common Stock for a period of 180 days from the date of this
Prospectus, other than pursuant to existing stock option plans, without the
prior written consent of Vector Securities. Upon termination of each of the
Initial Lock-Up Period and the Secondary Lock-Up Period, approximately 1,824,142
shares of the Restricted Shares will be eligible for immediate sale in the
public market, subject to certain volume, manner of sale, and other limitations
under Rule 144. Upon termination of the BI Lock-Up Period, the shares purchased
by BI will be eligible (384,615 shares assuming an initial public offering price
of $13.00 per share) for immediate sale in the public market, subject to certain
volume, manner of sale, and other limitations under Rule 144. In addition, BI
has the right to cause the Company to register these shares under the Securities
Act at any time following the BI Lock-Up Period. See "Description of Capital
Stock -- Registration Rights." In addition, of the Restricted Shares not subject
to lock-up agreements, approximately 46,741 shares will be eligible for
immediate sale, without limitation under Rule 144(k), and approximately 56,840
of such Restricted Shares will be eligible for sale beginning 90 days after the
date of this Prospectus, subject to certain volume, manner of sale and other
limitations under Rule 144 and Rule 701.
Following the expiration of such lock-up periods, certain shares issued
upon exercise of options granted by the Company prior to the date of this
Prospectus will also be available for sale in the public market pursuant to Rule
701 under the Securities Act. Rule 701 permits resales of such shares in
reliance upon Rule 144 but without compliance with certain restrictions,
including the holding period requirement, imposed under Rule 144. In general,
under Rule 144 as currently in effect, beginning 90 days after the date of this
Prospectus, a person (or persons whose shares of the Company are aggregated) who
54
<PAGE> 56
has beneficially owned Restricted Shares for at least one year (including the
holding period of any prior owner who is not an affiliate of the Company) would
be entitled to sell within any three-month period a number of shares that does
not exceed the greater of one percent of the then outstanding shares of Common
Stock (approximately 61,365 shares immediately after the Offering) or the
average weekly trading volume of the Common Stock during the four calendar weeks
preceding the filing of a report on Form 144 with respect to such sale. Sales
under Rule 144 are also subject to certain manner of sale and notice
requirements and to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner who is not an affiliate of the
Company) is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
As of December 31, 1996, options to purchase a total of 370,324 shares of
Common Stock were outstanding under the Company's 1994 Equity Incentive Plan. Of
such shares, an aggregate of approximately 289,775 shares are subject to lock-up
agreements as described above, and the remaining 80,549 shares will be available
for sale in the public market 90 days after the date of this Prospectus pursuant
to Rule 701. As of December 31, 1996, 378,295 shares were available for future
option grants under the 1994 Equity Incentive Plan.
The Company intends to file after the effective date of the Offering a
Registration Statement on Form S-8 to register an aggregate of 748,619 shares of
Common Stock reserved for issuance under the 1994 Equity Incentive Plan. Such
Registration Statement will become effective automatically upon filing. Shares
issued under the 1994 Equity Incentive Plan, after the filing of the
Registration Statement on Form S-8, may be sold in the open market, subject, in
the case of certain holders, to the Rule 144 limitations applicable to
affiliates, the above-referenced lock-up agreements and vesting restrictions
imposed by the Company.
At the completion of the Offering, certain stockholders will be entitled to
certain rights with respect to the registration of shares for resale under the
Securities Act. See "Description of Capital Stock."
55
<PAGE> 57
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters (the "Underwriters") named below, for whom Vector Securities and
EVEREN Securities, Inc. are acting as representatives (the "Representatives"),
have severally agreed to purchase, subject to the terms and conditions of the
Underwriting Agreement, and the Company has agreed to sell to the Underwriters,
the following respective number of shares of Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
----------------------------------------------------------------- ---------
<S> <C>
Vector Securities International, Inc. ...........................
EVEREN Securities, Inc. .........................................
---------
Total....................................................... 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock to the public
at the offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow to selected dealers and such dealers may
reallow a concession not in excess of $ per share to certain other dealers.
After the initial public offering of the shares of Common Stock, the offering
price and other selling terms may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable at any
time during the 30-day period after the date of this Prospectus, to purchase up
to an additional 300,000 shares of Common Stock at the initial public offering
price set forth on the cover page of this Prospectus, less underwriting
discounts and commissions. The Underwriters may exercise such option solely for
the purpose of covering over-allotments, if any, in connection with the
Offering. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares listed in the table.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the Offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
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 executive officers, directors and certain employees of the Company and
other stockholders have agreed that they will not, without the prior written
consent of Vector Securities, offer, sell or otherwise dispose of (i) any shares
of Common Stock, options or warrants to acquire shares of Common Stock, or
securities exchangeable for or convertible into shares of Common Stock for a
period of 180 days from the date of this Prospectus and (ii) in excess of 50
percent of such Common Stock, options or exchangeable securities, during the 90
days following such 180-day period. BI has agreed that it will not, without the
prior written consent of Vector Securities, offer, sell or otherwise dispose of
any shares of Common Stock for a period of 360 days from the date of this
Prospectus. The Company
56
<PAGE> 58
has agreed that it will not, without the prior written consent of Vector
Securities, offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of any shares of Common Stock, options or warrants to acquire
shares of Common Stock or securities exchangeable for or convertible into shares
of Common Stock for a period of 180 days after the date of this Prospectus,
except for securities issued under its option plan. See "Shares Eligible for
Future Sale."
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the shares of Common
Stock included in the Offering will be determined by negotiations between the
Company and the Representatives. Among the factors considered in determining
such price will be the history of and prospects for the Company's business and
the industry in which it competes, an assessment of the Company's management and
the present state of the Company's development, its past and present operations
and financial performance, the prospects for future earnings of the Company, the
present state of the Company's research programs, the current state of the
economy in the United States and the current level of economic activity in the
industry in which the Company competes and in related or comparable industries,
and the current prevailing condition in the securities markets, including
current market valuations of publicly traded companies that are comparable to
the Company.
Vector Securities has served as a financial advisor to the Company
including advisory services in connection with the arrangement and negotiation
of the BI Agreement.
LEGAL MATTERS
Hale and Dorr LLP, Boston, Massachusetts will pass upon the validity of the
shares of Common Stock offered by the Company hereby for the Company. Skadden,
Arps, Slate, Meagher & Flom (Illinois), Chicago, Illinois, will pass upon
certain legal matters relating to the Offering for the Underwriters.
EXPERTS
The financial statements of Transcend Therapeutics, Inc. at December 31,
1995 and 1996, and for each of the three years in the period ended December 31,
1996 and for the period January 1, 1993 (commencement of operations) to December
31, 1996 appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as stated in their report
thereon (which contains an explanatory paragraph with respect to the Company's
ability to continue as a going concern) appearing elsewhere herein and are
included in reliance upon such report, given upon the authority of such firm as
experts in accounting and auditing.
The statements in this Prospectus under the captions "Risk
Factors -- Patents and Proprietary Rights; Third-Party Rights" and
"Business -- Patents and Proprietary Rights" relating to United States patent
matters have been reviewed and approved by Pennie & Edmonds LLP, New York, New
York, patent counsel to the Company, and have been included herein in reliance
upon the review and approval by such firm as experts in patent law.
ADDITIONAL INFORMATION
As a result of the Offering, the Company will become subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended, and in accordance therewith will file periodic reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). The Company intends to furnish to its stockholders annual
reports containing financial statements audited by an independent public
accounting firm and will make available copies of quarterly reports containing
unaudited financial statements for the first three quarters of each fiscal year.
57
<PAGE> 59
The Company has filed with the Commission, Washington, D.C. 20549, a
Registration Statement (which term shall include all amendments, exhibits and
schedules thereto) on Form S-1 under the Securities Act with respect to the
shares of Common Stock offered hereby. This Prospectus, which constitutes a part
of the Registration Statement, does not contain all of the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission, to which Registration
Statement reference is hereby made. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and the exhibits thereto may be inspected and copied at
prescribed rates at the public reference facilities maintained by the Commission
at N.W., Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. In addition, the Company is required to file
electronic versions of these documents with the Commission through the
Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.
The Commission maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
58
<PAGE> 60
TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors......................................................... F-2
Balance Sheets......................................................................... F-3
Statements of Operations............................................................... F-4
Statements of Redeemable Preferred Stock and Stockholders' Deficit..................... F-5
Statements of Cash Flows............................................................... F-6
Notes to Financial Statements.......................................................... F-7
</TABLE>
F-1
<PAGE> 61
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Transcend Therapeutics, Inc.
We have audited the accompanying balance sheets of Transcend Therapeutics,
Inc. (a company in the development stage) as of December 31, 1996 and 1995, and
the related statements of operations, redeemable preferred stock and
stockholders' deficit, and cash flows for each of the three years in the period
ended December 31, 1996 and the period January 1, 1993 (commencement of
operations) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statements referred to above present fairly,
in all material respects, the financial position of Transcend Therapeutics, Inc.
(a company in the development stage) at December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996 and the period January 1, 1993 (commencement of
operations) to December 31, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note 1, the Company is a development-stage company with a
net capital deficiency that has not and will not achieve sufficient revenues to
support future operations without additional financing. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are discussed in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
ERNST & YOUNG LLP
Boston, Massachusetts
January 10, 1997
F-2
<PAGE> 62
TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 639,626 $ 1,276,305
Prepaid expenses and other current assets............................... 39,579 38,282
Other assets............................................................ 41,328
------------ ------------
Total current assets...................................................... 720,533 1,314,587
Property and equipment, net............................................... 46,108 52,706
Other assets:
Deferred offering costs................................................. 409,548
Patents and licenses, net............................................... 389,576 443,795
Other assets............................................................ 54,600
------------ ------------
$ 1,565,765 $ 1,865,688
============ ============
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses................................... $ 624,535 $ 404,329
Interest payable to related party....................................... 177,534
------------ ------------
Total current liabilities................................................. 624,535 581,863
Senior Secured Convertible Note........................................... 2,000,000
Redeemable Preferred Stock:
Series A Redeemable Convertible Preferred Stock, 12,991,000 shares
authorized, 9,916,330 and 6,500,000 shares issued and outstanding, in
1996 and 1995 respectively, par value $.01 (liquidation preference of
$9,140,187)........................................................... 9,140,187 6,500,000
Series B Redeemable Convertible Preferred Stock, 3,000,000 shares
authorized, 690,775 shares issued and outstanding, par value $.01
(liquidation preference of $1,036,163)................................ 1,036,163
Series C Redeemable Convertible Preferred Stock, 4,255,319 shares
authorized, issued and outstanding, par value $.01 (liquidation
preference of $10,000,000)............................................ 10,000,000
Redeemable Non-convertible Preferred Stock, 9,000 shares authorized,
issued and outstanding, par value $.01................................ 3,081,028
Stockholders' deficit:
Common Stock, par value $0.01, 25,000,000 shares authorized, 779,381 and
763,306 shares issued and outstanding in 1996 and 1995,
respectively.......................................................... 7,793 7,633
Series A Preferred Stock Warrants, par value $0.01, 1,625,000 warrant
shares authorized, 1,375,000, issued and outstanding in 1995.......... 13,750
Additional paid-in capital.............................................. 1,453,848 354,471
Deferred compensation................................................... (977,802)
Accretion of Redeemable Nonconvertible Preferred Stock.................. (2,591,904)
Deficit accumulated during the development stage........................ (19,718,959) (8,081,153)
------------ ------------
Total stockholders' deficit...................................... (19,235,120) (10,297,203)
------------ ------------
$ 1,565,765 $ 1,865,688
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 63
TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1993
YEARS ENDED DECEMBER 31 (COMMENCEMENT
--------------------------------------- OF OPERATIONS) TO
1996 1995 1994 DECEMBER 31, 1996
----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
Research and development contract
revenues.............................. $ 6,095,000
Operating expenses:
Research and development.............. $ 1,967,794 $ 2,738,880 $ 2,626,644 11,831,707
General administration................ 1,834,179 1,645,038 1,114,998 6,219,500
----------- ----------- ----------- ------------
Total operating expenses................ 3,801,973 4,383,918 3,741,642 18,051,207
Other income (expense):
Interest income....................... 30,109 111,465 138,750 280,324
Interest expense...................... (355,066) (177,534) (532,200)
----------- ----------- ----------- ------------
(324,957) (66,069) 138,750 (251,876)
----------- ----------- ----------- ------------
Net loss................................ $(4,126,930) $(4,449,987) $(3,602,892) $ (12,208,083)
============
----------- ----------- -----------
Accretion of Redeemable Nonconvertible
Preferred Stock....................... (5,080,496) (1,481,088) (1,110,816)
----------- ----------- -----------
Net loss to common stockholders......... (9,207,426) (5,931,075) (4,713,708)
=========== =========== ===========
Pro forma net loss per common share..... $ (2.35)
===========
Pro forma weighted average common shares
outstanding........................... 3,921,765
===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 64
TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)
STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
SERIES C
CONVERTIBLE
SERIES A SERIES B PREFERRED
CONVERTIBLE PREFERRED CONVERTIBLE PREFERRED PREFERRED
PREFERRED STOCK PREFERRED STOCK STOCK
---------------------- ---------------------- ---------
NUMBER OF NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT SHARES
--------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Issuance of Common Stock, December 1992 ($.02/share)................
Purchase of Treasury Stock..........................................
Net loss............................................................
Balance at December 31, 1993........................................
April 1994:
Issuance of Common Stock from treasury for services................
Issuance of Series A Redeemable Convertible Preferred Stock
($1.00/share)..................................................... 6,500,000 $6,500,000
Issuance of Redeemable Nonconvertible Preferred Stock for
technology
($1,000/share)....................................................
Issuance of Common Stock for technology ($.50/share)...............
Issuance of Series A Preferred Stock Warrants ($.01/share).........
Accretion of Redeemable Nonconvertible Preferred Stock..............
Net loss............................................................
--------- --------- ------- ---------- ---------
Balance at December 31, 1994........................................ 6,500,000 6,500,000
Cancellation of Cornell's common shares.............................
Extinguishment of Series A Preferred Warrants.......................
Conversion of options to common shares..............................
Accretion of Redeemable Nonconvertible Preferred Stock..............
Net loss............................................................
--------- --------- ------- ---------- ---------
Balance at December 31, 1995........................................ 6,500,000 6,500,000
Issuance of Series A Redeemable Convertible Preferred Stock in
January 1996....................................................... 130,000 130,000
Issuance of Series A Redeemable Convertible Preferred Stock in lieu
of interest in January, May and September 1996 ($1.00/share)....... 496,437 496,437
Issuance of Series B Redeemable Convertible Preferred Stock in lieu
of interest in September 1996 ($1.50/share)........................ 24,109 $ 36,164
Conversion of Senior Secured Convertible Note to Series B Redeemable
Convertible Preferred Stock in September 1996 ($1.50/share)........ 666,666 999,999
Conversion of Redeemable Convertible Senior Secured Convertible Note
to Series A Redeemable Convertible Preferred Stock in September
1996 ($1.00/share)................................................. 2,000,000 2,000,000
Accretion of Redeemable Nonconvertible Preferred Stock..............
Issuance of Series C Redeemable Convertible Preferred Stock in
September 1996 ($2.35/share)....................................... 851,064
Conversion of Redeemable Nonconvertible Preferred Stock to Series C
Redeemable Convertible Preferred Stock in September 1996
($2.35/share)...................................................... 3,404,255
Conversion of Series A Redeemable Convertible Warrants to Series A
Preferred Stock in September 1996 ($.02/share)..................... 789,893 13,750
Exercise of stock options...........................................
Grant of stock options..............................................
Amortization of deferred compensation expense.......................
Net loss............................................................
--------- --------- ------- ---------- ---------
Balance at December 31, 1996........................................ 9,916,330 $9,140,187 690,775 $1,036,163 4,255,319
========= ========= ======= ========== =========
See accompanying notes.
<CAPTION>
SERIES C
CONVERTIBLE REDEEMABLE
PREFERRED NONCONVERTIBLE
PREFERRED PREFERRED STOCK COMMON STOCK
STOCK ----------------------- ------------------
----------- NUMBER OF NUMBER OF
AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- --------- ----------- --------- ------
<S> <C>
Issuance of Common Stock, December 1992 ($.02/share)................ 44,109 $ 441
Purchase of Treasury Stock..........................................
Net loss............................................................
------ ------
Balance at December 31, 1993........................................ 44,109 441
April 1994:
Issuance of Common Stock from treasury for services................
Issuance of Series A Redeemable Convertible Preferred Stock
($1.00/share).....................................................
Issuance of Redeemable Nonconvertible Preferred Stock for
technology
($1,000/share).................................................... 9,000 $ 489,124
Issuance of Common Stock for technology ($.50/share)............... 715,025 7,150
Issuance of Series A Preferred Stock Warrants ($.01/share).........
Accretion of Redeemable Nonconvertible Preferred Stock.............. 1,110,816
Net loss............................................................
----------- ------ ---------- ------ ------
Balance at December 31, 1994........................................ 9,000 1,599,940 759,134 7,591
Cancellation of Cornell's common shares............................. (7,025) (70)
Extinguishment of Series A Preferred Warrants.......................
Conversion of options to common shares.............................. 11,197 112
Accretion of Redeemable Nonconvertible Preferred Stock.............. 1,481,088
Net loss............................................................
----------- ------ ---------- ------ ------
Balance at December 31, 1995........................................ 9,000 3,081,028 763,306 7,633
Issuance of Series A Redeemable Convertible Preferred Stock in
January 1996.......................................................
Issuance of Series A Redeemable Convertible Preferred Stock in lieu
of interest in January, May and September 1996 ($1.00/share).......
Issuance of Series B Redeemable Convertible Preferred Stock in lieu
of interest in September 1996 ($1.50/share)........................
Conversion of Senior Secured Convertible Note to Series B Redeemable
Convertible Preferred Stock in September 1996 ($1.50/share)........
Conversion of Redeemable Convertible Senior Secured Convertible Note
to Series A Redeemable Convertible Preferred Stock in September
1996 ($1.00/share).................................................
Accretion of Redeemable Nonconvertible Preferred Stock.............. 999,734
Issuance of Series C Redeemable Convertible Preferred Stock in
September 1996 ($2.35/share)....................................... $ 2,000,000
Conversion of Redeemable Nonconvertible Preferred Stock to Series C
Redeemable Convertible Preferred Stock in September 1996
($2.35/share)...................................................... 8,000,000 (9,000) (4,080,762)
Conversion of Series A Redeemable Convertible Warrants to Series A
Preferred Stock in September 1996 ($.02/share).....................
Exercise of stock options........................................... 16,075 160
Grant of stock options..............................................
Amortization of deferred compensation expense.......................
Net loss............................................................
----------- ------ ---------- ------ ------
Balance at December 31, 1996........................................ $10,000,000 -- $ -- 779,381 $7,793
=========== ====== ========== ====== ======
See accompanying notes.
<CAPTION>
CUMULATIVE
ACCRETION OF
SERIES A PREFERRED DIVIDEND ON
STOCK WARRANTS REDEEMABLE
--------------------- ADDITIONAL NONCONVERTIBLE
NUMBER OF PAID-IN PREFERRED
WARRANTS AMOUNT CAPITAL STOCK
---------- -------- ---------- --------------
Issuance of Common Stock, December 1992 ($.02/share)................ $ (436)
Purchase of Treasury Stock..........................................
Net loss............................................................
--------
Balance at December 31, 1993........................................ (436)
April 1994:
Issuance of Common Stock from treasury for services................
Issuance of Series A Redeemable Convertible Preferred Stock
($1.00/share).....................................................
Issuance of Redeemable Nonconvertible Preferred Stock for
technology
($1,000/share)....................................................
Issuance of Common Stock for technology ($.50/share)............... 350,363
Issuance of Series A Preferred Stock Warrants ($.01/share)......... 1,625,000 $ 16,250
Accretion of Redeemable Nonconvertible Preferred Stock.............. $ (472,500)
Net loss............................................................
--------- ------- -------- -----------
Balance at December 31, 1994........................................ 1,625,000 16,250 349,927 (472,500)
Cancellation of Cornell's common shares............................. (3,442)
Extinguishment of Series A Preferred Warrants....................... (250,000) (2,500) 2,500
Conversion of options to common shares.............................. 5,486
Accretion of Redeemable Nonconvertible Preferred Stock.............. (630,000)
Net loss............................................................
--------- ------- -------- -----------
Balance at December 31, 1995........................................ 1,375,000 13,750 354,471 (1,102,500)
Issuance of Series A Redeemable Convertible Preferred Stock in
January 1996.......................................................
Issuance of Series A Redeemable Convertible Preferred Stock in lieu
of interest in January, May and September 1996 ($1.00/share).......
Issuance of Series B Redeemable Convertible Preferred Stock in lieu
of interest in September 1996 ($1.50/share)........................
Conversion of Senior Secured Convertible Note to Series B Redeemable
Convertible Preferred Stock in September 1996 ($1.50/share)........
Conversion of Redeemable Convertible Senior Secured Convertible Note
to Series A Redeemable Convertible Preferred Stock in September
1996 ($1.00/share).................................................
Accretion of Redeemable Nonconvertible Preferred Stock.............. (425,250)
Issuance of Series C Redeemable Convertible Preferred Stock in
September 1996 ($2.35/share).......................................
Conversion of Redeemable Nonconvertible Preferred Stock to Series C
Redeemable Convertible Preferred Stock in September 1996
($2.35/share)...................................................... 1,527,750
Conversion of Series A Redeemable Convertible Warrants to Series A
Preferred Stock in September 1996 ($.02/share)..................... (1,375,000) (13,750)
Exercise of stock options........................................... 7,877
Grant of stock options.............................................. 1,091,500
Amortization of deferred compensation expense.......................
Net loss............................................................
--------- ------- -------- -----------
Balance at December 31, 1996........................................ -- $ -- $1,453,848 $ --
========= ======= ======== ===========
See accompanying notes.
<CAPTION>
CUMULATIVE
ACCRETION OF
LIQUIDATION
PREFERENCE ON DEFICIT TREASURY
REDEEMABLE ACCUMULATED STOCK
NONCONVERTIBLE DURING ---------
PREFERRED DEFERRED DEVELOPMENT NUMBER OF
STOCK COMPENSATION STAGE SHARES
-------------- ------------ ------------ ---------
Issuance of Common Stock, December 1992 ($.02/share)................
Purchase of Treasury Stock.......................................... 4,959
Net loss............................................................ $ (28,274)
------------ -------
Balance at December 31, 1993........................................ (28,274) 4,959
April 1994:
Issuance of Common Stock from treasury for services................ (4,959)
Issuance of Series A Redeemable Convertible Preferred Stock
($1.00/share).....................................................
Issuance of Redeemable Nonconvertible Preferred Stock for
technology
($1,000/share)....................................................
Issuance of Common Stock for technology ($.50/share)...............
Issuance of Series A Preferred Stock Warrants ($.01/share).........
Accretion of Redeemable Nonconvertible Preferred Stock.............. $ (638,316)
Net loss............................................................ (3,602,892)
----------- --------- ------------ -------
Balance at December 31, 1994........................................ (638,316) (3,631,166)
Cancellation of Cornell's common shares.............................
Extinguishment of Series A Preferred Warrants.......................
Conversion of options to common shares..............................
Accretion of Redeemable Nonconvertible Preferred Stock.............. (851,088)
Net loss............................................................ (4,449,987)
----------- --------- ------------ -------
Balance at December 31, 1995........................................ (1,489,404) (8,081,153) --
Issuance of Series A Redeemable Convertible Preferred Stock in
January 1996.......................................................
Issuance of Series A Redeemable Convertible Preferred Stock in lieu
of interest in January, May and September 1996 ($1.00/share).......
Issuance of Series B Redeemable Convertible Preferred Stock in lieu
of interest in September 1996 ($1.50/share)........................
Conversion of Senior Secured Convertible Note to Series B Redeemable
Convertible Preferred Stock in September 1996 ($1.50/share)........
Conversion of Redeemable Convertible Senior Secured Convertible Note
to Series A Redeemable Convertible Preferred Stock in September
1996 ($1.00/share).................................................
Accretion of Redeemable Nonconvertible Preferred Stock.............. (574,484)
Issuance of Series C Redeemable Convertible Preferred Stock in
September 1996 ($2.35/share).......................................
Conversion of Redeemable Nonconvertible Preferred Stock to Series C
Redeemable Convertible Preferred Stock in September 1996
($2.35/share)...................................................... 2,063,888 (7,510,876)
Conversion of Series A Redeemable Convertible Warrants to Series A
Preferred Stock in September 1996 ($.02/share).....................
Exercise of stock options...........................................
Grant of stock options.............................................. $(1,091,500)
Amortization of deferred compensation expense....................... 113,698
Net loss............................................................ (4,126,930)
----------- --------- ------------ -------
Balance at December 31, 1996........................................ $ -- $ (977,802) $(19,718,959) --
=========== ========= ============ =======
See accompanying notes.
<CAPTION>
TREASURY
STOCK
--------
AMOUNT
--------
Issuance of Common Stock, December 1992 ($.02/share)................
Purchase of Treasury Stock.......................................... $ (2)
Net loss............................................................
----
Balance at December 31, 1993........................................ (2)
April 1994:
Issuance of Common Stock from treasury for services................ 2
Issuance of Series A Redeemable Convertible Preferred Stock
($1.00/share).....................................................
Issuance of Redeemable Nonconvertible Preferred Stock for
technology
($1,000/share)....................................................
Issuance of Common Stock for technology ($.50/share)...............
Issuance of Series A Preferred Stock Warrants ($.01/share).........
Accretion of Redeemable Nonconvertible Preferred Stock..............
Net loss............................................................
----
Balance at December 31, 1994........................................
Cancellation of Cornell's common shares.............................
Extinguishment of Series A Preferred Warrants.......................
Conversion of options to common shares..............................
Accretion of Redeemable Nonconvertible Preferred Stock..............
Net loss............................................................
----
Balance at December 31, 1995........................................ --
Issuance of Series A Redeemable Convertible Preferred Stock in
January 1996.......................................................
Issuance of Series A Redeemable Convertible Preferred Stock in lieu
of interest in January, May and September 1996 ($1.00/share).......
Issuance of Series B Redeemable Convertible Preferred Stock in lieu
of interest in September 1996 ($1.50/share)........................
Conversion of Senior Secured Convertible Note to Series B Redeemable
Convertible Preferred Stock in September 1996 ($1.50/share)........
Conversion of Redeemable Convertible Senior Secured Convertible Note
to Series A Redeemable Convertible Preferred Stock in September
1996 ($1.00/share).................................................
Accretion of Redeemable Nonconvertible Preferred Stock..............
Issuance of Series C Redeemable Convertible Preferred Stock in
September 1996 ($2.35/share).......................................
Conversion of Redeemable Nonconvertible Preferred Stock to Series C
Redeemable Convertible Preferred Stock in September 1996
($2.35/share)......................................................
Conversion of Series A Redeemable Convertible Warrants to Series A
Preferred Stock in September 1996 ($.02/share).....................
Exercise of stock options...........................................
Grant of stock options..............................................
Amortization of deferred compensation expense.......................
Net loss............................................................
----
Balance at December 31, 1996........................................ $ --
====
See accompanying notes.
</TABLE>
F-5
<PAGE> 65
TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1993
DECEMBER 31, (COMMENCEMENT
--------------------------------------- OF OPERATIONS) TO
1996 1995 1994 DECEMBER 31, 1996
----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................... $(4,126,930) $(4,449,987) $(3,602,892) $ (12,208,083)
Adjustments to reconcile net loss to
cash provided by operating
activities:
Depreciation........................ 13,230 10,107 8,290 33,814
Amortization........................ 54,219 54,219 40,664 149,102
Issuance of Preferred Stock in lieu
of interest payments.............. 532,601 532,601
Amortization of deferred
compensation expense.............. 113,698 113,698
Loss on sale of property and
equipment......................... 5,408 5,408
Forgiveness of loan due to related
party............................. 304,446 304,446
Change in operating assets and
liabilities:
Prepaid expenses and other current
assets......................... (1,297) 161,689 (193,309) (39,579)
Other assets...................... 13,272 3,513 (50,086) (37,815)
Accounts payable and accrued
expenses....................... 145,664 83,811 233,014 549,993
Interest payable to related
party.......................... (177,534) 142,578 (13,208)
----------- ----------- ----------- ------------
Net cash used in operating
activities.......................... (3,433,077) (3,988,662) (3,273,081) (10,596,415)
INVESTING ACTIVITIES
Purchase of equipment and
improvements........................ (7,417) (29,013) (17,823) (86,877)
Proceeds from sale of equipment........ 784 764 1,548
----------- ----------- ----------- ------------
Net cash used in investing
activities.......................... (6,633) (28,249) (17,823) (85,329)
FINANCING ACTIVITIES
Proceeds from issuance of debt......... 1,000,000 2,000,000 170,000 3,170,000
Payment on note payable to related
party............................... (170,000) (170,000)
Offering costs......................... (335,006) (335,006)
Issuance of Series A Preferred Stock
Warrants............................ 16,250 16,250
Issuance of Series A Redeemable
Convertible Preferred Stock......... 130,000 6,500,000 6,630,000
Issuance of Series C Redeemable
Convertible Preferred Stock......... 2,000,000 2,000,000
Proceeds from exercise of stock
options............................. 8,037 2,086 10,128
Purchase of Treasury Stock............. (2)
----------- ----------- ----------- ------------
Net cash provided by financing
activities.......................... 2,803,031 1,832,086 6,686,250 11,321,370
----------- ----------- ----------- ------------
Increase (decrease) in cash and cash
equivalents............................ (636,679) (2,184,825) 3,395,346 639,626
Cash and cash-equivalents at beginning of
period................................. 1,276,305 3,461,130 65,784
----------- ----------- ----------- ------------
Cash and cash-equivalents at end of
period................................. $ 639,626 $ 1,276,305 $ 3,461,130 $ 639,626
=========== =========== =========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 66
TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. BASIS OF PRESENTATION
COMPANY
Transcend Therapeutics, Inc. (the "Company") was incorporated on December
23, 1992, and began operations in January 1993. The Company is a
development-stage enterprise, as defined in Statement of Financial Accounting
Standards No. 7, and is devoting its efforts to develop novel pharmaceuticals
for the treatment of diseases caused by oxidative stress and resultant tissue
damage, with a particular therapeutic focus on critical care. In 1997, the
Company plans to begin a pivotal Phase III clinical trial of its lead product
candidate, Procysteine(R) , to determine its safety and efficacy in the
treatment of acute respiratory distress syndrome ("ARDS").
GOING CONCERN
The financial statements have been prepared on a going-concern basis. For
the current year ended, the Company recorded a net loss of $4,126,930, as funds
were primarily expended by the Company on the ongoing Procysteine(R) clinical
development program for the treatment of ARDS. At December 31, 1996, the Company
had a net capital deficiency and has not and will not achieve sufficient revenue
to support future operations without additional financing. Management believes
that to continue as a going concern, the Company will require additional funding
to complete both its clinical development program and, ultimately, the marketing
of its products.
Management is proceeding with plans to secure new funds for the ongoing
clinical development of Procysteine(R) through: (1) funding provided by a
worldwide collaboration with a pharmaceutical marketing partner for intravenous
Procysteine(R); and (2) a $1 million private financing by existing corporate and
venture capital shareholders of the Company; and (3) an initial public offering
of the Company's Common Stock in 1997. The 1996 financial statements do not
include any adjustments for the planned new fundraising.
RECAPITALIZATION
In August 1996, the Company's Board of Directors approved a one-for-five
reverse stock split of its Common Stock. There was a delay in filing the
necessary amendments to the Company's charter and the split was not effective
until February 1997. All common share and per share amounts have been adjusted
retroactively to reflect the stock split.
On April 5, 1994, the Company completed a recapitalization in which
25,000,000 shares of common stock, 8,125,000 shares of Series A Redeemable
Convertible Preferred Stock, 9,000 shares of Redeemable Nonconvertible Preferred
Stock and 1,625,000 warrants to purchase 1,625,000 shares of Series A Redeemable
Convertible Preferred Stock were authorized. All previously issued and
outstanding shares of common stock were exchanged and reissued for 44,109 shares
of common stock, effected in the form of a stock dividend. The accompanying
financial statements reflect the recapitalization and, accordingly, all
financial statements have been restated on a retroactive basis for all periods
presented.
CONTRACT RESEARCH FEE
During the year ended December 31, 1993, the Company received a one-time
contract research fee of $6,095,400 from Clintec Nutrition Company ("Clintec"),
a joint venture of Baxter Healthcare Corporation ("Baxter") and Nestle SA
("Nestle"), for various research and development services. Upon the closing of
the first venture capital financing of $6,500,000 on April 5, 1994, the Company
F-7
<PAGE> 67
TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
acquired Procysteine(R) and related technologies from Clintec in exchange for
680,000 shares of Common Stock and 9,000 shares of Redeemable Nonconvertible
Preferred Stock (see Note 6).
2. SIGNIFICANT ACCOUNTING POLICIES
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all investments with an original maturity of three
months or less on their acquisition date to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the related assets. The
cost and accumulated depreciation of property and equipment at December 31 are
as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Furniture and equipment.................................. $75,651 $69,020
Less accumulated depreciation............................ 29,543 16,314
-------- --------
Furniture and equipment, net............................. $46,108 $52,706
======== ========
</TABLE>
INTANGIBLE ASSETS
Acquired patents and licenses are recorded at cost and amortized using the
straight-line method over the estimated useful lives of the related assets,
subject to the maximum legal life of the patents and/or licenses. The costs of
internally generated patents or patent applications are expensed in the period
incurred as research and development expenses.
FAIR VALUE OF FINANCIAL INSTRUMENTS
In 1996, the Company adopted SFAS No. 107, "Disclosures about the Fair
Value of Financial Instruments," which requires the disclosure of the fair value
of financial instruments. At December 31, 1996, the Company's financial
instruments consist of cash and cash equivalents, accounts payable and accrued
expenses, and mandatorily redeemable preferred stock. Fair value of issued
equity instruments is based upon negotiated prices and includes cash and the
fair value of other consideration received.
MANDATORY REDEEMABLE PREFERRED STOCK
Mandatorily redeemable preferred stock is recorded upon issuance at fair
value, net of issuance costs, and periodically accreted to redemption value
using the interest method.
F-8
<PAGE> 68
TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
Research and development contract revenue is recognized as earned and
represents, in 1993, reimbursement of the Company's expenditures pursuant to the
terms of an agreement with Clintec Nutrition Company whereby the Company was
reimbursed $6,095,000 for expenditures it incurred.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" (APB 25) in accounting for its
stock-based compensation plans, rather than the alternative fair value
accounting method provided for under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation." Under APB 25, when the
exercise price of options granted under these plans equals the market price of
the underlying stock on the date of grant, no compensation expense is required.
PRO FORMA NET LOSS PER COMMON SHARE (UNAUDITED)
Pro forma net loss per common share is computed using the weighted average
number of common shares, convertible preferred shares assuming conversion at
date of issuance and dilutive equivalent shares from stock options and warrants
using the treasury stock method. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin No. 83, shares and equivalent shares issued
by the Company at prices below the assumed public offering price during the
twelve-month period prior to the proposed offering have been included in the
calculation as if they were outstanding for all periods presented (using the
treasury stock method and using the assumed midpoint of the initial public
offering price range.) Historical loss per share has not been presented since
such amounts are not deemed meaningful.
The accretion of Redeemable Nonconvertible Preferred Stock is added to the
Company's net loss in order to arrive at net loss available to common
stockholders in the calculation of net loss per common share.
3. ACCRUED LIABILITIES
Included in accounts payable and accrued expenses were the following
accrued expenses at December 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accrued vacation....................................... $ 53,000 $ 33,000
Accrued clinical costs................................. 58,000 177,000
Accrued other.......................................... 64,000 98,000
Accrued offering costs................................. 105,000
Accrued patent costs................................... 20,000
-------- --------
Total accrued expenses....................... $300,000 $308,000
======== ========
</TABLE>
4. SENIOR SECURED CONVERTIBLE NOTES
On September 13, 1995, the Company sold Series A Notes in the aggregate
principal amount of $2,000,000 to certain institutional investors. Subsequently,
on May 29, 1996, the Company issued Series B Convertible Notes in the aggregate
principal amount of $1,000,000 to certain institutional investors. The Series A
Notes were convertible into shares of Series A Preferred Stock at one share per
$5.00 of
F-9
<PAGE> 69
TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
principal outstanding. The Series B Notes were convertible into shares of Series
B Preferred stock at one share per $7.50 of principal outstanding.
Prior to conversion, each note was to mature on January 15, 1997, bearing
interest of 30% per annum, payable every four months beginning January 13, 1996.
Interest payments were made in the form of Series A and B Convertible Preferred
Stock. All principal and accrued interest were converted into shares of Series A
and B Convertible Preferred Stock upon the closing of the issuance of the Series
C Convertible Preferred Stock as described in Note 6.
5. INCOME TAXES
The Company accounts for income taxes using the liability method, whereby
tax rates are applied to cumulative temporary differences based on when and how
they are expected to affect the tax return. Deferred tax assets and liabilities
are adjusted for tax rate changes.
At December 31, 1996, the Company has available net operating tax loss
carry-forwards, for both federal and Massachusetts tax purposes, of
approximately $11,900,000. These losses are available to offset future income of
the company and will expire for both federal and Massachusetts tax purposes
through the year 2011 and 2001, respectively. The utilization of these tax
losses and tax credit carry-forwards may be subject to limitation as a result of
any past or potential ownership changes as defined by Sections 382 and 383 of
the Internal Revenue Code.
In addition, the Company has approximately $400,000 and $375,000,
respectively, of federal and state research and development tax credit
carry-forwards. These credits are available, subject to limitations, to offset
future tax liabilities of the Company and will expire through 2011.
Deferred income taxes reflect the net tax effect of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Due to the Company's net
loss position, a valuation allowance for 100% of its deferred tax assets has
been established. The Company has the following deferred tax assets as of
December 31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 4,760,000 $ 3,213,346
Vacation accrual................................ 20,000 7,685
R&D tax credit.................................. 775,000 650,000
----------- -----------
Total deferred tax assets......................... 5,555,000 3,871,031
Valuation allowance............................... (5,555,000) (3,871,031)
----------- -----------
Deferred income taxes, net........................ $ -0- $ -0-
=========== ===========
</TABLE>
The net increase during 1995 and 1996 in the total valuation allowance was
$1,683,969 and $1,775,463, respectively, as a result of the unbenefitted net
loss in the respective years.
6. STOCKHOLDERS' EQUITY
COMMON STOCK
On April 5, 1994, the Company acquired a direct license from Cornell
Research Foundation ("Cornell") to the Procysteine(R) and related technologies
for the issue of 35,025 shares of Common Stock. In accordance with the same
agreement, the Company issued 680,000 shares of Common Stock to Clintec as part
consideration for the acquisition of the Procysteine(R) and related
technologies. The
F-10
<PAGE> 70
TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
technology has been recorded at the Common Stock's fair value of $.50 per share
at the time of the transaction.
The Company has reserved 2,977,485 shares of Common Stock for issuance upon
conversion of the Series A, B and C Redeemable Convertible Preferred Stock and
Common Stock Warrants, and 370,324 shares of Common Stock for issuance upon
exercise of stock options granted under the 1994 Equity Incentive Plan.
COMMON STOCK WARRANTS
On October 28, 1994, as additional consideration for the execution of the
lease on the office space, the Company issued Common Stock Warrants to purchase
5,000 shares of Common Stock, exercisable through October 28, 1999, at $5.00 per
share to the lessor.
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
During 1994, the Company sold 6,500,000 shares of Series A Redeemable
Convertible Preferred Stock ("Series A Stock") for $6,500,000. The Series A
Stock is convertible into shares of Common Stock, at a conversion price of $5.00
per share, and has a liquidation preference over the Nonconvertible Preferred
Stock and the Common Stock of up to $1.00 per share plus any accrued, but
unpaid, dividends. In addition, the Series A Stock will participate on an
as-converted basis with Common Stock in any dividends declared and in remaining
assets in liquidation. The Series A Stock is redeemable, at the option of the
holder, in certain circumstances. The holders of Series A stock are entitled to
vote at a meeting of the shareholders on an as-converted basis.
SERIES B AND C REDEEMABLE CONVERTIBLE PREFERRED STOCK
On September 3, 1996, the Company sold an aggregate of 851,064 shares of
its Series C Convertible Preferred Stock to a group of investors for $2.0
million. As part of the same transaction, the sole holder (Clintec) of 9,000
shares of the Company's Redeemable Nonconvertible Preferred Stock exchanged such
shares for 3,404,255 shares of Series C Convertible Preferred Stock. The Series
C Stock is convertible into shares of Common Stock, at a conversion price of
$11.75 per share. In addition, $3.1 million in aggregate principal amount of,
and interest on, the Series A Notes and Series B Notes were converted into an
aggregate of 2,098,631 shares of Series A Convertible Preferred Stock and
690,775 shares of Series B Convertible Preferred Stock. The notes were scheduled
to mature on January 15, 1997, bearing interest of 30% per annum (see Note 4).
The holders of Series B and C Redeemable Convertible Preferred Stock are
entitled to receive dividends and to vote at each meeting of the stockholders at
a rate equal to the amount they would have received as if the shares were
converted into comparable shares of common stock.
The Series B and C Preferred Stock are convertible into common stock of the
Company at conversion prices of $7.50 and $11.75, respectively, subject to
adjustment in certain events.
The Series B and C Preferred Stock are redeemable, at the option of the
holder, in certain circumstances and have a liquidation preference over Common
Stock holders of up to $1.50 and $2.35 per share, respectively, plus any
accrued, but unpaid dividends. The Series A, B and C Preferred Stock share
ratably in any liquidation and on an as converted basis with common stock in
remaining assets.
In addition, the Company may require all of the outstanding shares of
Preferred Stock to be converted into shares of common stock upon consummation of
a public offering for the sale of the Company's common stock at a price at the
then current conversion price, in an offering not less than $10,000,000 in
proceeds.
F-11
<PAGE> 71
TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SERIES A REDEEMABLE CONVERTIBLE PREFERRED WARRANT SHARES
In conjunction with the issuance of the Series A Redeemable Convertible
Preferred Stock, the Company sold 1,625,000 warrants to purchase Series A
Redeemable Convertible Preferred Stock at a price per share equal to the lesser
of (i) the per share purchase price of the securities issued in the next
financing round or (ii) $5.00. During 1995, 250,000 warrant shares were canceled
by the Company in accordance with the terms and conditions stipulated in the
April 4, 1994 Series A Preferred Stock Purchase Warrants agreement, as a result
of not participating in the private placement offering in September 1995 (see
Note 4).
In connection with the issuance of the Series C Convertible Preferred
Stock, the holders of the Series A Preferred Stock Warrants (Series A Warrants)
elected to surrender the Series A Warrants and receive Series A Convertible
Preferred Stock equivalent to the difference between the deemed fair market
value of the Series C Preferred Stock ($2.35/share) and the exercise price of
the Series A Warrants ($1.00/share) multiplied by the outstanding Series A
Warrants (1,375,000). The resulting aggregate fair market value of the Series A
Preferred Stock received converted into 789,983 of Series A Convertible
Preferred Stock and were issued upon the net exercise of such warrants.
REDEEMABLE NONCONVERTIBLE PREFERRED STOCK
The Company had issued 9,000 shares of Redeemable Nonconvertible Preferred
Stock to Clintec as part consideration for the acquisition of the Procysteine(R)
and related technologies at its fair value of approximately $500,000 on April 5,
1994. The Redeemable Nonconvertible Preferred Stock was redeemable, upon certain
conditions at the option of the holder, at a price of $1,000 per share plus any
unpaid dividends which accrued at a rate of $70 per share per annum. The
Redeemable Nonconvertible Preferred Stock had a liquidation preference over
Common Stock of $1,000 per share, plus any accrued, but unpaid, dividends. As
part of the September 3, 1996 financing transaction, the holders exchanged the
nonconvertible preferred stock for 3,404,255 of Series C Preferred Stock.
7. STOCK OPTION PLAN
The Company has elected to follow the Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires the use
of option valuation models that were not developed for use in valuing employee
stock options.
The Company has a 1994 Equity Incentive Plan (the Plan), as amended on
August 21, 1996, which authorizes the Board of Directors to grant stock options
to purchase up to an aggregate of 375,890 shares of Common Stock. Stock options
granted under the Plan may qualify as "incentive stock options" under Section
422 of the Internal Revenue Code. The price at which shares may be purchased
with an option shall be specified by the Board at the date the option is
granted, but in the case of an incentive stock option, shall not be less than
fair market value on the date of grant. The duration of any option shall be
specified by the Board, but no option designated as an "incentive stock option"
may be exercised beyond ten years from the date of grant. Options granted under
the Plan vest ratably over two to four years beginning after one year of
service.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for employees and members of the Board of Directors: risk free
interest rates of 5% to 7%; volatility factors of the expected market price of
the Company's common stock of .01, and a weighted-average expected life of the
option of 3 to 6 years. At this time management does not expect to pay any
dividends to shareholders during the vesting
F-12
<PAGE> 72
TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
period of the options, and therefore, has excluded such assumption from
determining fair value of the options.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because changes in the subjective input assumptions can materially
effect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
Proforma information regarding net income is required by Statement 123, and
has been determined as if the Company has accounted for employee stock options
under the fair value method of that Statement. Proforma net loss at December 31,
1996 and 1995 was $(4,180,878) and $(4,451,993), respectively. For purposes of
pro forma disclosures, the estimated fair value of the options is amortized to
expense over the option' vesting period, and is net of the amount recorded for
deferred compensation expense by the Company.
During the twelve months ended December 31, 1996, the Company issued stock
options to purchase shares of Common Stock at exercise prices ranging from $.50
to $2.50 per share. The Company recorded an increase to additional
paid-in-capital and a corresponding charge to deferred compensation in the
amount of $1,091,500 to recognize the aggregate difference between the deemed
fair market value for accounting purposes of the stock options at the date of
grant and the option exercise price. The deferred compensation is being
amortized over the option vesting period. Compensation expense of $113,698 was
recorded in the twelve months ended December 31, 1996.
A summary of the Company's Stock option transactions are summarized as
follows:
<TABLE>
<CAPTION>
OPTION
OPTIONS PRICE
OUTSTANDING PER SHARE
----------- -----------
<S> <C> <C>
Balances at December 31, 1994.............................. 203,838 $.50
Options granted.......................................... 96,600 .50
Options exercised........................................ (11,197) .50
Options forfeited........................................ (26,786) .50
-------
Balances at December 31, 1995.............................. 262,455
Options granted.......................................... 4,600 .50 - 1.50
Options granted.......................................... 126,400 2.50
Options exercised........................................ (16,075) .50
Options forfeited........................................ (7,056) .50
-------
Balances at December 31, 1996.............................. 370,324 .50 - 2.50
=======
Options exercisable at December 31, 1996................... 205,088 $.50 - 2.50
=======
</TABLE>
The weighted average grant-date fair value of options granted during the
year and exercise price was $2.46 and $.50, respectively. The weighted average
price and remaining life of the outstanding options as of December 31, 1996 is
$1.20 and 33 months, respectively. The Compensation Committee of the Board of
Directors of the Company voted on July 25, 1996 to accelerate the vesting
employee stock options granted prior to 1996 up to 24 months pursuant to a
formula based on period of employment upon the closing of an Initial Public
Offering "IPO" of the Company's Common Stock. The weighted average remaining
life does not reflect any adjustment to the options exerciseable by employees
upon an IPO.
F-13
<PAGE> 73
TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. LEASE OBLIGATIONS
The Company leases office space under a five-year operating lease, with the
option to extend for an additional five years, subject to certain rights of
first refusal held by other parties, which commenced in December 1994. The
Company also leases certain office equipment. Future minimum lease payments
under noncancelable lease agreements are as follows:
<TABLE>
<S> <C>
1997...................................................... $261,826
1998...................................................... 213,528
1999...................................................... 199,851
2000...................................................... 6,348
2001...................................................... 778
</TABLE>
Rent expense amounted to $199,381, $185,532 and $68,599 for the years ended
December 31, 1996, 1995 and 1994, respectively.
9. COMMITMENTS AND CONTINGENCIES
The Company is committed to pay minimum royalties to Cornell Research
Foundation under patent licenses of $60,000 per annum through 2000, net of
certain patent costs. In addition, the Company has an ongoing research agreement
with Cornell Medical College with $133,000 due on July 1996.
10. DEFINED CONTRIBUTION PLAN
During 1995, the Company began a defined contribution 401(k) plan which
covers substantially all employees. The plan permits participants to make
contributions from 1% to 15% of their compensation (as defined). In addition,
the Company may contribute to the plan at its discretion. The Company made no
contributions in 1996 or 1995.
11. RELATED-PARTY TRANSACTIONS
During 1995, Baxter provided various services to the Company and billed
$50,526 for the cost of those services. These services included clinical
inventory storage and recordkeeping, stability operations, particle analysis,
formulation development, quality management and laboratory services. These
arrangements were terminated during 1995 and transferred to other vendors.
During 1995, the Company repaid a note payable due to Clintec in the amount
of $170,000 for fees paid by Clintec on behalf of the Company for delivery of a
clinical data base.
On October 4, 1995, the Company reached a settlement with Cornell over a
dispute related to the abandonment by Cornell of a patent application in Japan.
The settlement provided for the cancellation of 7,025 shares of common stock
(see Note 6), change of patent attorneys and reimbursement of various costs
incurred by the Company.
During 1996, the Company paid $532,601 of interest due on the Series A and
Series B Notes, in the form of shares of Series A and Series B Preferred Stock,
to certain investors of the Company (see Note 6).
F-14
<PAGE> 74
[GRAPHIC]
<PAGE> 75
- ------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON IS AUTHORIZED IN
CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. 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 DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 7
Use of Proceeds........................... 20
Dividend Policy........................... 20
Capitalization............................ 21
Dilution.................................. 22
Selected Financial Data................... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 24
Business.................................. 27
Management................................ 40
Certain Transactions...................... 46
Principal Stockholders.................... 49
Description of Capital Stock.............. 51
Shares Eligible for Future Sale........... 54
Underwriting.............................. 56
Legal Matters............................. 57
Experts................................... 57
Additional Information.................... 57
Index to Financial Statements............. F-1
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
</TABLE>
2,000,000 SHARES
LOGO
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
Vector Securities International, Inc.
EVEREN Securities, Inc.
, 1997
- ------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
<PAGE> 76
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee and the NASD filing
fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
------------------------------------------------------------------------- --------
<S> <C>
SEC Registration Fee..................................................... $ 20,862*
NASD Filing Fee.......................................................... 7,440*
Nasdaq National Market Listing Fee....................................... 35,260
Transfer Agent and Registrar Fees........................................ 5,000
Accounting Fees and Expenses............................................. 225,000
Legal Fees and Expenses.................................................. 350,000
Printing, Engraving and Mailing Expenses................................. 170,000
Miscellaneous............................................................ 10,438
--------
Total............................................................... $824,000
========
</TABLE>
- ---------------
* Includes fee from prior filing
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VIII of the Registrant's Restated Certificate of Incorporation (the
"Restated Certificate of Incorporation") provides that no director of the
Registrant shall be personally liable for any monetary damages for any breach of
fiduciary duty as a director, except to the extent that a Delaware General
Corporation Law prohibits the elimination or limitation of liability of
directors for breach of fiduciary duty.
Article IX of the Registrant's Restated Certificate of Incorporation
provides that a director or officer of the Registrant (a) shall be indemnified
by the Registrant against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred in connection with any litigation
or other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount advanced
if it is ultimately determined that he is not entitled to indemnification for
such expenses.
Article VIII of the Registrant's Restated Certificate of Incorporation
further provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware
II-1
<PAGE> 77
General Corporation Law is amended to expand the indemnification permitted to
directors or officers the Registrant must indemnify those persons to the fullest
extent permitted by such law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
The Company also currently has in place standard director and officer
liability insurance which, subject to customary exclusions and specified limits,
insures its directors and officers against certain losses and expenses suffered
or incurred by such persons as a result of serving in such capacity.
Under Section of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed as
Exhibit 1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order below is information regarding the number
of shares of Common and Preferred Stock issued, and the number of options
granted and warrants issued, by the Registrant since its incorporation. Further
included is the consideration, if any, received by the Registrant for such
shares and options, and information relating to the section of the Securities
Act of 1933, as amended (the "Securities Act"), or rule of the Securities and
Exchange Commission under which exemption from registration was claimed. Awards
of options did not involve any sale under the Securities Act and none of these
securities was registered under the Securities Act.
1. In December 1992, the Registrant sold an aggregate of 100 shares of its
Common Stock for $.01 per share to Dr. Gary Pace and Dr. Dennis Goldberg,
founders of the Registrant.
2. In April 1994, the previously issued and outstanding shares of Common
Stock of the Registrant issued to Dr. Pace and Dr. Goldberg were exchanged for
an aggregate of 44,109 shares of its Common Stock effected in the form of a
stock dividend.
3. In April 1994, the Registrant issued 680,000 shares of its Common Stock
and 9,000 shares of its Nonconvertible Redeemable Preferred Stock to Clintec
Nutrition Company upon receipt from Clintec of its rights in Procysteine and
related pharmaceutical technologies.
4. In April 1994, as part of a license agreement with Cornell Research
Foundation ("Cornell"), the Registrant issued 35,025 shares of its Common Stock
to Cornell. On October 4, 1995, Cornell agreed to return 7,025 such shares for
cancellation in settlement of a dispute related to the abandonment by Cornell of
a patent application in Japan licensed to the Registrant under the license
agreement.
5. In April 1994, the Registrant sold an aggregate of 6,500,000 shares of
its Series A Convertible Preferred Stock to a group of investors at a purchase
price of $1.00 per share for an aggregate of $6.5 million. As part of the same
transaction, the investors also purchased from the Registrant warrants to
purchase an aggregate of 1,625,000 shares of Series A Preferred Stock for $.01
per share of Series A Preferred Stock issuable upon the exercise of such
warrants. The exercise price of the warrants was $1.00 per share.
II-2
<PAGE> 78
6. In October 1994, in connection with the Registrant's lease of office
space from the Massachusetts Institute of Technology ("MIT"), the Registrant
issued to MIT 5,000 shares of its Common Stock at an exercise price of $5.00 per
share.
7. In September 1995, the Registrant sold $2.0 million aggregate principal
amount of its Senior Secured Convertible Notes ("Series A Notes") to a group of
investors. Interest accrued on the Series A Notes at the rate of 30 percent per
annum and was payable in, and the principal amount of such notes was convertible
into, shares of Series A Convertible Preferred Stock (at one share per $1.00 of
such interest or principal).
8. In January 1994, the Registrant sold an aggregate of 130,000 shares of
Series A Preferred Stock to Jerry Jackson and Frank Douglas, directors of the
Registrant, and one former director of the Registrant, for an aggregate purchase
price of $130,000 at $1.00 per share.
9. In January 1996, the Registrant issued an aggregate of 198,903 shares of
Series A Convertible Preferred Stock to a group of investors as interest due and
payable on Series A Notes held by such investors.
10. In May 1996, the Registrant issued an aggregate of 198,903 shares of
Series A Preferred Stock to a group of investors as interest due and payable on
Series A Notes held by such investors.
11. In May 1996, the Registrant issued $1.0 million in aggregate principal
amount of notes ("Series B Notes") to the holders of Series A Notes. Interest
accrued on the Series B Notes at the rate of 30 percent per annum and was
payable in, and the principal amount of such notes was convertible into, shares
of Series B Convertible Preferred Stock (at one share per $1.50 of such interest
or principal).
12. In September 1996, the Registrant sold an aggregate of 851,064 shares
of its Series C Convertible Preferred Stock to a group of investors at a
purchase price of $2.35 per share for an aggregate of $2.0 million. As part of
the same transaction, (a) the sole holder of 9,000 shares of the Registrant's
Nonconvertible Redeemable Preferred Stock exchanged such shares for 3,404,255
shares of the Series C Convertible Preferred Stock, (b) holders of warrants to
purchase shares of Series A Convertible Preferred Stock were issued an aggregate
of 789,893 shares of Series A Convertible Preferred Stock pursuant to a net
exercise of such warrants, and (c) $3.1 million in aggregate principal amount
of, and interest on, the Series A Notes and Series B Notes were converted into
an aggregate of 2,098,631 shares of Series A Convertible Preferred Stock and
690,775 shares of Series B Convertible Preferred Stock.
13. In February 1997, the Registrant sold an aggregate of 1,039,000 shares
of Nonconvertible Redeemable Preferred Stock and warrants to purchase $346,300
of Common Stock, exercisable at the initial public offering price (26,639 shares
of Common Stock, assuming an initial public offering price of $13.00 per share),
to a group of investors, resulting in proceeds to the Company of approximately
$1.0 million. Such warrants are exercisable upon issuance and expire five years
from the date of issuance.
14. In February 1997, the Registrant agreed to sell to a corporate partner
(i) $5.0 million of Common Stock on or prior to the closing of the Offering at
the initial public offering price. Assuming an initial public offering price of
$13.00 per share, the Registrant will issue 384,615 shares of Common Stock on
the closing of this sale.
15. From April 1994 through December 31, 1996, the Registrant granted
options to purchase 433,936 shares of Common Stock at exercise prices ranging
from $.50 to $2.50.
No underwriters were engaged in connection with any of the foregoing sales
of securities. The issuance of shares of capital stock and securities in the
transactions described in paragraphs (1) through (14) above were offered and
sold in reliance upon the exemption from registration under Section 4(2) of the
Securities Act and/or Regulation D promulgated under the Securities Act, for
sales by an issuer not involving any public offering. The issuances of
securities in the transaction described in paragraph 13 above are deemed to be
exempt from registration under the Securities Act by virtue of
II-3
<PAGE> 79
Rule 701 promulgated thereunder in that they were offered and sold pursuant to
written compensatory benefits plans or pursuant to written contract relating to
compensation.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- --------------------------------------------------------------------------------
<C> <S>
1 * Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant, as amended.
3.2 Form of Second Amended and Restated Certificate of Incorporation of the
Registrant (to be filed prior to the consummation of the public offering).
3.3 Amended and Restated By-Laws of the Registrant.
4.1 * Specimen certificate for shares of Common Stock, $.01 par value, of the
Registrant.
4.2 Second Amended and Restated Registration Rights Agreement dated August 21, 1996
among the Registrant and The Venture Capital Fund of New England III, L.P.,
Advent International Investors II Limited Partnership, Advent Performance
Materials Limited Partnership, Global Private Equity II Limited Partnership,
Rovent II Limited Partnership, Paal C. Gisholt, Charles Hsu, Sprout Capital VI,
L.P., DLJ Capital Corporation, Baxter Healthcare Corporation, Clinical Nutrition
Holdings, Inc., Clintec Nutrition Company, the Massachusetts Institute of
Technology, Jerry T. Jackson, Frank L. Douglas and Richard B. Egen
(collectively, the "Holders") (the "Registration Rights Agreement").
4.3 Amendment No. 1 to the Registration Rights Agreement dated March 3, 1997 by and
among the Registrant and the Holders.
4.4 Form of Third Amended and Restrated Registration Rights Agreement among the
Company, the Holders, Boehringer Ingelheim International GmbH ("BI"), Hector
Gomez and John Whalen (to be signed on or prior to the consummation of the
public offering).
5 * Opinion of Hale and Dorr with respect to the validity of the securities being
offered.
10.1 Amended and Restated 1994 Equity Incentive Plan.
+10.2 Contribution Agreement dated April 5, 1994 by and between the Registrant and
Clintec Nutrition Company.
10.3 Non-solicitation Agreement dated April 5, 1994 between the Registrant and Baxter
Healthcare Corporation.
+10.4 License Agreement dated April 5, 1994 between the Registrant and Clintec
Nutrition Company.
+10.5 Amended and Restated Exclusive License Agreement CRF D-416 and D-052, D-913,
D-1069, D-1239, D-1258, D-1403, D-1426, dated August 12, 1996 between the
Registrant and Cornell Research Foundation, Inc.
10.6 Common Stock Purchase Warrant dated October 28, 1994 for 5,000 shares of Common
Stock issued to the Massachusetts Institute of Technology.
10.7 Lease dated October 28, 1994 between the Registrant and the Massachusetts
Institute of Technology.
10.8 Employment Agreement dated November 28, 1994 between the Registrant and Hector
J. Gomez.
10.9 Letter Agreement dated October 4, 1995 between the Registrant and Cornell
Research Foundation, Inc.
+10.10 Development and License Agreement dated February 28, 1997 between the Registrant
and BI.
10.11 Stock Purchase Agreement dated February 28, 1997 between the Registrant and BI.
</TABLE>
II-4
<PAGE> 80
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- --------------------------------------------------------------------------------
<C> <S>
10.12 Non-Convertible Preferred Stock and Warrant Purchase Agreement dated March 3,
1997 among the Company and the Purchasers (as defined therein)
23.1 * Consent of Hale and Dorr LLP (included in Exhibit 5).
23.2 Consent of Pennie & Edmonds LLP.
23.3 Consent of Ernst & Young LLP.
24 Powers of Attorney (included on page II-6).
27 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions
are omitted and filed separately with the Commission.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not required or because
the required information is given in the Financial Statements or Notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to 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
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, 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 Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the 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.
(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-5
<PAGE> 81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cambridge,
Commonwealth of Massachusetts, on this 4th day of March, 1997.
TRANSCEND THERAPEUTICS, INC.
By: /s/ HECTOR J. GOMEZ
------------------------------------
Hector J. Gomez, M.D., Ph.D.,
President and Chief Executive
Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Transcend Therapeutics, Inc.,
hereby severally constitute and appoint Hector J. Gomez, B. Nicholas Harvey and
Steven D. Singer, and each of them singly, our true and lawful attorneys with
full power to them, and each of them singly, to sign for us and in our names in
the capacities indicated below, the Registration Statement on Form S-1 filed
herewith and any and all pre-effective and post-effective amendments to said
Registration Statement (or any other registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act), and generally to do all such things in our names and on our
behalf in our capacities as officers and directors to enable Transcend
Therapeutics, Inc. to comply with the provisions of the Securities Act of 1933,
as amended, and all requirements of the Securities and Exchange Commission,
hereby ratifying and confirming our signatures as they may be signed by our said
attorneys, or any of them, to said Registration Statement and any and all
amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------- ---------------
<C> <S> <C>
/s/ HECTOR J. GOMEZ President, Chief Executive March 4, 1997
- ------------------------------------------ Officer and Director (Principal
Hector J. Gomez, M.D., Ph.D. Executive Officer)
/s/ B. NICHOLAS HARVEY Vice President, Finance and Chief March 4, 1997
- ------------------------------------------ Financial Officer (Principal
B. Nicholas Harvey Financial and Accounting Officer)
/s/ JERRY T. JACKSON Chairman of the Board of March 4, 1997
- ------------------------------------------ Directors
Jerry T. Jackson
/s/ PHILIPPE CHAMBON Director March 4, 1997
- ------------------------------------------
Philippe Chambon, M.D., Ph.D.
/s/ FRANK L. DOUGLAS Director March 4, 1997
- ------------------------------------------
Frank L. Douglas, M.D., Ph.D.
/s/ RICHARD W. HUNT Director March 4, 1997
- ------------------------------------------
Richard W. Hunt
/s/ WILLIAM C. MILLS III Director March 4, 1997
- ------------------------------------------
William C. Mills III
/s/ GERARD M. MOUFFLET Director March 4, 1997
- ------------------------------------------
Gerard M. Moufflet
</TABLE>
II-6
<PAGE> 82
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGES
-------- -------------------------------------------------------------------- ------------
<S> <C> <C>
1* Form of Underwriting Agreement. ....................................
3.1 Restated Certificate of Incorporation of the Registrant, as
amended. ...........................................................
3.2 Form of Second Amended and Restated Certificate of Incorporation of
the Registrant (to be filed prior to the consummation of the public
offering). .........................................................
3.3 Amended and Restated By-Laws of the Registrant. ....................
4.1* Specimen certificate for shares of Common Stock, $.01 par value, of
the Registrant. ....................................................
4.2 Second Amended and Restated Registration Rights Agreement dated
August 21, 1996 among the Registrant and The Venture Capital Fund of
New England III, L.P., Advent International Investors II Limited
Partnership, Advent Performance Materials Limited Partnership,
Global Private Equity II Limited Partnership, Rovent II Limited
Partnership, Paal C. Gisholt, Charles Hsu, Sprout Capital VI, L.P.,
DLJ Capital Corporation, Baxter Healthcare Corporation, Clinical
Nutrition Holdings, Inc., Clintec Nutrition Company, the
Massachusetts Institute of Technology, Jerry T. Jackson, Frank L.
Douglas and Richard B. Egen (collectively, the "Holders") (the
"Registration Rights Agreement"). ..................................
4.3 Amendment No. 1 to the Registration Rights Agreement dated March 3,
1997 by and among the Registrant and the Holders. ..................
4.4 Form of Third Amended and Restrated Registration Rights Agreement
among the Company, the Holders, Boehringer Ingelheim International
GmbH ("BI"), Hector Gomez and John Whalen (to be signed on or prior
to the consummation of the public offering). .......................
5 * Opinion of Hale and Dorr with respect to the validity of the
securities being offered. ..........................................
10.1 Amended and Restated 1994 Equity Incentive Plan. ...................
+10.2 Contribution Agreement dated April 5, 1994 by and between the
Registrant and Clintec Nutrition Company. ..........................
10.3 Non-solicitation Agreement dated April 5, 1994 between the
Registrant and Baxter Healthcare Corporation. ......................
+10.4 License Agreement dated April 5, 1994 between the Registrant and
Clintec Nutrition Company. .........................................
+10.5 Amended and Restated Exclusive License Agreement CRF D-416 and
D-052, D-913, D-1069, D-1239, D-1258, D-1403, D-1426, dated August
12, 1996 between the Registrant and Cornell Research Foundation,
Inc. ...............................................................
10.6 Common Stock Purchase Warrant dated October 28, 1994 for 5,000
shares of Common Stock issued to the Massachusetts Institute of
Technology. ........................................................
10.7 Lease dated October 28, 1994 between the Registrant and the
Massachusetts Institute of Technology. .............................
10.8 Employment Agreement dated November 28, 1994 between the Registrant
and Hector J. Gomez. ...............................................
10.9 Letter Agreement dated October 4, 1995 between the Registrant and
Cornell Research Foundation, Inc. ..................................
</TABLE>
<PAGE> 83
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGES
-------- -------------------------------------------------------------------- ------------
<S> <C> <C>
+10.10 Development and License Agreement dated February 28, 1997 between
the Registrant and BI. .............................................
10.11 Stock Purchase Agreement dated February 28, 1997 between the
Registrant and BI. .................................................
10.12 Non-Convertible Preferred Stock and Warrant Purchase Agreement dated
March 3, 1997 among the Company and the Purchasers (as defined
therein)............................................................
23.1* Consent of Hale and Dorr LLP (included in Exhibit 5). ..............
23.2 Consent of Pennie & Edmonds LLP ....................................
23.3 Consent of Ernst & Young LLP. ......................................
24 Powers of Attorney (included on page II-6). ........................
27 Financial Data Schedule ............................................
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions
are omitted and filed separately with the Commission.
<PAGE> 1
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
FREE RADICAL SCIENCES, INC.
Incorporated pursuant to an original Certificate of Incorporation
filed with the Secretary of State on December 23, 1992.
The undersigned, for the purpose of amending and restating the Certificate
of Incorporation of Free Radical Sciences, Inc. (the "Corporation") under the
laws of the State of Delaware, hereby certifies as follows:
FIRST: The name of the Corporation is Free Radical Sciences, Inc.
SECOND: The address of the Corporation's registered office in the State of
Delaware is 32 Loockerman Square, Suite L-100, Dover, Delaware 19901, Kent
County. The name of the registered agent at such address is The Prentice-Hall
Corporation System, Inc.
THIRD: The nature of the business or the purposes to be conducted or
promoted are to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
FOURTH: The total number and classes of shares of capital stock that the
Corporation shall have authority to issue is as follows: (i) 25,000,000 shares
of Common Stock, par value $0.01 per share ("Common Stock") and (ii) 8,134,000
shares of Preferred Stock, par value $0.01 per share ("Preferred Stock").
The following is a statement of the designation and the powers, privileges
and rights, and the qualifications, limitations of restrictions thereof in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK
------------
1. GENERAL. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
<PAGE> 2
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
3. Dividends.
---------
(a) Dividends may be declared and paid on the Common Stock from funds
lawfully available therefor as and when determined by the Board of Directors,
provided, however, that (i) the declaration and payment of any such dividends
shall be subject to any preferential dividend rights of any then outstanding
Preferred Stock, (ii) no dividends shall be declared and paid on the Common
Stock unless there is at the same time a dividend declared and paid on each
share of Series A Preferred Stock in an amount equal to the dividends declared
and paid on the number of whole shares of Common Stock into which such shares is
convertible (as adjusted from time to time pursuant to Section 5 hereof), and
(iii) there shall not be declared or paid any dividends or distributions (as
defined below) on shares of Common Stock without the approval of the holders of
at least 75% of the shares of Series A Preferred Stock then outstanding.
(b) For purposes of this Section 3, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation pursuant
to agreements providing for such repurchase upon a right of first refusal,
restricted stock agreement or other similar agreement, and other than
redemptions in liquidation or dissolution of the Corporation) for cash or
property, including any such transfer, purchase or redemption by a subsidiary of
this Corporation.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
5. SPECIAL VOTES. The number of authorized shares of Common Stock may be
increased or decreased (but not below the number of shares then outstanding) by
the affirmative vote of the holders of 75% of the then outstanding shares of the
Common Stock and Series A Preferred Stock (as defined below), voting as a single
class.
-2-
<PAGE> 3
B. PREFERRED STOCK.
---------------
1. Designation.
-----------
(a) Eight million, one hundred and twenty-five thousand (8,125,000)
shares of the authorized and unissued Preferred Stock of the Corporation are
hereby designated "Series A Convertible Preferred Stock" (the "Series A
Preferred Stock") with the rights, preferences, powers, privileges and
restrictions, qualifications and limitations set forth below.
(b) Nine thousand (9,000) shares of the authorized and unissued
Preferred Stock of the Corporation are hereby designated "Non-Convertible
Preferred Stock" (the "Non-Convertible Preferred Stock") with the rights,
preferences, powers, privileges and restrictions, qualifications and limitations
set forth below.
2. Dividends.
---------
(a) The holders of the Series A Preferred Stock shall be entitled to
receive, out of any funds legally available therefor, dividends in an amount per
share equal to the dividends declared and paid on the number of whole shares of
Common Stock into which a shares of Series A Preferred Stock is convertible (as
adjusted from time to time pursuant to Section 5 hereof).
(b) The holders of the Non-Convertible Preferred Stock shall be
entitled to receive, out of any funds legally available therefor, cumulative
dividends at an annual rate of $70.00 per share. Dividends shall be cumulative
and shall accrue, whether or not declared, from and after the date of issuance.
3. Liquidation, Dissolution and Winding Up.
---------------------------------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, before any
payment shall be made to the holders of Non-Convertible Preferred Stock or
Common Stock by reason of their ownership thereof, an amount equal to $1.00 per
share (subject to appropriate adjustment in the event of any stock dividend,
stock split, combination or other similar recapitalization affecting such
shares), plus any dividends declared but unpaid thereon. If upon any such
liquidation, dissolution or winding up of the Corporation the remaining assets
of the Corporation available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Series A Preferred Stock the full
amount to which they shall be entitled, the holders of shares of Series A
Preferred Stock shall share
-3-
<PAGE> 4
ratably in any distribution of the remaining assets and funds of the Corporation
in proportion to the respective amount which would otherwise be payable in
respect of the shares held by them upon such distribution if all amounts payable
on or with respect to such shares were paid in full.
(b) After the payment of all preferential amounts required to be paid
to the holders of Series A Preferred Stock, upon the dissolution, liquidation or
winding up of the Corporation, the holders of shares of Non-Convertible
Preferred Stock then outstanding shall be entitled, by reason of their ownership
thereof, to receive an amount equal to $1,000.00 per share (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), plus any
dividends declared or accrued but unpaid thereon. If upon any such liquidation,
dissolution or winding up of the Corporation, the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Non-Convertible Preferred Stock the full amount
to which they shall be entitled, the holders of shares of Non-Convertible
Preferred Stock shall share ratably in any distribution of the remaining assets
and funds of the Corporation in proportion to the respective amounts which would
otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
(c) After the payment of all preferential amounts required to be paid
to the holders of Series A Preferred Stock and Non-Convertible Preferred stock,
upon the dissolution, liquidation or winding up of the Corporation, subject to
paragraph (d) of this Section 3 below, the remaining assets and funds of the
Corporation available for distribution to its stockholders shall be distributed
among the holders of shares of Series A Preferred Stock and Common Stock held by
each (assuming conversion into Common Stock of all such shares).
(d) In the event of any merger or consolidation of the Corporation
into or with another corporation (except one in which the holders of capital
stock of the Corporation immediately prior to such merger or consolidation
continue to hold greater than 50% by voting power of the capital stock of the
surviving corporation), or the sale of all or substantially all of the assets of
the Corporation, such merger, consolidation or asset sale shall be deemed to be
a liquidation of the Corporation. In the event of such merger, consolidation or
asset sale, each holder of Series A Preferred Stock shall receive such holder's
preference pursuant to the terms of Paragraph (a) of this Section 3 and to
participate with the holders of Common Stock pursuant to Paragraph (c) of this
Section 3, up to a cap of total proceeds
-4-
<PAGE> 5
from the liquidation of $3.00 per share in 1994, or $4.00 per share in
subsequent years; provided, however, that each holder of Series A Preferred
Stock shall have the right to elect to participate in the transaction pursuant
to the provisions of Subsection 5(i) hereof in lieu of receiving such holder's
preference and participating up to a cap. The amount deemed distributed to the
holders of Series A Preferred Stock upon any such merger or consolidation shall
be cash or the value of the property, rights or securities distributed to such
holders by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined in good faith by the
Board of Directors of the Corporation.
4. Voting.
------
(a) Each holder of outstanding shares of Series A Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which the shares of Series A Preferred Stock held by such
holder are convertible (as adjusted from time to time pursuant to Section 5
hereof), at each meeting of stockholders of the Corporation (and written actions
of stockholders in lieu of meetings) with respect to any and all matters
presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law or as otherwise set forth herein,
holders of Series A Preferred Stock shall vote together with the holders of
Common Stock as a single class.
(b) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Series A Preferred Stock so as to affect
adversely the Series A Preferred Stock, without the written consent or
affirmative vote of the holders of 75% of the then outstanding shares of Series
A Preferred Stock, given in writing or by vote at a meeting, consenting or
voting (as the case may be) separately as a class. For this purpose, without
limiting the generality of the foregoing, the authorization or issuance of any
series of Series A Preferred Stock with preference or priority over the Series A
Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely the Series A Preferred Stock, and the
authorization or issuance of any series of Series A Preferred Stock on a parity
with Series A Preferred Stock as to the right to receive either dividends or
amounts distributable upon liquidation, dissolution or winding up of the
Corporation shall not be deemed to affect adversely the Series A Preferred
Stock. The number of authorized shares of Series A Preferred Stock may be
increased or decreased (but not below the number of shares then outstanding) by
the affirmative
-5-
<PAGE> 6
vote of the holders of 75% of the then outstanding shares of Series A Preferred
Stock, voting as a single class.
(c) Except as provided by law, the Non-Convertible Preferred Stock
shall have no voting rights.
5. OPTIONAL CONVERSION. The holders of the Series A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, into such number of fully paid and nonassessable shares of Common Stock as
is determined by dividing $1.00 by the Conversion Price (as defined below) in
effect at the time of conversion. The conversion price at which shares of Common
stock shall be deliverable upon conversion of Series A Preferred Stock without
the payment of additional consideration by the holder thereof (the "Conversion
Price") shall initially be $1.00. Such initial Conversion Price, and the rate at
which shares of Series A Preferred Stock may be converted into shares of Common
Stock, shall be subject to adjustment as provided below.
In the event of a notice of redemption of any shares of Series A Preferred
Stock pursuant to Section 7 hereof, the Conversion Rights of the shares
designated for redemption shall terminate at the close of business on the fifth
full day preceding the date fixed for redemption, unless the redemption price is
not paid when due, in which case the Conversion Rights for such shares shall
continue until such price is paid in full. In the event of a liquidation,
dissolution or winding up of the Corporation, the Conversion Rights shall
terminate at the close of business on the fifth full day preceding the date
fixed for the payment of any amounts distributable on liquidation, dissolution
or winding up to the holders of Series A Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
applicable Conversion Price.
(c) MECHANICS OF CONVERSION.
-----------------------
(i) In order for a holder of Series A Preferred Stock to convert
shares of Series A Preferred Stock into shares of Common Stock, such holder
shall surrender the certificate or certificates for such shares of Series A
Preferred Stock, at the office of the transfer agent for the Series A Preferred
Stock (or
-6-
<PAGE> 7
at the principal office of the Corporation if the Corporation serves as its own
transfer agent), together with written notice that such holder elects to convert
all or any number of the shares of the Series A Preferred Stock represented by
such certificate or certificates. Such notice shall state such holder's name or
the names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series A
Preferred Stock, or to his or its nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share, and all declared but
unpaid dividends.
(ii) The Corporation shall at all times when the Series A
Preferred Stock is outstanding, reserve and keep available out of its authorized
but unissued stock, for the purpose of effecting the conversion of the Series A
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Series A Preferred Stock. Before taking any action which would cause
an adjustment reducing the Conversion Price below the then par value of the
shares of Common Stock issuable upon conversion of the Series A Preferred Stock,
the Corporation will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of Common Stock at such adjusted
Conversion Price.
(iii) Upon any such conversion, no adjustment to the Conversion
Price shall be made for any declared and unpaid dividends on the Series A
Preferred Stock surrendered for conversion or on the Common Stock delivered upon
conversion, which dividends shall be paid in accordance with clause (iv) below.
(iv) All shares of Series A Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of
-7-
<PAGE> 8
any declared and unpaid dividends thereon. Any shares of Series A Preferred
Stock so converted shall be retired and cancelled and shall not be reissued, and
the Corporation (without the need for stockholder action) may from time to time
take such appropriate action as may be necessary to reduce the authorized Series
A Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other taxes
that may be payable in respect of any issuance or delivery of shares of Common
Stock upon conversion of shares of Series A Preferred Stock pursuant to this
Section 4. The Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of shares of Common Stock in a name other than that in which the shares of
Series A Preferred Stock so converted were registered, and no such issuance or
delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(d) ADJUSTMENTS FOR DILUTING ISSUES.
-------------------------------
(i) SPECIAL DEFINITIONs. For purposes of this Subsection 4(d),
the following definitions shall apply:
(A) OPTION shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding (i) awards granted to employees or consultants of the
Corporation pursuant to the Corporation's 1994 Equity Incentive Plan (the
"Plan") adopted by the Board of Directors, to acquire up to a maximum of
1,379,453 shares of Common Stock (subject to appropriate adjustment for any
stock dividend, stock split, combination or other similar recapitalization
affecting such shares) and (ii) warrants issued to the original holders of the
Series A Preferred Stock (the "Warrants").
(B) ORIGINAL ISSUE DATE shall mean the date on which a share
of Series A Preferred Stock was first issued.
(C) CONVERTIBLE SECURITIES shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock, excluding shares of Series A Preferred Stock
issued in exercise of the Warrants.
(D) ADDITIONAL SHARES OF COMMON STOCK shall mean all shares
of Common Stock issued (or, pursuant to Subsection 5(d)(iii) below, deemed to be
issued) by the
-8-
<PAGE> 9
Corporation after the Original Issue Date, other than shares of Common Stock
issued or issuable:
(I) upon conversion of shares of Series A Preferred Stock
outstanding on the Original Issue Date or upon
conversion of shares of Series A Preferred issued upon
the exercise of the Warrants;
(II) as a dividend or distribution on Series A Preferred
Stock;
(III) by reason of a dividend or distribution covered by
Subsection 5(f) hereof, a stock split, or subdivision
of shares of Common Stock covered by Subsection 5(e)
hereof, or by reason of a dividend, stock split
subdivision or other distribution on shares of Common
Stock excluded from the definition of Additional Shares
of Common Stock by the foregoing clauses (I) and (II)
or this clause (III); or
(IV) upon the exercise of awards or warrants excluded from
the definition of "Option" in Subsection 5(d)(i)(A).
(V) to Cornell Research Foundation, Inc., Gary W. Pace and
Dennis I. Goldberg of 395,674 shares of Common Stock in
the aggregate.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the number of
shares of Common Stock into which the Series A Preferred Stock is convertible
shall be made by adjustment in the applicable Conversion Price thereof: (a)
unless the consideration per share (determined pursuant to Subsection 5(d)(v))
for an Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Conversion Price in effect on the date
of, and immediately prior to, the issue of such Additional Shares, or (b) if
prior to such issuance, the Corporation receives written notice from the holders
of at least 75% of the then outstanding shares of Series A Preferred Stock
agreeing that no such
-9-
<PAGE> 10
adjustment shall be made as the result of the issuance of Additional Shares of
Common Stock.
(iii) ISSUE OF OPTIONS AND CONVERTIBLE SECURITIES DEEMED ISSUE OF
ADDITIONAL SHARES OF COMMON STOCK.
If the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares of Common Stock (as set forth in the instrument relating thereto
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Subsection 5(d)(v) hereof)
of such Additional Shares of Common Stock would be less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided further that in any such
case in which Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Conversion Price shall be made upon
the subsequent issue of Convertible Securities or shares of Common Stock upon
the exercise of such Options or conversion or exchange of such Convertible
Securities;
(B) If such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any increase in the consideration
payable to the Corporation, or decrease in the number of shares of Common Stock
issuable, upon the exercise, conversion or exchange thereof, the Conversion
Price computed upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be recomputed to
reflect such increase or decrease insofar as it affects such Options or the
rights of conversion or exchange under such Convertible Securities;
(C) No readjustment pursuant to clause (B) above shall have the effect
of increasing the Conversion Price to an amount which exceeds the lower of (i)
the Conversion Price on
-10-
<PAGE> 11
the original adjustment date, or (ii) the Conversion Price that would have
resulted from any issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date;
(D) Upon the expiration or termination of any unexercised Option, the
Conversion Price shall not be readjusted, but the Additional Shares of Common
Stock deemed issued as the result of the original issue of such Option shall not
be deemed issued for the purposes of any subsequent adjustment of the Conversion
Price; and
(E) In the event of any change in the number of shares of Common Stock
issuable upon the exercise, conversion or exchange of any Option or Convertible
Security, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price then in effect shall
forthwith be adjusted to such Conversion Price as would have obtained had the
adjustment which was made upon the issuance of such Option or Convertible
Security (prior to such change) been made upon the basis of such change, but no
further adjustment shall be made for the actual issuance of Common Stock upon
the exercise or conversion of any such Option or Convertible Security.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL SHARES OF
COMMON STOCK.
In the event the Corporation shall issue, at any time or from time to time
after the Original Issue Date, Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection
5(d)(iii), but excluding shares issued as a dividend or distribution as provided
in Subsection 5(f) or upon a stock split or combination as provided in
Subsection 5(e)), without consideration or for a consideration per share less
than the applicable Conversion Price in effect on the date of and immediately
prior to such issue, then and in such event, such Conversion Price shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Conversion Price by a fraction, (A) the
numerator of which shall be (1) the number of shares of Common Stock outstanding
immediately prior to such issue plus (2) the number of shares of Common Stock
which the aggregate consideration received by the Corporation for the total
number of Additional Shares of Common Stock so issued would purchase at such
Conversion Price; and (B) the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issue plus the number of
such Additional Shares of Common Stock so issued; PROVIDED THAT, for the purpose
of this Subsection 5(d)(iv), all shares of Common Stock issuable upon conversion
of shares of Series A Preferred Stock outstanding
-11-
<PAGE> 12
immediately prior to such issue shall be deemed to be outstanding, and
immediately after any Additional Shares of Common Stock are deemed issued
pursuant to Subsection 5(d)(iii) (other than shares excluded from the definition
of "Additional Shares of Common Stock" by virtue of clause (IV) of Subsection
5(d)(i)(D)), such Additional Shares of Common Stock shall be deemed to be
outstanding.
Notwithstanding the foregoing, the applicable Conversion Price shall not be
so reduced at such time if the amount of such reduction would be an amount less
than $.05, but any such amount shall be carried forward and reduction with
respect thereto made at the time of and together with any subsequent reduction
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate $.05 or more.
(v) DETERMINATION OF CONSIDERATION. For purposes of this Subsection
5(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration shall:
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation, excluding amounts paid or payable
for accrued interest or accrued dividends;
(II) insofar as it consists of property other than cash, be
computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (I) and (II) above,
as determined in good faith by the Board of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per
share received by the Corporation for Additional Shares of Common Stock deemed
to have been issued pursuant to Subsection 5(d)(iii), relating to Options and
Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate
-12-
<PAGE> 13
amount of additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such consideration) payable to the Corporation upon the exercise
of such Options or the conversion or exchange of such Convertible Securities, or
in the case of Options for Convertible Securities, the exercise of such Options
for Convertible Securities and the conversion or exchange of such Convertible
Securities, in either case for the issuance of the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities, by
(y) the maximum number of shares of Common Stock (as set forth
in the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the exercise
of such Options or the conversion or exchange of such Convertible Securities.
(e) ADJUSTMENTS FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall, at any time or from time to time after the Original Issue Date, effect a
subdivision of the outstanding Common Stock, the Conversion Price then in effect
immediately before that subdivision shall be proportionately decreased. If the
Corporation shall, at any time or from time to time while there are any shares
of Series A Preferred Stock outstanding, combine the outstanding shares of
Common Stock, the Conversion Price then in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price then in effect shall be decreased as of the time of such issuance or, in
the event such a record date shall have been fixed, as of the close of business
on such record date, by multiplying the Conversion Price then in effect by a
fraction:
(1) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and
-13-
<PAGE> 14
(2) the denominator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend
or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be recomputed accordingly as of the close
of business on such record date and thereafter the Conversion Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of Series A
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of the
Corporation that they would have received had the Series A Preferred Stock been
converted into Common Stock on the date of such event and had thereafter, during
the period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period
giving application to all adjustments called for during such period, under this
paragraph with respect to the rights of the holders of the Series A Preferred
Stock.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If the
Common Stock issuable upon the conversion of the Series A Preferred Stock shall
be changed into the same or a different number of shares of any class or classes
of stock, whether by capital reorganization, reclassification, or otherwise
(other than a subdivision or combination of shares of stock dividend provided
for above, or a reorganization, merger, consolidation, or sale of assets
provided for below), then and in each such event the holder of each such share
of Series A Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of
Series A Preferred Stock might have been converted immediately prior to
-14-
<PAGE> 15
such reorganization, reclassification, or change, all subject to further
adjustment as provided herein.
(i) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. Subject to Section 3
hereof, in case of any consolidation or merger of the Corporation with or into
another corporation (except one in which the holders of capital stock of the
Corporation immediately prior to such merger or consolidation continue to hold
greater than 50% by voting power of the capital stock of the surviving
corporation), or the sale of all or substantially all of the assets of the
Corporation to another corporation, each share of Series A Preferred Stock shall
thereafter be convertible into the kind and amount of shares of stock or other
securities or property to which a holder of the number of shares of Common Stock
of the Corporation deliverable upon conversion of such Series A Preferred Stock
would have been entitled upon such consolidation, merger or sale and, in such
case, appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions set forth in this
Section 5 with respect to the rights and interest thereafter of the holders of
the Series A Preferred Stock, to the end that the provisions set forth in this
Section 5 (including provisions with respect to changes in and other adjustments
of the Conversion Price) shall thereafter be applicable, as nearly as reasonably
may be, in relation to any shares of stock or other property thereafter
deliverable upon the conversion of the Series A Preferred Stock.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or By-laws or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all the
provisions of this Section 5 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A Preferred Stock against impairment.
(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a similar certificate setting forth (i) such adjustments and
-15-
<PAGE> 16
readjustments, (ii) the Conversion Price then in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property which then
would be received upon the conversion of Series A Preferred Stock.
(I) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or
other securities of the Corporation;
(ii) that the Corporation splits, subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a stock split, subdivision or
combination of its outstanding shares of Common Stock or a
stock dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with
another corporation, or of the sale of all or substantially
all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock, and shall cause to
be mailed to the holders of the Series A Preferred Stock at their last addresses
as shown on the records of the Corporation or such transfer agent, at least ten
days prior to the record date specified in (A) below or twenty days before the
date specified in (B) below, a notice stating:
(A) the record date of such dividend, distribution, stock split,
subdivision or combination, or, if a record is not to be
taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, stock
split, subdivision or combination are to be determined, or
-16-
<PAGE> 17
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution
or winding up.
6. Mandatory Conversion.
--------------------
a. The Corporation may, at its option, require all (but not less than
all) of the shares of Series A Preferred Stock then outstanding to be converted
automatically into shares of Common Stock, at the then current Conversion Price,
upon the consummation of an underwritten public offering of Common Stock of the
Corporation pursuant to a registration statement filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, covering the
offer and sale of Common Stock to the public in a firm commitment underwriting
at a price of at least $3.00 per share during 1994 and at least $4.00 per share
thereafter, resulting in the receipt by the Corporation of net proceeds from
such sale of not less than $10,000,000 (a "Qualified Public Offering").
b. All holders of record of shares of Series A Preferred Stock will be
given at least 10 days' prior written notice of the date fixed and the place
designated for mandatory conversion of all of such shares of Series A Preferred
Stock pursuant to this Section 6. Such notice will be sent by first class or
registered mail, postage prepaid, to each record holder of Series A Preferred
Stock at such holder's address appearing on the stock register. On or before the
date fixed for conversion, each holder of shares of Series A Preferred Stock
shall surrender his or its certificate or certificates for all such shares to
the Corporation at the place designated in such notice, and shall thereafter
receive certificates for the number of shares of Common Stock to which such
holder is entitled pursuant to this Section 6. On the date fixed for conversion,
all rights with respect to the Series A Preferred Stock so converted will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Series A Preferred Stock has
been converted. If so requested by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by written instrument or instruments
of
-17-
<PAGE> 18
transfer, in form satisfactory to the Corporation, duly executed by the
registered holder or by his or its attorney duly authorized in writing. All
certificates evidencing shares of Series A Preferred Stock which are required to
be surrendered for conversion in accordance with the provisions hereof shall,
from and after the date such certificates are so required to be surrendered, be
deemed to have been retired and canceled and the shares of Series A Preferred
Stock represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. As soon as practicable after the date of
such mandatory conversion and the surrender of the certificate or certificates
for Series A Preferred Stock, the Corporation shall cause to be issued and
delivered to such holder, or on his or its written order, a certificate or
certificates for the number of full shares of Common Stock issuable on such
conversion in accordance with the provisions hereof and cash as provided in
Subsection 5(b) in respect of any fraction of a share of Common Stock otherwise
issuable upon such conversion.
7. Redemption of Series A Preferred Stock at Option of Holder.
----------------------------------------------------------
a. Upon the fifth or any later anniversary of April 5, 1994, if the
Corporation receives notice from holders of at least 75% of the then outstanding
shares of Series A Preferred Stock agreeing to the redemption (the "Election
Date"), on the date 30 days after the Election Date and the two following
anniversaries of such day (collectively, the "Redemption Dates" and
individually, a "Redemption Date"), each holder of Series A Preferred Stock
shall have the right to require the Corporation to redeem on each of those dates
up to 33%, 66% and 100% of the shares of Series A Preferred Stock held by such
holder on each of those dates, or such lesser number of shares of Series A
Preferred Stock as the holder may determine. If any shares of Series A Preferred
Stock are eligible for redemption in one year and the holder elects not to have
such shares redeemed on that Redemption Date, such holder may elect to have all
or a portion of such shares redeemed on the anniversary of a Redemption Date in
a later year; provided, that, such election is not made after the third
anniversary of the first Redemption Date. Any holder desiring to exercise the
redemption right granted herein (a "Requesting Holder") shall provide written
notice to the Corporation setting forth the number of shares to be redeemed. On
the Redemption Date and upon a holder's surrender, in accordance with this
Section 7(a), of his or its certificates representing shares to be redeemed, the
redemption price shall be paid by the Corporation in cash in an amount equal to
$1.00 per share (subject to appropriate adjustment for stock splits, stock
dividends, combinations and
-18-
<PAGE> 19
other similar recapitalizations affecting such shares) of Series A Preferred
Stock, plus an amount equal to all declared but unpaid dividends payable in
accordance with Section 1 hereof on each share of Series A Preferred Stock to be
redeemed (the "Redemption Price").
b. Subject to the satisfaction of the condition set forth in the first
sentence of Subsection 7(a) above, within five days following its receipt from a
Requesting Holder of a notice of intent to exercise redemption rights pursuant
to Subsection 7(a) hereof, the Corporation shall provide each holder of Series A
Preferred Stock, other than the Requesting Holder, with a written notice
(addressed to the holder at its address as it appears on the stock transfer
books of the Corporation) containing an offer to redeem shares of Series A
Preferred Stock as provided above, which notice shall specify the applicable
Redemption Price. Each holder of Series A Preferred Stock, other than the
Requesting Holder, will have until 10 days prior to the Redemption Date to
provide the Corporation with written notice of such holder's acceptance of the
redemption offer, which notice shall specify the number of shares to be
redeemed. All notices or offers hereunder shall be sent by first class or
registered mail, postage prepaid, and shall be deemed to have been provided when
mailed.
c. In the event that any holder of Series A Preferred Stock, other
than the Requesting Holder, does not provide the Corporation with written notice
of the holder's acceptance of the redemption offer on or before the date 10 days
prior to the applicable Redemption Date, the Corporation shall have no
obligation to redeem any shares of Series A Preferred Stock of such holder on
the Redemption Date specified in its notice to such holder or at any time
thereafter.
d. The provisions of Subsection 7(a) notwithstanding, any such
optional redemption is subject to the approval of a majority of the Board of
Directors of the Corporation and such majority may, in the good faith belief
that the requested redemption would be detrimental to the future prospects of
the Corporation, postpone such redemption for a period of one year.
e. In addition to the redemption rights set forth in Subsection 7(a),
in the event that, (i) prior to the selection by the Corporation of a permanent
Chief Executive Officer, the holders of 75% of the then outstanding shares of
Series A Preferred Stock agree, or (ii) subsequent to such selection, a majority
of the Corporation's Board of Directors agrees that an adverse change in the
business prospects of the Corporation has occurred, then each holder of shares
of Series A Preferred Stock may elect, at his or its option, to have the
Corporation redeem
-19-
<PAGE> 20
(on the date 30 days after such election) some or all of such shares at the
Redemption Price; provided that, if the Corporation's funds are insufficient to
make the requested redemption possible at the Redemption Price, then each holder
who elected to redeem shall be entitled to redeem a ratable portion of his or
its shares based on the availability of funds.
f. On or prior to the Redemption Date, unless postponed pursuant to
Subsection 7(d) above, the Requesting Holder and each other holder of Series A
Preferred Stock accepting the Corporation's redemption offer shall surrender his
or its certificate or certificates representing the shares to be redeemed, in
the manner and at the place designated in the Corporation's redemption offer. If
less than all shares represented by such certificate or certificates are
redeemed, the Corporation shall issue a new certificate for the unredeemed
shares. From and after the Redemption Date, unless there shall be a default in
payment of the Redemption Price, all rights of each holder with respect to
shares of Series A Preferred Stock redeemed on the Redemption Date shall cease
(except the right to receive the Redemption Price without interest upon
surrender of the certificate or certificates therefor), and such shares shall
not be deemed to be outstanding for any purpose whatsoever. Such shares of
Series A Preferred Stock shall not be reissued, and the Corporation may from
time to time take such appropriate action as may be necessary to reduce the
authorized Preferred Stock accordingly.
g. For the purpose of determining whether funds are legally available
for redemption of shares of Series A Preferred Stock as provided herein, the
Corporation shall value its assets at the highest amount permissible under
applicable law. If on the Redemption Date funds of the Corporation legally
available therefor shall be insufficient to redeem all the shares of Series A
Preferred Stock required to be redeemed as provided herein, funds to the extent
legally available shall be used for such purpose and the Corporation shall
effect such redemption pro rata according to the number of shares of Series A
Preferred Stock held by each holder accepting the Corporation's redemption
offer. The redemption requirements provided hereby shall be continuous, so that
if on the Redemption Date such requirements shall not be fully discharged,
without further action by any holder of Series A Preferred Stock, funds legally
available shall be applied therefor until such requirements are fully
discharged.
h. The foregoing provisions of this Section 7 shall terminate on the
consummation of a Qualified Public Offering.
-20-
<PAGE> 21
8. Redemption of Non-Convertible Preferred Stock at Option of Holder.
-----------------------------------------------------------------
a. In the event of transfers aggregating more than 50% of the
Corporation's outstanding Series A Preferred Stock to holders of record who are
not (i) stockholders of the Corporation, (ii) the original holders of Series A
Preferred Stock, (iii) Clintec Nutrition Company or (iv) any affiliates,
partners or stockholders of any individuals or entities set forth in clauses
(ii) or (iii) hereof and upon the election at any time thereafter of the holders
of a majority of the Non-Convertible Preferred Stock, the Corporation will
redeem upon the later of (A) thirty (30) days after the consummation of the last
such transfer or (B) ten (10) days after the Corporation's receipt of the notice
of election of redemption from holders of a majority of the Non-Convertible
Preferred Stock one quarter of the then outstanding shares of Non-Convertible
Preferred Stock (the "Initial Redemption Date") and one quarter of such shares
in each of the following three years on the anniversary date of the Initial
Redemption Date (collectively, the "Redemption Dates" each a "Redemption Date")
at a price equal to $1,000 per share plus any accrued, but unpaid dividends. The
Corporation shall give written notice to the holders of record of the
Non-Convertible Preferred Stock within 30 business days after there have been
transfers of more than 50% of the Corporation's outstanding Series A Preferred
Stock as provided in this subsection 8(a).
If at the time of any due date of a redemption payment pursuant to this
Subsectoin 8(a) the Corporation is then obligated to make a redemption pursuant
to Section 7, no payment shall be made under this Subsection 8(a) until the
Corporation's obligations under Section 7 have been satisfied in full.
b. The provisions of Subsection 8(a) notwithstanding, a majority of
the Board of Directors of the Corporation may, in the good faith belief that the
requested redemption would be detrimental to the Corporation's interests,
postpone such redemption for a period of one year.
c. The Corporation may elect, at any time, to redeem 100% of the
then-outstanding shares of Non-Convertible Preferred Stock at a price equal to
$1,000 per share plus any accrued, but unpaid dividends.
d. On or prior to the Redemption Date, unless postponed pursuant to
Section 8(b) above, each holder of NonConvertible Preferred Stock shall
surrender his or its certificate or certificates representing the shares to be
redeemed, in the manner and at the place designated by the Corporation. If less
-21-
<PAGE> 22
than all shares represented by such certificate or certificates are redeemed,
the Corporation shall issue a new certificate for the unredeemed shares. From
and after the Redemption Date, unless there shall be a default in payment of the
Redemption Price, all rights of each holder with respect to shares of
Non-Convertible Preferred Stock redeemed on the Redemption Date shall cease
(except the right to receive the Redemption Price without interest upon
surrender of the certificate or certificates therefor), and such shares shall
not be deemed to be outstanding for any purpose whatsoever. Such shares of
Non-Convertible Preferred Stock shall not be reissued, and the Corporation may
from time to time take such appropriate action as may be necessary to reduce the
authorized Non-Convertible Preferred Stock accordingly.
FIFTH. The Corporation is to have perpetual existence.
SIXTH. The Board of Directors is expressly authorized to exercise all
powers granted to the Directors by law except insofar as such powers are limited
or denied herein or in the by-laws of the Corporation. In furtherance of such
powers, the Board of Directors shall have the right to make, alter or repeal the
by-laws of the Corporation.
SEVENTH. Meetings of stockholders of the Corporation may be held within or
without the State of Delaware, as the by-laws may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors or in the by-laws
of the Corporation. Elections of Directors need not be by written ballot unless
the by-laws of the Corporation shall so provide.
EIGHTH. The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as amended from
time to time, indemnify each person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was, or has agreed to become, a director or officer of the
corporation, or is or was serving, or has agreed to serve, at the request of the
corporation, as a director, officer or trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the
-22-
<PAGE> 23
final disposition of such action or proceeding upon receipt of any undertaking
by the person indemnified to repay such payment if it is ultimately determined
that such person is not entitled to indemnification under this Article, which
undertaking may be accepted without reference to the financial ability of such
person to make such repayments.
The Corporation shall not indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person
unless the initiation thereof was approved by the Board of Directors of the
Corporation.
The indemnification rights provided in this Article Eighth (i) shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this Article.
NINTH. No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is
hereinafter amended to authorize a further limitation or elimination of the
liability of directors or officers, then the liability of a director or officer
of the Corporation shall, in addition to the limitation on personal liability
provided herein, be limited or eliminated to the fullest extent permitted by the
Delaware General Corporation Law, as from time to time amended. No amendment to
or repeal of this Article Ninth shall apply to or have any effect on the
liability or alleged liability of any director or officer of the Corporation for
or with respect to any acts or omissions of such director of officer occurring
prior to such amendment or repeal.
TENTH. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated
-23-
<PAGE> 24
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation.
This Restated Certificate of Incorporation was duly adopted in accordance
with the provisions of Sections 242 and 245 of the Delaware General Corporation
Law by written consent in accordance with Section 228 of the Delaware General
Corporation Law.
Signed this 4th day of April, 1994.
/s/ Gary W. Pace
-----------------------
Gary W. Pace, President
Attest:
/s/ Inge Henriksen
- -----------------------------------
Inge Henriksen, Assistant Secretary
-24-
<PAGE> 25
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FREE RADICAL SCIENCES, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
---------------------------------
Free Radical Sciences, Inc. (hereinafter called the
"Corporation"), organized and existing under and by virtue of the
General Corporation Law of the State of Delaware, does hereby
certify as follows:
FIRST: That the Board of Directors of the Corporation, by
written action in lieu of a meeting, proposed and declared
advisable the following amendment to the Corporation's Restated
Certificate of Incorporation:
That the Board of Directors of the Corporation deems it advisable that
the Certificate of Incorporation of the Corporation be amended to
change the name of the Company to "Transcend Therapeutics, Inc.", such
amendment to be effected by amending Article First of the Certificate
of Incorporation of the Corporation to read as follows:
"ARTICLE FIRST: The name of the Corporation is
Transcend Therapeutics, Inc."; and
such amendment be submitted to the stockholders of the Corporation for
their review and approval.
SECOND: That the stockholders of the Corporation have duly
consented to the adoption of the foregoing resolution and the
amendment contained therein; that written notice of such consent
has been delivered to all stockholders not so consenting; and that
the aforesaid amendment was duly adopted in accordance with the
applicable provisions of Section 228 and 242 of the General
Corporation Law of the State of Delaware.
-25-
<PAGE> 26
IN WITNESS WHEREOF, the Corporation has caused its corporate
seal to be affixed hereto and this Certificate of Amendment to be
signed by its President and attested by its Secretary this 9th day
of June, 1995
FREE RADICAL SCIENCES, INC.
/s/ B. Nicholas Harvey
---------------------------
B. Nicholas Harvey
Chief Financial Officer
[Corporate Seal]
-26-
<PAGE> 27
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
TRANSCEND THERAPEUTICS, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
---------------------------------
Transcend Therapeutics, Inc., a Delaware corporation (the "Corporation"),
does hereby certify, pursuant to Section 242 of the General Corporation Law of
the State of Delaware, that:
FIRST: In a Written Action in Lieu of a Meeting of all of the members of
the Board of Directors of the Corporation on September 1, 1995, resolutions were
duly adopted proposing an Amendment to the Restated Certificate of
Incorporation, as amended, of the Corporation changing Article Fourth of the
Restated Certificate of Incorporation as provided for herein, and submitting
such proposal to the shareholders of the Corporation.
SECOND: Pursuant to Section 228 of the General Corporation Law of the State
of Delaware, the proposed Amendment to the Restated Certificate of Incorporation
has been approved and adopted by the shareholders of the Corporation.
THIRD: Accordingly, Article Fourth of the Restated Certificate of
Incorporation of the Corporation is hereby amended as follows:
9. The first paragraph of Article FOURTH of the Restated Certificate
of Incorporation, as amended, of the Corporation is hereby deleted in its
entirety and replaced with the following:
FOURTH: The total number and classes of shares of capital stock
that the Corporation shall have authority to issue is as follows: (i)
25,000,000 shares of Common Stock, par value $0.01 per share ("Common
Stock") and (ii) 12,100,000 shares of Preferred Stock, par value $0.01
per share ("Preferred Stock").
10. Section B.1. of Article FOURTH of the Restated Certificate of
Incorporation, as amended, of the Corporation is hereby deleted in its
entirety and replaced with the following:
-27-
<PAGE> 28
C. PREFERRED STOCK.
1. Designation.
-----------
(a) Twelve million, ninety-one thousand (12,091,000) shares of
the authorized and unissued Preferred Stock of the Corporation are hereby
designated "Series A Convertible Preferred Stock" (the "Series A Preferred
Stock") with the rights, preferences, powers, privileges and restrictions,
qualifications and limitations set forth below.
(b) Nine thousand (9,000) shares of the authorized and unissued
Preferred Stock of the Corporation are hereby designated "Non-Convertible
Preferred Stock" (the "Non-Convertible Preferred Stock") with the rights,
preferences, powers, privileges and restrictions, qualifications and
limitations set forth below.
IN WITNESS WHEREOF, Transcend Therapeutics, Inc. has caused this
Certificate of Amendment to its Restated Certificate of Incorporation, as
amended, to be executed by B. Nicholas Harvey, Treasurer and Secretary of the
Corporation, this 12th day of September, 1995.
TRANSCEND THERAPEUTICS, INC.
By: /s/ B. Nicholas Harvey
-------------------------
B. Nicholas Harvey
Treasurer and Secretary
-28-
<PAGE> 29
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
TRANSCEND THERAPEUTICS, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
---------------------------------
Transcend Therapeutics, Inc., a Delaware corporation (the "Corporation"),
does hereby certify, pursuant to Section 242 of the General Corporation Law of
the State of Delaware, that:
FIRST: In a Written Action in Lieu of a Meeting of all of the members of
the Board of Directors of the Corporation on December 20, 1995, resolutions were
duly adopted proposing an Amendment to the Restated Certificate of
Incorporation, as amended, of the Corporation changing Article Fourth of the
Restated Certificate of Incorporation as provided for herein, and submitting
such proposal to the shareholders of the Corporation.
SECOND: Pursuant to Section 228 of the General Corporation Law of the State
of Delaware, the proposed Amendment to the Restated Certificate of Incorporation
has been approved and adopted by the shareholders of the Corporation.
THIRD: Accordingly, Article Fourth of the Restated Certificate of
Incorporation of the Corporation is hereby amended as follows:
2. The first paragraph of Article FOURTH of the Restated Certificate
of Incorporation, as amended, of the Corporation is hereby deleted in its
entirety and replaced with the following:
FOURTH: The total number and classes of shares of capital stock
that the Corporation shall have authority to issue is as follows: (i)
25,000,000 shares of Common Stock, par value $0.01 per share ("Common
Stock") and 13,000,000 shares of Preferred Stock, par value $0.01 per
share ("Preferred Stock").
3. Section B.1. of Article FOURTH of the Restated Certificate of
Incorporation, as amended, of the Corporation is hereby deleted in its
entirety and replaced with the following:
-29-
<PAGE> 30
E. PREFERRED STOCK.
---------------
1. Designation.
-----------
(a) Twelve million, nine hundred ninety-one thousand (12,991,000)
shares of the authorized and unissued Preferred Stock of the Corporation
are hereby designated "Series A Convertible Preferred Stock" (the "Series A
Preferred Stock") with the rights, preferences, powers, privileges and
restrictions, qualifications and limitations set forth below.
(b) Nine thousand (9,000) shares of the authorized and unissued
Preferred Stock of the Corporation are hereby designated "Non-Convertible
Preferred Stock" (the "Non-Convertible Preferred Stock") with the rights,
preferences, powers, privileges and restrictions, qualifications and
limitations set forth below.
IN WITNESS WHEREOF, Transcend Therapeutics, Inc. has caused this
Certificate of Amendment to its Restated Certificate of Incorporation, as
amended, to be executed by B. Nicholas Harvey, Treasurer and Secretary of the
Corporation, this 24th day of January, 1996.
TRANSCEND THERAPEUTICS, INC.
By: /s/ B. Nicholas Harvey
-------------------------
B. Nicholas Harvey
Treasurer and Secretary
-30-
<PAGE> 31
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
TRANSCEND THERAPEUTICS, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
---------------------------------
Transcend Therapeutics, Inc., a Delaware corporation (the "Corporation"),
does hereby certify, pursuant to Section 242 of the General Corporation Law of
the State of Delaware, that:
FIRST: In a meeting of the members of the Board of Directors of the
Corporation at which a quorum was present at all times held on July 25, 1996,
resolutions were duly adopted proposing an Amendment to the Restated Certificate
of Incorporation of the Corporation changing Article FOURTH of the Restated
Certificate of Incorporation as provided for herein, and submitting such
proposal to the shareholders of the Corporation.
SECOND: Pursuant to Section 228 of the General Corporation Law of the State
of Delaware, the proposed Amendment to the Restated Certificate of Incorporation
has been approved and adopted by the shareholders of the Corporation and written
notice has been given as provided in Section 228.
THIRD: Accordingly, Article FOURTH of the Restated Certificate of
Incorporation of the Corporation is hereby deleted in its entirety and replaced
as set forth in EXHIBIT A hereto.
IN WITNESS WHEREOF, Transcend Therapeutics, Inc. has caused this
Certificate of Amendment to its Restated Certificate of Incorporation, as
amended, to be executed by B. Nicholas Harvey, Treasurer and Secretary of the
Corporation, this 30 day of July, 1996.
TRANSCEND THERAPEUTICS, INC.
By: /s/ B. Nicholas Harvey
-------------------------
B. Nicholas Harvey
Treasurer and Secretary
-31-
<PAGE> 32
Exhibit A
---------
FOURTH: The total number and classes of shares of capital stock that the
Corporation shall have authority to issue is as follows: (i) 25,000,000 shares
of Common Stock, par value $0.01 per share ("Common Stock") and (ii) 16,000,000
shares of Preferred Stock, par value $0.01 per share ("Preferred Stock").
The following is a statement of the designation and the powers, privileges
and rights, and the qualifications, limitations of restrictions thereof in
respect of each class of capital stock of the Corporation.
F. COMMON STOCK
------------
1. GENERAL. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
3. DIVIDENDS.
---------
(a) Dividends may be declared and paid on the Common Stock from funds
lawfully available therefor as and when determined by the Board of Directors,
provided, however, that (i) the declaration and payment of any such dividends
shall be subject to any preferential dividend rights of any then outstanding
Preferred Stock, (ii) no dividends shall be declared and paid on the Common
Stock unless there is at the same time a dividend declared and paid on each
share of Series A Preferred Stock and Series B Preferred stock (each as defined
below) in an amount equal to the dividends declared and paid on the number of
whole shares of Common Stock into which such shares is convertible (as adjusted
from time to time pursuant to Section 5 hereof), and (iii) there shall not be
declared or paid any dividends or distributions (as defined below) on shares of
Common Stock without the approval of the holders of at least 75% of the shares
of Series A Preferred Stock and 75% of the Series B Preferred Stock then
outstanding.
(b) For purposes of this Section 3, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or
-32-
<PAGE> 33
otherwise, payable other than in Common Stock or other securities of the
Corporation, or the purchase or redemption of shares of the Corporation (other
than repurchases of Common Stock held by employees or directors of, or
consultants to, the Corporation pursuant to agreements providing for such
repurchase upon a right of first refusal, restricted stock agreement or other
similar agreement, and other than redemptions in liquidation or dissolution of
the Corporation) for cash or property, including any such transfer, purchase or
redemption by a subsidiary of this Corporation.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
5. SPECIAL VOTES. The number of authorized shares of Common Stock may be
increased or decreased (but not below the number of shares then outstanding) by
the affirmative vote of the holders of 75% of the then outstanding shares of the
Common Stock, Series A Preferred Stock and Series B Preferred Stock (each as
defined below) voting as a single class.
G. PREFERRED STOCK.
1. DESIGNATION.
-----------
(a) Twelve Million, nine hundred ninety one (12,991,000) shares of the
authorized and unissued Preferred Stock of the Corporation are hereby designated
"Series A Convertible Preferred Stock" (the "Series A Preferred Stock") with the
rights, preferences, powers, privileges and restrictions, qualifications and
limitations set forth below.
(b) Three Million (3,000,000) shares of the authorized and unissued
Preferred Stock of the Corporation are hereby designated "Series B Convertible
Preferred Stock" (the "Series B Preferred Stock") with the rights, preferences,
powers, privileges and restrictions, qualifications and limitations set forth
below. The Series A Preferred Stock and Series B Preferred Stock are sometimes
referred to collectively herein as the "Convertible Preferred Stock".
(c) Nine thousand (9,000) shares of the authorized and unissued
Preferred Stock of the Corporation are hereby designated "Non-Convertible
Preferred Stock" (the "Non-Convertible Preferred Stock") with the rights,
preferences, powers, privileges and restrictions, qualifications and limitations
set forth below.
-33-
<PAGE> 34
2. Dividends.
---------
(a) The holders of the Convertible Preferred Stock shall be entitled
to receive, out of any funds legally available therefor, dividends in an amount
per share equal to the dividends declared and paid on the number of whole shares
of Common Stock into which a share of such series of Convertible Preferred Stock
is convertible (as adjusted from time to time pursuant to Section 5 hereof).
(b) The holders of the Non-Convertible Preferred Stock shall be
entitled to receive, out of any funds legally available therefor, cumulative
dividends at an annual rate of $70.00 per share. Dividends shall be cumulative
and shall accrue, whether or not declared, from and after the date of issuance.
3. Liquidation, Dissolution and Winding Up.
---------------------------------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
Convertible Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its stockholders,
before any payment shall be made to the holders of Non-Convertible Preferred
Stock or Common Stock by reason of their ownership thereof, an amount equal to
$1.00 per share (with respect to shares of Series A Preferred Stock) and $1.50
per share (with respect to shares of Series B Preferred Stock) (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), plus any
dividends declared but unpaid thereon. If upon any such liquidation, dissolution
or winding up of the Corporation the remaining assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
holders of shares of Convertible Preferred Stock the full amount to which they
shall be entitled, the holders of shares of Convertible Preferred Stock shall
share ratably in any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amount which would otherwise be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full.
(b) After the payment of all preferential amounts required to be paid
to the holders of Convertible Preferred Stock, upon the dissolution, liquidation
or winding up of the Corporation, the holders of shares of Non-Convertible
Preferred Stock then outstanding shall be entitled, by reason of their ownership
thereof, to receive an amount equal to $1,000.00 per share (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar
-34-
<PAGE> 35
recapitalization affecting such shares), plus any dividends declared or accrued
but unpaid thereon. If upon any such liquidation, dissolution or winding up of
the Corporation, the remaining assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the holders of
shares of Non-Convertible Preferred Stock the full amount to which they shall be
entitled, the holders of shares of Non-Convertible Preferred Stock shall share
ratably in any distribution of the remaining assets and funds of the Corporation
in proportion to the respective amounts which would otherwise be payable in
respect of the shares held by them upon such distribution if all amounts payable
on or with respect to such shares were paid in full.
(c) After the payment of all preferential amounts required to be paid
to the holders of Convertible Preferred Stock and Non-Convertible Preferred
stock, upon the dissolution, liquidation or winding up of the Corporation,
subject to paragraph (d) of this Section 3 below, the remaining assets and funds
of the Corporation available for distribution to its stockholders shall be
distributed among the holders of shares of Convertible Preferred Stock and
Common Stock held by each (assuming conversion into Common Stock of all such
shares).
(d) In the event of any merger or consolidation of the Corporation
into or with another corporation (except one in which the holders of capital
stock of the Corporation immediately prior to such merger or consolidation
continue to hold greater than 50% by voting power of the capital stock of the
surviving corporation), or the sale of all or substantially all of the assets of
the Corporation, such merger, consolidation or asset sale shall be deemed to be
a liquidation of the Corporation. In the event of such merger, consolidation or
asset sale, each holder of Convertible Preferred Stock shall receive such
holder's preference pursuant to the terms of Paragraph (a) of this Section 3 and
participate with the holders of Common Stock pursuant to Paragraph (c) of this
Section 3, up to a cap of total proceeds from the liquidation of $4.00 per
share; provided, however, that each holder of Convertible Preferred Stock shall
have the right to elect to participate in the transaction pursuant to the
provisions of Subsection 5(i) hereof in lieu of receiving such holder's
preference and participating up to a cap. The amount deemed distributed to the
holders of Convertible Preferred Stock upon any such merger or consolidation
shall be cash or the value of the property, rights or securities distributed to
such holders by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined in good faith by the
Board of Directors of the Corporation.
4. Voting.
------
-35-
<PAGE> 36
(a) Each holder of outstanding shares of Convertible Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which the shares held by such holder are convertible (as
adjusted from time to time pursuant to Section 5 hereof), at each meeting of
stockholders of the Corporation (and written actions of stockholders in lieu of
meetings) with respect to any and all matters presented to the stockholders of
the Corporation for their action or consideration. Except as provided by law or
as otherwise set forth herein, holders of Convertible Preferred Stock and Common
Stock shall vote together as a single class.
(b) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of any series of Convertible Preferred Stock so
as to affect adversely such series of Convertible Preferred Stock, without the
written consent or affirmative vote of the holders of 75% of the then
outstanding shares of such series of Preferred Stock, given in writing or by
vote at a meeting, consenting or voting (as the case may be) separately as a
class. For this purpose, without limiting the generality of the foregoing, the
authorization or issuance of any series of Preferred Stock with preference or
priority over either series of Convertible Preferred Stock as to the right to
receive either dividends or amounts distributable upon liquidation, dissolution
or winding up of the Corporation shall be deemed to affect adversely such series
of Convertible Preferred Stock, and the authorization or issuance of any series
of Preferred Stock on a parity with either series of Convertible Preferred Stock
as to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall not be deemed to
affect adversely such series of Preferred Stock. The number of authorized shares
of either series of Convertible Preferred Stock may be increased or decreased
(but not below the number of shares then outstanding) by the affirmative vote of
the holders of 75% of the then outstanding shares of such series of Convertible
Preferred Stock, voting as a single class.
(c) Except as provided by law, the Non-Convertible Preferred Stock
shall have no voting rights.
5. OPTIONAL CONVERSION. The holders of the Convertible Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Convertible Preferred Stock shall
be convertible, at the option of the holder thereof, at any time and from time
to time, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $1.00 (with respect to the conversion of shares of
Series A Preferred Stock) and $1.50 (with respect to the
-36-
<PAGE> 37
conversion of shares of Series B Preferred Stock) by the appropriate Conversion
Price (as defined below) in effect at the time of conversion. The conversion
price at which shares of Common stock shall be deliverable upon conversion of
Convertible Preferred Stock without the payment of additional consideration by
the holder thereof (the "Conversion Price") shall initially be $1.00 (with
respect to the conversion of shares of Series A Preferred Stock) and $1.50 (with
respect to the conversion of shares of Series B Preferred Stock). Such initial
Conversion Price, and the rate at which shares of Convertible Preferred Stock
may be converted into shares of Common Stock, shall be subject to adjustment as
provided below.
In the event of a notice of redemption of any shares of Convertible
Preferred Stock pursuant to Section 7 hereof, the Conversion Rights of the
shares designated for redemption shall terminate at the close of business on the
fifth full day preceding the date fixed for redemption, unless the redemption
price is not paid when due, in which case the Conversion Rights for such shares
shall continue until such price is paid in full. In the event of a liquidation,
dissolution or winding up of the Corporation, the Conversion Rights shall
terminate at the close of business on the fifth full day preceding the date
fixed for the payment of any amounts distributable on liquidation, dissolution
or winding up to the holders of Convertible Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the Convertible Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
applicable Conversion Price.
(c) Mechanics of Conversion.
-----------------------
(i) In order for a holder of shares of Convertible Preferred
Stock to convert such shares of Convertible Preferred Stock into shares of
Common Stock, such holder shall surrender the certificate or certificates for
such shares of Convertible Preferred Stock at the office of the transfer agent
for such Convertible Preferred Stock (or at the principal office of the
Corporation if the Corporation serves as its own transfer agent), together with
written notice that such holder elects to convert all or any number of the
shares of such Convertible Preferred Stock represented by such certificate or
certificates. Such notice shall state such holder's name or the names of the
nominees in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed
-37-
<PAGE> 38
by the registered holder or his or its attorney duly authorized in writing. The
date of receipt of such certificates and notice by the transfer agent (or by the
Corporation if the Corporation serves as its own transfer agent) shall be the
conversion date ("Conversion Date"). The Corporation shall, as soon as
practicable after the Conversion Date, issue and deliver at such office to such
holder of such shares of Convertible Preferred Stock, or to his or its nominees,
a certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled, together with cash in lieu of any fraction of a
share, and all declared but unpaid dividends.
(ii) The Corporation shall at all times when any Convertible
Preferred Stock is outstanding, reserve and keep available out of its authorized
but unissued stock, for the purpose of effecting the conversion of the
Convertible Preferred Stock, such number of its duly authorized shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding Convertible Preferred Stock. Before taking any action which would
cause an adjustment reducing the Conversion Price below the then par value of
the shares of Common Stock issuable upon conversion of the Convertible Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the Conversion
Price shall be made for any declared and unpaid dividends on the Convertible
Preferred Stock surrendered for conversion or on the Common Stock delivered upon
conversion, which dividends shall be paid in accordance with clause (iv) below.
(iv) All shares of Convertible Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be deemed to
be outstanding and all rights with respect to such shares, including the rights,
if any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any declared and
unpaid dividends thereon. Any shares of Convertible Preferred Stock so converted
shall be retired and cancelled and shall not be reissued, and the Corporation
(without the need for stockholder action) may from time to time take such
appropriate action as may be necessary to reduce accordingly the authorized
shares of either or both series of Convertible Preferred Stock.
(v) The Corporation shall pay any and all issue and other taxes
that may be payable in respect of any issuance or
-38-
<PAGE> 39
delivery of shares of Common Stock upon conversion of shares of Convertible
Preferred Stock pursuant to this Section 4. The Corporation shall not, however,
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of shares of Common Stock in a name other
than that in which the shares of Convertible Preferred Stock so converted were
registered, and no such issuance or delivery shall be made unless and until the
person or entity requesting such issuance has paid to the Corporation the amount
of any such tax or has established, to the satisfaction of the Corporation, that
such tax has been paid.
(d) Adjustments for Diluting Issues.
-------------------------------
(i) SPECIAL DEFINITIONS. For purposes of this Subsection 4(d),
the following definitions shall apply:
(A) Option shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding (i) awards granted to employees or consultants of the
Corporation pursuant to the Corporation's 1994 Equity Incentive Plan (the
"Plan") as adopted and amended by the Board of Directors, to acquire up to a
maximum of 1,879,453 shares of Common Stock (subject to appropriate adjustment
for any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) and (ii) warrants issued to the original
holders of the Series A Preferred Stock and not subsequently cancelled (the
"Warrants").
(B) ORIGINAL ISSUE DATE shall mean the date on which a share
of Series A Preferred Stock was first issued.
(C) CONVERTIBLE SECURITIES shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock, excluding shares of Series A Preferred Stock
issued in exercise of the Warrants and shares of Convertible Preferred Stock
issued upon conversion of the Company's Secured Convertible Term Notes due
January 15, 1997 (the "Notes").
(D) ADDITIONAL SHARES OF COMMON STOCK shall mean all shares
of Common Stock issued (or, pursuant to Subsection 5(d)(iii) below, deemed to be
issued) by the Corporation after the Original Issue Date, other than shares of
Common Stock issued or issuable:
(I) upon conversion of shares of Series A Preferred
Stock outstanding on the Original Issue Date or
upon conversion of shares of Series A
-39-
<PAGE> 40
Preferred Stock issued upon the
exercise of the Warrants;
(II) as a dividend or distribution on
Convertible Preferred Stock;
(III) by reason of a dividend or
distribution covered by
Subsection 5(f) hereof, a stock
split, or subdivision of shares of
Common Stock covered by
Subsection 5(e) hereof, or by reason
of a dividend, stock split
subdivision or other distribution on
shares of Common Stock excluded from
the definition of Additional Shares
of Common Stock by the foregoing
clauses (I) and (II) or this clause
(III);
(IV) upon the exercise of awards or
warrants excluded from the
definition of "Option" in
Subsection 5(d)(i)(A);
(V) upon conversion of shares of Convertible
Preferred Stock issued as interest on or
upon conversion of the Notes; or
(VI) to Cornell Research Foundation,
Inc., Gary W. Pace and Dennis I.
Goldberg of 360,547 shares of Common
Stock in the aggregate.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the
number of shares of Common Stock into which the Convertible Preferred Stock is
convertible shall be made by adjustment in the applicable Conversion Price
thereof: (a) unless the consideration per share (determined pursuant to
Subsection 5(d)(v)) for an Additional Share of Common Stock issued or deemed to
be issued by the Corporation is less than the applicable Conversion Price in
effect on the date of, and immediately prior to, the issue of such Additional
Shares, or (b) if prior to such issuance, the Corporation receives written
notice from the holders of (i) at least 75% of the then outstanding shares of
Series A Preferred Stock (with respect to the Conversion Price thereof) and/or
(ii) at least 75% of the then outstanding shares of Series B Preferred Stock
(with respect to the Conversion Price thereof) agreeing that no such adjustment
-40-
<PAGE> 41
shall be made as the result of the issuance of Additional Shares of Common
Stock.
(iii) ISSUE OF OPTIONS AND CONVERTIBLE SECURITIES
DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON
STOCK.
If the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares of Common Stock (as set forth in the instrument relating thereto
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Subsection 5(d)(v) hereof)
of such Additional Shares of Common Stock would be less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided further that in any such
case in which Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Conversion Price shall be made upon
the subsequent issue of Convertible Securities or shares of Common Stock upon
the exercise of such Options or conversion or exchange of such Convertible
Securities;
(B) If such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any increase in the consideration
payable to the Corporation, or decrease in the number of shares of Common Stock
issuable, upon the exercise, conversion or exchange thereof, the Conversion
Price computed upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be recomputed to
reflect such increase or decrease insofar as it affects such Options or the
rights of conversion or exchange under such Convertible Securities;
(C) No readjustment pursuant to clause (B) above shall have the effect
of increasing the Conversion Price to an amount which exceeds the lower of (i)
the Conversion Price on
-41-
<PAGE> 42
the original adjustment date, or (ii) the Conversion Price that would have
resulted from any issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date;
(D) Upon the expiration or termination of any unexercised Option, the
Conversion Price shall not be readjusted, but the Additional Shares of Common
Stock deemed issued as the result of the original issue of such Option shall not
be deemed issued for the purposes of any subsequent adjustment of the Conversion
Price; and
(E) In the event of any change in the number of shares of Common Stock
issuable upon the exercise, conversion or exchange of any Option or Convertible
Security, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price then in effect shall
forthwith be adjusted to such Conversion Price as would have obtained had the
adjustment which was made upon the issuance of such Option or Convertible
Security (prior to such change) been made upon the basis of such change, but no
further adjustment shall be made for the actual issuance of Common Stock upon
the exercise or conversion of any such Option or Convertible Security.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL SHARES OF
COMMON STOCK.
In the event the Corporation shall issue, at any time or from time to time
after the Original Issue Date, Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection
5(d)(iii), but excluding shares issued as a dividend or distribution as provided
in Subsection 5(f) or upon a stock split or combination as provided in
Subsection 5(e)), without consideration or for a consideration per share less
than the applicable Conversion Price in effect on the date of and immediately
prior to such issue, then and in such event, such Conversion Price shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Conversion Price by a fraction, (A) the
numerator of which shall be (1) the number of shares of Common Stock outstanding
immediately prior to such issue plus (2) the number of shares of Common Stock
which the aggregate consideration received by the Corporation for the total
number of Additional Shares of Common Stock so issued would purchase at such
Conversion Price; and (B) the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issue plus the number of
such Additional Shares of Common Stock so issued; PROVIDED THAT, for the purpose
of this Subsection 5(d)(iv), all shares of Common Stock issuable upon conversion
of shares of Convertible Preferred Stock outstanding
-42-
<PAGE> 43
immediately prior to such issue shall be deemed to be outstanding, and
immediately after any Additional Shares of Common Stock are deemed issued
pursuant to Subsection 5(d)(iii) (other than shares excluded from the definition
of "Additional Shares of Common Stock" by virtue of clause (IV) of Subsection
5(d)(i)(D)), such Additional Shares of Common Stock shall be deemed to be
outstanding.
Notwithstanding the foregoing, the applicable Conversion Price shall not be
so reduced at such time if the amount of such reduction would be an amount less
than $.05, but any such amount shall be carried forward and reduction with
respect thereto made at the time of and together with any subsequent reduction
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate $.05 or more.
(v) DETERMINATION OF CONSIDERATION. For purposes of this Subsection
5(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration shall:
(I) insofar as it consists of cash, be
computed at the aggregate of cash received by the Corporation, excluding amounts
paid or payable for accrued interest or accrued dividends;
(II) insofar as it consists of property
other than cash, be computed at the fair market value thereof at the time of
such issue, as determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of
Common Stock are issued together with other shares or securities or other assets
of the Corporation for consideration which covers both, be the proportion of
such consideration so received, computed as provided in clauses (I) and (II)
above, as determined in good faith by the Board of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per
share received by the Corporation for Additional Shares of Common Stock deemed
to have been issued pursuant to Subsection 5(d)(iii), relating to Options and
Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate
-43-
<PAGE> 44
amount of additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such consideration) payable to the Corporation upon the exercise
of such Options or the conversion or exchange of such Convertible Securities, or
in the case of Options for Convertible Securities, the exercise of such Options
for Convertible Securities and the conversion or exchange of such Convertible
Securities, in either case for the issuance of the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities, by
(y) the maximum number of shares of Common Stock (as set forth in
the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the exercise
of such Options or the conversion or exchange of such Convertible Securities.
(e) ADJUSTMENTS FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall, at any time or from time to time after the Original Issue Date, effect a
subdivision of the outstanding Common Stock, the Conversion Price then in effect
immediately before that subdivision shall be proportionately decreased. If the
Corporation shall, at any time or from time to time while there are any shares
of Convertible Preferred Stock outstanding, combine the outstanding shares of
Common Stock, the Conversion Price then in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price then in effect shall be decreased as of the time of such issuance or, in
the event such a record date shall have been fixed, as of the close of business
on such record date, by multiplying the Conversion Price then in effect by a
fraction:
(1) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and
-44-
<PAGE> 45
(2) the denominator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend
or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be recomputed accordingly as of the close
of business on such record date and thereafter the Conversion Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of Convertible
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of the
Corporation that they would have received had such holder's shares of
Convertible Preferred Stock been converted into Common Stock on the date of such
event and had thereafter, during the period from the date of such event to and
including the conversion date, retained such securities receivable by them as
aforesaid during such period giving application to all adjustments called for
during such period, under this paragraph with respect to the rights of the
holders of the Convertible Preferred Stock.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If the
Common Stock issuable upon the conversion of the Convertible Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares of stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of each such
share of Convertible Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of
Convertible Preferred Stock might have been converted immediately prior to
-45-
<PAGE> 46
such reorganization, reclassification, or change, all subject to further
adjustment as provided herein.
(i) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. Subject to Section 3
hereof, in case of any consolidation or merger of the Corporation with or into
another corporation (except one in which the holders of capital stock of the
Corporation immediately prior to such merger or consolidation continue to hold
greater than 50% by voting power of the capital stock of the surviving
corporation), or the sale of all or substantially all of the assets of the
Corporation to another corporation, each share of Convertible Preferred Stock
shall thereafter be convertible into the kind and amount of shares of stock or
other securities or property to which a holder of the number of shares of Common
Stock of the Corporation deliverable upon conversion of such Convertible
Preferred Stock would have been entitled upon such consolidation, merger or sale
and, in such case, appropriate adjustment (as determined in good faith by the
Board of Directors) shall be made in the application of the provisions set forth
in this Section 5 with respect to the rights and interest thereafter of the
holders of the Convertible Preferred Stock, to the end that the provisions set
forth in this Section 5 (including provisions with respect to changes in and
other adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Convertible Preferred
Stock.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or By-laws or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all the
provisions of this Section 5 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Convertible Preferred Stock against impairment.
(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock and/or Series B Preferred Stock (as applicable) a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of shares of
Convertible
-46-
<PAGE> 47
Preferred Stock, furnish or cause to be furnished to such holder a similar
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price then in effect, and (iii) the number of shares of Common Stock
and the amount, if any, of other property which then would be received upon the
conversion of Series A Preferred Stock or and/or Series B Preferred Stock (as
applicable).
(I) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common
Stock or other securities of the Corporation;
(ii) that the Corporation splits, subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a stock split, subdivision or
combination of its outstanding shares of Common Stock
or a stock dividend or stock distribution thereon), or
of any consolidation or merger of the Corporation into
or with another corporation, or of the sale of all or
substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Convertible Preferred Stock, and shall cause
to be mailed to the holders of the Convertible Preferred Stock at their last
addresses as shown on the records of the Corporation or such transfer agent, at
least ten days prior to the record date specified in (A) below or twenty days
before the date specified in (B) below, a notice stating:
(A) the record date of such dividend, distribution, stock
split, subdivision or combination, or, if a record is
not to be taken, the date as of which the holders of
Common Stock of record to be entitled to such dividend,
distribution, stock
-47-
<PAGE> 48
split, subdivision or combination are to be determined,
or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which
it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, sale,
dissolution or winding up.
6. Mandatory Conversion.
--------------------
a. The Corporation may, at its option, require all (but not less than
all) of the shares of Series A Preferred Stock or Series B Preferred Stock, or
both then outstanding to be converted automatically into shares of Common Stock,
at the then current Conversion Price, upon the consummation of an underwritten
public offering of Common Stock of the Corporation pursuant to a registration
statement filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock to the
public in a firm commitment underwriting at a price of at least $4.00 per share
and resulting in the receipt by the Corporation of net proceeds from such sale
of not less than $10,000,000 (a "Qualified Public Offering").
b. All holders of record of shares of Convertible Preferred Stock to
be converted hereunder will be given at least 10 days' prior written notice of
the date fixed and the place designated for mandatory conversion of all of such
shares of Convertible Preferred Stock pursuant to this Section 6. Such notice
will be sent by first class or registered mail, postage prepaid, to each record
holder of Convertible Preferred Stock at such holder's address appearing on the
stock register. On or before the date fixed for conversion, each holder of
shares of Convertible Preferred Stock shall surrender his or its certificate or
certificates for all such shares to the Corporation at the place designated in
such notice, and shall thereafter receive certificates for the number of shares
of Common Stock to which such holder is entitled pursuant to this Section 6. On
the date fixed for conversion, all rights with respect to the Convertible
Preferred Stock so converted will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates therefor,
to receive certificates for the number of shares of Common Stock into which such
Convertible Preferred
-48-
<PAGE> 49
Stock has been converted. If so requested by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or by his or its attorney duly authorized
in writing. All certificates evidencing shares of Convertible Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the date such certificates are so
required to be surrendered, be deemed to have been retired and canceled and the
shares of Convertible Preferred Stock represented thereby converted into Common
Stock for all purposes, notwithstanding the failure of the holder or holders
thereof to surrender such certificates on or prior to such date. As soon as
practicable after the date of such mandatory conversion and the surrender of the
certificate or certificates for Convertible Preferred Stock, the Corporation
shall cause to be issued and delivered to such holder, or on his or its written
order, a certificate or certificates for the number of full shares of Common
Stock issuable on such conversion in accordance with the provisions hereof and
cash as provided in Subsection 5(b) in respect of any fraction of a share of
Common Stock otherwise issuable upon such conversion.
7. Redemption of Convertible Preferred Stock at Option of Holder.
-------------------------------------------------------------
a. Upon the fifth or any later anniversary of April 5, 1994, if the
Corporation receives notice from holders of at least 75% of the then outstanding
shares of Series A Preferred Stock and/or 75% of the then outstanding shares of
Series B Preferred Stock agreeing to the redemption (the "Election Date"), on
the date 30 days after the Election Date and the two following anniversaries of
such day (collectively, the "Redemption Dates" and individually, a "Redemption
Date"), each holder of shares of such series of Convertible Preferred Stock
shall have the right to require the Corporation to redeem on each of those dates
up to 33%, 66% and 100% of the shares of such series of Convertible Preferred
Stock held by such holder on each of those dates, or such lesser number of
shares of such series of Convertible Preferred Stock as the holder may
determine. If any shares of Convertible Preferred Stock are eligible for
redemption in one year and the holder elects not to have such shares redeemed on
that Redemption Date, such holder may elect to have all or a portion of such
shares redeemed on the anniversary of a Redemption Date in a later year;
provided, that, such election is not made after the third anniversary of the
first Redemption Date. Any holder desiring to exercise the redemption right
granted herein (a "Requesting Holder") shall provide written notice to the
Corporation setting forth the number of shares to be redeemed. On
-49-
<PAGE> 50
the Redemption Date and upon a holder's surrender, in accordance with this
Section 7(a), of his or its certificates representing shares to be redeemed, the
redemption price shall be paid by the Corporation in cash in an amount equal to
$1.00 per share (with respect to the redemption of shares of Series A Preferred
Stock) and $1.50 per share (with respect to the redemption of shares of Series B
Preferred Stock) (subject to appropriate adjustment for stock splits, stock
dividends, combinations and other similar recapitalizations affecting such
shares), plus an amount equal to all declared but unpaid dividends payable in
accordance with Section 1 hereof on each share of Convertible Preferred Stock to
be redeemed (the "Redemption Price").
b. Subject to the satisfaction of the condition set forth in the first
sentence of Subsection 7(a) above, within five days following its receipt from a
Requesting Holder of a notice of intent to exercise redemption rights pursuant
to Subsection 7(a) hereof with respect to either or both series of Convertible
Preferred Stock, the Corporation shall provide each holder of shares of such
series of Convertible Preferred Stock, other than the Requesting Holder, with a
written notice (addressed to the holder at its address as it appears on the
stock transfer books of the Corporation) containing an offer to redeem shares of
such series of Convertible Preferred Stock as provided above, which notice shall
specify the applicable Redemption Price. Each holder of such series of
Convertible Preferred Stock, other than the Requesting Holder, will have until
10 days prior to the Redemption Date to provide the Corporation with written
notice of such holder's acceptance of the redemption offer, which notice shall
specify the number of shares to be redeemed. All notices or offers hereunder
shall be sent by first class or registered mail, postage prepaid, and shall be
deemed to have been provided when mailed.
c. In the event that any holder of Convertible Preferred Stock, other than
the Requesting Holder, does not provide the Corporation with written notice
pursuant to Section 7(b) of the holder's acceptance of the redemption offer on
or before the date 10 days prior to the applicable Redemption Date, the
Corporation shall have no obligation to redeem any shares of such series of
Convertible Preferred Stock of such holder on the Redemption Date specified in
its notice to such holder or at any time thereafter.
d. The provisions of Subsection 7(a) notwithstanding, any such optional
redemption is subject to the approval of a majority of the Board of Directors of
the Corporation and such majority may, in the good faith belief that the
requested redemption would be detrimental to the future prospects of the
Corporation, postpone such redemption for a period of one year.
-50-
<PAGE> 51
e. In addition to the redemption rights set forth in Subsection 7(a), in
the event that, (i) prior to the selection by the Corporation of a permanent
Chief Executive Officer, the holders of 75% of the then outstanding shares of
Series A Preferred Stock agree, or (ii) subsequent to such selection, a majority
of the Corporation's Board of Directors agrees that an adverse change in the
business prospects of the Corporation has occurred, then each holder of shares
of Convertible Preferred Stock may elect, at his or its option, to have the
Corporation redeem (on the date 30 days after such election) some or all of such
shares at the Redemption Price; provided that, if the Corporation's funds are
insufficient to make the requested redemption possible at the Redemption Price,
then each holder who elected to redeem shall be entitled to redeem a ratable
portion of his or its shares based on the availability of funds.
f. On or prior to the Redemption Date, unless postponed pursuant to
Subsection 7(d) above, the Requesting Holder and each other holder of
Convertible Preferred Stock accepting the Corporation's redemption offer shall
surrender his or its certificate or certificates representing the shares to be
redeemed, in the manner and at the place designated in the Corporation's
redemption offer. If less than all shares represented by such certificate or
certificates are redeemed, the Corporation shall issue a new certificate for the
unredeemed shares. From and after the Redemption Date, unless there shall be a
default in payment of the Redemption Price, all rights of each holder with
respect to shares of Convertible Preferred Stock redeemed on the Redemption Date
shall cease (except the right to receive the Redemption Price without interest
upon surrender of the certificate or certificates therefor), and such shares
shall not be deemed to be outstanding for any purpose whatsoever. Such shares of
redeemed Convertible Preferred Stock shall not be reissued, and the Corporation
may from time to time take such appropriate action as may be necessary to reduce
the authorized Preferred Stock accordingly.
g. For the purpose of determining whether funds are legally available for
redemption of shares of Convertible Preferred Stock as provided herein, the
Corporation shall value its assets at the highest amount permissible under
applicable law. If on the Redemption Date funds of the Corporation legally
available therefor shall be insufficient to redeem all the shares of Convertible
Preferred Stock required to be redeemed as provided herein, funds to the extent
legally available shall be used for such purpose and the Corporation shall
effect such redemption pro rata according to the amount otherwise receivable by
each holder accepting the Corporation's redemption offer. The redemption
requirements provided hereby shall be continuous, so that if on the Redemption
Date such requirements shall not be fully
-51-
<PAGE> 52
discharged, without further action by any holder of Convertible Preferred Stock,
funds legally available shall be applied therefor until such requirements are
fully discharged.
h. The foregoing provisions of this Section 7 shall terminate on the
consummation of a Qualified Public Offering.
8. Redemption of Non-Convertible Preferred Stock at Option of Holder.
-----------------------------------------------------------------
a. In the event of transfers aggregating more than 50% of the
outstanding Series A Preferred Stock or more than 50% of the outstanding Series
B Preferred Stock to holders of record who are not (i) stockholders of the
Corporation, (ii) the original holders of Convertible Preferred Stock, (iii)
Clintec Nutrition Company (with respect solely to transfers of shares of Series
A Preferred Stock) or (iv) any affiliates, partners or stockholders of any
applicable individuals or entities set forth in clauses (ii) or (iii) hereof and
upon the election at any time thereafter of the holders of a majority of the
Non-Convertible Preferred Stock, the Corporation will redeem upon the later of
(A) thirty (30) days after the consummation of the last such transfer or (B) ten
(10) days after the Corporation's receipt of the notice of election of
redemption from holders of a majority of the NonConvertible Preferred Stock one
quarter of the then outstanding shares of Non-Convertible Preferred Stock (the
"Initial Redemption Date") and one quarter of such shares in each of the
following three years on the anniversary date of the Initial Redemption Date
(collectively, the "Redemption Dates" each a "Redemption Date") at a price equal
to $1,000 per share plus any accrued, but unpaid dividends. The Corporation
shall give written notice to the holders of record of the Non-Convertible
Preferred Stock within 30 business days after there have been transfers of more
than 50% of the outstanding shares of Series A Preferred Stock and/or more than
50% of the outstanding Series B Preferred Stock as provided in this subsection
8(a).
If at the time of any due date of a redemption payment pursuant to this
Subsection 8(a) the Corporation is then obligated to make a redemption pursuant
to Section 7, no payment shall be made under this Subsection 8(a) until the
Corporation's obligations under Section 7 have been satisfied in full.
b. The provisions of Subsection 8(a) notwithstanding, a majority of
the Board of Directors of the Corporation may, in the good faith belief that the
requested redemption would be detrimental to the Corporation's interests,
postpone such redemption for a period of one year.
-52-
<PAGE> 53
c. The Corporation may elect, at any time, to redeem 100% of the
then-outstanding shares of Non-Convertible Preferred Stock at a price equal to
$1,000 per share plus any accrued, but unpaid dividends.
d. On or prior to the Redemption Date, unless postponed pursuant to
Section 8(b) above, each holder of NonConvertible Preferred Stock shall
surrender his or its certificate or certificates representing the shares to be
redeemed, in the manner and at the place designated by the Corporation. If less
than all shares represented by such certificate or certificates are redeemed,
the Corporation shall issue a new certificate for the unredeemed shares. From
and after the Redemption Date, unless there shall be a default in payment of the
Redemption Price, all rights of each holder with respect to shares of
Non-Convertible Preferred Stock redeemed on the Redemption Date shall cease
(except the right to receive the Redemption Price without interest upon
surrender of the certificate or certificates therefor), and such shares shall
not be deemed to be outstanding for any purpose whatsoever. Such shares of
Non-Convertible Preferred Stock shall not be reissued, and the Corporation may
from time to time take such appropriate action as may be necessary to reduce the
authorized Non-Convertible Preferred Stock accordingly.
-53-
<PAGE> 54
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
TRANSCEND THERAPEUTICS, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
-------------------------
Transcend Therapeutics, Inc., a Delaware corporation (the "Corporation"),
does hereby certify, pursuant to Section 242 of the General Corporation Law of
the State of Delaware, that:
FIRST: In a meeting of the members of the Board of Directors of the
Corporation at which a quorum was present at all times held on August 20, 1996,
resolutions were duly adopted proposing an Amendment to the Restated Certificate
of Incorporation of the Corporation changing Article FOURTH of the Restated
Certificate of Incorporation as provided for herein, and submitting such
proposal to the stockholders of the Corporation.
SECOND: Pursuant to Section 228 of the General Corporation Law of the State
of Delaware, the proposed Amendment to the Restated Certificate of Incorporation
has been approved and adopted by the stockholders of the Corporation and written
notice has been given as provided in Section 228.
THIRD: Accordingly, Article FOURTH of the Restated Certificate of
Incorporation of the Corporation is hereby deleted in its entirety and replaced
as set forth in EXHIBIT A hereto.
IN WITNESS WHEREOF, Transcend Therapeutics, Inc. has caused this
Certificate of Amendment to its Restated Certificate of Incorporation, as
amended, to be executed by B. Nicholas Harvey, Vice President, Finance and Chief
Financial Officer of the Corporation, this 28th day of August, 1996.
TRANSCEND THERAPEUTICS, INC.
By: /s/ B. Nicholas Harvey
---------------------------
B. Nicholas Harvey
Vice President, Finance and
Chief Financial Officer
<PAGE> 55
Exhibit A
---------
FOURTH: The total number and classes of shares of capital stock that the
Corporation shall have authority to issue is as follows: (i) 25,000,000 shares
of Common Stock, par value $.01 per share ("Common Stock") and (ii) 20,255,319
shares of Preferred Stock, par value $.01 per share ("Preferred Stock").
The following is a statement of the designation and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK
------------
1. GENERAL. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
3. Dividends.
----------
a. Dividends may be declared and paid on the Common Stock from funds
lawfully available therefor as and when determined by the Board of Directors,
provided, however, that (i) the declaration and payment of any such dividends
shall be subject to any preferential dividend rights of any then outstanding
Preferred Stock, (ii) no dividends shall be declared and paid on the Common
Stock unless there is at the same time a dividend declared and paid on each
share of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock (each as defined below) in an amount equal to the dividends
declared and paid on the number of whole shares of Common Stock into which such
share is convertible (as adjusted from time to time pursuant to Section 5
hereof), and (iii) there shall not be declared or paid any dividends or
distributions (as defined below) on shares of Common Stock without the approval
of the holders of at least 75% of the shares of Series A Preferred Stock, at
least 75% of the Series B Preferred Stock and at least 75% of the Series C
Preferred Stock then outstanding.
b. For purposes of this Section 3, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption
<PAGE> 56
of shares of the Corporation (other than repurchases of Common Stock held by
employees or directors of, or consultants to, the Corporation pursuant to
agreements providing for such repurchase upon a right of first refusal,
restricted stock agreement or other similar agreement, and other than
redemptions in liquidation or dissolution of the Corporation) for cash or
property, including any such transfer, purchase or redemption by a subsidiary of
this Corporation.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
5. SPECIAL VOTES. The number of authorized shares of Common Stock may be
increased or decreased (but not below the number of shares then outstanding) by
the affirmative vote of the holders of 75% of the then outstanding shares of the
Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock (each as defined below) voting as a single class.
B. PREFERRED STOCK.
---------------
1. Designation.
-----------
a. Twelve Million Nine Hundred Ninety-One Thousand (12,991,000) shares
of the authorized and unissued Preferred Stock of the Corporation are hereby
designated "Series A Convertible Preferred Stock" (the "Series A Preferred
Stock") with the rights, preferences, powers, privileges and restrictions,
qualifications and limitations set forth below.
b. Three Million (3,000,000) shares of the authorized and unissued
Preferred Stock of the Corporation are hereby designated "Series B Convertible
Preferred Stock" (the "Series B Preferred Stock") with the rights, preferences,
powers, privileges and restrictions, qualifications and limitations set forth
below.
c. Four Million, Two Hundred Fifty-Five Thousand Three Hundred and
Nineteen (4,255,319) shares of the authorized and unissued Preferred Stock of
the Corporation are hereby designated "Series C Convertible Preferred Stock"
(the "Series C Preferred Stock") with the rights, preferences, powers,
privileges and restrictions, qualifications and limitations set forth below. The
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
are sometimes referred to collectively herein as the "Convertible Preferred
Stock."
d. Nine thousand (9,000) shares of the authorized and unissued
Preferred Stock of the Corporation are hereby designated "Non-Convertible
Preferred
2
<PAGE> 57
Stock" (the "Non-Convertible Preferred Stock") with the rights, preferences,
powers, privileges and restrictions, qualifications and limitations set forth
below.
2. Dividends.
---------
a. The holders of the Convertible Preferred Stock shall be entitled to
receive, out of any funds legally available therefor, dividends in an amount per
share equal to the dividends declared and paid on the number of whole shares of
Common Stock into which a share of such series of Convertible Preferred Stock is
convertible (as adjusted from time to time pursuant to Section 5 hereof).
b. The holders of the Non-Convertible Preferred Stock shall be
entitled to receive, out of any funds legally available therefor, cumulative
dividends at an annual rate of $70.00 per share. Dividends shall be cumulative
and shall accrue, whether or not declared, from and after the date of issuance.
3. Liquidation, Dissolution and Winding Up.
---------------------------------------
a. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
Convertible Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its stockholders,
before any payment shall be made to the holders of Non-Convertible Preferred
Stock or Common Stock by reason of their ownership thereof, an amount equal to
$1.00 per share (with respect to shares of Series A Preferred Stock), $1.50 per
share (with respect to shares of Series B Preferred Stock) and $2.35 per share
(with respect to shares of Series C Preferred Stock) (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares), plus any dividends declared but
unpaid thereon. If upon any such liquidation, dissolution or winding up of the
Corporation the remaining assets of the Corporation available for distribution
to its stockholders shall be insufficient to pay the holders of shares of
Convertible Preferred Stock the full amount to which they shall be entitled, the
holders of shares of Convertible Preferred Stock shall share ratably in any
distribution of the remaining assets and funds of the Corporation in proportion
to the respective amount which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
b. After the payment of all preferential amounts required to be paid
to the holders of Convertible Preferred Stock, upon the dissolution, liquidation
or winding up of the Corporation, the holders of shares of Non-Convertible
Preferred Stock then outstanding shall be entitled, by reason of their ownership
thereof, to receive an amount equal to $1,000.00 per share (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar
3
<PAGE> 58
recapitalization affecting such shares), plus any dividends declared or accrued
but unpaid thereon. If upon any such liquidation, dissolution or winding up of
the Corporation, the remaining assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the holders of
shares of Non-Convertible Preferred Stock the full amount to which they shall be
entitled, the holders of shares of Non-Convertible Preferred Stock shall share
ratably in any distribution of the remaining assets and funds of the Corporation
in proportion to the respective amounts which would otherwise be payable in
respect of the shares held by them upon such distribution if all amounts payable
on or with respect to such shares were paid in full.
c. After the payment of all preferential amounts required to be paid
to the holders of Convertible Preferred Stock and Non-Convertible Preferred
Stock, upon the dissolution, liquidation or winding up of the Corporation,
subject to paragraph (d) of this Section 3 below, the remaining assets and funds
of the Corporation available for distribution to its stockholders shall be
distributed among the holders of shares of Convertible Preferred Stock and
Common Stock held by each (assuming conversion into Common Stock of all such
shares).
d. In the event of any merger or consolidation of the Corporation into
or with another corporation (except one in which the holders of capital stock of
the Corporation immediately prior to such merger or consolidation continue to
hold greater than 50% by voting power of the capital stock of the surviving
corporation), or the sale of all or substantially all of the assets of the
Corporation, such merger, consolidation or asset sale shall be deemed to be a
liquidation of the Corporation. In the event of such merger, consolidation or
asset sale, each holder of Convertible Preferred Stock shall receive such
holder's preference pursuant to the terms of Paragraph (a) of this Section 3 and
participate with the holders of Common Stock pursuant to Paragraph (c) of this
Section 3, up to a cap of total proceeds from the liquidation of $4.00 per
share; provided, however, that each holder of Convertible Preferred Stock shall
have the right to elect to participate in the transaction pursuant to the
provisions of Subsection 5(i) hereof in lieu of receiving such holder's
preference and participating up to a cap. The amount deemed distributed to the
holders of Convertible Preferred Stock upon any such merger or consolidation
shall be cash or the value of the property, rights or securities distributed to
such holders by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined in good faith by the
Board of Directors of the Corporation.
4. Voting.
------
a. Each holder of outstanding shares of Convertible Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which the shares held by such holder are convertible (as
adjusted
4
<PAGE> 59
from time to time pursuant to Section 5 hereof), at each meeting of stockholders
of the Corporation (and written actions of stockholders in lieu of meetings)
with respect to any and all matters presented to the stockholders of the
Corporation for their action or consideration. Except as provided by law or as
otherwise set forth herein, holders of Convertible Preferred Stock and Common
Stock shall vote together as a single class.
b. The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of any series of Convertible Preferred Stock so
as to affect adversely such series of Convertible Preferred Stock, without the
written consent or affirmative vote of the holders of 75% of the then
outstanding shares of such series of Preferred Stock, given in writing or by
vote at a meeting, consenting or voting (as the case may be) separately as a
class. For this purpose, without limiting the generality of the foregoing, the
authorization or issuance of any series of Preferred Stock with preference or
priority over either series of Convertible Preferred Stock as to the right to
receive either dividends or amounts distributable upon liquidation, dissolution
or winding up of the Corporation shall be deemed to affect adversely such series
of Convertible Preferred Stock, and the authorization or issuance of any series
of Preferred Stock on a parity with either series of Convertible Preferred Stock
as to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall not be deemed to
affect adversely such series of Preferred Stock. The number of authorized shares
of either series of Convertible Preferred Stock may be increased or decreased
(but not below the number of shares then outstanding) by the affirmative vote of
the holders of 75% of the then outstanding shares of such series of Convertible
Preferred Stock, voting as a single class.
c. Except as provided by law, the Non-Convertible Preferred Stock
shall have no voting rights.
5. OPTIONAL CONVERSION. The holders of the Convertible Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
a. RIGHT TO CONVERT. Each share of Convertible Preferred Stock shall
be convertible, at the option of the holder thereof, at any time and from time
to time, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $1.00 (with respect to the conversion of shares of
Series A Preferred Stock), $1.50 (with respect to the conversion of shares of
Series B Preferred Stock) and $2.35 (with respect to the conversion of shares of
Series C Preferred Stock) by the appropriate Conversion Price (as defined below)
in effect at the time of conversion. The conversion price at which shares of
Common Stock shall be deliverable upon conversion of Convertible Preferred Stock
without the payment of additional consideration by the holder thereof (the
"Conversion Price") shall initially be $1.00 (with respect to the conversion of
shares of Series A Preferred Stock), $1.50
5
<PAGE> 60
(with respect to the conversion of shares of Series B Preferred Stock) and $2.35
(with respect to the conversion of shares of Series C Preferred Stock). Such
initial Conversion Price, and the rate at which shares of Convertible Preferred
Stock may be converted into shares of Common Stock, shall be subject to
adjustment as provided below.
In the event of a notice of redemption of any shares of Convertible
Preferred Stock pursuant to Section 7 hereof, the Conversion Rights of the
shares designated for redemption shall terminate at the close of business on the
fifth full day preceding the date fixed for redemption, unless the redemption
price is not paid when due, in which case the Conversion Rights for such shares
shall continue until such price is paid in full. In the event of a liquidation,
dissolution or winding up of the Corporation, the Conversion Rights shall
terminate at the close of business on the fifth full day preceding the date
fixed for the payment of any amounts distributable on liquidation, dissolution
or winding up to the holders of Convertible Preferred Stock.
b. FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the Convertible Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
applicable Conversion Price.
c. Mechanics of Conversion.
------------------------
(i) In order for a holder of shares of Convertible Preferred
Stock to convert such shares of Convertible Preferred Stock into shares of
Common Stock, such holder shall surrender the certificate or certificates for
such shares of Convertible Preferred Stock at the office of the transfer agent
for such Convertible Preferred Stock (or at the principal office of the
Corporation if the Corporation serves as its own transfer agent), together with
written notice that such holder elects to convert all or any number of the
shares of such Convertible Preferred Stock represented by such certificate or
certificates. Such notice shall state such holder's name or the names of the
nominees in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or his or its attorney duly authorized in
writing. The date of receipt of such certificates and notice by the transfer
agent (or by the Corporation if the Corporation serves as its own transfer
agent) shall be the conversion date ("Conversion Date"). The Corporation shall,
as soon as practicable after the Conversion Date, issue and deliver at such
office to such holder of such shares of Convertible Preferred Stock, or to his
or its nominees, a certificate or certificates for the number of shares of
Common Stock to which such holder shall be
6
<PAGE> 61
entitled, together with cash in lieu of any fraction of a share, and all
declared but unpaid dividends.
(ii) The Corporation shall at all times when any Convertible
Preferred Stock is outstanding, reserve and keep available out of its authorized
but unissued stock, for the purpose of effecting the conversion of the
Convertible Preferred Stock, such number of its duly authorized shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding Convertible Preferred Stock. Before taking any action which would
cause an adjustment reducing the Conversion Price below the then par value of
the shares of Common Stock issuable upon conversion of the Convertible Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the Conversion
Price shall be made for any declared and unpaid dividends on the Convertible
Preferred Stock surrendered for conversion or on the Common Stock delivered upon
conversion, which dividends shall be paid in accordance with clause (iv) below.
(iv) All shares of Convertible Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be deemed to
be outstanding and all rights with respect to such shares, including the rights,
if any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any declared and
unpaid dividends thereon. Any shares of Convertible Preferred Stock so converted
shall be retired and cancelled and shall not be reissued, and the Corporation
(without the need for stockholder action) may from time to time take such
appropriate action as may be necessary to reduce accordingly the authorized
shares of any or all series of Convertible Preferred Stock.
(v) The Corporation shall pay any and all issue and other taxes
that may be payable in respect of any issuance or delivery of shares of Common
Stock upon conversion of shares of Convertible Preferred Stock pursuant to this
Section 4. The Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of shares of Common Stock in a name other than that in which the shares of
Convertible Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
7
<PAGE> 62
d. Adjustments for Diluting Issues.
--------------------------------
(i) SPECIAL DEFINITIONS. For purposes of this Subsection 4(d),
the following definitions shall apply:
(A) OPTION shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding (i) awards granted to employees or consultants of the
Corporation pursuant to the Corporation's 1994 Equity Incentive Plan (the
"Plan") as adopted and amended by the Board of Directors, to acquire up to a
maximum of 1,879,453 shares of Common Stock (subject to appropriate adjustment
for any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) and (ii) warrants (x) issued to the
original holders of the Series A Preferred Stock and not subsequently cancelled
and (y) to purchase 25,000 shares of Common Stock issued to the Massachusetts
Institute of Technology (collectively, the "Warrants").
(B) ORIGINAL ISSUE DATE shall mean the date on which a share
of Series C Preferred Stock was first issued.
(C) CONVERTIBLE SECURITIES shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock, excluding shares of Series A Preferred Stock
or Common Stock issued upon exercise of the Warrants and shares of Series A
Preferred Stock and Series B Preferred Stock issued upon conversion of the
Company's Secured Convertible Term Notes due January 15, 1997 (as amended, the
"Notes").
(D) ADDITIONAL SHARES OF COMMON STOCK shall mean all shares
of Common Stock issued (or, pursuant to Subsection 5(d)(iii) below, deemed to be
issued) by the Corporation after the Original Issue Date, other than shares of
Common Stock issued or issuable:
(I) upon conversion of shares of Convertible
Preferred Stock outstanding on the Original Issue
Date or upon conversion of shares of Series A
Preferred Stock or Common Stock issued upon the
exercise of the Warrants;
(II) as a dividend or distribution on Convertible
Preferred Stock;
(III) by reason of a dividend or distribution covered
by Subsection 5(f) hereof, a stock split, or
subdivision of shares of Common Stock covered by
Subsection 5(e) hereof, or by
8
<PAGE> 63
reason of a dividend, stock split subdivision or
other distribution on shares of Common Stock
excluded from the definition of Additional Shares
of Common Stock by the foregoing clauses (I) and
(II) or this clause (III);
(IV) upon the exercise of awards or warrants excluded
from the definition of "Option" in Subsection
5(d)(i)(A);
(V) upon issuance or conversion of shares of
Convertible Preferred Stock issued as interest on
or upon conversion of the Notes;
(VI) upon the exchange of the Company's Non-
Convertible Preferred Stock for Convertible
Preferred Stock; or
(VII) to Cornell Research Foundation, Inc., Gary W.
Pace and Dennis I. Goldberg of 360,547 shares of
Common Stock in the aggregate.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. With respect to each
series of Convertible Preferred Stock, no adjustment in the number of shares of
Common Stock into which shares of such series of Convertible Preferred Stock is
convertible shall be made by adjustment in the applicable Conversion Price
thereof: (a) unless the consideration per share (determined pursuant to
Subsection 5(d)(v)) for an Additional Share of Common Stock issued or deemed to
be issued by the Corporation is less than the applicable Conversion Price in
effect on the date of, and immediately prior to, the issue of such Additional
Shares, or (b) if prior to such issuance, the Corporation receives written
notice from the holders of (i) at least 75% of the then outstanding shares of
Series A Preferred Stock (with respect to the Conversion Price thereof), (ii) at
least 75% of the then outstanding shares of Series B Preferred Stock (with
respect to the Conversion Price thereof) and/or (iii) at least 75% of the then
outstanding shares of Series C Preferred Stock (with respect to the Conversion
Price thereof) agreeing that no such adjustment shall be made as the result of
the issuance of Additional Shares of Common Stock.
(iii) Issue of Options and Convertible Securities Deemed Issue of
-----------------------------------------------------------
Additional Shares of Common Stock.
- ----------------------------------
If the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for
9
<PAGE> 64
the determination of holders of any class of securities entitled to receive any
such Options or Convertible Securities, then the maximum number of shares of
Common Stock (as set forth in the instrument relating thereto without regard to
any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Subsection 5(d)(v) hereof) of such Additional
Shares of Common Stock would be less than the applicable Conversion Price in
effect on the date of and immediately prior to such issue, or such record date,
as the case may be, and provided further that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) No readjustment pursuant to clause (B) above shall have
the effect of increasing the Conversion Price to an amount which exceeds the
lower of (i) the Conversion Price on the original adjustment date, or (ii) the
Conversion Price that would have resulted from any issuance of Additional Shares
of Common Stock between the original adjustment date and such readjustment date;
(D) Upon the expiration or termination of any unexercised
Option, the Conversion Price shall not be readjusted, but the Additional Shares
of Common Stock deemed issued as the result of the original issue of such Option
shall not be deemed issued for the purposes of any subsequent adjustment of the
Conversion Price; and
(E) In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or exchange of any Option
10
<PAGE> 65
or Convertible Security, including, but not limited to, a change resulting from
the antidilution provisions thereof, the Conversion Price then in effect shall
forthwith be adjusted to such Conversion Price as would have obtained had the
adjustment which was made upon the issuance of such Option or Convertible
Security (prior to such change) been made upon the basis of such change, but no
further adjustment shall be made for the actual issuance of Common Stock upon
the exercise or conversion of any such Option or Convertible Security.
(iv) Adjustment of Conversion Price Upon Issuance of Additional
----------------------------------------------------------
Shares of Common Stock.
- -----------------------
In the event the Corporation shall issue, at any time or from time to time
after the Original Issue Date, Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection
5(d)(iii), but excluding shares issued as a dividend or distribution as provided
in Subsection 5(f) or upon a stock split or combination as provided in
Subsection 5(e)), without consideration or for a consideration per share less
than the applicable Conversion Price in effect on the date of and immediately
prior to such issue, then and in such event, such Conversion Price shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Conversion Price by a fraction, (A) the
numerator of which shall be (1) the number of shares of Common Stock outstanding
immediately prior to such issue plus (2) the number of shares of Common Stock
which the aggregate consideration received by the Corporation for the total
number of Additional Shares of Common Stock so issued would purchase at such
Conversion Price; and (B) the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issue plus the number of
such Additional Shares of Common Stock so issued; PROVIDED THAT, for the purpose
of this Subsection 5(d)(iv), all shares of Common Stock issuable upon conversion
of shares of Convertible Preferred Stock outstanding immediately prior to such
issue shall be deemed to be outstanding, and immediately after any Additional
Shares of Common Stock are deemed issued pursuant to Subsection 5(d)(iii) (other
than shares excluded from the definition of "Additional Shares of Common Stock"
by virtue of clause (IV) of Subsection 5(d)(i)(D)), such Additional Shares of
Common Stock shall be deemed to be outstanding.
Notwithstanding the foregoing, the applicable Conversion Price shall not be
so reduced at such time if the amount of such reduction would be an amount less
than $.05, but any such amount shall be carried forward and reduction with
respect thereto made at the time of and together with any subsequent reduction
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate $.05 or more.
11
<PAGE> 66
(v) Determination of Consideration.
-------------------------------
For purposes of this Subsection 5(d), the consideration received by the
Corporation for the issue of any Additional Shares of Common Stock shall be
computed as follows:
(A) Cash and Property: Such consideration shall:
------------------
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation, excluding amounts paid or payable
for accrued interest or accrued dividends;
(II) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (I) and (II) above,
as determined in good faith by the Board of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Subsection 5(d)(iii), relating to Options
and Convertible Securities, shall be determined by dividing
1) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, in either case for the
issuance of the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities, by
2) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
12
<PAGE> 67
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
e. ADJUSTMENTS FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall, at any time or from time to time after the Original Issue Date, effect a
subdivision of the outstanding Common Stock, the Conversion Price then in effect
immediately before that subdivision shall be proportionately decreased. If the
Corporation shall, at any time or from time to time while there are any shares
of Convertible Preferred Stock outstanding, combine the outstanding shares of
Common Stock, the Conversion Price then in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.
f. ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price then in effect shall be decreased as of the time of such issuance or, in
the event such a record date shall have been fixed, as of the close of business
on such record date, by multiplying the Conversion Price then in effect by a
fraction:
(i) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and
(ii) the denominator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be recomputed accordingly as of the close
of business on such record date and thereafter the Conversion Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.
g. ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event the
Corporation at any time or from time to time after the Original Issue Date shall
make or issue, or fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of Convertible
Preferred Stock shall
13
<PAGE> 68
receive upon conversion thereof in addition to the number of shares of Common
Stock receivable thereupon, the amount of securities of the Corporation that
they would have received had such holder's shares of Convertible Preferred Stock
been converted into Common Stock on the date of such event and had thereafter,
during the period from the date of such event to and including the conversion
date, retained such securities receivable by them as aforesaid during such
period giving application to all adjustments called for during such period,
under this paragraph with respect to the rights of the holders of the
Convertible Preferred Stock.
h. ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If the
Common Stock issuable upon the conversion of the Convertible Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares of stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of each such
share of Convertible Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of
Convertible Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
i. ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. Subject to Section 3
hereof, in case of any consolidation or merger of the Corporation with or into
another corporation (except one in which the holders of capital stock of the
Corporation immediately prior to such merger or consolidation continue to hold
greater than 50% by voting power of the capital stock of the surviving
corporation), or the sale of all or substantially all of the assets of the
Corporation to another corporation, each share of Convertible Preferred Stock
shall thereafter be convertible into the kind and amount of shares of stock or
other securities or property to which a holder of the number of shares of Common
Stock of the Corporation deliverable upon conversion of such Convertible
Preferred Stock would have been entitled upon such consolidation, merger or sale
and, in such case, appropriate adjustment (as determined in good faith by the
Board of Directors) shall be made in the application of the provisions set forth
in this Section 5 with respect to the rights and interest thereafter of the
holders of the Convertible Preferred Stock, to the end that the provisions set
forth in this Section 5 (including provisions with respect to changes in and
other adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Convertible Preferred
Stock.
j. NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or By-laws or through any reorganization, transfer
of
14
<PAGE> 69
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Convertible Preferred Stock against impairment.
k. CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock, Series B Preferred Stock and/or Series C Preferred
Stock (as applicable) a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of shares of Convertible Preferred Stock, furnish or cause to
be furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price then in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of Series A Preferred
Stock, Series B Preferred Stock and/or Series C Preferred Stock (as applicable).
l. Notice of Record Date. In the event:
----------------------
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other securities of
the Corporation;
(ii) that the Corporation splits, subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a stock split, subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or stock distribution
thereon), or of any consolidation or merger of the Corporation into or with
another corporation, or of the sale of all or substantially all of the assets of
the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Convertible Preferred Stock, and shall cause
to be mailed to the holders of the Convertible Preferred Stock at their last
addresses as shown on the records of the Corporation or such transfer agent, at
least ten days prior to the record
15
<PAGE> 70
date specified in (A) below or twenty days before the date specified in (B)
below, a notice stating:
(A) the record date of such dividend, distribution, stock
split, subdivision or combination, or, if a record is not to be taken, the date
as of which the holders of Common Stock of record to be entitled to such
dividend, distribution, stock split, subdivision or combination are to be
determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding up.
6. Mandatory Conversion.
---------------------
a. The Corporation may, at its option, require all (but not less than
all) of the shares of Series A Preferred Stock, Series B Preferred Stock and/or
Series C Preferred Stock then outstanding to be converted automatically into
shares of Common Stock, at the then current Conversion Price, upon the
consummation of an underwritten public offering of Common Stock of the
Corporation pursuant to a registration statement filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, covering the
offer and sale of Common Stock to the public in a firm commitment underwriting
at a price of at least $4.00 per share and resulting in the receipt by the
Corporation of net proceeds from such sale of not less than $10,000,000 (a
"Qualified Public Offering").
b. All holders of record of shares of Convertible Preferred Stock to
be converted hereunder will be given at least 10 days' prior written notice of
the date fixed and the place designated for mandatory conversion of all of such
shares of Convertible Preferred Stock pursuant to this Section 6. Such notice
will be sent by first class or registered mail, postage prepaid, to each record
holder of Convertible Preferred Stock at such holder's address appearing on the
stock register. On or before the date fixed for conversion, each holder of
shares of Convertible Preferred Stock shall surrender his or its certificate or
certificates for all such shares to the Corporation at the place designated in
such notice, and shall thereafter receive certificates for the number of shares
of Common Stock to which such holder is entitled pursuant to this Section 6. On
the date fixed for conversion, all rights with respect to the Convertible
Preferred Stock so converted will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates therefor,
to receive certificates for the number of shares of Common Stock into which such
Convertible Preferred Stock has been converted. If so requested by the
Corporation, certificates surrendered for conversion shall be endorsed or
16
<PAGE> 71
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or by
his or its attorney duly authorized in writing. All certificates evidencing
shares of Convertible Preferred Stock which are required to be surrendered for
conversion in accordance with the provisions hereof shall, from and after the
date such certificates are so required to be surrendered, be deemed to have been
retired and canceled and the shares of Convertible Preferred Stock represented
thereby converted into Common Stock for all purposes, notwithstanding the
failure of the holder or holders thereof to surrender such certificates on or
prior to such date. As soon as practicable after the date of such mandatory
conversion and the surrender of the certificate or certificates for Convertible
Preferred Stock, the Corporation shall cause to be issued and delivered to such
holder, or on his or its written order, a certificate or certificates for the
number of full shares of Common Stock issuable on such conversion in accordance
with the provisions hereof and cash as provided in Subsection 5(b) in respect of
any fraction of a share of Common Stock otherwise issuable upon such conversion.
7. Redemption of Convertible Preferred Stock at Option of Holder.
--------------------------------------------------------------
a. Upon the fifth or any later anniversary of April 5, 1994, if the
Corporation receives notice from holders of at least 75% of the then outstanding
shares of Series A Preferred Stock, at least 75% of the then outstanding shares
of Series B Preferred Stock and/or at least 75% of the then outstanding shares
of Series C Preferred Stock agreeing to the redemption (the "Election Date"), on
the date 30 days after the Election Date and the two following anniversaries of
such day (collectively, the "Redemption Dates" and individually, a "Redemption
Date"), each holder of shares of such series of Convertible Preferred Stock
shall have the right to require the Corporation to redeem on each of those dates
up to 33%, 66% and 100% of the shares of such series of Convertible Preferred
Stock held by such holder on each of those dates, or such lesser number of
shares of such series of Convertible Preferred Stock as the holder may
determine. If any shares of Convertible Preferred Stock are eligible for
redemption in one year and the holder elects not to have such shares redeemed on
that Redemption Date, such holder may elect to have all or a portion of such
shares redeemed on the anniversary of a Redemption Date in a later year;
provided, that, such election is not made after the third anniversary of the
first Redemption Date. Any holder desiring to exercise the redemption right
granted herein (a "Requesting Holder") shall provide written notice to the
Corporation setting forth the number of shares to be redeemed. On the Redemption
Date and upon a holder's surrender, in accordance with this Section 7(a), of his
or its certificates representing shares to be redeemed, the redemption price
shall be paid by the Corporation in cash in an amount equal to $1.00 per share
(with respect to the redemption of shares of Series A Preferred Stock), $1.50
per share (with respect to the redemption of shares of Series B Preferred Stock)
and $2.35 per share (with respect to the redemption of shares of Series C
Preferred Stock) (subject to appropriate adjustment for stock splits, stock
dividends, combinations and other similar
17
<PAGE> 72
recapitalizations affecting such shares), plus an amount equal to all declared
but unpaid dividends payable in accordance with Section 1 hereof on each share
of Convertible Preferred Stock to be redeemed (the "Redemption Price").
b. Subject to the satisfaction of the condition set forth in the first
sentence of Subsection 7(a) above, within five days following its receipt from a
Requesting Holder of a notice of intent to exercise redemption rights pursuant
to Subsection 7(a) hereof with respect to either or both series of Convertible
Preferred Stock, the Corporation shall provide each holder of shares of such
series of Convertible Preferred Stock, other than the Requesting Holder, with a
written notice (addressed to the holder at its address as it appears on the
stock transfer books of the Corporation) containing an offer to redeem shares of
such series of Convertible Preferred Stock as provided above, which notice shall
specify the applicable Redemption Price. Each holder of such series of
Convertible Preferred Stock, other than the Requesting Holder, will have until
10 days prior to the Redemption Date to provide the Corporation with written
notice of such holder's acceptance of the redemption offer, which notice shall
specify the number of shares to be redeemed. All notices or offers hereunder
shall be sent by first class or registered mail, postage prepaid, and shall be
deemed to have been provided when mailed.
c. In the event that any holder of Convertible Preferred Stock, other
than the Requesting Holder, does not provide the Corporation with written notice
pursuant to Section 7(b) of the holder's acceptance of the redemption offer on
or before the date 10 days prior to the applicable Redemption Date, the
Corporation shall have no obligation to redeem any shares of such series of
Convertible Preferred Stock of such holder on the Redemption Date specified in
its notice to such holder or at any time thereafter.
d. The provisions of Subsection 7(a) notwithstanding, any such
optional redemption is subject to the approval of a majority of the Board of
Directors of the Corporation and such majority may, in the good faith belief
that the requested redemption would be detrimental to the future prospects of
the Corporation, postpone such redemption for a period of one year.
e. In addition to the redemption rights set forth in Subsection 7(a),
in the event that a majority of the Corporation's Board of Directors agrees that
an adverse change in the business prospects of the Corporation has occurred,
then each holder of shares of Convertible Preferred Stock may elect, at his or
its option, to have the Corporation redeem (on the date 30 days after such
election) some or all of such shares at the Redemption Price; provided that, if
the Corporation's funds are insufficient to make the requested redemption
possible at the Redemption Price, then each holder who elected to redeem shall
be entitled to redeem a ratable portion of his or its shares based on the
availability of funds.
18
<PAGE> 73
f. On or prior to the Redemption Date, unless postponed pursuant to
Subsection 7(d) above, the Requesting Holder and each other holder of
Convertible Preferred Stock accepting the Corporation's redemption offer shall
surrender his or its certificate or certificates representing the shares to be
redeemed, in the manner and at the place designated in the Corporation's
redemption offer. If less than all shares represented by such certificate or
certificates are redeemed, the Corporation shall issue a new certificate for the
unredeemed shares. From and after the Redemption Date, unless there shall be a
default in payment of the Redemption Price, all rights of each holder with
respect to shares of Convertible Preferred Stock redeemed on the Redemption Date
shall cease (except the right to receive the Redemption Price without interest
upon surrender of the certificate or certificates therefor), and such shares
shall not be deemed to be outstanding for any purpose whatsoever. Such shares of
redeemed Convertible Preferred Stock shall not be reissued, and the Corporation
may from time to time take such appropriate action as may be necessary to reduce
the authorized Preferred Stock accordingly.
g. For the purpose of determining whether funds are legally available
for redemption of shares of Convertible Preferred Stock as provided herein, the
Corporation shall value its assets at the highest amount permissible under
applicable law. If on the Redemption Date funds of the Corporation legally
available therefor shall be insufficient to redeem all the shares of Convertible
Preferred Stock required to be redeemed as provided herein, funds to the extent
legally available shall be used for such purpose and the Corporation shall
effect such redemption pro rata according to the amount otherwise receivable by
each holder accepting the Corporation's redemption offer. The redemption
requirements provided hereby shall be continuous, so that if on the Redemption
Date such requirements shall not be fully discharged, without further action by
any holder of Convertible Preferred Stock, funds legally available shall be
applied therefor until such requirements are fully discharged.
h. The foregoing provisions of this Section 7 shall terminate on the
consummation of a Qualified Public Offering.
8. Redemption of Non-Convertible Preferred Stock at Option of Holder.
------------------------------------------------------------------
a. In the event of transfers aggregating more than 50% of the
outstanding Series A Preferred Stock or more than 50% of the outstanding Series
B Preferred Stock to holders of record who are not (i) stockholders of the
Corporation, (ii) the original holders of Convertible Preferred Stock, (iii)
Clintec Nutrition Company (with respect solely to transfers of shares of Series
A Preferred Stock) or (iv) any affiliates, partners or stockholders of any
applicable individuals or entities set forth in clauses (ii) or (iii) hereof and
upon the election at any time thereafter of the holders of a majority of the
Non-Convertible Preferred Stock, the Corporation will redeem upon the later of
(A) thirty (30) days after the consummation of the last such
19
<PAGE> 74
transfer or (B) ten (10) days after the Corporation's receipt of the notice of
election of redemption from holders of a majority of the Non-Convertible
Preferred Stock one quarter of the then outstanding shares of Non-Convertible
Preferred Stock (the "Initial Redemption Date") and one quarter of such shares
in each of the following three years on the anniversary date of the Initial
Redemption Date (collectively, the "Redemption Dates" each a "Redemption Date")
at a price equal to $1,000 per share plus any accrued, but unpaid dividends. The
Corporation shall give written notice to the holders of record of the
Non-Convertible Preferred Stock within 30 business days after there have been
transfers of more than 50% of the outstanding shares of Series A Preferred Stock
and/or more than 50% of the outstanding Series B Preferred Stock as provided in
this subsection 8(a).
If at the time of any due date of a redemption payment pursuant to this
Subsection 8(a) the Corporation is then obligated to make a redemption pursuant
to Section 7, no payment shall be made under this Subsection 8(a) until the
Corporation's obligations under Section 7 have been satisfied in full.
b. The provisions of Subsection 8(a) notwithstanding, a majority of
the Board of Directors of the Corporation may, in the good faith belief that the
requested redemption would be detrimental to the Corporation's interests,
postpone such redemption for a period of one year.
c. The Corporation may elect, at any time, to redeem 100% of the
then-outstanding shares of Non-Convertible Preferred Stock at a price equal to
$1,000 per share plus any accrued, but unpaid dividends.
d. On or prior to the Redemption Date, unless postponed pursuant
to Section 8(b) above, each holder of Non-Convertible Preferred Stock shall
surrender his or its certificate or certificates representing the shares to be
redeemed, in the manner and at the place designated by the Corporation. If less
than all shares represented by such certificate or certificates are redeemed,
the Corporation shall issue a new certificate for the unredeemed shares. From
and after the Redemption Date, unless there shall be a default in payment of the
Redemption Price, all rights of each holder with respect to shares of
Non-Convertible Preferred Stock redeemed on the Redemption Date shall cease
(except the right to receive the Redemption Price without interest upon
surrender of the certificate or certificates therefor), and such shares shall
not be deemed to be outstanding for any purpose whatsoever. Such shares of
Non-Convertible Preferred Stock shall not be reissued, and the Corporation may
from time to time take such appropriate action as may be necessary to reduce the
authorized Non-Convertible Preferred Stock accordingly.
20
<PAGE> 75
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
TRANSCEND THERAPEUTICS, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
---------------------------------
Transcend Therapeutics, Inc., a Delaware corporation (the "Corporation"),
setting forth proposed amendments to the Restated Certificate, does hereby
certify, pursuant to Section 242 of the General Corporation Law of the State of
Delaware, that:
FIRST: In a meeting of the members of the Board of Directors of the
Corporation at which a quorum was present at all times held on August 20, 1996,
resolutions were duly adopted proposing certain amendments to the Restated
Certificate of Incorporation of the Corporation, and submitting such proposal to
the stockholders of the Corporation.
SECOND: Pursuant to Section 228(a) and 242 of the General Corporation Law
of the State of Delaware, the proposed Amendment to the Restated Certificate of
Incorporation was approved and adopted by the stockholders of the Corporation on
February 7, 1997, and written notice shall be promptly delivered to all
stockholders who have not consented in writing as provided in Section 228.
THIRD: Accordingly, Article FOURTH of the Restated Certificate of
Incorporation of the Corporation is hereby deleted in its entirety and replaced
as set forth below:
FOURTH: The total number and classes of shares of capital stock that the
Corporation shall have authority to issue is as follows: (i) Twenty-Five Million
(25,000,000) shares of Common Stock, par value $.01 per share ("Common Stock"),
and (ii) Twenty Million Two Hundred Forty-Six Thousand Three Hundred Nineteen
(20,246,319) shares of Preferred Stock, par value $.01 per share ("Preferred
Stock").
RESOLVED: That, upon the filing of the Second Certificate of
-------- Amendment (the date and time of such filing being referred
to as the "Effective Date"), without reducing the total
number of shares of Common Stock, $.01 par value
<PAGE> 76
per share, previously authorized or the par value thereof,
and without regard to the date on which any stockholder of
the Corporation shall surrender the certificate or
certificates for shares of Common Stock, $.01 par value per
share, owned by such stockholder which were previously
outstanding, each share of Common Stock, $.01 par value per
share, outstanding on the Effective Date shall be changed
into one-fifth of a share of Common Stock, $.01 par value
per share (the "Reverse Stock Split"), so that on and after
the Effective Date each one share of Common Stock, $.01 par
value per share, outstanding and held of record by each
stockholder of the Corporation immediately prior to the
Effective Date shall represent one-fifth of a share of
Common Stock, $.01 par value per share; and that the proper
officers of the Corporation be, and each of them acting
singly hereby is, authorized to execute, countersign, issue
and deliver any such documents as may be required to give
effect to this resolution. No fractional shares of Common
Stock shall be issued.
RESOLVED: That no shares of the Non-Convertible Preferred Stock, $.01
-------- par value per share, of the Corporation are outstanding;
that no shares of such Non-Convertible Preferred Stock will
be issued subject to the designations previously filed with
respect to such Non-Convertible Preferred Stock; that all
matters with respect to such Non-Convertible Preferred Stock
be eliminated from the Company's Restated Certificate of
Incorporation; and that the proper officers of the
Corporation be, and each of them acting singly hereby is,
authorized to execute, countersign, issue and deliver any
such documents as may be required to give effect to this
resolution.
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK
------------
1. GENERAL. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2
<PAGE> 77
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
3. Dividends.
----------
(a) Dividends may be declared and paid on the Common Stock from funds
lawfully available therefor as and when determined by the Board of Directors,
provided, however, that (i) the declaration and payment of any such dividends
shall be subject to any preferential dividend rights of any then outstanding
Preferred Stock, (ii) no dividends shall be declared and paid on the Common
Stock unless there is at the same time a dividend declared and paid on each
share of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock (each as defined below) in an amount equal to the dividends
declared and paid on the number of whole shares of Common Stock into which such
share is convertible (as adjusted from time to time pursuant to Section 5
hereof), and (iii) there shall not be declared or paid any dividends or
distributions (as defined below) on shares of Common Stock without the approval
of the holders of at least 75% of the shares of Series A Preferred Stock, at
least 75% of the Series B Preferred Stock and at least 75% of the Series C
Preferred Stock then outstanding.
(b) For purposes of this Section 3, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation pursuant
to agreements providing for such repurchase upon a right of first refusal,
restricted stock agreement or other similar agreement, and other than
redemptions in liquidation or dissolution of the Corporation) for cash or
property, including any such transfer, purchase or redemption by a subsidiary of
this Corporation.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
5. SPECIAL VOTES. The number of authorized shares of Common Stock may be
increased or decreased (but not below the number of shares then outstanding) by
the affirmative vote of the holders of 75% of the then outstanding shares of the
Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock (each as defined below) voting as a single class.
3
<PAGE> 78
B. PREFERRED STOCK.
---------------
1. Designation.
------------
(a) Twelve Million Nine Hundred Ninety-One Thousand (12,991,000)
shares of the authorized and unissued Preferred Stock of the Corporation are
hereby designated "Series A Convertible Preferred Stock" (the "Series A
Preferred Stock") with the rights, preferences, powers, privileges and
restrictions, qualifications and limitations set forth below.
(b) Three Million (3,000,000) shares of the authorized and unissued
Preferred Stock of the Corporation are hereby designated "Series B Convertible
Preferred Stock" (the "Series B Preferred Stock") with the rights, preferences,
powers, privileges and restrictions, qualifications and limitations set forth
below.
(c) Four Million Two Hundred Fifty-five Thousand Three Hundred
Nineteen (4,255,319) shares of the authorized and unissued Preferred Stock of
the Corporation are hereby designated "Series C Convertible Preferred Stock"
(the "Series C Preferred Stock") with the rights, preferences, powers,
privileges and restrictions, qualifications and limitations set forth below. The
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
are sometimes referred to collectively herein as the "Convertible Preferred
Stock."
2. DIVIDENDS. The holders of the Convertible Preferred Stock shall be
entitled to receive, out of any funds legally available therefor, dividends in
an amount per share equal to the dividends declared and paid on the number of
whole shares of Common Stock into which a share of such series of Convertible
Preferred Stock is convertible (as adjusted from time to time pursuant to
Section 5 hereof).
3. Liquidation, Dissolution and Winding Up.
----------------------------------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
Convertible Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its stockholders,
before any payment shall be made to the holders of Common Stock by reason of
their ownership thereof, an amount equal to $1.00 per share (with respect to
shares of Series A Preferred Stock), $1.50 per share (with respect to shares of
Series B Preferred Stock) and $2.35 per share (with respect to shares of Series
C Preferred Stock) (subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares), plus any dividends declared but unpaid thereon. If upon any such
liquidation, dissolution or winding up of the Corporation the remaining assets
of the Corporation available for distribution to its
4
<PAGE> 79
stockholders shall be insufficient to pay the holders of shares of Convertible
Preferred Stock the full amount to which they shall be entitled, the holders of
shares of Convertible Preferred Stock shall share ratably in any distribution of
the remaining assets and funds of the Corporation in proportion to the
respective amount which would otherwise be payable in respect of the shares held
by them upon such distribution if all amounts payable on or with respect to such
shares were paid in full.
(b) After the payment of all preferential amounts required to be paid
to the holders of Convertible Preferred Stock, upon the dissolution, liquidation
or winding up of the Corporation, subject to paragraph (d) of this Section 3
below, the remaining assets and funds of the Corporation available for
distribution to its stockholders shall be distributed among the holders of
shares of Convertible Preferred Stock and Common Stock held by each (assuming
conversion into Common Stock of all such shares).
(c) In the event of any merger or consolidation of the Corporation
into or with another corporation (except one in which the holders of capital
stock of the Corporation immediately prior to such merger or consolidation
continue to hold greater than 50% by voting power of the capital stock of the
surviving corporation), or the sale of all or substantially all of the assets of
the Corporation, such merger, consolidation or asset sale shall be deemed to be
a liquidation of the Corporation. In the event of such merger, consolidation or
asset sale, each holder of Convertible Preferred Stock shall receive such
holder's preference pursuant to the terms of Paragraph (a) of this Section 3 and
participate with the holders of Common Stock pursuant to Paragraph (c) of this
Section 3, up to a cap of total proceeds from the liquidation of $4.00 per
share; provided, however, that each holder of Convertible Preferred Stock shall
have the right to elect to participate in the transaction pursuant to the
provisions of Subsection 5(i) hereof in lieu of receiving such holder's
preference and participating up to a cap. The amount deemed distributed to the
holders of Convertible Preferred Stock upon any such merger or consolidation
shall be cash or the value of the property, rights or securities distributed to
such holders by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined in good faith by the
Board of Directors of the Corporation.
4. Voting.
-------
(a) Each holder of outstanding shares of Convertible Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which the shares held by such holder are convertible (as
adjusted from time to time pursuant to Section 5 hereof), at each meeting of
stockholders of the Corporation (and written actions of stockholders in lieu of
meetings) with respect to any and all matters presented to the stockholders of
the Corporation for their
5
<PAGE> 80
action or consideration. Except as provided by law or as otherwise set forth
herein, holders of Convertible Preferred Stock and Common Stock shall vote
together as a single class.
(b) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of any series of Convertible Preferred Stock so
as to affect adversely such series of Convertible Preferred Stock, without the
written consent or affirmative vote of the holders of 75% of the then
outstanding shares of such series of Preferred Stock, given in writing or by
vote at a meeting, consenting or voting (as the case may be) separately as a
class. For this purpose, without limiting the generality of the foregoing, the
authorization or issuance of any series of Preferred Stock with preference or
priority over either series of Convertible Preferred Stock as to the right to
receive either dividends or amounts distributable upon liquidation, dissolution
or winding up of the Corporation shall be deemed to affect adversely such series
of Convertible Preferred Stock, and the authorization or issuance of any series
of Preferred Stock on a parity with either series of Convertible Preferred Stock
as to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall not be deemed to
affect adversely such series of Preferred Stock. The number of authorized shares
of any series of Convertible Preferred Stock may be increased or decreased (but
not below the number of shares then outstanding) by the affirmative vote of the
holders of 75% of the then outstanding shares of such series of Convertible
Preferred Stock, voting as a single class.
5. OPTIONAL CONVERSION. The holders of the Convertible Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Convertible Preferred Stock shall
be convertible, at the option of the holder thereof, at any time and from time
to time, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $1.00 (with respect to the conversion of shares of
Series A Preferred Stock), $1.50 (with respect to the conversion of shares of
Series B Preferred Stock) and $2.35 (with respect to the conversion of shares of
Series C Preferred Stock) by the appropriate Conversion Price (as defined below)
in effect at the time of conversion. The conversion price at which shares of
Common Stock shall be deliverable upon conversion of Convertible Preferred Stock
without the payment of additional consideration by the holder thereof (the
"Conversion Price") shall initially be $5.00 (with respect to the conversion of
shares of Series A Preferred Stock), $7.50 (with respect to the conversion of
shares of Series B Preferred Stock) and $11.75 (with respect to the conversion
of shares of Series C Preferred Stock). Such initial Conversion Price, and the
rate at which shares of Convertible Preferred Stock may be converted into shares
of Common Stock, shall be subject to adjustment as provided below.
6
<PAGE> 81
In the event of a notice of redemption of any shares of Convertible
Preferred Stock pursuant to Section 7 hereof, the Conversion Rights of the
shares designated for redemption shall terminate at the close of business on the
fifth full day preceding the date fixed for redemption, unless the redemption
price is not paid when due, in which case the Conversion Rights for such shares
shall continue until such price is paid in full. In the event of a liquidation,
dissolution or winding up of the Corporation, the Conversion Rights shall
terminate at the close of business on the fifth full day preceding the date
fixed for the payment of any amounts distributable on liquidation, dissolution
or winding up to the holders of Convertible Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the Convertible Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
applicable Conversion Price.
(c) Mechanics of Conversion.
------------------------
(i) In order for a holder of shares of Convertible Preferred
Stock to convert such shares of Convertible Preferred Stock into shares of
Common Stock, such holder shall surrender the certificate or certificates for
such shares of Convertible Preferred Stock at the office of the transfer agent
for such Convertible Preferred Stock (or at the principal office of the
Corporation if the Corporation serves as its own transfer agent), together with
written notice that such holder elects to convert all or any number of the
shares of such Convertible Preferred Stock represented by such certificate or
certificates. Such notice shall state such holder's name or the names of the
nominees in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or his or its attorney duly authorized in
writing. The date of receipt of such certificates and notice by the transfer
agent (or by the Corporation if the Corporation serves as its own transfer
agent) shall be the conversion date ("Conversion Date"). The Corporation shall,
as soon as practicable after the Conversion Date, issue and deliver at such
office to such holder of such shares of Convertible Preferred Stock, or to his
or its nominees, a certificate or certificates for the number of shares of
Common Stock to which such holder shall be entitled, together with cash in lieu
of any fraction of a share, and all declared but unpaid dividends.
(ii) The Corporation shall at all times when any Convertible
Preferred Stock is outstanding, reserve and keep available out of its authorized
but unissued stock, for the purpose of effecting the conversion of the
Convertible Preferred Stock, such number of its duly authorized shares of Common
Stock as shall
7
<PAGE> 82
from time to time be sufficient to effect the conversion of all outstanding
Convertible Preferred Stock. Before taking any action which would cause an
adjustment reducing the Conversion Price below the then par value of the shares
of Common Stock issuable upon conversion of the Convertible Preferred Stock, the
Corporation will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of Common Stock at such adjusted
Conversion Price.
(iii) Upon any such conversion, no adjustment to the Conversion
Price shall be made for any declared and unpaid dividends on the Convertible
Preferred Stock surrendered for conversion or on the Common Stock delivered upon
conversion, which dividends shall be paid in accordance with clause (iv) below.
(iv) All shares of Convertible Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be deemed to
be outstanding and all rights with respect to such shares, including the rights,
if any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any declared and
unpaid dividends thereon. Any shares of Convertible Preferred Stock so converted
shall be retired and cancelled and shall not be reissued, and the Corporation
(without the need for stockholder action) may from time to time take such
appropriate action as may be necessary to reduce accordingly the authorized
shares of either or both series of Convertible Preferred Stock.
(v) The Corporation shall pay any and all issue and other taxes
that may be payable in respect of any issuance or delivery of shares of Common
Stock upon conversion of shares of Convertible Preferred Stock pursuant to this
Section 4. The Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of shares of Common Stock in a name other than that in which the shares of
Convertible Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(d) Adjustments for Diluting Issues.
--------------------------------
(i) SPECIAL DEFINITIONS. For purposes of this Subsection 4(d),
the following definitions shall apply:
(A) OPTION shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities,
8
<PAGE> 83
excluding (i) awards granted to employees or consultants of the Corporation
pursuant to the Corporation's Amended and Restated 1994 Equity Incentive Plan
(the "Plan") as adopted and amended by the Board of Directors, to acquire up to
a maximum of 775,891 shares of Common Stock (subject to appropriate adjustment
for any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) and (ii) a warrant to purchase 5,000
shares of Common Stock issued to the Massachusetts Institute of Technology (the
"Warrant").
(B) ORIGINAL ISSUE DATE shall mean the date on which a
share of Series C Preferred Stock was first issued.
(C) CONVERTIBLE SECURITIES shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock, excluding shares of Common Stock issued upon
exercise of the Warrant.
(D) ADDITIONAL SHARES OF COMMON STOCK shall mean all shares
of Common Stock issued (or, pursuant to Subsection 5(d)(iii) below, deemed to be
issued) by the Corporation after the Original Issue Date, other than shares of
Common Stock issued or issuable:
(I) upon conversion of shares of Convertible Preferred
Stock outstanding on the Original Issue Date;
(II) as a dividend or distribution on Convertible
Preferred Stock;
(III) by reason of a dividend or distribution covered by
Subsection 5(f) hereof, a stock split, or
subdivision of shares of Common Stock covered by
Subsection 5(e) hereof, or by reason of a
dividend, stock split subdivision or other
distribution on shares of Common Stock excluded
from the definition of Additional Shares of Common
Stock by the foregoing clauses (I) and (II) or
this clause (III); or
(IV) upon the exercise of awards or warrants excluded
from the definition of "Option" in Subsection
5(d)(i)(A).
9
<PAGE> 84
(ii) NO ADJUSTMENT OF CONVERSION PRICE. With respect to each
series of Convertible Preferred Stock, no adjustment in the number of shares of
Common Stock into which shares of such series of Convertible Preferred Stock are
convertible shall be made by adjustment in the applicable Conversion Price
thereof if: (a) the consideration per share (determined pursuant to Subsection
5(d)(v)) for an Additional Share of Common Stock issued or deemed to be issued
by the Corporation is equal to or greater than the applicable Conversion Price
in effect on the date of, and immediately prior to, the issue of such Additional
Shares, or (b) prior to such issuance, the Corporation receives written notice
from the holders of (i) at least 75% of the then outstanding shares of Series A
Preferred Stock (with respect to the Conversion Price thereof), (ii) at least
75% of the then outstanding shares of Series B Preferred Stock (with respect to
the Conversion Price thereof) and/or (iii) at least 75% of the then outstanding
shares of Series C Preferred Stock (with respect to the Conversion Price
thereof) agreeing that no such adjustment shall be made as the result of the
issuance of Additional Shares of Common Stock.
(iii) Issue of Options and Convertible Securities Deemed Issue of
-----------------------------------------------------------
Additional Shares of Common Stock.
- ----------------------------------
If the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares of Common Stock (as set forth in the instrument relating thereto
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Subsection 5(d)(v) hereof)
of such Additional Shares of Common Stock would be less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided further that in any such
case in which Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
10
<PAGE> 85
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) No readjustment pursuant to clause (B) above shall have
the effect of increasing the Conversion Price to an amount which exceeds the
lower of (i) the Conversion Price on the original adjustment date, or (ii) the
Conversion Price that would have resulted from any issuance of Additional Shares
of Common Stock between the original adjustment date and such readjustment date;
(D) Upon the expiration or termination of any unexercised
Option, the Conversion Price shall not be readjusted, but the Additional Shares
of Common Stock deemed issued as the result of the original issue of such Option
shall not be deemed issued for the purposes of any subsequent adjustment of the
Conversion Price; and
(E) In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or exchange of any Option or
Convertible Security, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price then in effect shall
forthwith be adjusted to such Conversion Price as would have obtained had the
adjustment which was made upon the issuance of such Option or Convertible
Security (prior to such change) been made upon the basis of such change, but no
further adjustment shall be made for the actual issuance of Common Stock upon
the exercise or conversion of any such Option or Convertible Security.
(iv) Adjustment of Conversion Price Upon Issuance of Additional
----------------------------------------------------------
Shares of Common Stock.
- -----------------------
In the event the Corporation shall issue, at any time or from time to time
after the Original Issue Date, Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection
5(d)(iii), but excluding shares issued as a dividend or distribution as provided
in Subsection 5(f) or upon a stock split or combination as provided in
Subsection 5(e)), without consideration or for a consideration per share less
than the applicable Conversion Price in effect on the date of and immediately
prior to such issue, then and in such event, such Conversion Price shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Conversion Price by a fraction, (A) the
numerator of which shall be (1) the number of shares of Common Stock outstanding
immediately prior to such issue plus (2) the number of shares of Common Stock
which the aggregate consideration received by the
11
<PAGE> 86
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such Conversion Price; and (B) the denominator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
issue plus the number of such Additional Shares of Common Stock so issued;
PROVIDED THAT, for the purpose of this Subsection 5(d)(iv), all shares of Common
Stock issuable upon conversion of shares of Convertible Preferred Stock
outstanding immediately prior to such issue shall be deemed to be outstanding,
and immediately after any Additional Shares of Common Stock are deemed issued
pursuant to Subsection 5(d)(iii) (other than shares excluded from the definition
of "Additional Shares of Common Stock" by virtue of clause (IV) of Subsection
5(d)(i)(D)), such Additional Shares of Common Stock shall be deemed to be
outstanding.
Notwithstanding the foregoing, the applicable Conversion Price shall not be
so reduced at such time if the amount of such reduction would be an amount less
than $.05, but any such amount shall be carried forward and reduction with
respect thereto made at the time of and together with any subsequent reduction
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate $.05 or more.
(v) Determination of Consideration.
-------------------------------
For purposes of this Subsection 5(d), the consideration received by the
Corporation for the issue of any Additional Shares of Common Stock shall be
computed as follows:
(A) Cash and Property: Such consideration shall:
-----------------
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation, excluding amounts paid or payable
for accrued interest or accrued dividends;
(II) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (I) and (II) above,
as determined in good faith by the Board of Directors.
12
<PAGE> 87
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Subsection 5(d)(iii), relating to Options
and Convertible Securities, shall be determined by dividing
1) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, in either case for the
issuance of the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities, by
2) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(e) ADJUSTMENTS FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall, at any time or from time to time after the Original Issue Date, effect a
subdivision of the outstanding Common Stock, the Conversion Price then in effect
immediately before that subdivision shall be proportionately decreased. If the
Corporation shall, at any time or from time to time while there are any shares
of Convertible Preferred Stock outstanding, combine the outstanding shares of
Common Stock, the Conversion Price then in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price then in effect shall be decreased as of the time of such issuance or, in
the event such a record date shall have been fixed, as of the close of business
on such record date, by multiplying the Conversion Price then in effect by a
fraction:
13
<PAGE> 88
(i) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and
(ii) the denominator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be recomputed accordingly as of the close
of business on such record date and thereafter the Conversion Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of Convertible
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of the
Corporation that they would have received had such holder's shares of
Convertible Preferred Stock been converted into Common Stock on the date of such
event and had thereafter, during the period from the date of such event to and
including the conversion date, retained such securities receivable by them as
aforesaid during such period giving application to all adjustments called for
during such period, under this paragraph with respect to the rights of the
holders of the Convertible Preferred Stock.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If
the Common Stock issuable upon the conversion of the Convertible Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares of stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of each such
share of Convertible Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of
Convertible Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
14
<PAGE> 89
(i) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. Subject to Section
3 hereof, in case of any consolidation or merger of the Corporation with or into
another corporation (except one in which the holders of capital stock of the
Corporation immediately prior to such merger or consolidation continue to hold
greater than 50% by voting power of the capital stock of the surviving
corporation), or the sale of all or substantially all of the assets of the
Corporation to another corporation, each share of Convertible Preferred Stock
shall thereafter be convertible into the kind and amount of shares of stock or
other securities or property to which a holder of the number of shares of Common
Stock of the Corporation deliverable upon conversion of such Convertible
Preferred Stock would have been entitled upon such consolidation, merger or sale
and, in such case, appropriate adjustment (as determined in good faith by the
Board of Directors) shall be made in the application of the provisions set forth
in this Section 5 with respect to the rights and interest thereafter of the
holders of the Convertible Preferred Stock, to the end that the provisions set
forth in this Section 5 (including provisions with respect to changes in and
other adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Convertible Preferred
Stock.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or By-laws or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all the
provisions of this Section 5 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Convertible Preferred Stock against impairment.
(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock, Series B Preferred Stock and/or Series C Preferred
Stock (as applicable) a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of shares of Convertible Preferred Stock, furnish or cause to
be furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price then in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of Series A Preferred
Stock, Series B Preferred Stock and/or Series C Preferred Stock (as applicable).
15
<PAGE> 90
(l) Notice of Record Date. In the event:
---------------------
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other securities of
the Corporation;
(ii) that the Corporation splits, subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a stock split, subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or stock distribution
thereon), or of any consolidation or merger of the Corporation into or with
another corporation, or of the sale of all or substantially all of the assets of
the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Convertible Preferred Stock, and shall cause
to be mailed to the holders of the Convertible Preferred Stock at their last
addresses as shown on the records of the Corporation or such transfer agent, at
least ten days prior to the record date specified in (A) below or twenty days
before the date specified in (B) below, a notice stating:
(A) the record date of such dividend, distribution, stock
split, subdivision or combination, or, if a record is not to be taken, the date
as of which the holders of Common Stock of record to be entitled to such
dividend, distribution, stock split, subdivision or combination are to be
determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding up.
6. Mandatory Conversion.
---------------------
(a) The Corporation may, at its option, require all (but not less
than all) of the shares of Series A Preferred Stock, Series B Preferred Stock
and/or Series C Preferred Stock then outstanding to be converted automatically
into shares of Common Stock, at the then current Conversion Price, upon the
consummation of an underwritten public offering of Common Stock of the
Corporation pursuant to a
16
<PAGE> 91
registration statement filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, covering the offer and sale of Common
Stock to the public in a firm commitment underwriting resulting in the receipt
by the Corporation of net proceeds from such sale of not less than $10,000,000
(a "Qualified Public Offering").
(b) All holders of record of shares of Convertible Preferred Stock to
be converted hereunder will be given at least 10 days' prior written notice of
the date fixed and the place designated for mandatory conversion of all of such
shares of Convertible Preferred Stock pursuant to this Section 6. Such notice
will be sent by first class or registered mail, postage prepaid, to each record
holder of Convertible Preferred Stock at such holder's address appearing on the
stock register. On or before the date fixed for conversion, each holder of
shares of Convertible Preferred Stock shall surrender his or its certificate or
certificates for all such shares to the Corporation at the place designated in
such notice, and shall thereafter receive certificates for the number of shares
of Common Stock to which such holder is entitled pursuant to this Section 6. On
the date fixed for conversion, all rights with respect to the Convertible
Preferred Stock so converted will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates therefor,
to receive certificates for the number of shares of Common Stock into which such
Convertible Preferred Stock has been converted. If so requested by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or by
his or its attorney duly authorized in writing. All certificates evidencing
shares of Convertible Preferred Stock which are required to be surrendered for
conversion in accordance with the provisions hereof shall, from and after the
date such certificates are so required to be surrendered, be deemed to have been
retired and canceled and the shares of Convertible Preferred Stock represented
thereby converted into Common Stock for all purposes, notwithstanding the
failure of the holder or holders thereof to surrender such certificates on or
prior to such date. As soon as practicable after the date of such mandatory
conversion and the surrender of the certificate or certificates for Convertible
Preferred Stock, the Corporation shall cause to be issued and delivered to such
holder, or on his or its written order, a certificate or certificates for the
number of full shares of Common Stock issuable on such conversion in accordance
with the provisions hereof and cash as provided in Subsection 5(b) in respect of
any fraction of a share of Common Stock otherwise issuable upon such conversion.
7. Redemption of Convertible Preferred Stock at Option of Holder.
--------------------------------------------------------------
(a) Upon the fifth or any later anniversary of April 5, 1994, if the
Corporation receives notice from holders of at least 75% of the then outstanding
shares of Series A Preferred Stock, at least 75% of the then outstanding shares
of Series B Preferred Stock and/or at least 75% of the then outstanding shares
of Series
17
<PAGE> 92
C Preferred Stock agreeing to the redemption (the "Election Date"), on the date
30 days after the Election Date and the two following anniversaries of such day
(collectively, the "Redemption Dates" and individually, a "Redemption Date"),
each holder of shares of such series of Convertible Preferred Stock shall have
the right to require the Corporation to redeem on each of those dates up to 33%,
66% and 100% of the shares of such series of Convertible Preferred Stock held by
such holder on each of those dates, or such lesser number of shares of such
series of Convertible Preferred Stock as the holder may determine. If any shares
of Convertible Preferred Stock are eligible for redemption in one year and the
holder elects not to have such shares redeemed on that Redemption Date, such
holder may elect to have all or a portion of such shares redeemed on the
anniversary of a Redemption Date in a later year; provided, that, such election
is not made after the third anniversary of the first Redemption Date. Any holder
desiring to exercise the redemption right granted herein (a "Requesting Holder")
shall provide written notice to the Corporation setting forth the number of
shares to be redeemed. On the Redemption Date and upon a holder's surrender, in
accordance with this Section 7(a), of his or its certificates representing
shares to be redeemed, the redemption price shall be paid by the Corporation in
cash in an amount equal to $1.00 per share (with respect to the redemption of
shares of Series A Preferred Stock), $1.50 per share (with respect to the
redemption of shares of Series B Preferred Stock) and $2.35 per share (with
respect to the redemption of shares of Series C Preferred Stock) (subject to
appropriate adjustment for stock splits, stock dividends, combinations and other
similar recapitalizations affecting such shares), plus an amount equal to all
declared but unpaid dividends payable in accordance with Section 1 hereof on
each share of Convertible Preferred Stock to be redeemed (the "Redemption
Price").
(b) Subject to the satisfaction of the condition set forth in the
first sentence of Subsection 7(a) above, within five days following its receipt
from a Requesting Holder of a notice of intent to exercise redemption rights
pursuant to Subsection 7(a) hereof with respect to either or both series of
Convertible Preferred Stock, the Corporation shall provide each holder of shares
of such series of Convertible Preferred Stock, other than the Requesting Holder,
with a written notice (addressed to the holder at its address as it appears on
the stock transfer books of the Corporation) containing an offer to redeem
shares of such series of Convertible Preferred Stock as provided above, which
notice shall specify the applicable Redemption Price. Each holder of such series
of Convertible Preferred Stock, other than the Requesting Holder, will have
until 10 days prior to the Redemption Date to provide the Corporation with
written notice of such holder's acceptance of the redemption offer, which notice
shall specify the number of shares to be redeemed. All notices or offers
hereunder shall be sent by first class or registered mail, postage prepaid, and
shall be deemed to have been provided when mailed.
18
<PAGE> 93
(c) In the event that any holder of Convertible Preferred Stock,
other than the Requesting Holder, does not provide the Corporation with written
notice pursuant to Section 7(b) of the holder's acceptance of the redemption
offer on or before the date 10 days prior to the applicable Redemption Date, the
Corporation shall have no obligation to redeem any shares of such series of
Convertible Preferred Stock of such holder on the Redemption Date specified in
its notice to such holder or at any time thereafter.
(d) The provisions of Subsection 7(a) notwithstanding, any such
optional redemption is subject to the approval of a majority of the Board of
Directors of the Corporation and such majority may, in the good faith belief
that the requested redemption would be detrimental to the future prospects of
the Corporation, postpone such redemption for a period of one year.
(e) In addition to the redemption rights set forth in Subsection
7(a), in the event that a majority of the Corporation's Board of Directors
agrees that an adverse change in the business prospects of the Corporation has
occurred, then each holder of shares of Convertible Preferred Stock may elect,
at his or its option, to have the Corporation redeem (on the date 30 days after
such election) some or all of such shares at the Redemption Price; provided
that, if the Corporation's funds are insufficient to make the requested
redemption possible at the Redemption Price, then each holder who elected to
redeem shall be entitled to redeem a ratable portion of his or its shares based
on the availability of funds.
(f) On or prior to the Redemption Date, unless postponed pursuant to
Subsection 7(d) above, the Requesting Holder and each other holder of
Convertible Preferred Stock accepting the Corporation's redemption offer shall
surrender his or its certificate or certificates representing the shares to be
redeemed, in the manner and at the place designated in the Corporation's
redemption offer. If less than all shares represented by such certificate or
certificates are redeemed, the Corporation shall issue a new certificate for the
unredeemed shares. From and after the Redemption Date, unless there shall be a
default in payment of the Redemption Price, all rights of each holder with
respect to shares of Convertible Preferred Stock redeemed on the Redemption Date
shall cease (except the right to receive the Redemption Price without interest
upon surrender of the certificate or certificates therefor), and such shares
shall not be deemed to be outstanding for any purpose whatsoever. Such shares of
redeemed Convertible Preferred Stock shall not be reissued, and the Corporation
may from time to time take such appropriate action as may be necessary to reduce
the authorized Preferred Stock accordingly.
(g) For the purpose of determining whether funds are legally
available for redemption of shares of Convertible Preferred Stock as provided
herein, the Corporation shall value its assets at the highest amount permissible
under applicable law. If on the Redemption Date funds of the Corporation legally
available
19
<PAGE> 94
therefor shall be insufficient to redeem all the shares of Convertible Preferred
Stock required to be redeemed as provided herein, funds to the extent legally
available shall be used for such purpose and the Corporation shall effect such
redemption pro rata according to the amount otherwise receivable by each holder
accepting the Corporation's redemption offer. The redemption requirements
provided hereby shall be continuous, so that if on the Redemption Date such
requirements shall not be fully discharged, without further action by any holder
of Convertible Preferred Stock, funds legally available shall be applied
therefor until such requirements are fully discharged.
(h) The foregoing provisions of this Section 7 shall terminate on the
consummation of a Qualified Public Offering.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment of Restated Certificate of
Incorporation to be signed by its President this 7th day of February, 1997.
TRANSCEND THERAPEUTICS, INC.
By: /s/ Hector J. Gomez
----------------------------
Hector J. Gomez, M.D., Ph.D.
President
20
<PAGE> 95
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
TRANSCEND THERAPEUTICS, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
---------------------------------
Transcend Therapeutics, Inc., a Delaware corporation (the "Corporation"),
setting forth proposed amendments to the Restated Certificate, does hereby
certify, pursuant to Section 242 of the General Corporation Law of the State of
Delaware, that:
FIRST: In a meeting of the members of the Board of Directors of the
Corporation at which a quorum was present at all times held on February 28,
1997, resolutions were duly adopted proposing certain amendments to the Restated
Certificate of Incorporation of the Corporation, and submitting such proposal to
the stockholders of the Corporation.
SECOND: Pursuant to Section 228(a) and 242 of the General Corporation Law
of the State of Delaware, the proposed Amendment to the Restated Certificate of
Incorporation was approved and adopted by the stockholders of the Corporation on
February ___, 1997, and written notice shall be promptly delivered to all
stockholders who have not consented in writing as provided in Section 228.
THIRD: Accordingly, Article FOURTH of the Restated Certificate of
Incorporation of the Corporation is hereby deleted in its entirety and replaced
as set forth below:
FOURTH: The total number and classes of shares of capital stock that the
Corporation shall have authority to issue is as follows: (i) Twenty-Five Million
(25,000,000) shares of Common Stock, par value $.01 per share ("Common Stock"),
and (ii) Twenty-One Million Two Hundred Eighty-Five Thousand Three Hundred
Nineteen (21,285,319) shares of Preferred Stock, par value $.01 per share
("Preferred Stock").
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
<PAGE> 96
A. COMMON STOCK
------------
1. GENERAL. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
3. Dividends.
----------
(a) Dividends may be declared and paid on the Common Stock from funds
lawfully available therefor as and when determined by the Board of Directors,
provided, however, that (i) the declaration and payment of any such dividends
shall be subject to any preferential dividend rights of any then outstanding
Preferred Stock, (ii) no dividends shall be declared and paid on the Common
Stock unless there is at the same time a dividend declared and paid on each
share of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock (each as defined below) in an amount equal to the dividends
declared and paid on the number of whole shares of Common Stock into which such
share is convertible (as adjusted from time to time pursuant to Section 5
hereof), and (iii) there shall not be declared or paid any dividends or
distributions (as defined below) on shares of Common Stock without the approval
of the holders of at least 75% of the shares of Series A Preferred Stock, at
least 75% of the Series B Preferred Stock and at least 75% of the Series C
Preferred Stock then outstanding.
(b) For purposes of this Section 3, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation pursuant
to agreements providing for such repurchase upon a right of first refusal,
restricted stock agreement or other similar agreement, and other than
redemptions in liquidation or dissolution of the Corporation) for cash or
property, including any such transfer, purchase or redemption by a subsidiary of
this Corporation.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
2
<PAGE> 97
5. SPECIAL VOTES. The number of authorized shares of Common Stock may be
increased or decreased (but not below the number of shares then outstanding) by
the affirmative vote of the holders of 75% of the then outstanding shares of the
Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock (each as defined below) voting as a single class.
B. PREFERRED STOCK.
---------------
1. Designation.
-----------
(a) Twelve Million Nine Hundred Ninety-One Thousand (12,991,000)
shares of the authorized and unissued Preferred Stock of the Corporation are
hereby designated "Series A Convertible Preferred Stock" (the "Series A
Preferred Stock") with the rights, preferences, powers, privileges and
restrictions, qualifications and limitations set forth below.
(b) Three Million (3,000,000) shares of the authorized and unissued
Preferred Stock of the Corporation are hereby designated "Series B Convertible
Preferred Stock" (the "Series B Preferred Stock") with the rights, preferences,
powers, privileges and restrictions, qualifications and limitations set forth
below.
(c) Four Million Two Hundred Fifty-five Thousand Three Hundred
Nineteen (4,255,319) shares of the authorized and unissued Preferred Stock of
the Corporation are hereby designated "Series C Convertible Preferred Stock"
(the "Series C Preferred Stock") with the rights, preferences, powers,
privileges and restrictions, qualifications and limitations set forth below. The
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
are sometimes referred to collectively herein as the "Convertible Preferred
Stock."
(d) One Million Thirty-Nine Thousand (1,039,000) shares of the
authorized and unissued Preferred Stock of the Corporation are hereby designated
"Non-Convertible Preferred Stock" (the "Non-Convertible Preferred Stock") with
the rights, preferences, powers, privileges and restrictions, qualifications and
limitations set forth below.
2. Dividends.
---------
The holders of the Convertible Preferred Stock shall be entitled to
receive, out of any funds legally available therefor, dividends in an amount per
share equal to the dividends declared and paid on the number of whole shares of
Common Stock into which a share of such series of Convertible Preferred Stock is
convertible (as adjusted from time to time pursuant to Section 5 hereof).
3
<PAGE> 98
3. Liquidation, Dissolution and Winding Up.
---------------------------------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of
Convertible Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its stockholders,
before any payment shall be made to the holders of Non-Convertible Preferred
Stock or Common Stock by reason of their ownership thereof, an amount equal to
$1.00 per share (with respect to shares of Series A Preferred Stock), $1.50 per
share (with respect to shares of Series B Preferred Stock) and $2.35 per share
(with respect to shares of Series C Preferred Stock) (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares), plus any dividends declared but
unpaid thereon. If upon any such liquidation, dissolution or winding up of the
Corporation the remaining assets of the Corporation available for distribution
to its stockholders shall be insufficient to pay the holders of shares of
Convertible Preferred Stock the full amount to which they shall be entitled, the
holders of shares of Convertible Preferred Stock shall share ratably in any
distribution of the remaining assets and funds of the Corporation in proportion
to the respective amount which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
(b) After the payment of all preferential amounts required to be paid
to the holders of Convertible Preferred Stock, upon the dissolution, liquidation
or winding up of the Corporation, the holders of shares of Non-Convertible
Preferred Stock then outstanding shall be entitled, by reason of their ownership
thereof, to receive an amount equal to $1.00 per share (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares), plus any dividends declared or
accrued but unpaid thereon. If upon any such liquidation, dissolution or winding
up of the Corporation, the remaining assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the holders of
shares of Non-Convertible Preferred Stock the full amount to which they shall be
entitled, the holders of shares of Non-Convertible Preferred Stock shall share
ratably in any distribution of the remaining assets and funds of the Corporation
in proportion to the respective amounts which would otherwise be payable in
respect of the shares held by them upon such distribution if all amounts payable
on or with respect to such shares were paid in full.
(c) After the payment of all preferential amounts required to be paid
to the holders of Convertible Preferred Stock and Non-Convertible Preferred
Stock, upon the dissolution, liquidation or winding up of the Corporation,
subject to paragraph (d) of this Section 3 below, the remaining assets and funds
of the
4
<PAGE> 99
Corporation available for distribution to its stockholders shall be
distributed among the holders of shares of Convertible Preferred Stock and
Common Stock held by each (assuming conversion into Common Stock of all such
shares).
(d) In the event of any merger or consolidation of the Corporation
into or with another corporation (except one in which the holders of capital
stock of the Corporation immediately prior to such merger or consolidation
continue to hold greater than 50% by voting power of the capital stock of the
surviving corporation), or the sale of all or substantially all of the assets of
the Corporation, such merger, consolidation or asset sale shall be deemed to be
a liquidation of the Corporation. In the event of such merger, consolidation or
asset sale, each holder of Convertible Preferred Stock shall receive such
holder's preference pursuant to the terms of Paragraph (a) of this Section 3 and
participate with the holders of Common Stock pursuant to Paragraph (c) of this
Section 3, up to a cap of total proceeds from the liquidation of $4.00 per
share; provided, however, that each holder of Convertible Preferred Stock shall
have the right to elect to participate in the transaction pursuant to the
provisions of Subsection 5(i) hereof in lieu of receiving such holder's
preference and participating up to a cap. The amount deemed distributed to the
holders of Convertible Preferred Stock upon any such merger or consolidation
shall be cash or the value of the property, rights or securities distributed to
such holders by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined in good faith by the
Board of Directors of the Corporation.
4. Voting.
------
(a) Each holder of outstanding shares of Convertible Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which the shares held by such holder are convertible (as
adjusted from time to time pursuant to Section 5 hereof), at each meeting of
stockholders of the Corporation (and written actions of stockholders in lieu of
meetings) with respect to any and all matters presented to the stockholders of
the Corporation for their action or consideration. Except as provided by law or
as otherwise set forth herein, holders of Convertible Preferred Stock and Common
Stock shall vote together as a single class.
(b) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of any series of Convertible Preferred Stock so
as to affect adversely such series of Convertible Preferred Stock, without the
written consent or affirmative vote of the holders of 75% of the then
outstanding shares of such series of Preferred Stock, given in writing or by
vote at a meeting, consenting or voting (as the case may be) separately as a
class. For this purpose, without limiting the generality of the foregoing, the
authorization or issuance of any series of Preferred Stock with preference or
priority over any other series of Convertible
5
<PAGE> 100
Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely such series of Convertible Preferred Stock,
and the authorization or issuance of any series of Preferred Stock on a parity
with any other series of Convertible Preferred Stock as to the right to receive
either dividends or amounts distributable upon liquidation, dissolution or
winding up of the Corporation shall not be deemed to affect adversely such
series of Preferred Stock. The number of authorized shares of any series of
Convertible Preferred Stock may be increased or decreased (but not below the
number of shares then outstanding) by the affirmative vote of the holders of 75%
of the then outstanding shares of such series of Convertible Preferred Stock,
voting as a single class.
(c) Except as provided by law, the Non-Convertible Preferred Stock
shall have no voting rights.
5. OPTIONAL CONVERSION. The holders of the Convertible Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Convertible Preferred Stock shall
be convertible, at the option of the holder thereof, at any time and from time
to time, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $1.00 (with respect to the conversion of shares of
Series A Preferred Stock), $1.50 (with respect to the conversion of shares of
Series B Preferred Stock) and $2.35 (with respect to the conversion of shares of
Series C Preferred Stock) by the appropriate Conversion Price (as defined below)
in effect at the time of conversion. The conversion price at which shares of
Common Stock shall be deliverable upon conversion of Convertible Preferred Stock
without the payment of additional consideration by the holder thereof (the
"Conversion Price") shall initially be $5.00 (with respect to the conversion of
shares of Series A Preferred Stock), $7.50 (with respect to the conversion of
shares of Series B Preferred Stock) and $11.75 (with respect to the conversion
of shares of Series C Preferred Stock). Such initial Conversion Price, and the
rate at which shares of Convertible Preferred Stock may be converted into shares
of Common Stock, shall be subject to adjustment as provided below.
In the event of a notice of redemption of any shares of Convertible
Preferred Stock pursuant to Section 7 hereof, the Conversion Rights of the
shares designated for redemption shall terminate at the close of business on the
fifth full day preceding the date fixed for redemption, unless the redemption
price is not paid when due, in which case the Conversion Rights for such shares
shall continue until such price is paid in full. In the event of a liquidation,
dissolution or winding up of the Corporation, the Conversion Rights shall
terminate at the close of business on the
6
<PAGE> 101
fifth full day preceding the date fixed for the payment of any amounts
distributable on liquidation, dissolution or winding up to the holders of
Convertible Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the Convertible Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
applicable Conversion Price.
(c) Mechanics of Conversion.
-----------------------
(i) In order for a holder of shares of Convertible Preferred
Stock to convert such shares of Convertible Preferred Stock into shares of
Common Stock, such holder shall surrender the certificate or certificates for
such shares of Convertible Preferred Stock at the office of the transfer agent
for such Convertible Preferred Stock (or at the principal office of the
Corporation if the Corporation serves as its own transfer agent), together with
written notice that such holder elects to convert all or any number of the
shares of such Convertible Preferred Stock represented by such certificate or
certificates. Such notice shall state such holder's name or the names of the
nominees in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or his or its attorney duly authorized in
writing. The date of receipt of such certificates and notice by the transfer
agent (or by the Corporation if the Corporation serves as its own transfer
agent) shall be the conversion date ("Conversion Date"). The Corporation shall,
as soon as practicable after the Conversion Date, issue and deliver at such
office to such holder of such shares of Convertible Preferred Stock, or to his
or its nominees, a certificate or certificates for the number of shares of
Common Stock to which such holder shall be entitled, together with cash in lieu
of any fraction of a share, and all declared but unpaid dividends.
(ii) The Corporation shall at all times when any Convertible
Preferred Stock is outstanding, reserve and keep available out of its authorized
but unissued stock, for the purpose of effecting the conversion of the
Convertible Preferred Stock, such number of its duly authorized shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding Convertible Preferred Stock. Before taking any action which would
cause an adjustment reducing the Conversion Price below the then par value of
the shares of Common Stock issuable upon conversion of the Convertible Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Conversion Price.
7
<PAGE> 102
(iii) Upon any such conversion, no adjustment to the Conversion
Price shall be made for any declared and unpaid dividends on the Convertible
Preferred Stock surrendered for conversion or on the Common Stock delivered upon
conversion, which dividends shall be paid in accordance with clause (iv) below.
(iv) All shares of Convertible Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be deemed to
be outstanding and all rights with respect to such shares, including the rights,
if any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any declared and
unpaid dividends thereon. Any shares of Convertible Preferred Stock so converted
shall be retired and cancelled and shall not be reissued, and the Corporation
(without the need for stockholder action) may from time to time take such
appropriate action as may be necessary to reduce accordingly the authorized
shares of any or all series of Convertible Preferred Stock.
(v) The Corporation shall pay any and all issue and other taxes
that may be payable in respect of any issuance or delivery of shares of Common
Stock upon conversion of shares of Convertible Preferred Stock pursuant to this
Section 4. The Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of shares of Common Stock in a name other than that in which the shares of
Convertible Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(d) Adjustments for Diluting Issues.
-------------------------------
(i) SPECIAL DEFINITIONS. For purposes of this Subsection 4(d),
the following definitions shall apply:
(A) OPTION shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding (i) awards granted to employees or consultants of the
Corporation pursuant to the Corporation's Amended and Restated 1994 Equity
Incentive Plan (the "Plan") as adopted and amended by the Board of Directors, to
acquire up to a maximum of 775,891 shares of Common Stock (subject to
appropriate adjustment for any stock dividend, stock split, combination or other
similar recapitalization affecting such shares) and (ii) warrants (x) to
purchase 5,000 shares of Common Stock issued
8
<PAGE> 103
to the Massachusetts Institute of Technology and (y) issued to the holders of
the Non-Convertible Preferred Stock (subject to appropriate adjustment for any
stock dividend, stock split, combination or other similar recapitalization
affecting such shares) (collectively, the "Warrants").
(B) ORIGINAL ISSUE DATE shall mean the date on which a
share of Series C Preferred Stock was first issued.
(C) CONVERTIBLE SECURITIES shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock, excluding shares of Common Stock issued upon
exercise of the Warrants.
(D) ADDITIONAL SHARES OF COMMON STOCK shall mean all shares
of Common Stock issued (or, pursuant to Subsection 5(d)(iii) below, deemed to be
issued) by the Corporation after the Original Issue Date, other than shares of
Common Stock issued or issuable:
(I) upon conversion of shares of Convertible Preferred
Stock outstanding on the Original Issue Date or
upon exercise of the Warrants;
(II) as a dividend or distribution on Convertible
Preferred Stock;
(III) by reason of a dividend or distribution covered by
Subsection 5(f) hereof, a stock split, or
subdivision of shares of Common Stock covered by
Subsection 5(e) hereof, or by reason of a
dividend, stock split subdivision or other
distribution on shares of Common Stock excluded
from the definition of Additional Shares of Common
Stock by the foregoing clauses (I) and (II) or
this clause (III); or
(IV) upon the exercise of awards or warrants excluded
from the definition of "Option" in Subsection
5(d)(i)(A).
9
<PAGE> 104
(ii) NO ADJUSTMENT OF CONVERSION PRICE. With respect to each
series of Convertible Preferred Stock, no adjustment in the number of shares of
Common Stock into which shares of such series of Convertible Preferred Stock are
convertible shall be made by adjustment in the applicable Conversion Price
thereof if: (a) the consideration per share (determined pursuant to Subsection
5(d)(v)) for an Additional Share of Common Stock issued or deemed to be issued
by the Corporation is equal to or greater than the applicable Conversion Price
in effect on the date of, and immediately prior to, the issue of such Additional
Shares, or (b) prior to such issuance, the Corporation receives written notice
from the holders of (i) at least 75% of the then outstanding shares of Series A
Preferred Stock (with respect to the Conversion Price thereof), (ii) at least
75% of the then outstanding shares of Series B Preferred Stock (with respect to
the Conversion Price thereof) and/or (iii) at least 75% of the then outstanding
shares of Series C Preferred Stock (with respect to the Conversion Price
thereof) agreeing that no such adjustment shall be made as the result of the
issuance of Additional Shares of Common Stock.
(iii) Issue of Options and Convertible Securities Deemed Issue of
-----------------------------------------------------------
Additional Shares of Common Stock.
- ---------------------------------
If the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares of Common Stock (as set forth in the instrument relating thereto
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Subsection 5(d)(v) hereof)
of such Additional Shares of Common Stock would be less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided further that in any such
case in which Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
10
<PAGE> 105
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) No readjustment pursuant to clause (B) above shall have
the effect of increasing the Conversion Price to an amount which exceeds the
lower of (i) the Conversion Price on the original adjustment date, or (ii) the
Conversion Price that would have resulted from any issuance of Additional Shares
of Common Stock between the original adjustment date and such readjustment date;
(D) Upon the expiration or termination of any unexercised
Option, the Conversion Price shall not be readjusted, but the Additional Shares
of Common Stock deemed issued as the result of the original issue of such Option
shall not be deemed issued for the purposes of any subsequent adjustment of the
Conversion Price; and
(E) In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or exchange of any Option or
Convertible Security, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price then in effect shall
forthwith be adjusted to such Conversion Price as would have obtained had the
adjustment which was made upon the issuance of such Option or Convertible
Security (prior to such change) been made upon the basis of such change, but no
further adjustment shall be made for the actual issuance of Common Stock upon
the exercise or conversion of any such Option or Convertible Security.
(iv) Adjustment of Conversion Price Upon Issuance of Additional
----------------------------------------------------------
Shares of Common Stock.
- ----------------------
In the event the Corporation shall issue, at any time or from time to time
after the Original Issue Date, Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection
5(d)(iii), but excluding shares issued as a dividend or distribution as provided
in Subsection 5(f) or upon a stock split or combination as provided in
Subsection 5(e)), without consideration or for a consideration per share less
than the applicable Conversion Price in effect on the date of and immediately
prior to such issue, then and in such event, such Conversion Price shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Conversion Price by a fraction, (A) the
numerator of which shall be (1) the number of shares of Common Stock outstanding
immediately prior to such issue plus (2) the number of shares of Common Stock
which the aggregate consideration received by the
11
<PAGE> 106
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such Conversion Price; and (B) the denominator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
issue plus the number of such Additional Shares of Common Stock so issued;
PROVIDED THAT, for the purpose of this Subsection 5(d)(iv), all shares of Common
Stock issuable upon conversion of shares of Convertible Preferred Stock
outstanding immediately prior to such issue shall be deemed to be outstanding,
and immediately after any Additional Shares of Common Stock are deemed issued
pursuant to Subsection 5(d)(iii) (other than shares excluded from the definition
of "Additional Shares of Common Stock" by virtue of clause (IV) of Subsection
5(d)(i)(D)), such Additional Shares of Common Stock shall be deemed to be
outstanding.
Notwithstanding the foregoing, the applicable Conversion Price shall not be
so reduced at such time if the amount of such reduction would be an amount less
than $.05, but any such amount shall be carried forward and reduction with
respect thereto made at the time of and together with any subsequent reduction
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate $.05 or more.
(v) Determination of Consideration.
------------------------------
For purposes of this Subsection 5(d), the consideration received by the
Corporation for the issue of any Additional Shares of Common Stock shall be
computed as follows:
(A) Cash and Property: Such consideration shall:
-----------------
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation, excluding amounts paid or payable
for accrued interest or accrued dividends;
(II) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (I) and (II) above,
as determined in good faith by the Board of Directors.
12
<PAGE> 107
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Subsection 5(d)(iii), relating to Options
and Convertible Securities, shall be determined by dividing
1) the total amount, if any, received or receivable
by the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, in either case for the
issuance of the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities, by
2) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(e) ADJUSTMENTS FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall, at any time or from time to time after the Original Issue Date, effect a
subdivision of the outstanding Common Stock, the Conversion Price then in effect
immediately before that subdivision shall be proportionately decreased. If the
Corporation shall, at any time or from time to time while there are any shares
of Convertible Preferred Stock outstanding, combine the outstanding shares of
Common Stock, the Conversion Price then in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price then in effect shall be decreased as of the time of such issuance or, in
the event such a record date shall have been fixed, as of the close of business
on such record date, by multiplying the Conversion Price then in effect by a
fraction:
13
<PAGE> 108
(i) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and
(ii) the denominator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be recomputed accordingly as of the close
of business on such record date and thereafter the Conversion Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of Convertible
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of the
Corporation that they would have received had such holder's shares of
Convertible Preferred Stock been converted into Common Stock on the date of such
event and had thereafter, during the period from the date of such event to and
including the conversion date, retained such securities receivable by them as
aforesaid during such period giving application to all adjustments called for
during such period, under this paragraph with respect to the rights of the
holders of the Convertible Preferred Stock.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If
the Common Stock issuable upon the conversion of the Convertible Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares of stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of each such
share of Convertible Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of
Convertible Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
14
<PAGE> 109
(i) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. Subject to Section
3 hereof, in case of any consolidation or merger of the Corporation with or into
another corporation (except one in which the holders of capital stock of the
Corporation immediately prior to such merger or consolidation continue to hold
greater than 50% by voting power of the capital stock of the surviving
corporation), or the sale of all or substantially all of the assets of the
Corporation to another corporation, each share of Convertible Preferred Stock
shall thereafter be convertible into the kind and amount of shares of stock or
other securities or property to which a holder of the number of shares of Common
Stock of the Corporation deliverable upon conversion of such Convertible
Preferred Stock would have been entitled upon such consolidation, merger or sale
and, in such case, appropriate adjustment (as determined in good faith by the
Board of Directors) shall be made in the application of the provisions set forth
in this Section 5 with respect to the rights and interest thereafter of the
holders of the Convertible Preferred Stock, to the end that the provisions set
forth in this Section 5 (including provisions with respect to changes in and
other adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Convertible Preferred
Stock.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or By-laws or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all the
provisions of this Section 5 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Convertible Preferred Stock against impairment.
(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock, Series B Preferred Stock and/or Series C Preferred
Stock (as applicable) a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of shares of Convertible Preferred Stock, furnish or cause to
be furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price then in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of Series A Preferred
Stock, Series B Preferred Stock and/or Series C Preferred Stock (as applicable).
15
<PAGE> 110
(l) Notice of Record Date. In the event:
---------------------
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other securities of
the Corporation;
(ii) that the Corporation splits, subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a stock split, subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or stock distribution
thereon), or of any consolidation or merger of the Corporation into or with
another corporation, or of the sale of all or substantially all of the assets of
the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Convertible Preferred Stock, and shall cause
to be mailed to the holders of the Convertible Preferred Stock at their last
addresses as shown on the records of the Corporation or such transfer agent, at
least ten days prior to the record date specified in (A) below or twenty days
before the date specified in (B) below, a notice stating:
(A) the record date of such dividend, distribution, stock
split, subdivision or combination, or, if a record is not to be taken, the date
as of which the holders of Common Stock of record to be entitled to such
dividend, distribution, stock split, subdivision or combination are to be
determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding up.
16
<PAGE> 111
6. Mandatory Conversion.
--------------------
(a) The Corporation may, at its option, require all (but not less
than all) of the shares of Series A Preferred Stock, Series B Preferred Stock
and/or Series C Preferred Stock then outstanding to be converted automatically
into shares of Common Stock, at the then current Conversion Price, upon the
consummation of an underwritten public offering of Common Stock of the
Corporation pursuant to a registration statement filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, covering the
offer and sale of Common Stock to the public in a firm commitment underwriting
resulting in the receipt by the Corporation of net proceeds from such sale of
not less than $10,000,000 (a "Qualified Public Offering").
(b) All holders of record of shares of Convertible Preferred Stock to
be converted hereunder will be given at least 10 days' prior written notice of
the date fixed and the place designated for mandatory conversion of all of such
shares of Convertible Preferred Stock pursuant to this Section 6. Such notice
will be sent by first class or registered mail, postage prepaid, to each record
holder of Convertible Preferred Stock at such holder's address appearing on the
stock register. On or before the date fixed for conversion, each holder of
shares of Convertible Preferred Stock shall surrender his or its certificate or
certificates for all such shares to the Corporation at the place designated in
such notice, and shall thereafter receive certificates for the number of shares
of Common Stock to which such holder is entitled pursuant to this Section 6. On
the date fixed for conversion, all rights with respect to the Convertible
Preferred Stock so converted will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates therefor,
to receive certificates for the number of shares of Common Stock into which such
Convertible Preferred Stock has been converted. If so requested by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or by
his or its attorney duly authorized in writing. All certificates evidencing
shares of Convertible Preferred Stock which are required to be surrendered for
conversion in accordance with the provisions hereof shall, from and after the
date such certificates are so required to be surrendered, be deemed to have been
retired and canceled and the shares of Convertible Preferred Stock represented
thereby converted into Common Stock for all purposes, notwithstanding the
failure of the holder or holders thereof to surrender such certificates on or
prior to such date. As soon as practicable after the date of such mandatory
conversion and the surrender of the certificate or certificates for Convertible
Preferred Stock, the Corporation shall cause to be issued and delivered to such
holder, or on his or its written order, a certificate or certificates for the
number of full shares of Common Stock issuable on such conversion in accordance
with the provisions hereof and cash as provided in Subsection 5(b) in respect of
any fraction of a share of Common Stock otherwise issuable upon such conversion.
17
<PAGE> 112
7. Redemption of Convertible Preferred Stock at Option of Holder.
-------------------------------------------------------------
(a) Upon the fifth or any later anniversary of April 5, 1994, if the
Corporation receives notice from holders of at least 75% of the then outstanding
shares of Series A Preferred Stock, at least 75% of the then outstanding shares
of Series B Preferred Stock and/or at least 75% of the then outstanding shares
of Series C Preferred Stock agreeing to the redemption (the "Election Date"), on
the date 30 days after the Election Date and the two following anniversaries of
such day (collectively, the "Redemption Dates" and individually, a "Redemption
Date"), each holder of shares of such series of Convertible Preferred Stock
shall have the right to require the Corporation to redeem on each of those dates
up to 33%, 66% and 100% of the shares of such series of Convertible Preferred
Stock held by such holder on each of those dates, or such lesser number of
shares of such series of Convertible Preferred Stock as the holder may
determine. If any shares of Convertible Preferred Stock are eligible for
redemption in one year and the holder elects not to have such shares redeemed on
that Redemption Date, such holder may elect to have all or a portion of such
shares redeemed on the anniversary of a Redemption Date in a later year;
provided, that, such election is not made after the third anniversary of the
first Redemption Date. Any holder desiring to exercise the redemption right
granted herein (a "Requesting Holder") shall provide written notice to the
Corporation setting forth the number of shares to be redeemed. On the Redemption
Date and upon a holder's surrender, in accordance with this Section 7(a), of his
or its certificates representing shares to be redeemed, the redemption price
shall be paid by the Corporation in cash in an amount equal to $1.00 per share
(with respect to the redemption of shares of Series A Preferred Stock), $1.50
per share (with respect to the redemption of shares of Series B Preferred Stock)
and $2.35 per share (with respect to the redemption of shares of Series C
Preferred Stock) (subject to appropriate adjustment for stock splits, stock
dividends, combinations and other similar recapitalizations affecting such
shares), plus an amount equal to all declared but unpaid dividends payable in
accordance with Section 1 hereof on each share of Convertible Preferred Stock to
be redeemed (the "Redemption Price").
(b) Subject to the satisfaction of the condition set forth in the
first sentence of Subsection 7(a) above, within five days following its receipt
from a Requesting Holder of a notice of intent to exercise redemption rights
pursuant to Subsection 7(a) hereof with respect to any or all series of
Convertible Preferred Stock, the Corporation shall provide each holder of shares
of such series of Convertible Preferred Stock, other than the Requesting Holder,
with a written notice (addressed to the holder at its address as it appears on
the stock transfer books of the Corporation) containing an offer to redeem
shares of such series of Convertible Preferred Stock as provided above, which
notice shall specify the applicable Redemption Price. Each holder of such series
of Convertible Preferred Stock, other than the Requesting Holder, will have
until 10 days prior to the Redemption Date to
18
<PAGE> 113
provide the Corporation with written notice of such holder's acceptance of the
redemption offer, which notice shall specify the number of shares to be
redeemed. All notices or offers hereunder shall be sent by first class or
registered mail, postage prepaid, and shall be deemed to have been provided when
mailed.
(c) In the event that any holder of Convertible Preferred Stock,
other than the Requesting Holder, does not provide the Corporation with written
notice pursuant to Subsection 7(b) of the holder's acceptance of the redemption
offer on or before the date 10 days prior to the applicable Redemption Date, the
Corporation shall have no obligation to redeem any shares of such series of
Convertible Preferred Stock of such holder on the Redemption Date specified in
its notice to such holder or at any time thereafter.
(d) The provisions of Subsection 7(a) notwithstanding, any such
optional redemption is subject to the approval of a majority of the Board of
Directors of the Corporation and such majority may, in the good faith belief
that the requested redemption would be detrimental to the future prospects of
the Corporation, postpone such redemption for a period of one year.
(e) In addition to the redemption rights set forth in Subsection
7(a), in the event that a majority of the Corporation's Board of Directors
agrees that an adverse change in the business prospects of the Corporation has
occurred, then each holder of shares of Convertible Preferred Stock may elect,
at his or its option, to have the Corporation redeem (on the date 30 days after
such election) some or all of such shares at the Redemption Price; provided
that, if the Corporation's funds are insufficient to make the requested
redemption possible at the Redemption Price, then each holder who elected to
redeem shall be entitled to redeem a ratable portion of his or its shares based
on the availability of funds.
(f) On or prior to the Redemption Date, unless postponed pursuant to
Subsection 7(d) above, the Requesting Holder and each other holder of
Convertible Preferred Stock accepting the Corporation's redemption offer shall
surrender his or its certificate or certificates representing the shares to be
redeemed, in the manner and at the place designated in the Corporation's
redemption offer. If less than all shares represented by such certificate or
certificates are redeemed, the Corporation shall issue a new certificate for the
unredeemed shares. From and after the Redemption Date, unless there shall be a
default in payment of the Redemption Price, all rights of each holder with
respect to shares of Convertible Preferred Stock redeemed on the Redemption Date
shall cease (except the right to receive the Redemption Price without interest
upon surrender of the certificate or certificates therefor), and such shares
shall not be deemed to be outstanding for any purpose whatsoever. Such shares of
redeemed Convertible Preferred Stock shall not be reissued, and the Corporation
may from time to time take such appropriate action as may be necessary to reduce
the authorized Preferred Stock accordingly.
19
<PAGE> 114
(g) For the purpose of determining whether funds are legally
available for redemption of shares of Convertible Preferred Stock as provided
herein, the Corporation shall value its assets at the highest amount permissible
under applicable law. If on the Redemption Date funds of the Corporation legally
available therefor shall be insufficient to redeem all the shares of Convertible
Preferred Stock required to be redeemed as provided herein, funds to the extent
legally available shall be used for such purpose and the Corporation shall
effect such redemption pro rata according to the amount otherwise receivable by
each holder accepting the Corporation's redemption offer. The redemption
requirements provided hereby shall be continuous, so that if on the Redemption
Date such requirements shall not be fully discharged, without further action by
any holder of Convertible Preferred Stock, funds legally available shall be
applied therefor until such requirements are fully discharged.
(h) The foregoing provisions of this Section 7 shall terminate on the
consummation of a Qualified Public Offering.
8. Mandatory Redemption of Non-Convertible Preferred Stock.
-------------------------------------------------------
(a) Upon the earlier of (i) the consummation of a Qualified Public
Offering, (ii) the sale of all or substantially all of the assets of the
Corporation and (iii) the six-month anniversary of the date of issuance by the
Corporation of the Non-Convertible Preferred Stock (such earlier date, the
"Redemption Date"), the Corporation shall, subject to the conditions of 8(b)
below, redeem from each holder of Non-Convertible Preferred Stock all
outstanding shares of Non-Convertible Preferred Stock held by such holder, at a
price equal to $1.00 per share (the "Redemption Price").
(b) If the funds of the Corporation legally available for redemption
of the Non-Convertible Preferred Stock are insufficient to redeem all of the
Non-Convertible Preferred Stock required under this Section 8 to be redeemed,
those funds which are legally available will be used to redeem the maximum
possible number of such shares of Non-Convertible Preferred Stock ratably among
holders of the Non-Convertible Preferred Stock to be so redeemed on the basis of
the number of shares of Non-Convertible Preferred Stock which would be redeemed
on such date if the funds of the Corporation legally available therefor had been
sufficient to redeem all shares of Non-Convertible Preferred Stock required to
be redeemed on such date. At any time thereafter when additional funds of the
Corporation become legally available for the redemption of Non-Convertible
Preferred Stock, such funds will be used, at the end of the next succeeding
fiscal quarter, to redeem the balance of the shares which the corporation was
theretofore obligated to redeem, ratably on the basis set forth in the preceding
sentence.
(c) The Corporation shall provide notice of the redemption of
Non-Convertible Preferred Stock pursuant to this Section 8 specifying the time
and place
20
<PAGE> 115
of redemption by first class or registered mail, postage prepaid, to each
holder of record of Non-Convertible Preferred Stock at the address for such
holder last shown on the records of the transfer agent therefor (or the records
of the Corporation, if it serves as its own transfer agent), not more than 20
nor less than 10 days prior to the date on which such redemption is to be made.
Upon mailing any such notice of redemption, the Corporation will become
obligated to redeem at the time of redemption specified therein all
Non-Convertible Preferred Stock specified therein.
(d) On or prior to the Redemption Date, each holder of
Non-Convertible Preferred Stock shall surrender his or its certificate or
certificates representing the shares to be redeemed, in the manner and at the
place designated by the Corporation. If less than all shares represented by
such certificate or certificates are redeemed, the Corporation shall issue a
new certificate for the unredeemed shares. From and after the Redemption Date,
unless there shall be a default in payment of the Redemption Price, all rights
of each holder with respect to shares of Non-Convertible Preferred Stock
redeemed on the Redemption Date shall cease (except the right to receive the
Redemption Price without interest upon surrender of the certificate or
certificates therefor), and such shares shall not be deemed to be outstanding
for any purposes whatsoever. Such shares of redeemed NonConvertible Preferred
Stock shall be cancelled and will not under any circumstances be reissued, and
the Corporation may from time to time take such appropriate action as may be
necessary to reduce the authorized Non-Convertible Preferred Stock accordingly.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment of Restated Certificate of
Incorporation to be signed by its Vice President, Finance and Chief Financial
Officer this 28th day of February, 1997.
TRANSCEND THERAPEUTICS, INC.
By: /s/ B. Nicholas Harvey
-----------------------------
B. Nicholas Harvey
Chief Financial Officer
21
<PAGE> 1
Exhibit 3.2
RESTATED CERTIFICATE OF INCORPORATION
OF
TRANSCEND THERAPEUTICS, INC.
PURSUANT TO SECTIONS 242 AND 245
OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
Transcend Therapeutics, Inc. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware (the "General Corporation Law"), hereby certifies as follows:
1. The name of the corporation is Transcend Therapeutics, Inc. The
corporation was originally incorporated under the name "Free Radical Sciences,
Inc." on December 23, 1992.
2. This Restated Certificate of Incorporation restates and integrates and
further amends the Restated Certificate of Incorporation of the Corporation, was
duly adopted in accordance with the provisions of Sections 242 and 245 of the
General Corporation Law, and was approved by written consent of the stockholders
of the Corporation given in accordance with the provisions of Section 228 of the
General Corporation Law (prompt notice of such action having been given to those
stockholders who did not consent in writing). The resolution setting forth the
Restated Certificate of Incorporation is as follows:
RESOLVED: That the Restated Certificate of Incorporation of the Corporation, as
amended, be and hereby is amended and restated in its entirety so that the same
shall read as follows:
FIRST. The name of the Corporation is:
Transcend Therapeutics, Inc.
SECOND. The address of its registered office in the State of Delaware is 32
Loockerman Square, Suite L-100, Dover, Delaware 19901, Kent County. The name of
its registered agent at such address is The Prentiss-Hall Corporation System.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
<PAGE> 2
organized under the General Corporation Law.
FOURTH. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 30,000,000 shares, consisting of
25,000,000 shares of Common Stock, $.01 par value per share ("Common Stock"),
and (ii) 5,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock").
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
------------
1. GENERAL. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
-2-
<PAGE> 3
B. PREFERRED STOCK.
---------------
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law or this Certificate of
Incorporation. Different series of Preferred Stock shall not be construed to
constitute different classes of shares for the purposes of voting by classes
unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without limiting
the generality of the foregoing, the resolutions providing for issuance of any
series of Preferred Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other series to the extent
permitted by law and this Certificate of Incorporation. Except as otherwise
provided in this Certificate of Incorporation, no vote of the holders of the
Preferred Stock or Common Stock shall be a prerequisite to the designation or
issuance of any shares of any series of the Preferred Stock authorized by and
complying with the conditions of this Certificate of Incorporation, the right to
have such vote being expressly waived by all present and future holders of the
capital stock of the Corporation.
FIFTH. The Corporation shall have a perpetual existence.
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
-3-
<PAGE> 4
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
EIGHTH. Except to the extent that the General Corporation Law prohibits the
elimination or limitation of liability of directors for breaches of fiduciary
duty, no director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
NINTH. 1. ACTION, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF
THE CORPORATION. The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees) judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in
-4-
<PAGE> 5
good faith and in a manner which he reasonably believed to be in, or not opposed
to, the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his conduct was
unlawful. Notwithstanding anything to the contrary in this Article, except as
set forth in Section 6 below, the Corporation shall not indemnify an Indemnitee
seeking indemnification in connection with a proceeding (or part thereof)
initiated by the Indemnitee unless the initiation thereof was approved by the
Board of Directors of the Corporation.
2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation
shall indemnify any Indemnitee who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was, or has agreed to become, a director or officer of the
Corporation, or is or was serving, or has agreed to serve, at the request of the
Corporation, as a director, officer or trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or other enterprise
(including any employee benefit plan), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees) and amounts paid in settlement actually and reasonably incurred
by him or on his behalf in connection with such action, suit or proceeding and
any appeal therefrom, if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery of Delaware
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of such liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses (including attorneys' fees) which the Court of
Chancery of Delaware or such other court shall deem proper.
3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or NOLO CONTENDERE by the Indemnitee, (iv) an adjudication that the
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been
-5-
<PAGE> 6
wholly successful with respect thereto.
4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his right
to be indemnified, the Indemnitee must notify the Corporation in writing as soon
as practicable of any action, suit, proceeding or investigation involving him
for which indemnity will or could be sought. With respect to any action, suit,
proceeding or investigation of which the Corporation is so notified, the
Corporation will be entitled to participate therein at its own expense and/or to
assume the defense thereof at its own expense, with legal counsel reasonably
acceptable to the Indemnitee. After notice from the Corporation to the
Indemnitee of its election so to assume such defense, the Corporation shall not
be liable to the Indemnitee for any legal or other expenses subsequently
incurred by the Indemnitee in connection with such claim, other than as provided
below in this Section 4. The Indemnitee shall have the right to employ his own
counsel in connection with such claim, but the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the defense
thereof shall be at the expense of the Indemnitee unless (i) the employment of
counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel
to the Indemnitee shall have reasonably concluded that there may be a conflict
of interest or position on any significant issue between the Corporation and the
Indemnitee in the conduct of the defense of such action or (iii) the Corporation
shall not in fact have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of counsel for the Indemnitee shall be
at the expense of the Corporation, except as otherwise expressly provided by
this Article. The Corporation shall not be entitled, without the consent of the
Indemnitee, to assume the defense of any claim brought by or in the right of the
Corporation or as to which counsel for the Indemnitee shall have reasonably made
the conclusion provided for in clause (ii) above.
5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 below, in
the event that the Corporation does not assume the defense pursuant to Section 4
of this Article of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the Corporation in advance of the final disposition of such matter; PROVIDED,
HOWEVER, that the payment of such expense incurred by an Indemnitee in advance
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such undertaking may be accepted without reference to the financial ability of
the Indemnitee to make such repayment.
6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
-6-
<PAGE> 7
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines, by clear and convincing evidence, within such 60-day
period that the Indemnitee did not meet the applicable standard of conduct set
forth in Section 1 or 2, as the case may be. Such determination shall be made in
each instance by (a) a majority vote of a quorum of the directors of the
Corporation consisting of persons who are not at that time parties to the
action, suit or proceeding in question ("disinterested directors"), (b) if no
such quorum is obtainable, a majority vote of a committee of two or more
disinterested directors, (c) a majority vote of a quorum of the outstanding
shares of stock of all classes entitled to vote for directors, voting as a
single class, which quorum shall consist of stockholders who are not at that
time parties to the action, suit or proceeding in question, (c) independent
legal counsel (who may be regular legal counsel to the Corporation), or (d) a
court of competent jurisdiction.
7. REMEDIES. The right to indemnification or advances as granted by this
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise provided by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advance of expenses under this
Article shall be on the Corporation. Neither the failure of the Corporation to
have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the Corporation.
8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law or any
other applicable laws shall affect or diminish in any way the rights of any
Indemnitee to indemnification under the provisions hereof with respect to any
action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. OTHER RIGHTS. The indemnification and advancement of expenses provided
by this Article shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to
-7-
<PAGE> 8
action in any other capacity while holding office for the Corporation, and shall
continue as to an Indemnitee who has ceased to be a director or officer, and
shall inure to the benefit of the estate, heirs, executors and administrators of
the Indemnitee. Nothing contained in this Article shall be deemed to prohibit,
and the Corporation is specifically authorized to enter into, agreements with
officers and directors providing indemnification rights and procedures different
from those set forth in this Article. In addition, the Corporation may, to the
extent authorized from time to time by its Board of Directors, grant
indemnification rights to other employees or agents of the Corporation or other
persons serving the Corporation and such rights may be equivalent to, or greater
or less than, those set forth in this Article.
10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal,
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. INSURANCE. The Corporation may purchase and maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan) against any expense, liability
or loss incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the General Corporation
Law.
12. MERGER OR CONSOLIDATION. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees) judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. DEFINITIONS. Terms used herein and defined in Section 145(h) and
-8-
<PAGE> 9
Section 145(i) of the General Corporation Law shall have the respective meanings
assigned to such terms in such Section 145(h) and Section 145(i).
15. SUBSEQUENT LEGISLATION. If the General Corporation Law is amended after
adoption of this Article to expand further the indemnification permitted to
Indemnitees, then the Corporation shall indemnify such persons to the fullest
extent permitted by the General Corporation Law, as so amended."
TENTH. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Restated Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
ELEVENTH. This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation.
1. NUMBER OF DIRECTORS. The number of directors of the Corporation shall
not be less than three. The exact number of directors within the limitations
specified in the preceding sentence shall be fixed from time to time by, or in
the manner provided in, the Corporation's By-Laws.
2. CLASSES OF DIRECTORS. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall
be a member of Class I and one of the extra directors shall be a member of
Class II, unless otherwise provided from time to time by resolution adopted by
the Board of Directors.
3. ELECTION OF DIRECTORS. Elections of directors need not be by written
ballot except as and to the extent provided in the By-Laws of the Corporation.
4. TERMS OF OFFICE. Each director shall serve for a term ending on the date
of the third annual meeting following the annual meeting at which such director
was elected; PROVIDED, that each initial director in Class I shall serve for a
term ending on the date of the annual meeting in 1998; each initial director in
Class II shall serve for a term ending on the date of the annual meeting in
1999; and each initial director in Class III shall serve for a term ending on
the date of the annual meeting in 2000; and PROVIDED FURTHER, that the term of
each director shall be subject to the election and qualification of his
successor and to his earlier death, resignation or removal.
5. ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall
-9-
<PAGE> 10
nevertheless continue as a director of the class of which he is a member and
(ii) the newly created or eliminated directorships resulting from such increase
or decrease shall be apportioned by the Board of Directors among the three
classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
6. QUORUM; ACTION AT MEETING. A majority of the directors at any time in
office shall constitute a quorum for the transaction of business. In the event
one or more of the directors shall be disqualified to vote at any meeting, then
the required quorum shall be reduced by one for each director so disqualified,
provided that in no case shall less than one-third of the number of directors
fixed pursuant to Section 1 above constitute a quorum. If at any meeting of the
Board of Directors there shall be less than such a quorum, a majority of those
present may adjourn the meeting from time to time. Every act or decision done or
made by a majority of the directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Directors unless
a greater number is required by law, by the By-Laws of the Corporation or by
this Restated Certificate of Incorporation.
7. REMOVAL. Directors of the Corporation may be removed only for cause by
the affirmative vote of the holders of at least two-thirds of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote.
8. VACANCIES. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the board, shall be filled
only by a vote of a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
9. STOCKHOLDER NOMINATIONS AND INTRODUCTION OF BUSINESS, ETC. Advance
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-Laws of the Corporation.
10. AMENDMENTS TO ARTICLE. Notwithstanding any other provisions of law,
this Restated Certificate of Incorporation or the By-Laws of the Corporation,
each as amended, and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote shall be required to amend or
repeal, or to adopt any provision inconsistent with, this
-10-
<PAGE> 11
Article ELEVENTH.
TWELFTH. Stockholders of the Corporation may not take any action by written
consent in lieu of a meeting. Notwithstanding any other provisions of law, the
Restated Certificate of Incorporation or the By-Laws of the Corporation, each as
amended, and notwithstanding the fact that a lesser percentage may be specified
by law, the affirmative vote of the holders of at least sixty-six and two-thirds
percent (66-2/3%) of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote shall be required to amend or repeal, or to
adopt any provision inconsistent with, this Article TWELFTH.
THIRTEENTH. Special meetings of stockholders may be called at any time by
only the Chairman of the Board of Directors, the Chief Executive Officer (or if
there is no Chief Executive Officer, the President) or the Board of Directors.
Business transacted at any special meeting of stockholders shall be limited to
matters relating to the purpose or purposes stated in the notice of meeting.
Notwithstanding any other provision of law, this Restated Certificate of
Incorporation or the By-Laws of the Corporation, each as amended, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote shall be required to amend or repeal, or to
adopt any provision inconsistent with, this Article THIRTEENTH.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Restated Certificate of Incorporation to be signed by
its Chief Financial Officer this ____ day of __________, 1996.
TRANSCEND THERAPEUTICS, INC.
By:
-------------------------
B. Nicholas Harvey
Chief Financial Officer
-11-
<PAGE> 1
Exhibit 3.3
AMENDED AND RESTATED
BY-LAWS
OF
TRANSCEND THERAPEUTICS, INC.
<PAGE> 2
AMENDED AND RESTATED BY-LAWS
----------------------------
TABLE OF CONTENTS
-----------------
ARTICLE 1 - Stockholders .................................................. 1
1.1 Place of Meetings ................................................. 1
1.2 Annual Meeting .................................................... 1
1.3 Special Meetings .................................................. 1
1.4 Notice of Meetings ................................................ 1
1.5 Voting List ....................................................... 2
1.6 Quorum ............................................................ 2
1.7 Adjournments ...................................................... 2
1.8 Voting and Proxies ................................................ 2
1.9 Action at Meeting ................................................. 3
1.10 Nomination of Directors ........................................... 3
1.11 Notice of Business at Annual Meetings ............................. 4
1.12 Action without Meeting ............................................ 5
1.13 Organization ...................................................... 5
ARTICLE 2 - Directors ..................................................... 5
2.1 General Powers .................................................... 5
2.2 Number; Election and Qualification ................................ 6
2.3 Classes of Directors .............................................. 6
2.4 Terms of Office ................................................... 6
2.5 Allocation of Directors Among Classes in the Event of Increases
or Decreases in the Number of Directors ........................... 6
2.6 Vacancies ......................................................... 7
2.7 Resignation ....................................................... 7
2.8 Regular Meetings .................................................. 7
2.9 Special Meetings .................................................. 7
2.10 Notice of Special Meetings ........................................ 7
2.11 Meetings by Telephone Conference Calls ............................ 8
2.12 Quorum ............................................................ 8
-i-
<PAGE> 3
2.13 Action at Meeting ............................................ 8
2.14 Action by Consent ............................................ 8
2.15 Removal ...................................................... 8
2.16 Committees ................................................... 8
2.17 Compensation of Directors .................................... 9
ARTICLE 3 - Officers ................................................... 9
3.1 Enumeration .................................................. 9
3.2 Election ..................................................... 9
3.3 Qualification ................................................ 10
3.4 Tenure ....................................................... 10
3.5 Resignation and Removal ...................................... 10
3.6 Vacancies .................................................... 10
3.7 Chairman of the Board and Vice Chairman of the Board ......... 10
3.8 President .................................................... 11
3.9 Vice Presidents .............................................. 11
3.10 Secretary and Assistant Secretaries .......................... 11
3.11 Treasurer and Assistant Treasurers ........................... 12
3.12 Salaries ..................................................... 12
ARTICLE 4 - Capital Stock .............................................. 12
4.1 Issuance of Stock ............................................ 12
4.2 Certificates of Stock ........................................ 13
4.3 Transfers .................................................... 13
4.4 Lost, Stolen or Destroyed Certificates ....................... 13
4.5 Record Date .................................................. 14
ARTICLE 5 - General Provisions ......................................... 14
5.1 Fiscal Year .................................................. 14
5.2 Corporate Seal ............................................... 14
5.3 Waiver of Notice ............................................. 14
5.4 Voting of Securities ......................................... 15
5.5 Evidence of Authority ........................................ 15
5.6 Certificate of Incorporation ................................. 15
5.7 Transactions with Interested Parties ......................... 15
5.8 Severability ................................................. 16
5.9 Pronouns ..................................................... 16
-ii-
<PAGE> 4
ARTICLE 6 - Amendments ........................................... 16
6.1 By the Board of Directors .............................. 16
6.2 By the Stockholders .................................... 16
6.3 Certain Provisions ..................................... 16
-iii-
<PAGE> 5
AMENDED AND RESTATED BY-LAWS
OF
TRANSCEND THERAPEUTICS, INC.
ARTICLE 1 - Stockholders
------------------------
1.1 PLACE OF MEETINGS. All meetings of stockholders shall be held at such
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors or the President or, if not so designated, at the
registered office of the corporation.
1.2 ANNUAL MEETING. The annual meeting of stockholders for the election of
directors and for the transaction of such other business as may properly be
brought before the meeting shall be held within six months after the end of each
fiscal year of the corporation on a date to be fixed by the Board of Directors
or the President (which date shall not be a legal holiday in the place where the
meeting is to be held) at the time and place to be fixed by the Board of
Directors or the President and stated in the notice of the meeting. If no annual
meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-Laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 SPECIAL MEETINGS. Special meetings of stockholders may be called at any
time by the Chairman of the Board of Directors, the Chief Executive Officer (or,
if there is no Chief Executive Officer, the President) or the Board of
Directors. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting.
1.4 NOTICE OF MEETINGS. Except as otherwise provided by law, written notice
of each meeting of stockholders, whether annual or special, shall be given not
-1-
<PAGE> 6
less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting. The notices of all meetings shall
state the place, date and hour of the meeting. The notice of a special meeting
shall state, in addition, the purpose or purposes for which the meeting is
called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
1.5 VOTING LIST. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.6 QUORUM. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to any other
time and to any other place at which a meeting of stockholders may be held under
these By-Laws by the stockholders present or represented at the meeting and
entitled to vote, although less than a quorum, or, if no stockholder is present,
by any officer entitled to preside at or to act as Secretary of such meeting. It
shall not be necessary to notify any stockholder of any adjournment of less than
30 days if the time and place of the adjourned meeting are announced at the
meeting at which adjournment is taken, unless after the adjournment a new record
date is fixed for the adjourned meeting. At the adjourned meeting, the
corporation may transact any business which might have been transacted at the
original meeting.
1.8 VOTING AND PROXIES. Each stockholder shall have one vote for each share
of stock entitled to vote held of record by such stockholder and a proportionate
vote for each fractional share so held, unless otherwise provided by the General
-2-
<PAGE> 7
Corporation Law of the State of Delaware, the Certificate of Incorporation or
these By-Laws. Each stockholder of record entitled to vote at a meeting of
stockholders, or to express consent or dissent to corporate action in writing
without a meeting, may vote or express such consent or dissent in person or may
authorize another person or persons to vote or act for him by written proxy
executed by the stockholder or his authorized agent and delivered to the
Secretary of the corporation. No such proxy shall be voted or acted upon after
three years from the date of its execution, unless the proxy expressly provides
for a longer period.
1.9 ACTION AT MEETING. When a quorum is present at any meeting, the holders
of a majority of the stock present or represented and voting on a matter (or if
there are two or more classes of stock entitled to vote as separate classes,
then in the case of each such class, the holders of a majority of the stock of
that class present or represented and voting on a matter) shall decide any
matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. Any election by stockholders shall be determined
by a plurality of the votes cast by the stockholders entitled to vote at the
election.
1.10 NOMINATION OF DIRECTORS. Only persons who are nominated in accordance
with the following procedures shall be eligible for election as directors.
Nomination for election to the Board of Directors of the corporation at a
meeting of stockholders may be made by the Board of Directors or by any
stockholder of the corporation entitled to vote for the election of directors at
such meeting who complies with the notice procedures set forth in this Section
1.10. Such nominations, other than those made by or on behalf of the Board of
Directors, shall be made by notice in writing delivered or mailed by first class
United States mail, postage prepaid, to the Secretary, and received not less
than 60 days nor more than 90 days prior to such meeting; provided, however,
that if less than 70 days' notice or prior public disclosure of the date of the
meeting is given to stockholders, such nomination shall have been mailed or
delivered to the Secretary not later than the close of business on the 10th day
following the date on which the notice of the meeting was mailed or such public
disclosure was made, whichever occurs first. Such notice shall set forth (a) as
to each proposed nominee (i) the name, age, business address and, if known,
residence address of each such nominee, (ii) the principal occupation or
employment of each such nominee, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee, and (iv) any
other information concerning the nominee that must be disclosed as to nominees
in proxy solicitations pursuant to
-3-
<PAGE> 8
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to be named as a nominee and to serve as a
director if elected); and (b) as to the stockholder giving the notice (i) the
name and address, as they appear on the corporation's books, of such stockholder
and (ii) the class and number of shares of the corporation which are
beneficially owned by such stockholder. The corporation may require any proposed
nominee to furnish such other information as may reasonably be required by the
corporation to determine the eligibility of such proposed nominee to serve as a
director of the corporation.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
1.11 NOTICE OF BUSINESS AT ANNUAL MEETINGS. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (c) otherwise properly brought before an annual meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, if such business relates to the election of directors of the
corporation, the procedures in Section 1.10 must be complied with. If such
business relates to any other matter, the stockholder must have given timely
notice thereof in writing to the Secretary. To be timely, a stockholder's notice
must be delivered to or mailed and received at the principal executive offices
of the corporation not less than 60 days nor more than 90 days prior to the
meeting; provided, however, that in the event that less than 70 days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the date on which
such notice of the date of the meeting was mailed or such public disclosure was
made, whichever occurs first. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the corporation's books, of
the stockholder proposing such business, (c) the class and number of shares of
the corporation which are beneficially owned by the stockholder,
-4-
<PAGE> 9
and (d) any material interest of the stockholder in such business.
Notwithstanding anything in these By-Laws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this Section 1.11 and except that any stockholder proposal which
complies with Rule 14a-8 of the proxy rules (or any successor provision)
promulgated under the Securities Exchange Act of 1934, as amended, and is to be
included in the corporation's proxy statement for an annual meeting of
stockholders shall be deemed to comply with the requirements of this Section
1.11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 1.11, and if he should so
determine, the chairman shall so declare to the meeting that any such business
not properly brought before the meeting shall not be transacted.
1.12 ACTION WITHOUT MEETING. Stockholders may not take any action by
written consent in lieu of a meeting.
1.13 ORGANIZATION. The Chairman of the Board, or in his absence the Vice
Chairman of the Board designated by the Chairman of the Board, or the President,
in the order named, shall call meetings of the stockholders to order, and shall
act as chairman of such meeting; PROVIDED, however, that the Board of Directors
may appoint any stockholder to act as chairman of any meeting in the absence of
the Chairman of the Board. The Secretary of the corporation shall act as
secretary at all meetings of the stockholders; but in the absence of the
Secretary at any meeting of the stockholders, the presiding officer may appoint
any person to act as secretary of the meeting.
ARTICLE 2 - Directors
---------------------
2.1 GENERAL POWERS. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
-5-
<PAGE> 10
2.2 NUMBER; ELECTION AND QUALIFICATION. The number of directors which shall
constitute the whole Board of Directors shall be determined by resolution of the
Board of Directors, but in no event shall be less than three. The number of
directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the corporation.
2.3 CLASSES OF DIRECTORS. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
2.4 TERMS OF OFFICE. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; PROVIDED, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting of stockholders in
1998; each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 1999; and each initial director in
Class III shall serve for a term ending on the date of the annual meeting of
stockholders in 2000; and PROVIDED FURTHER, that the term of each director shall
be subject to the election and qualification of his successor and to his earlier
death, resignation or removal.
2.5 ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the
-6-
<PAGE> 11
latest dates following such allocation, and any newly eliminated directorships
shall be subtracted from those classes whose terms of offices are to expire at
the earliest dates following such allocation, unless otherwise provided from
time to time by resolution adopted by the Board of Directors.
2.6 VACANCIES. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, shall be filled
only by vote of a majority of the directors then in office, although less than a
quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office, and a
director chosen to fill a position resulting from an increase in the number of
directors shall hold office until the next election of the class for which such
director shall have been chosen, subject to the election and qualification of
his successor and to his earlier death, resignation or removal.
2.7 RESIGNATION. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.8 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.9 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.10 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of directors
shall be given to each director by the Secretary or by the officer or one of the
directors calling the meeting. Notice shall be duly given to each director (i)
by giving notice to such director in person or by telephone at least 24 hours in
advance of the meeting, (ii) by sending a telegram, telecopy, or telex, or
delivering written notice by
-7-
<PAGE> 12
hand, to his last known business or home address at least 24 hours in advance of
the meeting, or (iii) by mailing written notice to his last known business or
home address at least 72 hours in advance of the meeting. A notice or waiver of
notice of a meeting of the Board of Directors need not specify the purposes of
the meeting.
2.11 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.12 QUORUM. A majority of the total number of the whole Board of Directors
shall constitute a quorum at all meetings of the Board of Directors. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each such director so
disqualified; provided, however, that in no case shall less than one-third (1/3)
of the number so fixed constitute a quorum. In the absence of a quorum at any
such meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.13 ACTION AT MEETING. At any meeting of the Board of Directors at which a
quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these By-Laws.
2.14 ACTION BY CONSENT. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee of the Board of Directors
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent to the action in writing, and the written consents are
filed with the minutes of proceedings of the Board or committee.
2.15 REMOVAL. Directors of the corporation may be removed only for cause by
the affirmative vote of the holders of two-thirds of the shares of the capital
stock of the corporation issued and outstanding and entitled to vote.
2.16 COMMITTEES. The Board of Directors may, by resolution passed by a
-8-
<PAGE> 13
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of the State of Delaware, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it. Each
such committee shall keep minutes and make such reports as the Board of
Directors may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these By-Laws for the Board of Directors.
2.17 COMPENSATION OF DIRECTORS. Directors may be paid such compensation for
their services and such reimbursement for expenses of attendance at meetings as
the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - Officers
--------------------
3.1 ENUMERATION. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 ELECTION. The President, Treasurer and Secretary shall be elected
-9-
<PAGE> 14
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 QUALIFICATION. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 TENURE. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote of a
majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 VACANCIES. The Board of Directors may fill any vacancy occurring in any
office for any reason and may, in its discretion, leave unfilled for such period
as it may determine any offices other than those of President, Treasurer and
Secretary. Each such successor shall hold office for the unexpired term of his
predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 CHAIRMAN OF THE BOARD AND VICE CHAIRMAN OF THE BOARD. The Board of
Directors may appoint a Chairman of the Board. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess such
powers as are assigned to him by the Board of Directors. If the Board of
Directors appoints a Vice
-10-
<PAGE> 15
Chairman of the Board, he shall, in the absence or disability of the Chairman of
the Board, perform the duties and exercise the powers of the Chairman of the
Board and shall perform such other duties and possess such other powers as may
from time to time be vested in him by the Board of Directors.
3.8 PRESIDENT. The President shall, subject to the direction of the Board
of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
3.9 VICE PRESIDENTS. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform such
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Secretary shall perform such
duties and have such powers as are incident to the office of the secretary,
including without limitation the duty and power to give notices of all meetings
of stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of Directors and keep a record of the
proceedings, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the
-11-
<PAGE> 16
Assistant Secretary (or if there shall be more than one, the Assistant
Secretaries in the order determined by the Board of Directors) shall perform the
duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 TREASURER AND ASSISTANT TREASURERS. The Treasurer shall perform such
duties and shall have such powers as may from time to time be assigned to him by
the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the President or the Treasurer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 SALARIES. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 - Capital Stock
-------------------------
4.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation
-12-
<PAGE> 17
held in its treasury may be issued, sold, transferred or otherwise disposed of
by vote of the Board of Directors in such manner, for such consideration and on
such terms as the Board of Directors may determine.
4.2 CERTIFICATES OF STOCK. Every holder of stock of the corporation shall
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the corporation. Each such certificate shall be signed by, or in the name
of the corporation by, the Chairman or Vice Chairman, if any, of the Board of
Directors, or the President or a Vice President, and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the By-Laws,
applicable securities laws or any agreement among any number of stockholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
4.3 TRANSFERS. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
4.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation may issue a new
certificate of stock in place of any previously issued certificate alleged to
have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or
-13-
<PAGE> 18
destruction and the giving of such indemnity as the Board of Directors may
require for the protection of the corporation or any transfer agent or
registrar.
4.5 RECORD DATE. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - General Provisions
------------------------------
5.1 FISCAL YEAR. Except as from time to time otherwise designated by the
Board of Directors, the fiscal year of the corporation shall begin on the first
day of January in each year and end on the last day of December in each year.
5.2 CORPORATE SEAL. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
5.3 WAIVER OF NOTICE. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such
-14-
<PAGE> 19
person's duly authorized attorney, or by telegraph, cable or any other available
method, whether before, at or after the time stated in such waiver, or the
appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 VOTING OF SECURITIES. Except as the directors may otherwise designate,
the President or Treasurer may waive notice of, and act as, or appoint any
person or persons to act as, proxy or attorney-in-fact for this corporation
(with or without power of substitution) at, any meeting of stockholders or
shareholders of any other corporation or organization, the securities of which
may be held by this corporation.
5.5 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an Assistant
Secretary, or a temporary Secretary, as to any action taken by the stockholders,
directors, a committee or any officer or representative of the corporation shall
as to all persons who rely on the certificate in good faith be conclusive
evidence of such action.
5.6 CERTIFICATE OF INCORPORATION. All references in these By-Laws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum;
(2) The material facts as to his relationship or interest and as to
the
-15-
<PAGE> 20
contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the Board of Directors,
a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
5.8 SEVERABILITY. Any determination that any provision of these By-Laws is
for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.9 PRONOUNS. All pronouns used in these By-Laws shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
ARTICLE 6 - Amendments
----------------------
6.1 BY THE BOARD OF DIRECTORS. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 BY THE STOCKHOLDERS. Except as otherwise provided in Section 6.3, these
By-Laws may be altered, amended or repealed or new by-laws may be adopted by the
affirmative vote of the holders of a majority of the shares of the capital stock
of the corporation issued and outstanding and entitled to vote at any regular or
special meeting of stockholders, provided notice of such alteration, amendment,
repeal or adoption of new by-laws shall have been stated in the notice of such
regular or special meeting.
6.3 CERTAIN PROVISIONS. Notwithstanding any other provision of law, the
-16-
<PAGE> 21
Certificate of Incorporation or these By-Laws, and notwithstanding the fact that
a lesser percentage may be specified by law, the affirmative vote of the holders
of at least sixty-six and two-thirds percent (66 2/3%) of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote
shall be required to amend or repeal, or to adopt any provision inconsistent
with Section 1.3, Section 1.10, Section 1.11, Section 1.12, Section 1.13,
Article 2 or Article 6 of these By-Laws.
Adopted by the Board of Directors on August
20, 1996
Approved by the Stockholders on __________,
1996
-17-
<PAGE> 1
EXHIBIT 4.2
SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
---------------------------------------------------------
This Second Amended and Restated Registration Rights Agreement (the
"Agreement") is made as of this 21st day of August, 1996 by and among The
Venture Capital Fund of New England III, L.P., Advent International Investors II
Limited Partnership, Advent Performance Materials Limited Partnership, Global
Private Equity II Limited Partnership, Rovent II Limited Partnership, Paal C.
Gisholt, Charles Hsu, Sprout Capital VI, L.P., DLJ Capital Corporation, Baxter
Healthcare Corporation and Clinical Nutrition Holdings, Inc., Frank L. Douglas,
Jerry T. Jackson and Richard B. Egen (collectively, the "Purchasers"), Clintec
Nutrition Company ("Clintec"), Massachusetts Institute of Technology ("MIT") and
Transcend Therapeutics, Inc., a Delaware corporation (the "Company"). The
Purchasers, Clintec and MIT are referred to in the Agreement collectively as the
"Holders".
RECITALS
--------
WHEREAS, certain of the Purchasers (the "Series A Stockholders") are the
holders of shares of the Company's Series A Convertible Preferred Stock, $.01
par value per share (the "Series A Preferred Stock"), and have the right to
participate in registrations of shares of the Company's Preferred Registrable
Shares (as defined below) under the Securities Act (as defined below) upon the
terms and conditions set forth in the Amended and Restated Registration Rights
Agreement dated as of September 13, 1995, as amended by an Amendment of Amended
and Restated Registration Rights Agreement dated December 22, 1995 and a Second
Amendment of Amended and Restated Registration Rights Agreement dated May 31,
1996, by and among the Company and such Purchasers (the "1995 Registration
Rights Agreement"); and
WHEREAS, Clintec is the holder of certain shares of the Company's Common
Stock, $.01 par value per share (the "Common Stock"), and has the right to
participate in registrations of the Company's Common Stock under the Securities
Act upon the terms and conditions set forth in the 1995 Registration Rights
Agreement; and
WHEREAS, MIT is the holder of a warrant dated October 26, 1994 to purchase
25,000 shares of the Company's Common Stock (the "MIT Warrant") and has the
right to participate in registrations of the Company's Common Stock under the
Securities Act upon the terms and conditions set forth in the 1995 Registration
Rights Agreement; and
WHEREAS, certain of the Purchasers are parties to a Note Purchase Agreement
dated September 13, 1995, as amended May 31, 1996 (the "Note Purchase
<PAGE> 2
Agreement"), by and among the Company and such Purchasers, providing for the
purchase by such Purchasers of the Secured Convertible Term Notes of the Company
in the aggregate principal amount of $3,000,000 (as amended, the "Notes"), which
Notes shall bear interest payable in, and shall be convertible into, shares of
Series A Preferred Stock or Series B Convertible Preferred Stock, $.01 par value
per share (the "Series B Preferred Stock"), and have the right to participate in
registrations of shares of the Company's Preferred Registrable Shares under the
Securities Act upon the terms and conditions set forth in the Securities Act
upon the terms and conditions set forth in the 1995 Registration Rights
Agreement; and
WHEREAS, the Company intends to issue and sell a total of 851,064 shares of
its Series C Convertible Preferred Stock, $.01 par value per share (the "Series
C Preferred Stock"), at $2.35 per share, pursuant to the Series C Convertible
Preferred Stock Purchase Agreement dated as of the date hereof by and among the
Company and certain of the Purchasers (the "Series C Stock Purchase Agreement");
and
WHEREAS, the Company intends to issue a total of 3,404,255 shares of Series
C Preferred Stock under the Series C Purchase Agreement to Clintec in exchange
for all of the outstanding shares of the Company's Non-Convertible Preferred
Stock, $.01 par value per share; and
WHEREAS, the parties wish to provide registration rights with respect to
the holders of shares of Series C Preferred Stock; and
WHEREAS, each of the parties hereto desires to set forth in a single
document such registration and certain other rights of the Holders.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in the Agreement, the parties hereto agree as follows:
1. Termination of 1995 Registration Rights Agreement.
--------------------------------------------------
1.1. TERMINATION OF 1995 REGISTRATION RIGHTS AGREEMENT. The parties
hereto hereby acknowledge and agree that the 1995 Registration Rights Agreement
is hereby terminated and amended, restated and superseded in all respects by
this Agreement.
2. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"COMMISSION" means the Securities and Exchange Commission, or any
other Federal agency at the time administering the Securities Act.
2
<PAGE> 3
"COMMON REGISTRABLE SHARES" means (i) the shares of Common Stock
issued to Clintec pursuant to the Contribution Agreement dated April 5, 1994 by
and between the Company and Clintec, (ii) the MIT Warrant Shares, and (iii) any
other shares of Common Stock of the Company issued in respect of such shares
(because of stock splits, stock dividends, reclassifications, recapitalizations,
or similar events).
"COMMON STOCKHOLDER" means (i) Clintec and any persons or entities to
whom the rights granted under the Agreement are transferred by Clintec, (ii) MIT
and any persons or entities to whom the rights granted under this Agreement are
transferred by MIT, and (iii) their successors or assigns as permitted by
Section 15 hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any similar United States statute, and the rules and regulations of the
Commission issued under such act, as they each may, from time to time, be in
effect.
"MIT WARRANT" has the meaning provided in the recitals to this
Agreement.
"NOTES" has the meaning provided in the recitals to this Agreement.
"PREFERRED REGISTRABLE SHARES" means (i) the shares of Common Stock
issued or issuable upon conversion of the Series A Preferred Stock issued (a)
pursuant to a Series A Convertible Stock and Warrant Purchase Agreement dated as
of April 5, 1994, as amended, by and among the Company and such Purchasers (the
"Stock Purchase Agreement"), (b) upon conversion of the Series A Warrant Shares,
or (c) as payment of interest on, or upon conversion of the principal amount of,
certain of the Notes, (ii) the shares of Common Stock issued or issuable upon
the conversion of the Company's Series B Preferred Stock, issued as payment of
interest on, or upon conversion of the principal amount of, certain of the
Notes, (iii) the shares of Common Stock issued or issuable upon conversion of
the Company's Series C Preferred Stock issued pursuant to the Series C Stock
Purchase Agreement, and (iv) any other shares of Common Stock of the Company
issued in respect of such shares (because of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events). Wherever reference is
made in this Agreement to a request or consent of holders of a certain
percentage of the Preferred Registrable Shares, or to a number or percentage of
Preferred Registrable Shares held by a Series A Stockholder, a Series B
Stockholder or a Series C Stockholder (all as defined below), such reference
shall be intended to refer to shares of Common Stock issuable upon conversion of
the shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock even though such conversion has not yet been effected.
"PREFERRED STOCKHOLDER" means all Series A Stockholders, Series B
Stockholders and Series C Stockholders.
3
<PAGE> 4
"REGISTRATION STATEMENT" means a registration statement filed by the
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"REGISTRATION EXPENSES" means the expenses described in Section 7.
"REGISTRABLE SHARES" means Common Registrable Shares and Preferred
Registrable Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar United States statute, and the rules and regulations of the Commission
issued under such act, as they each may, from time to time, be in effect.
"SERIES A STOCKHOLDER" has the meaning provided in the recitals to
this Agreement.
"SERIES A WARRANTS" shall mean warrants to purchase shares of Series A
Preferred Stock issued pursuant to the Series A Convertible Preferred Stock and
Warrant Purchase Agreement dated April 5, 1994 by and among the Company and
certain of the Purchasers.
"SERIES A WARRANT SHARES" shall mean the shares of Series A Preferred
Stock reserved by the Company for issuance, or actually issued, upon exercise of
the Series A Warrants.
"SERIES B STOCKHOLDER" means a holder of the Additional Notes, the
interest of which is convertible into shares of Series B Preferred Stock,
pursuant to the Note Purchase Agreement.
"SERIES C STOCKHOLDER" means a holder of shares of Series C Preferred
Stock issued pursuant to the Series C Stock Purchase Agreement.
"STOCKHOLDERS" means all Preferred Stockholders and Common
Stockholders; "STOCKHOLDER" means any Preferred Stockholder or Common
Stockholder.
"MIT WARRANT SHARES" means the shares of Common Stock reserved by the
Company for issuance, or actually issued, upon exercise of the MIT Warrant.
4
<PAGE> 5
3. Sale or Transfer of Shares: Legend.
-----------------------------------
3.1. The Registrable Shares shall not be sold or transferred unless
either (i) they first shall have been registered under the Securities Act, or
(ii) the Company first shall have been furnished with an opinion of legal
counsel, reasonably satisfactory to the Company, to the effect that such sale or
transfer is exempt from the registration requirements of the Securities Act.
3.2. Each certificate representing the Registrable Shares shall bear a
legend substantially in the following form:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or applicable state securities laws and may not be
transferred or otherwise disposed of unless and until such shares
are registered under the Act and such laws or (1) registration
under applicable state securities is not required and (2) an
opinion of counsel satisfactory to the Company is furnished to
the Company, to the effect that such registration under the Act
is not required."
The foregoing legend shall be removed from the certificates representing
any Registrable Shares at the request of the holder thereof, at such time as
they become registered under the Securities Act or eligible for resale pursuant
to Rule 144(k) under the Securities Act.
4. Required Registrations.
-----------------------
4.1. Subject to the last sentence of Section 4.3, within 90 days
following written notice from a Preferred Stockholder or Stockholders holding
not less than thirty-five percent (35%) of the then outstanding Preferred
Registrable Shares, the Company shall effect the registration of such Preferred
Registrable Shares on Form S-1 or Form S-2 (or any successor forms) or other
appropriate Registration Statement designated by such Preferred Stockholder or
Stockholders. Subject to the last sentence of Section 4.3, within 90 days
following written notice from a Common Stockholder or Stockholders holding not
less than thirty-five percent (35%) of the then outstanding Common Registrable
Shares, the Company shall effect the registration of such Common Registrable
Shares on Form S-1 or Form S-2 (or any successor forms) or other appropriate
Registration Statement designated by such Common Stockholder or Stockholders.
Any demand registration pursuant to this Section 4.1 must be underwritten on a
firm commitment basis by an investment banker of recognized national or regional
standing in the United States. The right of other Stockholders to participate in
such underwritten registration shall be conditioned on such Stockholders'
participation in such underwriting upon the same terms and conditions. Upon
receipt of any such request, the Company shall promptly give written notice of
5
<PAGE> 6
such proposed registration to all Stockholders. Such Stockholders shall have the
right, by giving written notice to the Company within 30 days after the Company
provides its notice, to elect to have included in such registration such of
their Registrable Shares as such Stockholders may request in such notice of
election, subject to the approval of the underwriter managing the offering.
Thereupon, the Company shall, as expeditiously as possible, use its best efforts
to effect the registration, on Form S-1 or Form S-2 (or any successor form) or
such other appropriate Registration Statement designated by such Stockholder or
Stockholders, of all Registrable Shares which the Company has been requested to
so register.
4.2. At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), (i) a Preferred Stockholder or Stockholders holding not less than
thirty-five percent (35 %) of the then outstanding Preferred Registrable Shares
may request the Company, in writing, to effect registration on Form S-3 (or such
successor form), of Preferred Registrable Shares or (ii) a Common Stockholder or
Stockholders holding not less than thirty-five percent (35 %) of the then
outstanding Common Registrable Shares may request the Company, in writing, to
effect registration on Form S-3 (or such successor form), of Common Registrable
Shares. Upon receipt of either or both such requests, the Company shall promptly
give written notice of such proposed registration(s) to all Stockholders. Such
Stockholders shall have the right, by giving written notice to the Company
within thirty days after the Company provides its notice, to elect to have
included in such registration such of their Registrable Shares as such
Stockholders may request in such notice of election, subject to the approval of
the underwriter managing the offering. Thereupon, the Company shall, as
expeditiously as possible, use its best efforts to effect the registration, on
Form S-3 (or such successor form), of all Registrable Shares which the Company
has been requested to so register.
4.3. The Company shall not be required to effect more than one
registration pursuant to the first sentence or second sentences of Section 4.1
or more than one registration pursuant to clauses (i) or (ii) of Section 4.2. In
addition, the Company shall not be required to effect any registration (other
than on Form S-3 or any successor form relating to secondary offerings, if
available) within six months after the effective date of any other Registration
Statement of the Company.
4.4. A registration pursuant to the first or second sentence of
Section 4.1 shall not count for purposes of the limitation set forth in Section
4.3 (i) unless the offering becomes effective and the requesting Stockholders
are able to sell at least 75% of the Registrable Shares sought to be included in
the Registration or (ii) if the Company is engaged or has fixed plans within 30
days of the time of the request to engage, in a registered public offering as to
which the Stockholders may include Registerable Shares pursuant to Section 4.5.
In the event of a clause (ii) of this Section 4.4 occurrence, the Company may at
its option direct that such request be
6
<PAGE> 7
delayed for a period of six months from the effective date of such offering, any
such right to delay a request to be exercised by the Company not more than once
in any two-year period.
5. Incidental Registration.
------------------------
5.1. Whenever the Company proposes to file a Registration Statement
(other than pursuant to Section 4.1 and 4.2 above), prior to such filing it
shall give written notice to all Stockholders of its intention to do so, and
upon the written request of a Stockholder or Stockholders given within 30 days
after the Company provides such notice (which request shall state the intended
method of disposition of such Registrable Shares), the Company shall use its
best efforts to cause all Preferred Registrable Shares which the Company has
been requested to register by the Preferred Stockholders and all Common
Registrable Shares which the Company has been requested to register by the
Common Stockholders to be registered under the Securities Act to the extent
necessary to permit their sale or other disposition in accordance with the
intended methods of distribution specified in the request of such
Stockholder(s); provided that the Company shall have the right to postpone or
withdraw any registration effected pursuant to this Section 5 without obligation
to any Stockholder.
5.2. In connection with any offering under Section 3.1 involving an
underwriting, the Company shall not be required to include any Registrable
Shares in such underwriting unless the holders thereof accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it, and then only in such quantity as will not, in the opinion of the
underwriters, jeopardize the success of the offering by the Company. If in the
opinion of the managing underwriter the registration of all, or part of, the
Registrable Shares which the holders have requested to be included would
materially and adversely affect such public offering, then the Company shall be
required to include in the underwriting only that number of Registrable Shares,
if any, which the managing underwriter believes may be sold without causing such
adverse effect. In the event of such a reduction in the number of shares to be
included in the underwriting, all holders of Registrable Shares who have
requested registration shall participate in the underwriting pro rata based upon
their total ownership of Registrable Shares (or in any other proportion as
agreed upon by such holders) and if any such holder would thus be entitled to
include more shares than such holder requested to be registered, the excess
shall be allocated among such other requesting holders pro rata based on their
ownership of Registrable Shares. No other securities requested to be included in
a registration for the account of anyone other than the Company or the
Stockholders shall be included in a registration unless all Registrable Shares
requested to be included in such registration are so included.
7
<PAGE> 8
6. Registration Procedures.
------------------------
6.1. If and whenever the Company is required by the provisions of this
Agreement to use its best efforts to effect the registration of any of the
Registrable Shares under the Securities Act, the Company shall:
(a) file with the Commission a Registration Statement with
respect to such Registrable Shares and use its best efforts to cause that
Registration Statement to become and remain effective;
(b) as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective for a period of not less than 90 days from
the effective date;
(c) as expeditiously as possible furnish to each selling
Stockholder such reasonable numbers of copies of the prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as the selling Stockholder may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Shares owned by the selling Stockholder; and
(d) as expeditiously as possible use its best efforts to register
or qualify the Registrable Shares covered by the Registration Statement under
the securities or Blue Sky laws of such states as the selling Stockholder shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the selling Stockholder to consummate the
public sale or other disposition in such jurisdictions of the Registrable Shares
owned by the selling Stockholder; PROVIDED, HOWEVER, that the Company shall not
be required in connection with this paragraph (d) to qualify as a foreign
corporation in any jurisdiction.
6.2. If the Company has delivered preliminary or final prospectuses to
the selling Stockholder and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the selling Stockholder and, if requested, the selling Stockholder shall
immediately cease making offers of Registrable Shares and shall return all
prospectuses to the Company. The Company shall promptly provide the selling
Stockholder with revised prospectuses and, following receipt of the revised
prospectuses, the selling Stockholder shall be free to resume making offers of
the Registrable Shares.
7. ALLOCATION OF EXPENSES. The Company shall pay the Registration Expenses
(as defined below) for (i) the first demand registration on Form S-1 or Form
8
<PAGE> 9
S-2 (or any successor forms) or Form S-3 (or any successor form) requested by
any of the Preferred Stockholders pursuant to Section 4.1 or 4.2 hereof and (ii)
the first demand registration on Forms S-1 or S-2 (or any successor forms) or
Form S-3 (or any successor form) requested by any of the Common Stockholders
pursuant to Section 4.1 or 4.2 hereof. If a registration on a Registration
Statement other than Form S-3 (or any successor form) requested by the
Stockholders pursuant to paragraph Section 4.1 is withdrawn at the request of
the Stockholders requesting it (other than as a result of information concerning
the business or financial condition of the Company that is made known to the
Stockholders after the date on which such registration was requested) and if the
requesting Stockholders holding a majority of the Registrable Shares requested
to be included in such registration elect not to have such registration counted
as a registration requested under Section 4.1, the requesting Stockholders shall
pay the Registration Expenses of such registration pro rata in accordance with
the number of their Registrable Shares which were to have been included in such
registration. For purposes of this Section, the term "REGISTRATION EXPENSES"
shall mean all expenses incurred by the Company in complying with Sections 4 and
5 of this Agreement, including, without limitation, all registration and filing
fees, exchange listing fees, printing expenses, fees and disbursements of
counsel for the Company and one counsel for the selling Stockholders,
out-of-pocket expenses of the Company and the underwriters, state Blue Sky fees
and expenses, and the expense of any special audits incident to or required by
any such registration, but excluding underwriting discount and selling
commissions and fees of more than one counsel for the- selling Stockholders.
Such underwriting discounts and selling commissions shall be borne pro rata by
the selling Stockholders in accordance with the number of their Registrable
Shares included in such registration.
8. Indemnification.
----------------
8.1. In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, then to the extent
permitted by law the Company shall indemnify and hold harmless the seller of
such Registrable Shares, each underwriter of such Registrable Shares and each
other person, if any, who controls such seller or underwriter within the meaning
of the Securities Act or the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which such seller, underwriter or controlling
person may become subject under the Securities Act, the Exchange Act, state
securities laws or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement under which such Registrable Shares were registered
under the Securities Act, any preliminary prospectus or final prospectus
contained in the Registration Statement, or any amendment or supplement to such
Registration Statement, or arise out of or are based upon the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and the Company shall
reimburse such seller,
9
<PAGE> 10
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such seller, underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission made in such
Registration Statement, preliminary prospectus or prospectus, or any such
amendment or supplement, in reliance upon and in conformity with information
furnished to the Company, in writing, by or on behalf of such seller,
underwriter or controlling person specifically for use in the preparation
thereof.
8.2. In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, then to the extent
permitted by law, each seller of Registrable Shares severally and not jointly,
shall indemnify and hold harmless the Company, each of its directors and
officers and each underwriter (if any) and each person, if any, who controls the
Company or any such underwriter within the meaning of the Securities Act or the
Exchange Act, against any losses, claims, damages or liabilities joint or
several, to which the Company, such directors and officers, underwriter or
controlling person may become subject under the Securities Act, Exchange Act,
state securities laws or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement under which such Registrable Shares were registered under
the Securities Act, any preliminary prospectus or final prospectus contained in
the Registration Statement, or any amendment or supplement to the Registration
Statement, or arise out of or are based upon any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, if the statement or omission was made solely
in reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of such seller, specifically for use in connection with
the preparation of such Registration Statement, prospectus, amendment or
supplement; PROVIDED, HOWEVER, that the obligations of such Stockholder
hereunder shall be limited to an amount equal to the proceeds to each
Stockholder of Registrable Shares sold as contemplated herein.
8.3. Indemnification of an underwriter pursuant to this Section 8
shall not be interpreted as providing relief of such underwriter from any or all
of its due diligence obligations. Further, an underwriter shall not be entitled
to indemnification pursuant to this subsection in the event that it fails to
deliver to any selling Stockholder any preliminary or final or revised
prospectus, as required by the Rules and Regulations of the Commission. Finally,
no indemnification shall be provided pursuant to this subsection in the event
that any error in a preliminary prospectus of the Company is subsequently
corrected in the final prospectus of the Company for a
10
<PAGE> 11
particular offering, and such final prospectus is delivered to all purchasers in
the offering prior to the date of purchase of the securities.
8.4. Each party entitled to indemnification under this Section 8 (the
"INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, PROVIDED, FURTHER, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 8. The Indemnified Party may participate in such
defense at such party's expense; PROVIDED, HOWEVER, that the Indemnifying Party
shall pay such expense if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between the Indemnified Party and any other
party represented by such counsel in such proceeding. No Indemnifying Party, in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation, and no Indemnified Party shall
consent to entry of any judgment or settle such claim or litigation without the
prior written consent of the Indemnifying Party.
8.5. CONTRIBUTION. If the indemnification provided for in Sections 8.1
through 8.4 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any losses, claims, damages or liabilities
referred to herein, the Indemnifying Party, in lieu of indemnifying such
Indemnified Party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such Indemnified Party as a result
of such loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party on the one hand and of the
Indemnified Party on the other in connection with the violation(s) that resulted
in such loss, claim, damage or liability, as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and of
the Indemnified Party shall be determined by a court of law by reference to,
among other things, whether the untrue or alleged untrue statement of material
fact or the omission to state a material fact relates to information supplied by
the Indemnifying Party or by the Indemnified Party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
11
<PAGE> 12
8.6. INDEMNIFICATION WITH RESPECT TO UNDERWRITTEN OFFERING. In the
event that Registrable Shares are sold pursuant to a Registration Statement in
an underwritten offering pursuant to Subsection 4.1, the Company agrees to enter
into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of an issuer of the
securities being registered and customary covenants and agreements to be
performed by such issuer, including without limitation customary provisions with
respect to indemnification by the Company of the underwriters of such offering.
9. INFORMATION BY HOLDER. Each holder of Registrable Shares included in any
registration shall furnish to the Company such information regarding such holder
and the distribution proposed by such holder as the Company may request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement.
10. RULE 144 REQUIREMENTS. With a view to making available to the
Stockholders the benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the Commission that may at any time permit a
Stockholder to sell securities of the Company to the public without
registration, the Company agrees to use its best efforts to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act (at any time
after it has become subject to the reporting requirements of the Exchange Act);
(b) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) furnish to any holder of Registrable Shares upon request a
written statement by the Company as to its compliance with the reporting
requirements of said Rule 144 (at any time after 90 days after the closing of
the first sale of securities by the Company pursuant to a Registration
Statement), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company as such holder may reasonably request to avail itself of any
similar rule or regulation of the Commission allowing it to sell any such
securities without registration.
11. SELECTION OF UNDERWRITER. In the case of any registration effected
pursuant to Sections 4.1 or 4.2, the requesting Stockholders shall have the
right to designate the managing underwriter, subject to the approval of the
Company, which approval shall not be unreasonably withheld or delayed.
12
<PAGE> 13
12. RESTRICTIONS ON OTHER AGREEMENTS. The Company will not enter into any
agreement with any party which by its terms grants any right relating to the
registration of its Common Stock superior to or on a parity with the rights
granted to the Purchasers, Clintec and MIT pursuant to this Agreement.
13. MERGERS. ETC. The Company shall not, directly or indirectly, enter into
any merger, consolidation or reorganization in which the Company shall not be
surviving corporation unless the proposed surviving corporation shall, prior to
such merger, consolidation or reorganization, agree in writing to assume the
obligations of the Company under this Agreement, and for that purpose references
hereunder to "Registrable Shares" shall be deemed to be references to the
securities which the Stockholders would be entitled to receive in exchange for
Registrable Shares under any such merger, consolidation or reorganization
PROVIDED, HOWEVER, that the provisions of this Section 4.13 shall not apply in
the event of any merger, consolidation or reorganization in which the Company is
not the surviving corporation if all Stockholders are entitled to receive in
exchange for their Registrable Shares consideration consisting solely of (i)
cash, (ii) securities of the acquiring corporation which may be immediately sold
to the public without registration under the Securities Act, or (iii) securities
of the acquiring corporation which the acquiring corporation has agreed to
register within 90 days of completion of the transaction for resale to the
public pursuant to the Securities Act.
14. TERMINATION. All of the Company's obligations to register Registerable
Shares under this Agreement shall terminate on September 30, 2005.
15. Transfer of Rights.
-------------------
15.1. The rights granted to a Stockholder under this Agreement may be
transferred by such Stockholder to another person or entity that is then a
Stockholder, or to any person or entity acquiring at least 250,000 Registrable
Shares (as adjusted for stock splits, stock dividends, recapitalization or
similar events).
15.2. Any transferee (other than a Purchaser or Clintec) to whom
rights under this Agreement are transferred shall, as a condition to such
transfer, deliver to the Company a written instrument by which such transferee
identifies itself, gives the Company notice of the transfer of such rights,
indicates the Registrable Shares owned by it and agrees to be bound by the
obligations imposed upon Stockholders under this Agreement.
15.3. A transferee to whom rights are transferred pursuant to this
Section 6 may not again transfer such rights to any other person or entity,
other than as provided in paragraphs (a) or (b) above.
13
<PAGE> 14
15.4. Notwithstanding anything to the contrary herein, any Stockholder
which is a partnership or corporation may transfer rights granted to such
Stockholder under this Agreement to any partner or stockholder thereof to whom
Registrable Shares are transferred and who delivers to the Company a written
instrument in accordance with paragraph (b) above which contains a
representation that the transfer is exempt from registration under the
Securities Act. In the event of such transfer, such partner or stockholder shall
be deemed a Stockholder for purposes of this Agreement and may again transfer
such rights to any other person or entity which acquires Registrable Shares from
such partner or stockholder, in accordance with, and subject to, the provisions
of paragraphs (a), (b) and (c) above.
16. General
-------
16.1. NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company at:
Transcend Therapeutics, Inc.
640 Memorial Drive, 3W
Cambridge, MA 02139
Attention: President
Facsimile: (617) 374-1200
With a copy to:
Hale and Dorr
60 State Street
Boston, MA 02109
Attention: Steven D. Singer, Esq.
Facsimile: (617) 526-5000
or at such other address or addresses as may have been furnished in writing by
the Company to the Purchasers, MIT and Clintec.
14
<PAGE> 15
If to the following Purchasers:
The Venture Capital Fund of New England
160 Federal Street, 23rd Floor
Boston, MA 02110
Attention: William C. Mills, III
Facsimile: (617) 439A652
Advent International Investors Ii Limited Partnership
Advent Performance Materials Limited Partnership
Global Private Equity U Limited Partnership
Rovent II Limited Partnership
Paal C. Gisholt
Charles Hsu
c/o Advent International Corporation
101 Federal Street
Boston, MA 02110
Attention: Gerard M. Moufflet
Facsimile: (617) 951-0566
Sprout Capital VI, L.P.
DLJ Capital Corporation
140 Broadway
New York, NY 10005-1285
Attention: Robert E. Curry
Facsimile: (212) 504-3444
with a copy to:
Palmer & Dodge
One Beacon Street
Boston, MA 02108
Attention: Michael Lytton, Esq.
Facsimile: (617) 227A420
or at such other address or addresses as may be been furnished to the Company in
writing by the above Purchasers.
15
<PAGE> 16
If to the following Purchasers or Clintec:
Baxter Healthcare Corporation
One Baxter Parkway
Deerfield, IL 60015
Attention: General Counsel
Facsimile: (708) 948A266
Clintec Nutrition Company
Three Parkway North
Deerfield, Illinois 60015
Attention: President
Facsimile: (708) 317-3182
Clinical Nutrition Holdings, Inc.
800 North Brand Blvd.
Glendale, CA 91203
Attention: President
Facsimile: (818) 549-5840
with a copy to:
Bell, Boyd & Lloyd
Three First National Plaza
70 West Madison Street
Chicago, Illinois 50502
Attention: John Bittner, Esq.
Facsimile: (312) 372-2098
If to MIT:
Massachusetts Institute of Technology
238 Main Street, Suite 200
Cambridge, MA 02142
Attention: Joseph T. Maguire, Associate Director of Real Estate
Facsimile: (617) 258-6675
with a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo
One Financial Center
Boston, MA 02111
If to Jerry T. Jackson:
16
<PAGE> 17
Jerry T. Jackson
24 Arroyo Hondo Vistas
124 Circle Loop Road Gate 1825
Santa Fe, NM 87505
If to Frank L. Douglas:
Frank L. Douglas
2501 West 102nd Street
Leawood, KS 66206
If to Richard B. Egan:
Richard B. Egan
1216 Chesnut Avenue
Willmette, IL 60091
or at such other address or addresses as may be been furnished to the Company in
writing by the above Purchaser, Clintec or MIT.
Any such notice provided in accordance with this Section 6 shall be deemed given
when so delivered personally, telegraphed, telexed, sent by facsimile
transmission, or, if mailed, two days after the date of deposit in the United
States mails.
17. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
18. AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), with the
written consent of the Company and the holders of at least 75% of the
Registrable Shares; PROVIDED, that this Agreement may be amended with the
consent of the holders of less than all Registrable Shares only in a manner
which affects all Registrable Shares in the same fashion. No waivers of or
exceptions to any term, condition or provision of this Agreement, in any one or
more instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision.
19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
17
<PAGE> 18
20. SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
21. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, without regard to
the conflicts of law rules of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
above written.
TRANSCEND THERAPEUTICS, INC.
By: /s/ Hector J. Gomez
---------------------------------------------
Name: Hector J. Gomez, M.D., Ph.D.
Title: President
THE VENTURE CAPITAL FUND OF NEW ENGLAND III, L.P.
By: F H & Co. III, L.P.
General Partner
By: /s/ William C. Mills, III
---------------------------------------------
William C. Mills, III
General Partner
SPROUT CAPITAL VI, L.P.
By: DLJ Capital Corporation,
Managing General Partner
By: /s/ Philippe Chambon
---------------------------------------------
Name: Philippe Chambon
Title: Vice President
18
<PAGE> 19
DLJ CAPITAL CORPORATION
By: /s/ Philippe Chambon
---------------------------------------------
Name: Philippe Chambon
Title: Vice President
ADVENT INTERNATIONAL INVESTORS II LIMITED PARTNERSHIP
By: Advent International Corporation, General Partner
By: /s/ Gerard M. Moufflet
---------------------------------------------
Name: Gerard M. Moufflet
Title: Senior Vice President
ADVENT PERFORMANCE MATERIALS LIMITED PARTNERSHIP
By: Advent International Limited Partnership, General Partner
By: Advent International Corporation, General Partner
By: /s/ Gerard M. Moufflet
---------------------------------------------
Name: Gerard M. Moufflet
Title: Senior Vice President
GLOBAL PRIVATE EQUITY II LIMITED PARTNERSHIP
By: Advent International Limited Partnership, General Partner
By: Advent International Corporation, General Partner
By: /s/ Gerard M. Moufflet
---------------------------------------------
Name: Gerard M. Moufflet
Title: Senior Vice President
19
<PAGE> 20
ROVENT II LIMITED PARTNERSHIP
By: Advent International Limited Partnership, General Partner
By: Advent International Corporation, General Partner
By: /s/ Gerard M. Moufflet
---------------------------------------------
Name: Gerard M. Moufflet
Title: Senior Vice President
BAXTER HEALTHCARE CORPORATION
By: /s/ John F. Gaither
---------------------------------------------
Name: John F. Gaither, Jr.
Title: Vice President
CLINICAL NUTRITION HOLDINGS, INC.
By: /s/ Robert H. Sanders
---------------------------------------------
Name: Robert H. Sanders
Title: Vice President
CLINTEC NUTRITION COMPANY
By: /s/ Richard W. Hunt
---------------------------------------------
Name: Richard W. Hunt
Title: Chief Financial Officer
PAAL C. GISHOLT
By: /s/ Gerard M. Moufflet
---------------------------------------------
Gerard M. Moufflet
as attorney-in-fact for Paal C. Gisholt
20
<PAGE> 21
CHARLES HSU
By: /s/ Gerard M. Moufflet
---------------------------------------------
Gerard M. Moufflet
as attorney-in-fact for Charles Hsu
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
By: /s/ Philip A. Trusseu
-----------------------------------------------
Name: Philip A. Trusseu
Title: Director of Real Estate/Assoc. Treasurer
/s/ Jerry T. Jackson
---------------------------------------------
Jerry T. Jackson
/s/ Richard B. Egen
---------------------------------------------
Richard B. Egen
/s/ Frank L. Douglas
---------------------------------------------
Frank L. Douglas
21
<PAGE> 1
EXHIBIT 4.3
TRANSCEND THERAPEUTICS, INC.
Amendment No. 1 of Second Amended and Restated
Registration Rights Agreement
-----------------------------
This Amendment No. 1 (the "Amendment") to the Second Amended and Restated
Registration Rights Agreement dated as of August 21, 1996 among Transcend
Therapeutics, Inc., a Delaware corporation and the Holders, as defined therein
(the "Agreement") is made as of this 3rd day of March 1997. All capitalized
terms used herein and not otherwise defined herein shall have the meanings
described to them in the Agreement.
WHEREAS, in connection with the Company's February 1997 $1,039,000 bridge
financing, the Company intends to issue warrants (the "1997 Warrants") to
purchase shares of its Common Stock, par value $.01 per share, to the holders of
the Company's Non-Convertible Preferred Stock (the "1997 Warrantholders"); and
WHEREAS, the parties wish to provide registration rights with respect to
the shares of Common Stock issuable upon exercise of the 1997 Warrants.
NOW, THEREFORE, for valuable consideration, it is agreed as follows:
i. The definition of "Common Stockholder" in the Agreement is
hereby amended to renumber (iii) as (iv) and to insert therein
the following:
"(iii) the 1997 Warrantholders or any persons or entities to
whom the rights granted under this Agreement are transferred
by any such 1997 Warrantholder, and"
ii. The Agreement is hereby amended to include within the
definition of the term "Common Registrable Shares" the shares of
Common Stock issued or issuable upon exercise of the 1997
Warrants issued and sold to the 1997 Warrantholders pursuant to
the Non-Convertible Preferred Stock and Warrant Purchase
Agreement of even date herewith by and among the Company and the
1997 Warrantholders.
iii. Each of the 1997 Warrantholders hereby agrees to become a
party to, and to be bound by the Agreement.
iv. Each of the 1997 Warrantholders shall have all of the rights
provided to Purchasers under the Agreement.
<PAGE> 2
v. Section 16.1 of the Agreement is hereby amended to include
the following information regarding Notices to Purchasers:
If to Hector Gomez, M.D. at:
Hector Gomez, M.D.
c/o Transcend Therapeutics, Inc.
640 Memorial Drive
3rd Floor West
Cambridge, MA 02139
If to John J. Whalen, M.D. at:
John J. Whalen, M.D.
c/o Transcend Therapeutics, Inc.
640 Memorial Drive
3rd Floor West
Cambridge, MA 02139
IN WITNESS WHEREOF, this Amendment has been executed as of the date first
written above.
TRANSCEND THERAPEUTICS, INC.
By: /s/ Hector J. Gomez
---------------------------------------
Name: Dr. Hector J. Gomez, M.D., Ph.D
Title: President
JERRY T. JACKSON
/s/ Jerry T. Jackson
-------------------------------------------
Jerry T. Jackson
RICHARD B. EGEN
-------------------------------------------
Richard B. Egen
2
<PAGE> 3
FRANK L. DOUGLAS
/s/ Frank L. Douglas
-------------------------------------------
Frank L. Douglas
THE VENTURE CAPITAL FUND OF
NEW ENGLAND III, L.P.
By: F H & Co. III, L.P.
General Partner
By: /s/ William C. Mills III
---------------------------------------
William C. Mills, III
General Partner
SPROUT CAPITAL VI, L.P.
By: DLJ Capital Corporation,
Managing General Partner
By: /s/ Philippe Chambon
---------------------------------------
Name: Philippe Chambon
Title: Vice President
DLJ CAPITAL CORPORATION
By: /s/ Philippe Chambon
---------------------------------------
Name: Philippe Chambon
Title: Vice President
3
<PAGE> 4
ADVENT INTERNATIONAL INVESTORS II
LIMITED PARTNERSHIP
By: Advent International Corporation,
General Partner
By: /s/ Gerard M. Moufflet
---------------------------------------
Name: Gerard M. Moufflet
Title: Senior Vice President
ADVENT PERFORMANCE MATERIALS
LIMITED PARTNERSHIP
By: Advent International Limited
Partnership, General Partner
By: Advent International Corporation,
General Partner
By: /s/ Gerard M. Moufflet
---------------------------------------
Name: Gerard M. Moufflet
Title: Senior Vice President
GLOBAL PRIVATE EQUITY II LIMITED
PARTNERSHIP
By: Advent International Limited Partnership,
General Partner
By: Advent International Corporation,
General Partner
By: /s/ Gerard M. Moufflet
----------------------------------------
Name: Gerard M. Moufflet
Title: Senior Vice President
4
<PAGE> 5
ROVENT II LIMITED PARTNERSHIP
By: Advent International Limited Partnership,
General Partner
By: Advent International Corporation,
General Partner
By: /s/ Gerard M. Moufflet
----------------------------------------
Name: Gerard M. Moufflet
Title: Senior Vice President
BAXTER HEALTHCARE CORPORATION
By: /s/ John F. Gaither
----------------------------------------
Name: John F. Gaither, Jr.
Title: Vice President
CLINICAL NUTRITION HOLDINGS, INC.
By: /s/ Robert H. Sanders
----------------------------------------
Name: Robert H. Sanders
Title: Vice President
CLINTEC INTERNATIONAL, INC.
(HELD IN LIQUIDATING TRUST)
By: /s/ Richard W. Hunt
----------------------------------------
Name: Richard W. Hunt
Title: Vice President
5
<PAGE> 6
PAAL C. GISHOLT
By: /s/ Gerard M. Moufflet
----------------------------------------
Gerard M. Moufflet as attorney-in-fact
for Paal C. Gisholt
CHARLES HSU
By: /s/ Gerard M. Moufflet
----------------------------------------
Gerard M. Moufflet as attorney-in-fact
for Charles Hsu
MASSACHUSETTS INSTITUTE OF
TECHNOLOGY
By:
-----------------------------------------
Name:
Title:
/s/ Hector J. Gomez
--------------------------------------------
Hector J. Gomez, M.D.
/s/ John J. Whalen
--------------------------------------------
John J. Whalen, M.D.
6
<PAGE> 1
EXHIBIT 4.4
THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This Third Amended and Restated Registration Rights Agreement (the
"Agreement") is made as of this ____ day of _______, 1997 by and among Transcend
Therapeutics, Inc., a Delaware corporation ("Transcend"), and The Venture
Capital Fund of New England III, L.P., Advent International Investors II Limited
Partnership, Advent Performance Materials Limited Partnership, Global Private
Equity II Limited Partnership, Rovent II Limited Partnership, Paal C. Gisholt,
Charles Hsu, Sprout Capital VI, L.P., DLJ Capital Corporation, Frank L. Douglas,
Jerry T. Jackson, Richard B. Egen, Hector J. Gomez and John J. Whalen
(collectively, the "Purchasers"), Clinical Nutrition Holdings, Inc. ("Nestle"),
Baxter Healthcare Corporation ("Baxter"), Clintec International, Inc.
("Clintec"), the Massachusetts Institute of Technology ("MIT") and Boehringer
Ingelheim International GmbH, a limited liability company organized under the
laws of the Federal Republic of Germany ("BI"). The Purchasers, Nestle, Baxter,
Clintec, MIT and BI are referred to collectively herein as the "Holders."
RECITALS
--------
WHEREAS, Holders other than BI have certain rights with respect to the
registration of their Registrable Shares (as defined below) under the Securities
Act (as defined below) upon the terms and conditions set forth in the Second
Amended and Restated Registration Rights Agreement dated as of August 21, 1996
by and among Transcend and such Holders (the "Second Registration Rights
Agreement"); and
WHEREAS, in connection with the Company's February 1997 $1,039,000 bridge
financing, the Company intends to issue warrants (the "1997 Warrants") to
purchase shares of its Common Stock, $.01 par value per share (the "1997 Warrant
Shares"), to the holders of the Company's Non-Convertible Preferred Stock (the
"1997 Warrantholders"); and
WHEREAS, BI intends to is purchase shares of Transcend's capital stock (the
"BI PURCHASE") pursuant to the terms of a Stock Purchase Agreement (the "Stock
Purchase Agreement") by and between Transcend and BI; and
WHEREAS, such shares may be shares of Transcend's Common Stock, $.01 par
value per share ("Common Stock"), or shares of Transcend's Series D Convertible
Preferred Stock, $.01 par value per share ("Series D Preferred Stock"). The
shares actually issued to BI in the BI Purchase, as determined in accordance
with the Stock Purchase Agreement, are referred to herein as the "Purchased
Shares;" and
WHEREAS, the parties wish to provide registration rights to BI and the 1997
Warrantholders with respect to the Purchased Shares and the shares of Common
Stock issuable upon exercise of the 1997 Warrants; and
<PAGE> 2
WHEREAS, Section 18 of the Second Registration Rights Agreement provides
that such agreement may be amended by Transcend and the Holders of at least 75%
of the Registrable Shares (collectively, the "Amending Holders"); and
WHEREAS, each of the parties hereto desires to set forth in a single
document such registration and certain other rights of the Holders;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Transcend, BI and the Amending
Holders agree as follows:
1. TERMINATION OF SECOND REGISTRATION RIGHTS AGREEMENT. The parties
hereto hereby acknowledge and agree that the Second Registration Rights
Agreement is hereby terminated and amended, restated and superseded in all
respects by this Agreement.
2. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"COMMISSION" means the Securities and Exchange Commission, or any
other Federal agency at the time administering the Securities Act.
"Common Registrable Shares" means (i) the shares of Common Stock held
by Nestle and Clintec as successors to Clintec Nutrition Company pursuant to the
Partnership Distribution Agreement dated September 30, 1996, (ii) the MIT
Warrant Shares, (iii) if shares of Common Stock are issued to BI pursuant to the
BI Purchase, such shares of Common Stock, (iv) the 1997 Warrant Shares, and (v)
any other shares of Common Stock of Transcend issued in respect of such shares
(because of stock splits, stock dividends, reclassifications, recapitalizations,
or similar events).
"COMMON STOCKHOLDER" means each of the 1997 Warrantholders, Nestle,
Clintec, MIT and, if shares of Common Stock are issued to BI in the BI Purchase,
BI and their successors or assigns as permitted by Section 15 hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any similar United States statute, and the rules and regulations of the
Commission issued under such act, as they each may, from time to time, be in
effect.
"MIT WARRANT" means the warrant dated October 26, 1994 to purchase
5,000 shares of Transcend's Common Stock and held by MIT.
"MIT WARRANT SHARES" means the shares of Common Stock reserved by
Transcend for issuance, or actually issued, upon exercise of the MIT Warrant.
2
<PAGE> 3
"Preferred Registrable Shares" means:
-----------------------------
(i) the shares of Common Stock issued or issuable upon
conversion of Transcend's Series A Convertible Preferred Stock, $.01 par value
per share (the "Series A Preferred Stock"), issued (a) pursuant to the Series A
Convertible Stock and Warrant Purchase Agreement (the "Series A Stock Purchase
Agreement") dated as of April 5, 1994, as amended, by and among Transcend and
the Purchasers (as defined therein), (b) pursuant to the Warrantholder Agreement
dated of August 21, 1996 by and among Transcend and the Warrantholders (as
defined therein), and (c) as payment of interest on, or upon conversion of the
principal amount of, certain Secured Convertible Term Notes due 1997 (the
"Notes") (none of which are currently outstanding);
(ii) the shares of Common Stock issued or issuable upon the
conversion of Transcend's Series B Convertible Preferred Stock, $.01 par value
per share (the "Series B Preferred Stock"), issued as payment of interest on,
and upon conversion of the principal amount of, certain of the Notes;
(iii) the shares of Common Stock issued or issuable upon
conversion of Transcend's Series C Preferred Stock issued pursuant to the Series
C Stock Purchase Agreement dated August 21, 1996 by and among Transcend and the
Purchasers (as defined therein);
(iv) if shares of Series D Preferred Stock are issued to BI in
the BI Purchase, shares of Common Stock issued or issuable upon conversion of
such Series D Preferred Stock; and
(v) any other shares of Common Stock of Transcend issued in
respect of such shares (because of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events). Wherever reference is
made in this Agreement to a request or consent of holders of a certain
percentage of the Preferred Registrable Shares, or to a number or percentage of
Preferred Registrable Shares held by a Series A Stockholder, a Series B
Stockholder, Series C Stockholder or Series D Stockholder (all as defined
below), such reference shall be intended to refer to shares of Common Stock
issuable upon conversion of the shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock even if
such conversion has not yet been effected.
"PREFERRED STOCKHOLDER" means all Series A Stockholders, Series B
Stockholders, Series C Stockholders and, if shares of Series D Preferred Stock
are issued to BI in the BI Purchase, BI and its successors or assigns.
3
<PAGE> 4
"REGISTRATION STATEMENT" means a registration statement filed by
Transcend with the Commission for a public offering and sale of securities of
Transcend (other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"REGISTRATION EXPENSES" means the expenses described in Section 7.
"REGISTRABLE SHARES" means Common Registrable Shares and Preferred
Registrable Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar United States statute, and the rules and regulations of the Commission
issued under such act, as they each may, from time to time, be in effect.
"SERIES A STOCKHOLDER" means a Holder of shares of Series A Preferred
Stock and its successors or assigns as permitted by Section 15 hereof.
"SERIES B STOCKHOLDER" means a Holder of shares of Series B Preferred
Stock and its successors or assigns as permitted by Section 15 hereof.
"SERIES C STOCKHOLDER" means a Holder of shares of Series C Preferred
Stock and its successors or assigns as permitted by Section 15 hereof.
"SERIES D STOCKHOLDER" means, if shares of Series D Preferred Stock
are issued to BI in the BI Purchase, BI and its successors or assigns as
permitted by Section 15 hereof.
"STOCKHOLDERS" means all Preferred Stockholders and Common
Stockholders; "STOCKHOLDER" means any Preferred Stockholder or Common
Stockholder.
3. Sale or Transfer of Shares: Legend.
----------------------------------
3.1. The Registrable Shares shall not be sold or transferred unless
either (i) they first shall have been registered under the Securities Act, or
(ii) Transcend first shall have been furnished with an opinion of legal counsel,
reasonably satisfactory to Transcend, to the effect that such sale or transfer
is exempt from the registration requirements of the Securities Act.
3.2. Each certificate representing the Registrable Shares shall bear
a legend substantially in the following form:
4
<PAGE> 5
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or applicable state securities laws and may not be
transferred or otherwise disposed of unless and until such
shares are registered under the Act and such laws or (1)
registration under applicable state securities is not
required and (2) an opinion of counsel satisfactory to
Transcend is furnished to Transcend, to the effect that such
registration under the Act is not required."
The foregoing legend shall be removed from the certificates representing
any Registrable Shares at the request of the holder thereof, at such time as
they become registered under the Securities Act or eligible for resale pursuant
to Rule 144(k) under the Securities Act.
4. Required Registrations.
----------------------
4.1. Subject to the last sentence of Section 4.3, within 90 days
following written notice from a Preferred Stockholder or Stockholders holding
not less than thirty-five percent (35%) of the then outstanding Preferred
Registrable Shares, Transcend shall use its best efforts to effect the
registration of such Preferred Registrable Shares on Form S-1 or Form S-2 (or
any successor forms) or other appropriate Registration Statement designated by
such Preferred Stockholder or Stockholders. Subject to the last sentence of
Section 4.3, within 90 days following written notice from a Common Stockholder
or Stockholders holding not less than thirty-five percent (35%) of the then
outstanding Common Registrable Shares, Transcend shall use its best efforts to
effect the registration of such Common Registrable Shares on Form S-1 or Form
S-2 (or any successor forms) or other appropriate Registration Statement
designated by such Common Stockholder or Stockholders. Any demand registration
pursuant to this Section 4.1 must be underwritten on a firm commitment basis by
an investment banker of recognized national or regional standing in the United
States. The right of other Stockholders to participate in such underwritten
registration shall be conditioned on such Stockholders' participation in such
underwriting upon the same terms and conditions. Upon receipt of any such
request, Transcend shall promptly give written notice of such proposed
registration to all Stockholders. Such Stockholders shall have the right, by
giving written notice to Transcend within 30 days after Transcend provides its
notice, to elect to have included in such registration such of their Registrable
Shares as such Stockholders may request in such notice of election, subject to
the approval of the underwriter managing the offering. Thereupon, Transcend
shall, as expeditiously as possible, use its best efforts to effect the
registration, on Form S-1 or Form S-2 (or any successor form) or such other
appropriate Registration Statement designated by such Stockholder or
Stockholders, of all Registrable Shares which Transcend has been requested to so
register.
5
<PAGE> 6
4.2. At any time after Transcend becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), (i) a Preferred Stockholder or Stockholders holding not less than
thirty-five percent (35 %) of the then outstanding Preferred Registrable Shares
may request Transcend, in writing, to effect registration on Form S-3 (or such
successor form), of Preferred Registrable Shares or (ii) a Common Stockholder or
Stockholders holding not less than thirty-five percent (35 %) of the then
outstanding Common Registrable Shares may request Transcend, in writing, to
effect registration on Form S-3 (or such successor form), of Common Registrable
Shares. Upon receipt of either or both such requests, Transcend shall promptly
give written notice of such proposed registration(s) to all Stockholders. Such
Stockholders shall have the right, by giving written notice to Transcend within
thirty days after Transcend provides its notice, to elect to have included in
such registration such of their Registrable Shares as such Stockholders may
request in such notice of election, subject to the approval of the underwriter
managing the offering. Thereupon, Transcend shall, as expeditiously as possible,
use its best efforts to effect the registration, on Form S-3 (or such successor
form), of all Registrable Shares which Transcend has been requested to so
register.
4.3. Transcend shall not be required to effect more than one
registration pursuant to the first sentence or second sentence of Section 4.1 or
more than one registration pursuant to clauses (i) or (ii) of Section 4.2. In
addition, Transcend shall not be required to effect any registration (other than
on Form S-3 or any successor form relating to secondary offerings, if available)
within six months after the effective date of any other Registration Statement
of Transcend.
4.4. A registration pursuant to the first or second sentence of
Section 4.1 shall not count for purposes of the limitation set forth in Section
4.3 (i) unless the offering becomes effective and the requesting Stockholders
are able to sell at least 75% of the Registrable Shares sought to be included in
the Registration or (ii) if Transcend is engaged or has fixed plans within 30
days of the time of the request to engage, in a registered public offering as to
which the Stockholders may include Registerable Shares pursuant to Section 4.5.
In the event of a clause (ii) of this Section 4.4 occurrence, Transcend may at
its option direct that such request be delayed for a period of six months from
the effective date of such offering, any such right to delay a request to be
exercised by Transcend not more than once in any two-year period.
4.5 At any time after _________ ___, 1998, if Transcend is then
eligible to file a Registration Statement on Form S-3 (or any successor form
relating to secondary offerings), within 30 days following a written request
from BI that Transcend effect registration of Registrable Shares issued in the
BI Purchase, Transcend shall file a registration statement on Form S-3 (or any
successor form) and use its best efforts to effect the registration on Form S-3
(or such successor form) of such Registrable Shares as promptly thereafter as
possible. Upon the effectiveness of a registration statement filed hereunder,
Transcend shall prepare and file with the Commission such amendments and
supplements to such registration statement and
6
<PAGE> 7
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with the respect to the resale of the Registrable Shares covered
by such registration statement until the second anniversary of the closing of
the BI Purchase.
5. Incidental Registration.
-----------------------
5.1. Whenever Transcend proposes to file a Registration Statement
(other than pursuant to Section 4.1 and 4.2 above), prior to such filing it
shall give written notice to all Stockholders of its intention to do so, and
upon the written request of a Stockholder or Stockholders given within 30 days
after Transcend provides such notice (which request shall state the intended
method of disposition of such Registrable Shares), Transcend shall use its best
efforts to cause all Preferred Registrable Shares which Transcend has been
requested to register by the Preferred Stockholders and all Common Registrable
Shares which Transcend has been requested to register by the Common Stockholders
to be registered under the Securities Act to the extent necessary to permit
their sale or other disposition in accordance with the intended methods of
distribution specified in the request of such Stockholder(s); provided that
Transcend shall have the right to postpone or withdraw any registration effected
pursuant to this Section 5 without obligation to any Stockholder.
5.2. In connection with any offering under Section 4.1 involving an
underwriting, Transcend shall not be required to include any Registrable Shares
in such underwriting unless the holders thereof accept the terms of the
underwriting as agreed upon between Transcend and the underwriters selected by
it, and then only in such quantity as will not, in the opinion of the
underwriters, jeopardize the success of the offering by Transcend. If in the
opinion of the managing underwriter the registration of all, or part of, the
Registrable Shares which the holders have requested to be included would
materially and adversely affect such public offering, then Transcend shall be
required to include in the underwriting only that number of Registrable Shares,
if any, which the managing underwriter believes may be sold without causing such
adverse effect. In the event of such a reduction in the number of shares to be
included in the underwriting, all holders of Registrable Shares who have
requested registration shall participate in the underwriting pro rata based upon
their total ownership of Registrable Shares (or in any other proportion as
agreed upon by such holders) and if any such holder would thus be entitled to
include more shares than such holder requested to be registered, the excess
shall be allocated among such other requesting holders pro rata based on their
ownership of Registrable Shares. No other securities requested to be included in
a registration for the account of anyone other than Transcend or the
Stockholders shall be included in a registration unless all Registrable Shares
requested to be included in such registration are so included.
7
<PAGE> 8
6. Registration Procedures.
-----------------------
6.1. If and whenever Transcend is required by the provisions of this
Agreement to use its best efforts to effect the registration of any of the
Registrable Shares under the Securities Act, Transcend shall:
(a) file with the Commission a Registration Statement with
respect to such Registrable Shares and use its best efforts to cause that
Registration Statement to become and remain effective;
(b) as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective for a period of not less than 90 days from
the effective date;
(c) as expeditiously as possible furnish to each selling
Stockholder such reasonable numbers of copies of the prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as the selling Stockholder may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Shares owned by the selling Stockholder; and
(d) as expeditiously as possible use its best efforts to
register or qualify the Registrable Shares covered by the Registration Statement
under the securities or Blue Sky laws of such states as the selling Stockholder
shall reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the selling Stockholder to consummate the
public sale or other disposition in such jurisdictions of the Registrable Shares
owned by the selling Stockholder; PROVIDED, HOWEVER, that Transcend shall not be
required in connection with this paragraph (d) to qualify as a foreign
corporation in any jurisdiction.
6.2. If Transcend has delivered preliminary or final prospectuses to
the selling Stockholder and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, Transcend shall promptly
notify the selling Stockholder and, if requested, the selling Stockholder shall
immediately cease making offers of Registrable Shares and shall return all
prospectuses to Transcend. Transcend shall promptly provide the selling
Stockholder with revised prospectuses and, following receipt of the revised
prospectuses, the selling Stockholder shall be free to resume making offers of
the Registrable Shares.
7. ALLOCATION OF EXPENSES. Transcend shall pay the Registration Expenses
(as defined below) for (i) the first demand registration on Form S-1 or Form S-2
(or any successor forms) or Form S-3 (or any successor form) requested by any of
the
8
<PAGE> 9
Preferred Stockholders (or Stockholders holding the requisite percentage of
Preferred Registrable Shares) pursuant to Section 4.1 or 4.2 hereof, (ii) the
first demand registration on Forms S-1 or S-2 (or any successor forms) or Form
S-3 (or any successor form) requested by any of the Common Stockholders pursuant
to Section 4.1 or 4.2 hereof, and (iii) one registration on Form S-3 requested
by BI pursuant to Section 4.5 hereof. If a registration on a Registration
Statement other than Form S-3 (or any successor form) requested by the
Stockholders pursuant to Section 4.1 is withdrawn at the request of the
Stockholders requesting it (other than as a result of information concerning the
business or financial condition of Transcend that is made known to the
Stockholders after the date on which such registration was requested) and if the
requesting Stockholders holding a majority of the Registrable Shares requested
to be included in such registration elect not to have such registration counted
as a registration requested under Section 4.1, the requesting Stockholders shall
pay the Registration Expenses of such registration pro rata in accordance with
the number of their Registrable Shares which were to have been included in such
registration. For purposes of this Section, the term "Registration Expenses"
shall mean all expenses incurred by Transcend in complying with Sections 4 and 5
of this Agreement, including, without limitation, all registration and filing
fees, exchange listing fees, printing expenses, fees and disbursements of
counsel for Transcend and one counsel for the selling Stockholders,
out-of-pocket expenses of Transcend and the underwriters, state Blue Sky fees
and expenses, if any, and the expense of any special audits incident to or
required by any such registration, but excluding underwriting discount and
selling commissions and fees of more than one counsel for the selling
Stockholders. Such underwriting discounts and selling commissions shall be borne
pro rata by the selling Stockholders in accordance with the number of their
Registrable Shares included in such registration.
8. Indemnification.
---------------
8.1. In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, then to the extent
permitted by law Transcend shall indemnify and hold harmless the seller of such
Registrable Shares, each underwriter of such Registrable Shares and each other
person, if any, who controls such seller or underwriter within the meaning of
the Securities Act or the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which such seller, underwriter or controlling
person may become subject under the Securities Act, the Exchange Act, state
securities laws or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement under which such Registrable Shares were registered
under the Securities Act, any preliminary prospectus or final prospectus
contained in the Registration Statement, or any amendment or supplement to such
Registration Statement, or arise out of or are based upon the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make
9
<PAGE> 10
the statements therein not misleading; and Transcend shall reimburse such
seller, underwriter and each such controlling person for any legal or any other
expenses reasonably incurred by such seller, underwriter or controlling person
in connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that Transcend shall not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission made in such
Registration Statement, preliminary prospectus or prospectus, or any such
amendment or supplement, in reliance upon and in conformity with information
furnished to Transcend, in writing, by or on behalf of such seller, underwriter
or controlling person specifically for use in the preparation thereof.
8.2. In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, then to the extent
permitted by law, each seller of Registrable Shares severally and not jointly,
shall indemnify and hold harmless Transcend, each of its directors and officers
and each underwriter (if any) and each person, if any, who controls Transcend or
any such underwriter within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages or liabilities joint or several, to
which Transcend, such directors and officers, underwriter or controlling person
may become subject under the Securities Act, Exchange Act, state securities laws
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to the Registration
Statement, or arise out of or are based upon any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, if the statement or omission was made solely
in reliance upon and in conformity with information furnished in writing to
Transcend by or on behalf of such seller, specifically for use in connection
with the preparation of such Registration Statement, prospectus, amendment or
supplement; PROVIDED, HOWEVER, that the obligations of such Stockholder
hereunder shall be limited to an amount equal to the proceeds to each
Stockholder of Registrable Shares sold as contemplated herein.
8.3. Indemnification of an underwriter pursuant to this Section 8
shall not be interpreted as providing relief of such underwriter from any or all
of its due diligence obligations. Further, an underwriter shall not be entitled
to indemnification pursuant to this subsection in the event that it fails to
deliver to any selling Stockholder any preliminary or final or revised
prospectus, as required by the Rules and Regulations of the Commission. Finally,
no indemnification shall be provided pursuant to this subsection in the event
that any error in a preliminary prospectus of Transcend is subsequently
corrected in the final prospectus of Transcend for a
10
<PAGE> 11
particular offering, and such final prospectus is delivered to all purchasers in
the offering prior to the date of purchase of the securities.
8.4. Each party entitled to indemnification under this Section 8
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, PROVIDED, FURTHER, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 8. The Indemnified Party may participate in such
defense at such party's expense; PROVIDED, HOWEVER, that the Indemnifying Party
shall pay such expense if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between the Indemnified Party and any other
party represented by such counsel in such proceeding. No Indemnifying Party, in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation, and no Indemnified Party shall
consent to entry of any judgment or settle such claim or litigation without the
prior written consent of the Indemnifying Party.
8.5. CONTRIBUTION. If the indemnification provided for in Sections
8.1 through 8.4 is held by a court of competent jurisdiction to be unavailable
to an Indemnified Party with respect to any losses, claims, damages or
liabilities referred to herein, the Indemnifying Party, in lieu of indemnifying
such Indemnified Party thereunder, shall to the extent permitted by applicable
law contribute to the amount paid or payable by such Indemnified Party as a
result of such loss, claim, damage or liability in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party on the one
hand and of the Indemnified Party on the other in connection with the
violation(s) that resulted in such loss, claim, damage or liability, as well as
any other relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by a court
of law by reference to, among other things, whether the untrue or alleged untrue
statement of material fact or the omission to state a material fact relates to
information supplied by the Indemnifying Party or by the Indemnified Party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
11
<PAGE> 12
8.6. INDEMNIFICATION WITH RESPECT TO UNDERWRITTEN OFFERING. In the
event that Registrable Shares are sold pursuant to a Registration Statement in
an underwritten offering pursuant to Subsection 4.1, Transcend agrees to enter
into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of an issuer of the
securities being registered and customary covenants and agreements to be
performed by such issuer, including without limitation customary provisions with
respect to indemnification by Transcend of the underwriters of such offering.
9. INFORMATION BY HOLDER. Each holder of Registrable Shares included in
any registration shall furnish to Transcend such information regarding such
holder and the distribution proposed by such holder as Transcend may request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement.
10. RULE 144 REQUIREMENTS. With a view to making available to the
Stockholders the benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the Commission that may at any time permit a
Stockholder to sell securities of Transcend to the public without registration,
Transcend agrees to use its best efforts to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act (at any time
after it has become subject to the reporting requirements of the Exchange Act);
(b) file with the Commission in a timely manner all reports and
other documents required of Transcend under the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements);
and
(c) furnish to any holder of Registrable Shares upon request a
written statement by Transcend as to its compliance with the reporting
requirements of said Rule 144 (at any time after 90 days after the closing of
the first sale of securities by Transcend pursuant to a Registration Statement),
and of the Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of Transcend, and such other reports and documents of Transcend
as such holder may reasonably request to avail itself of any similar rule or
regulation of the Commission allowing it to sell any such securities without
registration.
11. SELECTION OF UNDERWRITER. In the case of any registration effected
pursuant to Sections 4.1 or 4.2, the requesting Stockholders shall have the
right to designate the managing underwriter, subject to the approval of
Transcend, which approval shall not be unreasonably withheld or delayed.
12
<PAGE> 13
12. RESTRICTIONS ON OTHER AGREEMENTS. Transcend will not enter into any
agreement with any party which by its terms grants any right relating to the
registration of its Common Stock superior to or on a parity with the rights
granted to the Purchasers, Clintec, MIT and BI pursuant to this Agreement.
13. MERGERS. ETC. Transcend shall not, directly or indirectly, enter into
any merger, consolidation or reorganization in which Transcend shall not be
surviving corporation unless the proposed surviving corporation shall, prior to
such merger, consolidation or reorganization, agree in writing to assume the
obligations of Transcend under this Agreement, and for that purpose references
hereunder to "Registrable Shares" shall be deemed to be references to the
securities which the Stockholders would be entitled to receive in exchange for
Registrable Shares under any such merger, consolidation or reorganization;
PROVIDED, HOWEVER, that the provisions of this Section 13 shall not apply in the
event of any merger, consolidation or reorganization in which Transcend is not
the surviving corporation if all Stockholders are entitled to receive in
exchange for their Registrable Shares consideration consisting solely of (i)
cash, (ii) securities of the acquiring corporation which may be immediately sold
to the public without registration under the Securities Act, or (iii) securities
of the acquiring corporation which the acquiring corporation has agreed to
register within 90 days of completion of the transaction for resale to the
public pursuant to the Securities Act.
14. TERMINATION. All of Transcend's obligations to register Registerable
Shares under this Agreement shall terminate on September 30, 2005.
15. Transfer of Rights.
------------------
15.1. The rights granted to a Stockholder under this Agreement may be
transferred by such Stockholder to another person or entity that is then a
Stockholder, or to any person or entity acquiring at least 50,000 Registrable
Shares (after giving effect to the one-for-five reverse stock split of
Transcend's Common Stock effected February 7, 1997, as adjusted for subsequent
stock splits, stock dividends, recapitalization or similar events).
15.2. Any transferee (other than a Purchaser, Nestle, Clintec or BI)
to whom rights under this Agreement are transferred shall, as a condition to
such transfer, deliver to Transcend a written instrument by which such
transferee identifies itself, gives Transcend notice of the transfer of such
rights, indicates the Registrable Shares owned by it and agrees to be bound by
the obligations imposed upon Stockholders under this Agreement.
15.3. A transferee to whom rights are transferred pursuant to this
Section 6 may not again transfer such rights to any other person or entity,
other than as provided in paragraphs (a) or (b) above.
13
<PAGE> 14
15.4. Notwithstanding anything to the contrary herein, any
Stockholder which is a partnership or corporation may transfer rights granted to
such Stockholder under this Agreement to any partner or stockholder thereof to
whom Registrable Shares are transferred and who delivers to Transcend a written
instrument in accordance with paragraph (b) above which contains a
representation that the transfer is exempt from registration under the
Securities Act. In the event of such transfer, such partner or stockholder shall
be deemed a Stockholder for purposes of this Agreement and may again transfer
such rights to any other person or entity which acquires Registrable Shares from
such partner or stockholder, in accordance with, and subject to, the provisions
of paragraphs (a), (b) and (c) above.
16. General
-------
16.1. NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to Transcend at:
Transcend Therapeutics, Inc.
640 Memorial Drive, 3W
Cambridge, MA 02139
Attention: President
Facsimile: (617) 374-1200
With a copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention: Steven D. Singer, Esq.
Facsimile: (617) 526-5000
or at such other address or addresses as may have been furnished in writing by
Transcend to the Holders.
14
<PAGE> 15
If to the following Purchasers:
The Venture Capital Fund of New England
160 Federal Street, 23rd Floor
Boston, MA 02110
Attention: William C. Mills, III
Facsimile: (617) 439-4652
Advent International Investors II Limited Partnership
Advent Performance Materials Limited Partnership
Global Private Equity Fund Limited Partnership
Rovent II Limited Partnership
Paal C. Gisholt
Charles Hsu
c/o Advent International Corporation
101 Federal Street
Boston, MA 02110
Attention: Gerard M. Moufflet
Facsimile: (617) 951-0566
Sprout Capital VI, L.P.
c/o The Sprout Group
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025-7114
Attention: Philippe Chambon
Facsimile: (415) 854-8779
DLJ Capital Corporation
c/o The Sprout Group
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025-7114
Attention: Philippe Chambon
Facsimile: (415) 854-8779
with a copy to:
Palmer & Dodge LLP
One Beacon Street
Boston, MA 02108
Attention: Michael Lytton, Esq.
Facsimile: (617) 227-4420
15
<PAGE> 16
or at such other address or addresses as may be been furnished to Transcend in
writing by the above Purchasers.
If to the following Purchasers or Clintec:
Baxter Healthcare Corporation
One Baxter Parkway
Deerfield, IL 60015
Attention: John F. Gaither, Jr.
Facsimile: (847) 948-2003
Clintec International, Inc.
One Baxter Parkway
Deerfield, IL 60015
Attention: Richard W. Hunt
Facsimile: (847) 948-2003
Clinical Nutrition Holdings, Inc.
800 North Brand Blvd.
Glendale, CA 91203
Attention: Robert H. Sanders
Facsimile: (818) 549-5840
with a copy to:
Bell, Boyd & Lloyd
Three First National Plaza
70 West Madison Street
Chicago, Illinois 50502
Attention: John Bittner, Esq.
Facsimile: (312) 372-2098
16
<PAGE> 17
If to MIT:
Massachusetts Institute of Technology
238 Main Street, Suite 200
Cambridge, MA 02142
Attention: Joseph T. Maguire, Associate Director of Real Estate
with a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo
One Financial Center
Boston, MA 02111
If to BI:
Boehringer Ingelheim International GmbH
D-55216 Ingelheim am Rhein
Germany
Attention: Corporate Licensing
Facsimile: 011 49 61 32 77 35 83
with a copy to:
Boehringer Ingelheim International GmbH
D-55216 Ingelheim am Rhein
Germany
Attention: Head of Legal Department
Facsimile: 011 49 61 32 77 35 83
If to Jerry T. Jackson:
Jerry T. Jackson
24 Arroyo Hondo Vistas
124 Circle Loop Road Gate 1825
Santa Fe, NM 87505
17
<PAGE> 18
If to Frank L. Douglas:
Frank L. Douglas
Hoescht Marion Roussel
Executive Vice President, Global Research
Hoescht Aktiengesellschaft
HMR Research
Building K
D-65926 Frankfurt/Main
Germany
Facsimile: 011-49-69-305-81664
If to Richard B. Egen:
Richard B. Egen
1216 Chestnut Avenue
Whelmed, IL 60091
If to Hector J. Gomez:
Hector J. Gomez
c/o Transcend Therapeutics, Inc.
640 Memorial Drive
Cambridge, MA 02139
If to John J. Whalen:
John J. Whalen
c/o Transcend Therapeutics, Inc.
640 Memorial Drive
Cambridge, MA 02139
or at such other address or addresses as may be been furnished to Transcend in
writing by the above Holder.
Any such notice provided in accordance with this Section 6 shall be deemed given
when so delivered personally, telegraphed, telexed, sent by facsimile
transmission, or, if mailed, two days after the date of deposit in the United
States mails.
17. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof
18
<PAGE> 19
and supersedes all prior agreements and understandings relating to such subject
matter.
18. AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), with the
written consent of Transcend and the holders of at least 75% of the Registrable
Shares; PROVIDED, that this Agreement may be amended with the consent of the
holders of less than all Registrable Shares only in a manner which affects all
Registrable Shares in the same fashion. No waivers of or exceptions to any term,
condition or provision of this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such term,
condition or provision.
19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
20. SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
21. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, without regard to
the conflicts of law rules of the Commonwealth of Massachusetts.
[Remainder of page intentionally left blank]
19
<PAGE> 20
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
above written.
TRANSCEND THERAPEUTICS, INC.
By: ________________________________________
Name: Hector J. Gomez, M.D., Ph.D.
Title: President
BOEHRINGER INGELHEIM INTERNATIONAL GmbH
By: ________________________________________
Name: ______________________________________
Title: _____________________________________
THE VENTURE CAPITAL FUND OF NEW ENGLAND III, L.P.
By: F H & Co. III, L.P.
General Partner
By: ________________________________________
William C. Mills, III
General Partner
SPROUT CAPITAL VI, L.P.
By: DLJ Capital Corporation,
Managing General Partner
By: ________________________________________
Name: Philippe Chambon
Title: Vice President
20
<PAGE> 21
DLJ CAPITAL CORPORATION
By: ________________________________________
Name: Philippe Chambon
Title: Vice President
ADVENT INTERNATIONAL INVESTORS II LIMITED PARTNERSHIP
By: Advent International Corporation, General Partner
By: ________________________________________
Name: Gerard M. Moufflet
Title: Senior Vice President
ADVENT PERFORMANCE MATERIALS LIMITED PARTNERSHIP
By: Advent International Limited Partnership, General Partner
By: Advent International Corporation, General Partner
By: ________________________________________
Name: Gerard M. Moufflet
Title: Senior Vice President
GLOBAL PRIVATE EQUITY II LIMITED PARTNERSHIP
By: Advent International Limited Partnership, General Partner
By: Advent International Corporation, General Partner
By: ________________________________________
Name: Gerard M. Moufflet
Title: Senior Vice President
21
<PAGE> 22
ROVENT II LIMITED PARTNERSHIP
By: Advent International Limited Partnership, General Partner
By: Advent International Corporation, General Partner
By: ________________________________________
Name: Gerard M. Moufflet
Title: Senior Vice President
BAXTER HEALTHCARE CORPORATION
By: ________________________________________
Name: John F. Gaither, Jr.
Title: Vice President
CLINICAL NUTRITION HOLDINGS, INC.
By: ________________________________________
Name: Robert H. Sanders
Title: Vice President
CLINTEC INTERNATIONAL, INC.
By: ________________________________________
Name: Richard W. Hunt
Title: Chief Financial Officer
PAAL C. GISHOLT
By: ________________________________________
Gerard M. Moufflet
as attorney-in-fact for Paal C. Gisholt
22
<PAGE> 23
CHARLES HSU
By: ________________________________________
Gerard M. Moufflet
as attorney-in-fact for Charles Hsu
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
By: ________________________________________
Name:
Title:
____________________________________________
Jerry T. Jackson
____________________________________________
Richard B. Egen
____________________________________________
Hector J. Gomez
____________________________________________
John J. Whalen
____________________________________________
Frank L. Douglas
23
<PAGE> 1
EXHIBIT 10.1
TRANSCEND THERAPEUTICS, INC.
AMENDED AND RESTATED 1994 EQUITY INCENTIVE PLAN
1. Purpose.
-------
The purpose of this plan (the "Plan") is to secure for Transcend
Therapeutics, Inc. (the "Company") and its shareholders the benefits arising
from capital stock ownership by employees, officers and directors of, and
consultants or advisors to, the Company and its parent and subsidiary
corporations who are expected to contribute to the Company's future growth and
success. Except where the context otherwise requires, the term "Company" shall
include the parent and all present and future subsidiaries of the Company as
defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as
amended or replaced from time to time (the "Code").
2. Type of Options and Awards; Administration.
------------------------------------------
(a) TYPES OF OPTIONS AND AWARDS. Options granted pursuant to the Plan
shall be authorized by action of the Board of Directors of the Company (or a
Committee designated by the Board of Directors) and may be either incentive
stock options ("Incentive Stock Options") meeting the requirements of Section
422 of the Code or non-statutory options which are not intended to meet the
requirements of Section 422 of the Code. Awards granted pursuant to the Plan
shall be authorized by action of the Board of Directors of the Company (or a
Committee designated by the Board of Directors) and shall meet the requirements
of Section 13 of the Plan.
(b) ADMINISTRATION. The Plan will be administered by the Board of
Directors of the Company, whose construction and interpretation of the terms and
provisions of the Plan shall be final and conclusive. The Board of Directors may
in its sole discretion (i) grant options to purchase shares of the Company's
Common Stock (as defined in Section 4 of the Plan), and issue shares upon
exercise of such options as provided in the Plan and (ii) make awards for the
purchase of shares of Common Stock pursuant to Section 13 of the Plan. The Board
shall have authority, subject to the express provisions of the Plan, to construe
the respective option agreements, awards and the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the terms and
provisions of the respective option agreements and awards, which need not be
identical, and to make all other determinations in the judgment of the Board of
Directors necessary or desirable for the administration of the Plan. The Board
of
<PAGE> 2
Directors may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any option agreement or award in the manner and
to the extent it shall deem expedient to carry the Plan into effect and it shall
be the sole and final judge of such expediency. No director or person acting
pursuant to authority delegated by the Board of Directors shall be liable for
any action or determination made in good faith. The Board of Directors may, to
the full extent permitted by or consistent with applicable laws or regulations
(including, without limitation, applicable state law and Rule 16b-3 promulgated
under the Securities Exchange Act of 1934 (the "Exchange Act"), or any successor
rule ("Rule 16b-3")), delegate any or all of its powers under the Plan to a
committee (the "Committee") appointed by the Board of Directors, and if the
Committee is so appointed all references to the Board of Directors in the Plan
shall mean and relate to such Committee to the extent authority is so delegated
to such Committee.
(c) APPLICABILITY OF RULE 16b-3. Those provisions of the Plan which make
express reference to Rule 16b-3 shall apply only to such persons as are required
to file reports under Section 16(a) of the Exchange Act (a "Reporting Person").
3. Eligibility.
-----------
(a) GENERAL. Options and awards may be granted or made to persons who are,
at the time of grant, employees, officers or directors (so long as such officers
and directors are also employees) of, or consultants or advisors to, the
Company; PROVIDED, that the class of individuals to whom Incentive Stock Options
may be granted shall be limited to all employees of the Company; and PROVIDED
FURTHER that non-employee directors of the Company are not eligible to receive
options or awards of restricted stock under the Plan. A person who has been
granted an option or award may, if he or she is otherwise eligible, be granted
additional options or awards if the Board of Directors shall so determine.
Subject to adjustment as provided in Section 16 below, the maximum number of
shares with respect to which options or restricted stock awards may be granted
to any person under the Plan shall not exceed ____ shares of Common Stock during
any calendar year during the term of the Plan. For the purpose of calculating
such maximum number, (a) an option or award shall continue to be treated as
outstanding notwithstanding its repricing, cancellation or expiration and (b)
the repricing of an outstanding option or award or the issuance of a new option
or award in substitution for a cancelled option or award shall be deemed to
constitute the grant of a new additional option or award, as the case may be,
separate from the original grant that is repriced or cancelled.
(b) GRANT OF OPTIONS TO DIRECTORS AND OFFICERS. The selection of a
director or an officer (as the terms "director" and "officer" are defined for
purposes of Rule 16b-3) as a participant, the timing of the option grant or
award, the exercise price of the option or the sale price of the award and the
number of shares for which an option or award may be granted to such director or
officer shall be determined either (i) by the Board of Directors, of which all
members shall be "disinterested persons" (as hereinafter defined),
2
<PAGE> 3
or (ii) by a committee of two or more directors having full authority to act in
the matter, of which all members shall be "disinterested persons." For the
purposes of the Plan, a director shall be deemed to be "disinterested" only if
such person qualifies as a "disinterested person" within the meaning of Rule
16b-3, as such term is interpreted from time to time.
4. Stock Subject to Plan.
---------------------
Subject to adjustment as provided in Section 16 below, the total number of
shares which may be issued and sold under the Plan is 775,891 shares of Common
Stock, $.01 par value per share ("Common Stock") (reflecting the one-for-five
reverse stock split of the Common Stock effected on February 7, 1997). If an
option granted under the Plan shall expire or terminate for any reason without
having been exercised in full, the unpurchased shares subject to such option
shall again be available for subsequent option grants or awards under the Plan.
5. Forms of Option Agreements.
--------------------------
As a condition to the grant of an option under the Plan, each recipient of
an option shall execute an option agreement in such form not inconsistent with
the Plan as may be approved by the Board of Directors. Such option agreements
may differ among recipients.
6. Purchase Price Upon Exercise of Options.
---------------------------------------
(a) GENERAL. The purchase price per share of Common Stock deliverable upon
the exercise of an option shall be determined by the Board of Directors,
PROVIDED, HOWEVER, that in the case of an Incentive Stock Option, the exercise
price shall not be less than 100% of the fair market value of such stock, as
determined by the Board of Directors, at the time of grant of such option, or
less than 110% of such fair market value in the case of options described in
Section 11(b).
(b) PAYMENT OF PURCHASE PRICE. Options granted under the Plan may provide
for the payment of the exercise price by delivery of cash or a check to the
order of the Company in an amount equal to the exercise price of such options,
or, to the extent provided in the applicable option agreement, (i) by delivery
to the Company of shares of Common Stock of the Company already owned by the
optionee having a fair market value equal in amount to the exercise price of the
options being exercised, (ii) by any other means (including without limitation
by delivery of a promissory note of the optionee payable on such terms as are
specified by the Board of Directors) which the Board of Directors determines are
consistent with the purpose of the Plan and with applicable laws and regulations
(including, without limitation, the provisions of Rule 16b-3 and Regulation T
promulgated by the Federal Reserve Board) or (iii) by any combination of such
methods of payment. The fair market value of any shares of the
3
<PAGE> 4
Company's Common Stock or other non-cash consideration which may be delivered
upon exercise of an option shall be determined in such manner as may be
prescribed by the Board of Directors.
7. Option Period.
-------------
Each option and all rights thereunder shall expire on such date as shall be
set forth in the applicable option agreement, except that such date, in the case
of an Incentive Stock Option, shall in no case be later than ten years after the
date on which the option is granted.
8. Exercise of Options.
-------------------
Each option granted under the Plan shall be exercisable either in full or
in installments at such time or times and during such period as shall be set
forth in the agreement evidencing such option, subject to the provisions of the
Plan.
9. Nontransferability of Options.
-----------------------------
Incentive Stock Options, and all options granted to Reporting Persons,
shall not be assignable or transferable by the person to whom it is granted,
either voluntarily or by operation of law, except by will or the laws of descent
and distribution, and, during the life of the optionee, shall be exercisable
only by the optionee; provided, however, that non-statutory options granted to
Reporting Persons may be transferred pursuant to a qualified domestic relations
order (as defined in Rule 16b-3).
10. Effect of Termination of Employment or Other Relationship.
---------------------------------------------------------
The Board of Directors shall determine the period of time during which an
optionee may exercise an option following (i) the termination of the optionee's
employment or other relationship with the Company or (ii) the death or
disability of the optionee. Such periods shall be set forth in the agreement
evidencing such option.
11. Incentive Stock Options.
-----------------------
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) EXPRESS DESIGNATION. All Incentive Stock Options granted under the
Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% SHAREHOLDER. If any employee to whom an Incentive Stock Option is
to be granted under the Plan is, at the time of the grant of such option, the
owner of
4
<PAGE> 5
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company (after taking into account the attribution of stock
ownership rules of Section 424(d) of the Code), then the following special
provisions shall be applicable to the Incentive Stock Option granted to such
individual:
(i) The purchase price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the fair market value
of one share of Common Stock at the time of grant; and
(ii) The option exercise period shall not exceed five years from the
date of grant.
(c) DOLLAR LIMITATION. For so long as the Code shall so provide, options
granted to any employee under the Plan (and any other incentive stock option
plans of the Company) which are intended to constitute Incentive Stock Options
shall not constitute Incentive Stock Options to the extent that such options, in
the aggregate, become exercisable for the first time in any one calendar year
for shares of Common Stock with an aggregate fair market value (determined as of
the respective date or dates of grant) of more than $100,000.
(d) TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the optionee is,
and has been continuously since the date of grant of his or her option, employed
by the Company, except that:
(i) an Incentive Stock Option may be exercised within the period of
three months after the date the optionee ceases to be an employee of the
Company (or within such lesser period as may be specified in the applicable
option agreement), PROVIDED, that the agreement with respect to such option
may designate a longer exercise period and that the exercise after such
three-month period shall be treated as the exercise of a non-statutory
option under the Plan;
(ii) if the optionee dies while in the employ of the Company, or
within three months after the optionee ceases to be such an employee, the
Incentive Stock Option may be exercised, by the person to whom it is
transferred by will or the laws of descent and distribution, within the
period of one year after the date of death (or within such lesser period as
may be specified in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of Section
22(e)(3) of the Code or any successor provision thereto) while in the
employ of the Company, the Incentive Stock Option may be exercised within
the period of one year after the date the optionee ceases to be such an
employee
5
<PAGE> 6
because of such disability (or within such lesser period as may be
specified in the applicable option agreement).
For all purposes of the Plan and any option or award granted hereunder,
"employment" shall be defined in accordance with the provisions of Section
1.421-7(h) of the Income Tax Regulations (or any successor regulations).
Notwithstanding the foregoing provisions, no stock option may be exercised after
its expiration date.
12. Additional Provisions.
---------------------
(a) ADDITIONAL OPTION PROVISIONS. The Board of Directors may, in its sole
discretion, include additional provisions in any option granted under the Plan,
including without limitation restrictions on transfer, repurchase rights,
commitments to pay cash bonuses, to make, arrange for or guaranty loans or to
transfer other property to optionees upon exercise of options, or such other
provisions as shall be determined by the Board of Directors; PROVIDED THAT such
additional provisions shall not be inconsistent with any other term or condition
of the Plan.
(b) ACCELERATION, EXTENSION, ETC. The Board of Directors may, in its sole
discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all or any particular option or options granted under the
Plan may be exercised; provided, however, that no such extension shall be
permitted if it would cause the Plan to fail to comply with Section 422 of the
Code or with Rule 16b-3.
13. Awards.
------
A restricted stock award (an "award") shall consist of the sale and
issuance by the Company of shares of Common Stock, and the purchase by the
recipient of such shares, subject to the terms, conditions and restrictions
described in the document evidencing the award and in this Section 13 and
elsewhere in the Plan.
(a) EXECUTION OF RESTRICTED STOCK AWARD AGREEMENT. As a condition to an
award under the Plan, each recipient of an award shall execute an agreement in
such form, which may differ among recipients, as shall be specified by the Board
of Directors at the time of such award.
(b) PRICE. The Board of Directors shall determine the price at which
shares of Common Stock shall be sold to recipients of awards under the Plan. The
Board of Directors may, in its discretion, issue shares pursuant to awards
without the payment of any cash purchase price by the recipients or issue shares
pursuant to awards at a purchase price below the then fair market value of the
Common Stock. If a purchase price is required to be paid, it shall be paid in
cash or by check payable to the order of the Company at the time that the award
is accepted by the recipient, or by such other
6
<PAGE> 7
means as may be approved by the Board of Directors.
(c) NUMBER OF SHARES. The award shall specify the number of shares of
Common Stock granted thereunder.
(d) RESTRICTIONS ON TRANSFER. In addition to such other terms, conditions
and restrictions upon awards as shall be imposed by the Board of Directors, all
shares issued pursuant to an award shall be subject to the following
restrictions:
(1) All shares of Common Stock subject to an award (including any
shares issued pursuant to paragraph (e) of this Section) shall be subject
to certain restrictions on disposition and obligations of resale to the
Company as provided in subparagraph (2) below for the period specified in
the document evidencing the award, and shall not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of until such
restrictions lapse. The period during which such restrictions are
applicable is referred to as the "Restricted Period."
(2) In the event that a recipient's employment with the Company (or
consultancy or advisory relationship, as the case may be) is terminated
within the Restricted Period, whether such termination is voluntary or
involuntary, with or without cause, or because of the death or disability
of the recipient, the Company shall have the right and option for a period
of three months following such termination to buy for cash that number of
the shares of Common Stock purchased under the award as to which the
restrictions on transfer and the forfeiture provisions contained in the
award have not then lapsed, at a price equal to the price per share
originally paid by the recipient. If such termination occurs within the
last three months of the applicable restrictions, the restrictions and
repurchase rights of the Company shall continue to apply until the
expiration of the Company's three month option period.
(3) Notwithstanding subparagraphs (1) and (2) above, the Board of
Directors may, in its discretion, either at the time that an award is made
or at any time thereafter, waive its right to repurchase shares of Common
Stock upon the occurrence of any of the events described in this paragraph
(d) or remove or modify any part or all of the restrictions. In addition,
the Board of Directors may, in its discretion, impose upon the recipient of
an award at the time of such award such other restrictions on any shares of
Common Stock issued pursuant to such award as the Board of Directors may
deem advisable.
(e) ADDITIONAL SHARES. Any shares received by a recipient of an award as a
stock dividend on, or as a result of stock splits, combinations, exchanges of
shares, reorganizations, mergers, consolidations or otherwise with respect to,
shares of Common Stock received pursuant to such award shall have the same
status and shall
7
<PAGE> 8
bear the same restrictions, all on a proportionate basis, as the shares
initially purchased pursuant to such award.
(f) TRANSFERS IN BREACH OF AWARD. If any transfer of shares purchased
pursuant to an award is made or attempted contrary to the terms of the Plan and
of such award, the Board of Directors shall have the right to purchase for the
account of the Company those shares from the owner thereof or his or her
transferee at any time before or after the transfer at the price paid for such
shares by the person to whom they were awarded under the Plan. In addition to
any other legal or equitable remedies which it may have, the Company may enforce
its rights by specific performance to the extent permitted by law. The Company
may refuse for any purpose to recognize as a shareholder of the Company any
transferee who receives any shares contrary to the provisions of the Plan and
the applicable award or any recipient of an award who breaches his or her
obligation to resell shares as required by the provisions of the Plan and the
applicable award, and the Company may retain and/or recover all dividends on
such shares which were paid or payable subsequent to the date on which the
prohibited transfer or breach was made or attempted.
(g) ADDITIONAL AWARD PROVISIONS. The Board of Directors may, in its sole
discretion, include additional provisions in any award granted under the Plan,
including without limitation commitments to pay cash bonuses, make, arrange for
or guarantee loans or transfer other property to recipients upon the grant of
awards, or such other provisions as shall be determined by the Board of
Directors.
14. General Restrictions.
--------------------
(a) INVESTMENT REPRESENTATIONS. The Company may require any person to whom
an option or award is granted, as a condition of exercising such option or
purchasing the shares subject to the award, to give written assurances in
substance and form satisfactory to the Company to the effect that such person is
acquiring the Common Stock subject to the option or award for his or her own
account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws.
(b) COMPLIANCE WITH SECURITIES LAWS. Each option and award shall be
subject to the requirement that if, at any time, counsel to the Company shall
determine that the listing, registration or qualification of the shares subject
to such option or award upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental or regulatory body,
or that the disclosure of non-public information or the satisfaction of any
other condition is necessary as a condition of, or in connection with, the
issuance or purchase of shares thereunder, such option or award may not be
exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval, or satisfaction of such condition shall have
been effected or obtained on
8
<PAGE> 9
conditions acceptable to the Board of Directors. Nothing herein shall be deemed
to require the Company to apply for or to obtain such listing, registration or
qualification, or to satisfy such condition.
15. Rights as a Shareholder.
-----------------------
The holder of an option or recipient of an award shall have no rights as a
shareholder with respect to any shares covered by the option or award
(including, without limitation, any rights to receive dividends or non-cash
distributions with respect to such shares) until the date of issue of a stock
certificate to him or her for such shares. No adjustment shall be made for
dividends or other rights for which the record date is prior to the date such
stock certificate is issued.
16. Adjustment Provisions for Recapitalizations and Related Transactions.
--------------------------------------------------------------------
(a) GENERAL. If, through or as a result of any merger, consolidation, sale
of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, (i) the outstanding shares of Common Stock
are increased or decreased or are exchanged for a different number or kind of
shares or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, an
appropriate and proportionate adjustment shall be made in (x) the maximum number
and kind of shares reserved for issuance under the Plan, (y) the number and kind
of shares or other securities subject to then outstanding options under the
Plan, and (z) the price for each share subject to any then outstanding options
under the Plan or repurchase rights of the Company, without changing the
aggregate purchase price as to which such options remain exercisable, provided
that no adjustment shall be made pursuant to this Section 16 if such adjustment
would cause the Plan to fail to comply with Section 422 of the Code or with Rule
16b-3.
(b) BOARD AUTHORITY TO MAKE ADJUSTMENTS. Any adjustments under this
Section 16 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
17. Merger, Consolidation, Asset Sale, Liquidation, etc.
---------------------------------------------------
(a) GENERAL. In the event of a consolidation or merger in which
outstanding shares of Common Stock are exchanged for securities, cash or other
property of any other corporation or business entity or in the event of a
liquidation of the Company or sale of all or substantially all of the assets of
the Company, the Board of Directors of the
9
<PAGE> 10
Company, or the board of directors of any corporation assuming the obligations
of the Company, may, in its discretion, take any one or more of the following
actions, as to outstanding options and awards: (i) provide that such options
shall be assumed, or equivalent options shall be substituted, by the acquiring
or succeeding corporation (or an affiliate thereof), PROVIDED that any such
options substituted for Incentive Stock Options shall meet the requirements of
Section 424(a) of the Code, (ii) upon written notice to the optionees, provide
that all unexercised options will terminate immediately prior to the
consummation of such transaction unless exercised by the optionee within a
specified period following the date of such notice, (iii) in the event of a
merger under the terms of which holders of the Common Stock of the Company will
receive upon consummation thereof a cash payment for each share surrendered in
the merger (the "Merger Price"), make or provide for a cash payment to the
optionees equal to the difference between (A) the Merger Price times the number
of shares of Common Stock subject to such outstanding options (to the extent
then exercisable at prices not in excess of the Merger Price) and (B) the
aggregate exercise price of all such outstanding options in exchange for the
termination of such options, and (iv) provide that all or any outstanding
options shall become exercisable in full, any restrictions on exercising
outstanding options issued pursuant to the Plan prior to any given date shall
terminate and any restrictions on and rights of the Company to repurchase shares
covered by outstanding awards issued pursuant to the Plan shall terminate.
(b) SUBSTITUTE OPTIONS. The Company may grant options under the Plan in
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
18. No Special Employment Rights.
----------------------------
Nothing contained in the Plan or in any option or award shall confer upon
any recipient of an award or optionee any right with respect to the continuation
of his or her employment by the Company or interfere in any way with the right
of the Company at any time to terminate such employment or to increase or
decrease the compensation of the optionee.
19. Other Employee Benefits.
-----------------------
Except as to plans which by their terms include such amounts as
compensation, neither the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise nor the value of an award granted to an employee will
constitute compensation with
10
<PAGE> 11
respect to which any other employee benefits of such employee are determined,
including, without limitation, benefits under any bonus, pension,
profit-sharing, life insurance or salary continuation plan, except as otherwise
specifically determined by the Board of Directors.
20. Amendment of the Plan.
---------------------
(a) The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect, except that if at any time the approval of the
shareholders of the Company is required as to such modification or amendment
under Section 422 of the Code or any successor provision with respect to
Incentive Stock Options or under Rule 16b-3 with respect to options held by or
awards made to Reporting Persons, the Board of Directors may not effect such
modification or amendment without such approval.
(b) The termination or any modification or amendment of the Plan shall
not, without the consent of an optionee or recipient of an award, affect his or
her rights under an option or award previously granted to him or her. With the
consent of the optionee or recipient of the award affected, the Board of
Directors may amend outstanding option agreements or awards in a manner not
inconsistent with the Plan. The Board of Directors shall have the right to amend
or modify (i) the terms and provisions of the Plan and of any outstanding
Incentive Stock Options granted under the Plan to the extent necessary to
qualify any or all such options for such favorable federal income tax treatment
(including deferral of taxation upon exercise) as may be afforded incentive
stock options under Section 422 of the Code and (ii) the terms and provisions of
the Plan and of any outstanding option or award to the extent necessary to
ensure the qualification of the Plan under Rule 16b-3 or any successor rule.
21. Withholding.
-----------
(a) The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee or recipient of an award any federal, state or
local taxes of any kind required by law to be withheld with respect to any
shares issued upon exercise of options under the Plan or the purchase of shares
subject to the award. Subject to the prior approval of the Company, which may be
withheld by the Company in its sole discretion, the optionee or recipient of an
award may elect to satisfy such obligations, in whole or in part, (i) by causing
the Company to withhold shares of Common Stock otherwise issuable pursuant to
the exercise of an option or the purchase of shares subject to an award or (ii)
by delivering to the Company shares of Common Stock already owned by the
optionee or award recipient. The shares so delivered or withheld shall have a
fair market value equal to such withholding obligation. The fair market value of
the shares used to satisfy such withholding obligation shall be determined by
the Company as of the date that the amount of tax to be withheld is to be
11
<PAGE> 12
determined. An optionee or award recipient who has made an election pursuant to
this Section 21(a) may only satisfy his or her withholding obligation with
shares of Common Stock which are not subject to any repurchase, forfeiture,
unfulfilled vesting or other similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person, no
election to use shares for the payment of withholding taxes shall be effective
unless made in compliance with any applicable requirements of Rule 16b-3.
(c) If the recipient of an award under the Plan elects, in accordance with
Section 83(b) of the Code, to recognize ordinary income in the year of
acquisition of any shares awarded under the Plan, the Company will require at
the time of such election an additional payment for withholding tax purposes
based on the difference, if any, between the purchase price of such shares and
the fair market value of such shares as of the date immediately preceding the
date of the award.
22. Cancellation and New Grant of Options, Etc.
------------------------------------------
The Board of Directors shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options.
23. Effective Date and Duration of the Plan.
---------------------------------------
(a) EFFECTIVE DATE. The Plan shall become effective when adopted by the
Board of Directors, but no Incentive Stock Option granted under the Plan shall
become exercisable unless and until the Plan shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no options
previously granted under the Plan shall be deemed to be Incentive Stock Options
and no Incentive Stock Options shall be granted thereafter. Amendments to the
Plan not requiring shareholder approval shall become effective when adopted by
the Board of Directors; amendments requiring shareholder approval (as provided
in Section 20) shall become effective when adopted by the Board of Directors,
but no Incentive Stock Option issued after the date of such amendment shall
become exercisable (to the extent that such amendment to the Plan was required
to enable the Company to grant such Incentive Stock Option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve
12
<PAGE> 13
months of the Board's adoption of such amendment, any Incentive Stock Options
granted on or after the date of such amendment shall terminate to the extent
that such amendment to the Plan was required to enable the Company to grant such
option to a particular optionee. Subject to this limitation, options and awards
may be granted under the Plan at any time after the effective date and before
the date fixed for termination of the Plan.
(b) TERMINATION. Unless sooner terminated in accordance with Section 17,
the Plan shall terminate, with respect to Incentive Stock Options, upon the
earlier of (i) the close of business on the day next preceding the tenth
anniversary of the date of its adoption by the Board of Directors, or (ii) the
date on which all shares available for issuance under the Plan shall have been
issued pursuant to the exercise or cancellation of options or the final vesting
of awards granted under the Plan. Unless sooner terminated in accordance with
Section 17, the Plan shall terminate with respect to options which are not
Incentive Stock Options and awards on the date specified in (ii) above. If the
date of termination is determined under (i) above, then options outstanding on
such date shall continue to have force and effect in accordance with the
provisions of the instruments evidencing such options.
24. Provision for Foreign Participants.
----------------------------------
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
13
<PAGE> 1
EXHIBIT 10.2
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
CONTRIBUTION AGREEMENT
between
FREE RADICAL SCIENCES, INC.
and
CLINTEC NUTRITION COMPANY
-----------------------
April 5, 1994
-----------------------
<PAGE> 2
TABLE OF CONTENTS
Page
SECTION 1 - CONTRIBUTION OF ASSETS 1
1.1 Contribution of Assets 1
1.2 Assumption of Liabilities 2
1.3 Issuance of Common Shares and Non-Convertible
Preferred Shares; Contingent Payments 3
1.4 Transfer of Contributed Assets 6
1.5 Delivery of Records and Contracts 6
1.6 Closing 6
1.7 Section 351 Transaction 6
1.8 Tax Definition 6
1.9 Certain Payments Relating to Contract with
Dickson Research Group 6
1.10 Cooperation with FRS in Obtaining Rights under
Contract de Recherche 7
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF CLINTEC 7
2.1 Organization and Qualification 7
2.2 Authority to Execute and Perform Agreements 7
2.3 Compliance with Laws 8
2.4 Consents; No Breach 8
2.5 Actions and Proceedings 9
2.6 Contracts and Other Agreements 9
2.7 Intangible Property 10
2.8 Title to Assets; Liens 11
2.9 Insurance 11
2.10 Brokerage 12
2.11 Full Disclosure 12
2.12 Contract de Collaboration 12
2.13 Investment Representations 12
SECTION 3 - CONDITIONS PRECEDENT TO THE OBLIGATION OF
FRS TO CLOSE 13
3.1 Representations, Warranties and Covenants 13
3.2 Third Party Consents 13
3.3 Baxter Agreement with Pace 14
3.4 Non-Solicitation Agreement 14
3.5 License Agreement 14
3.6 Services Letter 14
3.7 Letter Agreement 14
3.8 Opinion of Counsel to Clintec 14
3.9 Litigation 14
3.10 Delivery of Instruments of Transfer 14
3.11 Stock Purchase Agreement 14
(i)
<PAGE> 3
SECTION 4 - CONDITIONS PRECEDENT TO THE OBLIGATION OF
CLINTEC TO CLOSE 15
4.1 Delivery of Assumption Agreement 15
4.2 Litigation 15
4.3 License 15
4.4 Stock Purchase Agreement 15
SECTION 5 - NON-COMPETITION AND EMPLOYEE NON-SOLICITATION.. 15
5.1 No Competing Business 15
5.2 Certain Acquisitions of Competing Businesses 16
5.3 Non-Solicitation of FRS Employees 16
5.4 No Disclosure of Proprietary Information 17
5.5 Remedies 17
SECTION 6 - INDEMNIFICATION 17
6.1 Survival 17
6.2 Obligation of Clintec to Indemnify 19
6.3 Obligation of FRS to Indemnify 19
6.4 Notice and Opportunity to Defend 19
6.5 Other Benefits 20
6.6 Limitation on Representations and Warranties 20
6.7 Exclusion 20
SECTION 7 - MISCELLANEOUS 21
7.1 Publicity 21
7.2 Notices 21
7.3 Entire Agreement 22
7.4 Australian Insurance 22
7.5 Confidentiality Letter 22
7.6 Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies 22
7.7 Governing Law 23
7.8 Binding Effect; No Assignment 23
7.9 Expenses 23
7.10 Taxes 23
7.11 Variations in Pronouns 23
7.12 Counterparts 23
7.13 Exhibits and Schedules 23
7.14 Headings 24
(ii)
<PAGE> 4
SCHEDULES
1.1(i) Inventory
1.1(ii) Contributed Contracts
1.1(iv) Intangible Property
1.2 Assumed Liabilities
2.3 Permits
2.4 Consents
2.5 Actions and Other Proceedings
2.6 Contracts and Other Agreements
2.7 Intangible Property
(i)
<PAGE> 5
CONTRIBUTION AGREEMENT
CONTRIBUTION AGREEMENT dated as of April 5, 1994, among Free Radical
Sciences, Inc., a Delaware corporation ("FRS") and Clintec Nutrition
Company, an Illinois general partnership ("Clintec").
WITNESSETH
WHEREAS, Clintec is the owner of certain intangible property described
on Schedule 1.1(iv) hereto (collectively, the "Technology").
WHEREAS, Clintec desires to contribute to FRS, and FRS desires to
acquire, all of Clintec's right, title and interest in and to the
Technology in exchange for Common Stock and NonConvertible Preferred Stock
of FRS and for certain rights to receive contingent payments from FRS, as
part of a transaction in which certain other investors will acquire Common
Stock and Series A Preferred Stock of FRS.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth below, the parties hereby agree as follows:
SECTION I. - CONTRIBUTION OF ASSETS
A. CONTRIBUTION OF ASSETS. Subject to the provisions of this
Agreement, at the Closing (as defined in Section 1.6 hereof), Clintec
agrees to sell and FRS agrees to purchase, effective as of the Effective
Date (as defined in Section 1.6 hereof), free and clear of any mortgage,
lien, pledge, charge, security, interest or encumbrance of any kind,
including, without limitation, Tax liens (a "Lien"), other than Permitted
Liens (as hereinafter defined), all right, title and interest of Clintec
in, to and under:
(i) the clinical supplies listed on Schedule 1.1(i);
(ii) All rights under all contracts, agreements, licenses and
commitments listed on Schedule 1.1(ii) except for Clintec's rights
under Section 10.14 of the contract (the "Dickson Contract") between
Clintec and Dickson Research Group ("Dickson"), entered into on the
date hereof, (collectively, the "Contributed Contracts");
-1-
<PAGE> 6
(iii) all of Clintec's rights, claims, credits, causes of action or
rights of set-off against third parties relating to any of the
Contributed Contracts, the other items referred to in paragraphs (i)
and (iii) - (vii) of this Section 1.1 or to the Compounds, including,
without limitation, unliquidated rights under manufacturers' and
vendors' warranties;
(iv) the items listed on Schedule 1.1(iv) and all patents, licensed
patents, copyrights, trademarks, tradenames, technology, know-how,
processes, trade secrets, inventions, invention records, proprietary
data, formulae, research and development data, human clinical data,
computer software programs and other intangible property and any
applications for the same owned or licensed by Clintec and relating to
the molecular entities L-2-oxothiazolidine-4-carboxylate
(Procysteine), its isomers, its esters (including diesters) and its
neutral salts, the cysteine derivative N-acetyl-cysteine, and
glutathione esters (including diesters) including the alkyl monoesters
(collectively, the "Compounds");
(v) all books, records, files and papers, whether in hard copy or
computer format, relating to the items described in paragraphs (i) -
(iii) and (vi) - (vii) of this Section 1.1 or to the Compounds,
including, without limitation, manuals and data and correspondence
relating to the Contributed Contracts;
(vi) all transferable licenses, permits or other governmental
authorizations affecting, or relating in any way to, items described
in paragraphs (i) - (iii) and (v) - (vii) of this Section 1.1 or to
the Compounds, if any;
(vii) all rights to commercially exploit any other free-radical
scavengers which have been developed or are being developed, as of the
date hereof, by or on behalf of Clintec for a primary purpose or use
as a pharmaceutical, if any (collectively, the "Other Compounds");
Section 1.1(i) through (vii) shall be referred to collectively as the
"Contributed Assets".
-2-
<PAGE> 7
At the closing, Clintec shall also contribute to the capital of FRS
all of FRS's indebtedness to Clintec for money borrowed or other amounts
advanced to FRS, except that Clintec shall not contribute to the capital of
FRS but FRS shall repay to Clintec by wire transfer of immediately
available funds at the Closing an amount equal to $175,304, determined as
set forth in the Reconciliation Letter between Clintec and FRS of even date
herewith.
B. ASSUMPTION OF LIABILITIES. Upon the sale and purchase of the
Contributed Assets, FRS shall assume and agree to pay or discharge when due
the liabilities and obligations of Clintec which are to be performed after
the Closing Date (as defined in Section 1.6 below) as are described on
Schedule 1.2. Such liabilities to be assumed by FRS under this Agreement
are hereinafter sometimes referred to as the "Assumed Liabilities." Except
as otherwise specifically provided in this Section 1.2, (a) FRS shall not
assume or be liable for any obligation or liability of Clintec, of any kind
or nature, known, unknown, contingent or otherwise, including without
limitation: (i) any liability of Clintec incurred in connection with this
Agreement and the transactions provided for herein, including brokerage,
accounting and counsel fees, transfer and other taxes, and expenses
pertaining to the performance by Clintec of its obligations hereunder, (ii)
any liability or obligation of Clintec arising out of any contract or
agreement, (iii) any liability or obligation arising out of or relating to
the clinical development or testing of the Compounds or the Other Compounds
on or prior to Closing, (iv) any obligations to Clintec's employees,
including without limitation, any pension, retirement, or profit-sharing
plan or trust, (v) any litigation, proceeding, claim by any person or
entity or other obligation of Clintec arising out of the conduct of
Clintec's business or its use of the Compounds or other Contributed Assets
prior to the Closing Date, whether or not such litigation, proceeding,
claim or obligation is pending, threatened, or asserted before, on, or
after the Closing Date, (vi) Taxes (as defined in Section 1.8) whether
relating to periods before or after the Closing Date, and (vii) any
obligations under any law, including but not limited to antitrust, civil
rights, health, safety, labor, discrimination and environmental laws; and
(b) Clintec shall be solely responsible for, and shall discharge, any and
all liabilities and obligations of Clintec not included within the Assumed
Liabilities. The assumption of the Assumed Liabilities by FRS hereunder
shall be treated as independent of its existing business and shall not
enlarge any rights of third parties under contracts or arrangements with
FRS or Clintec. Nothing herein shall prevent FRS from contesting in good
faith any of the Assumed Liabilities.
-3-
<PAGE> 8
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
C. ISSUANCE OF COMMON SHARES AND NON-CONVERTIBLE PREFERRED SHARES;
CONTINGENT PAYMENTS. (a) In consideration of the contribution of the
Contributed Assets to FRS, at the Closing, FRS shall deliver to Clintec
certificates for an aggregate of 3,400,000 shares (the "Common Shares") of
FRS's Common Stock, $.01 par value per share, and 9,000 shares (the
"Preferred Shares") of FRS's Non-Convertible Preferred Stock, $.01 par
value per share, registered in the name of Clintec.
(b) From and after the Closing, FRS shall pay to Clintec in U.S.
dollars, within 30 days after the end of each calendar quarter after the
Closing, a royalty equal to **** of FRS's Gross Margin (as hereinafter
defined) on Net Sales (as hereinafter defined) of drugs sold by FRS or any
subsidiary, affiliate or sublicensee of FRS during such calendar quarter
for applications for patients with AIDS approved by the FDA (in the case of
sales in the United States) or approved by any foreign regulatory agency,
if applicable (in the case of sales outside the United States) (the "AIDS
Drugs"); provided however, that no such royalty will be payable by FRS
until FRS's cumulative Gross Margin on Net Sales of AIDS Drugs exceeds the
total amount of costs incurred for clinical inventory used in the AIDS
clinical studies (up to a maximum of **** million of such costs), which
royalty shall be payable only on such excess; and provided further, that
the sum of all royalty obligations with respect to technology involved in
the manufacture, use or sale of such AIDS drug will in no case, in the
aggregate, exceed **** of Net Sales, which percentage will include payments
to Cornell Research Foundation and any other third party for technology
involved in the manufacture, use or sale of such AIDS drug (the "Contingent
Payment").
(c) For this purpose, Gross Margin shall mean Net Sales less the
direct cost of goods sold, which will include royalties paid to Cornell and
any other third party for technology involved in the manufacture, use or
sale of the drug. Also for this purpose, Net Sales shall mean the gross
amount of money billed by FRS to its customers on sale or use of drugs for
FDA approved applications for patients with AIDS subsequent to the Closing,
**************************************************************************
**************************************************************************
**************************************************************************
**************************************************************************
************************************************************** FRS will
deliver to Clintec within 30 days after the end of each calendar year
ending after the Closing a report in writing setting forth sales of the
AIDS Drugs and will accompany such
-4-
<PAGE> 9
report with an appropriate payment of royalty due for such period. FRS will
keep accurate records for at least three years, certified by it, showing
the information by which FRS arrived at a royalty determination and will
permit an auditor appointed and paid for by Clintec and acceptable to FRS
to make such inspection of said records as may be necessary to verify
royalty reports made by FRS. However, if such inspection demonstrates that
the royalties paid were less than 90% of the royalties due, and FRS' Net
Sales of the AIDS Drugs for the applicable year was $500,000 or more, then
FRS shall reimburse Clintec the reasonable charges charged by the auditor
for such inspection.
(d) In the event it is ultimately determined, by a court of
competent jurisdiction or pursuant to any agreement between FRS and the
Internal Revenue Service ("IRS") and/or any applicable state tax authority
(collectively "Tax Authority"), that any payment made pursuant to Section
1.3(b) is not currently deductible by FRS for federal or state income tax
purposes (a "Final Determination"), then the amounts payable by FRS under
Section 1.3(b) after such Final Determination becomes final shall be
reduced to the extent necessary so that the present value, as of the first
day of the first year for which any payment is determined not to be
currently deductible, of (i) all payments made by FRS under Section 1.3(b)
(taking into account the reduction under this Section 1.3(d)) minus (ii)
all Tax Reductions attributable to such payments, is equivalent to the
present value, as of the first day of the first year for which any payment
is determined not to be currently deductible, of (iii) all payments that
would be provided for under Section 1.3(b) but for this Section 1.3(d) and
Section 1.3(e) if all such payments had been currently deductible for
federal and state income tax purposes, minus (iv) all Tax Reductions
attributable to such payments, it being the intention of the parties that
FRS be put in the same economic position it would have been in had the
amounts payable pursuant to Section 1.3(b) been currently deductible for
federal and state income tax purposes. For this purpose, (i) present value
of a payment of Tax Reduction shall be determined by using, for each
calendar year of the computation, the federal mid-term rate determined
using an annual compounding convention under Section 1274(d) of the
Internal Revenue Code of 1986, as amended (the "Code"), announced for
January of such calendar year, and (ii) the "Tax Reduction" attributable to
a payment is the amount of the actual reduction in federal and state income
tax liability resulting from the payment.
-5-
<PAGE> 10
(e) In the event the IRS asserts that any payment made pursuant to
Section 1.3(b) is not currently deductible by FRS for federal income tax
purposes and the matter has not been settled or resolved upon the
completion of the audit examination (including an appeal to the IRS appeals
office) (an "Interim Determination") then, notwithstanding the provisions
of Section 1.3(d), the amounts payable by FRS under Section 1.3(b) after
the Interim Determination may be reduced to the extent they could have been
reduced under Section 1.3(d) if such deficiency had been upheld or agreed
to in a Final Determination, provided, however, that if there is a Final
Determination in which such deficiency is not upheld or agreed to in its
entirety, then FRS shall pay to Clintec, within 90 days of such Final
Determination, the amount necessary to put Clintec in the same economic
position it would have been in if this Section 1.3(e) had not applied.
(f) In the event that the amounts payable under Section 1.3(b)
without regard to Sections 1.3(d) and 1.3(e) are insufficient to permit any
reduction in the amounts payable under Section 1.3(b) that is required
pursuant to Section 1.3(d) or 1.3(e) as a result of a Final Determination
or Interim Determination to be effected within the four next succeeding
calendar quarters after such Final Determination or Initial Determination,
then Clintec shall pay to FRS, within 90 days after the end of the last of
such calendar quarters, the amount necessary to put FRS in the economic
position it would have been in if the amounts payable under Section 1.3(b)
had been sufficient to permit the full amount of any such required
reduction to be effected.
(g) FRS shall give Clintec a reasonable period of time (i) to
review any federal or state income tax returns of FRS in which FRS claims a
deduction for payments made pursuant to Section 1.3(b) prior to the filing
of any such returns and (ii) to control the manner in which any such
deductions are claimed on such return.
(h) FRS shall promptly notify Clintec of any claim by a Tax
Authority that any payment made by FRS under Section 1.3(b) is not
currently deductible, and in such event Clintec shall have the exclusive
right to assume the defense of any such claim and to control any
controversy resulting therefrom, at Clintec's expense. FRS agrees to
cooperate with Clintec in the defense of any such claim and to cooperate
with Clintec and the FRS Firm or the Joint Firm (as hereinafter defined) in
the determination of the amount of any reduction in payments required
hereunder. Such cooperation shall include, but not be limited to, (i) the
execution and delivery of any power of attorney required to allow
-6-
<PAGE> 11
Clintec and its representatives to represent FRS in any controversy which
Clintec has the right to control hereunder, (ii) the prompt and timely
filing of appropriate claims for any refund, and (iii) making available to
Clintec and its representatives all books, records (including working
papers and schedules), information and employees necessary or useful in
connection with any tax inquiry, audit, investigation, dispute or
litigation relating to the matters described in this Section 1.3(h).
(i) The determination of the amount of any reduction pursuant to
Sections 1.3(d) or 1.3(e) hereof shall initially be made by the independent
certified public accountants then serving as auditor for FRS (the "FRS
Firm"), and such determination shall be furnished to Clintec in writing,
which shall include a computation of the amount of any reduction and a
detailed written explanation of the manner in which such computation was
made. If Clintec objects in writing to such determination within 60 days
after it is received by Clintec, then the amount of any reduction shall be
determined by a "Big Six" firm of independent certified public accountants
jointly selected by Clintec and FRS (or, if they are unable to agree, then
such a firm jointly selected by the FRS Firm and a firm of independent
public accountants designated by Clintec) (the "Joint Firm"), and the
decision of the Joint Firm shall be final and binding upon the parties. If
Clintec does not object in writing to the determination of the FRS Firm
within such time period, then the decision of the FRS Firm shall be final
and binding upon the parties. No reduction in the payments provided for in
Section 1.3(b) shall be made until a decision of the FRS Firm or the Joint
Firm has become final. The fees and expenses of the FRS Firm shall be borne
by FRS, and the fees and expenses of the Joint Firm shall be shared equally
by Clintec and FRS, except that if the Joint Firm decides that the amount
of any reduction in payments required hereunder is less than 90% of the
amount of the reduction decided by the FRS Firm, then FRS shall bear all of
the fees and expenses of the Joint Firm.
D. TRANSFER OF CONTRIBUTED ASSETS. At the Closing, Clintec shall
deliver or cause to be delivered to FRS good and sufficient instruments of
transfer transferring to FRS title to all of the Contributed Assets. Such
instruments of transfer (a) shall be in the form and will contain the
warranties, covenants and other provisions (not inconsistent with the
provisions hereof) which are usual and customary for transferring the type
of property involved under the laws of the jurisdictions applicable to such
transfers, (b) shall be in form and substance satisfactory to FRS and its
counsel, and (c) shall effectively vest in FRS good title to all the
Contributed Assets free and clear of all Liens.
-7-
<PAGE> 12
E. DELIVERY OF RECORDS AND CONTRACTS. At the Closing, Clintec, to the
extent FRS does not already have possession of such documents or rights,
shall deliver or cause to be delivered to FRS, at FRS' request, all written
leases, contracts, commitments and rights evidencing Contributed Assets and
Assumed Liabilities, with such assignments thereof and consents to
assignments as are necessary to assure FRS of the full benefit of the same.
From time to time, pursuant to the request of FRS delivered to Clintec
after the Closing, Clintec, at Clintec's expense and without any further
consideration, will execute and deliver to FRS such instruments and
documents of conveyance and transfer, and do and cause to be done such acts
or things, as FRS may reasonably request in order to more effectively
contribute, convey, transfer and assign to FRS, or to perfect or record
FRS's interest in or title to, or to enable FRS to use, any and all of the
Contributed Assets, or otherwise to carry out the purposes and intent of
this Agreement.
F. Closing. The closing of the sale and purchase of the transactions
contemplated hereby (the "Closing"), shall take place at the offices of
Palmer & Dodge, One Beacon Street, Boston, MA at 10:00 a.m., local time, on
April 5, 1994, or at such other time and place as agreed to by the parties
(the "Closing Date") and the effective date of such sale and purchase shall
be February 1, 1994 (hereinafter referred to as the "Effective Date").
G. Section 351 Transaction. The parties intend that the contribution
of the Contributed Assets be treated as a transfer described in Section 351
of the Internal Revenue Code of 1986, as amended (the "Code"), and the
parties agree that they will prepare and file their federal and any state
or local income tax returns in a manner consistent with such
characterization.
H. Tax Definition. For purposes of this Agreement, the term "Taxes" or
individually, a "Tax" shall mean all federal, state, county, local, foreign
and other taxes, including, without limitation, income taxes, estimated
taxes, alternative minimum taxes, excise taxes, sales taxes, use taxes,
import duties, value-added taxes, gross receipts taxes, franchise taxes,
capital stock taxes, employment and payroll-related taxes, withholding
taxes, stamp taxes, transfer taxes, windfall profit taxes, environmental
taxes and property taxes, whether or not measured in whole or in part by
net income and all deficiencies, or other additions to such taxes and
interest, fines and penalties thereon.
-8-
<PAGE> 13
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
I. Certain Payments Relating to Contract with Dickson Research Group.
Upon the fulfillment, to FRS's satisfaction, of all of Dickson's
obligations to FRS with respect to Study 3.0 under the Dickson Contract,
FRS shall pay to Clintec by certified check or wire transfer of immediately
available funds an amount equal to ********* representing the value of
Clintec's prepayment under the Dickson Contract. FRS agrees that after the
Closing it will continue to use Dickson for the completion of Study 3.0
unless it has a valid business reason for terminating Dickson.
J. Cooperation with FRS in Obtaining Rights under Contract de
Recherche. Clintec Technologies, S.A. and L'Institut National de la
Recherche Agronomique ("INRA") entered into a Research Contract on December
24, 1992 (the "INRA Contract") under which Clintec may have rights to
commercially exploit any research results, inventions or discoveries. To
the extent that Clintec has such rights (including the right to license
FRS) under the INRA Contract as such rights relate to Pharmaceutical
Applications (as defined in the License Agreement) without the payment by
Clintec of additional consideration therefor, Clintec will execute an
exclusive, fully paid, royalty-free license granting to FRS all such
rights. To the extent Clintec is unable to license such rights, Clintec
will use its best efforts to cause INRA to offer to FRS an exclusive
license, granting FRS all such rights, provided, however, that Clintec
shall not be required to make any payment to INRA or to incur any
out-of-pocket expenses in connection therewith. Clintec will provide FRS
copies of all correspondence between Clintec and INRA which relates to the
INRA Contract and Pharmaceutical Applications (as defined in the License
Agreement), and will give FRS an opportunity to respond to such
correspondence to the extent that such correspondence relates to
Pharmaceutical Applications of the Compounds or the Other Compounds.
SECTION II. - REPRESENTATIONS AND WARRANTIES
OF CLINTEC
Clintec represents and warrants to FRS as follows:
A. Organization and Qualification. Clintec is a general partnership
duly established, validly existing and in good standing under the laws of
Illinois and has full power and lawful authority to own, lease and operate
its assets, properties and business and to carry on its business as now
being and as heretofore conducted. Clintec is not required to be qualified
or otherwise authorized to transact business as a foreign
-9-
<PAGE> 14
partnership in any jurisdiction (in the United States and outside of the
United States) in which such qualification or authorization is required by
law and in which the failure to so qualify or be authorized could have a
material adverse effect on the Contributed Assets. Clintec does not file
and is not required to file any franchise, income or other tax returns in
any jurisdiction (in the United States or outside of the United States)
other than in Illinois, based upon the ownership or use of the Contributed
Assets therein or the derivation of income therefrom.
B. Authority to Execute and Perform Agreements. Clintec has the full
legal right and power and all authority and approvals required to enter
into, execute and deliver this Agreement and the Related Agreements (as
hereinafter defined) and to perform fully its respective obligations
hereunder and thereunder, and each of this Agreement and the Related
Agreements has been or will be duly executed and delivered and is the valid
and binding obligation of Clintec enforceable in accordance with its terms.
Clintec has obtained the necessary approval of its partners, (collectively,
the "Partners"), and third parties to the transactions contemplated by this
Agreement and the Related Agreements.
C. Compliance with Laws.
(a) Clintec is not in violation of any order, judgment,
injunction, award or decree binding upon it relating to the Contributed
Assets, or which would affect the transactions contemplated hereunder.
Subject to the exception that Clintec makes no representation or warranty
in respect of the activities of FRS at its offices located at 245 First
Street, Cambridge, Massachusetts, neither Clintec nor FRS, nor their
respective officers, directors, employees or agents, is in violation of any
Environmental or Clinical Testing Law (as hereinafter defined). For
purposes of this Agreement, Environmental or Clinical Testing Law shall
mean the regulations and requirements of the Occupational Safety and Health
Administration ("OSHA"), and laws, ordinances, regulations and other
requirements respecting the clinical testing of health care products,
pollution or protection of the environment, including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment (including, without limitation,
ambient air, surface water, ground water or land), or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, human bodily
fluids,
-10-
<PAGE> 15
chemicals or industrial, toxic or hazardous substances or wastes. Clintec
and, to the best of Clintec's knowledge, FRS have never received notice of,
and there has never been, any citation, fine or penalty imposed or asserted
against Clintec, or, to the best knowledge of Clintec, FRS for any such
violation or alleged violation.
(b) Set forth on Schedule 2.3 are all of the licenses issued by
OSHA and all other licenses, permits, franchises, orders or approvals of
any federal, state, local or foreign governmental or regulatory body,
relating to the clinical testing of health care products and environmental
matters, including, without limitation, the treatment, storage, disposal,
transport or handling of human bodily fluids (collectively, "Permits") that
are material to the use of the Contributed Assets. Clintec holds all
Permits necessary to the operation and use of the Contributed Assets as
presently used. Such Permits are in full force and effect and, except as
set forth on Schedule 2.3, such Permits will be transferred to FRS as part
of the Contributed Assets. No violations are or have been recorded with any
governmental or regulatory body in respect of any Permit; and no proceeding
is pending or, to the best knowledge of Clintec, threatened to revoke or
limit any Permit.
D. Consents; No Breach. All consents, permits, authorizations and
approvals from any person pursuant to applicable law or contracts or other
agreements with Clintec, that are required in connection with the
performance of Clintec's obligations under this Agreement, or the
assignment of the Contributed Assets or the assumption of the Assumed
Liabilities are set forth on Schedule 2.4 hereto. The execution, delivery
and performance of this Agreement and the Related Agreements and the
consummation of the transactions contemplated hereby and thereby will not
(i) violate any provision of the Partnership Agreement of Clintec; (ii)
except as set forth on Schedule 2.4, violate, conflict with or result in
the breach of any of the terms or conditions of, result in modification of
the effect of, or otherwise give any other contracting party the right to
terminate, or constitute (or with notice or lapse of time or both
constitute) a default under, any material instrument, contract or other
agreement to which Clintec is a party or to which any of its assets or
properties may be bound or subject; (iii) violate any order, judgment,
injunction, award or decree of any court, arbitrator or governmental or
regulatory body against, or binding upon, Clintec or the securities,
properties, assets or business of Clintec; (iv) violate any statute, law or
regulation of any jurisdiction as such statute, law or regulation relates
to Clintec or to the securities, properties, assets or business of
-11-
<PAGE> 16
Clintec; (v) violate any Permit; (vi) except as set forth in Schedule 2.4,
require the approval or consent of any foreign, federal, state, local or
other governmental or regulatory body or the approval or consent of any
other person; or (vii) result in the creation of any Lien on the
Contributed Assets.
E. ACTIONS AND PROCEEDINGS. There are no outstanding orders,
judgments, injunctions, awards or decrees of any court, governmental or
regulatory body or arbitration tribunal against or involving Clintec which
are reasonably likely to affect or relate to any of the Contributed Assets
or the transactions contemplated hereunder. Except as set forth on Schedule
2.5, there are no actions, suits or claims or legal, administrative (other
than patent office proceedings not involving third parties) or arbitral
proceedings or, to the best knowledge of Clintec, governmental
investigations (whether or not the defense thereof or liabilities in
respect thereof are covered by insurance) pending or, to the best knowledge
of Clintec, threatened against or involving Clintec which are reasonably
likely to affect or relate to any of the Contributed Assets or the
transactions contemplated hereunder. To the best of Clintec's knowledge,
there is no fact, event or circumstance that may give rise to any suit,
action, claim, governmental investigation or proceeding based upon a
material violation of any law governing environmental matters, including,
without limitation, the treatment, storage, disposal, transport or handling
of human bodily fluids, or regulating the clinical testing of health care
products that individually or in the aggregate would have a material
adverse effect on the Contributed Assets or the transactions contemplated
hereunder.
F. CONTRACTS AND OTHER AGREEMENTS. Schedule 2.6 contains a complete
and correct list of all agreements, contracts and commitments of the
following types, written or oral, (1) to which Clintec is a party and which
relate to the Compounds or the Other Compounds, (2) to which the
Contributed Assets are bound, subject to or affected by (except to the
extent any such agreements, contracts or commitments relate solely to
Clinical Nutrition (as defined in the License Agreement), or (3) to the
best of Clintec's knowledge, to which FRS is a party:
(i) contracts and other agreements for the purchase or sale
of materials, supplies, equipment, merchandise or services;
(ii) partnership or joint venture agreements;
-12-
<PAGE> 17
(iii) contracts, options and other agreements for the
purchase of any asset, tangible or intangible calling for an aggregate
purchase price or payments in any one year of more than $25,000 in any
one case (or in the aggregate, in the case of any related series of
contracts and other agreements);
(iv) contracts and other agreements that cannot by their
terms be canceled by Clintec and any successor or assignee of Clintec
without liability, premium or penalty on no less than thirty days
notice;
(v) contracts and other agreements with customers or
suppliers for the sharing of fees, the rebating of charges or other
similar arrangements;
(vi) contracts and other agreements containing covenants of
Clintec not to compete in any line of business or with any person or
covenants of any other person not to compete with Clintec in any line
of business;
(vii) contracts, indentures, mortgages, promissory notes,
loan agreements, guaranties, security agreements, pledge agreements,
and other agreements relating to the borrowing of money or securing
any such liability;
(viii) distributorship or licensing agreements;
(ix) contracts under which Clintec will acquire or has
acquired ownership of, or license to, intangible property, including
software (other than software licensed by Clintec as an end user for
less than $25,000 and not distributed by it); or
(x) any other material contract or other agreement whether
or not made in the ordinary course of business.
There have been delivered or made available to FRS true and complete
copies of all of the written contracts and other agreements (and all
amendments, waivers or other modifications thereto) and accurate
descriptions of all oral contracts and other agreements set forth on
Schedule 2.6. Except as set forth in Schedule 2.6, all of such contracts
and other agreements are valid, subsisting, in full force and effect,
binding upon Clintec or FRS, as applicable, and to the best knowledge of
Clintec, binding upon the other parties thereto in accordance with their
terms, and Clintec or FRS, as applicable, has paid in full or
-13-
<PAGE> 18
accrued all amounts now due thereunder and has satisfied in full or
provided for all of its liabilities and obligations thereunder which are
presently required to be satisfied or provided for, and is not in default
under any of them, nor, to the best knowledge of Clintec, is any other
party to any such contract or other agreement in default thereunder, nor
does any condition exist that with notice or lapse of time or both would
constitute a default thereunder.
G. INTANGIBLE PROPERTY. (a) Except as set forth on Schedule 2.7,
Clintec has exclusive ownership of all patents, trademarks and trade names;
all applications to register any of the foregoing; all trade secrets,
inventions, customer lists, manufacturing or other processes, designs, data
compilations, research results and other confidential information and
legally protected proprietary rights (collectively, "Proprietary Rights")
that constitute Contributed Assets and Clintec has the right to use, free
and clear of claims or rights of others, all such Proprietary Rights.
(b) Clintec has not received any notices claiming infringement by
Clintec of any Proprietary Rights of others, and, to the best knowledge of
Clintec none of the present activities of Clintec or its products or assets
infringe on any Proprietary Rights of others, including unauthorized use of
any confidential information or trade secrets of any person, including
without limitation any former employer of any past or present employees of
Clintec.
(c) All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights (or applications
therefor) which constitute Contributed Assets are listed in Schedule 2.7
("Registered Rights"). All of the Registered Rights have been duly
registered in, filed in or issued by the United States Patent and Trademark
Office, the United States Register of Copyrights, or the corresponding
offices of other jurisdictions as identified on said Schedule, and have
been properly maintained and renewed in accordance with all applicable
provisions of law and administrative regulations in the United States and,
to the best of Clintec's knowledge, in each such other jurisdiction,
provided, however, that Clintec makes no representation or warranty as to
the validity or enforceability of any issued patent or trademark.
(d) Clintec has disclosed or made available confidential
information and trade secrets included in the Proprietary Rights only to
(i) employees of Clintec who required
-14-
<PAGE> 19
such disclosure or access for Clintec's business purposes and who, to the
best of Clintec's knowledge, have exercised the same degree of care to
preserve the confidentiality of such information and trade secrets as they
have to preserve the confidentiality of other confidential information and
trade secrets of Clintec, and (ii) consultants or other third parties
(other than employees of FRS) who have executed written confidentiality
agreements governing their use of such confidential information and trade
secrets. Clintec is not aware of any unauthorized disclosure of any such
confidential information or trade secrets by any of its employees or of any
breach of any obligation of any such consultants or other third parties
under the confidentiality agreements referred to above.
(e) To the best of Clintec's knowledge, none of the activities of
Clintec's employees relating to the Proprietary Rights violate any
agreements which any such employees have with former employers.
H. TITLE TO ASSETS; LIENS. Clintec owns outright and has good title to
all the Contributed Assets, free and clear of any Liens, except for liens
or other encumbrances securing the claims of materialmen, carriers,
landlords and like persons or attorneys' liens, all of which are not yet
due and payable ("Permitted Liens"). Upon delivery of and payment for the
Contributed Assets as herein provided, FRS will acquire all of Clintec's
right, title and interest thereto, free and clear of any Liens. The
Contributed Assets constitute all assets of Clintec which relate to the
Compounds or the Other Compounds.
I. INSURANCE. Clintec is covered by all policies or binders of
liability, product liability, clinical trial and other insurance that are
customary and reasonable in relation to the Contributed Assets. Such
policies and binders are in full force and effect, all premiums with
respect thereto are currently paid and are in conformity with the
requirements of all contracts to which Clintec is a party and are valid and
enforceable in accordance with their terms. Neither Clintec nor the
Partners is in default with respect to any provision contained in any such
policy or binder nor has Clintec or the Partners failed to give any notice
or present any claim under any such policy or binder in due and timely
fashion. There are no outstanding unpaid claims under any such policy or
binder. Neither Clintec nor the Partners has received notice of
cancellation or non-renewal of any such policy or binder.
-15-
<PAGE> 20
J. BROKERAGE. No broker, finder, agent or similar intermediary has
acted on behalf of Clintec, the Partners or their respective affiliates in
connection with this Agreement or the transactions contemplated hereby, and
there are no brokerage commissions, finders fees or similar fees or
commissions payable in connection therewith based on any agreement,
arrangement or understanding with Clintec, the Partners or their respective
affiliates, or any action taken by them.
K. FULL DISCLOSURE. No representation or warranty of Clintec contained
in this Agreement, including the schedules attached hereto, contains an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements made, in
the context in which made, not false or misleading.
L. CONTRACT DE COLLABORATION. Clintec has the authority to transfer
and assign to FRS, without the consent (written or otherwise) by the other
parties thereto, and will transfer and assign to FRS at the Closing, all of
Clintec's rights and interests in the following research contracts which
are described on Schedule 1.1(ii), section 3:
(i) Contract de Collaboration between Clintec Technologies S.A.
and L'Universite, Joseph Fourier, and
(ii) Contract de Collaboration between Clintec Technologies S.A.
and L'Institut National de la Recherche Agronomique dated October 25, 1993.
M. INVESTMENT REPRESENTATIONS.
(a) Clintec has not relied upon the advice of a "purchaser
representative," as defined in Regulation D under the Securities Act of
1933, as amended (the "Securities Act") in evaluating the risks and merits
of the Common Shares and Preferred Shares (collectively, the "Shares").
(b) Clintec has had an opportunity to ask questions of and receive
answers from FRS, or a person or persons acting on FRS's behalf, concerning
the terms and conditions of the Shares.
(c) Clintec understands that the Shares have not been registered
under the Securities Act or under the securities laws of any state or other
jurisdiction in reliance upon exemptions for private offerings, and that,
while FRS may in the future register the Shares, except as set forth in the
Registration Rights Agreement of even date herewith between FRS, Clintec
and
-16-
<PAGE> 21
the other parties named therein ("Registration Rights Agreement") it is
under no obligation to do so, and Clintec further understands that Clintec
is acquiring the Shares without being furnished any offering literature or
prospectus.
(d) Clintec represents that the Shares are being acquired solely
for its own account, for investment and not with a view to or for the
resale, distribution, subdivision, or fractionalization thereof; Clintec
has no present plans to enter into any contract, undertaking, agreement, or
arrangement relating thereto.
(e) Clintec acknowledges and is aware that there are substantial
restrictions on the transferability of the Shares; the Shares cannot be
resold unless the Shares are registered under the Securities Act and any
applicable securities law of any state or other jurisdiction, or an
exemption from registration is available; except as set forth in the
Registration Rights Agreement, Clintec has no rights to require that the
Shares be registered under the Securities Act; and there currently is no
and there may never be, a public market for the Shares.
(f) Clintec has such knowledge and experience in financial and
business matters that it is capable of evaluating the relative risks and
merits of the Shares.
(g) Clintec is a general partnership organized and with its
principal place of business in the state of Illinois.
SECTION III. - CONDITIONS PRECEDENT TO
THE OBLIGATION OF FRS TO CLOSE
The obligation of FRS to enter into and complete the Closing is
subject, at the option of FRS acting in accordance with the provisions of
this Agreement with respect to termination hereof, to the fulfillment of
the following conditions, any one or more of which may be waived by it:
A. REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of Clintec contained in this Agreement shall be true on and as
of the Closing Date with the same force and effect as though made on and as
of the Closing Date. Clintec shall have performed and complied with all
covenants and agreements required by this Agreement to be performed or
complied with by Clintec on or prior to the Closing Date. Clintec shall
have delivered to FRS a certificate, dated
-17-
<PAGE> 22
the Closing Date and signed by an officer of Clintec to the foregoing
effect and stating that all conditions to FRS's obligations hereunder have
been satisfied.
B. THIRD PARTY CONSENTS. FRS shall have received evidence of the
receipt of all authorizations, consents and permits of others required to
permit the consummation by FRS and Clintec of the transactions contemplated
by this Agreement, including but not limited to, all consents set forth on
Schedule 2.4, except to the extent waived by FRS in writing.
C. BAXTER AGREEMENT WITH PACE. Baxter shall have executed and
delivered a waiver of certain rights of Baxter under its contract with Gary
Pace, dated August 22, 1989, (the "Waiver") in the form agreed by the
parties.
D. NON-SOLICITATION AGREEMENT. Baxter shall have executed and
delivered the Employee Non-Solicitation Agreement between Baxter and FRS,
dated of even date herewith.
E. LICENSE AGREEMENT. Clintec shall have executed and delivered the
License Agreement between Clintec and FRS, dated of even date herewith (the
"License Agreement").
F. SERVICES LETTER. Baxter shall have executed and delivered the
letter relating to the provision by Baxter of certain services, dated of
even date herewith, together with the Non-Solicitation Agreement and the
Waiver (together with the License Agreement and the Letter Agreement
described in Section 3.7 the "Related Agreements").
G. LETTER AGREEMENT. The Letter Agreements, dated June 15, 1993 and
December 22, 1993, respectively, between FRS and Clintec shall be
terminated and of no further force and effect.
H. OPINION OF COUNSEL TO CLINTEC. FRS shall have received the opinion
of Bell, Boyd & Lloyd, counsel to Clintec, dated the Closing Date,
addressed to FRS, and in the form agreed by the parties.
I. LITIGATION. No action, suit or proceeding shall have been
instituted before any court or governmental or regulatory body, or
instituted or threatened by any governmental or regulatory body, to
restrain, modify or prevent the carrying out of the transactions
contemplated hereby, or to seek damages or a discovery order in connection
with such transactions, or that has or may have, in the reasonable opinion
of FRS, a materially adverse effect on the Contributed Assets.
-18-
<PAGE> 23
J. DELIVERY OF INSTRUMENTS OF TRANSFER. Clintec shall have delivered
or caused to be delivered to FRS instruments of transfer in conformity with
Section 1.4 above.
K. STOCK PURCHASE AGREEMENT. The transactions contemplated by the
Series A Convertible Preferred Stock Purchase Agreement of even date
herewith among The Venture Capital Fund of New England III, L.P., Advent
International Investors II Limited Partnership, Rovent II Limited
Partnership, Global Private Equity II Limited Partnership, Paal C. Gisholt,
Charles Hsu, Sprout Capital VI, L.P., DLJ Capital Corporation Baxter,
Clinical Nutrition Holdings, Inc. ("CNHI") and FRS (the "Stock Purchase
Agreement") shall have been consummated, and the other Financing Documents
(as defined in the Stock Purchase Agreement) shall have been executed and
delivered by the parties thereto other than FRS (except to the extent
waived in writing by the parties thereto).
SECTION IV. - CONDITIONS PRECEDENT
TO THE OBLIGATION OF CLINTEC TO CLOSE
The obligation of Clintec to enter into and complete the Closing is
subject, at the option of Clintec acting in accordance with the provisions
of this Agreement with respect to termination hereof, to the fulfillment of
the following conditions, any one or more of which may be waived:
A. DELIVERY OF ASSUMPTION AGREEMENT. FRS shall have delivered or
caused to be delivered to Clintec an agreement for assumption of the
Assumed Liabilities by FRS containing provisions (not inconsistent with the
provisions hereof) which are usual and customary for assuming the
liabilities involved.
B. LITIGATION. No action, suit or proceeding shall have been
instituted before any court or governmental or regulatory body, or
instituted or threatened by any governmental or regulatory body, to
restrain, modify or prevent the carrying out of the transactions
contemplated hereby, and such action, suit or proceeding shall not have
been stayed.
C. LICENSE. FRS shall have executed and delivered the License
Agreement.
D. STOCK PURCHASE AGREEMENT. The transactions contemplated by the
Stock Purchase Agreement shall have been consummated, and the other
Financing Documents shall have been executed and delivered by the parties
thereto other than Clintec, Baxter and CNHI (except to the extent waived in
writing by the parties thereto).
-19-
<PAGE> 24
SECTION V. - NON-COMPETITION AND EMPLOYEE NON-SOLICITATION
A. NO COMPETING BUSINESS. Clintec hereby agrees that during the period
commencing on the Closing Date and ending on the fifth anniversary of the
Closing Date (the "Restricted Period"), Clintec will not directly or
indirectly own, manage, operate, control, invest or acquire an interest in,
or otherwise engage or participate in (whether as a proprietor, partner,
stockholder, joint venturer, investor or other participant) in the
development or sale of (i) the Compounds or the Other Compounds, except for
Clinical Nutrition Products (as defined in the License Agreement), in the
field of Nutrition (as defined in the License Agreement), or as otherwise
expressly permitted by the License Agreement, or (ii) products or compounds
that have as their principal purpose Pharmaceutical Applications (as
defined in the License Agreement) for the purpose of manipulating
glutathione levels for human therapeutic, prophylactic or other medical
purposes anywhere in the world, or grant any license to any third party to
do any of the foregoing, except as expressly permitted by the License
Agreement (any such development or sale being herein referred to as a
"Restricted Business"). It is anticipated that a number of products and
compounds may be both a Clinical Nutrition Product and have Pharmaceutical
Applications and this Section 5.1 shall not apply to the development or
sale of such products or compounds. This section only applies to Clintec
and in no way places any restrictions on any of Clintec's general partners
or their affiliates, subsidiaries, and related companies.
B. CERTAIN ACQUISITIONS OF COMPETING BUSINESSES. Notwithstanding the
definition of Restricted Business contained in Section 5.1, the term
Restricted Business shall not include the following business activities:
(a) The acquisition and ownership of not more than 5% of the
outstanding shares of any class of stock or other securities of any
entity which engages in a Restricted Business (a "Competing Business")
if such shares or securities are traded on a national securities
exchange or in the over-the-counter market.
(b) The acquisition and ownership of the outstanding shares of
any class of stock or other securities or assets and properties of a
Competing Business provided that the total fair market value of all
assets and properties of the Competing Business (i) which are
acquired, in the case of an asset purchase, or which are among the
assets and properties
-20-
<PAGE> 25
of such Competing Business, in the case of a stock purchase, and (ii)
which are used by the Competing Business in the Restricted Business,
does not exceed the greater of (A) 5% of the total fair market value
of all stock or other ownership interests or assets or properties of
such Competing Business acquired in such transaction, or (B)
$1,000,000; and provided further that upon acquiring control of such
Competing Business or upon acquiring the assets and properties of such
Competing Business which are used in the Restricted Business, as the
case may be, Clintec shall offer to sell the assets and properties of
the Competing Business which are used in the Restricted Business (the
"Assets") to FRS on the following terms and conditions: Clintec shall
offer the Assets to FRS by giving to FRS prompt written notice of such
offer which offer shall identify, in reasonable detail, the Assets,
the nature and type of transaction which Clintec desires to effect
with respect thereto and, if applicable, any indications of interest
in or offers for the Assets which Clintec has received (the "Notice").
During the 60-day period after receipt of the Notice (the "Negotiation
Period"), FRS shall have the right to negotiate with Clintec, and if
FRS elects to do so based upon such negotiations, to make a written
offer or offers to acquire all of the Assets. During the Negotiation
Period, Clintec agrees to negotiate with FRS in good faith, to make
available such information as FRS may reasonably request with respect
to the Assets (subject to receipt of a customary confidentiality
agreement from FRS) and to respond promptly to any offer made by FRS.
In the event Clintec accepts FRS' offer for the Assets, Clintec and
FRS agree to enter into a mutually acceptable definitive agreement
with respect thereto and to complete the acquisition of the Assets
within 60 days of Clintec's acceptance of FRS' offer (or such longer
period as may be required by regulatory constraints). In the event
that during the Negotiation Period FRS does not make an offer, or
makes an offer or offers which Clintec rejects, Clintec is free to (1)
retain the Assets and operate the business associated therewith or (2)
sell, assign or otherwise transfer the Assets after the expiration of
the Negotiation Period to an unrelated third party on terms which are
no less favorable, considered as a whole, to Clintec than the terms of
FRS' final bona fide offer.
-21-
<PAGE> 26
C. NON-SOLICITATION OF FRS EMPLOYEES. Clintec hereby agrees that
during the Restricted Period it will not (i) directly or indirectly
recruit, solicit or otherwise induce or influence any technical,
professional or managerial employee of FRS to discontinue such employment
with FRS, or (ii) willfully induce any person or firm that performs
consulting services for both Clintec and FRS at the time of the Closing to
discontinue the provision of such services to FRS. Clintec also agrees that
for a period of five (5) years from the Closing Date, it will not hire any
employee of FRS. Nothing herein shall prevent either party from (a) hiring
any employee of the other who was discharged by the other, or (b) hiring
any employee of the other who quit that employment without inducement by
the hiring party.
D. No Disclosure of Proprietary Information.
(a) Clintec hereby agrees that, except as expressly permitted by
the Clinical Nutrition License Agreement, it will not directly or
indirectly disclose to anyone, or use or otherwise exploit for its own
benefit or for the benefit of anyone else, any trade secrets which are
being contributed hereunder as Contributed Assets for as long as they
remain trade secrets.
(b) Clintec hereby agrees that, except as expressly permitted by
the Clinical Nutrition License Agreement, during the Restricted Period it
will not directly or indirectly disclose to anyone, or use or otherwise
exploit for its own benefit or for the benefit of anyone else, any
confidential information which is being contributed hereunder as
Contributed Assets.
(c) Clintec shall use reasonable efforts to require its employees
to abide by the obligations of Sections 5.1, 5.2, 5.3 and 5.4.
E. Remedies. Clintec agrees that (i) if it breaches any provision of
this Section 5, the damage to FRS will be substantial, although difficult
to ascertain, and money damages will not afford FRS an adequate remedy, and
(ii) if it is in breach of this Section 5, or threatens a breach of this
Section 5, FRS shall be entitled, in addition to all other rights and
remedies as may be provided by law and this Agreement, to specific
performance, injunctive and other equitable relief to prevent or restrain a
breach of this Section 5.
-22-
<PAGE> 27
SECTION VI. - INDEMNIFICATION
A. Survival. Notwithstanding any right of any party to fully
investigate the affairs of the other party, each party has the right to
rely fully upon the representations, warranties, covenants and agreements
of each other party in this Agreement or in any Schedule, certificate
(except for certificates delivered by officers of FRS) or financial
statement delivered by any party pursuant hereto. All such representations,
warranties, covenants and agreements shall survive the execution and
delivery hereof and the Closing hereunder and be indemnified in accordance
with this Section 6, and, except as otherwise specifically provided in this
Agreement, shall thereafter:
(a) survive forever, with respect to (i) any claim based
upon, arising out of or otherwise in respect of any inaccuracy in, or
any breach of, any representation or warranty of Clintec contained in
Sections 2.2, 2.4, 2.8 and 2.13 hereof or covenant of Clintec
contained in Sections 1.2, 1.5, and 1.10 (a "Clause (i) Claim") (ii)
any Tax Claim or (iii) any Clinical Testing Claim; and
(b) terminate and expire on the second anniversary of the
Closing Date with respect to any General Claim or Clintec Claim (as
such Terms are hereinafter defined) or on the fifth anniversary of the
Closing Date with respect to a Non-Competition/Non-Solicitation Claim
based upon, arising out of or otherwise in respect of any fact,
circumstance, action or proceeding of which the party asserting such
claim shall have given no notice on or prior to the second anniversary
or, in the case of a Non-Competition/Non-Solicitation Claim, the fifth
anniversary of the Closing Date to the party against which such
General Claim, Clintec Claim or Non-Competition/Non-Solicitation Claim
is asserted; provided, however, once notice of any such claim has been
given hereunder, additional claims based upon, arising out of or
otherwise in respect of such fact, circumstance, action or proceeding
upon which the original claim arose may be made at any time prior to
the final resolution of such claim (by means of a final,
non-appealable judgment of a court of competent jurisdiction, a
binding arbitration decision or a settlement approved by the parties
involved) even if such resolution occurs after the second anniversary
or, in the case of a Non-Competition/Non-Solicitation Claim, the fifth
anniversary of the Closing Date, such date being deemed to have been
extended to the date of such final resolution.
-23-
<PAGE> 28
As used in this Section 6, the following terms have the following meanings:
(i) "General Claim" means any claim (other than a Clause (i)
Claim, a Tax Claim, Clinical Testing Claim or
Non-Competition/Non-Solicitation Claim) based upon, arising out of or
otherwise in respect of any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of Clintec contained
in this Agreement.
(ii) "Tax Claim" means any claim based upon, arising out of
or otherwise in respect of (A) issues raised on audit by Tax
authorities with respect to Clintec's business, (B) any inaccuracy in
or any breach of any representation, warranty, covenant or agreement
of Clintec contained in this Agreement related to Taxes or (C) any
other Tax liabilities of Clintec.
(iii) "Clintec Claim" means any claim based upon, arising
out of or otherwise in respect of any breach of any covenant or
agreement of FRS contained in this Agreement.
(iv) "Non-Competition/Non-Solicitation Claim" means any claim
based upon, arising out of or otherwise in respect of any breach of
any covenant of Clintec contained in Section 5.
(v) "FRS Claim" means any clause (i) Claim, Tax Claim,
Non-Competition/Non-Solicitation Claim, Clinical Testing Claim or
General Claim.
(vi) "Clinical Testing Claim" any claim based upon, arising
out of or otherwise in respect of any liability or obligation of FRS
arising out of, relating to, based upon or otherwise in respect of (i)
violations of any Environmental or Clinical Testing Law prior to the
Closing Date, (ii) products liability for occurrences prior to the
Closing Date or (iii) clinical testing of the Compounds or Other
Compounds prior to the Closing, except for liabilities arising out of
violations of laws other than Environmental or Clinical Testing Laws
or liabilities arising out of labor or employment matters.
B. Obligation of Clintec to Indemnify. Subject to the limitations set
forth below and in Sections 6.5 and 6.6 hereof and to the termination
provisions set forth in Section 6.1, Clintec agrees to indemnify, defend
and hold harmless FRS (and its directors, officers, employees, affiliates
and assigns) from and against all losses, liabilities, damages,
deficiencies, costs
-24-
<PAGE> 29
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
or expenses (including interest and penalties imposed or assessed by any
judicial or administrative body and reasonable attorneys fees) ("Losses")
based upon, arising out of or otherwise in respect of any FRS Claim.
Clintec shall have no obligation to indemnify FRS unless the total of all
FRS Claims for indemnification under this Section 6.2 exceeds $******* in
the aggregate (the "FRS Threshold"), whereupon the full amount of such
claims shall be recoverable in accordance with the terms hereof. In no
event shall the aggregate amount payable by Clintec pursuant to this
Section 6.2 exceed ********** (the "FRS Cap"). Notwithstanding the
foregoing, the FRS Threshold and the FRS Cap shall not apply to
Non-Competition/Non-Solicitation Claims, and claims based on the failure to
perform the covenants contained in Sections 1.2, 1.4, 1.5, 1.10, 7.9 and
7.10.
C. Obligation of FRS to Indemnify. Subject to the limitations set
forth below and in Sections 6.5 and 6.6 hereof and to the termination
provisions set forth in Section 6.1, FRS agrees to indemnify, defend and
hold harmless Clintec from and against any Losses based upon, arising out
of or otherwise in respect of any Clintec Claim. FRS shall have no
obligation to indemnify Clintec unless the total of all Clintec Claims for
indemnification under this Section 6.3 exceeds $******* (the "Clintec
Threshold") in the aggregate, whereupon the full amount of such claims
shall be recoverable in accordance with the terms hereof. In no event shall
the aggregate amount payable by FRS pursuant to this Section 6.3 exceed
$*********(the "Clintec Cap"). Notwithstanding the foregoing, the Clintec
Threshold and the Clintec Cap shall not apply to claims based on the
failure to perform the covenants in Sections 1.2, 1.9 and 7.9.
D. NOTICE AND OPPORTUNITY TO DEFEND.
1. Notice of Asserted Liability. Promptly after receipt by any
party hereto (the "Indemnitee") of notice of any demand, claim or
circumstances which, with the lapse of time, would give rise to a claim or
the commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss, the
Indemnitee shall give notice thereof (the "Claims Notice") to any other
party or parties) obligated to provide indemnification pursuant to Sections
6.2 or 6.3 hereof (the "Indemnifying Party"). The Claims Notice shall
describe the Asserted Liability in reasonable detail, and shall indicate
the amount (estimated, if necessary) of the Loss that has been or may be
suffered by the Indemnitee.
-25-
<PAGE> 30
2. Opportunity to Defend. The Indemnifying Party may elect to
compromise or defend, and control the defense of, at its own expense and by
counsel reasonably satisfactory to the Indemnitee, any Asserted Liability,
provided that the Indemnitee shall have no liability under any compromise
or settlement agreed to by the Indemnifying Party which it has not approved
in writing. If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within 30 days (or sooner, if the nature of
the Asserted Liability so requires) notify the Indemnitee of its intent to
do so, and the Indemnitee shall cooperate upon the request and at the
expense of the Indemnifying Party, in the compromise of, or defense
against, such Asserted Liability. If the Indemnifying Party elects not to
compromise or defend the Asserted Liability, or fails to notify the
Indemnitee of its election as herein provided, the Indemnitee may pay,
compromise or defend such Asserted Liability and receive full
indemnification for its Losses as provided in Sections 6.2 and 6.3 hereof.
In any event, the Indemnitee and the Indemnifying Party may participate, at
their own expense, in the defense of such Asserted Liability by the
Indemnifying Party or the Indemnitee, respectively. If the Indemnifying
Party chooses to defend any claim, the Indemnitee shall make available to
the Indemnifying Party any books, records or other documents within its
control that are reasonably requested for such defense and shall otherwise
cooperate with the Indemnifying Party, in which event the Indemnitee shall
be reimbursed for its out-of-pocket expense.
E. OTHER BENEFITS. In determining the amount of any Loss, there shall
be taken into account any tax benefit, insurance proceeds or other similar
recovery or offset realized, directly or indirectly, by the Indemnitee.
F. LIMITATION ON REPRESENTATIONS AND WARRANTIES. In the event that, as
of the Closing Date, an Indemnitee (or, in the case of FRS, if all of the
purchasers other than Clintec or its affiliates, under the Stock Purchase
Agreement (the "Purchasers")) has(ve) obtained actual knowledge of a breach
of any representation, warranty or covenant made in this Agreement and
has(ve) had a reasonably sufficient time in the circumstances to recognize
and investigate the same, (A) such Indemnitee shall give the Claims Notice
before the Closing (in the event FRS is the Indemnitee, the Purchasers
shall give such Claims Notice on its behalf), (B) the parties shall
thereupon negotiate in good faith to resolve such breach and/or to make
appropriate adjustment to the terms of this Agreement and any related
agreement, and (C) no indemnification shall be available under this Section
6 with respect to any breach as to which the Indemnitee has not complied
with clause (A) of this subsection.
G. EXCLUSION. The provisions of this Section 6 shall not apply to
Sections 1.3(b)-(i), Section 1.7 or Section 7.4.
-26-
<PAGE> 31
SECTION VII. - MISCELLANEOUS
A. PUBLICITY. No publicity release or announcement concerning this
Agreement or the transactions contemplated hereby shall be made without
advance approval thereof by Clintec and FRS.
B. NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be
deemed given when so delivered personally, telegraphed, telexed or sent by
facsimile transmission or, if mailed, two days after the date of deposit in
the United States mails, as follows:
(i) if to FRS, to:
Free Radical Sciences, Inc.
245 First Street
14th Floor
Cambridge, Massachusetts 02142
Attention: Chief Executive Officer
Facsimile: (617) 374-1202
with a copy to:
Palmer & Dodge
One Beacon Street
Boston, MA 02108
Attention: Michael Lytton, Esq.
Facsimile: (617) 227-4420
(ii) if to Clintec:
Clintec Nutrition Company
Three Parkway North
Deerfield, Illinois 60015
Attention: Chief Executive Officer
Facsimile: (708) 317-3182
with a copy to:
Bell, Boyd & Lloyd
Three First National Plaza, 70 W. Madison Street
Chicago, IL 60602
Attention: Paul Strasen, Esq.,
Facsimile: (312) 372-2098
-27-
<PAGE> 32
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices
hereunder.
C. ENTIRE AGREEMENT. This Agreement (including the Schedules), the
Related Agreements and all other documents executed in connection with the
consummation of the transactions contemplated herein contain the entire
agreement among the parties with respect to the purchase of the Shares and
the Contributed Assets and related transactions, and supersedes all prior
agreements, written or oral, with respect thereto. Other than the
purchasers named in the Stock Purchase Agreement, this Agreement is for the
sole benefit of the parties hereto and nothing herein expressed shall give
or be construed to give any person or entity, other than the parties hereto
and the purchasers named in the Stock Purchase Agreement, any legal or
equitable rights hereunder.
D. AUSTRALIAN INSURANCE. Clintec hereby covenants and agrees to
maintain, at its sole expense, in full force and effect the clinical trial
insurance in effect on the Effective Date for the Australian Co-trimoxazole
study (the "Study") through June 30, 1994 (the "Roll-Over Date"). At the
election of FRS, by written notice to Clintec ten days prior to the
Roll-Over Date, Clintec shall renew and maintain such policy in full force
and effect until December 31, 1994. Notwithstanding any provision hereof to
the contrary, FRS's only responsibilities and liabilities with respect to
the Study shall be (i) payment to Clintec of the renewal premium, up to a
maximum of $1,000, on the Roll-Over Date and (ii) payment of any insurance
deductible for third-party claims made after the Closing Date, up to a
maximum of $250,000.
E. CONFIDENTIALITY LETTER. The Letter Agreement, effective as of
January 27, 1994, between Advent International Corporation, Clintec and FRS
shall automatically terminate and be of no further force and effect upon
the Closing.
F. WAIVERS AND AMENDMENTS; NON-CONTRACTUAL REMEDIES; PRESERVATION OF
REMEDIES. This Agreement may be amended, superseded, canceled, renewed or
extended, and the terms hereof may be waived, only by a written instrument
signed by the parties or, in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall
any waiver on the part of any party of any such right, power or privilege,
nor any single or partial exercise of any such right, power or privilege,
preclude any further exercise thereof or the
-28-
<PAGE> 33
exercise of any other such right, power or privilege. The rights and
remedies herein provided are cumulative and are not exclusive of any rights
or remedies that any party may otherwise have at law or in equity. The
rights and remedies of any party based upon, arising out of or otherwise in
respect of any inaccuracy in or breach of any representation, warranty,
covenant or agreement contained in this Agreement shall in no way be
limited by the fact that the act, omission, occurrence or other state of
facts upon which any claim of any such inaccuracy or breach is based may
also be the subject matter of any other representation, warranty, covenant
or agreement contained in this Agreement (or in any other agreement between
the parties) as to which there is not inaccuracy or breach.
G. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of The Commonwealth of Massachusetts, without
regard to the conflicts of law rules of The Commonwealth of Massachusetts.
H. BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
legal representatives. This Agreement is not assignable except by operation
of law or by FRS to any of its affiliates, except that (i) Clintec and FRS
may assign their respective rights under Sections 1.3(b)-(i) and (ii)
Clintec may assign any of its rights hereunder to its partners or their
affiliates (but such assignment shall not release Clintec from its
obligations hereunder). In the event of a sale (which shall be deemed not
to include a license) of a substantial portion of the Technology related to
the AIDS Drugs, FRS shall obtain the agreement of the Transferee of such
Technology to be bound by the provisions of Section 1.3(b)-(i) hereof, as
such provisions would be modified by substituting the name of the
Transferee for FRS therein, and upon obtaining such agreement FRS shall be
released from its obligations under Section 1.3(b)-(i) to the extent such
obligations relate to the sales of AIDS Drugs by the Transferee.
I. EXPENSES. Except as otherwise provided in this Agreement, all costs
and expenses incurred in connection with this Agreement shall be paid by
the party incurring such cost or expense; provided, that, Clintec shall pay
the legal fees and expenses of Palmer & Dodge incurred in connection with
negotiating, drafting and consummation of the transactions contemplated by
this Agreement, up to a maximum amount of $25,000.
J. TAXES. Clintec shall be responsible for the payment of any sales,
transfer, documentary or similar tax due as a result of the transactions
contemplated by this Agreement.
-29-
<PAGE> 34
K. VARIATIONS IN PRONOUNS. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the
context may require.
L. COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute
one and the same instrument. Each counterpart may consist of a number of
copies hereof each signed by less than all, but together signed by all of
the parties hereto.
M. EXHIBITS AND SCHEDULES. The Exhibits and Schedules are a part of
this Agreement as if fully set forth herein. All references herein to
Sections, subsections, clauses, Exhibits and Schedules shall be deemed
references to such parts of this Agreement, unless the context shall
otherwise require.
N. HEADINGS. The headings in this Agreement are for reference only,
and shall not affect the interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement under
seal as of the date first above written.
Attest: FREE RADICAL SCIENCES, INC.
_________________________ By: /s/ Gary W. Pace
Title: -----------------------------
Name: Gary W. Pace
Title: President
Attest: CLINTEC NUTRITION COMPANY
_________________________ By: /s/ T.C. Rojahn
Title: -----------------------------
Name: T.C. Rojahn
Title: Vice President
-30-
<PAGE> 1
EXHIBIT 10.3
NON-SOLICITATION AGREEMENT
--------------------------
AGREEMENT dated as of April 5, 1995, by and among Baxter
Healthcare Corporation, a Delaware corporation ("Baxter"), and Free
Radical Sciences, Inc., a Delaware corporation ("FRS").
WHEREAS, FRS and Clintec Nutrition Company ("Clintec"), an
Illinois general partnership, have entered into a Contribution
Agreement dated as of the date hereof (the "Contribution Agreement")
whereby Clintec is contributing certain assets to FRS; and
WHEREAS, Baxter is a General Partner of Clintec; and
WHEREAS, in order to protect the assets to be contributed to FRS
under the terms of the Contribution Agreement, FRS and Clintec have
agreed that the obligations of FRS to consummate the transactions
contemplated by the Contribution Agreement are subject to the
condition, among others, that FRS and Baxter shall have entered into
this Agreement; and
WHEREAS, in order to induce FRS to consummate the transactions
contemplated by the Contribution Agreement, Baxter is willing to enter
into this Agreement;
NOW THEREFORE, in consideration of the promises and the covenants
set forth herein, the parties agree as follows:
1. NO SOLICITATION. Baxter and FRS hereby agree that for a period
of five (5) years from the date hereof, Baxter and its subsidiaries
will not, directly or indirectly, recruit, solicit or otherwise induce
any technical, professional or managerial employee of FRS to
discontinue such employment with FRS. Baxter and FRS further agree that
for a period of five (5) years from the date of this Agreement, Baxter
and its subsidiaries and divisions will not hire any employee of FRS.
Notwithstanding the foregoing, nothing herein shall prevent Baxter and
its subsidiaries from (i) hiring any employee of FRS who was discharged
by FRS, or (ii) hiring any employee of FRS who quit that employment
without inducement by Baxter and its subsidiaries.
2. REMEDIES. The parties to this Agreement agree that (i) if
Baxter breaches any provision of this Agreement, the damage to FRS will
be substantial, although difficult to ascertain, and money damages will
not afford FRS an adequate remedy, and (ii) if Baxter is in breach of
this Agreement, or threatens a breach of this Agreement, FRS shall be
entitled, in addition to all other rights and remedies as may be
provided by law, to specific
-1-
<PAGE> 2
performance, injunctive and other equitable relief to prevent, restrain
or remedy a breach of this Agreement.
3. WAIVERS. FRS shall not be deemed, as a consequence of any act,
delay, failure, omission, forbearance or other indulgences granted from
time to time or for any other reason: (i) to have waived, or to be
estopped from exercising, any of its rights or remedies under this
Agreement provided that such rights or remedies are enforced by legal
action within two (2) years after the act, delay, failure, omission,
forbearance or other indulgence, or (ii) to have modified, changed,
amended, terminated, rescinded, or superseded any of the terms of this
Agreement or any of the other similar agreements with Baxter, unless
such waiver, modification, amendment, change, termination, rescission,
or supersession is expressed in writing and signed by a duly authorized
officer of FRS. No single or partial exercise by FRS of any right or
remedy under this Agreement will preclude other or further exercise
thereof or preclude the exercise of any other right or remedy, and a
waiver expressly made in writing on one occasion will be effective only
in that specific instance and only for the precise purpose for which it
is given, and will not be construed as a consent to or a waiver of any
right or remedy on any future occasion or a waiver of any right or
remedy against Baxter under similar agreements with FRS. No notice to
or demand on Baxter in any instance will entitle Baxter to any other or
future notice or demand in similar or other circumstances.
4. SUCCESSORS & ASSIGNS. This Agreement, shall be binding upon
Baxter and its subsidiaries and FRS and their respective successors
and assigns. This Agreement shall inure to the benefit of the parties
hereto and their respective successors and assigns.
5. NOTICES. Notices or demands relating to this Agreement
shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed as follows, or telexed, telecopied or
delivered by overnight or other courier:
If to Baxter: Baxter Healthcare Corporation
One Baxter Parkway
Deerfield, IL 60015
Attn: General Counsel
Facsimile: (708) 948-4266
with a copy to: Bell, Boyd & Lloyd
Three First National Plaza
70 West Madison Street
Chicago, IL 60602
Attn: Paul Strasen, Esq.
Facsimile: (312) 372-2098
-2-
<PAGE> 3
If to FRS: Free Radical Sciences, Inc.
245 First Street
14th Floor
Cambridge, MA 02142
Attention: Chief Executive Officer
Facsimile: (617) 374-1202
with a copy to: Palmer & Dodge
One Beacon Street
Boston, MA 02108
Attention: Michael Lytton, Esq.
Facsimile: (617) 227-4420
6. COUNTERPARTS. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall
together constitute one and the same instrument. Each counterpart may
consist of a number of copies hereof, each signed by less than all, but
together singed by all of the parties hereto.
7. HEADINGS. The headings in this Agreement are for reference
only, and shall not affect the interpretation of this Agreement.
8. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of
Massachusetts, without regard to the conflicts of law rules of the
Commonwealth of Massachusetts of any other jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
BAXTER HEALTHCARE CORPORATION
By: /s/ David N. Jonas
-------------------------------
Name: David N. Jonas
Title: Vice President, Strategic
Initiatives
FREE RADICAL SCIENCES, INC.
By: /s/ Gary W. Pace
-------------------------------
Name: Gary W. Pace
Title:
-3-
<PAGE> 1
EXHIBIT 10.4
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
LICENSE AGREEMENT
THIS AGREEMENT, effective this 5th day of April, 1994 ("Effective
Date"), is entered into by and between Clintec Nutrition Company, an
Illinois partnership organized under the laws of the State of Illinois,
having offices at Three Parkway North, Suite 500, Deerfield, Illinois
60015-0760 ("CLINTEC") and Free Radical Sciences, Inc., a Delaware
corporation, having offices at 245 First Street, 14th Floor, Cambridge,
Massachusetts 02142 ("FRS").
WHEREAS, CLINTEC and FRS have entered into a Contribution Agreement of
even date herewith;
WHEREAS, pursuant to the Contribution Agreement, various patents and
patent applications and other technology were transferred by CLINTEC to
FRS;
WHEREAS, CLINTEC wants to acquire a sublicense to the patents, patent
applications, and technology that were transferred to FRS for use in the
fields of clinical nutrition and nutrition; and
WHEREAS, FRS is willing to grant such a sublicense to Clintec.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth below, the parties hereby agree as follows:
1. DEFINITIONS.
-----------
1.1 CLINICAL NUTRITION shall mean the feeding under professional
supervision of patients requiring special food administration techniques
and devices or nutrients in relation to their medical condition and (for
purposes of this Agreement) shall be deemed to exclude the administration
of any product in which the Compounds (as defined below) (i) ********** by
dry weight of the total content of the amino acids, amino acid precursors
and amino acid substrates, or (ii) ********* by weight volume of the
product administered in liquid form to patients, unless FRS otherwise
consents (which consent shall not be unreasonably withheld). Clinical
Nutrition comprises parenteral (intravenous and intraperitoneal) and
enteral (nasogastric, jejunal and oral) nutrition for patient needs in
hospitals, nursing homes, extended care facilities and, if taken under
professional supervision, private residences.
<PAGE> 2
1.2 CLINICAL NUTRITION PRODUCTS shall mean products used or that can
be used in the field of Clinical Nutrition. Clinical Nutrition Products
include those products that replete nutritional deficits, return naturally
occurring cellular constituents or cellular products toward or to accepted
normal clinical ranges, ameliorate malnutrition, maintain or improve
nutrition status, offset negative nitrogen balance or replete energy
deficit. In biological systems Clinical Nutrition Products are handled by
known metabolic pathways which may or may not be altered by disease state
or clinical condition.
1.3 COMPOUND(S) shall mean any of the molecular entities
L-2-oxothiazolidine-4-carboxylate (Procysteine), its isomers, its esters
(including diesters) and its neutral salts, the cysteine derivative
N-acetyl-cysteine, and glutathione esters (including diesters) including
the alkyl monoesters.
1.4 CORNELL LICENSE AGREEMENT shall mean the "Exclusive License
Agreement CRF D-416 and D-520, D-913, D-169, D-1239, D-1258, D-1403,
D-1426" by and between Cornell Research Foundation Inc. ("Cornell") and FRS
having an Effective Date as of the date of this Agreement.
1.5 CORNELL LICENSED PATENTS shall mean the United States (U.S.) and
non-U.S. patents and patent applications licensed to FRS under the Cornell
License Agreement.
1.6 DATA shall mean all Data and information resulting from any
studies, including stability, toxicology, preclinical and clinicals,
relating to Compounds that was generated prior to the Effective Date of
this Agreement.
1.7 FRS PATENTS shall mean the U.S. and non-U.S. patents identified on
Schedule A attached hereto including any reissues or reexaminations
thereof, as well as any U.S. or non-U.S. patents that may issue from FRS
Patent Applications (defined below).
1.8 FRS PATENT APPLICATIONS shall mean the patent applications
identified on Schedule B attached hereto, as well as any patent application
that is filed after the Effective Date of this Agreement that: is based in
whole, or in part, on the invention records identified on Schedule C;
claims priority, at least in part, from a patent application identified on
Schedule B; is based in whole, or in part, on Licensed Know-How; or is
filed as a divisional, continuation, or continuation-in-part of a patent
application identified on Schedule B.
-2-
<PAGE> 3
1.9 LICENSED KNOW-HOW shall mean any proprietary right in existence as
of the date of this Agreement, other than a patent or patent application,
owned by, controlled by, or licensed to FRS with the right to sublicense
relating to Clinical Nutrition or Clinical Nutrition Products.
1.10 NUTRITION shall mean the feeding of individuals and shall include
all products not having therapeutic claims and not included in the
definition of Clinical Nutrition that have as their principal purpose
providing nutrients to an individual.
1.11 OTHER COMPOUNDS shall have the meaning ascribed to such term in
the Contribution Agreement.
1.12 PHARMACEUTICAL APPLICATIONS shall mean the provision of a
medicinal substance or a drug other than a nutrient with the intent to
bypass or to alter or restore normal in vivo synthesis, metabolic or
physiologic state, including redox status. Generally, medicinal substances
or drugs will be synthetic, specifically isolated or specifically produced
and will require an approved drug license to allow sale and promotion of
the claimed indication regardless of the route of administration. Such
medicinal substances or drugs can be administered alone or with other
entities such as nutrients.
2. GRANT.
-----
2.1 GRANT TO CLINTEC. In consideration of the Contribution Agreement,
as well as other good and valuable consideration the sufficiency of which
is hereby acknowledged, FRS grants to CLINTEC an exclusive, even as to FRS,
paid-up, royalty-free license to the Other Compounds, FRS Patents, FRS
Patent Applications, and Cornell Patents limited to the field of Clinical
Nutrition and a paid-up, royalty-free non-exclusive license limited to the
field of Nutrition.
2.2 ROYALTY FOR CORNELL PATENTS. To the extent any royalty is due and
owing under the Cornell License Agreement in view of CLINTEC's sale of a
Clinical Nutrition Product under this Agreement, CLINTEC agrees to pay the
applicable royalty to Cornell.
2.3 DATA AND KNOW-HOW. FRS grants to CLINTEC a royalty-free
nonexclusive license to Licensed Know-How. Additionally, FRS will make
available to CLINTEC at no cost to CLINTEC, at CLINTEC's request all Data
for use by CLINTEC in the development and regulatory approvals of Clinical
Nutrition Products.
-3-
<PAGE> 4
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
2.4 CLINTEC'S RIGHT OF FIRST REFUSAL. FRS grants to CLINTEC a right of
first refusal to any Clinical Nutrition Product developed by FRS after the
Effective Date of this Agreement and for a period of *******************
********* that is based on or includes Other Compounds or a Compound. The
parties shall negotiate in good faith an exclusive license to such Clinical
Nutrition Product. If the parties fail to reach agreement with respect to
any such Clinical Nutrition Product, FRS may solicit other offers and
engage in negotiations with third parties with respect to that specific
Clinical Nutrition Product. However, prior to concluding any such Agreement
with any third party, FRS must offer CLINTEC the option to accept the
proposed Agreement with respect to the Clinical Nutrition Product on the
terms agreed to with the third party. If CLINTEC does not accept such offer
within forty-five (45) days after written notice by FRS, FRS will be free
to enter into an agreement with the third party on such terms.
2.5 FRS RIGHT OF FIRST REFUSAL. CLINTEC grants to FRS a right of first
refusal to any Pharmaceutical Applications developed by CLINTEC after the
Effective Date of this Agreement and for a period of ******** years
thereafter that is based on or includes a Compound. The parties shall
negotiate in good faith an exclusive license to such Pharmaceutical
Applications. If the parties fail to reach an agreement with respect to any
such Pharmaceutical Applications, CLINTEC may solicit other offers and
engage in negotiations with third parties with respect to that specific
Pharmaceutical Application. However, prior to concluding any such Agreement
with any third party, CLINTEC must offer FRS the option to accept the
proposed Agreement with respect to the Pharmaceutical Applications on the
terms agreed to with the third party. If FRS does not accept such offer
within forty-five (45) days after written notice by CLINTEC, CLINTEC will
be free to enter into an agreement with the third party on such terms.
2.6 FRS NON-COMPETITION. FRS agrees that during the period commencing
on the date of signature of this License Agreement and ending on the *****
anniversary of such date, FRS will not directly or indirectly own, manage,
operate, control, invest or acquire an interest in, or otherwise engage or
participate in (whether as a proprietor, partner, stockholder, joint
venturer, investor, other participant in) the development or sale of
products or compounds that have as their principal purpose Clinical
Nutrition for the purpose of manipulating glutathione levels, anywhere in
the world, or grant any license to any third party for Clinical Nutrition
Products (any such development or sale being herein referred to as a
"Restricted Business"). It is anticipated that a number of products and
compounds may be both a
-4-
<PAGE> 5
Clinical Nutrition Product and have Pharmaceutical Applications and this
Section 2.6 shall not apply to the development or sale of such products or
compounds.
2.7 CERTAIN ACQUISITIONS OF COMPETING BUSINESSES. Notwithstanding the
definition of Restricted Business contained in Section 2.6, the term
Restricted Business shall not include the following business activities:
(a) The acquisition and ownership of not more than 5% of the
outstanding shares of any class of stock or other securities of any entity
which engages in a Restricted Business (a "Competing Business") if such
shares or securities are traded on a national securities exchange or in the
over-the-counter market.
(b) The acquisition and ownership of the outstanding shares of any
class of stock or other securities or assets and properties of a Competing
Business provided that the total fair market value of all assets and
properties of the Competing Business (i) which are acquired, in the case of
an asset purchase, or which are among the assets and properties of such
Competing Business in the Restricted Business, does not exceed the greater
of (A) 5% of the total fair market value of all stock or other ownership
interests or assets or properties of such Competing Business acquired in
such transaction, or (B) $1,000,000; and provided further that upon
acquiring control of such Competing Business or upon acquiring the assets
and properties of such Competing Business which are used in the Restricted
Business, as the case may be, FRS shall offer to sell the assets and
properties of the Competing Business which are used in the Restricted
Business (the "Assets") to Clintec on the following terms and conditions:
FRS shall offer the Assets to Clintec by giving to Clintec prompt written
notice of such offer which offer shall identify, in reasonable detail, the
Assets, the nature and type of transaction which FRS desires to effect with
respect thereto and, if applicable, any indications of interest in or
offers for the Assets which FRS has received (the "Notice"). During the
60-day period after receipt of the Notice (the "Negotiation Period"),
Clintec shall have the right to negotiate with FRS, and if Clintec elects
to do so based upon such negotiations, to make a written offer or offers to
acquire all of the Assets. During the Negotiation Period, FRS agrees to
negotiate with Clintec in good faith, to make available such information as
Clintec may reasonably request with respect to the Assets (subject to
receipt of a customary confidentiality agreement from Clintec) and to
respond promptly to any offer made by Clintec. In the event FRS accepts
Clintec's offer for the Assets, FRS and Clintec agree to enter into a
mutually acceptable definitive agreement with respect
-5-
<PAGE> 6
thereto and to complete the acquisition of the Assets within 60 days of
FRS's acceptance of Clintec's offer (or such longer period as may be
required by regulatory constraints). In the event that during the
Negotiation Period Clintec does not make an offer, or makes an offer or
offers which FRS rejects, FRS is free to (1) retain the Assets and operate
the business associated therewith or (2) sell, assign or otherwise transfer
the Assets after the expiration of the Negotiation Period to an unrelated
third party on terms which are no less favorable, considered as a whole, to
FRS than the terms of Clintec's final bona fide offer.
3. PATENT COSTS.
------------
3.1 FRS PATENTS AND PATENT APPLICATIONS. FRS shall have the
responsibility to pay all attorney's fees, maintenance fees, and any and
all other costs associated with any FRS Patent or FRS Patent Application.
Should FRS decide not to pay any cost or expense for any FRS Patent or FRS
Patent Application or decide to allow any such FRS Patent or FRS Patent
Application to go abandoned, prior to abandoning such FRS Patent
Application or FRS Patent, FRS shall advise CLINTEC in writing. CLINTEC
shall then have the right to pay such expense and maintain the FRS Patent
or FRS Patent Application. In such case, FRS agrees to assign to CLINTEC
such FRS Patent or FRS Patent Application.
3.2 CORNELL LICENSED PATENTS. To the extent any fees are due and owing
under the Cornell License Agreement for a Cornell Licensed Patent, FRS will
be responsible to pay all costs and expenses. However, prior to allowing
any Cornell Licensed Patent to go abandoned for failure to pay any cost or
expense, FRS shall advise CLINTEC and CLINTEC shall have the right, but not
the obligation, to pay the applicable expense or fee. Should CLINTEC pay
the expense or fee, FRS will then transfer to CLINTEC, to the extent
permitted by the Cornell License Agreement, the rights to the applicable
Cornell Licensed Patent.
4. TERM.
----
The term of this Agreement shall last for the effective life of the
last to expire FRS Patent or Cornell Licensed Patent. Upon expiration of
this License Agreement, CLINTEC shall enjoy a royalty-free license to
Licensed Know-How for the purpose of making, using, and selling Clinical
Nutrition Products or products used in the field of Nutrition.
-6-
<PAGE> 7
5. ENFORCEMENT.
-----------
Upon learning of an infringement of an FRS Patent or Cornell Patent,
CLINTEC will advise FRS of such infringement in writing. FRS will then be
free, at its expense, to file a law suit in its name and at its expense
against the infringer. FRS shall be entitled to all damages it recovers. If
FRS does not file a law suit within ninety (90) days of CLINTEC's notice,
CLINTEC, at its cost and expense, can bring suit against the infringer.
CLINTEC will be entitled to all damages it may recover from any such law
suit. FRS agrees, to the extent requested by CLINTEC, to join CLINTEC and
assist CLINTEC, at CLINTEC's expense, in maintaining such law suit.
6. ASSIGNMENT.
----------
The rights and obligations of CLINTEC under this Agreement can be
assigned to any party by CLINTEC upon thirty (30) days' notice from
CLINTEC.
7. TERMINATION.
-----------
Either CLINTEC or FRS may terminate this Agreement if there is a
material breach of this Agreement by the other party by providing the other
party with written notice of such breach. The breaching party will then
have a six (6) month period in which to cure such breach. If such breach
remains uncured at the end of the six (6) month period, this Agreement will
then terminate.
8. SUBLICENSING.
------------
CLINTEC may sublicense its rights under this Agreement to any third
party.
9. MISCELLANEOUS.
-------------
9.1 Notices. Any notices to be given under any provision of this
Agreement may be given by sending by registered or certified mail to the
address of the party concerned as follows:
If to FRS: Free Radical Sciences, Inc.
Attn: Chief Executive Officer
245 First Street
14th Floor
Cambridge, Massachusetts 02142
Facsimile: 617/374-1202
-7-
<PAGE> 8
If to CLINTEC: Clintec Nutrition Company
Attn: President
Three Parkway North, Suite 500
Deerfield, Illinois 60015
Facsimile: 708/317-3180
9.2 APPLICABLE LAW. This Agreement shall be deemed to be made under
and to be governed by the laws of the State of Illinois.
9.3 SEPARABILITY. Should any part or provision of this Agreement be
held unenforceable or in conflict with the law of any jurisdiction, the
enforceability of the remaining parts or provisions shall not be affected
by such holding.
9.4 HEADINGS. The headings and subheadings of the various articles and
sections of this Agreement are inserted merely for the purpose of
convenience and do not express or imply any limitation, definition, or
extension of the specific terms and sections so designated.
9.5 SUCCESSORS AND ASSIGNS. This Agreement is binding on any
successors of FRS or assigns of any FRS Patents, FRS Patent Applications,
Licensed Know-How, or any rights under the Cornell License Agreement.
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed in duplicate as of the day and year first above written.
ATTEST: CLINTEC NUTRITION COMPANY
By /s/ T.C. Rojahn
---------------------------- --------------------------------
Title Vice President
----------------------------
Date April 4, 1996
----------------------------
Attest: FREE RADICAL SCIENCES, INC.
By /s/ Gary W. Pace
------------------------------
Title President
---------------------------
Date April 4, 1996
---------------------------
-8-
<PAGE> 9
SCHEDULE A TO LICENSE AGREEMENT
-------------------------------
U.S. Patents
------------
U.S. Patent No. 5,095,027 "Method for Treating Reperfusion
Injury Employing L-2-
oxothiazolidine-4-carboxylic Acid"
Date Issued: March 10, 1992
U.S. Patent No. 5,208,249 "Method for Stimulating
Intracellular Synthesis of
Glutathione Using Esters of
L-2-Oxothiazolidine-4-carboxylate"
Date Issued: May 4, 1993
U.S. Patent No. 5,214,062 "Method and Composition for
Treating Immune Disorders,
Inflammation and Chronic
Infections"
Date Issued: May 25, 1993
-9-
<PAGE> 10
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
SCHEDULE B TO LICENSE AGREEMENT
-------------------------------
PENDING PATENT APPLICATIONS
---------------------------
******* *********************************************
**********
****************************
****************************
******* *********************************************
****************************
****************************
Corresponding Non-U.S. Applications:
Country Application No. Filing Date
------- --------------- -----------
******** *********** *****************
******** *********** *****************
******** *********** *****************
******** *********** *****************
******* *********************************************
**********
****************************
****************************
Corresponding Non-U.S. Applications:
Country Application No. Filing Date
------- --------------- -----------
******** *********** *****************
******** *********** *****************
******** *********** *****************
******** *********** *****************
******* *********************************************
**********
****************************
****************************
-10-
<PAGE> 11
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
Corresponding Non-U.S. Applications:
Country Application No. Filing Date
------- --------------- -----------
******** *********** *****************
******** *********** *****************
******** *********** *****************
******** *********** *****************
******* *********************************************
**********
****************************
****************************
******* *********************************************
**********
****************************
****************************
Corresponding Non-U.S. Applications:
Country Application No. Filing Date
------- --------------- -----------
******** *********** *****************
******** *********** *****************
******** *********** *****************
******** *********** *****************
******* *********************************************
****************************
****************************
Corresponding Non-U.S. Applications:
*************************************
******* *********************************************
****************************
****************************
Corresponding Non-U.S. Applications:
Country Application No. Filing Date
------- --------------- -----------
******** *********** *****************
******** *********** *****************
******** *********** *****************
******** *********** *****************
-11-
<PAGE> 12
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
******* *********************************************
**********
****************************
****************************
******* *********************************************
**********
****************************
****************************
******* *********************************************
**********
****************************
****************************
******* *********************************************
**********
****************************
****************************
******* *********************************************
**********
****************************
****************************
******* *********************************************
**********
****************************
****************************
***************************************************************
***************************************************************
***************************************************************
******
Country Application No. Filing Date
------- --------------- -----------
******** *********** *****************
******** *********** *****************
******** *********** *****************
******** *********** *****************
-12-
<PAGE> 13
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
Non-U.S. Applications Corresponding to U.S. Patent No. 5,208,249,
"Method for Stimulating Intracellular Synthesis of Glutathione Using
Esters of L-2-Oxothiazolidine-4-Carboxylate"; Date Issued: May 4,
1993:
Country Application No. Filing Date
------- --------------- -----------
******** *********** *****************
******** *********** *****************
******** *********** *****************
******** *********** *****************
Non-U.S. Applications Corresponding to U.S. Patent No. 5,214,062,
"Method and and Composition for Treating Immune Disorders,
Inflammation and Chronic Infections"; Date Issued: May 25, 1993:
Country Application No. Filing Date
------- --------------- -----------
******** *********** *****************
******** *********** *****************
******** *********** *****************
******** *********** *****************
-13-
<PAGE> 14
SCHEDULE C TO LICENSE AGREEMENT
-------------------------------
INVENTION RECORDS
-----------------
Goldberg, "Stimulation of Intracellular Glutathione Synthesis for
Prevention of Diabetic Complications" dated August 8, 1990
Pace et al., "Topical Elevation of Intracellular Glutathione as Treatment
for Psoriasis' dated October 1, 1990
Kamarei, "Diets Containing Glutathione for Hepatic Diseases" dated December
4, 1990
Mark et al., "Novel Methods for the Reduction of Difluromethylornithine
Associated Toxicity" dated March 29, 1991
Goldberg, "Topical Applications of Glutathione Esters for Treatment of
Local Herpes, Bursus and Inflammations" dated April 8, 1991
Mark et al., "Method of Treatment of Autoimmune Diseases" dated April 11,
1991
Mark et al., "Method of Modifying in Vitro Cell Culture Media to Enhance
Cellular Functions Including Replication" dated July 23, 1991
Rowe et al., "A Solid Oral Dosage Form for Procysteine" dated July 29, 1991
Madsen, "Amelioration of Valproate Toxicity of Co-adminstration of
Procysteine" dated October 30, 1991
Mark, "Methods of Enhancing the Use of Nitric Oxide to Treat Severe Adult
Respiratory Distress Syndrome" dated November 8, 1991
Goldberg et al., "Method to Reduce Muscle Injury and Damage and Enhance
Recovery from High Intensity Exercise" dated March 31, 1992
Goldberg, "Method for Enhancing Glutathione Synthesis by Concomitant
Administration of Glutamine and Cysteine" dated April 1, 1992
Mark, "Methods of Modifying in Vitro Tissue Culture Media to Enhance
Cellular Functions, Including Replication" dated October 30, 1992
-14-
<PAGE> 1
EXHIBIT 10.5
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
AMENDED AND RESTATED
--------------------
EXCLUSIVE LICENSE AGREEMENT CRF D-416 AND D-520
-----------------------------------------------
D-913, D-1069, D-1239, D-1258, D-1403, D-1426
---------------------------------------------
THIS AGREEMENT, executed as of August 12, 1996, amends, restates and
supersedes the Exclusive License Agreement CRF D-416 and D-520, D-913,
D-1069, D-1239, D-1258, D-1403, D-1426 dated April 5, 1994 (the "Original
Agreement") by and between the CORNELL RESEARCH FOUNDATION, INC., having
offices at Cornell Business & Technology Park, 20 Thornwood Drive, Suite
105, Ithaca, New York 14850, hereinafter referred to as "FOUNDATION" and
TRANSCEND THERAPEUTICS, INC., having offices at 640 Memorial Drive,
Cambridge, Massachusetts 02139, hereinafter referred to as "LICENSEE." This
Agreement (i) shall be retroactively effective as of April 6, 1994, (ii) is
executed for administrative convenience to avoid the requirement of certain
exhibits attached to the Original Agreement, and (iii) is subject to
agreements executed by FOUNDATION and LICENSEE subsequent to April 6, 1994,
including but not limited to the Letter Agreement dated October 5, 1995
between FOUNDATION and LICENSEE.
W I T N E S S E T H T H A T:
- - - - - - - - - - - - - -
WHEREAS, United States Patent No. 4,710,489, entitled "Glutathione
Delivery System," was issued on December 1, 1987;
<PAGE> 2
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
WHEREAS, United States Patent No. 4,784,685, entitled "Glutathione
Delivery System," was issued on November 15, 1988;
WHEREAS, United States Patent No. 4,879,370, entitled "Glutathione
Delivery System," was issued on November 7, 1989;
WHEREAS, a United States patent application entitled
*********************************************, as filed in the U.S. Patent
and Trademark Office on ****************;
WHEREAS, a United States patent application entitled
*************************************, was filed in the U.S. Patent and
Trademark Office on **************;
WHEREAS, Japanese Patent No. 1,592,957 was issued on July 11, 1989;
WHEREAS, the above group of patents and patent applications is
hereinafter referred to as the "Glutathione Technology" and includes all
the patents and patent applications presently owned by FOUNDATION that are
necessary to practice the inventions that comprise Glutathione Technology
as well as all patents and patent applications that name Alton Meister as
an inventor and relate to Glutathione Technology;
WHEREAS, United States Patent No. 4,335,210, entitled "Method of
Producing L-Cysteine," was issued on July 15, 1992;
WHEREAS, United States Patent No. 4,434,158 entitled "Cysteine
Delivery System," was issued on February 28, 1984;
-2-
<PAGE> 3
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
WHEREAS, United States Patent No. 4,647,571, entitled "Cysteine
Delivery Composition," was issued on March 3, 1987;
WHEREAS, United States Patent No. 4,665,082 entitled "Cysteine
Delivery System," was issued on May 12, 1987;
WHEREAS, United States Patent No. 4,438,124 entitled "Cysteine
Delivery System," was issued in March 20, 1984;
WHEREAS, counterpart European Patent No. 0057942 and Canadian Patent
1,167,766, have issued;
WHEREAS, the immediately-above group of patents is hereinafter
referred to as the "Procysteine Technology" and includes all the patents
and patent applications presently owned by FOUNDATION that are necessary to
practice the inventions that comprise Procysteine Technology as well as all
patents and patent applications that name Alton Meister as an inventor an
relate to Procysteine Technology;
WHEREAS, a United States patent application entitled
***************************************************************, was filed
in the U.S. Patent and Trademark Office on ************;
WHEREAS, a United States patent application entitled ******
******************************************************* **********, was
filed in the U.S. Patent and Trademark Office on *************;
WHEREAS, a United States patent application entitled
*************************************************, was filed in the U.S.
Patent and Trademark Office on *************;
-3-
<PAGE> 4
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
WHEREAS, a patent application is presently being prepared related to
*************************************************************************
********************************************;
WHEREAS, a PCT application equivalent to U.S. Serial No. 07/862,525,
was filed on July 9, 1993;
WHEREAS, the immediately-above group of patent applications is
hereinafter referred to as the "Gene Technology";
WHEREAS, the invention or inventions disclosed and claimed in the
above-listed patents and patent applications are assigned to FOUNDATION and
FOUNDATION is a wholly owned subsidiary corporation of Cornell University
having as one of its principal purposes the holding of ownership interests
of patents issued on inventions made by Cornell University's staff and the
administration of licenses in pursuance thereof in a manner consistent with
the patent policy of Cornell University;
WHEREAS, FOUNDATION represents that it is assignee of the above-listed
patents and patent applications and any patents issuing thereon, and has
the right to grant exclusive worldwide licenses under said patents, it
being pointed out however with respect to U.S. Serial No. SN 07/862,525,
FOUNDATION is the joint assignee thereof with Fox Chase Cancer Center
(hereinafter "Fox");
WHEREAS, FOUNDATION represents that it can grant licenses under U.S.
Serial No. 07/862,525 to LICENSEE without LICENSEE incurring any
obligations or liability to Fox;
-4-
<PAGE> 5
WHEREAS, the work leading to the inventions disclosed and claimed in
above-identified patents and patent applications was supported in part by
an agency of the U.S. Government, FOUNDATION is obligated to comply with
the U.S. Office of Management and Budget Circular No. A-124;
WHEREAS, FOUNDATION is not aware of any patent or patent application
that it owns, controls, or is licensed under with the right to sublicense
that is necessary to manufacture, sell, or use any product that falls
within the scope of any of the patents or patent applications that comprise
Glutathione Technology or Procysteine Technology;
WHEREAS, LICENSEE is desirous of securing an exclusive worldwide
license under the discoveries and inventions embodied in said patents and
patent applications and patents issuing therein to make, use and sell
products;
WHEREAS, FOUNDATION is willing to grant an exclusive worldwide license
in said patents and patent applications and any patents issuing thereon to
LICENSEE upon the terms and conditions hereinafter set forth;
WHEREAS, LICENSEE holds the complete LICENSEE'S interest in two prior
license agreements entitled respectively "Exclusive License Agreement
D-416" and "Exclusive License Agreement D-520" both effective July 1, 1989
(hereinafter collectively referred to as "The Prior Agreements"), with the
LICENSEE on their face being
-5-
<PAGE> 6
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
Baxter International, Inc., and whereas, LICENSEE and FOUNDATION both
intend that this agreement will supersede and replace The Prior Agreements;
NOW, THEREFORE, in consideration of the covenants and obligations
hereinafter set forth, the parties hereto hereby agree as follows:
I
DEFINITIONS
-----------
The following definitions will apply throughout this
agreement:
1. IMPROVEMENTS shall mean any patents or patent applications, other
than Licensed Patents or Licensed Patent Applications (as defined
below), relating to any Licensed Product or Procysteine
Technology, Glutathione Technology, or Gene Technology that is
developed during the term of this Agreement, and owned by the
FOUNDATION, which is not committed to a third party by law or
prior research agreement.
2. LICENSED PATENT APPLICATIONS shall mean U.S. Patent applications
S/N's *********************************************************
***** as well as the patent application to be filed on ********
*********************** and any continuation, continuation-
in-part, or
-6-
<PAGE> 7
divisional applications thereof, as well as foreign counterparts
thereof, if any.
3. LICENSED KNOW HOW shall mean any proprietary right other than a
patent or patent application owned by, controlled by, or licensed
to FOUNDATION with right to sublicense that relates to
Procysteine Technology, Glutathione Technology, or Gene
Technology.
4. LICENSED PATENTS shall mean U.S. Patents 4,710,489; 4,784,685;
4,879,370; 4,335,210; 4,434,158; 4,438,124; 4,647,571 and
4,665,082 and European Patent No. 0057942, Canadian Patent No.
1,167,766, and Japanese Patent No. 1,592,957 and any patents
issuing on a Licensed Patent Application and all reissues
thereof, as well as foreign counterparts to a Licensed Patent or
Licensed Patent Application.
5. LICENSED PRODUCTS shall mean a product that would infringe a
valid Licensed Patent in the country it is manufactured, used, or
sold but for the licenses granted herein.
6. LICENSE YEAR shall mean each twelve (12) month period beginning
on the effective date of this Agreement first written above and
thereafter on the anniversary date thereof.
-7-
<PAGE> 8
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
7. LICENSEE shall mean the above named company and any of its
affiliates in which it owns or controls at least 50 percent of
the voting stock or in the case of a partnership or other entity
50% of the interests in profits or capital of the entity.
8. NET SALES PRICE shall mean the gross amount of money billed by
LICENSEE to its customers on sale or use of Licensed Products
subsequent to the effective date of this Agreement,
**************************************************************
**************************************************************
**************************************************************
**************************************************************
**************************************************************
**************************************************************
9. REDUCTION TO PRACTICE shall mean that the applicable invention is
in such a form as to render it capable of practical and
successful use. For a method of treatment or pharmaceutical
invention, this requires the demonstration of in vivo efficacy.
II
GRANT
-----
Subject only to the rights of and obligations to the U.S. Government
as set forth in OMB Circular No. A-124 and 37 CFR Part
-8-
<PAGE> 9
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
401, and existing in Law, and except for application Serial No. **********,
the FOUNDATION hereby grants to the LICENSEE for the term set forth below
and under the royalty basis set forth herein, an exclusive worldwide
license to the Licensed Patents and Licensed Applications including the
right to make, have made, use and/or sell Licensed Products. With respect
to application Serial No. **********, the FOUNDATION hereby grants to the
LICENSEE for the term set forth below and under the royalty basis set forth
herein, a non-exclusive worldwide license to that application and any
patent issuing therefrom including the right to make, have made, use and/or
sell Licensed Products. The period of the license in each country shall be
coextensive with the enforceable life of the patent in that country.
Additionally, FOUNDATION grants to LICENSEE a royalty free non-exclusive
license to Licensed Know How.
III
EQUITY AS CONSIDERATION FOR THE EXECUTION OF THIS AGREEMENT
-----------------------------------------------------------
Provided that FOUNDATION'S equity position is approved in writing by
the Executive Committee of FOUNDATION'S Board of Directors and that the
interaction with LICENSEE of all Cornell University Employees, if any, who
have an interest in LICENSEE, is approved in writing by the Dean of the
Cornell University Medical College, FOUNDATION at its option will receive
from LICENSEE, as consideration for entering into this Agreement an equity
position
-9-
<PAGE> 10
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
in LICENSEE that is 175,127 shares of the common stock of LICENSEE.
At FOUNDATION'S sole option, should said approval of the Dean and
Board not be obtained in writing six months from the effective date of this
Agreement, FOUNDATION and LICENSEE will negotiate in good faith to
determine a monetary equivalent of equity position referred to above, which
equivalent shall be granted by LICENSEE to FOUNDATION.
In addition, LICENSEE will provide, over a three (3) year period from
the Effective Date of this Agreement, *********** in cumulative funding for
Dr. Mary Anderson and/or Dr. Alton Meister laboratories for research in the
areas of the subject matter of Licensed patents and Licensed Patent
Applications pursuant to the Research Agreement attached hereto as Exhibit
A. In exchange for supporting such research, LICENSEE shall receive an
exclusive worldwide license to any patentable invention that results from
the research and is conceived or reduced to practice during the term of the
Research Agreement or one (1) year thereafter for the royalty rate set
forth herein. Any patent application filed on such patentable invention
shall become a Licensed Patent Application under this Agreement.
Additionally, LICENSEE shall receive a royalty free exclusive right to any
unpatentable inventions that result from the research and are conceived or
Reduced to Practice during the term of the Research Agreement or one (1)
year thereafter.
-10-
<PAGE> 11
IV
PAYMENT OF EXISTING PATENTS AND APPLICATIONS RENEWAL FEES AND CONTINUING
PROSECUTION COSTS
------------------------------------------------------------------------
Where a Licensed Patent Application is pending in the United States or
a foreign country, LICENSEE agrees to pay all reasonable prosecution costs
for such Licensed Patent Application incurred after the date of this
Agreement and all maintenance fees that become due on Licensed Patents
after the date of this Agreement; provided, however, that LICENSEE shall
have the right to deduct the costs and fees that are paid by LICENSEE from
any royalty that may be due and owing the FOUNDATION. Additionally,
LICENSEE shall have the right to not pay or discontinue payment of said
prosecution costs and/or maintenance fees upon thirty (30) days written
notice to FOUNDATION, in which case said patent application or patent, as
the case may be shall no longer be deemed a Licensed Patent Application or
Licensed Patent and LICENSEE shall have no further license under such
Licensed Patent Application or Licensed Patent.
FOUNDATION agrees to promptly provide LICENSEE with copies of all
Office Actions received from the applicable Patent Office, as well as
proposed responses to same for LICENSEE'S comments, before the responses
are filed. FOUNDATION shall make reasonable efforts to consider LICENSEE'S
comments and revise the proposed response if appropriate.
-11-
<PAGE> 12
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
Prior to abandoning or failing to prosecute any Licensed Patent or
Licensed Patent Application, FOUNDATION shall advise LICENSEE and provide
LICENSEE with the option to assume financial responsibility for such
Licensed Patent or Licensed Patent Application. If LICENSEE agrees to
assume such financial responsibility, FOUNDATION agrees to transfer all
relevant files to LICENSEE and assign such Licensed Patent or Licensed
Patent Application to LICENSEE and LICENSEE shall therefore not be
obligated to pay royalties under such patent or patent application.
V
FUTURE FOREIGN PATENTS AND APPLICATIONS AND PAYMENT OF COSTS
------------------------------------------------------------
In the event that after the date of this Agreement an opportunity
arises to file counterpart patent applications to the United States
Licensed Patent Applications in any foreign country, FOUNDATION shall
notify LICENSEE in writing of said opportunity. Within sixty (60) days
after receipt of said notice, LICENSEE shall advise FOUNDATION in which
foreign countries LICENSEE intends to pay all expenses incurred in the
preparation, filing, prosecution, renewal and continuation of the Licensed
Patent Applications , including all taxes, official fees and attorney fees
("Foreign Licensed Patent Application Expenses"); however, LICENSEE shall
have the right to deduct ******************* of any
-12-
<PAGE> 13
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
such Foreign Licensed Patent Application Expenses from any royalties that
may be due and owing FOUNDATION under this Agreement. In the event that
LICENSEE elects not to pay said Foreign Licensed Patent Application
Expenses in any foreign country, and FOUNDATION elects to pay said Foreign
Licensed Patent Application Expenses, then and in such foreign country,
LICENSEE'S right to the Foreign Licensed Patent or Licensed Patent
Application in that foreign country shall become a non-exclusive license.
Should LICENSEE agree to pay the Foreign Licensed Patent Application
Expenses, FOUNDATION will promptly provide LICENSEE with copies of all
communications from the relevant Patent Offices and proposed responses
thereto for LICENSEE'S comments prior to filing. FOUNDATION shall make
reasonable efforts to consider LICENSEE'S comments and revise the proposed
response if appropriate.
VI
ROYALTIES AND ADVANCE ROYALTIES TO BE PAID DURING THE LICENSE AGREEMENT
-----------------------------------------------------------------------
In consideration for the rights granted herein LICENSEE will pay to
the FOUNDATION in U.S. dollars a royalty on Net Sales Price of Licensed
Products sold by LICENSEE according to the following schedule:
************************************** in annual sales, and ***********
****************** on all annual sales ****************** annually. In
determining annual sales, net sales of Licensed
-13-
<PAGE> 14
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
Product in each Technology shall be separately considered and shall not be
combined for purposes of the royalty schedule.
LICENSEE'S obligation to pay royalty upon each such Licensed Product
in any country shall cease:
(i) if the applicable claims in the Licensed Patent in that country
are held invalid by an unappealed or unappealable decision of a
court of competent jurisdiction, in that country, or
(ii) upon expiration of the last said Licensed Patent in that country.
On July 1 of each License Year commencing on the effective date of
this Agreement, LICENSEE shall pay FOUNDATION *************************
*********** for each of the Glutathione Technology and the Procysteine
Technology (i.e., a combined total of ********** as an advance royalty
payment for that License Year and such moneys will be considered as a
credit for the royalties due on each respective Technology for that License
Year under this Agreement and the royalty reports should reflect the use of
such credit. Such provision is to be construed as an annual minimum royalty
payment requirement for each Technology and none of the advance royalty
payments are refundable or applicable to succeeding License Years. Payment
of actual royalties in excess of minimum royalties on one Technology does
not remove the obligation to pay minimum royalties on the second
Technology.
-14-
<PAGE> 15
No minimum royalty payment is due for Gene Technology.
FOUNDATION acknowledges the payment due on July 1993 under The Prior
Agreements has been paid and the next annual payment is due July 1, 1994.
VII
ACCOUNTING
----------
LICENSEE will deliver to the FOUNDATION within ninety (90) days after
the end of each License Year a report in writing setting forth sales of
Licensed Products by Technology (including a negative report if
appropriate) and will accompany such report with an appropriate payment of
royalty due for such period. LICENSEE will keep accurate records for at
least three (3) years, certified by it, showing the information by which
LICENSEE arrived at a royalty determination and will permit an auditor
appointed and paid for by the FOUNDATION and acceptable to LICENSEE to make
such inspection of said records as may be necessary to verify royalty
reports made by LICENSEE. However, if such inspection demonstrates that the
royalties paid were less than 90% of the royalties due, and LICENSEE'S Net
Sales of Licensed Product for the applicable year was $500,000.00 or more
than LICENSEE shall reimburse FOUNDATION the reasonable charges charged by
the auditor for such inspection.
-15-
<PAGE> 16
VIII
TERM
----
The aforesaid exclusive license under a Licensed Patent Application or
Licensed Patent shall last for a period of not to exceed the effective life
of the last to expire Licensed Patent. After the last to expire Licensed
patent, LICENSEE shall have a royalty free license to all Licensed Know
How.
IX
DUTY OF DILIGENCE
-----------------
LICENSEE shall exercise due diligence to effect the introduction of
Licensed Product(s) within each Technology group into the commercial market
as soon as practical. FOUNDATION acknowledges that the licensees of The
Prior Agreements have exercised due diligence under each of The Prior
Agreements. LICENSEE agrees to develop and exploit Licensed Product for the
duration of the term of this Agreement, or alternatively by the use of
sublicensing. LICENSEE further agrees to maintain quality control over
Licensed Products and generally attend to proper, safe, fair, lawful and
reasonable development and exploitation of the market for Licensed
Products. Sublicensees, if any will be held to the same standards as
LICENSEE.
At the end of each licensee year, LICENSEE will provide a report on
the progress toward commercialization made within each
-16-
<PAGE> 17
Technology group and a projection of efforts to be made in the coming year.
FOUNDATION'S determination of a lack of due diligence must be made in good
faith and the written notice must specifically state why FOUNDATION
believes LICENSEE has not exercised due diligence. LICENSEE shall have six
(6) months after written notice to exercise due diligence in the relevant
Technology. After the six (6) month period should the FOUNDATION in good
faith using reasonable standards determine that due diligence has not been
exercised by LICENSEE in the relevant technology, FOUNDATION can upon
written notice to LICENSEE convert LICENSEE'S exclusive license to the
Licensed Patents and Applications in the relevant Technology to a
non-exclusive license. Failure to exercise due diligence in one Technology
shall not adversely effect LICENSEE'S exclusive rights in another
Technology under this Agreement.
X
ENFORCEMENT
-----------
Upon learning of the infringement of a Licensed Patent by a third
party, FOUNDATION shall inform LICENSEE in writing of that fact and shall
supply LICENSEE with any evidence available pertaining to the infringement.
LICENSEE may at its own expense take whatever steps are necessary to stop
any infringement of a Licensed Patent and recover damages therefore, and
shall be
-17-
<PAGE> 18
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
entitled to retain all damages so recovered except the royalty that would
otherwise be due FOUNDATION had the infringing sales been made by LICENSEE
under this Agreement. FOUNDATION agrees to cooperate at LICENSEE'S expense
to allow LICENSEE to prosecute such action. With respect to royalties
otherwise due and payable by it to FOUNDATION, LICENSEE shall have the
right to use such royalties to pay for or defray the costs of enforcing
said Licensed Patent against the infringement. In withholding royalties to
pay for the cost of enforcing said Licensed Patent, LICENSEE shall only be
entitled to withhold royalties due to FOUNDATION subsequent to the start of
the litigation. During proceedings relating to the enforcement of said
Licensed Patent, LICENSEE shall submit semiannual written reports
accompanying its royalty reports showing royalties accruing to FOUNDATION
and the expenses of enforcing the Licensed Patent against the infringement.
Upon termination of all proceedings involving such claims or allegations,
LICENSEE shall remit the balance, if any, of the royalties accrued but not
yet paid to FOUNDATION. If the withheld royalties have not equalled the
expenses of conducting the suit at the termination of all proceedings in
the suit, LICENSEE shall be entitled to continue withholding **** of the
royalties due until it has recovered all the expenses incurred in
conducting the suit.
If LICENSEE does not undertake within sixty (60) days of
-18-
<PAGE> 19
notice by FOUNDATION to enforce the Licensed Patent against the infringing
party, FOUNDATION shall have the right to take whatever action it deems
appropriate at FOUNDATION'S expense. FOUNDATION shall have the right to
retain all damages it recovers.
Where LICENSEE takes action to enforce the Licensed Patent, LICENSEE
shall hold FOUNDATION harmless from all claims, counterclaims and the like
rising from LICENSEE'S' action.
XI
ASSIGNMENT
----------
The rights and obligations of the LICENSEE are not assignable except
that said rights and obligations may be assigned to its successor to the
entire business to which this agreement pertains.
XII
TERMINATION
-----------
The FOUNDATION may terminate this License Agreement for failure of the
LICENSEE to make a royalty payment or to comply with [Section]XI or the hold
harmless provision on page 21 by giving notice of its intentions to do so six
(6) months before termination. If LICENSEE shall, within the six-month notice
period correct the breach, the notice shall have no further effect and this
License Agreement shall continue.
LICENSEE may terminate this License Agreement by giving notice of its
intentions to do so six (6) months before termination.
-19-
<PAGE> 20
XIII
SUBLICENSING
------------
LICENSEE may sublicense third parties provided that FOUNDATION is
provided with a copy of all sublicense agreements.
With regard to Glutathione Technology and Procysteine Technology, all
such sublicense agreements must insure that FOUNDATION receives the royalty
on all Net Sales that would otherwise be due FOUNDATION under this
Agreement.
However, with respect to Gene Technology, LICENSEE shall pay
FOUNDATION, instead of the royalty set forth in Section VI, one-third of
all financial value received from the sublicensee in consideration for a
sublicense agreement related to Gene Technology be it cash or other things
of value.
XIV
FAVORED NATIONS
---------------
If, under Sections V or IX, LICENSEE'S rights to any Licensed Patent
Application or Licensed Patent become non-exclusive and the FOUNDATION
grants nonexclusive licenses to others under such Licensed Patent
Application or Licensed Patent, such licenses will not be granted at a
royalty rate which is more favorable than the rate herein granted to
LICENSEE unless such more favorable rates are extended to the LICENSEE.
This Favored Nations clause does not apply to License agreements which are
in settlement of patent litigation.
-20-
<PAGE> 21
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
XV
RIGHT OF FIRST NEGOTIATION
--------------------------
FOUNDATION grants LICENSEE, to the extent not granted under another
section or paragraph of this Agreement, a right of first negotiation with
respect to any Improvement. LICENSEE shall have an exclusive right to
negotiate an agreement with FOUNDATION for any such Improvement for a
******************************************************* to LICENSEE or
Reduction to Practice of the invention that comprises the Improvement,
whichever is later. FOUNDATION will negotiate in good faith such an
agreement with LICENSEE during this period.
XVI
OTHER
-----
LICENSEE agrees that it will not use the indicia or names FOUNDATION
or of Cornell University or any of their personnel in advertising,
promotion, or labeling of Licensed Products without prior written approval
of the FOUNDATION. Such approval shall not be unreasonably withheld by
FOUNDATION. It is understood, however, that LICENSEE shall be free to
disclose the terms and conditions of this Agreement to any third parties
including potential investors.
FOUNDATION makes no representations other than those
-21-
<PAGE> 22
specified in the WHEREAS clauses. FOUNDATION MAKES NO EXPRESS OR IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
FOUNDATION by this Agreement makes no representation as to the
patentability and/or breadth of the inventions and/or discoveries involved
in a Licensed Patent. FOUNDATION by this Agreement makes no representation
as to patents now held or which will be held by others in the field of the
Licensed Products for a particular purpose.
LICENSEE agrees to defend, indemnify and hold FOUNDATION harmless from
and against all liability, demands, damages, expenses or losses for death,
personal injury, illness or property damage arising (a) out of use by
LICENSEE or its sublicensees of inventions licensed or information
furnished under this Agreement, or (b) out of any use, sale or other
disposition by LICENSEE or its sublicensees of products made by use of such
inventions or information. As used in this clause, FOUNDATION includes its
Trustees, Officers, Agents and Employees, and those of Cornell University,
and "LICENSEE" includes its Affiliates, Subsidiaries, Contractors and
Sub-Contractors.
This Agreement shall be interpreted under the Laws of the State of New
York.
Reports, notices and other communications to the FOUNDATION shall be
addressed to:
-22-
<PAGE> 23
H. Walter Haeussler, President
CORNELL RESEARCH FOUNDATION, INC.
Cornell Business & Technology Park
20 Thornwood Drive, Suite 105
Ithaca, NY 14850
and other notices and other communications to the LICENSEE to:
Dr. Hector J. Gomez, M.D., Ph.D.
TRANSCEND THERAPEUTICS, INC.
640 Memorial Drive
Cambridge, MA 02139
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed in duplicate as of the day and year first above written.
ATTEST: CORNELL RESEARCH FOUNDATION, INC.
/s/ C. E. Casterline By: /s/ H. Walter Haeussler
-------------------------- ------------------------------
H. Walter Haeussler
Title: President
---------------------------
Date: August 12, 1996
---------------------------
ATTEST: TRANSCEND THERAPEUTICS, INC.
/s/ C. E. Casterline By: /s/ Hector J. Gomez
--------------------------- ------------------------------
Title: President
---------------------------
Date: August 12, 1996
---------------------------
-23-
<PAGE> 24
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
Exhibit A
---------
RESEARCH AGREEMENT
------------------
AGREEMENT between
CORNELL UNIVERSITY, for its Medical College, hereinafter Called "the
Medical College," and FREE RADICAL SCIENCES, INC., an Illinois partnership,
having offices at 245 First Street, Cambridge, Massachusetts 02142,
hereinafter called "FRS".
The Medical College will undertake the following project:
1. Title (protocol number if applicable).
-------------------
2. The Scope of Work. The work to be performed is as described in the
attached scope of work labeled Attachment "A".
3. Principal Investigators. The project will be under the supervision
of:
Mary Anderson, M.D., as Principal Investigator, and Alton Meister,
M.D., as Co-Principal Investigator.
4. Period. The period of performance will be from ______, 1994 to
________, 1997.
5. Payments. The total costs to FRS under the agreement will be
*******************************************. The payment schedule will
be as follows:
******** paid on _________, 1994
******** paid on _________, 1995
******** paid on _________, 1996
6. Applicable Law. FRS and the Medical College agree to comply with all
applicable local, state, and Federal laws, regulations, and guidelines
with respect to the conduct of the study.
A-1
<PAGE> 25
7. Inventions. All inventions, developments, findings and discoveries
conceived solely by the Investigators or other employees of the
Medical College relating to this Agreement ("Inventions") shall be the
property of, and title to reported Inventions will be held by, the
Cornell Research Foundation, Inc. (Foundation), the research and
technology transfer arm of Cornell University. It is hereby
acknowledged that FRS and the Foundation have entered into a License
Agreement to which this Research Agreement is attached as Exhibit R.
The Foundation hereby grants an exclusive license to any such
Inventions to FRS pursuant to the terms of the License Agreement
between Foundation and FRS. This grant shall apply to any invention
that is developed pursuant to this Research Agreement or with any
funding from this Research Agreement, whether such invention is
patentable or not, if such invention is conceived or reduced to
practice during the term of this Agreement or one (1) year thereafter.
8. Proprietary Data. The Medical College's acceptance and use of any
proprietary data which may be supplied by FRS in the course of this
research project shall be subject to the following:
(a) The date must be marked or designated in writing as proprietary
to FRS.
(b) The Medical College retains the right to refuse to accept any
such data which it does not consider to be essential to the
completion of the project or which it believes to be improperly
designated, or for any reason.
(c) Where the Medical College does accept such data as proprietary,
it agrees to exercise its best efforts not to publish or
otherwise reveal the data to others outside the Medical College
without the permission of FRS, unless the data has already been
published or disclosed publicly by third parties or is required
to be disclosed by order of a court of law.
9. Publications and Copyrights. The Medical College will be free to
publish papers dealing with results of research under this Research
Agreement, after giving a copy of the paper to FRS and allowing FRS to
object to the disclosure of proprietary information, which information
will not be disclosed for a period of ninety (90) days or until
appropriate patent applications are filed whichever is sooner. FRS
will be given full credit and acknowledgment for
A-2
<PAGE> 26
the support provided to the Medical College in any publication
resulting from this research. Original research data will belong to
the Medical College. Title to and the right to determine the
disposition of any copyrights, or copyrightable material, first
produced or composed in the performance of this research, shall remain
with the Medical College, provided that the Medical College shall
grant to FRS an irrevocable royalty free, non-exclusive right to
reproduce, translate, and use all such copyrighted material for its
own purposes.
10. Reports. A final report of the progress of the work shall be made to
FRS by the Principal Investigators within three months of completion.
The Principal Investigators shall provide FRS with written interim
reports at no more often than four-month intervals following
initiation of the study as mutually agreed upon by the Principal
Investigators and FRS.
11. Changes. FRS or the Medical College may, at any time, in writing to
each other, suggest and by mutual agreement make changes within the
general scope of the work, including but not limited to (a) revising
or adding to the work or deleting portions thereof, (b) revising the
period or schedule of performance, or (c) increasing or decreasing the
total cost. Upon receipt of such notice of change and their mutual
agreement thereto, the parties shall immediately use their best
efforts to take all necessary steps to comply therewith.
12. On-Site Visits. During normal business hours, FRS representative(s)
will be permitted on-site visits for the purposes of monitoring the
study and conferring with the Investigators. Additional monitoring
activities will include telephone and letter communication.
13. Use of Drugs and/or Chemicals. If drugs and/or chemicals are supplied
by FRS, and if requested by the Medical College, FRS agrees to accept
unused portions of drugs and/or chemicals supplied by FRS under this
agreement, including the containers in which the drugs and/or
chemicals are shipped, provided that said drugs and/or chemicals and
containers are properly labeled by the Medical College, upon the
return to FRS. Further, for each drug and/or chemical supplied under
this agreement, FRS agrees to furnish the Medical College with
sufficient information to permit reasonable interpretation of the
results obtained in the investigations described herein, and to
identify precautions needed to help protect the health and safety of
personnel using the drugs
A-3
<PAGE> 27
and/or chemicals. FRS agrees to indemnify the Medical College, its
officers, trustees, agents, and employees, and hold them harmless from
any and all injury, illness, death, property damage, claim, lawsuit,
judgment thereon, or cause of action which results either in whole or
in part from the use of the drugs and/or chemicals if such use was
pursuant to FRS's directions or reasonable under the circumstances.
14. Indemnification. FRS shall defend, indemnify and hold harmless the
Medical College, its officers, trustees, employees and agents from and
against all claims, liabilities, losses, damages, costs or expenses of
any kind (including attorneys' fees) which may arise as a result of
injuries caused solely by the negligence of FRS. The party to be
indemnified shall notify FRS within ten (10) days of receipt of such
claim and shall cooperation in the defense of the claim.
15. Notices. All communications, reports, and notices required or
permitted hereunder shall be deemed sufficiently given if in writing
and personally delivered or sent by registered mail, postage prepaid,
return receipt requested, addressed to the parties as follows or at
such other address as a party shall have given notice of pursuant
hereto:
If to the Medical College:
Associate Dean for Research and Sponsored Programs
Cornell University Medical College
1300 York Avenue, Room A-131
New York, NY 10021
If to FRS:
Gary W. Pace, Ph.D.
FREE RADICAL SCIENCES, INC.
245 First Street
Cambridge, MA 02142
16. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the Laws of the State of New York.
17. General Provisions.
(a) This Agreement shall be binding upon, and inure to the benefit of
the parties and their successors and assigns.
A-4
<PAGE> 28
(b) All rights under this Agreement shall be assignable by a party
only with the written consent of the other, except that FRS may assign
this Agreement in whole or in part to any subsidiary or to any entity
that owns at least 50% of FRS's ownership interest.
The respective parties have executed this Agreement on the dates
indicated below:
CORNELL UNIVERSITY FOR ITS FREE RADICAL SCIENCES, INC.
MEDICAL COLLEGE
-------------------------- --------------------------
Medical College Official
-------------------------- --------------------------
Typed Name Typed Name
-------------------------- --------------------------
Title Title
------------------------- --------------------------
Date Date
CORNELL RESEARCH FOUNDATION, INC.
---------------------------
---------------------------
Typed Name
---------------------------
Title
---------------------------
Date
We agree to act as Principal
Investigator for the project
described above:
-------------------------- ---------------------------
Principal Investigator Co-Principal Investigator
Mary Anderson, M.D. Alton Meister, M.D.
Chairman and Israel Rogosin
Professor of Biochemistry
-------------------------- ---------------------------
Date Date
A-5
<PAGE> 1
EXHIBIT 10.6
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT
-----------------------------------------------------------
Warrant No. ____ Number of Shares: 25,000
(subject to adjustment)
Date of Issuance: October 28, 1994
FREE RADICAL SCIENCES, INC.
Common Stock Purchase Warrant
-----------------------------
(Void after October 28, 2004)
Free Radical Sciences, Inc., a Delaware corporation (the
"Company"), for value received, hereby certifies that Massachusetts
Institute of Technology (the "Investor"), or its registered assigns
(the "Registered Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company, at any time or from time to time
on or after the date of issuance and on or before October 28, 1999 at
not later than 5:00 p.m. (Boston, Massachusetts time), 25,000 shares of
Common Stock, $.01 par value per share, of the Company, at a purchase
price of $1.00 per share; PROVIDED HOWEVER, that if the term of the
Lease Agreement, dated October 28, 1994, between the Company and the
Investor (the "Lease Agreement"), is extended pursuant to Section 2.2
of the Lease Agreement, the Investor or the Registered Holder will be
entitled to purchase such shares at any time before the termination of
the Extension Term (as that term is defined in the Lease). The shares
purchasable upon exercise of this Warrant, and the purchase price per
share, each as adjusted from time to time pursuant to the provisions of
this Warrant, are hereinafter referred to as the "Warrant Shares" and
the "Purchase Price," respectively.
1. EXERCISE.
(a) This Warrant may be exercised by the Registered Holder,
in whole or in part, by surrendering this Warrant, with the purchase
form appended hereto as EXHIBIT I duly executed by such Registered
Holder or by such Registered Holder's duly authorized attorney, at the
principal office of the Company, or at such other office or agency as
the Company may designate, accompanied by payment in full, in lawful
money of the United States, of the Purchase Price payable in respect of
the number of Warrant Shares purchased upon such exercise.
<PAGE> 2
(b) The Registered Holder may, at its option, elect to pay
some or all of the Purchase Price payable upon an exercise of this
Warrant by cancelling a portion of this Warrant exercisable for such
number of Warrant Shares as is determined by dividing (i) the total
Purchase Price payable in respect of the number of Warrant Shares being
purchased upon such exercise by (ii) the excess of the Fair Market
Value per share of Common Stock as of the effective date of exercise,
as determined pursuant to subsection 1(c) below (the "Exercise Date")
over the Purchase Price per share. If the Registered Holder wishes to
exercise this Warrant pursuant to this method of payment with respect
to the maximum number of Warrant Shares purchasable pursuant to this
method, then the number of Warrant Shares so purchasable shall be equal
to the total number of Warrant Shares, minus the product obtained by
multiplying (x) the total number of Warrant Shares by (y) a fraction,
the numerator of which shall be the Purchase Price per share and the
denominator of which shall be the Fair Market Value per share of Common
Stock as of the Exercise Date. The Fair Market Value per share of
Common Stock shall be determined as follows:
(i) If the Common Stock is listed on a national
securities exchange, the NASDAQ National Market System, the NASDAQ
system, or another nationally recognized exchange or trading system as
of the Exercise Date, the Fair Market Value per share of Common Stock
shall be deemed to be the last reported sale price per share of Common
Stock thereon on the Exercise Date; or, if no such price is reported on
such date, such price on the next preceding business day (provided that
if no such price is reported on the next preceding business day, the
Fair Market Value per share of Common Stock shall be determined
pursuant to clause (ii)).
(ii) If the Common Stock is not listed on a national
securities exchange, the NASDAQ National Market System, the NASDAQ
system or another nationally recognized exchange or trading system as
of the Exercise Date, the Fair Market Value per share of Common Stock
shall be deemed to be the amount most recently determined by the Board
of Directors to represent the fair market value per share of the Common
Stock (including without limitation a determination for purposes of
granting Common Stock options or issuing Common Stock under an employee
benefit plan of the Company); and, upon request of the Registered
Holder, the Board of Directors (or a representative thereof) shall
promptly notify the Registered Holder of the Fair Market Value per
share of Common Stock. Notwithstanding the foregoing, if the Board of
Directors has not made such a determination within the three-month
period prior to the Exercise Date, then (A) the Fair Market Value per
share of Common Stock shall be the amount next determined by the Board
of Directors to represent the fair market value per
-2-
<PAGE> 3
share of the Common Stock (including without limitation a determination
for purposes of granting Common Stock options or issuing Common Stock
under an employee benefit plan of the Company), (B) the Board of
Directors shall make such a determination within 15 days of a request
by the Registered Holder that it do so, and (C) the exercise of this
Warrant pursuant to this subsection 1(b) shall be delayed until such
determination is made.
(c) Each exercise of this Warrant shall be deemed to have
been effected immediately prior to the close of business on the day on
which this Warrant shall have been surrendered to the Company as
provided in subsection 1(a) above. At such time, the person or persons
in whose name or names any certificates for Warrant Shares shall be
issuable upon such exercise as provided in subsection 1(d) below shall
be deemed to have become the holder or holders of record of the Warrant
Shares represented by such certificates.
(d) As soon as practicable after the exercise of this Warrant
in full or in part, and in any event within 10 days thereafter, the
Company, at its expense, will cause to be issued in the name of, and
delivered to, the Registered Holder, or as such Holder (upon payment by
such Holder of any applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of full
Warrant Shares to which such Registered Holder shall be entitled upon
such exercise plus, in lieu of any fractional share to which such
Registered Holder would otherwise be entitled, cash in an amount
determined pursuant to Section 3 hereof; and
(ii) in case such exercise is in part only, a new warrant
or warrants (dated the date hereof) of like tenor, calling in the
aggregate on the face or faces thereof for the number of Warrant Shares
equal (without giving effect to any adjustment therein) to the number
of such shares called for on the face of this Warrant minus the sum of
(a) the number of such shares purchased by the Registered Holder upon
such exercise plus (b) the number of Warrant Shares (if any) covered by
the portion of this Warrant cancelled in payment of the Purchase Price
payable upon such exercise pursuant to subsection 1(b) above.
2. ADJUSTMENTS.
(a) If outstanding shares of the Company's Common Stock shall
be subdivided into a greater number of shares or a dividend in Common
Stock shall be paid in respect of Common Stock, the Purchase Price in
effect immediately prior to such subdivision or at the record date of
such dividend shall simultaneously with the
-3-
<PAGE> 4
effectiveness of such subdivision or immediately after the record date
of such dividend be proportionately reduced. If outstanding shares of
Common Stock shall be combined into a smaller number of shares, the
Purchase Price in effect immediately prior to such combination shall,
simultaneously with the effectiveness of such combination, be
proportionately increased. When any adjustment is required to be made
in the Purchase Price, the number of Warrant Shares purchasable upon
the exercise of this Warrant shall be changed to the number determined
by dividing (i) an amount equal to the number of shares issuable upon
the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such
adjustment, by (ii) the Purchase Price in effect immediately after such
adjustment.
(b) If there shall occur any capital reorganization or
reclassification of the Company's Common Stock (other than a change in
par value or a subdivision or combination as provided for in subsection
2(a) above), or any consolidation or merger of the Company with or into
another corporation, or a transfer of all or substantially all of the
assets of the Company, then, as part of any such reorganization,
reclassification, consolidation, merger or sale, as the case may be,
lawful provision shall be made so that the Registered Holder of this
Warrant shall have the right thereafter to receive upon the exercise
hereof the kind and amount of shares of stock or other securities or
property which such Registered Holder would have been entitled to
receive if, immediately prior to any such reorganization,
reclassification, consolidation, merger or sale, as the case may be,
such Registered Holder had held the number of shares of Common Stock
which were then purchasable upon the exercise of this Warrant. In any
such case, appropriate adjustment (as reasonably determined in good
faith by the Board of Directors of the Company) shall be made in the
application of the provisions set forth herein with respect to the
rights and interests thereafter of the Registered Holder of this
Warrant, such that the provisions set forth in this Section 2
(including provisions with respect to adjustment of the Purchase Price)
shall thereafter be applicable, as nearly as is reasonably practicable,
in relation to any shares of stock or other securities or property
thereafter deliverable upon the exercise of this Warrant.
(c) When any adjustment is required to be made in the
Purchase Price, the Company shall promptly mail to the Registered
Holder a certificate setting forth the Purchase Price after such
adjustment and setting forth a brief statement of the facts requiring
such adjustment. Such certificate shall also set forth the kind and
amount of stock or other securities or property into which this Warrant
shall be exercisable following the occurrence of any of the events
specified in subsection 2(a) or (b) above.
-4-
<PAGE> 5
3. FRACTIONAL SHARES. The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares, but shall make
an adjustment therefor in cash on the basis of the Fair Market Value
per share of Common Stock, as determined pursuant to subsection 1(b)
above.
4. REQUIREMENTS FOR TRANSFER.
(a) This Warrant and the Warrant Shares shall not be sold or
transferred unless either (i) they first shall have been registered
under the Securities Act of 1933, as amended (the "Act"), or (ii) the
Company first shall have been furnished with an opinion of legal
counsel, reasonably satisfactory to the Company, to the effect that
such sale or transfer is exempt from the registration requirements of
the Act.
(b) Notwithstanding the foregoing, no registration or opinion
of counsel shall be required for (i) a transfer by a Registered Holder
which is a partnership to a partner of such partnership or a retired
partner of such partnership who retires after the date hereof, or to
the estate of any such partner or retired partner, if the transferee
agrees in writing to be subject to the terms of this Section 4, or (ii)
a transfer made in accordance with Rule 144 under the Act.
(c) Each certificate representing Warrant Shares shall bear a
legend substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be offered, sold or otherwise transferred, pledged or
hypothecated unless and until such securities are registered
under such Act or an opinion of counsel satisfactory to the
Company is obtained to the effect that such registration is
not required."
The foregoing legend shall be removed from the certificates
representing any Warrant Shares, at the request of the holder thereof,
at such time as they become eligible for resale pursuant to Rule 144(k)
under the Act.
5. NO IMPAIRMENT. The Company will not, by amendment of its
charter or through reorganization, consolidation, merger, dissolution,
sale of assets or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such
-5-
<PAGE> 6
action as may be necessary or appropriate in order to protect the
rights of the holder of this Warrant against impairment.
6. LIQUIDATING DIVIDENDS. If the Company pays a dividend or
makes a distribution on the Common Stock payable otherwise than in
cash out of earnings or earned surplus (determined in accordance with
generally accepted accounting principles) except for a stock dividend
payable in shares of Common Stock (a "Liquidating Dividend"), then the
Company will pay or distribute to the Registered Holder of this
Warrant, upon the exercise hereof, in addition to the Warrant Shares
purchased upon such exercise, the Liquidating Dividend which would
have been paid to such Registered Holder if he had been the owner of
record of such Warrant Shares immediately prior to the date on which a
record is taken for such Liquidating Dividend or, if no record is
taken, the date as of which the record holders of Common Stock
entitled to such dividends or distribution are to be determined.
7. NOTICES OF RECORD DATE, ETC. In Case:
(a) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time deliverable upon
the exercise of this Warrant) for the purpose of entitling or enabling
them to receive any dividend or other distribution, or to receive any
right to subscribe for or purchase any shares of stock of any class or
any other securities, or to receive any other right; or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation
or merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity),
or any transfer of all or substantially all of the assets of the
Company; or
(c) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Company,
then, and in each such case, the Company will mail or cause to be
mailed to the Registered Holder of this Warrant a notice specifying, as
the case may be, (i) the date on which a record is to be taken for the
purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the
effective date on which such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up
is to take place, and the time, if any is to be fixed, as of which the
holders of record of Common Stock (or such other stock or securities at
the time deliverable upon the exercise of this Warrant) shall be
entitled to exchange their shares of Common Stock (or such other stock
or
-6-
<PAGE> 7
securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be mailed at
least ten (10) days prior to the record date or effective date for the
event specified in such notice.
8. RESERVATION OF STOCK. The Company will at all times reserve
and keep available, solely for issuance and delivery upon the exercise
of this Warrant, such number of Warrant Shares and other stock,
securities and property, as from time to time shall be issuable upon
the exercise of this Warrant.
9. EXCHANGE OF WARRANTS. Upon the surrender by the Registered
Holder of any Warrant or Warrants, properly endorsed, to the Company at
the principal office of the Company, the Company will, subject to the
provisions of Section 4 hereof, issue and deliver to or upon the order
of such Holder, at the Company's expense, a new Warrant or Warrants of
like tenor, in the name of such Registered Holder or as such Registered
Holder (upon payment by such Registered Holder of any applicable
transfer taxes) may direct, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
10. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and (in the case of loss, theft or
destruction) upon delivery of an indemnity agreement (with surety if
reasonably required) in an amount reasonably satisfactory to the
Company, or (in the case of mutilation) upon surrender and cancellation
of this Warrant, the Company will issue, in lieu thereof, a new Warrant
of like tenor.
11. TRANSFERS, ETC.
(a) The Company will maintain a register containing the names
and addresses of the Registered Holders of this Warrant. Any Registered
Holder may change its or his address as shown on the warrant register
by written notice to the Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this
Warrant and all rights hereunder are transferable, in whole or in part,
upon surrender of this Warrant with a properly executed assignment (in
the form of EXHIBIT II hereto) at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant
as the absolute owner hereof for all purposes;
-7-
<PAGE> 8
PROVIDED, HOWEVER, that if and when this Warrant is properly assigned
in blank, the Company may (but shall not be obligated to) treat the
bearer hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.
12. REGISTRATION RIGHTS. The shares of Common Stock issuable upon
exercise of this Warrant shall have the registration rights set forth
in Section 3 of the Registration Rights Agreement, dated April 5, 1994,
between the Company and certain investors listed on the signature pages
thereto.
13. MAILING OF NOTICES, ETC. All notices and other communications
from the Company to the Registered Holder of this Warrant shall be
mailed by first-class certified or registered mail, postage prepaid, to
the address furnished to the Company in writing by the last Registered
Holder of this Warrant who shall have furnished an address to the
Company in writing. All notices and other communications from the
Registered Holder of this Warrant or in connection herewith to the
Company shall be mailed by first-class certified or registered mail,
postage prepaid, to the Company at its principal office set forth
below. If the Company should at any time change the location of its
principal office to a place other than as set forth below, it shall
give prompt written notice to the Registered Holder of this Warrant and
thereafter all references in this Warrant to the location of its
principal office at the particular time shall be as so specified in
such notice.
14. NO RIGHTS AS STOCKHOLDER. Until the exercise of this
Warrant, the Registered Holder of this Warrant shall not have or
exercise any rights by virtue hereof as a stockholder of the
Company.
15. CHANGE OR WAIVER. Any term of this Warrant may be
changed or waived only by an instrument in writing signed by the
party against which enforcement of the change or waiver is sought.
16. HEADINGS. The headings in this Warrant are for purposes
of reference only and shall not limit or otherwise affect the
meaning of any provision of this Warrant.
-8-
<PAGE> 9
17. GOVERNING LAW. This Warrant will be governed by and
construed in accordance with the laws of the Commonwealth of
Massachusetts.
FREE RADICAL SCIENCES, INC.
By: /s/ B. Nicholas Harvey
---------------------------------
[Corporate Seal] Title: CFO/Secretary
------------------------------
ATTEST:
----------------------------
-9-
<PAGE> 10
EXHIBIT I
---------
PURCHASE FORM
-------------
To: Free Radical Sciences, Inc. Dated:______________
The undersigned, pursuant to the
provisions set forth in the attached Warrant (No. ___), hereby
irrevocably elects to purchase _____ shares of the Common Stock covered
by such Warrant. The undersigned herewith makes payment of
$____________, representing the full purchase price for such shares at
the price per share provided for in such Warrant. Such payment takes
the form of (check applicable box or boxes):
/ / $_________ in lawful money
of the United States,
and/or
/ / the cancellation of such
portion of the attached
Warrant as is exercisable
for a total of ______
Warrant Shares (using a
Fair Market Value of
$_______ per share for
purposes of this
calculation).
Signature:__________________________
Address:____________________________
____________________________
<PAGE> 11
EXHIBIT II
----------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, ________________________________________
hereby sells, assigns and transfers all of the rights of the
undersigned under the attached Warrant (No. ____) with respect to the
number of shares of Common Stock covered thereby set forth below, unto:
Name of Assignee Address No. of Shares
---------------- ------- -------------
Dated:______________ Signature:_______________________________
Dated:______________ Witness:_________________________________
<PAGE> 1
EXHIBIT 10.7
LEASE
DATED: OCTOBER 28, 1994
MASSACHUSETTS INSTITUTE OF TECHNOLOGY, LESSOR
FREE RADICAL SCIENCES, INC., LESSEE
640 MEMORIAL DRIVE, CAMBRIDGE, MASSACHUSETTS
TABLE OF CONTENTS
-----------------
1.0 Parties and Premises.................................. 1
--------------------
1.1 Parties and Premises............................. 1
--------------------
1.2 Common Areas..................................... 1
------------
1.3 Cafeteria Expansion.............................. 2
-------------------
2.0 Term ................................................. 2
----
2.1 Term; Commencement Date.......................... 2
-----------------------
2.2 Extension Option................................. 2
----------------
3.0 Rent ................................................. 3
----
3.1 Payment of Rent.................................. 3
---------------
3.2 Computation of Basic Rent........................ 3
-------------------------
3.3 Determination of Fair Market Rent................ 3
---------------------------------
4.0 Permitted Uses........................................ 7
--------------
5.0 Taxes; Operating Expenses............................. 7
-------------------------
5.1 Taxes............................................ 7
-----
5.2 Operating Expenses............................... 8
------------------
5.3 Payment of Taxes and Operating Expenses.......... 10
---------------------------------------
5.4 Abatement of Taxes............................... 11
------------------
5.5 Audit of Books and Records....................... 12
--------------------------
6.0 Electric Service; Payment as Additional Rent.......... 12
--------------------------------------------
7.0 Insurance............................................. 12
---------
7.1 Public Liability Insurance....................... 12
--------------------------
7.2 Casualty Insurance............................... 13
------------------
7.3 Certificate of Insurance......................... 13
------------------------
7.4 Lessor's Insurance............................... 13
------------------
7.5 Waiver of Subrogation............................ 14
---------------------
7.6 Waiver of Rights................................. 14
----------------
8.0 Assignment and Subletting............................. 15
-------------------------
<PAGE> 2
9.0 Parking............................................... 19
-------
10.0 Late Payment of Rent.................................. 19
--------------------
11.0 Lessee's Covenants.................................... 20
------------------
12.0 Construction.......................................... 27
------------
13.0 Casualty and Eminent Domain........................... 27
---------------------------
13.1 Substantial Taking............................... 27
------------------
13.2 Partial Taking................................... 27
--------------
13.3 Awards........................................... 27
------
13.4 Substantial Casualty............................. 28
--------------------
13.5 Repair and Restoration........................... 28
----------------------
14.0 Defaults; Events of Default; Remedies................. 29
-------------------------------------
14.1 Defaults; Events of Default...................... 29
---------------------------
14.2 Termination...................................... 30
-----------
14.3 Survival of Covenants............................ 31
---------------------
14.4 Damages.......................................... 31
-------
14.5 Right to Relet................................... 32
--------------
14.6 Right to Equitable Relief........................ 33
-------------------------
14.7 Right to Self Help............................... 33
------------------
14.8 Further Remedies................................. 33
----------------
15.0 Real Estate Broker.................................... 33
------------------
16.0 Notices............................................... 34
-------
17.0 No Waivers............................................ 35
----------
18.0 Services Provided by Lessor........................... 35
---------------------------
19.0 Ground Leases; Mortgages.............................. 35
------------------------
19.1 Rights of Ground Lessors and Mortgagees.......... 35
---------------------------------------
19.2 Lease Subordinate................................ 36
-----------------
20.0 Notices of Lease; Estoppel Certificates............... 36
---------------------------------------
21.0 Holding Over.......................................... 37
------------
22.0 Force Majeure......................................... 37
-------------
23.0 Entire Agreement...................................... 37
----------------
24.0 Security Deposit...................................... 37
----------------
25.0 Warrants.............................................. 38
--------
26.0 Successors and Assigns................................ 38
----------------------
<PAGE> 3
27.0 Applicable Law, Severability and Construction......... 39
---------------------------------------------
28.0 Quiet Enjoyment....................................... 39
---------------
29.0 Authority............................................. 39
---------
EXHIBIT A: Plan of the Premises
EXHIBIT B: Plan of the Land
EXHIBIT C: Work Letter
EXHIBIT D: Lessor's Services
EXHIBIT E: Lessee' Services
EXHIBIT F: Warrant Agreement
<PAGE> 4
LEASE
Dated: October 28, 1994
1.0 Parties and Premises.
--------------------
1.1 PARTIES AND PREMISES. MASSACHUSETTS INSTITUTE OF
TECHNOLOGY ("Lessor") hereby LEASES unto FREE RADICAL
SCIENCES, INC. ("Lessee"), the following premises:
7,736 square feet of rentable area, shown as the
cross-hatched area on EXHIBIT A attached hereto (the
"Premises") located on the west side of the third
floor of the building known as and numbered 640
Memorial Drive, Cambridge, Massachusetts, containing a
total of 182,124 rentable square feet (the
"Building"), which is located on the parcel of land
shown on EXHIBIT B attached hereto (the "Land"),
together with the benefit of, and subject to (as the case
may be) all rights, easements, covenants, conditions,
encumbrances, encroachments and restrictions of record as
of the date of this Lease. Lessor shall have the right,
without the necessity of obtaining Lessee's consent thereto
or joinder therein, to grant, permit, or enter into during
the term of this Lease such additional rights, easements,
covenants, conditions, encumbrances, encroachments and
restrictions with respect to the Land as Lessor may deem
appropriate, PROVIDED THAT no such rights, easements,
covenants, conditions, encumbrances, encroachments or
restrictions shall materially affect Lessee's use of the
Premises for the "Permitted Uses" (as defined in Section
4.0 below).
Lessor hereby reserves the right to maintain, use, repair
and replace pipes, ducts, wires, meters and any other
equipment, machinery, apparatus and fixtures located within
the Premises and serving other parts of the Building.
Lessee, its employees and invitees shall have access to the
Premises at all times, subject to Lessor's reasonable
security procedures.
1.2 COMMON AREAS. Lessor also grants to Lessee, and Lessee's
invitees, the right, in common with others entitled
thereto, to use for the purposes for which they were
designed, the common facilities of the Building, including
but not limited to, all entrances, hallways, elevator
foyers, air shafts, elevator shafts
<PAGE> 5
and elevators, stairwells and stairs, restrooms, passenger
elevators, freight elevator, loading bays, and the "Parking
Area" (as defined in Section 9.0 below) (collectively, the
"Common Areas"). Lessor hereby reserves the right to close
the cafeteria in the Building.
1.3 CAFETERIA EXPANSION. In the event that at any time during
the Term, Lessor determines, after consulting the tenants
of the Building, to expand the cafeteria in the Building
(which expansion is anticipated to involve adding
approximately 2,600 usable square feet to the common area
of the Building), Lessor shall so notify Lessee and all
other tenants of the Building and include in such notice a
recalculation of the rentable area of each of their
premises to reflect the increase in the common area of the
Building. Such notices shall be effective upon the opening
for business of the expansion portion of the cafeteria. Any
such expansion of the cafeteria shall be performed at
Lessor's sole cost and no portion of such cost shall be
included in "Operating Expenses" (as hereinafter defined).
2.0 Term; Commencement Date; Extension Option.
-----------------------------------------
2.1 TERM; COMMENCEMENT DATE. The initial term of this Lease
(the "Initial Term") shall commence on the "Commencement
Date" (as defined in the Work Letter attached hereto as
EXHIBIT C), and expire on the day immediately preceding the
fifth (5th) anniversary thereof, unless sooner terminated
as hereinafter provided. For purposes of this Lease, the
phrase "Term" shall mean collectively (a) the Initial Term,
and (b) if Lessee duly exercises the "Extension Option,"
the "Extension Term" (as these phrases are defined in
Section 2.2 below).
2.2 EXTENSION OPTION. (a) Lessee acknowledges that its option
to extend the Term of this Lease as provided in this
Section 2.2 (the "Extension Option") for a term of five (5)
additional years (unless sooner terminated as hereinafter
provided) (the "Extension Term"), is subject to prior
rights of Lifeline Systems, Inc., Endogen, Incorporated,
and Pathology Services, Inc. (collectively, the "Offerees")
to lease the Premises upon the expiration of the Initial
Term. Lessor shall give written notice of the availability
for lease of the Premises upon the expiration of the
Initial Term to each of the Offerees prior to the
commencement of
-2-
<PAGE> 6
the last Lease Year of the Initial Term, offering to lease
the Premises upon the terms set forth in Lessor's written
offer. After Lessor receives the response of all of the
Offerees (or if no response is received by Lessor within
the time provided therefor), Lessor shall give written
notice (the "Availability Notice") to Lessee of whether the
Premises are available to Lessee for the exercise of its
Extension Option. Lessor shall give the Availability Notice
to Lessee not later than the first day of the fifth Lease
Year.
(b) Provided that (x) none of the Offerees accepts Lessor's
offer to lease the Premises upon the expiration of the
Initial Term, and (y) no "Event of Default" (as defined in
Section 14.1 below) has occurred prior to the day on which
Lessor gives the Availability Notice or prior to the first
day of the Extension Term, and (z) the Lessee named herein
is actually occupying the entire Premises as of each of the
dates described in the preceding clause (y), Lessee shall
have the option to exercise the Extension Option by giving
written notice thereof ("Lessee's Exercise Notice") to
Lessor within two (2) months after Lessor gives the
Availability Notice to Lessee. If Lessee gives Lessee's
Exercise Notice to Lessor within such 2-month period, then
(subject to the rescission of Lessee's Exercise Notice as
provided in Section 3.3 below), the Lease Term shall be
extended for the Extension Term subject to all the terms of
this Lease except for the change in Basic Rent as provided
in Section 3.2(c) of this Lease. If Lessee fails to give
such notice to Lessor within such time, Lessee shall be
deemed to have waived the right to exercise the Extension
Option.
(c) Lessor agrees from and after the date of this Lease not
to grant to any third party any right to lease all or any
portion of the Premises upon the expiration of the Initial
Term which right would be superior to the Extension Option
granted in this Section 2.2 to Tenant.
3.0 Rent.
----
3.1 PAYMENT OF RENT. Lessee shall pay Lessor, without offset or
deduction and without previous demand therefor, as items
constituting rent (collectively, "Rent"):
-3-
<PAGE> 7
(a) Basic rent ("Basic Rent") at the rate hereinafter
set forth, in equal monthly installments, in
advance, commencing on the Commencement Date, and
continuing thereafter on the first day of each
calendar month or portion thereof during the
Term. Basic Rent shall be PRO-RATED for partial
months occurring at the beginning or the end of
the Term; and
(b) All other costs, charges, or expenses which
Lessee in this Lease agrees to pay, or which
Lessor pays or incurs as the result of a default
by Lessee hereunder, including any penalty or
interest which may be added for nonpayment or
late payment thereof as provided in this Lease
(collectively, "Additional Rent"). All recurring
payments of Additional Rent, such as payment on
account of "Taxes" and "Operating Expenses" (as
these terms are hereinafter defined), shall be
due and payable on the same day on which Basic
Rent is due. Unless otherwise specifically
provided in this Lease, all non-recurring items
constituting Additional Rent shall be due and
payable within ten (10) days after written demand
therefor by Lessor.
All payments shall be made to Lessor or such agent, and at
such place, as Lessor shall, from time to time, in writing
designate, the following being now so designated:
Meredith & Grew, Inc.
160 Federal Street
Boston, MA 02110-1701
Attention: Kristin Blount
3.2 COMPUTATION OF BASIC RENT. Basic Rent shall be due
and payable hereunder in the following amounts:
(a) for each of the first two (2) Lease Years in the
Initial Term, $13.50 per rentable square foot of area
per Lease Year ($104,436.00 per Lease Year), in
installments of $8,703.00 per month;
(b) for each of the remaining three (3) Lease Years in the
Initial Term, $16.00 per rentable square foot of area
per Lease Year ($123,776.00 per Lease Year), in
installments of $10,314.67 per month; and
-4-
<PAGE> 8
(c) for each Lease Year in the Extension Term, an amount
equal to the "Fair Market Rent" (as defined in Section
3.3 below) of the Premises as of the first day of the
Extension Term.
As used in this Lease, "Lease Year" means the twelve (12)
month period commencing on the Commencement Date, or a
successive twelve (12) month period included in the Term
commencing on an anniversary of that day, but if the
expiration of the Term or the earlier termination of the
Lease does not coincide with the termination of such a
twelve (12) month period, the term "Lease Year" shall mean
the portion of such twelve (12) month period before such
expiration or termination.
3.3 DETERMINATION OF FAIR MARKET RENT. As used in this Lease,
"Fair Market Rent" means the effective fair market rent for
the Premises in its "as is" condition, including those
portions of the "Initial Improvements" (as defined in the
Work Letter attached hereto as EXHIBIT C) and "Alterations"
(as defined in Section 11.0(f) below) which Lessee is not
permitted or required hereunder to remove at the expiration
or earlier termination of this Lease), as of the day with
respect to which such determination is being made, for a
term of five (5) years. Fair Market Rent shall be based
upon the rents generally in effect for similar premises for
office/research and development uses in similar buildings
in the Cambridge, Massachusetts area in which the Premises
is located, adjusted to a "net" lease basis, taking into
account all facts and circumstances customarily taken into
account by prudent and commercially reasonable lessors and
lessees including, without limitation, concessions then
customarily granted to lessees of similar premises for
similar uses in similar buildings in the Cambridge,
Massachusetts area in which the Premises is located, but
specifically excluding moving allowances.
Within ten (10) days after Lessor receives Lessee's
Exercise Notice, Lessor shall provide to Lessee Lessor's
good faith determination of Fair Market Rent. If Lessor and
Lessee are unable to agree on the Fair Market Rent within
thirty (30) days thereafter, then Lessee shall have the
right, by giving written notice to Lessor within ten (10)
days after the expiration of such 30-day period, to rescind
its exercise of the Extension Option, in which case the
Lease Term shall expire on the last day of the Initial
Term. If Lessee
-5-
<PAGE> 9
does not give such notice of rescission to Lessor within
such 10-day period, then Lessor and Lessee shall, not later
than thirty (30) days after the expiration of such initial
30-day period, each retain a real estate professional with
at least ten (10) years' continuous experience in the
business of appraising or marketing commercial real estate
in the Cambridge, Massachusetts vicinity, who shall, within
thirty (30) days of his or her selection, prepare a written
report summarizing his or her conclusion as to Fair Market
Rent. Lessor and Lessee shall simultaneously exchange such
reports; PROVIDED, HOWEVER, that if one party has not
obtained such a report within such 30-day period, then the
determination set forth in the other party's report shall
be final and binding upon the parties. If both parties
receive reports within such time and the lesser of the two
determinations is within ten (10%) percent of the higher
determination, then the average of these determinations
shall be deemed to be Fair Market Rent. If these
determinations differ by more than ten (10%) percent, then
Lessor and Lessee shall mutually select a person with the
qualifications stated above (the "Final Professional") to
resolve the dispute as to Fair Market Rent. If Lessor and
Lessee cannot agree upon the designation of the Final
Professional within thirty (30) days of the exchange of the
first valuation reports, either party may apply to the
American Arbitration Association, the Greater Boston Real
Estate Board, or any successor thereto for the designation
of a Final Professional. Within ten (10) days of the
selection of the Final Professional, Lessor and Lessee
shall each submit to the Final Professional a copy of their
respective real estate professional's determination of Fair
Market Rent. The Final Professional shall not perform his
or her own valuation but rather shall, within thirty (30)
days after such submissions, select the submission which is
closest to the determination of Fair Market Rent which the
Final Professional would have made acting alone. The Final
Professional shall give notice of his or her selection to
Lessor and Lessee and such decision shall be final and
binding upon Lessor and Lessee. Each party shall pay the
fees and expenses of its real estate professional and
counsel, if any, in connection with any proceeding under
this paragraph, and the losing party shall pay the fees and
expenses of the Final Professional.
-6-
<PAGE> 10
In the event that Fair Market Rent has not been finally
determined in the manner provided above as of the first day
of any Extension Term, then Basic Rent shall be due and
payable at the rate stated by Lessor as its good faith
estimate of Fair Market Rent, and Lessor and Lessee shall
make such adjustment (and payment or credit as necessary)
within thirty (30) days after Fair Market Rent is finally
determined.
4.0 PERMITTED USES. The Premises shall be occupied continuously
by Lessee and used for the following purposes (the
"Permitted Uses") only and for no other:
Office/research and development and accessory laboratory
uses; in each case to the extent permitted as a matter of
right under the Zoning Ordinance of the City of Cambridge
as of the date of this Lease.
5.0 TAXES; OPERATING EXPENSES.
5.1 TAXES. Lessee shall pay as Additional Rent its pro rata
share ("Lessee's Share") of all taxes, special or general
assessments, water rents, rates and charges, sewer rents
and other impositions and charges imposed by governmental
authorities of every kind and nature whatsoever,
extraordinary as well as ordinary and each and every
installment thereof which shall or may during the Term be
charged, levied, laid, assessed, imposed, become due and
payable or become liens upon or for or with respect to the
Land or any part thereof and the Building or the Premises,
or appurtenances or equipment owned by Lessor thereon or
therein or any part thereof, or on this Lease, and any tax
based on a percentage fraction or capitalized value of the
Rent (whether in lieu of or in addition to the taxes
hereinbefore described) (collectively, "Taxes"). Taxes
shall not include inheritance, estate, excise, succession,
transfer, gift, franchise, income, gross receipt, or profit
taxes except to the extent such are in lieu of or in
substitution for Taxes as now imposed on the Building, the
Land, the Premises or this Lease (and if any such tax rate
is based upon Lessor's income, such tax shall be applied to
the Building and the Land as if they were the only
income-generating real property owned by Lessor in the
Commonwealth of Massachusetts). "Lessee's Share" shall be
computed on the basis of a fraction whose numerator is the
number of rentable square feet in the Premises and whose
-7-
<PAGE> 11
denominator is the total number of rentable square feet in
the Building. As of the date hereof, Lessee's Share is
4.25%.
5.2 OPERATING EXPENSES. Lessee shall pay as Additional Rent
Lessee's Share of all expenses, costs, and disbursements of
every kind and nature (collectively, "Operating Expenses")
which Lessor shall pay or become obligated to pay in
connection with the ownership, operation and maintenance of
the Building or the Land, including all facilities in
operation on the Commencement Date and such additional
facilities in subsequent years as may be determined by
Lessor to be necessary or beneficial for the operation of
the Building or the Land or the provision of services to
lessees, including, but not limited to:
(a) all salaries, wages, fringe benefits, payroll taxes
and workmen's compensation insurance premiums related
thereto of and for employees engaged in the operation
of the Building and the Land (with respect to
employees who are engaged in the operation of other
properties as well as the Building and the Land,
these amounts shall be prorated on the basis of the
relative amount of time spent by such employees on
the various properties);
(b) painting, repairs, maintenance and cleaning of all
Common Areas;
(c) utilities (including, without limitation, electricity,
water, sewer and gas) for all interior Common Areas
and lighting of exterior areas and the "Parking Area"
(as defined in Section 9.0 below);
(d) maintenance and repair of the Building heating and
cooling systems, the plumbing systems, the fire
detection and suppression systems, the electrical
system and the elevators;
(e) all maintenance, janitorial, and service agreements;
(f) all insurance, including the cost of casualty and
liability insurance applicable to the Parking Area,
the Land, the Building and Lessor's personal property
used in connection therewith,
-8-
<PAGE> 12
including the amount of any reasonable deductible
payable by Lessor in making repairs and restoration
after a casualty;
(g) maintenance of landscaped areas and paved areas, and
snow removal;
(h) maintenance of the Building security system;
(i) management fees not in excess of those customarily
charged in arm's length transactions for properties
comparable to the Land and the Building in the
vicinity of the Building, and the fair market value of
office space for the manager of the Building;
(j) capital items which are for the purpose of reducing
Operating Expenses or upgrading services or which are
required by a governmental authority or the provisions
of any insurance policy which is first adopted or
first becomes applicable to the Premises, the Building
or the Land after the date of this Lease, amortized
over the reasonable life of the capital items on a
straight line basis with the reasonable life being
determined by Lessor in accordance with generally
accepted accounting principles;
(k) reasonable expenses incurred in pursuing an
application for an abatement of Taxes pursuant to
Section 5.4 below;
(l) legal (excluding legal fees with respect to lease
negotiations and enforcement of lease terms against
lessees), accounting and other professional fees and
disbursements (excluding leasing commissions);
(m) all costs and expenses incurred by Lessor in
connection with the operation of the cafeteria in
the Building; PROVIDED, HOWEVER, that notwithstanding
anything to the contrary contained in this Lease,
(i) all subsidies or other amounts payable by Lessor
to the cafeteria operator, (ii) the cost of all
services which are separately invoiced to Lessor for
the cafeteria (e.g., cleaning), and (iii) the cost to
Lessor of supplying to the cafeteria separately
metered utilities shall be allocated 100% among the
occupants of the Building at the time that these
-9-
<PAGE> 13
costs and expenses are incurred and no portion of
these costs and expenses shall be borne by Lessor; and
PROVIDED FURTHER that this item (m) shall be included
in Operating Expenses hereunder only for so long as
the cafeteria is available to all tenants of the
Building on an equal basis;
(n) services to be provided by Lessor as set forth on
EXHIBIT D attached.
There shall be excluded from "Operating Expenses" for the
purposes of this Lease (1) costs and expenses incurred by
Lessor in connection with the removal or remediation of
"Hazardous Materials" (as hereinafter defined) present in
the Building, or in, on or under the surface of the Land,
as of the date of this Lease, or (2) the correction of
construction defects in the Building.
In the event that the average occupancy rate for the
Building is less than ninety-five (95%) percent for any
fiscal year, then for purposes of calculating Operating
Expenses, the Operating Expenses for such fiscal year shall
be increased by the additional costs and expenses that
Lessor reasonably estimates would have been incurred if the
average occupancy rate had been ninety-five (95%) percent
for such fiscal year. It is not the intent of this
provision to permit Lessor to charge Lessee for any
Operating Expenses attributable to unoccupied space, or to
seek reimbursement from Lessee for costs Lessor never
incurred. Rather, the intent of this provision is to allow
Lessor to recover only those increases in Operating
Expenses properly attributable to occupied space in the
Building and this provision is designed to calculate the
actual cost of providing a variable Operating Expense
service to the portions of the Building receiving such
service. This "gross-up" treatment shall be applied only
with respect to variable Operating Expenses arising from
services provided to leased space in the Building in order
to allocate equitably such variable Operating Expenses to
the lessees of the Building.
5.3 PAYMENT OF TAXES AND OPERATING EXPENSES. On or about the
Commencement Date, and thereafter within a reasonable time
after the end of each fiscal year (or portion thereof)
included in the Term, Lessor shall deliver to Lessee (i) a
statement of actual Operating Expenses and Taxes for the
fiscal year just ended,
-10-
<PAGE> 14
together with reasonable supporting documentation therefor,
and (ii) a budget of Operating Expenses and Taxes for the
then-current fiscal year based on the actual Operating
Expenses and Taxes for the preceding year and projected
increases or decreases reasonably anticipated by Lessor.
Commencing on the Commencement Date Lessee shall pay to
Lessor, as Additional Rent, on account of its share of
anticipated Operating Expenses and Taxes for the
then-current year, 1/12th of the total annualized amount of
Lessee's Share of Operating Expenses and Taxes as shown on
such budget (but if such budget is delivered by Lessor
after the Commencement Date, then Lessee shall commence
such payments on the next day on which Basic Rent is due
and payable hereunder after such delivery, but Lessee shall
pay on such date all installments of Taxes and Operating
Expenses accrued from the Commencement Date to such date).
Lessor reserves the right to revise the budget during any
fiscal year to cause it to more accurately reflect the
actual Taxes or Operating Expenses being paid or incurred
by Lessor, and upon any such revision the parties shall
make adjustments in the same time and manner as hereinafter
provided for fiscal year-end adjustments. Upon delivery to
Lessee of the statement of actual Operating Expenses and
Taxes for the preceding fiscal year, Lessor shall adjust
Lessee's account accordingly. If the total amount paid by
Lessee on account of the preceding fiscal year is less than
the amount due hereunder, Lessee shall pay the balance due
within twenty (20) days after delivery by Lessor of such
statement. If the total amount paid by Lessee on account of
the preceding fiscal year exceeds the amount due hereunder,
such excess shall be credited by Lessor against the monthly
installments of Additional Rent next falling due or
refunded to Lessee upon the expiration or termination of
this Lease. Lessor's current fiscal year is July 1-June 30,
but Lessor reserves the right to change the fiscal year at
any time during the Term.
5.4 ABATEMENT OF TAXES. Lessor may at any time and from time to
time make application to the appropriate governmental
authority for an abatement of Taxes. If (i) such an
application is successful and (ii) Lessee has made any
payment in respect of Taxes pursuant to Section 5 for the
period with respect to which the abatement was granted,
Lessor shall (a) pay to Lessee Lessee's Share (adjusted for
any period for which Lessee had made a partial payment) of
the abatement,
-11-
<PAGE> 15
with interest, if any, paid by the governmental authority
on such abatement, and (b) retain the balance, if any.
5.5 AUDIT OF BOOKS AND RECORDS. Lessee shall have the right, at
Lessee's sole expense, upon reasonable advance written
request to Lessor, to audit, or to cause its designees to
audit, Lessor's books and records relating to Operating
Expenses and Taxes for the fiscal year just ended (and not
for any other fiscal year) by giving written notice to
Lessor within sixty (60) days after Lessee's receipt of the
statement described in Section 5.3 above. Any such audit
shall be conducted during Lessor's normal business hours at
the location at which Lessor maintains the books and
records relating to the Building, and shall be concluded
within thirty (30) days after it is commenced. During the
pendency of such audit, Tenant shall continue to make
payments on account of Operating Expenses at the time, in
the manner, and in the amounts set forth in the preceding
sections of this Section 5.0. If, after such audit, a
certified public accountant certifies in writing to Lessor
and Lessee that the Operating Expenses for the fiscal year
just ended differed by more than five (5%) percent from
those set forth in the statement delivered by Lessor to
Lessee pursuant to Section 5.3 above, then there shall be
an adjustment made between Lessor and Lessee in the manner
provided in Section 5.3 above.
6.0 ELECTRIC SERVICE; PAYMENT AS ADDITIONAL RENT. Lessee shall make
its own arrangements for the provision of electricity to the
Premises, and shall pay when due, as Additional Rent, all charges
therefor directly to the company which provides such electrical
service. Lessor hereby represents to Lessee that electricity will
be made available to Lessee at the Premises at the utility
company's customary rates therefor.
7.0 INSURANCE
7.1 PUBLIC LIABILITY INSURANCE. Lessee shall take out and
maintain in force throughout the Term (and for so long
thereafter as Lessee remains in occupancy) comprehensive
public liability insurance naming Lessor and persons
claiming by, through or under Lessor as additional
insureds, against all claims and demands for any injury to
persons or property which may be claimed to have occurred
on the Premises, the Building, the Land or on the ways
adjoining the Land,
-12-
<PAGE> 16
in an amount which at the beginning of the Term shall not
be less than $1,000,000 for personal injury or death or
property damage per occurrence, and $3,000,000 in the
aggregate for personal injury or death or property damage,
or such higher amounts as Lessor thereafter reasonably
determines to be consistent with sound commercial practice
in Cambridge. Such policy shall also include contractual
liability coverage covering Lessee's liability assumed
under this Lease.
7.2 CASUALTY INSURANCE. Lessee shall take out and maintain
throughout the Lease Term a policy of fire, vandalism,
malicious mischief, extended coverage and so-called all
risk coverage insurance insuring "Lessee's Property" (as
defined in Section 11.0(i) below) for the benefit of Lessor
and Lessee, as their respective interests may appear, in an
amount equal to the replacement value thereof. Lessor shall
be named as a certificate holder on such policy. Lessor
shall, at Lessee's cost and expense, cooperate fully with
Lessee and execute any and all consents and other
instruments and take all other actions necessary to obtain
the largest possible recovery. Lessor shall not carry any
insurance concurrent in coverage and contributing in the
event of loss with any insurance required to be furnished
by Lessee hereunder if the effect of such separate
insurance would be to reduce the protection or the payment
to be made under Lessee's insurance.
7.3 CERTIFICATE OF INSURANCE. The insurance required by
Sections 7.1 and 7.2 above shall be placed with insurers
reasonably satisfactory to Lessor and authorized to do
business in Massachusetts. Such insurance shall provide
that it shall not be amended or canceled with respect to
the additional insureds or certificate holders without
thirty (30) days' prior written notice to each of them.
Lessee shall furnish to Lessor certificates of insurance
for all insurance required to be maintained by Lessee under
this Lease, together with evidence satisfactory to Lessor
of the payment of all premiums for such policies. Lessee,
at Lessor's request, shall also deliver such certificates
and evidence of payment of premiums to the holder of any
mortgage affecting the Land and Building.
7.4 LESSOR'S INSURANCE. Lessor shall take out and maintain in
force throughout the Term, in a company or companies
authorized to do business in Massachusetts,
-13-
<PAGE> 17
casualty insurance on the Building (exclusive of "Lessee's
Property" (as defined in Section 11.0(i) below)) in an
amount equal to the full replacement cost of the Building
(exclusive of foundations and those items set forth in the
preceding parenthetical in this sentence), covering all
risks of direct physical loss or damage and so-called
"extended coverage" risks. This insurance may be maintained
in the form of a blanket policy covering the Building as
well as other properties owned by Lessor. Notwithstanding
the foregoing provisions of this Section 7.4, while the
Massachusetts Institute of Technology is the lessor
hereunder, it shall have the right, at any time during the
Term, to self-insure all or any portion of the coverages
required by this Section.
7.5 WAIVER OF SUBROGATION. To the extent to which a waiver of
subrogation clause is available, Lessor and Lessee shall
obtain a provision in all insurance policies carried by
such party covering the Premises, including but not limited
to contents, fire and casualty insurance, expressly waiving
any right on the part of the insurer against the other
party. If extra cost is chargeable for such provision, then
the party requesting such provision shall pay such extra
cost. Notwithstanding the foregoing, with respect to such
portion of the Term during which Lessor elects to
self-insure under Section 7.4 above, then for purposes of
this Section 7.5, Lessor shall be deemed to have maintained
fire and all-risk coverage in an amount equal to one
hundred (100%) percent of the replacement cost of the
Building (subject to the exceptions and exclusions set
forth in Section 7.4 above) with a waiver of subrogation
clause contained therein.
7.6 WAIVER OF RIGHTS. All claims, causes of action and rights
of recovery for any damage to or destruction of persons,
property or business which shall occur on or about the
Premises, the Building or the Land, which result from any
of the perils insured under any and all policies of
insurance maintained by Lessor or Lessee, are waived by
each party as against the other party, and the officers,
directors, employees, contractors, servants and agents
thereof, regardless of cause, including the negligence of
the other party and its respective officers, directors,
employees, contractors, servants and agents, but only to
the extent of recovery, if any, under such policy or
policies of insurance; PROVIDED, HOWEVER, that (i)
-14-
<PAGE> 18
this waiver shall be null and void to the extent that any
such insurance shall be invalidated by reason of this
waiver, and (ii) with respect to such portion of the Term
during which Lessor elects to self-insure under Section 7.4
above, then for purposes of this Section 7.6, Lessor shall
be deemed to have maintained fire and all-risk coverage in
an amount equal to one hundred (100%) percent of the
replacement cost of the Building (subject to the exceptions
and exclusions set forth in Section 7.4 above).
8.0 ASSIGNMENT AND SUBLETTING. (a) Except as hereinafter provided in
subparagraph (j) of this Section 8.0, Lessee shall not mortgage,
pledge, hypothecate, grant a security interest in, or otherwise
encumber this Lease or any sublease hereinafter entered into by
Lessee, or assign this Lease, or sublease the Premises or any
portion thereof (the term "sublease" shall be deemed to include
any arrangement pursuant to which a third party is permitted by
Lessee to occupy all or any portion of the Premises), without
obtaining, on each occasion, the prior written consent of Lessor,
which consent shall not be unreasonably withheld as to an
assignment or sublease. Notwithstanding anything to the contrary
herein contained, Lessee shall not have the right to assign this
Lease or to sublet any portion of the Premises prior to the first
anniversary of the Commencement Date. Notwithstanding anything to
the contrary herein contained, Lessee shall have the right to
enter into leases or financing arrangements of personal property
placed within the Premises without the necessity of obtaining
Lessor's prior written consent provided that such arrangements
involve only discrete, removable items of personal property which
Lessee identifies by description or serial number in writing to
Lessor at the time Lessee enters into such lease or financing
arrangement.
(b) If Lessee wishes to assign this Lease or sublease all or any
portion of the Premises, Lessee shall so notify Lessor in writing
and request Lessor's consent thereto. Such notice shall include
(i) the name of the proposed assignee or sublessee, (ii) a
general description of the types of business conducted by the
proposed assignee or sublessee and a reasonably detailed
description of the business operations proposed to be conducted
in the Premises by such person or entity, (iii) such financial
information concerning the proposed assignee or sublessee as
Lessor may reasonably require, and (iv) all terms and provisions
upon which such assignment or sublease is proposed to be made,
including a copy of the assignment or sublease-agreement which
Lessee proposes to execute. Lessor shall have fifteen
-15-
<PAGE> 19
(15) business days from the day on which it receives Lessee's
notice and such required information to give notice to Lessee
that either (i) Lessor consents to such assignment or sublease,
or (ii) Lessor withholds its consent to such assignment or
sublease (which consent shall not be unreasonably withheld), in
which event Lessor shall state its reasons therefor in such
notice with reasonable specificity, or (iii) where applicable,
Lessor is exercising its right of recapture pursuant to paragraph
(e) below.
(c) If Lessor consents to an assignment or sublease: (i) Lessee
shall promptly deliver to Lessor a fully executed copy of said
assignment or sublease, which shall be in the form previously
submitted to Lessor for review; (ii) after any such assignment or
sublease, Lessee shall remain primarily liable to Lessor
hereunder (which liability shall be joint and several with the
assignee or sublessee); and (iii) if the aggregate rent and other
amounts payable to Lessee under or in connection with such
assignment or sublease, after deduction of the costs reasonably
incurred by Lessee in entering into such assignment or sublease
(including, without limitation, reasonable attorneys' fees and
expenses, brokerage commissions, and alteration costs amortized
on a straight-line basis over the term of such sublease or, in
the case of an assignment, over the remaining Term of this
Lease), exceeds the Rent payable hereunder with respect to the
portion of the Premises subject to such sublease (or, in the case
of an assignment, the entire Premises), Lessee shall pay to
Lessor, as Additional Rent, one-half (1/2) of the amount of such
excess immediately upon receipt thereof by Lessee.
(d) If Lessor withholds its consent to such assignment or
sublease, Lessee shall not enter into the proposed assignment or
sublease with such person or entity.
(e) If Lessor elects, it shall have the right to consider
Lessee's request for Lessor's consent to any assignment of the
Lease, or a request for Lessor's consent to a sublease which
either (i) has a proposed term (including extension options) of
two years or more, or (ii) would cover ten (10%) percent of the
rentable area of the Premises or more, as an offer to Lessor to
release from this Lease that portion of the Premises which is
proposed to be the subject of such sublease for the term of such
proposed sublease or, in the case of a proposed assignment of
this Lease, the entire Premises for the entire Lease Term. If
Lessor accepts such offer, then (i) in the case of a proposed
sublease, this Lease shall be deemed to be amended as of the
proposed effective date of such sublease so as to delete the
portion
-16-
<PAGE> 20
of the Premises which would have been subject thereto from the
Premises for purposes of this Lease (with a commensurate
adjustment in Rent and Lessee's Share) for the time period of
what would have been the term of such sublease, or (ii) in the
case of a proposed assignment, this Lease shall terminate as of
the proposed effective date of such assignment as if such date
was the last day of the Term.
(f) Regardless of whether Lessor grants such consent, Lessee
shall reimburse Lessor on demand, as Additional Rent, for all out
of pocket costs and expenses (including, without limitation,
attorneys' fees) reasonably incurred by Lessor in responding to a
request for such consent.
(g) Lessee shall not be entitled to enter into any assignment or
sublease, or to request Lessor's consent thereto, during the
continuance of a default hereunder by Lessee.
(h) Any assignment or sublease entered into pursuant to this
Section 8.0 shall be subject to all of the terms and provisions
of this Lease, including without limitation this Section 8.0. If
Lessee enters into any such assignment or sublease, Lessor may,
at any time and from time to time after the occurrence of a
default hereunder, collect rent from such assignee or sublessee,
and apply the net amount collected against Lessee's obligations
hereunder, but no such assignment or sublease or collection shall
be deemed an acceptance by Lessor of such assignee or sublessee
as a lessee hereunder or as a release of the original named
Lessee hereunder.
(i) Notwithstanding anything contained in this Lease, Lessee
shall not enter into any assignment or sublease with any person
or entity if the identity of the assignee or sublessee is
inconsistent with the investment policies of Lessor as set forth
in writing by the Executive Committee of Lessor prior to its
receipt of Lessee's notice of such proposed assignment or
sublease, and any such transaction shall be void ABINITIO. From
time to time during the Term (but not more frequently than once
per Lease Year), Lessee may request in writing that Lessor
deliver to it copies of all investment policies set forth in
writing by the Executive Committee of Lessor since the last
request made by Lessee which are relevant to the Premises or to
this Lease, and Lessor shall provide the same within a reasonable
time after receiving such request. Lessee shall maintain the
confidentiality of all investment policies provided by Lessor
pursuant to this Section, and shall not disclose the
-17-
<PAGE> 21
contents thereof or distribute copies thereof to any persons
whatsoever without the prior written consent of Lessor in each
instance.
(j) In the event that Lessee desires to assign this Lease or to
sublease the Premises (or any portion thereof) to any
corporation, partnership, association or other business
organization directly or indirectly controlling or controlled by
Lessee or under common control with Lessee, or to any successor
by merger, consolidation or purchase of all or substantially all
of the assets or stock of Lessee, Lessee shall give at least
twenty (20) days' prior written notice thereof to Lessor (unless
Lessee is prohibited by applicable laws, codes, rules or
regulations, or by the terms of the operative merger agreement or
purchase and sale agreement from providing notice to Lessor at
such time, in which event such notice shall be provided to Lessor
as soon as Lessee is no longer subject to such prohibition).
Notwithstanding any other provision of this Lease to the
contrary, no consent of Lessor shall be required for any such
assignment or sublease EXCEPT that Lessor shall have the right to
withhold its consent if the identity of the assignee or sublessee
is inconsistent with the investment policies identified in the
foregoing paragraph (i) of this Section. Any assignee or
sublessee which claims an interest in this Lease pursuant to a
transfer of the type described in this paragraph (j) shall be
bound by all of the terms and conditions of this Lease including,
without limitation, those of the foregoing paragraph (i) of this
Section, and if the identity of such assignee or successor is
inconsistent with such investment policies, Lessor shall have the
right to terminate this Lease and to exercise against such
assignee or sublessee the remedies available to Lessor under this
Lease, at law or in equity for a breach of the provisions hereof
by Lessee. For the purpose of this Lease, the sale of Lessee's
capital stock through any public exchange or private placement
shall not be deemed an assignment or sublease of the Lease or of
the Premises and no consent thereto shall be required.
(k) Notwithstanding anything contained in this Lease, Lessee
shall not, either voluntarily or by operation of law, make any
transfer of this Lease or the Premises (or any portion thereof)
which results in Lessee (or anyone claiming by, through or under
Lessee) collecting in connection with the Premises any rental or
other charge based on the net income or on the profits of any
person so as to render any
-18-
<PAGE> 22
part of the Rent due hereunder "unrelated business taxable
income" of Lessor as described in Section 512 of the Internal
Revenue Code of 1986, as amended, and any such transfer shall be
void AB INITIO.
9.0 PARKING. Lessee shall have the right to lease in the parking area
on the Land (the "Parking Area") up to one and one-half (1.5)
spaces per 1,000 square feet of rentable area in the Premises
(the "On-Site Parking Spaces"). Lessee shall have the right to
lease up to twelve (12) parking spaces in the Parking Area.
Lessee shall give written notice to Lessor not later than the
Commencement Date setting forth the number (not to exceed twelve)
of such parking spaces which Lessee will lease as of the
Commencement Date, and Lessee shall have the right to give
further written notice to Lessor during the first nine (9) months
of the Term to increase the number of parking spaces leased by
Lessee (but in no event shall Lessee have the right to lease, in
the aggregate, more than twelve (12) parking spaces in the
Parking Area. Lessee shall have no right to increase the number
of parking spaces leased in the Parking Area after the first nine
(9) months of the Term. Lessee shall pay for each parking space
leased hereunder, as Additional Rent, in advance on the first
calendar day of each month, (i) $60.00 per month for the first
Lease Year, and (ii) thereafter, an amount equal to the Fair
Market Rent of such parking spaces, as determined annually. Fair
Market Rent shall be determined in the manner provided in Section
3.3 above except that if Lessor and Lessee are unable to agree on
Fair Market Rent, it shall be determined by one real estate
professional (rather than by two or three as provided in Section
3.3) who shall have the qualifications stated in said Section and
shall be mutually acceptable to Lessor and Lessee.
10.0 LATE PAYMENT OF RENT. Lessee agrees that in the event that any
payment of Basic Rent or Additional Rent shall remain unpaid at
the close of business on the tenth business day after the same is
due and payable hereunder (without reliance and any applicable
grace period), such payment shall bear interest from the date the
same was due at a rate equal to the "Prime Rate" as published
from time to time in THE WALL STREET JOURNAL while such payment
is overdue PLUS three (3%) percent, which shall be due and
payable by Lessee as Additional Rent as compensation for Lessor's
extra administrative costs in investigating the circumstances of
late Rent. The assessment or collection of such a charge shall
not be deemed to be a waiver by Lessor of any default by Lessee
arising out of such failure to pay Rent when due.
-19-
<PAGE> 23
11.0 LESSEE'S COVENANTS. Lessee covenants, at its sole cost and
expense, during the Term and such further time as Lessee
occupies any part of the Premises:
(a) to pay when due the Basic Rent and all Additional Rent,
and, if separately metered at any time during the Term, all
charges for electricity and other utilities;
(b) damage by fire or casualty and reasonable wear and tear
only excepted, to keep the Premises (including window
glass) in as good order, repair and condition as the same
are in at the commencement of the Term, or may be put in
thereafter;
(c) not to injure, overload or deface the Premises or the
Building, nor to suffer or commit any waste therein,
nor to place a load upon any floor which exceeds the
floor load which the floor was designed to carry, nor
to connect any equipment or apparatus to any Building
system (e.g., electrical, plumbing, mechanical) which
exceeds the capacity of such system, nor to permit on
the Premises any auction sale or any nuisance or the
emission therefrom of any objectionable vibration,
noise, or odor, nor to permit the use of the Premises
for any purpose other than the Permitted Uses, nor any
use thereof which is improper, offensive, or contrary
to any laws, ordinances, codes, rules and regulations,
or the provisions of any license, permit or other
governmental consent or approval required for or
applicable now or at any time during the Term to the
Land, the Building or the Premises or Lessee's use
therefor (collectively, "Legal Requirements"), or
which is liable to invalidate or increase the premiums
for any insurance on the Building or its contents, or
liable to render necessary any alterations or
additions to the Building;
(d) not to obstruct in any manner any portion of the Building
not hereby leased, or the sidewalks or approaches to the
Building, or the Parking Area, or any hallways or Common
Areas, and to conform to all reasonable rules now or
hereafter made by Lessor for the care and use of the
Building, its facilities and approaches;
(e) to comply with all Legal Requirements and all
recommendations of Lessor's fire insurance rating
organization now or hereafter in effect which in either
case are applicable to Lessee's use of the
-20-
<PAGE> 24
Premises, to keep the Premises equipped with all safety
appliances, and to procure (and maintain in full force and
effect) all licenses, permits and other governmental
consents and approvals required by any Legal Requirement or
by the provisions of any applicable insurance policy
because of the use made of the Premises by Lessee (without
hereby intending to vary the provisions of Section 4.0
above), and, if requested by Lessor, to make all repairs,
alterations, replacements or additions so required in and
to the Premises;
(f) not, without on each occasion obtaining the prior written
consent of Lessor, which consent may be withheld by Lessor
in its sole discretion, to make any alterations,
renovations, improvements and/or additions to the Premises
(collectively, "Alterations") except those made pursuant to
the Work Letter attached hereto as EXHIBIT C, (except that
no such prior written consent of Lessor shall be required
for Alterations which (i) shall not exceed $5,000 in cost
in each instance, and (ii) do not affect the structural
integrity of the Building, and (iii) are not detrimental to
or incompatible with the Building systems, and (iv) do not
affect the exterior appearance of the Building, PROVIDED
that in each such case (x) Lessee shall still provide
advance notice to Lessor of the intended Alterations, and
(y) such Alterations shall be subject to all of the
provisions of this paragraph (f) other than the requirement
of Lessor's prior consent), or to permit the making of any
holes in any part of the Building or the painting or
placing of any signs, awnings, or the like, visible from
outside of the Premises. Prior to commencing any
Alterations, Lessee shall: secure all necessary licenses,
permits and other governmental consents and approvals;
obtain the written approval of Lessor as to the plans and
specifications for such work; obtain the written approval
of Lessor as to the general contractor (or as to each trade
contractor if there is no general contractor); cause each
contractor and subcontractor to carry workmen's
compensation insurance in statutory amounts covering all
of the contractor's and subcontractor's employees; and
cause each general contractor (or each trade contractor if
there is no general contractor) and subcontractor to carry
comprehensive public liability insurance in amounts
reasonably satisfactory to Lessor (such insurance to be
written by companies reasonably satisfactory to Lessor and
insuring Lessee and Lessor
-21-
<PAGE> 25
as well as the contractors and subcontractors). All
Alterations shall be of a quality equal to or better than
the "Initial Improvements" (as defined in the Work Letter
attached hereto). All Alterations (other than Lessee's
removable personal property and trade fixtures) and all of
the "Initial Improvements" (as defined in the Work Letter)
shall remain part of the Premises and shall not be removed
upon the expiration or earlier termination of the Term
EXCEPT for (i) Lessee's telephone and computer systems, and
(ii) those items which Lessor designates for removal in a
notice given to Lessee at the time that Lessee requests
Lessor's approval of such Alteration. Lessee shall pay
promptly when due the entire cost of such work. Lessee
shall not cause or permit any liens for labor or materials
performed or furnished in connection therewith to attach to
the Land or the Building, and shall discharge or bond any
such liens which may be filed or recorded against the
Premises within fifteen (15) days after the filing or
recording thereof. All such work shall be performed in a
good and workmanlike manner and in compliance with all
Legal Requirements and the provisions of all applicable
insurance policies. Promptly after the completion of any
Alterations, Lessee shall provide an as-built plan thereof
to Lessor. Lessee shall indemnify and hold Lessor harmless
from and against any and all suits, demands, causes of
action, claims, losses, debts, liabilities, damages,
penalties or judgments, including, without limitation,
reasonable attorneys' fees, arising from injury to any
person or property occasioned by or growing out of such
work, which indemnity shall survive the expiration or
termination of this Lease;
(g) to save Lessor harmless and indemnified from any loss,
cost and expense (including, without limitation,
reasonable attorneys' fees) arising out of or relating
to (i) a claim of injury to any person or damage to
any property while on the Premises, if not due to the
negligence or willful misconduct of Lessor or its officers,
agents, employees, servants or contractors, or the breach
of Lessor's obligations under this Lease; or to (ii) a
claim of injury to any person or damage to any property
anywhere alleged to be occasioned by any omission, neglect
or default of Lessee or of anyone claiming by, through, or
under Lessee, or any officer, agent, employee, servant,
contractor or invitee of any of the foregoing. Lessor
agrees to indemnify and hold harmless Lessee from and
-22-
<PAGE> 26
against all loss, cost and expense (including, without
limitation, reasonable attorneys' fees) arising out of or
relating to a claim for personal injury or property damage
resulting from the negligence or willful misconduct of
Lessor or its officers, agents, employees, servants or
contractors, or from the breach of Lessor's obligations or
representations under this Lease. The provisions of this
clause (g) shall survive the expiration or termination of
this Lease;
(h) to permit Lessor and Lessor's agents to examine the
Premises at reasonable times (provided 24 hours' notice is
given to Lessee, except in case of emergency), and if
Lessor shall so elect (without hereby imposing any
obligation on Lessor to do so), to permit Lessor to make
any repairs or additions Lessor may deem necessary; and at
Lessee's expense to remove any Alterations, signs, awnings,
aerials, flagpoles or the like not consented to in writing;
and to permit Lessor to show the Premises to prospective
purchasers and lessees (at reasonable times on reasonable
advance notice to Lessee) and to keep affixed to any
suitable part of the Premises, during the nine (9) months
preceding the expiration of the Term, appropriate notices
for letting or selling;
(i) that all furniture, furnishings, fixtures and property
of every kind of Lessee and of all persons claiming by,
through or under Lessee which may be on the Premises from
time to time (collectively, "Lessee's Property") shall be
at the sole risk of Lessee, and Lessor shall not be liable
if the whole or any part thereof shall be destroyed or
damaged by fire, water or otherwise, or by the leakage or
bursting of water pipes, steam pipes, or other pipes, or
by theft or from any other cause unless caused by the
negligence or willful misconduct of Lessor, or its
officers, agents, employees, servants or contractors;
(j) to pay promptly when due, all taxes of any kind levied,
imposed or assessed on Lessee's Property, which taxes shall
be the sole obligation of Lessee, whether the same is
assessed to Lessee or to any other person and whether the
property on which such tax is levied, imposed or assessed
shall be considered part of the Premises or personal
property;
-23-
<PAGE> 27
(k) by the end of business on the last day of the Term (or the
effective date of any earlier termination of this Lease as
herein provided), to remove (1) all of Lessee's Property
and (2) the items or components of Alterations designated
for removal as provided in paragraph (f) above and (3) the
items or components of the "Initial Improvements" (as
defined in the Work Letter) designated for removal as
provided in the Work Letter, in each case whether the same
be permanently affixed to the Premises or not, and to
repair any damage caused by any such removal to Lessor's
reasonable satisfaction; and to remove the contents of all
neutralization tanks installed by Lessee in the Premises;
and peaceably to yield up the Premises clean and in good
order, repair and condition (reasonable wear and tear, and
damage by fire or other casualty or taking which Lessee is
not otherwise required by the terms of this Lease to repair
or replace only excepted); and to deliver the keys to the
Premises to Lessor. Any of Lessee's Property or those
Alterations designated for removal as provided in paragraph
(f) above which are not removed by such date shall be
deemed abandoned and may be removed and disposed of by
Lessor in such manner as Lessor may determine, and Lessee
shall pay to Lessor on demand, as Additional Rent, the
entire cost of such removal and disposition, together with
the costs and expenses incurred by Lessor in making any
incidental repairs and replacements to the Premises
necessitated by Lessee's failure to remove Lessee's
Property or those Alterations designated for removal as
provided in paragraph (f) above, as required herein or by
any other failure of Lessee to comply with the terms of
this Lease, and for use and occupancy during the period
after the expiration of the Term and prior to Lessee's
performance of its obligations under this paragraph (k).
Lessee shall further indemnify and hold Lessor harmless
from and against any and all suits, demands, causes of
action, claims, losses, debts, liabilities, damages,
penalties or judgments, including, without limitation,
reasonable attorneys' fees, resulting from Lessee's failure
or delay in surrendering the Premises as above provided
(such indemnity to survive the expiration or termination
of this Lease), PROVIDED, HOWEVER, that Lessee shall be
liable for consequential damages resulting from Lessee's
failure or delay in surrendering the Premises as above
provided only if prior to the last day of the Term (or the
effective date of the termination of this Lease as herein
provided, if sooner terminated) Lessor
-24-
<PAGE> 28
notifies Lessee in writing of Lessor's intention to hold
Lessee liable therefor because the Premises (or a portion
thereof) are required for occupancy by another party;
(l) to pay Lessor's reasonable expenses, including reasonable
attorneys' fees, incurred in enforcing any obligations of
Lessee under this Lease;
(m) not to generate, store or use any "Hazardous Materials"
(as hereinafter defined) in or on the Premises or elsewhere
in the Building or on the Land except those identified in
writing to Lessor from time to time, and then only in
compliance with any and all applicable Legal Requirements,
or dispose of Hazardous Materials from the Premises to any
other location except a properly approved disposal facility
and then only in compliance with any and all Legal
Requirements regulating such activity, nor permit any
occupant of the Premises to do so. As used in this Lease,
"Hazardous Materials" means and includes any chemical,
substance, waste, material, gas or emission which is
radioactive or deemed hazardous, toxic, a pollutant,
or a contaminant under any statute, ordinance, by-law,
rule, regulation, executive order or other administrative
order, judgment, decree, injunction or other judicial order
of or by any governmental authority, now or hereafter in
effect, relating to pollution or protection of human health
or the environment. By way of illustration and not
limitation, "Hazardous Materials" includes "oil,"
"hazardous materials," "hazardous waste," and "hazardous
substance" as defined in the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section
9601 ET SEQ., as amended, the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. Section 6902 ET SEQ., as
amended, and the Toxic Substances Control Act, 15 U.S.C.
Section 8601 ET SEQ., as amended, the regulations
promulgated thereunder, and Massachusetts General Laws,
Chapter 21C and Chapter 21E and the regulations promulgated
thereunder. If, at any time during the Term, either (i)
any lender requires testing to determine whether there has
been any release of Hazardous Materials by Lessee or
someone claiming by, through or under Lessee, based on the
particular use being made of the Premises by such person
or entity, or (ii) any governmental authority requires
such testing by reason of the use of the Premises made by
Lessee or anyone claiming by, through or under Lessee,
then in any such
-25-
<PAGE> 29
case Lessee shall reimburse Lessor upon demand, as
Additional Rent, for the reasonable costs thereof. Lessee
shall execute affidavits, certifications and the like, as
may be reasonably requested by Lessor from time to time
concerning Lessee's best knowledge and belief concerning
the presence of Hazardous Materials in or on the Premises,
the Building or the Land resulting from the use made of the
Premises by Lessee or anyone claiming by, through or under
Lessee. Lessor reserves the right to enter the Premises at
reasonable times (provided twenty-four (24) hours' notice
is given to Lessee, except in case of emergency) to inspect
the same for Hazardous Materials. Lessee's obligations
under this paragraph (m) shall include, if at any time
during the Term Lessee or anyone claiming by, through or
under Lessee uses or stores radioactive materials on the
Premises, compliance with all so-called "close-out"
procedures of the Nuclear Regulatory Commission or other
federal, state or local governmental authorities having
jurisdiction over radioactive materials, regardless of
whether or not such procedures are completed prior to the
expiration or earlier termination of the Term. Lessee shall
indemnify, defend, and hold harmless Lessor, and the holder
of any mortgage on the Building or the Land, from and
against any claim, cost, expense, liability, obligation or
damage, including, without limitation, attorneys' fees and
the cost of litigation, arising from or relating to the
breach by Lessee or anyone claiming by, through or under
Lessee of the provisions of this clause (m), and shall
immediately discharge or cause to be discharged any lien
imposed upon the Building or the Land in connection with
any such claim. The provisions of this clause (m) shall
survive the expiration or termination of this Lease;
(n) in case Lessee takes possession of the Premises prior to
the Commencement Date, to perform and observe all of
Lessee's covenants from and after the date upon which
Lessee takes possession except that no Rent shall accrue
prior to the beginning of the Term;
(o) to comply with all rules and regulations adopted and
amended from time to time by Lessor for the operation
of the Land and the Building;
-26-
<PAGE> 30
(p) not to permit any officer, agent, employee, servant,
contractor or visitor of Lessee, or of anyone claiming by,
through or under Lessee, to violate any covenant or
obligation of Lessee hereunder; and
(q) to provide and pay for the services outlined in EXHIBIT E
attached hereto.
12.0 CONSTRUCTION. Lessor shall construct the Initial Improvements in
accordance with the provisions of the Work Letter attached hereto
as EXHIBIT C.
13.0 CASUALTY AND EMINENT DOMAIN.
13.1 SUBSTANTIAL TAKING. In the event that the entire Building,
or more than fifty percent (50%) percent of the rentable
area of the Premises, shall be taken by any exercise of the
right of eminent domain or other lawful power in pursuance
of any public or other authority during the Term, then this
Lease shall terminate as of the time that possession is
taken by the taking authority.
13.2 PARTIAL TAKING. In the event that a taking occurs and this
Lease is not terminated as provided in Section 13.1 above,
then from and after the date possession is taken by the
taking authority Rent shall be abated by an amount
representing that part of the Rent properly allocable to
the portion of the Premises so taken, but this Lease shall
otherwise continue in full force and effect.
13.3 AWARDS. Lessor reserves and excepts all rights to damage to
the Premises, the Building, the Land and the leasehold
hereby created, now accrued or hereafter accruing by reason
of any exercise of eminent domain, or by reason of anything
lawfully done in pursuance of any public or other authority
and by way of confirmation, Lessee grants to Lessor all of
Lessee's rights to such damages and covenants to execute
and deliver such further instruments of assignment thereof
as Lessor may from time to time request. Lessee shall be
entitled to such award, if any, as is specifically
allocated by the taking authority to Lessee on account of
Lessee's Property so taken or relocation expenses incurred
by Lessee as a result of such taking.
-27-
<PAGE> 31
13.4 SUBSTANTIAL CASUALTY. If the Premises are damaged by fire
or other casualty, Lessee shall promptly notify Lessor
thereof. If the Building or any part thereof shall be
damaged by fire or other casualty to the extent that
substantial alteration or reconstruction of the Building
shall, in Lessor's sole opinion, be required (whether or
not the Premises shall have been damaged), or if such
casualty renders more than fifty (50%) percent of the
rentable area of the Premises unusable by Lessee for the
operation of its business in the Premises, or if as a
result of such casualty any mortgagee of the Building
requires that insurance proceeds payable in connection with
such casualty be used to retire the mortgage debt, Lessor
may, at its option, terminate this Lease by notifying
Lessee in writing of such termination within sixty (60)
days after the date of such damage, in which event this
Lease shall terminate on the date set forth in such notice.
If such casualty renders more than fifty (50%) percent of
the rentable area of the Premises unusable by Lessee for
the operation of its business in the Premises, in the
reasonable determination of Lessee, then Lessee may
terminate this Lease as of the date of the occurrence of
such damage by written notice thereof to Lessor within
sixty (60) days after the date of such damage. In the event
that this Lease is terminated pursuant to this Section 13.4
Rent shall be abated, to the extent the Premises are
unusable for the Permitted Uses, from and after the date of
such damage to the date of such termination of this Lease,
and no further Rent shall accrue or be payable after the
date of such termination.
13.5 REPAIR AND RESTORATION. In the event of a taking which does
not result in the termination of this Lease pursuant to
Section 13.1 above, or a casualty which does not result in
the termination of this Lease pursuant to Section 13.4
above, the Premises shall be repaired and restored in the
manner provided in this Section. Lessor shall diligently
act to restore the Building and the Premises (exclusive of
Lessee's Property) or, in case of taking, what remains
thereof, to substantially the condition in which they
existed prior to the occurrence of such taking or casualty,
provided, however, that: (i) in no event shall Lessor be
required to spend in connection with restoring the Premises
more than the amount of insurance proceeds or taking award
actually received and allocable thereto (except that this
limitation with respect to insurance proceeds shall not
apply to casualties occurring
-28-
<PAGE> 32
during such time as Lessor self-insures pursuant to Section
7.4 above); (ii) Lessor shall not be required to restore or
replace any of Lessee's Property; and (iii) promptly upon
substantial completion of such work by Lessor, Lessee shall
diligently act to repair and/or restore all of Lessee's
Property to substantially the same condition it was in
prior to the occurrence of such taking or casualty. Lessor
shall not be liable for any inconvenience or annoyance to
Lessee or injury to the business of Lessee resulting in any
way from such taking or damage or the repair thereof. Rent
shall be abated from and after the date of such taking or
damage to the date on which Lessor substantially completes
the restoration described above, to the extent the Premises
are unusable for the Permitted Uses. Notwithstanding the
foregoing provisions of this Section 13.5, in the event
that within six months after the date of such taking or
damage (other than damage resulting from a casualty which
Lessor establishes was caused by Lessee, or anyone claiming
by, through or under Lessee, or the officers, agents,
servants, contractors or employees thereof), Lessor has not
substantially completed the restoration work which it is
required by this Section to perform, then Lessee shall have
the right to terminate this Lease by giving thirty (30)
days' written notice to Lessor within thirty (30) days
after the end of such 6-month period.
14.0 DEFAULTS: EVENTS OF DEFAULT; REMEDIES.
14.1 DEFAULTS; EVENTS OF DEFAULT. The following shall, if any
requirement for notice or lapse of time or both has not
been met, constitute defaults hereunder, and, if such
requirements have been met, constitute "Events of Default"
hereunder:
(a) The failure of Lessee to perform or observe any
of Lessee's covenants or agreements hereunder
concerning the payment of money for a period of ten
(10) days after written notice thereof, PROVIDED,
HOWEVER, that Lessee shall not be entitled to such
notice if Lessor has given notice to Lessee of two or
more previous such failures within a twelve-month
period, in which event such failure shall constitute
an Event of Default hereunder upon the expiration of
ten (10) days after such payment was due;
-29-
<PAGE> 33
(b) The failure of Lessee to maintain the insurance
required hereunder in full force and effect;
(c) The execution by Lessee of any assignment or sublease
without the prior written consent of Lessor;
(d) The failure of Lessee to perform or observe any
of Lessee's other covenants or agreements hereunder
for a period of thirty (30) days after written notice
thereof (provided that, in the case of defaults not
reasonably curable in thirty (30) days through the
exercise of reasonable diligence, such 30-day period
shall be extended for so long as Lessee commences cure
within such period and thereafter prosecutes such cure
to completion continuously and with reasonable
diligence, but such extended cure period shall
not in any event exceed ninety (90) days after
Lessor's initial notice to Lessee); or
(e) If the leasehold hereby created shall be taken on
execution, or by other process of law; or if any
assignment shall be made of Lessee's property for
the benefit of creditors; or if a receiver,
guardian, conservator, trustee in bankruptcy or
similar officer shall be appointed to take charge
of all or any part of Lessee's assets by a court
of competent jurisdiction; or if a petition is
filed by Lessee under any bankruptcy or
insolvency law; or if a petition is filed against
Lessee under any bankruptcy or insolvency law and
the same shall not be dismissed within sixty (60)
days from the date upon which it is filed; or a
lien or other involuntary encumbrance is filed
against Lessee's leasehold (or against the
Premises, the Building or the Land based on a
claim against Lessee) and is not discharged or
bonded within thirty (30) days after the filing
thereof.
14.2 TERMINATION. If an Event of Default shall occur, Lessor
may, at its option, immediately or any time thereafter and
without demand or notice, enter upon the Premises or any
part thereof in the name of the whole and repossess the
same as of Lessor's former estate and dispossess Lessee and
those claiming through or under Lessee and remove their
effects, forcibly if necessary, without being deemed guilty
of any manner of trespass and without prejudice to any
-30-
<PAGE> 34
remedies which might otherwise be used for arrears of rent
or preceding breach of covenant, and upon such entry this
Lease shall terminate. In lieu of making such entry, Lessor
may terminate this Lease upon three (3) business days'
prior written notice to Lessee. Upon any termination of
this Lease as the result of an Event of Default, Lessee
shall quit and peacefully surrender the Premises to Lessor.
14.3 SURVIVAL OF COVENANTS. No such termination of this Lease
shall relieve Lessee of its liability and obligations under
this Lease and such liability and obligations shall survive
any such termination.
14.4 DAMAGES. In the event of any such termination Lessee shall
pay to Lessor the Rent up to the time of such termination.
Lessee shall remain liable for, and shall pay on the days
originally fixed for such payment hereunder, the full
amount of all Basic Rent and Additional Rent as if this
Lease had not been terminated; PROVIDED, HOWEVER, if Lessor
relets the Premises, there shall be credited against such
obligation the amount actually received by Lessor each
month from such lessee after first deducting all costs and
expenses incurred by Lessor in connection with reletting
the Premises.
In lieu of any other damages hereunder, Lessee agrees to
pay to Lessor, on demand, as and for liquidated and agreed
damages for Lessee's default, the amount by which:
(a) the aggregate Rent which would have been payable under
this Lease by Lessee from the date of such termination
until what would have been the last day of the Term
but for such termination, EXCEEDS
(b) the greater of (i) the fair and reasonable rental
value of the Premises for the same period, less
Lessor's reasonable estimate of expenses to be
incurred in connection with reletting the
Premises, including, without limitation, all
repossession costs, brokerage commissions, legal
expenses, reasonable attorneys' fees, alteration
costs, and expenses of preparation for such
reletting, or (ii) the sum of (A) the amount
actually received by Lessor from reletting the
Premises (if any), and (B) the amount actually
received by Lessor from Lessee pursuant to the
preceding paragraph of this Section (if any).
-31-
<PAGE> 35
If the Premises or any part thereof are relet by Lessor for
the period prior to what would have been the last day of
the Term but for such termination, or any portion thereof,
the amount of rent reserved upon such reletting shall be,
PRIMA FACIE, the fair and reasonable rental value for the
part or the whole of the Premises so relet during the term
of the reletting.
In lieu of any other damages hereunder, Lessor may by
written notice to Lessee, at any time after this Lease is
so terminated, elect to recover, and Lessee shall pay as
full and final liquidated damages, an amount equal to (i)
the Basic Rent and Additional Rent accrued under Section
5.0 hereof in the twelve (12) months ending on the
effective date of such termination, PLUS (ii) all Basic
Rent and Additional Rent which was unpaid as of the
effective date of such termination, LESS (iii) the amount
received by Lessor pursuant to the foregoing provisions of
this Section 14.4 prior to the time of payment by Lessee of
such liquidated damages.
Nothing herein contained shall limit or prejudice the right
of Lessor to prove and obtain as liquidated damages by
reason of such termination, an amount equal to the maximum
allowed by any statute or rule of law in effect at the time
when, and governing the proceedings in which, such damages
are to be proved, whether or not such amount be greater,
equal to, or less than the amount of the difference
referred to above.
14.5 RIGHT TO RELET. At any time or from time to time after any
such termination, Lessor may relet the Premises or any part
thereof for such a term (which may be greater or less than
the period which would otherwise have constituted the
balance of the Term) and on such conditions (which may
include concessions or free rent) as Lessor, in its
reasonable discretion, may determine, and may collect and
receive the rents therefor. Lessor shall in no way be
responsible or liable for any failure to relet the Premises
or any part thereof, or for any failure to collect any rent
due upon any such reletting.
-32-
<PAGE> 36
14.6 RIGHT TO EQUITABLE RELIEF. In the event there shall occur a
default or threatened default hereunder, Lessor shall be
entitled to enjoin such default or threatened default and
shall have the right to invoke any right and remedy allowed
at law or in equity or by statute or otherwise as though
re-entry and other remedies were not provided for in this
Lease.
14.7 RIGHT TO SELF HELP. In the event of a default by Lessee
hereunder which continues beyond the expiration of the
applicable grace period, Lessor shall have the right to
perform such defaulted obligation of Lessee, including the
right to enter upon the Premises to do so. Lessor shall, as
a courtesy only, notify Lessee of its intention to perform
such obligation. In the event of a default by Lessee
hereunder which has not yet continued beyond the expiration
of the applicable grace period but which Lessor determines
constitutes an emergency threatening imminent injury to
persons or damage to property, Lessor shall have the right
to perform such defaulted obligation of Lessee (including
the right to enter upon the Premises to do so) after giving
Lessee such notice (if any) as is reasonable under the
circumstances. In either event, the aggregate of (i) all
sums so paid by Lessor, (ii) interest (at the rate of
1-1/2% per month or the highest rate permitted by law,
whichever is less) on such sum, and (iii) all necessary
incidental costs and expenses in connection with the
performance of any such act by Lessor, shall be deemed to
be Additional Rent under this Lease and shall be payable to
Lessor immediately upon demand. Lessor may exercise its
rights under this Section 14.7 without waiving any other of
its rights or releasing Lessee from any of its obligations
under this Lease.
14.8 FURTHER REMEDIES. Nothing in this Lease contained shall
require Lessor to elect any remedy for a default or Event
of Default by Lessee hereunder, and all rights herein
provided shall be cumulative with one another and with any
other rights and remedies which Lessor may have at law or
in equity in the case of such a default or Event of
Default.
15.0 REAL ESTATE BROKER. Lessor and Lessee each represent to the
other that they have dealt with no broker in connection with
this Lease other than Fallon, Hines & O'Connor, Inc. and
Meredith & Grew, Inc. (collectively, "Brokers"). Lessor
shall pay the Brokers as part of a separate agreement.
Lessee agrees to indemnify and hold Lessor harmless from and
-33-
<PAGE> 37
against any claims for commissions or fees by any person other
than the Brokers by reason of any act of Lessee or its
representatives. Lessor agrees to indemnify and hold Lessee
harmless from and against any claims for commissions or fees by
any person other than the Brokers by reason of any act of Lessor
or its representatives.
16.0 NOTICES. Whenever by the terms of this Lease notice, demand, or
other communication shall or may be given either to Lessor or to
Lessee, the same shall be in writing and shall be sent by hand
delivery, or by registered or certified mail, postage prepaid, or
by Federal Express or other similar overnight delivery service,
to:
Lessor: Massachusetts Institute of Technology
238 Main Street - Suite 200
Cambridge, Massachusetts 02142
Attention: Philip A. Trussell,
Director of Real Estate
with a copy to: Peter Friedenberg, Esquire
Rackemann, Sawyer & Brewster
One Financial Center
Boston, Massachusetts 02111
Lessee: Prior to the Commencement Date:
-------------------------------
Free Radical Sciences, Inc.
245 First Street
Cambridge, Massachusetts 02142
Attention: B. Nicholas Harvey
Chief Financial Officer
From and After the Commencement Date:
-------------------------------------
Free Radical Sciences, Inc.
640 Memorial Drive
Cambridge, Massachusetts 02139
Attention: B. Nicholas Harvey
Chief Financial Officer
with a copy to: Joel H. Sirkin, Esquire
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Any notice, demand or other communication shall be effective upon
receipt by or tender for delivery to the intended recipient
thereof.
-34-
<PAGE> 38
17.0 NO WAIVERS. Failure of Lessor to complain of any act or omission
on the part of Lessee, no matter how long the same may continue,
shall not be deemed to be a waiver by Lessor of any of its rights
hereunder. No waiver by Lessor at any time, expressed or implied,
of any breach of any provision of this Lease shall be deemed a
waiver of a breach of any other provision of this Lease or a
consent to any subsequent breach of the same or any other
provision. No acceptance by Lessor of any partial payment shall
constitute an accord or satisfaction but shall only be deemed a
partial payment on account; nor shall any endorsement or
statement on any check or any letter accompanying any check or
payment be deemed an accord and satisfaction, and Lessor may
accept such check or payment without prejudice to Lessor's right
to recover the balance of such installment or pursue any other
remedy available to Lessor in this Lease or at law or in equity.
18.0 SERVICES PROVIDED BY LESSOR. Lessor shall furnish the services
described on EXHIBIT D attached, the cost of which shall be
included in Operating Expenses. Lessor shall not be held liable
to anyone for cessation of any service rendered customarily to
the Premises or Building or agreed to by the terms of this Lease,
due to any accident, to the making of repairs, alterations or
improvements, or to the occurrence of an event of "Force Majeure"
(as defined in Section 22 below).
19.0 GROUND LEASES; MORTGAGES.
19.1 RIGHTS OF GROUND LESSORS AND MORTGAGEES. No act or failure
to act on the part of Lessor which would entitle Lessee
under the terms of this Lease, or by law, to be relieved of
Lessee's obligations hereunder or to terminate this Lease,
shall result in a release or termination of such
obligations or a termination of this Lease unless (i)
Lessee shall have first given written notice to Lessor's
ground lessors and mortgagees of record of the act or
failure to act on the part of Lessor which Lessee claims as
the basis of Lessee's rights; and (ii) such ground lessors
and mortgagees, after receipt of such notice, have failed
or refused to correct or cure the condition within a
reasonable time thereafter, but nothing in this Lease shall
be deemed to impose any obligation on any such ground
lessor or mortgagee to correct or cure any such condition.
No ground lessor shall be liable for the failure to perform
any of the obligations of Lessor hereunder unless and until
such ground lessor terminates its ground lease and takes
possession of the Premises, nor shall any mortgagee be
liable for
-35-
<PAGE> 39
the failure to perform any of the obligations of Lessor
hereunder unless and until such mortgagee enters upon and
takes possession of the Premises for purposes of
foreclosure.
19.2 LEASE SUBORDINATE. This Lease is and shall be subject and
subordinate to any ground lease or mortgage now or
hereafter on the Premises, and to all advances under any
such mortgage and to all renewals, amendments, extensions
and consolidations thereof, provided that the holder of
such ground lessor's interest or mortgagee's interest
enters into a non-disturbance and attornment agreement with
Lessee which provides that in the event that such ground
lessor or mortgagee succeeds to Lessor's interest
hereunder, then, provided that Lessee is not in default
hereunder beyond the cure period provided in this Lease,
such party shall recognize and be bound by the terms of
this Lease. In the event that any ground lessor or the
holder of any mortgage succeeds to Lessor's interest in the
Premises or any portion thereof, Lessee hereby agrees to
attorn to such ground lessor or mortgagee. In confirmation
of such subordination, Lessee shall execute and deliver
promptly any certificate in recordable form that Lessor or
any ground lessor or any mortgagee may reasonably request.
Notwithstanding the foregoing provisions of this Section,
the holder of any mortgage on the Premises may at any time
subordinate its mortgage to this Lease by written notice to
Lessee.
Lessor hereby represents to Lessee that as of the date of
this Lease, there are no mortgages or ground leases
encumbering the Premises or any portion thereof.
20.0 NOTICE OF LEASE; ESTOPPEL CERTIFICATES. Lessor and Lessee agree
that this Lease shall not be recorded. However, simultaneously
with their execution and delivery of this Lease, Lessor and
Lessee shall execute and acknowledge a Notice of Lease in
mutually acceptable and recordable form.
From time to time during the Lease Term, and without charge,
either party shall, within fifteen (15) business days of request
by the other, certify by written instrument duly executed and
acknowledged, to the requesting party or to any person reasonably
specified by the requesting party, regarding (a) the existence of
any amendments or supplements to this Lease; (b) the validity and
force and effect of this Lease; (c) the existence of any known
default or Event of Default; (d) the existence of any offsets,
counterclaims or
-36-
<PAGE> 40
defenses; (e) the Commencement Date and the expiration date of
the Lease Term; (f) the amount of Rent due and payable and the
date to which Rent has been paid; and (g) such other matters as
may be reasonably requested.
21.0 HOLDING OVER. If Lessee occupies the Premises after the day on
which the Lease Term expires (or the effective date of any
earlier termination as herein provided) without having entered
into a new lease thereof with Lessor, Lessee shall be a
tenant-at-sufferance only, subject to all of the terms and
provisions of this Lease at (i) one and one-half (1-1/2) times
the Basic Rent as in effect on the last day of the Term for the
first two (2) months (or portion thereof) of such holding over,
and (ii) twice the Basic Rent as in effect on the last day of the
Term for the balance of such holding over. Such a holding over,
even if with the consent of Lessor, shall not constitute an
extension or renewal of this Lease. If applicable, for purposes
of this Section, the failure of Lessee to complete by the last
day of the Lease Term or the effective date of any earlier
termination as herein provided the "closeout" procedures required
by the Nuclear Regulatory Commission or any other federal, state
or local governmental agency having jurisdiction over the use of
radioactive materials within the Premises shall constitute a
holding over and subject Lessee to the provisions of this
Section.
22.0 FORCE MAJEURE. Neither Lessor nor Lessee shall be deemed to be in
default hereunder (and the time for performance of any of their
respective obligations hereunder other than the payment of money
shall be postponed) for so long as the performance of such
obligation is prevented by strike, lockout, act of God, absence
of materials or any other matter not reasonably within the
control of the party which must perform the obligation
(collectively, "Force Majeure").
23.0 ENTIRE AGREEMENT. No oral statement or prior written matter
shall have any force or effect. This Agreement shall not be
modified or canceled except by writing subscribed to by all
parties.
24.0 SECURITY DEPOSIT. Lessee has deposited with Lessor
contemporaneously with its delivery to Lessor of executed
counterparts of this Lease $54,000.00 (the "Security Deposit") as
security for the full and faithful payment and performance by
Lessee of its obligations under this Lease from and after the
date of execution hereof by Lessee, and not as a prepayment of
Rent. Lessor may commingle the Security Deposit in one or more
bank accounts with other funds of Lessor, and the Security
Deposit shall earn
-37-
<PAGE> 41
interest at the rate actually paid to Lessor from time to time on
such account (which interest shall be included in the term
"Security Deposit" for the purposes of this Lease). Lessor may
use the Security Deposit to cure any Event of Default by Lessee
(whether occurring prior to the Commencement Date hereunder or
thereafter), and Lessee shall immediately pay to Lessor on
demand, as Additional Rent, the amount so expended and such
additional amount as is required to cause the Security Deposit at
all times to equal the amount set forth above. Lessor shall
assign the Security Deposit to any successor owner of the
Building and provided that such successor owner agrees to be
bound by the terms of this Section 24.0, thereafter Lessor shall
have no further responsibility therefor. Upon the expiration (or
earlier termination) of the Lease Term, Lessor shall inspect the
Premises, make such deductions from the Security Deposit as may
be required to cure any Event of Default by Lessee hereunder,
and, if Lessee is not then in default hereunder, pay the balance
of the Security Deposit, if any, to Lessee within thirty (30)
days of such expiration or termination. If Lessee is in default
hereunder at the time of such expiration or termination, then
Lessor shall be entitled to retain so much of the Security
Deposit as Lessor reasonably estimates to be Lessee's liability
to Lessor hereunder and shall pay the balance, if any, to Lessee
within such 30-day period.
Notwithstanding the foregoing provisions of this Section 24.0, if
no Event of Default has occurred hereunder during the first two
(2) Lease Years, then Lessor shall retain $25,000.00 as the
Security Deposit, and Lessor shall release to Lessee promptly
after the second anniversary of the Commencement Date the excess
portion of the Security Deposit then held by Lessor.
25.0 WARRANTS. As additional consideration, Lessee is issuing to
Lessor, contemporaneously with the execution and delivery
of this Lease, its warrants to purchase 25,000 shares of
Lessee's common stock in the form attached hereto as
EXHIBIT F. Lessor's rights in such warrants shall not be
affected by any termination of this Lease.
26.0 SUCCESSORS AND ASSIGNS. The terms, covenants and conditions of
this Lease shall run with the Land, and be binding upon and inure
to the benefit of Lessor and Lessee and their respective
successors and permitted assigns.
-38-
<PAGE> 42
27.0 APPLICABLE LAW, SEVERABILITY AND CONSTRUCTION. This Lease shall
be governed by and construed in accordance with the laws of
Massachusetts and, if any provisions of this Lease shall to any
extent be invalid, the remainder of this Lease, and the
application of such provisions in other circumstances, shall not
be affected thereby. The titles of the several Sections contained
herein are for convenience only and shall not be considered in
construing this Lease. Whenever the singular is used and when
required by the context it shall include the plural, and the
neuter gender shall include the masculine and feminine. The
Exhibits attached to this Lease are incorporated into this Lease
by reference. This Lease may be executed in several counterparts,
each of which shall be an original, but all of which shall
constitute one and the same instrument. The term "Lessor"
whenever used herein, shall mean only the owner at the time of
Lessor's interest herein, and no covenant or agreement of Lessor,
express or implied, shall be binding upon any person except for
defaults occurring during such person's period of ownership nor
binding individually upon any fiduciary, any shareholder, officer
or director, or any beneficiary under any trust, and the
liability of Lessor, in any event, shall be limited to Lessor's
interest in the Building. If Lessee is several persons or a
partnership, Lessee's obligations are joint or partnership and
also several. No officer, director Or shareholder of Lessee shall
have any personal liability hereunder. Unless repugnant to the
context, "Lessor" and "Lessee" mean the person or persons,
natural or corporate, named above as Lessor and as Lessee
respectively, and their respective heirs, executors,
administrators, successors and assigns.
28.0 QUIET ENJOYMENT. Lessor covenants that, provided that an Event of
Default has not occurred and is not then continuing, Lessee shall
quietly have and enjoy the Premises during the Term, without
hindrance or molestation from any person lawfully claiming by,
through or under Lessor.
29.0 AUTHORITY. Contemporaneously with the signing of this Lease,
Lessee shall furnish to Lessor a certified copy of the resolution
of the Board of Directors of Lessee authorizing Lessee to enter
into this Lease, and Lessor shall furnish appropriate evidence of
the authority of Lessor to enter into this Lease.
-39-
<PAGE> 43
WITNESS the execution hereof under seal the day and year first
above written.
LESSOR: MASSACHUSETTS INSTITUTE OF
TECHNOLOGY
Date: October 28, 1994 By: /s/ Allan S. Bufferd
----------------- -----------------------------
Allan S. Bufferd
Deputy Treasurer and Director
of Investments
Hereunto duly authorized
LESSEE: FREE RADICAL SCIENCES, INC.
Date: October 28, 1994 By: /s/ B. Nicholas Harvey
----------------- -----------------------------
B. Nicholas Harvey
Chief Financial Officer
Hereunto duly authorized
-40-
<PAGE> 44
EXHIBIT A
---------
PREMISES
--------
See attached plan.
[Exhibit consists of architect's drawing of the third floor of
building located at 640 Memorial Drive, Cambridge, MA, with
cross-hatching describing premises leased to tenant.]
-41-
<PAGE> 45
EXHIBIT B
---------
SITE PLAN
---------
See attached plan.
[Exhibit consists of plat map of real property owned by
Massachusetts Institute of Technology certified by civil
engineer.]
-42-
<PAGE> 46
EXHIBIT C
---------
WORK LETTER
-----------
This Work Letter is incorporated by reference into the Lease
dated October 28, 1994 by and between Massachusetts Institute of
Technology, as Lessor, and Free Radical Sciences, Inc., as Lessee.
Terms defined in or by reference in the Lease not otherwise defined
herein shall have the same meaning herein as therein.
1. ADDITIONAL DEFINITIONS. Each of the following terms shall
have the meaning stated immediately after it:
APPROVED WORKING DRAWINGS. The working drawings and
specifications for the Initial Improvements, prepared by
the Project Architect, which have been approved by Lessor
and Lessee, copies of which (or a list of which) are
attached to this Work Letter as Schedule 1.
APPROVED BUDGET. The budget for the design and construction
of the Initial Improvements as shown on the Working
Drawings, which has been approved by Lessee and Lessor, a
copy of which is attached to this Work Letter as Schedule
2.
COMMENCEMENT DATE. The earlier of (i) the date on which
Lessor has "substantially completed" (as defined below) the
Initial Improvements and received a certificate of
occupancy for the Premises, subject to adjustment as
provided in Paragraph 6 below, or (ii) the date on which
Lessee first occupies the Premises (or any portion thereof)
for the conduct of its business.
CONSTRUCTION AUTHORIZATIONS. Collectively, all
permits, licenses and other consents and approvals
required from any governmental authority for the
construction of the Initial Improvements.
GENERAL CONTRACTOR. A general contractor engaged by
Lessor to construct the Initial Improvements.
INITIAL IMPROVEMENTS. All improvements, alterations and
additions which Lessee wishes to make to the Premises as
part of the initial preparation thereof for Lessee's
occupancy, as shown on the Approved Working Drawings (as
the same may be changed as hereinafter provided).
-43-
<PAGE> 47
LESSEE'S COST. The amount, if any, by which the cost
to design and construct the Initial Improvements exceeds
the amount of Lessor's Contribution.
LESSEE'S DELAYS. Any and all delays suffered by Lessor, the
Project Architect, or the General Contractor in the course
of the design or construction of the Initial Improvements
due to any act or failure to act of Lessee or Lessee's
consultants, contractors, suppliers, servants, licensees,
or agents, including, without limitation, (i) any delay by
Lessee in providing to the Project Architect or the General
Contractor within a reasonable time after request therefor
any information reasonably requested by the Project
Architect or the General Contractor, (ii) Lessee's failure
to make a payment to Lessor within the time provided in
Paragraph 5 below, or (iii) any delay caused by Lessee's
requests for changes to the Approved Working Drawings
(notwithstanding Lessor's approval of such request).
LESSOR'S CONTRIBUTION. The amount to be paid by Lessor
towards the cost of designing and constructing the Initial
Improvement, which amount shall not exceed $25.00 per
rentable square foot of the Premises.
LESSOR'S DELAYS. Any and all delays caused by Lessor, the
Project Architect, the General Contractor or any
subcontractor or supplier thereof in the course of the
design or construction of the Initial Improvements, but
expressly excluding (i) all Lessee's Delays, and (ii) all
delays resulting from the occurrence of a Force Majeure.
PROTECT ARCHITECT. Tsoi/Kobus & Associates, or another
architectural firm engaged by Lessor to design the Initial
Improvements.
SUBSTANTIALLY COMPLETED. With reference to the Premises,
the completion of construction of the Initial Improvements
except for items of work or adjustment of equipment or
fixtures which are not necessary to make the Premises
reasonably tenantable for the Permitted Uses and which,
because of season or weather or the nature of the item,
cannot practicably be done at the time.
2. PREPARATION OF THE PREMISES. Lessor shall design and
construct the Initial Improvements in accordance with the
provisions of this Work Letter. If the cost to Lessor of
-44-
<PAGE> 48
designing and constructing the Initial Improvements exceeds the
amount of Lessor's Contribution, Lessee shall pay Lessee's Cost
to Lessor in accordance with Paragraph 5 hereof.
Lessor anticipates that the Commencement Date will occur on or
about December 15, 1994 (subject to Lessee's Delays and Force
Majeure). This is Lessor's good faith estimate of the anticipated
Commencement Date, and shall not be construed as a guaranty,
representation or warranty that the Commencement Date will occur
within such time.
3. INITIAL IMPROVEMENTS. Lessor shall be responsible for obtaining
all Construction Authorizations required for the Initial
Improvements and, upon completion of the Initial Improvements,
for obtaining a certificate of occupancy for the Premises from
the appropriate governmental authority. Lessor shall deliver to
Lessee a copy of said certificate of occupancy promptly after
receiving the same. Lessor shall cause the General Contractor to
commence construction of the Initial Improvements and shall use
reasonable efforts to cause the General Contractor diligently to
proceed to completion thereof.
4. CHANGES. It is understood that Lessee at its own expense may
request changes in the work after approval by Lessee and Lessor
of the Approved Working Drawings. All such changes shall require
the prior written approval of Lessor, which approval shall not be
unreasonably withheld or delayed. Such changes shall be priced at
the sum of (i) the cost of making such changes and (ii) the cost
of the work shown thereon (including the general contractor's
overhead, profit and general conditions). No changes shall be
made until Lessee's Representative has signed a written
authorization therefor.
If the cost of the Initial Improvements as modified by such
changes exceeds the amount of Lessor's Contribution, Lessee shall
be solely responsible for the payment of such excess in the
manner provided in Paragraph 5 below.
5. PAYMENT OF THE COSTS OF THE INITIAL IMPROVEMENTS. Lessor shall
make all payments to the Project Architect and the General
Contractor up to an aggregate amount equal to the Lessor's
Contribution. From and after such time (if any) as the cost of
designing and constructing the Initial Improvements exceeds the
amount of Lessor's Contribution, for any reason whatsoever,
Lessee shall be solely responsible for paying the balance of the
costs of designing and constructing the Initial Improvements and
shall make
-45-
<PAGE> 49
such payment to Lessor within ten (10) days of receipt of an
invoice therefor from Lessor. Notwithstanding anything to the
contrary set forth in the Lease or this Work Letter, in the event
that Lessee fails to make a payment to Lessor within such 10-day
period, Lessor shall be entitled to cease work in the Premises
until Lessor receives all sums due from Lessee on account of the
Initial Improvements. Lessee shall indemnify and hold Lessor
harmless from and against any and all claims, loss, costs,
expenses, debts, damages or liabilities, including, without
limitation, reasonable attorney's fees, incurred by Lessor as a
consequence of Lessee's failure to make a payment to Lessor
within such 10- day period.
Notwithstanding the preceding provisions of this Paragraph 5, in
the event that Lessor determines prior to the commencement of
construction of the Initial Improvements that the cost of
designing and constructing the Initial Improvements will exceed
the amount of Lessor's Contribution, Lessor shall notify Lessee
of the projected amount of such excess and Lessor shall not be
required to commence construction of the Initial Improvements
unless and until Lessee pays to Lessor the full amount of such
projected excess. Notwithstanding such payment by Lessee to
Lessor, Lessee shall remain solely responsible for any further
amount by which the actual cost of designing and constructing the
Initial Improvements exceeds the aggregate of Lessor's
Contribution and sums previously paid by Lessee to Lessor.
6. DELAYS. In the event of the occurrence of a Lessee's Delay, the
Commencement Date shall be advanced one day for each day such
Lessee's Delay continues. In the event of the occurrence of a
Lessor's Delay, the Commencement Date shall not occur until the
conditions set forth in the definition of "Commencement Date" set
forth in Paragraph 1 of this Work Letter are satisfied and,
except as provided in the next subparagraph of this Paragraph 6,
this shall be the sole remedy of Lessee for such delay.
In the event that, by reason of a Lessor's Delay, Lessor fails to
substantially complete the Initial Improvements by March 15,
1995, then Lessee may terminate this Lease by giving written
notice to Lessor within fifteen (15) days after such date, which
termination shall be without further recourse or obligation of
either party hereunder and upon which termination all rights of
Lessor under the warrant documents attached hereto as EXHIBIT F
shall automatically expire and become null and void. If Lessee
fails to give such notice of termination within such time, then
the
-46-
<PAGE> 50
Commencement Date shall be delayed beyond March 15, 1995 by the
number of days of actual delay in the substantial completion of
the Premises caused by such Lessor's Delay (as reasonably
determined by the Project Architect), and such delay in the
Commencement Date shall be the sole remedy of Lessee for Lessor's
Delay.
7. LESSEE'S ACCESS TO THE PREMISES. Lessee and Lessee's consultants,
contractors and suppliers may, at Lessee's sole risk, enter upon
the Land, the Building and the Premises prior to the Commencement
Date for the limited purpose of installing communications lines
and equipment PROVIDED that such persons work in harmony with
Lessor, the General Contractor, its subcontractors and suppliers,
and with other lessees and occupants of the Building (and their
respective contractors, subcontractors and suppliers). If at any
time such entry shall cause or threaten to cause disharmony or
otherwise interfere with the orderly completion or operation of
the Building, Lessor shall have the right upon twenty-four (24)
hours' written notice to Lessee to withdraw the consent to such
entry given in this Paragraph. Any such entry onto the Land, the
Bui1ding or the Premises shall be deemed to be under all of the
terms, covenants, conditions and provisions of this Lease except
the covenant to pay Rent.
8. LESSOR'S AND LESSEE'S REPRESENTATIVES. Prior to the commencement
of any design work for the Premises, each party hereto shall
designate in writing to the other a person as "Lessor's
Representative" and "Lessee's Representative" respectively, which
person shall be available during ordinary business hours to
review the progress of the work and to respond to issues which
arise during construction. Each party may rely on the other's
Representative with respect to all matters which pertain to this
Work Letter, each party having authorized its Representative to
make decisions binding upon such party with respect to such
matters.
9. PUNCHLIST. The punchlist shall be developed by the Project
Architect not later than the Commencement Date by means of a
joint inspection of the Premises by Lessor and Lessee. Lessor
shall complete all punchlist work as expeditiously as possible as
part of the construction of the Initial Improvements.
10. POSSESSION BY LESSEE. The Premises (including the Initial
Improvements) shall be deemed to be accepted by Lessee except for
such items as are specified in a written notice given by Lessee
to Lessor not later than thirty (30) days
-47-
<PAGE> 51
after the date on which Lessee takes possession of the Premises
except for (i) latent defects not reasonably discoverable within
such 30-day period, and (ii) defects which are not reasonably
discoverable during such 30-day period because of the seasonal
impact of the defect. Lessor shall correct the items set forth in
such notice as soon as practicable, and in all events within
thirty (30) days after such notice, as part of the construction
of the Initial Improvements.
11. GENERAL. A breach by Lessee of any provision of this Work Letter
shall constitute a default under the Lease, for which Lessor
shall have all remedies therein provided.
12. SAVINGS. In the event that after completion of the Initial
Improvements and payment in full therefor there remains
unexpended any portion of Lessor's Contribution, then Lessee
shall receive a credit against the first monthly installments of
Basic Rent due and payable under this Lease in an amount equal to
such unexpended portion of Lessor's Contribution, but in no event
shall Lessor be required to make any payment to Lessee.
-48-
<PAGE> 52
SCHEDULE 1
----------
APPROVED WORKING DRAWINGS
-------------------------
[SEE ATTACHED DRAWING]
[Exhibit consists of architect's drawing of property
leased to the Company and improvements thereto.]
-49-
<PAGE> 53
SCHEDULE 2
----------
APPROVED BUDGET
---------------
[See attached budget]
DESCRIPTION QUANTITY UNIT U/P COST TOTALS Subs
----------------------------------------------------------------------
CONCRETE
------------------------ ---------------------
SUBTOTAL CONCRETE $0
ROUGH CARPENTRY
BLOCKING 1 ALLOW $1,000.00 $1,000
------------------------ --------------------
SUBTOTAL ROUGH CARPENTRY $1,000 $0
MILLWORK
BASE CABINETS AT KITCHEN 7 LF $125.00 $875
WALL CABINETS AT KITCHEN 7 LF $135.00 $945
COUNTER TOP 2'-6" DEEP 7 LF $40.00 $280
------------------------ -------------------
SUBTOTAL MILLWORK $2,100 $20,170
Woodworks
MISC. METALS
------------------------ -------------------
SUBTOTAL MISC. IRON $0 $0
GLASS AND GLAZING
GLASS WALL AT EXEC. OFFICES 0 LF $175.00 $0
GLASS WALL AT CONFERENCE RM 18 LF $150.00 $2,700
--------------------------- -------------
SUBTOTAL GLASS AND GLAZING $2,700
$1,750
$6,475
IBG
DRYWALL
TYPE A-6" above ceiling 270 LF $28.00 $7,560
TYPE A1-6' ABOVE CEILING WITH INSULATION 297 LF $31.00
$9,207
TYPE B-ONE LAYER TO DECK WITH INSULATION 56 LF $37.00
$2,146
PERIMETER WALL BY OWNER, existing
DRYWALL CEILINGS not shown
INSTALL HM FRAMES 11 EA $35.00 $385
FINISH WINDOW SILL AND HEAD N/C
EXTERIOR WALL MULLION DETAIL 6 EA $80.00 $400
TOUCH-UP EXISTING CONCRETE COLUMNS 7 EA $225.00 $1,575
---------------------------------- -------------
SUBTOTAL DRYWALL $21,273 $21,000
TJ
-50-
<PAGE> 54
DOORS AND HARDWARE
3070 HARDWOOD DOOR, NATURAL FINISH 14 EA $185.00 $2,590
ALUMINUM ENTRY FRAME WITH SIDELITE 1 EA $750.00 $750
inc.
ALUMINUM ENTRY DOOR 1 EA $350.00 $350 inc.
DOUBLE HOLLOW METAL FRAME 1 EA $115.00 $115
SINGLE HOLLOW METAL FRAMES 7' 10 EA $90.00 $900
WOOD FRAMES 2 EA $125.00 $250 inc.
DOOR HARDWARE 13 SETS $165.00 $2,145
ELECTRIC STRIKE AT ENTRY 1 EA $300.00 $300
INSTALL DOORS AND HARDWARE 15 EA $90.00 $1,350
-------------------------- -------------
SUBTOTAL DOORS AND HARDWARE $8,750
$6,958
PSI
ACOUSTICAL CEILINGS
2X2 TEGULAR MINABOARD 7,216 SF $1.70 $12,287
PREMIUM FOR FINELINE GRID SF $0.20 N/C
PATCH 12"X12" SPLINE CEILING
AT 2ND FLR 2 MD $450.00 $900
SPLINE TILE 1 LOT $200.00 $200
----------- -------------------
SUBTOTAL ACOUSTICAL CEILINGS
$13,367 $15,000
Cheviot
FLOORING
VCT FLOORING 67 SF $1.20 $80
FLOOR PREP-INCLUDES SAWCUT
SLAB AREA 1 ALLOW $1,000.00 $1,000
CARPET (Allowance per spec. #6,
furnish and install) 847 SY $18.00 $15,243
CARPET At the elevator lobby 96 SY By Owner
VINYL BASE 1,647 LF $1.10 $1,812
COMPUTER ROOM FLOOR Not required 30oz carpet loop
------------------------------ -----------------------------
pile ($15/yd)
SUBTOTAL FLOORING $18,135 $15,635
$500
PAINTING AND WALLCOVERING JMA
FIELD FINISH WOOD DOORS Not required, field finish
PAINT FRAMES 11 EA $35.00 $385
PAINT BASE BUILDING DOOR & FRAME 1 EA $70.00 $70
FABRIC WALL COVERING Assume not required
PAINT DRYWALL CEILINGS None
PAINT INSIDE OF OUTSIDE 1,296 SF $0.30 $389
PAINT DRYWALL 12,250 SF $0.30 $3,575
PAINT COLUMNS (Extra cost of primer) 7 EA $75.00 $525
POLYMIX N/C
----------------------------- ------------------
SUBTOTAL PAINTING AND WALLCOVERING
$5,044 $4,310
EMS
-51-
<PAGE> 55
SPECIALTIES
WINDOW BLINDS N/C
SIGNAGE BY OWNER
TOILET ACC. Not required
APPLIANCES BY OTHERS
FURNITURE ITEMS NOT INCLUDED
----------------------------- ------------------
SUBTOTAL SPECIALTIES $0 $0
FIREPROOFING
PATCH FIRE PROOFING NOT REQ'D
----------------------------- ------------------
SUBTOTAL FIREPROOFING $0 $0
PLUMBING
KITCHEN SINK 1 EA $650.00 $650
DRINKING FOUNTAIN Not required
HOT AND COLD WATER PIPING 45 LF $10.00 $450
SANITARY WASTE PIPING 42 LF $12.50 $525
VENT LINE 52 LF $11.00 $572
CORE FLOOR 1 EA $80.00 $80
HOT WATER HEATER 1 EA $425.00 $425
------------------ -------------------
SUBTOTAL PLUMBING $0.35 /SF $2,702 $4,028
WMC
FIRE PROTECTION
DROP HEADS (1 per 80 sf) 56 EA $85.00 $7,305
DESIGN BUILD 1 LOT $400.00 $400
BUILDING MANAGER FEE FOR SHUTDOWNS 5 EA $20.00 $100
---------------------------------------- ----------
$500
SUBTOTAL FIRE PROTECTION $1.01 /SF $7,805
$9,000
Rustic
HVAC
VAV BOXES BY OWNER
ACTIVATE VAV CONTROLS-ALLOW 31 EA $150.00 $4,650
EXHAUST FANS AT CONF RM & computer 1,800 CFM $0.55 $990
SHEET METAL (.25#/sf)-Down stream
of the vav's 1,719 LBS $3.10 $5,328
G,R,D'S 22 EA $90.00 $1,980
LINEAR DIFFUSERS @ PERIMETER COVE 30 EA $115.00 $3,450
INSTALL ARCHITECTURAL GRILLE-FBO 25 EA Not
required, existing
DUCT INSULATION 1 LOT $2,500.00 $2,500
VOLUME DAMPERS 35 EA $20.00 INC
MOUNT THERMOSTATS-For interior
VAV boxes 14 EA $75.00 $1,050
-52-
<PAGE> 56
MOUNT THERMOSTATS-For exterior
fan powered boxes 15 EA $75.00 $1,125
BALANCING 22 EA $30.00 $660 Design
DESIGN BUILD HVAC & PLUMBING 1 LOT $2,000.00 $2,000
$1,200
SUBS OVERHEAD 12.00% $21,733.00 $2,606
--------------- -------------------
SUBTOTAL HVAC $3.42 /SF $26,341 $24,341
JMA
ELECTRICAL
LIGHTING
2X4 TROFFER 81 EA $150.00 $12,150
EDISON PRICE FIXTURE 9 EA $250.00 $2,250
FLUORESCENT DOWNLIGHT 6 EA $180.00 $1,080
EXIT LIGHTING 6 EA $155.00 $930
PREMIUM FOR BATTERY POWER BACKUP 1 LOT $500.00 $500
TASK LIGHTING EA $130.00 W/FURNTR
POWER
SWITCHES 19 EA $35.00 $665
3-WAY SWITCHES 5 EA $48.00 $240
DIMMER SWITCHES 1 LOT $250.00 $250
DUPLEX RECEPTACLES 45 EA $35.00 $1,575
30-AMP DEDICATER FOR COPIER 1 EA $80.00 $80
GFI OUTLETS 1 EA $48.00 $48
VOICE/DATA OUTLETS 20 EA $25.00 $500
FURNITURE POWER FEEDS 8 EA $275.00 $0
FURNITURE DATA POKE THRUS 0 EA $250.00 $0
METER SOCKET FOR THIS TENANT 1 EA $200.00 $200
HV PANELS 1 EA $1,900.00 $1,900
LV PANELS 1 EA $1,700.00 $1,700
TRANSFORMER-45 KVA 1 EA $1,450.00 $1,450
FEEDER CABLE 1 LOT $175.00 $175
CARD READER 1 EA $650.00 $650
WIRE HOT WATER HEATER 1 EA $275.00 $275
WIRE EXHAUST FANS 2 EA $325.00 $650
TAP BUS DUCT 1 EA $600.00 $600
FAN POWERED BOXES WIRE UNDER BASE BUILDING CONTRACT
VAV BOXES WIRE UNDER BASE BUILDING CONTRACT
DESIGN BUILD 1 LOT $600.00 $600
FIRE ALARM
PULL STATIONS 1 EA $250.00 $250
VISUAL DISPLAY 0 EA $210.00 $0
BUILDING MANAGER FEES FOR F.A. SHUTDOWNS 2 EA $20.00
$40
HORN LIGHTS 4 EA $225.00 $900
SMOKE DETECTORS 4 EA $200.00 $800 Use deduct
TEMPORARY POWER 1 LOT $500.00 $500 ($1,000)
----------------- -------------------
SUBTOTAL ELECTRICAL $4.02 /SF $30,858 $30,000
Interstate
-----------------
SUBTOTAL TRADES $140,174 $159,865
-53-
<PAGE> 57
JOB EXPENSE
TEMPORARY POWER USAGE BY OWNER
GEN LIABILITY INSURANCE 0.185 LS $7,200.00 $1,332
BUILDING PERMITS 200 M $10.00 $2,000
MISC. CLEANING LABOR 5 MD $290.00 $1,450
DUMPSTERS 4 PULLS $450.00 $1,800
FINAL CLEANING 7700 SF $0.15 $1,155
C OF O 1 LOT $400.00 $400
FIRE DEPT. PERMIT 1 EA $250.00 $250
-------------------- -------------------
SUBTOTAL JOB EXPENSE $8,387 $8,387
GENERAL CONDITIONS
PROJECT MANAGER 1.2 MOS $7,000.00 $8,400
POSTAGE 1 MOS $300.00 $300
BLUEPRINTS 1 LOT $750.00 $750
TEMP OFFICE 1 LOT $750.00 $750
TELEPHONE 1 MO $500.00 $500
MISC. GENERAL EXPENSE 1.5 MO $1,000.00 $1,500
----------------------- -------------------
SUBTOTAL GENERAL CONDITIONS $12,200
$12,200
FEE 5.00% $160,761.00 $8,038 $9,023
--------------------------- -------------------
SUBTOTAL $168,799 $189,475
CONTINGENCY $0
BOND $0
Alt #1 $2,988
Alt #2 $4,787
Alt #3 $20,560
Alt #4 $0
Alt #5 $7,099
--------------------------- -------------------
TOTAL COST OF CONSTRUCTION $204,230
$189,475
Owner furnished alternate #2 ($4,787)
($4,787)
Owner furnished alternate #5 ($7,099)
($7,099)
-------------------
Total tenant cost $192,345 $177,588
-54-
<PAGE> 58
EXHIBIT D
---------
SERVICES PROVIDED BY LESSOR
---------------------------
This Exhibit is incorporated by reference into the Lease dated
October 28, 1994 by and between Massachusetts Institute of Technology,
as Lessor, and Free Radical Sciences, Inc., as Lessee. Terms defined in
or by reference in the Lease not otherwise defined herein shall have
the same meaning herein as therein.
Lessor shall provide the following services at cost at the Building:
1. Heating and air conditioning services for the Premises as demised
at the start of the Term for normal office operations between the
hours of 8:00 a.m. and 6:00 p.m., Monday through Friday, except
on national or state holidays. Excluded from such services are
air conditioning requirements for computers or other exceptional
office machinery. If Lessee air conditioning or heating services
at hours other than those set forth above, Lessor shall provide
such service, and Lessee shall pay Lessor's costs to furnish such
service as Additional Rent.
2. Maintenance of the following:
All Building heating equipment, electrical equipment, and
plumbing systems in public areas only; all Building air
conditioning equipment, excluding special air conditioning
equipment; all window frames and glass, unless the damage
to any of the above is caused by the willful neglect or
misuse by Lessee.
3. Nightly (Monday-Friday) cleaning of the public corridors,
stairwells, lobbies, bathrooms; and cleaning of the windows, both
inside and out, two (2) times per year.
4. Extermination of all public and tenanted areas of the Building,
as the management of the Building deems necessary.
5. Structural maintenance of the Premises including repairs to the
roof, exterior walls of the building and structural damage to the
floors.
6. Lettering for up to a maximum of three names in the Building
directory located in the main lobby.
-55-
<PAGE> 59
7. Snow removal, landscaping maintenance, cafeteria management, and
other services as deemed necessary by Lessor for the normal
operation of the Building.
8. Security for the Building as reasonably determined by Lessor.
-56-
<PAGE> 60
EXHIBIT E
---------
SERVICES PROVIDED BY LESSEE
---------------------------
This Exhibit is incorporated by reference into the Lease dated
October 28, 1994 by and between Massachusetts Institute of Technology,
as Lessor, and Free Radical Sciences, Inc., as Lessee. Terms defined in
or by reference in the Lease not otherwise defined herein shall have
the same meaning herein as therein.
Lessee shall provide and pay for all maintenance of and repairs
to the Premises necessary to keep the Premises in good condition or in
as good a condition as the Premises were at the beginning of the Term
or may be put in thereafter (damage from taking or casualty or
reasonable wear and tear only excepted). Such repairs and maintenance
shall include but not be limited to the following:
A. The maintenance and repair of any plumbing systems within
the Premises (and serving solely the Premises), and the
repair of any damage to the Premises or to the Building
caused by the malfunction of such plumbing Systems;
B. The maintenance and repair of all electrical wiring,
outlets, switches and light fixtures within the Premises
(and serving solely the Premises);
C The maintenance and repair of all hardware within the
Premises;
D. The maintenance and repair of all walls, doors, ceilings,
and floors.
E. The replacement of fluorescent light tubes and ballasts.
This service is available through Building management on a
time and materials basis.
-57-
<PAGE> 61
EXHIBIT F
---------
FORM OF WARRANTS AGREEMENT
--------------------------
This Exhibit is incorporated by reference into the Lease dated
October 28, 1994 by and between Massachusetts Institute of Technology,
as Lessor, and Free Radical Sciences, Inc., as Lessee.
[SEE ATTACHED FORM OF AGREEMENT]
-58-
<PAGE> 1
[LETTERHEAD OF FREE RADICAL SCIENCES, INC.]
EXHIBIT 10.8
FREE RADICAL SCIENCES, INC.
EMPLOYMENT AGREEMENT
AGREEMENT dated as of November 28, 1994, by and between Hector J.
Gomez, M.D., Ph.D., of 66 Wayside Road, Concord, MA, 01742,
(hereinafter called "Employee") and FREE RADICAL SCIENCES, INC., a
Delaware corporation with principal operating offices at 245 First
Street, Cambridge, Massachusetts (hereinafter called the "Company").
WHEREAS, the Company is engaged in the business of commercializing
pharmaceutical products to attenuate free radical-mediated oxidative
damage in the management of various medical conditions in human health
care; and
WHEREAS, Employee wishes to be employed by the Company as
President and Chief Executive Officer, on all of the tens and
conditions contained herein; and
WHEREAS, the Company and Employee desire to set forth the
terms and conditions of the employment relationship between them;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties
agree as follows:
1. Duties
------
During the term of his employment pursuant to this Agreement, the
Employee shall be employed as President and Chief Executive Officer,
shall serve as a member of the Board of Directors of the Company and
shall perform such duties as are assigned to him from time to time by
the Board of Directors of the Company commensurate with his experience
and the position for which he is employed. Employee agrees to devote
during the time hereof his full-time duties and best efforts to the
faithful performance of his duties hereunder.
The Employee shall commence employment with the Company, upon the
terms set forth in this Agreement, for the period commencing on Monday,
November 28, 1994 (the "Commencement Date"), and ending on November 27,
1995, (the "Term"), PROVIDED THAT the Term shall be automatically
extended for one-year periods, unless otherwise terminated in
accordance with the provisions of Section 6.
<PAGE> 2
2. Compensation
------------
During each year of employment hereunder, the Company shall pay to
Employee as compensation for all services to be rendered by Employee in
any capacity hereunder an annual salary of Two Hundred Thirty Thousand
Dollars ($230,000) DOLLARS (the "Salary"), payable in equal bi-weekly
installments of $8,846.15, subject to increase at salary reviews
conducted at least annually, the first of which shall take place on the
anniversary of the date the Employee began his employment with the
Company. In addition; the Company shall pay to Employee a guaranteed
signing bonus of Twenty Thousand Dollars ($20,000), payable on December
2, 1994.
Assuming continued employment during the first year of this
Agreement, the Company will pay the Employee a guaranteed bonus of Ten
Thousand Dollars ($10,000) on August 25, 1995 and an additional Ten
Thousand Dollars ($10,000) on December 1, 1995.
3. Employee Benefits
-----------------
Employee shall receive whatever benefits are provided to members
of the Company's full-time staff by the Board of Directors to the
extent that the Employee's position, tenure, salary, age, health and
other qualifications make him eligible to participate (see Schedule A
attached for a list of current benefits).
4. Stock Option Plan
-----------------
Employee shall receive 550,000 incentive stock options to purchase
shares of common stock of the Company pursuant to the 1994 Equity
Incentive Plan at an exercise price of $0.10 cents per share vesting
over four years upon the following schedule. To the extent noted, this
option will be exercisable at any time prior to November 28, 2004. On
December 1, 1995, an option for 137,512 shares will become vested and
fully exercisable. Thereafter, an additional option for 11,458 shares
will become vested and fully exercisable each month, effective the
first day of the month, until the earlier of (i) the termination of the
Option Holder's employment with the Company or (ii) December 1, 1998.
(see Schedule B for draft Option Certificate and terms)
5. Expenses
--------
In addition to the above compensation and benefits, Employee shall
be reimbursed by the Company for reasonable expenses actually incurred
in the course of his employment, all pursuant to policies which may be
established by the Company.
-2-
<PAGE> 3
6. Employment-at-Will; Notification of Termination
-----------------------------------------------
Employee understands that he is an Employee-at-Will. Employee's
employment hereunder shall be terminated upon the death or disability
of Employee or the election of the Employee upon three months prior
written notice or of the Company upon written notice. Such notice from
the Company will state whether such termination is (i) without Cause;
or (ii) for Cause and the Employee's employment shall be terminated as
of the date set forth in the notice.
In the event of a Termination by the Company upon the death or
disability of the Employee, the Company shall pay to the estate of the
Employee or to the Employee, as the case may be, the compensation which
would otherwise be payable to the Employee through the end of the
payroll period in which death or disability occurs. For the purposes of
this Agreement, the term "disability" shall mean the inability of the
Employee, due to a physical or mental disability, for a period of 90
days, whether or not consecutive, during any 360-day period to perform
the services contemplated under this Agreement. A determination of
disability shall be made by a physician satisfactory to both the
Employee and the Company, PROVIDED THAT if the Employee and the Company
do not agree on a physician, the Employee and the Company shall each
select a physician and these two together shall select a third
physician, whose determination as to disability shall be binding on all
parties.
In the event of a Termination without Cause, the Company shall pay
the Employee his then current annual base salary in equal bi-weekly
installments for (i) the longer of either six months or the period from
the date of termination through the anniversary of the Commencement
Date in the first year of employment, and (ii) six months in the second
year of employment and thereafter; PROVIDED THAT the Company shall not
be required to pay the Employee any salary at any time after the
Employee has secured other employment. Any such payments by the Company
will be reduced by any consulting income earned by the Employee during
these payment periods.
The Company may terminate the Employee's employment hereunder for
"Cause" upon (i) a good faith finding by the Company of dishonesty,
gross negligence or misconduct; (ii) the Employee's willful and
continued failure substantially to perform his duties hereunder; (iii)
the commission by the Employee of an act of fraud or embezzlement
against the Company; (iv) the conviction of the Employee of a felony
involving moral turpitude; or (v) the material breach by the Employee
of the covenants set forth in Sections 7, 8, or 9. In the event of a
termination for Cause, the
-3-
<PAGE> 4
Company shall pay the Employee his base annual salary at the level then
in effect through to the date of termination notice.
For purposes of this Agreement, the Employee shall not be deemed
to have been terminated for Cause unless and until there shall have
been delivered to the Employee a copy of a resolution, duly adopted by
affirmative vote of not less than a majority of the entire membership
of the Board of the Company (excluding the Employee) at a meeting
called and held for this purpose after reasonable written notice to the
Employee and an opportunity for him, together with his counsel, to be
heard by the Board, finding that, in the good faith opinion of the
Board, the Employee is guilty of conduct of the type described in this
paragraph, and specifying the particulars thereof in detail.
7. Confidential Information
------------------------
Employee understands that the Company continually obtains and
develops valuable proprietary and confidential information concerning
its business, business relationships and financial affairs (the
"Confidential Information") which may become known to the Employee in
connection with his employment.
Employee acknowledges that all Confidential Information, whether
or not in writing and whether or not labeled or identified as
confidential or proprietary, is and shall remain the exclusive property
of the Company or the third party providing such information to the
Employee or the Company. By way of illustration, but not limitation,
Confidential Information may include Inventions (as hereafter defined),
trade secrets, technical information, know-how, research and
development activities of the Company, product and marketing plans,
customer and supplier information and information disclosed to the
Company or Employee by third parties of a proprietary or confidential
nature or under an obligation of confidence. Confidential Information
is contained in various media, including without limitation, patent
applications, computer programs in object and/ or source code, flow
charts and other program documentation, manuals, plans, drawings,
designs, technical specifications, laboratory notebooks, supplier and
customer lists, internal financial data and other documents and records
of the Company.
Employee agrees that he will not, during the term of his
employment and thereafter, publish, disclose or otherwise make
available to any third party, other than employees of the Company, any
Confidential Information except as expressly authorized in writing by
the Company. Employee agrees that he will use such Confidential
Information only in the performance of his duties for the Company and
in accordance with any Company policies with respect to the protection
of Confidential Information. Employee
-4-
<PAGE> 5
agrees not to use such Confidential Information for his own benefit or
for the benefit of any other person or business entity.
Employee agrees to exercise all reasonable precautions to protect
the integrity and confidentiality of Confidential Information in his
possession and not to remove any materials containing Confidential
Information from the Company's premises except to the extent necessary
to his employment. Upon the termination of his employment, or at any
time upon the Company's request, the Employee shall return immediately
to the Company any and all materials containing any Confidential
Information then in his possession or under his control.
Confidential Information shall not include information which (a)
is or becomes generally known within the Company's industry or to the
public through no fault of the Employee; (b) was known to the Employee
at the time it was disclosed; (c) is lawfully made available to the
Employee by a third party who did not to his knowledge derive it from
the Company and who imposes no obligation of confidence on him; or (d)
is required to be disclosed by a governmental authority or by order of
a court of competent jurisdiction, provided to the extent practicable
that such disclosure is subject to all applicable governmental or
judicial protection available for like material and reasonable advance
notice is given to the Company.
8. Covenant Not to Compete
-----------------------
In consideration of the compensation, perquisites and other
benefits paid to Employee hereunder, notwithstanding termination or
expiration of this Agreement (whether voluntary or involuntary), during
the term of employment and for a period of twelve (12) months
thereafter, EMPLOYEE SHALL NOT, directly or indirectly, as an employee,
agent, servant, consultant, partner or stockholder, or in any other
capacity, for himself/herself or for any person, partnership,
organization, association, corporation or other business entity (except
in his capacity as a holder of not more than 5% of the combined voting
power of the outstanding stock of a publicly held company) sell, lease,
license, market, research, develop, design, or manufacture any products
or services which have been, or may be substituted for those which have
been sold, leased, licensed, marketed, researched, developed, designed
or manufactured by the Company at any time during the period of his
employment with the Company.
9. Inventions
----------
All Inventions related to the business of the Company that are
conceived or reduced to practice by the Employee, either alone or with
others, during the period of employment hereunder, whether
-5-
<PAGE> 6
or not done during regular working hours, are the property of the
Company. The foregoing sentence shall not apply to an Invention for
which no equipment, supplies, facilities, or trade secret information
of the Company is used and which is developed entirely on the
Employee's own time, unless (a) the Invention relates to (i) the
business of the Company, or (ii) to the Company's actual or
demonstrably anticipated research or development, or (b) the Invention
results from work performed by the Employee for the Company. For
purposes of this Agreement, "Inventions" shall mean processes,
formulas, data, discoveries, developments, designs, improvements,
inventions, techniques, programs, original works of authorship, trade
secrets and know-how, whether or not patentable or registerable under
copyright or similar statutes. The Employee hereby assigns to the
Company or its nominee all his rights, title and interest in and to
such Inventions, and any related patent rights, copyrights and
applications and registrations therefor. During and after his
Employment, Employee shall cooperate with the Company, at the Company's
expense, in obtaining proprietary protection for the Inventions and
will execute all papers and perform all lawful acts that are necessary
for the preparation, filing, prosecution, issuance, procurement,
maintenance or enforcement of patent applications and patents of the
United States and foreign countries for these Inventions, and for the
transfer of any interest Employee has therein. Employee hereby appoints
the Company his attorney to execute and deliver any such documents on
his behalf in the event she should fail or refuse to do so within a
reasonable period following the Company's request. Employee understands
that, to the extent this Agreement shall be construed in accordance
with the laws of any state which limits the assignability to the
Company of certain employee inventions, this Agreement shall be
interpreted not to apply to any such invention which a court rules or
the Company agrees is subject to such state limitation. Attached
hereto, as Schedule C, is a list of all Inventions that, as of the date
of this Agreement, Employee claims as his own.
10. Miscellaneous
-------------
10.1 INJUNCTIONS. If Employee shall engage in any of the
activities prohibited by this Agreement the Company may apply to any
court of competent jurisdiction for a restraining order or injunction
to restrain Employee from continuing any such violation.
10.2 SEVERABILITY. If any court having jurisdiction of any cause
of action arising under this Agreement shall find that any provision or
provisions hereof are unenforceable because unreasonable or excessively
broad, such provisions shall be enforced to the extent and within the
limitations that the court may find reasonable; and the invalidity of
any one or more of the
-6-
<PAGE> 7
provisions of this Agreement shall not affect the validity and
enforceability of any other provision hereof.
10.3 BINDING EFFECT. The obligations of each party hereunder shall
be binding upon and shall inure to the benefit of any successor
corporation, in each case as if such successor corporation were a
direct party to this Agreement in lieu of the Company. For purposes of
this Section 10.3, the term "successor corporation" shall mean any
corporation with which the Company shall consolidate or into which it
shall merge or liquidate, or to which the Company shall transfer all or
substantially all of its assets. This Agreement shall also be binding
upon and inure to the benefit of the successors, assigns, personal
representatives, heirs and legatees of Employee.
10.4 AMENDMENTS AND WAIVERS. This Agreement represents the entire
agreement between the parties concerning the subject matter hereof and
may not be amended, modified or revoked in whole or in part except by
written agreement of every party having rights hereunder. This
Agreement supersedes any previous agreement between the parties. Any
waiver of any provision of this Agreement must be in writing, signed by
the party to be charged therewith, and shall not constitute a waiver of
any such right or remedy on any future occasion unless the waiver
specifically provides otherwise.
10.5 PERFORMANCE AFTER TERMINATION. Notwithstanding the
termination of this Agreement for any reason, the parties shall be
required to carry out any provisions hereof which contemplate
performance by them subsequent to such termination.
10.6 NOTICES. All notices required under this Agreement shall be
sufficient if made by certified or registered mail, return receipt
requested, if to the Employee, at the above address or at the last
address for which the Employee gave notice to the Company, and if to
the Company, as its then principal office.
10.7 COUNTERPARTS. This Agreement may be executed in several
counterparts, and all so executed shall constitute one agreement,
binding upon each party, notwithstanding that such party did not sign
the same counterpart.
10.8 APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of
Massachusetts.
-7-
<PAGE> 8
IN WITNESS WHEREOF, Free Radical Sciences, Inc. has caused this
Agreement to be executed by its duly authorized officer, and the
Employee has hereunto set his hand and seal, all as of the date first
above written.
FREE RADICAL SCIENCES, INC.
By: /s/ William C. Mills
------------------------------
William C. Mills III
Title: Chairman of the Board
/s/ Hector J. Gomez
------------------------------
Hector J. Gomez, M.D., Ph.D.
-8-
<PAGE> 1
EXHIBIT 10.9
[Letterhead of Transcend Therapeutics, Inc.]
October 4, 1995
Mr. H. Walter Hauessler
President, Director
Patents & Technology Marketing
Cornell Research Foundation, Inc.
Cornell Business & Technology Park
20 Thornwood Drive, Suite 105
Ithaca, NY 14850
Dear Mr. Hauessler:
Re: Letter Agreement to modify the terms of the Exclusive
License Agreement CRF D-416 and D-520, D-913, D-1069, D-
1239, D-1258, D-1403, D-1426 dated April 5, 1994
(hereafter "the License Agreement")
In consideration for Transcend Therapeutics, Inc. (hereafter "TTI") irrevocably
releasing and holding harmless Cornell Research Foundation, Inc., its Trustees,
Officers, Agents and Employees, and those of Cornell University (hereafter
"CRF") from any liability, loss, expense, or damage related to the abandonment
of the Licensed Patent Application D-416 in Japan, it is hereby agreed that:
Transfer of Responsibility for Patents
--------------------------------------
TTI will share responsibility for prosecution and maintenance of
all Licensed Patents/Applications with CRF under Articles IV and
V of the License Agreement. CRF will accept the counsel choice of
TTI, unless CRF has reasonable objections to that choice. TTI's
counsel will provide CRF with copies of all Office Actions
received from the applicable Patent Offices, as well as proposed
responses to same for CRF's comments, before the responses are
filed. TTI shall make reasonable efforts to consider CRF's
comments and revise the proposed
<PAGE> 2
responses, if appropriate. TTI shall have the right to deduct one
hundred percent (100%) of all patent prosecution costs and/or
maintenance fees incurred in the United States or any foreign
country from any royalty that may be due and owing CRF. If such
costs and fees exceed the royalties due to CRF in any License
Year, then the excess amount can be carried forward by TTI to
succeeding License Years. Accordingly, CRF will immediately
instruct its patent attorneys, Shugrue Mayan, Jones, Tuller &
Cooper, and Kenyon & Kenyon, to transfer all files to Pennie &
Edmonds as detailed in Attachment A. The cases handled by Nixon
Hargave will be transferred over time.
Recovery of Out-of-Pocket Costs
-------------------------------
TTI will have the right to deduct up to $32,407.24 of its costs
incurred for the Japanese corporate partnering trip July 24 -
August 4 and out-of-pocket legal expenses incurred in relation
to the abandoned patents/applications from any royalty that may
be due and owing CRF. If such costs exceed the royalties due to
CRF in any License Year, then the excess amount can be carried
forward by TTI to succeeding License Years.
TTI has prepared a list of these costs and expenses to be
deducted in Attachment B.
Return of Shares of Common Stock
--------------------------------
TTI will cancel 35,127 shares of common stock equal to twenty per
cent (20%) of the 175,127 shares of common stock that was
previously issued to CRF on April 5, 1994 as part consideration
for entering the License Agreement. CRF will retain 140,000
shares of common stock in TTI.
Accordingly, CRF will immediately return its original stock
certificate for cancellation and reissue, together with a duly
executed stock power providing for such transfer of 35,127 shares
to TTI.
The parties have caused this Letter Agreement, which constitutes an amendment to
the License Agreement, to be executed in duplicate as of the day and year first
above written.
<PAGE> 3
In all other respects, the License Agreement is ratified and confirmed.
TRANSCEND THERAPEUTICS, INC.
By: /s/ B. Nicholas Harvey
-------------------------------
B. Nicholas Harvey
Title
Date
Agreed:
CORNELL RESEARCH FOUNDATION, INC.
By: /s/ H. Walter Haeussler
-----------------------------
H. Walter Haeussler
Title
Date
Attachment A: Patent Transfer Letter
List of Patents/Applications dated Sept.
28
Attachment B: List of Costs and Expenses with
documentary support
<PAGE> 4
ATTACHMENT A
------------
September 26, 1995
VIA TELEFACSIMILE
-----------------
(Name), Esq.
Firm
Address
Re: Transfer of Responsibility to Pennie & Edmonds
----------------------------------------------
Dear (Mr./Ms. Atty):
Effective upon transfer of the files, Pennie & Edmonds will assume
responsibility for prosecution of the following patents/ applications on behalf
of Cornell Research Foundation, Inc.
(list files)
Please forward your original files promptly by express mail to:
Thomas E. Friebel, Esq.
PENNIE & EDMONDS
1155 Avenue of the Americas
New York, New York 10036-2711
(212) 790-9090 (phone)
(212) 869-9741/8864 (fax)
Your assistance in maintaining pendency of all patents/ applications during
the transfer to Pennie & Edmonds will be sincerely appreciated.
Very truly yours,
H. Walter Haeussler
President, Director
Patents & Technology Marketing
cc: Thomas E. Friebel, Esq.
<PAGE> 5
<TABLE>
ATTACHMENT B
LIST OF COSTS & EXPENSES
<CAPTION>
B. Smith
M. Sullivan H. Gomez B. Dickson TOTAL COST
----------- -------- ---------- ----------
<S> <C> <C> <C> <C>
1. DIRECT TRAVEL EXPENSES:
MEALS/ $4,919.07 $4,083.28
ENTERTAINMENT
AIRFARE $4,410.25 $4,443.59
$9,329.32 $8,526.87 $8,946.07 $26,802.26
----------------------------------------------------
2. PATENT LEGAL EXPENSES:
Attorney Time $1,160.00
Maintenance Fees Paid $4,445.00 $ 5,605.00
-----------------------------------------------------------------
$32,407.26
</TABLE>
<PAGE> 1
Exhibit 10.10
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Final
DEVELOPMENT AND LICENSE AGREEMENT
BETWEEN
TRANSCEND THERAPEUTICS, INC.
AND
BOEHRINGER INGELHEIM INTERNATIONAL GmbH
DATED AS OF FEBRUARY 28, 1997
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS ....................................... 6
1.1 "ADDITIONAL DEVELOPMENT PROGRAM" ................. 6
1.2. "ADMINISTRATION COSTS" ........................... 6
1.3. "AFFILIATE" ...................................... 7
1.4. "ARDS" ........................................... 7
1.5. "ARDS DEVELOPMENT PROGRAM" ....................... 7
1.6. "ARDS NDA FILING" ................................ 7
1.7. "ARDS PROGRAM PLAN" .............................. 7
1.8. "BI PATENT RIGHTS" ............................... 7
1.9. "BI TECHNOLOGY" .................................. 7
1.10. "CLINICAL NUTRITION .............................. 8
1.11. "COST OF GOODS SOLD" ............................. 8
1.12. "DEVELOPMENT EXPENSES" ........................... 8
1.13. "DEVELOPMENT PROGRAM" ............................ 8
1.14. "DIRECT COSTS" ................................... 8
1.15. "DISTRIBUTION COSTS" ............................. 8
1.16. "EFFECTIVE DATE" ................................. 9
1.17. "E.U." ........................................... 9
1.18. "FDA" ............................................ 9
1.19. "FIELD" .......................................... 9
1.20. "FIRST COMMERCIAL SALE" .......................... 9
1.21. "JOINT DEVELOPMENT TEAM" ......................... 9
1.22. "JOINT MARKETING TEAM" ........................... 9
1.23. "JOINT STEERING COMMITTEE" ....................... 9
1.24. "LICENSED PRODUCT" ............................... 9
1.25. "MAJOR MARKET COUNTRIES" ......................... 9
1.26. "MANUFACTURING COSTS" ............................ 9
1.27. "MARKETING EXCLUSIVITY" .......................... 10
1.28. "MEDICAL COSTS" .................................. 10
1.29. "MOD" ............................................ 10
1.30. "MOD DEVELOPMENT PROGRAM" ........................ 10
1.31. "MOD PIVOTAL TRIAL ............................... 10
1.32. "MOD PIVOTAL TRIAL MILESTONE EVENT" .............. 10
1.33. "MOD PROGRAM PLAN" ............................... 10
1.34. "NDA" ............................................ 11
1.35. "NET CONTRIBUTION" ............................... 11
1.36. "NET SALES" ...................................... 11
1.37. "NUTRITION" ...................................... 12
1.38. "OTHER INDICATION" ............................... 12
1.39. "OTHER INDICATION PROGRAM PLAN" .................. 12
1.40. "PARTY" .......................................... 12
1.41. "PROCYSTEINE" .................................... 12
-i-
<PAGE> 3
1.42. "PROCYSTEINE I.V." ............................... 13
1.43. "PRODUCT-RELATED COSTS" .......................... 13
1.44. "PROGRAM PATENT RIGHTS" .......................... 13
1.45. "PROGRAM PLAN" ................................... 13
1.46. "PROGRAM TECHNOLOGY" ............................. 13
1.47. "PROJECT TEAM" ................................... 13
1.48. "RECOGNIZED AGENT" ............................... 13
1.49. "SALES AND MARKETING COSTS" ...................... 13
1.50. "STOCK PURCHASE AGREEMENT" ...................... 14
1.51. "TERRITORY" ...................................... 14
1.52. "THIRD PARTY ..................................... 14
1.53. "TRANSCEND PATENT RIGHTS" ........................ 14
1.54. "TRANSCEND TECHNOLOGY" ........................... 14
1.55. "VALID PATENT CLAIM" ............................. 14
ARTICLE 2. SCOPE AND STRUCTURE OF THE COLLABORATION .......... 14
2.1. GENERAL .......................................... 14
ARTICLE 3. LICENSE GRANTS; RESERVED RIGHTS ................... 15
3.1. GRANT OF LICENSE RIGHTS BY TRANSCEND TO BI ........ 15
3.1.1 EXCLUSIVE LICENSE TO LICENSED PRODUCTS ... 15
3.1.2 RESERVATION OF RIGHTS ............................. 15
3.2. GRANT OF LICENSE RIGHTS BY BI TO TRANSCEND ........ 15
3.3. LIMITATIONS ON TRANSCEND RESERVED RIGHTS .......... 16
3.3.1. RESERVED RIGHTS ................................... 16
3.3.2. RIGHT OF FIRST NEGOTIATION ............... 16
3.3.3. RESTRICTIONS ............................. 16
3.4. PRESERVATION OF LICENSES IN BANKRUPTCY ............ 16
3.4.1. BANKRUPTCY FILING ........................ 17
3.4.2. INTELLECTUAL PROPERTY FOR PURPOSE OF
BANKRUPTCY CODE .......................... 17
ARTICLE 4. DEVELOPMENT OF LICENSED PRODUCTS .................. 17
4.1. ARDS DEVELOPMENT PROGRAM .......................... 17
4.1.1. TRANSCEND RESPONSIBILITIES ............... 17
4.1.2. BI RESPONSIBILITIES ...................... 17
4.1.3. PROGRAM FUNDING .......................... 18
4.1.4. FILING FOR ARDS APPROVAL IN UNITED STATES ......... 18
4.2. MOD DEVELOPMENT PROGRAM ........................... 19
4.2.1. GENERAL .................................. 19
4.2.2. JOINT DEVELOPMENT PROGRAM ................ 19
4.2.3. NON-JOINT DEVELOPMENT PROGRAM ............ 21
4.3. ADDITIONAL DEVELOPMENT PROGRAM0S .................. 25
4.3.1. GENERAL .................................. 25
4.3.2. NON-JOINT DEVELOPMENT .................... 25
-ii-
<PAGE> 4
4.4. ATTENDANCE AT REGULATORY MEETINGS ................. 26
4.5. DEVELOPMENT EXPENSES .............................. 26
4.5.1. TRANSCEND FUNDING ........................ 26
4.5.2. SHARED DEVELOPMENT EXPENSES .............. 26
4.5.3. REIMBURSEMENT OF DEVELOPMENT EXPENSES .... 27
4.6. RECORDS ........................................... 27
4.7. PROGRESS REPORTS .................................. 27
4.8. AVAILABILITY OF EMPLOYEES ......................... 27
4.9. VISIT OF FACILITIES ............................... 28
4.10. DEVELOPMENT INFORMATION ........................... 28
4.11. CESSATION OF TRANSCEND BUSINESS ................... 28
ARTICLE 5. MANAGEMENT ........................................ 28
5.1 JOINT DEVELOPMENT TEAM ............................ 28
5.1.1. GENERAL .................................. 28
5.1.2. RESPONSIBILITIES ......................... 28
5.1.3. MEETINGS ................................. 30
5.1.4. REPRESENTATIVES .......................... 30
5.1.5. ACTIONS .................................. 30
5.2. JOINT MARKETING TEAM .............................. 30
5.2.1. GENERAL .................................. 30
5.2.2. MEETINGS ................................. 30
5.2.3. REPRESENTATIVES .......................... 30
5.2.4. ACTIONS .................................. 31
5.3. JOINT STEERING COMMITTEE .......................... 31
5.3.1. GENERAL .................................. 31
5.3.2. CHAIR .................................... 31
5.3.3. MEETINGS ................................. 31
5.3.4. DISAGREEMENTS ............................ 32
ARTICLE 6. MANUFACTURING AND MARKETING RIGHTS ................ 32
6.1. MANUFACTURING OF LICENSED PRODUCTS ................ 32
6.1.1. TRANSCEND'S EXCLUSIVE RIGHT TO MANUFACTURE 32
6.1.2. TRANSFER PRICE ........................... 32
6.1.3. MANUFACTURING PLANNING ................... 33
6.1.4. BI'S OPTION FOR MANUFACTURING LICENSE .... 33
6.2. MARKETING AND DISTRIBUTION RIGHTS AND OBLIGATIONS . 33
6.2.1. BI MARKETING RIGHT AND DILIGENCE
OBLIGATIONS .............................. 33
6.2.2. TRANSCEND CO-PROMOTION OPTION ............ 35
ARTICLE 7. PAYMENTS .......................................... 36
7.1. LICENSE FEE ....................................... 36
7.2 EQUITY INVESTMENT ................................. 36
-iii-
<PAGE> 5
7.3 MILESTONE PAYMENTS ................................ 36
7.4. ROYALTIES ON NET SALES ............................ 39
7.4.1 NET SALES IN THE UNITED STATES ........... 39
7.4.2 NET SALES IN JAPAN ....................... 39
7.4.3 NET SALES OUTSIDE OF THE UNITED STATES AND
JAPAN .................................... 39
7.4.4 DURATION OF ROYALTY PAYMENTS ............. 39
7.4.5 SUBLICENSE ROYALTIES ..................... 39
7.4.6. ROYALTY RATE REDUCTION .................... 39
7.5. ROYALTY REPORTS, EXCHANGE RATES ................... 40
7.6. AUDITS ............................................ 41
7.7. ROYALTY PAYMENT TERMS ............................. 41
7.8. WITHHOLDING TAXES ................................. 41
7.9. APPLICATION FOR TAX EXEMPTION ..................... 42
7.10. INTEREST ON LATE PAYMENTS ......................... 42
ARTICLE 8. INTELLECTUAL PROPERTY RIGHTS ...................... 42
8.1. OWNERSHIP ......................................... 42
8.1.1. OWNERSHIP OF PROGRAM TECHNOLOGY AND
PROGRAM PATENT RIGHTS .................... 42
8.1.2 COOPERATION OF EMPLOYEES ................. 43
8.2. FILING, PROSECUTION AND MAINTENANCE OF PROGRAM
PATENT RIGHTS AND TRANSCEND PATENT RIGHTS ......... 43
8.2.1. FILINGS .................................. 43
8.2.2. PROSECUTION AND MAINTENANCE .............. 44
8.2.3. ABANDONMENT .............................. 44
8.3. COOPERATION ....................................... 44
8.4. NOTIFICATION OF PATENT TERM RESTORATION ........... 44
8.5. NO OTHER TECHNOLOGY RIGHTS ........................ 45
8.6. ENFORCEMENT OF PATENT RIGHTS ...................... 45
8.7. DEFENSE OF INDIVIDUAL INFRINGEMENT ACTIONS ........ 46
8.8. DEFENSE OF JOINT INFRINGEMENT ACTIONS ............. 46
8.9. CONTRIBUTION ...................................... 47
ARTICLE 9. CONFIDENTIALITY ................................... 47
9.1. NONDISCLOSURE OBLIGATIONS ......................... 47
9.1.1. GENERAL ................................... 47
9.1.2. LIMITATIONS ............................... 47
9.2. SAMPLES ........................................... 48
9.3 TERMS OF THIS AGREEMENT ........................... 48
9.4. PUBLICATIONS ...................................... 48
9.4.1. PROCEDURE ................................. 48
9.4.2. DELAY ..................................... 49
9.4.3. RESOLUTION ................................ 49
9.5. INJUNCTIVE RELIEF ................................. 49
-iv-
<PAGE> 6
ARTICLE 10. REPRESENTATIONS AND WARRANTIES .................... 49
ARTICLE 11. INDEMNITY ......................................... 50
11.1. BI INDEMNITY OBLIGATIONS ........................... 50
11.2. TRANSCEND INDEMNITY OBLIGATIONS .................... 50
11.3. PROCEDURE .......................................... 51
11.4. INSURANCE .......................................... 51
ARTICLE 12. TERM AND TERMINATION .............................. 51
12.1. EXPIRATION ......................................... 51
12.2. TERMINATION ........................................ 52
12.2.1. MATERIAL BREACH .......................... 52
12.2.2. BY BI .................................... 52
12.3. EFFECT OF EXPIRATION OR TERMINATION GENERALLY ...... 52
12.3.1. EXISTING OBLIGATIONS ..................... 52
12.3.2. SURVIVAL ................................. 52
12.4. EFFECT OF TERMINATION BY TRANSCEND OR TERMINATION BY
BI PURSUANT TO SECTION 12.2.2 ...................... 52
12.4.1. TERMINATION OF LICENSES .................. 52
12.4.2. DISPOSITION OF INVENTORY OF LICENSED
PRODUCTS ................................. 53
12.4.3. ASSIGNMENT OF REGULATORY APPROVALS;
MANUFACTURING RIGHTS ..................... 53
12.5. BI OPTIONS FOLLOWING TRANSCEND BREACH .............. 53
12.5.1. TERMINATION FOR TRANSCEND BREACH ......... 53
12.5.2. BI'S RIGHT TO OFFSET ROYALTIES AND OTHER
PAYMENTS ................................. 53
ARTICLE 13. MISCELLANEOUS ..................................... 54
13.1. FORCE MAJEURE ...................................... 54
13.2. ASSIGNMENT ......................................... 54
13.3. SEVERABILITY ....................................... 55
13.4. NOTICES ............................................ 55
13.5. APPLICABLE LAW ..................................... 56
13.6. DISPUTE RESOLUTION; CHOICE OF FORUM ................ 56
13.7. ENTIRE AGREEMENT ................................... 56
13.8. HEADINGS ........................................... 56
13.9. INDEPENDENT CONTRACTORS ............................ 56
13.10. AGREEMENT NOT TO SOLICIT EMPLOYEES ................. 57
13.11. EXPORTS ............................................ 57
13.12. WAIVER ............................................. 57
13.13. COUNTERPARTS ....................................... 57
-v-
<PAGE> 7
Exhibit A - Program Plan for ARDS Development Program
Exhibit B - Transcend Patent Rights
Exhibit C - Stock Purchase Agreement
Exhibit D - Terms of Supply Agreement
<PAGE> 8
DEVELOPMENT AND LICENSE AGREEMENT
---------------------------------
THIS DEVELOPMENT AND LICENSE AGREEMENT dated as of February 28, 1997 (the
"Agreement") is made between TRANSCEND THERAPEUTICS, INC., a Delaware
corporation having its principal place of business at 640 Memorial Drive,
Cambridge, Massachusetts 02139 U.S.A. ("Transcend"), and BOEHRINGER INGELHEIM
INTERNATIONAL GMBH, a limited liability company organized under the laws of the
Federal Republic of Germany having its principal place of business at D-55216
Ingelheim/Rhein Germany ("BI").
R E C I T A L S
A. Transcend, an emerging pharmaceutical company with a particular
therapeutic focus on critical care, is developing Procysteine(R), a novel
intracellular glutathione-repleting agent for the treatment of diseases caused
by oxidative stress and resultant tissue damage.
B. BI is in the business of discovering, developing and marketing
pharmaceuticals and wishes to establish a collaboration with Transcend for the
worldwide development and marketing of intravenous formulations of Procysteine,
initially for the treatment of acute respiratory distress syndrome.
C. Transcend is willing to enter into a collaboration with BI for the
worldwide development and marketing of intravenous formulations of Procysteine
on the terms and conditions set forth below.
NOW THEREFORE, in consideration of the premises and of the covenants
herein contained, Transcend and BI mutually agree as follows:
ARTICLE 1. DEFINITIONS
For purposes of this Agreement, the Terms defined in this Article shall
have the meanings specified below.
1.1 "ADDITIONAL DEVELOPMENT PROGRAM" shall mean a development program
(which may encompass a complete development program, a clinical protocol or a
protocol outline) for the utilization of Procysteine I.V. for the treatment or
prevention of an Other Indication, as further specified in Section 4.3.
1.2. "ADMINISTRATION COSTS" shall mean, with respect to a Licensed Product
co-promoted in the United States by Transcend pursuant to Section 6.2.2,
allocable
-1-
<PAGE> 9
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
overhead costs and expenses (including without limitation such items as finance
and accounting costs, legal and tax department costs and other general
administration charges), PROVIDED THAT any allocation of costs and expenses
shall be in accordance with reasonable and customary cost allocation procedures
and shall not exceed ************** of Net Sales of such Licensed Product.
1.3 "AFFILIATE" shall mean any corporation or other entity which controls,
is controlled by, or is under common control with a Party. A corporation or
other entity shall be regarded as in control of another corporation or entity if
it owns or directly or indirectly controls at least fifty percent (50%) of the
voting stock or other ownership interest of the other corporation or entity, or
if it possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of the corporation or other entity or
the power to elect or appoint fifty percent (50%) or more of the members of the
governing body of the corporation or other entity.
1.4. "ARDS" shall mean acute respiratory distress syndrome.
1.5. "ARDS DEVELOPMENT PROGRAM" shall mean the development program for
obtaining regulatory approval for Procysteine I.V. for the treatment of ARDS in
the Territory, undertaken jointly by the Parties in accordance with the ARDS
Program Plan, as further specified in Section 4.1.
1.6. "ARDS NDA FILING" shall mean the filing of an NDA relating to
Procysteine I.V. for the treatment of ARDS.
1.7 "ARDS PROGRAM PLAN" shall mean the development plan for the ARDS
Development Program set forth as Exhibit A to this Agreement (as such plan may
be amended from time to time by the Joint Steering Committee or by mutual
agreement of the Parties).
1.8. "BI PATENT RIGHTS" shall mean any present and future patents, patent
applications, patent extensions, certificates of invention, or applications for
certificates of invention, together with any divisions, continuations or
continuations-in-part thereof, which are owned or controlled by, or licensed
(with the right to sublicense) to, BI that cover BI Technology.
1.9. "BI TECHNOLOGY" shall mean any present and future inventions, trade
secrets, copyrights, data, regulatory submissions and other intellectual
property of any kind (including any proprietary biological materials, compounds
or reagents) including all confidential technical information in the possession
of BI as of the Effective Date and/or during the term of this Agreement, which
are owned or
-2-
<PAGE> 10
controlled by, or licensed (with the right to sublicense) to, BI that (a) are
necessary or useful for the manufacture, use or sale of the Licensed Products,
and (b) BI has elected to disclose to Transcend in the course of, and for use
in, the Program, excluding without limitation any Program Technology owned or
controlled by BI.
1.10. "CLINICAL NUTRITION " shall mean the feeding under professional
supervision of patients requiring special food administration techniques and
devices or nutrients in relation to their medical condition and shall be deemed
to exclude the administration of any product in which Procysteine (i) exceeds
ten percent (10%) by dry weight of the total content of the amino acids, amino
acid precursors and amino acid substrates, or (ii) exceeds one percent (1%) by
weight volume of the product administered in liquid form to patients. Clinical
Nutrition comprises parenteral (intravenous and intraperitoneal) and enteral
(nasogastric, jejunal and oral) nutrition for patient needs in hospitals,
nursing homes, extended care facilities and, if taken under professional
supervision, private residences.
1.11. "COST OF GOODS SOLD" shall mean, with respect to a Licensed Product,
(a) the Manufacturing Costs for such Licensed Product and (b) any royalties or
other amounts payable by Transcend to Third Parties with respect to patents and
other intellectual property rights licensed in connection with the manufacture
or sale of such Licensed Product.
1.12. "DEVELOPMENT EXPENSES" shall mean the external costs and Direct Costs
incurred by BI and/or Transcend following the Effective Date, as applicable, in
connection with the Development Program, including costs relating to the conduct
of clinical trials and compliance with product-related regulatory approval
procedures.
1.13. "DEVELOPMENT PROGRAM" shall mean the ARDS Development Program, MOD
Development Program, if any, and any Additional Development Program.
1.14. "DIRECT COSTS" shall mean the following costs incurred by BI and/or
Transcend, as applicable, in connection with the Development Program: (a) Cost
of Goods Sold for Licensed Products used in the conduct of clinical trials; (b)
allocable compensation costs of personnel (including, research, development and
general and administrative personnel, but excluding manufacturing personnel)
included in the Project Team; and (c) allocable overhead expenses; PROVIDED THAT
any allocation of costs and expenses shall be in accordance with reasonable and
customary costs allocation procedures.
1.15. "DISTRIBUTION COSTS" shall mean, with respect to a Licensed Product
co-promoted in the United States by Transcend pursuant to Section 6.2.2,
allocable indirect distribution costs and expenses (including without limitation
such items as order processing costs, warehousing costs and general insurance
costs), PROVIDED, THAT
-3-
<PAGE> 11
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
any allocation of costs and expenses shall be in accordance with reasonable and
customary cost allocation procedures and shall not exceed ************* of Net
Sales of such Licensed Product.
1.16. "EFFECTIVE DATE" shall mean the date first written above.
1.17. "E.U." means the countries included in the European Union as of the
Effective Date.
1.18. "FDA" shall mean the United States Food and Drug Administration.
1.19. "FIELD" shall mean the treatment or prevention of all disease
indications, provided, however, that Field shall not include Clinical Nutrition
and Nutrition.
1.20. "FIRST COMMERCIAL SALE" of a Licensed Product in each country shall
mean the first sale for use or consumption by the general public of such
Licensed Product in such country based on the required marketing and pricing
approval granted by the governing health authority of such country.
1.21. "JOINT DEVELOPMENT TEAM" shall mean the joint development team
composed of representatives of BI and Transcend, as more fully described in
Section 5.1 of this Agreement.
1.22. "JOINT MARKETING TEAM" shall mean the joint United States marketing
team composed of representatives of BI and Transcend, as more fully described in
Section 5.2 of this Agreement.
1.23. "JOINT STEERING COMMITTEE" shall mean the joint steering committee
composed of representatives of BI and Transcend, as more fully described in
Section 5.3 of this Agreement.
1.24. "LICENSED PRODUCT" shall mean a pharmaceutical product in finished
packaged form comprising Procysteine I.V.
1.25. "MAJOR MARKET COUNTRIES" shall mean the United States, Canada, the
United Kingdom, Germany, France, Italy, Spain and Japan.
1.26 "MANUFACTURING COSTS" shall mean, with respect to a Licensed Product,
the fully-allocated cost incurred by Transcend in manufacturing (or having
manufactured) and supplying such Licensed Product to BI, which cost shall
include without limitation material costs, allocable compensation costs of
manufacturing
-4-
<PAGE> 12
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
personnel, manufacturing overhead (including without limitation such items as
rent, utility expenses, depreciation and amortization), but shall not include
any allocation of non-manufacturing managerial or non-manufacturing employee
overhead or of general and administrative expenses.
1.27. "MARKETING EXCLUSIVITY" shall mean the marketing exclusivity afforded
approved drug products pursuant to (a) the exclusivity provisions of the United
States "Drug Price Competition and Patent Term Restoration Act of 1984", or its
equivalent in a country other than the United States, or (b) the exclusivity
provisions of the United States "Orphan Drug Act", or its equivalent in a
country other than the United States.
1.28. "MEDICAL COSTS" shall mean, with respect to a Licensed Product
co-promoted in the United States by Transcend pursuant to Section 6.2.2,
allocable medical costs and expenses (including without limitation such items as
drug registration maintenance and re-registration costs, personnel and material
costs for drug safety and for medical support in the marketing of such Licensed
Product, and costs associated with post-approval clinical trials for such
Licensed Product), provided that any allocation of costs and expenses shall be
in accordance with reasonable and customary cost allocation procedures and
********************************* of Net Sales of such Licensed Product.
1.29. "MOD" shall mean multiple organ dysfunction.
1.30. "MOD DEVELOPMENT PROGRAM" shall mean a development program for
obtaining regulatory approval for Procysteine I.V. for the treatment or
prevention of MOD in the Territory, as further specified in Section 4.2.
1.31. "MOD PIVOTAL TRIAL " shall mean a clinical trial that is conducted as
a part of the MOD Development Program and is designed to obtain regulatory
approval in the United States or the E.U. of Procysteine I.V. for the treatment
or prevention of MOD.
1.32. "MOD PIVOTAL TRIAL MILESTONE EVENT" means (a) in the event that the
MOD Pivotal Trial is undertaken pursuant to Section 4.2.2, the commencement of
the MOD Pivotal Trial, and (b) in the event that the MOD Pivotal Trial is
undertaken pursuant to Section 4.2.3, the completion of the MOD Pivotal Trial.
1.33. "MOD PROGRAM PLAN" shall mean the development plan for the MOD
Development Program to be set forth as an addendum to this Agreement if and when
approved by the Joint Steering Committee pursuant to the provisions of Section
4.2.2 (as such plan may be amended from time to time by the Joint Steering
Committee or by mutual agreement of the Parties).
-5-
<PAGE> 13
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
1.34. "NDA" shall mean a new drug application filed with the FDA to obtain
marketing approval for a Licensed Product in the United States and any
comparable application filed with the regulatory authorities of the E.U. to
obtain marketing approval for a Licensed Product in the E.U.
1.35. "NET CONTRIBUTION" shall mean, with respect to a Licensed Product,
the Net Sales of such Licensed Product ****************************************
************************* payable to Transcend pursuant to Section 7.4.1 below.
1.36. "NET SALES" shall mean the invoiced sales price charged by BI, its
Affiliates and/or sublicensees for the sale of Licensed Products to independent
Third Parties in the Territory, after deduction of (a) excises, sales taxes or
other taxes imposed upon and paid with respect to such sales (excluding
national, state or local taxes based on income), (b) charge back payments or
rebates granted to managed care organizations or federal, state and local
governments, their agencies, purchasers and reimbursers, and (c)***************
*******************************************************************************
*************************************************** to cover INTER ALIA all bona
fide cash and/or quantity discounts, credits for returns, handling and
transportation charges. With respect to Major Market Countries, should future
changes occur in any such country with regard to reimbursement to social
security or health maintenance organizations that are considerable, the parties
shall in good faith agree to a new definition of "Net Sales" for such country.
The transfer of the Licensed Products by BI or one of its Affiliates to (i)
another Affiliate of BI, or (ii) a permitted sublicensee of BI, or (iii) a
Recognized Agent for resale in a Major Market Country, shall not be considered a
sale; in such cases, Net Sales shall be determined based on the invoiced sales
price by the Affiliate, or permitted sublicensee of BI or any such Recognized
Agent to its customer, less the deductions allowed under this Section. Every
other commercial use or disposition of Licensed Products by BI or its
Affiliates, Recognized Agents (as provided above) or permitted sublicensees of
BI, other than reasonable quantities of promotional samples or bona fide sale to
a bona fide customer shall be considered a sale of the Licensed
Products at the weighted average Net Sales price then being invoiced by the
seller in arm's length transactions.
BI or its Affiliates shall be deemed to have sold a "Bundled Product"
if the Licensed Products are sold by BI or its Affiliates pursuant to an
agreement with an
-6-
<PAGE> 14
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
independent customer specifying, for a combination of products or services, (i)
a single price, (ii) other terms of purchase not separately identifying either a
price per product or the effective deductions referred to above perproduct or
(iii) a price for units of the Licensed Products which is discounted below BI's
or its Affiliates' standard invoice price per unit of the Licensed Products by
at least ******** *************** more than the amount that any other product or
service in the Bundled Product is discounted below such other product's or
service's standard invoice price. In order to calculate the Net Sales of the
Licensed Products included in a Bundled Product (a) in the case of the foregoing
clauses (i) and (ii), the total Net Sales of the Bundled Product shall be
multiplied by a fraction, the numerator of which shall be the product of the
number of units of the Licensed Products sold multiplied by the standard invoice
price per unit of the Licensed Products, and the denominator of which shall be
the sum, for all products or services included in the Bundled Product, of the
products of the number of units sold for each product or service in the Bundled
Product multiplied by the standard invoice price per unit for each such product
or service and (b) in the case of the foregoing clause (iii), the Parties will
determine whether an adjustment to Net Sales is appropriate and, if so, a
mutually agreeable method of calculation.
1.37. "NUTRITION" shall mean the feeding of individuals and shall include
all products not having therapeutic claims and not included in the definition of
Clinical Nutrition that have as their principal purpose providing nutrients to
an individual.
1.38. "OTHER INDICATION" shall mean any disorder or disease in the Field,
other than ARDS or MOD.
1.39. "OTHER INDICATION PROGRAM PLAN" shall mean the development plan for
an Additional Development Program to be set forth as an addendum to this
Agreement when approved by the Joint Steering Committee pursuant to the
provisions of Section 4.3.1 (as such plan may be amended from time to time by
the Joint Steering Committee or by mutual agreement of the Parties).
1.40. "PARTY" shall mean Transcend or BI; "PARTIES" shall mean Transcend
and BI.
1.41. "PROCYSTEINE" shall mean the intracellular glutathione-repleting
agent, L-2-oxothiazolidine-4-carboxylic acid, that has been researched and
developed by Transcend under the registered trademark "Procysteine(R)".
1.42. "PROCYSTEINE I.V." shall mean formulations of Procysteine to be
administered intravenously.
-7-
<PAGE> 15
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
1.43. "PRODUCT-RELATED COSTS" shall mean the sum of (a) Cost of Goods Sold,
(b) Sales and Marketing Costs, (c) Medical Costs, (d) Administration Costs and
(e) Distribution Costs.
1.44. "PROGRAM PATENT RIGHTS" shall mean those United States and foreign
patents and patent applications, including any division, continuation,
continuation-in-part, reissue, renewal or extension thereof, or substitute
therefor, and the letters patent that may be issued thereon, that cover the
Program Technology.
1.45. "PROGRAM PLAN" shall mean the ARDS Program Plan, MOD Program Plan
and/or Other Indication Program Plan(s).
1.46. "PROGRAM TECHNOLOGY" shall mean any inventions, discoveries, trade
secrets, copyrightable works, know-how, data, regulatory submissions and other
intellectual property of any kind (including any proprietary biological
materials, compounds or reagents) conceived or reduced to practice by either
Party, solely or jointly, during and as a part of the Development Program.
1.47. "PROJECT TEAM" shall mean those individuals who are employed by
Transcend or BI and who have been assigned responsibility for the development
and commercialization of Procysteine I.V.
1.48. "RECOGNIZED AGENT" shall mean an entity other than an Affiliate of BI
through which BI regularly distributes and sells its products in a particular
country or region.
1.49. "SALES AND MARKETING COSTS" shall mean, with respect to a Licensed
Product co-promoted in the United States by Transcend pursuant to Section 6.2.2,
allocable promotion and field sales force costs (including without limitation
costs associated with publications, mailings, medical symposia and promotional
films, advertising agency fees, field force commissions on sales, field force
management and administration costs, costs of sales offices and costs of
training of field sales force), PROVIDED THAT any allocation of costs and
expenses shall be in accordance with reasonable and customary cost allocation
procedures and (a) over a period commencing on the date of the First Commercial
Sale of such Licensed Product and ending on the ****************** of the date
of such First Commerical Sale (the "Product Launch Period"), shall not exceed an
average of ***************************** of Net Sales of such Licensed Product
per year and (b) following the Product Launch Period, shall not exceed
*************************** of Net Sales of such Licensed Product.
-8-
<PAGE> 16
1.50. "STOCK PURCHASE AGREEMENT" shall mean the Stock Purchase Agreement
dated as of February 28, 1997 attached as EXHIBIT C to this Agreement.
1.51. "TERRITORY" shall mean all countries of the world.
1.52. "THIRD PARTY " shall mean any entity other than Transcend or BI,
their respective Affiliates and Recognized Agents.
1.53. "TRANSCEND PATENT RIGHTS" shall mean all present and future patents,
patent applications, patent extensions, certificates of invention, or
applications for certificates of invention, together with any divisions,
continuations or continuations-in-part thereof, which are owned or controlled
by, or licensed (with the right to sublicense) to, Transcend that cover
Transcend Technology. Transcend Patent Rights as of the Effective Date are
listed in EXHIBIT B hereto. Transcend agrees to update Exhibit B at least once
annually.
1.54. "TRANSCEND TECHNOLOGY" shall mean all present and future inventions,
trade secrets, copyrights, data, regulatory submissions and other intellectual
property of any kind (including any proprietary biological materials, compounds
or reagents) including all confidential technical information in the possession
of Transcend as of the Effective Date and during the term of this Agreement,
which are owned or controlled by, or licensed (with the right to sublicense) to,
Transcend that are necessary or useful for the manufacture, use or sale of the
Licensed Products, excluding without limitation any Program Technology owned or
controlled by Transcend.
1.55. "VALID PATENT CLAIM" shall mean either (a) a claim of an issued and
unexpired patent included within the Transcend Patent Rights and/or Program
Patent Rights, which has not been held permanently revoked, unenforceable or
invalid by a decision of a court or other governmental agency of competent
jurisdiction, unappealable or unappealed within the time allowed for appeal, and
which has not been admitted to be invalid or unenforceable through reissue or
disclaimer or otherwise or (b) a claim of a pending patent application included
within the Transcend Patent Rights and/or Program Patent Rights, which claim was
filed in good faith and has not been abandoned or finally disallowed without the
possibility of appeal or refiling of said application.
ARTICLE 2. SCOPE AND STRUCTURE OF THE COLLABORATION
2.1 GENERAL. Transcend and BI wish to establish a collaborative alliance to
develop and market the Licensed Products, initially for the treatment of ARDS
and, subject to Section 4.2 and 4.3, the treatment or prevention of MOD and
Other Indications. During the course of this collaboration, Transcend and BI
shall communicate regularly and shall assume different rights and
responsibilities for the
-9-
<PAGE> 17
development and commercialization of the Licensed Products, based on the phase
of development and commercialization and the country in the Territory involved,
all as more specifically described below.
ARTICLE 3. LICENSE GRANTS; RESERVED RIGHTS
3.1. Grant of License Rights by Transcend to BI
------------------------------------------
3.1.1 EXCLUSIVE LICENSE TO LICENSED PRODUCTS. Transcend hereby grants
to BI, and BI hereby accepts, an exclusive (even as to Transcend, subject to the
Co-Promotion Option, as that term is defined in Section 6.2.2) royalty-bearing
license, under the Transcend Patent Rights and the Transcend Technology and
Transcend's rights in and to Program Patent Rights and the Program Technology,
to import, use, have used, offer to sell, sell and have sold the Licensed
Products in the Field within the Territory. Such license shall include the right
to grant sublicenses, under the Transcend Patent Rights and the Transcend
Technology and Transcend's rights in and to the Program Patent Rights and the
Program Technology, to Affiliates of BI and Recognized Agents and, with the
written consent of Transcend which shall not be unreasonably withheld, to Third
Parties. Transcend reserves the exclusive right to manufacture and have
manufactured the Licensed Products subject to Section 6.1 below.
3.1.2 RESERVATION OF RIGHTS. Notwithstanding the rights granted to BI
under this Article 3, Transcend at all times reserves the right, under the
Transcend Patent Rights and the Transcend Technology and Transcend's rights in
and to Program Patent Rights and the Program Technology, to make and use
reasonable quantities of the Licensed Products for its own research purposes and
development purposes. In the event BI obtains the Manufacturing License under
Section 6.1.4, BI will agree to supply Transcend with reasonable amounts of the
Licensed Products for such purposes at a price equal to the actual cost of
manufacture.
3.2. GRANT OF LICENSE RIGHTS BY BI TO TRANSCEND. BI hereby grants to
Transcend to the extent BI is legally entitled to do so, a worldwide,
non-exclusive, fully paid and royalty-free right and license, under the BI
Patent Rights and the BI Technology and BI's rights in and to the Program Patent
Rights and the Program Technology, to enable Transcend to comply with its
obligations under this Agreement.
3.3. Limitations on Transcend Reserved Rights.
----------------------------------------
3.3.1. RESERVED RIGHTS. Except for the licenses expressly granted by
Transcend to BI pursuant to Section 3.1, Transcend reserves all rights under the
Transcend Patent Rights, the Transcend Technology and Transcend's rights in and
to the Program Patent Rights and the Program Technology. The foregoing reserved
-10-
<PAGE> 18
rights shall include, but not be limited to, the rights to develop, make, use,
sell and import oral formulations of Procysteine (and to sublicense Third
Parties to do so), PROVIDED THAT Transcend shall not grant a license to a Third
Party under Transcend Patent Rights, the Transcend Technology and Transcend's
rights in and to the Program Patent Rights and the Program Technology unless it
first complies with the provisions of Section 3.3.2, and any such license shall
be subject to the restrictions set forth in Section 3.3.3.
3.3.2. RIGHT OF FIRST NEGOTIATION. Transcend agrees that, at such time
as it has a bona fide interest in seeking to enter into a collaborative
development and commercialization arrangement with a Third Party for oral
formulations of Procysteine for use in the Field, it shall first notify BI of
such decision and, at BI's election, shall enter into negotiations with BI
relating to the development and commercialization of oral formulations of
Procysteine for use in the Field. Transcend shall not enter into negotiations
with any Third Party relating to the development and commercialization of oral
formulations of Procysteine for use in the Field for a period of ninety (90)
days following the date it notifies BI of its decision to seek to enter into
such an arrangement.
3.3.3. RESTRICTIONS. Notwithstanding the provisions of Section 3.3.1,
Transcend agrees not to market and sell, or license a third party to market or
sell, an oral formulation of Procysteine for the treatment or prevention of (a)
ARDS, in any country in which BI, at the time that Transcend commences clinical
development of such oral formulation for ARDS, is then developing, marketing or
selling a Licensed Product for the treatment or prevention of ARDS, (b) MOD, in
any country in which BI, at the time that Transcend commences clinical
development of such oral formulation for MOD, is then developing, marketing or
selling a Licensed Product for the treatment or prevention of MOD, and (c) any
Other Indication in any country in which BI, at the time that Transcend
commences clinical development of such oral formulation for such Other
Indication, is then developing, marketing or selling a Licensed Product for the
treatment or prevention of such Other Indication. BI acknowledges that, prior to
the Effective Date, Transcend has commenced clinical development of an oral
formulation of Procysteine for the treatment of amyotrophic lateral sclerosis
and the treatment of atherosclerotic cardiovascular disease, and, therefore,
such indications are excluded from the prohibition set forth in subsection (c)
of this Section 3.3.3.
3.4. Preservation of Licenses in Bankruptcy.
--------------------------------------
3.4.1. BANKRUPTCY FILING. If Transcend should file a petition under
bankruptcy laws, or if any involuntary petition shall be filed against
Transcend, BI shall be protected in the continued enjoyment of BI's rights as
licensee hereunder to the maximum feasible extent including, without limitation,
if it so elects, the protection conferred upon licensees under Section 365(n) of
Title 11 of the U.S. Code,
-11-
<PAGE> 19
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
or any similar provision of any applicable law. Transcend shall give BI
reasonable prior notice of the filing of any voluntary petition, and prompt
notice of the filing of any involuntary petition, under any bankruptcy laws.
3.4.2. INTELLECTUAL PROPERTY FOR PURPOSE OF BANKRUPTCY CODE. The
Transcend Technology, Transcend Patent Rights, Program Technology and Program
Patent Rights shall be deemed to be "intellectual property" as that term is
defined in 11 U.S.C. Section 101(56) or any successor provision.
ARTICLE 4. DEVELOPMENT OF LICENSED PRODUCTS
4.1. ARDS Development Program
------------------------
4.1.1. TRANSCEND RESPONSIBILITIES. Subject to oversight by the Joint
Development Team, Transcend shall have principal responsibility for, and shall
utilize reasonable diligence in connection with, (a) the conduct of the ARDS
Development Program in the Territory (excluding Japan), in accordance with the
ARDS Program Plan, (b) compliance with required product-related regulatory
approval procedures, and (c) seeking all applicable required regulatory
approvals necessary for the marketing of Licensed Products in the Territory
(excluding Japan) for the treatment or prevention of ARDS.
4.1.2. BI RESPONSIBILITIES. BI shall notify Transcend on or before
********* as to whether or not it intends to commence clinical development of
Procysteine I.V. for ARDS in Japan. In the event that BI notifies Transcend on
or before *********** that it intends to commence such clinical development,
the Parties, acting through the Joint Development Team and the Joint Steering
Committee, shall amend the ARDS Program Plan to reflect the agreed-upon
development activities in Japan, and subject to oversight by the Joint
Development Team, BI shall have principal responsibility for (a) the conduct of
the ARDS Development Program in Japan, in accordance with the ARDS Program Plan
(as so amended), (b) compliance with required product-related regulatory
approval procedures, and (c) seeking all applicable required regulatory
approvals necessary for the marketing of Licensed Products in Japan. In the
event that BI fails to notify Transcend on or before ********* that it intends
to commence such clinical development, then BI shall be obligated to use
commercially reasonable efforts to identify a sublicensee for Japan and enter
into a sublicense agreement, on or before December 31, 1997, to develop and
commercialize Procysteine I.V. for ARDS in Japan. Transcend agrees to provide
reasonable assistance to BI in identifying such potential sublicensees,
including providing BI with a list of potential sublicensees. Any such
sublicense shall require
-12-
<PAGE> 20
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Transcend's prior written consent. In the event that a sublicense agreement is
not entered into on or before December 31, 1997, all rights relating to
Procysteine I.V. in Japan shall revert to Transcend, and the licenses granted
under Section 3.1 shall terminate with respect to Japan.
4.1.3. PROGRAM FUNDING. Transcend shall bear all Development Expenses
relating to the ARDS Development Program and regulatory activities undertaken
pursuant to Section 4.1.1, including, but not limited to, out-of-pocket expenses
incurred by BI in connection with such activities at the request of Transcend.
BI shall bear all Development Expenses relating to the ARDS Development Program
and regulatory activities undertaken pursuant to Section 4.1.2, including, but
not limited to, out-of-pocket expenses incurred by Transcend in connection with
such activities at the request of BI.
4.1.4. FILING FOR ARDS APPROVAL IN UNITED STATES Notwithstanding the
provisions of Section 4.1.1., it is contemplated that the decision to file an
NDA with the FDA for approval of Procysteine I.V. for ARDS will be made by
mutual agreement of the Parties, acting through the Joint Steering Committee. In
the event that BI does not agree that an NDA filing is appropriate and Transcend
wishes to make such a filing, Transcend shall have the right to make such filing
and shall provide written notice of such filing to BI (a "Notice of Transcend
ARDS Filing"). Within thirty (30) days after BI receives a Notice of Transcend
ARDS Filing, it shall elect either (a) to **************************************
********************************************* prior to the expiration of such
30-day period, or (b) ********************************************************
************************** as specified in Section 7.3, in which event all
rights to Procysteine I.V. for the treatment of ARDS shall revert to Transcend,
and the licenses granted under Section 3.1 shall terminate to the extent of such
reversion of rights, provided that BI shall not be required to make the
foregoing election UNLESS the **************************************************
****************** ******************************************* specified by
applicable regulatory authorities. In the event that (a) BI receives a
******************************* (b) BI is not required to make an election under
this subsection due to the proviso in the preceding sentence, and (c) Transcend
*************************************************************************
*********** then BI shall be obligated to pay to Transcend at the time of such
*********** the milestones associated with ************************************.
4.2. MOD DEVELOPMENT PROGRAM.
4.2.1. GENERAL. As of the Effective Date, Transcend and BI have not
agreed to commence a MOD Development Program. The Parties, acting through the
Joint Development Team, shall consider the establishment of a MOD Development
-13-
<PAGE> 21
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Program and shall make a determination prior to ********* as to whether the
joint conduct of a MOD Development Program is desirable.
4.2.2. JOINT DEVELOPMENT PROGRAM. In the event that the Joint
Development Team determines, on or before *********, that the Parties should
jointly undertake a MOD Development Program, the Parties, acting through the
Joint Development Team and the Joint Steering Committee, shall agree upon a MOD
Program Plan to reflect the agreed-upon activities to be conducted pursuant to
the MOD Development Program, and shall append such MOD Program Plan to this
Agreement. In such event, and subject to oversight by the Joint Development
Team:
(a) Transcend shall have principal responsibility for, and
shall utilize reasonable diligence in connection with, (i)
the conduct of the MOD Development Program in the Territory
(excluding Japan), in accordance with the MOD Program Plan,
(ii) compliance with required product-related regulatory
approval procedures, and (iii) seeking all applicable
required regulatory approvals necessary for the marketing of
Licensed Products in the Territory (excluding Japan) for the
treatment or prevention of MOD.
(b) Unless in accordance with Section 4.1.2 BI has elected
not to develop Procysteine I.V. for ARDS in Japan and the
applicable rights have reverted to Transcend, BI shall have
principal responsibility for, and shall utilize reasonable
diligence in connection with, (i) the clinical development
of Procysteine I.V. for the treatment or prevention of MOD
in Japan in accordance with the MOD Program Plan, (ii)
compliance with all required product-related approval
procedures, and (iii) seeking applicable required regulatory
approvals necessary for the marketing of Licensed Products
in Japan for the treatment or prevention of MOD.
(c) All Development Expenses relating to the MOD Development
Program and regulatory activities undertaken pursuant to
Section 4.2.2(a), including, but not limited to,
out-of-pocket expenses incurred by a Party in connection
with such activities at the request of the other Party,
shall be borne fifty percent (50%) by each Party. BI shall
bear all Development Expenses relating to the MOD
Development Program and regulatory activities undertaken
pursuant to Section 4.2.2 (b),
-14-
<PAGE> 22
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
including, but not limited to, out-of-pocket expenses
incurred by Transcend in connection with such activities at
the request of BI.
(d) In the event that the Parties jointly undertake the MOD
Development Program but the Joint Development Team is unable
to reach agreement on whether to commence Phase III clinical
trials, either Party shall have the right to commence Phase
III clinical trials relating to the use of Procysteine I.V.
for the treatment or prevention of MOD and to seek
regulatory approval therefor in the Territory, and shall
provide written notice of its intent to commence such trials
to the Joint Steering Committee. The Party or Parties
commencing such Phase III clinical trials pursuant to this
subsection (d) is/are referred to as the "Commencing Party".
The Commencing Party shall, except as provided below, pay
***************************** of the Development Expenses
incurred in connection with the Phase III clinical trial or
trials and all regulatory activities in connection
therewith. If the Commencing Party files an NDA in the
United States or a Major Market Country of the E.U. based on
such Phase III clinical trials and receives regulatory
approval for the use of Procysteine I.V. in the treatment or
prevention of MOD, the other Party shall reimburse the
Commencing Party for ******************************* of the
Development Expenses incurred by the Commencing Party
pursuant to this subsection (d). In addition, if the
Commencing Party is Transcend and (i) BI wishes to retain
commercialization rights to Procysteine I.V. for the
treatment or prevention of MOD, BI shall, *****************
************************************ in the United States or
a Major Market Country of the E.U., pay to Transcend
*********************************** with respect to
************************************* (when applicable), the
filing for ************* and the receipt of ***********, as
specified in Section 7.3 below; or (ii) if BI does not wish
to retain commercialization rights to Procysteine I.V. for
the treatment or prevention of MOD, all rights relating to
Procysteine I.V. for the treatment or prevention of MOD in
the Territory shall revert to Transcend, and the licenses
granted under Section 3.1 shall terminate with respect to
Procysteine I.V. for the treatment or
-15-
<PAGE> 23
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
prevention of MOD in the Territory. BI shall indicate to
Transcend in writing *****************************
*************************************** of its election
concerning retention of commercialization rights, PROVIDED
THAT failure of BI to reimburse Transcend for Development
Expenses and to make *************************************
shall be deemed to be an election by BI under subsection
(d)(ii) above. If BI makes or is deemed to make an election
under subsection (d)(ii) above, Transcend shall have the
right to commercialize, alone or with a Third Party,
Procysteine I.V. in the Territory for the treatment or
prevention of MOD, PROVIDED THAT Transcend or any such Third
Party shall utilize a different product name for Procysteine
I.V. than is being utilized by BI for any Procysteine I.V.
product for ARDS.
4.2.3. Non-Joint Development Program. In the event that the
Joint Development Team does not determine, on or before *************
that the Parties should jointly undertake a MOD Development Program
(whether due to an affirmative decision not to jointly undertake such
a program or due to the inability of the Joint Development Team to
make a determination relating thereto), each Party shall have the
right, but not the obligation, to commence a MOD Development Program.
In the event that either Party decides to undertake such a MOD
Development Program, such Party shall notify the Joint Development
Team and, in consultation with the Joint Development Team, develop
clinical trial plans for such MOD Development Program, PROVIDED THAT
the Party undertaking such program shall have final authority over
such clinical trial plans. All Development Expenses relating to a MOD
Development Program shall be borne by the Party undertaking such
program, except that
(a) If Transcend undertakes a MOD
Development Program pursuantct to this
Section 4.2.3, Transcend shall bear all
Development Expenses of such MOD
Development Program except as follows:
(i) in the event that Transcend
undertakes a Phase II
-16-
<PAGE> 24
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
clinical study (which is not a MOD
Pivotal Trial) pursuant to the MOD
Development Program, BI shall have the
right (but not the obligation),
exercisable within thirty (30) days
after the occurrence of either (A)
receipt by BI of a full study report on
such Phase II clinical study, or (B) the
NDA Filing relating to Procysteine I.V.
for the treatment of ARDS, to make the
following payments to Transcend:
(x) reimbursement equal to
************************* of
the Development Expenses
incurred by Transcend in such
MOD Development Program prior
to the date of such exercise
made following the occurrence
of one (but not both) of the
events set forth in (A) and
(B) above, or **************
******* of such Development
Expenses if such exercise is
made following the occurrence
of both of the events set
forth in (A) and (B) above,
and
(y) ************************** of
all Development Expenses
incurred in such MOD
Development Program from and
after the date of such
exercise, including without
limitation a MOD Pivotal
Trial, and
(z) the milestone payments set
forth in Section 7.3 with
respect to the **************
**************** the filing
for ************ and the
***********************, when
applicable.
In the event that BI does not exercise
its right to provide such funding
pursuant to this subsection (i), the
provisions of subsection (iii) shall
apply.
(ii) In the event that Transcend undertakes a
Phase II/III clinical study pursuant to
the MOD Development Program, BI shall
have the right (but not the obligation),
exercisable within thirty (30)
-17-
<PAGE> 25
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
days after the NDA filing relating to
Procysteine I.V. for the treatment of
ARDS, to make the following payments to
Transcend:
(x) reimbursement equal to ******
******of the Development
Expenses incurred by Transcend
in such MOD Development
program prior to the date of
such exercise, and
(y) ******************* of all
Development Expenses incurred
by Transcend in such MOD
Development Program from and
after the date of such
exercise, including without
limitation a MOD Pivotal
Trial, and
(z) the milestone payments set
forth in Section 7.3 with
respect to the **************
**************** the ********
*************receipt of MOD
approval, when applicable.
In the event that BI does not exercise
its right to provide such funding
pursuant to this subsection (ii), the
provisions of subsection (iii) shall
apply.
(iii) In the event that Transcend undertakes a
Phase III clinical study (following a
Phase II clinical study) or a Phase
II/III clinical study pursuant to the
MOD Development Program and BI has not
exercised its funding right pursuant to
subsection (i) or (ii), as applicable,
BI shall have the right (but not the
obligation), exercisable within thirty
(30) days after receipt of regulatory
approval in the United States or a Major
Market Country of the E.U. for the use
of Procysteine I.V. for the treatment or
prevention of MOD, to make the following
payments to Transcend:
(x) reimbursement equal to ******
************** of the
Development Expenses
-18-
<PAGE> 26
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
incurred by Transcend in such
MOD Development Program prior
to the date of such exercise
(including Development
Expenses incurred in the Phase
II, Phase III and Phase II/III
clinical studies, as
applicable), and
(y) ********************of all
Development Expenses incurred
by Transcend in such MOD
Development Program from and
after the date of such
exercise, and after the date
of such exercise, and
(z) the milestone payments set
forth in Section 7.3 with
respect to the **************
**************** the ********
and the *************** when
applicable.
In the event that BI fails to exercise
the right to provide such funding within
such 30-day period and to make the
payments provided above, all rights
relating to Procysteine I.V. for the
treatment or prevention of MOD in the
Territory shall immediately revert to
Transcend, and the licenses granted
under Section 3.1 shall terminate with
respect to Procysteine I.V. for the
treatment or prevention of MOD in the
Territory (in which event Transcend
shall have the right to commercialize,
alone or with a Third Party, Procysteine
I.V. for the treatment or prevention of
MOD, PROVIDED THAT Transcend or any such
Third Party shall utilize a different
product name for Procysteine I.V. than
is being utilized by BI for any
Procysteine I.V. product for ARDs.
4.3. Additional Development Programs.
-------------------------------
4.3.1. GENERAL. Any plans or intentions of either Party with respect
to the development of Procysteine I.V. for Other Indications shall be proposed
by such Party to the Joint Development Team. Such plans or intentions include
any clinical
-19-
<PAGE> 27
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
trials conducted under an IND of such Party, or under an investigator IND. The
Joint Development Team shall consider any such proposal and, if it concurs in
such proposal, shall submit such proposal, together with a protocol, protocol
outline, or a complete development plan and a budget, to the Joint Steering
Committee for review. Upon approval by the Joint Steering Committee, the Parties
shall agree upon an Other Indication Program Plan, which shall (a) reflect the
agreed-upon activities to be conducted pursuant to the Additional Development
Program, (b) set forth the respective responsibilities of the Parties relating
to the Additional Development Program and (c) set forth the agreed-upon budget,
respective funding commitments and milestones, if any, relating to the
Additional Development Program. Such Other Indication Program Plan shall be
appended to this Agreement. In addition to the foregoing, each Party shall
advise the Joint Development Team concerning its plans or intentions with
respect to any preclinical use of Procysteine for Other Indications, and the
results of any such uses.
4.3.2. NON-JOINT DEVELOPMENT. In the event that (a) the Joint
Development Team does not reach agreement to approve a proposed Additional
Development Program, or (b) the Joint Steering Committee does not approve a
proposed Additional Development Program, or (c) the Parties are otherwise unable
to reach agreement to commence an Additional Development Program proposed by
either Party, then either Party shall have the right to conduct such Additional
Development Program, and shall provide written notice of its intent to commence
such Additional Development Program to the Joint Steering Committee. The Party
or Parties commencing such Additional Development Program pursuant to this
Section 4.3.2 is/are referred to as the "Developing Party." The Developing Party
shall, except as provided below, pay ************************* of the
Development Expenses incurred in connection with the Additional Development
Program and all regulatory activities in connection therewith. If the Developing
Party files an NDA in the United States or a Major Market Country of the E.U.
and receives regulatory approval for the use of Procysteine I.V. in the
treatment or prevention of the Other Indication specified for the Additional
Development Program, the other Party shall reimburse the Developing Party for
****************** of the Development Expenses incurred by the Developing Party
pursuant to this Section 4.3.2. In addition, if the Developing Party is
Transcend and (i) BI wishes to retain commercialization rights to Procysteine
I.V. for the treatment or prevention of the Other Indication specified for the
Additional Development Program, BI shall, within thirty (30) days after receipt
of regulatory approval in the United States, or a Major Market Country of the
E.U., pay to Transcend any agreed-upon milestone payments set forth in the Other
Indication Program Plan; or (ii) if BI does not wish to retain commercialization
rights to Procysteine I.V. for the treatment or prevention of the Other
Indication specified for the Additional Development Program, all rights relating
to Procysteine I.V. for the
-20-
<PAGE> 28
treatment or prevention of the Other Indication specified for the Additional
Development Program in the Territory shall revert to Transcend, and the licenses
granted under Section 3.1 shall terminate with respect to Procysteine I.V. for
the treatment or prevention of such Other Indication specified for the
Additional Development Program. BI shall indicate to Transcend in writing within
thirty (30) days after receipt of notice of regulatory approval of its election
concerning retention of commercialization rights, PROVIDED THAT failure of BI to
reimburse Transcend for Development Expenses and to make applicable milestone
payments within such 30-day period shall be deemed to be an election by BI under
subsection (ii) above. If BI makes or is deemed to make an election under
subsection (ii) above, Transcend shall have the right to commercialize, alone or
with a Third Party, Procysteine I.V. in the Territory for the treatment or
prevention of the Other Indication specified for the Additional Development
Program, PROVIDED THAT Transcend shall utilize a different product name for
Procysteine I.V. than is being utilized by BI for any Procysteine I.V. product
for ARDS.
4.4. ATTENDANCE AT REGULATORY MEETINGS. BI or Transcend, as the case may
be, will provide the other Party with reasonable prior notice of all meetings
between its representatives and regulatory authorities regarding marketing
approval of the Licensed Products. The recipient of such notice shall have the
right to have a representative present at all important meetings at such
recipient's sole expense; PROVIDED, HOWEVER, that the Party holding such meeting
with a regulatory authority may revoke this right with respect to any particular
meeting if, in its good faith reasonable judgment, the presence of any other
Party will be a detriment to the success of the meeting. Each of BI and
Transcend will furnish, at the other's request, a representative to attend
regulatory meetings of the other regarding marketing approval of the Licensed
Products.
4.5. DEVELOPMENT EXPENSES
4.5.1. TRANSCEND FUNDING. Transcend agrees to use the funds provided
by BI pursuant to Sections 7.1 and 7.2 below exclusively for the ARDS
Development Program, except as otherwise agreed by the Parties.
4.5.2. SHARED DEVELOPMENT EXPENSES. In the event that the Parties are
obligated to share Development Expenses pursuant to Sections 4.2.2(c), 4.2.3(a),
4.2.3(b) or 4.3.1, each Party incurring Development Expenses shall, within
thirty (30) days after the end of each calendar quarter, provide a written
report to the Joint Development Team and the other Party detailing the
Development Expenses incurred in the preceding quarter. Within fifteen (15) days
after the receipt of such report(s), payments shall be made by one Party to the
other Party so that the total Development Expenses incurred in such calendar
quarter shall be shared in the applicable agreed-upon percentages by the
Parties.
-21-
<PAGE> 29
4.5.3. REIMBURSEMENT OF DEVELOPMENT EXPENSES. In the event that one
Party (a "Reimbursing Party") is obligated to reimburse the Development Expenses
incurred by the other Party pursuant to Sections 4.2.2(d), 4.2.3(a) and 4.3.2,
the Party incurring such Development Expenses shall, within thirty (30) days
after the occurrence of the event giving rise to the reimbursement obligation,
provide a written report to the Joint Development Team and the Reimbursing Party
detailing the Development Expenses subject to the applicable reimbursement
obligation. Within fifteen (15) days after the receipt of such report, the
Reimbursing Party shall pay the required amount to the other Party.
4.6. RECORDS. Each Party shall keep complete and accurate records of its
expenditures in connection with the Development Program, which records each
Party shall retain for three (3) years after the end of the calendar year in
which expenses were incurred. The records shall conform to generally accepted
accounting principles consistently applied. Each Party shall have the right
during the Development Program and during the subsequent three (3) year period
to appoint, at its own expense, an independent public accountant reasonably
acceptable to the other Party to inspect said records. Upon reasonable notice
from the other Party (the "Requesting Party"), a Party (the "Reviewed Party")
shall make its records available during regular business hours for inspection by
the independent public accountant at the place or places where the Reviewed
Party customarily keeps such records, to the extent reasonably necessary to
verify the accuracy of the expenditures. The right of inspection shall not be
exercised by a Party more than once in any calendar year and not more than once
with respect to records covering any specific period of time. A Requesting Party
shall hold in strict confidence all information concerning such expenditures and
all information learned in the course of any audit or inspection, except to the
extent necessary for the Requesting Party to enforce any rights it may have
pursuant to this Agreement or if disclosure is required by law. The failure of
either Party to request verification of any expenditures during the period the
other Party is required to retain the records of any calendar year shall be
considered acceptance of the accuracy of the reports concerning such
expenditures.
4.7. PROGRESS REPORTS. Within fifteen (15) days after the end of each
calendar month during the pendency of the Development Program, each Party shall
provide to the Joint Development Team a written report summarizing the
activities undertaken by such Party during the previous calendar month in
connection with the Development Program.
4.8. AVAILABILITY OF EMPLOYEES. 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
Development Program and in connection with (a) any request from any regulatory
agency, including regulatory, scientific, technical and clinical testing issues
or (b) the commercialization of Licensed Products.
-22-
<PAGE> 30
4.9. VISIT OF FACILITIES. Representatives of Transcend and BI may, with the
other Party's prior approval, which approval shall not be unreasonably withheld,
visit the sites of any clinical trials or other experiments being conducted by
such other Party in connection with the Development Program and, subject to any
necessary approvals of the relevant Third Party, manufacturing sites used for
the Licensed Product. If requested by the other Party, Transcend and BI shall
cause appropriate individuals working on the Development Program to be available
for meetings at the location of the facilities where such individuals are
employed at times reasonably convenient to the Party responding to such request.
4.10. DEVELOPMENT INFORMATION. Each Party will (a) provide the other Party
with a copy of all submissions to be made by such Party to regulatory
authorities prior to the date of such submissions in sufficient time to enable
the other Party to comment on such submission, and (b) promptly provide the
other Party with the results of all toxicology and pharmacology studies and
clinical trials conducted by, or under the supervision of, such Party, with
respect to the Licensed Products.
4.11. CESSATION OF TRANSCEND BUSINESS. In the event that Transcend or any
successor to Transcend ceases to conduct business operations, BI shall have the
right, but not the obligation, to assume Transcend's development obligations
under this Agreement. In such event, Transcend or any successor to Transcend
shall provide BI with access to data and regulatory filings, as well as with a
right to cross-reference Transcend's or Transcend's successor's applicable
regulatory filings.
ARTICLE 5. MANAGEMENT
5.1 Joint Development Team.
----------------------
5.1.1. GENERAL. A Joint Development Team comprised of no more than
five (5) named representatives of each Party shall be appointed and shall meet
as needed. The Joint Development Team shall have a Project Leader designated by
mutual agreement of the Parties from time to time.
5.1.2. RESPONSIBILITIES. The Joint Development Team shall have
responsibility for the coordination and review of the Development Program,
including, but not limited to, (a) review of results of clinical trials and
related regulatory matters, (b) review on at least an annual basis of each
Program Plan and recommendation of any proposed changes therein to the Joint
Steering Committee, and (c) recommendations to the Joint Steering Committee
concerning the MOD Development Program and Additional Development Program(s)
pursuant to Sections 4.2.2 and 4.3.1, respectively.
-23-
<PAGE> 31
5.1.3. MEETINGS. Meetings of the Joint Development Team shall be at
times and places or in such form (e.g., in person, telephonic or video
conference) as the members of the Joint Development Team shall agree. The Joint
Development Team shall keep accurate minutes of its deliberations which record
all proposed decisions and all actions recommended or taken. All records of the
Joint Development Team shall be available to both Parties.
5.1.4. REPRESENTATIVES. A Party may change one or more of its
representatives to the Joint Development Team at any time. Members of the Joint
Development Team may be represented at any meeting by another member of the
Joint Development Team, or by a deputy.
5.1.5. ACTIONS. Any approval, determination or other action agreed to
by a majority of the members of the Joint Development Team or their deputies
present at the relevant Joint Development Team meeting shall be the approval,
determination or other action of the entire Joint Development Team. Although the
Parties shall seek to reach agreement on all matters by consensus, in the event
that any approval, determination, or action is not agreed to by a majority of
the members of the Joint Development Team, then such matter shall be referred to
the Joint Steering Committee for resolution pursuant to Section 5.3 of this
Agreement (including the provisions of Section 5.3.4). In addition, the Joint
Development Team may delegate to one Party or to a specific representative the
authority to make certain decisions.
5.2. Joint Marketing Team
--------------------
5.2.1. GENERAL. In the event that Transcend exercises the
Co-Promotion Option (as that term is defined in Section 6.2.2) in accordance
with Section 6.2.2, the Parties shall establish a Joint Marketing Team to
oversee commercialization activities in the United States. The Joint Marketing
Team shall be comprised of no more than three (3) named representatives of each
Party and shall meet as needed. The Joint Marketing Team shall have a Project
Leader designated by BI from time to time.
5.2.2. MEETINGS. Meetings of the Joint Marketing Team shall be at
times and places or in such form (e.g., in person, telephonic or video
conference) as the members of the Joint Marketing Team shall agree. At such
meetings, the Joint Marketing Team will, among other things, discuss and
coordinate the conduct of marketing, promotion, sales and distribution
activities in the United States. The Joint Marketing Team shall keep accurate
minutes of its deliberations which record all proposed decisions and all actions
recommended or taken. All records of the Joint Marketing Team shall be available
to both Parties.
5.2.3. REPRESENTATIVES. A Party may change one or more of its
representatives to the Joint Marketing Team at any time. Members of the Joint
-24-
<PAGE> 32
Marketing Team may be represented at any meeting by another member of the Joint
Marketing Team, or by a deputy.
5.2.4. ACTIONS. Any approval, determination or other action agreed to
by a majority of the members of the Joint Marketing Team or their deputies
present at the relevant Joint Marketing Team meeting shall be the approval,
determination or other action of the entire Joint Marketing Team. Although the
Parties shall seek to reach agreement on all matters by consensus, in the event
that any approval, determination or action is not agreed to by a majority of the
members of the Joint Marketing Team, then the members of the Joint Marketing
Team designated by BI shall make the final determination of such matter. In
addition, the Joint Marketing Team may delegate to one Party or to a specific
representative the authority to make certain decisions.
5.3. Joint Steering Committee.
------------------------
5.3.1. GENERAL. The Joint Steering Committee shall consist of two (2)
senior representatives of each of Transcend and BI. Such committee shall (a)
supervise the Joint Development Team, and, if applicable, the Joint Marketing
Team, including approval of all Program Plans and budgets and any material
amendments thereto, (b) make decisions concerning major development or
commercialization issues (such as the decision to commence or discontinue
clinical trials for any indication), (c) resolve of any disputes within the
Joint Development Team, or, if applicable, the Joint Marketing Team, and (d)
meet as needed. A Party may change one or more of its representatives to the
Joint Steering Committee at anytime.
5.3.2. CHAIR. The Joint Steering Committee shall initially be chaired
by a Transcend representative to the committee. The Transcend representative
shall serve as the Chair of the Joint Steering Committee from the Effective Date
through August 31, 1997. On September 1, 1997, a BI representative shall become
the Chair of the Joint Steering Committee through February 28, 1998. Thereafter,
the Chair of the Joint Steering Committee shall rotate between representatives
of Transcend and BI with each Chair serving for six (6) months.
5.3.3. MEETINGS. Meetings of the Joint Steering Committee shall be at
such times and places or in such form (e.g., in person, telephonic or video
conference) as the members of the Joint Steering Committee shall agree.
Representatives of both Parties shall be present at any meeting of the Joint
Steering Committee. Decisions of the Joint Steering Committee shall be made by
majority vote, except that such majority must include at least one
representative of each Party. The Joint Steering Committee shall keep accurate
minutes of its deliberations which record all proposed decisions and all actions
recommended or taken. All records of the Joint Steering Committee shall at all
times be available to both Parties.
-25-
<PAGE> 33
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
5.3.4. DISAGREEMENTS. All disagreements within the Joint Steering
Committee shall be subject to the following:
(a) The representatives to the committee will negotiate in
good faith for a period of not less than thirty (30) days to attempt
to resolve the dispute;
(b) If the representatives of the committee are unable to
resolve the dispute by the end of such period, the committee shall
promptly present the disagreement to the Chief Executive Officer of
Transcend and the Member of the Corporate Board of BI responsible for
Pharmaceuticals or their respective designees; and
(c) Such executives shall meet or discuss in a telephone or
video conference each Party's view and explain the basis for such
disagreement and resolve the dispute.
ARTICLE 6. MANUFACTURING AND MARKETING RIGHTS
6.1. Manufacturing of Licensed Products.
----------------------------------
6.1.1. TRANSCEND'S EXCLUSIVE RIGHT TO MANUFACTURE. Subject to Section
6.1.4 below, Transcend shall be responsible for the manufacture and supply of
the Licensed Products in formulated and finished form at the required quality
and in quantities sufficient to conduct the Development Program and for
commercial sale. Transcend may fulfill such responsibility either, at
Transcend's election, by directly manufacturing Licensed Products, by
contracting with BI to do so, by contracting with one or more Third Parties to
do so, or by a combination thereof. Transcend will provide all documentation
regarding manufacture needed to register the Licensed Products and will arrange
for pre-approval inspections. BI shall have the right to inspect any proposed
Transcend or Third Party manufacturing site. For commercial sale, Transcend
shall supply the Licensed Products to BI pursuant to the terms and conditions of
a supply agreement to be negotiated within one hundred eighty (180) days
following the Effective Date (the "Supply Agreement"), which shall reflect the
terms and conditions set forth on EXHIBIT D.
6.1.2. TRANSFER PRICE. BI shall reimburse Transcend for the Cost of
Goods Sold relating to Licensed Products supplied by Transcend to BI and its
Affiliates or sublicensees for any purpose, including clinical trial and
commercial sale purposes, PROVIDED, HOWEVER, that in no event shall BI's
reimbursement payment to Transcend for the Cost of Goods Sold per unit of a
Licensed Product exceed *******************************************************
-26-
<PAGE> 34
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
***************************************************************** PROVIDED,
FURTHER, that, subject to the relevant terms set forth in Exhibit D, BI's
reimbursement payment to Transcend for each unit of a Licensed Product shall not
be less than *** ********************************************************.
Transcend shall use commercially reasonable efforts to minimize such Cost of
Goods Sold. BI shall make all reimbursement payments due to Transcend pursuant
to this Section 6.1.2 within thirty (30) days after receipt of a reasonably
detailed invoice for Licensed Products previously supplied by Transcend.
6.1.3. MANUFACTURING PLANNING. In order to ensure either an orderly
transition of manufacturing responsibility from Transcend to BI pursuant to
Section 6.1.4 or the continuation of Transcend's manufacturing responsibility,
the Parties agree to engage in joint long-term manufacturing planning.
6.1.4. BI'S OPTION FOR MANUFACTURING LICENSE . Transcend hereby grants
to BI an option to obtain a worldwide right and license, under the Transcend
Patent Rights and the Transcend Technology and Transcend's rights in and to the
Program Patent Rights and the Program Technology, to make and have made the
Licensed Products (the "Manufacturing License"). This option is first
exercisable on the *********************************************** upon written
notice by BI to Transcend. Upon the effective date of the Manufacturing License,
the Supply Agreement will terminate and BI shall become responsible for (a) the
manufacture of the Licensed Products at the required quality and in quantities
sufficient for commercial sale, (b) providing documentation, other than that
provided by Transcend, regarding the manufacture of the Licensed Products for
commercial sale needed to register the Licensed Products and (c) arranging for
pre-approval inspections. Costs incurred by Transcend in connection with (i) the
transition of manufacturing responsibility for the Licensed Products to BI and
(ii) qualifying BI as the manufacturer for registration purposes shall be
reimbursed to Transcend by BI.
6.2. Marketing and Distribution Rights and Obligations.
-------------------------------------------------
6.2.1. BI Marketing Right and Diligence Obligations.
--------------------------------------------
(a) BI'S MARKETING RIGHTS AND OBLIGATIONS TO USE REASONABLE EFFORTS
Except as set forth in Section 6.2.2 below, BI shall have the exclusive right
and responsibility to market and distribute the Licensed Products throughout the
Territory, and shall have responsibility for all pre- and post-approval
marketing, sales and distribution activities. Upon receipt of approval to
commence commercial sale of the Licensed Products in each Major Market Country,
BI agrees, at its own expense, to use reasonable diligence to market the
Licensed Products in each such country
-27-
<PAGE> 35
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
consistent with those efforts used for other BI products with similar commercial
potential, PROVIDED, HOWEVER, that *******************************
******************************where such election is advisable in BI's
reasonable determination and BI has discussed its decision with Transcend prior
to such election. BI also agrees to use reasonable diligence to market Licensed
Products in all other countries where BI sells other products, consistent with
those efforts used in marketing other BI products with similar commercial
potential. BI also agrees to permit at least one representative of Transcend to
attend periodic strategic marketing meetings conducted by BI relating to the
Licensed Product, which meetings shall occur no less frequently than
semiannually.
(b) TRANSCEND'S REMEDIES FOR BI'S FAILURE TO USE REASONABLE EFFORTS.
In the event of BI's failure to use reasonable efforts to (i) develop the
Licensed Products in any country other than a Major Market Country or (ii)
market the Licensed Products in any country as provided in Section 6.2.1, and BI
fails to remedy or take reasonable action to initiate a remedy of such default
within **************** after notice thereof by Transcend, Transcend shall have
the right to terminate the licenses and rights of BI under Sections 3.1.1, 3.1.2
and 6.2.1 in such country, but Transcend shall not have the right to terminate
this Agreement in its entirety. If Transcend exercises the said right,
(i) Transcend may continue development of the Licensed
Product for distribution, marketing or sale in
such country or region either itself or with a
Third Party,
(ii) if BI has exercised the option for the
Manufacturing License, (A) BI shall supply
Transcend with reasonable amounts of the Licensed
Products for the aforementioned purposes on terms
consistent with the terms set forth in Section
6.1.1 and the Supply Agreement for so long as BI
is manufacturing, to the specifications required
by Transcend, the Licensed Products for its own
sale or (B) if BI cannot supply Transcend with the
Licensed Products, Transcend shall have the right
to make or have made the Licensed Products for
such indication notwithstanding any license
granted to BI pursuant
-28
<PAGE> 36
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
consistent with those efforts used for other BI products with similar commercial
potential, PROVIDED, HOWEVER, that *******************************
******************************where such election is advisable in BI's
reasonable determination and BI has discussed its decision with Transcend prior
to such election. BI also agrees to use reasonable diligence to market Licensed
Products in all other countries where BI sells other products, consistent with
those efforts used in marketing other BI products with similar commercial
potential. BI also agrees to permit at least one representative of Transcend to
attend periodic strategic marketing meetings conducted by BI relating to the
Licensed Product, which meetings shall occur no less frequently than
semiannually.
(b) TRANSCEND'S REMEDIES FOR BI'S FAILURE TO USE REASONABLE EFFORTS.
In the event of BI's failure to use reasonable efforts to (i) develop the
Licensed Products in any country other than a Major Market Country or (ii)
market the Licensed Products in any country as provided in Section 6.2.1, and BI
fails to remedy or take reasonable action to initiate a remedy of such default
within **************** after notice thereof by Transcend, Transcend shall have
the right to terminate the licenses and rights of BI under Sections 3.1.1, 3.1.2
and 6.2.1 in such country, but Transcend shall not have the right to terminate
this Agreement in its entirety. If Transcend exercises the said right,
(i) Transcend may continue development of the Licensed
Product for distribution, marketing or sale in
such country or region either itself or with a
Third Party,
(ii) if BI has exercised the option for the
Manufacturing License, (A) BI shall supply
Transcend with reasonable amounts of the Licensed
Products for the aforementioned purposes on terms
consistent with the terms set forth in Section
6.1.1 and the Supply Agreement for so long as BI
is manufacturing, to the specifications required
by Transcend, the Licensed Products for its own
sale or (B) if BI cannot supply Transcend with the
Licensed Products, Transcend shall have the right
to make or have made the Licensed Products for
such indication notwithstanding any license
granted to BI pursuant to
-28-
<PAGE> 37
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Section 6.1.4 and BI shall grant Transcend a
worldwide, perpetual, non-exclusive, fully-paid
and royalty-free right and license to use in the
manufacture of the Licensed Products any
manufacturing know-how developed by BI since the
effective date of the Manufacturing License that
is necessary or useful in the manufacture of the
Licensed Products.
(iii) to the extent legally permissible, BI shall take
all additional action reasonably necessary to
assign all of its right, title and interest in and
transfer possession and control to Transcend of
the regulatory filings prepared by BI, and
regulatory approvals received by BI, to the extent
that such filings and approvals relate to the
Licensed Products in such country or countries and
(iv) Article 4 will be appropriately amended, but this
Agreement will otherwise remain in effect.
In the event that Transcend enters into an agreement with a Third Party pursuant
to clause (i), and such Third Party will use data generated by BI, then
Transcend shall provide in such agreement that such Third Party will reimburse
BI for the perceived value of such data in such country, such value to be
negotiated in good faith by BI and Transcend, taking into account the financial
contributions of both Parties to the generation of such data.
6.2.2. TRANSCEND CO-PROMOTION OPTION. Transcend shall have the right,
at its option, to co-promote the Licensed Products alongside BI or its United
States Affiliate in the United States (the "Co-Promotion Option"). If Transcend
intends to exercise the Co-Promotion Option, Transcend will so notify BI in
writing prior to the **********************************************************
*****. Failure by Transcend to provide such notice within the time period
described in the preceding sentence shall terminate Transcend's co-promotion
rights under this Section 6.2.2. If Transcend exercises the Co-Promotion Option
in accordance with the
-29-
<PAGE> 38
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
second sentence of this Section 6.2.2, (a) Transcend shall be obligated to
provide ***********************************************************************
****************************************************************************
(the "Transcend Sales Force"), (b) Transcend and BI shall establish the Joint
Marketing Team pursuant to the provisions of Section 5.2, and (c) Transcend
shall be entitled to receive payments from BI pursuant to the provisions of
Section 7.4.1. Transcend shall bear all costs associated with the Transcend
Sales Force, including all sales and marketing costs. The activities of the
Transcend Sales Force shall be coordinated with BI's sales and marketing team.
Transcend may request that the Joint Marketing Team consider an increase in the
number of full-time equivalent sales specialists that Transcend is entitled to
utilize in co-promoting Licensed Products in the United States. In the event
that the number of full-time equivalent sales specialists utilized by Transcend
falls below ******** at any time, Transcend shall use reasonable efforts to
hire within *********** days sufficient personnel to maintain a Transcend Sales
Force with at least ******** full-time equivalent sales specialists.
ARTICLE 7. PAYMENTS
7.1. LICENSE FEE. BI shall pay to Transcend a non-refundable,
non-creditable license fee in the amount of five million dollars ($5,000,000)
within three (3) business days after the Effective Date.
7.2 EQUITY INVESTMENT. BI shall make a five million dollar ($5,000,000)
investment in Transcend's common stock and/or preferred stock on the terms and
subject to the conditions of the Stock Purchase Agreement.
7.3 MILESTONE PAYMENTS. BI shall make the following milestone payments to
Transcend upon the achievement of the applicable milestones:
-30-
<PAGE> 39
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Milestone Payment
--------- -------
1. **************************
**************************
PROVIDED, HOWEVER, that such
payment (a) shall be ********
**********************(with a
********************** made
for any portion of a month), up
to a ***************************
*********for the number of
months or portion thereof, if
any, after ************* that
************ an *************
*******************************
(the "Late Filing Period"),
PROVIDED FURTHER that,
in determining the Late Filing Period,
any ******************************
****************************************
*********************************
pursuant to Exhibit A shall be
********, and (b) shall be
**************************** (with a
************* made for any portion of
a month) for the number of months or
portion thereof, if any, in advance of
************* that **************an
********************* *****************
(the "Early Filing Period"), PROVIDED
FURTHER that in determining the Early
Filing Period, ***********************
************************************
************* of the ***************
pursuant to Exhibit A shall be *******
***********
2.***************************** ***********
-31-
<PAGE> 40
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
3.*******************************
*******************************
**************************** ***********
4.******************************
*******************************
******* ***********
5.******************************
, PROVIDED that ***********
to make any ******************
*****************************
*********************************
****** ************
6.*********************************
****************************** ************
7.****************************** ************
8.*********************************
**************************************
*********** ************
9.**************************************
**************************************
********* ************
Within forty-five (45) days following the occurrence of each of the
milestones set forth above, BI shall pay to Transcend in United States dollars
by certified or bank check or wire transfer the payments set forth above.
Payments made to Transcend pursuant to this Section 7.3 are not refundable under
any circumstances and will not be credited against royalty payments due
Transcend under Section 7.4.
-32-
<PAGE> 41
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
7.4. Royalties on Net Sales.
----------------------
7.4.1 NET SALES IN THE UNITED STATES. In consideration of the
licenses granted by Transcend to BI, BI shall pay to Transcend a royalty in the
amount equal to ************************** of Net Sales of a Licensed Product in
the United States. Notwithstanding the foregoing, in the event that Transcend
exercises the Co-Promotion Option, such royalty shall, for the duration of the
co-promotion period, be an amount equal to ******************* of the Net Sales
of Licensed Products in the United States for such indication, plus
**************** of the Net Contribution.
7.4.2 NET SALES IN JAPAN . In consideration of the licenses granted to
BI hereunder, BI shall pay to Transcend a royalty in the amount equal
to**************** ****** of Net Sales of the Licensed Products in Japan.
7.4.3 NET SALES OUTSIDE OF THE UNITED STATES AND JAPAN. In
consideration of the licenses granted to BI hereunder, BI shall pay to Transcend
a royalty in the amount equal to ************* of Net Sales of the Licensed
Products outside of the United States and Japan.
7.4.4 DURATION OF ROYALTY PAYMENTS. Royalties payable pursuant to
Sections 7.4.1, 7.4.2, and 7.4.3 shall be paid to Transcend on a
country-to-country basis from the date of the First Commercial Sale of a
Licensed Product in a country (a) until *************** after such First
Commercial Sale or (b) for as long as such Licensed Product, or its manufacture,
use or sale, is covered by a Valid Patent Claim or (c) for as long as the
Licensed Product is afforded Marketing Exclusivity for the applicable indication
in the Field, whichever of (a) or (b) or (c) is longer. In no event shall more
than one royalty be due Transcend for the sale of any Licensed Product.
7.4.5 SUBLICENSE ROYALTIES. If BI grants a sublicense hereunder to
any Third Party to make, have made, use, distribute for sale or sell the
Licensed Products in any country, BI shall pay to Transcend royalties on Net
Sales of the Licensed Products sold by such Third Party in such country at the
royalty rate set forth in Section 7.4.1, 7.4.2 and/or 7.4.3 that would be
applicable had such sales been made by BI.
7.4.6. ROYALTY RATE REDUCTION. Notwithstanding the provisions of
Sections 7.4.1, 7.4.2 and 7.4.3, the royalty rates set forth therein (but not
the percentage of the Net Contribution set forth in Section 7.4.1) shall be
reduced by ************************** of the rates otherwise applicable under
Sections 7.4.1, 7.4.2 and 7.4.3, on a country-by-country basis, with respect to
any Licensed Product that is ****************************** (as defined below)
in a particular country. For purposes of
-33-
<PAGE> 42
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
this Section, a Licensed Product is **************************************** in
a country if either (i) the manufacture, use or sale of such Licensed Product is
covered by a Valid Patent Claim, or (ii) if the Licensed Product is subject to
Marketing Exclusivity. In addition, the royalty rates set forth in Sections
7.4.1, 7.4.2 and 7.4.3 with respect to a Licensed Product shall be further
reduced on a country-by-country basis in the event that such Licensed Product is
(A) ********************* in a particular country and (B) is subject to a
************************************** (as defined below) in such country. For
purposes of this Section, ***************************** shall mean, with respect
to a Licensed Product in a specific country, a ***************************** of
such Licensed Product ******************************************** with respect
to the market for products with the same or a ********************
********************** as the Licensed Product of greater than ****************
************* in any calendar year over such Licensed Product's market share
during the immediately preceding calendar year (determined on the basis of
commercially available sources). The amount of the royalty reduction shall be
equal to ***************************** of the rates otherwise applicable under
Sections 7.4.1, 7.4.2 and 7.4.3 (e.g., a********************************** for a
Licensed Product that is ***************************** results in a ****
royalty reduction as a result of the absence of ****** *********** and an
additional ****** royalty reduction as a result of the **************
********************** (thus, the *********** royalty in Japan, for example,
would become ***** =royalty). If BI believes that a royalty reduction is
appropriate under this Section 7.4.6 in any country, it shall provide written
notice to Transcend of its proposed reduction, with supporting documentation
sufficient to enable Transcend to evaluate the proposed reduction. If Transcend
objects to such reduction and the Parties are unable to agree in good faith upon
appropriateness of the reduction or the amount thereof, if any, the matter shall
be resolved by arbitration under Section 13.6 hereof.
7.5. ROYALTY REPORTS, EXCHANGE RATES. During the term of this Agreement,
following the First Commercial Sale of the Licensed Products in any country, BI
shall within forty five (45) days after each calendar quarter furnish to
Transcend a written quarterly report showing, on a country by country basis: (a)
the gross sales of the Licensed Products sold by BI and its Affiliates,
Recognized Agents and its permitted sublicensees during the reporting period and
the calculation of Net Sales from such gross sales; (b) withholding taxes, if
any, required by law to be deducted in respect of such sales; (c) the specific
deductions permitted by the definition of "Net Sales" taken in connection with
the calculation of Net Sales; and (d) the exchange rates used in determining the
amount of United States dollars. All sales in currencies other than United
States dollars shall first be converted into German marks and then into United
States dollars using in both cases the average monthly exchange rates as
published regularly by Deutsche Bank in Frankfurt am Main, Germany, and as
customarily
-34-
<PAGE> 43
used by BI in its accounting system. If no royalty is due for any royalty period
hereunder, BI shall so report. BI shall keep complete and accurate records in
sufficient detail to properly reflect all gross sales and Net Sales and to
enable the royalties payable hereunder to be determined.
7.6. AUDITS. Upon the written request of Transcend, BI shall permit an
independent public accountant selected by Transcend and acceptable to BI, which
acceptance shall not be unreasonably withheld, to have access during normal
business hours to such records of BI as may be reasonably necessary to verify
the accuracy of the royalty reports described herein, in respect of any fiscal
year ending not more than thirty-six (36) months prior to the date of such
request. All such verifications shall be conducted at Transcend's expense and
not more than once in each calendar year. In the event such Transcend
representative concludes that additional royalties were owed to Transcend during
such period, the additional royalty shall be paid by BI within thirty (30) days
of the date Transcend delivers to BI such representative's written report so
concluding. The fees charged by such representative shall be paid by Transcend
unless the audit discloses that the royalties payable by BI for the audited
period are incorrect by more than five percent (5%), in which case BI shall pay
the reasonable fees and expenses charged by such representative. BI shall
include in each Third Party sublicense granted by it pursuant to this Agreement
a provision requiring the sublicensee to make reports to BI, to keep and
maintain records of sales made pursuant to such sublicense and to grant access
to such records by Transcend's representatives to the same extent required by BI
under this Agreement. Transcend agrees that all information subject to review
under this Section 7.6 or under any sublicense agreement is confidential and
that Transcend shall cause its representatives to retain all such information in
confidence.
7.7. ROYALTY PAYMENT TERMS. Royalties shown to have accrued by each
royalty report provided for under this Agreement shall be due forty five (45)
days after the end of each calendar quarter. Payment of royalties in whole or in
part may be made in advance of such due date. Royalties determined to be owing
with respect to any prior quarter shall be added, together with interest thereon
accruing under this Agreement from the date of the report for the quarter for
which such amounts are owing, to the next quarterly payment hereunder.
7.8. WITHHOLDING TAXES. BI shall deduct any withholding taxes from the
payments agreed upon under this Agreement and pay them to the proper tax
authorities required by the laws of the Federal Republic of Germany applicable
at the date of payment. BI shall not deduct any other withholding or any other
governmental charges from the payments agreed upon under this Agreement,
including but not limited to any such taxes or charges incurred as a result of
an assignment or sublicense by BI to any Affiliate or any Third Party, except as
noted above. BI shall maintain official receipts of payment of any withholding
taxes and forward these receipts to Transcend. The Parties will exercise their
best efforts to
-35-
<PAGE> 44
ensure that any withholding taxes imposed are reduced as far as
possible under the provisions of the current or any future double taxation
agreement between the United States and the Federal Republic of Germany.
According to existing German Law this reduction requires that the German
Bundesamt fur Finanzen issues a Certificate of Tax Exemption. In order to
achieve such reduction Transcend shall provide BI with the claim for a
certificate of tax exemption in respect of royalties performed on the official
form (Application for Tax Exemption) containing the statement of residence and
indication of the taxpayer's identification number as well as the Certificate of
Filing a Tax Return, in which Transcend confirms that it does not derive the
royalties through a permanent establishment maintained in Germany. BI shall
provide Transcend with the official form.
7.9. APPLICATION FOR TAX EXEMPTION. The payments set forth in the Article
7 (other than the equity investment set forth in Section 7.2) are not due until
Transcend provides BI with the Application for Tax Exemption fulfilling the
prerequisites set out in Section 7.8 of this Agreement. Payments (other than the
equity investment set forth in Section 7.2) arising after expiration of any
Certification of Tax Exemption are not due until the next Application for Tax
Exemption is filed with BI. Notwithstanding the preceding provisions of this
Section 7.9, in the event of any extended delay in approval or effectiveness of
the Application for Tax Exemption, Transcend may require payment of any amounts
due pursuant to this Agreement net of any applicable withholding taxes.
Transcend shall be notified by BI of any changes regarding the filing of
Applications for Tax Exemption.
7.10. INTEREST ON LATE PAYMENTS. Any payments by BI to Transcend that are
not paid on or before the date such payments are due under this Agreement shall
bear interest, to the extent permitted by applicable law, at two (2) percentage
points above the Prime Rate of interest declared from time to time by The First
National Bank of Boston in Boston, Massachusetts, calculated on the number of
days payment is delinquent.
ARTICLE 8. INTELLECTUAL PROPERTY RIGHTS
8.1. Ownership.
---------
8.1.1. OWNERSHIP OF PROGRAM TECHNOLOGY AND PROGRAM PATENT RIGHTS. All
right, title and interest in all Program Technology and Program Patent Rights
that are conceived and reduced to practice during and as a result of the Program
solely by employees of Transcend or others acting on behalf of Transcend shall
be owned by Transcend. All right, title and interest in all Program Technology
and Program Patent Rights that are conceived and reduced to practice during and
as a result of the Program solely by employees of BI or others acting on behalf
of BI shall be owned by BI. All right, title and interest in all Program
Technology and Program Patent Rights
-36-
<PAGE> 45
that are conceived or reduced to practice during and as a result of the Program
jointly by employees of Transcend and BI or others acting on their behalf shall
be jointly owned by Transcend and BI. Each Party shall promptly disclose to the
other Party the conception or reduction to practice of Program Technology and
Program Patent Rights by employees or others acting on behalf of such Party. The
Parties acknowledge that the ownership rights set forth above (a) shall not be
affected by the participation in the discovery or development of an invention by
the Joint Development Team and (b) are subject to the license grants set forth
in Article 3.
8.1.2 COOPERATION OF EMPLOYEES. Each Party represents and agrees that
its employees and consultants shall be obligated (under a binding written
agreement where such a written agreement is legally necessary to bind such
employees and consultants) to assign to such Party, or as such Party shall
direct, all Program Technology and Program Patent Rights conceived or reduced to
practice during and as a result of the Program by such employee or consultant.
In the case of non-employees working for other companies or institutions on
behalf of Transcend or BI, Transcend or BI, as applicable, shall use reasonable
efforts to obtain the right to license all inventions conceived or reduced to
practice by such non-employees on behalf of Transcend or BI, as applicable, in
accordance with the policies of the company or institution employing such
non-employee. Transcend and BI agree to undertake to enforce such agreements
with employees or others or such rights pertaining to non-employees (including,
where appropriate, by legal action) considering, among other things, the
commercial value of such inventions.
8.2. FILING, PROSECUTION AND MAINTENANCE OF PROGRAM PATENT RIGHTS AND
TRANSCEND PATENT RIGHTS .
8.2.1. FILINGS. When any Program Technology may reasonably be
considered to be patentable or when a determination is made that Transcend
Technology used in the Program may reasonably be considered to be patentable, a
patent application shall be filed as soon as reasonably possible. Transcend
shall be responsible for filing such application on Transcend Technology and on
Program Technology owned by it solely or jointly with BI. BI shall be
responsible for filing such application on Program Technology owned solely by
BI. No later than nine (9) months following the filing date of any of such
applications, the Parties shall consult together, through the Joint Development
Team or otherwise, and agree whether such application should be: abandoned with
replacement; abandoned and refiled; proceeded with in the country of filing
only; or used as the basis for a claim of priority under the Paris Convention
for corresponding applications in other countries. Each Party shall give the
other Party an opportunity to review the text of any application before filing
to the extent that the text of such application differs from the previously
agreed upon text, and each Party shall supply the other Party with a copy of the
application as filed, together with a note of its filing date and serial number.
-37-
<PAGE> 46
8.2.2. PROSECUTION AND MAINTENANCE. Transcend shall be responsible
for prosecution and maintenance of Transcend Patent Rights and Program Patent
Rights solely or jointly owned by Transcend. BI shall be responsible for
prosecution and maintenance of patents and patent applications covering Program
Patent Rights owned solely by BI. Each of the Parties hereto shall consult with
the other Party as to the prosecution and maintenance of such patent
applications and patents, shall furnish to the other Party copies of documents
relevant to any prosecution or maintenance sufficiently prior to filing such
document or making any payment due thereunder to allow for review and comment by
the other Party, and shall seriously consider all such comments.
Notwithstanding the foregoing, if either Transcend or BI elects not to
continue to seek or maintain patent protection on any patent or patent
application which makes up the Transcend Patent Rights or the Program Patent
Rights in any country (the "Discontinuing Party"), the other Party shall have
the right, at its option and expense, but on behalf of the Discontinuing Party
to file, prosecute (including oppositions) and maintain such patent applications
and patents; PROVIDED, HOWEVER, that the rights of the Parties as between each
other with respect to any such Transcend Patent Rights and Program Patent Rights
in all other respects shall be as described in this Agreement. The Discontinuing
Party will advise the other Party of all decisions taken with respect to any
such election in a timely manner in order to allow the other Party to protect
its rights under this Section 8.2.2.
8.2.3. ABANDONMENT. BI and Transcend each agree that it will not
abandon the prosecution of any patent applications included within the Transcend
Patent Rights or the Program Patent Rights nor shall it fail to make any payment
or fail to take any other action necessary to maintain a patent under the
Transcend Patent Rights or the Program Patent Rights unless it has notified the
other Party in sufficient time for the other Party to assume such prosecution or
make such payment on behalf of BI or Transcend, as the case may be.
8.3. COOPERATION. Each Party shall make available to the other Party (or to
the other Party's authorized attorneys, agents or representatives), its
employees, agents or consultants to the extent reasonably necessary or
appropriate to enable the appropriate Party to file, prosecute and maintain
patent applications and resulting patents with respect to inventions owned by a
Party and for periods of time reasonably sufficient for such Party to obtain the
assistance it needs from such personnel. Where appropriate, each Party shall
sign or cause to have signed all documents relating to said patent applications
or patents at no charge to the other Party.
8.4. NOTIFICATION OF PATENT TERM RESTORATION. Transcend shall notify BI of
(a) the issuance of each patent included within the Transcend Patent Rights and
the Program Patent Rights, giving the date of issue and patent number for each
such
-38-
<PAGE> 47
patent, and (b) each notice pertaining to any patent included within the
Transcend Patent Rights and the Program Patent Rights which it receives as
patent term restorations. The Parties shall cooperate with each other in
applying for patent term extensions (including Supplementary Protection
Certificates in European Community Countries and administrative/pipeline
protection) where applicable in any country. Transcend shall also notify BI of
each application filed for patent term extension, any allegations of failure to
show due diligence and all awards of patent term extensions with respect to the
Transcend Patent Rights and the Program Patent Rights. Such notices shall be
given promptly, but in any event within ten (10) business days after receipt of
each such notice pursuant to the Drug Price Competition and Patent Term
Restoration Act of 1984 (the "Act") (or comparable laws or regulations in
countries other than the United States). Transcend shall notify BI of each
filing for patent term restoration under the Act (or comparable laws or
regulations in countries other than the United States), any allegations of
failure to show due diligence and all awards of patent term restoration
(extensions) with respect to the Transcend Patent Rights and the Program Patents
Rights.
8.5. NO OTHER TECHNOLOGY RIGHTS. Except as otherwise expressly provided in
this Agreement, under no circumstances shall a Party hereto, as a result of this
Agreement, obtain any ownership interest in or other right to any technology,
know-how, patents, pending patent applications, products, or biological
materials of the other Party, including items owned, controlled or developed by
the other Party, or transferred by the other Party to said Party, at any time
pursuant to this Agreement.
8.6. ENFORCEMENT OF PATENT RIGHTS. Transcend and BI shall each promptly
notify the other in writing of any alleged or threatened infringement of patents
or patent applications included in the Transcend Patent Rights or the Program
Patent Rights of which they become aware. Transcend and BI shall then confer and
may agree jointly to prosecute any such infringement. The Party owning patents
or patent applications alleged or threatened to be infringed shall control the
joint litigation in the event of any dispute between the Parties with respect to
any aspect of the litigation. With respect to Program Patent Rights covering
Program Technology solely or jointly owned by Transcend, Transcend shall control
the litigation. If the Parties do not agree on whether or how to proceed with
enforcement activity within (a) ninety (90) days following the notice of alleged
infringement or (b) ten (10) business days before the time limit, if any, set
forth in the appropriate laws and regulations for the filing of such actions,
whichever comes first, then either Party may act in its own name to commence
litigation with respect to the alleged or threatened infringement. In the event
a Party brings an infringement action, the other Party shall cooperate fully,
including, if required to bring such action, the furnishing of a power of
attorney. Neither Party shall have the right to settle any patent infringement
litigation under this Section in a manner that diminishes the rights or
interests of the other Party without the express written consent of such other
Party.
-39
<PAGE> 48
The costs of any joint litigation regarding infringement of a Transcend
Patent Right or a Program Patent Right and commenced pursuant to this Section,
including attorneys' fees and expenses, shall be borne by BI and Transcend in
the same ratio as the ratio of the profits received by BI in connection with
sales of the Licensed Products in such country to the royalties paid to
Transcend in connection with the sale of the Licensed Products in such country
added to, in the case of the United States, Transcend's share, if any, of the
Net Contribution. For purposes hereof, only out-of-pocket costs shall be
accounted for and reimbursed under this Section, without any allocation for
internal resources devoted to the litigation. Except as otherwise agreed to by
the Parties as part of a cost sharing arrangement, any recovery realized as a
result of such joint litigation shall be shared in the same manner as costs have
been allocated.
8.7. DEFENSE OF INDIVIDUAL INFRINGEMENT ACTIONS. If Transcend or BI, or
any BI Affiliate or sublicensee, shall be individually named as a defendant in a
legal proceeding by a Third Party for infringement of a patent because of the
manufacture, use or sale of the Licensed Products, the Party which has been sued
shall promptly notify the other Party in writing of the institution of such
suit. The Party which has been sued may, at its option and at its sole expense,
control and defend such suit. The controlling Party may not settle such suit or
otherwise consent to an adverse judgment in such suit that diminishes the rights
or interests of the non-controlling Party without the express written consent of
the non-controlling Party. The Party which has been sued shall keep the other
Party at all times reasonably informed as to the status of the suit. The Party
which is not controlling such legal proceedings shall have the right to be
represented by advisory counsel of its own selection (and such counsel's opinion
shall be reasonably considered by the controlling Party), at its own expense,
and shall cooperate fully in the defense of such suit and furnish to the Party
controlling such legal proceedings all evidence and assistance in its control.
8.8. DEFENSE OF JOINT INFRINGEMENT ACTIONS. If Transcend and BI, or any BI
Affiliate or sublicensee, shall be jointly named as defendants in a legal
proceeding by a Third Party or shall be joined in the same litigation for
infringement of a patent because of the manufacture, use or sale of the Licensed
Products, Transcend shall be entitled to control the defense of such suit, and
all expenses including costs, attorney fees, adverse judgments or settlement
amounts incurred on account of BI or Transcend or both shall be paid as set
forth under Section 8.9 below. BI shall have the right to be represented by
counsel of its own selection, but at its sole expense, and shall cooperate fully
in the defense of such suit and furnish to Transcend all evidence and assistance
in its control. Transcend shall, however, not be entitled to settle such suit or
otherwise consent to an adverse judgment in such suit without the express
written consent of BI if such settlement or adverse judgment diminishes any
right or interest of BI hereunder.
-40-
<PAGE> 49
8.9. CONTRIBUTION. With respect to any judgments, settlements or damages
payable with respect to legal proceedings covered by Section 8.7, and with
respect to all expenses (including costs and attorneys fees), judgments,
settlements or damages payable with respect to legal proceedings covered by
Section 8.8., the Parties shall contribute to the amount owed or expended in the
same ratio as the ratio of the profits received by BI in connection with sales
of the Licensed Products in such country to the royalties paid to Transcend in
connection with the sale of the Licensed Products in such country added to, in
the case of the United States, Transcend's share, if any, of the Net
Contribution.
ARTICLE 9. CONFIDENTIALITY
9.1. Nondisclosure Obligations.
9.1.1. GENERAL. Except as otherwise provided in this Article 9,
during the term of this Agreement and for a period of ten (10) years thereafter,
both Parties shall maintain in confidence and use only for purposes specifically
authorized under this Agreement (a) information and data received from the other
Party resulting from or related to the development of the Licensed Products and
(b) all information and data not described in clause (a) but supplied by the
other Party under this Agreement marked "Confidential." For purposes of this
Article 9, information and data described in clause (a) or (b) shall be referred
to as "Information."
9.1.2. LIMITATIONS. To the extent it is reasonably necessary or
appropriate to fulfill its obligations or exercise its rights under this
Agreement, a Party may disclose Information it is otherwise obligated under this
Section not to disclose to its Affiliates, sublicensees, consultants, outside
contractors and clinical investigators, on a need-to-know basis on condition
that such entities or persons agree to keep the Information confidential for the
same time periods and to the same extent as such Party is required to keep the
Information confidential; and a Party or its sublicensees may disclose such
Information to government or other regulatory authorities to the extent that
such disclosure is reasonably necessary to obtain patents or authorizations to
conduct clinical trials of, and to commercially market, the Licensed Products.
The obligation not to disclose Information shall not apply to any part of such
Information that: (a) is or becomes part of the public domain other than by
unauthorized acts of the Party obligated not to disclose such Information or its
Affiliates or sublicensees; (b) can be shown by written documents to have been
disclosed to the receiving Party or its Affiliates or sublicensees by a Third
Party, provided such Information was not obtained by such Third Party directly
or indirectly from the other Party pursuant to a confidentiality agreement; (c)
prior to disclosure under this Agreement, was already in the possession of the
receiving Party or its Affiliates or sublicensees, provided such Information was
not obtained directly or indirectly from the other Party pursuant to a
confidentiality agreement; (d) can be
-41-
<PAGE> 50
shown by written documents to have been independently developed by the receiving
Party or its Affiliates without breach of any of the provisions of this
Agreement; or (e) is disclosed by the receiving Party pursuant to
interrogatories, requests for information or documents, subpoena, civil
investigative demand issued by a court or governmental agency or as otherwise
required by law; PROVIDED THAT the receiving Party notifies the other Party
immediately upon receipt thereof (and PROVIDED THAT the disclosing Party
furnishes only that portion of the Information which it is advised by counsel is
legally required).
9.2. SAMPLES. Samples of compounds synthesized, purified or developed in
the course of the Development Program shall not be supplied or sent by either
Party to any Third Party, other than to regulatory agencies or for use in
clinical trials, unless protected by an appropriate materials transfer
agreement. Samples of compounds other than those described above provided by one
Party (the "supplying Party") to the other Party (the "receiving Party") in the
course of the Development Program shall not be supplied or sent by the receiving
Party to any Third Party, other than to regulatory agencies or for use in
clinical trials, without the written consent of the supplying Party.
9.3 TERMS OF THIS AGREEMENT. Transcend and BI each agree not to disclose
any terms or conditions of this Agreement to any Third Party without the prior
consent of the other Party, except as required by applicable law. If Transcend
determines that it is required to file with the Securities and Exchange
Commission or other governmental agency this Agreement for any reason, Transcend
shall request confidential treatment of such portions of this Agreement as it
and BI shall together determine. Notwithstanding the foregoing, prior to
execution of this Agreement, Transcend and BI shall agree upon the substance of
information that can be used as a routine reference in the usual course of
business to describe the terms of this transaction, and Transcend and BI may
disclose such information, as modified by mutual agreement from time to time,
without the other Party's consent.
9.4. Publications.
------------
9.4.1. PROCEDURE. Each Party recognizes the mutual interest in
obtaining valid patent protection. In the event that either Party, its employees
or consultants or any other Third Party under contract to such Party wishes to
make a publication (including any oral disclosure made without obligation of
confidentiality) relating to work performed as part of the Development Program
(the "Publishing Party"), such Party shall transmit to the other Party (the
"Reviewing Party") a copy of the proposed written publication at least
forty-five (45) days prior to submission for publication, or an abstract of such
oral disclosure at least thirty (30) days prior to submission of the abstract or
the oral disclosure, whichever is earlier. The Reviewing Party shall have the
right (a) to propose modifications to the publication for patent reasons, (b) to
-42-
<PAGE> 51
request a delay in publication or presentation in order to protect patentable
information, or (c) to request that the information be maintained as a trade
secret and, in such case, the Publishing Party shall not make such publication.
9.4.2. DELAY. If the Reviewing Party requests a delay as described in
subsection 9.4.1(b), the Publishing Party shall delay submission or presentation
of the publication for a period of ninety (90) days to enable patent
applications protecting each Party's rights in such information to be filed.
9.4.3. RESOLUTION. Upon the receipt of written approval of the
Reviewing Party, the Publishing Party may proceed with the written publication
or the oral presentation.
9.5. INJUNCTIVE RELIEF. The Parties hereto understand and agree that
remedies at law may be inadequate to protect against any breach of any of the
provisions of this Article 9 by either Party or their employees, agents,
officers or directors or any other person acting in concert with it or on its
behalf. Accordingly, each Party shall be entitled to the granting of injunctive
relief by a court of competent jurisdiction against any action that constitutes
any such breach of this Article 9.
ARTICLE 10. REPRESENTATIONS AND WARRANTIES
Each Party represents and warrants to the other that it has the legal right
and power to enter into this Agreement, to extend the rights and licenses
granted to the other in this Agreement, and that the performance of such
obligations will not conflict with its charter documents or any agreements,
contracts or other arrangements to which it is a party. BI further represents
and warrants to, and covenants with, Transcend that (a) BI is a limited
liability company duly organized, validly existing and in good standing under
applicable German law and has taken all necessary action to authorize the
execution, delivery and performance of this Agreement and the Stock Purchase
Agreement, and (b) upon the execution and delivery of this Agreement and the
Stock Purchase Agreement, this Agreement and the Stock Purchase Agreement shall
each constitute a valid and binding obligation of BI enforceable in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' and contracting parties' rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
Transcend further represents and warrants to, and covenants with, BI that (i)
Transcend is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has taken all necessary action to
authorize the execution, delivery and performance of this Agreement and the
Stock Purchase Agreement, (ii) as of the Effective Date, Transcend has no
obligations to pay royalties to Third
-43-
<PAGE> 52
Parties for licenses to Transcend Patent Rights or Transcend Technology other
than to (A) Cornell Research Foundation, Inc. ("Cornell") pursuant to a license
agreement between Transcend and Cornell, effective as of April 6, 1994, and (B)
Clintec Nutrition Company ("Clintec") pursuant to a contribution agreement
between Transcend and Clintec, dated as of April 5, 1994, with respect to the
sales of Licensed Products approved by the FDA or another regulatory agency for
the treatment of patients with AIDS, and (iii) upon the execution and delivery
of this Agreement and the Stock Purchase Agreement, this Agreement and the Stock
Purchase Agreement shall each constitute a valid and binding obligation of
Transcend enforceable in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar law affecting creditors' and contracting parties' rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
ARTICLE 11. INDEMNITY
11.1. BI INDEMNITY OBLIGATIONS. In the absence of Transcend's
negligence or a breach of representation, warranty, covenant or agreement by
Transcend, BI agrees to defend, indemnify and hold Transcend, its Affiliates and
their respective employees and agents harmless from all claims, losses, damages
or expenses arising as a result of: (a) actual or asserted violations of any
applicable law or regulation by BI, its Affiliates or sublicensees by virtue of
which the Licensed Products manufactured, distributed or sold shall be alleged
or determined to be adulterated, misbranded, mislabeled or otherwise not in
compliance with any applicable law or regulation; (b) claims for bodily injury,
death or property damage attributable to the manufacture, distribution, sale or
use of the Licensed Products by BI, its Affiliates or sublicensees; or (c) any
recall of a Licensed Product ordered by a governmental agency or required by a
confirmed failure of a Licensed Product as reasonably determined by the Parties
hereto. Transcend, its Affiliates and their respective employees and agents
shall not be entitled to the indemnities set forth in this Section 11.1 where
the loss, damage or expense for which indemnification is sought was caused by a
failure by Transcend to manufacture (or have manufactured) a Licensed Product in
compliance with agreed-upon product specifications set forth in the Supply
Agreement (a "Manufacturing Failure").
11.2. TRANSCEND INDEMNITY OBLIGATIONS. Should BI be found responsible
for claims, losses or expenses caused by a Manufacturing Failure and not
attributable to other causes for which BI is responsible, BI shall be entitled
to indemnity from Transcend to the same extent as Transcend would be so entitled
from BI under Section 11.1 above.
-44-
<PAGE> 53
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
11.3. PROCEDURE. A Party or any of its Affiliates or their respective
employees or agents (the "Indemnitee") that intends to claim indemnification
under this Article 11 shall promptly notify the other Party (the "Indemnitor")
of any loss, claim, damage, liability or action in respect of which the
Indemnitee intends to claim such indemnification, and the Indemnitor shall
assume the defense thereof with counsel mutually satisfactory to the Parties;
PROVIDED, HOWEVER, that an Indemnitee shall have the right to retain its own
counsel, with the fees and expenses to be paid by the Indemnitor, if
representation of such Indemnitee by the counsel retained by the Indemnitor
would be inappropriate due to actual or potential differing interests between
such Indemnitee and any other party represented by such counsel in such
proceedings. The indemnity agreement in this Article 11 shall not apply to
amounts paid in settlement of any loss, claim, damage, liability or action if
such settlement is effected without the consent of the Indemnitor, which consent
shall not be withheld unreasonably. The failure to deliver notice to the
Indemnitor within a reasonable time after the commencement of any such action,
if prejudicial to its ability to defend such action, shall relieve such
Indemnitor of any liability to the Indemnitee under this Article 11, but the
omission so to deliver notice to the Indemnitor will not relieve it of any
liability that it may have to any Indemnitee otherwise than under this Article
11. The Indemnitee, its employees and agents, shall cooperate fully with the
Indemnitor and its legal representatives in the investigation of any action,
claim or liability covered by this indemnification. In the event that each Party
claims indemnity from the other and one Party is finally held liable to
indemnify the other, the Indemnitor shall additionally be liable to pay the
reasonable legal costs and attorneys' fees incurred by the Indemnitee in
establishing its claim for indemnity.
11.4. INSURANCE. BI and Transcend shall each maintain appropriate product
liability insurance with respect to development, manufacture and sales of the
Licensed Products by BI or Transcend, respectively, in such amount as BI or
Transcend, respectively, customarily maintains with respect to sales of its
other products. BI and Transcend, as applicable, shall each maintain such
insurance for so long as it continues to manufacture or sell the Licensed
Products, and thereafter for so long as BI or Transcend, as applicable,
maintains insurance for itself covering such manufacture or sales.
ARTICLE 12. TERM AND TERMINATION
12.1. Expiration . Unless terminated earlier pursuant to Section 12.2, this
Agreement shall expire and the licenses granted by Transcend to BI hereunder
shall become fully paid and exclusive, on a country by country basis, upon the
later of (i) *************** after the First Commercial Sale of the Licensed
Products in such
-45-
<PAGE> 54
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
country, (ii) the last to expire of any Valid Patent Claim in such country and
(iii) the expiration in such country of Marketing Exclusivity of Licensed
Products for any indication in the Field. Any Transcend right to co-promote
resulting from its exercise of the option under Section 6.2.2 shall expire upon
the expiration of this Agreement in the United States unless terminated earlier
under the terms of the co-promotion agreement.
12.2. TERMINATION. This Agreement may be terminated in the following
circumstances:
12.2.1. MATERIAL BREACH. By one Party upon written notice by reason
of a material breach by the other Party that the breaching Party fails to remedy
within ninety (90) days after written notice thereof by the non-breaching Party;
and
12.2.2. By BI . By BI (a) at any time within the ************* period
following the ************************************************** included in the
ARDS Development Program, upon written notice by BI to Transcend, or (b) within
**************** of its receipt of a ****************************.
12.3. Effect of Expiration or Termination Generally.
---------------------------------------------
12.3.1. EXISTING OBLIGATIONS. Expiration pursuant to Section 12.1 or
termination pursuant to Section 12.2 of this Agreement for any reason shall not
relieve the Parties of any obligation accruing prior to such expiration or
termination.
12.3.2. SURVIVAL. The provisions of Section 3.2 (with respect only to
licenses granted prior to the time of expiration or termination and subject to
the terms described below) and Article 7 (with respect only to expense
reimbursement payments and royalties accrued at the time of expiration or
termination but not yet paid), Article 8, Article 9, Article 11 and this Section
12.3 shall survive the expiration pursuant to Section 12.1 or termination
pursuant to Section 12.2 of this Agreement.
12.4. EFFECT OF TERMINATION BY TRANSCEND OR TERMINATION BY BI PURSUANT TO
SECTION 12.2.2. In the event that this Agreement is terminated by Transcend
pursuant to Section 12.2.1 or by BI pursuant to Section 12.2.2:
12.4.1. TERMINATION OF LICENSES. All licenses and rights granted to
BI hereunder shall terminate and, except as provided in Section 12.4.2 below, BI
will immediately cease to manufacture and sell the Licensed Products;
-46-
<PAGE> 55
12.4.2. DISPOSITION OF INVENTORY OF LICENSED PRODUCTS. (a) BI may
dispose of its inventory of Licensed Products on hand as of the effective date
of termination, and may fill any orders for Licensed Products accepted prior to
the effective date of termination, for a period of twelve (12) months after the
effective date of termination and (b) within thirty (30) days after disposition
of such inventory and fulfillment of such orders (and in any event within seven
(7) months after termination) BI will forward to Transcend a final report and
pay all royalties due for Net Sales in such period;
12.4.3. ASSIGNMENT OF REGULATORY APPROVALS; MANUFACTURING RIGHTS. BI
shall (a) to the extent legally permissible, take all additional action
reasonably necessary to assign all of its right, title and interest in and
transfer possession and control to Transcend of the regulatory filings prepared
by BI, and regulatory approvals received by BI, to the extent that such filings
and approvals relate to the Licensed Products and (b) if BI has exercised the
manufacturing option under Section 6.1.4, (i) grant Transcend a worldwide,
perpetual, exclusive, fully-paid and royalty free right and license to use in
the manufacture of the Licensed Products any manufacturing know-how developed by
BI since the effective date of the Manufacturing License that is necessary or
useful in the manufacture of the Licensed Products and (ii) agree to supply
Transcend with the Licensed Products on terms consistent with the terms set
forth in Section 6.1.1 and the Supply Agreement for a period of three (3) years.
12.5. BI Options Following Transcend Breach.
-------------------------------------
12.5.1. TERMINATION FOR TRANSCEND BREACH. In the event that BI is
entitled to terminate this Agreement pursuant to Section 12.2.1, BI may elect to
either (a) terminate this Agreement, in which case all licenses and rights
granted to BI shall terminate and BI will immediately cease to manufacture and
sell the Licensed Products except as provided in this Section 12.5.1 and BI
shall be entitled to claim from Transcend all damages which would otherwise be
due to BI under law and equity or (b) not terminate this Agreement and select
the remedy set forth in Section 12.5.2. If BI elects to terminate this Agreement
pursuant to clause (a) above, then (i) BI may dispose of its inventory of
Licensed Products on hand as of the effective date of termination, and may fill
any orders for Licensed Products accepted prior to the effective date of
termination, for a period of twelve (12) months after the effective date of
termination and (ii) within thirty (30) days after disposition of such inventory
and fulfillment of such orders (and in any event within seven (7) months after
termination) BI will forward to Transcend a final report and pay all royalties
due for Net Sales in such period.
12.5.2. BI'S RIGHT TO OFFSET ROYALTIES AND OTHER PAYMENTS. In the
event of a breach by Transcend of any of its obligations hereunder which would
entitle BI to terminate this Agreement pursuant to Section 12.2.1 and Transcend
fails to remedy
-47-
<PAGE> 56
or take reasonable action to initiate a remedy of such default within ninety
(90) days after notice thereof by BI, BI shall have the right and option, if it
has obtained a final judgment or award of monetary damages and/or costs against
Transcend based on such default, to offset the amount of such damages and/or
costs against any amounts otherwise due to Transcend under Article 7.
ARTICLE 13. MISCELLANEOUS
13.1. FORCE MAJEURE. Neither Party shall be held liable or responsible to
the other Party nor be deemed to have defaulted under or breached this Agreement
for failure or delay in fulfilling or performing any term of this Agreement when
such failure or delay is caused by or results from causes beyond the reasonable
control of the affected Party, including but not limited to fire, floods,
embargoes, war, acts of war (whether war is declared or not), insurrections,
riots, civil commotions, strikes, lockouts or other labor disturbances, acts of
God or acts, omissions or delays in acting by any governmental authority or the
other Party; PROVIDED, HOWEVER, that the Party so affected shall use reasonable
commercial efforts to avoid or remove such causes of nonperformance, and shall
continue performance hereunder with reasonable dispatch whenever such causes are
removed. Either Party shall provide the other Party with prompt written notice
of any delay or failure to perform that occurs by reason of force majeure. The
Parties shall mutually seek a resolution of the delay or the failure to perform
as noted above.
13.2. ASSIGNMENT. This Agreement may not be assigned or otherwise
transferred by either Party without the consent of the other Party; PROVIDED,
HOWEVER, that either Transcend or BI may, without such consent, assign its
rights and obligations under this Agreement (a) in connection with a corporate
reorganization, to any Affiliate, all or substantially all of the equity
interest of which is owned and controlled by such Party or its direct or
indirect parent corporation, or (b) in connection with a merger, consolidation
or sale of substantially all of such Party's assets to an unrelated Third Party;
PROVIDED, HOWEVER, that such Party's rights and obligations under this Agreement
shall be assumed by its successor in interest in any such transaction and shall
not be transferred separate from all or substantially all of its other business
assets, including those business assets that are the subject of this Agreement.
Any purported assignment in violation of the preceding sentence shall be void.
Any permitted assignee shall assume all obligations of its assignor under this
Agreement.
-48-
<PAGE> 57
13.3. SEVERABILITY. Each Party hereby agrees that it does not intend to
violate any public policy, statutory or common laws, rules, regulations, treaty
or decision of any government agency or executive body thereof of any country or
community or association of countries. Should one or more provisions of this
Agreement be or become invalid, the Parties hereto shall substitute, by mutual
consent, valid provisions for such invalid provisions which valid provisions in
their economic effect are sufficiently similar to the invalid provisions that it
can be reasonably assumed that the Parties would have entered into this
Agreement with such valid provisions. In case such valid provisions cannot be
agreed upon, the invalidity of one or several provisions of this Agreement shall
not affect the validity of this Agreement as a whole, unless the invalid
provisions are of such essential importance to this Agreement that it is to be
reasonably assumed that the Parties would not have entered into this Agreement
without the invalid provisions.
13.4. NOTICES. Any consent, notice or report required or permitted to be
given or made under this Agreement by one of the Parties to the other shall be
in writing, delivered personally or by facsimile (and promptly confirmed by
telephone, personal delivery or courier) or courier, postage prepaid (where
applicable), addressed to such other Party at its address indicated below, or to
such other address as the addressee shall have last furnished in writing to the
addressor and shall be effective upon receipt by the addressee.
If to Transcend: Transcend Therapeutics, Inc.
640 Memorial Drive
Cambridge, Massachusetts 02139
Attention: President
Tel: (617) 374-1200
Fax: (617) 374-1201
with a copy to: Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Attn: Steven D. Singer, Esq.
Tel: (617) 526-6000
Fax: (617) 526-5000
If to BI: Boehringer Ingelheim International GmbH
Postbox 200
D-55216 Ingelheim, Rhein
Germany
Attention: Corporate Licensing
Telephone: 011 49 61 32 77 34 08
Telecopy: 011 49 61 32 77 35 83
-49-
<PAGE> 58
with a copy to: Boehringer Ingelheim International GmbH
Postbox 200
D-55216 Ingelheim, Rhein
Germany
Attention: Head of Legal Department
Telephone: 011 49 61 32 77 21 06
Telecopy: 011 49 61 32 77 35 83
13.5. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, without giving
effect to the choice of laws provisions thereof.
13.6. DISPUTE RESOLUTION; CHOICE OF FORUM. Any disputes arising between
the Parties relating to, arising out of or in any way connected with this
Agreement or any term or condition hereof, or the performance by either Party of
its obligations hereunder, whether before or after the expiration pursuant to
Section 12.1 or termination pursuant to Section 12.2 of this Agreement, shall be
promptly presented to the Chief Executive Officer of Transcend and the Member of
the Corporate Board of BI responsible for Pharmaceuticals for resolution and if
they or their designees cannot promptly resolve such disputes, then either Party
shall have the right to bring an action to resolve such dispute before a court
of competent jurisdiction. The Parties hereby submit to the jurisdiction of the
federal or state courts located within the Commonwealth of Massachusetts for the
conduct of any suit, action or proceeding arising out of or relating to this
Agreement.
13.7. ENTIRE AGREEMENT. This Agreement, together with the appendices
hereto and the Stock Purchase Agreement, contains the entire understanding of
the Parties with respect to the subject matter hereof and supersedes the Letter
Agreement dated January 13, 1997, between Transcend and BI. All express or
implied agreements and understandings, either oral or written, heretofore made
are expressly merged in and made a part of this Agreement. This Agreement may be
amended, or any term hereof modified, only by a written instrument duly executed
by both Parties.
13.8. HEADINGS. The captions to the several Articles and Sections hereof
are not a part of this Agreement, but are merely guides or labels to assist in
locating and reading the several Articles and Sections hereof.
13.9. INDEPENDENT CONTRACTORS. It is expressly agreed that Transcend and
BI shall be independent contractors and that the relationship between the two
Parties shall not constitute a partnership, joint venture or agency. Neither
Transcend nor BI 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 consent of the other Party to do so.
-50-
<PAGE> 59
13.10. AGREEMENT NOT TO SOLICIT EMPLOYEES. During the term of this
Agreement and for a period of two (2) years following the expiration pursuant to
Section 12.1 or termination pursuant to Section 12.2 of this Agreement,
Transcend and BI agree not to seek to persuade or induce any employee of the
other company to discontinue his or her employment with that company in order to
become employed by or associated with any business, enterprise or effort that is
associated with its own business.
13.11. EXPORTS. The Parties acknowledge that the export of technical data,
materials or products is subject to the exporting Party receiving any necessary
export licenses and that the Parties cannot be responsible for any delays
attributable to export controls which are beyond the reasonable control of
either Party. Transcend and BI agree not to export or re-export, directly or
indirectly, any information, technical data, the direct product of such data,
samples or equipment received or generated under this Agreement in violation of
any governmental regulations which may be applicable, including, but not limited
to, the Export Administration Act of 1979, as amended, its rules and
regulations, including, but not limited to, Part 779 of the United States Export
Control Regulations, published by the United States Department of Commerce, and
other applicable export control laws. Transcend and BI agree to obtain similar
covenants from their licensees, sublicensees and contractors with respect to the
subject matter of this Section 13.11.
13.12. WAIVER. The waiver by either Party hereto of any right hereunder or
of the failure to perform or of a breach by the other Party shall not be deemed
a waiver of any other right hereunder or of any other breach or failure by said
other Party whether of a similar nature or otherwise.
13.13. 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.
-51-
<PAGE> 60
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first set forth above.
TRANSCEND THERAPEUTICS, INC.
By:/s/ Hector Gomez
-------------------------------------------
Hector Gomez
Title: President and Chief Executive Officer
-------------------------------------
BOEHRINGER INGELHEIM INTERNATIONAL GmbH
By: /s/ Gieseler By: /s/ Muller
--------------------------- --------------------------------
Gieseler Muller
Title: Director
------------------------- By: --------------------------------
Pharma Business Development Legal Department
-52-
<PAGE> 61
Pages 2 through 9 of Exhibit A
contain Confidential Materials which have been omitted
and filed separately with the Securities and Exchange Commission
EXHIBIT A
PROGRAM PLAN FOR
ARDS DEVELOPMENT PROGRAM
FEBRUARY 1997
-53-
<PAGE> 62
Pages 1 through 4 of Exhibit B
contain Confidential Materials which have been omitted
and filed separately with the Securities and Exchange Commission
EXHIBIT B
TRANSCEND PATENT RIGHTS
-54-
<PAGE> 63
EXHIBIT C
Stock Purchase Agreement
============================================
Stock Purchase Agreement omitted and
filed separately as Exhibit 10.16 to the
Registration Statement on Form S-1
============================================
-55-
<PAGE> 64
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
EXHIBIT D
---------
Terms of Supply Agreement
-------------------------
1. BI and Transcend shall both agree on the choice of any contract
manufacturer to be used by Transcend to supply BI with the Licensed
Product. BI shall retain the right to have direct contact with Transcend's
contract manufacturer.
2. Transcend will supply the Licensed Product to BI in accordance with agreed
testing and manufacturing specifications.
3. BI will purchase all supplies of the Licensed Product exclusively from
Transcend *******************.
4. BI shall provide Transcend with a monthly phased rolling fifteen (15) month
non-binding forecast (the "Forecast"). All firm binding orders will be
placed in writing by BI to provide Transcend with a four (4) month lead
time to supply the Product.
5. BI shall carry out, or have carried out, the quality control tests
specified, from time to time, by Transcend in writing.
6. BI shall reimburse Transcend for the cost of supplying BI with Licensed
Products in accordance with Section 6.1.2. Transcend acknowledges that it
has provided BI with a projection of the Manufacturing Costs of the
Licensed Product for the treatment of ARDS of ****************************
**********************************************************************
*********************************************************** Transcend and
BI shall, at the request of either Party, meet to discuss and review the
supply prices and conditions contained in this Exhibit to take account of
any increases in the cost of labor, materials, conforming to legislation,
increases in the retail price index or for any other reason that leads to
an increase in the cost of production of the Licensed Product. However,
without the prior written consent of BI, which consent shall not be
unreasonably withheld, Transcend shall not have the right to increase the
Manufacturing Costs of the Licensed Product for use in the treatment of
ARDS. In the event that the Licensed Product is developed and
commercialized by the Parties pursuant to this Agreement for the treatment
and/or prevention MOD or an Other Indication, the Parties shall agree in
good faith upon a projection of the Manufacturing Costs of such Licensed
Product for such other indication(s).
-56-
<PAGE> 65
7. Supply terms are F.O.B. Transcend or such other location as Transcend shall
notify BI in writing.
8. Product shall require the approval of BI.
9. Minimum order shall be determined through good faith negotiations between
the Parties.
10. If any payment becomes overdue, without prejudice to any other remedy that
Transcend shall have, it shall be entitled to charge interest in accordance
with Section 7.10 of the Agreement until receipt of the full amount whether
before or after judgment.
-57-
<PAGE> 1
EXHIBIT 10.11
STOCK PURCHASE AGREEMENT
BETWEEN
TRANSCEND THERAPEUTICS, INC.
AND
BOEHRINGER INGELHEIM INTERNATIONAL GMBH
DATED AS OF FEBRUARY 28, 1997
<PAGE> 2
TABLE OF CONTENTS
1. Certain Defined Terms.................................................. 1
1.1. Transcend Stock.................................................. 1
1.2. Purchase Price................................................... 2
1.3. Fair Market Value................................................ 2
2. Authorization and Sale of Shares of Transcend Stock.................... 2
2.1. Authorization of Shares of Transcend Stock....................... 2
2.2. Sale of Stock.................................................... 2
2.3. IPO Notice....................................................... 2
2.4. The Closing...................................................... 2
2.5 Extension of the IPO Closing Date by the Company................. 3
3. Representations of Transcend........................................... 3
3.1. Organization and Corporate Power................................. 3
3.2. Authorization.................................................... 4
3.3. Capitalization................................................... 4
3.4. Stockholder List and Agreements.................................. 5
3.5. Financial Statements............................................. 5
3.6. Absence of Undisclosed Liabilities............................... 5
3.7. Absence of Certain Developments.................................. 5
3.8. Title to Properties.............................................. 6
3.9. Tax Matters...................................................... 6
3.10. Contracts and Commitments........................................ 6
3.11. Proprietary Rights; Employee Restrictions........................ 7
3.12. Effect of Transactions........................................... 8
3.13. Litigation....................................................... 8
3.14. Business; Compliance with Laws................................... 8
3.15. Books and Records................................................ 8
3.16. Brokerage........................................................ 8
3.17. Employee Benefit Plans........................................... 9
4. Representations of BI.................................................. 9
4.1. Investment Representation........................................ 9
4.2. Authority........................................................ 10
4.3. Experience....................................................... 10
4.4. Brokerage........................................................ 10
5. Conditions to the Obligations of BI.................................... 10
5.1. Accuracy of Representations and Warranties....................... 10
5.2. Performance...................................................... 11
5.3. Blue Sky Approvals............................................... 11
i
<PAGE> 3
5.4. Certificates and Documents....................................... 11
5.5. Compliance Certificate........................................... 11
5.6. Other Agreements................................................. 11
5.7. Opinion of Hale and Dorr LLP..................................... 12
6. Conditions to the Obligations of Transcend............................. 12
6.1. Accuracy of Representations and Warranties....................... 12
6.2. Delivery of the Aggregate Purchase Price......................... 12
6.3. Development Agreement............................................ 12
6.4. Lock-Up Agreement................................................ 13
6.5. Co-Sale Agreement................................................ 13
7. Certain Covenants of Transcend......................................... 13
7.1. Financial Statements............................................. 13
7.2. Conduct of Business.............................................. 14
7.3. Payment of Taxes, Compliance with Laws, etc...................... 14
7.4. Insurance........................................................ 14
7.5. Key Man Life Insurance........................................... 14
7.6. Maintenance of Properties........................................ 14
7.7. Affiliated Transactions.......................................... 15
7.8. Inspection....................................................... 15
7.9. Integration...................................................... 15
7.10. Material Changes and Litigation.................................. 15
7.11. Reservation of Conversion Stock.................................. 15
7.12. Use of Proceeds.................................................. 16
8. Certain Covenants of BI................................................ 16
8.1. Standstill....................................................... 16
8.2. Interpretation................................................... 17
8.3. Equitable Remedy................................................. 17
8.4. Lock-Up Agreement................................................ 17
9. Transfers of Certain Rights............................................ 17
10. Successors and Assigns................................................. 18
11. Survival of Representations and Warranties............................. 18
12. Notices................................................................ 18
13. No Conditions to Effectiveness; Entire Agreement....................... 19
14. Force Majeure.......................................................... 19
ii
<PAGE> 4
15. Assignment............................................................. 20
16. Severability........................................................... 20
17. Applicable Law......................................................... 21
18. Dispute Resolution; Choice of Forum.................................... 21
19. Entire Agreement....................................................... 21
20. Headings............................................................... 21
21. Waiver................................................................. 21
22. Counterparts........................................................... 22
Exhibit A Certificate of Amendment of Restated Certificate of Incorporation
Exhibit B Form of Lock-Up Agreement with Vector Securities International, Inc.
Exhibit C Opinion of Hale and Dorr LLP
Schedule 3 Exceptions to the Representations and Warranties of Transcend
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
------------------------
This Agreement dated as of February 28, 1997 is by and among TRANSCEND
THERAPEUTICS, INC., a Delaware corporation having its principal place of
business at 640 Memorial Drive, Cambridge, Massachusetts 02139 U.S.A.
("TRANSCEND"), and BOEHRINGER INGELHEIM INTERNATIONAL GMBH, a limited liability
company organized under the laws of the Federal Republic of Germany having its
principal place of business at D-55216 Ingelheim am Rhein Germany ("BI").
R E C I T A L S
A. Transcend and BI (each, a "PARTY," and together, the "PARTIES") are
entering into a Development and License Agreement (the "DEVELOPMENT AGREEMENT")
as of the date hereof with respect to their collaboration for the worldwide
development and marketing of intravenous formulations of Procysteine(R).
B. The Development Agreement provides that BI shall purchase shares of
capital stock of Transcend, and that the terms of such purchase shall be more
fully set forth in a separate Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, and intending to be legally bound by the terms and
conditions of this Agreement, the parties hereto hereby agree as follows:
1. CERTAIN DEFINED TERMS.
1.1. "TRANSCEND STOCK" shall have the following meanings: (a) if on
or prior to April 15, 1997 (as such date may be extended pursuant to Section
2.5, the "IPO CLOSING DATE"), Transcend closes an underwritten sale of shares of
its common stock, $.01 par value per share (the "COMMON STOCK"), in connection
with an effective registration statement under the U.S. Securities Act of 1933,
as amended (the "SECURITIES ACT"), which results in the conversion into Common
Stock of all shares of Transcend's preferred stock, $.01 par value per share
(the "PREFERRED STOCK"), outstanding immediately prior to the sale of such
Common Stock (an "IPO"), Transcend Stock shall mean Common Stock (which shall be
issued as restricted securities and not registered as part of such IPO); and (b)
in all other cases, Transcend Stock shall mean a new series of Transcend's
Preferred Stock to be known as Series D Convertible Preferred Stock, $.01 par
value per share ("SERIES D PREFERRED STOCK"), the terms of which shall be
substantially as set forth in the Certificate of Amendment of Restated
Certificate of Incorporation (the "CERTIFICATE OF AMENDMENT") attached hereto as
EXHIBIT A.
<PAGE> 6
1.2. "PURCHASE PRICE" shall have the following meanings: (a) the
Purchase Price of Common Stock shall be the per-share price to the public in the
IPO, and (b) the Purchase Price of Series D Preferred Stock shall be the Fair
Market Value.
1.3. "FAIR MARKET VALUE" shall be determined by mutual agreement of
Transcend and BI taking into consideration such factors as the progress of
Transcend and the issuance of any debt or equity securities subsequent to the
date hereof, adjusted to reflect stock dividends, stock splits, reverse stock
splits or recapitalizations; PROVIDED, HOWEVER, that the Fair Market Value shall
not be less than $11.75 per share and shall not exceed $20 per share.
2. AUTHORIZATION AND SALE OF SHARES OF TRANSCEND STOCK.
2.1. AUTHORIZATION OF SHARES OF TRANSCEND STOCK. Transcend (i) if
the Shares (as defined in Section 2.2) constitute Common Stock, has duly
authorized the issuance of such number of shares of Common Stock as provided
under Section 2.2, having the rights, restrictions, privileges and preferences
set forth in Transcend's Restated Certificate of Incorporation (the "RESTATED
CERTIFICATE"), and (ii) if the Shares constitute Series D Preferred Stock, shall
have duly authorized the issuance before the Closing (as defined in Section 2.4)
of such number of shares of Series D Preferred Stock as provided under Section
2.2, having the rights, restrictions, privileges and preferences set forth in
the Certificate of Amendment (as defined in Section 1.1).
2.2. SALE OF STOCK. Subject to the terms and conditions of this
Agreement, at the Closing Transcend shall sell and issue to BI, and BI shall
purchase from Transcend, such number of shares of Transcend Stock as is equal to
$5,000,000 (the "AGGREGATE PURCHASE PRICE") divided by the applicable Purchase
Price, payable as set forth in Section 2.3 of this Agreement. Such number of
shares of Transcend Stock (i.e., Common Stock or Series D Preferred Stock, as
the case may be) are hereinafter referred to as the "SHARES."
2.3. IPO NOTICE. Transcend shall keep BI reasonably informed
regarding its progress toward effecting an IPO, and shall provide written notice
to BI concerning the closing of an IPO as far in advance thereof as is
reasonably practicable, and in any event at least three (3) days prior to any
such closing. Transcend shall also provide written notice to BI one day after
the IPO Closing Date in the event that an IPO has not closed on or before the
IPO Closing Date, notifying BI of such fact and setting a date for the Closing
(as defined below), which shall be at least five (5) days after the date of such
notice.
2.4. THE CLOSING. The closing (the "CLOSING") of the sale and
purchase of the Shares shall take place at the offices of Hale and Dorr LLP, 60
State Street, Boston, Massachusetts, at 10:00 a.m., Boston time, (a) if the
Shares constitute Common Stock, concurrently with or prior to the closing of an
IPO, but in any case,
2
<PAGE> 7
no later than the IPO Closing Date; (b) if the Shares constitute Series D
Preferred Stock, on the date specified by Transcend in its notice pursuant to
Section 2.3, which shall be on or prior to the fifteenth day after the IPO
Closing Date; or (c) at such other time, date and place as are mutually
agreeable to Transcend and BI. The date of the Closing is hereinafter referred
to as the "CLOSING DATE." At the Closing, Transcend shall deliver to BI a
certificate representing the Shares, registered in the name of BI, against
payment to Transcend of the Aggregate Purchase Price by BI by wire transfer,
certified or cashier's check or other method acceptable to Transcend. If at the
Closing any of the conditions specified in Section 5 of this Agreement shall not
have been fulfilled within 30 days after notice thereof to Transcend, BI shall,
at its election, be relieved of all of its obligations under this Agreement
without thereby waiving any other rights it may have by reason of such failure
or such non-fulfillment. If at the Closing any of the conditions specified in
Section 6 of this Agreement shall not have been fulfilled within 30 days after
notice thereof to BI, Transcend shall, at its election, be relieved of all of
its obligations under this Agreement without thereby waiving any other rights it
may have by reason of such failure or such non-fulfillment.
2.5 EXTENSION OF THE IPO CLOSING DATE BY THE COMPANY.
Notwithstanding anything else to the contrary in this Section 2, Transcend shall
have the right, upon three (3) days' notice to BI, to extend the IPO Closing
Date to a date not later than May 15, 1997. Upon extension, such date shall
thereafter be deemed the IPO Closing Date for all purposes under this Agreement.
3. REPRESENTATIONS OF TRANSCEND. Except as otherwise disclosed on the
schedules to this Section 3, Transcend hereby represents and warrants to BI as
follows:
3.1. ORGANIZATION AND CORPORATE POWER. Transcend is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and is qualified to do business as a foreign corporation in
each jurisdiction in which such qualification is required, except where the
failure to so qualify would not have a material adverse effect on the condition
(financial or otherwise) of Transcend. Transcend has all required corporate
power and authority to own its property, to carry on its business as presently
conducted or contemplated, to enter into and perform this Agreement and the
other agreements, documents and instruments contemplated hereby (collectively,
the "FINANCING DOCUMENTS"), and generally to carry out the transactions
contemplated hereby. The copies of the Restated Certificate and the By-laws of
Transcend, as amended to date, which have been furnished to BI by Transcend, are
correct and complete at the date hereof. Transcend is not in violation of any
term of its Restated Certificate or By-laws, or in violation of any term of any
agreement, instrument, judgment, decree, order, statute, rule or government
regulation applicable to Transcend or to which Transcend is a
3
<PAGE> 8
party except where such a violation would not have a material adverse effect on
the condition (financial or otherwise) of Transcend.
3.2. AUTHORIZATION. The Financing Documents are valid and binding
obligations of Transcend, enforceable in accordance with their terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and other laws
applicable to creditors' rights and remedies and to the exercise of judicial
discretion in accordance with general principles of equity. The execution,
delivery and performance of the Financing Documents have been duly authorized by
all necessary corporate or other action of Transcend. The issuance, sale and
delivery of the Shares and the issuance and delivery of shares of Common Stock
issuable upon conversion of shares of Series D Preferred Stock, if any,
purchased hereunder ("CONVERSION SHARES"), have been, or will be prior to the
Closing, duly authorized and reserved for issuance, as the case may be, by all
necessary corporate action on the part of Transcend. The Shares when so issued,
sold and delivered against payment therefor in accordance with the provisions of
this Agreement, and the Conversion Shares when issued upon such conversion, will
be duly and validly issued, fully paid and non-assessable. Except for routine
state securities law filings, no consent, approval or authorization of, or
designation, declaration or filing with, any governmental authority or any other
person or entity is required of Transcend in connection with the execution and
delivery of the Financing Documents, or the issuance and delivery of the Shares
in accordance with the terms of this Agreement or the consummation of any other
transaction contemplated hereby or by the other Financing Documents.
3.3. CAPITALIZATION. Immediately prior to the Closing, the
authorized capital stock of Transcend shall consist of 25,000,000 shares of
Common Stock, of which 787,382 shares are issued and outstanding, 12,991,000
shares of Series A Convertible Preferred Stock, $.01 par value per share (the
"SERIES A PREFERRED STOCK"), 9,916,330 of which are issued and outstanding,
3,000,000 shares of Series B Convertible Preferred Stock, $.01 par value per
share (the "SERIES B PREFERRED STOCK"), 690,775 of which are issued and
outstanding, 4,255,319 shares of Series C Convertible Preferred Stock, $.01 par
value per share (the "SERIES C PREFERRED STOCK"), all of which are issued and
outstanding, if the Shares consist of Series D Preferred Stock, 425,532 shares
of Series D Preferred Stock, none of which are issued and outstanding, and
1,039,000 shares of Non-Convertible Preferred Stock, $.01 par value per share
(the "NON-CONVERTIBLE PREFERRED STOCK"), all of which are issued and
outstanding. All of the issued and outstanding shares of Transcend's capital
stock have been duly authorized and validly issued and are fully paid and
nonassessable and have been issued in compliance with applicable Federal and
state securities laws. Except as set forth on SCHEDULE 3.3 hereto, (i) no
subscription, warrant, option, convertible security or other right (contingent
or otherwise) to purchase or acquire any shares of capital stock of Transcend is
authorized or outstanding, (ii) there is not any commitment or offer of
Transcend to issue any subscription, warrant, option, convertible security or
other such right or to issue or distribute to holders of any shares of its
capital stock
4
<PAGE> 9
any evidences of indebtedness or assets of Transcend, (iii) Transcend has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any shares of its capital stock or any interest therein or to pay any dividend
or make any other distribution in respect thereof and (iv) there are no
restrictions on the transfer of Transcend's capital stock other than those
arising from securities laws. Except as set forth in SCHEDULE 3.3, no person or
entity is entitled to (i) any preemptive or similar right with respect to the
issuance of any capital stock of Transcend, or (ii) any rights with respect to
the registration of any capital stock of Transcend under the Securities Act.
3.4. STOCKHOLDER LIST AND AGREEMENTS. Included as part of SCHEDULE
3.4 hereto is a complete and accurate list of the stockholders of Transcend as
of the date hereof. Except as set forth on SCHEDULE 3.4 hereto, there are no
agreements, written or oral, between Transcend and any holder of its capital
stock, or, to the best knowledge of Transcend, between or among any holders of
its capital stock, relating to the acquisition, disposition or voting of the
capital stock of Transcend.
3.5. FINANCIAL STATEMENTS. Transcend has furnished to BI the audited
balance sheet of Transcend as of December 31, 1996 (the "BALANCE SHEET DATE")
and the related audited statements of operations, statements of stockholders'
equity and statements of cash flows for the year ending December 31, 1996
(collectively, the "FINANCIAL STATEMENTS"). The Financial Statements (including
the footnotes thereto) were prepared in accordance with generally accepted
accounting principles consistently applied during the period covered thereby,
are correct, complete and in accordance with the books and records of Transcend
in all material respects, and fairly and accurately present the financial
position of Transcend on the dates of such statements and the results of its
operations for the periods covered thereby.
3.6. ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
expressly disclosed in the Financial Statements, Transcend has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to the Balance Sheet Date and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under generally accepted accounting principles to be reflected in
the Financial Statements which, in both cases, are not material to the financial
condition or operating results of Transcend.
3.7. ABSENCE OF CERTAIN DEVELOPMENTS. Since the Balance Sheet Date,
there has been (i) no material adverse change in the condition (financial or
otherwise) of Transcend or in the assets, liabilities, properties or business of
Transcend, (ii) no declaration, setting aside or payment of any dividend or
other distribution with respect to, or any direct or indirect redemption or
acquisition of, any of the capital stock of Transcend, (iii) no waiver of any
valuable right of Transcend or cancellation
5
<PAGE> 10
of any debt or claim held by Transcend, (iv) no loan by Transcend to any
officer, director, employee or stockholder of Transcend, or any agreement or
commitment therefor, (v) no material increase, direct or indirect, in the
compensation paid or payable to any officer, director, employee or agent of
Transcend, (vi) no material loss, destruction or damage to any property of
Transcend whether or not insured, (vii) no labor disputes involving Transcend
and no material change in the personnel of Transcend or the terms and conditions
of their employment, and (viii) no acquisition or disposition of any assets (or
any contract or arrangement therefor), nor any other transaction by Transcend
otherwise than for fair value in the ordinary course of business.
3.8. TITLE TO PROPERTIES. Transcend has good and marketable title to
all of its properties and assets, free and clear of all material liens,
restrictions or encumbrances, except as disclosed in the Financial Statements.
All machinery and equipment included in such properties which is necessary to
the business of Transcend is in good condition and repair, and all leases of
real or personal property to which Transcend is a party are fully effective and
afford Transcend peaceful and undisturbed possession of the subject matter of
the lease. Transcend is not in violation of any zoning, building or safety
ordinance, regulation or requirement or other law or regulation applicable to
the operation of its owned properties; Transcend, in its capacity as lessee, is
not in violation of any zoning, building or safety ordinance, regulation or
requirement or other law or regulation applicable to the operation of its leased
properties, nor has it received any notice of violation with which it has not
complied.
3.9. TAX MATTERS. Transcend has filed all foreign, federal, state
and local income, excise or franchise tax returns, real estate and personal
property tax returns, sales and use tax returns and other tax returns required
to be filed by it and has paid all taxes owed by it, except taxes which have not
yet accrued or otherwise become due. The provision for taxes on the Financial
Statements is sufficient as of its date for the payment of all accrued and
unpaid federal, state, county and local taxes of any nature of Transcend, and
any applicable taxes owing to any foreign jurisdiction, whether or not assessed
or disputed. All taxes and other assessments and levies which Transcend is
required to withhold or collect have been withheld and collected and have been
paid over to the proper governmental authorities. With regard to the income tax
returns of Transcend, Transcend has not received notice of any audit or of any
proposed deficiencies from any taxing authority, and no controversy with respect
to taxes of any type is pending or, to the knowledge of Transcend, threatened.
There are in effect no waivers of applicable statutes of limitations with
respect to any taxes owed by Transcend for any year.
3.10. CONTRACTS AND COMMITMENTS. Included as part of SCHEDULE 3.10
hereto is a list of all agreements of any nature to which Transcend is a party
or by which it or any of its properties is bound, which are material to the
conduct and
6
<PAGE> 11
operations of such business and properties including without limitation (a) each
agreement which requires future expenditures by Transcend in excess of $50,000
or which might result in payments to Transcend in excess of $50,000, (b) all
employment and consulting agreements, employee benefit, bonus, pension,
profit-sharing, stock option, stock purchase and similar plans and arrangements,
and distributor and sales representative agreements, (c) any agreement with any
stockholder, officer or director of Transcend, or any "affiliate" or "associate"
of such persons (as such terms are defined in the rules and regulations
promulgated under the Securities Act), including without limitation any
agreement or other arrangement providing for the furnishing of services by,
rental of real or personal property from, or otherwise requiring payments to,
any such person or entity and (d) any agreement relating to the Proprietary
Rights (as defined in Section 3.11). All such agreements are valid, binding and
in full force and effect. Neither Transcend nor, to the best of Transcend's
knowledge, any of its employees, officers or directors, is a party to any oral
or written contract or agreement prohibiting them from freely competing or
engaging in the business or businesses of Transcend and its employees. Transcend
is not in default under any contract, obligation or commitment, and, to the best
knowledge of Transcend, there is no state of facts which upon notice or lapse of
time or both would constitute such a default. To the best of Transcend's
knowledge, no key employee of Transcend is in default under any contract,
obligation or commitment with any of their former employers, and to the best
knowledge of Transcend, there is no state of facts which upon notice or lapse of
time or both would constitute such a default.
3.11. PROPRIETARY RIGHTS; EMPLOYEE RESTRICTIONS. Transcend has
ownership of or license to use all patent, copyright, trademark or other
proprietary rights (collectively, the "PROPRIETARY RIGHTS") used or to be used
in its business as presently conducted or contemplated, and, to Transcend's
knowledge, neither the present nor contemplated business, activities or products
of Transcend infringe any such patent, copyright, trademark or other proprietary
rights of others. Transcend has not received any notice or other claim from any
person asserting that any of Transcend's present or contemplated activities
infringe or may infringe any such rights of such person. Transcend has, to its
knowledge, the right to use, free and clear of claims or rights of others, all
trade secrets, programming processes, software and other information required
for or incident to its products or its business as presently conducted or
contemplated. Transcend has taken all steps required to establish and preserve
its ownership of all copyright, trade secret and other proprietary rights with
respect to its products and technology, except such rights as Transcend has
reasonably determined are not material to Transcend's continuing business
operations. Transcend is not making unlawful use of any confidential information
or trade secrets of any past or present employees of Transcend. Neither
Transcend nor, to the best knowledge of Transcend, any of Transcend's employees,
have any agreements or arrangements with former employers of such employees
relating to confidential information or trade secrets of such employers. The
activities
7
<PAGE> 12
of Transcend's employees on behalf of Transcend do not violate any agreements or
arrangements known to Transcend which any such employees have with former
employers.
3.12. EFFECT OF TRANSACTIONS. The execution, delivery and performance
by Transcend of the Financing Documents does not and will not conflict with or
result in any default under any material contract, obligation or commitment of
Transcend, or any charter provision, by-law or corporate restriction of
Transcend or the creation of any lien, charge or encumbrance of any nature upon
any of the properties or assets of Transcend, except pursuant to this Agreement,
or violate any instrument, agreement, judgment, decree, order, statute, rule or
regulation of any federal, state or local government or agency applicable to
Transcend.
3.13. LITIGATION. Except as set forth in SECTION 3.13 of the
Disclosure Schedule, there is no litigation or governmental proceeding or
investigation pending or, to the best of Transcend's knowledge, threatened (a)
against Transcend affecting any of its properties or assets, or (b) against any
officer or key employee of Transcend, or (c) which may adversely affect the
business, properties, assets or financial condition of Transcend or (d) which
may call into question the validity, or materially hinder the enforceability or
performance, of the Financing Documents, nor, to the best of Transcend's
knowledge, has there occurred any event nor does there exist any condition which
could reasonably be expected to be the basis upon which any litigation,
proceeding or investigation might properly be instituted.
3.14. BUSINESS; COMPLIANCE WITH LAWS. Transcend has all material
franchises, permits, licenses and other rights and privileges necessary to
permit it to own its property and to conduct its business as is presently
conducted. Transcend is not in material violation of any law, regulation,
authorization or order of any public authority relevant to the ownership of its
properties or the carrying on of its business as it is presently conducted.
3.15. BOOKS AND RECORDS. The minute books of Transcend contain
complete and accurate records of all meetings and other corporate actions of its
stockholders and its Board of Directors and committees thereof. The stock ledger
of Transcend is complete and reflects all issuances, transfers, repurchases and
cancellations of shares of capital stock of Transcend.
3.16. BROKERAGE. Other than with respect to Vector Securities
International, Inc., there are no claims for and no person is entitled to any
brokerage commissions, finder's fees or similar compensation in connection with
the transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of Transcend.
8
<PAGE> 13
3.17. EMPLOYEE BENEFIT PLANS. Except as contemplated by the Financing
Documents or as set forth in SECTION 3.17 of the Disclosure Schedule, Transcend
does not maintain or contribute to any employee benefit plans. Transcend is and
has been in material compliance with the provisions of all laws or rules or
regulations applicable to any employee benefit plan maintained or contributed to
by Transcend for the benefit of its employees and, to the best knowledge of
Transcend, there are no claims pending or threatened with respect to any of such
employee benefit plans. Transcend does not maintain or contribute to, and has
never maintained or contributed to, any qualified retirement plan that is
subject to the minimum funding requirements of Section 412 of the United States
Internal Revenue Code of 1986, as amended. There are no unfunded obligations of
Transcend under any retirement, pension, profit-sharing or deferred compensation
plan or program. Transcend is not required to make any payments or contributions
to any employee benefit plan pursuant to any collective bargaining agreement.
Transcend has never maintained or contributed to any employee benefit plan
providing or promising any health or other non-pension benefits to terminated
employees. For purposes of this Section, the term "Company" includes all
entities that have controlled, have been under the control of, or have been
under common control with, Transcend.
4. REPRESENTATIONS OF BI.
BI represents and warrants to Transcend as follows:
4.1. INVESTMENT REPRESENTATION.
(a) BI has not relied upon the advice of a "purchaser
representative," as defined in Regulation D under the Securities Act, in
evaluating the risks and merits of an investment in the Shares.
(b) BI has had an opportunity to ask questions of and receive
answers from Transcend, or a person or persons acting on Transcend's behalf,
concerning the terms and conditions of the Shares.
(c) BI understands that the Shares have not been registered
under the Securities Act or under the securities laws of any state or other
jurisdiction and have been sold in reliance upon exemptions for private
offerings, and that, while Transcend may in the future register the Shares, it
is under no obligation to do so, except as set forth in the Amended Registration
Rights Agreement (as defined in Section 5.6), and BI further understands that BI
is acquiring the Shares without being furnished any offering literature or
prospectus.
(d) BI represents that the Shares are being acquired solely
for its own account, for investment and not with a current view to or for the
resale,
9
<PAGE> 14
distribution, subdivision, or fractionalization thereof. BI has no present plans
to enter into any contract, undertaking, agreement or arrangement relating
thereto.
(e) BI acknowledges and is aware that there are substantial
restrictions on the transferability of the Shares; the Shares cannot be resold
unless such Shares are registered under the Securities Act and any applicable
securities law of any state or other jurisdiction, or an exemption from
registration is available; and except as set forth in the Amended Registration
Rights Agreement, BI has no rights to require that the Shares be registered
under the Securities Act.
(f) BI has such knowledge and experience in financial and
business matters that it is capable of evaluating the relative risks and merits
of an investment in the Shares.
(g) BI is a limited liability company organized under the laws
of the Federal Republic of Germany having its principal place of business at
D-55216 Ingelheim am Rhein Germany.
4.2. AUTHORITY. BI has full power and authority to execute, deliver
and perform this Agreement and each other Financing Document to which BI is a
party in accordance with its terms. BI has not been organized, reorganized or
recapitalized specifically for the purpose of investing in Transcend.
4.3. EXPERIENCE. BI has adequate net worth and means to provide for
its current needs and contingencies and the financial capacity to sustain a
complete loss of its investment in Transcend.
4.4. BROKERAGE. There are no claims for and no person is entitled to
any brokerage commissions, finder's fees or similar compensation in connection
with the transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of BI.
5. CONDITIONS TO THE OBLIGATIONS OF BI.
The obligations of BI under this Agreement are subject to the
fulfillment, or the waiver by BI, of the conditions set forth in this Section 5
on or before the Closing Date.
5.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each representation
and warranty of Transcend contained in this Agreement shall be true in all
material respects on and as of the Closing Date with the same effect as though
such representation and warranty had been made on and as of that date, except
for any representation or warranty made as of a particular date, which shall be
true as of such date.
10
<PAGE> 15
5.2. PERFORMANCE. Transcend shall have performed and complied with
all material agreements and conditions contained in this Agreement required to
be performed or complied with by Transcend prior to or at the Closing.
5.3. BLUE SKY APPROVALS. Transcend shall have received all requisite
approvals, if any, of the securities authorities of each jurisdiction in which
such approval is required, and such approvals shall be in full force and effect
on the Closing Date.
5.4. CERTIFICATES AND DOCUMENTS. Transcend shall have delivered to
BI:
(a) A copy of the Restated Certificate, including the
Certificate of Amendment if the Shares constitute Series D Preferred Stock, as
in effect immediately prior to the Closing, certified by the Secretary of State
of the State of Delaware and a certificate, as of recent date, of the Secretary
of State of the State of Delaware as to Transcend's good standing;
(b) A certificate of the Secretary or Assistant Secretary of
Transcend dated as of the Closing Date, certifying as to (i) the incumbency of
officers of Transcend executing the Financing Documents and all other documents
executed and delivered in connection herewith, (ii) a copy of the By-Laws of
Transcend, as in effect on and as of the Closing Date, and (iii) a copy of the
resolutions of the Board of Directors of Transcend authorizing and approving
Transcend's execution, delivery and performance of the Financing Documents, all
matters in connection with the Financing Documents, and the transactions
contemplated thereby;
(c) A stock certificate duly executed by Transcend for the
Shares issued in the name of Boehringer Ingelheim International GmbH.
5.5. COMPLIANCE CERTIFICATE. Transcend shall have delivered to BI a
certificate, executed by the President of Transcend as of the Closing Date,
certifying to the fulfillment of all of the conditions to BI's obligations under
this Agreement, as set forth in this Section 5.
5.6. OTHER AGREEMENTS.
(a) DEVELOPMENT AGREEMENT. Transcend shall have executed and
delivered, and not be in material breach or default with respect to its
obligations under, the Development Agreement.
(b) REGISTRATION RIGHTS AGREEMENT. Transcend shall have
executed and delivered to BI a Third Amended and Restated Registration Rights
Agreement by and among Transcend and the Holders (as defined therein) (the
11
<PAGE> 16
"AMENDED REGISTRATION RIGHTS AGREEMENT"), setting forth certain rights and
obligations of BI and Transcend with respect to registration of the Shares under
the Securities Act, which rights and obligations shall be substantially the same
as those of the current Holders (as defined in the Second Amended and Restated
Registration Rights Agreement dated August 21, 1996), except that after
____________, 1998, BI may require the registration of its Shares under terms
otherwise in accordance with such Registration Rights Agreement.
(c) RIGHT OF FIRST REFUSAL AGREEMENT. In the event that the
Shares constitute Series D Preferred Stock, Transcend shall have executed and
delivered to BI an amendment to the Right of First Refusal Agreement dated April
5, 1994, as amended December 22, 1995, by and among Transcend and the Holders
(as defined therein) (the "RIGHT OF FIRST REFUSAL AGREEMENT"), making BI a
Holder as defined therein.
(d) CO-SALE AGREEMENT. In the event that the Shares constitute
Series D Preferred Stock, Transcend shall have executed and delivered to BI an
Amendment to Right of First Refusal and Co-Sale Agreement dated April 5, 1994,
as amended December 22, 1995, by and among Transcend and the Holders (as defined
therein) (the "CO-SALE AGREEMENT"), making BI a Holder as defined therein.
5.7 OPINION OF HALE AND DORR LLP. BI shall have received an opinion
of Hale and Dorr LLP, counsel to Transcend, dated the Closing Date addressed to
BI in substantially the form attached hereto as EXHIBIT C.
6. CONDITIONS TO THE OBLIGATIONS OF TRANSCEND.
The obligations of Transcend under this Agreement are subject to the
fulfillment, or the waiver by Transcend, of the conditions set forth in this
Section 6 on or before the Closing Date.
6.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of BI contained in Section 4 shall be true in all material
respects on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of that date, except for
any representation or warranty made as of a particular date, which shall be true
as of such date.
6.2. DELIVERY OF THE AGGREGATE PURCHASE PRICE. BI shall have
delivered, in compliance with Section 2, the Aggregate Purchase Price.
6.3. DEVELOPMENT AGREEMENT. BI shall have executed and delivered,
and not be in material breach or default with respect to its obligations under,
the Development Agreement.
12
<PAGE> 17
6.4. LOCK-UP AGREEMENT. In the event that the Shares constitute
Common Stock, BI shall have executed and delivered to Transcend and to the
underwriters of the IPO an agreement, in substantially the form attached hereto
as EXHIBIT B (the "LOCK-UP AGREEMENT"), providing that BI shall not sell or
otherwise transfer the Shares until 360 days after the closing of the IPO.
6.5. CO-SALE AGREEMENT. In the event that the Shares constitute
Series D Preferred Stock, BI shall have executed and delivered to Transcend an
Amendment to the Co-Sale Agreement making BI a Holder as defined therein.
7. CERTAIN COVENANTS OF TRANSCEND.
Transcend covenants and agrees that, if any shares of Series D Preferred
Stock are issued hereunder and for so long as at least 25% of such shares of
Series D Preferred Stock are held by BI, it will perform and observe the
following covenants and provisions:
7.1. FINANCIAL STATEMENTS. Transcend will maintain books of account
in accordance with generally accepted accounting principles applied on a
consistent basis, keep full and complete financial records and furnish to BI the
following reports:
(a) within 90 days after the end of each fiscal year, a copy
of the balance sheet of Transcend as at the end of such year, together with
statements of operations, stockholders' equity and cash flows of Transcend for
such year, audited and certified by Ernst & Young or other independent public
accountants of recognized national standing reasonably satisfactory to BI,
prepared in accordance with generally accepted accounting principles and
practices consistently applied;
(b) within 25 days after the end of each month, an unaudited
balance sheet of Transcend as at the end of such month and unaudited statements
of operations, stockholders' equity, cash flows, summaries of bookings and
backlogs of Transcend for such month;
(c) within 45 days after the end of each quarter, commencing
March 31, 1997 an unaudited balance sheet of Transcend as at the end of such
quarter and for the year to date, and unaudited statements of operations,
stockholders' equity, cash flows, summaries of bookings and backlogs for such
period and for the current fiscal year to the end of such period, each of the
foregoing financial statements described in clauses (a), (b) and (c) hereof to
be prepared on a consolidated basis if Transcend then has any subsidiaries, to
set forth in comparative form the corresponding figures for the prior fiscal
period and the forecasts for such period and to include a brief written
discussion and analysis by the President of such
13
<PAGE> 18
annual and quarterly financial statements, including a comparison of the
performance against the operating plan and corresponding periods in prior years;
and
(d) such other financial information, as BI may reasonably
request, including, without limitation, certificates of the principal financial
officer of Transcend concerning compliance with the covenants of Transcend under
this Section 7.
7.2. CONDUCT OF BUSINESS. Transcend will continue to engage
principally in the business now conducted by Transcend. Transcend will keep in
full force and effect its corporate existence and all patents and other
intellectual property rights used or useful in its business (except such rights
as the Board of Directors of Transcend, in its reasonable business judgment, has
determined are not material to Transcend's continuing operations).
7.3. PAYMENT OF TAXES, COMPLIANCE WITH LAWS, ETC. Transcend will pay
and discharge all lawful taxes, assessments and governmental charges or levies
imposed upon it or upon its income or property before the same shall become in
default, as well as all lawful claims for labor, materials and supplies which,
if not paid when due, might become a lien or charge upon its property or any
part thereof; provided, however, that Transcend shall not be required to pay and
discharge any such tax, assessment, charge, levy, or claim so long as the
validity thereof is being contested by Transcend in good faith by appropriate
proceedings and an adequate reserve therefor has been established on its books.
Transcend will use its best efforts to comply with all applicable laws and
regulations in the conduct of its business including, without limitation, all
environmental laws.
7.4. INSURANCE. Transcend will keep its insurable properties
insured, upon reasonable business terms, by financially sound and reputable
insurers against liability, and the perils of casualty, fire and extended
coverage in amounts of coverage sufficient in the reasonable business judgment
of Transcend to protect Transcend. Transcend will also maintain with such
insurers insurance against other hazards and risks and liability to persons and
property which, in the reasonable business judgment of Transcend, is customary
in the industry in which Transcend operates for companies of comparable size.
7.5. KEY MAN LIFE INSURANCE. Transcend will maintain term life
insurance upon the life of the Chief Executive Officer in the amount of
$2,000,000, with the proceeds payable to Transcend.
7.6. MAINTENANCE OF PROPERTIES. Transcend will maintain all
properties used or useful in the conduct of its business in good repair, working
order and condition as is reasonably necessary to permit such business to be
properly and advantageously conducted.
14
<PAGE> 19
7.7. AFFILIATED TRANSACTIONS. Except for the Financing Documents and
the documents contemplated by the Financing Documents, all transactions by and
between Transcend and any officer, employee or stockholder of Transcend or
persons controlled by or affiliated with such officer, employee or stockholder,
shall be conducted on an arms-length basis, shall be on terms and conditions no
less favorable to Transcend than could be obtained from non-related persons and
shall be approved by the Board of Directors of Transcend after full disclosure
of the terms thereof, for which purpose the interested party, if a Director, and
any affiliate of the interested party who is a Director, shall not be entitled
to vote.
7.8. INSPECTION. Transcend shall, upon reasonable prior notice to
Transcend, permit authorized representatives of BI to visit and inspect any of
the properties of Transcend including its books of account (and to make copies
thereof and take extracts therefrom), and to discuss the affairs, finances and
accounts of Transcend with its officers and independent accountants, all at the
expense of BI and at such reasonable times and as often as may be reasonably
requested.
7.9. INTEGRATION. Neither Transcend nor any affiliate (as such term
is defined in Rule 501(b) of the Securities Act) of Transcend will offer, sell
or solicit offers to buy or otherwise negotiate in respect of any security (as
such term is defined in the Securities Act) that will be integrated with the
sale of the Shares in a manner that would require the registration of the Shares
under the Securities Act.
7.10. MATERIAL CHANGES AND LITIGATION. Transcend promptly (and, in
any event, not later than the date of release of such information to the public
generally) shall notify BI or their transferees of any material adverse change
in the business, properties, assets, or condition (financial or otherwise) of
Transcend and of any litigation or governmental proceeding or investigation
pending (or, to the best knowledge of Transcend, threatened) against Transcend
or against any officer, director, key employee, or principal stockholder of
Transcend, that materially adversely affects (or if adversely determined, would
be likely to materially adversely affect) its present or proposed business,
properties, assets, or condition (financial or otherwise) taken as a whole.
Transcend will also promptly notify BI or their transferees of any facts which,
if such facts had existed at the Closing, would have constituted a material
breach of the representations and warranties contained herein.
7.11. RESERVATION OF CONVERSION STOCK. Transcend will, upon any
increase in the number of shares of Common Stock issuable upon conversion of the
Series D Preferred Stock, reserve additional shares of Common Stock for issuance
upon such conversion, so that the number of shares of Common Stock so reserved
will not at any time be less than the number of such shares issuable upon such
conversion.
15
<PAGE> 20
7.12. USE OF PROCEEDS. Transcend will not use the proceeds from the
sale of the Shares hereunder other than in connection with the development
activities described in the Development Agreement.
8. CERTAIN COVENANTS OF BI.
8.1. STANDSTILL. Except pursuant to the terms of this Agreement, the
Co-Sale Agreement and the Right of First Refusal Agreement, or upon conversion
of the Series D Preferred Stock into Common Stock, BI agrees that until December
31, 2000, BI will not, and will exercise its best efforts to not allow any of
its affiliates or associates (as such terms are used in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), these terms to
have such meaning throughout this Section), from and after the date that such
person becomes an affiliate or associate unless in any such case specifically
invited to do so by the Board of Directors of Transcend, to:
(a) acquire, announce an intention to acquire, offer or
propose to acquire, solicit an offer to sell or agree to acquire by purchase, by
gift, by joining a partnership, limited partnership, syndicate or other "group"
(as such term is used in Section 13(d)(3) of the Exchange Act, such terms to
have such meaning throughout this Section) or otherwise, any (i) material
assets, businesses or properties of Transcend other than in the ordinary course
of business or pursuant to the express terms of the Development Agreement, or
(ii) additional shares of Common Stock, Series D Preferred Stock or any other
securities of Transcend convertible into, exchangeable for or exercisable for
Common Stock (all such securities, collectively, "VOTING SECURITIES");
(b) participate in the formation or encourage the formation of
any "person" (as such term is used in Section 13(d)(3) of the Exchange Act, such
term to have such meaning throughout this Section) which owns or seeks to
acquire beneficial ownership of any Voting Securities, or join or in any way
participate with any such person in such action;
(c) solicit, or participate in any "solicitation" of "proxies"
or become a "participant" in any "election contest" (as such terms are defined
or used in Regulation 14A under the Exchange Act, these terms to have such
meaning throughout this Section) with respect to Transcend;
(d) initiate, propose or otherwise solicit stockholders for
the approval of one or more stockholder proposals with respect to Transcend or
induce any other person to initiate any stockholder proposal which would in any
way be inconsistent with the provisions of this Section 8.1;
16
<PAGE> 21
(e) seek to place any representative on the Board of Directors
of Transcend, or seek to have called any meeting of the stockholders of
Transcend;
(f) deposit any Voting Securities in a voting trust or, unless
specifically contemplated by this Agreement, subject them to a voting agreement
or other agreement or arrangement with respect to the voting of such Voting
Securities; or
(g) otherwise act, alone or in concert with others, to (i)
seek to control the management, Board of Directors, policies or affairs of
Transcend or solicit, propose, seek to effect or negotiate with any other person
(including, without limitation, Transcend) with respect to any form of business
combination or other extraordinary transaction with Transcend or any of its
subsidiaries or any restructuring, recapitalization, similar transaction or
other transaction not in the ordinary course of business with respect to
Transcend or any of its subsidiaries; (ii) solicit, make or propose or negotiate
with any other person with respect to, or announce an intent to make, any tender
offer or exchange offer for any securities of Transcend or any of its
subsidiaries; or (iii) publicly disclose an intent, purpose, plan or proposal
with respect to Transcend, any of its subsidiaries or any securities or assets
of Transcend or any of its subsidiaries, that would violate the provisions of
this Section 8.1(g), or assist, participate in, facilitate or solicit any effort
or attempt by any person to do so or seek to do any of the foregoing.
8.2. INTERPRETATION. For all purposes of this Section, the term
Common Stock shall include any securities of any issuer entitled to vote
generally for the election of directors of such issuer which securities the
holders of Transcend Common Stock shall have received or as a matter of right be
entitled to receive as a result of (i) any capital reorganization or
reclassification of the capital stock of Transcend, (ii) any consolidation,
merger or share exchange of Transcend with or into another corporation or (iii)
any sale of all or substantially all the assets of Transcend.
8.3. EQUITABLE REMEDY. BI acknowledges and agrees that irreparable
damage would occur if any of the provisions of this Section were not performed
in accordance with their specific terms or were otherwise materially breached.
Accordingly, Transcend will be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically its provisions in
any court of any jurisdiction, this being in addition to any other remedy to
which Transcend may be entitled at law or in equity.
8.4. LOCK-UP AGREEMENT. In the event that the Shares constitute
Common Stock, BI shall execute and deliver to Transcend the Lock-Up Agreement at
the Closing.
17
<PAGE> 22
9. TRANSFERS OF CERTAIN RIGHTS.
(a) Subject to the provisions of the Financing Documents, the
rights granted to BI herein may be transferred or succeeded to only by an
assignee of the rights of BI under the Development Agreement, assigned in
compliance with the Development Agreement; PROVIDED, HOWEVER, that Transcend is
given written notice by the assignee at the time of such assignment stating the
name and address of the assignee and identifying the securities with respect to
which such rights are being assigned. Subsequent to the termination of the
Development Agreement, the rights granted to BI may not be assigned by BI
without the prior written consent of Transcend, which shall not be unreasonably
withheld.
(b) A transferee to whom rights are transferred pursuant to
this Section 9 may not again transfer such rights to any other person or entity,
other than in compliance with the Development Agreement and paragraph (a) above.
(c) Notwithstanding anything to the contrary contained in this
Agreement, each certificate representing the Shares shall bear a legend
substantially in the following form and any transfer of the Shares shall be
subject to the restrictions described in that legend and the Financing
Documents:
The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), or
applicable state securities laws and may not be transferred or
otherwise disposed of unless and until such shares are registered
under the Act and such laws or (1) registration under applicable state
securities is not required and (2) an opinion of counsel satisfactory
to Transcend is furnished to Transcend, to the effect that such
registration under the Act is not required.
10. SUCCESSORS AND ASSIGNS.
The provisions of this Agreement shall bind and inure to the benefit
of the respective successors, assigns, heirs, executors, and administrators of
the parties hereto.
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations, warranties, covenants, promises and agreements
contained in this Agreement or in any other Financing Documents shall survive
and remain in full force and effect after the Closing, without regard to any
investigation made at any time by BI or on its behalf.
12. NOTICES.
18
<PAGE> 23
Any consent, notice or report required or permitted to be given or
made under this Agreement shall be in writing, delivered personally or by
facsimile (and promptly confirmed by telephone, personal delivery or courier) or
courier, postage prepaid (where applicable), addressed as indicated below, or to
such other address as the addressee shall have last furnished in writing to the
addressor and shall be effective upon receipt by the addressee.
If to Transcend: Transcend Therapeutics, Inc.
640 Memorial Drive
Cambridge, MA 02139
Attention: Chief Executive Officer
Telephone: (617) 374-1200
Telecopy: (617) 374-1202
with a copy to: Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention: Steven D. Singer, Esq.
Telephone: (617) 526-6000
Telecopy: (617) 526-5000
If to BI: Boehringer Ingelheim International GmbH
D-55216 Ingelheim am Rhein
Germany
Attention: Corporate Licensing
Telephone: 011 49 61 32 77 34 08
Telecopy: 011 49 61 32 77 35 83
with a copy to: Boehringer Ingelheim International GmbH
D-55216 Ingelheim am Rhein
Germany
Attention: Head of Legal Department
Telephone: 011 49 61 32 77 34 06
Telecopy: 011 49 61 32 77 35 83
13. NO CONDITIONS TO EFFECTIVENESS; ENTIRE AGREEMENT.
There are no conditions to the effectiveness of this Agreement. This
Agreement, together with the instruments and other documents hereby contemplated
to be executed and delivered in connection herewith, contains the entire
agreement and understanding of the parties hereto, and supersedes any prior
agreements or understandings between or among them, with respect to the subject
matter hereof.
19
<PAGE> 24
14. FORCE MAJEURE.
Neither Party shall be held liable or responsible to the other Party
nor be deemed to have defaulted under or breached this Agreement for failure or
delay in fulfilling or performing any term of this Agreement when such failure
or delay is caused by or results from causes beyond the reasonable control of
the affected Party, including but not limited to fire, floods, embargoes, war,
acts of war (whether war is declared or not), insurrections, riots, civil
commotions, strikes, lockouts or other labor disturbances, acts of God or acts,
omissions or delays in acting by any governmental authority or the other Party;
PROVIDED, HOWEVER, that the Party so affected shall use reasonable commercial
efforts to avoid or remove such causes of nonperformance, and shall continue
performance hereunder with reasonable dispatch whenever such causes are removed.
Either Party shall provide the other Party with prompt written notice of any
delay or failure to perform that occurs by reason of force majeure. The Parties
shall mutually seek a resolution of the delay or the failure to perform as noted
above.
15. ASSIGNMENT.
This Agreement may not be assigned or otherwise transferred by either
Party without the consent of the other Party; PROVIDED, HOWEVER, that either
Transcend or BI may, without such consent, assign its rights and obligations
under this Agreement (a) in connection with a corporate reorganization, to any
affiliate, all or substantially all of the equity interest of which is owned and
controlled by such Party or its direct or indirect parent corporation, or (b) in
connection with a merger, consolidation or sale of substantially all of such
Party's assets to an unrelated third party; PROVIDED, HOWEVER, that such Party's
rights and obligations under this Agreement shall be assumed by its successor in
interest in any such transaction and shall not be transferred separate from all
or substantially all of its other business assets. Any purported assignment in
violation of the preceding sentence shall be void. Any permitted assignee shall
assume all obligations of its assignor under this Agreement.
16. SEVERABILITY.
Each Party hereby agrees that it does not intend to violate any public
policy, statutory or common laws, rules, regulations, treaty or decision of any
government agency or executive body thereof of any country or community or
association of countries. Should one or more provisions of this Agreement be or
become invalid, the Parties hereto shall substitute, by mutual consent, valid
provisions for such invalid provisions which valid provisions in their economic
effect are sufficiently similar to the invalid provisions that it can be
reasonably assumed that the Parties would have entered into this Agreement with
such valid provisions. In case such valid provisions cannot be agreed upon, the
invalidity of one or several
20
<PAGE> 25
provisions of this Agreement shall not affect the validity of this Agreement as
a whole, unless the invalid provisions are of such essential importance to this
Agreement that it is reasonable to assume that the Parties would not have
entered into this Agreement without the invalid provisions.
17. APPLICABLE LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts, without giving effect to the
choice of laws provisions thereof.
18. DISPUTE RESOLUTION; CHOICE OF FORUM.
Any disputes arising between the Parties relating to, arising out of
or in any way connected with this Agreement or any term or condition hereof, or
the performance by either Party of its obligations hereunder shall be settled in
accordance with the procedures set forth in the Development Agreement.
19. ENTIRE AGREEMENT.
This Agreement, together with the appendices hereto and the
Development Agreement, contains the entire understanding of the Parties with
respect to the subject matter hereof and supersedes the Letter Agreement dated
January 13, 1997, between Transcend and BI. All express or implied agreements
and understandings, either oral or written, heretofore made are expressly merged
in and made a part of this Agreement. This Agreement may be amended, or any term
hereof modified, only by a written instrument duly executed by both Parties.
20. HEADINGS.
The captions to the several Articles and Sections hereof are not a
part of this Agreement, but are merely guides or labels to assist in locating
and reading the several Articles and Sections hereof.
21. WAIVER.
The waiver by either Party hereto of any right hereunder or of the
failure to perform or of a breach by the other Party shall not be deemed a
waiver of any other right hereunder or of any other breach or failure by said
other Party whether of a similar nature or otherwise.
21
<PAGE> 26
22. 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.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first set forth above.
TRANSCEND THERAPEUTICS, INC.
By: /s/ Hector J. Gomez
-------------------------------------
Name: Hector J. Gomez, M.D., Ph.D.
President and Chief Executive Officer
BOEHRINGER INGELHEIM INTERNATIONAL GmbH
By: /s/ H. Peter Gieseler By: /s/ Hans-Peter Muller
----------------------------- -----------------------------
Name: /s/ H. Peter Gieseler Name: /s/ Hans-Peter Muller
----------------------------- -----------------------------
Legal Department
22
<PAGE> 1
EXHIBIT 10.12
NON-CONVERTIBLE PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT
DATED AS OF
MARCH 3, 1997
BY AND AMONG
TRANSCEND THERAPEUTICS, INC.
AND
ADVENT INTERNATIONAL INVESTORS II
LIMITED PARTNERSHIP
ADVENT PERFORMANCE MATERIALS
LIMITED PARTNERSHIP
GLOBAL PRIVATE EQUITY II
LIMITED PARTNERSHIP
ROVENT II LIMITED PARTNERSHIP
PAAL C. GISHOLT
CHARLES HSU
BAXTER HEALTHCARE CORPORATION
THE VENTURE CAPITAL FUND OF NEW ENGLAND III, L.P.
SPROUT CAPITAL VI, L.P.
DLJ CAPITAL CORPORATION
HECTOR J. GOMEZ, M.D.
JOHN J. WHALEN, M.D.
JERRY T. JACKSON
<PAGE> 2
TABLE OF CONTENTS
1. Authorization and Sale of Non-Convertible Preferred Stock.............. 1
1.1. Authorization of Non-Convertible Preferred Stock................. 1
1.2. Sale of Non-Convertible Preferred Stock.......................... 1
2. The Closing............................................................ 1
3. Representations of Transcend........................................... 2
3.1. Organization and Corporate Power................................. 2
3.2. Authorization.................................................... 2
3.3. Capitalization................................................... 3
3.4. Stockholder List and Agreements.................................. 4
3.5. Financial Statements............................................. 4
3.6. Absence of Undisclosed Liabilities............................... 4
3.7. Absence of Certain Developments.................................. 4
3.8. Title to Properties.............................................. 5
3.9. Tax Matters...................................................... 5
3.10. Contracts and Commitments........................................ 5
3.11. Proprietary Rights; Employee Restrictions........................ 6
3.12. Effect of Transactions........................................... 6
3.13. Litigation....................................................... 7
3.14. Business; Compliance with Laws................................... 7
3.15. Books and Records................................................ 7
3.16. Brokerage........................................................ 7
3.17. Employee Benefit Plans........................................... 7
4. Representations of the Purchasers...................................... 8
4.1. Investment Representation........................................ 8
4.2. Authority........................................................ 9
4.3. Experience....................................................... 9
4.4. Accredited Investor.............................................. 9
5. Conditions to the Obligations of the Purchasers........................ 9
5.1. Accuracy of Representations and Warranties....................... 9
5.2. Performance...................................................... 9
5.3. Blue Sky Approvals............................................... 9
5.4. Certificates and Documents....................................... 9
5.5. Compliance Certificate........................................... 10
5.6. Other Agreements................................................. 10
5.7. Minimum Investment............................................... 10
5.8. Other Matters.................................................... 10
6. Conditions to the Obligations of Transcend............................. 10
6.1. Accuracy of Representations and Warranties....................... 10
i
<PAGE> 3
7. Certain Covenants of Transcend......................................... 11
7.1. Financial Statements............................................. 11
7.2. Budget, Operating Plan; Other Reporting.......................... 11
7.3. Conduct of Business.............................................. 12
7.4. Payment of Taxes, Compliance with Laws, etc...................... 12
7.5. Insurance........................................................ 12
7.6. Key Man Life Insurance........................................... 12
7.7. Maintenance of Properties........................................ 12
7.8. Affiliated Transactions.......................................... 13
7.9. Inspection....................................................... 13
7.10. Integration...................................................... 13
7.11. Material Changes and Litigation.................................. 13
7.12. Audit and Compensation Committees................................ 13
7.13. Reservation of Common Stock...................................... 14
8. Transfers of Certain Rights............................................ 14
9. Successors and Assigns................................................. 14
10. Waivers................................................................ 14
11. Survival of Representations and Warranties............................. 15
12. Notices................................................................ 15
13. Brokers................................................................ 16
14. No Conditions to Effectiveness; Entire Agreement....................... 16
15. Amendments and Waivers................................................. 16
16. Counterparts........................................................... 16
17. Captions............................................................... 17
18. Severability........................................................... 17
19. Governing Law.......................................................... 17
Exhibit A -- List of Purchasers
Exhibit B -- Certificate of Amendment of Restated Certificate of
Incorporation
Exhibit C -- Form of Common Stock Purchase Warrant
Exhibit D -- State of Incorporation or Residence of Purchaser
ii
<PAGE> 4
NON-CONVERTIBLE PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT
This Agreement dated as of March 3, 1997 is by and among Transcend
Therapeutics, Inc., a Delaware corporation ("Transcend"), and those purchasers
identified on EXHIBIT A attached hereto (individually, a "PURCHASER" and
collectively, the "PURCHASERS").
In consideration of the mutual promises and covenants contained in this
Agreement, and intending to be legally bound by the terms and conditions of this
Agreement, the parties hereto hereby agree as follows:
1. Authorization and Sale of Non-Convertible Preferred Stock.
---------------------------------------------------------
1.1. AUTHORIZATION OF NON-CONVERTIBLE PREFERRED STOCK. Transcend
has, or before the Closing (as defined in Section 2) will have, duly authorized
(i) the issuance and sale of up to 1,039,000 shares of its Non-Convertible
Preferred Stock, par value $.01 per share (the "NON-CONVERTIBLE PREFERRED
STOCK"), having the rights, restrictions, privileges and preferences set forth
in the Certificate of Amendment of Restated Certificate of Incorporation, as
amended (the "Restated Certificate"), attached hereto as EXHIBIT B, and (ii) the
issuance and sale of warrants in substantially the form attached hereto as
EXHIBIT C (the "Warrants") to purchase the number of shares (the "Warrant
Shares") of Transcend's Common Stock, par value $.01 per share (the "Common
Stock") equal to the quotient of $346,300 divided by the initial public offering
price of the Common Stock of Transcend pursuant to a registration statement
filed under the Securities Act of 1933, as amended (the "Act"), covering the
offer and sale of Common Stock to the public in a firm commitment underwriting
(the "IPO Price") or, in the event such an initial public offering is not
consummated on or before the six-month anniversary of the date of issuance by
the Company of the Warrants hereunder, the number of Warrant Shares equal to the
quotient of $346,300 divided by $11.75.
1.2. SALE OF NON-CONVERTIBLE PREFERRED STOCK. Subject to the terms
and conditions of this Agreement, at the Closing Transcend shall sell and issue
to the Purchasers, and the Purchasers shall purchase from Transcend, an
aggregate of 1,039,000 shares of the Non-Convertible Preferred Stock (the
"Shares"), and Warrants to purchase the Warrant Shares, allocated among the
Purchasers as set forth on EXHIBIT A hereto, at a purchase price of $1.00 per
share for an aggregate purchase price of $1,039,000, payable as set forth in
Section 2 of this Agreement and in the respective amounts set forth in
EXHIBIT A.
2. THE CLOSING. The closing of the sale and purchase of the Shares and
the Warrants pursuant to this Agreement shall take place at the offices of Hale
and Dorr LLP, 60 State Street, Boston, Massachusetts, immediately upon the
execution and delivery of that certain Development and License Agreement by and
between Transcend and Boehringer Ingelheim International GmbH by the parties
thereto, or at
<PAGE> 5
such other time, date, and place as are mutually agreeable to Transcend and the
Purchasers (the "CLOSING"). The date of the Closing is hereinafter referred to
as the "CLOSING DATE." At the Closing, Transcend shall deliver to each Purchaser
a certificate representing the number of Shares to be purchased by such
Purchaser and a Warrant for the number of Warrant Shares to be purchased by such
Purchaser, registered in the name of such Purchaser. The purchase price for the
Shares and Warrants shall be paid by the Purchasers by wire transfer to an
account maintained by Hale and Dorr LLP pursuant to wire instructions attached
hereto as SCHEDULE 2, or by any other method acceptable to Transcend. If at the
Closing any of the conditions specified in Section 5 of this Agreement shall not
have been fulfilled, each Purchaser shall, at its election, be relieved of all
of its obligations under this Agreement without thereby waiving any other rights
it may have by reason of such failure or such non-fulfillment. If at the Closing
any of the conditions specified in Section 6 of this Agreement shall not have
been fulfilled, Transcend shall, at its election, be relieved of all of its
obligations under this Agreement without thereby waiving any other rights it may
have by reason of such failure or such non-fulfillment.
3. REPRESENTATIONS OF TRANSCEND. Subject to and except as disclosed by
Transcend in the Disclosure Schedule attached hereto or as otherwise provided in
the Financing Documents (as defined below), Transcend hereby represents and
warrants to each of the Purchasers as follows:
3.1. ORGANIZATION AND CORPORATE POWER. Transcend is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and is qualified to do business as a foreign corporation in
each jurisdiction in which such qualification is required, except where the
failure to so qualify would not have a material adverse effect on the condition
(financial or otherwise) of Transcend. Transcend has all required corporate
power and authority to own its property, to carry on its business as presently
conducted or contemplated, to enter into and perform this Agreement and the
other agreements, documents and instruments contemplated hereby (collectively,
the "FINANCING DOCUMENTS"), and generally to carry out the transactions
contemplated hereby. The copies of the Restated Certificate and By-laws of
Transcend, as amended to date, which have been furnished to the Purchasers by
Transcend, are correct and complete at the date hereof. Transcend is not in
violation of any term of its Restated Certificate or By-laws, or in violation of
any term of any agreement, instrument, judgment, decree, order, statute, rule or
government regulation applicable to Transcend or to which Transcend is a party
except where such a violation would not have a material adverse effect on the
condition (financial or otherwise) of Transcend.
3.2. AUTHORIZATION. The Financing Documents are valid and binding
obligations of Transcend, enforceable in accordance with their terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and other laws
applicable to creditors' rights and remedies and to the exercise of judicial
discretion in accordance with general principles of equity. The execution,
delivery and
2
<PAGE> 6
performance of the Financing Documents have been duly authorized by all
necessary corporate or other action of Transcend. The issuance, sale and
delivery of the Shares and the Warrants in accordance with this Agreement, and
the issuance and delivery of the Warrant Shares issuable upon exercise of the
Warrants, have been, or will be prior to the Closing, duly authorized and
reserved for issuance, as the case may be, by all necessary corporate action on
the part of Transcend. The Shares and the Warrants when so issued, sold and
delivered against payment therefor in accordance with the provisions of this
Agreement, and the Warrant Shares when issued upon exercise of the Warrants,
will be duly and validly issued, fully paid and non-assessable. Except state
securities law filings, if any, no consent, approval or authorization of, or
designation, declaration or filing with, any governmental authority or any other
person or entity is required of Transcend in connection with the execution and
delivery of the Financing Documents, or the issuance and delivery of the Shares,
Warrants or Warrant Shares in accordance with the terms of this Agreement or the
consummation of any other transaction contemplated hereby or by the other
Financing Documents.
3.3. CAPITALIZATION. The authorized capital stock of Transcend
(immediately prior to the Closing) will consist of (a) 25,000,000 shares of
Common Stock, 787,382 of which are issued and outstanding, and (b) 21,285,319
shares of Preferred Stock, par value $.01 per share, consisting of (i)
12,991,000 shares of Series A Convertible Preferred Stock, par value $.01 per
share (the "SERIES A PREFERRED STOCK"), 9,916,330 of which are issued and
outstanding, (ii) 3,000,000 shares of Series B Convertible Preferred Stock, par
value $.01 per share (the "SERIES B PREFERRED STOCK"), 690,775 of which are
issued and outstanding, (iii) 4,255,319 shares of Series C Convertible Preferred
Stock, par value $.01 per share (the "SERIES C PREFERRED STOCK"), all of which
are issued and outstanding and (iv) 1,039,000 shares of Non-Convertible
Preferred Stock, none of which are issued and outstanding. All of the issued and
outstanding shares of Transcend's capital stock have been duly authorized and
validly issued and are fully paid and nonassessable and have been issued in
compliance with applicable Federal and state securities laws. Except as set
forth on SCHEDULE 3.3 hereto or as provided in this Agreement, (i) no
subscription, warrant, option, convertible security or other right (contingent
or otherwise) to purchase or acquire any shares of capital stock of Transcend is
authorized or outstanding, (ii) there is not any commitment or offer of
Transcend to issue any subscription, warrant, option, convertible security or
other such right or to issue or distribute to holders of any shares of its
capital stock any evidences of indebtedness or assets of Transcend, (iii)
Transcend has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any shares of its capital stock or any interest therein or to
pay any dividend or make any other distribution in respect thereof and (iv)
there are no restrictions on the transfer of Transcend's capital stock other
than those arising from securities laws. Except as set forth on SCHEDULE 3.3
hereto, no person or entity is entitled to (i) any preemptive or similar right
with respect to the issuance of any capital stock of Transcend, or (ii) any
rights with respect to the registration of any capital stock of Transcend under
the Act.
3
<PAGE> 7
3.4. STOCKHOLDER LIST AND AGREEMENTS. Included as part of SCHEDULE
3.4 hereto is a complete and accurate list of the stockholders of Transcend as
of the date hereof. Except as set forth on SCHEDULE 3.4 hereto, there are no
agreements, written or oral, between Transcend and any holder of its capital
stock, or, to the best knowledge of Transcend, between or among any holders of
its capital stock, relating to the acquisition, disposition or voting of the
capital stock of Transcend.
3.5. FINANCIAL STATEMENTS. Transcend has furnished to each of the
Purchasers the audited balance sheet of Transcend as of December 31, 1996 (the
"BALANCE SHEET DATE") and the related audited statements of operations,
statements of stockholders' equity and statements of cash flows for the year
ending December 31, 1996 (collectively, the "FINANCIAL STATEMENTS"). The
Financial Statements (including the footnotes thereto) were prepared in
accordance with generally accepted accounting principles consistently applied
during the period covered thereby, are correct, complete and in accordance with
the books and records of Transcend in all material respects, and fairly and
accurately present the financial position of Transcend on the dates of such
statements and the results of its operations for the periods covered thereby.
3.6. ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
expressly disclosed in the Financial Statements, Transcend has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to the Balance Sheet Date and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under generally accepted accounting principles to be reflected in
the Financial Statements which, in both cases, are not material to the financial
condition or operating results of Transcend.
3.7. ABSENCE OF CERTAIN DEVELOPMENTS. Since the Balance Sheet Date,
there has been (i) no material adverse change in the condition (financial or
otherwise) of Transcend or in the assets, liabilities, properties or business of
Transcend, (ii) no declaration, setting aside or payment of any dividend or
other distribution with respect to, or any direct or indirect redemption or
acquisition of, any of the capital stock of Transcend, (iii) no waiver of any
valuable right of Transcend or cancellation of any debt or claim held by
Transcend, (iv) no loan by Transcend to any officer, director, employee or
stockholder of Transcend, or any agreement or commitment therefor, (v) no
material increase, direct or indirect, in the compensation paid or payable to
any officer, director, employee or agent of Transcend, (vi) no material loss,
destruction or damage to any property of Transcend whether or not insured, (vii)
no labor disputes involving Transcend and no material change in the personnel of
Transcend or the terms and conditions of their employment, and (viii) no
acquisition or disposition of any assets (or any contract or arrangement
therefor), nor any other transaction by Transcend otherwise than for fair value
in the ordinary course of business.
4
<PAGE> 8
3.8. TITLE TO PROPERTIES. Transcend has good and marketable title to
all of its properties and assets, free and clear of all material liens,
restrictions or encumbrances, except as disclosed in the Financial Statements.
All machinery and equipment included in such properties which is necessary to
the business of Transcend is in good condition and repair, and all leases of
real or personal property to which Transcend is a party are fully effective and
afford Transcend peaceful and undisturbed possession of the subject matter of
the lease. Transcend is not in violation of any zoning, building or safety
ordinance, regulation or requirement or other law or regulation applicable to
the operation of its owned properties; Transcend, in its capacity as lessee, is
not in violation of any zoning, building or safety ordinance, regulation or
requirement or other law or regulation applicable to the operation of its leased
properties, nor has it received any notice of violation with which it has not
complied.
3.9. TAX MATTERS. Transcend has filed all foreign, federal, state
and local income, excise or franchise tax returns, real estate and personal
property tax returns, sales and use tax returns and other tax returns required
to be filed by it and has paid all taxes owed by it, except taxes which have not
yet accrued or otherwise become due. The provision for taxes on the Financial
Statements is sufficient as of its date for the payment of all accrued and
unpaid federal, state, county and local taxes of any nature of Transcend, and
any applicable taxes owing to any foreign jurisdiction, whether or not assessed
or disputed. All taxes and other assessments and levies which Transcend is
required to withhold or collect have been withheld and collected and have been
paid over to the proper governmental authorities. With regard to the income tax
returns of Transcend, Transcend has not received notice of any audit or of any
proposed deficiencies from any taxing authority, and no controversy with respect
to taxes of any type is pending or, to the knowledge of Transcend, threatened.
There are in effect no waivers of applicable statutes of limitations with
respect to any taxes owed by Transcend for any year.
3.10. CONTRACTS AND COMMITMENTS. Included as part of SCHEDULE 3.10
hereto is a list of all agreements of any nature to which Transcend is a party
or by which it or any of its properties is bound after August 21, 1996 which are
material to the conduct and operations of such business and properties including
without limitation (a) each agreement which requires future expenditures by
Transcend in excess of $50,000 or which might result in payments to Transcend in
excess of $50,000, (b) all employment and consulting agreements, employee
benefit, bonus, pension, profit-sharing, stock option, stock purchase and
similar plans and arrangements, and distributor and sales representative
agreements, (c) any agreement with any stockholder, officer or director of
Transcend, or any "affiliate" or "associate" of such persons (as such terms are
defined in the rules and regulations promulgated under the Securities Act),
including without limitation any agreement or other arrangement providing for
the furnishing of services by, rental of real or personal property from, or
otherwise requiring payments to, any such person or entity and (d) any agreement
relating to the Proprietary Rights (as defined in Section 3.11). All
5
<PAGE> 9
such agreements are valid, binding and in full force and effect. Neither
Transcend nor, to the best of Transcend's knowledge, any of its employees,
officers or directors, is a party to any oral or written contract or agreement
prohibiting them from freely competing or engaging in the business or businesses
of Transcend and its employees. Transcend is not in default under any contract,
obligation or commitment, and to the best knowledge of Transcend, there is no
state of facts which upon notice or lapse of time or both would constitute such
a default. To the best of Transcend's knowledge, no key employee of Transcend is
in default under any contract, obligation or commitment with any of their former
employers, and to the best knowledge of Transcend, there is no state of facts
which upon notice or lapse of time or both would constitute such a default.
3.11. PROPRIETARY RIGHTS; EMPLOYEE RESTRICTIONS. Transcend has
ownership of or license to use all patent, copyright, trademark or other
proprietary rights (collectively, the "PROPRIETARY RIGHTS") used or to be used
in its business as presently conducted or contemplated, and, to Transcend's
knowledge, neither the present nor contemplated business, activities or products
of Transcend infringe any such patent, copyright, trademark or other proprietary
rights of others. Transcend has not received any notice or other claim from any
person asserting that any of Transcend's present or contemplated activities
infringe or may infringe any such rights of such person. Transcend has, to its
knowledge, the right to use, free and clear of claims or rights of others, all
trade secrets, programming processes, software and other information required
for or incident to its products or its business as presently conducted or
contemplated. Transcend has taken all steps required to establish and preserve
its ownership of all copyright, trade secret and other proprietary rights with
respect to its products and technology, except such rights as Transcend has
reasonably determined are not material to Transcend's continuing business
operations. Transcend is not making unlawful use of any confidential information
or trade secrets of any past or present employees of Transcend. Neither
Transcend nor, to the best knowledge of Transcend, any of Transcend's employees,
have any agreements or arrangements with former employers of such employees
relating to confidential information or trade secrets of such employers. The
activities of Transcend's employees on behalf of Transcend do not violate any
agreements or arrangements known to Transcend which any such employees have with
former employers.
3.12. EFFECT OF TRANSACTIONS. The execution, delivery and performance
by Transcend of the Financing Documents does not and will not conflict with or
result in any default under any material contract, obligation or commitment of
Transcend, or any charter provision, by-law or corporate restriction of
Transcend or the creation of any lien, charge or encumbrance of any nature upon
any of the properties or assets of Transcend, except pursuant to this Agreement,
or violate any instrument, agreement, judgment, decree, order, statute, rule or
regulation of any federal, state or local government or agency applicable to
Transcend.
6
<PAGE> 10
3.13. LITIGATION. Except as set forth on SCHEDULE 3.13 hereto, there
is no litigation or governmental proceeding or investigation pending or, to the
best of Transcend's knowledge, threatened (a) against Transcend affecting any of
its properties or assets, or (b) against any officer or key employee of
Transcend, or (c) which may adversely affect the business, properties, assets or
financial condition of Transcend or (d) which may call into question the
validity, or materially hinder the enforceability or performance, of the
Financing Documents, nor, to the best of Transcend's knowledge, has there
occurred any event nor does there exist any condition which could reasonably be
expected to be the basis upon which any litigation, proceeding or investigation
might properly be instituted.
3.14. BUSINESS; COMPLIANCE WITH LAWS. Transcend has all material
franchises, permits, licenses and other rights and privileges necessary to
permit it to own its property and to conduct its business as is presently
conducted. Transcend is not in material violation of any law, regulation,
authorization or order of any public authority relevant to the ownership of its
properties or the carrying on of its business as it is presently conducted.
3.15. BOOKS AND RECORDS. The minute books of Transcend contain
complete and accurate records of all meetings and other corporate actions of its
stockholders and its Board of Directors and committees thereof. The stock ledger
of Transcend is complete and reflects all issuances, transfers, repurchases and
cancellations of shares of capital stock of Transcend.
3.16. BROKERAGE. There are no claims for and no person is entitled to
any brokerage commissions, finder's fees or similar compensation in connection
with the transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of Transcend.
3.17. EMPLOYEE BENEFIT PLANS. Except as contemplated by the Financing
Documents or as set forth on SCHEDULE 3.17 hereto, Transcend does not maintain
or contribute to any employee benefit plans. Transcend is and has been in
material compliance with the provisions of all laws or rules or regulations
applicable to any employee benefit plan maintained or contributed to by
Transcend for the benefit of its employees and, to the best knowledge of
Transcend, there are no claims pending or threatened with respect to any of such
employee benefit plans. Transcend does not maintain or contribute to, and has
never maintained or contributed to, any qualified retirement plan that is
subject to the minimum funding requirements of Section 412 of the United States
Internal Revenue Code of 1986, as amended. There are no unfunded obligations of
Transcend under any retirement, pension, profit-sharing or deferred compensation
plan or program. Transcend is not required to make any payments or contributions
to any employee benefit plan pursuant to any collective bargaining agreement.
Transcend has never maintained or contributed to any employee benefit plan
providing or promising any health or other non-pension benefits to terminated
employees. For purposes of this Section, the term "Company"
7
<PAGE> 11
includes all entities that have controlled, have been under the control of, or
have been under common control with, Transcend.
4. Representations of the Purchasers.
---------------------------------
Each of the Purchasers, severally and not jointly, represents and warrants
to Transcend as follows:
4.1. Investment Representation.
-------------------------
(a) Each Purchaser has not relied upon the advice of a "purchaser
representative," as defined in Regulation D under the Securities Act in
evaluating the risks and merits of the Shares and the Warrants.
(b) Each Purchaser has had an opportunity to ask questions of and
receive answers from Transcend, or a person or persons acting on Transcend's
behalf, concerning the terms and conditions of the Shares and the Warrants.
(c) Each Purchaser understands that the Shares, the Warrants and
the Warrant Shares have not been registered under the Securities Act or under
the securities laws of any state or other jurisdiction in reliance upon
exemptions for private offerings, and that, while Transcend may in the future
register the Shares, the Warrants or the Warrant Shares, it is under no
obligation to do so except as set forth in the Registration Rights Agreement (as
hereinafter defined), and each Purchaser further understands that such Purchaser
is acquiring the Shares and the Warrants without being furnished any offering
literature or prospectus.
(d) Each Purchaser represents that the Shares and the Warrants are
being acquired solely for its own account, for investment and not with a view to
or for the resale, distribution, subdivision, or fractionalization thereof. Each
Purchaser has no present plans to enter into any contract, undertaking,
agreement, or arrangement relating thereto.
(e) Each Purchaser acknowledges and is aware that there are
substantial restrictions on the transferability of the Shares, the Warrants and
the Warrant Shares; the Shares, the Warrants and the Warrant Shares cannot be
resold unless such Shares, Warrants or Warrant Shares are registered under the
Securities Act and any applicable securities law of any state or other
jurisdiction, or an exemption from registration is available; except as set
forth in the Registration Rights Agreement each Purchaser has no rights to
require that the Shares, the Warrants or the Warrant Shares be registered under
the Securities Act; and there currently is no and there may never be, a public
market for the Shares, the Warrants and the Warrant Shares.
8
<PAGE> 12
(f) Each Purchaser has such knowledge and experience in financial
and business matters that it is capable of evaluating the relative risks and
merits of the Shares and the Warrants and the Warrant Shares.
(g) Each corporate or partnership Purchaser is organized and with
its principal place of business in, and each individual Purchaser is a resident
of, the state set forth opposite its or his name on EXHIBIT D hereto.
4.2. AUTHORITY. Each Purchaser has full power and authority to
execute, deliver and perform this Agreement and each other Financing Document to
which such Purchaser is a party in accordance with its terms. No Purchaser has
been organized, reorganized, or recapitalized specifically for the purpose of
investing in Transcend.
4.3. EXPERIENCE. Each Purchaser has adequate net worth and means to
provide for its current needs and contingencies and the financial capacity to
sustain a complete loss of its investment in Transcend.
4.4. ACCREDITED INVESTOR. Each Purchaser is an "accredited investor"
as that term is defined in Rule 501(a) under the Act.
5. Conditions to the Obligations of the Purchasers.
-----------------------------------------------
The obligations of the Purchasers under this Agreement are subject to
the fulfillment, or the waiver by the Purchasers, of the conditions set forth in
this Section 5 on or before the Closing Date.
5.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each representation
and warranty of Transcend contained in this Agreement shall be true on and as of
the Closing Date with the same effect as though such representation and warranty
had been made on and as of that date.
5.2. PERFORMANCE. Transcend shall have performed and complied with
all agreements and conditions contained in this Agreement required to be
performed or complied with by Transcend prior to or at the Closing.
5.3. BLUE SKY APPROVALS. Transcend shall have received all requisite
approvals, if any, of the securities authorities of each jurisdiction in which
such approval is required, and such approvals shall be in full force and effect
on the Closing Date.
5.4. CERTIFICATES AND DOCUMENTS. Transcend shall have delivered to
counsel to the Purchasers:
9
<PAGE> 13
(a) A copy of the Restated Certificate, as in effect
immediately prior to the Closing, certified by the Secretary of State of the
State of Delaware and a certificate, as of the most recent practicable date, of
the Secretary of State of the State of Delaware as to Transcend's good standing;
and
(b) A certificate of the Secretary or Assistant Secretary of
Transcend dated as of the Closing Date, certifying as to (i) the incumbency of
officers of Transcend executing the Financing Documents and all other documents
executed and delivered in connection herewith, (ii) a copy of the By-Laws of
Transcend, as in effect on and as of the Closing Date, and (iii) a copy of the
resolutions of the Board of Directors of Transcend authorizing and approving
Transcend's execution, delivery and performance of the Financing Documents, all
matters in connection with the Financing Documents, and the transactions
contemplated thereby.
5.5. COMPLIANCE CERTIFICATE. Transcend shall have delivered to the
Purchasers a certificate, executed by the President of Transcend as of the
Closing Date, certifying to the fulfillment of all of the conditions to the
Purchasers' obligations under this Agreement, as set forth in this Section 5.
5.6. Other Agreements.
----------------
(a) Amendment No. 1 to the Second Amended and Restated
Registration Rights Agreement, of even date herewith, shall have been executed
and delivered by Transcend and the requisite number of shareholders of Transcend
required to amend such agreement.
(b) The Warrants, substantially in the form of EXHIBIT C
hereto, shall have been executed by Transcend and delivered to the Purchasers.
5.7. MINIMUM INVESTMENT. Purchasers shall have tendered at the
Closing aggregate consideration of not less that $1,039,000 for the purchase of
the Shares and the Warrants.
5.8. OTHER MATTERS. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement, and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Purchasers and their counsel and the
Purchasers and their counsel shall have received all such counterpart originals
or certified or other copies of such documents as they may reasonably request.
6. Conditions to the Obligations of Transcend.
------------------------------------------
The obligations of Transcend under this Agreement are subject to the
fulfillment, or the waiver by Transcend, of the conditions set forth in this
Section 6 on or before the Closing Date.
10
<PAGE> 14
6.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Purchasers contained in Section 4 shall be true on and as
of the Closing Date with the same effect as though such representations and
warranties had been made on and as of that date.
7. Certain Covenants of Transcend.
------------------------------
Transcend covenants and agrees that, so long as any shares of
Non-Convertible Preferred Stock issued hereunder are outstanding, it will
perform and observe the following covenants and provisions:
7.1. FINANCIAL STATEMENTS. Transcend will maintain books of account
in accordance with generally accepted accounting principles applied on a
consistent basis, keep full and complete financial records and furnish to the
Purchasers the following reports:
(a) within 90 days after the end of each fiscal year, a copy
of the balance sheet of Transcend as at the end of such year, together with
statements of operations, stockholders' equity and cash flows of Transcend for
such year, audited and certified by Ernst & Young or other independent public
accountants of recognized national standing reasonably satisfactory to the
Purchasers, prepared in accordance with generally accepted accounting principles
and practices consistently applied;
(b) within 25 days after the end of month, an unaudited
balance sheet of Transcend as at the end of such month and unaudited statements
of operations, stockholders' equity, cash flows, summaries of bookings and
backlogs of Transcend for such month;
(c) within 45 days after the end of each quarter, commencing
March 31, 1997, an unaudited balance sheet of Transcend as at the end of such
quarter and for the year to date, and unaudited statements of operations,
stockholders' equity, cash flows, summaries of bookings and backlogs for such
period and for the current fiscal year to the end of such period, each of the
foregoing financial statements described in clauses (a), (b) and (c) hereof to
be prepared on a consolidated basis if Transcend then has any subsidiaries, to
set forth in comparative form the corresponding figures for the prior fiscal
period and the forecasts for such period and to include a brief written
discussion and analysis by the President of such annual and quarterly financial
statements, including a comparison of the performance against the operating plan
and corresponding periods in prior years; and
(d) such other financial information, as the Purchasers may
reasonably request, including, without limitation, certificates of the principal
financial officer of Transcend concerning compliance with the covenants of
Transcend under this Section 7.
11
<PAGE> 15
7.2. BUDGET, OPERATING PLAN; OTHER REPORTING. Transcend will prepare
and submit to the Board of Directors of Transcend a monthly budget for Transcend
for each fiscal year of Transcend, at least 30 days prior to the beginning of
such fiscal year together with management's monthly projected results for the
fiscal year and a written discussion and analysis of such budget. The budget
shall be accepted as the budget for such fiscal year when it has been approved
by a majority of the full Board of Directors of Transcend. Transcend shall
review the budget periodically to compare actual monthly results against
projected results and shall promptly advise the Board of Directors of all
material changes in the budget and all material deviations therefrom. Transcend
will also prepare and deliver to each Purchaser within 30 days after the start
of each fiscal year an annual operating plan (the "OPERATING PLAN") prepared on
a monthly basis and, promptly after preparation, any revisions to such Operating
Plan. In addition, Transcend will promptly provide to each Purchaser other
customary information and materials, including, without limitation, reports of
adverse developments, management letters, communications with stockholders or
directors, press releases and registration statements.
7.3. CONDUCT OF BUSINESS. Transcend will continue to engage
principally in the business now conducted by Transcend. Transcend will keep in
full force and effect its corporate existence and all patents and other
intellectual property rights used or useful in its business (except such rights
as the Board of Directors of Transcend, in its reasonable business judgment, has
determined are not material to Transcend's continuing operations).
7.4. PAYMENT OF TAXES, COMPLIANCE WITH LAWS, ETC. Transcend will pay
and discharge all lawful taxes, assessments and governmental charges or levies
imposed upon it or upon its income or property before the same shall become in
default, as well as all lawful claims for labor, materials and supplies which,
if not paid when due, might become a lien or charge upon its property or any
part thereof; provided, however, that Transcend shall not be required to pay and
discharge any such tax, assessment, charge, levy, or claim so long as the
validity thereof is being contested by Transcend in good faith by appropriate
proceedings and an adequate reserve therefor has been established on its books.
Transcend will use its best efforts to comply with all applicable laws and
regulations in the conduct of its business including, without limitation, all
environmental laws.
7.5. INSURANCE. Transcend will keep its insurable properties
insured, upon reasonable business terms, by financially sound and reputable
insurers against liability, and the perils of casualty, fire and extended
coverage in amounts of coverage sufficient in the reasonable business judgment
of Transcend to protect Transcend. Transcend will also maintain with such
insurers insurance against other hazards and risks and liability to persons and
property which, in the reasonable business judgment of Transcend, is customary
in the industry in which Transcend operates for companies of comparable size.
12
<PAGE> 16
7.6. KEY MAN LIFE INSURANCE. Transcend will maintain term life
insurance upon the life of the Chief Executive Officer in the amount of
$2,000,000, with the proceeds payable to Transcend.
7.7. MAINTENANCE OF PROPERTIES. Transcend will maintain all
properties used or useful in the conduct of its business in good repair, working
order and condition as is reasonably necessary to permit such business to be
properly and advantageously conducted.
7.8. AFFILIATED TRANSACTIONS. Except for the Financing Documents and
the documents contemplated by the Financing Documents, all transactions by and
between Transcend and any officer, employee or stockholder of Transcend or
persons controlled by or affiliated with such officer, employee or stockholder,
shall be conducted on an arms-length basis, shall be on terms and conditions no
less favorable to Transcend than could be obtained from non-related persons and
shall be approved by the Board of Directors of Transcend after full disclosure
of the terms thereof, for which purpose the interested party, if a Director, and
any affiliate of the interested party who is a Director, shall not be entitled
to vote.
7.9. INSPECTION. Transcend shall, upon reasonable prior notice to
Transcend, permit authorized representatives of the Purchasers to visit and
inspect any of the properties of Transcend including its books of account (and
to make copies thereof and take extracts therefrom), and to discuss the affairs,
finances and accounts of Transcend with its officers, administrative employees
and independent accountants, all at the expense of the Purchasers and at such
reasonable times and as often as may be reasonably requested.
7.10. INTEGRATION. Neither Transcend nor any affiliate (as such term
is defined in Rule 501(b) of the Securities Act) of Transcend will offer, sell
or solicit offers to buy or otherwise negotiate in respect of any security (as
such term is defined in the Securities Act) that will be integrated with the
sale of the Shares in a manner that would require the registration of the Shares
under the Securities Act.
7.11. MATERIAL CHANGES AND LITIGATION. Transcend promptly (and, in
any event, not later than the date of release of such information to the public
generally) shall notify the Purchasers or their transferees of any material
adverse change in the business, properties, assets, or condition (financial or
otherwise) of Transcend and of any litigation or governmental proceeding or
investigation pending (or, to the best knowledge of Transcend, threatened)
against Transcend or against any officer, director, key employee, or principal
stockholder of Transcend, that materially adversely affects (or if adversely
determined, could materially adversely affect) its present or proposed business,
properties, assets, or condition (financial or otherwise) taken as a whole.
Transcend will also promptly notify the Purchasers or their transferees of any
facts which, if such facts had existed at the Closing, would have constituted a
material breach of the representations and warranties contained herein.
13
<PAGE> 17
7.12. AUDIT AND COMPENSATION COMMITTEES. The Board of Directors of
Transcend shall maintain an Audit Committee and a Compensation Committee
composed of not less than three members of the Board of Directors, including, in
the case of the Compensation Committee, at least two members who are nominees of
the Purchasers and not permanent managers of Transcend and, in the case of the
Audit Committee, three members who are nominees of the Purchasers and not
permanent managers of Transcend (for as long as such nominees are willing to
serve).
7.13. RESERVATION OF COMMON STOCK. Transcend will, upon any increase
in the number of shares of Common Stock issuable upon exercise of the Warrant
Shares reserve additional shares of Common Stock for issuance upon such
exercise, so that the number of shares of Common Stock so reserved will not at
any time be less than the number of such shares issuable upon such exercise.
8. Transfers of Certain Rights.
---------------------------
(a) Subject to the provisions of the Financing Documents, the
rights granted to the Purchasers named herein may be transferred or succeeded to
only by any (i) other Purchaser or any partner, or affiliate of any Purchaser,
or (ii) any other person or entity that acquires at least 300,000 of the Shares;
PROVIDED, HOWEVER, that Transcend is given written notice by the transferee at
the time of such transfer stating the name and address of the transferee and
identifying the securities with respect to which such rights are being assigned.
(b) A transferee to whom rights are transferred pursuant to
this Section 8 may not again transfer such rights to any other person or entity,
other than as provided in paragraph (a) above.
(c) Notwithstanding anything to the contrary contained in this
Agreement, certificates representing the Shares and certificates representing
the Warrant Shares shall each bear a legend substantially in the following form
and any transfer of the Shares or the Warrant Shares shall be subject to the
restrictions described in that legend and the Financing Documents:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), or
applicable state securities laws and may not be transferred or
otherwise disposed of unless and until such shares are registered
under the Act and such laws or (1) registration under applicable state
securities laws is not required and (2) an opinion of counsel
satisfactory to Transcend is furnished to Transcend, to the effect
that such registration under the Act is not required."
14
<PAGE> 18
9. Successors and Assigns.
----------------------
The provisions of this Agreement shall bind and inure to the benefit
of the respective successors, assigns, heirs, executors, and administrators of
the parties hereto.
10. WAIVER OF PROVISIONS OF SERIES A PURCHASE AGREEMENT AND SERIES C
AGREEMENT. Each Purchaser, with respect to the issuance and sale of the Shares
and the Warrants and the issuance of the Warrant Shares upon exercise of the
Warrants, hereby waives the provisions of the Right of First Refusal Agreement
dated April 5, 1994, as amended (including any notice required thereunder),
Section 8.14 of the Series A Convertible Preferred Stock and Warrant Purchase
Agreement, dated as of April 5, 1994, the provisions of the Note Purchase
Agreement dated September 13, 1995, as amended May 29, 1996, and the provisions
of Section 7.13 of the Series C Convertible Preferred Stock Purchase Agreement,
dated as of August 21, 1996.
11. Survival of Representations and Warranties.
------------------------------------------
The representations, warranties, covenants, promises and agreements
contained in this Agreement or in any other Financing Documents shall survive
and remain in full force and effect after the Closing, without regard to any
investigation made at any time by the Purchasers or on their behalf.
12. Notices.
-------
All notices, requests, consents and other communications under this
Agreement shall be in writing and shall be delivered by hand or mailed by first
class certified or registered mail, return receipt requested, postage prepaid:
(a) If to Transcend:
Transcend Therapeutics, Inc.
640 Memorial Drive
Cambridge, MA 02139
Attention: Chief Executive Officer
Facsimile of Company: (617) 374-1202
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention: Steven D. Singer, Esq.
Facsimile: (617) 526-5000
15
<PAGE> 19
(b) If to the Purchasers, to their respective addresses set forth on
EXHIBIT A to this Agreement (or at such other address as may have been furnished
to Transcend in writing by the Purchasers).
with a copy to:
Palmer & Dodge
One Beacon Street
Boston, MA 02108
Attention: Michael Lytton, Esq.
Facsimile: (617) 227-4420
Notices provided in accordance with this Section 12 shall be deemed
delivered upon personal delivery or 48 hours after deposit in the mail in
accordance with the above.
13. Brokers.
-------
Transcend and the Purchasers, each severally and not jointly, (i)
represent and warrant to the other parties hereto that it has retained no finder
or broker in connection with the transactions contemplated by this Agreement,
and (ii) shall indemnify and hold harmless the other parties from and against
any and all claims, liabilities, or obligations with respect to brokerage or
finders' fees or commissions or consulting fees in connection with the
transactions contemplated by this Agreement, asserted by any person on the basis
of any statement or representation alleged to have been made by such
indemnifying party.
14. No Conditions to Effectiveness; Entire Agreement.
------------------------------------------------
There are no conditions to the effectiveness of this Agreement. This
Agreement, together with the instruments and other documents hereby contemplated
to be executed and delivered in connection herewith, contains the entire
agreement and understanding of the parties hereto, and supersedes any prior
agreements or understandings between or among them, with respect to the subject
matter hereof.
15. Amendments and Waivers.
----------------------
Except as otherwise expressly set forth in this Agreement, any term of
this Agreement may be amended and the observance of any term of this Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively), with the written consent of Transcend and the
holders of at least 75% of the then outstanding shares of Non-Convertible
Preferred Stock. No waivers of or exceptions to any term, condition or provision
of this Agreement, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
16
<PAGE> 20
16. Counterparts.
------------
This Agreement may be executed in several counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
17. Captions.
--------
The captions of the sections, subsections and paragraphs of this
Agreement have been added for convenience only and shall not be deemed to be a
part of this Agreement.
18. Severability.
------------
Each provision of this Agreement shall be interpreted in such manner
as to validate and give effect thereto to the fullest lawful extent, but if any
provision of this Agreement is determined by a court of competent jurisdiction
to be invalid or unenforceable under applicable law, such provision shall be
ineffective only to the extent so determined and such invalidity or
unenforceability shall not affect the remainder of such provision or the
remaining provisions of this Agreement.
19. Governing Law.
-------------
This Agreement shall be governed by and interpreted and construed in
accordance with the laws of the Commonwealth of Massachusetts, without regard to
the conflicts of law rules of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, Transcend and the Purchasers have executed and
delivered this Agreement as of the date first above written.
TRANSCEND THERAPEUTICS, INC.
By: /a/ Hector J. Gomez
--------------------------------------
Name: Hector J. Gomez, M.D., Ph.D.
Title: President
ADVENT INTERNATIONAL INVESTORS II
LIMITED PARTNERSHIP
By: Advent International Corporation,
General Partner
By: /s/ Gerard M. Moufflet
---------------------------------
Name: Gerard M. Moufflet
Title: Senior Vice President
17
<PAGE> 21
ADVENT PERFORMANCE MATERIALS LIMITED
PARTNERSHIP
By: Advent International Limited
Partnership, General Partner
By: Advent International Corporation,
General Partner
By: /s/ Gerard M. Moufflet
---------------------------------
Name: Gerard M. Moufflet
Title: Senior Vice President
GLOBAL PRIVATE EQUITY II LIMITED
PARTNERSHIP
By: Advent International Limited
Partnership, General Partner
By: Advent International Corporation,
General Partner
By: /s/ Gerard M. Moufflet
---------------------------------
Name: Gerard M. Moufflet
Title: Senior Vice President
ROVENT II LIMITED PARTNERSHIP
By: Advent International Limited
Partnership, General Partner
By: Advent International Corporation,
General Partner
By: /s/ Gerard M. Moufflet
---------------------------------
Name: Gerard M. Moufflet
Title: Senior Vice President
18
<PAGE> 22
PAAL C. GISHOLT
By: /s/ Gerard M. Moufflet
---------------------------------
Gerard M. Moufflet as attorney-
in-fact for PAAL C. GISHOLT
CHARLES HSU
By: /s/ Gerard M. Moufflet
---------------------------------
Gerard M. Moufflet as attorney-
in-fact for CHARLES HSU
BAXTER HEALTHCARE CORPORATION
By: /s/ John Gaither
---------------------------------
Name: John Gaither
Title:
THE VENTURE CAPITAL FUND OF NEW
ENGLAND III, L.P.
By: FH & Co. III, L.P.
General Partner
By: /s/ William C. Mills III
---------------------------------
Name: William C. Mills III
Title: General Partner
SPROUT CAPITAL VI, L.P.
By: /s/ Philippe Chambon
---------------------------------
Name: Dr. Philippe Chambon
Title: Attorney-in-fact
19
<PAGE> 23
DLJ CAPITAL CORPORATION
By: /s/ Philippe Chambon
---------------------------------
Name: Dr. Philippe Chambon
Title: Attorney-in-fact
/s/ Hector J. Gomez
------------------------------------
Hector J. Gomez, M.D.
/s/ John J. Whalen
------------------------------------
John J. Whalen, M.D.
/s/ Jerry T. Jackson
------------------------------------
Jerry T. Jackson
20
<PAGE> 24
Exhibit A
---------
<TABLE>
List of Purchasers
------------------
<CAPTION>
Number of Shares Aggregate
of Non- Dollar Value Aggregate
Name Convertible of Warrant Purchase
---- Preferred Stock Shares Price
--------------- ------------ ---------
<S> <C> <C> <C>
Advent International Investors II 1,242 $ 414.00 $ 1,242.00
Limited Partnership
c/o Advent International
Corporation
101 Federal Street
Boston, MA 02110
Advent Performance Materials 119,453 $39,814.00 $119,453.00
Limited Partnership
c/o Advent International
Corporation
101 Federal Street
Boston, MA 02110
Global Private Equity II Limited 223,023 $74,334.00 $223,023.00
Partnership
c/o Advent International
Corporation
101 Federal Street
Boston, MA 02110
Rovent II Limited Partnership 89,979 $29,990.00 $ 89,979.00
c/o Advent International
Corporation
101 Federal Street
Boston, MA 02110
Paal C. Gisholt 309 $ 103.00 $ 309.00
c/o Advent International
Corporation
101 Federal Street
Boston, MA 02110
</TABLE>
A-1
<PAGE> 25
<TABLE>
<CAPTION>
Number of Shares Aggregate
of Non- Dollar Value Aggregate
Name Convertible of Warrant Purchase
---- Preferred Stock Shares Price
--------------- ------------ ---------
<S> <C> <C> <C>
Charles Hsu 372 $ 124.00 $ 372.00
c/o Advent International
Corporation
101 Federal Street
Boston, MA 02110
Baxter Healthcare Corporation 319,068 $106,345.00 $ 319,068.00
One Baxter Parkway
Deerfield, IL 60015
The Venture Capital Fund 100,554 $ 33,515.00 $ 100,554.00
of New England III, L.P.
160 State Street, 23rd Floor
Boston, MA 02110
Sprout Capital VI, L.P. 73,380 $ 24,458.00 $ 73,380.00
140 Broadway
New York, NY 10005-1295
DLJ Capital Corporation 11,620 $ 3,873.00 $ 11,620.00
140 Broadway
New York, NY 10005-1295
Hector J. Gomez, M.D 38,000 $ 12,665.00 $ 38,000.00
c/o Transcend Therapeutics, Inc.
640 Memorial Drive
Cambridge, MA 02139
John J. Whalen, M.D 12,000 $ 4,000.00 $ 12,000.00
c/o Transcend Therapeutics, Inc.
640 Memorial Drive
Cambridge, MA 0213
Jerry T. Jackson 50,000 $ 16,665.00 $ 50,000.00
3121 East Crest Shadows Lane
Tucson, AZ 85718 --------- ----------- -------------
Total: 1,039,000 $346,300.00 $1,039,000.00
========= =========== =============
</TABLE>
A-2
<PAGE> 1
EXHIBIT 23.2
CONSENT OF COUNSEL
The undersigned hereby consents to the use of our name and the statement
with respect to us appearing under the heading "Experts" in the Registration
Statement on Form S-1 of Transcend Therapeutics, Inc.
--------------------------------------
PENNIE & EDMONDS LLP
New York, New York
March 5, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 10, 1997 (which contains an explanatory
paragraph with respect to the Company's ability to continue as a going concern)
in the Registration Statement (Form S-1) and related Prospectus of Transcend
Therapeutics, Inc for the registration of 2,300,000 shares of its common stock.
Ernst & Young LLP
Boston, Massachusetts
March 3, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 639,626
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 720,533
<PP&E> 75,651
<DEPRECIATION> 29,543
<TOTAL-ASSETS> 1,565,765
<CURRENT-LIABILITIES> 624,535
<BONDS> 0
20,176,350
0
<COMMON> 7,793
<OTHER-SE> (19,242,913)
<TOTAL-LIABILITY-AND-EQUITY> 1,565,765
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,801,973
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 355,066
<INCOME-PRETAX> (4,126,930)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,126,930)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,126,930)
<EPS-PRIMARY> (2.35)
<EPS-DILUTED> 0
</TABLE>
