<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 1, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------------
CODON PHARMACEUTICALS, INC.
(Name of Small Business Issuer as Specified in its Charter)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 2834 52-1882391
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
200 PERRY PARKWAY, GAITHERSBURG, MARYLAND 20877
(301) 926-4400
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Small Business Issuer's Principal Place of Business)
------------------------------
WILLIAM A. RYAN, JR., M.D.
President and Chief Executive Officer
Codon Pharmaceuticals, Inc.
200 Perry Parkway
Gaithersburg, Maryland 20877
(301) 926-4400
(Name and Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service of Process)
------------------------------
COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
ALEXANDER D. LYNCH, ESQ. LAWRENCE B. FISHER, ESQ.
BROBECK, PHLEGER & HARRISON LLP ORRICK, HERRINGTON & SUTCLIFFE LLP
1301 Avenue of the Americas 666 Fifth Avenue
New York, New York 10019 New York, New York 10103-0001
(212) 581-1600 (212) 506-5000
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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, as amended, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, check the
following box and list the Securities Act of 1933, as amended, registration
statement number of earlier effective registration statement for the same
offering. / / ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, as amended, check the following box and list
the Securities Act of 1933, as amended, registration statement number of the
earlier effective registration statement for the same offering. / / ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, as amended, please check the following
box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING
SECURITIES TO BE REGISTERED REGISTERED SECURITY(1) PRICE(1)
<S> <C> <C> <C>
Common Stock, $0.01 par value per share(3)...................... 1,955,000 $ 6.00 $ 11,730,000
Redeemable Warrants(3).......................................... 1,955,000 $ 0.10 $ 195,500
Common Stock underlying the Redeemable Warrants included in the
Units(3)(5)................................................... 1,955,000 $ 7.50 $ 14,662,500
Underwriter's Warrants 172,500 $ 0.0001 $ 18
Common Stock underlying the Underwriter's Warrants 172,500 $ 7.20 $ 1,242,000
Redeemable Warrants underlying the Underwriter's Warrants 172,500 $ 0.12 $ 20,700
Common Stock underlying the Redeemable Warrants underlying the
Underwriter's Warrants(5) 172,500 $ 7.50 $ 1,293,750
Total 6,555,000 $ 4.45 $ 29,144,468
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE(2)
<S> <C>
Common Stock, $0.01 par value per share(3)...................... $ 3,555
Redeemable Warrants(3).......................................... $ 60
Common Stock underlying the Redeemable Warrants included in the
Units(3)(5)................................................... $ 4,444
Underwriter's Warrants $ 1(4)
Common Stock underlying the Underwriter's Warrants $ 377(4)
Redeemable Warrants underlying the Underwriter's Warrants $ 7(4)
Common Stock underlying the Redeemable Warrants underlying the
Underwriter's Warrants(5) $ 393
Total $ 8,837
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Calculated pursuant to Rule 457(a) based on an estimate of the maximum
offering price.
(3) Includes 255,000 shares of Common Stock and 255,000 Redeemable Warrants
which may be issued on exercise of a 45-day option granted to the
Underwriter solely to cover over-allotments, if any. See "Underwriting."
(4) No fee pursuant to Rule 457(g).
(5) Pursuant to Rule 416, there are also being registered such indeterminable
additional shares of Common Stock as may be issued as a result of the
anti-dilution provisions of the applicable Redeemable Warrants and the
Underwriter's Warrants.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 1, 1996
PROSPECTUS
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.
<PAGE>
[LOGO]
1,700,000 SHARES OF COMMON STOCK AND
1,700,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
This Prospectus relates to the offering (the "Offering") of 1,700,000 shares
(the "Shares") of common stock, $0.01 par value per share (the "Common Stock"),
and 1,700,000 Redeemable Common Stock Purchase Warrants (the "Warrants"), of
Codon Pharmaceuticals, Inc., a Delaware corporation (the "Company" or "Codon").
The Shares and Warrants are sometimes hereinafter collectively referred to as
the "Securities." Until the consummation of the Offering, the Shares and
Warrants may only be purchased together on the basis of one Share and one
Warrant. Each Warrant entitles the registered holder thereof to purchase one
share of Common Stock at an initial exercise price of $ per share [125%
of the initial public offering price per Share] at any time during the period
commencing six (6) months from the date of this Prospectus and terminating five
(5) years from the date of this Prospectus. The Warrant exercise price is
subject to adjustment under certain circumstances. Commencing eighteen (18)
months after the date of this Prospectus, the Company may redeem the Warrants at
$0.10 per Warrant on thirty (30) days' prior written notice to the
warrantholders if the average closing bid price of the Common Stock as reported
on the Nasdaq Small Cap Market ("Nasdaq") equals or exceeds 200% of the initial
public offering price per Share for any twenty (20) trading days within a period
of thirty (30) consecutive trading days ending on the fifth trading day prior to
the date of the notice of redemption.
Prior to the Offering, there has been no public market for the Common Stock
or the Warrants, and there can be no assurance that such a market will develop
after consummation of the Offering, or if developed, that it will be sustained.
It is currently anticipated that the initial public offering prices will be
between $5.00 and $6.00 per Share and $0.10 per Warrant. For information
regarding the factors to be considered in determining the initial public
offering prices of the Shares and Warrants and the terms of the Warrants, see
"Risk Factors" and "Underwriting." It is anticipated that, immediately following
the consummation of the Offering, the Shares and Warrants will be included for
quotation on Nasdaq and will trade separately under the symbols "CODN" and
"CODNW," respectively.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 7 AND "DILUTION."
--------------------------
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>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share.......................................... $ $ $
Per Warrant........................................ $ $ $
Total(3)........................................... $ $ $
</TABLE>
(1) Does not include additional compensation payable to National Securities
Corporation, the representative of the several Underwriters (the
"Representative"), in the form of a non-accountable expense allowance. In
addition, see "Underwriting" for information concerning indemnification and
contribution arrangements with the Underwriters and other compensation
payable to the Representative.
(2) Before deducting estimated expenses of $800,000 payable by the Company,
including the non-accountable expense allowance payable to the
Representative.
(3) The Company has granted to the Underwriters an option exercisable within 45
days after the date of this Prospectus to purchase up to an aggregate of
255,000 additional shares of Common Stock and/or 255,000 additional Warrants
upon the same terms and conditions set forth above, solely to cover
over-allotments, if any. If such over-allotment option is exercised in full,
the total Price to Public, Underwriting Discount and Proceeds to Company
will be $ , $ and $ , respectively. See
"Underwriting."
The Securities are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
approval of certain legal matters by their counsel and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify the
Offering and to reject any order in whole or in part. It is expected that
delivery of the Securities offered hereby will be made against payment at the
offices of National Securities Corporation, Seattle, Washington, on or about
, 1996.
NATIONAL SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
[DEPICTION OF A STANDARD RESEARCH LABORATORY ALONG WITH THE COMPANY'S LOGO]
CODON IS EXPERT IN THE DESIGN AND PRECLINICAL STUDY OF LEAD COMPOUNDS AND
PRODUCT CANDIDATES BASED ON DNA OR ON THE SMALL MOLECULE BUILDING BLOCKS OF DNA
(NUCLEOSIDES). THE COMPANY'S POTENTIAL PRODUCT CANDIDATES ARE IN VERY EARLY
STAGES OF PRECLINICAL DEVELOPMENT AND HAVE NOT BEEN APPROVED BY THE UNITED
STATES FOOD AND DRUG ADMINISTRATION OR ANY FOREIGN REGULATORY AUTHORITY FOR
MARKETING IN ANY COUNTRY. SUCH APPROVAL IS NOT EXPECTED TO BE FORTHCOMING FOR
SEVERAL YEARS, AND MAY NOT BE RECEIVED AT ALL.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALL CAP MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent certified public
accountants and quarterly reports for the first three quarters of each fiscal
year containing unaudited interim financial information.
<PAGE>
PROSPECTUS SUMMARY
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS
PROSPECTUS: (I) ASSUMES THE UNDERWRITER'S OVER-ALLOTMENT OPTION IS NOT
EXERCISED; (II) ASSUMES THE FILING OF A CERTIFICATE OF AMENDMENT OF THE AMENDED
AND RESTATED CERTIFICATE OF INCORPORATION IMMEDIATELY PRIOR TO THE CONSUMMATION
OF THE OFFERING, WHICH, AMONG OTHER THINGS, WILL EFFECT A ONE FOR THREE REVERSE
STOCK SPLIT; (III) ASSUMES THE FILING OF A SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION IMMEDIATELY FOLLOWING THE CONSUMMATION OF THE
OFFERING, WHICH, AMONG OTHER THINGS, WILL DECREASE THE AUTHORIZED CAPITAL OF THE
COMPANY; (IV) ASSUMES THE WARRANTS AND THE WARRANTS TO PURCHASE 172,500 SHARES
OF COMMON STOCK AND/OR 172,500 WARRANTS ISSUED TO THE REPRESENTATIVE IN
CONNECTION WITH THE OFFERING ARE NOT EXERCISED; AND (V) ASSUMES THE CONVERSION
OF ALL OUTSTANDING SHARES OF THE COMPANY'S SERIES A CONVERTIBLE PREFERRED STOCK
AND SERIES B CONVERTIBLE PREFERRED STOCK (COLLECTIVELY, THE "PREFERRED STOCK")
INTO 1,006,334 SHARES OF THE COMPANY'S COMMON STOCK UPON THE CONSUMMATION OF THE
OFFERING.
THE COMPANY
Codon Pharmaceuticals, Inc. ("Codon" or the "Company") is expert in the
design and preclinical study of lead compounds and product candidates based on
DNA or on the small molecule building blocks of DNA (nucleosides). This core
expertise was developed primarily by recruiting a team of synthetic chemists
from the Memorial Sloan-Kettering Cancer Institute, and by assembling the team
of biochemists that invented the Company's proprietary Code Marker gene repair
technology. The Company's gene repair product candidates are designed to trigger
highly site-specific sectional replacements of like sequences of DNA (precision
site-directed homologous recombination) to restore damaged genes to their normal
structure and function. The Company believes that its gene repair technology may
overcome many of the problems currently encountered in the conversion of genomic
discoveries into useful human therapies. To develop the commercial potential of
its lead compounds and product candidates, the Company intends to pursue
licensing or joint venture arrangements with potential corporate partners for
clinical testing, seeking regulatory approval, manufacturing, marketing and
commercializing of product candidates that perform favorably in preclinical
studies.
The Company's development programs are focused on the treatment and
prevention of cancers and viral infections, the control of melanin production in
the skin, and gene repair. In each of its programs, the Company, in
collaboration with academic partners such as The Johns Hopkins School of
Medicine ("Johns Hopkins"), Yale University School of Medicine ("Yale") and,
through a license with Oncor, Inc., Princeton University ("Princeton"): (i)
identifies an "intervention point" in a metabolic process, or a specific DNA
sequence error in a gene, which the Company believes may contribute to the
course of a selected human disorder; (ii) designs lead compounds to intervene at
the "intervention point" or to replace the mutated DNA sequence; and (iii)
develops preclinical information on the lead compounds in order to attract the
interest and resources of potential corporate partners. Currently, all of the
Company's technologies and lead compounds are in very early stages of
development and no assurance can be given as to the successful development,
preclinical studies or out-licensing of potential product candidates, or if
out-licensed, as to the success of commercialization of any such product
candidates by the Company's potential corporate partners.
Through its design programs, Codon's scientists have identified three lead
compounds for potential use in the treatment and prevention of certain cancers,
and four lead compounds for potential use in controlling melanin production in
skin. In addition, through the use of its proprietary Code Marker technology,
the Company is engaged in a demonstration of one EX-VIVO gene repair therapeutic
prototype
3
<PAGE>
and, through its collaboration with Yale, one IN-VIVO gene repair therapeutic
prototype. The lead compounds under development and prototype Code Marker
demonstration projects include the following:
- CDN-1007, along with its derivatives CDN-1008, CDN-1010 and CDN-1012, are
designed to stimulate natural melanin production in skin in the absence of
potentially damaging ultraviolet ("UV") light.
- CDN-2022 is designed to trigger a differentiation response in leukemia
cells that the Company believes may restore the affected cells' obedience
to normal growth controls.
- CDN-4007 is designed to inhibit inosine monophosphate dehydrogenase
(IMPDH), an enzyme which is essential to rapid cell growth in many
cancers.
- CDN-5005 is being designed to inhibit DNA-methylase, an enzyme which may
contribute to adverse mutations in certain cancers.
- CM-ADA is being developed as an EX-VIVO therapeutic for repairing the
genetic defect that causes ADA immunodeficiency ("bubble-boy" disease).
- CM-SC is being designed as an EX-VIVO therapeutic for repairing the
genetic defect most often associated with sickle cell disease (homozygote
sickle cell anemia).
- CM-CKR5 is being designed as an EX-VIVO prophylactic for the prevention of
HIV infection of certain human immune system cells.
- CM-CF may be designed as an IN-VIVO therapeutic, following completion of
animal studies, to repair the genetic defect most often associated with
cystic fibrosis.
- CM-B3AR may be designed as an IN-VIVO therapeutic, following completion of
animal studies, to repair the genetic defect contributing to one of the
most prevalent forms of obesity and diabetes.
The Company intends to maintain its focus and build on its core expertise as
it in-licenses compatible technologies and lead compounds. Further programs to
discover and develop additional lead compounds will be initiated (i) as
opportunities arise from discoveries relating to novel nucleoside compounds and
DNA sequence errors causing selected human genetic disorders, and (ii) at the
request of potential corporate partners. However, there can be no assurance that
the Company's existing or future relationships will lead to the development of
product candidates with commercial potential, or that the parties with which the
Company enters into collaborative arrangements will perform their obligations
successfully or on a timely basis.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered......... 1,700,000 shares of Common Stock and 1,700,000 Warrants. The
Shares and the Warrants will be separately transferable
immediately following the consummation of the Offering.
Exercise Price of
Warrants................. Each Warrant entitles the registered holder thereof to
purchase, at any time over a fifty-four (54) month period
commencing six (6) months after the date of this Prospectus,
one share of Common Stock at a price of $ per share
[125% of the initial public offering price per Share]. The
Warrant exercise price is subject to adjustment under certain
circumstances. See "Description of Securities."
Redemption of Warrants..... Commencing eighteen (18) months after the date of this
Prospectus, the Warrants are subject to redemption by the
Company at $0.10 per Warrant on thirty (30) days' prior written
notice to the warrantholders if the average closing bid price
of the Common Stock equals or exceeds 200% of the initial
public offering price per share of Common Stock for any twenty
(20) trading days within a period of thirty (30) consecutive
trading days ending on the fifth trading day prior to the date
of the notice of redemption. See "Description of Securities."
Common Stock Outstanding
prior to the
Offering(1).............. 1,975,088 Shares
Securities Outstanding
after the Offering(1).... 3,675,088 Shares and 1,700,000 Warrants
Use of Proceeds............ For research and development efforts, including preclinical
studies for potential product candidates, working capital and
general corporate purposes. See "Use of Proceeds."
Risk Factors............... The Securities offered hereby involve a high degree of risk and
immediate substantial dilution. See "Risk Factors" and
"Dilution."
PROPOSED NASDAQ SMALL CAP MARKET SYMBOLS:
Common Stock............... CODN
Warrants................... CODNW
</TABLE>
- ------------------------
(1) Excludes, as of September 30, 1996, 454,187 shares of Common Stock issuable
upon exercise of stock options with a weighted average exercise price of
$2.14 per share outstanding under the Company's 1996 Stock Option/Stock
Issuance Plan (the "Plan") and 10,834 shares of Common Stock issuable upon
exercise of an outstanding warrant at an exercise price of $1.50 per share.
Also excludes 479,146 shares of Common Stock reserved for future grants of
options and stock issuance rights under the Plan. See "Description of
Securities" and "Shares Eligible for Future Sale."
CODE MARKER AND THE CODON LOGO ARE TRADEMARKS OF THE COMPANY. THIS
PROSPECTUS ALSO INCLUDES REFERENCES TO TRADEMARKS AND TRADE NAMES OF COMPANIES
OTHER THAN THE COMPANY.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(JUNE 21, (JUNE 21,
1994) NINE MONTHS ENDED 1994)
THROUGH YEAR ENDED SEPTEMBER 30, THROUGH
DECEMBER 31, DECEMBER 31, ---------------------------- SEPTEMBER 30,
1994 1995 1995 1996 1996
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues............................ $ -- $ -- $ -- $ -- $ --
Expenses:
Research and development.......... 427,870 1,662,241 1,108,313 2,743,316 4,833,427
General and administrative........ 10,564 417,724 278,140 255,157 683,445
-------------- ------------- ------------- ------------- --------------
Total expenses.................. 438,434 2,079,965 1,386,453 2,998,473 5,516,872
-------------- ------------- ------------- ------------- --------------
Loss from operations................ (438,434) (2,079,965) (1,386,453) (2,998,473) (5,516,872)
Other income, net................... 11,487 192,834 122,085 73,027 277,348
-------------- ------------- ------------- ------------- --------------
Net loss............................ $ (426,947) $ (1,887,131) $ (1,264,368) $ (2,925,446) $ (5,239,524)
-------------- ------------- ------------- ------------- --------------
-------------- ------------- ------------- ------------- --------------
Pro forma net loss per share(1)..... $ (1.02) $ (1.44)
------------- -------------
------------- -------------
Shares used in computing net loss
per share(1)...................... 1,856,249 2,036,458
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
---------------------------
AS
ACTUAL ADJUSTED(2)
------------ -------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.................................. $ 1,250,806 $ 9,018,806
Total assets....................................................................... 2,835,039 10,603,039
Total liabilities.................................................................. 172,892 172,892
Total stockholders' equity......................................................... 2,662,147 10,430,147
</TABLE>
- ------------------------
(1) See Note 2 of Notes to Financial Statements for an explanation of net loss
per share and shares used in computing net loss per share.
(2) Adjusted to give effect to the receipt of the estimated net proceeds of the
Offering based upon an assumed initial public offering price of $5.50 per
Share and $0.10 per Warrant (after deducting estimated offering expenses and
underwriting discounts payable by the Company in connection with the
Offering). See "Use of Proceeds."
6
<PAGE>
THE COMPANY
The Company was incorporated in Delaware in June 1994 under the name
"OncorPharm, Inc." and changed its name to Codon Pharmaceuticals, Inc. in
September 1996. The Company was originally formed as a subsidiary of Oncor,
Inc., a Maryland corporation ("Oncor"), which immediately following the
consummation of the Offering will beneficially own approximately 22.4% of the
Company's outstanding Common Stock. The Company's principal executive offices
are located at 200 Perry Parkway, Gaithersburg, Maryland 20877, and its
telephone number is (301) 926-4400.
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY
AND ITS BUSINESS BEFORE PURCHASING THE SECURITIES OFFERED HEREBY. PROSPECTIVE
INVESTORS SHOULD BE IN A POSITION TO RISK THE LOSS OF THEIR ENTIRE INVESTMENT.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS
PROSPECTUS.
DEVELOPMENT STAGE COMPANY; HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE
PROFITABILITY
The Company was founded in June 1994, is at a development stage, and is
subject to all of the business risks associated with a new enterprise, including
constraints on the Company's financial, personnel and other resources, lack of
established collaborative partnering relationships, and uncertainties regarding
lead compound and product candidate development and future revenues. Prospective
investors, therefore, have limited historical financial information about the
Company upon which to base their evaluation of the Company's performance and an
investment in the Securities offered hereby. Since its inception, the Company
has been engaged in the acquisition of certain of its proprietary technologies
through licensing arrangements, development of its lead compounds and potential
product candidates, and the hiring of its scientific and management staff. The
Company has incurred operating losses since its inception and, at September 30,
1996, the Company's accumulated deficit since inception was $5,239,524. The
Company's losses have resulted principally from expenses incurred in research
and development and laboratory operations, and from general and administrative
expenses. The Company has yet to generate any revenues, and there can be no
assurance that it will be able to generate revenues in the future. The Company
anticipates that it will continue to incur substantial additional operating
losses for at least the next several years and expects cumulative losses to
increase as the Company's research and development efforts expand. The Company's
ability to achieve profitability depends on its ability to out-license its
potential product candidates to corporate partners, and the ability of such
corporate partners to obtain the requisite regulatory approvals and successfully
commercialize such product candidates. There can be no assurance when, or if,
the Company will become profitable. See "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
NO ASSURANCE OF SUCCESSFUL PRODUCT CANDIDATE DEVELOPMENT
The Company's research and development programs are at a very early stage of
development. The Company has not completed development of any potential product
candidates and, accordingly, has not begun to generate revenues from any product
candidates. Substantial additional research and development will be necessary in
order for the Company to develop potential product candidates based on its small
molecule nucleoside compound technologies and its Code Marker technology, and
there can be no assurance that the Company's research and development efforts
will lead to the development of product candidates that are, through
out-licensing arrangements with potential corporate partners, successful in
preclinical studies, prove to be safe and effective in clinical trials, receive
the requisite regulatory approvals, or, ultimately, are successfully
commercialized. In addition to further research and development, all of the
Company's potential product candidates will require significant, time-consuming
and costly
7
<PAGE>
preclinical studies, clinical trials, regulatory approval, and substantial
additional investment prior to their commercialization. It will be a number of
years, if ever, before any of the Company's product candidate development
efforts will be completed. There can be no assurance that any such product
candidates will be successfully developed, will prove successful in preclinical
studies, will be successfully licensed to future collaborative partners for
clinical trials, will prove to be safe and effective in clinical trials, will
meet applicable regulatory standards, will be capable of being produced in
commercial quantities at acceptable costs, will be eligible for third-party
reimbursement from governmental or private insurers, will be successfully
marketed, or will achieve market acceptance. Further, the Company's potential
product candidates may prove to have undesirable or unintended side effects that
may prevent or limit their ability to receive regulatory approval or to limit
their commercial use. The Company or its corporate partners may find, at any
stage of this complex process, that potential product candidates that appeared
promising in preclinical studies do not demonstrate safety or efficacy on a
larger scale in clinical trials or do not receive the requisite regulatory
approvals. Accordingly, any product candidate development program undertaken by
the Company may be curtailed, redirected or eliminated at any time. In addition,
there may be delays in the Company's preclinical development and study
schedules, and there can be no assurance that the Company will meet expected
preclinical development and study schedules, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Company" and "-- Research and Development."
RELATIONSHIP WITH ONCOR
Pursuant to a technology license agreement between the Company and Oncor
(the "Oncor License"), Oncor is providing the Company with an exclusive
worldwide license to certain human genome technologies owned or licensed by
Oncor, including certain technologies licensed to Oncor by Princeton, that may
be useful for the development of product candidates for the treatment and
prevention of certain human disorders which are caused wholly, or in part, by
genetic mutations. The Company is reliant on the technologies licensed directly
from Oncor and from third parties through Oncor, which the Company believes may
form the basis for a significant portion of the Company's product candidates.
The Company's rights under the Oncor License are subject to certain rights
retained by Oncor, which include Oncor's rights in the field of genetic test
systems and related products. The Oncor License expires in January 2000 and is
automatically renewable for one-year periods, unless either party objects. There
can be no assurance that the Oncor License will be renewed at the end of its
initial term or that it will not be earlier terminated pursuant to its terms.
There can also be no assurance that conflicts of interest between Oncor and the
Company will not arise with respect to the Oncor License, any services that
might be provided by Oncor to the Company in the future pursuant to a services
arrangement between the parties or otherwise, or other aspects of the Company's
relationship with Oncor.
The Company's rights to technologies licensed to the Company from third
parties through the Oncor License are subject to the license agreements between
such third parties and Oncor. No assurance can be given that the third parties
to these agreements will perform their obligations under such agreements on a
timely basis, or at all. If such third parties breach or terminate their
agreements with Oncor or otherwise fail to, or are unable to, comply with the
provisions of their agreements with Oncor for whatever reason, the Company would
have no direct recourse and would be dependent on Oncor to enforce such
agreements. The agreements between Oncor and the third parties expire at various
times. There can be no assurance that these agreements will be renewed at the
end of their initial terms or that such agreements will not be terminated or
cancelled prior to their expiration. The Company has no rights under these
third-party agreements and is reliant upon Oncor to negotiate renewal of such
agreements and resolve disputes under such agreements. If the third parties to
the agreements that the Company licenses from Oncor through the Oncor License
breach such agreements or otherwise fail to comply with such agreements, or such
agreements are terminated or otherwise expire, the preclinical development of
certain of the Company's lead compounds and product candidates may be delayed or
terminated, or the Company would
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have to expend substantial additional resources on preclinical development,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's rights to technologies licensed to the Company from third
parties through Oncor are subject to various provisions in the license
agreements between such third parties and Oncor. No assurance can be given that
Oncor will perform its obligations under such agreements, that such agreements
will not be terminated, or that such agreements can be renewed upon termination
or expiration. If Oncor breaches such agreements or otherwise fails to comply
with such agreements, or if such agreements are terminated or otherwise expire,
the preclinical development of certain of the Company's lead compounds and
product candidates may be delayed or terminated, or the Company would have to
expend substantial additional resources on preclinical development, which would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Licensing and Collaborative
Arrangements," " -- Patents and Proprietary Information" and "Certain
Transactions -- Relationship with Oncor."
DEPENDENCE ON COLLABORATIONS AND LICENSES WITH OTHERS
The Company's strategy for the preclinical development of certain of its
potential product candidates is to rely in part on various collaborative and
license arrangements with academic and research institutions, including
arrangements with each of Johns Hopkins, Yale, and, through the Oncor License,
Princeton. Accordingly, the Company is dependent in part upon the subsequent
success of such third parties in performing their obligations. There can be no
assurance that the Company will be able to enter into acceptable collaborative
and license arrangements in the future or that the parties with which the
Company has established or will establish arrangements will perform their
obligations under the arrangements. There can also be no assurance that its
existing arrangements or any future arrangements will lead to the development of
product candidates with commercial potential, that the Company will be able to
obtain proprietary rights or licenses for proprietary rights with respect to any
technology developed in connection with these arrangements, or that the Company
will be able to ensure the confidentiality of any proprietary rights and
information developed in such arrangements or prevent the public disclosure
thereof. In general, the Company's collaborative and license arrangements
provide that they may be terminated under certain circumstances. There can be no
assurance that such arrangements will not be terminated or that the Company will
be able to extend any of its collaborative and license arrangements upon their
expiration. The Company currently has certain licenses from third parties,
either directly or indirectly through the Oncor License, and in the future may
require additional licenses from these or other parties to effectively
preclinically design and develop potential product candidates. There can be no
assurance that such licenses will be obtainable on commercially reasonable
terms, if at all, or renewable if obtained, or that the patents underlying such
licenses, if any, will be valid and enforceable, or that the proprietary nature
of the patented technology underlying such licenses will remain proprietary.
The Company's strategy for the clinical trials, regulatory approval and
commercialization of any of its potential product candidates is to enter into
arrangements with corporate partners, licensees and others. The Company's
success, therefore, is reliant upon the success of such third parties in
performing clinical trials, obtaining the requisite regulatory approvals, and
successfully commercializing the Company's product candidates. There can be no
assurance that such arrangements will be obtainable on commercially reasonable
terms, if at all, that such arrangements will be successful, that the parties
with which the Company will establish arrangements will perform their
obligations under the arrangements, or that potential collaborators will not
compete with the Company by seeking alternative means of developing treatments
for the disorders targeted by the Company.
The Company's rights to technologies licensed to the Company from third
parties through the Oncor License are subject to the license agreements between
such third parties and Oncor. No assurance can be given that the third parties
to these agreements will perform their obligations under such agreements on a
timely basis, or at all. If such third parties breach or terminate their
agreements with Oncor, or otherwise
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fail to, or are unable to, comply with the provisions of their agreements with
Oncor for whatever reason, the Company would have no direct recourse and would
be dependent on Oncor to enforce such agreements. The agreements between Oncor
and the third parties expire at various times. There can be no assurance that
these agreements will be renewed at the end of their initial terms or that such
agreements will not be terminated or cancelled prior to their expiration. The
Company has no rights under these third-party agreements and is reliant upon
Oncor to negotiate renewal of such agreements and resolve disputes under such
agreements. If the third parties to the agreements which the Company licenses
from Oncor through the Oncor License breach such agreements or otherwise fail to
comply with such agreements, or such agreements are terminated or otherwise
expire, the preclinical development of certain of the Company's product
candidates may be delayed or terminated, or the Company would have to expend
substantial additional resources on preclinical development, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Licensing and Collaborative
Arrangements."
ADDITIONAL FINANCING REQUIREMENTS; ACCESS TO CAPITAL
The Company has incurred negative cash flows from operations since its
inception. The Company has expended, and expects to continue to expend,
substantial funds to continue its research and development, preclinical studies
and laboratory operations. The Company expects that its existing capital
resources, together with the net proceeds of the Offering and the interest
earned thereon, will be adequate to fund its capital requirements for the next
18 months. However, there can be no assurance that there will be no change in
the Company's business, financial condition or results of operations that would
consume available resources before such time. The Company's future capital
requirements, and the adequacy of available funds, will depend on many factors,
including the progress and scope of its research and development activities, the
progress of its preclinical studies, changes in relationships with possible
collaborative partners, changes in the focus and direction of the Company's
research and development programs, the costs involved in preparing, filing,
processing, maintaining, and enforcing patent claims and other intellectual
property rights, competitive factors and technological advances, changes in the
requirements of the United States Food and Drug Administration (the "FDA"), and
comparable foreign regulatory processes and other factors. To the extent that
funds generated from the Company's operations, together with its existing
capital resources and the net proceeds of the Offering and the interest earned
thereon, are insufficient to meet the Company's operating requirements, it is
likely that it will seek to obtain additional funds through equity or debt
financing or collaborative or other arrangements with corporate partners and
others, or from other sources. The terms and prices of any such financings may
be significantly more favorable to investors than those of the Securities to be
sold in the Offering, which could have the effect of diluting or adversely
affecting the holdings or the rights of existing stockholders of the Company,
including investors acquiring Securities in the Offering. No assurance can be
given that any required additional financing will be available when needed or on
terms acceptable to the Company, if at all. If adequate additional funds are not
available, the Company may be required to delay, scale back or eliminate certain
of its research and development activities, to relinquish rights to certain of
its technologies, lead compounds, or product candidates, or to license to third
parties the development of technologies, lead compounds, or product candidates
that the Company would otherwise seek to develop itself. The unavailability of
adequate funds in the future would have a material adverse effect on the
Company's business, financial condition and results of operations. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
NO ASSURANCE OF REGULATORY APPROVAL; GOVERNMENT REGULATION
The FDA and comparable agencies in foreign countries impose substantial
requirements on the introduction of pharmaceutical products through lengthy and
detailed laboratory and clinical trial procedures and other costly and time
consuming procedures. Satisfaction of these requirements typically takes a
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number of years and varies substantially based upon the type, complexity and
novelty of the pharmaceutical. In general, the FDA approval process for
pharmaceuticals involves the submission of an Investigational New Drug ("IND")
application following preclinical studies, clinical trials in humans to
demonstrate the safety and efficacy of the product under the protocols set forth
in the IND and submission of preclinical and clinical data as well as other
information to the FDA in a New Drug Application ("NDA") or Product License
Application ("PLA"). To date, the Company has not submitted an IND for any of
its lead compounds or product candidates under development, and there can be no
assurance that an IND will be submitted for any of the Company's potential
product candidates. The Company or its potential collaborators will be required
to expend substantial time and financial resources to conduct clinical trials.
There can be no assurance that the results of such trials, should they be
commenced, will support the submission or the approval of an NDA or PLA.
Accordingly, there can be no assurance that FDA or other regulatory approval for
any of the Company's potential product candidates will be granted on a timely
basis, or at all. There can be no assurance that the Company or its potential
collaborators will have sufficient resources to complete the required regulatory
review process, or that the Company or its potential collaborators could
overcome the inability to obtain, or delays in obtaining, such approvals. The
failure of the Company's potential product candidates to receive FDA approval
would preclude the Company or its potential collaborators from marketing and
selling any of the Company's product candidates in the United States and would
have a material adverse effect on the Company's business, financial condition
and results of operations. As part of its product candidate commercialization
strategy, the Company or its potential collaborators may seek approval to market
and sell certain of the Company's product candidates in Europe before obtaining
the requisite approvals in the United States. European and other foreign
regulatory approvals are subject to the same risks and uncertainties as FDA and
other regulatory approvals in the United States.
The manufacturing and marketing of the Company's product candidates by the
Company or its potential collaborators, as well as the Company's ongoing
research and development activities and preclinical studies, are also subject to
regulation by governmental agencies of the United States and other countries.
The effect of government regulation may be to delay marketing of the Company's
product candidates by the Company or its potential collaborators for a
considerable period of time, to impose costly procedures upon the activities of
the Company or its potential collaborators, and to furnish a competitive
advantage to companies that compete with the Company or its potential
collaborators. Any delay in obtaining, or failure to obtain, FDA or other
necessary regulatory approvals, including approvals by comparable agencies in
foreign countries, would adversely affect the marketing of the Company's product
candidates by the Company or its potential collaborators and the ability to
generate revenue. In addition, even if approvals are obtained, the marketing and
manufacturing of pharmaceuticals are subject to continual FDA (or comparable
foreign agency) review and surveillance and failure to comply with regulations,
including maintaining compliance with good manufacturing practice ("GMP")
requirements, or discovery of previously unknown problems can result in FDA (or
comparable foreign agency) action against the product or the manufacturer,
including fines, recalls, product seizures, and suspension or withdrawal of
previously granted regulatory approvals. Furthermore, government regulation may
increase at any time, creating additional hurdles for the Company or its
potential collaborators. The extent of potential adverse government regulation
which might arise from future legislation or administrative action cannot be
predicted.
Additionally, the Company and its potential collaborators are or may become
subject to various federal, state and local laws, regulations and
recommendations relating to safe working conditions, laboratory and
manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with the Company's
research and development work, including, but not limited to, the Federal Food,
Drug and Cosmetic Act, the Environmental Protection Act, the Occupational Safety
and Health Act, and state, local and foreign counterparts to certain of such
acts. Compliance with such laws, regulations and requirements may be costly and
time-consuming and the failure to maintain such
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compliance by the Company or its potential collaborators could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Government Regulation."
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in large part on its, or its licensors,
ability to obtain patents, defend its patents, maintain trade secrets and
operate without infringing upon the proprietary rights of others, both in the
United States and in foreign countries. Because of the substantial length of
time and expense associated with bringing new products through development and
regulatory approval to the marketplace, the pharmaceutical and biotechnology
industries place considerable importance on obtaining and maintaining patent and
trade secret protection for new technologies and products. The Company owns or
licenses the technologies underlying five pending United States patent
applications and it has filed certain corresponding foreign patent applications
and intends to file additional foreign patent applications and additional United
States patent applications in relation to its patentable technologies, as
appropriate. There can be no assurance that patents will issue as a result of
any such pending applications or that, if issued, such patents will be
sufficiently broad to afford protection against competitors with similar
technology. The patent position of firms relying upon biotechnology is highly
uncertain in general and involves complex legal and factual questions. To date
there has emerged no consistent policy regarding the breadth of claims allowed
in biotechnology patents or the degree of protection afforded under such
patents. In addition, there can be no assurance that any patents issued to the
Company, or for which the Company has license rights, will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
adequate protection to the Company. Moreover, there can be no assurance that
others will not independently develop substantially equivalent technologies,
design around the Company's or its licensees' patents or obtain access to the
Company's unpatentable know-how. The commercial success of the Company will also
depend upon avoiding the infringement of patents issued to competitors and upon
maintaining the technology licenses upon which certain of the Company's
potential product candidates might be based. Litigation, which could result in
substantial cost to the Company, may be necessary to enforce the Company's
patent and license rights or to determine the scope and validity of others'
proprietary rights. If competitors of the Company prepare and file patent
applications in the United States that claim technology also claimed by the
Company, the Company may have to participate in interference proceedings
declared by the United States Patent and Trademark Office (the "PTO") to
determine the priority of invention, which could result in substantial cost to
the Company, even if the outcome is favorable to the Company. An adverse outcome
could subject the Company to significant liabilities to third parties and
require the Company to license disputed rights from third parties, cease using
the technology or curtail any related research and development activity. A
United States patent application is maintained under conditions of
confidentiality while the application is pending in the PTO, so that the Company
cannot determine the inventions being claimed in pending patent applications
filed by its competitors in the PTO. Further, patent laws do not provide any
remedies for infringement that occurred before the patent is granted.
The Company currently has certain licenses from third parties and in the
future may require additional licenses from other parties to effectively develop
its potential product candidates. There can be no assurance that such licenses
will be obtainable on commercially reasonable terms, if at all, that the patents
underlying such licenses will be valid and enforceable or that the proprietary
nature of the patented technology underlying such licenses will remain
proprietary.
The Company relies substantially on certain technologies that are not
patentable or proprietary and are therefore available to the Company's
competitors. The Company also relies on certain proprietary trade secrets and
know-how that are not patentable. Although the Company has taken steps to
protect its unpatented trade secrets and know-how, in part through the use of
confidentiality agreements with its employees, consultants and certain of its
contractors, there can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's
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trade secrets will not otherwise become known or be independently developed or
discovered by competitors. In addition, the Company's scientists have obtained
proprietary and other confidential information relating to the Company's
potential collaborative partners during the development, negotiation and due
diligence stages of potential arrangements with such collaborative partners.
Although the Company has taken steps to protect the proprietary and other
confidential information received from potential collaborative partners, there
can be no assurance that any such potential collaborative partners will not make
a claim that the Company has breached its responsibilities with respect to such
information. Such a claim, if made, could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's management and scientific personnel have been recruited
primarily from other pharmaceutical companies and academic institutions. In many
cases, these individuals are continuing research in the same areas with which
they were involved prior to joining the Company. As a result, the Company could
be subject to allegations of violation of trade secrets and similar claims. The
Company has not received any notice of any such claims and knows of no basis for
any such claims. See "Business -- Patents and Proprietary Information."
UNCERTAINTY RELATED TO HEALTH CARE REFORM MEASURES AND THIRD-PARTY REIMBURSEMENT
Political, economic and regulatory influences are likely to lead to
fundamental changes in the health care industry in the United States. Numerous
proposals for comprehensive reform of the nation's health care system have been
introduced in Congress over the past several years. In addition, certain states
are considering various health care reform proposals. The Company anticipates
that Congress and state legislatures will continue to review and assess
alternative health care delivery systems and payment methodologies, and that
public debate of these issues will likely continue in the future. Due to
uncertainties regarding the ultimate features of reform initiatives and their
enactment and implementation, the Company cannot predict which, if any, reforms
will be adopted, when they may be adopted, or what impact they may have on the
Company. The Company's ability to earn sufficient returns on its potential
product candidates will depend, in part, on the extent to which reimbursement
for the costs of such products will be available from government health
administration authorities, private health insurers and other organizations.
Third-party payors are increasingly challenging the price and cost-effectiveness
of medical products and services. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and there can be no
assurance that adequate reimbursement will be available or sufficient to allow
the Company's potential collaborators to sell any product candidates the Company
may develop on a competitive basis.
RISK OF PRODUCT LIABILITY; AVAILABILITY OF INSURANCE
The Company's business may be materially and adversely affected by potential
product liability risks which are inherent in the preclinical study, clinical
trials, manufacturing, and marketing of the Company's potential product
candidates. There can be no assurance that product liability claims will not be
asserted against the Company, its collaborators or licensees. In addition, the
use of pharmaceutical product candidates that may be developed by the Company's
potential collaborators in clinical trials and the subsequent sale of such
product candidates by the Company's potential collaborators is likely to cause
the Company to bear all or a portion of those risks. The Company does not
currently have product liability insurance relating to any pharmaceutical
product candidates it may develop. There can be no assurance that it will be
able to obtain or maintain adequate product liability insurance on acceptable
terms or that such insurance will provide adequate coverage against potential
liabilities. Furthermore, there can be no assurance that any collaborators or
licensees of the Company will agree to indemnify the Company, be sufficiently
insured, or have a net worth sufficient to satisfy the product liability claims.
Claims or losses in excess of any liability insurance coverage that may be
obtained by the Company could have a material adverse effect on the Company's
business, financial condition or results of operations. See "Business -- Product
Liability and Insurance."
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NO CLINICAL TESTING OR REGULATORY CAPABILITIES
To date, the Company has engaged in preclinical development of its potential
product candidates and expects to conduct clinical trials through collaborative
arrangements with third parties not employed by the Company. To adequately test
its potential product candidates and to obtain necessary regulatory approvals
in-house, the Company will need to hire additional personnel skilled in the
clinical-trial and the regulatory-compliance processes. There can be no
assurance that the Company will successfully complete clinical trials for,
obtain regulatory approval for, manufacture or market any product candidate it
may develop, either independently or pursuant to manufacturing or marketing
arrangements, if any, with third parties. Should the Company seek to enter into
any such third-party arrangements, there can be no assurance that such
arrangements can be successfully negotiated on commercially reasonable terms, or
that any such arrangements, if entered into, will be successful. See
"Business -- Government Regulation."
NO MANUFACTURING CAPABILITIES
The Company has no experience in manufacturing pharmaceuticals and has not
invested in the development of pharmaceutical manufacturing capabilities which
comply with the GMP requirements prescribed by the FDA. To be successful, upon
the receipt of the requisite regulatory approvals, the Company's product
candidates must be manufactured in commercial quantities under GMP and at
acceptable costs. Once it has identified potential product candidates, the
Company will depend on its collaborators or licensees, if any, or it will need
to develop its own GMP manufacturing facility for the commercial manufacture of
its potential product candidates. If the Company is unable to enter into
collaborative relationships or develop manufacturing capabilities on acceptable
terms, the Company's ability to conduct preclinical studies will be adversely
affected, resulting in delays in the development of such product candidates, the
submission of product candidates for regulatory approval and delays in the
initiation of new development programs. There can be no assurance that the
Company will be able to acquire or establish satisfactory third-party
relationships to provide manufacturing resources. See
"Business -- Manufacturing."
NO MARKETING AND SALES CAPABILITIES
The Company has no experience in marketing, distributing or selling
pharmaceutical products. In order to market and sell any product candidates that
it may develop in-house, the Company will need to develop a sales force and a
marketing group, or make appropriate arrangements with its collaborators,
licensees or other strategic partners to provide for the sales, distribution and
marketing of any product candidates it may develop. There can be no assurance
that the Company will be able to establish sales, distribution or marketing
capabilities or make arrangements with others to perform such activities. See
"Business -- Marketing and Sales."
INTENSE COMPETITION
The pharmaceuticals and biotechnology industries are subject to intense
competition. Competitors of the Company in the United States and in foreign
countries are numerous and include, among others, diagnostic, health care,
pharmaceutical, biotechnology and chemical companies, academic institutions,
government agencies and other public and private research organizations. Many of
these competitors have substantially greater financial and technical resources
and production and marketing capabilities than the Company. There can be no
assurance that these competitors will not succeed in developing technologies and
products that are more effective, easier to use or less expensive than those
that are being developed by the Company or that would render the Company's
technology and potential product candidates obsolete and noncompetitive. The
Company also competes with various companies in acquiring technology from
academic institutions, government agencies and research organizations. In
addition, many of the Company's competitors have significantly greater
experience than the Company in conducting preclinical studies of new
pharmaceutical products and in obtaining FDA and other regulatory approvals of
products
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for use in health care. Accordingly, the Company's competitors may succeed in
obtaining regulatory approval for products more rapidly than the Company or its
potential collaborators. The Company relies on certain technologies that are not
patentable or proprietary and are available to the Company's competitors.
Competition may increase further as a result of the potential advances in the
technology underlying the product candidates being developed by the Company. See
"Business -- Competition."
TECHNOLOGICAL CHANGES AND UNCERTAINTY
The Company is engaged in the pharmaceutical and biotechnology industries,
which are characterized by extensive research efforts and rapid technological
progress. New developments in areas in which the Company is conducting its
research and development are expected to continue at a rapid pace in both
industry and academia. There can be no assurance that research and discoveries
by others will not render some or all of the Company's proposed programs or
product candidates noncompetitive or obsolete. The Company's business strategy
is subject to the risks inherent in the development of new products using new
technologies and approaches. There can be no assurance that unforeseen problems
will not develop with these technologies or applications, that the Company will
be able to address successfully technological challenges it encounters in its
research and development programs or that commercially feasible product
candidates will ultimately be developed by the Company. See
"Business -- Competition."
DEPENDENCE ON KEY MANAGEMENT AND QUALIFIED PERSONNEL
The Company is highly dependent upon the efforts of its senior management,
scientific advisory board and consultants. The loss of the services of one or
more members of senior management could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the loss of the services of certain members of the Company's scientific advisory
board and certain consultants could materially and adversely affect the Company
to the extent that the Company is pursuing research or development in areas of
such scientific advisors' or consultants' expertise. Although the Company
intends to acquire a $1 million key-man life insurance policy on the life of
William A. Ryan, Jr., M.D., the Company's President and Chief Executive Officer,
the Company does not believe such amounts would be adequate to compensate for
the loss of such executive. Due to the specialized scientific nature of the
Company's business, the Company is also highly dependent upon its ability to
attract and retain qualified scientific, technical and key management personnel.
There is intense competition for qualified personnel in the areas of the
Company's activities and there can be no assurance that the Company will be able
to continue to attract and retain the qualified personnel necessary for the
development of its existing business and its expansion into areas and activities
requiring additional expertise. The loss of, or failure to recruit, scientific,
technical, and managerial personnel could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's scientific advisors and consultants may be employed by or have
consulting agreements with entities other than the Company, some of which may
compete with the Company. To the extent that members of the Company's scientific
advisory board or the consultants have consulting arrangements with or become
employed by any competitor of the Company, the Company's business, financial
condition or results of operations could be materially and adversely affected.
Any inventions or processes independently discovered by the scientific advisors
or the consultants will not, unless otherwise agreed, become the property of the
Company and will remain the property of such persons or their employers. In
addition, the institutions with which the scientific advisors and the
consultants are affiliated may make available the research services of their
scientific and other skilled personnel, including the scientific advisors and
the consultants, to competitors of the Company pursuant to sponsored research
agreements. Under such sponsored research agreements, such institutions may be
obligated to assign or license to a competitor of the Company patents and other
proprietary information that may result from research sponsored by an entity
other than the Company, including research performed by a scientific advisor or
a consultant for a competitor of the Company.
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The Company requires all employees, consultants and certain of its
contractors to enter into confidentiality agreements that prohibit the
disclosure of confidential information to anyone outside the Company and require
disclosure and assignment to the Company of their ideas, developments,
discoveries or inventions developed during the course of their service to the
Company. However, no assurance can be given that competitors of the Company will
not gain access to trade secrets and other proprietary information developed by
the Company and disclosed to the scientific advisors and the consultants. See
"Business -- Scientific Advisory Board and Consultants," "-- Human Resources"
and "Management."
LACK OF PRIOR PUBLIC MARKET; ARBITRARY DETERMINATION OF OFFERING PRICE; POSSIBLE
VOLATILITY OF SECURITIES PRICES
Prior to the Offering, there has been no public market for the Securities,
and there can be no assurance that an active public market for the Securities
will develop after consummation of the Offering, or if developed, that it will
be sustained. The initial public offering price of the Securities and the
exercise price and terms of the Warrants will be determined by negotiations
between the Company and the Underwriters. Factors to be considered in such
negotiations, in addition to prevailing market conditions, include the history
and prospects of the industries in which the Company competes, an assessment of
the Company's management, the prospects of the Company, its capital structure,
the market for initial public offerings and certain other factors deemed
relevant. Therefore, the initial public offering price of the Securities and the
exercise price and terms of the Warrants do not necessarily bear any
relationship to established valuation criteria and may not be indicative of
prices for the Securities that may prevail at any time or from time to time in
the public market. See "Underwriting." The market price of the Securities, like
that of the securities of many other biotechnology and pharmaceutical companies,
is likely to highly volatile. Factors such as announcements of technological
innovations or new products by the Company or its competitors, preclinical study
or clinical trial results relating to or regulatory approvals or disapprovals of
the Company's or competitors' product candidates, government regulation, health
care legislation, developments or disputes concerning patent or other
proprietary rights of the Company or its competitors, including litigation,
fluctuations in the Company's operating results, and market prices of the
capital stock of pharmaceutical and biotechnology companies in general could
have a significant impact on the future market price of the Securities. In
addition, the stock market has from time to time experienced extreme price and
volume fluctuations that may be unrelated to the operating performance of
particular companies.
POSSIBLE DELISTING FROM THE NASDAQ SMALL CAP MARKET; MARKET ILLIQUIDITY
Although the Securities will be initially quoted on the Nasdaq Small Cap
Market ("Nasdaq"), continued inclusion of such securities on Nasdaq will require
that (i) the Company maintain at least $2,000,000 in total assets and $1,000,000
in capital and surplus, (ii) the minimum bid price for the Common Stock be at
least $1.00 per share, (iii) the public float consists of at least 100,000
shares of Common Stock, valued in the aggregate at more than $200,000, (iv) the
Common Stock have at least two active market makers, and (v) the Common Stock be
held by at least 300 holders. If the Company is unable to satisfy such
maintenance requirements, the Securities may be delisted from Nasdaq. In such
event, trading, if any, in the Securities would thereafter be conducted in the
over-the-counter market in the "pink sheets" or the National Association of
Securities Dealers, Inc.'s "Electronic Bulletin Board." Consequently, the
liquidity of the Company's securities could be materially and adversely
affected, not only in the number of securities that can be bought and sold at a
given price, but also through delays in the timing of transactions and reduction
in security analysts' and the media's coverage of the Company, which could
result in lower prices for the Securities than might otherwise be attained and
could also result in a larger spread between the bid and asked prices for the
Securities.
In addition, if the Common Stock is delisted from trading on Nasdaq and the
trading price of the Common Stock is less than $5.00 per share, trading in the
Common Stock would also be subject to the
16
<PAGE>
requirements of Rule 15g-9 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Under such rule, broker/dealers who
recommend such low-priced securities to persons other than established customers
and accredited investors must satisfy special sales practice requirements,
including a requirement that they make an individualized written suitability
demonstration for the purchaser and receive the purchaser's written consent
prior to the transaction. The Securities Enforcement Remedies and Penny Stock
Reform Act of 1990, as amended, also requires additional disclosure in
connection with any trades involving a stock defined as a penny stock
(generally, according to recent regulations adopted by the Securities and
Exchange Commission, any equity security not traded on an exchange or quoted on
Nasdaq that has a market price of less than $5.00 per share, subject to certain
exceptions), including the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith. Such requirements could severely limit the market liquidity of the
Securities and the ability of purchasers in the Offering to sell their
securities in the secondary market. There can be no assurance that the
Securities will not be delisted or treated as penny stock.
CONTROL BY EXISTING STOCKHOLDERS
Upon consummation of the Offering, Oncor will own 22.4% of the outstanding
shares of Common Stock (20.9% if the Underwriters' over-allotment option is
exercised in full) and the directors, officers and employees of the Company and
certain affiliates of such persons (other than Oncor) will own approximately
7.3% of the outstanding shares of Common Stock (6.8% if the Underwriters'
over-allotment option is exercised in full). Collectively, such stockholders of
the Company may be able to control or influence certain actions such as the
election of directors and the authorization of certain transactions that require
stockholder approval and be able to otherwise control the Company's policies
without concurrence of the Company's other stockholders. In addition, Mr.
Stephen Turner, Chief Executive Officer and Chairman of the Board of Directors
of Oncor, is a Director of the Company. See "Management--Compensation Committee
Interlocks and Insider Participation," "Certain Transactions" and "Principal
Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE; EFFECT ON ABILITY TO RAISE CAPITAL
Sales of substantial amounts of Common Stock in the public market following
the Offering could adversely affect the prevailing market price of the Company's
Common Stock and may have a material adverse effect on the Company's ability to
raise any necessary capital to fund its future operations. Upon completion of
the Offering, the Company will have 3,675,088 outstanding shares of Common Stock
(assuming no exercise of the Underwriter's over-allotment option to purchase up
to an additional 255,000 shares of Common Stock and/or 255,000 Warrants and
assuming no exercise of outstanding options or warrants). Of these shares, the
1,700,000 Shares and 1,700,000 Warrants sold to the public in the Offering will
be freely tradeable without restrictions or further registration under the Act,
except for any shares held by "affiliates" of the Company within the meaning of
the Act, which will be subject to the resale limitations of Rule 144. The
holders of the remaining 1,975,088 shares have agreed not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock for a period
of 18 months after the date of this Prospectus without the prior written consent
of National Securities Corporation. Additional shares of Common Stock, including
shares issuable upon exercise of outstanding options and warrants, will become
eligible for sale in the public market from time to time in the future. See
"Description of Securities," "Shares Eligible for Future Sale" and
"Underwriting."
EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of the Company's Second Amended and Restated Certificate
of Incorporation and Bylaws, including the inability of stockholders to effect
actions by written consent and allowing the Board of Directors to issue
Preferred Stock without any vote or further action by the stockholders, may have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from
17
<PAGE>
attempting to acquire, control of the Company. Such provisions could limit the
price that certain investors might be willing to pay in the future for shares of
the Company's Common Stock. In addition, the Company is subject to Section 203
of the Delaware General Corporation Law (the "DGCL"), which prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years unless certain conditions are met. See
"Management" and "Description of Securities -- Change of Control Provisions."
POTENTIAL ADVERSE EFFECT OF REPRESENTATIVE'S WARRANTS
Upon the consummation of the Offering, the Company will sell to the
Representative and/or its designees, for nominal consideration, warrants to
purchase up to 172,500 shares of Common Stock and/or 172,500 Warrants (the
"Representative's Warrants"). The Representative's Warrants will be exercisable
for a period of four years commencing one year after the effective date of the
Offering, at an exercise price of $ per share [120% of the initial
public offering price per share] and $ per Warrant [120% of the initial
public offering price per Warrant]. The Warrants obtained upon exercise of the
Representative's Warrants will be exercisable for a period of four years
commencing one year after the effective date of the Offering, at an exercise
price of $ per share [120% of the initial public offering price per
share]. For the term of the Representative's Warrants, the holders thereof will
have, at nominal cost, the opportunity to profit from a rise in the market price
of the Securities without assuming the risk of ownership, with a resulting
dilution in the interest of the holders of the Company's other securities,
including the Securities. As long as the Representative's Warrants remain
unexercised, the Company's ability to obtain additional capital might be
materially and adversely affected. Moreover, the Representative may be expected
to exercise the Representative's Warrants at a time when the Company would, in
all likelihood, be able to obtain any needed capital through a new offering of
its securities on terms more favorable than those provided by the
Representative's Warrants. See "Underwriting."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
Commencing 18 months after the date of this Prospectus, the Warrants are
subject to redemption at $0.10 per Warrant on thirty days' prior written notice
to the warrantholders if the average closing bid price of the Common Stock
equals or exceeds 200% of the initial public offering price per share of Common
Stock for any 20 trading days within a period of 30 consecutive trading days
ending on the fifth trading day prior to the date of the notice of redemption.
If the Warrants are redeemed, holders of the Warrants will lose their rights to
exercise the Warrants after the expiration of the 30-day notice of redemption
period. Upon receipt of a notice of redemption, holders would be required to:
(i) exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for them to do so, (ii) sell the Warrants at the current market
price, if any, when they might otherwise wish to hold the Warrants, or (iii)
accept the redemption price which is likely to be substantially less than the
market value of the Warrants at the time of redemption. See "Description of
Securities -- Redeemable Warrants."
LEGAL RESTRICTIONS ON SALES OF SHARES UNDERLYING THE WARRANTS
The Warrants are not exercisable unless, at the time of the exercise, the
Company has an effective registration statement, incorporating a current
prospectus, covering the resale of the shares of Common Stock issuable upon
exercise of the Warrants, and such shares have been registered, qualified or
deemed to be exempt under the securities laws of the state of residence of the
exercising holder of the Warrants. Although the Company has agreed to keep a
registration statement covering the shares of Common Stock issuable upon the
exercise of the Warrants effective for the term of the Warrants, if it fails to
do so for any reason, the Warrants may be deprived of value.
The Shares and Warrants are separately transferable immediately following
the consummation of the Offering. Purchasers may buy Warrants in the aftermarket
in, or may move to, jurisdictions in which the shares underlying the Warrants
are not so registered or qualified during the period that the Warrants are
18
<PAGE>
exercisable. In this event, the Company would be unable to issue shares to those
persons desiring to exercise their Warrants, and holders of Warrants would have
no choice but to attempt to sell the Warrants in a jurisdiction where such sale
is permissible or allow them to expire unexercised. See "Description of
Securities."
DISCRETION OF MANAGEMENT AND THE BOARD OF DIRECTORS IN USE OF PROCEEDS
Although the Company intends to apply the net proceeds of the Offering in
the manner described under "Use of Proceeds," the Company's management and the
Board of Directors will have broad discretion within such proposed uses as to
the precise allocation of the net proceeds, the timing of expenditures and all
other aspects of the use thereof. The Company reserves the right to reallocate
the net proceeds of the Offering among the various categories set forth under
"Use of Proceeds" as it, in its sole discretion, deems necessary or advisable
based upon prevailing business conditions and circumstances. See "Use of
Proceeds."
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Second Amended and Restated Certificate of Incorporation
limits, to the maximum extent permitted by the DGCL, the personal liability of
Directors for monetary damages for breach of their fiduciary duties as a
Director. The Company's Bylaws provide that the Company shall indemnify its
officers and Directors to the fullest extent permitted by law. Section 145 of
the DGCL provides that a corporation may indemnify a director, officer, employee
or agent made or threatened to be made a party to an action by reason of the
fact that such person was a director, officer, employee or agent of the
corporation or was serving at the request of the corporation against expenses
actually and reasonably incurred in connection with such action if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, if such person had no reasonable cause to believe
their conduct was unlawful. The DGCL does not permit a corporation to eliminate
a director's duty of care, and the provisions of the Company's Second Amended
and Restated Certificate of Incorporation have no effect on the availability of
equitable remedies, such as injunction or rescission, for a director's breach of
the duty of care. See "Management-- Limitations of Directors' Liability and
Indemnification."
IMMEDIATE SUBSTANTIAL DILUTION; DISPARITY OF CONSIDERATION
Purchasers of the Securities in the Offering will experience immediate and
substantial dilution in the net tangible book value of the shares of Common
Stock purchased by them in the Offering. The immediate dilution to purchasers of
the Securities offered hereby is $2.66, or 48.4% per share of Common Stock.
Additional dilution to future net tangible book value per share may occur upon
the exercise of the Warrants, the Representative's Warrants, other outstanding
warrants, and options that are outstanding or are issued under the Company's
option plans. The current stockholders of the Company, including the Company's
Directors and persons or entities affiliated with them, acquired their shares of
Common Stock for consideration substantially less than the initial public
offering price of the shares of Common Stock offered hereby. See
"Capitalization," "Dilution" and "Certain Transactions."
ABSENCE OF DIVIDENDS
The Company has not paid cash dividends since its inception and does not
intend to pay any dividends on its Common Stock in the foreseeable future. See
"Dividend Policy."
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,700,000 Shares and
1,700,000 Warrants offered hereby are estimated to be approximately $7,768,000
($9,010,000 if the Underwriters' over-allotment option is exercised in full),
after deducting the underwriting discounts and commissions and estimated
offering expenses payable by the Company, based on an assumed initial public
offering price of $5.50 per Share and $0.10 per Warrant. The Company intends to
use the net proceeds as follows:
<TABLE>
<CAPTION>
PROCEEDS
-----------------------
<S> <C> <C>
Research and development activities...................................... $ 5,826,000 75%
Working capital and general corporate purposes........................... $ 1,942,000 25%
------------ ---
TOTALS:.............................................................. $ 7,768,000 100%
------------ ---
------------ ---
</TABLE>
The amount and timing of the expenditures of the net proceeds for these
purposes will depend on numerous factors, including the status of the Company's
product candidate development efforts, the results of preclinical studies and
competition. The amount and timing of the expenditures will also depend on the
Company's or its potential collaborators' ability to complete clinical trials,
the regulatory approval process, manufacturing, sales and marketing activities
and market acceptance of the Company's product candidates. The Company may also
use a portion of the net proceeds to acquire complementary businesses, products
or technologies, although the Company has no agreements and is not involved in
any negotiations with respect to any such transactions. The Company will have
broad discretion over the net proceeds of the Offering. See "Risk
Factors -- Discretion of Management and the Board of Directors in Use of
Proceeds." Pending such uses, the Company plans to invest the net proceeds from
the Offering in short-term, investment-grade, interest-bearing securities.
The Company expects that its existing capital resources, together with the
net proceeds of the Offering and the interest earned thereon, will be adequate
to fund its capital requirements for the next 18 months. However, there can be
no assurance that there will be no change in the Company's business, financial
condition or results of operations that would consume available resources before
such time. The Company anticipates that additional funding will be required
after the use of the net proceeds of the Offering. No assurance can be given
that such additional financing will be available when needed or on terms
acceptable to the Company, if at all. See "Risk Factors -- Additional Financing
Requirements; Access to Capital."
DIVIDEND POLICY
The Company has not paid cash dividends since its inception and does not
intend to pay any dividends on its Common Stock in the foreseeable future. Any
future determination to pay cash dividends will be at the discretion of the
Board of Directors and will be dependent upon the Company's financial condition,
results of operations, capital requirements and such other factors as the Board
of Directors deems relevant.
20
<PAGE>
CAPITALIZATION
The following table sets forth at September 30, 1996: (i) actual; and (ii)
the pro forma capitalization of the Company, as adjusted to reflect the sale by
the Company of the 1,700,000 Shares and 1,700,000 Warrants offered hereby at an
assumed initial public offering price of $5.50 per Share and $0.10 per Warrant
and the initial application of the estimated net proceeds therefrom after
deducting underwriting discounts and commissions and estimated offering expenses
payable by the Company. See "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Description of Securities." This table should be read in
conjunction with the Company's Financial Statements and the Notes thereto which
are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
-----------------------------
<S> <C> <C>
PRO FORMA,
ACTUAL AS ADJUSTED(1)
------------- --------------
Long-term debt less current portion................................................ $ -- $ --
Stockholders' deficit:
Convertible Preferred Stock, $0.01 par value; 10,000,000 shares authorized;
1,500,000 shares of Series A Convertible Preferred Stock authorized; 1,500,000
shares issued and outstanding (actual); and 3,000,000 shares of Series B
Convertible Preferred Stock authorized; 1,519,000 shares issued and outstanding
(actual); and no shares of Preferred Stock issued and outstanding (pro forma,
as adjusted)................................................................... 5,969,474 --
Common Stock, $0.01 par value; 20,000,000 shares authorized; 968,754 shares
issued and outstanding (actual); 3,675,088 shares issued and outstanding (pro
forma, as adjusted)(2)......................................................... 9,688 36,751
Additional paid-in capital....................................................... 1,959,414 15,669,825
Deferred compensation............................................................ (36,720) (36,720)
Unrealized loss on investments................................................... (185) (185)
Deficit accumulated during the development stage................................. (5,239,524) (5,239,524)
------------- --------------
Total stockholders' equity..................................................... 2,662,147 10,430,147
------------- --------------
Total capitalization......................................................... 2,662,147 10,430,147
------------- --------------
------------- --------------
</TABLE>
- ------------------------
(1) Presented on a pro forma, as adjusted basis to give effect to the conversion
of the outstanding shares of Preferred Stock into 1,006,334 shares of Common
Stock upon the consummation of the Offering.
(2) Excludes, as of September 30, 1996, 454,187 shares of Common Stock issuable
upon exercise of stock options with a weighted average exercise price of
$2.14 per share outstanding under the Company's Plan, and 10,834 shares of
Common Stock issuable upon exercise of an outstanding warrant at an exercise
price of $1.50 per share. Also excludes 479,146 shares of Common Stock
reserved for future grants of options and stock issuance rights under the
Plan. See "Management--1996 Stock Option/ Stock Issuance Plan," "Description
of Securities" and "Shares Eligible for Future Sale."
21
<PAGE>
DILUTION
The pro forma net tangible book value (deficit) of the Company at September
30, 1996 was $2,662,147 in the aggregate, or approximately $1.35 per share of
Common Stock. "Pro forma net tangible book value per share of Common Stock" is
determined by dividing the tangible net worth of the Company (total assets of
the Company less total liabilities) by the number of shares of Common Stock
outstanding as of that date after giving effect to the conversion of the
outstanding shares of Preferred Stock into Common Stock. After giving effect to
the sale of the Securities offered hereby at an assumed initial public offering
price of $5.50 per Share, after deducting the underwriting discount and
estimated offering expenses, the Company's pro forma net tangible book value of
Common Stock at September 30, 1996 would have been $10,430,147 in the aggregate,
or approximately $2.84 per share of Common Stock. This represents an immediate
increase in net tangible book value of $1.49 per share to existing stockholders
and an immediate dilution of $2.66 per share in net tangible book value to new
investors purchasing in the Offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per Share....................... $ 5.50
Pro forma net tangible book value per Share before the Offering..... $ 1.35
Increase per share attributable to the Offering..................... 1.49
---------
Pro forma net tangible book value per Share after the Offering........ 2.84
---------
Dilution in net tangible book value per Share to new
investors(1)(2)..................................................... $ 2.66
---------
---------
</TABLE>
- ------------------------
(1) Determined by subtracting the pro forma net tangible book value per share
after the Offering from the amount of cash paid by a new investor for
Securities in the Offering.
(2) If the Underwriters' over-allotment option is exercised in full, dilution
per share to new investors would be $2.53. See "Underwriting."
The following table summarizes, on a pro forma basis to reflect the same
adjustments described above, the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share paid
by (i) existing stockholders of Common Stock at September 30, 1996 and (ii) new
stockholders in the Offering, assuming the sale of the 1,700,000 Shares and
1,700,000 Warrants offered hereby at an assumed initial public offering price of
$5.50 per Share and $0.10 per Warrant. The calculations are based upon total
consideration given by new investors and existing stockholders before any
deduction of underwriting discounts and offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)............................ 1,975,088 54% $ 7,965,502 46% $ 4.03
New investors....................................... 1,700,000 46 9,350,000 54 5.50
---------- --- ------------- --- -----
Total............................................... 3,675,088 100% $ 17,315,502 100% $ 4.71
---------- --- ------------- --- -----
---------- --- ------------- --- -----
</TABLE>
- ------------------------
(1) Excludes, as of September 30, 1996, 454,187 shares of Common Stock issuable
upon exercise of stock options with a weighted average exercise price of
$2.14 per share outstanding under the Company's Plan, and 10,834 shares of
Common Stock issuable upon exercise of an outstanding warrant at an exercise
price of $1.50 per share. Also excludes 479,146 shares of Common Stock
reserved for future grants of options and stock issuance rights under the
Plan. See "Management -- 1996 Stock Option/ Stock Issuance Plan,"
"Description of Securities" and "Shares Eligible for Future Sale."
22
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data set forth below at December 31, 1994
and 1995 and for each of the periods from inception (June 21, 1994) through
December 31, 1994 and the year ended December 31, 1995 have been derived from
the audited financial statements of the Company. The financial statements of the
Company at December 31, 1994 and 1995 and for the fiscal period from inception
(June 21, 1994) to December 31, 1994 and the year ended December 31, 1995,
together with the notes thereto and the related report of Arthur Andersen LLP,
independent public accountants, are included elsewhere in this Prospectus. The
selected financial data for the nine months ended September 30, 1995, September
30, 1996, and the period from inception (June 21, 1994) to September 30, 1996
are derived from unaudited financial statements of the Company, which are
included elsewhere in this Prospectus. The unaudited financial statements
include all adjustments (consisting of normal recurring adjustments) that the
Company considers necessary for a fair presentation. The results of operations
for the nine months ended September 30, 1996 are not necessarily indicative of
results for any future period or the full year. The selected financial data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Financial Statements, including the Notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM INCEPTION
INCEPTION (JUNE 21,
(JUNE 21, NINE MONTHS ENDED 1994)
1994) THROUGH YEAR ENDED SEPTEMBER 30, THROUGH
DECEMBER 31, DECEMBER 31, ---------------------------- SEPTEMBER 30,
1994 1995 1995 1996 1996
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues............................. $ -- $ -- $ -- $ -- $ --
Expenses:
Research and development........... 427,870 1,662,241 1,108,313 2,743,316 4,833,427
General and administrative......... 10,564 417,724 278,140 255,157 683,445
------------- ------------- ------------- ------------- --------------
Total expenses................... 438,434 2,079,965 1,386,453 2,998,473 5,516,872
------------- ------------- ------------- ------------- --------------
Loss from operations................. (438,434) (2,079,965) (1,386,453) (2,998,473) (5,516,872)
Other income, net.................... 11,487 192,834 122,085 73,027 277,348
------------- ------------- ------------- ------------- --------------
Net loss............................. $ (426,947) $ (1,887,131) $ (1,264,368) $ (2,925,446) $ (5,239,524)
------------- ------------- ------------- ------------- --------------
------------- ------------- ------------- ------------- --------------
Pro forma net loss per share(1)...... $ (1.02) $ (1.44)
------------- -------------
------------- -------------
Shares used in computing net loss per
share(1)........................... 1,856,249 2,036,458
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------- AT SEPTEMBER 30,
1994 1995 1996
------------ ------------ ---------------------------
<S> <C> <C> <C> <C>
AS
ACTUAL ADJUSTED(2)
------------ -------------
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments....... $ 1,085,433 $ 1,301,030 $ 1,250,806 $ 9,018,806
Total assets............................................ 1,489,122 2,721,054 2,835,039 10,603,039
Total liabilities....................................... 691,069 152,367 172,892 172,892
Total stockholders' equity.............................. 798,053 2,568,687 2,662,147 10,430,147
</TABLE>
- ------------------------
(1) See Note 2 of Notes to Financial Statements for an explanation of net loss
per share and shares used in computing net loss per share.
(2) Adjusted to give effect to the receipt of the estimated net proceeds of the
Offering based upon an assumed initial public offering price of $5.50 per
Share and $0.10 per Warrant (after deducting estimated offering expenses and
underwriting discounts payable by the Company in connection with the
Offering). See "Use of Proceeds."
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS AND OTHER PARTS OF THIS PROSPECTUS CONTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED
TO, THOSE DISCUSSED UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Codon was incorporated in Delaware in June 1994 as a subsidiary of Oncor
under the name "OncorPharm, Inc." and changed its name to Codon Pharmaceuticals,
Inc. in September 1996. The Company is engaged in the design and preclinical
study of lead compounds and product candidates for use in the treatment and
prevention of cancers and viral infections, the control of melanin production in
the skin, and gene repair. Since its inception, the Company has devoted
substantially all of its resources to acquiring certain of its proprietary
technologies through licensing arrangements, developing its lead compounds and
potential product candidates and hiring its scientific and management staff. The
Company has not completed development of any potential product candidates and,
accordingly, has not begun to generate revenues from any product candidates and
does not expect to receive any such revenue for at least several years, if at
all. There can be no assurance that any of the Company's potential product
candidates will ever be successfully commercialized by the Company or any of its
potential collaborators. See "Risk Factors -- No Assurance of Successful Product
Candidate Development."
The Company is at a development stage and is subject to all of the business
risks associated with a new enterprise, including constraints on the Company's
financial, personnel and other resources, lack of established collaborative
partnering relationships, and uncertainties regarding lead compound and product
candidate development and future revenues. Prospective investors, therefore,
have limited historical financial information about the Company upon which to
base their evaluation of the Company's performance and an investment in the
Securities offered hereby. The Company has incurred operating losses since its
inception and, at September 30, 1996, the Company's accumulated deficit since
inception was $5,239,524. The Company's losses have resulted principally from
expenses incurred in research and development and laboratory operations, and
from general and administrative expenses. The Company has yet to generate any
revenues, and there can be no assurance that the Company will be able to
generate revenues in the future. The Company anticipates that it will continue
to incur substantial additional operating losses for at least the next several
years and expects cumulative losses to increase as the Company's research and
development and general and administrative efforts expand. The Company's ability
to achieve profitability depends on its ability to out-license its potential
product candidates to corporate partners, and the ability of such corporate
partners to obtain the requisite regulatory approvals and successfully
commercialize such product candidates. There can be no assurance when, or if,
the Company will become profitable.
RESULTS OF OPERATIONS FOR THE PERIOD FROM INCEPTION (JUNE 21, 1994) TO DECEMBER
31, 1994, THE YEAR ENDED DECEMBER 31, 1995, AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
RESEARCH AND DEVELOPMENT EXPENSES. The Company's research and development
expenses consist primarily of payments relating to the preclinical development
of the Company's lead compounds and potential product candidates and the
expenses related to the Company's funding of research in collaboration with
certain universities and institutions. The Company incurred research and
development expenses of $427,870, $1,662,241 and $2,743,316 in 1994, 1995 and
the first nine months of 1996, respectively. The increase in research and
development expenses in 1995 and the first nine months of 1996 results primarily
from: (1) hiring of additional research and development personnel to conduct and
coordinate the
24
<PAGE>
Company's expanded research and development program; (2) completion and start-up
of the Company's laboratory facility in May 1995 resulting in increased expenses
for operating supplies, depreciation and amortization; and (3) an increase in
the number of licensing and collaborative arrangements with research
institutions resulting in increased license fees, consulting fees, and research
grants and expenses. Research and development expenses are expected to increase
as the Company continues to expand its research and development activities and
as it enters into collaborative arrangements with potential academic and
corporate partners.
GENERAL AND ADMINISTRATIVE EXPENSES. The Company's general and
administrative expenses consist primarily of salaries paid to the Company's
executive officers and administrative personnel, professional fees, insurance,
and other administrative expenses. The Company incurred general and
administrative expenses of $10,564, $417,724 and $255,157 in 1994, 1995 and the
first nine months of 1996, respectively. The increase in general and
administrative expenses in 1995 resulted primarily from the hiring of the
Company's first full time Chief Executive Officer in February 1995, the hiring
of other legal and administrative personnel, and increased legal fees associated
with the expansion of the Company's research and development program. The
decline in the rate of general and administrative spending in the first nine
months of 1996 reflects reduced spending for legal fees and a reduction in the
level of administrative and accounting services provided to the Company by
Oncor. The Company anticipates that the management services arrangement with
Oncor, pursuant to which Oncor provides certain administrative, accounting and
consulting services, will decrease as the Company hires additional personnel to
perform these services. The Company believes the incremental cost to hire
additional personnel and perform the services currently provided by Oncor will
not be material. The Company anticipates that general and administrative
expenses will increase as the number of personnel increase. See "Certain
Transactions -- Relationship with Oncor."
OTHER INCOME. Other income consists primarily of equipment rental income
from OncorMed, Inc. ("OncorMed," an affiliate of Oncor), and interest income on
invested funds. Other income was $11,487, $192,834 and $73,027 in 1994, 1995 and
the first nine months of 1996, respectively. Rental income from OncorMed was
$66,000 and $54,000 for the year ended December 31, 1995 and the first nine
months of 1996, respectively. The fluctuation in other income was due in part to
the investment of funds received in connection with private placements of the
Company's Preferred Stock.
NET LOSSES. The Company incurred net losses of $426,947, $1,887,131 and
$2,925,446, in 1994, 1995 and the first nine months of 1996, respectively. The
Company expects its operating losses to continue and increase for at least the
next several years.
LIQUIDITY AND CAPITAL RESOURCES
Since the Company's inception there have been no revenues and the Company's
operations have principally been funded through an initial capital infusion from
Oncor, private placements of the Company's equity securities and, to a lesser
extent, by advances from Oncor. From the date of inception through September 30,
1996, the Company has received net proceeds of $5,969,000 from the sale and
issuance of Preferred Stock in such financings. Further, Oncor advanced a total
of $632,502 to the Company from June 1994 through December 1994 (the "Oncor
Advances"). On December 31, 1994, the Oncor Advances were converted into a
convertible promissory note convertible into Common Stock at $6.00 per share
(the "Note"). In April 1995, Oncor converted the Note to 105,417 shares of
Common Stock of the Company. No additional advances were made by Oncor to the
Company after the Note was converted to Common Stock.
As of September 30, 1996, the Company had cash, cash equivalents and
short-term investments of $1,250,806. For the nine months ended September 30,
1996, net cash used in the Company's operating activities was $2,628,451. For
the years ended December 31, 1995 and 1994, net cash used in the Company's
operating activities was $1,749,590 and $358,405, respectively, and included
amounts paid by the Company in connection with its various collaborative
arrangements.
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In November 1996, the Company expects to enter into a sublease with Oncor
for its current facilities which will expire in March 2004, with Oncor having an
option to extend the lease for an additional five-year term. The sublease will
require the Company to pay monthly rent of approximately $10,200 and monthly
maintenance of approximately $3,100. The monthly rent and the monthly
maintenance fee will be subject to adjustments for inflation. See "Business --
Facilities" and "Certain Transactions -- Relationship with Oncor."
The Company has incurred negative cash flows from operations since its
inception. The Company has expended, and expects to continue to expend,
substantial funds to continue its research and development, preclinical studies
and laboratory operations. The Company expects that its existing capital
resources, together with the net proceeds of the Offering and the interest
earned thereon, will be adequate to fund its capital requirements for the next
18 months. No assurance can be given that there will be no change in the
Company's business, financial condition or results of operations that would
consume available resources before such time. The Company's future capital
requirements and the adequacy of available funds will depend on many factors,
including the progress and scope of its research and development activities, the
progress of its preclinical studies, relationships with possible collaborative
partners, changes in the focus and direction of the Company's research and
development programs, the costs involved in preparing, filing, processing,
maintaining, and enforcing patent claims and other intellectual property rights,
competitive factors and technological advances, changes in the requirements of
the FDA and comparable foreign regulatory processes and other factors. To the
extent that funds generated from the Company's operations, together with its
existing capital resources and the net proceeds of the Offering and the interest
earned thereon, are insufficient to meet the Company's operating requirements,
it is likely that the Company will seek to obtain additional funds through
equity or debt financing or collaborative or other arrangements with corporate
partners and others, or from other sources. The terms and prices of any such
financings may be significantly more favorable to investors than those of the
Securities to be sold in the Offering, which could have the effect of diluting
or adversely affecting the holdings or the rights of existing stockholders of
the Company, including investors acquiring Common Stock in the Offering. No
assurance can be given that any required additional financing will be available
when needed or on terms acceptable to the Company. If adequate additional funds
are not available, the Company may be required to delay, scale back or eliminate
certain of its research and development activities, to relinquish rights to
certain of its technologies, lead compounds, or product candidates, or to
license third parties the development of technologies, lead compounds, or
product candidates that the Company would otherwise seek to develop itself. The
unavailability of adequate funds in the future would have a material adverse
effect on the Company's business, financial condition and results of operations.
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BUSINESS
THE FOLLOWING BUSINESS SECTION CONTAINS FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Codon is expert in the design and preclinical study of lead compounds and
product candidates based on DNA or on the small molecule building blocks of DNA
(nucleosides). This core expertise was developed primarily through by recruiting
a team of synthetic chemists from the Memorial Sloan-Kettering Cancer Institute,
and by assembling the team of biochemists that invented the Company's
proprietary Code Marker gene repair technology. The Company's gene repair
product candidates are designed to trigger highly site-specific sectional
replacements of like sequences of DNA (precision site-directed homologous
recombination) to restore damaged genes to their normal structure and function.
The Company believes that its gene repair technology may overcome many of the
problems currently encountered in the conversion of genomic discoveries into
useful human therapies. To develop the commercial potential of its lead
compounds and product candidates, the Company intends to pursue licensing or
joint venture arrangements with potential corporate partners for clinical
testing, seeking regulatory approval, manufacturing, marketing and
commercializing product candidates that perform favorably in preclinical
studies.
The Company's development programs are focused on the treatment and
prevention of cancers and viral infections, the control of melanin production in
the skin, and gene repair. In each of its programs, the Company, in
collaboration with academic partners such as Johns Hopkins, Yale, and, through
the Oncor License, Princeton: (i) identifies an "intervention point" in a
metabolic process, or a specific DNA sequence error in a gene, which the Company
believes may contribute to the course of a selected human disorder; (ii) designs
lead compounds to intervene at the "intervention point" or to replace the
mutated DNA sequence; and (iii) develops preclinical information on the lead
compounds in order to attract the interest and resources of potential corporate
partners.
Through its design programs, Codon's scientists have identified three lead
compounds for potential use in the treatment and prevention of certain cancers,
and four lead compounds for potential use in controlling melanin production in
skin. In addition, through the use of its proprietary Code Marker technology,
the Company is engaged in a demonstration project of one EX-VIVO gene repair
therapeutic prototype and, through its collaboration with Yale, one IN-VIVO gene
repair therapeutic prototype. The lead compounds under development and prototype
Code Marker demonstration projects include the following:
- CDN-1007, along with its derivatives CDN-1008, CDN-1010 and CDN-1012, are
designed to stimulate natural melanin production in skin in the absence of
potentially damaging UV light.
- CDN-2022 is designed to trigger a differentiation response in leukemia
cells that the Company believes may restore the affected cells' obedience
to normal growth controls.
- CDN-4007 is designed to inhibit inosine monophosphate dehydrogenase
(IMPDH), an enzyme which is essential to rapid cell growth in many
cancers.
- CDN-5005 is being designed to inhibit DNA-methylase, an enzyme which may
contribute to adverse mutations in certain cancers.
- CM-ADA is being developed as an EX-VIVO therapeutic for repairing the
genetic defect that causes ADA immunodeficiency ("bubble-boy" disease).
- CM-SC is being designed as an EX-VIVO therapeutic for repairing the
genetic defect most often associated with sickle cell disease (homozygote
sickle cell anemia).
- CM-CKR5 is being designed as an EX-VIVO prophylactic for the prevention of
HIV infection of certain human immune system cells.
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- CM-CF may be designed as an IN-VIVO therapeutic, following completion of
animal studies, to repair the genetic defect most often associated with
cystic fibrosis.
- CM-B3AR may be designed as an IN-VIVO therapeutic, following completion of
animal studies, to repair the genetic defect contributing to one of the
most prevalent forms of obesity and diabetes.
Currently, the Company's research and development programs are at a very
early stage of development. The Company has not completed development of any
potential product candidates and substantial additional research and development
will be necessary in order for the Company to develop potential product
candidates based on its technologies, and there can be no assurance that the
Company's research and development efforts will lead to the development of
product candidates that are, through out-licensing arrangements with potential
corporate partners, successful in preclinical studies, prove to be safe and
effective in clinical trials, receive the requisite regulatory approvals, or
utlimately, are successfully commercialized. See "Risk Factors -- No Assurance
of Successful Product Candidate Development."
The Company intends to maintain its focus and build on its core expertise as
it in-licenses compatible technologies and lead compounds. Further programs to
discover and develop additional lead compounds will be initiated (i) as
opportunities arise from discoveries relating to novel nucleoside compounds, and
DNA sequence errors causing selected human genetic disorders, and (ii) at the
request of potential corporate partners. The Company's strategy for the clinical
trials, regulatory approval and commercialization of any of its potential
product candidates is to enter into arrangements with corporate partners,
licensees and others. The Company's success, therefore, is reliant upon the
success of such third parties in performing clinical trials, obtaining the
requisite regulatory approvals, and successfully commercializing the Company's
product candidates. There can be no assurance that such arrangements will be
obtainable on commercially reasonable terms, if at all, that such arrangements
will be successful, the parties with which the Company will establish
relationships will perform their obligations under the arrangements, or that
potential collaborators will not compete with the Company by seeking alternative
means of developing treatments for the disorders targeted by the Company. See
"Risk Factors -- Dependence on Collaborations and Licenses with Others."
DEVELOPMENT OF LEAD COMPOUNDS BASED ON NUCLEOSIDES
Nucleosides are compounds which are structurally related to nucleotides, the
fundamental building blocks of DNA. Such compounds are involved in a broad range
of cellular metabolic processes and interact with essential cellular enzymes.
Examples of such metabolically important compounds include adenosine
triphosphate, a carrier of stored energy in cells, and cyclic adenosine
monophosphate, a carrier of hormonal signals from the outside to the inside of a
cell to regulate intracellular metabolic processes. In addition, nucleosides
often act in a manner similar to hormones in that they act outside of cells
rather than solely inside a cell. For example, extra-cellular adenosine acts to
help tissues adjust to transient oxygen deprivation by widening capillaries,
suppressing cardiac arythmias, and locally decreasing the activity of certain
immune system cells (macrophages).
Over the last 50 years, many small molecule nucleoside pharmaceuticals have
been successfully administered in the treatment of certain cancers and viral
infections. Examples of successful nucleoside anticancer pharmaceuticals include
Cytarabine ("Ara-C"), an antileukemia drug, and 5-Flourouracil ("5-FU"), a
widely used anticancer drug. Examples of successful nucleoside antiviral
pharmaceuticals include Zidovudine (formerly "AZT"), DDI and DDC, treatments for
HIV infection, and Zovirax, a topical treatment for herpes. However, while many
small molecule nucleoside pharmaceuticals have been used successfully and
cost-effectively in the treatment of certain disorders, certain other specific
nucleoside compounds (non-hydrolizable dinucleotides) that have shown great
promise in selectively regulating different enzymes required for such diverse
processes as cancer cell growth, immune cell regulation, or virus replication
have been too difficult to manufacture in an efficient and cost-effective
manner. In response to these specific difficulties, the Company has developed
CDN-7000, a single molecular synthesis "intermediate" from which the Company
believes anticancer product candidates may be developed and
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manufactured in a cost-effective and efficient manner. Several novel derivatives
of CDN-7000 synthesized by the Company have entered preclinical studies.
Additional lead compounds being evaluated by the Company as potential product
candidates and the indications they are being designed to treat are as follows:
- LEUKEMIA (MATURATIONAL AGENT). CDN-2022 is a nucleoside compound that has
been designed by the Company to trigger a differentiation response in
certain leukemia cells grown in tissue culture in order to stimulate a
permanent change in the cells. In particular, CDN-2022 is designed to stop
an affected cell's abnormal growth and division, and to produce mature,
stable blood cells. If CDN-2022 continues to show promise in preclinical
studies, the Company believes it may be developed as a product candidate
for the treatment of certain types of leukemias.
- CANCER (IMPDH INHIBITOR). CDN-4007 is designed to inhibit IMPDH, an enzyme
that is essential to DNA replication in certain types of rapidly growing
cancer cells. Studies have shown that a complete blockade of IMPDH may
result in an arrest of DNA replication and may be a promising mechanism
for treating certain types of rapidly growing cancers. Certain studies
also indicate that IMPDH inhibition may slow viral replication in cells.
In the Company's preclinical studies, CDN-4007 has demonstrated promising
specificity in binding to IMPDH in vitro and blocking its function. The
Company is currently experimenting with additional variants which are
being designed to further improve the activity of CDN-4007.
- CANCER (DNA-METHYLASE INHIBITOR). CDN-5005 is being designed to inhibit
DNA-methylase, an enzyme that studies have shown may contribute to adverse
mutations in certain cancers. While this enzyme regulates certain normal
functions in cells during embryonic development, many scientists believe
that it contributes to DNA mutation when it is active in adult cells.
These mutations are now suspected to be involved in progressive
deterioration of cell function in certain solid tissue cancers, such as
colon cancer. The Company believes that blocking DNA-methylase might prove
useful as an adjunct to current cancer treatments. In preclinical studies
being conducted by the Company's chemists, CDN-5005 has demonstrated an
ability to block the activity of DNA-methylase in adult cells in-vitro.
PHARMACEUTICAL CONTROL OF NATURAL MELANIN PRODUCTION IN SKIN, FOR PREVENTION OF
SKIN CANCER
Leading dermatologists estimate that there are more than 600,000 new cases
of skin cancer in the United States each year, consisting of approximately
400,000 new cases of basal cell skin cancer, approximately 150,000 new cases of
squamous cell skin cancers, and approximately 40,000 new cases of malignant
melanoma. Further, approximately 40,000,000 pale-skinned people in the United
States may be at an increased risk of developing such skin cancers from
unprotected exposure to UV light.
Products that artificially mask skin color through self-tanning generated
approximately $67 million in revenues in the United States in 1995. However,
none of these dye-type products are designed to produce the most desirable,
natural coloring and do little to protect skin against damage from UV light.
Many companies and academic scientists have made serious commitments to
developing products designed to protect people against the damaging effects of
UV light. While sunblocks effectively prevent penetration of UV light into the
skin, they also prevent the user's ability to develop a suntan. Other companies
have introduced "sunless tanning" products, which are designed to mimic the
appearance of a natural suntan but offer no real protection against the
potential damaging effects of UV light. Additional product candidates being
developed by companies and academic scientists have not been proven effective
and many have demonstrated significant side effects when used.
Until recently, scientific knowledge of biochemical mediators of
melanogenesis has been insufficient to permit the successful development of
pharmaceuticals that stimulate or inhibit natural melanin (skin pigment)
production. The successful development and commercialization of such stimulatory
or inhibitory pharmaceuticals may result in significant advancements in normal
skin care, novel treatments for pigmentary diseases, and comprehensive skin
cancer prevention. However, the commercialization of any such
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pharmaceutical products would require approval by the FDA and comparable
agencies in foreign countries, and no assurance can be given that any such
product candidates would receive the requisite regulatory approvals on a timely
basis, if at all. See "Risk Factors -- No Assurance of Regulatory Approval;
Government Regulation."
The Company has developed CDN-1007, and its derivatives, CDN-1008, CDN-1010
and CDN-1012, as lead compounds that the Company believes may be developed into
product candidates for the stimulation of natural melanin production and
distribution in skin. In early tissue culture and animal experiments conducted
by the Company, these lead compounds have demonstrated significant dose-response
increases in the melanin content of cells without producing any short-term
toxicity.
DEVELOPMENT OF LEAD COMPOUNDS BASED ON THE COMPANY'S CODE MARKER GENE REPAIR
TECHNOLOGY
Recent advances in human genome research, including the Human Genome
Project, have dramatically increased the rate at which genes involved in major
human disorders are being discovered. However, limits on current technologies
are frustrating the conversion of these genetic discoveries into useful human
therapies. First, current technologies for inserting artificial genes into human
cells (vector gene therapy) have failed to meet expectations due to, among other
things, the low efficiency of introducing the artificial "transgenes" into
cells, an inability to specifically deliver the therapeutic to certain cells,
the stimulation of immune reactions against certain delivery-packaging systems,
and the unreliable functioning of the artificial gene implants. Second, the high
dose requirements and high cost of manufacture of products based on current
technologies for blocking gene function (e.g., antisense, ribozymes and triplex)
have limited the widespread use of such technologies. Third, the substantial
time and expense generally required to develop small molecule drugs designed to
correct genetic metabolic problems have prevented many pharmaceutical entities
from entering this marketplace.
Codon's Code Marker technology is a version of homologous recombination, a
natural cellular mechanism that exchanges sections of like sequences of DNA to
restore damaged genes to their normal structure and function. The Company's Code
Marker technology triggers this activity, in a highly site-directed manner, so
that a region of normally structured DNA is exchanged for the mutated sequence
of the disease-causing gene. The Company believes that this technology may
overcome many of the problems currently encountered in the conversion of genomic
discoveries into useful human therapies. First, use of the Company's proprietary
technology requires only a knowledge of the normal DNA sequence of a functional
gene and the mutated DNA sequence(s) of the disease-causing gene. As a result,
the time required to study and understand the broad metabolic context of a
gene's protein product (to make appropriate small molecule drugs) is
unnecessary. Second, the Company believes that the changes effected in the cell
using the Company's Code Marker technology are permanent, so prolonged and
expensive maintenance doses of pharmaceuticals may be unnecessary. Third, the
Company believes that restoration of a gene's normal DNA sequence may have the
highest probability of obtaining normal function from the treated gene. This
eliminates the need to understand and devise artificial genetic "on-off"
switches to make the gene function.
The Company intends to exploit two strategies in connection with developing
product candidates based on its gene repair technology. The EX-VIVO strategy
involves removing cells from the patient, treating them with Code Marker
potential product candidates to trigger gene repair, and then re-implanting the
cells in patients. The Company is currently engaged in an EX-VIVO demonstration
project designed to demonstrate the function of its Code Marker technology. In
addition, the Company is engaged in animal studies, in collaboration with Yale,
to demonstrate the effectivness of IN-VIVO gene repair through intravenous
injection of Code Marker potential product candidates. See " -- Licensing and
Collaborative Arrangements." In both strategies, preclinical studies conducted
by the Company have indicated that each dose of the treatment results in the
repair of approximately eight percent (8%) to ten percent (10%) of the cells
containing the genetic mutation. In certain diseases, the Company believes that
the repair of a majority of the mutated cells in the relevant tissue expressing
the normal gene may reduce the severity of the symptoms of the disorder. As a
result, the Company believes that multiple treatments using product
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candidates developed through the Company's technology may provide a treatment
for a number of major human disorders.
Currently, Codon has initiated five Code Marker gene repair product design
and development programs for treatment of: (1) adenosine deaminase ("ADA")
deficiency, (2) sickle cell disease, (3) CKR-5 modification, to prevent HIV
infection of human immune system cells, (4) cystic fibrosis, and (5) a highly
prevalent form of obesity caused by a mutation in the Beta-3 adrenergic receptor
(Beta-3AR). The Company's research and development programs are at a very early
stage of development and the Company has not completed development of any of the
potential product candidates listed below. Other programs will be initiated as
opportunities arise from "genomics" discoveries and according to the interests
of potential corporate partners. See "Risk Factors -- No Assurance of Successful
Product Candidate Development" and " -- No Assurance of Regulatory Approval;
Government Regulation."
ADENOSINE DEAMINASE DEFICIENCY
ADA deficiency is a rare, inherited immune deficiency which leaves affected
children unable to combat infection. The genetic defect lies in a single enzyme
which normally prevents tissue accumulation of an immune-suppressant molecule,
adenosine. Children lacking this enzyme accumulate such high levels of adenosine
that their otherwise normal immune cells cease functioning. The lack of this
enzyme is currently treated by injecting an expensive, stabilized version of the
enzyme into the patient's blood on a weekly basis. Additionally, researchers are
conducting clinical trials relating to the insertion of an artificial transgene
to provide a functioning copy of the gene for the ADA enzyme into certain of the
patient's cells.
The Company intends to develop a Code Marker product candidate for ADA
deficiency as a proof-of-principle demonstration of the Company's EX-VIVO
modification of human immune cells, and comparing the efficacy of Company's
therapeutic approach with those of prior technologies. Dr. Kenneth Culver, one
of the Company's scientists and the first physician to treat ADA children with
insertional gene therapy, has begun tissue culture experiments to demonstrate
EX-VIVO gene repair of human T-cells carrying the ADA-defective gene. If
successful gene repair can be demonstrated in these preclinical studies, Codon
intends to request permission from the FDA and other regulatory authorities to
re-introduce the corrected T-cells into the patient who donated them. The
Company believes that, when re-introduced into the patient, repaired T-cells
carrying a normal ADA gene may demonstrate that EX-VIVO reparation of even a
small number of the patient's T-cells could provide significant clinical
benefit. However, there can be no assurance that such experiments will be
successful or, if so, that FDA or other regulatory authorities will approve the
Company's request in a timely fashion, if at all. See "Risk Factors -- No
Assurance of Regulatory Approval; Government Regulation."
SICKLE CELL DISEASE
In sickle cell disease (homozygote sickle cell anemia), a single point
mutation converts normal hemoglobin-B to hemoglobin-S, stretching the red blood
cells into an abnormal "sickle" shape and making them less able to pass through
capillaries. Blockage of capillaries by stiff sickled red blood cells causes the
severe pain and tissue damage normally associated with sickle cell disease.
Current treatments of sickle cell disease merely treat symptoms. Patients are
prescribed pain medications and, to improve blood circulation, they are provided
with intravenous fluids and transfusions of normal red blood cells. Certain
medical centers are experimenting with fully matched bone marrow transplant
procedures as a cure for sickle cell disease, but the current transplant
technique results in a relatively high mortality rate.
Codon believes that its Code Marker gene repair technology could be used to
treat symptomatic sickle cell disease, even if only a minority of the patient's
bone marrow cells are repaired to carry the normal B-hemoglobin gene. As a
result, Codon and its academic collaborators are designing prototype Code Marker
product candidates for treatment of sickle cell disease and may begin
preclinical studies if the ADA deficiency demonstration of EX-VIVO gene repair
is successful.
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HIV AND THE CKR-5 VARIANT
Recent studies have demonstrated that a naturally occurring variant of the
CKR-5 gene may cause certain immune system cells (macrophages) to become
resistant to infection by HIV. Since other studies have determined that
macrophages are one of the principal reservoirs for HIV, the Company believes
that altering the CKR-5 genes may significantly alter the course of the HIV
infection's progression to AIDS. Based on these studies, the Company's
scientists have begun designing EX-VIVO Code Marker product candidates. The
Company intends to commence tissue culture experiments if the ADA deficiency
demonstration of EX-VIVO gene repair is successful.
CYSTIC FIBROSIS
Cystic fibrosis ("CF") is a relatively common inherited disorder in people
of European descent and occurs in approximately one in 2,000 births in North
America and northern Europe. CF arises from defects in the molecular structure
of a protein that normally regulates the flow of salt and water onto the wet
surfaces lining the lungs, gut and genitourinary tract. Many patients with CF do
not survive beyond their twenties. Approximately seventy percent (70%) of all CF
patients carry the same genetic mutation (del-508), while more than 350
mutations are responsible for the remaining genetic mutations causing CF.
Current treatments for CF only treat the symptoms of the disease. These
treatments include the use of physical therapy and pharmaceutical agents to help
loosen the secretions of the airways, lungs and gut, and the use of antibiotics
to suppress bacterial and fungal infections incubated in the slow-moving
secretions. Curative therapies have been attempted unsuccessfully since the
identification of the specific genetic defect that causes CF, including attempts
to insert artificial transgenes into the lining of the airway.
Codon intends to develop a treatment for CF using direct repair of the
patient's mutated CF gene by systemic IN-VIVO therapy. Such therapy may be given
intravenously and would be designed to disperse throughout the whole body,
allowing repair of epithelial cells lining of the gut and urinary tract, as well
as those in the airway. The Company plans to begin preclinical studies of CF
Code Marker product candidates following the completion of animal studies for
IN-VIVO gene repair.
OBESITY
Codon has obtained a worldwide exclusive license from Johns Hopkins to
technology relating to the recently identified Trp64Arg allele of the Beta-3
adrenergic receptor ("Beta-3AR"). Beta-3AR may participate in the mechanism that
regulates how rapidly the human body burns calories. In the United States, one
person in 150 has both Beta-3AR genes in the Trp64Arg form. Such people,
carrying two copies of this variant allele, may burn calories significantly more
slowly than those with normal Beta-3AR genes, resulting in a statistically
significant weight gain over their normal siblings and, possibly, the
development of non-insulin dependent diabetes. Such people may benefit from a
treatment that could convert at least one of their Beta-3AR gene copies to the
normal structure.
Current treatments for obesity, including diet, exercise and
weight-reduction drugs, are effective in the short term, but often fail over the
long term. Nevertheless, people in the United States spend billions of dollars
each year for all of these products and services combined. Following the
completion of animal studies for IN-VIVO gene repair, Codon plans to begin
preclinical studies of its Beta-3AR Code Marker product candidates.
RESEARCH AND DEVELOPMENT
The Company's research and development programs are at a very early stage of
development. The Company has not completed development of any potential product
candidates and, accordingly, has not begun to generate revenues from any product
candidates. Substantial additional research and development will be necessary in
order for the Company to develop potential product candidates based on its small
molecule nucleoside compound technologies and its Code Marker technology, and
there can be no assurance that the Company's research and development efforts
will lead to the development of product
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candidates that are successful in preclinical studies, prove to be safe and
effective in clinical trials, receive the requisite regulatory approvals, or,
ultimately, are successfully commercialized. In addition to further research and
development, all of the Company's potential product candidates will require
significant, time-consuming and costly preclinical studies, clinical trials,
regulatory approval, and substantial additional investment prior to their
commercialization. It will be a number of years, if ever, before any of the
Company's product candidate development efforts will be completed. There can be
no assurance that any such product candidate will be successfully developed,
will prove successful in preclinical studies, will be successfully licensed to
future collaborative partners for clinical trials, will prove to be safe and
effective in clinical trials, will meet applicable regulatory standards, will be
capable of being produced in commercial quantities at acceptable costs, will be
eligible for third-party reimbursement from governmental or private insurers,
will be successfully marketed, or will achieve market acceptance. Further, the
Company's product candidates may prove to have undesirable or unintended side
effects that may prevent or limit their ability to receive regulatory approval
or limit their commercial use. The Company may find, at any stage of this
complex process, that potential product candidates that appeared promising in
preclinical studies do not demonstrate safety or efficacy on a larger scale, in
clinical trials, or do not receive the requisite regulatory approvals.
Accordingly, any product candidate development program undertaken by the Company
may be curtailed, redirected or eliminated at any time. In addition, there may
be delays in the Company's preclinical development and study schedules, and
there can be no assurance that the Company will meet expected preclinical
development and study schedules, which could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company conducts the majority of its research and development activities
through its own scientific staff and facilities. The Company has assembled a
scientific staff with multi-disciplinary skills in advanced research
technologies, including biochemistry, organic chemistry, analytic chemistry,
molecular biology, cell biology, microbiology, and enzymology. The Company
currently has 18 scientists engaged in research and development, 15 of whom are
M.D.s and/or Ph.D.s. The Company's research facilities include laboratories for
each of the scientific staff's disciplines. In addition to its in-house research
programs, the Company, both directly and through the Oncor License, collaborates
with academic and research institutions to support research in areas of interest
to the Company. Usually such research assistance is performed in conjunction
with additional in-house research and the faculty member supervising the outside
research effort may also participate as a consultant to the Company.
LICENSING AND COLLABORATIVE ARRANGEMENTS
The Company's strategy for the preclinical research and development of
certain of its product candidates is to rely in part on various collaborative
and license arrangements with academic and research institutions and commercial
entities. Accordingly, the Company is dependent in part upon the subsequent
success of such third parties in performing their obligations. The Company has
entered into collaborative arrangements with leading research institutions,
including arrangements with each of Johns Hopkins, Yale, and, through the Oncor
License, Princeton, and is continually seeking to enter into additional
arrangements with other collaborators and licensees. There can be no assurance
that the Company will be able to enter into acceptable collaborative and license
arrangements in the future, or that the parties with which the Company has
established or will establish arrangements will perform their obligations under
the arrangements. There can also be no assurance that its existing arrangements
or any future arrangements will lead to the development of product candidates
with commercial potential, that the Company will be able to obtain proprietary
rights or licenses for proprietary rights with respect to any technology
developed in connection with these arrangements, that the Company will be able
to ensure the confidentiality of any proprietary rights and information
developed in such arrangements, or prevent the public disclosure thereof. In
general, the Company's collaborative and license arrangements provide that they
may be terminated under certain circumstances. There can be no assurance that
such arrangements will not be terminated, or that the Company will be able to
extend any of its collaborative and license arrangements upon their expiration.
The Company currently has certain licenses from third parties, either directly
or
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indirectly through the Oncor License, and in the future may require additional
licenses from these or other parties to effectively develop potential product
candidates. There can be no assurance that such licenses will be obtainable on
commercially reasonable terms, if at all, or renewable if obtained, that the
patents underlying such licenses, if any, will be valid and enforceable, or that
the proprietary nature of the patented technology underlying such licenses will
remain proprietary.
THE JOHNS HOPKINS UNIVERSITY SCHOOL OF MEDICINE
Through a collaborative research agreement with Johns Hopkins (the "Hopkins
Collaborative Agreement"), the Company is currently providing financial support
for research relating to the Trp64Arg allele of Beta-3AR. Unless terminated
earlier, the Hopkins Collaborative Agreement terminates in March 1999, subject
to renewal in certain instances. Further, through a license with Johns Hopkins
(the "Hopkins License"), the Company has obtained an exclusive, worldwide
license for prophylactic and therapeutic uses relating to Johns Hopkins'
potentially patentable and non-patentable Trp64Arg allele technologies. Unless
terminated earlier, the Hopkins License expires in each country on the date 10
years after the first commercial sale of an FDA-approved product based on the
licensed technologies. The Company is obligated to make certain royalty payments
to Johns Hopkins based on the percentage of net sales of products incorporating
the licensed technologies. In addition, in connection with the Hopkins License,
the Company issued warrants to Johns Hopkins to purchase an aggregate of 10,834
shares of the Common Stock of the Company at an exercise price of $1.50 per
share.
YALE UNIVERSITY SCHOOL OF MEDICINE
Through a research agreement with Yale University (the "Yale Research
Agreement"), the Company is currently providing financial support for research
relating to oligonucleotide mediated gene therapy (the "Yale Technology").
Pursuant to the terms of the Yale Research Agreement, the Company has an option
to obtain exclusive worldwide licenses on any Yale Technology developed under
the Yale Research Agreement. Unless terminated earlier, the Yale Research
Agreement terminates in January 1997, subject to renewal in certain instances.
Through a license with Yale University (the "Yale License"), the Company has
also obtained an exclusive worldwide license for commercial use of an existing
invention related to the Yale Technology that is currently the subject of a
pending United States patent application. Unless terminated earlier, the Yale
License expires in each country on the date of the last to expire patent issued
in such country. The Company is obligated to make certain royalty and milestone
payments to Yale University based on the percentage of net sales of products
incorporating the licensed technologies.
PRINCETON UNIVERSITY
Through a license agreement between Oncor and Princeton (the "Princeton
License"), Oncor has obtained a worldwide license for commercial use of
Princeton's triple stranded nucleic acid technology. The Princeton License is
exclusive for so long as Oncor pays Princeton a minimum annual royalty, and is
non-exclusive thereafter. Unless terminated earlier, the Princeton License
terminates in each country on the date of the last to expire patent issued in
such country. Furthermore, Oncor is obligated to make certain royalty and
milestone payments to Princeton based on the percentage of net sales of products
incorporating the licensed technologies. In February 1995, the Company and Oncor
entered into the Oncor License pursuant to which Oncor is providing the Company
with an exclusive worldwide license to certain of Oncor's human genome
technologies, including certain technologies licensed to Oncor under the
Princeton License, that may be useful in the development of product candidates
for the treatment and prevention of certain human disorders which are caused
wholly, or in part, by genetic mutations. It is the Company's intention to have
the Princeton License assigned by Oncor to the Company prior to the consummation
of the Offering.
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Under the terms of the Oncor License, the Company is obligated to pay Oncor,
on a semi-annual basis, royalties for any of the Company's product candidates
commercialized by the Company or its potential corporate partners, based in
whole or in part on existing Oncor technology licensed to the Company by Oncor.
As of September 30, 1996, none of the Company's product candidates had been
commericalized. The Company is reliant on the technologies licensed directly
from Oncor and from third parties through Oncor, which will form the basis of
some if not all of the Company's product candidates. The Company's rights under
the Oncor License are subject to certain rights retained by Oncor in the field
of genetic test systems and related products. The initial term of the Oncor
License expires in January 2000. Thereafter, the Oncor License is automatically
renewable for additional one-year periods, unless either party objects. There
can be no assurance that the Oncor License will be renewed at the end of its
initial term or that it will not be terminated earlier pursuant to its terms.
There also can be no assurance that conflicts of interest between Oncor and the
Company will not arise in respect to the Oncor License or other aspects of the
Company's relationship with Oncor.
The Company's rights to technologies licensed to the Company from third
parties through the Oncor License are subject to the license agreements between
such third parties and Oncor. No assurance can be given that the third parties
to these agreements will perform their obligations under such agreements on a
timely basis, if at all. If such third parties breach or terminate their
agreements with Oncor or otherwise fail to, or are unable to, comply with the
provisions of their agreements with Oncor for whatever reason, the Company would
have no direct recourse and would be dependant on Oncor to enforce such
agreements. The agreements between Oncor and the third parties expire at various
times. There can be no assurance that these agreements will be renewed at the
end of their initial terms or that such agreements will not be terminated or
cancelled prior to their expiration. The Company has no rights under these
third-party agreements and is reliant upon Oncor to negotiate renewal of such
agreements and resolve disputes under such agreements. If the third parties to
the agreements that the Company licenses from Oncor through the Oncor License
breach such agreements or otherwise fail to comply with such agreements, or such
agreements are terminated or otherwise expire, the preclinical development of
certain of the Company's product candidates may be delayed or terminated, or the
Company would have to expend substantial additional resources on preclinical
development, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's strategy for the preclinical research, development, clinical
trials and commercialization of certain of its product candidates is to enter
into various collaborative and other arrangements with corporate partners,
licensees and others, and upon the subsequent success of third parties in
performing clinical testing, obtaining regulatory approvals, manufacturing and
marketing the Company's products. There can be no assurance that such
arrangements will be obtainable on commercially reasonable terms, if at all,
that such arrangements will be successful, that the parties with which the
Company has established or will establish arrangements will perform their
obligations under the arrangements, or that current or potential collaborators
will not compete with the Company by seeking alternative means of developing
treatments for the diseases targeted by the Company.
PATENTS AND PROPRIETARY INFORMATION
The Company's success will depend in large part on its or its licensees
ability to obtain patents, defend its patents, maintain trade secrets and
operate without infringing upon the proprietary rights of others, both in the
United States and in foreign countries. Because of the substantial length of
time and expense associated with bringing new products through development and
regulatory approval to the marketplace, the pharmaceutical and biotechnology
industries place considerable importance on obtaining and maintaining patent and
trade-secret protection for new technologies and products. The Company owns or
licenses the technologies underlying five pending United States patent
applications and it has filed certain corresponding foreign patent applications
and intends to file additional foreign patent applications and additional United
States patent applications in relation to its patentable technologies, as
appropriate.
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There can be no assurance that patents will issue as a result of any such
pending applications or that, if issued, such patents will be sufficiently broad
to afford protection against competitors with similar technology. The patent
position of firms relying upon biotechnology is highly uncertain in general and
involves complex legal and factual questions. To date, there has emerged no
consistent policy regarding the breadth of claims allowed in biotechnology
patents or the degree of protection afforded under such patents. In addition,
there can be no assurance that any patents issued to the Company, or for which
the Company has license rights, will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide adequate
protection to the Company. Moreover, there can be no assurance that others will
not independently develop substantially equivalent technologies, design around
the Company's or its licensees' patents, or obtain access to the Company's
unpatentable know-how.
The commercial success of the Company will also depend upon avoiding the
infringement of patents issued to competitors and upon maintaining the
technology licenses upon which certain of the Company's potential product
candidates might be based. Litigation, which could result in substantial cost to
the Company, may be necessary to enforce the Company's patent and license rights
or to determine the scope and validity of others' proprietary rights. If
competitors of the Company prepare and file patent applications in the United
States that claim technology also claimed by the Company, the Company may have
to participate in interference proceedings declared by the PTO to determine the
priority of invention, which could result in substantial cost to the Company,
even if the outcome is favorable to the Company. An adverse outcome could
subject the Company to significant liabilities to third parties and require the
Company to license disputed rights from third parties, cease using the
technology, or curtail any related research and development activity. A United
States patent application is maintained under conditions of confidentiality
while the application is pending in the PTO, so that the Company cannot
determine the inventions being claimed in pending patent applications filed by
its competitors in the PTO. Further, patent laws do not provide any remedies for
infringement that occurred before the patent is granted.
The Company's rights to technologies licensed to the Company from third
parties through Oncor are subject to various provisions in the license
agreements between such third parties and Oncor. No assurance can be given that
Oncor will perform its obligations under such agreements, that such agreements
will not be terminated, or that such agreements can be renewed upon termination
or expiration. If Oncor breaches such agreements or otherwise fails to comply
with such agreements, or if such agreements are terminated or otherwise expire,
the preclinical development of certain of the Company's product candidates may
be delayed or terminated, or the Company would have to expend substantial
additional resources on preclinical development, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company currently has certain licenses from third parties and in the
future may require additional licenses from other parties to effectively develop
its potential product candidates. There can be no assurance that such licenses
will be obtainable on commercially reasonable terms, if at all, that the patents
underlying such licenses will be valid and enforceable or that the proprietary
nature of the technology underlying such licenses will remain proprietary.
The Company relies substantially on certain technologies that are not
patentable or proprietary and are therefore available to the Company's
competitors. The Company also relies on certain proprietary trade secrets and
know-how that are not patentable. Although the Company has taken steps to
protect its unpatented trade secrets and know-how, in part through the use of
confidentiality agreements with its employees, consultants and certain of its
contractors, there can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
developed or discovered by competitors. In addition, the Company's scientists
have obtained proprietary and other confidential information relating to the
Company's potential collaborative partners during the development, negotiation
and due diligence stages of potential arrangements with such collaborative
partners. Although the Company has
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taken steps to protect the proprietary and other confidential information
received from potential collaborative partners, there can be no assurance that
any such potential collaborative partners will not make a claim that the Company
has breached its responsibilities with respect to such information. Such a
claim, if made, could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company's management and scientific personnel have been recruited
primarily from other pharmaceutical companies and academic institutions. In many
cases, these individuals are continuing research in the same areas with which
they were involved prior to joining the Company. As a result, the Company could
be subject to allegations of violation of trade secrets and similar claims. The
Company has not received any notice of any such claims and knows of no basis for
any such claims.
COMPETITION
The pharmaceuticals and biotechnology industries are subject to intense
competition. Competitors of the Company in the United States and in foreign
countries are numerous and include, among others, diagnostic, health care,
pharmaceutical, biotechnology and chemical companies, academic institutions,
government agencies and other public and private research organizations. The
Company's competitors for its small molecule nucleoside compound program include
companies that design, test and market small molecule nucleoside drugs for
treatment of cancers and viral disorders. Such competitors include Bristol-Myers
Squib, Glaxo-Wellcome, Zeneca, Gilead Sciences Anaderm Research, Inc., and
Gensia Pharmaceuticals. In addition, the Company's Code Marker technology
competes with other technologies utilized to treat human disease. Such competing
technologies include: (1) databases of DNA code information relating to the
human genome, (2) therapeutics using oligonucleotides to alter gene activity and
cell function (e.g., antisense blocking of mRNA translation, triplex blocking of
gene transcription, and ribozymal destruction of mRNA's), including therapeutics
being developed by companies such as Cell Genesys, Kimerogen and Epoch
Pharmaceuticals, and (3) therapeutics based on insertion of artificial genes
into cells (gene therapy). With respect to genetic databases, the Company
actively seeks to develop collaborative alliances with universities or
corporations that have identified the genetic codes of mutant genes underlying
particular genetic disorders. However, the Company has no plans to initiate
genetic discovery activities in competition with these parties, and,
furthermore, there can be no assurance that the Company will be able to enter
into collaborative alliances with such parties on commercially reasonable terms,
if at all.
Many of these competitors have substantially greater financial and technical
resources and production and marketing capabilities than the Company. There can
be no assurance that these competitors will not succeed in developing
technologies and products that are more effective, easier to use or less
expensive than those that are being developed by the Company, or that would
render the Company's technology and potential product candidates obsolete and
noncompetitive. The Company also competes with various companies in acquiring
technology from academic institutions, government agencies and research
organizations. In addition, many of the Company's competitors have significantly
greater experience than the Company in conducting preclinical studies of new
pharmaceutical products and in obtaining FDA and other regulatory approvals of
products for use in health care. Accordingly, the Company's competitors may
succeed in obtaining regulatory approval for products more rapidly than the
Company's potential collaborators. The Company relies on certain technologies
that are not patentable or proprietary and are available to the Company's
competitors. Competition may increase further as a result of the potential
advances in the technology underlying the product candidates being developed by
the Company.
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GOVERNMENT REGULATION
The FDA and comparable agencies in foreign countries impose substantial
requirements on the introduction of pharmaceutical products through lengthy and
detailed laboratory and clinical trial procedures and other costly and
time-consuming procedures. Satisfaction of these requirements typically takes a
number of years and varies substantially based upon the type, complexity and
novelty of the pharmaceutical. In general, the FDA approval process for
pharmaceuticals involves the submission of an IND application following
preclinical studies, clinical trials in humans to demonstrate the safety and
efficacy of the product under the protocols set forth in the IND and submission
of preclinical and clinical data as well as other information to the FDA in an
NDA or PLA. To date, the Company has not submitted an IND for any of its lead
compounds or product candiates under development, and there can be no assurance
that an IND will be submitted for any of the Company's potential product
candidates. The Company or its potential collaborators will be required to
expend substantial time and financial resources to conduct clinical trials.
There can be no assurance that the results of such trials, should they be
commenced, will support the submission or the approval of an NDA or PLA.
Accordingly, there can be no assurance that FDA or other regulatory approval for
any of the Company's potential product candidates will be granted on a timely
basis, if at all. There can be no assurance that the Company or its potential
collaborators will have sufficient resources to complete the required regulatory
review process, or that the Company or its potential collaborators could
overcome the inability to obtain, or delays in obtaining, such approvals. The
failure of the Company or its potential product candidates to receive FDA
approval would preclude the Company or its potential collaborators from
marketing and selling any of the Company's product candidates in the United
States and would have a material adverse effect on the Company's business,
financial condition and results of operations. As part of its product candidate
commercialization strategy, the Company or its potential collaborators may seek
approval to market and sell certain of the Company's product candidates first in
Europe before obtaining the requisite approvals in the United States. European
and other foreign regulatory approvals are subject to the same risks and
uncertainties as FDA and other regulatory approvals in the United States.
The manufacturing and marketing of the Company's product candidates by the
Company or its potential collaborators, as well as the Company's ongoing
research and development activities and preclinical studies, are also subject to
regulation by governmental agencies of the United States and other countries.
The effect of government regulation may be to delay marketing of the Company's
product candidates by the Company or its potential collaborators for a
considerable period of time, to impose costly procedures upon the activities of
the Company or its potential collaborators, and to furnish a competitive
advantage to larger companies that compete with the Company or its potential
collaborators. Any delay in obtaining, or failure to obtain, FDA or other
necessary regulatory approvals, including approvals by comparable agencies in
foreign countries, would adversely affect the marketing of the Company's product
candidates by the Company or its potential collaborators and the ability to
generate revenue. In addition, even if approvals are obtained, the marketing and
manufacturing of pharmaceuticals are subject to continual FDA (or comparable
foreign agency) review and surveillance and failure to comply with regulations,
including maintaining compliance with GMP requirements, or discovery of
previously unknown problems can result in FDA (or comparable foreign agency)
action against the product or the manufacturer, including fines, recalls,
product seizures, and suspension or withdrawal of previously granted regulatory
approvals. Furthermore, government regulation may increase at any time, creating
additional hurdles for the Company or its potential collaborators. The extent of
potential adverse government regulation that might arise from future legislation
or administrative action cannot be predicted.
Additionally, the Company and its potential collaborators are or may become
subject to various federal, state and local laws, regulations and
recommendations relating to safe working conditions, laboratory and
manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with the Company's
research and development work, including, but not limited
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to, the Federal Food, Drug and Cosmetic Act, the Environmental Protection Act,
the Occupational Safety and Health Act, and state, local and foreign
counterparts to certain of such acts. Compliance with such laws, regulations and
requirements may be costly and time-consuming, and the failure to maintain such
compliance by the Company or its potential collaborators could have a material
adverse effect on the Company's business, financial condition and results of
operations.
To date, the Company has engaged in preclinical development of its potential
product candidates and expects to conduct clinical trials through collaborative
arrangements with third parties not employed by the Company. To adequately test
its product candidates and to obtain necessary regulatory approvals in-house,
the Company will need to hire additional personnel skilled in the clinical trial
and the regulatory compliance processes. There can be no assurance that the
Company will successfully complete clinical trials of, obtain regulatory
approval for, or manufacture or market any product candidate it may develop,
either independently or pursuant to manufacturing or marketing arrangements, if
any, with third parties. Should the Company seek to enter into any such
third-party arrangements, there can be no assurance that such arrangements can
be successfully negotiated on commercially reasonable terms or that any such
arrangements, if entered into, will be successful.
SCIENTIFIC ADVISORY BOARD AND CONSULTANTS
The Company has retained a group of scientists with expertise in DNA
chemistry, cancer genetics, molecular biology, oncology and other relevant
scientific disciplines to serve on its scientific advisory board. The scientific
advisory board meets as a group at scheduled meetings and the scientific
advisors meet more frequently, on an individual basis, with the Company's
scientific personnel and management to discuss the Company's ongoing research
and development products.
The current members of the scientific advisory board are as follows:
JACQUES R. FRESCO, PH.D. is Professor of Molecular Biology, Princeton
University. Formerly the Chairman of the Department of Biochemical Sciences,
Princeton University, Dr. Fresco is the original developer of third-strand
nucleic acid binding.
PETER M. GLAZER, M.D., PH.D. is Assistant Professor, Department of
Therapeutic Radiology, Yale University School of Medicine. Dr. Glazer is
pioneering research on mutation damage and repair utilizing psoralen
third-strands.
CURTIS C. HARRIS, M.D. is the Chief of the Laboratory of Human
Carcinogenesis, the National Institutes of Health, National Cancer Center. Dr.
Harris is a leading investigator into the role of the mutant p53 protein and
other oncogene products in carcinogenesis.
JOHN E. HEARST, PH.D. is an active Emeritus Professor in the Department of
Chemistry and the Division of Biochemical Dynamics at the Lawrence Berkeley
Laboratory, University of California, Berkeley. Dr. Hearst has pioneered
research of third-strand directed psoralen drug DNA damage.
LYNN C. KLOTZ, PH.D. was formerly an Associate Professor of Biochemistry and
Molecular Biology at Harvard University. He is an expert in oligonucleotide
physical chemistry and recently co-authored a large study on oligonucleotide
therapeutics technology and its commercial promise.
THOMAS KUNKEL, PH.D. is a Research Geneticist at the National Institute of
Environmental Health Sciences (NIEHS), Research Triangle Park, North Carolina.
Dr. Kunkel is a leader in the study of site-directed mutagenesis and the
mechanisms of DNA nucleotide excision repair.
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ALAN R. SHULDINER, M.D. is an Associate Professor of Medicine at The Johns
Hopkins School of Medicine. Dr. Shuldiner is an expert in obesity and diabetes
and is the discoverer of the Trp64Arg mutation in Beta-3AR.
HUNTINGTON F. WILLARD, PH.D. is the Chairman, Department of Genetics at the
Case Western Reserve University. Formerly an Associate Professor of the
Department of Genetics at Stanford University, Dr. Willard is an expert in
chromosome structure and function and in how these affect the function of
individual genes.
The Company also has consulting agreements with a number of other scientists
with expertise in the Company's core disciplines who are consulted from time to
time by the Company.
The scientific advisors and consultants are reimbursed for their expenses,
receive nominal cash compensation in connection with their service, and may have
been issued options to purchase shares of Common Stock. See "Risk
Factors -- Dependence on Key Management and Qualified Personnel" for a
description of certain risks associated with the scientific advisors and
consultants.
MANUFACTURING
The Company has no experience in manufacturing pharmaceuticals and has not
invested in the development of pharmaceutical manufacturing capabilities that
comply with the current GMP requirements prescribed by the FDA. To be
successful, upon the receipt of the requisite regulatory approvals, the
Company's product candidates must be manufactured in commercial quantities under
GMP, and at acceptable costs. Once it has identified potential product
candidates, the Company will depend on its collaborators or licensees, if any,
or it will need to develop its own GMP manufacturing facility for the commercial
manufacture of its potential product candidates. If the Company is unable to
enter into collaborative relationships or develop manufacturing capabilities on
acceptable terms, its ability to conduct preclinical studies will be adversely
affected, resulting in delays in the development of such product candidates, the
submission of product candidates for regulatory approval and delays in the
initiation of new development programs. There can be no assurance that the
Company will be able to acquire or establish satisfactory third-party
relationships to provide manufacturing resources.
MARKETING AND SALES
The Company has no experience in marketing, distribution or selling
pharmaceutical products. In order to market and sell any product candidates that
it may develop in-house, the Company will need to develop a sales force and a
marketing group, or make appropriate arrangements with its collaborators,
licensees or other strategic partners to provide for the sales, distribution and
marketing of any product candidates it may develop. There can be no assurance
that the Company will be able to establish sales, distribution or marketing
capabilities, or make arrangements with others to perform such activities.
PRODUCT LIABILITY AND INSURANCE
The Company's business may be materially and adversely affected by potential
product liability risks which are inherent in the preclinical study, clinical
trials, manufacturing, and marketing of the Company's potential product
candidates. There can be no assurance that product liability claims will not be
asserted against the Company, its collaborators, or licensees. In addition, the
use of pharmaceutical product candidates that may be developed by the Company's
potential collaborators in clinical trials and the subsequent sale of such
product candidates by the Company's potential collaborators is likely to cause
the Company to bear all or a portion of those risks. The Company does not
currently have product liability insurance relating to any pharmaceutical
product candidates it may develop. There can be no assurance that it will be
able to obtain or maintain adequate product liability insurance on acceptable
terms or that
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such insurance will provide adequate coverage against potential liabilities.
Furthermore, there can be no assurance that any collaborators or licensees of
the Company will agree to indemnify the Company, be sufficiently insured, or
have a net worth sufficient to satisfy the product liability claims. Claims or
losses in excess of any liability insurance coverage that may be obtained by the
Company could have a material adverse effect on the Company's business,
financial condition or results of operations.
HUMAN RESOURCES
As of September 30, 1996, the Company had 24 employees, consisting of three
administrative, three legal and 18 laboratory research personnel. Of the 24
employees, 15 are Ph.Ds and/or M.D.s and two are J.D.s. None of the Company's
employees is represented by a labor union. The Company has experienced no work
stoppages and believes that its relations with its employees are good. For a
description of certain risks associated with the Company's employees, see "Risk
Factors -- Dependence on Key Management and Qualified Personnel."
FACILITIES
The Company's administrative, research and development facilities consist of
approximately 10,000 square feet in Gaithersburg, Maryland, under an arrangement
with Oncor. The Company expects to enter into a sublease with Oncor in November
1996 relating to its facilities, which sublease is expected to expire in March
2004, subject to an extention of the lease by Oncor. The Company believes that
its facilities are adequate through the end of 1996. An additional, adjacent
12,000 square feet of space is immediately available as needed and would satisfy
the Company's projected requirements through 1999. See "Certain
Transactions -- Relationship with Oncor."
LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware of
any pending or threatened litigation that would have a material adverse effect
on the Company or its business.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Stephen Turner(1).................................... 51 Chairman of the Board of Directors
William A. Ryan, Jr., M.D............................ 39 President, Chief Executive Officer and Director
Theodore D. Pennington............................... 59 Chief Financial Officer, Vice President,
Finance and Administration, Treasurer
and Secretary
Jay George, Ph.D..................................... 43 Vice President, Research and Development
John Pappajohn(1).................................... 68 Director
Julius A. Vida, Ph.D., M.B.A......................... 68 Director
Sandy B. Primrose, Ph.D.............................. 51 Director
</TABLE>
- ------------------------
(1) Member of the Audit and Compensation Committees.
MR. STEPHEN TURNER has served as the Company's Chairman of the Board of
Directors since its incorporation in June 1994, and served as the Company's
President from June 1994 to February 1995. Since its incorporation in 1983, Mr.
Turner has also served as Chairman of the Board of Directors and Chief Executive
Officer of Oncor. From 1976 to 1983, Mr. Turner was the founder and Chairman of
the Board of Directors of Bethesda Research Laboratories, Inc. ("BRL"), now a
division of Life Technologies, Inc. BRL manufactures and markets products for
use in molecular biology research. Prior to joining BRL, Mr. Turner was employed
by Becton, Dickinson and Company, a health care company. Mr. Turner serves on
the Board of Directors of OncorMed, Inc., a provider of genetic testing and
medical information services.
WILLIAM A. RYAN, JR., M.D. has served as the Company's President and Chief
Executive Officer since February 1995 and as a Director since May 1995. From
July 1992 to February 1995, Dr. Ryan served as Director of Technology Assessment
for The Castle Group, Ltd., a medical venture capital firm, and as an Investment
Banker for Paramount Capital, Inc., an investment banking firm. From April 1990
to July 1992, Dr. Ryan served as an Associate Investment Banker in the Health
Care Industry Corporate Finance Group at Smith Barney, Harris Upham, an
investment banking firm. From April 1985 to April 1990, Dr. Ryan was an American
Cancer Society Fellow at the Cold Spring Harbor Laboratory.
MR. THEODORE D. PENNINGTON has served as the Company's Chief Financial
Officer, Vice President, Finance and Administration, Treasurer and Secretary
since September 1996. From October 1995 to September 1996, Mr. Pennington was an
independent consultant in the software industry. From May 1990 to October 1995,
Mr. Pennington served in various capacities with Cryomedical Sciences, Inc., a
developer of high-tech medical devices and biotech products, including Vice
President -- Finance and Administration. From 1987 to 1989, Mr. Pennington
served as Corporate Controller of Netrix Corporation, a manufacturer of
telecommunications hardware and software.
JAY GEORGE, PH.D. has served as the Company's Vice President, Research and
Development since its incorporation in June 1994. From January 1984 to June
1994, Dr. George served in various capacities with Oncor, most recently as Vice
President of Research and Development. From June 1981 to January 1984, Dr.
George was Research Assistant Professor in the Department of Biochemistry at
Georgetown University.
MR. JOHN PAPPAJOHN has been a Director of the Company since its
incorporation in June 1994. Since 1969, Mr. Pappajohn has been the President and
principal stockholder of Equity Dynamics Inc., a financial
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consulting firm, and the sole owner of Pappajohn Capital Resources, a venture
capital firm, both located in Des Moines, Iowa. Mr. Pappajohn serves on the
Boards of Directors of Drug Screening Systems, Inc., a manufacturer and marketer
of test kits used in detection of drug abuse, CORE, Inc., a provider of software
and consulting services to aid the management of a company's employee disability
and worker's compensation responsibilities, Drug Screening Systems, Inc., a
manufacturer and marketer of test kits used in detection of drug abuse, Fuisz
Technologies Ltd., a developer of rapidly dissolving tablet technologies for
oral drug delivery and food applications, GalaGen, Inc., a developer of oral
therapeutics for the treatment and prevention of gastrointestinal diseases,
OncorMed, Inc., a provider of genetic testing and medical information services,
PACE Health Management Systems, Inc., a developer and marketer of software
systems for health management, and The Care Group, Inc., a homecare and
alternative site health care company.
JULIUS A. VIDA, PH.D., M.B.A. has been a Director of the Company since
October 1996. In June 1993, Mr. Vida founded, and since such time has served as
the President of Vida International Pharmaceutical Consultants, a pharmaceutical
and biotechnology industries consulting firm. From 1975 to June 1993, Dr. Vida
served in various capacities with Bristol-Myers Squibb Co., a pharmaceutical
company, most recently as Vice President, Business Development, Licensing and
Strategic Planning. From 1967 to 1975, Dr. Vida served as the Section Head,
Pharmaceutical Research Central Research Laboratory of Kendall Colgate Co., a
pharmaceutical company. Dr. Vida serves on the Boards of Directors of Biomatrix,
Inc., a biotechnology company, Medarex, Inc., a biotechnology company, SuperGen,
Inc., a biotechnology company, and the Boards of Directors of several
privately-held biotechnology companies.
SANDY B. PRIMROSE, PH.D. has been a Director of the Company since October
1996. Since July 1996, Dr. Primrose has served as V.P. of European Operations of
Azur Environmental, an environmental diagnostic manufacturing company. From May
1995 to July 1996, Dr. Primrose served as Managing Director of International
Diagnostics Group, Ltd., a food microbiology organization. From August 1994 to
May 1995, Dr. Primrose was an independent consultant undertaking business and
technical reviews in the biotechnology and pharmaceutical industries. From 1986
to August 1994, Dr. Primrose served in various capacities with Amersham
International, a radiochemical and radiopharmaceutical company, including
General Manager, Molecular Biology Division, General Manager, Life Sciences
Division, Director of New Business Development and, most recently, as Technical
Director. From 1981 to 1986, Dr. Primrose served in various capacities with
Searle Research and Development, a research and development company, most
recently as Senior Director of Drug Development.
The Directors of the Company hold office until the next annual meeting of
stockholders and until their successors have been duly elected and qualified or
until their earlier death, resignation or removal. National Securities
Corporation is entitled to designate one member of the Board of Directors from
the date of this Prospectus until 12 months from the date of this Prospectus.
Non-management Directors receive a fee of $2,500 for attending Board of
Directors' or committee meetings, and are reimbursed for expenses incurred in
connection with performing their duties as Directors of the Company. Non-
management Directors appointed or elected to the Board of Directors on or after
the date of the Offering will receive an immediately exercisable option grant
under the Company's Plan to purchase 10,000 shares of Common Stock, at the fair
market value at the date of the grant, subject to certain rights of repurchase
by the Company. In addition, on the date of each annual meeting of stockholders
held after the date of the Offering, each non-management Director who will
continue to serve as a Director for the following year, and also has served as a
Director for at least six months prior to the date of the annual meeting, shall
receive an option to purchase 2,000 shares of Common Stock, at the fair market
value at the date of the grant, vesting over a one-year period beginning on the
date of grant. See "-- 1996 Stock Option/Stock Issuance Plan."
The Audit Committee was established in October 1996 and reviews, acts on,
and reports to the Board of Directors with respect to various auditing and
accounting matters, including the selection of the Company's auditors, the scope
of the annual audits, fees to be paid to the auditors, the performance of the
43
<PAGE>
Company's independent auditors, and the accounting practices of the Company. The
Compensation Committee was established in October 1996 and determines the
salaries and incentive compensation of the other employees and consultants of
the Company. The Compensation Committee also administers various incentive
compensation, stock and benefit plans of the Company, including the Company's
Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to October 1996, the Company's Board of Directors performed the duties
of the Compensation Committee. The Company's Compensation Committee consists of
Mr. John Pappajohn and Mr. Stephen Turner. The Compensation Committee determines
the salaries and incentive compensation of the officers of the Company and
provides recommendations for the salaries and incentive compensation of the
other employees and the consultants of the Company. The Compensation Committee
also administers the 1996 Plan. Until February 1995, Mr. Turner served as the
Company's President. Mr. Turner is the Chief Executive Officer and Chairman of
the Board of Directors of Oncor.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation paid by
the Company during 1995 to the Company's Chief Executive Officer and the one
other executive officer of the Company whose total compensation during 1995
exceeded $100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION(2)
AWARDS
ANNUAL -----------------------
COMPENSATION(1) SECURITIES
----------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)
- ------------------------------------------------------- --------- ---------- ----------- -----------------------
<S> <C> <C> <C> <C>
William A. Ryan, Jr., M.D.(3).......................... 1995 $ 100,833 -- 66,667
President and Chief
Executive Officer
Stephen Turner(3)...................................... 1995 -- -- 50,000(4)
Chief Executive Officer
Jay George, Ph.D....................................... 1995 125,625 -- 33,334
Vice President, Research and
Development
</TABLE>
- ------------------------
(1) Other annual compensation in the form of perquisites and other personal
benefits has been omitted as the aggregate amount of such perquisites and
other personal benefits constituted the lesser of $50,000, or 10% of the
total annual salary and bonus for each Named Executive Officer in 1995.
(2) The Company did not grant any stock appreciation rights or make any
long-term incentive plan payments to any Named Executive Officer in 1995.
(3) Mr. Stephen Turner served as Chief Executive Officer until the appointment
of Dr. Ryan in February 1995. Mr. Turner received no cash compensation from
the Company in 1995.
(4) Options to purchase 50,000 shares of Common Stock were granted to Mr. Turner
in his capacity as a Director of the Company, subsequent to his resignation
as Chief Executive Officer.
44
<PAGE>
STOCK OPTION INFORMATION
The following table shows, with respect to the Named Executive Officers,
certain information concerning the grant of stock options in 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS INITIAL MARKET PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE PRICE PER FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE SHARE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR ($/SHARE) ($/SHARE) DATE 5% 10%
- ---------------------------------- ----------- --------------- ----------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
William A. Ryan, Jr., M.D......... 66,667(2) 29.85% $ 1.50 $ 1.50 2/22/05 $ 62,890 $ 159,375
Stephen Turner.................... 50,000(3) 22.39 1.50 1.50 2/16/05 47,167 119,531
Jay George, Ph.D.................. 33,334(3) 14.93 1.50 1.50 2/16/05 31,445 79,689
</TABLE>
- ------------------------
(1) Potential realizable value is based on the assumption that the price per
share of the Common Stock appreciates at the assumed annual rate of stock
appreciation for the option term. The assumed 5% and 10% annual rates of
appreciation (compounded annually) over the term of the option are set forth
in accordance with the rules and regulations adopted by the Securities and
Exchange Commission and do not represent the Company's estimate of stock
price appreciation.
(2) The options vest in four equal annual installments, commencing on the date
of grant.
(3) The options vest in five equal annual installments, commencing on the date
of grant.
The following table sets forth certain information with respect to the Named
Executive Officers regarding stock option values at December 31, 1995. No stock
options were exercised by such persons in 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END FISCAL YEAR END(1)
-------------------------- --------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------- ----------- ------------- ----------- -------------
William A. Ryan, Jr., M.D........................ -- 66,667 -- $ 266,668
Stephen Turner................................... -- 50,000 -- 200,000
Jay George, Ph.D................................. -- 33,334 -- 133,336
</TABLE>
- ------------------------
(1) There was no public trading market for the Common Stock at September 30,
1996. Accordingly, these values have been calculated on the basis of the
assumed initial public offering price of $5.50 per Share, less the
applicable exercise price, multiplied by the number of shares underlying
such options.
1996 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's 1995 Stock Option Plan (the "Predecessor Plan") was originally
adopted by the Board of Directors in February 1995. Up to 466,667 shares of
Common Stock were authorized and reserved for issuance under the 1995 Plan.
Under the 1995 Plan, the Board of Directors granted options from time to time to
employees, officers, directors, consultants and the Company's scientific
advisory board. Options to purchase 454,187 shares of Common Stock, at a
weighted-average exercise price of $2.14 per share, are currently outstanding
under the 1995 Plan, 70,171 of which are currently exercisable.
45
<PAGE>
The Company's 1996 Stock Option/Stock Issuance Plan (the "Plan") is intended
to serve as the successor equity incentive program to the Company's Predecessor
Plan. The Plan was adopted by the Board of Directors in October 1996 and
approved by the stockholders in October 1996. 954,166 shares of Common Stock
have been authorized for issuance under the Plan. This share reserve is
comprised of (i) the shares that remained available for issuance under the
Predecessor Plan, including the shares subject to outstanding options
thereunder, plus (ii) an additional increase of 500,000 shares. Except to the
extent otherwise provided below, the terms of the Predecessor Plan are
substantially similar to those as the Discretionary Option Grant Program under
the Plan.
The Plan is divided into three separate components: (i) the Discretionary
Option Grant Program under which eligible individuals may, at the discretion of
the Plan Administrator, be granted options to purchase shares of Common Stock at
an exercise price not less than 85% of their fair market value on the grant
date; (ii) the Stock Issuance Program under which such individuals may, at the
discretion of the Plan Administrator's, be issued shares of Common Stock
directly, through the purchase of such shares at a price not less than 85% of
their fair market value at the time of issuance or as a bonus tied to the
performance of services; and (iii) the Automatic Option Grant Program under
which option grants will automatically be made at periodic intervals to eligible
non-management Board of Directors members to purchase shares of Common Stock at
an exercise price equal to 100% of their fair market value on the grant date.
The exercise price per share of an option granted under the Predecessor Plan may
be less than, equal to or greater than the fair market value on the grant date.
The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Compensation Committee. As Plan Administrator, the
Compensation Committee has complete discretion to determine which eligible
individuals are to receive option grants or stock issuances, the time or times
when such option grants or stock issuances are to be made, the number of shares
subject to each such grant or issuance, the status of any granted option as
either an incentive stock option or a non-statutory stock option under the
federal tax laws, the vesting schedule to be in effect for the option grant or
stock issuance, and the maximum term for which any granted option is to remain
outstanding.
Upon an acquisition of the Company by merger or asset sale, each outstanding
option and unvested stock issuance will be subject to accelerated vesting under
certain circumstances.
Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program, which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from the
Company equal to the excess of (i) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (ii) the aggregate exercise
price payable for such shares. Such appreciation distribution may be made in
cash or in shares of Common Stock.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
options incorporated from the Predecessor Plan) in return for the grant of new
options for the same or different number of option shares with an exercise price
per share based upon the fair market value of the Common Stock on the new grant
date.
Under the Automatic Option Grant Program, each individual serving as a
non-management Board of Directors' member on the date the Underwriting Agreement
for the Offering is executed will receive an option grant on such date for
10,000 shares of Common Stock, provided such individual has not otherwise been
in the prior employ of the Company. Each individual who first becomes a
non-management Board of Directors' member thereafter will receive a 10,000-share
option grant on the date such individual joins the Board of Directors, provided
such individual has not been in the prior employ of the Company. In addition, at
each annual stockholders' meeting, beginning with the 1997 Annual Meeting, each
individual who is to continue to serve as a non-management Board of Directors'
member after the meeting will receive an additional option grant to purchase
2,000 shares of Common Stock, whether or not such individual has been in the
prior employ of the Company.
46
<PAGE>
Each grant will have a term of 10 years, subject to earlier termination
following the optionee's cessation of Board of Directors' service. Each 10,000
share automatic grant will be immediately exercisable; however, any shares
purchased upon exercise of the option will be subject to repurchase should the
optionee's service as a non-management Board of Directors' member cease prior to
the lapse of such repurchase rights. The repurchase rights relating to the
10,000-share grant will lapse in four equal and successive annual installments
over the optionee's period of Board of Directors' service. Each additional
2,000-share grant will vest upon the optionee's completion of one year of Board
of Directors' service measured from the grant date. However, each outstanding
option will immediately vest upon (i) certain changes in the ownership or
control of the Company or (ii) the death or disability of the optionee while
serving as a Board of Directors' member.
The Board of Directors may amend or modify the Plan at any time. The Plan
will terminate in October 2006, unless sooner terminated by the Board of
Directors.
The Compensation Committee has the authority to provide for the accelerated
vesting of the shares of Common Stock subject to outstanding options granted
under the Plan held by the Chief Executive Officer and any other executive
officer or the shares of Common Stock subject to direct issuances held by such
individual, in connection with certain changes in control of the Company or the
subsequent termination of the officer's employment following the change in
control event.
SEVERANCE ARRANGEMENTS
In the event that William A. Ryan, Jr., M.D., the Company's President and
Chief Executive Officer, is terminated by the Company other than for cause prior
to January 27, 2000, he is entitled to receive his salary for six months from
the date of termination. In the event that Mr. Theodore D. Pennington, the
Company's Chief Financial Officer, Vice President, Finance and Administration,
Treasurer and Secretary, is terminated by the Company other than for cause prior
to September 11, 2001, he is entitled to receive his salary for six months from
the date of termination. In the event that Kenneth Culver, M.D., the Company's
Director of Gene Therapy Research and Clinical Affairs, is terminated by the
Company other than for cause, he is entitled to receive his salary for six
months from the date of termination.
KEY-MAN LIFE INSURANCE
The Company has applied for a $1 million term insurance policy on the life
of William A. Ryan, Jr., M.D., the Company's President and Chief Executive
Officer.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Second Amended and Restated Certificate of Incorporation
provides that, except to the extent prohibited by the DGCL, its directors shall
not be personally liable to the Company or its stockholders for monetary damages
for any breach of fiduciary duty as directors of the Company. Under Delaware
law, the directors have fiduciary duties to the Company that are not eliminated
by this provision of the Second Amended and Restated Certificate of
Incorporation and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of non-monetary relief will remain available. In
addition, each director will continue to be subject to liability under Delaware
law for breach of the director's duty of loyalty to the Company for acts or
omissions which are found by a court of competent jurisdiction to be not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director and for payment of
dividends or approval of stock repurchases or redemptions that are prohibited by
Delaware law. This provision also does not affect the directors'
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws. In addition, the Company maintains
liability insurance for its officers and directors.
The Second Amended and Restated Certificate of Incorporation also provides
that the Company shall indemnify, to the fullest extent permitted by Section 145
of the DGCL, all of its present and former
47
<PAGE>
officers and directors, and any party agreeing to serve as an officer, director
or trustee of any entity at the Company's request, in connection with any civil
or criminal proceeding threatened or instituted against such party by reason of
actions or omissions while serving in such capacity. Indemnification by the
Company includes payment of expenses in defense of the indemnified party in
advance of any proceeding or final disposition thereof if the indemnified party
undertakes to repay the Company upon an ultimate determination that the
indemnified party was not entitled to indemnification by the Company. This
provision also requires Board of Directors' approval as a precondition to any
indemnification by the Company for proceedings instituted by the indemnified
party. The rights to indemnification provided in this provision do not preclude
the exercise of any other indemnification rights by any party pursuant to any
law, agreement or vote of the stockholders or the disinterested directors of the
Company.
Section 145 of the DGCL generally allows the Company to indemnify the
parties described in the preceding paragraph for all expenses, judgments, fines
and amounts in settlement actually paid and reasonably incurred in connection
with any proceedings so long as such party acted in good faith and in a manner
reasonably believed to be in or not opposed to the Company's best interests and,
with respect to any criminal proceedings, if such party had no reasonable cause
to believe his or her conduct to be unlawful. Indemnification may only be made
by the Company if the applicable standard of conduct set forth in Section 145
has been met by the indemnified party upon a determination made (i) by the Board
of Directors by a majority vote of a quorum of directors who are not parties to
such proceedings, (ii) if such a quorum is not obtainable or if directed by a
quorum of disinterested directors, by independent legal counsel in a written
opinion, or (iii) by the stockholders.
48
<PAGE>
CERTAIN TRANSACTIONS
RELATIONSHIP WITH ONCOR
In November 1996, the Company expects to enter into a sublease with Oncor
for its current facilities which will expire in March 2004, with an option for
Oncor to extend the lease for an additional five-year term (the "Sublease"). The
Sublease will require the Company to pay monthly rent of approximately $10,200
and monthly maintenance of approximately $3,100. The monthly rent and the
monthly maintenance fee will be subject to adjustments for inflation.
In February 1995, the Company and Oncor entered into the Oncor License
pursuant to which Oncor is providing the Company with an exclusive worldwide
license to Oncor's human genome technologies, including certain rights granted
to Oncor under the Princeton License, that may be useful in the development of
product candidates for the treatment and prevention of certain human disorders
which are caused wholly, or in part, by genetic mutation. It is the Company's
intention to have the Princeton License assigned by Oncor to the Company prior
to the consummation of the Offering. Under the terms of this agreement, the
Company is obligated to pay Oncor, on a semi-annual basis, royalties for any of
the Company's product candidates commercialized by the Company or its potential
corporate partners, based in whole or in part on existing Oncor technology
licensed to the Company by Oncor. As of September 30, 1996, none of the
Company's product candidates had been commercialized. The Company is reliant on
the technologies licensed directly from Oncor and from third parties through
Oncor, which will form the basis of some if not all of the Company's product
candidates. The Company's rights under the Oncor License are subject to certain
rights retained by Oncor in the field of genetic test systems and related
products. The initial term of the Oncor License expires in January 2000.
Thereafter, the Oncor License is automatically renewable for additional one-year
periods, unless either party objects. There can be no assurance that the Oncor
License will be renewed at the end of its initial term or that it will not be
terminated earlier pursuant to its terms. There also can be no assurance that
conflicts of interest between Oncor and the Company will not arise in respect to
the Oncor License or other aspects of the Company's relationship with Oncor.
In December 1994, the Company entered into an agreement with Oncor, whereby
Oncor agreed to provide funding of up to $1,000,000 in consideration of the
Note. At any time prior to full payment of the principal balance, Oncor had the
ability to convert the Note into Common Stock at a conversion price of $6.00 per
share. In April 1995, Oncor converted the outstanding balance of the Note into
105,417 shares of Common Stock.
In December 1994, the Company and Oncor entered into a services agreement
(the "December Agreement") whereby the Company agreed to perform technical,
research, and consulting services for Oncor. Under the terms of the December
Agreement, the Company is entitled to reimbursement on a cost basis from Oncor.
Charges to Oncor for services under this arrangement for the period from
inception (June 21, 1994) to December 31, 1994, for the year ended December 31,
1995, and for the nine months ended September 30, 1996, were approximately
$625,000, $561,000 and $152,000, respectively.
In October 1994, 666,667 shares of Common Stock were issued to Oncor for
$1,000,000. Oncor is a promoter of the Company.
In June 1994, the Company and Oncor entered into an informal management
services arrangement (the "Service Arrangement") whereby Oncor agreed to furnish
to the Company certain administrative and accounting services and office space.
Oncor is entitled to reimbursement of the costs of providing the services to
Codon. Costs that are not specifically identifiable to Codon are allocated to
Codon based on the ratio of square footage occupied by the Codon facilities to
total Oncor square footage occupied. As of September 30, 1996, Oncor continued
to perform these services for the Company. Expenses for the services under this
arrangement charged to Codon by Oncor for the period from inception (June 21,
1994) to December 31, 1994 were not material. For the year ended December 31,
1995, and for the nine months
49
<PAGE>
ended September 30, 1996, expenses charged to Codon were approximately $248,000
and $175,000, respectively. Had Codon operated as an unaffiliated entity there
is no assurance that Codon would have been able to obtain comparable services
elsewhere for comparable costs.
RELATIONSHIP WITH ONCORMED
In January 1995, Codon and OncorMed entered into an agreement whereby the
Company leased DNA sequencers to OncorMed for a quarterly fee of $6,000 per
piece of equipment. Rental income of approximately $66,000 and $54,000 was
included in other income for the year ended December 31, 1995, and for the nine
months ended September 30, 1996, respectively.
TRANSACTIONS WITH OFFICERS AND DIRECTORS
In April 1996, 1,012,667 shares of Series B Convertible Preferred Stock were
sold at a purchase price of $3.00 per share to a group of investors including
Mr. John Pappajohn (100,000 shares), a Director of the Company.
In September 1996, the Company granted options to purchase an aggregate of
65,005 shares of Common Stock, exercisable at $6.00 per share, to various
employees and consultants of the Company, including Mr. Theodore D. Pennington
(16,667 shares), the Company's Chief Financial Officer, Vice President, Finance
and Administration, Treasurer and Secretary.
In April 1995, 1,500,000 shares of Series A Convertible Preferred Stock were
sold at a purchase price of $2.00 per share to a group of investors including
Mr. John Pappajohn (100,000 shares), a Director of the Company.
In February 1995, the Company granted options to purchase an aggregate of
330,008 shares of Common Stock, exercisable at $1.50 per share, to various
employees and consultants of the Company, including: (i) Mr. Stephen Turner
(50,000 shares), the Company's Chairman of the Board of Directors; (ii) Dr.
William A. Ryan, Jr. (66,667 shares), the Company's President and Chief
Executive Officer; (iii) Mr. John Pappajohn (50,000 shares), a Director of the
Company; and (iv) Dr. Jay George (33,334 shares), an executive officer of the
Company. In February 1996, Mr. Pappajohn exercised 33,334 of these options for
$50,000.
In December 1994, the Company issued (i) 50,000 shares of Common Stock to
Mr. Stephen Turner, the Company's Chairman of the Board of Directors, for
$75,000; (ii) an aggregate of 66,667 shares of Common Stock to Mr. John
Pappajohn, a Director of the Company, and an entity affiliated with Mr.
Pappajohn, for $100,000. Mr. Turner and Mr. Pappajohn are promoters of the
Company.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
the Company's Common Stock as of October 1, 1996 by (i) each director and Named
Executive Officer of the Company, (ii) each person known to the Company to be
the beneficial owner of more than five percent of the Company's Common Stock,
and (iii) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OWNERSHIP(1)(2)
BENEFICIALLY ----------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(2) BEFORE OFFERING AFTER OFFERING
- ------------------------------------------------------------ -------------------- ----------------- ---------------
<S> <C> <C> <C>
Stephen Turner (3).......................................... 60,000 3.0% 1.6%
William A. Ryan, Jr., M.D.(4)............................... 16,667 * *
Theodore D. Pennington...................................... -- * *
Jay George, Ph.D.(5)........................................ 6,667 * *
John Pappajohn(6)........................................... 186,668 9.4% 5.1%
Julius A. Vida, Ph.D., M.B.A................................ -- * *
Sandy B. Primrose, Ph.D..................................... -- * *
Oncor, Inc.................................................. 822,084 41.6% 22.4%
209 Perry Parkway
Gaithersburg, Maryland 20877
Edgewater Private Equity Fund............................... 267,500 13.5% 7.3%
666 Grand Avenue, Suite 200
Des Moines, Iowa 50309
Mutual Ventures of.......................................... 116,667 5.9% 3.2%
South Dakota
5400 University Avenue
West Des Moines, Iowa 50266
Cyrus Tang.................................................. 100,000 5.1% 2.7%
c/o Tang Industries
3773 Howard Hughes Pkwy.
Las Vegas, Nevada 89109
All directors and executive officers
as a group (seven persons)(7)............................. 270,002 13.4% 7.3%
</TABLE>
- ------------------------
(1) Percent ownership is based upon 1,975,088 shares of Common Stock issued and
outstanding prior to the Offering and 3,675,088 shares of Common Stock
issued and outstanding after the Offering.
(2) Reflects shares of Common Stock issuable upon exercise of certain
outstanding options that are exercisable or will become exercisable within
60 days of October 1, 1996. Such shares are treated as outstanding solely
for purposes of calculating the amount and percentage of beneficial
ownership of the holder thereof. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
includes voting and investment power with respect to shares.
(3) Includes 10,000 shares of Common Stock issuable upon exercise of an
outstanding stock option.
(4) Consists of 16,667 shares of Common Stock issuable upon exercise of an
outstanding stock option.
(5) Consists of 6,667 shares of Common Stock issuable upon exercise of an
outstanding stock option.
(6) Includes 33,334 shares of Common Stock held by Thebes, Ltd., a sole
proprietorship owned by Mr. Pappajohn's wife as to which Mr. Pappajohn
disclaims beneficial ownership, and 3,334 shares of Common Stock issuable
upon exercise of outstanding stock options.
(7) Includes 36,668 shares of Common Stock issuable upon exercise of outstanding
stock options.
51
<PAGE>
DESCRIPTION OF SECURITIES
Upon the filing of the Second Amended and Restated Certificate of
Incorporation immediately following the consummation of the Offering, the
authorized stock of the Company will consist of 16,000,000 shares of Common
Stock, $0.01 par value per share, and 2,000,000 shares of Preferred Stock, $0.01
par value per share.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the Company's stockholders. The holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of the liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to any
prior distribution rights of Preferred Stock, if any, then outstanding. The
Common Stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and the shares of
Common Stock offered by the Company in this Offering, when issued and paid for,
will be, fully paid and nonassessable. The rights, preferences and privileges of
the holders of Common Stock are subject to, and may be adversely affected by,
the rights of the holders of shares of any series of Preferred Stock that the
Company may designate in the future.
As of September 30, 1996, there were 968,754 shares of Common Stock issued
and outstanding and held by eight stockholders. Based upon the number of shares
outstanding as of that date, and after giving effect to the sale of the Common
Stock offered hereby and the conversion of shares of Preferred Stock into Common
Stock upon the consummation of the Offering, there will be 3,675,088 shares of
Common Stock outstanding upon the consummation of the Offering (assuming no
exercise of outstanding options or warrants).
PREFERRED STOCK
The Company's Second Amended and Restated Certificate of Incorporation
grants the Board of Directors the authority to issue up to 2,000,000 shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of such series, without further vote or action by the stockholders.
The issuance of Preferred Stock may have the effect of delaying, deterring or
preventing a change in control of the Company without further action by the
stockholders and may adversely affect the voting and other rights of the holders
of Common Stock. The Board of Directors has no present plans to issue additional
shares of Preferred Stock.
COMMON STOCK WARRANTS
In connection with their collaborative arrangement, the Company has warrants
outstanding to Johns Hopkins to purchase 10,834 shares of Common Stock. The
warrants are exercisable at $1.50 per share for a period of ten years from March
6, 1996. The warrants contain anti-dilution provisions providing for adjustments
of the exercise price and the number of shares underlying the warrants upon the
occurrence of certain events, including any recapitalization, reclassification,
stock dividend, stock split, stock combination or similar transaction.
52
<PAGE>
UNDERWRITER'S WARRANTS
Pursuant to the terms of the Underwriting Agreement between the Company and
the Underwriter, the Underwriter will receive 172,500 Underwriter's Warrants for
nominal consideration. See "Underwriting."
REDEEMABLE WARRANTS
The following is a brief summary of certain provisions of the Warrants, but
such summary does not purport to be complete and is qualified in all respects by
reference to the actual text of the Warrant Agreement between the Company, the
Representative, and Continental Stock Transfer & Trust Company (the "Warrant
Agent"). A copy of the Warrant Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."
EXERCISE PRICE AND TERMS. Each Warrant entitles the registered holder
thereof to purchase, at any time over a fifty-four (54) month period commencing
six (6) months after the date of this Prospectus, one share of Common Stock at a
price of $ per share [125% of the initial public offering price per
share], subject to adjustment in accordance with the anti-dilution and other
provisions referred to below. The holder of any Warrant may exercise such
Warrant by surrendering the certificate representing the Warrant to the Warrant
Agent, with the subscription form thereon properly completed and executed,
together with payment of the exercise price. The Warrants may be exercised at
any time in whole or in part at the applicable exercise price until expiration
of the Warrants. No fractional shares will be issued upon the exercise of the
Warrants.
The exercise price of the warrants bears no relationship to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of the securities offered hereby.
ADJUSTMENTS. The exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications of the Common Stock. Additionally, an
adjustment would be made in the case of a reclassification or exchange of Common
Stock, consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the surviving
corporation) or sale of all or substantially all of the assets of the Company in
order to enable warrantholders to acquire the kind and number of shares of stock
or other securities or property receivable in such event by a holder of the
number of shares of Common Stock that might otherwise have been purchased upon
the exercise of the Warrant.
REDEMPTION PROVISIONS. Commencing eighteen (18) months after the date of
this Prospectus, the Warrants are subject to redemption at $0.10 per Warrant on
thirty (30) days' prior written notice to the warrantholders if the average
closing bid price of the Common Stock as reported on Nasdaq equals or exceeds
200% of the initial public offering price per share of Common Stock for any
twenty (20) trading days within a period of thirty (30) consecutive trading days
ending on the fifth trading day prior to the date of the notice of redemption.
In the event the Company exercises the right to redeem the Warrants, such
Warrants will be exercisable until the close of business on the business day
immediately preceding the date for redemption fixed in such notice. If any
Warrant called for is not exercised by such time, it will cease to be
exercisable and the holder will be entitled only to the redemption price.
TRANSFER, EXCHANGE AND EXERCISE. The Warrants are in registered form and
may be presented to the Warrant Agent for transfer, exchange or exercise at any
time on or prior to their expiration date five (5) years from the date of this
Prospectus, at which time the Warrants become wholly void and of no value. If a
market for the Warrants develops, the holder may sell the Warrants instead of
exercising them. There can be no assurance, however, that a market for the
Warrants will develop or continue.
53
<PAGE>
WARRANTHOLDER NOT A STOCKHOLDER. The Warrants do not confer upon holders
any voting, dividend or other rights as stockholders of the Company.
MODIFICATION OF WARRANTS. The Company and the Warrant Agent may make such
modifications to the Warrants as they deem necessary and desirable that do not
adversely affect the interests of the warrantholders. The Company may, in its
sole discretion, lower the exercise price of the Warrants for a period of not
less than thirty (30) days on not less than thirty (30) days' prior written
notice to the warrantholders and the Representative. Modification of the number
of securities purchasable upon the exercise of any Warrant, the exercise price
and the expiration date with respect to any Warrant requires the consent of
two-thirds of the warrantholders. No other modifications may be made to the
Warrants without the consent of two-thirds of the warrantholders.
A significant amount of the securities offered hereby may be sold to
customers of the Representative. Such customers subsequently may engage in
transactions for the sale or purchase of such securities through or with the
Representative. Although it has no obligation to do so, the Representative
currently intends to make a market in the Company's securities and may otherwise
effect transactions in such securities. If it participates in the market, the
Representative may exert a dominating influence on the market, if one develops,
for the securities described in this Prospectus. Such market-making activity may
be discontinued at any time. The price and liquidity of the Common Stock and the
Warrants may be significantly affected by the degree, if any, of the
Representative's participation in such market. See "Underwriting."
The Warrants are not exercisable unless, at the time of the exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants, and such shares have been registered, qualified
or deemed to be exempt under the securities laws of the state of residence of
the exercising holder of the Warrants. Although the Company will use its best
efforts to have all the shares of Common Stock issuable upon exercise of the
Warrants registered or qualified on or before the exercise date and to maintain
a current prospectus relating thereto until the expiration of the Warrants,
there can be no assurance that it will be able to do so.
The Warrants are separately transferable immediately upon issuance. Although
the Securities will not knowingly be sold to purchasers in jurisdictions in
which the Securities are not registered or otherwise qualified for sale,
purchasers may buy Warrants in the aftermarket in, or may move to, jurisdictions
in which the shares underlying the Warrants are not so registered or qualified
during the period that the Warrants are exercisable. In this event, the Company
would be unable to issue shares to those persons desiring to exercise their
Warrants, and holders of Warrants would have no choice but to attempt to sell
the Warrants in a jurisdiction where such sale is permissible or allow them to
expire unexercised.
CHANGE OF CONTROL PROVISIONS
The Company is subject to Section 203 of the DGCL which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder,
unless: (i) prior to such date, the Board of Directors of the corporation
approved either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder; (ii) upon consummation of the
transaction that resulted in the stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned (x)
by persons who are directors and also officers and (y) by employee stock plans
in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer; or (iii) on or subsequent to such date, the business combination is
approved by the Board of Directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
54
<PAGE>
Certain provisions of the Company's Second Amended and Restated Certificate
of Incorporation and Bylaws, including the inability of stockholders to effect
actions by written consent and allowing the Board of Directors to issue
Preferred Stock without any vote or further action by the stockholders, may have
the effect of preventing, discouraging or delaying a change in the control of
the Company and may maintain the incumbency of the Board of Directors and
management. The Second Amended and Restated Certificate of Incorporation and
Bylaws do not provide for cumulative voting in the election of Directors.
REGISTRATION RIGHTS
The holders of 1,006,334 shares of Common Stock are entitled to certain
rights with respect to the registration of shares of Common Stock under the
Securities Act. Under the terms of the agreement between the Company and the
holders of such registrable securities, beginning 12 months following the date
of this Prospectus, if the Company proposes to register any of its securities
under the Securities Act, either for its own account or for the account of other
securityholders exercising registration rights, such holders are entitled to
notice of such registration and are entitled to include shares of such Common
Stock therein. These registration rights expire in June 2000. In addition,
beginning 12 months from the date of this Prospectus, the stockholders
benefiting from these rights may also require the Company to file one
registration statement under the Securities Act at its expense with respect to
their shares of Common Stock, and the Company is required to use its best
efforts to effect such registration. These registration rights expire in June
2000. In addition, these stockholders have the right to require the Company to
file up to two additional registration statements on Form S-3. This right
becomes available upon the eligibility of the Company to use such Form S-3 and
expires in June 2000. All of these rights are subject to certain conditions and
limitations, including the right of the underwriters of an offering to limit the
number of shares included in such registration.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock and Warrants
is Continental Stock Transfer & Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock or the
Warrants of the Company, and no predictions can be made of the effect, if any,
that market sales of shares or the availability of shares for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock and the Warrants of the Company in the
public market could adversely affect prevailing market prices for the Common
Stock and the Warrants and the ability of the Company to raise equity capital in
the future.
Upon completion of the Offering, the Company will have outstanding 3,675,088
shares of Common Stock and 1,700,000 Warrants, assuming no exercise of the
Underwriters' over-allotment option, no exercise of outstanding options granted
under the Plan, no exercise of the outstanding warrants and no exercise of the
Representative's Warrants. Of these securities, the 1,700,000 Shares and
1,700,000 Warrants sold in the Offering will be available for immediate sale in
the public market without restriction under the Securities Act, unless purchased
by "affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act.
The remaining 1,975,088 shares held by existing stockholders will be
restricted securities, as that term is defined in Rule 144 under the Securities
Act ("Restricted Shares"). Restricted Shares may be sold in the public market
only if registered under the Securities Act, or if they qualify for an exemption
from registration under Rule 144 or 701 promulgated under the Securities Act,
which are summarized below. Sales of the Restricted Shares in the public market,
or the availability of such shares for sale, could adversely affect the market
prices of the Common Stock and Warrants.
55
<PAGE>
All officers and Directors of the Company and all holders of 1% or more of
the issued and outstanding Common Stock have agreed not to, directly or
indirectly, issue, offer, agree or offer to sell, sell, transfer, assign,
encumber, grant an option for the purchase or sale of, pledge, hypothecate or
otherwise dispose of any beneficial interest in such securities for a period of
18 months following the effective date of the Registration Statement without the
prior written consent of the Representative. The Company has also agreed to use
its best efforts to cause all holders of less than 1% of the issued and
outstanding Common Stock and all holders of options, warrants or other
securities convertible, exercisable or exchangeable for less than 1% of the
issued and outstanding Common Stock to enter into similar lock-up agreements
with the Representative and the Company. As a result of these contractual
restrictions, shares subject to lockup agreements will not be saleable until the
agreements expire. Upon expiration of the 18 month lockup period, no shares of
Common Stock will be eligible for sale pursuant to Rule 701, and approximately
1,468,750 shares will be eligible for sale under Rule 144. The remaining
approximately 506,334 shares held by existing stockholders will become eligible
for public resale at various times over a period of less than two years
following the completion of this Offering, subject in some cases to vesting
provisions and volume limitations. In addition, as of September 30, 1996,
options to purchase an aggregate of 454,187 shares of Common Stock were
outstanding under the Plan and warrants to purchase an aggregate of 10,834
shares of Common Stock will be outstanding, all of which are subject to the
eighteen (18) month lockup described above. Upon expiration of the lockup,
approximately 389,167 shares subject to such options will be vested.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years (including the holding period of any prior owner except an
affiliate) would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of (i) 1 percent of the number of shares
of Common Stock then outstanding (approximately 36,750 shares immediately after
this Offering) or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions 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
three years (including the holding period of any prior owner except an
affiliate), is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
In general, Rule 701 permits resales of shares issued pursuant to certain
compensatory benefit plans and contracts 90 days after the Company becomes
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended, in reliance upon Rule 144, but without compliance with certain
restrictions, including the holding period requirements contained in Rule 144.
Shortly after the Offering, the Company intends to file a registration statement
on Form S-8 under the Securities Act covering shares of Common Stock reserved
for issuance under the Company's stock plans. Such registration statement will
automatically become effective upon filing. Accordingly, shares registered under
such registration statement will, subject to Rule 144 volume limitations
applicable to affiliates, be available for sale in the open market, unless such
shares are subject to vesting restrictions with the Company or the lockup
agreements described above.
56
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom National
Securities Corporation is acting as representative (in such capacity, the
"Representative"), have severally agreed, subject to the terms and conditions of
the Underwriting Agreement (the "Underwriting Agreement") to purchase from the
Company and the Company has agreed to sell to the Underwriters on a firm
commitment basis, the respective number of shares and Warrants set forth
opposite their names:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES NUMBER OF WARRANTS
- ------------------------------------------------------ ----------------- -------------------
<S> <C> <C>
National Securities Corporation.......................
----------------- ----------
Total............................................. 1,700,000 1,700,000
----------------- ----------
----------------- ----------
</TABLE>
The Underwriters are committed to purchase all of the shares of Common Stock
and Warrants offered hereby, if any of such securities are purchased. The
Underwriting Agreement provides that the obligations of the several Underwriters
are subject to conditions precedent specified therein.
The Company has been advised by the Representative that the Underwriters
propose initially to offer the Securities to the public at the initial public
offering prices set forth on the cover page of this Prospectus and to certain
dealers at such prices less concessions not in excess of $ per Share and
$ per Warrant. Such dealers may reallow a concession not in excess of
$ per Share and $ per Warrant to certain other dealers. After
the commencement of the Offering, the public offering prices, concession and
reallowance may be changed by the Representative.
The Representative has informed the Company that it does not expect sales to
discretionary accounts by the Underwriters to exceed 5 percent of the Securities
offered hereby.
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. The Company has also
agreed to pay to the Representative a non-accountable expense allowance equal to
3% of the gross proceeds derived from the sale of the Securities underwritten,
of which $25,000 has been paid to date.
The Company has granted to the Underwriters an over-allotment option,
exercisable during the forty-five (45) day period from the date of this
Prospectus, to purchase up to an additional 255,000 shares of Common Stock
and/or 255,000 Warrants at the initial public offering price per Share and
Warrant, respectively, offered hereby, less underwriting discounts and the
non-accountable expense allowance. Such option may be exercised only for the
purpose of covering over-allotments, if any, incurred in the sale of the
Securities offered hereby. To the extent such option is exercised in whole or in
part, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the number of the additional Securities proportionate to
its initial commitment.
In connection with the Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants to purchase from the Company
up to 172,500 shares of Common Stock and/or 172,500 Warrants. The
Representative's Warrants are initially exercisable at a price of $ per
share of Common Stock [120% of the initial public offering price per Share] and
$[ ] per Warrant [120% of the initial public offering price per Warrant]
for a period of four (4) years, commencing at the beginning of the second year
after the effective date of the Offering and are restricted from sale, transfer,
assignment or hypothecation for a period of twelve (12) months from the date
hereof, except to officers of the Representative. The Representative's Warrants
provide for adjustment in the number of shares of Common Stock and Warrants
issuable upon the exercise thereof and in the exercise price of the
Representative's Warrants as a result of certain events, including subdivisions
and combinations of the
57
<PAGE>
Common Stock. The Representative's Warrants grant to the holders thereof certain
rights of registration for the securities issuable upon exercise thereof.
All officers and directors of the Company and all holders of 1% or more of
the issued and outstanding Common Stock and all holders of options, warrants or
other securities convertible, exercisable or exchangeable for 1% or more of the
issued and outstanding Common Stock have agreed not to, directly or indirectly,
issue, offer, agree or offer to sell, sell, transfer, assign, encumber, grant an
option for the purchase or sale of, pledge, hypothecate or otherwise dispose of
any beneficial interest in such securities for a period of 18 months following
the effective date of the Registration Statement without the prior written
consent of the Company and the Representative. The Company has also agreed to
use its best efforts to cause all holders of less than 1% of the issued and
outstanding Common Stock and all holders of options, warrants or other
securities convertible, exercisable or exchangeable for less than 1% of the
issued and outstanding Common Stock to enter into similar lockup agreements with
the Representative and the Company. An appropriate legend shall be marked on the
face of certificates representing all such securities.
The Company has agreed not to, without the prior written consent of the
Representative, issue, sell, agree or offer to sell, grant an option for the
purchase or sale of, or otherwise transfer or dispose of any of its securities
for a period of eighteen (18) months following the effective date of the
Registration Statement, except up to 454,187 shares of Common Stock issuable
pursuant to warrants and options existing on the date of this Prospectus and up
to 479,146 shares of Common Stock reserved for future grants of options and
stock purchase rights under or outside of the Plan.
The Company has agreed that the Representative may designate one person to
the Company's Board of Directors for a period of 12 months following the date of
this Prospectus. Such designee shall be entitled to attend all such meetings of
the Company's Board of Directors and to receive all notices and other
correspondence and communications sent by the Company to members of its Board of
Directors. The Company has agreed to reimburse the Representative's designee for
reasonable and accountable out-of-pocket expenses incurred in connection with
attending meetings of the Company's Board of Directors.
Upon the exercise of any Warrants more than one year after the date of this
Prospectus, which exercise was solicited by the Representative, and to the
extent not inconsistent with the guidelines of the NASD and the Rules and
Regulations of the Commission, the Company has agreed to pay the Representative
a commission which shall not exceed five percent (5%) of the aggregate exercise
price of such Warrants in connection with bona fide services provided by the
Representative relating to any warrant solicitation undertaken by the
Representative. In addition, the individual must designate the firm entitled to
payment of such warrant solicitation fee. However, no compensation will be paid
to the Representative in connection with the exercise of the Warrants if (a) the
market price of the Common Stock is lower than the exercise price, (b) the
Warrants were held in a discretionary account, or (c) the exercise of the
Warrants is not solicited by the Representative. Unless granted an exemption by
the Commission from its Rule 10b-6 under the Exchange Act, the Representative
will be prohibited from engaging in any market-making activities with regard to
the Company's securities for the period from nine (9) business days (or other
such applicable periods as Rule 10b-6 may provide) prior to any solicitation of
the exercise of he Warrants until the later of the termination of such
solicitation activity or the termination (by waiver or otherwise) of any right
the Representative may have to receive a fee. As a result, the Representative
may be unable to continue to provide a market for the Common Stock or Warrants
during certain periods while the Warrants are exercisable. If the Representative
has engaged in any of the activities prohibited by Rule 10b-6 during the periods
described above, the Representative undertakes to waive unconditionally its
rights to receive a commission on the exercise of such Warrants.
Prior to the Offering, there has been no public market for the Common Stock
or the Warrants. Consequently, the initial public offering prices of the
Securities will be determined by negotiation between the Company and the
Representative and will not necessarily bear any relationship to the Company's
asset
58
<PAGE>
value, net worth, or other established criteria of value. The factors to be
considered in such negotiations, in addition to prevailing market conditions,
will include the history of and prospects for the industry in which the Company
competes, an assessment of the Company's management, the prospects of the
Company, its capital structure, the market for initial public offerings, and
certain other factors as were deemed relevant.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement that are filed as exhibits to the Registration Statement.
See "Additional Information."
LEGAL MATTERS
The validity of the issuance of the Securities offered hereby will be passed
upon for the Company by its counsel, Brobeck, Phleger & Harrison LLP, New York,
New York. Orrick, Herrington & Sutcliffe LLP, New York, New York, has acted as
counsel to the Underwriters in connection with the Offering.
EXPERTS
The audited financial statements included in this Prospectus and elsewhere
in the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act, with respect to the Securities offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and the schedules thereto, certain parts
of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and such
Securities, reference is made to the Registration Statement and exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete, and,
with respect to any contract or other document filed as an exhibit to the
Registration Statement, each such statement is qualified in all respects by
reference to such exhibit. The Registration Statement, including exhibits and
schedules filed therewith, may be inspected without charge at the public
reference facilities maintained by the Commission, at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such materials
may be obtained from the Public Reference Section of the Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Registration Statement, including all exhibits and schedules, and
such reports and other information may also be accessed electronically by means
of the Commission's site on the World Wide Web, at http://www.sec.gov.
59
<PAGE>
CODON PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1995,
TOGETHER WITH AUDITORS' REPORT
F-1
<PAGE>
The financial statements included herein have been adjusted to give effect
to the anticipated one-for-three reverse stock split as described in Note 2 to
the financial statements. We expect to be in a position to render the following
audit report upon the effectiveness of such event assuming that from October 30,
1996, to the effective date of such event, no other events will have occurred
that would effect the accompanying financial statements or notes thereto.
ARTHUR ANDERSEN LLP
Washington, D.C.,
October 30, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Board of Directors of
Codon Pharmaceuticals, Inc.:
We have audited the accompanying balance sheets of Codon Pharmaceuticals,
Inc. (a Delaware Corporation in the development stage), as of December 31, 1994
and 1995, and the related statements of operations, stockholders' equity, and
cash flows for the period from inception (June 21, 1994) to December 31, 1994,
and the year ended December 31, 1995. 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 an 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.
As discussed in Note 1 to the financial statements, the Company is a
development stage enterprise with no revenue and no regulatory product approval
to date. In order to continue the research and development and other activities
necessary to commercialize its products, additional financing will be required
prior to January 31, 1997. Management's plans in regard to these matters are
also described in Note 1.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Codon Pharmaceuticals, Inc.,
as of December 31, 1994 and 1995, and the results of its operations and its cash
flows for the period from inception to December 31, 1994, and the year ended
December 31, 1995, in conformity with generally accepted accounting principles.
F-2
<PAGE>
CODON PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA FOR
CONVERSION OF
CONVERTIBLE
PREFERRED
STOCK
AS OF AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.......................... $1,085,433 $ 791,030 $ 883,882
Short-term investments............................. -- 510,000 366,924
Receivable from Oncor, Inc......................... -- 47,835 --
Receivable from Oncor Med, Inc..................... 1,716 31,155 46,181
Other current assets............................... -- 15,871 34,096
------------ ------------ -------------
Total current assets........................... 1,087,149 1,395,891 1,331,083
Property and equipment, net.......................... 401,973 1,325,163 1,503,956
------------ ------------ -------------
Total assets................................... $1,489,122 $2,721,054 $ 2,835,039
------------ ------------ -------------
------------ ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 42,528 $ 64,961 $ 45,058
Accrued expenses................................... 16,039 87,406 31,583
Payable to Oncor, Inc.............................. -- -- 96,251
Note payable to Oncor, Inc......................... 632,502 -- --
------------ ------------ -------------
Total current liabilities...................... 691,069 152,367 172,892
Commitments and contingencies(Notes 1 and 6)
Stockholders' equity:
Preferred stock, $.01 par value, Series A,
convertible share for share into common stock,
1,500,000 shares authorized, 1,500,000 shares
issued and outstanding, entitled to $2 per share
liquidation preference ($3,000,000 in the
aggregate), none outstanding on a pro forma
basis............................................ -- 2,964,503 2,964,503 $ --
Preferred stock, $.01 par value, Series B,
convertible share for share into common stock,
3,000,000 shares authorized, 1,519,000 shares
issued and outstanding, entitled to $2 per share
liquidation preference ($3,038,000 in the
aggregate), none outstanding on a pro forma
basis............................................ -- -- 3,004,971 --
Common stock, $.01 par value, 20,000,000 shares
authorized, 816,666, 968,754, and 968,754 shares
issued and outstanding in 1994, 1995, and 1996,
and 1,975,088 outstanding on a pro forma basis... 8,167 9,688 9,688 19,751
Additional paid-in capital......................... 1,216,833 1,917,814 1,959,414 7,918,825
Deferred compensation.............................. -- -- (36,720) (36,720)
Unrealized loss on investments..................... -- (9,240) (185) (185)
Deficit accumulated during the development stage... (426,947) (2,314,078) (5,239,524) (5,239,524)
------------ ------------ ------------- --------------
Total stockholders' equity..................... 798,053 2,568,687 2,662,147 $ 2,662,147
------------ ------------ ------------- --------------
--------------
Total liabilities and stockholders' equity..... $1,489,122 $2,721,054 $ 2,835,039
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
CODON PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION NINE MONTHS ENDED INCEPTION (JUNE
(JUNE 21, 1994) SEPTEMBER 30, 21,
THROUGH YEAR ENDED ---------------------- 1994) THROUGH
DECEMBER 31, 1994 DECEMBER 31, 1995 1995 1996 SEPTEMBER 30, 1996
----------------- ----------------- ---------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues...................... $ -- $ -- $ -- $ -- $ --
Expenses:
Research and development.... 427,870 1,662,241 1,108,313 2,743,316 4,833,427
General and
administrative............ 10,564 417,724 278,140 255,157 683,445
----------------- ----------------- ---------- ---------- ------------------
Total expenses.......... 438,434 2,079,965 1,386,453 2,998,473 5,516,872
----------------- ----------------- ---------- ---------- ------------------
Operating loss................ (438,434) (2,079,965) (1,386,453) (2,998,473) (5,516,872)
Other income, net............. 11,487 192,834 122,085 73,027 277,348
----------------- ----------------- ---------- ---------- ------------------
Net loss...................... $(426,947) $(1,887,131) $(1,264,368) $(2,925,446) $ (5,239,524)
----------------- ----------------- ---------- ---------- ------------------
----------------- ----------------- ---------- ---------- ------------------
Pro forma net loss per share
(unaudited)................. $ (1.02) $ (1.44)
----------------- ----------
----------------- ----------
Shares used in computing pro
forma net loss per share
(unaudited)................. 1,856,249 2,036,458
----------------- ----------
----------------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CODON PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE SERIES B CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- --------------------- ---------------------- PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
--------- ----------- --------- ---------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception, June 21,
1994................... -- $ -- -- $ -- -- $ -- $ -- $ --
Sale of common stock to
Oncor, Inc., for cash
at $1.50 per share,
October 1994......... -- -- -- -- 666,667 6,667 993,333 --
Sale of common stock to
directors at $1.50
per share, December
1994................. -- -- -- -- 150,001 1,500 223,500 --
Net loss............... -- -- -- -- -- -- -- --
--------- ----------- --------- ---------- --------- ----------- ----------- -------------
Balance, December 31,
1994................... -- -- -- -- 816,668 8,167 1,216,833 --
Exercise of stock
options for cash at
$1.50 per share,
February 1995........ -- -- -- -- 33,334 333 49,667 --
Sale of common stock at
$1.50 per share,
March 1995........... -- -- -- -- 13,335 134 19,866 --
Conversion of Oncor,
Inc., note at $6.00
per share, April
1995................. -- -- -- -- 105,417 1,054 631,448 --
Sale of Series A
Convertible Preferred
Stock to investors
for cash at $2.00 per
share, April 1995,
(net of issuance
costs of $35,497).... 1,500,000 2,964,503 -- -- -- -- -- --
Net loss............... -- -- -- -- -- -- -- --
Unrealized holding loss
on investments....... -- -- -- -- -- -- -- --
--------- ----------- --------- ---------- --------- ----------- ----------- -------------
Balance, December 31,
1995................... 1,500,000 2,964,503 -- -- 968,754 9,688 1,917,814 --
Sale of Series B
Convertible Preferred
Stock to investors
for cash at $2.00 per
share, April 1996
(net of issuance
costs of $33,029).... -- -- 1,005,000 1,976,971 -- -- -- --
Sale of Series B
Convertible Preferred
Stock to investors
for cash at $2.00 per
share, June 1996..... -- -- 514,000 1,028,000 -- -- -- --
Expense for nonemployee
stock option
grants............... -- -- -- -- -- -- 41,600 (41,600)
Amortization of
deferred
compensation......... -- -- -- -- -- -- -- 4,880
Net loss............... -- -- -- -- -- -- -- --
Unrealized holding gain
on investments....... -- -- -- -- -- -- -- --
--------- ----------- --------- ---------- --------- ----------- ----------- -------------
Balance, September 30,
1996 (unaudited)....... 1,500,000 2,964,503 1,519,000 3,004,971 968,754 9,688 1,959,414 (36,720)
Pro forma adjustment
(uanudited) (note
2)................... (1,500,000) (2,964,503) (1,519,000) (3,004,971) 1,006,334 10,063 5,959,411 --
--------- ----------- --------- ---------- --------- ----------- ----------- -------------
-- -- -- -- 1,975,088 $ 19,751 $7,918,825 $ (36,720)
--------- ----------- --------- ---------- --------- ----------- ----------- -------------
--------- ----------- --------- ---------- --------- ----------- ----------- -------------
<CAPTION>
DEFICIT
ACCUMULATED
UNREALIZED DURING THE
LOSS ON DEVELOPMENT
INVESTMENTS STAGE TOTAL
------------- ------------ ----------
<S> <C> <C> <C>
Inception, June 21,
1994................... $ -- $ -- $ --
Sale of common stock to
Oncor, Inc., for cash
at $1.50 per share,
October 1994......... -- -- 1,000,000
Sale of common stock to
directors at $1.50
per share, December
1994................. -- -- 225,000
Net loss............... -- (426,947) (426,947)
------------- ------------ ----------
Balance, December 31,
1994................... -- (426,947) 798,053
Exercise of stock
options for cash at
$1.50 per share,
February 1995........ -- -- 50,000
Sale of common stock at
$1.50 per share,
March 1995........... -- -- 20,000
Conversion of Oncor,
Inc., note at $6.00
per share, April
1995................. -- -- 632,502
Sale of Series A
Convertible Preferred
Stock to investors
for cash at $2.00 per
share, April 1995,
(net of issuance
costs of $35,497).... -- -- 2,964,503
Net loss............... -- (1,887,131) (1,887,131)
Unrealized holding loss
on investments....... (9,240) -- (9,240)
------------- ------------ ----------
Balance, December 31,
1995................... (9,240) (2,314,078) 2,568,687
Sale of Series B
Convertible Preferred
Stock to investors
for cash at $2.00 per
share, April 1996
(net of issuance
costs of $33,029).... -- -- 1,976,971
Sale of Series B
Convertible Preferred
Stock to investors
for cash at $2.00 per
share, June 1996..... -- -- 1,028,000
Expense for nonemployee
stock option
grants............... -- -- --
Amortization of
deferred
compensation......... -- -- 4,880
Net loss............... -- (2,925,446) (2,925,446)
Unrealized holding gain
on investments....... 9,055 -- 9,055
------------- ------------ ----------
Balance, September 30,
1996 (unaudited)....... (185) (5,239,524) 2,662,147
Pro forma adjustment
(uanudited) (note
2)................... -- -- --
------------- ------------ ----------
$ (185) $(5,239,524) $(2,662,147)
------------- ------------ ----------
------------- ------------ ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
CODON PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JUNE 21, NINE
1994) MONTHS ENDED
THROUGH YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ------------------------
1994 1995 1995 1996
-------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net loss............................................................ $ (426,947) $(1,887,131) $(1,264,368) $(2,925,446)
Adjustments to reconcile net loss to net cash used in operating
activities--
Depreciation...................................................... 11,691 136,886 70,220 257,006
Expense for nonemployee stock options and warrants................ -- -- -- 4,880
Changes in operating assets and liabilities--
Receivables from affiliates....................................... (1,716) (77,274) (130,602) 32,809
Other assets...................................................... -- (15,871) (55,337) (18,225)
Accounts payable.................................................. 42,528 22,433 200,819 (19,903)
Accrued expenses.................................................. 16,039 71,367 (2,121) (55,823)
Payable to affiliates............................................. -- -- -- 96,251
-------------- ------------ ----------- -----------
Net cash used in operating activities........................... (358,405) (1,749,590) (1,181,389) (2,628,451)
-------------- ------------ ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment................................. (413,664) (1,060,076) (818,291) (435,799)
(Purchases) sales of investments.................................... -- (519,240) (532,445) 152,131
-------------- ------------ ----------- -----------
Net cash used in investing activities........................... (413,664) (1,579,316) (1,350,736) (283,668)
-------------- ------------ ----------- -----------
Cash flows from financing activities:
Exercise of stock options........................................... -- 50,000 50,000 --
Proceeds from sale of common stock.................................. 1,225,000 20,000 20,000 --
Proceeds from sale of preferred stock, net of issuance costs........ -- 2,964,503 2,964,503 3,004,971
Proceeds note payable to Oncor...................................... 632,502 -- -- --
-------------- ------------ ----------- -----------
Net cash provided by financing activities....................... 1,857,502 3,034,503 3,034,503 3,004,971
-------------- ------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents.................. 1,085,433 (294,403) 502,378 92,852
Cash and cash equivalents, beginning of period........................ -- 1,085,433 1,085,433 791,030
-------------- ------------ ----------- -----------
Cash and cash equivalents, end of period.............................. $ 1,085,433 $ 791,030 $ 1,587,811 $ 883,882
-------------- ------------ ----------- -----------
-------------- ------------ ----------- -----------
Noncash investing activities:
Conversion of Oncor, Inc., note payable to common stock............. $ -- $ 632,502 $ 632,502 $ --
-------------- ------------ ----------- -----------
-------------- ------------ ----------- -----------
<CAPTION>
PERIOD FROM
INCEPTION
(JUNE 21, 1994)
THROUGH
SEPTEMBER 30,
1996
-----------------
<S> <C>
(UNAUDITED)
Cash flows from operating activities:
Net loss............................................................ $ (5,239,524)
Adjustments to reconcile net loss to net cash used in operating
activities--
Depreciation...................................................... 405,583
Expense for nonemployee stock options and warrants................ 4,880
Changes in operating assets and liabilities--
Receivables from affiliates....................................... (46,181)
Other assets...................................................... (34,096)
Accounts payable.................................................. 45,058
Accrued expenses.................................................. 31,583
Payable to affiliates............................................. 96,251
-----------------
Net cash used in operating activities........................... (4,736,446)
-----------------
Cash flows from investing activities:
Purchases of property and equipment................................. (1,909,539)
(Purchases) sales of investments.................................... (367,109)
-----------------
Net cash used in investing activities........................... (2,276,648)
-----------------
Cash flows from financing activities:
Exercise of stock options........................................... 50,000
Proceeds from sale of common stock.................................. 1,245,000
Proceeds from sale of preferred stock, net of issuance costs........ 5,969,474
Proceeds note payable to Oncor...................................... 632,502
-----------------
Net cash provided by financing activities....................... 7,896,976
-----------------
Net increase (decrease) in cash and cash equivalents.................. 883,882
Cash and cash equivalents, beginning of period........................ --
-----------------
Cash and cash equivalents, end of period.............................. $ 883,882
-----------------
-----------------
Noncash investing activities:
Conversion of Oncor, Inc., note payable to common stock............. $ 632,502
-----------------
-----------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CODON PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995, AND SEPTEMBER 30, 1996 IS UNAUDITED)
1. BUSINESS DESCRIPTION AND SIGNIFICANT RISKS:
Codon Pharmaceuticals, Inc., formerly Oncor Pharm, Inc. (the "Company" or
"Codon"), was formed and incorporated on June 21, 1994, in the state of Delaware
as a subsidiary of Oncor, Inc. ("Oncor"). The Company is engaged in the design
and preclinical study of lead compounds and product candidates for use in the
treatment and prevention of cancers and viral infections, the control of melanin
products in the skin, and gene repair. As of September 30, 1996, Oncor owned
approximately 41.6 percent of the issued and outstanding voting stock.
The Company has a limited operating history, has incurred operating losses
since its inception, and is at an early stage of development. The Company is
subject to all of the business risks associated with a new enterprise, including
constraints on the Company's financial, personnel and other resources, lack of
established collaborative partnering relationships, and uncertainties regarding
lead compound and product candidate development and future revenues. Since its
inception, the Company has dedicated itself to acquiring certain of its
proprietary technologies through licensing arrangements, developing its lead
compounds and potential product candidates, and hiring its scientific and
management staff. The product candidates that the Company proposes to
out-license have not been fully developed and will require significant
additional research and development prior to commercialization, which may never
occur. The Company has yet to generate any revenues, and there can be no
assurance that the Company will be able to generate revenues in the future.
There can be no assurance that the Company's research and development efforts
will be successful, that its product candidates, if developed, will prove safe
and efficacious in clinical trials, that the Company or its potential
collaborators will obtain the necessary regulatory approvals for such product
candidates, that its product candidates can be marketed in a commercially
successful manner, or that any such product candidates will be able to compete
with other products that may be on the market at the time the Company's product
candidates become available. See "Risk Factors" in the Company's Prospectus for
further discussion.
Through April 1996, the Company operated as a majority-owned subsidiary of
Oncor. The Company is dependent on the principal members of its technical and
management staff, and the loss of any of their services may impede the
achievement of certain of the Company's development objectives.
The preclinical design and development of the Company's product candidates
will require substantial additional capital. In order to continue the research
and development and other activities necessary to complete the preclinical
design and development of its lead compounds and product candidates, additional
financing will be required prior to January 31, 1997. The Company plans to raise
the needed additional financing through an initial public offering. To the
extent that funds generated from an initial public offering are insufficient,
the Company will seek to obtain additional funds through private equity
placements and collaborative or other arrangements with corporate partners and
others. There can be no assurance that the Company will be able to obtain
additional financing when needed, if at all, or on terms acceptable to the
Company. The Company presently has no commitments to receive additional
financing. If the Company is unable to obtain additional financing on a timely
basis, it will be unable to continue its operations.
F-7
<PAGE>
CODON PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995, AND SEPTEMBER 30, 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The unaudited financial statements as of September 30, 1995, and September
30, 1996, include, in the opinion of management, all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the Company's
financial position, results of operations, and cash flows. Operating results for
the nine months ended September 30, 1996, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996.
UNAUDITED PRO FORMA INFORMATION
If the offering contemplated by this Prospectus is consummated, all of the
Series A and Series B Convertible Preferred Stock ("Preferred Stock")
outstanding as of the closing date will automatically be converted into shares
of common stock ("Common Stock"). The pro forma balance sheet as of September
30, 1996, reflects the conversion of outstanding Preferred Stock at September
30, 1996, into 1,006,334 shares of Common Stock.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
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 expenses during the reporting period.
Actual results could differ from those estimates.
INCREASE IN AUTHORIZED SHARES AND REVERSE STOCK SPLIT
On February 28, 1996, the Board of Directors authorized an amendment to
restate the Company's Certificate of Incorporation. The amendment increased the
authorized shares of Common Stock to 20,000,000 shares and Preferred Stock to
10,000,000 shares. In October 1996, the Board of Directors declared and
distributed a three-for-two stock dividend to the holders of the Series B
Preferred Stock. In connection with the Company's proposed initial public
offering, the Company will effect an one-for-three reverse stock split. This
action is anticipated to be completed immediately prior to the consummation of
the offering contemplated in this Prospectus. The reverse stock split and
dividend have been reflected retroactively in the financial statements for all
periods presented.
CASH AND CASH EQUIVALENTS
Investments in securities with original maturities of less than three months
are considered cash equivalents. Cash equivalents at December 31, 1994, December
31, 1995, and September 30, 1996, consisted of funds invested in money market
instruments.
F-8
<PAGE>
CODON PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995, AND SEPTEMBER 30, 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INVESTMENTS
Investments in securities with original maturities between three months and
one year are considered short-term investments. Short-term investments at
December 31, 1995, and September 30, 1996, consisted of funds invested in U.S.
government treasury notes. In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," all investments are classified as available-for-sale
securities and, accordingly, carried at fair market value. Unrealized holding
gains and losses are excluded from earnings and are reported as a net amount as
a separate component of stockholders' equity until realized.
CREDIT RISK
The Company's assets that are exposed to credit risk consist of cash, cash
equivalents, and short-term investments. As of December 31, 1994, December 31,
1995, and September 30, 1996, the Company had concentrations of cash in a bank
in the form of demand deposits and money market accounts, totaling approximately
$1,085,000, $791,000, and $884,000, respectively. Based on the short-term nature
of the investments, management believes that the risk of market value impairment
is nominal.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
expense is calculated using the straight-line method over the estimated useful
lives of three to seven years. Leasehold improvements are amortized over the
shorter of the lease term or useful lives.
Property and equipment consist of the following:
<TABLE>
<CAPTION>
AS OF
-----------------------------------------
<S> <C> <C> <C>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
Laboratory equipment and software................ $ 375,078 $ 604,181 $ 970,236
Office equipment, furniture, and fixtures........ 38,586 430,595 468,184
Leasehold improvements........................... -- 438,964 471,119
------------ ------------ -------------
413,664 1,473,740 1,909,539
Less--Accumulated depreciation and
amortization................................... (11,691) (148,577) (405,583)
------------ ------------ -------------
$ 401,973 $1,325,163 $ 1,503,956
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
F-9
<PAGE>
CODON PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995, AND SEPTEMBER 30, 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF
-----------------------------------------
<S> <C> <C> <C>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
Employee benefits................................ $ 16,039 $ 13,843 $ 17,583
Professional fees................................ -- 10,784 14,000
Laboratory supplies.............................. -- 45,730 --
Obligations under research agreements (Note 6)... -- 17,049 --
------------ ------------ -------------
$ 16,039 $ 87,406 $ 31,583
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." The Company has incurred losses for both
financial and income taxes reporting purposes since inception. Accordingly, no
provision or benefit for income taxes has been recorded in the accompanying
financial statements.
The components of the Company's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
AS OF
--------------------------
<S> <C> <C>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
Net operating loss and credit carryforwards...................... $ 210,245 $ 979,623
Depreciation..................................................... (3,500) (52,000)
Capitalized start-up and organizational costs.................... 5,130 3,990
------------ ------------
Total deferred tax assets.................................. 211,875 931,613
Less--Valuation reserve.......................................... (211,875) (931,613)
------------ ------------
Net deferred tax assets.......................................... $ -- $ --
------------ ------------
------------ ------------
</TABLE>
SFAS No. 109 requires that the benefit of deferred tax assets be recorded to
the extent that management assesses the realization of such deferred tax assets
to be "more likely than not." As of December 31, 1994, and December 31, 1995, a
valuation reserve was recorded against the Company's entire deferred tax asset.
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $2,350,000 available to offset future taxable income. These
carryforwards expire beginning in 2009. Due to the ownership change which
occurred in 1995, the amount of the net operating loss carryforward which can be
utilized on an annual basis will be subject to limitations; however, the Company
believes the entire net
F-10
<PAGE>
CODON PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995, AND SEPTEMBER 30, 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
operating loss carryforward will be available to be utilized during the
carryforward period. The Company anticipates an initial public offering which
may create additional ownership changes. These future ownership changes may
further limit the Company's ability to utilize its net operating loss
carryforward. The Company also has research and development tax credits of
approximately $85,000 available to reduce future Federal income tax.
UNAUDITED PRO FORMA NET LOSS PER SHARE
Pro forma net loss per common share is determined using the weighted-average
number of shares of common equivalent stock outstanding during the periods
presented. Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, options and warrants issued during the 12 months immediately
preceding the initial public offering were treated as if they were outstanding
for all periods, using the treasury stock method and a per share price of $5.50,
the midpoint of the proposed public offering range. Pro forma net loss per share
also assumes the conversion of the Preferred Stock into Common Stock. The
conversions are assumed to have occurred at the beginning of the period or at
the issue date if later. Common Stock equivalents issued in earlier periods have
not been included since the effect would be antidilutive.
Historical earnings per share data have been omitted because the automatic
conversion of the Preferred Stock into Common Stock described above materially
changes the Company's capitalization.
RECENT PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which is effective for the
Company's December 31, 1996, financial statements. SFAS No. 123 allows companies
to either account for stock-based compensation under the new provisions of SFAS
No. 123 or under the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," but requires pro forma
disclosure in the Notes to the financial statements as if the measurement
provisions of SFAS No. 123 had been adopted. The Company intends to continue
accounting for its stock-based compensation in accordance with the provisions of
APB Opinion No. 25, and will disclose in its 1996 audited financial statements
the required pro forma information as if the measurement provision of SFAS No.
123 had been adopted.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed when incurred. These costs
include, among other things, payments related to the acquisition of technology
rights and licenses for which the development work is in process.
F-11
<PAGE>
CODON PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995, AND SEPTEMBER 30, 1996 IS UNAUDITED)
3. RELATED-PARTY TRANSACTIONS:
LICENSE AGREEMENT
In February 1995, the Company and Oncor entered into a Technology License
Agreement (the "Oncor License") pursuant to which Oncor is providing the Company
with an exclusive worldwide license to human genome technologies owned or
licensed by Oncor that may be useful in the development of product candidates
for the treatment and prevention of certain human disorders which are caused
wholly, or in part, by genetic mutations. Under the terms of this agreement, the
Company is obligated to pay Oncor, on a semiannual basis, royalties for any of
the Company's product candidates which are commercialized by the Company or its
potential corporate partners, based in whole or in part on existing Oncor
technology licensed to the Company by Oncor. As of September 30, 1996, none of
the Company's product candidates had been commercialized by the Company or its
potential corporate partners. The Company is reliant on the technologies
licensed directly from Oncor and from third parties through Oncor, which will
form the basis for a significant portion of the Company's product candidates.
The Company's rights under the Oncor License are subject to certain rights
retained by Oncor in the field of genetic test systems and related products. The
initial term of the Oncor License is until January 31, 2000. Thereafter, the
Oncor License is automatically renewable for additional one-year periods, unless
either party objects. There can be no assurance that the Oncor License will be
renewed at the end of its initial term or that it will not be terminated earlier
pursuant to its terms. There also can be no assurance that conflicts of interest
between Oncor and the Company will not arise in respect to the Oncor License or
other aspects of the Company's relationship with Oncor.
MANAGEMENT SERVICES ARRANGEMENT
In June 1994, the Company and Oncor entered into an informal management
services arrangement (the "Service Arrangement") whereby Oncor agreed to furnish
to the Company certain administrative and accounting services and office space.
Oncor is entitled to reimbursement of the costs of providing the services to
Codon. Costs not specifically identifiable to Codon are allocated to Codon based
on the ratio of square footage occupied by the Codon facilities to total Oncor
square footage occupied. In the opinion of management, the method used to
allocate such expense is reasonable. As of September 30, 1996, Oncor continues
to perform these services for the Company. Expenses for the services under this
arrangement for the period from inception (June 21, 1994) to December 31, 1994,
for the year ended December 31, 1995, and for the nine months ended September
30, 1996, were approximately $11,000, $248,000 and $175,000, respectively. The
Company believes that the incremental cost to hire additional personnel and
perform services provided by Oncor is not material. Had Codon operated as an
unaffiliated entity, there is no assurance that Codon would have been able to
obtain comparable services elsewhere for comparable costs.
SERVICES AGREEMENT
During 1994, the Company and Oncor entered into a services agreement (the
"Agreement") whereby Codon employees spend available time performing technical,
research, and consulting work for Oncor. Under the terms of the Agreement, the
Company is entitled to reimbursement from Oncor for costs incurred in providing
these services. The Agreement remains in effect until terminated by either party
with
F-12
<PAGE>
CODON PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995, AND SEPTEMBER 30, 1996 IS UNAUDITED)
3. RELATED-PARTY TRANSACTIONS: (CONTINUED)
30 days written notice. Reimbursements from Oncor for services under this
arrangement for the period from inception (June 21, 1994) to December 31, 1994,
for the year ended December 31, 1995, and for the nine months ended September
30, 1996, were approximately $625,000, $561,000, and $152,000, respectively.
Reimbursements have been reflected as a reduction of research and development
expense in the accompanying financial statements.
CONVERTIBLE REVOLVING LINE-OF-CREDIT NOTE PAYABLE
On December 31, 1994, Codon entered into an agreement with Oncor, whereby
Oncor provided funding of up to $1,000,000. The unpaid balance of the note was
due on December 31, 1999. At any time prior to full payment of this principal
balance, the note could be converted into $0.01 par value Common Stock at a
conversion price of $6.00 per share. In April 1995, Oncor, Inc., converted the
outstanding balance of $632,502 into 105,417 shares of Common Stock.
TRANSACTIONS WITH ONCORMED, INC.
Effective January 1, 1995, Codon and OncorMed, Inc. ("OncorMed," a 29
percent owned affiliate of Oncor, Inc.), entered into an agreement whereby the
Company would lease DNA sequencers for a quarterly fee of $6,000 per piece of
equipment to OncorMed. The lease agreement remains in effect until terminated by
either party with 60 days prior written notice. Rental income of approximately
$66,000 and $54,000 is included in other income for the year ended December 31,
1995, and for the nine months ended September 30, 1996, respectively.
The Company entered into an arrangement in February 1995 with OncorMed to
pay one-third of the annual salary and bonus of an OncorMed employee who
provides services to the Company. Codon's share of the employee's payroll for
the year ended December 31, 1995, and the nine months ended September 30, 1996,
was approximately $38,000 and $29,000, respectively.
F-13
<PAGE>
CODON PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995, AND SEPTEMBER 30, 1996 IS UNAUDITED)
4. RELATED-PARTY ACTIVITY:
Related-party activity with Oncor and OncorMed was as follows:
<TABLE>
<CAPTION>
ONCOR ONCORMED
------------ -----------
<S> <C> <C>
Payable (receivable) from affiliates, inception (June 21, 1994)..... $ -- $ --
Expenditures made on behalf of Codon.............................. 1,257,502 --
Reimbursements from Oncor under services agreement................ (625,000) (1,716)
------------ -----------
Payable (receivable) from affiliates, December 31, 1994............. 632,502 (1,716)
Charges from Oncor under management services arrangement.......... 248,100 --
Rental fees from OncorMed......................................... -- (66,000)
Expenditures made on behalf of Codon.............................. 265,065 36,561
Reimbursements from Oncor under services agreement................ (561,000) --
Amounts converted to note payable (Note 3)........................ (632,502) --
------------ -----------
Receivable from affiliates, December 31, 1995....................... (47,835) (31,155)
Charges from Oncor under management services arrangement.......... 174,912 --
Rental fees from OncorMed......................................... -- (54,000)
Expenditures made on behalf of Codon.............................. 120,674 38,974
Reimbursements from Oncor under services agreement................ (151,500) --
------------ -----------
Payable (receivable) from affiliates, September 30, 1996
(unaudited)....................................................... $ 96,251 $ (46,181)
------------ -----------
------------ -----------
</TABLE>
5. STOCKHOLDERS' EQUITY:
SERIES A AND SERIES B CONVERTIBLE PREFERRED STOCK
In April 1995 and 1996, the Company completed private placements of
1,500,000 shares of Series A Convertible Preferred Stock ("Series A Preferred
Stock") at $2.00 per share with net proceeds of $2,964,503, and 1,519,000 shares
of Series B Convertible Preferred Stock ("Series B Preferred Stock") at $2.00
per share with net proceeds of $3,004,971, respectively. Each share of Preferred
Stock has the same voting rights as Common Stock. Each share of Series A or
Series B Preferred Stock may be converted into Common Stock at any time, at the
holder's option, on a three-for-one basis. The conversion ratio is adjustable
for certain future dilutive events. Each share of Series A and Series B
Preferred Stock will automatically be converted into Common Stock in the event
of an initial public offering of the Company's securities in which the proceeds
exceed $5,000,000 or upon approval of two-thirds or more of the holders of the
outstanding Series A and Series B Preferred Stock. Dividends are payable only in
the event that the Company, at its discretion, declares a dividend with respect
to its Common Stock. In the event of liquidation, the holders of the Series A
and Series B Preferred Stock shall be entitled to receive $2.00 ($3,000,000 in
the aggregate and $3,038,000 in the aggregate, respectively) per share,
respectively, plus any accrued and unpaid dividends. Common Stock issuable upon
the conversion of the Preferred Stock also has certain registration rights.
F-14
<PAGE>
CODON PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995, AND SEPTEMBER 30, 1996 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY: (CONTINUED)
STOCK OPTION PLAN
In February 1995, the Board of Directors of the Company approved a stock
option plan, under which 333,334 shares of the Company's Common Stock were
reserved for issuance. In February 1996, the Board of Directors increased the
number of shares reserved for issuance to 466,667. The Board of Directors
adopted the 1996 Stock Option/Stock Issuance Plan in October 1996, and 954,166
shares of Common Stock were authorized for issuance under the new plan. The
Company's options generally vest over three to five years and expire in five to
ten years after the grant.
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------
EXERCISE
NUMBER PRICE
GRANT/EXERCISE DATE OF SHARES PER SHARE
- -------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Outstanding as of December 31, 1994................................. -- $ --
Granted........................................................... 383,344 1.50
Exercised......................................................... (33,334) 1.50
Outstanding as of December 31, 1995................................. 350,010 1.50
Granted (unaudited)............................................... 104,177 1.50--6.00
----------- -------------
Outstanding as of September 30, 1996 (unaudited).................... 454,187 $ 1.50--6.00
----------- -------------
----------- -------------
</TABLE>
Included in the grants described above are options to purchase 112,500
shares granted to consultants and members of the Company's Scientific Advisory
Board, who are nonemployees. In addition, the Company issued 10,834 shares of
Common Stock warrants in connection with a research agreement. The Company
accounts for these options and warrants using a fair value method, with the fair
value of these options determined at the date of issuance. The Company recorded
$4,880 in research and development expense and $36,720 in deferred compensation
for the nine months ending September 30, 1996.
At December 31, 1995, and September 30, 1996, exercisable options were 1,667
and 70,171, respectively.
6. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS AND RENTAL EXPENSE
The Company leased office space on a month-to-month basis from Oncor, Inc.
Rent expense for the period from inception (June 21, 1994) to December 31, 1994,
the year ended December 31, 1995, and the nine months ended September 30, 1996,
was approximately $2,914, $217,500, and $154,812, respectively.
The Company intends to enter into a sublease with Oncor for its current
facilities which will expire in March 2004, with Oncor having an option to
extend the lease for an additional five-year term. The sublease will require the
Company to pay monthly rent of approximately $10,200 and monthly maintenance of
approximately $3,100. The monthly rent and the monthly maintenance fee will be
subject to adjustments for inflation.
F-15
<PAGE>
CODON PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995, AND SEPTEMBER 30, 1996 IS UNAUDITED)
6. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
The following table summarizes the Company's future commitments under the
sublease.
<TABLE>
<S> <C>
1996............................................................ $ 26,600
1997............................................................ 159,600
1998............................................................ 159,600
1999............................................................ 159,600
2000............................................................ 159,600
2001............................................................ 159,600
Thereafter...................................................... 359,100
---------
Total..................................................... $1,183,700
---------
---------
</TABLE>
RESEARCH, DEVELOPMENT, AND LICENSING AGREEMENTS
In addition to the licensing agreement with Oncor discussed in Note 3, the
Company has entered into several research, development, and other licensing
agreements. The terms of the significant agreements are as follows:
- - YALE UNIVERSITY RESEARCH AND LICENSING AGREEMENTS--Through a research
agreement with Yale University, the Company is currently providing financial
support for research relating to oligonucleotide mediated gene therapy. Unless
terminated earlier, the research agreement terminates in January 1997, subject
to renewal in certain instances. Further, through a license with Yale
University, the Company has exercised its option under the collaborative
research agreement to obtain an exclusive worldwide license for commercial use
of an invention based on the Yale technology that is currently the subject of
a filed United States patent application. Unless terminated earlier, the
license expires in each country on the date of the last patent to expire
issued in such country. The Company is obligated to make certain royalty and
milestone payments to Yale University based on the percentage of net sales of
products incorporating the licensed technologies.
- - JOHNS HOPKINS COLLABORATIVE RESEARCH AND LICENSING AGREEMENTS--Through a
collaborative research agreement with Johns Hopkins, the Company is currently
providing financial support for research relating to the Trap64Arg allele
technologies. Unless terminated earlier, the agreement terminates in March
1999, subject to renewal in certain instances. Further, through a license with
Johns Hopkins, the Company has obtained an exclusive, worldwide license for
prophylactic and therapeutic uses to a U.S. patent application relating to
Trap64Arg allele technologies. Unless terminated earlier, the license expires
in each country on the date 10 years after the first commercial sale of an
FDA-approved product based on the Hopkins' technology. The Company is
obligated to make certain royalty payments to Johns Hopkins based on the
percentage of net sales of products incorporating the licensed technologies.
In addition, in connection with the license, the Company issued warrants to
Johns Hopkins to purchase an aggregate of 10,834 shares of the Common Stock of
the Company at an exercise price of $1.50 per share.
As of September 30, 1996, minimum remaining payments due under these and
other agreements in 1996, 1997, 1998, and 1999 are approximately $82,000,
$249,000, $249,000, and $62,000, respectively.
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO UNDERWRITER, DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER. 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. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
The Company.................................... 7
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..................................... 42
Certain Transactions........................... 49
Principal Stockholders......................... 51
Description of Securities...................... 52
Shares Eligible for Future Sale................ 55
Underwriting................................... 57
Legal Matters.................................. 59
Experts........................................ 59
Additional Information......................... 59
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[LOGO]
1,700,000 SHARES OF COMMON STOCK
AND
1,700,000 REDEEMABLE COMMON
STOCK PURCHASE WARRANTS
---------------------
PROSPECTUS
---------------------
NATIONAL SECURITIES
CORPORATION
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL authorizes a court to award or a corporation's Board
of Directors to grant indemnification to directors and officers in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities (including reimbursement for expenses incurred) arising under
the Act. Articles Nine and Ten of the Registrant's Second Amended and Restated
Certificate of Incorporation provide for indemnification of its directors and
officers and permissible indemnification of employees and other agents to the
maximum extent permitted by the DGCL. Reference is also made to the Underwriting
Agreement to be filed as Exhibit 1.1 hereto, which shall set forth certain
indemnification provisions. In addition, the Registrant maintains liability
insurance for its officers and directors.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, to be incurred by the Registrant in
connection with the sale of the Securities being registered. All amounts are
estimates except the SEC registration fee, the NASD filing fee and the Nasdaq
Small Cap listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC Registration Fee.............................................................. $ 8,837
NASD Filing Fee................................................................... 3,415
Nasdaq Small Cap Listing Fee...................................................... 10,000
Underwriter's Non-Accountable Expenses*........................................... 285,600
Printing and Engraving Expenses................................................... 100,000
Legal Fees and Expenses........................................................... 150,000
Accounting Fees and Expenses...................................................... 100,000
Blue Sky Fees and Expenses........................................................ 45,000
Transfer Agent and Registrar Fees and Expenses.................................... 35,000
Miscellaneous..................................................................... 62,148
----------
Total....................................................................... $ 800,000
----------
----------
</TABLE>
- ------------------------
* Assumes no exercise of the Underwriter's over-allotment option.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since its incorporation on June 21, 1994, the Registrant has issued and sold
the following securities (as adjusted to reflect a one for three reverse stock
split to be effected immediately prior to the consummation of the Offering):
1. On October 30, 1994, 666,667 shares of Common Stock were issued to
Oncor, Inc. for $1,000,000. On December 30, 1994: (i) 50,000 shares of
Common Stock were issued to Mr. Stephen Turner, the Chairman of the Board of
Directors of the Registrant, for $75,000; (ii) 33,334 shares of Common Stock
were issued to Mr. John Pappajohn, a Director of the Registrant, for
$50,000; (iii) 33,333 shares of Common Stock were issued to Thebes, Ltd., a
sole proprietorship owned by Mr. Pappajohn's wife, for $50,000; and (iv)
33,334 shares of Common Stock were issued to the Ann Pappajohn Inter Vivos
Trust for $50,000. On March 3, 1995: (i) 3,334 shares of Common Stock were
issued to Mr. Gregory Brown for $5,000; (ii) 3,334 shares of Common Stock
were issued to Mr. Francis Egan for $5,000; and (iii) 6,667 shares were
issued to Dr. Derace Schaeffer for $10,000.
II-1
<PAGE>
2. On December 31, 1994, the Registrant issued a five-year convertible
note to Oncor, Inc. (the "Note"). In April 1995, Oncor, Inc. converted the
outstanding balance of $632,502 on the Note into
105,417 shares of Common Stock.
3. On February 16, 1995, the Registrant granted options to purchase
263,334 shares of Common Stock, exercisable at $1.50 per share, to various
employees and consultants of the Registrant, including Mr. Stephen Turner,
the Chairman of the Board of Directors of the Registrant, Mr. John
Pappajohn, a Director of the Registrant, and Dr. Jay George, an executive
officer of the Registrant. On February 22, 1995, Mr. Pappajohn exercised
33,334 of these options for $50,000. Other than the options granted to Mr.
Pappajohn, the remaining February 16, 1995 option grants vest ratably over a
five-year period commencing on February 16, 1995.
4. On February 22, 1995, the Registrant granted options to purchase
66,667 shares of Common Stock, exercisable at $1.50 per share, Dr. William
A. Ryan, Jr., the Registrant's President and Chief Executive Officer. These
options vest ratably over a four-year period commencing on February 22,
1995.
5. In April 1995, 1,500,000 shares of Series A Convertible Preferred
Stock were issued at $2.00 per share (the "Series A Shares") in a private
placement to certain "accredited investors" as such term is defined in Rule
501 under the Securities Act of 1933, as amended. Upon the consummation of
the Offering, the Series A Shares shall convert into 500,000 shares of
Common Stock.
6. On November 17, 1995, the Registrant granted options to purchase
53,337 shares of Common Stock, exercisable at $1.50 per share, to various
employees and consultants of the Registrant. These options vest ratably over
a five-year period commencing on November 17, 1995.
7. On March 6, 1996, the Registrant granted options to purchase 39,172
shares of Common Stock, exercisable at $1.50 per share, to various
consultants of the Registrant. Of these options, 5,836 vested immediately
and the remainder vest ratably over a four-year period commencing on March
6, 1996.
8. In April 1996, 1,012,667 shares of Series B Convertible Preferred
Stock were issued at $3.00 per share (the "Series B Shares") in a private
placement to certain "accredited investors" as such term is defined in Rule
501 under the Securities Act of 1933, as amended. On October 28, 1996, the
Board of Directors of the Registrant authorized a three for two stock
dividend payable to the holders of the Series B Shares. As a result, an
aggregate of 506,334 Series B Shares were issued to the holders of the
Series B Shares. Upon the consummation of the Offering, the Series B Shares
shall convert into 506,334 shares of Common Stock.
9. On September 19, 1996, the Registrant granted options to purchase
65,005 shares of Common Stock, exercisable at $6.00 per share, to various
employees and consultants of the Registrant, including Mr. Theodore D.
Pennington, the Registrant's Chief Financial Officer, Vice President,
Finance and Administration, Treasurer and Secretary.
The issuances described in Items 26(3), 26(4), 26(6), 26(7) and 26(9) were
deemed exempt from registration under the Securities Act of 1933, as amended, in
reliance upon Rule 701 promulgated under the Securities Act of 1933, as amended.
The issuances of the securities described in each other paragraph of this Item
26 were deemed to be exempt from registration under the Securities Act of 1933,
as amended, in reliance on Section 4(2) of the Securities Act of 1933, as
amended, as transactions by an issuer not involving any public offering. In
addition, the recipients of securities in each such transaction represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates issued in such transactions. All
recipients had adequate access to information about the Registrant.
II-2
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement by and between the Registrant and National Securities Corporation.
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Form of Second Amended and Restated Certificate of Incorporation of the Registrant.
3.3 Bylaws of the Registrant.
4.1 Reference is made to Exhibits 1.1, 3.1, 3.2 and 3.3.
4.2* Specimen Common Stock certificate.
4.3* Form of Redeemable Warrant certificate.
4.4* Form of Redeemable Warrant Agreement, by and between the Registrant and Continental Stock Transfer
& Trust Company.
4.5* Form of Underwriter's Warrant certificate.
4.6* Form of Underwriter's Warrant Agreement by and between the Registrant and National Securities
Corporation.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Registrant's 1995 Stock Option Plan.
10.2* Registrant's 1996 Stock Option/Stock Issuance Plan.
10.3* Sublease Agreement, dated November , 1996, by and between the Registrant and Oncor, Inc.
10.4 Services Agreement, dated December 31, 1994, by and between the Registrant and Oncor, Inc.
10.5+ Collaborative Research Agreement, effective March 6, 1996, by and between the Registrant, The
Johns Hopkins University, and Oncor, Inc.
10.6+ License Agreement, effective March 6, 1996, by and between the Registrant and The Johns Hopkins
University.
10.7+ Research Agreement, effective January 1, 1995, by and between the Registrant and Yale University.
10.8+ License Agreement, effective January 20, 1995, by and between the Registrant and Yale University.
10.9* Amended and Restated License Agreement, effective November , 1996, by and between the
Registrant, Princeton University and Oncor, Inc.
10.10+ Technology License Agreement, dated February 1, 1995, by and between the Registrant and Oncor,
Inc.
11.1 Calculation of earnings per share.
23.1 Consent of Arthur Andersen LLP.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------
<C> <S>
23.2* Consent of Brobeck, Phleger & Harrison LLP (reference is made to Exhibit 5.1).
24.1 Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be supplied by amendment.
+ Confidential treatment requested as to certain portions of these exhibits.
(b) Financial Statement Schedules
Not applicable.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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 Underwriter to
permit prompt delivery to each purchaser.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, 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.
II-4
<PAGE>
(2) For the purpose of determining any liability under the Securities
Act of 1933, 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, 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 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant or expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe it
meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of New York, State of New York, on this 1st day of November, 1996.
CODON PHARMACEUTICALS, INC.
By: /s/ WILLIAM A. RYAN, JR.
-----------------------------------------
William A. Ryan, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement was signed by the following persons in the
capacities indicated on November 1, 1996:
SIGNATURE TITLE(S)
- ------------------------------ ---------------------------
* Chairman of the Board of
- ------------------------------ Directors
Stephen Turner
President, Chief Executive
/s/ WILLIAM A. RYAN, JR Officer and Director
- ------------------------------ (Principal Executive
William A. Ryan, Jr. Officer)
Chief Financial Officer,
Vice President, Finance
* and Administration,
- ------------------------------ Treasurer and Secretary
Theodore D. Pennington (Principal Financial and
Accounting Officer)
* Director
- ------------------------------
John Pappajohn
* Director
- ------------------------------
Julius A. Vida, Ph.D., M.B.A.
* Director
- ------------------------------
Sandy B. Primrose, Ph.D.
*By: /s/ WILLIAM A. RYAN,
JR.
-------------------------
William A. Ryan, Jr.
ATTORNEY-IN-FACT
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------- -------------------
<C> <S> <C>
1.1* Form of Underwriting Agreement by and between the Registrant and National Securities
Corporation.
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Form of Second Amended and Restated Certificate of Incorporation of the Registrant.
3.3 Bylaws of the Registrant.
4.1 Reference is made to Exhibits 1.1, 3.1, 3.2 and 3.3.
4.2* Specimen Common Stock certificate.
4.3* Form of Redeemable Warrant certificate.
4.4* Form of Redeemable Warrant Agreement, by and between the Registrant and Continental
Stock Transfer & Trust Company.
4.5* Form of Underwriter's Warrant certificate.
4.6* Form of Underwriter's Warrant Agreement by and between the Registrant and National
Securities Corporation.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Registrant's 1995 Stock Option Plan.
10.2* Registrant's 1996 Stock Option/Stock Issuance Plan.
10.3* Sublease Agreement, dated November , 1996, by and between the Registrant and Oncor,
Inc.
10.4 Services Agreement, dated December 31, 1994, by and between the Registrant and Oncor,
Inc.
10.5+ Collaborative Research Agreement, effective March 6, 1996, by and between the
Registrant, The Johns Hopkins University, and Oncor, Inc.
10.6+ License Agreement, effective March 6, 1996, by and between the Registrant and The Johns
Hopkins University.
10.7+ Research Agreement, effective January 1, 1995, by and between the Registrant and Yale
University.
10.8+ License Agreement, effective January 20, 1995, by and between the Registrant and Yale
University.
10.9* Amended and Restated License Agreement, effective November , 1996, by and between the
Registrant, Princeton University and Oncor, Inc.
10.10+ Technology License Agreement, dated February 1, 1995, by and between the Registrant and
Oncor, Inc.
11.1 Calculation of earnings per share.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (reference is made to Exhibit 5.1).
24.1 Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be supplied by amendment.
+ Confidential treatment requested as to certain portions of these exhibits.
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ONCORPHARM, INC.
(Pursuant to Sections 151, 212, 242 and 245 of the
General Corporation Law of the State of Delaware)
OncorPharm, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "General Corporation Law")
DOES HEREBY CERTIFY:
FIRST: That the name of this corporation is OncorPharm, Inc., and
that this corporation was originally incorporated under the name OncorPharm,
Inc., on June 21, 1994, pursuant to the General Corporation Law.
SECOND: That the Board of Directors duly adopted resolutions
proposing to amend and restate the Restated Certificate of Incorporation of this
corporation, declaring said amendment and restatement to be advisable and in the
best interests of this corporation and its stockholders, and authorizing the
appropriate officers of this corporation to submit such resolutions to the
stockholders of this corporation for their approval, which resolution setting
forth the proposed amendment and restatement is as follows:
RESOLVED, that the Restated Certificate of Incorporation of this
corporation be amended and restated in its entirety as follows:
ARTICLE I.
The name of this corporation is OncorPharm, Inc.
ARTICLE II.
The address of the registered office of the corporation in the State
of Delaware is 1013 Centre Road, Wilmington, County of New Castle, Delaware
19805. The name of its registered agent at such address is Corporation Service
Company.
<PAGE>
ARTICLE III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law.
ARTICLE IV.
A. This corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is Thirty Million
(30,000,000) shares. Twenty Million (20,000,000) shares, par value $.01 per
share, shall be Common Stock and Ten Million (10,000,000) shares, par value $.01
per share, shall be Preferred Stock.
B. The Preferred Stock authorized by this Amended and Restated
Certificate of Incorporation may be issued from time to time in series. Subject
to the rights of series of Preferred Stock which may from time to time come into
existence, the rights, preferences, privileges, and restrictions granted to and
imposed on the Series A Preferred Stock, which series shall consist of One
Million, Five Hundred Thousand (1,500,000) shares, and the Series B Preferred
Stock, which series shall consist of Three Million (3,000,000) shares, are as
set forth below in this Article IV.B. With respect to the Series A Preferred
Stock and Series B Preferred Stock, the Board of Directors may not increase, but
may decrease, the number of authorized shares of such series by a resolution or
resolutions of the Board of Directors. Shares of Series A Preferred Stock or
Series B Preferred Stock repurchased by the Corporation shall be canceled and
revert to authorized but unissued shares of Preferred Stock, undesignated as to
series, subject to reissuance by the Corporation as shares of Preferred Stock of
any one or more series other than the Series A Preferred Stock or Series B
Preferred Stock, respectively.
1. Dividends.
a. Subject to the provisions of Subsection B.1.b. of this
Article IV, dividends on the Series A Preferred Stock and the Series B Preferred
Stock shall be payable only if, as and when declared by the Board of Directors.
b. The holders of shares of Series A Preferred Stock and
Series B Preferred Stock shall be entitled to receive dividends, out of any
assets legally available therefor, prior and in preference to any declaration of
any dividend (payable other than in Common Stock or other securities and rights
convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock of this
2
<PAGE>
Corporation) on the Common Stock, or any series of Preferred Stock ranking pari
passu or junior to the Series A Preferred Stock and Series B Preferred Stock, of
this Corporation, in an amount no less than that paid on any other outstanding
shares of this Corporation, payable when, as and if declared by the Board of
Directors.
2. Liquidation, Dissolution or Winding Up; Certain
Mergers, Consolidations and Asset Sales.
a. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock and Series B Preferred Stock then outstanding shall be entitled
to be paid out of the assets of the Corporation available for distribution to
its stockholders after and subject to the payment in full of all amounts
required to be distributed to the holders of any other class or series of stock
of the Corporation ranking on liquidation prior and in preference to the Series
A Preferred Stock and Series B Preferred Stock (collectively referred to as
"Senior Preferred Stock"), but before any payment shall be made to the holders
of Common Stock or any other class or series of stock ranking on liquidation
junior to the Series A Preferred Stock and Series B Preferred Stock (the Common
Stock and any other class or series of stock ranking in payment of dividends or
on liquidation junior to the Series A Preferred Stock and Series B Preferred
Stock being collectively referred to as "Junior Stock") by reason of their
ownership thereof, an amount equal to $2.00 for each outstanding share of Series
A Preferred Stock (the "Original Series A Issue Price") (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, and an amount equal to $3.00 for each outstanding share of
Series B Preferred Stock (the "Original Series B Issue Price") (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 and Series B Preferred
Stock and any class or series of stock ranking on liquidation on a parity with
the Series A Preferred Stock and Series B Preferred Stock the full amount to
which they shall be entitled, the holders of shares of Series A Preferred Stock,
Series B Preferred Stock and any class or series of stock ranking on liquidation
on a parity with the Series A Preferred Stock and Series B Preferred Stock shall
share ratably in any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amounts which would otherwise be
3
<PAGE>
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full.
b. After the payment of all preferential amounts required to
be paid to the holders of Senior Preferred Stock, Series A Preferred Stock,
Series B Preferred Stock and any other class or series of stock of the
Corporation ranking on liquidation on a parity with the Series A Preferred Stock
and Series B Preferred Stock, upon the dissolution, liquidation or winding up of
the Corporation, the holders of shares of Junior Stock then outstanding shall be
entitled to receive the remaining assets and funds of the Corporation available
for distribution to its stockholders.
c. The consolidation or merger of the Corporation into or with
any other entity or entities which results in the exchange of outstanding shares
of the Corporation for securities or other consideration issued or paid or
caused to be issued or paid by any such entity or affiliate thereof, and the
sale or transfer by the Corporation of all or substantially all its assets,
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of the provisions of this Subsection B.2. of this
Article IV if so elected by the majority of the holders of the then outstanding
shares of Series A Preferred Stock and Series B Preferred Stock voting together,
in their sole discretion.
3. Voting.
a. Each holder of outstanding shares of Series A Preferred
Stock or Series B 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 such
Series A Preferred Stock or Series B Preferred Stock held by such holder are
then convertible (as adjusted from time to time pursuant to Subsection B.4. of
this Article IV hereof), at each meeting of stockholders of the Corporation (and
written actions of stockholders in lieu of meetings) with respect to any and all
matters presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law, by the provisions of Subsection B.3.b.
of this Article IV below or by the provisions establishing any other series of
Preferred Stock, holders of Series A Preferred Stock and Series B Preferred
Stock shall vote together with the holders of Common Stock as a single class.
b. The Corporation shall not (i) amend, alter or repeal the
preferences, special rights or other powers of the Series A Preferred Stock or
Series B Preferred Stock so as to affect adversely such series, (ii) increase
the authorized number of shares of Preferred Stock, in either case without the
written
4
<PAGE>
consent or affirmative vote of the holders of two-thirds of the then outstanding
shares of such series, 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 of any shares of
capital stock with preference or priority over Series A Preferred Stock and
Series B Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely such series, and the authorization of any
shares of capital stock on a parity with such series as to the right to receive
either dividends or amounts distributable upon liquidation, dissolution or
winding up of the Corporation shall not be deemed to affect adversely such
series.
4. Optional Conversion. The holders of the Series A Preferred Stock
and Series B Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
a. Right to Convert. Each share of Series A Preferred Stock
and Series B Preferred Stock shall be convertible, at the option of the holder
thereof, at any time and from time to time, and without the payment of
additional consideration by the holder thereof, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing the
Original Series A Issue Price or Original Series B Issue Price, as applicable,
by the Conversion Price at the time in effect for such share. The initial
Conversion Price per share for shares of Series A Preferred Stock shall be the
Original Series A Issue Price and the initial Conversion Price per share for
shares of Series B Preferred Stock shall be the Original Series B Issue Price.
The Conversion Price, and the rate at which shares of Series A Preferred Stock
and Series B Preferred Stock may be converted into shares of Common Stock, shall
be subject to adjustment as provided below.
In the event of a liquidation of the Corporation, the
Conversion Rights shall terminate at the close of business on the first full day
preceding the date fixed for the payment of any amounts distributable on
liquidation to the holders of Series A Preferred Stock and Series B Preferred
Stock.
b. Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Series A Preferred Stock or Series B
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 effective Conversion Price.
5
<PAGE>
c. Mechanics of Conversion.
(i) In order for a holder of Series A Preferred Stock or
Series B Preferred Stock to convert shares of such series into shares of Common
Stock, such holder shall surrender the certificate or certificates for such
shares of Series A Preferred Stock or Series B Preferred Stock, at the office of
the transfer agent for the Series A Preferred Stock or Series B Preferred Stock
(or at the principal office of the Corporation if the Corporation serves as its
own transfer agent), together with written notice that such holder elects to
convert all or any number of the shares of the Series A Preferred Stock or
Series B Preferred Stock represented by such certificate or certificates. Such
notice shall state such holder's name or the names of the nominees in which such
holder wishes the certificate or certificates for shares of Common Stock to be
issued. If required by the Corporation, certificates surrendered for conversion
shall be endorsed or accompanied by a written instrument or instruments of
transfer, in form satisfactory to the Corporation, duly executed by the
registered holder or his, her or its attorney duly authorized in writing. The
date of receipt of such certificates and notice by the transfer agent (or by the
Corporation if the Corporation serves as its own transfer agent) shall be the
conversion date (the "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 Series B Preferred Stock, or to his, her
or its nominees, a certificate or certificates for the number of shares of
Common Stock to which such holder shall be entitled, together with cash in lieu
of any fraction of a share.
(ii) The Corporation shall at all times when the Series
A Preferred Stock and Series B Preferred Stock shall be outstanding, reserve and
keep available out of its authorized but unissued stock, for the purpose of
effecting the conversion of the Series A Preferred Stock or Series B 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 and Series B Preferred Stock.
(iii) Upon any such conversion, no adjustment to the
Conversion Price shall be made for any declared but unpaid dividends on the
Series A Preferred Stock or Series B Preferred Stock surrendered for conversion
or on the Common Stock delivered upon conversion.
6
<PAGE>
(iv) All shares of Series A Preferred Stock and Series B
Preferred Stock which shall have been surrendered for conversion as herein
provided shall no longer be deemed to be outstanding and all rights with respect
to such shares, including the rights, if any, to receive notices and to vote,
shall immediately cease and terminate on the Conversion Date, except only the
right of the holders thereof to receive shares of Common Stock in exchange
therefor and payment of any dividends declared or accrued but unpaid thereon.
Any shares of Series A Preferred Stock or Series B Preferred Stock so converted
shall be retired and canceled 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 or Series B Preferred Stock accordingly.
(v) The Corporation shall pay any and all federal and
state (but not foreign, which shall be paid by the holders of the Series A
Preferred Stock and Series B Preferred Stock) 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 or Series B Preferred Stock
pursuant to this Subsection B.4. of this Article IV. 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 or Series B
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 to Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of this Subsection
B.4.d. of this Article IV, 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 options to acquire shares described in
Subsection B.5.d.(i)(D) of this Article IV below.
(B) "Original Issue Date" shall mean the date on
which the first share of Series A Preferred Stock was originally issued.
7
<PAGE>
(C) "Convertible Securities" shall mean any
evidences of indebtedness, shares (other than Common Stock, Series A Preferred
Stock or Series B Preferred Stock) or other securities directly or indirectly
convertible into or exercisable or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean
all shares of Common Stock issued (or, pursuant to Subsection B.4.d.(iii) of
this Article IV 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 or Series B Preferred Stock;
(II) as a dividend or distribution on the
Series A Preferred Stock or Series B Preferred Stock;
(III) by reason of a dividend, stock split,
split-up or other distribution on shares of Common Stock that are excluded from
the definition of Additional Shares of Common Stock by the foregoing clauses (I)
and (II) or this clause (III); or
(IV) to officers, employees or directors of,
or consultants to, the Corporation pursuant to one or more plans adopted by the
Board of Directors of the Corporation.
(ii) No Adjustment of Conversion Price. No adjustment in
the number of shares of Common Stock into which the Series A Preferred Stock or
Series B Preferred Stock is convertible shall be made by adjustment in the
applicable Conversion Price thereof unless the consideration per share
(determined pursuant to Subsection B.4.d.(v) of this Article IV) 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 of Common
Stock.
(iii) Issue of 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
8
<PAGE>
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 B.4.d.(v)
of this Article IV 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, 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) Upon the expiration or termination of any
unexercised Option, or of the conversion rights of any Convertible Security, the
Conversion Price shall be readjusted to such Conversion Price as would have been
in effect had the adjustment which was made upon the issuance of such Option or
Convertible Security not been made;
(D) 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 anti-dilution provisions thereof, the Conversion Price then
in effect shall forthwith be readjusted to such Conversion Price as would have
been in effect had the adjustment which was made upon the issuance of such
Option or Convertible Security not exercised or converted prior to such change
been made upon the basis of such change; and
9
<PAGE>
(E) No readjustment pursuant to clause (B), (C) or
(D) 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 issuances
of Additional Shares of Common Stock between the original adjustment date and
such readjustment date.
(iv) Adjustment of Conversion Price Upon Issuance Of
Additional Shares of Common Stock. In the event the Corporation shall at any
time after the Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection B.4.d.(iii) of this Article IV, but excluding shares issued as a
dividend or distribution as provided in Subsection B.4.f. of this Article IV or
upon a stock split or combination as provided in Subsection B.4.e. of this
Article IV), 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 an amount (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 or to be 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, (i) for the purpose of this Subsection B.4.d.(iv) of this Article IV, all
shares of Common Stock issuable upon exercise or conversion of Options or
Convertible Securities outstanding immediately prior to such issue shall be
deemed to be outstanding (other than shares excluded from the definition of
Additional Shares of Common Stock by virtue of clause (IV) of Subsection
B.4.d.(i)(D) of this Article IV), and (ii) the number of shares of Common Stock
deemed issuable upon conversion of such outstanding Options and Convertible
Securities shall not give effect to any adjustments to the conversion price or
conversion rate of such Options or Convertible Securities resulting from the
issuance of Additional Shares of Common Stock that is the subject of this
calculation. 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.
10
<PAGE>
(v) Determination of Consideration. For purposes of this
Subsection B.4.d. of this Article IV, 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 B.4.d.(iii) of
this Article IV, 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 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, 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.
(vi) Multiple Closing Dates. In the event the
Corporation shall issue on more than one date Additional Shares of Common Stock
which are comprised of shares of the same
11
<PAGE>
series or class of Preferred Stock, and such issuance dates occur within a
period of no more than 120 days, then the Conversion Price shall be adjusted
only once on account of such issuances, with such adjustment to occur upon the
final such issuance and to give effect to all such issuances as if they occurred
on the date of the final such issuance.
e. Adjustment 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 after the
Original Issue Date 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 (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
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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 and Series B 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 and Series B Preferred Stock been
converted into Common Stock on the date of such event and had thereafter, during
the period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period,
giving application to all adjustments called for during such period under this
paragraph with respect to the rights of the holders of Series A Preferred Stock
and Series B Preferred Stock.
h. Adjustment for Reclassification, Exchange or Substitution.
If the Common Stock issuable upon the conversion of the Series A Preferred Stock
and Series B Preferred Stock shall be changed into the same or a different
number of shares of any class or classes of capital stock, whether by capital
reorganization, reclassification, or otherwise (other than a subdivision or
combination of shares or stock dividend provided for above, or a reorganization,
merger, consolidation, or sale of assets provided for below), then and in each
such event the holders of Series A Preferred Stock and Series B 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 and
Series B 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. In case of
any consolidation or merger of the Corporation with or into another corporation
or the sale of all or substantially all of the assets of the corporation to
another corporation (other than a consolidation, merger or sale which is covered
by Subsection B.2.c. of this Article IV), each share of Series A Preferred Stock
and Series B Preferred Stock shall thereafter be convertible (or shall be
converted into a security which shall be convertible) into the kind and amount
of shares of stock or other securities or property to which a holder of the
number of shares of Common Stock of the Corporation deliverable upon conversion
of such Series A Preferred Stock or Series B Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be made
in the application of the provisions in this Subsection B.4. of this Article IV
set forth with respect to the rights and interest thereafter of the
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holders of the Series A Preferred Stock and Series B Preferred Stock, to the end
that the provisions set forth in this Subsection B.4. of this Article IV
(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 and Series B Preferred
Stock.
j. No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Subsection B.4. of this Article IV and in the taking of all such action
as may be necessary or appropriate in order to protect the Conversion Rights
against impairment.
k. Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Subsection
B.4. of this Article IV, 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 Series B 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 or Series B 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 Series B
Preferred Stock.
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 subdivides or combines its outstanding shares of Common Stock; (iii)
of any reclassification of the Common Stock of the Corporation (other than a
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
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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 Series B Preferred Stock, and shall cause to be mailed to the holders of the
Series A Preferred Stock and Series B 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 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,
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,
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.
5. Mandatory Conversion.
a. All outstanding shares of Series A Preferred Stock and
Series B Preferred Stock shall automatically be converted into shares of Common
Stock, at the then effective Conversion Price, upon the earlier of (i) the
closing of the sale of shares of Common Stock in a public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, resulting in at least $5,000,000 of gross proceeds to the Corporation
or (ii) the date upon which the Corporation obtains the written consent of the
holders of at least two-thirds of the then outstanding shares of the Series A
Preferred Stock and Series B Preferred Stock voting together (the "Mandatory
Conversion Date").
b. All holders of record of shares of Series A Preferred Stock
and Series B Preferred Stock will be given written notice of the Mandatory
Conversion Date and the place designated for Mandatory Conversion of all such
shares of Series A Preferred Stock and Series B Preferred Stock pursuant to this
Subsection B.5. of this Article IV. Such notice shall be sent by first class or
registered mail, postage prepaid, to each record holder of Series A Preferred
Stock and Series B Preferred Stock
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at such holder's address last shown on the records of the transfer agent for the
Series A Preferred Stock and Series B Preferred Stock (or the records of the
Corporation, if it serves as its own transfer agent). Upon receipt of such
notice, each holder of shares of Series A Preferred Stock and Series B Preferred
Stock shall surrender his, her 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 Subsection B.5. of this Article
IV. On the Mandatory Conversion Date, all rights with respect to the Series A
Preferred Stock and Series B Preferred Stock so converted, including the rights,
if any, to receive notices and vote, 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 or Series B Preferred Stock have been
converted, and payment of any declared or accrued but unpaid dividends thereon
(all of which shall be deemed to be declared by the Board of Directors on the
Mandatory Conversation Date). If so required 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. As soon as practicable after the Mandatory Conversion Date and the
surrender of the certificate or certificates for Series A Preferred Stock and
Series B 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 B.4.b.
of this Article IV in respect of any fraction of a share of Common Stock
otherwise issuable upon such conversion.
c. All certificates evidencing shares of Series A Preferred
Stock and Series B Preferred Stock which are required to be surrendered for
conversion in accordance with the provisions hereof shall, from and after the
Mandatory Conversion Date, be deemed to have been retired and canceled and the
shares of Series A Preferred Stock and Series B 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. The Corporation may thereafter take such appropriate action
(without the need for stockholder action) as may be necessary to reduce the
authorized Series A Preferred Stock and Series B Preferred Stock accordingly.
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C. 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 of Delaware.
ARTICLE V.
The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of the Article FOURTH, to provide for the
issuance of the shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each such series, and to fix the
designation, powers, preferences, and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall
include, but not be limited to, determination of the following:
A. The number of shares constituting that series and the distinctive
designation of that series;
B. The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
C. Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
D. Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
E. Whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the date or
date upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different conditions
and at different redemption dates;
F. Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
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G. The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the corporation, and
the relative rights or priority, if any, of payment of shares of that series;
and
H. Any other relative rights, preferences and limitations of that
series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the shares of Common Stock with respect to
the same dividend period.
If upon any voluntary or involuntary liquidation, dissolution or
winding up of the corporation, the assets available for distribution to holders
of shares of Preferred Stock of all series shall be insufficient to pay such
holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all series of Preferred
Stock in accordance with the respective preferential amounts (including unpaid
cumulative dividends, if any) payable with respect thereto.
ARTICLE VI.
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.
ARTICLE VII.
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of 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
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<PAGE>
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
ARTICLE VIII.
Except to the extent that the General Corporation Law of Delaware
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
ARTICLE IX.
The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of Delaware, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the Corporation, or
is or was serving, or has agreed to serve, at the request of the Corporation, as
a director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan), or by reason of any action alleged to have been
taken or omitted in such capacity, against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom.
Indemnification may include payment by the Corporation of expenses
in defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay such payment if it is ultimately determined that such person is not
entitled
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<PAGE>
to indemnification under this Article, which undertaking may be accepted without
reference to the financial ability of such person to make such repayment.
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 (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.
ARTICLE X.
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute and this Certificate of Incorporation, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
* * *
THIRD: The foregoing amendment was approved by the holders of the
requisite number of shares of said corporation in accordance with Section 212 of
the General Corporation Law.
FOURTH: That said amendments were duly adopted in
accordance with the provisions of Sections 151, 242 and 245 of
the General Corporation Law.
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IN WITNESS WHEREOF, this Restated Certificate of Incorporation has
been signed by the President and the Secretary of this corporation this ___ day
of March, 1996.
/s/ William A. Ryan, Jr.
-------------------------------------
William A. Ryan, Jr.
President
/s/ Nigel L. Howard
-------------------------------------
Nigel L. Howard
Secretary
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Exhibit 3.2
FORM OF
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CODON PHARMACEUTICALS, INC.
(Pursuant to Sections 151, 212, 242 and 245 of the
General Corporation Law of the State of Delaware)
Codon Pharmaceuticals, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "General
Corporation Law")
DOES HEREBY CERTIFY:
FIRST: That the corporation was originally incorporated under the
name OncorPharm, Inc., and the date of filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware was June 21,
1994. An Amended and Restated Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on March 22, 1996. Pursuant to a
Certificate of Amendment to the Amended and Restated Certificate of
Incorporation, filed with the Secretary of State of the State of Delaware on
September 27, 1996, the name of the corporation was changed from OncorPharm,
Inc. to Codon Pharmaceuticals, Inc. The Amended and Restated Certificate was
further amended by a Certificate of Amendment to the Amended and Restated
Certificate of Incorporation, filed with the Secretary of State of the State of
Delaware on November __, 1996.
SECOND: The Board of Directors of the corporation, by unanimous
written consent dated as of October __, 1996, duly adopted resolutions setting
forth the Second Amended and Restated Certificate of Incorporation herein
contained, declaring its advisability and directing that such Second Amended and
Restated Certificate of Incorporation be submitted to the holders of the issued
and outstanding Common Stock, $0.01 par value per share, and Preferred Stock,
$0.01 par value per share, of the corporation, for approval in accordance with
the applicable provisions of Sections 242 and 245 of the General Corporation Law
and the corporation's Amended and Restated Certificate of Incorporation, as
currently in effect. The Second Amended and Restated Certificate of
Incorporation was duly adopted, after having been declared advisable by the
Board of Directors of the corporation, by written consent, dated as of November
__, 1996, of the holders of a majority of the Common Stock, $0.01 par value per
share, and the holders of a majority of the Preferred Stock,
<PAGE>
$0.01 par value per share, of the corporation, voting as a single class and as
separate classes, all in accordance with the applicable provisions of Sections
228, 242 and 245 of the General Corporation Law and the corporation's Amended
and Restated Certificate of Incorporation, as currently in effect, and written
notice of the action by written consent of the corporation's stockholders has
been given to those stockholders who have not consented in writing as provided
in Section 228(d) of the General Corporation Law.
THIRD: The text of the Second Amended and Restated Certificate of
Incorporation, as hereby restated and amended hereby, shall read in its entirety
as follows:
ARTICLE I.
The name of this corporation is Codon Pharmaceuticals, Inc.
ARTICLE II.
The address of the registered office of the corporation in the State
of Delaware is 1013 Centre Road, Wilmington, County of New Castle, Delaware
19805. The name of its registered agent at such address is Corporation Service
Company.
ARTICLE III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law.
ARTICLE IV.
A. This corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is Eighteen
Million (18,000,000) shares. Sixteen Million (16,000,000) shares, par value $.01
per share, shall be Common Stock and Two Million (2,000,000) shares, par value
$.01 per share, shall be Preferred Stock. 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.
2
<PAGE>
1. Common Stock.
a. General. All shares of Common Stock will be identical and
will entitle the holders thereof to the same rights, powers and privileges. The
rights, powers and privileges of the holders of the Common Stock are subject to
and qualified by the rights of holders of the Preferred Stock.
b. 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.
c. Dissolution, Liquidation or Winding Up. In the event of any
dissolution, liquidation or winding up of the affairs of the corporation,
whether voluntary or involuntary, each issued and outstanding share of Common
Stock shall entitle the holder thereof to receive an equal portion of the net
assets of the corporation available for distribution to the holders of Common
Stock, subject to any preferential rights of any then outstanding Preferred
Stock.
d. Voting Rights. Except as otherwise required by law or this
Second Amended and Restated Certificate of Incorporation, each holder of Common
Stock shall have one vote in respect of each share of stock held of record by
such holder on the books of the corporation for the election of directors and on
all matters submitted to a vote of stockholders of the corporation. Except as
otherwise required by law or provided herein, holders of Common Stock shall vote
together as a single class, subject to any special or preferential voting rights
of any then outstanding Preferred Stock. There shall be no cumulative voting.
e. Redemption. The Common Stock is not redeemable.
2. Preferred Stock. The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of ARTICLE IV, to provide for
the issuance of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences, and rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof.
The authority of the Board of Directors with respect to each series
shall include, but not be limited to, determination of the following:
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a. The number of shares constituting that series and the
distinctive designation of that series;
b. The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of that
series;
c. Whether that series shall have voting rights, in addition
to the voting rights provided by law, and, if so, the terms of such voting
rights;
d. Whether that series shall have conversion privileges, and,
if so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors shall
determine;
e. Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable, and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
f. Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
g. The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights or priority, if any, of payment of shares
of that series; and
h. Any other relative rights, preferences and limitations of
that series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the Common Stock with respect to the same
dividend period.
If upon any voluntary or involuntary liquidation, dissolution or
winding up of the corporation, the assets available for distribution to holders
of shares of Preferred Stock of all series shall be insufficient to pay such
holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all series of Preferred
Stock in accordance with the respective preferential amounts (including unpaid
cumulative dividends, if any) payable with respect thereto.
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<PAGE>
ARTICLE V.
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.
ARTICLE VI.
The number of directors of the corporation shall be fixed from time
to time by a By-law or amendment thereof duly adopted by the Board of Directors
or by the Stockholders.
The Stockholders of the corporation may not take any actions by
written consent in lieu of a meeting.
ARTICLE VII.
Meetings of stockholders may be held within or without the State of
Delaware, as the By-laws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) 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.
ARTICLE VIII.
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders
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<PAGE>
or class of stockholders, of this corporation, as the case may be, and also on
this corporation.
ARTICLE IX.
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. If the General Corporation Law is amended after approval by the
stockholders of this Article to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director shall be eliminated to the fullest extent permitted by the General
Corporation Law, as so amended. 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.
ARTICLE X.
The corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of Delaware, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the corporation, or
is or was serving, or has agreed to serve, at the request of the corporation, as
a director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan), or by reason of any action alleged to have been
taken or omitted in such capacity, against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom.
Indemnification may include payment by the corporation of expenses
in defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this Article, which undertaking may be
accepted without reference to the financial ability of such person to make such
repayment.
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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 (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.
ARTICLE XI.
The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute and this Certificate of Incorporation, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
* * *
FOURTH: The foregoing amendment and restatement was approved by the
holders of the requisite number of shares of said corporation in accordance with
Section 228 of the General Corporation Law and duly adopted in accordance with
the provisions of Section 242 and 245 of the General Corporation Law.
IN WITNESS WHEREOF, this Second Amended and Restated Certificate of
Incorporation has been signed by the President and the Secretary of this
corporation this ___ day of November, 1996.
_________________________________
William A. Ryan, Jr.
President
_________________________________
Theodore D. Pennington
Secretary
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Exhibit 3.3
BY-LAWS
OF
ONCORPHARM, INC.
<PAGE>
BY-LAWS
TABLE OF CONTENTS
Page
ARTICLE 1 - Stockholders ................................................. 1
Section 1.1 Place of Meetings .................................... 1
Section 1.2 Annual Meeting ....................................... 1
Section 1.3 Special Meetings ..................................... 1
Section 1.4 Notice of Meetings ................................... 1
Section 1.5 Voting List .......................................... 2
Section 1.6 Quorum ............................................... 2
Section 1.7 Adjournments ......................................... 2
Section 1.8 Voting and Proxies ................................... 2
Section 1.9 Action at Meeting .................................... 2
Section 1.10 Action without Meeting ............................... 3
ARTICLE 2 - Directors .................................................... 3
Section 2.1 General Powers ....................................... 3
Section 2.2 Number; Election and Qualification ................... 3
Section 2.3 Enlargement of the Board ............................. 3
Section 2.4 Tenure ............................................... 4
Section 2.5 Vacancies ............................................ 4
Section 2.6 Resignation .......................................... 4
Section 2.7 Regular Meetings ..................................... 4
Section 2.8 Special Meetings ..................................... 4
Section 2.9 Notice of Special Meetings ........................... 4
Section 2.10 Meetings by Telephone Conference
Calls .............................................. 5
Section 2.11 Quorum ............................................... 5
Section 2.12 Action at Meeting .................................... 5
Section 2.13 Action by Consent .................................... 5
Section 2.14 Removal .............................................. 5
Section 2.15 Committees ........................................... 5
Section 2.16 Compensation of Directors ............................ 6
ARTICLE 3 - Officers ..................................................... 6
Section 3.1 Enumeration .......................................... 6
Section 3.2 Election ............................................. 6
Section 3.3 Qualification ........................................ 6
Section 3.4 Tenure
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Section 3.5 Resignation and Removal .............................. 7
Section 3.6 Vacancies ............................................ 7
Section 3.7 Chairman of the Board and Vice
Chairman of the Board .............................. 7
Section 3.8 President ............................................ 7
Section 3.9 Vice Presidents ...................................... 8
Section 3.10 Secretary and Assistant Secretaries .................. 8
Section 3.11 Treasurer and Assistant Treasurers ................... 8
Section 3.12 Salaries ............................................. 9
ARTICLE 4 - Capital Stock ................................................ 9
Section 4.1 Issuance of Stock .................................... 9
Section 4.2 Certificates of Stock ................................ 9
Section 4.3 Transfers ............................................ 9
Section 4.4 Lost Stolen or Destroyed Certificates ................ 10
Section 4.5 Record Date .......................................... 10
ARTICLE 5 - General Provisions ........................................... 11
Section 5.1 Fiscal Year .......................................... 11
Section 5.2 Corporate Seal ....................................... 11
Section 5.3 Waiver of Notice ..................................... 11
Section 5.4 Voting of Securities ................................. 11
Section 5.5 Evidence of Authority ................................ 11
Section 5.6 Certificate of Incorporation ......................... 11
Section 5.7 Transactions with Interested Parties ................. 11
Section 5.8 Severability ......................................... 12
Section 5.9 Pronouns ............................................. 12
ARTICLE 6 - Amendments ................................................... 12
Section 6.1 By the Board of Directors ............................ 12
Section 6.2 By the Stockholders .................................. 12
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<PAGE>
BY-LAWS
OF
ONCORPHARM, 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 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 Specia1 Meetings. Special meetings of stockholders may be called at
any time by the President or by the Board of Directors. Business transacted at
any special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
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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
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of shares of stock representing a majority
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of the votes cast on a matter (or if there are two or more classes of stock
entitled to vote as separate classes, then in the case of each such class, the
holders of shares of stock of that class representing a majority of the votes
cast on a matter) shall decide any matter to be voted upon by the stockholders
at such meeting, except when a different vote is required by express provision
of law, the Certificate of Incorporation or these By-Laws. When a quorum is
present at any meeting, any election by stockholders shall be determined by a
plurality of the votes cast on the election.
1.10 Action without Meeting. Any action required or permitted to be
taken at any annual or special meeting of stockholders of the corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE 2 - Directors
2.1 General Powers. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election and Qualification. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the stockholders or the Board of Directors, but in no event shall be less
than one. The number of directors may be decreased at any time and from time to
time either by the stockholders or by a majority of the directors then in
office, but only to eliminate vacancies existing by reason of the death,
resignation, removal or expiration of the term of one or more directors. The
directors shall be elected at the annual meeting of stockholders by such
stockholders as have the right to vote on such election. Directors need not be
stockholders of the corporation.
2.3 Enlargement of the Board. The number of directors may be increased
at any time and from time to time by the stockholders or by a majority of the
directors then in office.
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2.4 Tenure. Each director shall hold office until the next annual
meeting and until his successor is elected and qualified, or until his earlier
death, resignation or removal.
2.5 Vacancies. Unless and until filled by the stockholders, any vacancy
in the Board of Directors, however occurring, including a vacancy resulting from
an enlargement of the Board, may be filled by vote of a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office, and a director chosen to fill a
position resulting from an increase in the number of directors shall hold office
until the next annual meeting of stockholders and until his successor is elected
and qualified, or until his earlier death, resignation or removal.
2.6 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.7 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.8 Specia1 Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.9 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram or telex,
or delivering written notice by hand, to his last known business or home address
at least 48 hours in advance of the meeting, or (iii) by mailing written notice
to his last known business or home address at least 72 hours in advance of the
meeting. A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
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2.10 Meetings by Telephone Conference Calls. Directors or any members
of any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.11 Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.12 Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.13 Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.14 Removal. Except as otherwise provided by the General Corporation
Law of Delaware, any one or more or all of the directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, except that the directors elected by the holders of
a particular class or series of stock may be removed without cause only by vote
of the holders of a majority of the outstanding shares of such class or series.
2.15 Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not he or
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<PAGE>
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board of Directors and subject to the provisions of the General Corporation Law
of the State of Delaware, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the corporation and may authorize the seal of the corporation to be
affixed to all papers which may require it. Each such committee shall keep
minutes and make such reports as the Board of Directors may from time to time
request. Except as the Board of Directors may otherwise determine, any committee
may make rules for the conduct of its business, but unless otherwise provided by
the directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these By-Laws for the Board of
Directors.
2.16 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - Officers
3.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
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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 and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. If the Board of Directors
appoints a Vice-Chairman of the Board, he shall, in the absence or disability of
the Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such other
powers as may from time to time be vested in him by the Board of Directors.
3.8 President. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
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3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
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
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all such transactions and of the financial condition of the corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 - Capital Stock
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice-Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
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properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is necessary, shall be the day on which
the first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating to such purpose.
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.
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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 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:
- 11 -
<PAGE>
(1) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes
of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum;
(2) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
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. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
- 12 -
<PAGE>
Exhibit 10.1
ONCORPHARM, INC.
1995 STOCK OPTION
PLAN
Amended and Restated
February 28, 1996
<PAGE>
ONCORPHARM, INC.
1995 STOCK OPTION PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Stock Option Plan is intended to promote the interests of
OncorPharm, Inc., a Delaware corporation, by providing eligible persons with the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
the service of the Corporation.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or all
administrative functions otherwise exercisable by the Board may be delegated to
the Committee. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding options as it may deem necessary or advisable. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Plan or any option or shares issued thereunder.
III. ELIGIBILITY
A. The persons eligible to receive option grants under the Plan are
as follows:
(i) Employees,
(ii) non-employee members of the Board or the non- employee
members of the board of directors of any Parent or Subsidiary, and
<PAGE>
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall have full authority to determine
which eligible persons are to receive option grants under the Plan, the time or
times when such option grants are to be made, the number of shares to be covered
by each such grant, the status of the granted option as either an Incentive
Option or a Non-Statutory Option, the time or times at which each option is to
become exercisable, the vesting schedule (if any) applicable to the option
shares and the maximum term for which the option is to remain outstanding.
IV. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed 1,400,000
shares.
B. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. All shares issued under the Plan, whether or not those shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent issuance under the Plan.
C. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan and (ii) the number and/or class of securities and the exercise
price per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments determined by
the Plan Administrator shall be final, binding and conclusive. In no event shall
any such adjustments be made in connection with the conversion of one or more
outstanding shares of the Corporation's preferred stock into shares of Common
Stock.
3.
<PAGE>
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan
Administrator and may be less than, equal to or greater than the Fair Market
Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Three and the documents evidencing the option, be payable in cash or
check made payable to the Corporation. Should the Common Stock be registered
under Section 12(g) of the 1934 Act at the time the option is exercised, then
the exercise price may also be paid as follows:
(i) in shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date,
or
(ii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions (A)
to a Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required
to be withheld by the Corporation by reason of such exercise and (B) to
the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
4.
<PAGE>
B. Exercise and Term of Options. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Should the Optionee cease to remain in Service for any
reason other than Permanent Disability or death, then the Optionee shall
have a period of three (3) months following the date of such cessation of
Service during which to exercise each outstanding option held by such
Optionee.
(ii) Should such Service terminate by reason of Permanent
Disability, then the Optionee shall have a period of twelve (12) months
following the date of such cessation of Service during which to exercise
each outstanding option held by such Optionee.
(iii) Should the Optionee die while holding one or more
outstanding options, then the personal representative of the Optionee's
estate or the person or persons to whom the option is transferred pursuant
to the Optionee's will or in accordance with the laws of descent and
distribution shall have a period of twelve (12) months following the date
of the Optionee's death during which to exercise each such option.
(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(v) Under no circumstances, however, shall any such option be
exercisable after the specified expiration of the option term.
(vi) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate and
cease to be outstanding to the extent it is not exercisable for vested
shares on the date of such cessation of Service.
5.
<PAGE>
(vii) In the event of a Corporate Transaction, the provisions
of Section III of this Article Two shall govern the period for which the
outstanding options are to remain exercisable following the Optionee's
cessation of Service and shall supersede any provisions to the contrary in
this Section.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following Optionee's cessation of Service or death from
the limited period otherwise in effect for that option to such greater
period of time as the Plan Administrator shall deem appropriate, but in no
event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of
vested shares of Common Stock for which such option is exercisable at the
time of the Optionee's cessation of Service but also with respect to one
or more additional installments in which the Optionee would have vested
under the option had the Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Unvested Shares. The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, all or (at the discretion of the Corporation and with the consent of the
Optionee) any of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. First Refusal Rights. Until such time as the Common Stock is
first registered under Section 12(g) of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Optionee (or any successor in interest) of any shares of Common Stock issued
under the Plan. Such right of first refusal shall be exercisable in accordance
with the terms established by the Plan Administrator and set forth in the
document evidencing such right.
G. Limited Transferability of Options. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable
6.
<PAGE>
other than by will or by the laws of descent and distribution following the
Optionee's death. However, a Non-Statutory Option may be assigned in accordance
with the terms of a Qualified Domestic Relations Order. The assigned option may
only be exercised by the person or persons who acquire a proprietary interest in
the option pursuant to such Qualified Domestic Relations Order. The terms
applicable to the assigned option (or portion thereof) shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
H. Withholding. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of the Plan shall be applicable to Incentive Options. Options which
are specifically designated as Non-Statutory Options shall not be subject to the
terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
B. Exercise Price. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one (1) calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% Stockholder. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date and the option term shall not exceed five
(5) years measured from the option grant date.
7.
<PAGE>
III. CORPORATE TRANSACTION
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option under the Plan shall not
so accelerate if and to the extent: (i) such option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation (or
parent thereof) or to be replaced with a comparable option to purchase shares of
the capital stock of the successor corporation (or parent thereof), (ii) such
option is to be replaced with a cash incentive program of the successor
corporation which preserves the spread existing on the unvested option shares at
the time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to such option or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant. The determination of option
comparability under clause (i) above shall be made by the Plan Administrator,
and its determination shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction, had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.
E. Any options which are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time, shall automatically
accelerate (and any of the Corporation's outstanding repurchase rights which do
not otherwise terminate at the time of the Corporate Transaction shall
automatically terminate and the shares of Common Stock subject to those
terminated rights shall immediately vest in full) in the event the Optionee's
Service should subsequently terminate by reason of an Involuntary Termination
within eighteen (18) months
8.
<PAGE>
following the effective date of such Corporate Transaction. Any options so
accelerated shall remain exercisable for fully-vested shares until the earlier
of (i) the expiration of the option term or (ii) the expiration of the one
(1)-year period measured from the effective date of the Involuntary Termination.
F. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction shall remain exercisable as an Incentive Option
only to the extent the applicable One Hundred Thousand Dollar limitation is not
exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option shall be exercisable as a Non-Statutory Option under the
Federal tax laws.
G. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.
9.
<PAGE>
ARTICLE THREE
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee to pay the option
exercise price by delivering a promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. Promissory notes may be authorized with or without security
or collateral. In all events, the maximum credit available to the Optionee may
not exceed the sum of (i) the aggregate option exercise price payable for the
purchased shares plus (ii) any Federal, state and local income and employment
tax liability incurred by the Optionee in connection with the option exercise.
II. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board, but no
option granted under the Plan may be exercised until the Plan is approved by the
Corporation's stockholders. If such stockholder approval is not obtained within
twelve (12) months after the date of the Board's adoption of the Plan, then all
options previously granted under the Plan shall terminate and cease to be
outstanding and no further options shall be granted. Subject to such limitation,
the Plan Administrator may grant options under the Plan at any time after the
effective date of the Plan and before the date fixed herein for termination of
the Plan.
B. The Plan shall terminate upon the earliest of (i) the expiration
of the ten (10)-year period measured from the date the Plan is adopted by the
Board, (ii) the date on which all shares available for issuance under the Plan
shall have been issued or (iii) the termination of all outstanding options in
connection with a Corporate Transaction. Upon such Plan termination, all options
and unvested stock issuances outstanding under the Plan shall continue to have
full force and effect in accordance with the provisions of the documents
evidencing such options or issuances.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall, without the consent of the Optionees, adversely affect
their rights and obligations under their outstanding options. In addition, the
Board shall not, without the approval of the Corporation's stockholders, (i)
increase the maximum number of shares issuable under the Plan, except for
permissible adjustments in the event of certain changes in the Corporation's
capitalization, (ii) materially modify the eligibility requirements for Plan
participation or (iii) materially increase the benefits accruing to Plan
participants.
10.
<PAGE>
B. Options may be granted under the Plan to purchase shares of
Common Stock in excess of the number of shares then available for issuance under
the Plan, provided any such options actually granted may not be exercised until
there is obtained stockholder approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance under the Plan. If
such stockholder approval is not obtained within twelve (12) months after the
date the excess grants are first made, then any options granted on the basis of
such excess shares shall terminate and cease to be outstanding.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
V. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option under the
Plan and the issuance of any shares of Common Stock upon the exercise of any
option shall be subject to the Corporation's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the options granted under it and the shares of Common Stock issued pursuant to
it.
VI. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining the Optionee) or of the Optionee, which rights
are hereby expressly reserved by each, to terminate the Optionee's Service at
any time for any reason, with or without cause.
11.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
B. Code shall mean the Internal Revenue Code of 1986, as amended.
C. Committee shall mean a committee of two (2) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. Common Stock shall mean the Corporation's common stock.
E. Corporate Transaction shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of
the Corporation.
F. Corporation shall mean OncorPharm, Inc., a Delaware corporation.
G. Domestic Relations Order shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
H. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. Exercise Date shall mean the date on which the Corporation shall have
received written notice of the option exercise.
J. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
A-1.
<PAGE>
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as such price is reported
by the National Association of Securities Dealers on the Nasdaq National
Market or any successor system. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(iii) If the Common Stock is at the time neither listed on any Stock
Exchange nor traded on the Nasdaq National Market, then the Fair Market
Value shall be determined by the Plan Administrator after taking into
account such factors as the Plan Administrator shall deem appropriate.
K. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.
L. Involuntary Termination shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change
in his or her position with the Corporation which materially reduces his
or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and any
non-discretionary and objective-standard incentive payment or bonus award)
by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected without the
individual's consent.
M. Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee, any unauthorized use or disclosure by such person
of confidential information or trade secrets of the Corporation (or any Parent
or Subsidiary), or any other intentional misconduct by such person adversely
affecting the business or affairs of the
A-2.
<PAGE>
Corporation (or any Parent or Subsidiary) in a material manner. The foregoing
definition shall not be deemed to be inclusive of all the acts or omissions
which the Corporation (or any Parent or Subsidiary) may consider as grounds for
the dismissal or discharge of any Optionee or other person in the Service of the
Corporation (or any Parent or Subsidiary).
N. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
O. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
P. Optionee shall mean any person to whom an option is granted under the
Plan.
Q. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
R. Permanent Disability shall mean the inability of the Optionee to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment expected to result in death or to be of continuous
duration of twelve (12) months or more.
S. Plan shall mean the Corporation's 1995 Stock Option Plan, as set forth
in this document.
T. Plan Administrator shall mean either the Board or the Committee, to the
extent the Committee is at the time responsible for the administration of the
Plan.
U. Qualified Domestic Relations Order shall mean a Domestic Relations
Order which substantially complies with the requirements of Code Section 414(p).
The Plan Administrator shall have the sole discretion to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order.
V. Service shall mean the provision of services to the Corporation (or any
Parent or Subsidiary) by a person in the capacity of an Employee, a non-employee
member of the board of directors or a consultant or independent advisor.
W. Stock Exchange shall mean either the American Stock Exchange or the New
York Stock Exchange.
X. Subsidiary shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock
A-3.
<PAGE>
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
Y. 10% Stockholder shall mean the owner of stock (as determined under Code
Section 424(d)) possessing ten percent (10%) or more of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).
A-4.
<PAGE>
Exhibit 10.4
SERVICES AGREEMENT
THIS SERVICES AGREEMENT (the "Agreement"), is made as of this 31st
day of December, 1994, by and between OncorPharm, Inc., a Delaware corporation
("OncorPharm"), and Oncor, Inc., a Maryland corporation ("Oncor").
In connection with the conduct of its business, Oncor desires to
engage the services of OncorPharm, and OncorPharm is willing to provide such
services to Oncor.
In consideration of the mutual covenants contained herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Oncor and the OncorPharm agree as follows:
1. Oncor hereby retains and employs OncorPharm to provide services
as set forth in Section 2 below, for the period and on the terms set forth in
this Agreement. OncorPharm hereby accepts such employment and agrees during such
period to render the services and to assume the obligations set forth herein.
OncorPharm shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent Oncor in any way or otherwise be deemed an
agent of Oncor. The services of OncorPharm to Oncor hereunder are not to be
deemed exclusive and OncorPharm shall be free to render similar services to
others.
2. OncorPharm shall furnish to Oncor technical, research, and
consulting services, as requested by Oncor and agreed to by OncorPharm, from
time to time.
3. OncorPharm shall be entitled to reimbursement from Oncor for its
services rendered hereunder on a cost basis, for expenses incurred, including,
but not limited to, salaries and wages of employees of OncorPharm (which may
include officers and directors of OncorPharm) and other normal operating
expenses. OncorPharm shall submit invoices to Oncor for such reimbursement of
the cost of the services. Oncor shall have the option of paying such invoiced
amounts in cash to OncorPharm or of offsetting such amounts against the balance
of principal due from OncorPharm to Oncor pursuant to the terms of that certain
Convertible Revolving Line of Credit Note, by and between OncorPharm and Oncor,
of even date herewith.
4. In the event Oncor requests that OncorPharm provide services
other than those services set forth in Section 2, Oncor and OncorPharm shall
negotiate in good faith and enter into a separate agreement setting forth the
terms and conditions for the provision of such services and the appropriate
compensation for such services, if any.
5. OncorPharm understands that Oncor possesses Proprietary
Information which is important to its business which may be disclosed to
OncorPharm in connection with the
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services to be provided to Oncor hereunder. For purposes of this Agreement,
"Proprietary Information" is information that was developed, created, or
discovered by Oncor, or which became known by, or was conveyed to Oncor, which
has commercial value in Oncor's business. "Proprietary Information" includes,
but is not limited to, information about design, construction, operations and
maintenance, circuits, mask works, layouts, algorithms, trade secrets, computer
programs, technology, ideas, know-how, processes, formulas, compositions,
techniques, inventions (whether patentable or not), business and product
development plans, customers and other information concerning Oncor's actual or
anticipated business, research or development, or which is received in
confidence by or for Oncor from any other person. Proprietary Information does
not include information which OncorPharm demonstrates to Oncor's satisfaction,
by written evidence, (i) is in the public domain by reason of prior publication
not directly or indirectly resulting from any act or omission of OncorPharm, or
(ii) was already known to OncorPharm at the time of Oncor's disclosure to
OncorPharm and which OncorPharm was free to use and disclose without restriction
and without breach of any obligation to any person or entity.
6. OncorPharm understands that this Agreement creates a relationship
of confidence and trust between OncorPharm and Oncor with regard to Proprietary
Information. At all times, both during the term of this Agreement and after its
termination, OncorPharm will keep in confidence and trust and will not use or
disclose any Proprietary Information without the prior written consent of an
officer of Oncor, except as may be necessary in the ordinary course of
performing the services to be provided under this Agreement. OncorPharm
acknowledges that any disclosure or unauthorized use of Proprietary Information
will constitute a material breach of this Agreement and cause substantial harm
to Oncor for which damages would not be a fully adequate remedy, and, therefore,
in the event of any such breach, in addition to other available remedies, Oncor
shall have the right to obtain injunctive relief.
7. All Proprietary Information and all patents, patent rights,
copyrights, mask work rights, trade secret rights, moral rights and other rights
in connection therewith shall be the sole property of Oncor. OncorPharm hereby
assigns to Oncor any rights OncorPharm may have or acquire in such Proprietary
Information.
8. OncorPharm will promptly disclose in writing to Oncor all
"Inventions", which includes all improvements, inventions, designs, formulas,
works of authorship, mask works, computer programs, ideas, processes,
techniques, know-how and data, whether or not patentable, made or conceived or
reduced to practice or developed by OncorPharm, either alone or jointly with
others, during the term of this Agreement in connection with the services
provided hereunder or which relate to any Proprietary Information. OncorPharm
will also disclose to Oncor all things that would be Inventions if made during
the term of this Agreement, conceived, reduced to practice, or developed by
OncorPharm within six (6) months of the termination of this Agreement which
relate to any Proprietary Information or the subject matter of the services
provided hereunder; provided that OncorPharm shall not be required to disclose
items conceived and developed in the course of employment for a third party
where OncorPharm
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is contractually precluded from disclosure. OncorPharm will not disclose
Inventions to any person outside Oncor unless requested to do so by an officer
of Oncor.
9. OncorPharm agrees that all Inventions which OncorPharm makes,
conceives, reduces to practice or develops (in whole or in part, either alone or
jointly with others) during the term of this Agreement in connection with the
services to be provided hereunder or which relate to any Proprietary Information
shall be the sole property of Oncor. OncorPharm agrees to assign and hereby
assigns to Oncor all rights to any such Inventions. Oncor and shall be the sole
owner of all patents, copyrights, moral rights and other intellectual property
or other rights in connection therewith.
10. OncorPharm agrees to perform, during and after the term of this
Agreement, all acts deemed necessary or desirable by Oncor to permit and assist
it in obtaining, maintaining, defending and enforcing patents, copyrights, mask
work rights, trade secret rights, moral rights, or other rights on such
Inventions and improvements in any and all countries. Such acts may include, but
are not limited to, execution of documents and assistance or cooperation in
legal proceedings. OncorPharm hereby irrevocably designates and appoints Oncor
and its duly authorized officers and agents, as OncorPharm's agents and
attorneys-in-fact to act for and on behalf and instead of OncorPharm, to execute
and file any documents and to do all other lawfully permitted acts to further
the above purposes with the same legal force and effect as if executed by
OncorPharm.
11. This Agreement may be terminated by either Oncor or OncorPharm
at any time, for any reason, with or without cause, by giving not less than
thirty (30) days written notice to the other party; termination to be effective
upon the expiration of the notice period.
12. OncorPharm is an independent contractor and is solely
responsible for all taxes, withholdings, and other similar statutory
obligations, including, but not limited to, Workers' Compensation Insurance; and
OncorPharm agrees to defend, indemnify and hold Oncor harmless from any and all
claims made by any entity on account of an alleged failure by OncorPharm to
satisfy any such tax or withholding obligations.
13. OncorPharm has no authority to act on behalf of or to enter into
any contract, incur any liability or make any representation on behalf of Oncor.
14. OncorPharm's performance under this Agreement shall be conducted
with due diligence and in full compliance with the highest professional
standards of practice in the industry.
15. OncorPharm agrees that any dispute as to the meaning, effect or
validity of this Agreement shall be resolved in accordance with the laws of the
State of Maryland without regard to the conflict of laws provisions thereof.
OncorPharm further agrees that if one or more provisions of this Agreement are
held to be unenforceable under applicable Maryland law, such provision(s) shall
be excluded from this Agreement and the balance of the Agreement shall be
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interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
16. This Agreement shall be binding upon Oncor and OncorPharm, and
shall inure to the benefit of, the parties hereto and their respective heirs,
successors, assigns, and personal representatives; provided, however, that this
Agreement shall not be assignable by OncorPharm.
17. All notices required or given herewith shall be addressed to
Oncor or OncorPharm at the designated addresses shown below by registered mail,
special delivery, or by certified courier service:
a. To Oncor:
Oncor, Inc.
209 Perry Parkway
Gaithersburg, Maryland 20877
Attention: Chief Executive Officer
b. To OncorPharm:
OncorPharm, Inc.
209 Perry Parkway
Gaithersburg, Maryland 20877
Attention: Chief Executive Officer
c: With a copy in each case to:
Brobeck, Phleger & Harrison, LLP
1301 Avenue of the Americas
New York, New York 10019
Attention: Richard R. Plumridge, Esq.
18. This Agreement contains the entire understanding of the parties
regarding its subject matter and can only be modified by a subsequent written
agreement executed by both of the parties hereto.
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IN WITNESS WHEREOF, the parties hereto duly executed this Services
Agreement on the day and year first above written.
ONCORPHARM, INC., a Delaware corporation
By: /s/ John L. Coker
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John L. Coker
Vice President, Treasurer
and Secretary
ONCOR, INC., a Maryland corporation
By: /s/ Stephen Turner
----------------------------------------
Stephen Turner
CEO and Chairman of the Board of Directors
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Exhibit 10.5
EXECUTION COPY
Collaborative Research Agreement
by and among
Johns Hopkins University,
Oncor, Inc.
and
OncorPharm, Inc.
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EXECUTION COPY
COLLABORATIVE RESEARCH AGREEMENT
THIS AGREEMENT (this "Agreement"), effective as of the 6th day of
March, 1996 (the "EFFECTIVE DATE") by and among ONCOR, INC., a corporation of
the State of Maryland, having a place of business at 209 Perry Parkway,
Gaithersburg, MD 20877 (herein referred to as "ONCOR"), ONCORPHARM, INC., a
corporation of the State of Delaware, having a place of business at 200 Perry
Parkway, Gaithersburg, MD 20877 (herein referred to as "ONCORPHARM") and THE
JOHNS HOPKINS UNIVERSITY, a corporation of the State of Maryland, having a
School of Medicine at 2024 East Monument Street, Suite 2-100, Baltimore, MD
21205 (herein referred to as "HOPKINS")
WITNESSETH THAT
WHEREAS, Dr. Alan Shuldiner and his colleagues in his laboratory at
HOPKINS, have made certain discoveries and conceived of certain inventions
relating to the Trp64Arg allele of the beta-3 adrenergic receptor (the "Trp64Arg
Allele"), and possess valuable research materials, skills, know-how and
technical information in this area;
WHEREAS, ONCOR, possesses resources of a financial and technical
nature, capabilities and expertise in microbiology, organic chemistry, DNA probe
development, DNA library construction, physical and genetic mapping,
manufacturing and sales and marketing in the United States and in foreign
countries, which are valuable and necessary in developing and commercializing
diagnostic and related products;
WHEREAS, ONCORPHARM, possesses resources of a financial and
technical nature, capabilities and expertise in microbiology, organic chemistry,
gene repair and gene-based drug delivery product development, and sales and
marketing in the United States and in foreign countries which are valuable and
necessary in developing and commercializing therapeutic and related products;
WHEREAS, ONCORPHARM, ONCOR and HOPKINS desire to engage in
collaborative research in relation to the Trp64Arg Allele, with HOPKINS
participation being through the work of Dr. Alan Shuldiner and his colleagues,
on the basis of the terms and conditions set forth in this Agreement; and
WHEREAS, the parties are also entering into certain license
agreements of even date herewith, pursuant to which ONCOR and ONCORPHARM shall
have exclusive rights to develop and commercialize existing and future
inventions and technologies
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relating to the Trp64Arg allele of the beta-3 adrenergic receptor.
NOW, THEREFORE, in consideration of the promises and mutual
covenants and obligations herein contained, the parties hereto, intending to be
legally bound, agree as follows:
ARTICLE 1. DEFINITIONS
1.1 AFFILIATE(S) shall mean (a) any company owned or controlled to the
extent of at least fifty percent (50%) of its issued and voting
capital by a party to this Agreement and any other company so owned
or controlled (directly or indirectly) by any such company or the
owner of any such company, or (b) any partnership, joint venture or
other entity directly or indirectly controlled by, controlling, or
under common control of, to the extent of fifty percent (50%) or
more of voting power (or otherwise having power to control its
general activities), a party to this Agreement, but in each case
only for so long as such ownership or control shall continue.
1.2 CONFIDENTIAL INFORMATION shall mean any information, including
RESEARCH INFORMATION, that ONCOR, ONCORPHARM or HOPKINS considers to
be confidential and which is so marked at the time it is transmitted
to the receiving party, or, if transmitted in oral form, is
confirmed as confidential in written summary form within a
reasonable period of time. Notwithstanding a disclosing party's
claim that certain information is confidential, CONFIDENTIAL
INFORMATION shall not include:
(a) Information which the receiving party can show by
written records was in the receiving party's possession
prior to the disclosure; or
(b) Information that either now or in the future appears in
issued patents or printed publications, or otherwise
becomes part of the public knowledge or literature, not
as a result of any action or inaction of the receiving
party;
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(c) Information that is received by the receiving party from
a third party through channels independent of the
disclosing party; or
(d) Information independently developed by the receiving
party without use of any of the CONFIDENTIAL INFORMATION
of the disclosing party.
1.3 HOPKINS shall mean THE JOHNS HOPKINS UNIVERSITY.
1.4 INVENTION(S) shall mean (i) the inventions described in the PATENT
APPLICATION or in any continuation, continuation-in-part, division,
reissue, reexamination, extension or any other government actions
which extend any of the subject matter of the PATENT APPLICATION or
in any corresponding foreign patent application, and (ii) any
existing or future discovery or invention first conceived or first
actually reduced to practice in connection with or relating to the
performance of the RESEARCH PROJECT. For purposes of this Agreement
the determination of "first conceived" and "first actually reduced
to practice" shall be governed by U.S. law. INVENTION(S) shall
include discoveries and inventions which are not patentable or
patented, including but not limited to trade secrets, copyright
material or other protectable intellectual property. Without
limiting the generality of the foregoing, INVENTION(S) may include
know-how procedures, technical information, any processes,
composition, device, formula, protocol, technique, design, drawing
methodology, technical and scientific expertise and biological or
chemical materials.
1.5 JOINT INVENTION(S) shall mean any INVENTION first conceived or first
actually reduced to practice jointly by an employee of ONCOR and/or
ONCORPHARM and an employee or student of HOPKINS listed in Appendix
B hereof, in connection with the RESEARCH PROJECT.
1.6 LICENSE AGREEMENTS shall mean (i) that certain license agreement of
even date herewith between HOPKINS and ONCOR a copy of which is
attached hereto as Appendix C and (ii) that certain license
agreement of even date herewith between HOPKINS and ONCORPHARM a
copy of which is attached hereto as Appendix D.
1.7 ONCOR shall mean ONCOR, INC., and its AFFILIATES.
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1.8 ONCOR INVENTION(S) shall mean any INVENTION first conceived or first
actually reduced to practice solely by an employee of ONCOR.
1.9 ONCOR LICENSE shall mean that certain license agreement of even date
herewith between HOPKINS and ONCOR a copy of which is attached
hereto as Appendix C.
1.10 ONCORPHARM shall mean ONCORPHARM, INC., and its AFFILIATES.
1.11 ONCORPHARM INVENTION(S) shall mean any INVENTION first conceived or
first actually reduced to practice solely by an employee of
ONCORPHARM.
1.12 ONCORPHARM LICENSE shall mean that certain license agreement of even
date herewith between HOPKINS and ONCORPHARM a copy of which is
attached hereto as Appendix D.
1.13 OPTION AGREEMENT shall mean that certain Stock Option Agreement of
even date herewith, by and between HOPKINS and ONCORPHARM.
1.14 PATENT APPLICATION shall mean *
1.15 PRODUCT shall mean a product incorporating any INVENTION.
1.16 RESEARCH PLAN shall mean the research plan attached hereto as
Appendix A.
1.17 RESEARCH INFORMATION shall mean data, information and results that
are obtained as a result of the RESEARCH PROJECT, including
know-how, procedures, methodology, technical and scientific
expertise and biological or chemical materials, but excluding any
such items which are included in the definition of INVENTION(S).
1.18 RESEARCH PROJECT shall mean the collaborative research program
between HOPKINS, ONCORPHARM and ONCOR described and funded in
accordance with this Agreement.
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* CONFIDENTIAL TREATMENT REQUESTED
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EXECUTION COPY
1.19 RESEARCH PROJECT TERM shall mean the period from the EFFECTIVE DATE
of this Agreement to the date three years thereafter, subject to any
extensions that may be agreed between the parties in accordance with
the terms hereof, and subject to any early termination in accordance
with Article 6 hereof.
1.20 STOCK PURCHASE AGREEMENT shall mean that certain Stock Purchase
Agreement of even date herewith, by and among HOPKINS and ONCOR.
1.21 THIRD PARTY(IES) shall mean any party other than a party of this
Agreement or an AFFILIATE of one of the parties.
1.22 UNIVERSITY INVENTION(S) shall mean any INVENTION first conceived or
first actually reduced to practice solely by an employee or student
of HOPKINS listed in Appendix B hereto. Appendix B shall be updated
from time to time to include all employees and students engaged in
research in the laboratory of Dr. Alan Shuldiner and those other
employees and students participating in the RESEARCH PROJECT.
ARTICLE 2. THE RESEARCH PROJECT
2.1 The parties respective obligations under this Agreement are
conditioned upon the execution of the LICENSE AGREEMENTS by HOPKINS.
2.2 After execution of the LICENSE AGREEMENTS, ONCOR, ONCORPHARM and
HOPKINS shall carry out the RESEARCH PROJECT in accordance with the
RESEARCH PLAN attached hereto as Appendix A, which defines the
primary responsibilities of each party. Appendix B sets forth
details of the research staff at Dr. Shuldiner's laboratory that
shall be involved in the RESEARCH PROJECT. Appendix A and Appendix B
shall be modified in good faith by the parties from time to time to
accommodate changes in the RESEARCH PROJECT and the HOPKINS
employees and students participating in the RESEARCH PROJECT;
provided, however, that such modifications to either Appendix A or
Appendix B shall only become effective through a written amendment
to this Agreement executed by all of the parties hereto.
2.3 ONCOR, ONCORPHARM and HOPKINS shall allocate human resources to
their respective responsibilities to
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EXECUTION COPY
conduct the RESEARCH PROJECT substantially as set forth in the
guidelines in the RESEARCH PLAN.
2.4 The parties shall use best efforts to carry out their respective
responsibilities in the RESEARCH PROJECT. While the RESEARCH PLAN
attached hereto as Appendix A is substantially controlling, it is
understood that the parties shall cooperate and render research and
clinical trials assistance to each other, including making their
respective personnel available at reasonable times, in order to
expedite carrying out the RESEARCH PROJECT efficiently and avoiding
unwarranted duplication and e,xpenditure of effort.
2.5 The principal scientists or investigators who will direct the
performance of the respective responsibilities of each party are,
unless the parties otherwise agree, for HOPKINS: Dr. Alan Shuldiner;
for ONCOR: Dr. Robert Hohman; and for ONCORPHARM: Dr. Jay George.
All RESEARCH INFORMATION disclosed pursuant to this Agreement, and
all other communications concerning the RESEARCH PROJECT shall be
directed to said principal scientists.
2.6 HOPKINS shall use its reasonable efforts to participate with ONCOR
and ONCORPHARM in clinical trials relating to PRODUCTS subsequent to
the RESEARCH PROJECT. The parties shall separately negotiate in good
faith the terms and conditions of such subsequent clinical trials.
The parties acknowledge the value of using HOPKINS for such clinical
trials.
ARTICLE 3. FUNDING
3.1 a) ONCORPHARM shall fund the RESEARCH PROJECT at HOPKINS by paying
HOPKINS the amount of * per quarter over the RESEARCH PROJECT TERM.
b) ONCOR shall fund the RESEARCH PROJECT at HOPKINS by paying
HOPKINS the amount of * per quarter over the RESEARCH PROJECT
TERM.
3.2 The cash payments specified in Paragraphs 3.1 a) and b) shall be
made in quarterly installments with the first quarterly payment
being made upon execution of this Agreement and the remaining
quarterly payments being
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* CONFIDENTIAL TREATMENT REQUESTED
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EXECUTION COPY
made at the beginning of each quarterly period thereafter.
ARTICLE 4. EXCHANGE OF INFORMATION AND CONFIDENTIALITY
4.1 During the term of this Agreement, the parties shall timely and
fully exchange RESEARCH INFORMATION. To facilitate such exchanges,
the parties shall agree upon mutually acceptable means of
accomplishing such end, which means shall include joint meetings at
least twice in every one (1) year period of the RESEARCH PROJECT
TERM. Such joint meetings shall be held alternately at HOPKINS
facilities or at ONCOR or ONCORPHARM facilities, or at such other
locations as may be mutually agreed upon. About two (2) weeks prior
to each such joint meeting, the parties shall exchange written
reports concerning the RESEARCH PROJECT. All costs incurred in
undertaking all communications relating to the RESEARCH PROJECT
shall be borne by the party incurring such costs. ONCORPHARM shall
reimburse HOPKINS for reasonable travel costs to ONCOR or ONCORPHARM
facilities or other locations selected by ONCOR or ONCORPHARM.
4.2 While the Agreement is in effect, and for five (5) years thereafter,
HOPKINS, ONCORPHARM and ONCOR shall employ the same efforts as they
use to protect their own proprietary information to maintain as
confidential and to not reveal or disclose to THIRD PARTIES any
CONFIDENTIAL INFORMATION received under this Agreement from the
disclosing party without first obtaining the written consent of the
disclosing party, except as provided in Paragraphs 4.3, 4.5 and 4.6
of this Agreement, or except as follows: (1) subject to any license
agreement as may be required for purposes of investigating,
manufacturing and marketing PRODUCTS, (2) as required for securing
essential or desirable authorizations, privileges or rights from
governmental agencies, (3) as required to be disclosed to a
governmental agency, (4) as is necessary to file or prosecute patent
applications, (5) as is necessary to carry out any litigation
concerning PRODUCTS, or (6) as is necessary to comply with current
"The Johns Hopkins University Guidelines and Policies for Technology
Transfer," or as amended in the future consistently for all
licensees in a manner not materially adverse to ONCOR or ONCORPHARM.
The parties shall take reasonable measures to assure that no
unauthorized use or
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disclosure is made by others to whom access to such information is
granted.
4.3 Nothing herein shall be construed as preventing ONCOR or ONCORPHARM
from disclosing any information received from HOPKINS to an
AFFILIATE or to a sublicensee, provided such AFFILIATE or
sublicensee has undertaken a similar obligation of confidentiality
with respect to the CONFIDENTIAL INFORMATION.
4.4 HOPKINS hereby agrees that no RESEARCH INFORMATION shall be
disclosed or delivered to any third party without ONCOR's and
ONCORPHARM's prior written consent, which consent shall not be
unreasonably withheld for non-profit purposes. In the event that
ONCOR and ONCORPHARM consent to a disclosure or delivery of RESEARCH
INFORMATION to a third party, such transfer of the RESEARCH
INFORMATION shall be governed by such protective measures as ONCOR
and ONCORPHARM deem necessary to protect the respective rights,
title and interests of HOPKINS, ONCOR and ONCORPHARM, which may
include, but are not limited to, confidentiality obligations being
imposed on the third party and the execution of a Material Transfer
Agreement. Notwithstanding the foregoing, HOPKINS may provide
biological or chemical materials which it develops internally and
does not receive in whole or in part from either ONCOR or
ONCORPHARM, to third parties for not-for-profit activities provided
that in each case a Material Transfer Agreement substantially in the
same form as the one attached hereto as Appendix E is executed by
HOPKINS and the third party. In the event that HOPKINS desires to
use a substantially different form of Material Transfer Agreement or
desires to provide biological or chemical materials to a third party
for for-profit activities, or desires to provide biological or
chemical materials that it has received from ONCOR or ONCORPHARM to
a third party for any purpose, HOPKINS shall require the prior
written consent of ONCOR and ONCORPHARM. In the event such consent
is forthcoming, HOPKINS shall use such form of Material Transfer
Agreement as shall be agreed upon by all of the parties to this
Agreement and the third party receiving the biological or chemical
materials.
4.5 No publication, public announcement, press release or other
disclosure for publicity or promotional purposes shall be made,
either directly or indirectly, by any party to this Agreement,
except as may be legally
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required, without first obtaining the written approval of the other
parties and agreement upon the nature and text of such announcement
or disclosure. All academic publications shall also be subject to
the provisions of Section 4.6 hereof. It is the intention of the
parties to mutually approve as soon as practicable release of
information regarding the relationship of the parties under this
Agreement. The party desiring to make any such public announcement
or other disclosure (including disclosure in documents relating to
the raising of capital financing and filings with the Securities and
Exchange Commission) shall use its best efforts to inform the other
parties of the proposed announcement or disclosure in sufficient
time prior to public release, and shall use its best efforts to
provide the other parties with a written copy thereof, in order to
allow such other parties to comment upon such announcement or
disclosure. This restriction does not apply to the dissemination of
information that has previously been approved and released in
writing by the parties in accordance with this paragraph.
4.6 Dr. Jay George, principal scientist at ONCORPHARM, Dr. Robert
Hohman, principal scientist at ONCOR, and Dr. Alan Shuldiner,
principal scientist at HOPKINS and any employees or students of
ONCORPHARM, ONCOR or HOPKINS participating in the RESEARCH PROJECT
may publish, in writing or orally, any manuscript or abstract
containing their RESEARCH INFORMATION or CONFIDENTIAL INFORMATION
provided that they first submit such proposed publication to each of
ONCORPHARM, ONCOR and HOPKINS to determine the need to delay
submission of the proposed publication for filing of appropriate
patent applications. Neither ONCORPHARM, ONCOR nor HOPKINS nor their
principal scientists nor any other employees or students
participating in the RESEARCH PROJECT shall submit for written or
oral publication any manuscript, abstract or the like which includes
RESEARCH INFORMATION or CONFIDENTIAL INFORMATION generated or
provided by one or more of the other parties without first obtaining
the prior written consent of the other parties, which consent shall
not be unreasonably withheld. Such consent shall be provided within
thirty (30) days of receipt of the proposed publication unless it is
necessary to delay publication for filing of appropriate patent
applications. If the submitting party has not received a response
from at least one of the parties reviewing the proposed publication
within thirty (30) days of
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receipt, the submitting party may proceed with making the written or
oral publication. Delay for filing of patent applications shall not
exceed one hundred twenty (120) days from receipt of the proposed
publication.
ARTICLE 5. INVENTIONS AND PATENTS
5.1 a) Each party shall have and retain sole and exclusive title to all
INVENTIONS and RESEARCH INFORMATION which are made, conceived,
reduced to practice or generated solely by its employees or agents
arising in the course of or as a result of the RESEARCH PROJECT.
ONCOR and HOPKINS shall own a fifty percent (50%) undivided interest
in all INVENTIONS and RESEARCH INFORMATION arising in the course of
or as a result of the RESEARCH PROJECT which are made, conceived,
reduced to practice or generated jointly by their employees or
agents. ONCORPHARM and HOPKINS shall own a fifty percent (50%)
undivided interest in all INVENTIONS and RESEARCH INFORMATION
arising in the course of or as a result of the RESEARCH PROJECT
which are made, conceived, reduced to practice or generated jointly
by their employees or agents. In the event that an INVENTION or
RESEARCH INFORMATION is made, conceived, reduced to practice or
generated in the course of or as a result of the RESEARCH PROJECT by
employees or agents of each of ONCOR, ONCORPHARM and HOPKINS, then
each party shall own a one-third undivided interest in such
INVENTION or RESEARCH INFORMATION.
b) All INVENTIONS and RESEARCH INFORMATION reduced to practice or
generated in the course of or as a result of the RESEARCH PROJECT
shall be subject to the licenses granted by and the other terms and
conditions of the LICENSE AGREEMENTS.
c) HOPKINS shall have a fully paid-up non-exclusive license to
RESEARCH INFORMATION owned solely by ONCOR or ONCORPHARM or jointly
with HOPKINS for noncommercial academic research purposes only.
5.2 ONCOR shall have the sole right, at its own expense, prepare, file,
prosecute and maintain patent applications and patents relating to
INVENTIONS in which ONCOR is the sole inventor and in which input
will be provided by HOPKINS, if so requested by ONCOR. ONCORPHARM
shall have the sole right, at its own expense, to prepare, file,
prosecute and maintain patent applications and patents relating to
INVENTIONS to
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in which ONCORPHARM is the sole inventor and in which input will be
provided by HOPKINS, if so requested by ONCORPHARM. For JOINT
INVENTIONS, HOPKINS will assist ONCORPHARM in the preparation of the
patent applications and patent filings but ONCORPHARM will have the
primary responsibility for completing the patent applications and
the patent filings, at ONCORPHARM'S expense. For UNIVERSITY
INVENTIONS, HOPKINS will draft the initial patent applications with
ONCORPHARM'S input. HOPKINS will have the responsibility for
completing patent applications and perfecting the patent filings for
UNIVERSITY INVENTIONS, with ONCORPHARM'S continued participation and
with ONCORPHARM bearing the reasonable expenses thereof. Such
reasonable expenses may include reasonable patent attorney fees and
all filing and maintenance fees. However, ONCORPHARM shall not be
obligated to pay HOPKINS for any time spent by HOPKINS employees or
students in relation to preparing, filing, maintaining or
prosecuting patents and patent applications.
5.3 For UNIVERSITY INVENTIONS and countries where HOPKINS elects not to
prepare and file patent applications, HOPKINS shall notify
ONCORPHARM and ONCORPHARM may file patent applications at
ONCORPHARM'S expense.
5.4 If subsequent to filing a patent application on a UNIVERSITY
INVENTION or JOINT INVENTION, ONCORPHARM elects not to prosecute or
maintain such patent application or ensuing patent or fund such
prosecution, filing or maintenance by HOPKINS, ONCORPHARM shall give
HOPKINS notice thereof within a reasonable period prior to allowing
such patent application or patent to lapse or become abandoned or
unenforceable and HOPKINS may continue prosecution or maintenance of
such patent application or patent at its expense and its exclusive
benefit. In such an event ONCORPHARM shall no longer be licensed
under such patent application or patent. If subsequent to filing of
a U.S. patent application, ONCORPHARM chooses not to file in foreign
countries, ONCORPHARM shall inform HOPKINS within eight (8) months
of the U.S. filing date and shall permit HOPKINS to effect such
foreign filings at its expense. In such an event ONCORPHARM shall
not be licensed under any foreign filings effected by HOPKINS at
HOPKINS' expense.
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5.5 HOPKINS shall, at its own expense, provide reasonable and prompt
assistance to ONCORPHARM to facilitate filing of all patent
applications covering JOINT INVENTIONS and shall obtain agreements
from its employees and students to execute all documents deemed
necessary or desirable therefor.
5.6 Since HOPKINS may use U.S. government funding to help perform work
related to the RESEARCH, the license to UNIVERSITY INVENTIONS and
HOPKINS' interest in JOINT INVENTIONS pursuant to Paragraph 5.1 may
be subject to non-exclusive license and other rights granted to the
U.S. government under such funding agreements for use for
governmental purposes or march-in rights. Should HOPKINS utilize
biological material during the RESEARCH PROJECT obtained from a
THIRD PARTY, ONCOR's and ONCORPHARM's rights pursuant to Paragraph
5.1 are subject to rights due such THIRD PARTY under a material
transfer agreement, provided that HOPKINS shall first try to obtain
such material from ONCOR and ONCORPHARM and failing that, obtain
ONCOR's and ONCORPHARM's prior written consent prior to entering
into any such material transfer agreement which should adversely
affect ONCOR's and ONCORPHARM's rights under Paragraph 5.1 or the
LICENSE AGREEMENTS, which consent of ONCOR and ONCORPHARM shall not
be unreasonably withheld. If employees or students of HOPKINS other
than those listed in Appendix B become co-inventors of any
UNIVERSITY ONCORPHARM INVENTIONS or any JOINT INVENTIONS, HOPKINS
shall use its reasonable efforts to include in the licenses granted
under the LICENSE AGREEMENTS the interests of such co-inventors,
subject to conflicting rights of THIRD PARTIES.
ARTICLE 6. TERM AND TERMINATION
6.1 Unless terminated as described below, the term of this Agreement
shall extend for three (3) years from the EFFECTIVE DATE of this
Agreement. The parties shall have the mutual option to extend the
term for one (1) year periods upon written amendment executed at
least sixty (60) days before the end of the current term.
6.2 If a party fails or neglects to perform covenants or provisions of
this Agreement and if such default is material to this Agreement
taken as a whole (an "Event of Default"), and not corrected within
sixty (60) days after receiving written notice from one of the
parties
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with respect to such Event of Default, the party giving the notice
shall have the right to terminate this Agreement at any time by
giving a further written notice thereof to the other parties.
6.3 If Dr. Shuldiner leaves HOPKINS during the term of this Agreement,
and is not replaced within sixty (60) days thereafter with a
principal scientist or investigator acceptable to ONCOR and
ONCORPHARM in their sole discretion, ONCOR and ONCORPHARM shall each
have the right to terminate this Agreement by written notice to
HOPKINS (a "Scientist Notice").
6.4 If a party believes that the intended objectives of the RESEARCH
PROJECT are not being achieved because of lack of due performance by
one of the other parties (hereafter referred to as "Lack of
Diligence"), such party may, in writing, demand adequate assurance
of such due performance. If the party receiving such demand does not
provide such assurance in all material respects within sixty (60)
days after receiving such demand, the demanding party shall have the
right to terminate this Agreement at any time by giving written
notice thereof to the other parties.
6.5 If (i) any party believes that the results of the RESEARCH PROJECT
do not provide sufficient support for, or indicate a failure of, the
hypothesis set forth in the RESEARCH PLAN, or (ii) if the results of
the RESEARCH PROJECT demonstrate that the Trp64Arg Allele has an
insignificant effect or no effect in relation to obesity and/or
diabetes, or (iii) if the parties cannot agree on the future
direction or scope of the RESEARCH PROJECT, then any party may
terminate this Agreement in writing upon ninety (90) days' notice (a
"Research Direction Notice"). The parties agree to negotiate in good
faith during the ninety (90) day notice period as to whether the
RESEARCH PROJECT should be continued, and if it is, as to a mutually
satisfactory definition for the future direction and funding of the
RESEARCH PROJECT. If agreement over the continuation of the RESEARCH
PROJECT cannot be reached, this Agreement shall terminate at the end
of the ninety (90) day period. However, such termination will not
affect ONCOR's and ONCORPHARM's obligations to reimburse HOPKINS
pursuant to Section 7.4 hereof.
6.6 If either or both of the LICENSE AGREEMENTS are terminated for any
reason whatsoever, then this
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Agreement shall also terminate, subject to ONCOR's and ONCORPHARM's
respective options specified in Section 7.2 hereof.
ARTICLE 7. RIGHTS AND DUTIES UPON TERMINATION
7.1 In the event that ONCOR either commits an Event of Default, or
demonstrates a Lack of Diligence or issues a Scientist Notice or a
Research Direction Notice, and fails to cure the Event of Default or
Lack of Diligence or to withdraw the Scientist Notice or the
Research Direction Notice within the applicable time periods
provided by Article 6, ONCORPHARM shall have the right to undertake
ONCOR's obligations under this Agreement. In the event that
ONCORPHARM either commits an Event of Default, or demonstrates a
Lack of Diligence or issues a Scientist Notice or a Research
Direction Notice, and fails to cure the Event of Default or Lack of
Diligence or to withdraw the Scientist Notice or the Research
Direction Notice within the applicable time periods provided by
Article 6, ONCOR shall have the right to undertake ONCORPHARM's
obligations under this Agreement. In each case the party exercising
its option under this Section 7.1, shall give HOPKINS written notice
of its election to undertake the obligations of the other party
within thirty (30) days of receiving written notice from HOPKINS of
the failure of ONCOR or ONCORPHARM, as the case may be, within the
applicable time limits, to cure the Event of Default or Lack of
Diligence or to withdraw the Scientist Notice or the Research
Direction Notice.
7.2 In the event that the ONCOR LICENSE terminates for any reason and
the ONCORPHARM LICENSE remains effective, ONCORPHARM shall have the
right and option, but not obligation, to either (i) undertake
ONCOR's obligations under this Agreement, or (ii) undertake ONCOR's
obligations under this Agreement and the ONCOR LICENSE. In the event
that the ONCORPHARM LICENSE terminates for any reason and the ONCOR
LICENSE remains effective, ONCOR shall have the right and option,
but not the obligation, to either (i) undertake ONCORPHARM's
obligations under this Agreement, or (ii) undertake ONCORPHARM's
obligations under this Agreement and the ONCORPHARM LICENSE. In each
case the party exercising its option under this Section 7.2, shall
give HOPKINS written notice of its election to undertake the
obligations of the other party within thirty (30) days
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of receiving written notice of the termination of the ONCOR LICENSE
or ONCORPHARM LICENSE as the case may be.
7.3 Upon termination of this Agreement as a whole or in respect of one
party, each party shall be entitled, without limitation to other
remedies it may possess, to immediate return (to the extent
technically feasible) of all biological or chemical materials
included within RESEARCH INFORMATION furnished by it to the other
parties or to demand the destruction of such materials in the hands
of or subject to the control of the other parties.
7.4 Upon termination of this Agreement as a whole or in respect of one
party, HOPKINS shall have the right to retain any sums already paid
by ONCOR and ONCORPHARM hereunder, except as otherwise specified. In
addition, in the event that (i) this Agreement is terminated by
either ONCOR or ONCORPHARM and the options set forth in Sections 7.1
and 7.2 are not exercised, or (ii) this Agreement is terminated
after an exercise of the options set forth in Section 7.1 or Section
7.2, ONCORPHARM shall continue to be responsible for and shall pay
to HOPKINS the funding commitment under Paragraph 3.1 hereof for a
further period of six months from the date of termination (i.e.
ONCORPHARM shall make payments to HOPKINS over the six months
following such a termination, which in the aggregate shall total
$124,438).
7.5 The obligations described in Paragraphs 4.2, 4.3, and 7.4, Article 5
and Article 9 shall continue to apply to any terminated party and
shall survive any expiration or termination of this Agreement as a
whole.
ARTICLE 8. WARRANTIES AND REPRESENTATIONS
8.1 Each party on whose behalf this Agreement is executed warrants that
it has the authorization to enter into this Agreement.
8.2 Each party warrants that, to the best of its knowledge and belief as
of the date of this Agreement, it has the right to use and dispose
of all RESEARCH INFORMATION, including biological and chemical
materials, as provided by this Agreement. HOPKINS warrants that, to
the best of its knowledge and belief as of the date of this
Agreement, it has the right to grant the licenses
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under the LICENSE AGREEMENTS and has not granted licenses or rights
in the PATENT RIGHTS (as defined in the LICENSE AGREEMENTS) that
would restrict the rights granted thereunder.
8.3 Except for the restrictions contemplated by Section 5.6 of this
Agreement, each party represents that, to the best of its knowledge,
each has the right to disclose or transfer to the other the RESEARCH
INFORMATION known to it as at the EFFECTIVE DATE of this Agreement,
as it pertains to these projects.
ARTICLE 9. INDEMNIFICATION
9.1 Each party shall indemnify the other parties and hold them harmless
from any suits, costs, charges or settlements thereof which may
result from its own negligent or wrongful actions during its
performance under this Agreement.
9.2 Each party agrees to indemnify and hold the other parties harmless
against any and all liability or loss suffered as a result of
negligence committed by its employees while conducting the RESEARCH
PROJECT under this Agreement, regardless in whose facilities such
employees are located. Each party shall promptly notify the other
parties of any hazard relating to the subject matter of the RESEARCH
PROJECT of which each is aware or subsequently becomes aware.
9.3 All of the above indemnification responsibilities in Paragraphs 9.1
and 9.2 shall survive the termination of this Agreement.
ARTICLE 10. RELATIONSHIP OF THE PARTIES
10.1 Nothing in this Agreement is intended or shall be deemed to
constitute a partnership, agency, employer-employee or joint venture
relationship between the parties. All activities by the parties
hereunder shall be provided as independent contractors. Neither
party shall incur any debts or make any commitments for the other
except to the extent, if at all, specifically provided herein.
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ARTICLE 11. FORCE MAJEURE
11.1 If the performance of any part of this Agreement by a party is
prevented, restricted, interfered with or delayed by reason of any
cause beyond the reasonable control of the party liable to perform,
unless conclusive evidence to the contrary is provided, the party so
affected shall use its best efforts to avoid or remove such causes
of non-performance and shall continue performance with the utmost
dispatch whenever such causes are removed. When such circumstances
arise, the parties shall discuss what, if any, modification of the
terms of this Agreement may be required in order to arrive at an
equitable solution.
ARTICLE 12. GOVERNING LAW
12.1 This Agreement shall be deemed to have been made in the State of
Maryland and its form, execution, validity, construction and effect
shall be determined in accordance with the laws of the State of
Maryland.
ARTICLE 13. SEPARABILITY
13.1 In the event any portion of this Agreement shall be held illegal,
void or ineffective, the remaining portions hereof shall remain in
full force and effect, as long as it does not materially alter the
purpose and performance of this Agreement.
13.2 If any of the terms or provisions of this Agreement are in conflict
with any applicable statute or rule of law, then such terms or
provisions shall be deemed inoperative to the extent that they may
conflict therewith and shall be deemed to be modified to conform
with such statute or rule of law. In the event that the terms and
conditions of this Agreement are materially altered as a result of
this paragraph, the parties will renegotiate the terms and
conditions of this Agreement to resolve any inequities.
ARTICLE 14. ENTIRE AGREEMENT
14.1 This Agreement, the LICENSE AGREEMENTS, the OPTION AGREEMENT and the
STOCK PURCHASE AGREEMENT, constitute the entire agreement between
the parties relating to
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the subject matter hereof and supersedes all previous writings and
understandings. No terms or provisions of this Agreement shall be
varied or modified by any prior or subsequent statement, conduct or
act of either of the parties, except that the parties may amend this
Agreement by written instruments specifically referring to and
executed in the same manner as this Agreement.
ARTICLE is. NOTICES
15.1 All notices pertaining to this Agreement shall be in writing and
sent by certified mail, return receipt requested, or by overnight
delivery via a nationally recognized overnight delivery service, to
the parties at the following addresses or such other address as such
party shall have furnished in writing to the other parties in
accordance with this Paragraph 15.1:
FOR HOPKINS: The Johns Hopkins University
School of Medicine
720 Rutland Avenue
Baltimore, Maryland 21205
Attention: Michael B. Amey
FOR ONCOR: Oncor, Inc.
209 Perry Parkway
Gaithersburg, Maryland 20877
Attention: Mr. Stephen Turner
FOR ONCORPHARM: Oncorpharm, Inc.
200 Perry Parkway
Gaithersburg, MD 20877
Attention: Dr. William Ryan
A notice shall be deemed to have been received three (3) days after
deposit with the U.S. postal service if sent by certified mail, and
on the day after deposit with the delivery service, if sent by
overnight delivery.
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ARTICLE 16. ASSIGNMENT
16.1 This Agreement may be assigned by ONCOR and/or ONCORPHARM to their
respective AFFILIATES or as part of a sale by such party of its
entire business relating to a PRODUCT, provided that the party so
assigning remains liable for all their obligations hereunder. ONCOR
and ONCORPHARM may also assign their respective rights and benefits
under this Agreement if HOPKINS approves the assignment in writing,
which approval shall not be unreasonably withheld. In the event of
such transfer, the transferee shall assume and be bound by the
provisions of this Agreement. It shall be deemed to be reasonable if
ONCOR or ONCORPHARM assigns to a responsible company and agrees to
remain responsible on an ongoing basis for performance by the
assignee company. HOPKINS may not assign this Agreement or the
PATENT APPLICATION.
ARTICLE 17. FURTHER AGREEMENTS
17.1 Each party hereto shall execute such further papers or agreements as
may be necessary to effect the purposes of this Agreement and carry
out its provisions.
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IN WITNESS WHEREOF the parties hereto have executed this
Collaborative Research Agreement by their duly authorized officers as of the
date first above written.
ONCOR, INC. ONCORPHARM, INC.
BY: /s/ Stephen Turner BY: /s/ William A. Ryan, Jr.
----------------------------- ---------------------------
NAME: /s/ Stephen Turner NAME: Dr. William A. Ryan, Jr.
--------------------------- ---------------------------
TITLE: CEO and Chairman TITLE: President and CEO
-------------------------- ---------------------------
THE JOHNS HOPKINS UNIVERSITY
BY: /s/ David A. Blake
-----------------------------
NAME: David A. Blake
---------------------------
TITLE: Executive Vice Dean
--------------------------
I have read and agreed to abide by the terms of this Agreement.
By /s/ Alan Shuldiner
-----------------------------
Dr. Alan Shuldiner
By /s/ Jeremy Walston
-----------------------------
Dr. Jeremy Walston
By /s/ Kristi Silver
-----------------------------
Dr. Kristi Silver
By /s/ Jesse Roth
-----------------------------
Dr. Jesse Roth
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APPENDIX A
RESEARCH PLAN
*
* CONFIDENTIAL TREATMENT REQUESTED
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APPENDIX B
RESEARCH STAFF AT DR. SHULDINER'S LABORATORY
Jeremy Walston, M.D.
Kristi Silver, M.D.
Brock Beamer, M.D.
Michael Harper, M.D.
Keith Tanner
Yuf eng Yang
Clinical Coordinator - to be named
Research Assistant - to be named
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APPENDIX C
ONCOR LICENSE AGREEMENT
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LICENSE AGREEMENT
This License Agreement (the or this "Agreement" or "License"),
effective this 6th day of March, 1996, is between The Johns Hopkins University,
a corporation of the State of Maryland, having a principal place of business at
2024 East Monument Street, Suite 2-100, Baltimore, MD 21205 (hereinafter
referred to as "University") and Oncor, Inc., a corporation, having a principal
place of business at 209 Perry Parkway, Gaithersburg, MD 20877 (hereinafter
"Company").
WITNESSETH:
WHEREAS, University, the Company and the Company's subsidiary,
Oncorpharm, Inc. ("Oncorpharm"), are concurrently herewith entering into that
certain Collaborative Research Agreement (the "CRA"), pursuant to which
OncorPharm and the Company will fund certain clinical investigations and other
studies by the University related to the Trp64Arg Adrenergic Receptor Allele
("Trp64Arg Allele");
WHEREAS, as a center for research and education, University is
interested in licensing PATENT RIGHTS and TECHNOLOGY RIGHTS (both hereinafter
defined) in a manner that will benefit the public by facilitating the
distribution of useful products and the utilization of new methods, but is
without capacity to commercially develop, manufacture, and distribute any such
products or methods; and
WHEREAS, PATENT RIGHTS include*
WHEREAS, University has acquired through assignment all right, title
and interest, with the exception of certain retained rights by the United States
government, in all the PATENT RIGHTS and TECHNOLOGY RIGHTS existing at the date
hereof, including but not limited to, the rights of the Inventors; and
* CONFIDENTIAL TREATMENT REQUESTED
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WHEREAS, the University is interested in licensing any PATENT RIGHTS
and TECHNOLOGY RIGHTS that it may acquire in the future, including but not
limited to those of the Inventors, subject to any required retained rights of
the U.S. Government; and
WHEREAS, Company desires to commercially develop, manufacture, use
and distribute products and processes based on such PATENT RIGHTS and TECHNOLOGY
RIGHTS, throughout the world, for all uses except use as a prophylactic or
therapeutic.
NOW, THEREFORE, in consideration of the foregoing premises and the
following mutual covenants, and other good and valuable consideration, the
receipt of which is hereby acknowledged, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 AFFILIATED COMPANY shall mean (a) any company owned or controlled to
the extent of at least fifty percent (50%) of its issued and voting capital by a
party to this Agreement and any other company so owned or controlled (directly
or indirectly) by any such company or the owner of any such company, or (b) any
partnership, joint venture or other entity directly or indirectly controlled by,
controlling, or under common control of, to the extent of fifty percent (50%) or
more of voting power (or otherwise having power to control its general
activities), a party to this Agreement, but in each case only for so long as
such ownership or control shall continue.
1.2 EFFECTIVE DATE shall mean the effective date of this Agreement, as
first above written.
1.3 EXCLUSIVE LICENSE shall mean a license to UNIVERSITY INVENTIONS and
TECHNOLOGY RIGHTS, and a license of University's right, title and interest in
and to JOINT INVENTIONS, whereby Company's rights are sole and entire and
operate to exclude all others, subject to rights retained by the United States
government in accordance with P.L. 96-517, as amended by P.L. 98-620, and
subject to the retained right of University (i) to make, have made, provide and
use for its and The Johns Hopkins University Health Systems' non-profit purposes
LICENSED PRODUCTS and LICENSED PROCESSES and (ii) to use, distribute and
disclose RESEARCH INFORMATION for non-profit purposes subject to compliance with
Article 4 of the CRA.
1.4 FDA shall mean the United States Food and Drug Administration.
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1.5 INVENTION(S) shall mean (i) the inventions described in the PATENT
APPLICATION or in any continuation, continuation-in-part, division or reissue of
the PATENT APPLICATION or in any corresponding foreign patent application, and
(ii) any existing or future discovery or invention first conceived or first
actually reduced to practice in connection with or relating to the performance
of the RESEARCH PROJECT. For purposes of this Agreement the determination of
"first conceived" and "first actually reduced to practice" shall be governed by
U.S. law. INVENTION(S) shall include discoveries and inventions which are not
patentable or patented, including but not limited to trade secrets, copyright
material or other protectable intellectual property. Without limiting the
generality of the foregoing, INVENTION(S) may include know-how procedures,
technical information, any process, composition, device, formula, protocol,
technique, design, drawing methodology, technical and scientific expertise and
biological or chemical materials.
1.6 JOINT INVENTION(S) shall mean any INVENTION first conceived or first
actually reduced to practice jointly by an employee of Company or OncorPharm and
an employee or student of University listed in Appendix B of the CRA, in
connection with the RESEARCH PROJECT.
1.7 LICENSED PROCESSES shall mean all methods which are covered by any
claim of one or more PATENT RIGHTS or based upon or derived from TECHNOLOGY
RIGHTS.
1.8 LICENSED PRODUCTS shall mean all products, the manufacture, use or
sale of which is covered by any claim of one or more PATENT RIGHTS or based upon
or derived from TECHNOLOGY RIGHTS.
1.9 LICENSOR shall mean University.
1.10 NET SALES shall mean gross sales revenues and fees actually received
by Company or AFFILIATED COMPANY from the sale of LICENSED PRODUCTS and/or
LICENSED PROCESSES less trade discounts allowed, refunds, returns and recalls,
sales, V.A.T. and/or use taxes, duties and similar governmental assessments and
transportation, packing and shipping insurance actually paid by the seller. In
the event that Company or AFFILIATED COMPANY sells a LICENSED PRODUCT in
combination with other active ingredients or components which are not LICENSED
PRODUCTS ("Other Items"), the NET SALES for purposes of royalty payments on the
combination shall be calculated as follows:
(a) If all LICENSED PRODUCTS and Other Items contained in the
combination are available separately, the NET SALES for
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purposes of royalty payments will be calculated by multiplying the NET SALES of
the combination by the fraction A/A+B, where A is the separately available price
of all LICENSED PRODUCTS in the combination, and B is the separately available
price for all Other Items in the combination.
(b) If the combination includes Other Items which are not sold
separately (but all LICENSED PRODUCTS contained in the combination are available
separately), the NET SALES for purposes of royalty payments will be calculated
by multiplying the NET SALES of the combination by A/C, where A is as defined
above and C is the invoiced price of the combination.
(c) If the LICENSED PRODUCTS contained in the combination are not
sold separately, the NET SALES for such combination shall be one half of the NET
SALES of such combination as defined in the first sentence of this Paragraph
1.9.
The term "Other Items" does not include solvents, diluents, carriers, excipients
or the like used in formulating a product.
1.11 ONCOR FIELD shall mean all uses for LICENSED PRODUCTS and LICENSED
PROCESSES, except use as a prophylactic or therapeutic. For the avoidance of any
doubt, but in no way limiting the foregoing, ONCOR FIELD shall include use of
LICENSED PRODUCTS and LICENSED PROCESSES for all diagnostic purposes.
1.12 ONCORPHARM LICENSE shall mean that certain license agreement of even
date herewith between University and Oncorpharm, relating to use of the LICENSED
PRODUCTS and LICENSED PROCESSES for prophylactic and therapeutic uses.
1.13 PATENT APPLICATION shall mean *
1.14 PATENT RIGHTS shall mean the following (a) PATENT APPLICATION, (b)
any other existing or future U.S. patent application claiming either a
UNIVERSITY INVENTION or a JOINT INVENTION (hereinafter FUTURE APPLICATION), (c)
any invention disclosed and claimed in the PATENT APPLICATION or the FUTURE
APPLICATIONS and (d) all continuations, continuations-in-part, divisions,
reissues, reexaminations, extensions or other governmental actions which extend
any of the subject matter of the PATENT APPLICATION or the FUTURE APPLICATIONS,
and any
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* CONFIDENTIAL TREATMENT REQUESTED
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corresponding foreign patent applications that may be filed in the future at
Company's request and expense and any patents, patents of addition, or other
equivalent foreign patent rights issuing, granted or registered on the PATENT
APPLICATION or the FUTURE APPLICATIONS.
1.15 RESEARCH INFORMATION shall mean data, information and results
included within the definition of INVENTION(S) that are obtained during the term
of the CRA from the RESEARCH PROJECT, including know-how, procedures,
methodology, technical and scientific expertise and biological or chemical
materials, but excluding any such items which are included in the definition of
PATENT RIGHTS.
1.16 RESEARCH PROJECT shall mean the collaborative research program
between University, the Company and OncorPharm described and funded in
accordance with the CRA.
1.17 STOCK PURCHASE AGREEMENT shall mean that certain Stock Purchase
Agreement of even date herewith, by and among the Company and the University.
1.18 SUBLICENSE INCOME shall mean the gross amount actually received by
either the Company or an AFFILIATED COMPANY, directly or indirectly, for or on
account of sublicenses of any of the rights granted hereunder, without deduction
of any kind, but excluding the following, in relation to which no payments shall
be due to the University:
(a) Payments received by either the Company or an AFFILIATED COMPANY
for performance of research and development by either the Company or an
AFFILIATED COMPANY to the extent that such payments cover the actual cost of the
research and development work;
(b) Investments made by a sublicensee in either the Company or an
AFFILIATED COMPANY to the extent that such investments are made at current
market value, including but not limited to, any payments or other consideration
representing the current market value of shares in the Company or an AFFILIATED
COMPANY;
(c) Payments made to either the Company or an AFFILIATED COMPANY to
the extent they cover the actual costs of conducting clinical testing and other
activities in connection with obtaining regulatory approval for a LICENSED
PRODUCT or LICENSED PROCESS;
(d) Reimbursed expenses of either the Company or an AFFILIATED
COMPANY.
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For purposes of Subparagraph (b) above, the current market value of the
investment shall determined as follows: (i) it shall be determined as at the
earlier of (a) the date when the investment is made or (b) the day prior to the
date when the investment is first publicly disclosed on the Dow Jones News Wire
(the "Determination Date"); (ii) if there is no public market for the Company's
securities that are being purchased by the sublicensee, then the current market
value shall be determined by the Company's Board of Directors in good faith, and
if University disputes such determination, the current market value shall be
determined by an independent investment banker whose fees shall be shared by the
Company and the University; (iii) if there is a public market for Company's
securities that are being purchased by the sublicensee, then the current market
value shall be determined using the average of the closing bid and asked prices
of the securities in the Over-The-Counter Market Summary or the closing price
quoted on any exchange on which the securities are listed as published in The
Wall Street Journal for the ten (10) trading days prior to the Determination
Date. Notwithstanding the following, in the event the sublicensee is purchasing
the Company's securities in connection with the Company's initial public
offering of such securities, the current market value shall be determined using
the offering price of such securities to the public in the Company's initial
public offering.
1.19 TECHNOLOGY RIGHTS shall mean LICENSOR'S rights in any and all
technical information, know-how, process, procedure, composition, device,
method, formula, protocol, technique, software, design, drawing or data
developed in connection with the performance of the RESEARCH PROJECT defined
above, relating to LICENSED PRODUCTS or LICENSED PROCESSES, including but not
limited to INVENTIONS and/or RESEARCH INFORMATION which are not disclosed in a
patent application or patent, but which are necessary or useful for practicing
the rights granted under this License.
1.20 UNIVERSITY INVENTION(S) shall mean any INVENTION first conceived or
first actually reduced to practice solely by an employee or student of
University listed in Appendix B to the CRA, in connection with the RESEARCH
PROJECT, but not including JOINT INVENTIONS. Appendix B to the CRA shall be
updated from time to time to include all employees and students engaged in
research in the laboratories of Dr. Alan Shuldiner and/or Dr. Jeremy Walston, or
any other principal investigator under the CRA, and those employees and students
participating in the RESEARCH PROJECT.
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ARTICLE 2 - GRANTS
2.1 Subject to the terms and conditions of this Agreement, LICENSOR hereby
grants to Company an EXCLUSIVE LICENSE for the ONCOR FIELD to make, have made,
use, have used and/or sell or have sold the LICENSED PRODUCTS and to use the
LICENSED PROCESSES in the United States and worldwide under the PATENT RIGHTS
and TECHNOLOGY RIGHTS and to sublicense such rights to others under the PATENT
RIGHTS and TECHNOLOGY RIGHTS.
2.2 Company shall provide a copy of each such sublicense agreement to
University promptly after it is executed, provided that Company may delete
portions it considers confidential in a manner which permits University to
obtain the information it requires. Each sublicense shall be consistent with the
terms in this Agreement.
2.3 Except for the rights, if any, of the Government of the United States,
as set forth in Paragraph 1.3 and except for any joint ownership of Company or
Oncorpharm, University represents and warrants that to its knowledge as of the
EFFECTIVE DATE it is the owner of the entire right, title and interest in and to
PATENT RIGHTS resulting from UNIVERSITY INVENTIONS and University's entire
right, title and interest in and to PATENT RIGHTS resulting from JOINT
INVENTIONS, and that it has the sole right to grant licenses of its interests
thereunder, and that it has not granted licenses thereunder to any other entity
that would restrict rights granted hereunder except as stated herein. Except as
set forth in Schedule 2.3 attached hereto, University is not aware as of the
EFFECTIVE DATE that any additional rights or licenses are necessary for Company
to exercise its license rights (however, University has not performed nor was
required to perform, any right to use patent searches). However, the license
grant under Paragraph 2.1 may be subject to rights granted to providers of
biological materials or other limitations as specified in paragraph 5.6 of the
CRA.
ARTICLE 3 - PATENT INFRINGEMENT
3.1 Each party will notify the other promptly in writing when any
infringement by another of PATENT RIGHTS is uncovered.
3.2 (a) Company shall have the first right to enforce any patent within
PATENT RIGHTS against any infringement or alleged infringement thereof within
the ONCOR FIELD, and shall at all times keep University informed as to the
status thereof. Company may, in its sole judgement and at its own expense,
institute suit against any such infringer or alleged infringer and control and
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defend such suit in a manner consistent with the terms and provisions hereof and
recover, for its account, any damages, awards or settlements resulting
therefrom, subject to Paragraph 3.2(b); provided, however, that no such suit
shall be settled without the consent of HOPKINS, which consent shall not be
unreasonably withheld. This rights to sue for infringement shall not be used in
an arbitrary or capricious manner. University shall reasonably cooperate in any
such litigation at Company's expense.
(b) Any recovery by Company under Paragraph 3.2(a), after
deduction of all reasonable costs and expenses associated with each suit or
settlement (the "Net Recovery"), shall be deemed to reflect loss of
commercial sales, and Company shall pay to University * of such Net Recovery.
If the cost and expenses exceed the recovery, then * of the excess shall be
credited against royalties or the percentage of SUBLICENSE INCOME payable by
Company to University hereunder in connection with sales in or SUBLICENSE
INCOME from the country of such legal proceedings, provided, however, that
any such credit under this Paragraph 3.2(b) shall not exceed * of the
royalties or the percentage of SUBLICENSE INCOME otherwise payable to
University with regard to sales in or SUBLICENSE INCOME from the country of
such legal proceedings in any one calendar year, with any excess credit being
carried forward to future calendar years.
3.3 If Company elects not to enforce any patent within the PATENT RIGHTS
within the ONCOR FIELD, then it shall so notify University in writing within six
(6) months of receiving notice that an infringement exists, and University may,
in its sole judgement and at its own expense, do so and control, settle, and
defend such suit in a manner consistent with the terms and provisions hereof,
and recover, for its own account, any damages, awards or settlements resulting
therefrom.
ARTICLE 4 - PAYMENTS
4.1 Reasonable costs of preparing, filing, maintaining and prosecuting
PATENT RIGHTS shall be reimbursed to University in accordance with the
provisions of Article 5 of the CRA.
4.2 Company shall pay to University, upon the execution of this
Agreement by both parties and the concurrent execution of the ONCORPHARM
LICENSE, * in accordance with the
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terms of the STOCK PURCHASE AGREEMENT *. The Company shall also pay to
University, (i) within thirty (30) days of each anniversary of the EFFECTIVE
DATE of this Agreement, commencing on the first anniversary, *. The foregoing
payments are all non-refundable.
4.3 Company shall pay to LICENSOR, as a running royalty, for each LICENSED
PRODUCT and LICENSED PROCESS sold by Company or any AFFILIATED COMPANY of the
Company:
(a) * where the LICENSED PRODUCTS or LICENSED PROCESSES are
covered by any claim of one or more PATENT RIGHTS during the time period in
which, and in the geographic locations in which such PATENT RIGHTS are
legally enforceable for the making, using or selling of the particular
LICENSED PRODUCT or LICENSED SERVICE; or
(b) * where the LICENSED PRODUCTS or LICENSED PROCESSES are not
covered by any claim of one or more PATENT RIGHTS as specified in Paragraph
4.3(a).
Such payments shall be made quarterly as provided in Paragraph 4.5.
4.4 The Company shall pay the University, * of any SUBLICENSE INCOME
actually received by the Company or any AFFILIATED COMPANY from sublicensees
under this Agreement.
4.5 Company shall provide to University within thirty (30) days of the end
of each March, June, September and December after first commercial sale of a
LICENSED PRODUCT or LICENSED PROCESS a written report to University of the
amount of LICENSED PRODUCTS and LICENSED PROCESSES sold, the total NET SALES of
such LICENSED PRODUCTS and LICENSED PROCESSES or the SUBLICENSE INCOME received,
as applicable, and the running royalties due to University as a result of NET
SALES by Company or AFFILIATED COMPANY or the percentage and amount of
SUBLICENSE INCOME due to University, broken down by the categories specified in
Paragraphs 4.3 (a) and (b) and Paragraphs 4.4 and 1.18 above. Payment of any
such royalties or percentage of SUBLICENSE INCOME due shall accompany such
report.
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4.6 Company shall make and retain, for a period of three (3) years
following the period of each report required by Paragraph 4.5, true and accurate
records, files and books of account containing all the data reasonably required
for the full computation and verification of sales and other information
required in Paragraph 4.5. Such books and records shall be in accordance with
generally accepted accounting principles consistently applied. Company shall
permit the inspection of such records, files and books of account by an
independent certified public accountant chosen by University and reasonably
acceptable to Company during regular business hours upon ten (10) business days'
written notice to Company, to the extent necessary to verify compliance with
this Agreement; provided such accountant shall hold any information gained as
confidential except to University as necessary to show underpayment. Such
inspection shall not be made more than once each calendar year. All costs of
such inspection and copying shall be paid by University, provided that if any
such inspection shall reveal that an error has been made in the amount equal to
ten percent (10%) or more of such payment, such costs shall be borne by Company.
4.7 All payments under this Agreement shall be made in U.S. Dollars. Only
one royalty or one payment of a percentage of SUBLICENSE INCOME shall be payable
on each unit of LICENSED PRODUCT or LICENSED PROCESS calculated at the highest
applicable rate specified in Article 4 of this Agreement irrespective of (i) the
number of patents within PATENT RIGHTS or the number of items of TECHNOLOGY
RIGHTS whose claims would be infringed but for this License Agreement.
ARTICLE 5 - PATENT RIGHTS
5.1 Each party shall have and retain sole and exclusive title to all
INVENTIONS and RESEARCH INFORMATION which are made, conceived, reduced to
practice or generated solely by its employees or agents arising in the course of
or as a result of the RESEARCH PROJECT. Each party shall own a fifty percent
(50%) undivided interest in all INVENTIONS and RESEARCH INFORMATION arising in
the course of or as a result of the RESEARCH PROJECT which are made, conceived,
reduced to practice or generated jointly by employees or agents of both parties.
Other matters relating to patents and patent applications included within PATENT
RIGHTS shall be governed by Article 5 of the CRA.
5.2 Company agrees that all packaging containing individual LICENSED
PRODUCTS sold by Company or AFFILIATED COMPANY will be marked with the number of
the applicable patent(s) licensed
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hereunder in accordance with each country's patent laws, and will require its
sublicensees to do likewise.
5.3 Except as otherwise specified in this Agreement, matters relating to
confidential information shall be governed by Article 4 of the CRA. The
obligations of this Paragraph 5.3 shall also apply to AFFILIATED COMPANIES
and/or sublicensees provided such information by Company. Obligations under this
Paragraph 5.3 shall extend for a period of five (5) years after the termination
of this Agreement.
ARTICLE 6 - TERM MILESTONES AND TERMINATION
6.1 This Agreement shall expire in each country on the date of expiration
of the last to expire patent included within PATENT RIGHTS in that country or,
if no patent ultimately issues in a given country, ten (10) years after the
first commercial sale of an FDA approved LICENSED PRODUCT or LICENSED PROCESS.
Upon expiration, Company will be entitled to fully exploit PATENT RIGHTS and
TECHNOLOGY RIGHTS without restriction or payment of royalties.
6.2 Company shall use reasonable efforts to carry out the following either
itself or through an AFFILIATED COMPANY or a sublicensee of Company:
(a) identify a prototype assay utilizing a UNIVERSITY INVENTION or JOINT
INVENTION * of the EFFECTIVE DATE;
(b) beta test a prototype assay utilizing a UNIVERSITY INVENTION or JOINT
INVENTION * of the EFFECTIVE DATE;
(c) convert a prototype assay into a final assay format * of the EFFECTIVE
DATE; and
(d) effect the first lawful commercial sale of a LICENSED PRODUCT or LICENSED
PROCESS within the ONCOR FIELD * of the EFFECTIVE DATE.
6.3 If any of the performance milestones set forth in Section 6.2 hereof
have not been achieved by either Company, an AFFILIATED COMPANY, or a
sublicensee of Company within the time frame specified for such milestone, and
such failure has been due to legitimate and unexpected impediments outside of
the reasonable control of the Company, then the parties shall renegotiate in
good faith as to the milestones, deadlines for completion of milestones and
direction of the RESEARCH PROJECT,
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as applicable. If the failure to achieve such milestone is for any other
reason University shall have the right to notify Company of its intention to
terminate the Company's licenses granted under Article 2 ("Warning Notice").
Upon receipt of a Warning Notice, Company shall have the option of extending
the deadline for completing the milestone (the "Extension Option") by another
six (6) months in consideration of a payment to University of *. If Company,
within ninety (90) days after receipt of the Warning Notice from University,
fails to exercise its Extension Option and fails to reach agreement with
University as to a plan to reach such performance milestone or the waiver of
such milestone, University shall have the right to terminate the Company's
licenses granted under Article 2 hereof by submitting a notice of termination
to the Company (the "Termination Notice").
6.4 University agrees that in the discretion of Company commercialization
efforts may be directed first to industrialized nations of the world commencing
with the United States of America, and only subsequently to other regions as
reasonably and commercially practicable for Company given its strategies and
resources.
6.5 Company may terminate this Agreement at any time upon ninety (90) days
written notice to University.
6.6 Upon termination, Company, AFFILIATED COMPANY or sublicensee shall
return all information marked confidential first transferred to Company by
University. Company, AFFILIATED COMPANY or sublicensee shall maintain
confidential and not use any such information for a period of five (5) years
after termination of this Agreement.
6.7 Upon breach or default of any of the terms or conditions of this
Agreement, the defaulting party shall be given notice of such default in writing
and a period of ninety (90) days after receipt of such notice to correct the
breach or default. If (a) the default or breach (i) is material to this
Agreement, and (ii) is not corrected within said ninety (90) day period and the
defaulting party has not taken reasonable steps to cure the same, and (b) the
party not in default has fully complied with all of its obligations under this
Agreement, the party not in default shall have the right to terminate this
Agreement. For the avoidance of any doubt, the failure of Company to achieve any
of the performance milestones set forth in Section 6.2 hereof shall not be
deemed to be a breach or default entitling University to terminate in accordance
with this Section 6.7, but shall instead entitle University to exercise its
rights under Section 6.3 hereof.
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6.8 Termination shall not affect either party's right to recover for
obligations accruing prior to the termination of this Agreement, including but
not limited to, unpaid royalties and reimbursement for Company approved patent
expenses. In the event that the parties mutually agree that Company may make
posttermination sales of LICENSED PRODUCTS or LICENSED PROCESSES, Company shall
continue to pay to University any royalties or percentage of SUBLICENSE INCOME
that would have been due to University under the terms of this Agreement in
respect of such post-termination sales, if such termination had not occurred.
ARTICLE 7 - MISCELLANEOUS
7.1 All notices pertaining to this Agreement shall be in writing and sent
by certified mail, return receipt requested, or by a nationally recognized
overnight delivery service, to the parties at the following addresses or such
other address as such party shall have furnished in writing to the other party
in accordance with this Paragraph 7.1:
The Johns Hopkins University
Office of Technology Licensing
School of Medicine
2024 E. Monument St., Suite 2-100
Baltimore, MD 21205
Attention: Howard Califano, Esq.
Oncor, Inc.
209 Perry Parkway
Gaithersburg, MD 20877
Attention: Mr. Stephen Turner
All notices sent in accordance with this Section 7.1 shall be deemed
received three (3) days after deposit with the U.S. postal service if sent by
certified mail, and on the day after deposit with the delivery service, if sent
by overnight delivery service.
7.2 All written progress reports, royalty and other payments, and any
other related correspondence shall be in writing and sent to:
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The Johns Hopkins University
Office of Technology Licensing
School of Medicine
2024 E. Monument St., Suite 2-100
Baltimore, MD 21205
Attention: Howard Califano, Esq.
or such other addressee which University may designate in writing from time to
time. All checks should be made payable to The Johns Hopkins University.
7.3 This Agreement may be assigned by Company to an AFFILIATE COMPANY or
as part of a sale of its entire business relating to a LICENSED PRODUCT or
LICENSED PROCESS, provided Company remains liable for all obligations hereunder.
Company may also assign its rights and benefits under this Agreement if
University approves the assignment in writing, which approval shall not be
unreasonably withheld. In the event of such transfer, the transferee shall
assume and be bound by the provisions of this Agreement. It shall be deemed to
be reasonable if Company assigns to a responsible company and agrees to remain
responsible on an ongoing basis for performance by the assignee company. The
University may not assign this Agreement or any of the PATENT RIGHTS.
7.4 In the event that any one or more of the provisions of this Agreement
should for any reason be held by any court or authority having jurisdiction over
this Agreement, or over any of the parties hereto to be invalid, illegal or
unenforceable, such provision or provisions shall be reformed to approximate as
nearly as possible the intent of the parties, and if unreformable, shall be
divisible and deleted in such jurisdictions; elsewhere this Agreement shall not
be affected.
7.5 The construction, performance, and execution of this Agreement shall
be governed by the laws of the State of Maryland.
7.6 Company shall not use the name of The Johns Hopkins University or any
contraction thereof or the names of Drs. Alan Shuldiner, Jeremy Walston, Kristi
Silver or Jesse Roth in any advertising, promotional, or sales literature
without prior written consent from University, except as otherwise provided in
the CRA. University shall have at least seven (7) days for its review and
comment on a proposed piece of advertising, promotional or sales literature that
requires its consent pursuant to this Section 7.6.
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7.7 University warrants that it has good and marketable title to the
inventions claimed under PATENT RIGHTS existing as of the EFFECTIVE DATE, with
the exception of certain retained rights of the United States government.
University does not warrant the validity of any patents or that practice under
such patents shall be free of infringement. EXCEPT AS EXPRESSLY SET FORTH IN
PARAGRAPH 2.3 AND THIS PARAGRAPH 7.7, COMPANY, AFFILIATED COMPANY AND
SUBLICENSEES AGREE THAT THE PATENT RIGHTS AND RESEARCH INFORMATION ARE PROVIDED
"AS IS", AND THAT UNIVERSITY MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT TO
THE PERFORMANCE OF LICENSED PRODUCT AND LICENSED PROCESSES INCLUDING THEIR
SAFETY, EFFECTIVENESS, OR COMMERCIAL VIABILITY. UNIVERSITY DISCLAIMS ALL
WARRANTIES WITH REGARD TO PRODUCTS AND PROCESSES LICENSED UNDER THIS AGREEMENT,
INCLUDING, BUT NOT LIMITED TO, ALL WARRANTIES, EXPRESS OR IMPLIED, OR
MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE. NOTWITHSTANDING ANY
OTHER PROVISION OF THIS AGREEMENT, UNIVERSITY ADDITIONALLY DISCLAIMS ALL
OBLIGATIONS AND LIABILITIES ON THE PART OF UNIVERSITY FOR DAMAGES, INCLUDING,
BUT NOT LIMITED TO, DIRECT, INDIRECT, SPECIAL, AND CONSEQUENTIAL DAMAGES,
ATTORNEYS' AND EXPERTS' FEES, AND COURT COSTS (EVEN IF UNIVERSITY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, FEES OR COSTS), ARISING OUT OF OR IN
CONNECTION WITH THE MANUFACTURE, USE, OR SALE OF THE PRODUCTS AND PROCESSES
LICENSED UNDER THIS AGREEMENT. COMPANY, AFFILIATED COMPANY AND SUBLICENSEES
ASSUME ALL RESPONSIBILITY AND LIABILITY FOR LOSS OR DAMAGE CAUSED BY A PRODUCT
AND PROCESS MANUFACTURED, USED, OR SOLD BY COMPANY, ITS SUBLICENSEES AND
AFFILIATES WHICH IS A LICENSED PRODUCT OR LICENSED PROCESS AS DEFINED IN THIS
AGREEMENT.
7.8 University, Inventors and any other inventors of LICENSED PRODUCTS and
LICENSED PROCESSES will not, under the provisions of this Agreement or
otherwise, have control over the manner in which Company or AFFILIATED COMPANY
or its sublicensees or those operating for its account or third parties who
purchase LICENSED PRODUCTS and LICENSED PROCESSES from any of the foregoing
entities, practice the INVENTIONS and/or TECHNOLOGY RIGHTS of LICENSED PRODUCTS
and LICENSED PROCESSES. Subject to Paragraph 7.9, Company shall defend and hold
University, the Inventors, and any other inventors harmless as against any
judgments, fees, expenses, or other costs arising from or incidental to any
product liability or other lawsuit, claim, demand or other action brought as a
consequence of the practice of said inventions by any of the foregoing entities,
whether or not University or said inventor, either jointly or severally, is
named as a party defendant in any such lawsuit. Practice of the inventions
covered by LICENSED PRODUCTS and LICENSED PROCESSES from Company, shall be
considered Company's practice of said inventions for purposes of this Paragraph
7.8. The obligation of
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Company to defend and indemnify as set out in this Paragraph 7.8 shall survive
the termination of this Agreement.
7.9 University shall promptly notify Company in writing of any claim or
suit or threat thereof brought against University in respect of which
indemnification may be sought and, to the extent allowed by law, shall
reasonably cooperate with Company in defending or settling any such claim or
suit. No settlement of any claim, suit or threat thereof received by University
and for which University will seek indemnification, shall be made without the
prior written approval of Company. University will permit Company to defend
University against any such claim, suit or threat thereof and Company shall have
sole control over the defense, subject to University's right to select its own
counsel to review the matter for University at University's sole cost and
expense.
7.10 Commencing not later than the date of first commercial sale of a
LICENSED PRODUCT or LICENSED PROCESSES, Company shall use commercially
reasonable efforts to obtain and carry in full force and effect at a
commercially reasonable price product liability insurance against any claims,
judgments, liabilities and expenses for which it is obligated to indemnify
University under Paragraph 7.8 above, in such amounts and with such deductibles
and other limits as are determined reasonably necessary by mutual agreement of
the parties acting in good faith, in light of the availability of such insurance
and the custom at the customary time for similarly situated companies engaged in
similar business. University shall be named as an additional insured under any
such insurance policies.
7.11 This Agreement together with the STOCK PURCHASE AGREEMENT and the CRA
constitutes the entire understanding between the parties with respect to the
obligations of the parties with respect to the subject matter hereof, and
supersedes and replaces all prior agreements, understandings, writings, and
discussions between the parties relating to said subject matter.
7.12 This Agreement may be amended and any of its terms or conditions may
be waived only by a written instrument executed by the authorized officials of
the parties or, in the case of a waiver, by the party waiving compliance. The
failure of either party at any time or times to require performance of any
provision hereof shall in no manner affect its right at a later time to enforce
the same. No waiver by either party of any condition or term in any one or more
instances shall be construed as a further or continuing waiver of such condition
or term or of any other condition or term.
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7.13 This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the parties hereto and their respective successors and
permitted assigns.
7.14 Upon termination of this Agreement for any reason, Paragraphs 5.1,
5.3, 6.6, 6.8, 7.6, 7.7, 7.8 and 7.9 shall survive termination of this
Agreement.
IN WITNESS WHEREOF the parties hereto have executed this License
Agreement by their duly authorized officers as of the date first above written.
THE JOHNS HOPKINS UNIVERSITY ONCOR, INC.
BY: /s/ David A. Blake BY: /s/ Stephen Turner
---------------------------- ------------------------------
TITLE: Executive Vice Dean TITLE: CEO and Chairman
--------------------------- ---------------------------
I have read and agree to abide with the terms of this Agreement.
By /s/ Alan Shuldiner
-----------------------------
Dr. Alan Shuldiner
By /s/ Jeremy Walston
-----------------------------
Dr. Jeremy Walston
By /s/ Kristi Silver
-----------------------------
Dr. Kristi Silver
By /s/ Jesse Roth
-----------------------------
Dr. Jesse Roth
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Schedule 2.3
DNA amplification technologies may or may not be necessary for the development
and/or commercialization of certain LICENSED PRODUCTS and certain LICENSED
PROCESSES.
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APPENDIX D
ONCORPHARM LICENSE AGREEMENT
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LICENSE AGREEMENT
This License Agreement (the or this "Agreement" or "License"),
effective this 6th day of March, 1996, is between The Johns Hopkins University,
a corporation of the State of Maryland, having a principal place of business at
2024 East Monument Street, Suite 2-100, Baltimore, MD 21205 (hereinafter
referred to as "University") and Oncorpharm, Inc., a corporation, having a
principal place of business at 200 Perry Parkway, Gaithersburg, MD 20877
(hereinafter "Company").
WITNESSETH:
WHEREAS, University, the Company and the Company's parent, Oncor,
Inc. ("Oncor"), are concurrently herewith entering into that certain
Collaborative Research Agreement (the "CRA") pursuant to which the Company and
Oncor will fund certain clinical investigations and other studies by the
University related to the Trp64Arg Adrenergic Receptor Allele ("Trp64Arg
Allele");
WHEREAS, as a center for research and education, University is
interested in licensing PATENT RIGHTS and TECHNOLOGY RIGHTS (both hereinafter
defined) in a manner that will benefit the public by facilitating the
distribution of useful products and the utilization of new methods, but is
without capacity to commercially develop, manufacture, and distribute any such
products or methods; and
WHEREAS, PATENTS RIGHTS include*
WHEREAS, University has acquired through assignment all right, title
and interest, with the exception of certain retained rights by the United States
government, in all the PATENT RIGHTS and TECHNOLOGY RIGHTS existing at the date
hereof, including but not limited to, the rights of the Inventors; and
* CONFIDENTIAL TREATMENT REQUESTED
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WHEREAS, the University is interested in licensing any PATENT RIGHTS
and TECHNOLOGY RIGHTS that it may acquire in the future, including but not
limited to those of the Inventors, subject to any required retained rights of
the U.S. Government; and
WHEREAS, Company desires to commercially develop, manufacture, use
and distribute products and processes based on such PATENT RIGHTS and TECHNOLOGY
RIGHTS, throughout the world, for use as a prophylactic or therapeutic.
NOW, THEREFORE, in consideration of the foregoing premises and the
following mutual covenants, and other good and valuable consideration, the
receipt of which is hereby acknowledged, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 AFFILIATED COMPANY shall mean (a) any company owned or controlled to
the extent of at least fifty percent (50%) of its issued and voting capital by a
party to this Agreement and any other company so owned or controlled (directly
or indirectly) by any such company or the owner of any such company, or (b) any
partnership, joint venture or other entity directly or indirectly controlled by,
controlling, or under common control of, to the extent of fifty percent (50%) or
more of voting power (or otherwise having power to control its general
activities), a party to this Agreement, but in each case only for so long as
such ownership or control shall continue.
1.2 EFFECTIVE DATE shall mean the effective date of this Agreement, as
first above written.
1.3 EXCLUSIVE LICENSE shall mean a license to UNIVERSITY INVENTIONS and
TECHNOLOGY RIGHTS, and a license of University's right, title and interest in
and to JOINT INVENTIONS, whereby Company's rights are sole and entire and
operate to exclude all others, subject to rights retained by the United States
government in accordance with P.L. 96-517, as amended by P.L. 98-620, and
subject to the retained right of University (i) to make, have made, provide and
use for its and The Johns Hopkins University Health Systems' non-profit purposes
LICENSED PRODUCTS and LICENSED PROCESSES and (ii) to use, distribute and
disclose RESEARCH INFORMATION for non-profit purposes subject to compliance with
Article 4 of the CRA.
1.4 INVENTION(S) shall mean (i) the inventions described in the PATENT
APPLICATION or in any continuation, continuation-in-
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part, division or reissue of the PATENT APPLICATION or in any corresponding
foreign patent application, and (ii) any existing or future discovery or
invention first conceived or first actually reduced to practice in connection
with or relating to the performance of the RESEARCH PROJECT. For purposes of
this Agreement the determination of "first conceived" and "first actually
reduced to practice" shall be governed by U.S. law. INVENTION(S) shall include
discoveries and inventions which are not patentable or patented, including but
not limited to trade secrets, copyright material or other protectable
intellectual property. Without limiting the generality of the foregoing,
INVENTION(S) may include know-how procedures, technical information, any
process, composition, device, formula, protocol, technique, design, drawing
methodology, technical and scientific expertise and biological or chemical
materials.
1.5 JOINT INVENTION(S) shall mean any INVENTION first conceived or first
actually reduced to practice jointly by an employee of Company or Oncor and an
employee or student of University listed in Appendix B of the CRA, in connection
with the RESEARCH PROJECT.
1.6 LICENSED PROCESSES shall mean all methods which are covered by any
claim of one or more PATENT RIGHTS or based upon or derived from TECHNOLOGY
RIGHTS.
1.7 LICENSED PRODUCTS shall mean all products, the manufacture, use or
sale of which is covered by any claim of one or more PATENT RIGHTS or based upon
or derived from TECHNOLOGY RIGHTS.
1.8 LICENSOR shall mean University.
1.9 NET SALES shall mean gross sales revenues and fees actually received
by Company or AFFILIATED COMPANY from the sale of LICENSED PRODUCTS and/or
LICENSED PROCESSES less trade discounts allowed, refunds, returns and recalls,
sales, V.A.T. and/or use taxes, duties and similar governmental assessments and
transportation, packing and shipping insurance actually paid by the seller. In
the event that Company or AFFILIATED COMPANY sells a LICENSED PRODUCT in
combination with other active ingredients or components which are not LICENSED
PRODUCTS ("Other Items"), the NET SALES for purposes of royalty payments on the
combination shall be calculated as follows:
(a) If all LICENSED PRODUCTS and Other Items contained in the
combination are available separately, the NET SALES for purposes of royalty
payments will be calculated by multiplying the NET SALES of the combination by
the fraction A/A+B, where A
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is the separately available price of all LICENSED PRODUCTS in the combination,
and B is the separately available price for all Other Items in the combination.
(b) If the combination includes Other Items which are not sold
separately (but all LICENSED PRODUCTS contained in the combination are available
separately), the NET SALES for purposes of royalty payments will be calculated
by multiplying the NET SALES of the combination by A/C, where A is as defined
above and C is the invoiced price of the combination.
(c) If the LICENSED PRODUCTS contained in the combination are not
sold separately, the NET SALES for such combination shall be one half of the NET
SALES of such combination as defined in the first sentence of this Paragraph
1.9.
The term "Other Items" does not include solvents, diluents, carriers, excipients
or the like used in formulating a product.
1.10 ONCORPHARM FIELD shall mean use of the LICENSED PRODUCTS and LICENSED
PROCESSES as prophylactics and/or therapeutics.
1.11 OPTION AGREEMENT shall mean that certain Stock Option Agreement of
even date herewith, by and between the University and Oncorpharm, Inc.
1.12 ONCOR LICENSE shall mean that certain license agreement of even date
herewith between University and Oncor, relating to use of the LICENSED PRODUCTS
and LICENSED PROCESSES for all uses except prophylactic and therapeutic uses.
1.13 PATENT APPLICATION shall mean *
1.14 PATENT RIGHTS shall mean the following (a) the PATENT APPLICATION,
(b) any other existing or future U.S. patent application claiming either a
UNIVERSITY INVENTION or a JOINT INVENTION (hereinafter FUTURE APPLICATION), (c)
any invention disclosed and claimed in the PATENT APPLICATION or the FUTURE
APPLICATIONS and (d) all continuations, continuations-in-part, divisions,
reissues, reexaminations, extensions or other government actions which extend
any of the subject matter of the PATENT APPLICATION or the FUTURE APPLICATIONS,
and any
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corresponding foreign patent applications that may be filed in the future at
Company's request and expense and any patents, patents of addition, or other
equivalent foreign patent rights issuing, granted or registered on the PATENT
APPLICATION or the FUTURE APPLICATIONS.
1.15 RESEARCH INFORMATION shall mean data, information and results
included within the definition of INVENTION(S) that are obtained during the term
of the CRA from the RESEARCH PROJECT, including know-how, procedures,
methodology, technical and scientific expertise and biological or chemical
materials, but excluding any such items which are included in the definition of
PATENT RIGHTS.
1.16 RESEARCH PROJECT shall mean the collaborative research program
between University, Oncor and Company described and funded in accordance with
the CRA.
1.17 STOCK PURCHASE AGREEMENT shall mean that certain Stock Purchase
Agreement of even date herewith, by and among the Company and the University.
1.18 SUBLICENSE INCOME shall mean the gross amount actually received by
either the Company or an AFFILIATED COMPANY, directly or indirectly, for or on
account of sublicenses of any of the rights granted hereunder, without deduction
of any kind, but excluding the following, in relation to which no payments shall
be due to the University:
(a) Payments received by either the Company or an AFFILIATED COMPANY
for performance of research and development by either the Company or an
AFFILIATED COMPANY to the extent that such payments cover the actual cost of the
research and development work;
(b) Investments made by a sublicensee in either the Company or an
AFFILIATED COMPANY to the extent that such investments are made at current
market value, including but not limited to, any payments or other consideration
representing the current market value of shares in the Company or an AFFILIATED
COMPANY;
(c) Payments made to either the Company or an AFFILIATED COMPANY to
the extent that they cover the actual costs of conducting clinical testing and
other activities in connection with obtaining regulatory approval for a LICENSED
PRODUCT or LICENSED PROCESS;
(d) Reimbursed expenses of either the Company or an AFFILIATED
COMPANY.
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For purposes of Subparagraph (b) above, the current market value of the
investment shall determined as follows: (i) it shall be determined as at the
earlier of (a) the date when the investment is made or (b) the day prior to the
date when the investment is first publicly disclosed on the Dow Jones News Wire
(the "Determination Date") ; (ii) if there is no public market for the Company's
securities that are being purchased by the sublicensee, then the current market
value shall be determined by the Company's Board of Directors in good faith, and
if University disputes such determination, the current market value shall be
determined by an independent investment banker whose fees shall be shared by the
Company and the University; (iii) if there is a public market for Company's
securities that are being purchased by the sublicensee, then the current market
value shall be determined using the average of the closing bid and asked prices
of the securities in the Over-The-Counter Market Summary or the closing price
quoted on any exchange on which the securities are listed as published in The
Wall Street Journal for the ten (10) trading days prior to the Determination
Date. Notwithstanding the following, in the event the sublicensee is purchasing
the Company's securities in connection with the Company's initial public
offering of such securities, the current market value shall be determined using
the offering price of such securities to the public in the Company's initial
public offering.
1.19 TECHNOLOGY RIGHTS shall mean LICENSOR'S rights in any and all
technical information, know-how, process, procedure, composition, device,
method, formula, protocol, technique, software, design, drawing or data
developed in connection with the performance of the RESEARCH PROJECT defined
above, relating to LICENSED PRODUCTS or LICENSED PROCESSES, including but not
limited to INVENTIONS and/or RESEARCH INFORMATION which are not disclosed in a
patent application or patent, but which are necessary or useful for practicing
the rights granted under this License.
1.20 UNIVERSITY INVENTION(S) shall mean any INVENTION first conceived or
first actually reduced to practice solely by an employee or student of
University listed in Appendix B to the CRA, in connection with the RESEARCH
PROJECT, but not including JOINT INVENTIONS. Appendix B to the CRA shall be
updated from time to time to include all employees and students engaged in
research in the laboratories of Dr. Alan Shuldiner and/or Dr. Jeremy Walston, or
any other principal investigator under the CRA, and those employees and students
participating in the RESEARCH PROJECT.
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ARTICLE 2 - GRANTS
2.1 Subject to the terms and conditions of this Agreement, LICENSOR hereby
grants to Company an EXCLUSIVE LICENSE for the ONCORPHARM FIELD to make, have
made, use, have used and/or sell or have sold the LICENSED PRODUCTS and to use
the LICENSED PROCESSES in the United States and worldwide under the PATENT
RIGHTS and TECHNOLOGY RIGHTS and to sublicense such rights to others under the
PATENT RIGHTS and TECHNOLOGY RIGHTS.
2.2 Company shall provide a copy of each such sublicense agreement to
University promptly after it is executed, provided that Company may delete
portions it considers confidential in a manner which permits University to
obtain the information it requires. Each sublicense shall be consistent with the
terms in this Agreement.
2.3 Except for the rights, if any, of the Government of the United States,
as set forth in Paragraph 1.3 and except for any joint ownership of Company or
Oncor, University represents and warrants that to its knowledge as of the
EFFECTIVE DATE it is the owner of the entire right, title and interest in and to
PATENT RIGHTS resulting from UNIVERSITY INVENTIONS and University's entire
right, title and interest in and to PATENT RIGHTS resulting from JOINT
INVENTIONS, and that it has the sole right to grant licenses of its interests
thereunder, and that it has not granted licenses thereunder to any other entity
that would restrict rights granted hereunder except as stated herein. Except as
set forth in Schedule 2.3 attached hereto, University is not aware as of the
EFFECTIVE DATE that any additional rights or licenses are necessary for Company
to exercise its license rights (however, University has not performed nor was
required to perform, any right to use patent searches). However, the license
grant under Paragraph 2.1 hereof may be subject to rights granted to providers
of biological materials or other limitations as specified in Paragraph 5.6 of
the CRA.
ARTICLE 3 - PATENT INFRINGEMENT
3.1 Each party will notify the other promptly in writing when any
infringement by another of PATENT RIGHTS is uncovered.
3.2 (a) Company shall have the first right to enforce any patent within
PATENT RIGHTS against any infringement or alleged infringement thereof within
the ONCORPHARM FIELD, and shall at all times keep University informed as to the
status thereof. Company may, in its sole judgement and at its own expense,
institute suit against any such infringer or alleged infringer
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and control and defend such suit in a manner consistent with the terms and
provisions hereof and recover, for its account, any damages, awards or
settlements resulting therefrom, subject to Paragraph 3.2 (b); provided,
however, that no such suit shall be settled without the consent of HOPKINS,
which consent shall not be unreasonably withheld. This rights to sue for
infringement shall not be used in an arbitrary or capricious manner. University
shall reasonably cooperate in any such litigation at Company' 5 expense.
(b) Any recovery by Company under Paragraph 3.2(a), after deduction
of all reasonable costs and expenses associated with each suit or settlement
(the "Net Recovery"), shall be deemed to reflect loss of commercial sales, and
Company shall pay to University* of such Net Recovery. If the cost and expenses
exceed the recovery, then* of the excess shall be credited against royalties or
the percentage of SUBLICENSE INCOME payable by Company to University hereunder
in connection with sales in or SUBLICENSE INCOME from the country of such
legal proceedings, provided, however, that any such credit under this
Paragraph 3.2(b) shall not * of the royalties or the percentage of SUBLICENSE
INCOME otherwise payable to University with regard to sales in or SUBLICENSE
INCOME from the country of such legal proceedings in any one calendar year,
with any excess credit being carried forward to future calendar years.
3.3 If Company elects not to enforce any patent within the PATENT RIGHTS
within the ONCORPHARM FIELD, then it shall so notify University in writing
within six (6) months of receiving notice that an infringement exists, and
University may, in its sole judgement and at its own expense, do so and control,
settle, and defend such suit in a manner consistent with the terms and
provisions hereof, and recover, for its own account, any damages, awards or
settlements resulting therefrom.
ARTICLE 4 - PAYMENTS
4.1 Reasonable costs of preparing, filing, maintaining and prosecuting
PATENT RIGHTS shall be reimbursed to the University in accordance with the
provisions of Article 5 of the CRA.
4.2 Upon the execution of this Agreement by both parties and the
concurrent execution of the ONCOR LICENSE, the Company shall issue to
University options to purchase Thirty Two Thousand Five Hundred (32,500)
shares of the Common Stock of the Company, pursuant to the terms and
conditions of the OPTION AGREEMENT. The Company shall also pay to University,
within thirty (30) days
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of each anniversary of the EFFECTIVE DATE of this Agreement, commencing on the
first anniversary of the EFFECTIVE DATE, *.
4.3 Company shall also pay to LICENSOR as a running royalty, for each
LICENSED PRODUCT and LICENSED PROCESS sold by Company or any AFFILIATED COMPANY
of the Company:
(a) * where the LICENSED PRODUCTS or LICENSED PROCESSES are
covered by any claim of one or more PATENT RIGHTS during the time period in
which, and in the geographic locations in which such PATENT RIGHTS are
legally enforceable for the making, using or selling of the particular
LICENSED PRODUCT or LICENSED SERVICE; or
(b) * where the LICENSED PRODUCTS or LICENSED PROCESSES are not
covered by any claim of one or more PATENT RIGHTS as specified in Paragraph
4.3(a).
Such payments shall be made quarterly as provided in Paragraph 4.7.
4.4 The Company shall pay the University * of any SUBLICENSE INCOME
actually received by the Company or any AFFILIATED COMPANY from sublicensees
under this Agreement.
4.5 In the event that a percentage of sublicense income or royalties are
paid by the Company or any AFFILIATED COMPANY to an unaffiliated third party or
to University under a separate license agreement in respect of a LICENSED
PRODUCT or a LICENSED PROCESS ("Third Party Royalties") for which royalties are
also due to the University pursuant to Paragraph 4.3 above, then the royalties
to be paid to the University pursuant to Paragraph 4.3 above shall be reduced by
* of the aggregate amount of such Third Party Royalties, but in no event shall
the royalties due under Paragraph 4.3 be reduced by more than * in any year.
4.6 In the event that (i) a percentage of sublicense income or royalties
are paid by the Company or any AFFILIATED COMPANY to an unaffiliated third party
or to University under a separate license agreement in respect of a LICENSED
PRODUCT or a LICENSED PROCESS ("Third Party Royalties") for which a percentage
of SUBLICENSE INCOME is also due to the University pursuant to Paragraph 4.4,
and (ii) the LICENSED PRODUCT or LICENSED PROCESS causes or involves DNA repair,
then the percentage of SUBLICENSE INCOME to be paid to the University pursuant
to Paragraph 4.4 above shall be reduced by * of the aggregate amount of
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such Third Party Royalties, but in no event shall the percentage of
SUBLICENSE INCOME due under Paragraph 4.4 be reduced by more than * in any
year. In all other cases any percentage of SUBLICENSE INCOME due to
University pursuant to Paragraph 4.4 above shall be unaffected by this
Paragraph.
4.7 Company shall provide to University within thirty (30) days of the end
of each March, June, September and December after first commercial sale of a
LICENSED PRODUCT or LICENSED PROCESS a written report to University of the
amount of LICENSED PRODUCTS and LICENSED PROCESSES sold, the total NET SALES of
such LICENSED PRODUCTS and LICENSED PROCESSES or the SUBLICENSE INCOME received,
as applicable, and the running royalties due to University as a result of NET
SALES by Company or AFFILIATED COMPANY or the percentage and amount of
SUBLICENSE INCOME due to University, broken down by the categories specified in
Paragraphs 4.3 (a) and (b), and Paragraphs 4.4 and 1.18 above. Payment of any
such royalties or percentage of SUBLICENSE INCOME due shall accompany such
report.
4.8 Company shall make and retain, for a period of three (3) years
following the period of each report required by Paragraph 4.7, true and accurate
records, files and books of account containing all the data reasonably required
for the full computation and verification of sales and other information
required in Paragraph 4.7. Such books and records shall be in accordance with
generally accepted accounting principles consistently applied. Company shall
permit the inspection of such records, files and books of account by an
independent certified public accountant chosen by University and reasonably
acceptable to Company during regular business hours upon ten (10) business days'
written notice to Company, to the extent necessary to verify compliance with
this Agreement; provided such accountant shall hold any information gained as
confidential except to University as necessary to show underpayment. Such
inspection shall not be made more than once each calendar year. All costs of
such inspection and copying shall be paid by University, provided that if any
such inspection shall reveal that an error has been made in the amount equal to
ten percent (10%) or more of such payment, such costs shall be borne by Company.
4.9 All payments under this Agreement shall be made in U.S. Dollars. Only
one royalty or one payment of a percentage of SUBLICENSE INCOME shall be payable
on each unit of LICENSED PRODUCT or LICENSED PROCESS, calculated at the highest
applicable rate specified in Article 4 of this Agreement irrespective of the
number of patents within PATENT RIGHTS or the number of items of
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TECHNOLOGY RIGHTS whose claims would be infringed but for this License
Agreement.
ARTICLE 5 - PATENT RIGHTS
5.1 Each party shall have and retain sole and exclusive title to all
INVENTIONS and RESEARCH INFORMATION which are made, conceived, reduced to
practice or generated solely by its employees or agents arising in the course of
or as a result of the RESEARCH PROJECT. Each party shall own a fifty percent
(50%) undivided interest in all INVENTIONS and RESEARCH INFORMATION arising in
the course of or as a result of the RESEARCH PROJECT which are made, conceived,
reduced to practice or generated jointly by employees or agents of both parties.
Other matters relating to patents and patent applications included within PATENT
RIGHTS shall be governed by Article 5 of the CRA.
5.2 Company agrees that all packaging containing individual LICENSED
PRODUCTS sold by Company or AFFILIATED COMPANY will be marked with the number of
the applicable patent(s) licensed hereunder in accordance with each country's
patent laws, and will require its sublicensees to do likewise.
5.3 Except as otherwise specified in this Agreement, matters relating to
confidential information shall be governed by Article 4 of the CRA. The
obligations of this Paragraph 5.3 shall also apply to AFFILIATED COMPANIES
and/or sublicensees provided such information by Company. Obligations under this
Paragraph 5.3 shall extend for a period of five (5) years after the termination
of this Agreement.
ARTICLE 6 - TERM MILESTONES AND TERMINATION
6.1 This Agreement shall expire in each country on the date of expiration
of the last to expire patent included within PATENT RIGHTS in that country or,
if no patent ultimately issues in a given country, ten (10) years after the
first commercial sale of an FDA approved LICENSED PRODUCT or LICENSED PROCESS.
Upon expiration, Company will be entitled to fully exploit PATENT RIGHTS and
TECHNOLOGY RIGHTS without restriction or payment of royalties.
6.2 Company shall use reasonable efforts to carry out the following either
itself or through an AFFILIATED COMPANY or a sublicensee of Company:
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(a) undertake small molecule drug screening for therapeutics utilizing a
UNIVERSITY INVENTION or JOINT INVENTION * of the EFFECTIVE DATE;
(b) identify at least one lead compound for use as a therapeutic utilizing a
UNIVERSITY INVENTION or JOINT INVENTION * of the EFFECTIVE DATE;
(c) commence testing of at least one compound for use as a therapeutic
utilizing a UNIVERSITY INVENTION or JOINT INVENTION in an animal model * of
the EFFECTIVE DATE;
(d) begin Phase I clinical studies for at least one compound for use as a
therapeutic utilizing a UNIVERSITY INVENTION or JOINT INVENTION * of
the EFFECTIVE DATE;
(e) design a gene repair pharmaceutical utilizing a UNIVERSITY INVENTION or
JOINT INVENTION and commence testing of such gene repair pharmaceutical in cell
cultures * of the EFFECTIVE DATE;
(f) commence testing of at least one gene repair pharmaceutical utilizing a
UNIVERSITY INVENTION or JOINT INVENTION in a suitable animal model * of the
EFFECTIVE DATE;
(g) begin clinical trials of at least one gene repair pharmaceutical utilizing a
UNIVERSITY INVENTION or JOINT INVENTION * of the EFFECTIVE DATE; and
(h) effect the first lawful commercial sale of each LICENSED PRODUCT or LICENSED
PROCESS within the ONCORPHARM FIELD in each country licensed hereunder, as soon
as commercially practicable after such LICENSED PRODUCT or LICENSED PROCESS has
been approved by all necessary regulatory bodies in such country.
6.3 If any of the performance milestones set forth in Section 6.2 hereof
have not been achieved by either Company, an AFFILIATED COMPANY, or a
sublicensee of Company within the time frame specified for such milestone, and
such failure has been due to legitimate and unexpected impediments outside of
the reasonable control of the Company, then the parties shall renegotiate in
good faith as to the milestones, deadlines for completion of milestones and
direction of the RESEARCH PROJECT, as applicable. If the failure to achieve such
milestone is for any other reason University shall have the right to notify
Company of its intention to terminate the Company's licenses granted under
Article 2 hereof ("Warning Notice"). Upon receipt of a Warning Notice, Company
shall have the option of extending the deadline for completing the milestone
(the "Extension
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Option") by another six (6) months in consideration of a payment to
University of *. If Company, within ninety (90) days after receipt of the
Warning Notice from University, fails to exercise its Extension Option and
fails to reach agreement with University as to a plan to reach such
performance milestone or the waiver of such milestone, University shall have
the right to terminate the Company's licenses granted under Article 2 hereof
by submitting a notice of termination to the Company (the "Termination
Notice").
6.4 University agrees that in the discretion of Company commercialization
efforts may be directed first to industrialized nations of the world commencing
with the United States of America, and only subsequently to other regions as
reasonably and commercially practicable for Company given its strategies and
resources.
6.5 Company may terminate this Agreement at any time upon ninety (90) days
written notice to University.
6.6 Upon termination, Company, AFFILIATED COMPANY or sublicensee shall
return all information marked confidential first transferred to Company by
University. Company, AFFILIATED COMPANY or sublicensee shall maintain
confidential and not use any such information for a period of five (5) years
after termination of this Agreement.
6.7 Upon breach or default of any of the terms or conditions of this
Agreement, the defaulting party shall be given notice of such default in writing
and a period of ninety (90) days after receipt of such notice to correct the
breach or default. If (a) the default or breach (i) is material to this
Agreement, and (ii) is not corrected within said ninety (90) day period and the
defaulting party has not taken reasonable steps to cure the same, and (b) the
party not in default has fully complied with all of its obligations under this
Agreement, the party not in default shall have the right to terminate this
Agreement. For the avoidance of any doubt, the failure of Company to achieve any
of the performance milestones set forth in Section 6.2 hereof shall not be
deemed to be a breach or default entitling University to terminate in accordance
with this Section 6.7, but shall instead entitle University to exercise its
rights under Section 6.3 hereof.
6.8 Termination shall not affect either party's right to recover for
obligations accruing prior to the termination of this Agreement, including but
not limited to, unpaid royalties and reimbursement for Company approved patent
expenses. In the event that the parties mutually agree that Company may make
post-
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termination sales of LICENSED PRODUCTS or LICENSED PROCESSES, Company shall
continue to pay to University any royalties or percentage of SUBLICENSE INCOME
that would have been due to University under the terms of this Agreement in
respect of such post-termination sales, if such termination had not occurred.
ARTICLE 7 - MISCELLANEOUS
7.1 All notices pertaining to this Agreement shall be in writing and sent
by certified mail, return receipt requested, or by a nationally recognized
overnight delivery service, to the parties at the following addresses or such
other address as such party shall have furnished in writing to the other party
in accordance with this Paragraph 7.1:
The Johns Hopkins University
Office of Technology Licensing
School of Medicine
2024 E. Monument Street, Suite 2-100
Baltimore, MD 21205
Attention: Howard Califano, Esq.
Oncorpharm, Inc.
200 Perry Parkway
Gaithersburg, MD 20877
Attention: Dr. William Ryan
All notices sent in accordance with this Section 7.1 shall be deemed
received three (3) days after deposit with the U.S. postal service if sent by
certified mail, and on the day after deposit with the delivery service, if sent
by overnight delivery service.
7.2 All written progress reports, royalty and other payments, and any
other related correspondence shall be in writing and sent to:
The Johns Hopkins University
Office of Technology Licensing
School of Medicine
2024 E. Monument Street, Suite 2-100
Baltimore, MD 21205
Attention: Howard Califano, Esq.
or such other addressee which University may designate in writing from time to
time. All checks should be made payable to The Johns Hopkins University.
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7.3 This Agreement may be assigned by Company to an AFFILIATE COMPANY or
as part of a sale of its entire business relating to a LICENSED PRODUCT or
LICENSED PROCESS, provided Company remains liable for all obligations hereunder.
Company may also assign its rights and benefits under this Agreement if
University approves the assignment in writing, which approval shall not be
unreasonably withheld. In the event of such transfer, the transferee shall
assume and be bound by the provisions of this Agreement. It shall be deemed to
be reasonable if Company assigns to a responsible company and agrees to remain
responsible on an ongoing basis for performance by the assignee company. The
University may not assign this Agreement or any of the PATENT RIGHTS.
7.4 In the event that any one or more of the provisions of this Agreement
should for any reason be held by any court or authority having jurisdiction over
this Agreement, or over any of the parties hereto to be invalid, illegal or
unenforceable, such provision or provisions shall be reformed to approximate as
nearly as possible the intent of the parties and if unreformable, shall be
divisible and deleted in such jurisdictions; elsewhere this Agreement shall not
be affected.
7.5 The construction, performance, and execution of this Agreement shall
be governed by the laws of the State of Maryland.
7.6 Company shall not use the name of The Johns Hopkins University or any
contraction thereof or the names of Drs. Alan Shuldiner, Jeremy Walston, Kristi
Silver or Jesse Roth in any advertising, promotional, or sales literature
without prior written consent from University, except as otherwise provided in
the CRA. University shall have at least seven (7) days for its review and
comment on a proposed piece of advertising, promotional or sales literature that
requires its consent pursuant to this Section 7.6.
7.7 University warrants that it has good and marketable title to the
inventions claimed under PATENT RIGHTS existing as of the EFFECTIVE DATE, with
the exception of certain retained rights of the United States government.
University does not warrant the validity of any patents or that practice under
such patents shall be free of infringement. EXCEPT AS EXPRESSLY SET FORTH IN
PARAGRAPH 2.3 AND THIS PARAGRAPH 7.7, COMPANY, AFFILIATED COMPANY AND
SUBLICENSEES AGREE THAT THE PATENT RIGHTS AND RESEARCH INFORMATION ARE PROVIDED
"AS IS", AND THAT UNIVERSITY MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT TO
THE PERFORMANCE OF LICENSED PRODUCT AND LICENSED PROCESSES INCLUDING THEIR
SAFETY, EFFECTIVENESS, OR COMMERCIAL VIABILITY. UNIVERSITY DISCLAIMS ALL
WARRANTIES WITH REGARD TO PRODUCTS AND
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PROCESSES LICENSED UNDER THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, ALL
WARRANTIES, EXPRESS OR IMPLIED, OR MERCHANTABILITY AND FITNESS FOR ANY
PARTICULAR PURPOSE. NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT,
UNIVERSITY ADDITIONALLY DISCLAIMS ALL OBLIGATIONS AND LIABILITIES ON THE PART OF
UNIVERSITY FOR DAMAGES, INCLUDING, BUT NOT LIMITED TO, DIRECT, INDIRECT,
SPECIAL, AND CONSEQUENTIAL DAMAGES, ATTORNEYS' AND EXPERTS' FEES, AND COURT
COSTS (EVEN IF UNIVERSITY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES,
FEES OR COSTS), ARISING OUT OF OR IN CONNECTION WITH THE MANUFACTURE, USE, OR
SALE OF THE PRODUCTS AND PROCESSES LICENSED UNDER THIS AGREEMENT. COMPANY,
AFFILIATED COMPANY AND SUBLICENSEES ASSUME ALL RESPONSIBILITY AND LIABILITY FOR
LOSS OR DAMAGE CAUSED BY A PRODUCT AND PROCESS MANUFACTURED, USED, OR SOLD BY
COMPANY, ITS SUBLICENSEES AND AFFILIATES WHICH IS A LICENSED PRODUCT OR LICENSED
PROCESS AS DEFINED IN THIS AGREEMENT.
7.8 University, Inventors and any other inventors of LICENSED PRODUCTS and
LICENSED PROCESSES will not, under the provisions of this Agreement or
otherwise, have control over the manner in which Company or AFFILIATED COMPANY
or its sublicensees or those operating for its account or third parties who
purchase LICENSED PRODUCTS and LICENSED PROCESSES from any of the foregoing
entities, practice the INVENTIONS and/or TECHNOLOGY RIGHTS of LICENSED PRODUCTS
and LICENSED PROCESSES. Subject to Paragraph 7.9, Company shall defend and hold
University, the Inventors, and any other inventors harmless as against any
judgments, fees, expenses, or other costs arising from or incidental to any
product liability or other lawsuit, claim, demand or other action brought as a
consequence of the practice of said inventions by any of the foregoing entities,
whether or not University or said inventor, either jointly or severally, is
named as a party defendant in any such lawsuit. Practice of the inventions
covered by LICENSED PRODUCTS and LICENSED PROCESSES from Company, shall be
considered Company's practice of said inventions for purposes of this Paragraph
7.8. The obligation of Company to defend and indemnify as set out in this
Paragraph 7.8 shall survive the termination of this Agreement.
7.9 University shall promptly notify Company in writing of any claim or
suit or threat thereof brought against University in respect of which
indemnification may be sought and, to the extent allowed by law, shall
reasonably cooperate with Company in defending or settling any such claim or
suit. No settlement of any claim, suit or threat thereof received by University
and for which University will seek indemnification, shall be made without the
prior written approval of Company. University will permit Company to defend
University against any such claim, suit or threat thereof and Company shall have
sole control over the
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defense, subject to University's right to select its own counsel to review the
matter for University at University's sole cost and expense.
7.10 Commencing not later than the date of first commercial sale of a
LICENSED PRODUCT or LICENSED PROCESSES, Company shall use commercially
reasonable efforts to obtain and carry in full force and effect at a
commercially reasonable price product liability insurance against any claims,
judgments, liabilities and expenses for which it is obligated to indemnify
University under Paragraph 7.8 above, in such amounts and with such deductibles
and other limits as are determined reasonably necessary by mutual agreement of
the parties acting in good faith, in light of the availability of such insurance
and the custom at the customary time for similarly situated companies engaged in
similar business. University shall be named as an additional insured under any
such insurance policies.
7.11 This Agreement together with the STOCK PURCHASE AGREEMENT, the STOCK
OPTION AGREEMENT and the CRA constitutes the entire understanding between the
parties with respect to the obligations of the parties with respect to the
subject matter hereof, and supersedes and replaces all prior agreements,
understandings, writings, and discussions between the parties relating to said
subject matter.
7.12 This Agreement may be amended and any of its terms or conditions may
be waived only by a written instrument executed by the authorized officials of
the parties or, in the case of a waiver, by the party waiving compliance. The
failure of either party at any time or times to require performance of any
provision hereof shall in no manner affect its right at a later time to enforce
the same. No waiver by either party of any condition or term in any one or more
instances shall be construed as a further or continuing waiver of such condition
or term or of any other condition or term.
7.13 This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the parties hereto and their respective successors and
permitted assigns.
7.14 Upon termination of this Agreement for any reason, Paragraphs 5.1,
5.3, 6.6, 6.8, 7.6, 7.7, 7.8 and 7.9 shall survive termination of this
Agreement.
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IN WITNESS WHEREOF the parties hereto have executed this License
Agreement by their duly authorized officers as of the date first above written.
THE JOHNS HOPKINS UNIVERSITY ONCORPHARM, INC.
BY: /s/ David A. Blake BY: /s/ William A. Ryan, Jr.
------------------------------ ------------------------------
TITLE: Executive Vice Dean TITLE: President and CEO
---------------------------- ---------------------------
I have read and agree to abide with the terms of this Agreement.
By /s/ Alan Shuldiner
-----------------------------
Dr. Alan Shuldiner
By /s/ Jeremy Walston
-----------------------------
Dr. Jeremy Walston
By /s/ Kristi Silver
-----------------------------
Dr. Kristi Silver
By /s/ Jesse Roth
-----------------------------
Dr. Jesse Roth
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Schedule 2.3
1. Company has disclosed to University that Company already holds the
following licenses which may or may not be necessary for the development
and/or commercialization of certain LICENSED PRODUCTS and certain LICENSED
PROCESSES:
a. *
b. *
2. DNA amplification technologies may or may not be necessary for the
development and/or commercialization of certain LICENSED PRODUCTS and
certain LICENSED PROCESSES.
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* CONFIDENTIAL TREATMENT REQUESTED
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APPENDIX E
STANDARD MATERIAL TRANSFER AGREEMENT
FOR HOPKINS DEVELOPED BIOLOGICAL OR CHEMICAL
MATERIALS, TO BE TRANSFERRED FOR NOT-FOR-PROFIT PURPOSES
<PAGE>
Dear
Johns Hopkins University (JHU) agrees to provide you the material(s)
indicated below, which you requested from _______________________________ for
your nonclinical research studies. In order to protect JHU's ownership and
proprietary rights in the material(s) or its (their) progeny, portions, and
derivatives and modifications thereof (hereinafter "Materials"), we request that
you and an authorized official of your institution sign, date, and return this
letter agreement to us.
Material(s) identification:
Acceptance of the Material(s) by your institution confirms your agreement
to the following conditions:
1. This agreement and the resulting transfer of the Material(s)
constitute a personal, nonexclusive license to you to use the
Material(s) for nonprofit, nonclinical research purposes only. You
may only use the Materials in your institution's laboratories under
your supervision. The Material(s) will not be used in humans and
will be stored, used, and disposed of in accordance with applicable
law and regulations. The Material(s) will not be disclosed, provided
or used for any commercial purpose. This agreement is not assignable
and the Material(s) may not be transferred to another party. Except
for the foregoing license, JHU retains all right, title and interest
to the Materials, including but not limited to, all proprietary
rights.
2. Nothing in this Letter Agreement grants you (i) any rights under any
patents claiming the Material(s) or methods of their manufacture or
use or (ii) any rights to disclose, provide or use a Material(s) for
profit-making or commercial purposes. JHU shall have no obligation
to grant any license to you, and may grant exclusive or nonexclusive
licenses to others.
3. You are free to publish your work involving the Material(s). You
agree to provide JHU with a copy of any proposed publication which
contains results obtained from use of the Material(s) a reasonable
period of time before publication.
4. JHU makes no representations whatsoever as to the Material(s). They
are experimental in nature, may have hazardous properties, and are
provided WITHOUT WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED. JHU
MAKES NO REPRESENTATION OR WARRANTY THAT THE USE OF THE MATERIAL(S)
WILL NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY RIGHT.
5. EXCEPT TO THE EXTENT PROHIBITED BY LAW, YOU AND YOUR INSTITUTION
ASSUME ALL LIABILITY FOR DAMAGES WHICH MAY
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ARISE FROM YOUR OR YOUR INSTITUTION'S USE, STORAGE AND DISPOSAL OF
THE MATERIAL(S) OR ANY OTHER MATERIAL WHICH COULD NOT HAVE BEEN MADE
BUT FOR THE MATERIAL(S). JHU, ITS TRUSTEES, OFFICERS, EMPLOYEES,
AGENTS, AND ITS RESEARCH COLLABORATORS WILL NOT BE LIABLE UNDER ANY
CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY FOR ANY
DAMAGES, INCLUDING, WITHOUT LIMITATION, DIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES.
6. Except to the extent prohibited by law, you and your institution
agree to defend, indemnify, and hold harmless JHU, its trustees,
officers, employees, agents and research collaborators from any
loss, claim, damage, or liability, of any kind whatsoever, which may
arise from you or your institution's use, storage, or disposal of
the Material(s) or any other material that could not have been made
but for the Material(s), except to the extent such arise due to the
gross negligence of JHU.
7. You shall not use the name of THE JOHNS HOPKINS UNIVERSITY or THE
JOHNS HOPKINS HEALTH SYSTEM or any of its constituent parts, such as
the Johns Hopkins Hospital or any contraction thereof or the name of
its employees or research collaborators, in any advertising,
promotional, sales literature or fundraising documents without prior
written consent from an officer of JHU.
8. Upon completion of your research, termination of this Agreement, or
at JHU's request at any time, you will either destroy the
Material(s) or return them to JHU.
<PAGE>
To indicate you and your institution's agreement to these conditions, you
and an authorized official should sign and date this letter in the spaces
indicated below and return it to me. If you have any questions concerning this
agreement, you may call me at 410-955-4666.
Sincerely,
Howard W. Califano, Esq.
Assistant Dean and Director
Office of Technology Licensing
HWC:
Signature: _________________________________________
(Recipient Investigator Signature)
Name:
Title:
Date:
RECIPIENT INSTITUTION'S AUTHORIZED OFFICIAL
An Authorized Signature is that of an Institutional Official or Company Officer
specifically authorized to execute documents of this type on behalf of the
Institution.
Institution/Company: ________________________________
Signature:___________________________________________
Name:
Title:
Date:
<PAGE>
Exhibit 10.6
EXECUTION COPY
LICENSE AGREEMENT
This License Agreement (the or this "Agreement" or "License"),
effective this 6th day of March, 1996, is between The Johns Hopkins University,
a corporation of the State of Maryland, having a principal place of business at
2024 East Monument Street, Suite 2-100, Baltimore, MD 21205 (hereinafter
referred to as "University") and OncorPharm, Inc., a corporation, having a
principal place of business at 200 Perry Parkway, Gaithersburg, MD 20877
(hereinafter "Company").
WITNESSETH:
WHEREAS, University, the Company and the Company's parent, Oncor,
Inc. ("Oncor"), are concurrently herewith entering into that certain
Collaborative Research Agreement (the "CRA"), pursuant to which the Company and
Oncor will fund certain clinical investigations and other studies by the
University related to the Trp64Arg Adrenergic Receptor Allele ("Trp64Arg
Allele");
WHEREAS, as a center for research and education, University is
interested in licensing PATENT RIGHTS and TECHNOLOGY RIGHTS (both hereinafter
defined) in a manner that will benefit the public by facilitating the
distribution of useful products and the utilization of new methods, but is
without capacity to commercially develop, manufacture, and distribute any such
products or methods; and
WHEREAS, PATENTS RIGHTS include*
WHEREAS, University has acquired through assignment all right, title
and interest, with the exception of certain retained rights by the United States
government, in all the PATENT RIGHTS and TECHNOLOGY RIGHTS existing at the date
hereof, including but not limited to, the rights of the Inventors; and
* CONFIDENTIAL TREATMENT REQUESTED
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WHEREAS, the University is interested in licensing any PATENT RIGHTS
and TECHNOLOGY RIGHTS that it may acquire in the future, including but not
limited to those of the Inventors, subject to any required retained rights of
the U.S. Government; and
WHEREAS, Company desires to commercially develop, manufacture, use
and distribute products and processes based on such PATENT RIGHTS and TECHNOLOGY
RIGHTS, throughout the world, for use as a prophylactic or therapeutic.
NOW, THEREFORE, in consideration of the foregoing premises and the
following mutual covenants, and other good and valuable consideration, the
receipt of which is hereby acknowledged, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 AFFILIATED COMPANY shall mean (a) any company owned or controlled to
the extent of at least fifty percent (50%) of its issued and voting capital by a
party to this Agreement and any other company so owned or controlled (directly
or indirectly) by any such company or the owner of any such company, or (b) any
partnership, joint venture or other entity directly or indirectly controlled by,
controlling, or under common control of, to the extent of fifty percent (50%) or
more of voting power (or otherwise having power to control its general
activities), a party to this Agreement, but in each case only for so long as
such ownership or control shall continue.
1.2 EFFECTIVE DATE shall mean the effective date of this Agreement, as
first above written.
1.3 EXCLUSIVE LICENSE shall mean a license to UNIVERSITY INVENTIONS and
TECHNOLOGY RIGHTS, and a license of University's right, title and interest in
and to JOINT INVENTIONS, whereby Company's rights are sole and entire and
operate to exclude all others, subject to rights retained by the United States
government in accordance with P.L. 96-517, as amended by P.L. 98- 620, and
subject to the retained right of University (i) to make, have made, provide and
use for its and The Johns Hopkins University Health Systems' non-profit purposes
LICENSED PRODUCTS and LICENSED PROCESSES and (ii) to use, distribute and
disclose RESEARCH INFORMATION for non-profit purposes subject to compliance with
Article 4 of the CRA.
1.4 INVENTION(S) shall mean (i) the inventions described in
the PATENT APPLICATION or in any continuation, continuation-in-
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part, division or reissue of the PATENT APPLICATION or in any corresponding
foreign patent application, and (ii) any existing or future discovery or
invention first conceived or first actually reduced to practice in connection
with or relating to the performance of the RESEARCH PROJECT. For purposes of
this Agreement the determination of "first conceived" and "first actually
reduced to practice" shall be governed by U.S. law. INVENTION(S) shall include
discoveries and inventions which are not patentable or patented, including but
not limited to trade secrets, copyright material or other protectable
intellectual property. Without limiting the generality of the foregoing,
INVENTION(S) may include know-how procedures, technical information, any
process, composition, device, formula, protocol, technique, design, drawing
methodology, technical and scientific expertise and biological or chemical
materials.
1.5 JOINT INVENTION(S) shall mean any INVENTION first conceived or first
actually reduced to practice jointly by an employee of Company or Oncor and an
employee or student of University listed in Appendix B of the CRA, in connection
with the RESEARCH PROJECT.
1.6 LICENSED PROCESSES shall mean all methods which are covered by any
claim of one or more PATENT RIGHTS or based upon or derived from TECHNOLOGY
RIGHTS.
1.7 LICENSED PRODUCTS shall mean all products, the manufacture, use or
sale of which is covered by any claim of one or more PATENT RIGHTS or based upon
or derived from TECHNOLOGY RIGHTS.
1.8 LICENSOR shall mean University.
1.9 NET SALES shall mean gross sales revenues and fees actually received
by Company or AFFILIATED COMPANY from the sale of LICENSED PRODUCTS and/or
LICENSED PROCESSES less trade discounts allowed, refunds, returns and recalls,
sales, V.A.T. and/or use taxes, duties and similar governmental assessments and
transportation, packing and shipping insurance actually paid by the seller. In
the event that Company or AFFILIATED COMPANY sells a LICENSED PRODUCT in
combination with other active ingredients or components which are not LICENSED
PRODUCTS ("Other Items"), the NET SALES for purposes of royalty payments on the
combination shall be calculated as follows:
(a) If all LICENSED PRODUCTS and Other Items contained in the
combination are available separately, the NET SALES for purposes of royalty
payments will be calculated by multiplying the NET SALES of the combination by
the fraction A/A+B, where A
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is the separately available price of all LICENSED PRODUCTS in the combination,
and B is the separately available price for all Other Items in the combination.
(b) If the combination includes Other Items which are not sold
separately (but all LICENSED PRODUCTS contained in the combination are available
separately), the NET SALES for purposes of royalty payments will be calculated
by multiplying the NET SALES of the combination by A/C, where A is as defined
above and C is the invoiced price of the combination.
(c) If the LICENSED PRODUCTS contained in the combination are not
sold separately, the NET SALES for such combination shall be one half of the NET
SALES of such combination as defined in the first sentence of this Paragraph
1.9.
The term "Other Items" does not include solvents, diluents, carriers, excipients
or the like used in formulating a product.
1.10 ONCORPHARM FIELD shall mean use of the LICENSED PRODUCTS and LICENSED
PROCESSES as prophylactics and/or therapeutics.
1.11 OPTION AGREEMENT shall mean that certain Stock Option Agreement of
even date herewith, by and between the University and OncorPharm, Inc.
1.12 ONCOR LICENSE shall mean that certain license agreement of even date
herewith between University and Oncor, relating to use of the LICENSED PRODUCTS
and LICENSED PROCESSES for all uses except prophylactic and therapeutic uses.
1.13 PATENT APPLICATION shall mean*
1.14 PATENT RIGHTS shall mean the following (a) the PATENT APPLICATION,
(b) any other existing or future U.S. patent application claiming either a
UNIVERSITY INVENTION or a JOINT INVENTION (hereinafter FUTURE APPLICATION), (c)
any invention disclosed and claimed in the PATENT APPLICATION or the FUTURE
APPLICATIONS and (d) all continuations, continuations-in-part, divisions,
reissues, reexaminations, extensions or other government actions which extend
any of the subject matter of the PATENT APPLICATION or the FUTURE APPLICATIONS,
and any
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* CONFIDENTIAL TREATMENT REQUESTED
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corresponding foreign patent applications that may be filed in the future at
Company's request and expense and any patents, patents of addition, or other
equivalent foreign patent rights issuing, granted or registered on the PATENT
APPLICATION or the FUTURE APPLICATIONS.
1.15 RESEARCH INFORMATION shall mean data, information and results
included within the definition of INVENTION(S) that are obtained during the term
of the CRA from the RESEARCH PROJECT, including know-how, procedures,
methodology, technical and scientific expertise and biological or chemical
materials, but excluding any such items which are included in the definition of
PATENT RIGHTS.
1.16 RESEARCH PROJECT shall mean the collaborative research program
between University, Oncor and Company described and funded in accordance with
the CRA.
1.17 STOCK PURCHASE AGREEMENT shall mean that certain Stock Purchase
Agreement of even date herewith, by and among the Company and the University.
1.18 SUBLICENSE INCOME shall mean the gross amount actually received by
either the Company or an AFFILIATED COMPANY, directly or indirectly, for or on
account of sublicenses of any of the rights granted hereunder, without deduction
of any kind, but excluding the following, in relation to which no payments shall
be due to the University:
(a) Payments received by either the Company or an AFFILIATED COMPANY
for performance of research and development by either the Company or an
AFFILIATED COMPANY to the extent that such payments cover the actual cost of the
research and development work;
(b) Investments made by a sublicensee in either the Company or an
AFFILIATED COMPANY to the extent that such investments are made at current
market value, including but not limited to, any payments or other consideration
representing the current market value of shares in the Company or an AFFILIATED
COMPANY;
(c) Payments made to either the Company or an AFFILIATED COMPANY to
the extent that they cover the actual costs of conducting clinical testing and
other activities in connection with obtaining regulatory approval for a LICENSED
PRODUCT or LICENSED PROCESS;
(d) Reimbursed expenses of either the Company or an AFFILIATED
COMPANY.
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For purposes of Subparagraph (b) above, the current market value of the
investment shall determined as follows: (i) it shall be determined as at the
earlier of (a) the date when the investment is made or (b) the day prior to the
date when the investment is first publicly disclosed on the Dow Jones News Wire
(the "Determination Date"); (ii) if there is no public market for the Company's
securities that are being purchased by the sublicensee, then the current market
value shall be determined by the Company's Board of Directors in good faith, and
if University disputes such determination, the current market value shall be
determined by an independent investment banker whose fees shall be shared by the
Company and the University; (iii) if there is a public market for Company's
securities that are being purchased by the sublicensee, then the current market
value shall be determined using the average of the closing bid and asked prices
of the securities in the Over-The-Counter Market Summary or the closing price
quoted on any exchange on which the securities are listed as published in The
Wall Street Journal for the ten (10) trading days prior to the Determination
Date. Notwithstanding the following, in the event the sublicensee is purchasing
the Company's securities in connection with the Company's initial public
offering of such securities, the current market value shall be determined using
the offering price of such securities to the public in the Company's initial
public offering.
1.19 TECHNOLOGY RIGHTS shall mean LICENSOR'S rights in any and all
technical information, know-how, process, procedure, composition, device,
method, formula, protocol, technique, software, design, drawing or data
developed in connection with the performance of the RESEARCH PROJECT defined
above, relating to LICENSED PRODUCTS or LICENSED PROCESSES, including but not
limited to INVENTIONS and/or RESEARCH INFORMATION which are not disclosed in a
patent application or patent, but which are necessary or useful for practicing
the rights granted under this License.
1.20 UNIVERSITY INVENTION(S) shall mean any INVENTION first conceived or
first actually reduced to practice solely by an employee or student of
University listed in Appendix B to the CRA, in connection with the RESEARCH
PROJECT, but not including JOINT INVENTIONS. Appendix B to the CRA shall be
updated from time to time to include all employees and students engaged in
research in the laboratories of Dr. Alan Shuldiner and/or Dr. Jeremy Walston, or
any other principal investigator under the CRA, and those employees and students
participating in the RESEARCH PROJECT.
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ARTICLE 2 - GRANTS
2.1 Subject to the terms and conditions of this Agreement, LICENSOR hereby
grants to Company an EXCLUSIVE LICENSE for the ONCORPHARM FIELD to make, have
made, use, have used and/or sell or have sold the LICENSED PRODUCTS and to use
the LICENSED PROCESSES in the United States and worldwide under the PATENT
RIGHTS and TECHNOLOGY RIGHTS and to sublicense such rights to others under the
PATENT RIGHTS and TECHNOLOGY RIGHTS.
2.2 Company shall provide a copy of each such sublicense agreement to
University promptly after it is executed, provided that Company may delete
portions it considers confidential in a manner which permits University to
obtain the information it requires. Each sublicense shall be consistent with the
terms in this Agreement.
2.3 Except for the rights, if any, of the Government of the United States,
as set forth in Paragraph 1.3 and except for any joint ownership of Company or
Oncor, University represents and warrants that to its knowledge as of the
EFFECTIVE DATE it is the owner of the entire right, title and interest in and to
PATENT RIGHTS resulting from UNIVERSITY INVENTIONS and University's entire
right, title and interest in and to PATENT RIGHTS resulting from JOINT
INVENTIONS, and that it has the sole right to grant licenses of its interests
thereunder, and that it has not granted licenses thereunder to any other entity
that would restrict rights granted hereunder except as stated herein. Except as
set forth in Schedule 2.3 attached hereto, University is not aware as of the
EFFECTIVE DATE that any additional rights or licenses are necessary for Company
to exercise its license rights (however, University has not performed nor was
required to perform, any right to use patent searches). However, the license
grant under Paragraph 2.1 hereof may be subject to rights granted to providers
of biological materials or other limitations as specified in Paragraph 5.6 of
the CRA.
ARTICLE 3 - PATENT INFRINGEMENT
3.1 Each party will notify the other promptly in writing when any
infringement by another of PATENT RIGHTS is uncovered.
3.2 (a) Company shall have the first right to enforce any patent within
PATENT RIGHTS against any infringement or alleged infringement thereof within
the ONCORPHARM FIELD, and shall at all times keep University informed as to the
status thereof. Company may, in its sole judgement and at its own expense,
institute suit against any such infringer or alleged infringer
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and control and defend such suit in a manner consistent with the terms and
provisions hereof and recover, for its account, any damages, awards or
settlements resulting therefrom, subject to Paragraph 3.2 (b); provided,
however, that no such suit shall be settled without the consent of HOPKINS,
which consent shall not be unreasonably withheld. This rights to sue for
infringement shall not be used in an arbitrary or capricious manner. University
shall reasonably cooperate in any such litigation at Company's expense.
(b) Any recovery by Company under Paragraph 3.2(a), after deduction
of all reasonable costs and expenses associated with each suit or settlement
(the "Net Recovery"), shall be deemed to reflect loss of commercial sales,
and Company shall pay to University * of such Net Recovery. If the cost and
expenses exceed the recovery, then * of the excess shall be credited against
royalties or the percentage of SUBLICENSE INCOME payable by Company to
University hereunder in connection with sales in or SUBLICENSE INCOME from
the country of such legal proceedings, provided, however, that any such
credit under this Paragraph 3.2(b) shall not exceed * of the royalties or the
percentage of SUBLICENSE INCOME otherwise payable to University with regard
to sales in or SUBLICENSE INCOME from the country of such legal proceedings
in any one calendar year, with any excess credit being carried forward to
future calendar years.
3.3 If Company elects not to enforce any patent within the PATENT RIGHTS
within the ONCORPHARM FIELD, then it shall so notify University in writing
within six (6) months of receiving notice that an infringement exists, and
University may, in its sole judgement and at its own expense, do so and control,
settle, and defend such suit in a manner consistent with the terms and
provisions hereof, and recover, for its own account, any damages, awards or
settlements resulting therefrom.
ARTICLE 4 - PAYMENTS
4.1 Reasonable costs of preparing, filing, maintaining and prosecuting
PATENT RIGHTS shall be reimbursed to the University in accordance with the
provisions of Article 5 of the CRA.
4.2 Upon the execution of this Agreement by both parties and the
concurrent execution of the ONCOR LICENSE, the Company shall issue to University
options to purchase Thirty Two Thousand Five Hundred (32,500) shares of the
Common Stock of the Company, pursuant to the terms and conditions of the OPTION
AGREEMENT. The Company shall also pay to University, within thirty (30) days
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* CONFIDENTIAL TREATMENT REQUESTED
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of each anniversary of the EFFECTIVE DATE of this Agreement, commencing on the
first anniversary of the EFFECTIVE DATE, *
4.3 Company shall also pay to LICENSOR as a running royalty, for each
LICENSED PRODUCT and LICENSED PROCESS sold by Company or any AFFILIATED COMPANY
of the Company:
(a) * where the LICENSED PRODUCTS or LICENSED PROCESSES are covered
by any claim of one or more PATENT RIGHTS during the time period in which,
and in the geographic locations in which such PATENT RIGHTS are legally
enforceable for the making, using or selling of the particular LICENSED
PRODUCT or LICENSED SERVICE; or
(b) * where the LICENSED PRODUCTS or LICENSED PROCESSES are not
covered by any claim of one or more PATENT RIGHTS as specified in Paragraph
4.3(a).
Such payments shall be made quarterly as provided in Paragraph 4.7.
4.4 The Company shall pay the University * of any SUBLICENSE INCOME
actually received by the Company or any AFFILIATED COMPANY from sublicensees
under this Agreement.
4.5 In the event that a percentage of sublicense income or royalties are
paid by the Company or any AFFILIATED COMPANY to an unaffiliated third party or
to University under a separate license agreement in respect of a LICENSED
PRODUCT or a LICENSED PROCESS ("Third Party Royalties") for which royalties are
also due to the University pursuant to Paragraph 4.3 above, then the royalties
to be paid to the University pursuant to Paragraph 4.3 above shall be reduced by
* of the aggregate amount of such Third Party Royalties, but in no event shall
the royalties due under Paragraph 4.3 be reduced by more than * in any year.
4.6 In the event that (i) a percentage of sublicense income or royalties
are paid by the Company or any AFFILIATED COMPANY to an unaffiliated third party
or to University under a separate license agreement in respect of a LICENSED
PRODUCT or a LICENSED PROCESS ("Third Party Royalties") for which a percentage
of SUBLICENSE INCOME is also due to the University pursuant to Paragraph 4.4,
and (ii) the LICENSED PRODUCT or LICENSED PROCESS causes or involves DNA repair,
then the percentage of SUBLICENSE INCOME to be paid to the University pursuant
to Paragraph 4.4 above shall be reduced by * of the aggregate amount of
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* CONFIDENTIAL TREATMENT REQUESTED
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such Third Party Royalties, but in no event shall the percentage of
SUBLICENSE INCOME due under Paragraph 4.4 be reduced by more than * in any
year. In all other cases any percentage of SUBLICENSE INCOME due to
University pursuant to Paragraph 4.4 above shall be unaffected by this
Paragraph.
4.7 Company shall provide to University within thirty (30) days of the end
of each March, June, September and December after first commercial sale of a
LICENSED PRODUCT or LICENSED PROCESS a written report to University of the
amount of LICENSED PRODUCTS and LICENSED PROCESSES sold, the total NET SALES of
such LICENSED PRODUCTS and LICENSED PROCESSES or the SUBLICENSE INCOME received,
as applicable, and the running royalties due to University as a result of NET
SALES by Company or AFFILIATED COMPANY or the percentage and amount of
SUBLICENSE INCOME due to University, broken down by the categories specified in
Paragraphs 4.3 (a) and (b), and Paragraphs 4.4 and 1.18 above. Payment of any
such royalties or percentage of SUBLICENSE INCOME due shall accompany such
report.
4.8 Company shall make and retain, for a period of three (3) years
following the period of each report required by Paragraph 4.7, true and accurate
records, files and books of account containing all the data reasonably required
for the full computation and verification of sales and other information
required in Paragraph 4.7. Such books and records shall be in accordance with
generally accepted accounting principles consistently applied. Company shall
permit the inspection of such records, files and books of account by an
independent certified public accountant chosen by University and reasonably
acceptable to Company during regular business hours upon ten (10) business days'
written notice to Company, to the extent necessary to verify compliance with
this Agreement; provided such accountant shall hold any information gained as
confidential except to University as necessary to show underpayment. Such
inspection shall not be made more than once each calendar year. All costs of
such inspection and copying shall be paid by University, provided that if any
such inspection shall reveal that an error has been made in the amount equal to
ten percent (10%) or more of such payment, such costs shall be borne by Company.
4.9 All payments under this Agreement shall be made in U.S. Dollars. Only
one royalty or one payment of a percentage of SUBLICENSE INCOME shall be payable
on each unit of LICENSED PRODUCT or LICENSED PROCESS, calculated at the highest
applicable rate specified in Article 4 of this Agreement irrespective of the
number of patents within PATENT RIGHTS or the number of items of
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TECHNOLOGY RIGHTS whose claims would be infringed but for this License
Agreement.
ARTICLE 5 - PATENT RIGHTS
5.1 Each party shall have and retain sole and exclusive title to all
INVENTIONS and RESEARCH INFORMATION which are made, conceived, reduced to
practice or generated solely by its employees or agents arising in the course of
or as a result of the RESEARCH PROJECT. Each party shall own a fifty percent
(50%) undivided interest in all INVENTIONS and RESEARCH INFORMATION arising in
the course of or as a result of the RESEARCH PROJECT which are made, conceived,
reduced to practice or generated jointly by employees or agents of both parties.
Other matters relating to patents and patent applications included within PATENT
RIGHTS shall be governed by Article 5 of the CRA.
5.2 Company agrees that all packaging containing individual LICENSED
PRODUCTS sold by Company or AFFILIATED COMPANY will be marked with the number of
the applicable patent(s) licensed hereunder in accordance with each country's
patent laws, and will require its sublicensees to do likewise.
5.3 Except as otherwise specified in this Agreement, matters relating to
confidential information shall be governed by Article 4 of the CRA. The
obligations of this Paragraph 5.3 shall also apply to AFFILIATED COMPANIES
and/or sublicensees provided such information by Company. Obligations under this
Paragraph 5.3 shall extend for a period of five (5) years after the termination
of this Agreement.
ARTICLE 6 - TERM, MILESTONES AND TERMINATION
6.1 This Agreement shall expire in each country on the date of expiration
of the last to expire patent included within PATENT RIGHTS in that country or,
if no patent ultimately issues in a given country, ten (10) years after the
first commercial sale of an FDA approved LICENSED PRODUCT or LICENSED PROCESS.
Upon expiration, Company will be entitled to fully exploit PATENT RIGHTS and
TECHNOLOGY RIGHTS without restriction or payment of royalties.
6.2 Company shall use reasonable efforts to carry out the following either
itself or through an AFFILIATED COMPANY or a sublicensee of Company:
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(a) undertake small molecule drug screening for therapeutics utilizing a
UNIVERSITY INVENTION or JOINT INVENTION * of the EFFECTIVE DATE;
(b) identify at least one lead compound for use as a therapeutic utilizing a
UNIVERSITY INVENTION or JOINT INVENTION * of the EFFECTIVE DATE;
(c) commence testing of at least one compound for use as a therapeutic utilizing
a UNIVERSITY INVENTION or JOINT INVENTION in an animal model * of the
EFFECTIVE DATE;
(d) begin Phase I clinical studies for at least one compound for use as a
therapeutic utilizing a UNIVERSITY INVENTION or JOINT INVENTION * of the
EFFECTIVE DATE;
(e) design a gene repair pharmaceutical utilizing a UNIVERSITY INVENTION or
JOINT INVENTION and commence testing of such gene repair pharmaceutical in cell
cultures * of the EFFECTIVE DATE;
(f) commence testing of at least one gene repair pharmaceutical utilizing a
UNIVERSITY INVENTION or JOINT INVENTION in a suitable animal model * of the
EFFECTIVE DATE;
(g) begin clinical trials of at least one gene repair pharmaceutical utilizing a
UNIVERSITY INVENTION or JOINT INVENTION * of the EFFECTIVE DATE; and
(h) effect the first lawful commercial sale of each LICENSED PRODUCT or LICENSED
PROCESS within the ONCORPHARM FIELD in each country licensed hereunder, as soon
as commercially practicable after such LICENSED PRODUCT or LICENSED PROCESS has
been approved by all necessary regulatory bodies in such country.
6.3 If any of the performance milestones set forth in Section 6.2 hereof
have not been achieved by either Company, an AFFILIATED COMPANY, or a
sublicensee of Company within the time frame specified for such milestone, and
such failure has been due to legitimate and unexpected impediments outside of
the reasonable control of the Company, then the parties shall renegotiate in
good faith as to the milestones, deadlines for completion of milestones and
direction of the RESEARCH PROJECT, as applicable. If the failure to achieve such
milestone is for any other reason University shall have the right to notify
Company of its intention to terminate the Company's licenses granted under
Article 2 hereof ("Warning Notice"). Upon receipt of a Warning Notice, Company
shall have the option of extending the deadline for completing the milestone
(the "Extension
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Option") by another six (6) months in consideration of a payment to
University of *. If Company, within ninety (90) days after receipt of the
Warning Notice from University, fails to exercise its Extension Option and
fails to reach agreement with University as to a plan to reach such
performance milestone or the waiver of such milestone, University shall have
the right to terminate the Company's licenses granted under Article 2 hereof
by submitting a notice of termination to the Company (the "Termination
Notice").
6.4 University agrees that in the discretion of Company commercialization
efforts may be directed first to industrialized nations of the world commencing
with the United States of America, and only subsequently to other regions as
reasonably and commercially practicable for Company given its strategies and
resources.
6.5 Company may terminate this Agreement at any time upon ninety (90) days
written notice to University.
6.6 Upon termination, Company, AFFILIATED COMPANY or sublicensee shall
return all information marked confidential first transferred to Company by
University. Company, AFFILIATED COMPANY or sublicensee shall maintain
confidential and not use any such information for a period of five (5) years
after termination of this Agreement.
6.7 Upon breach or default of any of the terms or conditions of this
Agreement, the defaulting party shall be given notice of such default in writing
and a period of ninety (90) days after receipt of such notice to correct the
breach or default. If (a) the default or breach (i) is material to this
Agreement, and (ii) is not corrected within said ninety (90) day period and the
defaulting party has not taken reasonable steps to cure the same, and (b) the
party not in default has fully complied with all of its obligations under this
Agreement, the party not in default shall have the right to terminate this
Agreement. For the avoidance of any doubt, the failure of Company to achieve any
of the performance milestones set forth in Section 6.2 hereof shall not be
deemed to be a breach or default entitling University to terminate in accordance
with this Section 6.7, but shall instead entitle University to exercise its
rights under Section 6.3 hereof.
6.8 Termination shall not affect either party's right to recover for
obligations accruing prior to the termination of this Agreement, including but
not limited to, unpaid royalties and reimbursement for Company approved patent
expenses. In the event that the parties mutually agree that Company may make
post-
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termination sales of LICENSED PRODUCTS or LICENSED PROCESSES, Company shall
continue to pay to University any royalties or percentage of SUBLICENSE INCOME
that would have been due to University under the terms of this Agreement in
respect of such post-termination sales, if such termination had not occurred.
ARTICLE 7 - MISCELLANEOUS
7.1 All notices pertaining to this Agreement shall be in writing and sent
by certified mail, return receipt requested, or by a nationally recognized
overnight delivery service, to the parties at the following addresses or such
other address as such party shall have furnished in writing to the other party
in accordance with this Paragraph 7.1:
The Johns Hopkins University
Office of Technology Licensing
School of Medicine
2024 E. Monument Street, Suite 2-100
Baltimore, MD 21205
Attention: Howard Califano, Esq.
OncorPharm, Inc.
200 Perry Parkway
Gaithersburg, MD 20877
Attention: Dr. William Ryan
All notices sent in accordance with this Section 7.1 shall be deemed
received three (3) days after deposit with the U.S. postal service if sent by
certified mail, and on the day after deposit with the delivery service, if sent
by overnight delivery service.
7.2 All written progress reports, royalty and other payments, and any
other related correspondence shall be in writing and sent to:
The Johns Hopkins University
Office of Technology Licensing
School of Medicine
2024 E. Monument Street, Suite 2-100
Baltimore, MD 21205
Attention: Howard Califano, Esq.
or such other addressee which University may designate in writing from time to
time. All checks should be made payable to The Johns Hopkins University.
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7.3 This Agreement may be assigned by Company to an AFFILIATE COMPANY or
as part of a sale of its entire business relating to a LICENSED PRODUCT or
LICENSED PROCESS, provided Company remains liable for all obligations hereunder.
Company may also assign its rights and benefits under this Agreement if
University approves the assignment in writing, which approval shall not be
unreasonably withheld. In the event of such transfer, the transferee shall
assume and be bound by the provisions of this Agreement. It shall be deemed to
be reasonable if Company assigns to a responsible company and agrees to remain
responsible on an ongoing basis for performance by the assignee company. The
University may not assign this Agreement or any of the PATENT RIGHTS.
7.4 In the event that any one or more of the provisions of this Agreement
should for any reason be held by any court or authority having jurisdiction over
this Agreement, or over any of the parties hereto to be invalid, illegal or
unenforceable, such provision or provisions shall be reformed to approximate as
nearly as possible the intent of the parties, and if unreformable, shall be
divisible and deleted in such jurisdictions; elsewhere this Agreement shall not
be affected.
7.5 The construction, performance, and execution of this Agreement shall
be governed by the laws of the State of Maryland.
7.6 Company shall not use the name of The Johns Hopkins University or any
contraction thereof or the names of Drs. Alan Shuldiner, Jeremy Walston, Kristi
Silver or Jesse Roth in any advertising, promotional, or sales literature
without prior written consent from University, except as otherwise provided in
the CRA. University shall have at least seven (7) days for its review and
comment on a proposed piece of advertising, promotional or sales literature that
requires its consent pursuant to this Section 7.6.
7.7 University warrants that it has good and marketable title to the
inventions claimed under PATENT RIGHTS existing as of the EFFECTIVE DATE, with
the exception of certain retained rights of the United States government.
University does not warrant the validity of any patents or that practice under
such patents shall be free of infringement. EXCEPT AS EXPRESSLY SET FORTH IN
PARAGRAPH 2.3 AND THIS PARAGRAPH 7.7, COMPANY, AFFILIATED COMPANY AND
SUBLICENSEES AGREE THAT THE PATENT RIGHTS AND RESEARCH INFORMATION ARE PROVIDED
"AS IS", AND THAT UNIVERSITY MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT TO
THE PERFORMANCE OF LICENSED PRODUCT AND LICENSED PROCESSES INCLUDING THEIR
SAFETY, EFFECTIVENESS, OR COMMERCIAL VIABILITY. UNIVERSITY DISCLAIMS ALL
WARRANTIES WITH REGARD TO PRODUCTS AND
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PROCESSES LICENSED UNDER THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, ALL
WARRANTIES, EXPRESS OR IMPLIED, OR MERCHANTABILITY AND FITNESS FOR ANY
PARTICULAR PURPOSE. NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT,
UNIVERSITY ADDITIONALLY DISCLAIMS ALL OBLIGATIONS AND LIABILITIES ON THE PART OF
UNIVERSITY FOR DAMAGES, INCLUDING, BUT NOT LIMITED TO, DIRECT, INDIRECT,
SPECIAL, AND CONSEQUENTIAL DAMAGES, ATTORNEYS' AND EXPERTS' FEES, AND COURT
COSTS (EVEN IF UNIVERSITY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES,
FEES OR COSTS), ARISING OUT OF OR IN CONNECTION WITH THE MANUFACTURE, USE, OR
SALE OF THE PRODUCTS AND PROCESSES LICENSED UNDER THIS AGREEMENT. COMPANY,
AFFILIATED COMPANY AND SUBLICENSEES ASSUME ALL RESPONSIBILITY AND LIABILITY FOR
LOSS OR DAMAGE CAUSED BY A PRODUCT AND PROCESS MANUFACTURED, USED, OR SOLD BY
COMPANY, ITS SUBLICENSEES AND AFFILIATES WHICH IS A LICENSED PRODUCT OR LICENSED
PROCESS AS DEFINED IN THIS AGREEMENT.
7.8 University, Inventors and any other inventors of LICENSED PRODUCTS and
LICENSED PROCESSES will not, under the provisions of this Agreement or
otherwise, have control over the manner in which Company or AFFILIATED COMPANY
or its sublicensees or those operating for its account or third parties who
purchase LICENSED PRODUCTS and LICENSED PROCESSES from any of the foregoing
entities, practice the INVENTIONS and/or TECHNOLOGY RIGHTS of LICENSED PRODUCTS
and LICENSED PROCESSES. Subject to Paragraph 7.9, Company shall defend and hold
University, the Inventors, and any other inventors harmless as against any
judgments, fees, expenses, or other costs arising from or incidental to any
product liability or other lawsuit, claim, demand or other action brought as a
consequence of the practice of said inventions by any of the foregoing entities,
whether or not University or said inventor, either jointly or severally, is
named as a party defendant in any such lawsuit. Practice of the inventions
covered by LICENSED PRODUCTS and LICENSED PROCESSES from Company, shall be
considered Company's practice of said inventions for purposes of this Paragraph
7.8. The obligation of Company to defend and indemnify as set out in this
Paragraph 7.8 shall survive the termination of this Agreement.
7.9 University shall promptly notify Company in writing of any claim or
suit or threat thereof brought against University in respect of which
indemnification may be sought and, to the extent allowed by law, shall
reasonably cooperate with Company in defending or settling any such claim or
suit. No settlement of any claim, suit or threat thereof received by University
and for which University will seek indemnification, shall be made without the
prior written approval of Company. University will permit Company to defend
University against any such claim, suit or threat thereof and Company shall have
sole control over the
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defense, subject to University's right to select its own counsel to review the
matter for University at University's sole cost and expense.
7.10 Commencing not later than the date of first commercial sale of a
LICENSED PRODUCT or LICENSED PROCESSES, Company shall use commercially
reasonable efforts to obtain and carry in full force and effect at a
commercially reasonable price product liability insurance against any claims,
judgments, liabilities and expenses for which it is obligated to indemnify
University under Paragraph 7.8 above, in such amounts and with such deductibles
and other limits as are determined reasonably necessary by mutual agreement of
the parties acting in good faith, in light of the availability of such insurance
and the custom at the customary time for similarly situated companies engaged in
similar business. University shall be named as an additional insured under any
such insurance policies.
7.11 This Agreement together with the STOCK PURCHASE AGREEMENT, the STOCK
OPTION AGREEMENT and the CRA constitutes the entire understanding between the
parties with respect to the obligations of the parties with respect to the
subject matter hereof, and supersedes and replaces all prior agreements,
understandings, writings, and discussions between the parties relating to said
subject matter.
7.12 This Agreement may be amended and any of its terms or conditions may
be waived only by a written instrument executed by the authorized officials of
the parties or, in the case of a waiver, by the party waiving compliance. The
failure of either party at any time or times to require performance of any
provision hereof shall in no manner affect its right at a later time to enforce
the same. No waiver by either party of any condition or term in any one or more
instances shall be construed as a further or continuing waiver of such condition
or term or of any other condition or term.
7.13 This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the parties hereto and their respective successors and
permitted assigns.
7.14 Upon termination of this Agreement for any reason, Paragraphs 5.1,
5.3, 6.6, 6.8, 7.6, 7.7, 7.8 and 7.9 shall survive termination of this
Agreement.
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IN WITNESS WHEREOF the parties hereto have executed this License
Agreement by their duly authorized officers as of the date first above written.
THE JOHNS HOPKINS UNIVERSITY ONCORPHARM, INC.
By /s/ David A. Blake By /s/ William A. Ryan, Jr.
-------------------------- --------------------------
Title Executive Vice Dean Title President and CEO
----------------------- -----------------------
I have read and agree to abide with the terms of this Agreement.
By /s/ Alan Shuldiner
------------------------
Dr. Alan Shuldiner
By /s/ Jeremy Walston
------------------------
Dr. Jeremy Walston
By /s/ Kristi Silver
------------------------
Dr. Kristi Silver
By /s/ Jesse Roth
------------------------
Dr. Jesse Roth
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Schedule 2.3
1. Company has disclosed to University that Company already holds the
following licenses which may or may not be necessary for the development
and/or commercialization of certain LICENSED PRODUCTS and certain LICENSED
PROCESSES:
a. *
b. *
2. DNA amplification technologies may or may not be necessary for the
development and/or commercialization of certain LICENSED PRODUCTS and
certain LICENSED PROCESSES.
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Exhibit 10.7
bing51RESEARCH AGREEMENT
RESEARCH AGREEMENT effective the 1st day of January, 1995 by and between
YALE UNIVERSITY, a non-profit corporation organized and existing under and by
virtue of a special charter granted by the General Assembly of the Colony and
State of Connecticut (the "University") and ONCORPHARM, INC., a Delaware
corporation having its principal offices at 209 Perry Parkway, Gaithersburg,
Maryland 20877 (the "Sponsor").
W I T N E S S E T H :
WHEREAS, in pursuit of its educational purposes, which include research
and training, the University undertakes scholarly, research, and experimental
activities in a variety of academic disciplines including the field of
Oligonucleotide Mediated Gene Therapy; and
WHEREAS, the Sponsor wishes to fund and desires that the University
undertake a research program in the above-named field as described more fully in
Exhibit A, attached hereto; and
WHEREAS, in furtherance of its scholarly, research, and instructional
interests, the University is willing to undertake such research upon the terms
and conditions set forth below;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
1. Scope of Research. During the term of this Agreement, the University
shall use its best efforts to perform the research program described in Exhibit
A, attached hereto and which hereby is incorporated herein (the "Research").
Notwithstanding the foregoing, the University makes no warranties or
representations regarding its ability to achieve, nor shall it be bound hereby
to accomplish, any particular research objective or results.
2. Personnel.
(a) The Research shall be performed by and under the supervision and
direction of Peter M. Glazer, while employed by the University, who shall be
designated the principal investigator, together with such additional personnel
as may be assigned by the University.
<PAGE>
(b) The University has disclosed to Sponsor any existing activities,
projects or agreements where Peter Glazer is the Principal Investigator. It is
understood that the University and the personnel performing the Research
hereunder may be or become involved in other activities and projects in the
future which may entail commitments to other sponsors. However, the University
will use its best efforts to avoid any conflicts between the terms of this
Agreement and any commitments to other sponsors. In the event that a potential
or actual conflict arises between the terms of this Agreement and any
commitments to other Sponsors, the University shall give written notice thereof
to Sponsor, as soon as practicable after the University receives notice of the
potential or actual conflict.
3. University Policies and Procedures. All Research conducted hereunder
shall be performed in accordance with established University policies and
procedures, including, but not limited to, policies and procedures applicable to
research involving human subjects, laboratory animals, and hazardous agents and
materials.
4. Reimbursement of Costs.
(a) The Sponsor shall reimburse the University for all direct and indirect
costs incurred by the University in connection with the Research, in accordance
with the budget set forth as Exhibit B, attached hereto and which hereby is
incorporated herein; provided, however, that the University and the Sponsor may
at any time amend Exhibit B by mutual agreement.
(b) The Sponsor shall make quarterly advance payments to the University to
fund reimbursable costs hereunder according to the budget set forth on Exhibit B
attached hereto.
(c) An accounting of actual costs incurred in accordance with Article 4(a)
shall be furnished to Sponsor within 90 days after the end of each year during
the term of this Agreement. All checks shall be made payable to Yale University,
shall include reference to the Principal Investigator, and shall be sent to:
Cashier
P.O. Box 208231 Yale Station
New Haven, Connecticut 06520-8231
5. Research Reports. The University shall furnish to Sponsor during the
term of this Agreement periodic informal reports regarding the progress of the
Research. A final report setting forth the significant research findings shall
be prepared by the University and submitted to Sponsor within a reasonable
period following the expiration of the term of this Agreement or the effective
date of early termination.
<PAGE>
6. Publication. In order to avoid the loss of valuable patent rights in
those countries where any disclosure of an invention by publication or otherwise
is a bar to patentability, the University agrees to use its best efforts to
assure that the principal investigator and other University employees and/or
students delay the dissemination or publication of any information developed in
the course of performance of the Research until forty-five (45) days after the
Sponsor has been furnished the full text of any proposed dissemination or
publication. If the Sponsor determines that such dissemination or publication
would jeopardize patent rights granted to Sponsor under this Agreement, the
Sponsor shall notify the University in writing within the forty-five (45) day
period and may elect in such notice to delay the proposed publication for a
further brief period, not to exceed forty-five (45) days, in order to protect
potential patent rights of any invention described therein.
7. Confidential Information. Subject to the following exceptions all
confidential information of the Sponsor disclosed by it to the University in
connection with the Research hereunder and identified in writing by the Sponsor
as confidential will be treated by the University as confidential and will not
be disclosed by anyone and will only be used for the purpose of the Research by
the principal investigator and other personnel who are assigned to perform the
Research, throughout the term hereof and a period of three (3) years from the
date of termination of this Agreement. The University will use reasonable
efforts to safeguard the confidentiality of such confidential information
furnished by the Sponsor hereunder, and will identify such restriction to its
employees, students and associates assigned to the Research, unless the
University can evidence any of the following:
(a) the information is in the public domain or subsequently enters the
public domain through no fault of the University;
(b) the information is presently known or becomes known to the University
from its own independent sources;
(c) the information has been received by the University from a third party
not under any obligation to keep such information confidential;
(d) the information is required to be disclosed by law;
(e) the information has been developed independently at University by
persons who had no direct or indirect access to the information provided by
Sponsor.
<PAGE>
8. Patents.
(a) The University shall be entitled to ownership of any invention or
know-how first conceived or discovered solely by the University's employee(s).
To the extent that it has the legal right to do so and in the event that Sponsor
does not already hold a license to such invention or know-how under the terms of
that certain License Agreement between the University and Sponsor dated January
__, 1995, the University shall grant the Sponsor an option to an exclusive
worldwide license to any and all such inventions or know-how made only in the
field of Research and solely owned by the University, on such reasonable terms
and conditions, including reasonable royalties, as the parties may mutually
agree upon in writing, subject to the rights, if any, of the United States
Government under any applicable law or regulation. Sponsor may exercise its
option under Section 8(a) hereof, in each case, by submitting to the University
written notice of its decision to exercise its option, within ninety (90) days
of receipt of the written notice from the University disclosing the invention or
know-how. In the event that Sponsor exercises its option, the parties shall use
their respective best efforts to reach agreement as promptly as possible as to
the definitive terms for the exclusive license of the invention or know-how to
Sponsor. The University may not commercialize itself nor license third parties
to use or commercialize any such invention or know-how until it has first given,
in each case, written notice and disclosure of such invention or know-how to
Sponsor and either Sponsor has failed to exercise its option within ninety (90)
days of receipt of the University's notice or Sponsor has notified the
University in writing that it will not be exercising its option. The University
may then license the inventions and know-how specified in the University's
notice and disclosure to Sponsor to third parties.
(b) The Sponsor shall own title to any invention or know-how first
conceived or discovered solely by Sponsor's employee(s), except that title shall
be jointly owned by the Sponsor and the University if such invention was first
conceived or discovered using University's facilities.
(c) The Sponsor and the University shall jointly own title to any
invention or know-how first conceived or discovered jointly by Sponsor's
employee(s) and the University's employee(s) during the term of the Agreement.
(d) The University and Sponsor shall promptly disclose to each other in
writing any invention or know-how first conceived or discovered in the
performance of the Research in the field of the Research.
(e) The Sponsor may elect in the first instance to file and prosecute a
patent application at its own expense on any invention first conceived or
discovered during the Research if it is
<PAGE>
either solely owned by the University and licensed by Sponsor or if it is
jointly owned; however, the University may itself file and prosecute at its own
expense any such patent application, if the Sponsor has not filed a patent
application on such invention within sixty (60) days after receipt of notice and
disclosure of such invention.
(f) For the purposes of this Agreement, the term "know-how" shall mean any
and all technical information, know-how, processes, procedures, compositions,
devices, methods, formulas, protocols, techniques, software, designs, drawings
or data, relating to an invention first conceived or first actually reduced to
practice solely or jointly in the performance of the Research, including but not
limited to know-how which is not disclosed in a patent application or patent.
(g) In relation to any jointly owned inventions and know-how resulting
from the Research, Sponsor and the University hereby agree as follows:
(i) Sponsor may use any jointly owned inventions or know-how for
internal non-commercial purposes without the need to obtain any
consent from the University;
(ii) University may use any jointly owned inventions and know-how
for internal non-commercial purposes without the need to obtain any
consent from Sponsor;
(iii) Sponsor shall have the right to commercialize and the option
to exclusively commercialize any jointly owned invention or
know-how. Subject to the provisions of this Subsection 8(g)(iii),
Sponsor shall exercise its option, in each case, within ninety (90)
days after receipt of written notice from the University (or
dispatch if Sponsor gives the written notice) of the discovery of a
jointly owned invention or know-how (the "Exclusive Option Period"),
by submitting written notice to the University to such effect. In
the event that Sponsor exercises its option, the parties shall use
their respective best efforts to reach agreement as promptly as
possible as to the definitive terms for the exclusive
commercialization of the invention or know-how by Sponsor, on
reasonable terms and conditions, including reasonable royalties to
the University taking into consideration the joint ownership of the
invention or know-how, as the parties may mutually agree upon in
writing. Such an agreement as to commercialization of the jointly
owned inventions and know-how shall be subject to the rights, if
any, of the United States Government under any applicable law or
regulation. The University may not commercialize itself nor license
third parties to use or commercialize the jointly owned inventions
or know-how unless, in each case, the Sponsor has
<PAGE>
previously notified the University in writing that it does not wish
to exercise its option to exclusively commercialize such invention
or know-how or the Exclusive Option Period has passed without
notification from Sponsor. In the case that Sponsor notifies the
University in writing that it does not wish to exercise its option,
Sponsor shall notify the University whether it intends to
commercialize its undivided rights in the joint invention or know
how. If Sponsor intends to commercialize the joint invention, then
the University may similarly commercialize its undivided rights in
the joint invention. If Sponsor decides it will not commercialize
the joint invention, then Sponsor and Yale shall have ninety (90)
days to discuss and agree upon how the parties shall market the
jointly owned invention or know-how and how any expenses and income
related to patenting and commercializing such joint invention or
know-how shall be distributed between the two parties.
9. Ownership of Property. Title to any equipment purchased or manufactured
in the performance of the work funded under this Agreement shall vest in the
University.
10. Term and Termination.
(a) This Agreement shall be effective for an initial term of two years
commencing on the date hereof, and may be extended thereafter by mutual
agreement of the parties in writing; provided, however, that the provisions
hereof relating to confidential information, rights in patents and copyrights
and ownership of property under paragraphs 7, 8 and 9 shall survive such
termination.
(b) Notwithstanding the foregoing, the Sponsor shall have the right to
terminate this Agreement immediately by written notice to the University if
Peter M. Glazer ceases to be the principal investigator because of termination
of his employment by the University, his death, or extended absence, or other
similar reasons.
(c) Notwithstanding the foregoing, this Agreement may be terminated by
either party at any time upon 180 days advance written notice to the other
party. Upon receipt of notice of early termination, the University shall use its
best efforts promptly to limit or terminate any outstanding commitments and to
conclude the work. All costs associated with such termination shall be
reimbursable including, without limitation, all non-reimbursed costs and non-
cancelable commitments incurred prior to the receipt of the notice of
termination.
(d) Within 120 days following expiration of the term hereof or the
effective date of termination, the University shall submit to the Sponsor a
final report of all actual costs and
<PAGE>
commitments incurred and all funds received under this Agreement, which report
shall be accompanied by a check in the amount of any excess of funds advanced
over costs and allowable commitments incurred, or alternatively by an invoice
for any excess of costs and commitments incurred over funds advanced.
11. Notices. Any notices given under this Agreement shall be in writing
and shall be deemed delivered when sent by first- class mail, postage prepaid,
addressed to the parties as follows (or at such other addresses as the parties
may notify each other in writing):
Yale University: Sponsor:
---------------- --------
Yale University School of Medicine OncorPharm, Inc.
Grant and Contract Administration 209 Perry Parkway
333 Cedar Street, L203 SHM Gaithersburg, MD 20877
New Haven, CT 06510 ATTN: Mr. Stephen Turner
ATTN: Verna M. Lingis Chief Executive Officer
Associate Director
With a copy to: With a copy to:
--------------- ---------------
Dr. Peter Glazer Brobeck, Phleger & Harrison, LLP
Therapeutic Radiology 1301 Avenue of the Americas
Yale School of Medicine New York, New York 10019
333 Cedar St, HRT ATTN: Richard R. Plumridge, Esq.
New Haven, CT 06510
12. Use of Name. Sponsor shall not use the name "Yale" or "Yale
University" for any purpose without prior written consent obtained from YALE in
each instance, except for the purposes of referring to this Agreement a) in a
press release reviewed and approved by YALE after execution of this Agreement
and b) required disclosures to be made in documents supplied by Sponsor in
connection with financings. The restrictions specified in this Section 12 shall
not apply to the dissemination of information that has previously been approved
and released by YALE in accordance with this Section 12.
13. Relationship of the Parties. The University, for all purposes related
to this Agreement, shall be deemed an independent contractor of the Sponsor, and
nothing in this Agreement shall be deemed to create a relationship of employment
or agency or to constitute the parties as partners or joint venturers.
14. Indemnification. The Sponsor hereby waives and agrees to indemnify,
defend,
<PAGE>
and hold the University harmless from and against any loss, claim, damage, or
liability of any kind involving an employee of the Sponsor arising out of or in
connection with this Agreement, and not caused by intentional actions of the
University.
15. NO WARRANTIES. THE UNIVERSITY MAKES NO WARRANTIES EITHER EXPRESS OR
IMPLIED, AS TO ANY MATTER, INCLUDING, WITHOUT LIMITATION, THE RESULTS OF THE
RESEARCH OR ANY INVENTIONS OR PRODUCT, TANGIBLE OR INTANGIBLE, CONCEIVED,
DISCOVERED, OR DEVELOPED UNDER THIS AGREEMENT; OR THE OWNERSHIP,
MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE OF THE RESEARCH RESULTS OR
OF ANY SUCH INVENTION OR PRODUCT. The University shall not be liable for any
direct, consequential, or other damages suffered by the Sponsor or by any
Licensee or any others resulting from the use of the research results or any
such invention or product.
16. Force Majeure. The University and the Sponsor shall not be liable for
any failure to perform as required by this Agreement, to the extent such failure
to perform is caused by any reason beyond the University's control, or by reason
of any of the following: labor disturbances or disputes of any kind, accidents,
failure of any required governmental approval, civil disorders, acts of
aggression, acts of God, energy or other conservation measures, failure of
utilities, mechanical breakdowns, material shortages, disease, or similar
occurrences.
17. Assignment. This Agreement may be assigned by Sponsor to an affiliate
(meaning any corporation, company, partnership, joint venture or other entity
which controls, is controlled by or is under common control with the Sponsor) or
as part of its entire business relating to the Research, provided Sponsor
remains liable for all obligations hereunder. Sponsor may also assign its rights
and benefits under this Agreement if University approves the assignment in
writing, which approval shall not be unreasonably withheld. In the event of such
transfer, the transferee shall assume and be bound by the provisions of this
Agreement. It shall be deemed to be reasonable if Sponsor assigns to a
responsible company and agrees to remain responsible on an ongoing basis for
performance by the assignee company.
18. Severability. In the event that a court of competent jurisdiction
holds any provision of this Agreement to be invalid, such holding shall have no
effect on the remaining provisions of this Agreement, and they shall continue in
full force and effect.
19. Entire Agreement. This Agreement and the Exhibits hereto contain the
entire
<PAGE>
agreement between the parties. No amendments or modifications to this Agreement
shall be effective unless made in writing and signed by authorized
representatives of both parties.
20. Similar Research. Nothing in this Agreement shall be construed to
limit the freedom of the University or of its researchers who are not
participants under this Agreement, from engaging in similar research made under
other grants, contracts or agreements with parties other than the Sponsor.
21. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers or representatives.
YALE UNIVERSITY ONCORPHARM, INC.
By /s/ JANET H. ACKERMAN By /s/ Stephen Turner
--------------------------- -------------------------
Title ASSOCIATE VICE PRESIDENT Title CHAIRMAN
FOR FINANCE
Date 2/15/95 Date 1/29/95
Principal Investigator
/s/ Peter Glazer
- -------------------------
<PAGE>
Peter M. Glazer
Department of Therapeutic Radiology
Yale University School of Medicine
Research Proposal to OncorPharm, Inc.
"Exhibit A" *
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
*
Personnel
Supplies
Total Direct Cost
Indrect Cost Rate
Indirect Costs
Total Costs
/s/ Susan Galli
- -----------------------------
Susan Galli
Associate Administrator
Therapeuric Radiology
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
FIRST YEAR DETAILED BUDGET *
Personnel:
Peter M. G1azer
Post-doc associate
Sub-total:
Supplies:
Plasticware, disposables
Cell culture, media, serum, reagents
Enzymes, biochemicals
Microbiologic reagents
Isotopes, film
Oligonucleotides
Sub-total:
Total
Direct costs
Indirect costs (25%)
Total costs
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
Exhibit 10.8
1
LICENSE AGREEMENT
AGREEMENT made this 20th day of January, 1996 by and between YALE
UNIVERSITY, a corporation organized and existing under and by virtue of a
charter granted by the general assembly of the Colony and State of Connecticut
and located in New Haven, Connecticut ("YALE"), and OncorPharm, Inc., a
corporation organized and existing under the laws of the State of Delaware, and
with principal offices located in Gaithersburg, Maryland ("ONCORPHARM" or
"LICENSEE").
W I T N E S S E T H:
WHEREAS, in the course of research conducted under YALE auspices, Peter
Glazer and Pamela Havre, in the Department of Therapeutic Radiology of YALE (the
"INVENTORS"), have produced an INVENTION described and defined below;
WHEREAS, pursuant to an assignment by the INVENTORS to YALE of all their
right, title and interest in and to the INVENTION (as defined below) and any
patents resulting therefrom, YALE is the owner of the INVENTION, subject to
rights reserved by the U.S. Government; and
WHEREAS, LICENSEE wishes to obtain a license to the INVENTION and any
patents resulting therefrom, and YALE is willing to grant such a license to
LICENSEE subject to the terms and conditions hereof;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained the parties agree as follows:
ARTICLE I - DEFINITIONS
As used in this Agreement, the following terms shall be defined as set
forth below:
1.01 "AFFILIATE" shall mean any corporation, company, partnership, joint
venture or other entity which controls, is controlled by or is under common
control with LICENSEE, including without limitation:
a) an organization of which 50% or more of the voting power is
controlled or owned directly or indirectly by ONCORPHARM;
<PAGE>
b) an organization which directly or indirectly owns or controls
50% or more of the voting power of ONCORPHARM; and
c) an organization, the majority ownership of which is directly
or indirectly common to the majority ownership of ONCORPHARM.
For purposes of this Section 1.01, control shall mean the direct or indirect
ownership of at least fifty percent (50%), or the maximum percentage as allowed
by applicable law, of the voting power in respect to the entity. AFFILIATE shall
include Oncor, Inc, and OncorMed, Inc. Once an entity becomes an AFFILIATE, it
will remain so for purposes of this Agreement even if subsequently ONCORPHARM's
relationship drops below the required test of an AFFILIATE. ONCORPHARM may, by
separate agreement with its AFFILIATES, provide for a more limited scope of
license of the LICENSED TECHNOLOGY; provided, however, that no such agreement
shall limit or adversely affect the royalties or other amounts payable to YALE
pursuant to this Agreement.
1.02 "EARNED ROYALTIES" shall mean royalties paid or payable by LICENSEE
to YALE determined with respect to NET SALES.
1.03 "FIELD OF USE" shall mean all applications other than the SEPARATE
FIELD OF USE, including without limitation, all research, diagnostic and
therapeutic uses in or for humans.
1.04 The "INVENTION" shall mean the invention entitled *
1.05 "KNOW-HOW" shall mean any and all technical information, know-how,
processes, procedures, compositions, devices, methods, formulas, protocols,
techniques, software, designs, drawings or data, relating to either or both the
INVENTION and the LICENSED PRODUCTS, that is held by YALE, including but not
limited to INVENTIONS and/or know-how which are not disclosed in a patent
application or patent, but which are necessary or useful for practicing the
rights granted under this Agreement.
1.06 "LICENSED PATENTS" shall mean any United States or foreign patent
application(s) and patents(s) owned, in whole or in part, by YALE during the
term of this Agreement and which have claims covering the INVENTION, together
with any continuations, continuations-in-part, divisional or substitute patents,
any reissues or re- examinations of any such applications or patents, and any
extension of any such patent.
2
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
1.07 "LICENSED PRODUCTS" shall mean the INVENTION and any products,
processes, devices, procedures, methods or treatments, the manufacture,
production, use or sale of which, but for a license granted by YALE to LICENSEE,
would infringe one or more claims of the LICENSED PATENTS, in the country where
the manufacture, production, use or sale takes place.
1.08 "LICENSED TECHNOLOGY" shall mean the INVENTION and the
KNOW-HOW.
1.09 "LICENSEE" shall include OncorPharm, Inc. and its AFFILIATES.
1.10 "NET SALES" shall mean gross revenues from sales of the LICENSED
PRODUCTS invoiced by LICENSEE in accordance with generally accepted accounting
principles, less credits, bad debts or allowances on account of rejections of
products previously invoiced, less discounts allowed and taken, in amounts
customary in the trade (such as the difference between the dollar amount charged
by LICENSEE for a LICENSED PRODUCT and the discounted amount paid by commercial
clients after applying their discounts or special prices extended), sales and/or
use taxes and/or duties if any. LICENSED PRODUCTS shall be deemed to have been
used and sold when invoiced or when shipped or mailed or otherwise delivered, or
when paid for, whichever is earliest. In the event that ONCORPHARM shall
transfer LICENSED PRODUCTS to an AFFILIATE and the AFFILIATE retransfers the
LICENSED PRODUCTS to third party customers within one year of its receipt, then
the gross revenues for such sales shall be the price charged by the AFFILIATE to
third party customers, less deductions. If such AFFILIATE does not retransfer
the LICENSED PRODUCTS within one year, then the gross revenues for the transfer
to the AFFILIATE shall be the higher of
a) the price charged by ONCORPHARM to the AFFILIATE, or
b) the average price charged by ONCORPHARM to third party
customers during such year or, in the absence of sales to third party customers,
the fair market price for the LICENSED PRODUCTS. In the event that the LICENSED
PRODUCTS are sold incorporated in other services or products, the gross sales
amount invoiced on the sale of LICENSED PRODUCTS shall be calculated by
multiplying the gross sales revenues received from such package by the fraction
A/(A+B), where A is the published list price of the LICENSED PRODUCT sold
separately during the QUARTER YEAR in question and B is the sum of published
list prices of the other active services or products sold separately during the
QUARTER YEAR in question. In the event that the LICENSED PRODUCT and the other
service or products are not sold separately, gross sales on the LICENSED PRODUCT
shall be calculated by multiplying the gross sales as defined above but applied
to the combination service or product, by the fraction A/(A+C), where A is
defined above and C is the reasonably estimated list price (using accepted
medical device industry standards) of
3
<PAGE>
the other service or products. NET SALES shall then be calculated by making
appropriate deductions from such gross sales in accordance with this article
1.07.
1.11 "QUARTER YEAR" shall mean the three-month periods ending March 31,
June 30, September 30 and December 31 of each Royalty Year.
1.12 "ROYALTY YEAR" shall mean each twelve month period commencing
January 1 and ending December 31 during the first seventeen years of this
Agreement. For the first year of this Agreement, the ROYALTY YEAR shall be the
period of time between the signing of the Agreement and December 31.
1.13 "SEPARATE FIELD OF USE" shall mean all applications for use solely
in or for insects, plants or animals other than humans.
1.14 "SUBLICENSE INCOME" shall mean the gross amount received by
LICENSEE, directly or indirectly, for or on account of sublicenses of any of the
rights granted hereunder, without deduction of any kind. If LICENSEE makes an
arrangement with another party that involves granting a sublicense of any of
such rights and also involves any of the following:
a) Payments received by LICENSEE for performance of research and
development, including but not limited to milestone payments for achievement of
objectives in research and development;
b) Investments made by a sublicensee in the LICENSEE, including
but not limited to, any payments or other consideration in return for shares in
the LICENSEE; and
c) Payments made to LICENSEE for conducting clinical testing and
other activities in connection with obtaining regulatory approval for a LICENSED
PRODUCT;
then the portion of the total amount received by LICENSEE under such arrangement
that represents the fair market value of the sublicense shall be included in
SUBLICENSE INCOME and the fair market value of such other payments or
investments, if any, shall be excluded from SUBLICENSE INCOME.
ARTICLE II GRANT OF LICENSE
2.01 Yale hereby grants to LICENSEE, subject to all the terms and
conditions of this Agreement, a non-transferable (except as set forth in Section
15.05), worldwide, exclusive license for the term defined by ARTICLE III, in
both the FIELD OF USE and the SEPARATE FIELD OF USE, to make, have made, use,
sell and practice the LICENSED TECHNOLOGY (including the INVENTION covered by
the LICENSED PATENTS) and to
4
<PAGE>
make, have made, use and sell the LICENSED PRODUCTS, subject to rights required
to be granted to the U.S. Government. YALE retains the right to use the KNOW-HOW
for educational and research purposes only and not for any commercial purpose
and to provide or transfer such KNOW-HOW to universities and other non-profit
research entities for educational and research purposes only and not for any
commercial purpose.
2.02 LICENSEE shall have the right to sublicense the rights granted
hereunder to third parties. All sublicenses hereunder granted by LICENSEE may,
at YALE's option, be coterminable with this Agreement to the extent Yale's
rights in the LICENSED PATENTS are involved.
2.03 YALE shall only retain the right to make, use and practice the
INVENTION for its own internal non-commercial purposes, without any right to
transfer or sublicense.
2.04 Upon execution of this Agreement YALE shall disclose to LICENSEE
all the LICENSED TECHNOLOGY as of the date of this Agreement, to the extent that
it has not already conveyed the same to LICENSEE. Thereafter YALE shall disclose
to LICENSEE any additional LICENSED TECHNOLOGY as and when the same shall arise.
Any such disclosure shall be made in tangible forms which are mutually
acceptable to both parties.
ARTICLE III TERM OF LICENSE
The term of the LICENSE granted hereunder shall commence upon the
signing hereof and shall continue for the life of the applicable LICENSED
PATENTS, and any license granted hereunder shall expire on a country by country
basis when the last to expire LICENSED PATENTS in such country expires or
lapses. Expiration of this Agreement under this provision shall not preclude
LICENSEE or its permitted sublicensees from continuing to make, have made, use
and sell and practice the LICENSED TECHNOLOGY and LICENSED PRODUCTS without
further royalty payments or other compensation to YALE.
ARTICLE IV ROYALTIES
As consideration for the rights granted hereunder, LICENSEE shall make
the following royalty payments to YALE:
4.01 LICENSEE shall pay to YALE a one-time license fee of *
within 30 days of the execution of this Agreement. Such payment shall be
separate from and not credited against any EARNED ROYALTIES.
5
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
4.02 LICENSEE shall pay to YALE EARNED ROYALTIES of * of
NET SALES in respect of any LICENSED PRODUCTS sold for use as a human
therapeutic.
4.03 LICENSEE shall pay to YALE EARNED ROYALTIES of * of NET SALES in
respect of any LICENSED PRODUCTS sold for any use other than use as a human
therapeutic.
4.04 In the event that LICENSEE sublicenses the LICENSED TECHNOLOGY to a
third party without having first conducted any research and development work
itself in relation to the LICENSED TECHNOLOGY, then LICENSEE shall pay to YALE
* of all SUBLICENSE INCOME from that third party (the "PURE SUBLICENSE
PAYMENTS").
4.05 In the event that LICENSEE first conducts research and development
work in relation to the LICENSED TECHNOLOGY, and the LICENSED TECHNOLOGY
together with the additional research and development work and information is
sublicensed to a third party, then the LICENSEE shall pay YALE the following:
a) *
b) *
4.06 LICENSEE shall make milestone payments to YALE according to the
following schedule, but such milestone payments shall be paid only once,
irrespective of the number of LICENSED PRODUCTS that are covered by this
Agreement. If at the time any of these milestone payments become due under this
Section 4.06(a)-(j), no LICENSED PATENT has been granted by the United States
Patent and Trademark Office ("PTO"), then LICENSEE may withhold and place in
escrow * of each such milestone payment (the "Escrow Amount"). LICENSEE shall
pay to YALE the whole Escrow Amount within 30 days after issuance of a LICENSED
PATENT by the PTO. In the event that a) all patents and patent applications
relative to the INVENTION are either denied, withdrawn, abandoned, unenforceable
or not actively pursued at any time during the term of this Agreement, or b) a
6
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
LICENSED PATENT has not issued prior to the expiration or termination of this
Agreement, then LICENSEE shall be entitled to retain and keep the Escrow Amount.
Schedule of Payments
Payment Due Date
* *
7
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
4.07 EARNED ROYALTIES, PURE SUBLICENSE PAYMENTS and VALUE ADDED
SUBLICENSE PAYMENTS shall be payable by LICENSEE during the period that any
LICENSED PATENT remains pending or effective in any applicable country. In the
event that a LICENSED PATENT lapses or if all of its claims are finally declared
invalid by a non-appealable decision of a court of competent jurisdiction
through no fault or cause of LICENSEE, the obligation to pay royalties for that
patent on sales made subsequent to the lapse or declaration of invalidity shall
terminate but this Agreement shall remain in effect as to the remaining LICENSED
PATENTS or claims thereunder. If all LICENSED PATENTS lapse or all of their
claims are so finally declared invalid, either in a particular jurisdiction or
worldwide, the obligation of LICENSEE to pay royalties or other compensation to
YALE shall terminate but LICENSEE and its permitted sublicenses may continue to
make, have made, use, all and practice the LICENSED TECHNOLOGY and LICENSED
PRODUCTS in such jurisdictions or worldwide, as the case may be.
4.08 If LICENSEE believes that it must obtain or utilize a license under
any other patent(s) from any third party in order to make, have made, use or
sell LICENSED PRODUCTS in any particular country, LICENSEE shall advise YALE. If
YALE disagrees, the parties shall negotiate in good faith to resolve the
disagreement or make alternative arrangements. If the parties are unable to
agree, LICENSEE, in its sole discretion, shall make the final decision as to
whether such a license is required unless YALE provides to
8
<PAGE>
LICENSEE a written clean opinion ("Patent Opinion") of well respected patent
counsel that the making or sale of LICENSED PRODUCTS will not infringe such
third party patents or other intellectual property rights. If a Patent
Opinion is issued and not withdrawn, and LICENSEE still obtains the relevant
third party license, then LICENSEE shall not be entitled to a credit for such
third party license payments under this Section 4.08. If LICENSEE makes such
payments to any third party (other than one which was the subject of a Patent
Opinion) in order to manufacture, use or sell a LICENSED PRODUCT for which an
EARNED ROYALTY would be payable to YALE under this Article IV, LICENSEE may
credit * of the actual amount of any such payments to said third parties for
a given calendar quarter against the EARNED ROYALTY payable to YALE hereunder
with respect to such LICENSED PRODUCT for such quarter on a
country-by-country basis; provided, however, that in no event will the EARNED
ROYALTY payable to YALE with respect to such LICENSED PRODUCT be reduced to
an amount less than * of NET SALES of the LICENSED PRODUCT for human
therapeutic products nor less than one and * for use other than as a human
therapeutic.
ARTICLE V PAYMENTS AND REPORT
5.01 Within 30 days after the end of each QUARTER YEAR, LICENSEE shall
furnish to YALE a written report setting forth the NET SALES and the EARNED
ROYALTIES, PURE SUBLICENSE PAYMENTS and VALUE ADDED SUBLICENSE PAYMENTS (the
"AGGREGATE ROYALTIES") payable thereon, accompanied by full payment of such
ROYALTIES and PAYMENTS.
5.02 In the event that the AGGREGATE ROYALTIES paid to YALE for any
ROYALTY YEAR exceed the minimum royalty payments due for such year, the amount
by which such AGGREGATE ROYALTIES exceeds the minimum royalty payment shall be
credited against LICENSEE's future obligations to pay minimum royalties for the
next succeeding ROYALTY YEAR that actually arise pursuant to this Section 5.02,
but in no case shall reduce payment of AGGREGATE ROYALTIES. In the event that
the AGGREGATE ROYALTIES for any ROYALTY YEAR are less than the minimum royalty
payments due for such year, then LICENSEE shall include with the last report
furnished under Section 5.01 for such ROYALTY YEAR payment of the difference
(the "RESIDUAL ROYALTY PAYMENT") between the AGGREGATE ROYALTIES for such
ROYALTY YEAR and the applicable minimum royalty payment. LICENSEE may credit any
RESIDUAL ROYALTY PAYMENT made to YALE hereunder against future obligations for
the next succeeding ROYALTY YEAR to pay AGGREGATE ROYALTIES to YALE, until
exhausted in full; provided, however, for the avoidance of doubt, such RESIDUAL
ROYALTY PAYMENT may not be used to reduce the total of AGGREGATE ROYALTIES and
MINIMUM ROYALTY PAYMENT in any such succeeding ROYALTY YEAR below the * figure
specified in Section 4.06(j).
9
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
5.03 The reports required by this Article V shall be certified by an
officer of LICENSEE to be correct to the best of LICENSEE's knowledge and
information. Each report shall be accompanied by LICENSEE's payment of the full
amount due, less any taxes required by a governmental agency to be withheld
therefrom; provided, however, that YALE shall have the right to contest any such
taxes and LICENSEE shall provide reasonable assistance with respect thereto. All
royalties shall be paid to YALE in U.S. dollars, and in full. In the event that
conversion from foreign currency is required in calculating a royalty payment
hereunder, the exchange rate used shall be the rate in effect at the end of the
last business day of the month just prior to the date payment is required to be
made hereunder as published in the Wall Street Journal.
5.04 If this Agreement should be terminated at any time other than at
the end of a QUARTER YEAR or ROYALTY YEAR, the last report and payment shall be
made within 60 days after the effective date of such termination, and shall
include any EARNED ROYALTIES, PURE SUBLICENSE PAYMENTS and VALUE ADDED
SUBLICENSE PAYMENTS prorated to the date of termination. If the amount of
LICENSEE's existing inventory of LICENSED PRODUCTS which had been manufactured
but not sold up to the date of termination exceeds a 30 day supply, LICENSEE
shall provide YALE with a report setting forth the amount of such inventory at
the date of termination, and may elect to continue to render QUARTER YEAR
reports on the sales of such existing inventory and to make payments as though
the Agreement were still in effect; provided, however, that in any event,
LICENSEE shall complete payment of AGGREGATE ROYALTIES thereon within one year
from the effective date of termination.
ARTICLE VI BOOKS AND RECORDS
LICENSEE and its sublicensees shall keep and maintain complete and
accurate records and books of account in sufficient detail and form so as to
enable verification of EARNED ROYALTIES, PURE SUBLICENSE PAYMENTS and VALUE
ADDED SUBLICENSE PAYMENTS payable by LICENSEE hereunder. Such records and books
of account shall be maintained for a period of no less 3 years following the
HALF YEAR to which they pertain. LICENSEE shall permit such records and books of
account to be examined at reasonable times by YALE or YALE's duly appointed
agent, to the extent necessary for Yale to verify the amount of royalties
payable. Upon receiving notification that YALE intends to verify LICENSEE's
accounts, should LICENSEE object in writing to the particular auditor that YALE
has chosen, YALE will reasonably take into account such objection and consider
appointing another auditor to examine LICENSEE's accounts, at the sole
discretion of YALE. Such examination shall be at YALE's expense, during normal
business hours, and upon 10 days' prior written notice to LICENSEE. The results
of such examination shall be kept confidential and be used only for the purpose
of this Article VI.
ARTICLE VII PATENT PROTECTION
10
<PAGE>
7.01 * covering the INVENTION has been prepared and *. It is understood
that as of the date hereof no patent protection exists in the U.S. or any
foreign country but only the potential to realize the same.
7.02 LICENSEE shall bear all reasonable patent prosecution and
maintenance expenses associated with the LICENSED PATENTS beginning with
invoices dated as of the date of execution of this Agreement.
7.03 YALE at LICENSEE's expense, shall prepare and file foreign patent
applications covering the INVENTION in such foreign countries as are determined
by YALE and agreed to by LICENSEE. Determination of which foreign countries in
which patent application shall be filed shall be made no later than 90 days
following the date hereof. YALE shall provide to LICENSEE for its review and
comment prior to filing copies of all patent applications and substantive patent
prosecution documents. LICENSEE shall provide its comments within 30 days of
receipt thereof and such comments shall be advisory in nature and not binding on
YALE or its patent counsel. Any and all such applications or patents shall
remain the property of YALE. Any taxes, annuities, working fees, maintenance
fees, renewal and extension charges with respect to each such foreign patent
application and patents shall be punctually paid by YALE on behalf of both
parties. LICENSEE shall reimburse YALE within 30 days of receiving a copy of the
invoice for all such taxes, annuities, fees and charges. If LICENSEE does not
agree to bear the expenses of filing patent applications in any foreign
countries in which YALE wishes to obtain patent protection, then YALE may file
and prosecute such application at its own expense. If YALE does file and
prosecute such application then LICENSEE'S rights terminate in that country.
7.04 If YALE should license the INVENTION to a third party other than
the U.S. government to the extent, if any, permitted by this Agreement, then
upon the execution of each and every future license by YALE with any third party
with respect to the INVENTION, the total patent costs incurred to the effective
date of such license shall be reapportioned and credit issued or refund made, as
appropriate, to LICENSEE and future costs similarly apportioned. YALE represents
that no such licenses exist as of the signing hereof.
7.05 LICENSEE shall apply, and shall require sublicensees to apply, the
patent marking notices required by the law of any country where LICENSED
PRODUCTS are made, sold or used, to the extent feasible and practical, and in
accordance with the applicable patent laws of that country.
ARTICLE VIII DUE DILIGENCE IN COMMERCIALIZATION
8.01 LICENSEE shall plan and implement appropriate research and
development, testing and production efforts directed toward commercialization of
the LICENSED
11
* CONFIDENTIAL TREATMENT REQUESTED
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PRODUCTS in the FIELD OF USE at a commercially practicable date and shall
provide to YALE a copy of such plan.
8.02 LICENSEE shall implement in reasonable commercial fashion following
the date of this agreement the plan for developing and commercializing the
LICENSED PRODUCTS in the FIELD OF USE. YALE shall be entitled to terminate this
Agreement in accordance with Article XI in the event that either:
a) YALE gives written notice to LICENSEE that it intends to elect to
terminate the license because of LICENSEE'S failure to implement the
plan in any material respect and LICENSEE, after such written notice
from YALE as provided in Section 11.01, fails to provide written
evidence to YALE of present, attempted or anticipated commercialization
in a manner and on a schedule reasonably commensurate with the scope of
the country or countries in question and LICENSEE's resources. YALE
agrees that: evidence provided by LICENSEE that it has an ongoing and
active or anticipated research, development, manufacturing, marketing or
licensing program as appropriate, directed toward production and sale of
a LICENSED PRODUCT shall be deemed satisfactory evidence; in the
discretion of LICENSEE commercialization efforts may be directed first
to industrialized nations of the world commencing with the United States
of America, and only subsequently to other regions as reasonably and
commercially practicable for LICENSEE given its strategies and
resources; certain countries may, in the discretion of LICENSEE, best be
commercialized by sublicense; and that LICENSEE may in the exercise of
prudent business judgment elect to defer commercialization efforts in
particular fields until the LICENSED PRODUCT has undergone substantial
and appropriate further development; or
b) LICENSEE shall fail to make the first commercial sale within two
years from the receipt of approval from the United States Food and Drug
Administration ("FDA") for a LICENSED PRODUCT, if such approval is
required for the LICENSED PRODUCT, or within one year from the
completion of the LICENSED PRODUCT if FDA approval is not required for
the LICENSED PRODUCT, and such failure is not excused by (i) causes
beyond LICENSEE's direct control; (ii) YALE's failure to meet its
obligations hereunder; (iii) infringement of third party patents; or
(iv) actions or inaction of any federal or state agency whose approval
is required for commercial sales.
8.03 LICENSEE shall provide periodic status reports to YALE, at least
annually, indicating progress and problems to date in commercialization in the
FIELD OF USE, and a forecast and schedule of major events required to market the
LICENSED PRODUCTS in the FIELD OF USE.
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8.04 If at any time LICENSEE abandons or suspends its marketing or its
intent to market the LICENSED PRODUCTS in the FIELD OF USE for a period
exceeding 90 days, LICENSEE shall immediately notify YALE giving reasons and a
statement of its intended actions.
8.05 In the case of research and development, testing and production
efforts directed toward commercialization of the LICENSED PRODUCTS in the
SEPARATE FIELD OF USE, the parties hereby acknowledge and agree that the
LICENSEE shall have up to one calendar year from the date hereof in which to
provide to YALE a proposed plan for developing and commercializing the LICENSED
PRODUCTS in the SEPARATE FIELD OF USE. If LICENSEE provides YALE with such a
business plan within one year, LICENSEE shall then implement in a reasonable
commercial fashion the plan for such development and commercialization of the
LICENSED PRODUCTS in the SEPARATE FIELD OF USE and Sections 8.01 to 8.04
inclusive, shall also apply to LICENSEE's commercialization of the LICENSED
TECHNOLOGY in the SEPARATE FIELD OF USE. However, in the event that LICENSEE
does not provide YALE with such a business plan within one year, then YALE may
give notice to LICENSEE according to Article XI of its intent to terminate its
grant of license in the SEPARATE FIELD OF USE. The license granted to LICENSEE
hereunder in respect of the LICENSED TECHNOLOGY in relation to the FIELD OF USE,
shall not be affected by the foregoing provisions of this Section 8.05.
ARTICLE IX INFRINGEMENT AND LITIGATION
9.01 LICENSEE shall have the sole obligation to defend the LICENSED
PATENTS against infringement or interference in the FIELD OF USE by other
parties in any country in which a LICENSED PATENT is in effect hereunder,
including by bringing any legal action for infringement or defending any
counterclaim of invalidity or action of a third party for declaratory judgment
of non-infringement or interference. LICENSEE may control and settle any such
actions solely at its own expense and through counsel of its selection;
provided, however, that YALE shall be entitled in each instance to participate
through counsel of its selection and at its own expense. YALE shall have no
obligation or responsibility with respect to any such actions unless legally
required to participate, except to provide reasonable assistance to LICENSEE as
requested, and LICENSEE shall reimburse YALE for YALE's out-of-pocket expenses
in connection with any such requested assistance. LICENSEE shall bear the
expenses of such actions and shall obtain all benefits in the recoveries, if
any, whether by judgement, award, decree or settlement, the excess of such
recoveries over such expenses shall be included in LICENSEE's NET SALES. In the
event LICENSEE fails to initiate and pursue or participate in such legal action,
YALE shall have the right to initiate legal action to uphold the LICENSED
PATENTS against third parties in any country in which a LICENSED PATENT is in
effect. LICENSEE shall have no legal or contractual obligation to YALE for its
failure to initiate or participate in any such legal action, except that YALE
may terminate the license granted to LICENSEE hereunder in respect of such a
country.
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9.02 Each party shall promptly notify the other in writing in the event
that a third party shall bring a claim of infringement against YALE or LICENSEE,
either in the United States or in any foreign country in which there is a
LICENSED PATENT. If the alleged infringement is so substantial as to threaten
the competitive position of LICENSEE and/or LICENSEE is temporarily enjoined
from exercise of its license hereunder, and if YALE elects not to defend against
such claim and not to obtain a license to permit LICENSEE to exercise its
license free of such claim, then LICENSEE may in its own name and at its sole
expense defend such claim and may compromise, settle or otherwise pursue such
defense in such a manner and on such terms as LICENSEE shall see fit. YALE, at
its own expense and through counsel of its selection may become a party to such
defense and/or settlement and compromise. In any event, YALE shall have the
right to defend, at its own expense, any such third party claim or action and to
settle or compromise the same in such manner as its shall see fit. LICENSEE may
participate in such litigation or claim on its behalf at its own expense.
9.03 In the event LICENSEE is permanently enjoined from exercising its
license rights granted hereunder pursuant to an infringement action brought by a
third party, or if both LICENSEE and YALE elect not to undertake the defense or
settlement of such a claim of alleged infringement for a period of six months
from notice of such claim or suit, then LICENSEE shall have the right to
terminate this Agreement with respect to the infringing patent claims following
30 days' written notice to YALE and in accordance with the terms of Article XI
hereof.
ARTICLE X USE OF YALE'S NAME
LICENSEE shall not use the name "Yale" or "Yale University" for any
purpose without prior written consent obtained from YALE in each instance,
except for the purposes of referring to this Agreement a) in a press release
reviewed and approved by YALE after execution of this Agreement and b) required
disclosures to be made in documents supplied by LICENSEE in connection with
financings. The restrictions specified in this Article X shall not apply to the
dissemination of information that has previously been approved and released by
YALE in accordance with this Article X.
ARTICLE XI TERMINATION
11.01 YALE may terminate this Agreement if YALE has first given written
notice to LICENSEE of one of the events of default set forth below, and LICENSEE
has failed to cure such event of default within ninety (90) days of receipt of
such written notice, unless such default is of such nature that it cannot be
completely cured within ninety (90) days, in which case the LICENSEE shall have
the right to cure such default within one hundred eighty (180) days, provided
that LICENSEE commences work to cure such default within the
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ninety (90) days and thereafter proceeds with reasonable diligence and in good
faith to cure such default:
(i) fails to make, within the 90 day period set by the notice,
any payment which is due and payable pursuant to this Agreement and has been in
arrears for more than 1 month, provided that this provision shall not apply to
any amounts disputed in good faith by LICENSEE; or
(ii) commits a material breach of any other obligation of this
Agreement which is not cured (if capable of being cured) within the ninety (90)
day period set by the notice; or
(iii) becomes insolvent or, a petition in bankruptcy is filed
against LICENSEE and is consented to, acquiesced in or remains undismissed for
90 days; or makes a general assignment for the benefit of creditors, or a
receiver is appointed for LICENSEE, and LICENSEE does not return to solvency
before the expiration of said 30 day period set by the notice; or
(iv) fails to exercise due diligence in bringing the LICENSED
PRODUCTS to market in accordance with Article VIII; or
(v) fails to give notice as required by Article 8.04.
11.02 LICENSEE shall be entitled to terminate this Agreement upon ninety
(90) days advance written notice to YALE, in the event of YALE's material breach
of any of the provisions of this Agreement, which breach is not cured (if
capable of being cured) within the ninety (90) day period set by the notice, or
if the conditions of Section 9.03 apply.
11.03 LICENSEE shall be entitled to terminate this Agreement at any time
upon 90 days' advance written notice to YALE.
11.04 Upon termination of this Agreement pursuant to this Article XI and
except as otherwise expressly provided herein, all licenses granted to LICENSEE
under the terms of this Agreement and, at YALE's option, any sublicenses granted
by LICENSEE, shall terminate and LICENSEE must return to YALE all materials
containing the LICENSED TECHNOLOGY; provided, however, that LICENSEE shall have
the right for one year thereafter to dispose of all LICENSED PRODUCTS then in
its inventory, and shall pay AGGREGATE ROYALTIES thereon, in accordance with the
provisions of Article IV, as though this Agreement had not terminated.
11.05 Termination of this Agreement shall not affect any rights or
obligations accrued prior to the effective date of such termination and
specifically LICENSEE's obligation to pay all AGGREGATE ROYALTIES specified by
Article IV.
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11.06 The rights provided in this Article XI shall be in addition and
without prejudice to any other rights which the parties may have with respect to
any breach or violations of the provisions of this Agreement.
11.07 Waiver by either party of a single default or breach or of a
succession of defaults or breaches shall not deprive such party of any right to
terminate this Agreement pursuant to the terms hereof upon the occasion of any
subsequent default or breach.
ARTICLE XII NO WARRANTIES; INDEMNIFICATION; INSURANCE
12.01 YALE represents and warrants to LICENSEE that neither the
inventor, Dr. Peter Glazer, nor the Office of Cooperative Research have actual
knowledge that any LICENSED PATENT is invalid, or that the manufacturer, use,
sale or other disposal of the LICENSED PRODUCTS will infringe upon any patent or
other rights not vested in YALE. Except for the foregoing, YALE makes no
representations or warranties that any LICENSED PATENT is valid, or that the
manufacture, use, sale or other disposal of the LICENSED PRODUCTS does not
infringe upon any patent or other rights not vested in YALE.
12.02 Yale represents and warrants that to the best of its knowledge it
is the sole and exclusive owner of all title, right and interest in the LICENSED
TECHNOLOGY, free of any claims, restrictions or encumbrances whatsoever. YALE
DISCLAIMS ALL OTHER WARRANTIES WHATSOEVER, WITH RESPECT TO THE LICENSED PATENTS,
THE INVENTION, THE LICENSED TECHNOLOGY, AND THE LICENSED PRODUCTS, EITHER
EXPRESS OR IMPLIED, INCLUDING WARRANTIES AS TO THE MERCHANTABILITY OR FITNESS OF
THE LICENSED PRODUCTS FOR A PARTICULAR PURPOSE and LICENSEE shall make no
statements, representations or warranties whatsoever to any third parties which
are inconsistent with such disclaimer by YALE.
12.03 With the exception of infringement claims or actions covered by
ARTICLE IX, LICENSEE shall defend, indemnify and hold harmless YALE, its
fellows, officers, employees, and agents, from and against any and all claims,
demands, damages, losses and expenses of any nature (including attorney's fees),
including, but not limited to death, personal injury, illness, property damage
or products liability arising from or in connection with any of the following:
(i) the use by LICENSEE of any method or process related to the
LICENSED PATENTS; or
(ii) any use, sale or other disposition on any of the LICENSED
PRODUCTS by LICENSEE and/or other transferees or any statement, representation
or warranty of LICENSEE or other transferees with respect thereto; or
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(iii) the use of the LICENSED PRODUCTS by any person.
YALE shall reasonably cooperate with LICENSEE in defending any such claim. YALE
shall be entitled to receive information regarding the status of any such matter
and shall be entitled to retain counsel on its own behalf and at its sole
expense, in addition to counsel retained by LICENSEE to defend YALE, if YALE is
named party and if YALE is not satisfied with the defense provided by LICENSEE
for any reason.
12.04 LICENSEE shall purchase and maintain in effect or shall require
its sublicensees to purchase and maintain in effect a policy of products
liability insurance covering all claims with respect to any LICENSED PRODUCTS
manufactured or sold within the term of any license granted hereunder, which
policy shall i) be in such form and amount of coverage and written by such
company as YALE shall approve, ii) provide that such policy is primary and not
excess or contributory with regard to other insurance YALE may have, iii)
provide at least 30 days' notice to YALE of cancellation, and iv) include YALE
and YALE's directors, officers and employees, as additional named insureds.
LICENSEE shall furnish a copy of such insurance policy to YALE on or before the
date of first sale or use of any LICENSED PRODUCTS.
12.05 EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED FOR IN THIS AGREEMENT,
NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY SPECIAL, INDIRECT,
INCIDENTAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED BY THE OTHER
PARTY OF SUCH DAMAGES OR THE POTENTIAL THEREFOR.
ARTICLE XIII NOTICES
Any notice required by this Agreement shall be sent by Registered or
Certified U.S. Mail, or by confirmed telefacsimile transmission, telex or cable
and shall be deemed delivered if sent to the following addresses of the
respective parties or such other address as is furnished by proper notice to the
other party:
FOR YALE: FOR LICENSEE:
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YALE UNIVERSITY ONCORPHARM, Inc.
Director President
Office of Cooperative Research 209 Perry Parkway
246 Church St., Suite 401 Gaithersburg, MD 20877
New Haven, CT 06510 Fax No.: (301) 330-3960
Fax No.: (203) 432-7245
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With a copy to:
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Brobeck, Phleger & Harrison, LLP
1301 Avenue of the Americas
New York, New York 10019
Attention: Richard R. Plumridge, Esq.
Fax No.: (212) 586-7878
ARTICLE XIV LAWS AND REGULATIONS
LICENSEE shall comply with all foreign and United States federal, state,
and local laws, regulations, rules and orders applicable to the testing,
production, transportation, packaging, labeling, export, sale and use of the
LICENSED PRODUCTS. In particular, LICENSEE shall be responsible for assuring
compliance with all U.S. export laws and regulations applicable to this license
and LICENSEE's activities hereunder.
ARTICLE XV MISCELLANEOUS
15.01 Any delays in or failure by either party in performance of any
obligations hereunder shall be excused if and to the extent caused by such
occurrences beyond such party's reasonable control, including but not limited to
such occurrences as acts of God, strikes or other labor disturbances, war, and
other causes which cannot reasonably be controlled by the party who failed to
perform.
15.02 This Agreement may not be amended except by written agreement
signed by both of the parties, and shall not be assigned by LICENSEE except upon
the advance written consent of YALE. This Agreement constitutes the entire
agreement of the parties relating to the subject matter hereof, and all prior
representations and understandings are merged into and superseded hereby.
15.03 This Agreement shall be governed by and in accordance with the
laws of the State of Connecticut except where the federal laws of the United
States are applicable and have precedence.
15.04 The provisions of the Agreement shall be deemed separable. If any
part of this Agreement is rendered void, invalid, or unenforceable, such shall
not affect the validity or enforceability of the remainder of this Agreement
unless the part or parts which are void, invalid or unenforceable shall
substantially impair the value of the entire Agreement as to either party.
15.05 This Agreement may be assigned by LICENSEE as part of its entire
business relating to a LICENSED PRODUCT, provided LICENSEE remains liable for
all obligations hereunder. LICENSEE may also assign its rights and benefits
under this Agreement if YALE approves the assignment in writing, which approval
shall not be unreasonably
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withheld. In the event of such transfer, the transferee shall assume and be
bound by the provisions of this Agreement. It shall not be deemed unreasonable
for YALE to refuse approval of an assignment on the ground that the assignee
does not have the financial or administrative resources and experience to carry
out the obligations of this Agreement or that the LICENSEE will not remain
responsible on an ongoing basis for performance by the assignee company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate originals by their duly authorized representatives.
YALE UNIVERSITY ONCORPHARM, INC.
By: /s/ Janet H. Ackerman By: /s/ Stephen Turner
------------------------ ------------------------
Stephen Turner
Its: Associate V.P. Its: President
for Finance -----------------------
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Date: January , 1995 Date: January , 1995
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Exhibit 10.10
EXECUTION COPY
TECHNOLOGY LICENSE AGREEMENT
AGREEMENT, dated as of February 1, 1995, by and between ONCOR, INC.,
a Maryland corporation ("Oncor"), with its principal business address at 209
Perry Parkway, Gaithersburg, Maryland 20877 and ONCORPHARM, INC., a Delaware
corporation ("OncorPharm"), with its principal business address at 200 Perry
Parkway, Gaithersburg, Maryland 20877.
WHEREAS, Oncor develops and markets genetic test systems and related
products for use in cancer and other genetic disease management;
WHEREAS, Oncor has and will continue to develop or license certain
human genome technologies for testing, detection and analysis of
cancer-predisposing genes, for the genetic assessment of risk of an individual
to cancer and for testing and analysis for the purposes of cancer management;
WHEREAS, OncorPharm is a therapeutics company which intends to
develop and commercialize therapeutics for the treatment of cancer and other
human diseases;
WHEREAS, OncorPharm desires an exclusive license to Oncor's
technologies for use in the field of development and commercialization of
therapeutics for cancer and other human diseases, and Oncor is willing to grant
such a license to OncorPharm;
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EXECUTION COPY
WHEREAS, OncorPharm may, in the course of the development and
commercialization of its products, discover, invent, develop or otherwise
acquire or license technologies which could be of use and application in Oncor's
business; and
WHEREAS, Oncor desires an exclusive license to OncorPharm's
Technologies in the field of diagnostic products, and OncorPharm is willing to
grant such licenses to Oncor.
NOW THEREFORE, for good and valuable consideration, receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Definitions.
(a) "Additional Oncor Technology" shall mean any and all
Inventions, Know-How or Improvements which during the Term of this Agreement are
either discovered, invented, developed or otherwise acquired by Oncor or
licensed to Oncor with an express right to sublicense, which can or could
potentially be used within the OncorPharm Field (defined below).
(b) "Commercial Terms" for the purposes of this Agreement
shall mean the following terms for a license: (i) royalty rates and/or other
payment terms and (ii) commitments to diligently develop and commercialize the
licensed technology.
(c) "Improvements" shall mean improvement upon any Invention
or Know-How licensed under this Agreement.
(d) "Invention(s)" shall mean any new and useful discovery or
invention first conceived or first actually reduced to practice by one of the
parties to this Agreement. For purposes of this Agreement the terms "first
conceived" and "first
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EXECUTION COPY
actually reduced to practice" for any invention shall be governed by the law of
the United States of America. Invention(s) shall include discoveries and
inventions which are not patentable or patented.
(e) "Net Sales" shall mean gross revenues and fees due to a
party or an approved sublicensee, from the sale of a product which is based in
whole or in part on technology licensed hereunder, less any allowances actually
made and taken for returns, refunds or recalls; trade discounts actually allowed
in amounts and for purposes customary in the trade; an allowance for actual bad
debts, not to exceed six percent (6%) of gross revenues and fees; sales, use,
value-added and similar taxes and duties and similar governmental assessments;
transportation, packing and shipping insurance actually paid.
(f) "Know-How" shall mean all discoveries, works of
authorship, trade secrets, information, experience, data (including without
limitation preclinical and clinical test data), formulas, algorithms, computer
programs, technology, know-how, designs, methods, processes, procedures and
results.
(g) "Oncor Field" shall mean research, development, use and
commercial exploitation in the field of genetic test systems and related
products.
(h) "OncorPharm Field" shall mean the development and
commercialization of prophylactics and therapeutics for cancer and/or other
human diseases, including but not limited to gene repair and gene-based drug
delivery methods of treatment.
(i) "Oncor Product" shall mean any genetic test system or
related product for cancer and/or other human diseases made commercially
available by Oncor (including for research
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EXECUTION COPY
purposes only), including but not limited to probes, probe kits
and reagents.
(j) "OncorPharm Product" shall mean any prophylactic or
therapeutic product for cancer and/or other human diseases made commercially
available by OncorPharm (including for research purposes only), including but
not limited to any gene repair or gene-based drug delivery method of treatment.
(k) "Oncor Technology" shall mean any and all Inventions and
Know-How existing at the date hereof which are either owned by Oncor or licensed
to Oncor by a third party with an express right to sublicense, which can or
could potentially be used within the OncorPharm Field.
(l) "OncorPharm Technology" shall mean any and all Inventions,
Know-How and Improvements, which during the Term of this Agreement are either
discovered, invented, developed or otherwise acquired by OncorPharm or licensed
to OncorPharm with an express right to sublicense, which can be or could
potentially be used in the Oncor Field.
(m) "Patents" shall mean all United States of America and
foreign patent applications, including any addition, continuation,
continuation-in-part or division thereof or any substitute application therefor;
any patent issued with respect to such patent application, any reissue or
extension of such patent and any confirmation patent or registration patent or
United States and foreign patent or inventor's certificate.
(n) "Proprietary Rights" shall mean any and all Patents,
copyrights, trademarks, service marks, trade secret
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EXECUTION COPY
rights and similar rights owned by or licensed to a party to this Agreement.
(o) "Tangible Manifestations" shall mean and include
documents, drawings, specifications, scientific notebooks, processes,
formulations, protocols, devices and biological and chemical materials.
(p) "Technology" shall mean, collectively and individually,
Inventions, Know-how and Improvements
2. Grant.
(a) Subject to all of the terms and conditions of this
Agreement, Oncor hereby grants to OncorPharm an exclusive, worldwide license to
use the Oncor Technology within the OncorPharm Field to develop, make, have
made, use, market and sell any of the OncorPharm Products. The parties hereby
agree that OncorPharm's exclusive license to the Oncor Technology is subject to
the following:
(i) Oncor's continuing right to use the Oncor Technology
for internal, non-commercial research and development purposes
within or outside the OncorPharm Field; and
(ii) Oncor's continuing right to use the Oncor
Technology to develop, make, have made, use, market and sell Oncor
Products.
(b) Subject to all of the terms and conditions of this
Agreement, Oncor also hereby grants to OncorPharm an exclusive, worldwide
license to use any Additional Oncor Technology within the OncorPharm Field to
develop, make, have
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made, use, market and sell OncorPharm Products. The parties hereby agree that
the foregoing exclusive license to any Additional Oncor Technology is subject to
the following:
(i) The parties agreeing, on a case-by-case basis in
accordance with Section 6 hereof, mutually acceptable Commercial
Terms for such license (provided, however, that failure to reach
agreement upon Commercial Terms for any given Additional Oncor
Technology shall not affect OncorPharm's license to any other
Additional Oncor Technology);
(ii) Oncor's right to use the Additional Oncor
Technology for internal, non-commercial research and development
purposes within or outside the OncorPharm Field; and
(iii) Oncor's right to use the Additional Oncor
Technology to develop, make, have made, use, market and sell Oncor
Products.
(c) Subject to all of the terms and conditions of this
Agreement, OncorPharm hereby grants to Oncor an exclusive, worldwide license to
use any OncorPharm Technology within the Oncor Field to develop, make, have
made, use, market and sell Oncor Products. The parties hereby agree that the
foregoing exclusive license to OncorPharm Technology is subject to the
following:
(i) The parties agreeing, on a case-by-case basis in
accordance with Section 6 hereof, mutually acceptable Commercial
Terms for such license (provided, however, that failure to reach
agreement upon Commercial Terms for any given OncorPharm Technology
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shall not affect Oncor's license to any other OncorPharm
Technology);
(ii) OncorPharm's right to use the OncorPharm Technology
for internal, non-commercial research and development purposes
within or outside the Oncor Field; and
(iii) OncorPharm's right to use the OncorPharm
Technology to develop, make, have made, use, market and sell
OncorPharm Products.
(d) Oncor retains all rights in relation to the Oncor
Technology and the Additional Oncor Technology and OncorPharm retains all rights
in relation to the OncorPharm Technology, other than those rights granted under
this Section 2.
3. Rights to Sublicense.
Neither party shall have the right to grant sublicenses to
third parties of any rights licensed to it pursuant to the terms of this
Agreement, except with the prior written approval of the other party, which
approval shall not be unreasonably withheld; provided that in each case the
parties shall agree upon mutually acceptable Commercial Terms for such
sublicense and the party granting the sublicense to the third party shall remain
responsible and liable for the performance of all of such party's obligations
hereunder.
4. Royalties and Fees for Oncor Technology.
(a) On a semi-annual basis, OncorPharm shall pay Oncor, in
respect of each OncorPharm Product, an amount equal to * of that OncorPharm
Product
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* CONFIDENTIAL TREATMENT REQUESTED
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EXECUTION COPY
during the prior six month period, subject to the following adjustments:
(i) in the event that the OncorPharm Product is based in
whole or in part on Oncor Technology which is licensed by Oncor and
sublicensed to OncorPharm hereunder, OncorPharm shall pay to Oncor
the greater of (A) * of the OncorPharm Product and (B) the amount
of any royalties or fees which Oncor is obligated to pay to the
licensor(s) of such Oncor Technology (the "Third Party Amount")
plus * of the OncorPharm Product;
(ii) in the event that any of the OncorPharm Products
are based in part on technologies licensed directly to OncorPharm by
third parties, then the amount payable to Oncor after the
adjustments set forth in (i) above shall be reduced by the amounts
due to such third parties during the applicable six month period,
but in no event will the payments to Oncor be less than either (A)
the Third Party Amount plus * of the OncorPharm Product or (B) *of
the OncorPharm Product.
(b) The semi-annual periods shall run from January 1 to June
30 and from July 1 to December 31 each year. The payment due to Oncor shall be
made on or before the 60th day after the end of the applicable six month period.
The final payment under this Agreement shall be due on or before the 60th day
after the date of termination of this Agreement. On the date such payments are
due, OncorPharm shall also deliver a written report to Oncor of the amount of
Net Sales for each OncorPharm Product during the applicable period and the
result from the Calculation.
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5. Oncor Technology Transfer and Further Research and Development.
(a) As soon as reasonably practicable after the effective date
of this Agreement, Oncor agrees that it shall disclose and make available to
OncorPharm through their respective Coordinators (defined in Section 6(b)
below), all Oncor Technology including all Tangible Manifestations thereof.
Oncor and its Coordinator shall be responsible for ensuring that sufficient
information and assistance is provided by Oncor and its employees and
consultants to ensure that OncorPharm has a full and complete understanding and
sufficient information in relation to the Oncor Technology.
(b) OncorPharm hereby agrees that it shall use its best
efforts to research, develop and commercialize OncorPharm Products based on the
Oncor Technology, using the highest standards of conduct and with the object of
commercializing OncorPharm Products at the earliest possible time, taking into
consideration factors such as the availability of suitable financing, regulatory
compliance and technological restraints. If at any point during the term of this
Agreement Oncor believes that OncorPharm is not using its best efforts in
accordance with this Section 5(b) it may submit a notice to OncorPharm to such
effect. OncorPharm shall then have 60 days in which to produce a detailed
Development Plan for OncorPharm Products and to deliver the same to Oncor. The
parties shall then negotiate in good faith and agree upon the terms of the
Development Plan which OncorPharm will thereafter have to comply with in order
to avoid being in breach of its obligation to use best efforts under this
Section 5(b). If the parties are unable to reach agreement as to a Development
Plan or OncorPharm breaches the terms of such Development Plan, there shall be a
deemed material breach of this Agreement by OncorPharm and Oncor
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may enforce its rights to terminate the license to the Technology in question or
terminate the whole Agreement, in accordance with the provisions of Section 14
hereof.
6. Additional Oncor Technology and OncorPharm Technology Transfer.
(a) For the duration of this Agreement, the parties hereby
agree that Oncor shall promptly disclose Additional Oncor Technology to
OncorPharm and OncorPharm shall promptly disclose OncorPharm Technology to
Oncor, in accordance
with the terms of this Section 6.
(b) Each party shall appoint a representative who shall have
primary responsibility for, inter alia, coordinating the transfer of technology
between the parties in accordance with the terms of this Agreement (each such
representative referred to herein as a "Coordinator"). The parties may change
their respective Coordinator from time to time, provided that they give written
notice of such change to the other party's Coordinator. Oncor hereby appoints
Robert Hohman, Ph.D. as its initial Coordinator and OncorPharm appoints Jay
George, Ph.D. as its initial Coordinator.
(c) Once Additional Oncor Technology or OncorPharm Technology
has been sufficiently developed such that it is in a form which can be safely
and readily used by the other party, the nature of such Additional Oncor
Technology shall be communicated internally within Oncor to Oncor's Coordinator
and the nature of such OncorPharm Technology shall be communicated internally
within OncorPharm to OncorPharm's Coordinator. The Coordinator shall then
arrange for the preparation of a written summary of such Additional Oncor
Technology or OncorPharm
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Technology as applicable, which shall be promptly delivered to the Coordinator
of the other party in the form attached hereto as Exhibit A (the "Disclosure
Statement"). The Additional Oncor Technology or OncorPharm Technology disclosed
in the Disclosure Statement shall not be disclosed or made available to any
third party until the procedures set forth in this Section 6 have been
completed, except that Oncor may make prior disclosure or license such
Additional Oncor Technology if it is required to do so pursuant to the terms of
an agreement existing on the date hereof between Oncor and such third party.
(d) Upon receipt of a Disclosure Statement, the Coordinators
of each party shall then enter into discussions, in consultation with the
management of their respective company, to agree upon the Commercial Terms upon
which such Additional Oncor Technology or OncorPharm Technology shall be
licensed pursuant to the terms of this Agreement. Such discussions and
Commercial Terms shall be based upon the guidelines set forth in Exhibit B
attached hereto.
(e) If the Coordinators reach agreement over the Commercial
Terms in relation to such Additional Oncor Technology or OncorPharm Technology,
then each of the Coordinators shall execute the Disclosure Statement in
duplicate (bearing the agreed commercial terms) to indicate acceptance of the
terms set forth in the Disclosure Statement. The parties hereby confirm that
their respective Coordinator has full authority to execute such Disclosure
Statement on their behalf and that the other party may rely on Disclosure
Statements executed by such Coordinator which shall be binding upon the party
represented by such Coordinator. Each of the Coordinators shall retain one of
the duplicate originals of each Disclosure Statement and shall maintain a record
of each and every Disclosure Statement. Each Disclosure
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Statement shall form a part of and be incorporated into the terms of this
Agreement.
(f) In the event that the Coordinators cannot reach agreement
as to the Commercial Terms upon which such Additional Oncor Technology or
OncorPharm Technology shall be licensed, the determination of those Commercial
Terms shall first be submitted to the Chief Executive Officers of both parties
for resolution. In the event that the Chief Executive Officers fail to reach
agreement, the determination of the Commercial Terms shall be submitted to an
independent arbitrator in accordance with Section 16 hereof.
(g) Once a Disclosure Statement has been formally accepted by
each Coordinator in accordance with this Section 6, the Coordinator of the party
licensing the technology shall arrange for the preparation and delivery of
Tangible Manifestations of the licensed technology to the extent necessary to
provide the other party with sufficient information about such technology. The
parties respective employees and consultants may correspond and consult with the
employees and consultants of the other party with regard to the Additional Oncor
Technology or OncorPharm Technology disclosed in the Disclosure Statement,
provided that all such communications and consultations (i) are on a
confidential basis, (ii) are kept to the minimum necessary to permit
understanding of the Additional Oncor Technology or OncorPharm Technology, and
(iii) are made at reasonable times and do not unduly interfere with the
activities of the employee or consultant receiving the communication or consult.
7. Proprietary Rights.
(a) During the term of this Agreement, Oncor in relation to
the Oncor Technology and Additional Oncor Technology,
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and OncorPharm in relation to the OncorPharm Technology, will retain the primary
right and discretion to apply for, prosecute, maintain, enforce and defend all
Proprietary Rights therein; provided that, the Coordinators shall keep each
other reasonably informed and appraised of the status of Proprietary Rights in
relation to the Oncor Technology, the Additional Oncor Technology and the
OncorPharm Technology and shall give reasonable consideration to any suggestions
or recommendations of the other Coordinator concerning the preparation, filing,
prosecution, maintenance and defense thereof.
(b) If either party elects during the Term of this Agreement
not to prepare and file patent applications in respect of any potentially
patentable Invention owned by it, such party's Coordinator shall notify the
other party's Coordinator in writing on a confidential basis of such election,
and the other party will then have the right, but not the obligation, for a
period of thirty (30) days from the date of receipt of the notice, to assume
responsibility for preparation and filing of an appropriate patent application
covering such Invention. During said thirty (30) day period neither party shall
make any non-confidential disclosure or non-confidential use of the said
Invention. In the event that the Invention in question is jointly owned with one
or more third parties, the other party shall have the right, but not the
obligation, of assuming the first party's responsibilities for preparation and
filing of an appropriate patent application for such Invention, subject to any
arrangements agreed with the third party joint owner(s) of the Invention.
(c) If either party elects during the Term of this Agreement
to allow any Patent or patent application covering an Invention within the Oncor
Technology, the Additional Oncor Technology or the OncorPharm Technology to
lapse or become
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abandoned without first having filed a substitute, such party's Coordinator
shall notify the other party's Coordinator of such election at least thirty (30)
days prior to the date upon which such Patent or patent application shall lapse
or become abandoned, and the other party shall thereupon have the right, but not
the obligation, to assume responsibility for the prosecution, maintenance and
defense thereof. In the event that the Patent of patent application in question
is jointly owned with one or more third parties, the other party shall have the
right, but not the obligation, of assuming the first party's responsibilities
for the prosecution, maintenance and defense thereof, subject to any
arrangements agreed with the third party joint owner(s) of the Patent or patent
application. If a party elects to assume responsibility for any Patent or patent
application pursuant to this Section 7(c), then such party may become the owner
of all of the other party's rights in such Patent or patent application and may
require the other party to assign all of its right, title and interest to such
Patent or patent application to such party.
(d) Each party shall use reasonable efforts to cooperate with
the other in connection with the preparation, filing, prosecution, maintenance
and defense of the Proprietary Rights of the other relating to the Oncor
Technology, the Additional Oncor Technology or the OncorPharm Technology. The
party that is primarily responsible for preparation, filing, prosecution,
maintenance and defense of a given Proprietary Right shall bear all expenses
associated therewith and shall reimburse the reasonable out-of-pocket expenses
incurred by the other party in cooperating therewith.
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8. Enforcement.
(a) Each party will notify the other promptly in writing if it
discovers any infringement by a third party of any of the Proprietary Rights to
either the Oncor Technology, the Additional Oncor Technology or the OncorPharm
Technology.
(b) Oncor shall have the sole right in relation to Oncor
Technology and Additional Oncor Technology, and OncorPharm shall the sole right
in relation to OncorPharm Technology, to enforce any Proprietary Right to such
technology against any infringer or alleged infringer thereof, but shall at all
times keep the other party's Coordinator informed as to the status thereof.
Oncor in respect of Oncor Technology and Additional Oncor Technology, and
OncorPharm in respect of OncorPharm Technology, may institute suit against any
such infringer or alleged infringer and control, settle, and defend such suit in
a manner consistent with the terms and provisions hereof and recover, for its
account, any damages, awards or settlements resulting therefrom. This right to
sue for infringement shall not be used in an arbitrary or capricious manner. The
party that has the right to institute suit against an infringer shall bear all
expenses incurred in connection therewith. The other party shall reasonably
cooperate with any such litigation at the expense of the party instituting the
litigation.
(c) If a party elects not to enforce any Proprietary Right it
holds in relation to either the Oncor Technology, the Additional Oncor
Technology or the OncorPharm Technology, it shall so notify the other party in
writing within sixty (60) days of receiving notice that an infringement exists,
and the other party may, in its sole judgement and at its own expense, do so and
control, settle, and defend such suit in a
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manner consistent with the terms and provisions hereof, and recover, for its own
account, any damages, awards or settlements resulting therefrom. The party that
holds such Proprietary Right shall reasonably cooperate with such litigation at
the expense of the party instituting the litigation.
9. Publications.
(a) Neither party shall make any publication, public
announcement, press release or other disclosure which incorporates or makes
reference to the other party's Technology, either directly or indirectly, except
as may be legally required, without first obtaining the approval of the other
party upon the nature and text of such announcement or disclosure, which
approval shall not be unreasonably withheld. This restriction does not apply to
the dissemination of information that has previously been approved and released
in accordance with this Section 9(a). Each party shall use its best efforts to
inform the other party of any proposed announcement or disclosure in sufficient
time prior to public release, and shall use its best efforts to provide the
other party with a written copy thereof, in order to allow the other party to
comment upon such announcement or disclosure.
(b) Neither party may submit to a publisher any manuscript or
abstract containing information relating to the other party's Technology for the
purposes of publication, without first obtaining the written consent of the
other party, which consent shall not be unreasonably withheld. If the other
party, consents to such submission, then simultaneously with submission to the
publisher, copies of the manuscript or abstract shall also be sent to the other
party.
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10. Confidentiality.
(a) Oncor and OncorPharm each agree that all Technology, as
well as other business, marketing and financial information of the other party
which is not generally known to the public and which the other party treats as
confidential (the "Proprietary Information") are the confidential property of
the disclosing party. Except as expressly and unambiguously authorized
hereunder, each party shall hold in confidence and not disclose or use any
Proprietary Information received from the other party and shall similarly
require its employees and contractors to sign written agreements with
confidentiality and non-use provisions substantially similar to this Section 10.
The receiving party shall not be obligated under this Section 10 with respect to
information the receiving party can document:
(i) is or has become published or otherwise readily
available to the public without restriction through no fault of the
receiving party or its employees or agents; or
(ii) is received without restriction from a third party
lawfully in possession of such information and lawfully empowered to
disclose such information; or
(iii) was rightfully in the possession of the receiving
party without restriction prior to its disclosure by the disclosing
party; or
(iv) is independently developed by the receiving party
by employees without access to the other party's similar Proprietary
Information.
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(b) The four above exceptions to the confidentiality
provisions of this Agreement do not, and should not be interpreted to, confer
any license or other rights to the receiving party in any of the information
referred to in said four exceptions. Nothing herein shall permit the receiving
party to disclose or use, except as explicitly permitted elsewhere in this
Agreement, Proprietary Information of the disclosing party and then only on an
"as-needed" basis for purposes of this Agreement. Each party shall notify the
other party promptly upon discovery of any unauthorized use of disclosure of the
other's Proprietary Information. The obligations of this Section 10 shall
survive any termination or expiration of the Agreement for a period of five (5)
years after the disclosure of any such Proprietary Information.
(c) Upon any termination of this Agreement, each party will
promptly return or destroy any Proprietary Information of the other and any
copies, extracts and derivatives thereof, except as otherwise set forth in this
Agreement.
(d) Each party acknowledges that its breach of this Section 10
would cause irreparable injury to the other for which monetary damages are not
an adequate remedy. Accordingly, a party will be entitled to seek injunctions
and other equitable remedies in the event of such a breach by the other.
(e) In the event that either of the parties receives a request
or demand to disclose all or any part of the Proprietary Information or the
existence of this Agreement under the terms of a subpoena or order issued by a
court of competent jurisdiction or otherwise, the recipient party agrees to (i)
immediately notify the other party of the existence, terms and circumstances
surrounding such a request so that the other party may seek a protective order
or other appropriate relief or remedy
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or waive compliance with this Section 10, (ii) consult with the other party on
the advisability of taking steps to resist or narrow such request, and (iii) if
disclosure is required, disclose such information and, subject to reimbursement
by the other party of reasonable expenses, exercise best efforts to obtain an
order or other reliable assurance that confidential treatment will be accorded
to such disclosed information.
11. Representations, warranties and covenants of Oncor.
Oncor hereby represents, warrants and covenants to OncorPharm
as follows:
(a) Except to the extent that Oncor has licensed Oncor
Technology and may license Additional Oncor Technology from third parties, Oncor
is the legal and equitable owner of the Oncor Technology at the date hereof and
shall be the legal and equitable owner of the Additional Oncor Technology
licensed to OncorPharm pursuant to the terms of this Agreement.
(b) As of the date hereof, all licenses from third parties to
Oncor in respect of parts of the Oncor Technology are in full force and effect
and Oncor is in compliance in all material respects with all of its material
obligations thereunder; Oncor has heretofore delivered to OncorPharm a true and
complete copy of each of such licenses and there have been no amendments or
modifications thereof, otherwise than has been disclosed to OncorPharm.
(c) Oncor has no knowledge without independent investigation
as of the date of this Agreement (i) of any material information, not heretofore
disclosed to OncorPharm, relating to the potential safety or efficacy of the
Oncor Technology, or (ii) that the actual and proposed use of the Oncor
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Technology licensed or sublicensed to OncorPharm hereunder, will infringe upon
any rights of any third party.
(d) During the Term of this Agreement Oncor shall promptly
disclose to OncorPharm any material information, not disclosed to OncorPharm,
relating to the potential safety or efficacy of the Oncor Technology or
Additional Oncor Technology.
(e) Oncor has the corporate power and authority to execute and
deliver this Agreement and perform its obligations hereunder, and the execution,
delivery and performance of this Agreement have been duly and validly authorized
and upon execution and delivery by Oncor will constitute a valid and binding
agreement of Oncor enforceable against it in accordance with its terms.
12. Representations, warranties and covenants of
OncorPharm.
OncorPharm hereby represents, warrants and covenants to Oncor,
both at the date hereof and at all times during the Term of this Agreement, as
follows:
(a) Except to the extent that OncorPharm may license
OncorPharm Technology from third parties, OncorPharm is or shall be the legal
and equitable owner of the OncorPharm Technology licensed to Oncor, in
accordance with the terms of this Agreement.
(b) OncorPharm shall promptly disclose to Oncor any material
information, not previously disclosed to Oncor, relating to the potential safety
or efficacy of the Oncor Technology, the Additional Oncor Technology or the
OncorPharm
Technology.
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(c) OncorPharm has the corporate power and authority to
execute and deliver this Agreement and perform its obligations hereunder, and
the execution, delivery and performance of this Agreement have been duly and
validly authorized and upon execution and delivery by OncorPharm will constitute
a valid and binding agreement of OncorPharm enforceable against it in accordance
with its terms.
13. Regulatory matters.
(a) Each party agrees that its conduct in performing its
obligations under this Agreement shall conform in all material respects to all
applicable laws and regulations of the United States of America and foreign
governments (and political subdivisions thereof).
14. Term and Termination.
(a) This Agreement shall be effective as of the date first
written above and remain in effect for a period of five (5) years or until
earlier terminated by mutual agreement of the parties hereto (the "Initial
Term"). The Initial Term of this Agreement is automatically renewable for
additional one (1) year periods unless either party hereto notifies the other
party of its desire to terminate this Agreement at least sixty (60) days prior
to the end of the Initial Term of this Agreement or any extension thereof (the
Initial Term and any extensions thereof collectively, the "Term"). This
Agreement shall automatically terminate if either party shall become bankrupt or
insolvent, or if the business of either party shall be placed in the hands of a
receiver, assignee or trustee for the benefit of creditors, whether voluntary or
involuntary.
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(b) Upon any breach or default of any of the representations,
warranties or covenants set forth in this Agreement, the breaching or defaulting
party shall be given notice of such breach or default in writing and a period of
ninety (90) days after receipt of such notice to correct the breach or default.
If (i) the default or breach (A) is material to this Agreement and (B) is not
corrected within said ninety (90) day period and the breaching or defaulting
party has not taken reasonable steps to cure the same, and (ii) the party not in
breach or default has fully complied with all of its obligations under this
Agreement, the party not in breach or default shall have the right to terminate
the license to the Technology in question or terminate the whole Agreement.
15. Effects of Termination.
(a) In the event of a termination of this Agreement for any
reason whatsoever:
(i) OncorPharm shall have the right and license to
continue to use the Oncor Technology and/or Additional Oncor
Technology previously licensed to it hereunder, upon the same terms,
until such time as OncorPharm ceases to market the OncorPharm
Product which uses or incorporates such Technology; and
(ii) Oncor shall have the right and license to continue
to use the OncorPharm Technology previously licensed to it
hereunder, upon the same terms, until such time as Oncor ceases to
market the Oncor Product which uses or incorporates such Technology.
(b) Sections 4, 10 and 16, shall survive termination.
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16. Arbitration.
In the event of any dispute arising in relation to any aspect of
this Agreement, and the Coordinators being unable to reach a settlement of such
a dispute, then the determination of such dispute shall first be submitted to
the Chief Executive Officers of both parties for resolution. In the event that
the Chief Executive Officers fail to reach agreement, then such dispute shall be
submitted to The American Arbitration Association in Washington, D.C. for final
and binding resolution of such dispute. The arbitration shall be conducted in
accordance with the then prevailing commercial arbitration rules of The American
Arbitration Association. The parties agree to abide by all decisions and any
award rendered in such proceedings. Such decisions and awards rendered by the
arbitrator shall be final and conclusive and may be entered in any court having
competent jurisdiction as a basis of judgment and of orders for enforcement
thereof. All such controversies, claims or disputes in connection with this
Agreement shall be settled in this manner in lieu of any action at law or
equity. The parties shall keep confidential the existence and determination of
any claim, controversy or dispute between them in connection with this
Agreement, unless otherwise required by law.
17. Miscellaneous.
(a) Notices under this Agreement shall be sufficient only if
personally delivered, delivered by a major commercial rapid delivery courier
service, mailed by certified or registered mail, return receipt requested,
postage prepaid, or sent via facsimile to a party at its address specified
below, or such other address as is provided by the other party in accordance
with this Section.
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If to Oncor:
Oncor, Inc.
209 Perry Parkway
Gaithersburg, MD 20877
For the attention of: Mr. Stephen Turner
Fax: 301-330-3940
Tel: 301-963-3500
If to OncorPharm:
200 Perry Parkway
Gaithersburg, MD 20877
For the attention of: Dr. William A. Ryan
Fax: 301-208-6997
Tel: 301-527-2056
(b) This Agreement is executed with the understanding that it,
together with any agreed and accepted Disclosure Statements, embodies the entire
agreement with respect to the subject matter hereof between the parties, that
this Agreement supersedes all previous agreements and arrangements with respect
to the subject matter hereof and that there are no prior representations,
warranties or agreements relating thereto. This Agreement may be modified only
by a duly executed writing executed on behalf of the parties hereto.
(c) A delay or failure to exercise any right shall not be
deemed to be a waiver. Any waiver of any right or condition shall not apply to
any other time or right.
(d) This Agreement does not create any agency relationship
between either of the parties and neither party shall hold itself out as being
an agent for the other.
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(e) Neither party shall be liable for failures and delays in
performance due to matters and circumstances beyond its reasonable control.
(f) The prevailing party in any legal action brought to
enforce this Agreement shall be entitled to legal fees and costs. If any
provision of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal or unenforceable, that provision shall be limited or eliminated
to the minimum extent necessary so that this Agreement shall otherwise remain in
full force and effect and enforceable.
(g) This Agreement shall be governed and construed in
accordance with the laws of the State of Maryland and the United States without
regard to the conflicts of laws provisions thereof.
(h) This Agreement may be executed simultaneously in one or
more counterparts, each of which will be deemed an original.
(i) This Agreement and the rights hereunder may not be
assigned without the prior written consent of each party and shall be binding
upon and inure to the benefit of and be enforceable by any permitted successors
and assigns of the parties hereto.
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IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this Agreement as of the date set first set forth
above.
ONCOR, INC.,
a Maryland corporation
By: /s/ Stephen Turner
----------------------------
Name: Mr. Stephen Turner
Title: Chairman & CEO
ONCORPHARM, INC.,
a Delaware corporation
By: /s/ William A. Ryan, Jr.
----------------------------
Name: Dr. William A. Ryan, Jr.
Title: President & CEO
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Exhibit A
Form of Disclosure Statement
CONFIDENTIAL
To: [Coordinator of other party]
From:
Pursuant to the terms of that certain Technology License Agreement
(the "License Agreement") dated as of February 1, 1995, by and between Oncor,
Inc. and OncorPharm, Inc., I hereby give you notice of the following:
[insert summary description of either Additional Oncor Technology or OncorPharm
Technology, as appropriate]
Signed: ________________________________
- ------------------------------------------------------------------------------
ACCEPTED:
Terms for inclusion of the above within the License Agreement:
Signed:____________________ Signed:_______________________
Name:____________________ Name:_______________________
Title:____________________ Title:_______________________
Date:____________________ Date:_______________________
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Exhibit B
Guidelines for Commercial Terms
The Parties agree that in determining the Commercial Terms for a
license from OncorPharm to Oncor in respect of Additional Oncor Technology, or
from Oncor to OncorPharm in respect of OncorPharm Technology, the following
factors shall be considered:
For Additional Oncor Technology
Royalty rates and/or other payment arrangements shall be determined
by taking into consideration the following factors:
*
The parties shall also agree upon commitments from OncorPharm to
diligently develop and commercialize the Additional Oncor Technology within the
OncorPharm Field. Such commitments may include any or all of the following or
other commitments or arrangements as the parties shall mutually agree:
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* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
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*
For OncorPharm Technology.
Royalty rates and/or other payment arrangements shall be determined
by taking into consideration the following factors:
*
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* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
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*
The parties shall also agree upon commitments from Oncor to
diligently develop and commercialize the OncorPharm Technology within the Oncor
Field. Such commitments may include any or all of the following or other
commitments or arrangements as the parties shall mutually agree:
*
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* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
EXHIBIT 11.1
CODON PHARMACEUTICALS, INC.
EARNINGS PER SHARE
CALCULATION OF SHARES USED IN COMPUTING
PRO FORMA NET LOSS PER SHARE
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
Common Stock............................................................... 928,271 968,754
Convertible Preferred Stock................................................ 866,608 1,006,334
Treasury Stock effect of 157,514 options to acquire Common Stock granted in
the last twelve months................................................... 61,370 61,370
----------------- ------------------
Shares used in computing pro forma net loss per share (unaudited).......... 1,856,249 2,036,458
----------------- ------------------
----------------- ------------------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Washington, D.C.
October 30, 1996
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
We, the undersigned directors and/or officers of Codon Pharmaceuticals,
Inc., a Delaware corporation (the "Company"), hereby severally constitute and
appoint Dr. William A. Ryan, Jr. and Mr. Theodore D. Pennington, and each of
them singly, with full power of substitution and resubstitution, our true and
lawful attorneys, and each of them singly, with full power to him to sign for
us, in our names and in the capacities indicated below, the Registration
Statement on Form SB-2 filed with the Securities and Exchange Commission, and
any and all amendments to said Registration Statement (including post-effective
amendments) and any Registration Statement filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, in connection with the registration
under the Securities Act of 1933, as amended, of equity securities of the
Company, and to file or cause to be filed the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as each of them might
or could do in person, and hereby ratifying and confirming all that said
attorney or his substitute or substitutes, shall do or cause to be done by
virtue of this Power of Attorney.
This Power of Attorney may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same Power of Attorney.
WITNESS our hands on this th day of October, 1996.
/s/ Stephen Turner /s/ William A. Ryan
- ------------------------------- --------------------------------
Stephen Turner William A. Ryan, Jr., M.D.
Chairman of the Board of Directors President, Chief Executive Officer
and Director
/s/ Theodore D. Pennington
- -------------------------------
Theodore D. Pennington
Chief Financial Officer, Vice
President, Finance and Administration,
Treasurer and Secretary
/s/ John Pappajohn /s/ Julius A. Vida
- ------------------------------- -------------------------------
John Pappajohn Julius A. Vida, Ph.D., M.B.A.
Director Director
/s/ Sandy B. Primrose
- -------------------------------
Sandy B. Primrose, Ph.D.
Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001024970
<NAME> CODON PHARMACEUTICALS, INC.
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 SEP-30-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996
<CASH> 791,030 883,882
<SECURITIES> 510,000 366,924
<RECEIVABLES> 78,990 46,181
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 15,871 34,096
<PP&E> 1,473,740 1,909,539
<DEPRECIATION> (148,577) (405,583)
<TOTAL-ASSETS> 1,325,163 1,503,956
<CURRENT-LIABILITIES> 152,367 172,892
<BONDS> 0 0
0 0
2,964,503 5,969,474
<COMMON> 9,688 9,688
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<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1,887,131) (2,925,446)
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<INCOME-CONTINUING> (1,887,131) (2,925,446)
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<CHANGES> 0 0
<NET-INCOME> (1,887,131) (2,925,446)
<EPS-PRIMARY> (1.02) (1.44)
<EPS-DILUTED> 0 0
</TABLE>
