<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1998
REGISTRATION NO. 333-52901
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
SIGNAL PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 8731 94-3174286
(Prior to reincorporation) (Primary Standard Industrial (I.R.S. Employer
DELAWARE Classification Code Number) Identification No.)
(After reincorporation)
(State or jurisdiction
of incorporation or organization)
</TABLE>
5555 OBERLIN DRIVE
SAN DIEGO, CALIFORNIA 92121
(619) 558-7500
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------------
ALAN J. LEWIS, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SIGNAL PHARMACEUTICALS, INC.
5555 OBERLIN DRIVE
SAN DIEGO, CALIFORNIA 92121
(619) 558-7500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------------
Copies to:
<TABLE>
<S> <C>
FREDERICK T. MUTO, ESQ. J. STEPHAN DOLEZALEK, ESQ.
MICHAEL A. NEWMAN, ESQ. TIMOTHY R. CURRY, ESQ.
COOLEY GODWARD LLP BROBECK, PHLEGER & HARRISON LLP
4365 EXECUTIVE DRIVE TWO EMBARCADERO PLACE
SUITE 1100 2200 GENG ROAD
SAN DIEGO, CA 92121 PALO ALTO, CA 94303
(619) 550-6000 (650) 424-0160
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 6, 1998
PROSPECTUS
2,500,000 SHARES
LOGO
COMMON STOCK
All of the 2,500,000 shares of Common Stock offered hereby are being sold
by the Company. Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price of the Common Stock will be between $11.00 and $13.00 per share.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Company has applied to have
the Common Stock approved for quotation on the Nasdaq National Market under the
symbol SIGL.
The DuPont Merck Pharmaceutical Company ("DuPont Merck") has entered into a
collaborative agreement with the Company. As part of such collaboration, DuPont
Merck has agreed to purchase $2.0 million of the Company's Common Stock in a
private transaction concurrent with the closing of this offering at a price per
share equal to the initial public offering price. See "Business--Research and
Development Partners."
------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per Share........................ $ $ $
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Total(3)......................... $ $ $
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</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $600,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 375,000 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1998, at the office of the agent of Hambrecht
& Quist LLC in New York, New York.
HAMBRECHT & QUIST
BANCAMERICA ROBERTSON STEPHENS
LEHMAN BROTHERS
, 1998
<PAGE> 3
[Graphic depicting the integrated discovery of gene regulating targets and drugs
and
the gene regulating drug discovery programs of the Company. The left side of the
graphic depicts the progression from target discovery to drug discovery to drug
commercialization. The right side of the graphic depicts the progression of
cellular models of disease from identification and validation of gene regulating
targets to high throughput screening to combinatorial, computational and
structural chemistry to gene regulating drugs. The base of the graphic
elucidates the Company's gene regulating drug discovery programs: autoimmunity,
inflammation, bone metabolism, neurology, cardiovascular, cancer and virology.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR OVER-ALLOTMENTS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
Signal Pharmaceuticals(TM) and the Company's stylized logo are trademarks
of the Company. All other trade names or trademarks appearing in this Prospectus
are the property of their respective owners.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. The Common Stock offered hereby involves a high degree of
risk. See "Risk Factors."
THE COMPANY
Signal Pharmaceuticals, Inc. ("Signal" or the "Company") is an integrated
target and drug discovery company focused on identifying new classes of small
molecule drugs that regulate genes and the production of disease-causing
proteins. The Company applies advanced cellular, molecular and genomic
technologies to map gene regulating pathways in cells and to identify
proprietary molecular targets that activate or deactivate genes and result in
disease. Signal is advancing the application of genomics beyond identifying and
elucidating the functions of genes to designing novel classes of
disease-modifying drugs that selectively regulate the activation of
disease-causing genes. The Company conducts its target and drug discovery
programs both independently and with its five collaborative partners: Ares
Trading S.A. ("Ares-Serono"), an affiliate of Ares-Serono S.A.; the Roche
Bioscience division ("Roche Bioscience") of Syntex (U.S.A.) Inc., a member of
the Roche Group of Companies; Nippon Kayaku Co., Ltd. ("Nippon Kayaku"); N.V.
Organon ("Organon"), a business unit of Akzo Nobel N.V.; and The DuPont Merck
Pharmaceutical Company ("DuPont Merck").
Signal's target and drug discovery programs are focused on intracellular
gene regulating pathways that play a fundamental role in controlling cell
proliferation, cell metabolism and cell death, as well as the replication of
viral pathogens. These pathways provide important new targets for treating
autoimmune and inflammatory diseases, diseases associated with bone metabolism,
neurological and cardiovascular diseases, cancer and viral infections. Pathways
targeted by Signal include the Nuclear Factor-kB ("NF-kB") pathway, the jun
N-terminal kinase ("JNK") and p38 mitogen-activated protein kinase ("MAP
kinase") pathways, an estrogen-regulated gene ("ERG") pathway and five viral
pathways. These pathways provide multiple drug targets for therapeutic
intervention, many of which regulate the activation of multiple genes involved
in disease. The Company pursues patent exclusivity for its drug targets and
related drug leads, and owns or has licensed five issued U.S. patents relating
principally to MAP kinase pathways, 21 pending U.S. patents and 43 pending
foreign patents.
Signal has developed an integrated target and drug discovery platform that
enables the Company to proceed rapidly from target identification and validation
through lead discovery and optimization. Signal's target discovery capabilities
combine proprietary human cell lines with molecular biology and functional
genomic and proteomic technologies to identify key gene regulating pathways and
associated drug targets. To date, Signal has built a portfolio of 18 clinically
important drug targets, including IkB kinases ("IKKs"), JNKs and p38-2 (a
subtype of p38). The Company's drug discovery capabilities include proprietary
biochemical and cell-based screening assays and high throughput screening
systems for rapid, target-directed screening of diverse compound libraries. The
Company develops drug leads by integrating combinatorial and computational
chemistry with structure-based drug design technologies to optimize the activity
of drug leads on gene regulating targets. Applying its expertise in gene
regulating kinase targets, Signal has developed a kinase array screening
technology ("KAST") and a signaling kinase inhibitor library ("SKIL") to enhance
the speed and quality of Signal's drug discovery activities. The Company has
initiated screening in 16 drug discovery assays and has demonstrated efficacy of
certain of its drug leads in animal models of arthritis and osteoporosis.
Signal's business objective is to develop and commercialize a broad
pipeline of clinically important drug targets and drug candidates, initially in
collaboration with pharmaceutical partners and academic institutions. These
collaborations facilitate the discovery of targets and drug leads in multiple
therapeutic fields, significantly expanding the Company's commercial
opportunities and diversifying Signal's scientific risk. Pharmaceutical partners
also provide Signal with multiple sources of revenue, as well as substantial
development, manufacturing and marketing resources, which reduce the Company's
financial risk. In addition to its five current pharmaceutical partners, Signal
has target discovery
3
<PAGE> 5
collaborations with researchers at 24 academic institutions. The Company's
strategy is to retain U.S. co-commercialization rights in certain of its
pharmaceutical collaborations. To date, Signal has secured U.S.
co-commercialization rights in its collaboration with Ares-Serono and worldwide
co-commercialization rights (excluding Japan) in its drug development
collaboration with Nippon Kayaku. On a select basis, Signal plans to
independently develop and commercialize drugs for specialty clinical markets in
the U.S., principally in the fields of oncology and inflammation.
To date, Signal has entered into collaborative discovery agreements with
five pharmaceutical partners: Ares-Serono for the discovery and development of
small molecule modulators of the NF-kB pathway to treat autoimmune,
cardiovascular and neurodegenerative diseases and cancer; Roche Bioscience for
the development of human neuronal cell lines for use in discovering new classes
of drugs for the treatment of pain and other disorders of the peripheral nervous
systems ("PNS"); Nippon Kayaku for the optimization of drug leads for the
treatment of PNS disorders, including neuropathies resulting from diabetes and
cancer chemotherapy; Organon for the identification of genomic targets and the
development of screening assays for neurological, cardiovascular, gynecological
and other diseases; and DuPont Merck for the identification of new classes of
anti-viral drugs that inhibit gene regulating targets of the hepatitis C virus
("HCV") and the human immunodeficiency virus ("HIV"). Signal also has licensed
worldwide rights for a drug lead discovered by the Company to a sixth partner,
Tanabe Seiyaku Co., Ltd. ("Tanabe"), for the treatment of autoimmune,
inflammatory and other diseases. The Company has multiple additional partnering
opportunities in its other drug discovery programs.
The Company was incorporated in California in July 1992 and intends to
reincorporate in Delaware prior to the completion of this offering. Unless the
context otherwise requires, references in this Prospectus to "Signal" and the
"Company" refer to Signal Pharmaceuticals, Inc., a Delaware corporation, and,
where applicable, to its California predecessor. The Company's offices are
located at 5555 Oberlin Drive, San Diego, California 92121, and its telephone
number is (619) 558-7500.
THE OFFERING
Common Stock offered by the
Company............................. 2,500,000 shares
Common Stock to be outstanding
after the offering................ 9,433,929 shares(1)
Use of proceeds..................... For research and development, including
internal discovery programs and joint
research and development with corporate
and academic collaborators, the
acquisition of research and development
technologoies, compound screening
libraries and product rights, capital
investments and working capital and
general corporate purposes
Proposed Nasdaq National Market
Symbol.............................. SIGL
4
<PAGE> 6
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue......................... $ -- $ 22 $ 299 $ 3,933 $ 7,579 $ 1,549 $ 4,644
Expenses:
Research and development... 682 3,799 5,173 7,724 10,337 2,459 3,288
General and
administrative........... 603 1,288 1,937 2,471 2,791 671 1,203
------- ------- ------- ------- ------- ------- -------
Total expenses........... 1,285 5,087 7,110 10,195 13,128 3,130 4,491
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations... (1,285) (5,065) (6,811) (6,262) (5,549) (1,582) 153
Interest income (expense),
net........................... (45) 161 329 53 (192) (92) 182
------- ------- ------- ------- ------- ------- -------
Net income (loss)............... $(1,330) $(4,904) $(6,482) $(6,209) $(5,740) $(1,673) $ 335
======= ======= ======= ======= ======= ======= =======
Pro forma net income (loss) per
share, basic and diluted...... $ (1.20) $ 0.05
======= =======
Shares used in computing
pro forma net income (loss)
per share(2):
Basic...................... 4,776 6,628
Diluted.................... 4,776 6,875
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED(3)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 20,671 $ 49,971
Working capital............................................. 14,635 43,935
Total assets................................................ 24,755 54,055
Long-term obligations (including current portion)........... 2,661 2,661
Accumulated deficit......................................... (24,410) (24,410)
Total stockholders' equity.................................. 15,649 44,949
</TABLE>
- ------------------------------
(1) Based on the number of shares outstanding at March 31, 1998. Includes the
sale of 166,666 shares of Common Stock to DuPont Merck in a private
transaction concurrent with the closing of this offering at an assumed
initial public offering price of $12.00 per share. Excludes 1,581,097 shares
of Common Stock reserved for issuance under the Company's stock option
plans, of which 662,676 shares were subject to outstanding options as of
March 31, 1998 at a weighted average exercise price of $0.87 per share.
Subsequent to March 31, 1998, the Company granted options to purchase an
aggregate of 221,525 shares of Common Stock at a weighted average exercise
price of $2.00 per share. Also excludes 62,500 shares of Common Stock
reserved for issuance upon exercise of outstanding warrants as of March 31,
1998 at an exercise price of $8.40 per share. See "Capitalization,"
"Management--Equity Incentive Plan" and Note 5 of Notes to Financial
Statements.
(2) Computed on the basis described in Note 1 of Notes to Financial Statements.
(3) As adjusted to reflect the receipt of $1,999,992 from DuPont Merck in
exchange for 166,666 shares of Common Stock to be issued in a private
transaction concurrent with the closing of this offering and the sale of
2,500,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $12.00 per share and the receipt of the estimated proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
------------------------------
Except as otherwise noted, all information in this Prospectus assumes: (i)
no exercise of the Underwriters' over-allotment option, (ii) a 4-for-1 reverse
split of the Common Stock and the Company's reincorporation in Delaware, both to
be effected prior to the completion of this offering, and (iii) the conversion
of all outstanding shares of Series A, B, C, C-1, D, E and F Preferred Stock
(collectively, the "Preferred Stock") into shares of Common Stock, which will
occur upon the closing of the offering. See "Description of Capital Stock,"
"Underwriting" and Notes to Financial Statements.
5
<PAGE> 7
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Prospectus. The following risk factors
should be considered carefully in addition to other information in this
Prospectus before purchasing the shares of Common Stock offered hereby. See
"Special Note Regarding Forward-Looking Statements" on page 17 of this
Prospectus.
Limited Operating History; Early Stage of Development. The Company was
formed in 1992, has a limited operating history and is at an early stage of
development. All of the Company's active compounds are in the research stage,
and there can be no assurance that any such compounds will enter clinical
trials, be commercialized or will generate revenue in the future. The Company
has experienced significant operating losses since inception and, as of March
31, 1998, had an accumulated deficit of approximately $24.4 million. The Company
expects to continue to incur significant operating losses for the foreseeable
future as it continues to incur increasing costs of research and development,
acquisition of technologies, compound libraries and product rights, expansion of
its operations and initiation of clinical trials. The Company has completed less
than six years of operations, and its business is subject to all of the risks
inherent in the establishment of a new business enterprise, including all of the
problems, expenses and delays frequently encountered in connection with the
development of pharmaceutical products, the utilization of unproven technology
and the competitive environment in which the Company operates. Accordingly, the
extent of future losses and the time required to achieve profitability, if ever,
is highly uncertain. Payments, if any, from corporate collaborators, interest
income, and academic and governmental grants are expected to be the Company's
only sources of revenue for the foreseeable future. The Company has not yet
received any milestone payments under its collaborative agreements. Royalties or
other revenue from commercial sales of products based upon any target or
compound identified by the Company are not expected for a number of years, if at
all, and are dependent on the Company's ability, alone or with others, to
successfully research, develop, obtain regulatory approval for, manufacture and
market its products under development. See "--Dependence on Pharmaceutical and
Biopharmaceutical Collaborations and Milestone Payments," "Selected Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Business--Research and Development Partners."
Technological Uncertainty. Target and drug discovery and development
methods directed toward intracellular signaling pathways and gene regulation are
relatively new. The Company is working on a number of costly long-term discovery
and development projects which involve experimental and unproven methods and
which may ultimately prove unsuccessful. There is limited scientific
understanding relating to the role of genes in most diseases, and relatively few
products based on gene discoveries have been developed and commercialized. In
addition, the Company is not aware of any drugs that have been developed and
commercialized that were designed specifically to target intracellular signaling
pathways. There can be no assurance that the Company's techniques for
elucidating intracellular signaling pathways and identifying drug targets will
lead to the discovery or development of commercial pharmaceutical products.
Moreover, as the technology of the Company and its competitors continues to
evolve, the Company will need to continue to develop novel and innovative
technologies, enter into relationships with additional corporate collaborators
and aggressively pursue patent and other protection for the Company's
proprietary rights. The Company's failure to properly address the changing
technological landscape, enter into collaborations to pursue development of its
technologies or develop additional competitive technologies could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Uncertainties Associated with Product Development. The development of new
pharmaceutical products is highly uncertain and subject to a number of
significant risks. Lead compounds and drug candidates that appear to be
promising at early stages of development may not advance to and through clinical
trials and reach the market for a number of reasons. Such reasons include the
possibilities that the drug candidates will be found ineffective or cause
harmful side effects during preclinical testing or
6
<PAGE> 8
clinical trials, fail to receive necessary regulatory approvals, be difficult to
manufacture on a large scale, be uneconomical, fail to generate market demand or
be precluded from commercialization by proprietary rights of third parties. To
date, none of the compounds generated by the Company or through its
collaborations has been approved for clinical testing, and there can be no
assurance that any of such current or proposed compounds will be submitted for
clinical testing. In addition, the safety and efficacy of compounds generated by
the Company or through its collaborations has not been conclusively demonstrated
in animal models or humans. If any potential products are identified by the
Company, either independently or through its collaborations, such products will
require significant additional development, extensive preclinical and clinical
testing, regulatory approval and additional investment in manufacturing scale-up
and sales and marketing prior to their commercialization, and there can be no
assurance that any of these efforts will be successful. No assurance can be
given that any of the Company's discovery and development programs will be
successfully completed, any investigational new drug application ("IND") will be
accepted by the United States Food and Drug Administration (the "FDA") or other
applicable regulatory authorities, clinical trials will commence or be completed
as planned, required regulatory approvals will be obtained on a timely basis, if
at all, or any products for which approval is obtained will be commercially
successful. If any of the Company's or its collaborators' development programs
are not successfully completed, required regulatory approvals are not obtained
or products for which approvals are obtained are not commercially successful,
the Company's business, financial condition and results of operation could be
materially adversely affected.
Dependence on Pharmaceutical and Biopharmaceutical Collaborations and
Milestone Payments. The Company's strategy for the discovery, development and
commercialization of new gene regulating targets and drugs involves the
formation of multiple collaborations in addition to focused internal development
efforts. To date, substantially all revenue received by the Company has been
from its collaborations, and the Company expects that substantially all revenue
for the foreseeable future will be generated by collaborations. The Company has
not yet entered into collaborations for a number of its existing or prospective
programs. The Company's ability to continue to fund its research and development
programs, maintain adequate capital reserves and, ultimately, achieve
profitability will be dependent upon the ability of the Company to achieve
certain milestones under existing collaborations with Ares-Serono, Roche
Bioscience, Nippon Kayaku, Organon and DuPont Merck, and under an existing
license agreement with Tanabe, and its ability to enter into additional
collaborations. Because pharmaceutical and biopharmaceutical companies engaged
in drug discovery activities have historically conducted target and drug
discovery through their own internal research departments, these companies must
be convinced that the Company's technologies and research discoveries justify
entering into collaborative agreements with the Company. The Company also must
compete with other companies for the limited number of existing opportunities to
enter into such collaborative arrangements with pharmaceutical and
biopharmaceutical companies. There can be no assurance that the Company will be
able to negotiate additional collaborative agreements in the future on
acceptable terms, if at all, that current or future collaborative agreements
will be successful, or that current or future collaborators will not pursue or
develop alternative technologies either on their own or in collaboration with
others, including the Company's competitors, as a means for identifying targets
or lead compounds. To the extent the Company chooses not to or is unable to
enter into such agreements, it will require substantially greater capital to
undertake the research, development, clinical testing, manufacturing, sales and
marketing of products at its own expense. In the absence of such collaborative
agreements, the Company may be required to delay or curtail its research and
development activities to a significant extent.
The Company has not received any milestone payments from its corporate
collaborators to date. The Company's future revenue will depend in part on its
ability to realize milestone payments and royalties triggered by the development
and commercialization of drugs identified through the use of the Company's
technologies. The Company's research and development efforts may result in
developed and commercialized pharmaceutical products generating milestone
payments and royalties only after lengthy and costly preclinical and clinical
development efforts, the receipt of requisite regulatory
7
<PAGE> 9
approvals, the development and integration of manufacturing capabilities, the
receipt of patents and successful marketing efforts. The Company's collaborators
are not obligated to develop or commercialize potential products identified
through the use of the Company's technologies. Development and commercialization
of potential products will therefore depend not only on the achievement of
research and development objectives by the Company and its collaborators, which
cannot be assured, but also on each collaborator's own financial, technical,
competitive, marketing and strategic considerations, all of which are outside
the Company's control. Such strategic considerations may include the relative
advantages of alternative products being marketed or developed by the Company's
collaborators and others, including relevant patent and proprietary positions.
There can be no assurance that the interests and motivations of the Company's
collaborators are, or will remain, aligned with those of the Company, that
current or future collaborators will not pursue alternative technologies or
potential products in preference to those of the Company or that such
collaborators will successfully perform their development, regulatory,
compliance, manufacturing or marketing and sales functions. In general, should
the Company or a collaborator fail to develop or commercialize a potential
product identified through the use of the Company's or its collaborators'
technologies, or should such a potential product be determined to be unsafe, of
no therapeutic benefit, uneconomical, or not sufficiently superior to competing
products, the Company may not receive any future milestone payments or royalties
associated with such potential products, and the Company may have only limited
or no rights to independently develop and commercialize such potential products.
There can be no assurance that any potential product will be developed and
commercialized as a result of such collaborations, that any such development or
commercialization would be successful or that disputes will not arise over the
application of payment provisions to such potential products.
Modification or termination of the Company's existing or future
collaborative agreements, or the failure to enter into a sufficient number of
additional collaborative agreements on favorable terms, could result in loss of
anticipated revenue as well as potential delay or curtailment of ongoing
research and development activities and have a material adverse effect on the
Company's business, financial condition and results of operations. The Company's
collaborations may generally be terminated upon a breach by either party.
Moreover, certain of the Company's collaborations may be terminated by its
collaborators if Signal fails to achieve certain research and development
milestones. The Company has in the past encountered, and may in the future
encounter, difficulty in satisfying certain milestones under its collaboration
agreements due to the early stage of development of the Company's technology,
the inherent uncertainties associated with product development and the
aggressive discovery and developmental timetables presented by certain
milestones. Accordingly, the Company has in the past renegotiated, and may in
the future need to renegotiate, its collaboration agreements to modify the
timing and requirements of certain milestones. There can be no assurance that
the Company would be able to renegotiate any milestone requirements in the
future, and any failure to do so could have a material adverse effect on the
Company's business, financial condition and results of operations. In March
1998, Signal and Tanabe mutually agreed to conclude their research collaboration
and Tanabe paid an additional license fee to Signal for an exclusive worldwide
license to a lead compound that was discovered during the collaboration.
Moreover, regardless of whether Signal satisfies future milestone obligations,
beginning in August 1998, Roche Bioscience can terminate its collaboration
agreement with the Company at its discretion upon ninety days' written notice.
Additionally, Organon may terminate its funding of certain Signal research
effective January 1999 if the Company does not meet specified milestones by
October 1998. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Research and Development Partners."
Future Capital Requirements; Uncertainty of Additional Funding. The
Company has expended and will continue to expend substantial funds to continue
the research, development and testing of its potential products. The Company's
future capital requirements will depend on, and could increase substantially as
a result of, many factors, including progress in its research and development
programs; the scope, prioritization and number of programs; the acquisition and
development of enabling technologies; the expansion or initiation of academic
licensing arrangements; the acquisition of potential products; the progress of
preclinical and clinical testing; the Company's ability to enter into
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additional collaborations; the receipt of milestone, royalty and other payments
from its collaborations; the modification or termination of any of the Company's
current corporate collaborations or any future collaborations; the time and
costs involved in obtaining regulatory approvals; the costs involved in
preparing, filing, prosecuting, maintaining, enforcing and defending patent
claims; competing technological and market developments; the costs of
establishing manufacturing facilities for clinical or commercial production; and
the costs inherent in retaining and developing commercialization rights for
certain compounds. The Company currently depends on its corporate collaborators
for substantially all of its research and development funding. As of March 31,
1998, the Company had received approximately $20.8 million from its
collaborators. There can be no assurance that the Company will continue to
receive funding under its existing collaborative agreements or that the
Company's existing or potential future collaborative arrangements will be
adequate to fund the Company's operations. The Company also may seek alternative
sources of financing or financing structures in the future to efficiently
discover and develop its potential products, and there can be no assurance that
such alternative financing arrangements will be available, and if available,
will lead to the successful development of potential products. The Company
believes that the net proceeds of this offering, together with its existing
capital resources, committed revenue from its existing collaborations and
interest income should be sufficient to fund its anticipated operating expenses
and capital requirements through the end of the year 2000.
The Company intends to raise additional funds through additional equity or
debt financings, research and development financings, collaborative
relationships or other joint venture relationships and may seek to finance
certain of its programs through other financing mechanisms. Because of its
long-term capital requirements, the Company may seek to access the public or
private equity markets whenever it deems conditions to be favorable, even if it
does not have an immediate need for additional capital at that time. There can
be no assurance that any such funding will be available to the Company, or, if
available, that it will be available on acceptable terms. If additional funds
are raised by issuing equity securities, further dilution to stockholders may
result, and debt financing, if available, may involve restrictive covenants. If
adequate funds are not available, the Company may be required to delay, reduce
the scope of or eliminate one or more of its research, development or clinical
programs which would materially adversely affect the Company's business,
financial condition and results of operations. The Company also may be required
to seek funds through arrangements with collaborative partners or others that
require the Company to relinquish rights to certain of its technologies,
potential products, products or marketing territories that the Company would
otherwise seek to retain, develop or commercialize itself. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Dependence on Patents and Proprietary Rights. The Company's success will
depend in part on its ability to obtain and retain patent protection for its
proprietary technologies, targets and potential products, effectively preserve
its trade secrets and to operate without infringing the proprietary rights of
third parties. Because of the substantial length of time and expense associated
with bringing potential products through the development and regulatory approval
processes to reach the marketplace, the pharmaceutical industry places
considerable importance on obtaining patent and trade secret protection for new
technologies, products and processes. Accordingly, the Company seeks patent
protection for its proprietary technology, targets and potential products. As of
April 30, 1998, the Company owned or had licensed five issued U.S. patents, 15
notices of allowance from the U.S. Patent and Trademark Office, no corresponding
issued foreign patents, 21 pending U.S. patent applications, as well as seven
corresponding international filings under the Patent Cooperation Treaty, and 43
pending foreign national patent applications. However, there can be no assurance
that the Company or its collaborators have developed or will continue to develop
potential products or processes that are patentable or that patents will issue
from any of the Company's pending applications, including patent applications
that have been allowed. There also can be no assurance that the Company's or its
collaborators' current patents, or patents that issue on pending applications,
will not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide proprietary protection or competitive advantages to the
Company. Patent applications in the United
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States are maintained in secrecy until patents issue, patent applications are
not generally published until many months or years after they are filed and
publication of technological developments in the scientific and patent
literature often occurs long after the date of such developments. Accordingly,
the Company cannot be certain that it or one of its collaborators was the first
to invent the subject matter covered by the patent applications or that it or
one of its collaborators was the first to file patent applications for such
inventions. Further, there can be no assurance as to the success or timeliness
in obtaining any patents, that the breadth of claims obtained, if any, will
provide adequate protection of the Company's proprietary technology, targets or
potential products, or that the Company or its licensors will be able to or will
in fact adequately enforce any such claims to protect its proprietary
technology, targets or potential products.
Patent law relating to the scope and enforceability of claims in the fields
in which the Company operates is still evolving. The patent positions of
biopharmaceutical and pharmaceutical companies, including the Company, are
highly uncertain and involve complex legal and technical questions for which
legal principles are not firmly established. The degree of future protection for
the Company's proprietary rights, therefore, is highly uncertain. In this
regard, there can be no assurance that independent patents will issue from the
Company's and its licensors' patent applications, which include many
interrelated applications directed to common or related subject matter. Further,
there may be issued patents and pending applications owned by others directed to
technologies relevant to the Company's, its licensors' or its collaborators'
research, development and commercialization efforts. There can be no assurance
that the Company's or its collaborators' technology can be developed and
commercialized without a license to such patents or that such patent
applications will not be granted priority over patent applications filed by the
Company, its licensors or one of its collaborators. Furthermore, there can be no
assurance that third parties will not independently develop similar or
alternative technologies to those of the Company, its licensors or any of its
collaborators, duplicate any of the Company's, its licensors' or its
collaborators' technologies or design around the patented technologies developed
by the Company, its licensors or its collaborators, any of which may have a
material adverse effect on the Company's business, financial condition and
results of operations.
The commercial success of the Company depends significantly on its ability
to operate without infringing the patents and proprietary rights of third
parties, and there can be no assurance that the Company's, its licensors' and
its collaborators' technologies do not and will not infringe the patents or
proprietary rights of others. A number of pharmaceutical companies,
biopharmaceutical companies, independent researchers, universities and research
institutions may have filed patent applications or may have been granted patents
that cover technologies similar to the technologies owned, optioned by or
licensed to the Company or its collaborators. For instance, a number of patents
may have issued and may issue in the future on certain targets or their use in
screening assays that could prevent the Company and its collaborators from
developing screens using such targets, compounds relating to such targets or
relate to certain other aspects of technology utilized or expected to be
utilized by the Company. In addition, the Company is unable to determine all of
the patents or patent applications that may materially affect the Company's or
its collaborators' ability to make, use or sell any potential products. The
Company is aware of one allowed U.S. patent application relating to certain
methods for transcriptional modulation. The Company believes that it has not
infringed, and is not currently infringing, the claims of the allowed
application. Nonetheless, the Company may in the future be required to obtain a
license to such allowed patent, and there can be no assurance that such a
license will be available on commercially reasonable terms, if at all. In
addition, the Company is aware of an issued U.S. patent claim for certain human
MAP kinases, including MAP kinases in the p38 pathway, which may be useful as
targets for drug discovery. The Company is negotiating a license to patent
rights covering such MAP kinase targets that may be useful in the Company's
research programs, although there can be no assurance that such a license will
be available on commercially reasonable terms, if at all. Any conflicts
resulting from third-party patent applications and patents could significantly
reduce the coverage of the patents owned, optioned by or licensed to the Company
or its collaborators and limit the ability of the Company or its collaborators
to obtain meaningful patent protection. If patents are issued to third parties
that contain competitive or conflicting claims, the
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Company, its licensors or its collaborators may be enjoined from pursuing
research, development or commercialization of potential products or be required
to obtain licenses to these patents or to develop or obtain alternative
technology. There can be no assurance that the Company or its collaborators will
not be so enjoined or will be able to obtain any license to the patents and
technologies of third parties on acceptable terms, if at all, or be able to
obtain or develop alternative technologies. If the Company or any of its
collaborators is enjoined from pursuing its research, development or
commercialization activities or if any such license is or alternative
technologies are not obtained or developed, the Company or such collaborator may
be delayed or prevented from commercializing its potential products, which would
result in a material adverse effect on the Company's business, financial
condition and results of operations.
The drug discovery industry has a history of patent litigation and there
will likely continue to be numerous patent litigation suits concerning drug
discovery technologies and potential products. The patent positions of
pharmaceutical, biopharmaceutical and drug discovery companies, including the
Company, generally are uncertain and involve complex legal and factual
questions. Litigation to establish the validity of patents, to defend against
patent infringement claims of others and to assert infringement claims against
others can be expensive and time consuming, even if the outcome is favorable. An
outcome of any patent prosecution or litigation that is unfavorable to the
Company or one of its licensors or collaborators may have a material adverse
effect on the Company. In particular, litigation may be necessary to enforce any
patents issued or licensed to the Company, its licensors or its collaborators,
to protect trade secrets or know-how of the Company, its licensors or its
collaborators, or to determine the scope and validity of a third party's
proprietary rights. The Company could incur substantial costs if litigation is
required to defend itself in patent suits brought by third parties, if the
Company participates in patent suits brought against or initiated by its
licensors or collaborators or if the Company initiates such suits, and there can
be no assurance that funds or resources would be available to the Company in the
event of such litigation. Additionally, there can be no assurance that the
Company, its licensors or its collaborators would prevail in any such action. An
adverse outcome in litigation or an interference to determine priority or other
proceeding in a court or patent office could subject the Company to significant
liabilities, require disputed rights to be licensed from or to other parties or
require the Company, its licensors, or its collaborators to cease using certain
technology, any of which may have a material adverse effect on the Company's
business, financial condition and results of operations.
In addition to patent protection, the Company also relies on copyright
protection, trade secrets, know-how, continuing technological innovation and
licensing opportunities. In an effort to maintain the confidentiality and
ownership of trade secrets and proprietary information, the Company requires
employees, consultants and certain collaborators to execute confidentiality and
invention assignment agreements upon commencement of a relationship with the
Company. These agreements generally provide that all confidential information
developed or made known to the individual by the Company during the course of
the individual's relationship with the Company will be kept confidential and not
disclosed to third parties except in specific circumstances. The agreements also
generally provide that all inventions conceived by the individual in the course
of rendering services to the Company shall be the exclusive property of the
Company. There can be no assurance, however, that these agreements will provide
meaningful protection for the Company's trade secrets, confidential information
or inventions in the event of unauthorized use or disclosure of such information
or that adequate remedies would exist in the event of such unauthorized use or
disclosure. The loss or exposure of trade secrets possessed by the Company could
materially adversely affect its business. Like many high technology companies,
the Company may from time to time hire scientific personnel formerly employed by
other companies involved in one or more areas similar to the activities
conducted by the Company. Although the Company requires its employees to
maintain the confidentiality of all confidential information of previous
employers, there can be no assurance that the Company or these individuals will
not be subject to allegations of trade secret misappropriation or other similar
claims as a result of their prior affiliations. See "Business--Patents and
Proprietary Rights."
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Substantial Competition. Competition among pharmaceutical and
biopharmaceutical companies to identify drug targets and drug candidates for
development is intense and is expected to increase. In the pharmaceutical
industry, the Company competes with the research and development departments of
pharmaceutical and biopharmaceutical companies and other commercial enterprises,
as well as numerous academic and research institutions and governmental
agencies. In addition, the pharmaceutical and biopharmaceutical industries are
subject to rapid and substantial technological change. Pharmaceutical and
biopharmaceutical companies and others are conducting research in various areas
which overlap with the Company's technology platform, either on their own or in
collaboration with others. There can be no assurance that pharmaceutical and
biopharmaceutical companies which compete with the Company in specific areas
will not merge or enter into collaborations or joint ventures or other alliances
with one or more other such companies or academic and research institutions and
become substantial competitors or that the Company's collaborators will not
initiate or expand their own internal target and drug discovery and development
efforts.
At the present time, the Company has not conducted any clinical trials and
has no commercial manufacturing capability, sales or marketing force. Many of
the Company's competitors and potential competitors have substantially greater
capital resources, research and development resources, manufacturing, sales and
marketing experience and production facilities than does the Company.
Additionally, many of these competitors have significantly greater experience
than does the Company in undertaking target and drug discovery, preclinical
product development and testing and clinical trials of new pharmaceutical
products and obtaining FDA and other regulatory approvals. Smaller companies
also may prove to be significant competitors, particularly through proprietary
research discoveries and collaborative arrangements with large pharmaceutical
and established biopharmaceutical companies. Many of these competitors have
significant products that have been approved or are in development and operate
large, well funded research and development programs. Academic institutions,
governmental agencies and other public and private research organizations also
conduct research, seek patent protection and establish collaborative
arrangements for the discovery, development and commercialization of potential
products. In addition, these companies and institutions compete with the Company
in recruiting and retaining highly qualified scientific and management
personnel. There can be no assurance that the Company's competitors will not
discover lead compounds, develop more effective, safer, more affordable or more
easily administered potential products or achieve patent protection or
commercialize potential products sooner than the Company. Failure to compete
effectively could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business--Signal's
Drug Discovery Programs" and "--Competition."
Attraction and Retention of Key Employees and Consultants. The Company's
success is highly dependent on the principal members of its scientific and
management staff, as well as its scientific advisors and consultants. The loss
of one or more of these individuals could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
does not maintain "key person" insurance on any of its employees. The Company's
future success also will depend in part on its ability to identify, recruit and
retain additional qualified personnel. There is intense competition for such
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
personnel with the advanced technical qualifications necessary for the
development of the Company's business. Failure to attract and retain key
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Scientific
Advisory Board" and "Management."
Government Regulation; No Assurance of Regulatory Approvals. The Company's
and its collaborators' research, preclinical testing and clinical trials of
their respective potential products, if any, and the manufacturing and marketing
of their potential products, will be subject to extensive and rigorous
regulation by numerous government authorities in the United States and in other
countries where the Company and its collaborators intend to test, manufacture
and market their potential products. Prior to marketing any product developed by
the Company, the Company or its collaborators, as applicable,
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<PAGE> 14
must undergo an extensive regulatory approval process. This regulatory process,
which includes preclinical testing and clinical trials of each potential product
to establish its safety and efficacy, will take many years and require the
expenditure of substantial resources, and also may include post-marketing
surveillance. Data obtained from preclinical testing and clinical trials are
susceptible to varying interpretations which could delay, limit or prevent
regulatory approval. In addition, delays or rejection may be encountered based
upon changes in FDA policy for drug approval during the period of product
development and FDA regulatory review of each submitted new drug application
("NDA") or product license application ("PLA"). Similar delays or rejection also
may be encountered in foreign countries. There can be no assurance that
regulatory approval will be obtained for any potential products developed by the
Company or its collaborators. Moreover, regulatory approval may entail
limitations on the indicated uses of a drug. Further, even if regulatory
approval is obtained, a marketed drug and its manufacturer are subject to
continuing review, and discovery of previously unknown problems with a drug or
manufacturer can result in the withdrawal of a drug from the market or a
significant decrease in market demand, which would have an adverse effect on the
Company's business, financial condition and results of operations. Violations of
regulatory requirements at any stage, including preclinical testing and clinical
trials, the approval process or post-approval, may result in various adverse
consequences including a delay by the FDA or other applicable regulatory
authority in approving or its refusal to approve a potential product, withdrawal
of an approved drug from the market and the imposition of criminal penalties
against the manufacturer and NDA or PLA holder. Neither the Company nor its
collaborators has submitted any IND applications for any potential product of
the Company, and none has been approved for commercialization in the United
States or internationally. No assurance can be given that the Company or its
collaborators will be able to obtain FDA or other applicable regulatory
authority approval for any potential products. Failure to obtain requisite
regulatory approvals or failure to obtain approvals of the scope requested will
delay or preclude the Company or its collaborators from marketing the Company's
or its collaborators' products or limit the commercial use of the potential
products and would have material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Government
Regulation."
Expansion of Operations; Management of Growth. The Company will need to
expand and effectively manage its operations and facilities in order to
successfully complete its existing corporate collaborative agreements,
facilitate additional pharmaceutical and biopharmaceutical collaborations and
pursue future internal research, development and commercialization efforts.
There can be no assurance that the Company will be able to manage its growth, to
meet the staffing requirements of current or additional collaborative
relationships or internal programs or to successfully assimilate, train and
manage its new employees. In addition, the Company will be required to expand
its management capabilities, enhance its operating and financial systems and
expand its facilities to manage its growth effectively. If the Company continues
to grow, there can be no assurance that the management or scientific skills,
systems and facilities currently in place will be adequate or that the Company
will be able to manage any additional growth effectively. Failure to achieve any
of these goals could have a material adverse effect on the Company's business,
financial condition and results of operations.
No Manufacturing Experience; Reliance on Third-Party Manufacturing. To
date, the Company has not manufactured any products for preclinical, clinical or
commercial purposes and does not have any manufacturing facilities. The Company
intends to utilize third-party contract manufacturers or its corporate
collaborators for the production of material for use in preclinical and clinical
trials and for the manufacture of future products for commercialization. In the
event that the Company is unable to secure such outside manufacturing
capabilities, it will not be able to conduct preclinical product development,
clinical trials or commercialize its potential products as planned. Even if the
Company were able to establish its own internal manufacturing capability, doing
so would require the expenditure of significant resources which could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company or any outside
manufacturers can produce potential products of suitable quality in sufficient
quantity in a cost-effective manner, if at all. The manufacture of the Company's
potential products for preclinical
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and clinical trials and commercial purposes is subject to current Good
Manufacturing Practices ("cGMP") regulations promulgated by the FDA and other
applicable domestic and foreign regulations. No assurance can be given that in
the future the Company or any outside manufacturers can maintain full compliance
with cGMP regulations or other applicable regulations. See "Business--Research
and Development Partners" and "--Manufacturing."
Possible Volatility of Stock Price. The market prices for securities of
comparable companies have been highly volatile, and the market in general has
experienced significant price and volume fluctuations that often are unrelated
to the operating performance of particular companies. Announcements of
technological innovations, collaborations or new products by the Company or its
competitors, disputes or other developments concerning proprietary rights,
including patents and litigation matters, publicity regarding actual or
potential results with respect to technologies, collaborations or products under
development by the Company, its collaborators or its competitors, changes in the
terms or status of the Company's collaborations, regulatory developments in both
the United States and foreign countries, public concern as to the feasibility of
new technologies, changes in recommendations of securities analysts, general
market conditions, as well as quarterly fluctuations in the Company's revenues
and financial results and other factors, may have a significant impact on, and
may cause significant fluctuation in, the market price and liquidity of the
Common Stock. In particular, the realization of any of the risks described in
these "Risk Factors" could have a dramatic and materially adverse impact on such
market price.
Hazardous Materials. The research and development processes of the Company
involve the controlled use of hazardous materials, including microbial organisms
and other biological materials, chemicals and various radioactive compounds. The
Company is subject to federal, state and local laws and regulations governing
the use, manufacture, storage, handling and disposal of such materials and
certain waste products. The risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company. There can be no
assurance that the Company will not be required to incur significant costs to
comply with environmental laws and regulations in the future.
Uncertainty of Pharmaceutical Pricing and Reimbursement. The Company's
business and the availability of capital in the future may be materially
adversely affected by the continuing efforts of government and third-party
payors to contain or reduce the costs of health care through various means. For
example, in certain foreign markets, pricing or profitability of prescription
pharmaceuticals is subject to governmental control. In the United States, there
have been, and the Company expects that there will continue to be, a number of
federal and state proposals to implement similar government control on pricing
or profitability of prescription pharmaceuticals in such jurisdictions. In
addition, an increasing emphasis on managed care in the United States has put,
and will continue to put, pressure on pharmaceutical pricing and product demand.
Such initiatives and proposals, if adopted, could decrease the demand or the
price that the Company receives for any products it or its collaborators may
develop and sell in the future, and thereby have a material adverse effect on
the Company's business, financial condition and results of operations. Further,
to the extent that such proposals or initiatives have a material adverse effect
on other pharmaceutical companies that are collaborators or prospective
collaborators for certain of the Company's potential products, the Company's
ability to commercialize its potential products may be materially adversely
affected.
The ability of the Company and its collaborators to commercialize products
may depend in part on the extent to which reimbursement for the costs of such
products and related treatments will be available from government health
administration authorities, private health insurers and other third-party
payors. Significant uncertainty exists as to the reimbursement status of newly
approved health care products, and third-party payors are increasingly
challenging the prices charged for medical products and services. There can be
no assurance that any third-party insurance coverage will be available to
patients for any products developed by the Company or its collaborators.
Government and other third-party payors are increasingly attempting to contain
health care costs by limiting both
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coverage and the level of reimbursement for new therapeutic products, and by
refusing, in some cases, to provide coverage for uses of approved products for
disease indications for which the FDA or other applicable regulatory authorities
have not granted marketing approval. If adequate coverage and reimbursement
levels are not provided by government and third-party payors for the Company's
or its collaborators' products, the market acceptance of these products would be
materially adversely affected.
Potential Product Liability Exposure and Limited Insurance Coverage. The
use of any of the Company's or its collaborators' drug candidates in clinical
trials, and the sale of any approved products, may expose the Company to
liability claims resulting from the use of its products. These claims might be
made directly by consumers, consumer groups, health care providers,
pharmaceutical companies, governmental agencies or others selling such products.
The Company intends to obtain limited product liability insurance coverage for
clinical trials and plans to expand any such insurance coverage to include the
sale of commercial products if marketing approval is obtained for any products
in development and intends to receive certain indemnities from its
collaborators. However, insurance coverage is becoming increasingly expensive
and difficult to obtain, and no assurance can be given that the Company will be
able to maintain insurance coverage at a reasonable cost or in sufficient
amounts to protect the Company against losses due to liability. A successful
product liability claim or series of claims brought against the Company could
have a material adverse effect on its business, financial condition and results
of operations.
Control By Management and Existing Stockholders. Upon completion of this
offering, the Company's principal stockholders, executive officers, directors
and affiliated individuals and entities together will beneficially own
approximately 55.5% of the outstanding shares of Common Stock (53.4% if the
Underwriters' over-allotment option is exercised in full). As a result, these
stockholders, acting together, will be able to influence significantly and
possibly control most matters requiring approval by the stockholders of the
Company, including approvals of amendments to the Company's Certificate of
Incorporation, mergers, a sale of all or substantially all of the assets of the
Company, going private transactions and other fundamental transactions. In
addition, the Company's Certificate of Incorporation, as it is proposed to be
amended and restated concurrently with the closing of this offering (the
"Restated Certificate"), does not provide for cumulative voting with respect to
the election of directors. Consequently, the present directors and executive
officers of the Company, together with the Company's principal stockholders,
will be able to control the election of the members of the Board of Directors of
the Company. Such a concentration of ownership could have an adverse effect on
the price of the Common Stock, and may have the effect of delaying or preventing
a change in control of the Company, including transactions in which stockholders
might otherwise receive a premium for their shares over then current market
prices. See "Management" and "Principal Stockholders."
No Prior Public Market for Common Stock. Prior to this offering, there has
been no public market for the Common Stock, and there can be no assurance that
an active trading market will develop or be sustained after this offering. The
initial public offering price will be determined by negotiations between the
Company and the representatives of the Underwriters and may not be indicative of
the market price at which the Common Stock of the Company will trade after this
offering. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price.
Availability of Preferred Stock for Issuance; Anti-Takeover
Provisions. The Restated Certificate authorizes the Board of Directors of the
Company, without stockholder approval, to issue additional shares of Common
Stock and to fix the rights, preferences and privileges of and issue up to
5,000,000 shares of Preferred Stock with voting, conversion, dividend and other
rights and preferences that could adversely affect the voting power or other
rights of the holders of Common Stock. The issuance of Preferred Stock, rights
to purchase Preferred Stock or additional shares of Common Stock may have the
effect of delaying or preventing a change in control of the Company. In
addition, the possible issuance of Preferred Stock or additional shares of
Common Stock could discourage a proxy contest, make more difficult the
acquisition of a substantial block of the Company's Common Stock or limit the
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<PAGE> 17
price that investors might be willing to pay for shares of the Company's Common
Stock. Further, the Restated Certificate provides that any action required or
permitted to be taken by stockholders of the Company must be effected at a duly
called annual or special meeting of stockholders and may not be effected by
written consent. Special meetings of the stockholders of the Company may be
called only by the Chairman of the Board of Directors, the Chief Executive
Officer of the Company, by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of authorized directors or by the
holders of 10% of the outstanding voting stock of the Company. The Restated
Certificate also provides for staggered terms for the members of the Board of
Directors. These and other provisions contained in the Restated Certificate and
the Company's Bylaws, as well as certain provisions of Delaware law, could delay
or make more difficult certain types of transactions involving an actual or
potential change in control of the Company or its management (including
transactions in which stockholders might otherwise receive a premium for their
shares over then current market prices) and may limit the ability of
stockholders to remove current management of the Company or approve transactions
that stockholders may deem to be in their best interests and, therefore, could
adversely affect the price of the Company's Common Stock. See "Description of
Capital Stock--Preferred Stock" and "--Delaware Anti-Takeover Law and Certain
Charter Provisions."
Shares Eligible for Future Sale and Potential Adverse Effect on Market
Price. Sales of Common Stock in the public market following this offering could
adversely affect the market price of the Common Stock. Upon completion of this
offering, the Company will have 9,433,929 shares of Common Stock outstanding,
assuming no exercise of currently outstanding options or warrants. Of these
shares, the 2,500,000 shares sold in this offering (plus any additional shares
sold upon exercise of the Underwriters' over-allotment option) will be freely
transferable without restriction under the Securities Act of 1933, as amended
(the "Securities Act"), unless they are held by "affiliates" of the Company as
that term is used under the Securities Act and the regulations promulgated
thereunder. The remaining 6,933,929 shares of Common Stock held by existing
stockholders are restricted securities as that term is defined in Rule 144 under
the Securities Act (the "Restricted Shares"). Restricted Shares may be sold in
the public market only if registered or if they qualify for an exemption from
registration under Rules 144 or 701 under the Securities Act. As a result of
agreements limiting the resale of such shares (the "Lock-up Agreements") and the
provisions of Rules 144 and 701, additional shares will be available in the
public market as follows: (i) no Restricted Shares will be eligible for
immediate sale on the effective date of this offering; (ii) 6,677,325 Restricted
Shares (plus 623,687 shares of Common Stock issuable upon exercise of vested
stock options) will be eligible for sale upon expiration of Lock-up Agreements
180 days after the date of this Prospectus; and (iii) the remainder of the
Restricted Shares will be eligible for sale from time to time thereafter upon
expiration of their respective one-year holding periods, and could be sold
earlier if the holders exercise any available registration rights. The holders
of 6,058,449 shares of Common Stock have the right in certain circumstances to
require the Company to register their shares under the Securities Act for resale
to the public beginning at the end of the 180-day lock-up period. If such
holders, by exercising their demand registration rights, cause a large number of
shares to be registered and sold in the public market, such sales could have an
adverse effect on the market price for the Company's Common Stock. If the
Company were required to include in a Company-initiated registration shares held
by such holders pursuant to the exercise of their piggyback registration rights,
such sales may have an adverse effect on the Company's ability to raise needed
capital. In addition, the Company expects to file a registration statement on
Form S-8 registering shares of Common Stock subject to outstanding stock options
or reserved for issuance under the Company's stock option plans. Such
registration statement is expected to be filed and to become effective as soon
as practicable after the effective date of this offering. 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 lock-up
agreements described above. See "Management," "Description of Capital
Stock--Registration Rights," "Shares Eligible for Future Sale" and
"Underwriting."
Immediate and Substantial Dilution. Purchasers of the shares of Common
Stock offered hereby will experience immediate and substantial dilution in the
net tangible book value of their investment
16
<PAGE> 18
from the initial public offering price. Additional dilution will occur upon
exercise of outstanding options and outstanding warrants. See "Dilution" and
"Shares Eligible for Future Sale."
Broad Discretion in Application of Net Proceeds. The net proceeds to the
Company from the sale of the shares of Common Stock offered hereby plus the sale
of shares of Common Stock to DuPont Merck to be issued in a private transaction
concurrent with the closing of this offering at an assumed initial public
offering price of $12.00 per share are estimated to be approximately $29.3
million ($33.5 million if the Underwriters' over-allotment option is exercised
in full). The Company intends to use the net proceeds from this offering
principally for research and development, including internal discovery programs
and joint research and development with corporate and academic collaborators,
the acquisition of research and development technologies, compound screening
libraries and product rights, capital investments and working capital and
general corporate purposes. The Company's management and Board of Directors have
broad discretion with respect to the application of such proceeds, and the
amounts actually expended by the Company for working capital purposes may vary
significantly depending on a number of factors, including the amount and timing
of revenues from the Company's current or future collaborators, including any
amendments of the terms of such collaborative arrangements, the expense incurred
in pursuing the Company's research and development programs and the amount of
cash, if any, generated by the Company's operations. See "Use of Proceeds."
Year 2000 Compliance. Some older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognize a date using "00"
as the year 1900 rather than 2000. This failure to use four digits to define the
applicable year has created what is commonly referred to as the "Year 2000
Issue" and could cause a system failure or miscalculations causing disruption of
operations, including a temporary inability to process transactions or engage in
similar normal business activities.
The Company recognizes the need to ensure that its operations will not be
adversely impacted by the Year 2000 Issue. The Company does not believe that it
has material exposure to the Year 2000 Issue with respect to its own information
systems since its existing systems correctly define the Year 2000. Any required
expenditures will be expensed as incurred. The Company intends to assess its
position regarding the Year 2000 Issue with respect to external information
systems by the end of 1998. This process will entail communications with
significant business partners, customers, suppliers, financial institutions,
insurance companies and other parties that provide significant services to the
Company. There can be no assurance that any of such third parties are using
systems that are Year 2000 compliant or will address any Year 2000 issues in a
timely fashion, or at all. Any Year 2000 compliance problems of either the
Company or the third parties with whom the Company does business or from whom it
receives services, could have a material adverse effect on the Company's
business, operating results and financial condition.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this
Prospectus, including without limitation, statements containing the words
"believes," "anticipates," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). The safe harbor provided in
the Reform Act for such forward-looking statements does not apply to initial
public offerings. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These forward-looking
statements include, but are not limited to, statements concerning the Company's
plans to continue development of its current potential products; conduct
clinical trials with respect to potential products; evaluate potential products
under development for subsequent clinical development; utilize the Company's
capital resources and the net proceeds from this offering and the
17
<PAGE> 19
time periods related thereto; seek regulatory approvals; engage third-party
contract manufacturers to supply its clinical trials and commercial
requirements; and establish a marketing and distribution capability. These
forward-looking statements may be found in the "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." Forward-looking statements
not specifically set forth above may also be found in these and other sections
of this Prospectus. The Company disclaims any obligation to update any such
factors or to publicly announce the result of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
18
<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered by the Company hereby and the sale of shares of Common
Stock to DuPont Merck to be issued in a private transaction concurrent with the
closing of this offering at an assumed initial public offering price of $12.00
per share are estimated to be approximately $29.3 million ($33.5 million if the
Underwriters' over-allotment option is exercised in full) after deducting the
underwriting discount and estimated offering expenses payable by the Company.
The Company intends to use the net proceeds from this offering primarily
for research and development, including internal discovery programs and joint
research and development with corporate and academic collaborators, the
acquisition of research and development technologies, compound screening
libraries and product rights, capital investments and working capital and
general corporate purposes. The amounts actually expended by the Company for
working capital purposes will vary significantly depending on a number of
factors, primarily the amount and timing of revenues from the Company's current
or future collaborators, including amendments of the terms of such collaborative
arrangements. The Company's management will retain broad discretion in the
allocation of the net proceeds of this offering. The Company also may use a
portion of the net proceeds to fund acquisitions of complementary technologies,
products or businesses, although the Company has no current agreements or
commitments for any such acquisition. Pending such uses, the Company intends to
invest the net proceeds of this offering in interest-bearing, investment-grade
securities. The Company believes that the net proceeds of this offering,
together with its existing capital resources, interest income and committed
revenue from its existing collaborations should be sufficient to fund its
anticipated operating expenses and capital requirements at least through the end
of the year 2000.
DIVIDEND POLICY
The Company has never declared nor paid any cash dividends on its Common
Stock. The Company currently intends to retain any earnings for funding growth
and, therefore, does not intend to pay any cash dividends on its Common Stock in
the foreseeable future. In addition, the Company is prohibited from paying any
dividends and making any distributions, and also is limited in its ability to
repurchase stock, pursuant to the terms of a secured loan to the Company by
MMC/GATX Partnership No. 1. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
19
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998 (i) on an actual basis and (ii) as adjusted to reflect the
automatic conversion of all shares of Preferred Stock, the receipt of $1,999,992
from DuPont Merck for the purchase of 166,666 shares of Common Stock to be
issued in a private transaction concurrent with the closing of this offering at
an assumed initial public offering price of $12.00 per share, and the sale by
the Company of the 2,500,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $12.00 per share and the application of the
estimated net proceeds therefrom. This table should be read in conjunction with
the Financial Statements and Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term obligations, less current portion(1).............. $ 1,344 $ 1,344
-------- --------
Stockholders' equity:
Convertible Preferred Stock, $.001 par value; 6,113,485
shares authorized and 6,050,949 shares issued and
outstanding, actual; 5,000,000 shares authorized and
no shares issued or outstanding, as adjusted.......... 6 --
Common Stock, $.001 par value; 8,750,000 shares
authorized and 716,314 shares issued and outstanding,
actual; 25,000,000 shares authorized and 9,433,929
shares issued and outstanding, as adjusted(2)......... 1 9
Additional paid-in capital............................. 41,433 70,731
Deferred compensation.................................. (1,387) (1,387)
Accumulated other comprehensive income................. 6 6
Accumulated deficit.................................... (24,410) (24,410)
-------- --------
Total stockholders' equity........................ 15,649 44,949
-------- --------
Total capitalization......................... $ 16,993 $ 46,293
======== ========
</TABLE>
- ------------------------------
(1) See Note 3 of Notes to Financial Statements for a description of the
Company's long-term obligations.
(2) Excludes 1,581,097 shares of Common Stock reserved for issuance under the
Company's stock option plans, of which 662,676 shares were subject to
outstanding options as of March 31, 1998 at a weighted average exercise
price of $0.87 per share. Also excludes 62,500 shares of Common Stock
reserved for issuance upon exercise of outstanding warrants as of March 31,
1998 at an exercise price of $8.40 per share. Subsequent to March 31, 1998,
the Company granted options to purchase an aggregate of 221,525 shares of
Common Stock at a weighted average exercise price of $2.00 per share. See
"Management-- Equity Incentive Plan," "Description of Capital Stock" and
Note 5 of Notes to Financial Statements.
20
<PAGE> 22
DILUTION
As of March 31, 1998, the pro forma net tangible book value was
$15,649,014, or $2.31 per share. Pro forma net tangible book value per share
represents the amount of total tangible assets less total liabilities divided by
6,767,263 shares of Common Stock outstanding after giving effect to the
conversion of all outstanding shares of Preferred Stock into Common Stock.
Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in the offering and the pro forma net tangible book value per share of
Common Stock immediately after completion of this offering. After giving effect
to the sale of the 2,500,000 shares of Common Stock offered by the Company
hereby at an assumed initial public offering price of $12.00 per share and the
application of the net proceeds therefrom and the receipt of $1,999,992 from
DuPont Merck for the purchase of 166,666 shares of Common Stock to be issued in
a private transaction concurrent with the closing of this offering at an assumed
initial public offering price of $12.00 per share, the Company's pro forma net
tangible book value at March 31, 1998 would have been $44,949,006, or $4.76 per
share. This represents an immediate increase in pro forma net tangible book
value of $2.45 per share to existing stockholders and an immediate dilution in
pro forma net tangible book value of $7.24 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share as of March
31, 1998............................................... $2.31
Increase per share attributable to new investors.......... 2.45
-----
Pro forma net tangible book value per share after this
offering.................................................. 4.76
------
Net tangible book value dilution per share to new
investors.............................................. $ 7.24
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1998,
the differences between existing stockholders and the new investors with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.... 6,767,263 71.7% $41,038,247 56.2% $ 6.06
New investors............ 2,666,666 28.3 31,999,992 43.8 12.00
--------- ----- ----------- -----
Total.......... 9,433,929 100.0% $73,038,239 100.0%
========= ===== =========== =====
</TABLE>
Other than as noted above, the foregoing computations assume the exercise
of no stock options or warrants after March 31, 1998. As of March 31, 1998,
options to purchase 662,676 shares of Common Stock were outstanding, with a
weighted average exercise price of $0.87, and warrants to purchase 62,500 shares
of Common Stock were outstanding, with an exercise price of $8.40 per share.
Subsequent to March 31, 1998, the Company granted options to purchase an
aggregate of 221,525 shares of Common Stock at a weighted average exercise price
of $2.00 per share. To the extent these options and warrants are exercised,
there will be further dilution to new investors. See "Risk Factors -- Immediate
and Substantial Dilution," "Capitalization," "Management," "Description of
Capital Stock" and Note 5 of Notes to Financial Statements.
21
<PAGE> 23
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statements of operations for the years ended December 31, 1995, 1996 and 1997
and with respect to the Company's balance sheet at December 31, 1996 and 1997,
are derived from the financial statements of the Company that have been audited
by Ernst & Young LLP, independent auditors, which are included elsewhere herein
and are qualified by reference to such financial statements. The Company's
statement of operations data for the years ended December 31, 1993 and 1994 and
the balance sheet data at December 31, 1993, 1994 and 1995 have been derived
from the financial statements audited by Ernst & Young LLP, independent
auditors, which are not included herein. The statement of operations data for
the three-months ended March 31, 1997 and 1998 and the balance sheet data at
March 31, 1998 have been derived from unaudited financial statements also
appearing herein which, in the opinion of the management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for the
unaudited interim periods. The operating results for the three months ended
March 31, 1998 are not indicative of the results that may be expected for the
full fiscal year ending December 31, 1998 or for any subsequent period. 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 and Notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Collaborative agreements:
Related party................... $ -- $ -- $ -- $ -- $ 250 $ -- $ 750
Unrelated parties............... -- -- -- 3,586 7,065 1,476 3,794
Grant income......................... -- 22 299 347 264 72 100
------- ------- ------- ------- ------- ------- -------
-- 22 299 3,933 7,579 1,548 4,644
Expenses:
Research and development............. 682 3,799 5,173 7,724 10,337 2,459 3,288
General and administrative........... 603 1,288 1,937 2,471 2,791 671 1,203
Income (loss) from operations........... (1,285) (5,065) (6,811) (6,262) (5,549) (1,582) 153
------- ------- ------- ------- ------- ------- -------
1,285 5,087 7,110 10,195 13,128 3,130 4,491
------- ------- ------- ------- ------- ------- -------
Interest income......................... 8 237 453 187 326 60 283
Interest expense........................ (53) (76) (124) (134) (517) (152) (101)
------- ------- ------- ------- ------- ------- -------
Net income (loss)....................... $(1,330) $(4,904) $(6,482) $(6,209) $(5,740) $(1,674) $ 335
======= ======= ======= ======= ======= ======= =======
Pro forma net income (loss) per share,
basic and diluted(1)................. $ (1.20) $ 0.05
======= =======
Number of shares used in computing pro
forma net income (loss) per share(1):
Basic.............................. 4,776 6,628
Diluted............................ 4,776 6,875
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term $ 614 $ 11,384 $ 4,211 $ 5,460 $ 20,866 $ 20,671
investments............................
Working capital........................... 259 10,294 3,616 2,606 15,379 14,635
Total assets.............................. 1,756 13,669 6,866 9,047 23,838 24,755
Long-term obligations (including current 264 791 1,011 3,793 2,832 2,661
portion)...............................
Accumulated deficit....................... (1,410) (6,314) (12,796) (19,005) (24,745) (24,410)
Total stockholders' equity................ 1,188 12,065 5,574 1,512 15,164 15,649
</TABLE>
- ------------------------------
(1) Computed on the basis described in Note 1 of Notes to Financial Statements.
22
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Financial Statements and Notes thereto
included elsewhere in this Prospectus. Except for the historical information
contained herein, the discussion in this Prospectus contains certain
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this Prospectus should be read as being applicable
to all related forward-looking statements wherever they appear in this
Prospectus. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include those discussed in "Risk Factors," as well as those discussed elsewhere
herein. See "Special Note Regarding Forward-Looking Statements" on page 17 of
this Prospectus.
OVERVIEW
The Company was incorporated in July 1992 and has devoted substantially all
of its resources since that time to research and development in order to
identify proprietary drug targets and discover novel small molecule drugs that
regulate genes and the production of disease-causing proteins. Signal, through
both internally funded programs and in collaboration with its pharmaceutical and
biopharmaceutical partners, is working to identify gene regulating drug targets
and potential products for treating autoimmune and inflammatory diseases,
diseases associated with bone metabolism, neurological and cardiovascular
diseases, cancer and viral infections. The Company has incurred significant
losses since inception, with an accumulated deficit of $24.4 million as of March
31, 1998, due primarily to ongoing expenditures related to its research
programs. The Company expects to continue to incur a substantial increase in
expenditures and operating losses for at least the next several years as it
expands its target and drug discovery and development efforts. Such expansion
will result in increases in research and development expenses, general and
administrative expenses and related capital expenditures. The Company's results
of operations have fluctuated from period to period and likely will continue to
fluctuate substantially in the future based upon the timing and composition of
funding under various collaborative agreements, the initiation and expansion of
research and development programs, the acquisition of technologies, compound
libraries and product rights, as well as the progress of its research and
development programs. Results of operations for any period may be unrelated to
results of operations for any other period. In addition, historical results
should not be viewed as indicative of future operating results. See "Risk
Factors--Limited Operating History; Early Stage of Development,"
"--Technological Uncertainty," "--Uncertainties Associated with Product
Development," "--Dependence on Pharmaceutical and Biopharmaceutical
Collaborations and Milestone Payments," "--Future Capital Requirements;
Uncertainty of Additional Funding" and "--Governmental Regulation; No Assurance
of Regulatory Approvals."
A key element of the Company's strategy is to enter into collaborations
with pharmaceutical and biopharmaceutical companies in order to enhance certain
of its target and drug discovery programs and to fund its capital requirements.
The Company's principal sources of revenue for the next several years are
expected to consist of license fees and upfront payments, research funding and
milestone payments under such collaborations, payments from future
collaborations, licensing arrangements, government grants, if any, and interest
income. To date, the Company's revenue has been attributable primarily to
collaborative arrangements with the following partners: Tanabe, which was
entered into in March 1996 and concluded in March 1998; Organon, which was
entered into in July 1996; Roche Bioscience, which was entered into in August
1996; Ares-Serono, which was entered into in November 1997; DuPont Merck, which
was entered into in December 1997; and Nippon Kayaku, which was entered into in
February 1998. See "Risk Factors--Dependence on Pharmaceutical and
Biopharmaceutical Collaborations and Milestone Payments" and "Business--Research
and Development Partners."
Under the Company's collaborative arrangements, the Company has received
payments of $20.8 million to date, of which $15.4 million has been recognized as
revenue. To date, the Company has
23
<PAGE> 25
received no milestone payments from its collaborators. In 1995, the Company
received $167,910 in government grants and no license fees, upfront payments or
research payments from its collaborators. In 1996, the Company recognized an
aggregate of $335,414 in license fees and upfront payments and $3.2 million in
research payments from its collaborators and $170,380 in government grants. In
1997, the Company recognized an aggregate of $264,579 in license fees and
upfront payments and $4.3 million in research payments from its collaborators
and $90,449 in government grants.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Revenue. Since its inception, Signal has received revenue principally from
its corporate collaborators, as well as from government research grants, and has
received no revenue from product sales. Revenue for the three months ended March
31, 1998 increased to $4.6 million from $1.5 million for the three months ended
March 31, 1997. The increase was attributable primarily to (i) the additional
collaborative agreements that were in place during 1998, which resulted in the
Company's recognition of additional revenue from license fees and research
funding; (ii) the Amendment to the Collaborative Development and Licensing
Agreement with Tanabe which resulted in the one-time recognition of additional
research funding; and (iii) increased research funding from Tanabe, Organon and
Roche Bioscience as a result of increased staffing under their respective
research programs. Timing and amount of revenues from corporate collaborations
is expected to vary on a quarterly basis.
Research and Development Expenses. The Company's research and development
expenses for the three months ended March 31, 1998 increased to $3.3 million
from $2.5 million for the three months ended March 31, 1997. The increase was
due largely to the hiring of additional personnel, increased travel expenses,
equipment depreciation expenses, facility expansion, patent-related activities,
the initiation of additional academic research collaborations and amortization
of deferred compensation. The Company also recognized $83,000 in deferred
compensation expense related to research and development personnel for the three
months ended March 31, 1998, as compared to no such deferred compensation
expense for the three months ended March 31, 1997, and expects to recognize
$481,000 in deferred compensation expense for the remainder of 1998. The Company
expects research and development expenses to increase significantly in the
future.
General and Administrative Expenses. General and administrative expenses
for the three months ended March 31, 1998 increased to $1.2 million from
$671,000 for the three months ended March 31, 1997. The increase was due
primarily to the hiring of additional personnel, equipment depreciation
expenses, legal fees, fees associated with new business development activities
and amortization of deferred compensation. The Company also recognized $60,000
in deferred compensation expense related to general and administrative personnel
for the three months ended March 31, 1998, as compared to no such deferred
compensation expense for the three months ended March 31, 1997, and expects to
recognize $245,000 in deferred compensation expense for the remainder of 1998.
The Company expects general and administrative expenses to increase in the
future to support the expansion of its research and business development
activities and increased expenses associated with being a public company.
Interest Income (Expense), Net. Net interest income for the three months
ended March 31, 1998 increased to $182,000 from a net interest expense of
$92,000 for the three months ended March 31, 1997. The increase was due
primarily to increased income as a result of higher average cash balances and
lower interest expense as a result of lower average capital lease and debt
obligations.
Net Income (Loss). Net income for the three months ended March 31, 1998
increased to $335,000 from a net loss of $1.7 million for the three months ended
March 31, 1997. The Company's profitability during the three months ended March
31, 1998 was due largely to the one-time recognition of additional research
funding resulting from the amended agreement with Tanabe. The Company does not
expect continued profitability in the near future.
24
<PAGE> 26
COMPARISON OF YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Revenue. Revenue for the year ended December 31, 1997 increased to $7.6
million from $3.9 million and $299,000 for the years ended December 31, 1996 and
1995, respectively. The increase in 1997 from 1996 was attributable primarily to
the Company's recognition of an aggregate of $7.3 million in revenue from
license fees and research funding from Ares-Serono, Tanabe, Roche Bioscience and
Organon during 1997, a 104% increase over the $3.6 million recognized during
1996. Revenue for 1995 was comprised solely of a research grant from the
National Institutes of Health (the "NIH").
Research and Development Expenses. The Company's research and development
expenses for the year ended December 31, 1997 increased to $10.3 million from
$7.7 million and $5.2 million for the years ended December 31, 1996 and 1995,
respectively. These increases were due primarily to the hiring of additional
personnel, facility expansion, equipment depreciation expenses, increased
patent-related activities, acquisition of compound libraries, the purchase of
research materials and laboratory supplies for expansion of the Company's
research programs and the initiation of additional academic research
collaborations. The Company recognized $58,000 in deferred compensation expense
related to research and development personnel in 1997 and expects to recognize
$564,000, $611,000, $419,000, $226,000 and $48,000 as a result of the
amortization of such deferred compensation in the years ended December 31, 1998
through 2002, respectively.
General and Administrative Expenses. The Company's general and
administrative expenses for the year ended December 31, 1997 increased to $2.8
million from $2.5 million and $1.9 million for the years ended December 31, 1996
and 1995, respectively. These expenses increased primarily as a result of
increased compensation paid to executive management, the hiring of additional
personnel, facility expansion and related amortization expenses. The Company
recognized $46,000 in deferred compensation expense related to general and
administrative personnel in 1997 and expects to recognize $305,000, $300,000,
$202,000, $105,000 and $18,000 as a result of the amortization of such deferred
compensation in the years ended December 31, 1998 through 2002, respectively.
Interest Income (Expense), Net. Net interest income (expense) for the
years ended December 31, 1997, 1996 and 1995 was $(191,000), $53,000 and
$329,000, respectively. The decrease in net interest income from 1996 to 1997
was primarily due to an increase in interest expense attributable to a $3.0
million secured promissory note used for general corporate purposes and working
capital during 1997. The decrease in net interest income from 1995 to 1996
resulted primarily from lower average cash balances during 1996.
Net Income (Loss). Net loss for the years ended December 31, 1997, 1996
and 1995 was $5.7 million, $6.2 million and $6.5 million, respectively.
Income Taxes. At December 31, 1997, the Company had federal and state net
operating loss carryforwards of approximately $23.3 million and $4.8 million,
respectively. The federal and state tax loss carryforwards will begin expiring
in 2007 and 1998, respectively, unless previously utilized. The Company has
provided a 100% valuation allowance against the related deferred tax assets as
realization of such tax benefits is not assured. Future utilization of these
carryforwards may be limited in any one fiscal year pursuant to the Internal
Revenue Code and similar state provisions; however, the annual limitation will
not prevent the entire amount of the carryforwards from being used during the
carryforward period. Therefore, the Company does not believe any such limitation
will have a material effect upon the utilization of these carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private placements of Preferred Stock, funds provided under the Ares-Serono,
Roche Bioscience, Nippon Kayaku, Organon, DuPont Merck and Tanabe collaborative
agreements, and, to a lesser extent, through debt and equipment financings,
government research grant revenue and interest income. As of March 31, 1998, the
Company had received $39.6 million in net proceeds from the sales of equity
securities,
25
<PAGE> 27
$20.8 million under its collaborative agreements, $5.3 million in debt and
equipment financings, $1.0 million in research grants from the NIH and $1.5
million in interest income. As of March 31, 1998, the Company had approximately
$20.7 million in cash, cash equivalents and short-term investments.
Net cash used in operations was $2.3 million, $2.4 million and $6.7 million
in 1997, 1996 and 1995, respectively. Net cash used in operations after 1995
declined due primarily to initial license payments and research funding under
the Company's collaborative agreements, coupled with a lower net loss during
1997.
As of March 31, 1998, the Company had invested $5.4 million in property and
equipment, primarily for facility improvements and laboratory and office
equipment. The Company has financed substantially all of its equipment through
capital leases and equipment note obligations.
At March 31, 1998, the Company had outstanding long-term debt of $2.1
million under its Secured Promissory Note held by MMC/GATX Partnership No. 1
issued on December 2, 1996 (the "Secured Promissory Note"). The principal amount
of the Secured Promissory Note is payable in monthly installments of $88,334,
with the final monthly payment scheduled for May 31, 2000. The Secured
Promissory Note is secured by substantially all of the Company's assets except
for the Company's intellectual property. The terms of the loan limit the
Company's ability to incur additional debt, repurchase its stock and pay
dividends. The Company was in compliance with all covenants under the
arrangement as of March 31, 1998.
The Company believes the net proceeds of this offering, together with its
existing capital resources, committed revenue from its existing collaborations
and interest income should be sufficient to fund its anticipated operating
expenses and capital requirements at least through the end of the year 2000.
These funding requirements include continued and increased expenditures for
research and development activities, as well as expenditures related to
leasehold improvements, the purchase of additional laboratory and other
equipment, the purchase of technology, compound libraries and product rights and
the repayment of debt. The Company has not entered into any formal commitments
to use the proceeds from the offering for increased personnel, capital
expenditures or any other purpose. There can be no assurance that changes in the
Company's research and development plans and collaborations, the acquisition of
additional technology, compound libraries and product rights, or other changes
affecting the Company's operating expenses will not result in the expenditure of
available resources before such time, and in any event, the Company will need to
raise substantial additional capital to fund its operations in future periods.
The Company intends to seek additional funding through collaborative
arrangements, public or private equity or debt financings, equipment financings
or other financing sources that may be available. If additional funds are raised
through the sale of equity securities, substantial dilution to existing
stockholders may result, and debt financing, if available, may involve
restrictive covenants. Further, there can be no assurance that additional
financing will be available on acceptable terms, if at all. If adequate funds
are not available, the Company may be required to delay, or reduce the scope of,
or eliminate one or more of its research or development programs or to obtain
funds through strategic collaborations that are on unfavorable terms or that may
require the Company to relinquish rights to certain of its technologies, product
candidates, products or marketing territories that the Company would otherwise
seek to retain. The failure of the Company to raise capital when needed could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Risk Factors -- Future Capital Requirements;
Uncertainty of Additional Funding."
IMPACT OF YEAR 2000
Some older computer programs were written using two digits rather than four
to define the applicable year. As a result, those computer programs have
time-sensitive software that recognize a date using "00" as the year 1900 rather
than 2000. This failure to use four digits to define the applicable year has
created what is commonly referred to as the "Year 2000 Issue" and could cause a
system
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failure or miscalculations causing disruption of operations, including a
temporary inability to process transactions or engage in similar normal business
activities.
The Company recognizes the need to ensure that its operations will not be
adversely impacted by the Year 2000 Issue. The Company does not believe that it
has material exposure to the Year 2000 Issue with respect to its own information
systems since its existing systems correctly define the Year 2000. Any required
expenditures will be expensed as incurred. The Company intends to assess its
position regarding the Year 2000 Issue with respect to external information
systems by the end of 1998. This process will entail communications with
significant business partners, customers, suppliers, financial institutions,
insurance companies and other parties that provide significant services to the
Company. The Company is currently unable to predict the extent the Year 2000
Issue will affect these parties or the extent to which the Company would be
vulnerable to any such party's failure to remediate any Year 2000 Issue on a
timely basis.
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BUSINESS
Signal Pharmaceuticals, Inc. ("Signal" or the "Company") is an integrated
target and drug discovery company focused on identifying new classes of small
molecule drugs that regulate genes and the production of disease-causing
proteins. The Company applies advanced cellular, molecular and genomic
technologies to map gene regulating pathways in cells and to identify
proprietary molecular targets that activate or deactivate genes and result in
disease. Signal is advancing the application of genomics beyond identifying and
elucidating the functions of genes to designing novel classes of
disease-modifying drugs that selectively regulate the activation of
disease-causing genes. The Company conducts its target and drug discovery
programs both independently and with its five collaborative partners,
Ares-Serono, Roche Bioscience, Nippon Kayaku, Organon, and DuPont Merck.
BACKGROUND
THE ROLE OF GENES IN HEALTH AND DISEASE
Genes control all cellular functions responsible for maintaining human
health by serving as blueprints for the production of proteins in cells. When
activated, usually in response to specific stimuli, a gene is expressed and
produces a protein. Proteins, including receptors, enzymes, cytokines and
hormones, initiate and carry out biochemical reactions that direct a cell's
normal biological functions. These functions include cell growth and
differentiation, cell activation and cell death.
Recent advances in cellular and molecular biology have shown that
malfunctions in gene expression either cause or predispose humans to most
diseases. Such malfunctions cause cells to produce inappropriate amounts or
types of proteins. For example, the uncontrolled proliferation of cells
characteristic of inflammatory diseases and cancer is the result of
over-activation of specific genes and the subsequent over-production of
proteins, such as cytokines and regulatory enzymes. Conversely, under-expression
of critical genes and their protein products, such as tumor suppressors and
growth factors, also may give rise to disease, including cancer and neurological
disorders.
THE ROLE OF INTRACELLULAR SIGNALING IN GENE REGULATION
Genes are selectively activated and suppressed when molecules such as
neurotransmitters, hormones or growth factors bind to, and activate, cell
surface receptors. This event initiates a cascade of biochemical reactions
within a cell, termed "intracellular signaling," in which distinct sets of gene
regulating enzymes (typically, kinases and phosphatases) are activated serially
to relay information from surface receptors to proteins in the nucleus. These
cascades of biochemical reactions culminate in the activation or deactivation of
specialized nuclear proteins, known as "transcription factors," that act as
molecular switches by binding to the regulatory regions of specific genes to
control the level and duration of gene activation and protein production.
Together, these cascades of gene regulating enzymes and transcription factors
comprise gene regulating, or intracellular signaling, pathways. Recent advances
in molecular biology and genomics are facilitating the identification of new
gene regulating pathways and specific molecules in these pathways that may serve
as novel targets for drug discovery.
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INTRACELLULAR SIGNALING AND GENE REGULATION PATHWAYS
[Graphic depicting intracellular signaling and gene regulation pathways.
Text down the right side of the graphic identifies the location in the pathways
where receptors are stimulated, gene regulating enzymes are activated,
transcription factors activate genes, gene expression are initiated, and normal
and disease-associated proteins are produced.]
Many transcription factors maintain normal expression of essential genes.
In response to certain stimuli, transcription factors are activated or "induced"
by gene regulating enzymes to increase the level, duration and sets of genes
expressed. Gene regulation is a highly coordinated process in which the
estimated 100,000 genes that comprise the human genome are switched on and off
in specific tissues. The pathways which regulate these genes enable cells to
respond to combinations of stimuli by integrating signals from multiple
receptors to regulate distinct sets of genes. These pathways are highly
interlinked and, when correctly controlled, maintain the body's essential
functions. The activity of these pathways varies depending on cell type,
permitting the activation of only those subsets of genes that are relevant to a
specific cell or tissue type. Normally functioning pathways precisely modulate
the level and duration of gene expression, ensuring that cells respond to
extracellular stimuli in the appropriate manner. However, when activation of a
gene regulating pathway triggers either an under-or over-production of certain
proteins, a broad range of diseases can result.
LIMITATIONS OF CONVENTIONAL TARGET AND DRUG DISCOVERY
Conventional drug discovery efforts principally are focused on identifying
compounds that modulate readily accessible extracellular targets, such as cell
surface receptors and secreted proteins. Drugs directed toward these
extracellular targets have a number of potential limitations in treating complex
diseases where molecular mechanisms are located within cells. Therefore, such
complex diseases may not be effectively treated using receptor activators or
inhibitors. Many diseases, such as inflammatory, neurological and cardiovascular
diseases and cancer, continue to represent large unmet medical needs due to
difficulties in identifying and targeting the underlying intracellular
mechanisms of these diseases.
Recent advances in genomics have the potential to significantly improve
drug discovery. While initial genomics efforts were directed principally toward
the mapping and sequencing of genes, current initiatives also are focused on
discerning the functions of specific genes in health and disease. However, there
remains a gap between the generation of genomic information and its effective
application to drug discovery.
An increased understanding of the pathways that regulate the expression of
disease-related genes has paved the way for a new drug discovery process. In
this process, individual genes and their regulatory pathways may be targeted to
prevent the onset and progression of disease. The ability to identify
proprietary drug targets in gene regulating pathways provides a method for
applying genomic information to disease therapy. Drugs designed to intervene at
pivotal points in a gene regulating
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pathway can have a major impact on the downstream production of proteins which
cause disease. This approach provides the opportunity to design novel classes of
disease-modifying drugs that can alter the course of a disease by targeting
underlying mechanisms of disease rather than providing only symptomatic relief.
Additionally, drugs can be designed that selectively target gene regulating
pathways responsible for abnormal gene expression and disease without affecting
healthy cells.
SIGNAL'S APPROACH: GENE REGULATING DRUGS
Signal is a leader in identifying and elucidating gene regulating pathways
and specific targets in these pathways for use in drug discovery. The Company's
drug discovery efforts are focused on identifying new classes of small molecule
drugs designed to regulate genes through their intracellular signaling pathways.
These potential drugs may have wide-ranging clinical application by modulating
abnormal expression of genes which cause disease. Several leading
pharmaceuticals are now known to function as regulators of gene expression,
including cyclosporine for organ transplantation, tamoxifen for cancer therapy
and estrogen for osteoporosis. A fundamental advantage of Signal's approach is
the ability to target pivotal junctures in specific gene regulating pathways,
following the integration of signals from multiple cellular receptors and prior
to the production of abnormal levels of proteins.
Signal has developed an integrated target and drug discovery platform to
identify gene regulating pathways, targets and drug candidates with several
important features:
Multiple Targets for Therapeutic Intervention. Signal's target discovery
efforts are focused on identifying cascades of gene regulating enzymes that
activate or suppress genes in a broad range of cell types and disease states.
Each of these pathways contains multiple potential drug targets for therapeutic
intervention. The Company believes that identifying multiple targets in each of
its therapeutic programs increases the likelihood of successfully discovering
novel drugs. For example, Signal and its collaborators have identified four gene
regulating enzymes in the NF-kB pathway (IKK1, IKK2, NF-kB inducing kinase
("NIK") and inhibitor of kB ("IkB") ligases) which are current or planned
targets for the Company's autoimmunity and inflammation, cardiovascular disease
and cancer programs.
Individual Targets Modulate Multiple Disease-Related Genes. Signal is
designing drugs that may be effective in treating diseases where a single target
regulates the activation of multiple genes involved in disease. For instance, by
targeting a pivotal molecule in a signaling cascade, such as JNK in its
autoimmunity and inflammation disease program, the Company is screening for
compounds which block the production of a broad set of pathogenic levels of
proteins, such as interleukin-2, gamma interferon and tissue-destructive
enzymes. In addition, Signal has identified and licensed to Tanabe a lead
compound that has demonstrated, in vitro and in animal models, the ability to
modulate multiple genes regulated by the AP-1 and NF-kB signaling pathways.
Targets Selective for Specific Cell Types. While most gene regulating
enzymes, along with the genes they control, are present in each cell of the
body, many subtypes of these enzymes and genes function only in specific cell
types. Signal is using several approaches to identify drug targets, their
specific subtypes and corresponding drug leads which function in a cell-specific
manner. For example, Signal researchers and collaborators have shown that JNK3
principally is expressed in brain tissue. When activated, JNK3 has been shown to
play a key role in neuronal cell death and in animal models of epilepsy.
Targets Selectively Regulate Abnormal Gene Expression. Signal's drug
discovery programs principally target inducible gene regulating pathways that
may cause abnormal gene expression and give rise to disease. These discovery
initiatives focus on regulating genes functioning in an over- or under-
activated state, without interfering with normal levels of gene expression
required to maintain essential cellular functions. For example, Signal's
autoimmunity and inflammation disease program focuses on MAP kinase gene
regulating pathways that are selectively induced by cytokines and other stress
molecules in response to tissue injury.
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SIGNAL'S STRATEGY
The Company's goal is to be a leader in the discovery of small molecule
drugs that target gene regulating pathways fundamental to disease processes. To
accomplish this goal, the Company pursues the following technology and business
strategies:
Integrate Advanced Target and Drug Discovery Technologies. Signal
integrates an extensive set of target and drug discovery technologies to
expedite the application of genomics to the discovery of important new classes
of drugs. These technologies include proprietary human cell lines, functional
genomics and proteomics, high throughput biochemical and cell-based screening
and combinatorial and computational chemistry. Signal believes this extensive
set of discovery and preclinical development capabilities provides the Company
and its partners with a distinct combination of tools and technologies for
target and drug discovery. Applying these capabilities, the Company has
successfully elucidated the structure and functions of several clinically
important gene regulating pathways, including the NF-kB, AP-1 and p38 pathways,
developed a portfolio of 18 drug targets and demonstrated efficacy of its drug
leads in animal models of arthritis and osteoporosis.
Leverage Targets Across Multiple Diseases. Signal seeks to identify
multiple targets within each gene regulating pathway and to select for drug
discovery those targets which can be validated in multiple clinical indications.
In addition to enhancing the clinical potential of each pathway, this strategy
also serves to limit the Company's scientific risk in any one gene regulating
pathway or drug target. For example, Signal and its collaborators have
demonstrated the role of specific JNK subtypes in mediating key cellular events
that give rise to, or exacerbate, autoimmune, inflammatory and neurological
diseases and cancer.
Build Partner-Funded Business. Signal aggressively pursues collaborations
with pharmaceutical partners to fully develop and exploit its pipeline of
targets and lead compounds, as well as its discovery technologies. These
collaborations provide Signal with multiple potential sources of revenue, enable
the Company to diversify scientific and financial risk, and provide access to
its collaborators' substantial development, manufacturing and marketing
resources. By focusing its efforts on drug discovery and utilizing corporate
collaborations to fund the progression of programs from discovery into the
clinic, the Company intends to maintain a sustainable level of net cash flow. As
these programs mature or any additional corporate collaborations are initiated,
the Company may increase its funding of research and development programs. To
date, Signal has collaborative agreements with five pharmaceutical partners, has
licensed worldwide rights for a drug lead to a sixth partner and has several
additional target and drug discovery programs available for future corporate
collaborations.
Retain Significant Product Commercialization Rights. The Company has
retained certain commercialization rights in two of its existing corporate
collaborations. These include co-commercialization rights in the U.S. in the
Company's collaboration with Ares-Serono and joint worldwide commercial rights,
excluding Japan, with Nippon Kayaku. The Company expects to seek to retain
certain additional commercialization rights in future corporate collaborations.
SIGNAL'S TARGET AND DRUG DISCOVERY TECHNOLOGIES
Signal has developed complementary technology platforms designed to
identify proprietary drug targets and discover novel drugs active on these
targets. The Company believes that, together, these integrated target and drug
discovery capabilities enable it to proceed rapidly from target identification
to compound screening and lead optimization. To date, the Company and its
collaborators have identified 18 drug targets, are working to identify seven
additional targets and are continuing to elucidate new gene regulating pathways
and their targets. The Company has developed and initiated screening in 16 drug
discovery assays and is optimizing drug leads in three therapeutic areas.
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Signal's integrated discovery capabilities are depicted below:
INTEGRATED PLATFORM FOR THE DISCOVERY OF GENE REGULATING TARGETS AND DRUGS
[Graphic depicting Signal's integrated platform for the discovery of gene
regulating targets and drugs. The graphic is a flowchart depicting Signal's
capabilities in (1) target discovery as proprietary human cell lines,
functional genomics and proteomics, gene regulating target discovery and target
validation, and (2) drug discovery as assay development and compound libraries,
lead discovery, lead optimization, and gene regulating drug candidates.]
DISCOVERY PLATFORM FOR GENE REGULATING TARGETS
Signal is developing and applying advanced cellular, molecular and genomic
technologies to discover clinically important targets that are the focus of the
Company's drug discovery programs and corporate collaborations. These discovery
technologies include:
Proprietary Human Cell Lines. The Company has developed a proprietary
technology to immortalize and perpetualize human cells. Signal uses these human
cell lines to identify and validate novel gene regulating pathways and drug
targets, and in screening assays for drug discovery. These cell lines are
designed to include the full set of functional genes and related pathways
involved in both normal and pathogenic cellular functions. Signal uses
proprietary human cell lines to develop in vitro models of important disease
processes, including neurodegeneration, bone formation and resorption and
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vascular disease. Signal's proprietary human bone cell co-culture system closely
mimics the natural environment of bone metabolism, and is used by Signal for
target identification and validation, as well as for testing drug leads prior to
preclinical evaluation in animal models.
Functional Genomics and Proteomics. In many of its corporate
collaborations, Signal utilizes functional genomics and proteomics to elucidate
the role genes and their protein products play in health and disease. Signal has
implemented advanced genomic technologies to expedite the identification and
prioritization of disease-associated gene targets. These include proprietary
methods for differential gene display, subtraction hybridization and gene chip
arrays. To decipher the gene regulating pathways involved in specific diseases,
Signal is developing highly sensitive protein microanalysis capabilities that
integrate peptide chromatography, microfluidics and mass spectrometry for
identification of potential drug targets that regulate specific disease
pathways. Signal utilizes these gene and protein discovery tools, in combination
with the Company's proprietary cell lines, to generate a more comprehensive
profile of signaling pathways involved in diseases and to facilitate the rapid
identification of novel and specific therapeutic targets. For example, Signal is
applying functional genomics technologies to identify and characterize the role
of certain genomic targets and their regulatory pathways in neuronal,
cardiovascular and gynecological disease therapy.
Target Discovery and Validation. The Company applies cellular and
molecular biology techniques to elucidate the regulatory pathways of
disease-related genes. An initial step in this process involves mapping the
regulatory regions of disease-related genes to identify which transcription
factors selectively activate or inhibit each gene's expression. Signal then
utilizes genomics and proteomics to identify and characterize specific enzyme
targets in a pathway that regulate the activation of these transcription
factors. When novel gene regulating enzymes are identified, the Company applies
bioinformatic tools to search proprietary and public gene databases and to
identify subtypes of these targets with distinct therapeutic applications and
specificity for different tissues.
After a potential target has been identified, the Company utilizes
antisense, mutant enzymes, gene knockout models, antibodies and other techniques
to validate the role of the target in specific disease processes and its utility
for drug discovery. Such target validation is a critical step before committing
resources to assay development and screening for target-specific drug leads.
DISCOVERY PLATFORM FOR GENE REGULATING DRUGS
Signal develops and integrates several advanced technologies for lead
discovery and optimization. The Company's lead discovery platform permits rapid,
target-directed screening of diverse compound libraries in a broad range of high
throughput assays. The Company optimizes drug leads by integrating combinatorial
and computational chemistry with technologies for profiling the effects of drug
leads on specific targets in cellular pathways. This facilitates the design of
drugs that properly regulate gene expression and protein production. These drug
discovery activities are coordinated using an integrated cheminformatics and
bioinformatics data management system to facilitate library design, primary and
secondary screening and the subsequent design and synthesis of optimized drug
candidates.
Assay Development. Signal develops and utilizes proprietary biochemical
and cell-based assays to screen for compounds that regulate gene expression in a
target- and cell-specific manner. Signal researchers have designed modular
systems for developing biochemical and cell-based assays, enabling the Company
to substitute different drug targets into standardized assay formats for use in
various discovery programs. Signal develops and uses biochemical assays to
screen compounds for activity on specific drug targets. These biochemical assays
are designed to mimic the functional activity of a drug target in its native
cellular environment. The Company's cell-based assays facilitate the
identification of compounds that modulate gene transcription through distinct
intracellular pathways and in specific cell types. Active compounds identified
in these primary assays are rapidly qualified in a series of secondary
pharmacological assays which provide further information regarding a compound's
clinical potential. These secondary assays measure the effects of potential drug
leads on disease-related genes and proteins, including inhibition of specific
gene regulating enzymes, inhibition of abnormal protein
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production, cytotoxicity, potency and target selectivity. Signal has developed
and initiated screening in 16 drug discovery assays and also is developing
additional new high throughput screening assays.
High Throughput Screening and Compound Library. Signal utilizes
robotics-based high throughput screening systems for rapid, target-specific
screening of diverse compound libraries. These automated systems enhance the
precision, reproducibility and integration of chemical and biological data. The
Company's screening library currently consists of approximately 350,000 diverse
compounds, which include small molecule, natural product and combinatorial
compounds. For example, Signal currently screens more than 60,000 compounds per
month on four kinase targets and plans to significantly increase its screening
throughput and drug targets. To expedite lead identification, Signal researchers
have developed a KAST that enables the Company to screen on multiple kinase
targets in parallel. The KAST system provides activity and specificity data
across multiple kinase targets for a given screening library.
Lead Optimization: Combinatorial, Computational and Structural
Technologies. Combinatorial chemistry involves the rapid synthesis of large and
diverse compound libraries by sequentially adding different molecular building
blocks to a core chemical structure. Signal has developed a proprietary SKIL
based on structures of both known kinase inhibitors and data generated by its
internal screening programs. The SKIL is being applied in these programs with
the goal of rapidly identifying more selective and potent inhibitors of gene
regulating kinases. The Company uses combinatorial chemistry techniques
principally to expedite the optimization of lead compounds and also to build
target-based combinatorial libraries for subsequent screening. Signal's
combinatorial chemistry capabilities also may help strengthen the Company's
patent position in a particular chemical series by generating a relatively large
analog library around an active compound.
To expedite the lead optimization process, Signal also uses computational
chemistry to guide the design and synthesis of new compounds. Computational
chemistry involves the use of computer-based algorithms to model the structure
of an active compound and its interaction with a drug target to generate
directed libraries for screening. Alternatively, computational chemistry can be
used to construct "virtual libraries" around core chemical structures, providing
a method for examining large numbers of potential analogs prior to synthesizing
representative compounds for screening.
Signal researchers have designed a computer-generated three-dimensional
model of the JNK enzyme's structure and its active site. Using computer-based
simulation, a chemical database of more than 700,000 compounds has been
"virtually" screened to identify potential JNK inhibitors. Signal plans to use
this technology to develop other target-directed libraries. These
structure-based drug design efforts are intended to further enhance a lead
compound's potency, selectivity, bioavailability and safety.
SIGNAL'S GENE REGULATING PATHWAYS
The Company is conducting target and drug discovery programs directed
toward five mammalian gene regulating pathways. Many of these pathways regulate
the activation of multiple disease-related genes and have multiple drug targets,
allowing the Company to pursue a diverse number of therapeutic programs for each
pathway. The Company expects that ongoing efforts to map and sequence the human
genome, including Signal's internal genomics initiatives, will lead to an
expansion in the number of known disease-related genes and further enhance the
Company's ability to identify additional gene regulating pathways and drug
targets. In addition, the Company is conducting target and drug discovery
programs directed toward five viral gene regulating pathways.
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SELECTED HUMAN GENE REGULATING PATHWAYS TARGETED BY SIGNAL
[Graphic depicting selected human gene regulating pathways targeted by Signal,
specifically the NF-kB pathway, MAP kinase pathways and estrogen-regulated
gene pathway. The graphic depicts a flow chart for each pathway showing the
stimuli, intracellular signaling, gene activation and protein production.]
NF-KB GENE REGULATING PATHWAY
NF-kB plays a pivotal role in autoimmune, inflammatory and cardiovascular
disease processes by regulating cytokine genes, such as TNF-a, IL-1, IL-2, IL-6,
IL-8, along with genes which code for cell adhesion molecules and the COX-2 and
iNOS enzymes. In addition, studies published in Science link NF-kB to increased
cancer cell resistance to radiation and chemotherapies and demonstrate the
ability of NF-kB inhibitors to enhance the sensitivity of cancerous cells to
these therapies. NF-kB is a family of transcription factors held in the
cytoplasm of cells by IkB. In response to extracellular stimuli, IkB is
degraded, allowing NF-kB to migrate into the nucleus and activate select genes
which elicit important immunological and proliferative responses. Signal
researchers and collaborators have identified three proprietary drug targets
which regulate NF-kB activation by processing IkB prior to its degradation: (i)
two IkB kinases which Signal terms "IKK1" and "IKK2" and (ii) an IkB ligase,
which Signal currently is cloning and characterizing. The discovery of IKK1 and
IKK2 by Signal researchers and collaborators was reported in 1997 in the
journals Science, Nature and Cell. In addition, as part of its collaboration
with Ares-Serono, the Company has obtained rights to a fourth novel target in
the NF-kB pathway, NIK. The Company believes that drugs which inhibit IKK1
and IKK2, NIK and IkB ligases will prevent NF-kB activation and the subsequent
expression of select disease-associated genes. Signal has filed patent
applications for the IKK1 and IKK2 and an IkB ligase, and Ares-Serono's research
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collaborator, the Weizmann Institute, has filed patent applications for the NIK
gene regulating enzyme.
MAP KINASE GENE REGULATING PATHWAYS
Signal has established a leading position in the discovery of proprietary
drug targets in mitogen-activated protein kinase, or MAP kinase, pathways. MAP
kinase pathways consist of distinct cascades of regulatory enzymes that serially
activate one another to control the expression of specific sets of genes in
response to growth factors, cytokines, tumor promoters and other biological
stimuli. These pathways control cell proliferation and metabolism and cell
survival in response to tissue injury, infection, malignancy and other diseases.
MAP kinase gene regulating pathways provide novel targets for drug discovery in
a wide range of disease processes, including autoimmune and inflammatory
diseases, diseases associated with bone metabolism, neurological and
cardiovascular diseases and cancer. Signal's researchers, scientific founders
and academic collaborators have identified nine proprietary targets in MAP
kinase pathways, including targets in the JNK and p38 MAP kinase pathways.
JNK Gene Regulating Pathway
Activation of the JNK gene regulating pathway increases the expression of a
set of autoimmune and inflammatory genes, including IL-2 and gamma interferon.
There are multiple subtypes of the JNK regulatory enzyme, each of which induces
the expression of genes in a cell- and stimulus-specific manner. In 1993, Dr.
Michael Karin at the University of California, San Diego, a scientific founder
of the Company, and Dr. Roger Davis at the University of Massachusetts, a
Scientific Advisor of the Company, discovered two novel kinases in the JNK
pathway. These regulatory enzymes (termed "JNK1" and "JNK2") are pivotal
activators of c-Jun, a component of AP-1 and other transcription factors, and
genes under c-Jun's control. Signal researchers subsequently have cloned and
sequenced the upstream activator of the JNK regulatory enzymes, termed JNKK,
which also may serve as a target for drug discovery. The over-activation of JNK
causes numerous diseases, including autoimmune, inflammatory and neurological
diseases and proliferative cancers. Drugs which inhibit JNK activation are
expected to selectively block the over-activation of inducible genes, and not
affect normal cellular functions, since JNKs do not regulate normal gene
expression. One of the Company's collaborators, Dr. Roger Davis, reported in
1997 in the journal Nature that mice engineered to be deficient in the
brain-specific JNK subtype, JNK3, are resistant to experimentally induced
seizure and associated neuronal cell death. JNK3 inhibitors therefore may have
therapeutic value for treating epilepsy, as well as neurodegeneration associated
with Alzheimer's disease, Parkinson's disease, stroke and head trauma. The
Company has exclusively licensed certain rights to three issued U.S. patents and
related patent applications with regard to JNK and its use in drug discovery.
p38 Gene Regulating Pathway
Activation of the p38 gene regulating pathway causes the expression of
multiple cytokine genes, including IL-1, IL-6, IL-8 and TNF-a, which regulate
the development and proliferation of cells in response to disease and tissue
injury. To date, the Company and its academic collaborators have identified
three proprietary drug targets in the p38 pathway. One such target is p38-2, a
subtype of p38, which is highly expressed in heart and skeletal muscle and which
is activated by stress-inducing stimuli and proinflammatory cytokines. The
second target discovered in the p38 pathway is MEK6, a novel MAP kinase which
activates p38 in vivo and which is highly expressed in skeletal muscle. Signal
researchers have validated the role of MEK6 in regulating the production of IL-1
and TNF-alpha cytokines. The third target in the p38 pathway, MKK3, specifically
activates p38 and p38-2 in response to stress stimuli and pro-inflammatory
cytokines. When defective, the p38 pathway is believed to play an important role
in diseases arising from abnormal production of cytokines, including autoimmune
and inflammatory diseases, diseases associated with bone metabolism and
neurological and cardiovascular diseases. The Company has licensed exclusive
worldwide rights covering MKK3 use in drug discovery and has filed patent
applications for p38-2 and MEK6.
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c-Fos Gene Regulating Pathway
The transcription factor c-Fos controls the development and activation of
certain bone-resorbing cells, termed osteoclasts. These cells continually remove
older bone material so that new bone can be deposited in its place. Mice lacking
c-Fos demonstrate reduced bone resorption, thereby validating c-Fos as a drug
target. Signal researchers have developed a proprietary human bone cell
co-culture system to further validate the role of c-Fos in bone metabolism and
to evaluate c-Fos inhibitors identified in its screens. The Company believes
that drugs which inhibit the expression or activation of c-Fos will slow the
overactive bone resorption associated with osteoporosis. Signal is working to
map the c-Fos signaling pathway and identify key molecular targets that regulate
increased c-Fos expression.
In addition to regulating bone metabolism, c-Fos also plays a critical role
in tumor formation and cancer metastasis by regulating several properties of
malignancy, including the activation of matrix metalloproteinase ("MMP") genes
which cause tumors to metastasize. This role of c-Fos has been validated, in
part, by animal studies in which tumors induced in mice lacking c-Fos did not
metastasize. Conversely, over-expression of c-Fos in mice resulted in the
proliferation and spread of highly aggressive forms of cancers. Based on these
findings, the Company believes that inhibitors of c-Fos expression and
activation may represent an important new class of drugs for cancer therapy.
OTHER GENE REGULATING PATHWAYS
Estrogen-Regulated Gene Pathway
Signal researchers have discovered a novel estrogen-regulated gene pathway
by which estrogen inhibits production of IL-6, a cytokine that causes bone
resorption. Signal has validated the role of IL-6 in the activation of bone
resorption using a proprietary human bone cell co-culture system and in animal
models of osteoporosis. This validation is consistent with published studies
demonstrating that bone loss can be prevented in mice where the IL-6 gene was
deleted. The Company believes that drugs which inhibit IL-6 will slow overactive
bone resorption associated with osteoporosis.
Viral Gene Regulating Pathways
Viral infections occur when viruses insert their genetic material into a
host cell and then use the infected cell's biochemical machinery to express
viral proteins and produce new viruses. Viral transcription and translation
events regulate the production of these viral proteins. Signal and its
collaborators have determined the molecular mechanisms of action of key viral
transcription factors responsible for replication of HCV, HIV, human
papillomavirus ("HPV"), cytomegalovirus ("CMV") and herpes simplex virus
("HSV"). The Company has validated these viral gene regulation factors as drug
targets by using genetically modified viruses and antisense oligonucleotides
which block viral infections in cells. Signal and its collaborators also have
determined the mechanism of action of translational regulation of a key HCV
protein and have cloned and expressed another important regulatory enzyme
responsible for HCV replication. In addition, one of Signal's academic
collaborators has identified a novel function for a key HIV target which may
facilitate the discovery of novel HIV inhibitors.
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SIGNAL'S DRUG DISCOVERY PROGRAMS
Signal's drug discovery programs are directed toward autoimmunity and
inflammation, bone metabolism, neurological disease, cardiovascular disease,
cancer and viral infections, and are summarized in the following table:
<TABLE>
<CAPTION>
PROGRAM/TARGET CURRENT INDICATIONS(1) STATUS(2) COMMERCIAL RIGHTS(3)
- ---------------------- ------------------------------- ------------------ --------------------
<S> <C> <C> <C>
AUTOIMMUNITY AND
INFLAMMATION
AP-1 / NF-kB........ Lead Optimization Tanabe
JNK1 and 2.......... Rheumatoid Arthritis Lead Optimization Signal
IKK1 and 2.......... Osteoarthritis Screening Signal, Ares-Serono
p38-2............... Allergy Screening Signal
NIK................. Asthma Assay Development Signal, Ares-Serono
MEK6................ Inflammatory Bowel Disease Assay Development Signal
MKK3................ Psoriasis Assay Development Signal
JNKK1 and 2......... Transplant Rejection Assay Development Signal
IkB Ligases......... Target Discovery Signal, Ares-Serono
BONE METABOLISM
IL-6................ Osteoporosis Lead Optimization Signal
c-Fos............... Paget's Disease Assay Development Signal
Bone Mitogenesis.... Bone Repair Target Discovery Signal
NEUROLOGY
PNS................. Peripheral Neuropathies Lead Optimization Signal, Nippon Kayaku
JNK1 and 2.......... Neurodegeneration Screening Signal
JNK3................ Neurodegeneration Assay Development Signal
CNS Cell Lines...... Neurodegeneration, Stroke, Head Assay Development
Trauma Target Discovery Signal
PNS Cell Lines...... Assay Development/
Pain, Incontinence Target Discovery Roche Bioscience
CNS Genomic Neurodegeneration,
Targets............... Psychiatric Diseases Target Discovery Organon
CARDIOVASCULAR
JNK1 and 2.......... Ischemia Lead Optimization Signal
IKK1 and 2.......... Atherosclerosis Screening Signal, Ares-Serono
p38-2............... Ischemia Screening Signal
NIK................. Atherosclerosis Assay Development Signal, Ares-Serono
JNK3................ Ischemia Assay Development Signal
MEK6................ Ischemia Assay Development Signal
IkB Ligases......... Atherosclerosis Target Discovery Signal, Ares-Serono
Vascular Genomic
Targets............... Atherosclerosis, Ischemia Target Discovery Organon
CANCER
JNK1 and 2.......... Lead Optimization Signal
IL-6................ Lung Cancer Lead Optimization Signal
IKK1 and 2.......... Breast Cancer Screening Signal, Ares-Serono
NIK................. Ovarian Cancer Assay Development Signal, Ares-Serono
JNKK1 and 2......... Myeloma Assay Development Signal
c-Fos............... Leukemia Assay Development Signal
IkB Ligases......... Target Discovery Signal, Ares-Serono
VIROLOGY
Various............. Hepatitis C Virus Assay Development Signal, DuPont Merck
Various............. Human Immunodeficiency Virus Assay Development Signal, DuPont Merck
ICP4................ Herpes Simplex Virus
(Types 1, 2) Screening Signal
IE86................ Cytomegalovirus Screening Signal
E2.................. Human Papillomavirus Screening Signal
</TABLE>
- ------------------------------
(1) All diseases referenced by brackets are potential clinical indications for
each target listed in the respective therapeutic program.
(2) LEAD OPTIMIZATION indicates that Signal and/or its pharmaceutical partners
are applying combinatorial and computational chemistry, as well as
structure-based drug design, to enhance the potency, selectivity,
bioavailability, safety and other pharmaceutical properties of active
compounds.
SCREENING indicates that Signal is testing libraries of organic small
molecules and natural products in biochemical and/or cell-based assays to
identify compounds which either inhibit or induce activation of a drug
target.
ASSAY DEVELOPMENT indicates that Signal is creating biochemical and/or
cell-based in vitro assays which incorporate a specific drug target and are
used to identify compounds which regulate the drug target.
TARGET DISCOVERY indicates that Signal is identifying new disease-related
genes and their protein products, cloning and characterizing novel enzymes
and other proteins which regulate activation of disease-related genes and is
validating the utility of these regulatory proteins as drug targets.
(3) See "--Research and Development Partners."
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AUTOIMMUNE AND INFLAMMATORY DISEASE PROGRAM
The human immune system is comprised of cells and biochemical mediators
which protect the body from infectious organisms, physical injury and abnormal
cellular events such as cancer. Key components of the immune system, such as
white blood cells, mount a localized protective or inflammatory response at
sites of injury and disease. Autoimmune and inflammatory diseases arise from the
over-activation of the immune system resulting in the over-production of immune
cells, inflammatory cytokines and tissue-destructive enzymes. These cells and
proteins attack and destroy healthy tissue, giving rise to a number of diseases
such as rheumatoid arthritis, osteoarthritis, allergies, asthma, inflammatory
bowel disease and psoriasis, as well as transplant rejection. In 1996, the U.S.
market for anti-inflammatory and immunosuppressive drugs used to treat these
diseases totaled approximately $2.0 billion. Many current drugs are relatively
non-selective and have dose-limiting side effects. More importantly, although
these current drugs alleviate many symptoms of disease, they generally do not
target the underlying mechanisms and therefore do not actually modify disease
processes.
Signal is identifying and cloning drug targets in key gene regulating
pathways and screening for new classes of small molecule drugs which regulate
autoimmune and inflammatory diseases at the level of gene function. The Company
currently is screening for inhibitors of regulatory enzymes in three distinct
pathways, NF-kB, JNK and p38. In November 1997, Signal initiated a three-year
collaborative development and license agreement with Ares-Serono to discover
novel anti-inflammatory, immunosuppressive and certain other drugs that regulate
targets in the NF-kB gene regulating pathway. Additionally, in March 1998, the
Company licensed to Tanabe worldwide rights to a dual AP-1/NF-kB drug lead with
demonstrated oral efficacy in an animal model of arthritis. See "--Research and
Development Partners."
NF-kB Inhibitor Program
NF-kB regulates the activation of multiple cytokine, adhesion molecule and
other pro-inflammatory genes. Signal has developed and initiated high throughput
screens for inhibitors of NF-kB using proprietary IKK1 and IKK2 biochemical
assays and cell-based NF-kB screening assays. The Company also is developing
secondary assays which profile the effects of active compounds on a number of
other immune-inflammatory genes and proteins. The Company has identified several
compounds active on the IKK1 and IKK2 targets. Signal plans to apply
combinatorial, computational and structure-based drug design to develop NF-kB
inhibitors with enhanced potency, specificity and bioavailability. Signal also
is working with collaborators to develop high throughput screens for the NIK
drug target and to clone and express the genes for IkB ligases as novel targets
for drug discovery.
MAP Kinase Inhibitor Program
JNK and p38 pathways control the activation of cytokine and other
pro-inflammatory genes during an inflammatory response. Company researchers have
developed and initiated high throughput screening for JNK1, JNK2, JNK3 and p38
inhibitors using proprietary biochemical and whole cell gene transcription
assays. Signal has identified several compounds which inhibit JNK activation
with a high level of specificity. The Company is utilizing its SKIL library and
a proprietary computer-generated homology model of JNK to design analog
compounds with enhanced potency and selectivity. Additionally, Signal is working
to validate the role of upstream activators of JNK, JNKK1 and JNKK2, which also
may be valid targets for drug discovery. In the p38 pathway, the Company is
developing biochemical high throughput screening assays for MEK6 and MKK3 drug
discovery, and has initiated screening on its p38-2 target.
Dual AP-1/NF-kB Inhibitor Program
Signal researchers have identified a new class of compounds that inhibit
genes regulated by both the AP-1 and NF-kB transcription factors. In vitro
assays and in vivo animal studies indicate this series of compounds is highly
selective for T-cells and has potent anti-inflammatory and immunosuppressive
activity. Signal's most advanced lead compound has demonstrated efficacy, safety
and oral bioavailability in an animal model of arthritis, and the Company has
filed patent applications covering the molecule's structure. In March 1998, the
Company licensed to Tanabe worldwide rights to this drug lead for autoimmune,
inflammatory and other diseases.
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BONE METABOLISM DISEASE PROGRAM
Bone disease results from an imbalance in the bone remodeling process,
causing either inadequate bone formation or excess bone loss. Diseases involving
abnormal bone remodeling include osteoporosis, Paget's disease, hyperthyroidism
and periodontal disease. Osteoporosis, which occurs primarily in post-menopausal
women due to loss of estrogen, is an age-related disease characterized by
persistent loss of bone mass. According to the National Osteoporosis Foundation,
in 1997 this disease afflicted more than 28 million people in the United States
and over 200 million people worldwide. In 1995, sales of therapeutics to treat
osteoporosis totaled more than $6.5 billion.
Most current osteoporosis treatments are intended to slow bone resorption.
While estrogen replacement therapy remains the primary treatment for most women
at risk for osteoporosis, it is associated with risks including cancer and heart
disease, endometriosis and abnormal blood clotting. Presently, there are no
FDA-approved therapies that increase bone formation. Signal has initiated a
broad, multi-target approach to regulating both bone resorption and formation
for the treatment of osteoporosis, bone fractures, periodontal disease and other
disorders of bone metabolism. The Company is working to develop new classes of
drugs that potently and selectively control the mechanisms of bone disease at
the level of gene function. Signal has established a target and drug discovery
program focused on identifying novel classes of drugs for treating osteoporosis
that target the IL-6, c-Fos and certain novel gene regulating targets for
inducing bone formation. See "--Research and Development Partners."
IL-6 Inhibitor Program
The cytokine IL-6 plays a fundamental role in the differentiation and
activation of bone-resorbing osteoclasts in women following menopause. Signal
has initiated a program to discover drugs that selectively inhibit the
production of IL-6 in bone cells through a novel estrogen-regulated gene
pathway. This new class of drugs is being designed to inhibit transcription
factors responsible for inducing IL-6 gene expression and resulting bone
resorption. These drugs, if successfully developed, would provide clinicians
with an alternative, non-estrogen treatment for osteoporosis which may minimize
some of the adverse side effects of traditional estrogen therapy and which may
be used to treat both women and men. Signal has identified novel classes of
compounds that inhibit IL-6 production in bone cells. These compounds have
demonstrated biological activity in an animal model of osteoporosis and
currently are undergoing further optimization. To expedite lead optimization,
Signal has developed a series of secondary assays to examine the selectivity and
potential side-effects of lead compounds by profiling the compounds' effects on
gene and protein expression.
c-Fos Inhibitor Program
Utilizing its detailed understanding of the AP-1 and other MAP kinase
signaling pathways, the Company is pursuing the discovery of drugs to prevent or
treat osteoporosis through a c-Fos signaling mechanism. Recent studies have
demonstrated that targeted knockout of the c-Fos transcription factor gene
results in excess bone resorption and osteoporosis. These academic studies,
along with data generated by Signal's in vitro bone co-culture model, establish
that the development and activation of bone-resorbing osteoclasts is highly
dependent on the presence of the c-Fos transcription factor. Based on these
recent findings, the Company is developing a high throughput screening assay to
identify novel, non-estrogenic compounds that inhibit c-Fos production and the
subsequent over-activation of osteoclasts which cause excess bone loss.
Bone Formation Program
Signal also has initiated an osteogenic program to identify drugs that
induce bone formation. Researchers at Signal have cloned key bone regulating
factors and are applying their expertise in MAP kinase signaling to characterize
novel pathways in osteoblasts that regulate genes involved in bone growth. To
facilitate this process, the Company uses proprietary human bone cell lines to
rapidly validate and evaluate drug targets and leads. This system can precisely
measure the effects of new targets and leads on each stage of osteoblast cell
development, including bone formation. Company
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researchers presently are focused on isolating regulatory mechanisms in these
pathways that would serve as targets for drug discovery. Small molecule drugs
that regulate these potential targets would complement anti-resorptive therapies
and have potentially broader application in treating multiple forms of
osteoporosis, including post-menopausal, drug-induced and age-related forms of
the disease. To date, no orally active drugs which induce bone formation are
available for the treatment of bone diseases and disorders.
NEUROLOGICAL DISEASE PROGRAM
The human nervous system consists of two distinct components: the central
nervous system ("CNS"), which includes the brain and spinal cord, and the PNS,
which includes all nerves outside the CNS. Within the PNS, neurons transmit
information such as pain to the CNS, and motor pathways transmit commands from
the CNS to muscles. Defects or damage in the CNS can lead to Parkinson's
disease, Alzheimer's disease, stroke or epilepsy, as well as psychiatric
disorders such as depression and schizophrenia. PNS disorders can lead to acute
and chronic pain, and peripheral neuropathies caused by diabetes and
chemotherapy can cause chronic motor or sensory defects. In 1996, annual
worldwide sales of neuropharmaceuticals totaled $8.5 billion, including
pharmaceuticals such as anti-depressants, analgesics, psychotropics, anxiolytics
and anti-epileptics. Many current CNS and PNS drugs exhibit undesirable side
effects. There also are disorders such as chronic pain and Alzheimer's disease
for which there are no effective treatments due to a limited understanding of
neurological disease processes at the molecular and genomic levels.
Signal researchers and collaborators have developed a proprietary cell
immortalization technology for producing cloned human neuronal cells that are
homogenous, stable and fully functional in vitro for use in target discovery and
validation, and in drug screening. This technology is designed to overcome many
current limitations of neuropharmaceutical research. Cell lines developed by
Signal express the receptors, ion channels and cytochemical markers required to
produce functional, morphologically mature human neurons. Signal's cell line
technology also can be used to "lock in" human neuronal cells to a specific
stage of maturation, providing a stable cell-based assay system for drug
screening. To date, the Company has developed human neuronal and glial cell
lines of the CNS and, it believes, the first human sensory neuronal cell lines
of the PNS. Signal's human CNS cell lines can be differentiated into a variety
of cell types, including neurons and astrocytes, and also can be induced to
undergo cell death, in vitro, in model systems characteristic of stroke,
traumatic head injury and neurological diseases.
The Company plans to continue to develop proprietary CNS and PNS cell lines
with corporate collaborators to identify and functionally validate specific
genes and their regulatory pathways involved in neurological diseases. Signal
believes genomic information obtained from these cell lines may provide a
foundation for identifying novel drugs that regulate CNS genes involved in
neurological diseases (Alzheimer's and Parkinson's disease, head trauma and
stroke) and psychiatric diseases (anxiety, depression and psychosis), and that
target disorders of the PNS (pain, incontinence and peripheral neuropathies).
Applying the Company's functional genomics capabilities, researchers at Signal
have generated a library of differentially expressed genes from an in vitro
model of Alzheimer's disease. Signal also has developed a proprietary CNS whole
cell screening assay for inhibitors of neurodegeneration induced by cytokines
and growth factor withdrawal. Further, the Company is investigating the role of
MAP kinase targets, including JNK and p38, in neurodegeneration. One such
target, JNK3, has been validated in animal models and is being formatted in a
high throughput screening assay for drug discovery. As part of its neurogenomics
initiative, Signal is collaborating with Organon to discover genomic drug
targets involved in neurological diseases.
In September 1996, Signal commenced a three-year research collaboration
with Roche Bioscience to develop human PNS cell lines for use in target and drug
discovery directed toward the treatment of pain and incontinence. Signal
subsequently developed and transferred to Roche Bioscience certain PNS cell
lines for potential use in Roche Bioscience's target and drug discovery
programs. Signal retains the right to use the PNS cell lines in other
therapeutic areas, such as peripheral neuropathies.
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<PAGE> 43
In February 1998, Signal entered into a two-year research collaboration with
Nippon Kayaku to optimize a lead compound discovered by Nippon Kayaku for use in
treating diabetic and chemotherapy-induced peripheral neuropathies. See
"--Research and Development Partners."
CARDIOVASCULAR DISEASE PROGRAM
Cardiovascular disease, including congestive heart failure, myocardial
infarction and stroke, largely results from restricted blood flow caused by
atherosclerosis and hypertension. Cardiovascular disease is the leading cause of
death in the United States and Europe and results in an estimated 12 million
annual deaths worldwide according to the World Health Organization. In the
United States, approximately 58 million people are afflicted with cardiovascular
disease, leading to an estimated 960,000 deaths each year. In 1998,
pharmaceutical sales of cardiovascular drugs will exceed $14.8 billion in the
United States, according to the American Heart Association. Several classes of
cardiovascular drugs have been developed to prevent and treat chronic
cardiovascular disease, including beta blockers, calcium channel blockers and
ACE inhibitors designed to maintain proper blood vessel dilation and normal
blood flow. While these drugs reduce disease morbidity and mortality, they also
cause a number of adverse side effects such as depression, headaches and
fatigue. None of these classes of cardiovascular drugs acts on the molecular
mechanisms of cardiovascular disease which damage vessel walls and impair blood
flow.
Abnormalities in the expression of endothelial and smooth muscle genes in
vascular tissue play a fundamental role in cardiovascular disease. When
endothelial cells are activated by injury or trauma, these cells frequently
overproduce such proteins as cell adhesion molecules, growth factors and
cytokines, leading to the formation of lesions that block normal blood flow and
cause vasculitis and atherosclerosis. Many of these proteins are controlled by
the NF-kB, JNK and p38 gene regulating pathways. Activated or damaged
endothelial cells also can induce genes in vascular smooth muscle cells. These
genes cause the proliferation of smooth muscle cells, leading to vessel-wall
thickening and impaired blood flow. NF-kB and MAP kinase pathways have been
demonstrated to be over-activated in animal models of angioplasty-induced
restenosis.
The Company currently is using its KAST system to identify selective
inhibitors of its IKK1 and IKK2, JNK and p38-2 targets. The Company has
identified inhibitors of these targets in its biochemical screens, and certain
of these compounds are undergoing lead optimization. Signal plans to evaluate
active compounds in secondary assays which use proprietary human vascular cell
lines to assess their cardioprotective effects. In July 1996, the Company
entered into a three-year collaboration with Organon, amended in January 1998,
to discover genomic drug targets in cardiovascular disease. In November 1997,
the Company entered into a three-year collaboration with Ares-Serono to develop
inhibitors of NF-kB for potential treatment of cardiovascular diseases. See
"--Research and Development Partners."
CANCER PROGRAM
Cancer is characterized by uncontrolled growth, proliferation and migration
of cells. Malignancies result from abnormalities in the expression of genes that
regulate cell proliferation, migration and cell death. In 1997, cancer was the
second leading cause of death in the United States with 560,000 deaths and an
estimated 1.2 million new cancer cases. According to the American Cancer
Society, the oncolytic drug market totaled approximately $1.6 billion in the
United States and $4.7 billion worldwide in 1996.
Signal is elucidating several gene regulating pathways which play a
fundamental role in tumor growth and metastasis, including the JNK and c-Fos
pathways, the NF-kB pathway regulated by IKK1 and IKK2, NIK and the IkB ligases,
as well as the ERG pathway that controls IL-6 production. These pathways control
the expression of specific sets of genes involved in cancer, including: (i)
cytokines and growth factors which promote the growth of cancer cells, (ii) cell
adhesion molecules and tissue-destructive enzymes which enable tumors to spread
to distant sites in the body and invade normal
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tissues and organs, (iii) angiogenic growth factors that vascularize and thereby
facilitate the growth of newly established tumors, and (iv) certain other
factors which make cancer cells resistant to chemotherapy and radiation therapy.
Signal is designing new classes of drugs that target abnormalities in
inducible gene regulating pathways to inhibit the transformation, growth and
spread of cancer without affecting other essential gene regulating pathways.
Applying its high throughput screening capabilities, the Company has identified
a novel class of IL-6 inhibitors which demonstrate anti-proliferative activity
in vitro in human breast cancer cells. The Company currently is optimizing small
molecule inhibitors of IL-6, in addition to leads identified in Signal's screens
for NF-kB and JNK pathway inhibitors. Additionally, Signal and its collaborators
are developing a high throughput screening assay for c-Fos and are working to
identify IkB ligase drug targets. Signal plans to evaluate active compounds in
secondary assays that use tumor cell lines to assess anti-cancer effects. The
Company believes that drugs which selectively inhibit these targets may be
useful in treating several cancers, including lung, breast and ovarian
carcinomas, myelomas and leukemias, and may cause fewer dose-limiting side
effects than current chemotherapies.
In November 1997, the Company initiated a three-year collaboration with
Ares-Serono to develop drugs that target the NF-kB pathway for the potential
treatment of certain cancers. See " --Research and Development Partners."
VIROLOGY PROGRAM
Viruses are pathogenic microorganisms that infect cells and subsequently
use the biochemical machinery of their host cells to produce new viruses. An
estimated 30 million people are infected with HIV and 50 million people are
infected with HCV throughout the industrialized world. Other viral pathogens
being transmitted at epidemic rates include the herpes simplex-2 virus and HPV,
both of which cause chronic, lifelong genital infections, and afflict an
estimated 31 million and six million people in the United States, respectively.
Despite the high incidence of chronic viral infections, only a limited number of
antiviral drugs have been approved to date. New classes of antivirals are needed
which act on novel, virus-specific targets while overcoming problems of toxicity
and viral resistance.
Signal is applying its expertise in gene regulation to the discovery of
small molecule antiviral drugs that selectively inhibit viral genes. The Company
believes that gene regulating antivirals may provide more potent and selective
therapy due to three factors: (i) viral gene regulating targets are structurally
different from human factors and, therefore, potentially may be used to inhibit
viral replication without interfering with normal human cellular functions, (ii)
each virus possesses distinct transcription factors that distinguish it from
other viruses, facilitating the design of virus-specific therapeutics, and (iii)
drugs which target these mechanisms will be useful in the treatment of viruses
resistant to current therapies.
Signal's viral infection program is directed toward six viral gene
regulating targets: two regulatory proteins for HCV, a transcription factor for
HIV, the E2 transcription factor for HPV, the ICP4 transcription factor for HSV
and the IE86 transcription factor for CMV. The Company and its collaborators
have validated each of these targets in vitro. Signal has developed proprietary
viral infection assays for identifying novel inhibitors of HPV, HSV and CMV gene
activation. The Company is developing target-specific screening assays for small
molecule HCV and HIV inhibitors as part of its three-year collaboration with
DuPont Merck initiated in December 1997. Active compounds have been identified
in the Company's HSV and CMV screens. See "--Research and Development Partners."
RESEARCH AND DEVELOPMENT PARTNERS
Partnerships with pharmaceutical and biopharmaceutical companies are an
integral part of Signal's business strategy. To date, Signal has established a
number of collaborative agreements and has received payments of $20.8 million
thereunder. Signal's principal collaborative agreements are with Ares-Serono,
Roche Bioscience, Nippon Kayaku, Organon and DuPont Merck. In addition, the
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Company has licensed worldwide rights for a drug lead to Tanabe. There can be no
assurance that the Company will maintain its existing collaborative or licensing
arrangements or establish any additional arrangements or that its current or
future relationships, if established, will result in receipt by the Company of
milestone payments, the development of marketable pharmaceutical products or
receipt by the Company of significant royalties on sales of such products.
ARES-SERONO
In November 1997, Signal entered into a collaborative agreement with
Ares-Serono, under which Ares-Serono agreed to fund certain research for an
initial three-year period, which term will automatically be extended for
additional three-year periods unless earlier terminated as described below. The
Ares-Serono collaboration is focused on identifying compounds that modulate
NF-kB gene regulating pathways to which Ares-Serono has rights for all clinical
indications in all countries of the world excluding Asia. Ares-Serono S.A. has
purchased approximately $10.0 million of Signal's Series E and Series F
Preferred Stock. Ares-Serono also has agreed to provide Signal with annual
research and development support for Signal's cost of this program at a
percentage level approximating Ares-Serono's relative share of worldwide
marketing rights. In addition, Ares-Serono is obligated to make payments to
Signal based on the achievement of certain research and development milestones
and to pay Signal royalties on any future product sales arising from the
collaboration.
Pursuant to an exclusive license granted by Signal, Ares-Serono will be
solely responsible for preclinical and clinical development of drug candidates
and the development and commercialization of any drugs arising from the
collaboration in all countries of the world excluding Asia. Signal has co-
commercialization rights for all products marketed in the United States,
exercisable at any time during the term of the agreement and up to 30 days
following receipt of notice from Ares-Serono of the filing of an NDA or
equivalent regulatory application, with respect to products arising from the
collaboration. In the event that Signal exercises co-commercialization rights,
Signal will forego royalties in exchange for a share of product revenue, and a
portion of revenue will be payable to Ares-Serono as reimbursement for
development costs.
Unless, at least six months prior to the expiration of the initial
three-year term, Ares-Serono gives Signal notice of its decision to terminate
the research being conducted pursuant to the collaboration agreement, such
research and Ares-Serono's research support obligation will continue for an
additional three-year period, subject to each party's early termination rights.
Ares-Serono may terminate the agreement upon six months' notice any time after
the end of the initial three-year term.
ROCHE BIOSCIENCE
In August 1996, Signal entered into a three-year collaborative agreement
with Roche Bioscience. Under the agreement, Signal is applying its proprietary
cell line development technology toward the development of human PNS cell lines
for use by Roche Bioscience in target and drug discovery. Pursuant to an
exclusive, worldwide, royalty-free license granted by Signal, Roche Bioscience
may utilize these PNS cells to discover and commercialize drugs for treating
pain, incontinence and peripheral vascular disease. Under the agreement, Signal
retains the right to use the PNS cell lines for its internal target and drug
discovery programs in other therapeutic fields. Roche Bioscience has paid Signal
a license fee and has agreed to pay annual research and development support at a
level approximating Signal's cost of the PNS cell line program. To date, Signal
has developed and transferred to Roche Bioscience clonal human PNS cell lines as
specified in the collaborative agreement.
Roche Bioscience may terminate the agreement beginning in August 1998 at
its discretion upon 90 days' written notice. If the collaboration agreement is
terminated for any reason, the licenses granted to Roche Bioscience by Signal
shall survive for as long as Roche Bioscience continues to pay annual license
maintenance fees to Signal. As long as Roche Bioscience pays these annual
license maintenance fees, Signal may not enter into any other collaborations
with respect to cloned immortalized PNS cell lines in the covered fields of
pain, incontinence and peripheral vascular disease.
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NIPPON KAYAKU
In February 1998, Signal entered into a collaborative agreement with Nippon
Kayaku under which Nippon Kayaku agreed to fund certain research at Signal for
two years. Under the agreement, Signal and Nippon Kayaku will develop and
commercialize products based on or derived from a compound supplied by Nippon
Kayaku for the treatment and prevention of diseases and disorders of the CNS and
PNS. Signal will perform combinatorial chemistry and use its proprietary human
neuronal cell lines to further optimize the compound and characterize its
mechanism of action prior to the start of clinical studies. Nippon Kayaku has
agreed to provide Signal with annual research and development support at a level
approximating Signal's cost of the program. Each party also is obligated to pay
the other royalties on future product sales arising from the collaboration.
Pursuant to a commercialization agreement to be concluded by Signal and
Nippon Kayaku following the initial research phase of the collaboration, Nippon
Kayaku will be solely responsible for the development and commercialization of
products in Japan for the treatment or prevention of diseases and disorders of
the PNS and will receive co-commercialization rights in Japan with respect to
products for the treatment and prevention of CNS diseases and disorders. Under
such future commercialization agreement, development and commercialization
rights for products outside Japan for the treatment or prevention of both PNS
and CNS diseases and disorders will be agreed upon by the parties on a
product-by-product basis, with Nippon Kayaku not guaranteed any minimum level of
co-commercialization rights. Signal and Nippon Kayaku also have granted each
other co-exclusive commercialization rights outside the field with respect to
each analog compound arising from the collaboration which is developed and
commercialized by one or both of the parties.
ORGANON
In July 1996, Signal entered into a collaborative agreement with Organon
for the discovery of new genomic targets, under which Organon agreed to fund
certain research at Signal for three years. Such agreement may be extended for
up to two additional years by mutual consent of the parties. Pursuant to an
amendment dated January 1998, Organon may terminate the research, effective in
either January 1999 or July 1999, for failure to meet certain milestones by
either October 1998 or January 1999, respectively. Initially, Signal will
utilize its cellular, molecular and genomic technologies to identify and
validate novel genes in certain target tissues. Signal will then develop high
throughput screening assays for use by Organon in identifying small molecule
drugs to treat cardiovascular, neurological, gynecological and certain other
diseases. Pursuant to this collaboration, Organon has received rights for, and
will be solely responsible for, the worldwide development and commercialization
of any drugs arising from the collaboration.
To date, Organon has paid Signal a license fee and annual research and
development support payments at a level approximating Signal's cost of this
program. In addition, Organon is obligated to make payments to Signal based on
the achievement of certain research and development milestones, and Organon must
pay Signal royalties on any future product sales arising from the collaboration.
DUPONT MERCK
In December 1997, Signal entered into a collaborative agreement with DuPont
Merck, under which DuPont Merck agreed to fund certain research at Signal for
three years. The agreement may be extended for up to three additional years at
DuPont Merck's option. The DuPont Merck collaboration is focused on identifying
compounds for the treatment or prevention of HCV and HIV infections. Signal also
has granted DuPont Merck an option, exercisable through August 1998, to expand
the collaboration to include the identification of compounds directed toward an
additional viral target. Pursuant to this collaboration, Signal and Dupont Merck
will be responsible for developing target specific screening assays and will be
jointly responsible for identifying lead compounds. DuPont Merck will be solely
responsible for lead optimization and the worldwide development and
commercialization of any drugs arising from the collaboration.
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DuPont Merck has paid Signal a license fee and has agreed to provide Signal
with annual research and development support at a level approximating Signal's
cost of these programs. DuPont Merck also is obligated to make payments to
Signal and to purchase its Common Stock upon the achievement of certain research
and development milestones, and to pay Signal royalties on any future product
sales arising from the collaboration. In addition, DuPont Merck has agreed to
purchase $2.0 million of Common Stock of Signal in a private transaction
concurrent with the closing of this offering at a price per share equal to the
initial public offering price.
TANABE
From March 1996 to March 1998, Signal and Tanabe were engaged in a
collaborative program under which Tanabe funded certain research by Signal in
target and drug discovery in the fields of inflammatory disease and
osteoporosis. In connection with the collaboration, Tanabe paid Signal a license
fee and reimbursed Signal for research and development costs. Tanabe also
purchased shares of Signal's Series D Preferred Stock.
In March 1998, Signal and Tanabe mutually agreed to conclude their research
collaboration, and Tanabe licensed from Signal a lead compound that was
discovered during the collaboration. This compound has been validated in animal
models of arthritis, and may have application for the treatment of autoimmune,
inflammatory and certain other diseases. Signal retained all other intellectual
property rights, including rights to all other drug targets and drug leads,
created before or during the collaboration. Tanabe paid an additional license
fee to Signal for the exclusive worldwide license to the lead compound and is
obligated to make payments to Signal based on the achievement of certain
research and development milestones and to pay Signal royalties on any future
product sales.
LICENSE AGREEMENTS
Signal has established a number of license agreements with academic
institutions. Signal's principal license agreements are:
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
In October 1993, Signal entered into a license agreement with The Regents
of the University of California ("The Regents"), as amended in June 1997 and
February 1998, pursuant to which Signal obtained a worldwide exclusive license
for the JNK signaling enzyme based on the research of Dr. Michael Karin, a
scientific founder and advisor of the Company. The license also covers methods
for the production and screening of neuroblasts. In addition, Signal has secured
from The Regents exclusive worldwide license rights to certain patents filed by
Dr. Karin relating to specified NF-kB signaling molecules, IKK1 and IKK2. Under
the license agreement, Signal has paid initial license fees, certain extension
payments and issued Common Stock to The Regents, and is obligated to make
certain royalty and milestone payments. The term of the license remains in
effect for the life of the last-to-expire patent covered under the agreement.
THE UNIVERSITY OF MASSACHUSETTS
In October 1996 and 1997, Signal entered into worldwide exclusive license
agreements with the University of Massachusetts ("U Mass"). Pursuant to the
license agreements, Signal has exclusive rights under a certain patent
application and nonexclusive worldwide rights under certain unpatented know-how
to develop drugs targeting JNK and two intracellular signaling proteins in the
p38 pathway, MKK3 and MKK4, based on the research of Dr. Roger J. Davis, a
scientific advisor of the Company. Upon entering into both of the license
agreements, Signal paid a license fee and issued shares of Common Stock to U
Mass and is obligated to make certain royalty and milestone payments. The term
of the licenses remains in effect for the longer of 10 years or the life of the
last-to-expire patent under the agreements.
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PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in part on its ability to obtain and
retain patent protection for its proprietary technologies, targets and potential
products, effectively preserve its trade secrets and to operate without
infringing the proprietary rights of third parties. Because of the substantial
length of time and expense associated with bringing potential products through
the development and regulatory approval processes to reach the marketplace, the
pharmaceutical industry places considerable importance on obtaining patent and
trade secret protection for new technologies, products and processes.
Accordingly, the Company seeks patent protection for its proprietary technology,
targets and potential products. As of April 30, 1998, the Company owned or had
licensed five issued U.S. patents, 15 notices of allowance from the U.S. Patent
and Trademark Office, no corresponding issued foreign patents, 21 pending U.S.
patent applications, as well as seven corresponding international filings under
the Patent Cooperation Treaty, and 43 pending foreign national patent
applications. However, there can be no assurance that the Company or its
collaborators have developed or will continue to develop potential products or
processes that are patentable or that patents will issue from any of the
Company's pending applications, including patent applications that have been
allowed. There also can be no assurance that the Company's or its collaborators'
current patents, or patents that issue on pending applications, will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide proprietary protection or competitive advantages to the Company.
Patent applications in the U.S. are maintained in secrecy until patents issue,
patent applications are not generally published until many months or years after
they are filed and publication of technological developments in the scientific
and patent literature often occurs long after the date of such developments.
Accordingly, the Company cannot be certain that it or one of its collaborators
was the first to invent the subject matter covered by the patent applications or
that it or one of its collaborators was the first to file patent applications
for such inventions. Further, there can be no assurance as to the success or
timeliness in obtaining any patents, that the breadth of claims obtained, if
any, will provide adequate protection of the Company's proprietary technology,
targets or products, or that the Company or its licensors will be able to or
will in fact adequately enforce any such claims to protect its proprietary
technology, targets or potential products.
Patent law relating to the scope and enforceability of claims in the fields
in which the Company operates is still evolving. The patent positions of
biopharmaceutical and pharmaceutical companies, including the Company, are
highly uncertain and involve complex legal and technical questions for which
legal principles are not firmly established. The degree of future protection for
the Company's proprietary rights, therefore, is highly uncertain. In this
regard, there can be no assurance that independent patents will issue from the
Company's and its licensors' patent applications, which include many
interrelated applications directed to common or related subject matter. Further,
there may be issued patents and pending applications owned by others directed to
technologies relevant to the Company's, its licensors' or its collaborators'
research, development and commercialization efforts. There can be no assurance
that the Company's or its collaborators' technology can be developed and
commercialized without a license to such patents or that such patent
applications will not be granted priority over patent applications filed by the
Company, its licensors or one of its collaborators. Furthermore, there can be no
assurance that third parties will not independently develop similar or
alternative technologies to those of the Company, its licensors or any of its
collaborators, duplicate any of the Company's, its licensors' or its
collaborators' technologies or design around the patented technologies developed
by the Company, its licensors or its collaborators, any of which may have a
material adverse effect on the Company's business, financial condition and
results of operations.
The commercial success of the Company depends significantly on its ability
to operate without infringing the patents and proprietary rights of third
parties, and there can be no assurance that the Company's, its licensors' and
its collaborators' technologies do not and will not infringe the patents or
proprietary rights of others. A number of pharmaceutical companies,
biopharmaceutical companies, independent researchers, universities and research
institutions may have filed patent applications or may have been granted patents
that cover technologies similar to the technologies owned, optioned by
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or licensed to the Company or its corporate collaborators. For instance, a
number of patents may have issued and may issue in the future on certain targets
or their use in screening assays that could prevent the Company and its
collaborators from developing screens using such targets, compounds relating to
such targets or relate to certain other aspects of technology utilized or
expected to be utilized by the Company. In addition, the Company is unable to
determine all of the patents or patent applications that may materially affect
the Company's or its corporate collaborators' ability to make, use or sell any
potential products. The Company is aware of one allowed U.S. patent application
relating to certain methods for transcriptional modulation. Signal believes that
it has not infringed, and is not currently infringing, the claims of the allowed
application. Nonetheless, the Company may in the future be required to obtain a
license to such allowed patent, and there can be no assurance that such a
license will be available on commercially reasonable terms, if at all. In
addition, the Company is aware of an issued U.S. patent claim for certain human
MAP kinases, including MAP kinases in the p38 pathway, which may be useful as
targets for drug discovery. The Company is negotiating a license to patent
rights covering such MAP kinase targets that may be useful in the Company's
research programs, although there can be no assurance that such a license will
be available on commercially reasonable terms, if at all. Any conflicts
resulting from third-party patent applications and patents could significantly
reduce the coverage of the patents owned, optioned by or licensed to the Company
or its collaborators and limit the ability of the Company or its collaborators
to obtain meaningful patent protection. If patents are issued to third parties
that contain competitive or conflicting claims, the Company, its licensors or
its collaborators may be enjoined from pursuing research, development or
commercialization of potential products or be required to obtain licenses to
these patents or to develop or obtain alternative technology. There can be no
assurance that the Company or its collaborators will not be so enjoined or will
be able to obtain any license to the patents and technologies of third parties
on acceptable terms, if at all, or be able to obtain or develop alternative
technologies. If the Company or any of its collaborators is enjoined from
pursuing its research, development or commercialization activities or if any
such license is or alternative technologies are not obtained or developed, the
Company or such collaborator may be delayed or prevented from commercializing
its potential products, which would result in a material adverse effect on the
Company's business, financial condition and results of operations.
The drug discovery industry has a history of patent litigation and there
will likely continue to be numerous patent litigation suits concerning drug
discovery technologies and potential products. The patent positions of
pharmaceutical, biopharmaceutical and drug discovery companies, including the
Company, generally are uncertain and involve complex legal and factual
questions. Litigation to establish the validity of patents, to defend against
patent infringement claims of others and to assert infringement claims against
others can be expensive and time consuming, even if the outcome is favorable. An
outcome of any patent prosecution or litigation that is unfavorable to the
Company or one of its licensors or collaborators may have a material adverse
effect on the Company. In particular, litigation may be necessary to enforce any
patents issued or licensed to the Company, its licensors, or its collaborators,
to protect trade secrets or know-how of the Company, its licensors or its
collaborators or to determine the scope and validity of a third party's
proprietary rights. The Company could incur substantial costs if litigation is
required to defend itself in patent suits brought by third parties, if the
Company participates in patent suits brought against or initiated by its
licensors or collaborators or if the Company initiates such suits, and there can
be no assurance that funds or resources would be available to the Company in the
event of such litigation. Additionally, there can be no assurance that the
Company, its licensors or its collaborators would prevail in any such action. An
adverse outcome in litigation or an interference to determine priority or other
proceeding in a court or patent office could subject the Company to significant
liabilities, require disputed rights to be licensed from or to other parties or
require the Company, its licensors or its collaborators to cease using certain
technology, any of which may have a material adverse effect on the Company's
business, financial condition and results of operations.
In addition to patent protection, the Company also relies on copyright
protection, trade secrets, know-how, continuing technological innovation and
licensing opportunities. In an effort to maintain
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the confidentiality and ownership of trade secrets and proprietary information,
the Company requires employees, consultants and certain collaborators to execute
confidentiality and invention assignment agreements upon commencement of a
relationship with the Company. These agreements generally provide that all
confidential information developed or made known to the individual by the
Company during the course of the individual's relationship with the Company will
be kept confidential and not disclosed to third parties except in specific
circumstances. The agreements also generally provide that all inventions
conceived by the individual in the course of rendering services to the Company
shall be the exclusive property of the Company. There can be no assurance,
however, that these agreements will provide meaningful protection for the
Company's trade secrets, confidential information or inventions in the event of
unauthorized use or disclosure of such information or that adequate remedies
would exist in the event of such unauthorized use or disclosure. The loss or
exposure of trade secrets possessed by the Company could adversely affect its
business. Like many high technology companies, the Company may from time to time
hire scientific personnel formerly employed by other companies involved in one
or more areas similar to the activities conducted by the Company. Although the
Company requires its employees to maintain the confidentiality of all
confidential information of previous employers, there can be no assurance that
the Company or these individuals will not be subject to allegations of trade
secret misappropriation or other similar claims as a result of their prior
affiliations.
COMPETITION
Competition among pharmaceutical and biopharmaceutical companies to
identify drug targets and drug candidates for development is intense and is
expected to increase. In the pharmaceutical industry, the Company competes with
the research and development departments of pharmaceutical and biopharmaceutical
companies and other commercial enterprises, as well as numerous academic and
research institutions and governmental agencies. In addition, the pharmaceutical
and biopharmaceutical industries are subject to rapid and substantial
technological change. Pharmaceutical and biopharmaceutical companies and others
are conducting research in various areas which overlap with the Company's
technology platform, either on their own or in collaboration with others. There
can be no assurance that pharmaceutical and biopharmaceutical companies which
compete with the Company in specific areas will not merge or enter into
collaborations or joint ventures or other alliances with one or more other such
companies or academic and research institutions and become substantial
competitors or that the Company's collaborators will not initiate or expand
their own internal target and drug discovery and development efforts.
At the present time, the Company has not conducted any clinical trials and
has no commercial manufacturing capability, sales or marketing force. Many of
the Company's competitors and potential competitors have substantially greater
capital resources, research and development resources, manufacturing, sales and
marketing experience and production facilities than does the Company.
Additionally, many of these competitors have significantly greater experience
than does the Company in undertaking target and drug discovery, preclinical
product development and testing and clinical trials of potential pharmaceutical
products and obtaining FDA and other regulatory approvals. Smaller companies
also may prove to be significant competitors, particularly through proprietary
research discoveries and collaborative arrangements with large pharmaceutical
and established biopharmaceutical companies. Many of these competitors have
significant products that have been approved or are in development and operate
large, well funded research and development programs. Academic institutions,
governmental agencies and other public and private research organizations also
conduct research, seek patent protection and establish collaborative
arrangements for the discovery, development and commercialization of new
pharmaceutical products. In addition, these companies and institutions compete
with the Company in recruiting and retaining highly qualified scientific and
management personnel. There can be no assurance that the Company's competitors
will not discover lead compounds, develop more effective, safer, more affordable
or more easily administered potential products or achieve patent protection or
commercialize potential products sooner than the Company.
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Failure to compete effectively could have a material adverse effect on the
Company's business, financial condition and results of operations.
GOVERNMENT REGULATION
The Company's and its collaborators' research, preclinical testing and
clinical trials of their respective potential products, if any, and the
manufacturing and marketing of their potential products, will be subject to
extensive and rigorous regulation by numerous government authorities in the
United States and in other countries where the Company and its collaborators
intend to test, manufacture and market their potential products. Prior to
marketing any product developed by the Company, the Company or its
collaborators, as applicable, must undergo an extensive regulatory approval
process. This regulatory process, which includes preclinical testing and
clinical trials of each potential product to establish its safety and efficacy,
will take many years and require the expenditure of substantial resources, and
also may include post-marketing surveillance. Data obtained from preclinical
testing and clinical trials are susceptible to varying interpretations which
could delay, limit or prevent regulatory approval. In addition, delays or
rejection may be encountered based upon changes in FDA policy for drug approval
during the period of product development and FDA regulatory review of each
submitted new drug application ("NDA") or product license application ("PLA").
Similar delays or rejection also may be encountered in foreign countries. There
can be no assurance that regulatory approval will be obtained for any potential
products developed by the Company or its collaborators. Moreover, regulatory
approval may entail limitations on the indicated uses of a drug. Further, even
if regulatory approval is obtained, a marketed drug and its manufacturer are
subject to continuing review, and discovery of previously unknown problems with
a drug or manufacturer can result in the withdrawal of a drug from the market or
a significant decrease in market demand, which would have an adverse effect on
the Company's business, financial condition and results of operations.
Violations of regulatory requirements at any stage, including preclinical
testing and clinical trials, the approval process or post-approval, may result
in various adverse consequences including a delay by the FDA or other applicable
regulatory authority in approving or its refusal to approve a potential product,
withdrawal of an approved drug from the market and the imposition of criminal
penalties against the manufacturer and NDA or PLA holder. Neither the Company
nor its collaborators has submitted any IND applications for any potential
product of the Company, and none has been approved for commercialization in the
United States or internationally. No assurance can be given that the Company or
its collaborators will be able to obtain FDA or other applicable regulatory
authority approval for any potential products. Failure to obtain requisite
regulatory approvals or failure to obtain approvals of the scope requested will
delay or preclude the Company or its collaborators from marketing the Company's
or its collaborators' products or limit the commercial use of the potential
products and would have material adverse effect on the Company's business,
financial condition and results of operations.
MANUFACTURING
To date, the Company has not manufactured any products for preclinical,
clinical or commercial purposes and does not have any manufacturing facilities.
The Company intends to utilize third-party contract manufacturers or its
corporate collaborators for the production of material for use in preclinical
and clinical trials and for the manufacture of future products for
commercialization. In the event that the Company is unable to secure such
outside manufacturing capabilities, it will not be able to conduct preclinical
product development, clinical trials or commercialize its potential products as
planned. Even if the Company were able to establish its own internal
manufacturing capability, doing so would require the expenditure of significant
resources which could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company or any outside manufacturers can produce potential products of
suitable quality in sufficient quantity in a cost-effective manner, if at all.
The manufacture of the Company's potential products for preclinical and clinical
trials and commercial purposes is subject to current Good Manufacturing
Practices ("cGMP") regulations promulgated by the FDA and other applicable
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domestic and foreign regulations. No assurance can be given that in the future
the Company or any outside manufacturers can maintain full compliance with cGMP
regulations or other applicable regulations.
EMPLOYEES
As of April 30, 1998 the Company had 82 full-time employees, including 39
with Ph.D. degrees. Of the Company's workforce, 66 employees are engaged in
discovery research and 16 are engaged in business development, finance and
administration. The Company has assembled a group of experienced scientists and
managers skilled in each phase of target and drug discovery, including cell line
development, functional genomics, molecular biology, assay development,
automated high throughput screening and medicinal chemistry. The Company also
retains outside consultants. None of the Company's employees are covered by
collective bargaining arrangements, and management considers its relationships
with its employees to be good.
FACILITIES
Signal currently leases 23,000 square feet of laboratory and office space
at 5555 Oberlin Drive, San Diego, California. The Company's lease for such
facility expires on January 31, 2001, with an option to renew the lease for two
additional periods of one year each. Signal also leases 11,000 square feet of
laboratory and office space at 5626 Oberlin Drive, San Diego, California. The
Company's lease for such facility expires on December 31, 2003. The Company
believes that its existing facilities are adequate to meet its business
requirements for the near-term and that additional space will be available on
commercially reasonable terms, if required.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings at this time.
SCIENTIFIC ADVISORY BOARD
The Company's Scientific Advisory Board consists of its five scientific
founders, as well as other individuals with expertise in the fields of
immunology, cytokine biology, virology and synthetic chemistry. The Scientific
Advisory Board generally advises the Company concerning long-term scientific
planning, research and development, and also evaluates the Company's research
programs, recommends personnel to the Company and advises the Company on
specific scientific and technical issues. The Scientific Advisory Board meets at
least two times per year, and certain individual scientific advisors consult
with and meet informally with the Company on a more frequent basis. Certain
scientific advisors own shares of Common Stock of the Company, and the Company
has entered into consulting agreements with all of its scientific advisors.
None of the scientific advisors is employed by the Company, and any or all
of such advisors may have commitments to or consulting or advisory contracts
with their employers or other entities that may conflict or compete with their
obligations to Signal. Accordingly, such persons are expected to devote only a
small portion of their time to Signal. The members of Signal's Scientific
Advisory Board are:
SCIENTIFIC FOUNDERS
Fred H. Gage, Ph.D., is a Professor in the Laboratory of Genetics of the
Salk Institute for Biological Studies. He is an internationally respected
innovator in the fields of neurological diseases and transplantation. Dr. Gage
has won the IPSEN Prize, the Ameritec Prize, the Metropolitan Award, the
Chancellor's Associate Award and the Allied Signal Award.
Stephen F. Heinemann, Ph.D., is a Professor and Director of the Molecular
Neurobiology Laboratory at The Salk Institute and an external member of the Max
Planck Institute. He is considered one of the foremost experts in the field of
receptor neurobiology and is a member of the National Academy of Sciences.
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Tony Hunter, Ph.D., is a Professor at The Salk Institute, an American
Cancer Society Research Professor. Dr. Hunter is a world-renowned expert in the
field of gene regulating kinases and established their roles in the regulation
of cellular growth and tumor development. Dr. Hunter was elected a fellow of the
Royal Society of London and has received several awards for his research,
including a 1994 Gairdner Foundation International Award.
Michael Karin, Ph.D., is a Professor in the Department of Pharmacology,
University of California, San Diego. He is an internationally recognized expert
in the field of transcriptional regulation and has made fundamental
contributions to the understanding of a variety of gene regulating pathways,
including JNK, FRK and NF-k B.
Inder Verma, Ph.D., is Chairman of Signal's Scientific Advisory Board. Dr.
Verma is an American Cancer Society Professor of Molecular Biology and
Co-Director of the Laboratory of Genetics at The Salk Institute, and is a member
of the National Academy of Sciences. Dr. Verma is internationally recognized for
his work in the field of NF-k B gene regulation.
OTHER SCIENTIFIC ADVISORY BOARD MEMBERS
Elliot J. Androphy, M.D., is the Associate Chairman of the Department of
Dermatology at the New England Medical Center and Tufts University School of
Medicine, as well as a practicing physician. He is considered to be a world
expert in the field of HPV, where he has made seminal contributions.
Melanie Cobb, Ph.D., is a Professor in the Department of Pharmacology at
the University of Texas Southwestern Medical Center in Dallas. Dr. Cobb is
internationally renowned for her research on MAP kinase gene regulating
pathways.
Roger J. Davis, Ph.D., is a Professor in Molecular Medicine and the
Department of Biochemistry & Molecular Biology at the University of
Massachusetts Medical Center, and an Associate Investigator at the Howard Hughes
Medical Institute. Dr. Davis is regarded as one of the leading researchers
worldwide in the field of signal transduction. Dr. Davis is a principal or
co-discoverer of several important gene regulating kinases, including molecular
mechanisms of the JNK and p38 signaling pathways.
Neal A. DeLuca, Ph.D., is an Associate Professor in the Department of
Molecular Genetics and Biochemistry at the University of Pittsburgh School of
Medicine. Dr. DeLuca is an internationally recognized researcher in the field of
herpes virology.
Charles Dinarello, M.D., is a Professor of Medicine at the University of
Colorado School of Medicine in Denver. Dr. Dinarello is an internationally
respected expert in the field of cytokines and their role in immunological and
infectious diseases.
Anjana Rao, Ph.D., is an Associate Professor of Pathology at the Harvard
Medical School. Dr. Rao has conducted seminal research on signal transduction
mechanisms of the human immune system, including the NF-ATp and NF-k B
transcription factors. Dr. Rao is a recipient of the Leukemia Society of America
Scholar Award.
K. Barry Sharpless, Ph.D., is the William M. Keck Professor of Chemistry in
the Department of Chemistry at The Scripps Research Institute. He is an
internationally renowned synthetic chemist relating to his work in asymmetric
chemical synthesis and has received numerous honors for his work including the
King Faisal International Prize for Science. Dr. Sharpless is a fellow of the
American Academy of Arts and Sciences and the National Academy of Sciences, and
is a Guggenheim Fellow.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth certain information regarding the Company's
executive officers, directors and key employees as of May 15, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Alan J. Lewis, Ph.D. ..................... 52 President, Chief Executive Officer and
Director
Carl F. Bobkoski.......................... 45 Executive Vice President
David W. Anderson, Ph.D. ................. 46 Senior Vice President, Drug Development
Bradley B. Gordon......................... 44 Vice President Finance, Chief Financial
Officer and Corporate Secretary
Merl F. Hoekstra.......................... 38 Vice President, Target Discovery
Douglas E. Richards....................... 35 Vice President, Corporate Development
Miguel S. Barbosa, Ph.D. ................. 40 Senior Director of Experimental
Therapeutics and Virology
Anthony M. Manning, Ph.D. ................ 36 Director of Inflammation and Immunology
Shripad S. Bhagwat, Ph.D. ................ 42 Director of Medicinal Chemistry
Mark J. Suto, Ph.D. ...................... 42 Director of Technology Management
John P. Walker............................ 49 Chairman of the Board
Brook H. Byers(1)......................... 52 Director
Luke B. Evnin, Ph.D.(1)................... 34 Director
Harry F. Hixson, Ph.D.(2)................. 59 Director
Patrick F. Latterell(1)(2)................ 39 Director
Arnold Oronsky, Ph.D.(2).................. 57 Director
</TABLE>
- ------------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Alan J. Lewis, Ph.D. has served the Company as Chief Executive Officer and
director since 1996 and as President of the Company since 1994. Prior to joining
the Company, Dr. Lewis worked for 15 years at the Wyeth-Ayerst Research division
of American Home Products Corporation ("Wyeth-Ayerst"), a pharmaceutical
company, where he served as Vice President of Research from 1990 to 1994. At
Wyeth-Ayerst, Dr. Lewis was responsible for research efforts in CNS,
cardiovascular, inflammatory, allergy and bone metabolism diseases. Dr. Lewis
currently serves as a director of Allergan Specialty Therapeutics, Inc., a
pharmaceutical company. He holds a Ph.D. in Pharmacology from the University of
Wales in Cardiff and completed his post-doctoral training at Yale University.
Carl F. Bobkoski has served the Company as Executive Vice President since
1995. Before joining Signal, from 1990 to 1995, Mr. Bobkoski was Executive Vice
President and a director at Gensia, Inc. ("Gensia"), a biopharmaceutical
company, where he was responsible for directing all commercialization activities
for proprietary products, overseeing the operations of Gensia Laboratories,
Ltd., a wholly-owned subsidiary of Gensia, and supervising product development,
finance, management information systems and corporate development. Mr. Bobkoski
received an M.B.A. from The University of Chicago.
David W. Anderson, Ph.D. has served as Senior Vice President, Drug
Development since May 1998 and served as Vice President, Drug Discovery and
Preclinical Development of the Company from 1994 to May 1998. Prior to joining
Signal, Dr. Anderson spent six years at Johnson & Johnson, a medical product and
pharmaceutical company, most recently as Director, Drug Discovery at the R.W.
Johnson Pharmaceutical Research Institute. He holds a Ph.D. in Medical
Microbiology and Immunology from
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the University of Missouri-Columbia and completed his post-doctoral training at
The University of Colorado Health Science Center.
Bradley B. Gordon has served the Company as Vice President Finance, Chief
Financial Officer and Corporate Secretary since 1994. For the seven years prior
to joining Signal, Mr. Gordon served in various management positions with
Viagene, Inc., a biopharmaceutical company acquired by Chiron Corp. in 1995,
including Corporate Vice President, Vice President Corporate Development and
Vice President, Finance. Mr. Gordon received an M.B.A. from the University of
Southern California.
Merl F. Hoekstra, Ph.D. has served the Company as Vice President, Target
Discovery since May 1998. From 1992 to 1998, Dr. Hoekstra was at ICOS
Corporation, most recently serving as Senior Director, Science, where he headed
target and drug discovery research directed toward novel signal transduction and
cell cycle pathways in the fields of inflammation and oncology. From 1989
through 1992, he was an Associate Professor in Molecular Biology and Virology at
The Salk Institute where he directed a laboratory conducting signal transduction
and human genome research. Dr. Hoekstra received his Ph.D. in Molecular Biology
and Immunology from Loyola University of Chicago, and conducted post-doctoral
research in Molecular Biology at The Research Institute of Scripps Clinic under
fellowships from the National Cancer Institute of Canada and as a Lucille P.
Markey Scholar in Biomedical Sciences.
Douglas E. Richards has served the Company as Vice President, Corporate
Development since May 1998. Before joining Signal, from 1995 to 1998, Mr.
Richards served most recently as Director of Biotechnology Licensing at
Bristol-Myers Squibb, Inc., a public pharmaceutical company. Between 1992 and
1995, Mr. Richards served as Manager of Technology Licensing at Gensia, where he
was responsible for partnering and technology licensing activities. Mr. Richards
received an M.B.A. from The University of Chicago and an M.S. in Molecular
Biology from the University of Wisconsin.
Miguel S. Barbosa, Ph.D. has served the Company as Senior Director of
Experimental Therapeutics and Virology since 1994. Prior to joining the Company,
from 1990 to 1994, Dr. Barbosa was an Assistant Professor of Microbiology at the
University of Texas Southwestern Medical Center, where he elucidated the
interaction between HPV oncoproteins and cellular tumor suppressor proteins that
results in human cervical cancer. Dr. Barbosa obtained his Ph.D. in the
department of Microbiology and Immunology at the University of California, Los
Angeles School of Medicine.
Anthony M. Manning, Ph.D. has served the Company as Director of
Inflammation and Immunology since 1996. Prior to joining Signal, from 1992 to
1996, Dr. Manning was Senior Research Scientist and NF-k B Drug Discovery
Program Team Leader at Pharmacia & Upjohn, Inc., a pharmaceutical company. Dr.
Manning received his Ph.D. in Biochemistry from the University of Otago, New
Zealand and pursued post-graduate studies in the Department of Pediatrics,
University of Otago and in the Institute for Molecular Genetics, Baylor College
of Medicine, where he was also an Assistant Professor in the Department of
Pediatrics.
Shripad S. Bhagwat, Ph.D. has served as Director of Medicinal Chemistry at
Signal since May 1998. Between 1994 and 1998, Dr. Bhagwat was Senior Group
Leader, Neuroscience Research at Abbott Laboratories, a pharmaceutical company,
with responsibility for managing the medicinal chemistry activities for two lead
optimization programs, including one drug candidate currently in clinical
development. From 1985 through 1994, Dr. Bhagwat was a staff scientist with
Ciba-Geigy Corp., a pharmaceutical company, where he managed several medicinal
chemistry programs in the fields of cardiology and virology. Dr. Bhagwat
received his Ph.D. in Organic Chemistry from the State University of New York at
Stony Brook and conducted post-doctoral research at Columbia University.
Mark J. Suto, Ph.D. has served the Company as Director of Technology
Management since January 1998. During the period from 1994 through 1997, Dr.
Suto was Director of Medicinal Chemistry at the Company. Prior to joining
Signal, from 1993 to 1994, Dr. Suto was Senior Director of Medicinal Chemistry
at Trega Biosciences, Inc. (formerly Houghten Pharmaceuticals, Inc.) ("Trega"),
a biopharmaceutical company. Prior to joining Trega, from 1982 to 1993, Dr. Suto
was a Senior
54
<PAGE> 56
Research Associate at Parke-Davis Pharmaceutical Research Division,
Warner-Lambert Company. Dr. Suto received his Ph.D. in Medicinal Chemistry from
the State University of New York at Buffalo.
John P. Walker has served as Chairman of the Board of the Company since
1996. Mr. Walker is currently Chairman, Chief Executive Officer and a director
of AxyS Pharmaceuticals, Inc., a public biopharmaceutical company ("AxyS"). From
1993 to 1997, he was President and Chief Executive Officer of Arris
Pharmaceutical Corporation ("Arris"), a predecessor corporation to AxyS. From
1991 to 1993, he was a venture capitalist at Alpha Venture Partners. In
addition, Mr. Walker was the Chairman and Chief Executive Officer of Vitaphore
Corporation, a biomaterials company which was sold to Union Carbide Corporation
in 1990, and for a period of 15 years was an executive with American Hospital
Supply Corporation. Mr. Walker also serves on the board of directors of
Microcide Corporation and Geron Corporation. He conducted graduate business
studies at Northwestern University Institute for Management.
Brook H. Byers has served as a director of the Company since 1993. Mr.
Byers is a general partner of Kleiner Perkins Caufield & Byers, a private
venture capital firm, which he joined in 1977. He has been the founding
president and chairman of four life sciences companies: Hybritech Incorporated,
IDEC Pharmaceuticals Corporation, Ligand Pharmaceuticals, Inc. and InSite
Vision, Inc. Mr. Byers currently serves as a director of AxyS. He also serves as
a director of a number of privately held technology companies and sits on the
University of California, San Francisco Foundation Board of Directors. Mr. Byers
received his M.B.A. from Stanford Graduate School of Business.
Luke B. Evnin, Ph.D. has served as a director of the Company since 1993.
Since March 1998, he has been a Managing Director at MPM Asset Management LLC,
which manages BB BioVentures, L.P., a healthcare venture capital fund. From 1990
to 1997, Dr. Evnin was involved in healthcare investing activities at Accel
Partners, a venture capital firm, and he remains a General Partner of Accel IV
L.P. and Accel V L.P. He currently serves on the Board of Directors of Epix
Medical, Inc. and several private companies, including Sonic Innovations. Dr.
Evnin received his Ph.D. in Biochemistry from the University of California-San
Francisco.
Harry F. Hixson, Ph.D. has served as a director of the Company since 1993.
Dr. Hixson was employed by Amgen Inc. from 1985 to 1991, where he last served as
President and Chief Operations Officer. From 1991 to present, Dr. Hixson has
been a private investor specializing in biotechnology start-up companies. From
1991 until its merger with Somatix Therapy Corporation in 1992, Dr. Hixson
served as President and Chief Executive Officer of GeneSys Therapeutics, Inc., a
biotechnology company. Dr. Hixson presently is a director of Neurocrine
Biosciences, Inc. Dr. Hixson holds a Ph.D. in Physical Biochemistry from Purdue
University and an M.B.A. from The University of Chicago.
Patrick F. Latterell has served the Company as a director since 1993, as
Chairman of the Board from 1993 to 1996, and as Chief Executive Officer from
1994 to 1996. Mr. Latterell is a General Partner of Venrock Associates, a
venture capital investment group, which he joined in 1989. Mr. Latterell
currently is a director of Vical, Inc. and several private biomedical companies.
Mr. Latterell holds an M.B.A. from Stanford Graduate School of Business.
Arnold Oronsky, Ph.D. has served as a director of the Company since 1994.
Since 1994, Dr. Oronsky has been a general partner at InterWest Partners, a
private venture capital firm. From 1995 to 1996, Dr. Oronsky served as President
and Chief Executive Officer of Coulter Pharmaceutical, Inc., a biopharmaceutical
company. From 1984 to 1994, Dr. Oronsky served as Vice President for Discovery
Research at Lederle Laboratories, a pharmaceutical division of American
Cyanamid, Inc., where he was responsible for the research of new drugs. Since
1988, Dr. Oronsky has served as a senior lecturer in the Department of Medicine
at Johns Hopkins Medical School. Dr. Oronsky received his Ph.D. in Physiology
and Biochemistry from Columbia University College of Physicians and Surgeons.
Under the terms of the Restated Certificate, the Company's Board of
Directors is divided into three classes, serving staggered terms of three years,
and any vacancies that occur during the year may be filled by the Company's
Board of Directors for the remainder of the full term. Dr. Lewis and
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<PAGE> 57
Mr. Walker serve as Class I directors, whose term will expire at the first
annual meeting of stockholders following the closing of this offering. Dr. Evnin
and Dr. Oronsky serve as Class II directors, whose term will expire at the
second annual meeting of stockholders following the closing of this offering.
Mr. Byers, Dr. Hixson and Mr. Latterell serve as Class III directors, whose term
will expire at the third annual meeting of stockholders following the closing of
this offering. Officers serve at the discretion of the Board of Directors. There
are no family relationships between any directors or executive officers of the
Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Compensation Committee consists of Mr. Latterell, Dr. Oronsky and Dr.
Hixson. The Compensation Committee makes recommendations regarding the Company's
1998 Equity Incentive Plan, Non-Employee Directors' Stock Option Plan and
Employee Stock Purchase Plan, as well as prior stock option plans, and makes
decisions concerning salaries and incentive compensation for employees and
consultants of the Company.
The Audit Committee consists of Dr. Evnin, Mr. Latterell and Mr. Byers. The
Audit Committee makes recommendations to the Board of Directors regarding the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by the Company's independent auditors and reviews
and evaluates the Company's audit and control functions.
DIRECTOR COMPENSATION
The Company's directors currently do not receive any cash compensation for
services on the Board of Directors or any committee thereof, but directors may
be reimbursed for certain expenses in connection with attendance at Board and
committee meetings. Notwithstanding the foregoing, John P. Walker, the Chairman
of the Board of Directors, currently receives $1,000 compensation for each
meeting of the Board of Directors that he attends pursuant to a consulting
agreement dated April 1, 1996. In 1997, each non-employee director also received
options to purchase 12,500 shares of Common Stock of the Company. All directors
are eligible to participate in the Company's 1998 Equity Incentive Plan.
Non-employee directors receive automatic grants of options under the Company's
Non-Employee Directors' Stock Option Plan as described below. See
"Management--Equity Incentive Plan" and "--Non-Employee Directors' Stock Option
Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of the Company's Board of Directors or Compensation
Committee. See "Certain Transactions" for a description of transactions between
the Company and entities affiliated with members of the Compensation Committee.
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<PAGE> 58
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning compensation
awarded to, earned by, or accrued for services rendered to, the Company in all
capacities during the fiscal year ended December 31, 1997 by (i) the Company's
Chief Executive Officer and (ii) the Company's three other most highly
compensated executive officers whose salary and bonus for each year were in
excess of $100,000 (together, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION(1) COMPENSATION AWARDS
-------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS (#)
--------------------------- --------- -------- ---------------------
<S> <C> <C> <C>
Alan J. Lewis, Ph.D., President, Chief Executive
Officer and Director.......................... $266,815 $36,544 18,750
Carl F. Bobkoski, Executive Vice President...... 192,346 27,179 --
David W. Anderson, Ph.D., Senior Vice President,
Drug Development.............................. 198,129 27,368 25,000
Bradley B. Gordon, Vice President Finance, Chief
Financial Officer and Corporate Secretary..... 145,564 20,536 20,000
</TABLE>
- ------------------------------
(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), the compensation described in this table does not include
medical, group life insurance or other benefits which are available
generally to all salaried employees of the Company and certain perquisites
and other personal benefits received which do not exceed the lesser of
$50,000 or 10% of any officer's salary and bonus disclosed in this table.
EMPLOYMENT AGREEMENTS
The Company entered into an employment letter agreement with Alan J. Lewis,
dated December 8, 1993, providing for an annual salary of $225,000, a signing
bonus of $50,000, additional bonuses and options subject to certain performance
milestones, assistance with home financing, and an opportunity to acquire
112,500 shares of Common Stock of the Company pursuant to the Company's stock
option plan. The term of the employment letter agreement was for one year,
renewable annually. See "Certain Transactions."
The Company entered into an employment letter agreement with David W.
Anderson, dated March 4, 1994, providing for an annual salary of $165,000,
subject to adjustment from time to time, a signing bonus of $25,000, and an
opportunity to acquire 50,000 shares of Common Stock of the Company pursuant to
the Company's stock option plan. The employment letter agreement indicates that
Dr. Anderson's employment is terminable at will by either party.
The Company entered into an employment letter agreement with Bradley B.
Gordon, dated August 18, 1994, providing for an annual salary of $130,000,
subject to adjustment from time to time, plus bonuses subject to certain
unspecified performance milestones, certain severance arrangements, and an
opportunity to acquire 37,500 shares of Common Stock of the Company pursuant to
the Company's stock option plan. The employment letter agreement indicates that
Mr. Gordon's employment is terminable at will by either party.
The Company entered into an employment letter agreement with Carl F.
Bobkoski, dated June 13, 1995, providing for an annual salary of $175,000,
subject to adjustment from time to time, plus bonuses and options subject to
certain performance and corporate-partnering milestones, certain severance
arrangements, and an opportunity to acquire 42,500 shares of Common Stock of the
Company pursuant to the Company's stock option plan. The employment letter
agreement indicates that Mr. Bobkoski's employment is terminable at will by
either party.
The Company entered into an employment letter agreement with Merl F.
Hoekstra, dated May 13, 1998, providing for an annual salary of $150,000,
subject to adjustment from time to time, a signing bonus of $15,000, certain
moving expenses, certain severance arrangements, and an opportunity to
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<PAGE> 59
acquire 50,000 shares of Common Stock of the Company pursuant to the Company's
stock option plan. The employment letter agreement indicates that Dr. Hoekstra's
employment is terminable at will by either party.
1998 EQUITY INCENTIVE PLAN
The Company adopted its 1993 Stock Option Plan, 1993 Founders' Stock Option
Plan and 1997 Stock Option Plan (collectively, the "Prior Plans") and amended,
restated and retitled them in February 1998 as the 1998 Equity Incentive Plan
(as amended, restated and retitled, the "1998 Plan"). Outstanding options will
continue to be governed by the original terms of those grants. An aggregate of
2,016,667 shares of the Company's Common Stock have been reserved for issuance
pursuant to the exercise of stock awards granted to employees, directors and
consultants under the 1998 Plan. The 1998 Plan will terminate in April 2008,
unless sooner terminated by the Board.
The 1998 Plan permits the granting of options intended to qualify as
incentive stock options ("Incentive Stock Options") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to
employees (including officers and employee directors), and options that do not
so qualify ("Nonstatutory Stock Options," and, together with Incentive Stock
Options, the "Options") to employees (including officers and employee
directors), directors and consultants (including non-employee directors). In
addition, the 1998 Plan permits the granting of stock appreciation rights
("SARs") appurtenant to or independently of Options, as well as stock bonuses
and rights to purchase restricted stock (Options, SARs, stock bonuses and rights
to purchase restricted stock are hereinafter referred to as "Stock Awards"). No
person is eligible to be granted Options and SARs covering more than 750,000
shares of the Company's Common Stock in any calendar year.
The 1998 Plan is administered by the Board or a committee appointed by the
Board. Subject to the limitations set forth in the 1998 Plan, the Board has the
authority to select the persons to whom grants are to be made, to designate the
number of shares to be covered by each Stock Award, to determine whether an
Option is to be an Incentive Stock Option or a Nonstatutory Stock Option, to
establish vesting schedules, to specify the Option exercise price and the type
of consideration to be paid to the Company upon exercise and, subject to certain
restrictions, to specify other terms of Stock Awards.
The maximum term of Options granted under the 1998 Plan is 10 years. The
aggregate fair market value, determined at the time of grant, of the shares of
Common Stock with respect to which Incentive Stock Options are exercisable for
the first time by an optionee during any calendar year (under all such plans of
the Company and its affiliates) may not exceed $100,000, or the Options or
portion thereof which exceed such limit (according to the order in which they
are granted) shall be treated as Nonstatutory Stock Options. Options granted
under the 1998 Plan generally are non-transferable and expire three months after
the termination of an optionee's service to the Company. In general, if an
optionee is permanently disabled or dies during his or her service to the
Company, such person's Options may be exercised up to 12 months following such
disability and following such death.
The exercise price of Options granted under the 1998 Plan is determined by
the Board of Directors in accordance with the guidelines set forth in the 1998
Plan. The exercise price of an Incentive Stock Option cannot be less than 100%
of the fair market value of the Common Stock on the date of the grant. The
exercise price of a Nonstatutory Stock Option cannot be less than 85% of the
fair market value of the Common Stock on the date of grant. Options granted
under the 1998 Plan vest at the rate specified in the option agreement. The
exercise price of Incentive Stock Options granted to any person who at the time
of grant owns stock representing more than 10% of the total combined voting
power of all classes of the Company's capital stock must be at least 110% of the
fair market value of such stock on the date of grant and the term of such
Incentive Stock Options cannot exceed five years.
Any stock bonuses or restricted stock purchase awards granted under the
1998 Plan shall be in such form and will contain such terms and conditions as
the Board deems appropriate. The purchase price under any restricted stock
purchase agreement will not be less than 85% of the fair market value
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<PAGE> 60
of the Company's Common Stock on the date of grant. Stock bonuses and restricted
stock purchase agreements awarded under the 1998 Plan are generally
non-transferable.
Pursuant to the 1998 Plan, shares subject to Stock Awards that have expired
or otherwise terminated without having been exercised in full again become
available for grant, but shares subject to exercised stock appreciation rights
will not again become available for grant. The Board of Directors has the
authority to reprice outstanding Options and SARs and to offer optionees and
holders of SARs the opportunity to replace outstanding options and SARs with new
options or SARs for the same or a different number of shares.
Upon certain changes in control of the Company, all outstanding Stock
Awards under the 1998 Plan must either be assumed or substituted by the
surviving entity. In the event the surviving entity does not assume or
substitute such Stock Awards, such Stock Awards will be terminated to the extent
not exercised prior to such change in control.
As of March 31, 1998, the Company had issued 435,570 shares of Common Stock
pursuant to the exercise of Options granted under the 1998 Plan, and had granted
additional Options to purchase an aggregate of 662,676 shares of Common Stock.
As of March 31, 1998, 918,421 shares of Common Stock remained available for
future grants under the 1998 Plan.
The following tables set forth information for 1997 concerning individual
grants of stock options to Named Officers, the exercise of stock options by
Named Officers and aggregate stock options held by the Named Officers at
year-end:
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ------------------
NAME GRANTED(1) 1997 PER SHARE DATE 5% 10%
---- ---------- ------------ -------------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Alan J. Lewis........ 18,750 10.8% $ 1.12 6/3/07 $34,207 $54,469
Carl F. Bobkoski..... -- -- -- -- -- --
David W. Anderson.... 8,750 5.0 0.56 2/19/07 7,982 12,709
16,250 9.4 1.12 6/3/07 29,645 47,206
Bradley B. Gordon.... 20,000 11.5 1.12 4/17/07 36,487 58,100
</TABLE>
- ------------------------------
(1) Twenty-five percent of such options vest on the first anniversary of the
grant date and the remaining options vest thereafter in 36 equal
installments. The Board of Directors of the Company has the right to
accelerate the vesting of such options. The term of the options is 10 years.
(2) The potential realizable value is calculated based on the term of the option
and is calculated by assuming that the fair market value of Common Stock on
the date of the grant as determined by the Board appreciates at the
indicated annual rate compounded annually for the entire term of the option
and that the option is exercised and the Common Stock received therefore is
sold on the last day of the term of the option for the appreciated price.
The 5% and 10% rates of appreciation are derived from the rules of the
Securities and Exchange Commission. The actual value realized may be greater
than or less than the potential realizable values set forth in the table.
AGGREGATED 1997 OPTION EXERCISES AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT YEAR END AT YEAR END($)(1)
ACQUIRED ON VALUE ------------------------------ ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE(2) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alan J. Lewis......... -- -- 106,250 -- $1,213,000 --
Carl F. Bobkoski...... 73,750(3) $ 0 -- -- -- --
David W. Anderson..... -- -- 25,000 -- 276,900 --
Bradley B. Gordon..... -- -- 57,500 -- 646,600 --
</TABLE>
59
<PAGE> 61
- ------------------------------
(1) Based on an assumed initial public offering price of $12.00 per share minus
the per share exercise price multiplied by the number of shares.
(2) All stock options granted by the Company are immediately exercisable for
shares of restricted common stock, subject to a right of repurchase by the
Company pursuant to a vesting schedule. At year-end, Alan J. Lewis held
70,000 exercisable options remaining subject to a vesting schedule; David W.
Anderson held 25,000 exercisable options remaining subject to a vesting
schedule; and Bradley B. Gordon held 32,500 exercisable options remaining
subject to a vesting schedule.
(3) Includes 36,876 shares of Common Stock subject to a right of repurchase by
the Company pursuant to a vesting schedule.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In February 1998, the Company adopted its Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") to provide for the automatic grant of
options to purchase shares of Common Stock to non-employee directors of the
Company. The Directors' Plan is administered by the Board, unless the Board
delegates administration to a committee of at least two disinterested directors.
The maximum number of shares of Common Stock that may be issued pursuant to
options granted under the Directors' Plan is 200,000. Pursuant to the terms of
the Directors' Plan: (i) each person who, after the effective date of this
offering, for the first time becomes a Non-Employee Director automatically will
be granted, upon the date of his or her initial appointment or election to be a
Non-Employee Director, a one-time option to purchase 20,000 shares of Common
Stock; and (ii) on the date of each annual meeting of the stockholders of the
Company after the effective date of this offering (other than any such annual
meeting held in 1998), each person who is elected at such annual meeting to
serve as a Non-Employee Director (who was also a Non-Employee Director prior to
such annual meeting) automatically will be granted an option to purchase 5,000
shares of Common Stock.
No options granted under the Directors' Plan may be exercised after the
expiration of ten years from the date it was granted. Options granted under the
Directors' Plan vest monthly over a three-year period. The exercise price of
options under the Directors' Plan will equal 100% of the fair market value of
the Common Stock on the date of grant. Options granted under the Directors' Plan
are generally non-transferable. Unless otherwise terminated by the Board of
Directors, the Directors' Plan automatically terminates on the tenth anniversary
of the date of this offering. As of the date hereof, no options to purchase
shares of Common Stock have been granted under the Directors' Plan. Options
granted under the Directors' Plan vest in full upon certain changes in ownership
or control of the Company, unless assumed or replaced with similar options by
the entity gaining such ownership or control of the Company.
EMPLOYEE STOCK PURCHASE PLAN
In February 1998, the Company adopted the Employee Stock Purchase Plan (the
"Purchase Plan") covering an aggregate of 200,000 shares of Common Stock. The
Purchase Plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the Code. Under the Purchase Plan, the Board may
authorize participation by eligible employees, including officers, in periodic
offerings following the commencement of the Purchase Plan. The initial offering
under the Purchase Plan will commence on the effective date of this offering and
terminate on July 31, 2000.
Unless otherwise determined by the Board, employees are eligible to
participate in the Purchase Plan only if they are employed by the Company or a
subsidiary of the Company designated by the Board for at least 20 hours per week
and are customarily employed by the Company or a subsidiary of the Company
designated by the Board for at least five months per calendar year. Employees
who participate in an offering may have up to 15% of their earnings withheld
pursuant to the Purchase Plan. The amount withheld is then used to purchase
shares of the Common Stock on specified dates determined by the Board. The price
of Common Stock purchased under the Purchase Plan will be equal to 85% of the
lower of the fair market value of the Common Stock at the commencement date of
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<PAGE> 62
each offering period or the relevant purchase date. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the Company.
In the event of a merger, reorganization, consolidation or liquidation
involving the Company, the Board has discretion to provide that each right to
purchase Common Stock will be assumed or an equivalent right substituted by the
successor corporation, or the Board may shorten the offering period and provide
for all sums collected by payroll deductions to be applied to purchase stock
immediately prior to such merger or other transaction. The Board has the
authority to amend or terminate the Purchase Plan, provided, however, that no
such action may adversely affect any outstanding rights to purchase Common
Stock.
401(K) PLAN
Effective September 15, 1994, the Company adopted the Signal
Pharmaceuticals, Inc. Employees Retirement Investment Plan & Trust which was
amended and restated on January 1, 1998 (the "401(k) Plan"), covering the
Company's employees. Pursuant to the 401(k) Plan, eligible employees may elect
to reduce their current compensation by up to the statutorily prescribed annual
limit ($10,000 in 1998) and have the amount of such reduction contributed to the
401(k) Plan. In addition, eligible employees may make roll-over contributions to
the 401(k) Plan from a tax-qualified retirement plan. The 401(k) Plan allows for
the Company to make discretionary matching and additional profit sharing
contributions, each as determined by a committee of the Board of Directors. No
discretionary or profit sharing contributions were made by the Company in 1997
and the Company has no intention of making such contributions in the near
future. Company contributions, if any, become 20% vested after two years of
service, with an additional 20% becoming vested for each year of service
thereafter. The 401(k) Plan is intended to qualify under Section 401 of the
Code, so that contributions by employees and the Company to the 401(k) Plan, and
income earned on the 401(k) Plan contributions, are not taxable to employees
until withdrawn from the 401(k) Plan, and so that contributions by the Company,
if any, will be deductible by the Company when made. The trustees under the
401(k) Plan, at the direction of each participant, invest the 401(k) Plan
employee salary deferrals in selected investment options.
LIMITATIONS ON DIRECTORS' AND EXECUTIVE OFFICERS' LIABILITY AND INDEMNIFICATION
The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law, except with respect to
certain proceedings initiated by such persons. The Company is also empowered
under its Bylaws to enter into indemnification contracts with its directors and
executive officers and to purchase insurance on behalf of any person it is
required or permitted to indemnify. Pursuant to this provision, the Company has
entered into indemnification agreements with each of its directors and executive
officers.
In addition, the Company's Restated Certificate provides that a director of
the Company will not be personally liable to the Company or its stockholders for
monetary damages for any breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law or (iv) for any transaction from which the
director derives an improper personal benefit. The Restated Certificate also
provides that if the Delaware General Corporation Law is amended after the
approval by the Company's stockholders of the Restated Certificate to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of the Company's directors shall be eliminated or
limited to the fullest extent permitted by the Delaware General Corporation Law,
as so amended. The provision does not affect a director's responsibilities under
any other law, such as the federal securities laws or state or federal
environmental laws.
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CERTAIN TRANSACTIONS
The following is a description of transactions since January 1, 1995, to
which the Company has been a party, in which the amount involved in the
transaction exceeds $60,000 and in which any director, executive officer or
holder of more than five percent of the capital stock of the Company had or will
have a direct or indirect material interest, other than compensation
arrangements that are otherwise required to be described under "Management."
In December 1997, the Company sold in a private placement 680,628 shares of
Series F Preferred Stock to Ares-Serono, a five percent holder of capital stock
of the Company, in exchange for an aggregate purchase price of $8,200,001,
pursuant to a Series F Preferred Stock Purchase Agreement dated November 25,
1997 (the "Series F Agreement"). Upon the closing of this offering, each share
of Series F Preferred Stock will automatically convert into one share of Common
Stock. See Note 5 of Notes to Financial Statements for a description of the
Series F Preferred Stock. In addition, on November 25, 1997, the Company entered
into a Research Development and License Agreement with Ares-Serono focused on
the identification of compounds that modulate NF-k B gene regulating pathways.
Ares-Serono has paid Signal a license fee and is obligated to provide Signal
with annual research and development support, make payments to Signal based on
the achievement of certain research and development milestones, and to pay
Signal royalties on any future product sales arising from the collaboration. See
"Business--Research and Development Partners."
In September 1997, the Company sold in a private placement 1,613,865 shares
of Series E Preferred Stock in exchange for an aggregate purchase price of
$11,999,997, pursuant to a Series E Preferred Stock Purchase Agreement dated
September 9, 1997 (the "Series E Agreement"). Upon the closing of this offering,
each share of Series E Preferred Stock will automatically convert into one share
of Common Stock. See Note 5 of Notes to Financial Statements for a description
of the Series E Preferred Stock. The following directors and beneficial owners
of more than five percent of the Company's Common Stock (assuming the conversion
of all shares of Preferred Stock into Common Stock) acquired beneficial
ownership of Series E Preferred Stock pursuant to the Series E Agreement:
<TABLE>
<CAPTION>
NO. OF
DIRECTORS/5% STOCKHOLDERS SHARES
------------------------- -------
<S> <C>
Patrick F. Latterell/Venrock Associates..................... 25,273
Luke B. Evnin/Accel Partners................................ 25,273
Brook H. Byers/Kleiner Perkins Caufield & Byers............. 25,273
Arnold Oronsky/InterWest Partners........................... 19,826
Oxford Bioscience Partners.................................. 13,217
U.S. Venture Partners....................................... 13,217
Ares-Serono S.A............................................. 246,575
Lombard Odier Immunology Fund............................... 392,670
</TABLE>
The Company has entered into certain other agreements in connection with
the Series E and Series F Agreements. Pursuant to one such agreement, certain
stockholders acquired registration rights. See "Description of Capital
Stock--Registration Rights." Further, the Company and its stockholders agreed to
certain restrictions on the issuance and transfer of shares of the Company's
capital stock, and to certain voting rights relating to the election of
directors, all of which restrictions and voting rights are not applicable to and
shall terminate upon the closing of this offering.
In June 1994, the Company loaned $250,000 to Alan J. Lewis, the Company's
President and Chief Executive Officer and a director of the Company, to assist
with the purchase of a residence in connection with Dr. Lewis' relocation to San
Diego, California. Pursuant to the terms of a Promissory Note dated June 14,
1994, the principal amount of the loan plus accrued interest shall be amortized
over a period of five years following June 14, 1999, with monthly payments
commencing in July 1999. The principal amount of the loan will be interest-free
for five years from the date of the Promissory Note, and thereafter will accrue
interest at the per annum rate of 7.52%, compounded annually.
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<PAGE> 64
Interest will also begin to accrue at the same rate in the event that Dr. Lewis'
employment is terminated for any reason. The parties also entered into a
Security Agreement on the same date whereby Dr. Lewis pledged all present and
future shares of Common Stock of the Company held by him (plus all cash and
stock dividends attributable to such shares) as security for the loan.
In May 1998, the Company loaned $62,000 to Alan J. Lewis in connection with
the exercise of options to purchase 106,250 shares of Common Stock of the
Company. Pursuant to the terms of a Promissory Note delivered to the Company by
Dr. Lewis, dated May 8, 1998, the principal amount of the loan plus accrued
interest at a per annum rate equal to 5.69%, compounded annually, shall be due
and payable five years from the date of the loan. Pursuant to a Stock Pledge
Agreement entered into on the same date, Dr. Lewis, pledged all present and
future shares of Common Stock of the Company held by him (plus all cash and
stock dividends attributable to such shares) as security for the loan.
The Company has entered into employment letter agreements with Alan J.
Lewis, its President and Chief Executive Officer, Carl F. Bobkoski, its
Executive Vice President, David W. Anderson, its Senior Vice President, Drug
Development, Bradley B. Gordon, its Vice President Finance, Chief Financial
Officer and Corporate Secretary and Merl F. Hoekstra, its Vice President, Target
Discovery. See "Management--Employment Agreements."
The Company has granted options to certain of its directors and executive
officers. The Company has also entered into an indemnification agreement with
each of its directors and executive officers. See "Management--Limitations on
Directors' and Executive Officers' Liability and Indemnification."
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<PAGE> 65
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 31, 1998, and as adjusted to
reflect the sale of the shares of Common Stock offered hereby, by (i) each
holder of more than five percent of the Company's Common Stock, (ii) each of the
Company's executive officers, (iii) each of the Company's directors, and (iv)
all current directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES BENEFICIALLY
OWNED(1)
SHARES -------------------
5% STOCKHOLDERS, DIRECTORS BENEFICIALLY BEFORE AFTER
AND NAMED EXECUTIVE OFFICERS OWNED(1) OFFERING OFFERING
---------------------------- ------------ -------- --------
<S> <C> <C> <C>
Ares-Serono S.A.......................................... 927,203 13.4% 9.7%
15bis Chemin des Mines
1202 Geneva, Switzerland
Luke B. Evnin, Ph.D.(2).................................. 745,653 10.8 7.8
Accel Partners
428 University Avenue
Palo Alto, California 94301
Patrick F. Latterell(3).................................. 743,031 10.8 7.8
Venrock Associates
755 Page Mill Road, Suite A230
Palo Alto, California 94304
Brook H. Byers(4)........................................ 720,663 10.4 7.5
Kleiner Perkins Caufield & Byers
2750 Sand Hill Road
Menlo Park, California 94025
Arnold Oronsky, Ph.D.(5)................................. 568,040 8.2 5.9
InterWest Partners
3000 Sand Hill Road
Building 3, Suite 255
Menlo Park, California 94025
Lombard Odier & Cie...................................... 392,670 5.7 4.1
11, rue de la Corraterie
1204 Geneva, Switzerland
Oxford Bioscience Partners(6)............................ 370,358 5.4 3.9
650 Town Center Drive, Suite 180
Costa Mesa, California 92626
U.S. Venture Partners(7)................................. 370,358 5.4 3.9
2180 Sand Hill Road, Suite 300
Menlo Park, California 94025
Alan J. Lewis, Ph.D.(8).................................. 187,500 2.7 2.0
Harry F. Hixson, Ph.D.(9)................................ 99,880 1.4 1.0
Carl F. Bobkoski(10)..................................... 98,750 1.4 1.0
David W. Anderson, Ph.D.(11)............................. 85,000 1.2 *
Bradley B. Gordon(12).................................... 70,000 1.0 *
Merl F. Hoekstra, Ph.D.(13).............................. 50,000 * *
John P. Walker(14)....................................... 37,500 * *
All directors and executive officers as a group (10
persons)(15)........................................... 3,406,017 47.4 34.7
</TABLE>
- ------------------------------
* Represents beneficial ownership of less than one percent.
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<PAGE> 66
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
Percentage of beneficial ownership is based on 6,897,140 shares of Common
Stock outstanding as of May 31, 1998 (after giving effect to the conversion
of all outstanding shares of Preferred Stock into 6,050,949 Common Stock)
and 9,563,806 shares of Common Stock outstanding after completion of this
offering.
(2) Includes 613,658 shares held by Accel IV L.P., 27,124 shares held by Accel
Investors '93 L.P., 13,195 shares held by Accel Keiretsu L.P., 58,652
shares held by Accel Japan L.P., 16,127 shares held by Ellmore C. Patterson
Partners and 4,397 shares held by Prosper Partners, affiliated entities for
which Dr. Evnin is a General Partner or officer of some. Dr. Evnin
disclaims beneficial ownership of all such shares, except to the extent of
his pecuniary or pro rata interest in such shares. Also includes 12,500
shares subject to options exercisable within 60 days of May 31, 1998.
(3) Includes 499,600 shares held by Venrock Associates and 234,056 shares held
by Venrock Associates II, L.P., entities for which Mr. Latterell is a
general partner. Mr. Latterell disclaims beneficial ownership of all such
shares, except to the extent of his pecuniary or pro rata interest in such
shares.
(4) Includes 708,163 shares held by Kleiner Perkins Caufield & Byers VI, an
entity for which Mr. Byers is a partner. Mr. Byers disclaims beneficial
ownership of all such shares, except to the extent of his pecuniary or pro
rata interest in such shares. Also includes 12,500 shares subject to
options exercisable within 60 days of May 31, 1998.
(5) Includes 552,068 shares held by InterWest Partners V and 3,472 shares held
by InterWest Investors V, which are affiliated entities. Dr. Oronsky is a
general partner of InterWest Partners V. Dr. Oronsky disclaims beneficial
ownership of all such shares, except to the extent of his pecuniary or pro
rata interest in such shares. Also includes 12,500 shares subject to
options exercisable within 60 days of May 31, 1998.
(6) Includes 231,942 shares held by Oxford Bioscience Partners L.P., 74,071
shares held by Oxford Bioscience Partners (Adjunct) L.P. and 64,345 shares
held by Oxford Bioscience Partners (Bermuda) Limited Partnership.
(7) Includes 320,361 shares held by U.S. Venture Partners IV, L.P., 38,887
shares held by Second Ventures II, L.P. and 11,110 shares held by USVP
Entrepreneur Partners II, L.P.
(8) Includes 18,750 shares subject to options exercisable within 60 days of May
31, 1998.
(9) Includes 79,880 shares held by the Harry F. Hixson, Jr. Separate Property
Trust Dated December 15, 1995, of which Dr. Hixson is the sole trustee.
Also includes 12,500 shares subject to options exercisable within 60 days
of May 31, 1998.
(10) Includes 25,000 shares subject to options exercisable within 60 days of May
31, 1998.
(11) Includes 35,000 shares subject to options exercisable within 60 days of May
31, 1998.
(12) Includes 70,000 shares subject to options exercisable within 60 days of May
31, 1998.
(13) Includes 50,000 shares subject to options exercisable within 60 days of May
31, 1998.
(14) Includes 37,500 shares held by the Walker Living Trust Dated March 3, 1995,
of which Mr. Walker is the sole trustee.
(15) Includes 248,750 shares subject to options exercisable within 60 days of
May 31, 1998.
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<PAGE> 67
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of this offering, the authorized capital stock
of the Company will consist of 25,000,000 shares of Common Stock, $.001 par
value per share, and 5,000,000 shares of preferred stock, $.001 par value per
share.
COMMON STOCK
As of March 31, 1998, there were 6,767,263 shares of Common Stock
outstanding, after giving effect to the conversion of all outstanding shares of
Preferred Stock into 6,050,949 shares of Common Stock.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by the stockholders. Subject to preferences that may be
applicable to any outstanding shares of Preferred Stock, holders of Common Stock
are entitled to receive ratably such dividends as may be declared by the Board
of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preferences of any outstanding shares of
Preferred Stock. Holders of Common Stock have no preemptive, conversion,
subscription or other rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are, and
all shares of Common Stock to be outstanding upon completion of this offering
will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of Preferred
Stock will be converted into 6,050,949 shares of Common Stock. See Note 5 of
Notes to Financial Statements for a description of the currently outstanding
Preferred Stock. Following the conversion, the Company's Certificate of
Incorporation will be amended and restated to delete all references to such
shares of Preferred Stock. Under the Restated Certificate, the Board has the
authority, without further action by stockholders, to issue up to 5,000,000
shares of preferred stock in one or more series and to fix or alter the rights,
preferences, privileges, qualifications and restrictions granted to or imposed
upon any wholly unissued series of preferred stock, and to establish from time
to time the number of shares constituting any such series or any of them; and to
increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not below the number of shares of such
series then outstanding. The issuance of preferred stock could adversely affect
the voting power of holders of Common Stock and reduce the likelihood that such
holders will receive dividend payments and payments upon liquidation. Such
issuance could have the effect of decreasing the market price of the Common
Stock. The issuance of preferred stock could have the effect of delaying,
deterring or preventing a change in control of the Company. The Company has no
present plans to issue any shares of preferred stock.
WARRANTS
As of March 31, 1998, there were warrants outstanding to purchase an
aggregate of 62,500 shares of Series C-1 Preferred Stock at an exercise price of
$8.40 per share, which will convert into warrants to purchase Common Stock upon
the closing of this offering.
REGISTRATION RIGHTS
After this offering, the holders of 6,050,949 shares of Common Stock will
be entitled to certain rights with respect to the registration of such shares
under the Securities Act, pursuant to that certain Amended and Restated Investor
Rights Agreement dated September 9, 1997, as amended on November 25, 1997 (the
"Investors' Rights Agreement"). Under the terms of the Investors' Rights
Agreement, 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 security
holders exercising registration rights, such holders are entitled to notice of
such registration and are entitled, subject to certain limitations, to include
shares therein. Commencing with the date that is 180 days after this offering,
the holders may also require the
66
<PAGE> 68
Company to file a registration statement under the Securities Act with respect
to their shares, and the Company is required to use its best efforts to effect
to such registration. Furthermore, the holders may require the Company to
register their shares on a registration statement on Form S-3 when such form
becomes available to the Company. Such registration rights terminate on the
seventh anniversary of the effective date of this offering.
The holder of a warrant to purchase 62,500 shares of Series C-1 Preferred
Stock of the Company, granted November 23, 1996, will be entitled, upon exercise
of such warrant, to notice whenever the Company proposes to register any of its
securities under the Securities Act, either for its own account or for the
account of other security holders exercising registration rights. The holder of
such warrant is entitled to include in any such registration the shares of
Common Stock into which the Series C-1 Preferred Stock underlying the warrant
may be converted. Such registration rights terminate on the seventh anniversary
of the effective date of this offering.
After this offering, a holder of 11,093 shares of Common Stock purchased
pursuant to two certain Restricted Stock Purchase Agreements dated October 26,
1993 and February 18, 1998, respectively, will be entitled, 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 security holders exercising
registration rights, to notice of such registration and, subject to certain
limitations, to include such shares therein. In addition, such holder may obtain
an additional 23,750 shares of Common Stock pursuant to the attainment of
certain regulatory milestones whereby such additional shares would be entitled
to the same registration rights as the 11,093 shares currently held.
After this offering, a holder of 7,500 shares of Common Stock purchased
pursuant to two certain Restricted Stock Purchase Agreements dated October 31,
1996 and December 7, 1997, respectively, will be entitled, 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 security holders exercising
registration rights, to notice of such registration and, subject to certain
limitations, to include such shares therein. In addition, such holder may obtain
an additional 5,625 shares of Common Stock pursuant to the attainment of certain
regulatory milestones whereby such additional shares would be entitled to the
same registration rights as the 7,500 shares currently held.
Generally, the Company is required to bear all registration and selling
expenses incurred in connection with any of the registrations described above.
The registration rights are also subject to certain conditions and limitations,
among them the right of the underwriters of a public offering to limit the
number of shares included in the registration statement filed in connection
therewith.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is governed by the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). In general, Section 203 prohibits a
public Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales or other transactions resulting in a
financial benefit to the stockholder. An "interested stockholder" is a person
who, together with affiliates and associates, owns (or within three years, did
own) 15% or more of the corporation's outstanding voting stock. This provision
could delay, discourage or prohibit transactions not approved in advance by the
Board of Directors, such as takeover attempts that might result in a premium
over the market price of the Common Stock.
The Company's Restated Certificate provides that the Board of Directors
will be divided into three classes of directors, with each class serving a
staggered three-year term. The classification system of electing directors may
tend to discourage a third party from making a tender offer or otherwise
attempting to obtain control of the Company and may maintain the composition of
the Board of Directors, as the classification of the Board of Directors
generally increases the difficulty of replacing a majority of directors. The
Company's Restated Certificate provides that any action required or
67
<PAGE> 69
permitted to be taken by stockholders of the Company must be effected at a duly
called annual or special meeting of stockholders and may not be effected by any
consent in writing. In addition, the Company's Bylaws provide that special
meetings of the stockholders of the Company may be called only by the Chairman
of the Board of Directors, the Chief Executive Officer of the Company, by the
Board of Directors pursuant to a resolution adopted by a majority of the total
number of authorized directors, or by the holders of 10% of the outstanding
voting stock of the Company. The Company's Restated Certificate also specifies
that the authorized number of directors may be changed only by resolution of the
Board of Directors and does not include a provision for cumulative voting for
directors. Under cumulative voting, a minority stockholder holding a sufficient
percentage of a class of shares may be able to ensure the election of one or
more directors. These and other provisions contained in the Restated Certificate
and the Company's Bylaws could delay or discourage certain types of transactions
involving an actual or potential change in control of the Company or its
management (including transactions in which stockholders might otherwise receive
a premium for their shares over then current prices) and may limit the ability
of stockholders to remove current management of the Company or approve
transactions that stockholders may deem to be in their best interests and,
therefore, could adversely affect the price of the Company's Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is
ChaseMellon Shareholder Services, L.L.C.
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<PAGE> 70
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices. Furthermore, since only a
limited number of shares will be available for sale shortly after the offering
because of certain contractual and legal restrictions on resale described below,
sales of substantial amounts of Common Stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and the
ability of the Company to raise equity capital in the future.
Upon completion of this offering, the Company will have 9,433,929 shares of
Common Stock outstanding, assuming no exercise of currently outstanding options
or warrants. Of these shares, the 2,500,000 shares sold in this offering (plus
any additional shares sold upon exercise of the Underwriters' over-allotment
option) will be freely transferable without restriction under the Securities
Act, unless they are held by "affiliates" of the Company as that term is used
under the Securities Act and the rules and regulations promulgated thereunder.
The remaining 6,933,929 shares of Common Stock held by existing stockholders are
Restricted Shares. Restricted Shares may be sold in the public market only if
registered or of they qualify for an exemption from registration under Rules 144
or 701 promulgated under the Securities Act, which rules are summarized below.
As a result of Lock-up Agreements and the provisions of Rules 144 and 701,
additional shares will be available for sale in the public market as follows:
(i) no Restricted Shares will be eligible for immediate sale on the effective
date of this offering; (ii) 6,677,325 Restricted Shares (plus approximately
623,687 shares of Common Stock issuable upon exercise of vested stock options)
will be eligible for sale upon expiration of the Lock-up Agreements 180 days
after the date of this Prospectus; and (iii) the remainder of the Restricted
Shares will be eligible for sale from time to time thereafter upon expiration of
their respective one-year holding periods and could be sold earlier if the
holders exercise any available registration rights. The holders of 6,058,449
shares of Common Stock have the right in certain circumstances to require the
Company to register their shares under the Securities Act for resale to the
public beginning 180 days from the effective date of this offering. If such
holders, by exercising their demand registration rights, cause a large number of
shares to be registered and sold in the public market, such sales could have an
adverse effect on the market price for the Company's Common Stock. If the
Company were required to include in a Company-initiated registration shares held
by such holders pursuant to the exercise of their piggyback registration rights,
such sales may have an adverse effect on the Company's ability to raise needed
capital. In addition, the Company expects to file a registration statement on
Form S-8 registering shares of Common Stock subject to outstanding stock options
or reserved for issuance under the Company's stock option plans. Such
registration statement is expected to be filed and to become effective as soon
as practicable after the effective date of this offering. 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 lock-up
agreements described above.
In general, under Rule 144 as in effect on the date of this Prospectus,
beginning 90 days after the effective date of this offering, an Affiliate of the
Company, or a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares (as defined under Rule 144) for at least
one year is entitled to sell within any three-month period a number of shares
that does not exceed greater of (i) one percent of the then outstanding shares
of the Company's Common Stock or (ii) the average weekly trading volume of the
Company's Common Stock in The Nasdaq National Market during the four calendar
weeks immediately preceding the date on which notice of the sale is filed with
the Commission. Sales pursuant to Rule 144 are subject to certain requirements
relating to the manner of sale, notice, and the availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who was not an Affiliate of the Company at any time during the 90 days
immediately preceding the sale and who has beneficially owned Restricted Shares
for at least two years is entitled to sell such shares under Rule 144(k) without
regard to the limitations described above.
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<PAGE> 71
An employee, officer or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701 under the Securities Act, which permits Affiliates and
non-Affiliates to sell their Rule 701 shares without having to comply with the
Rule 144 holding period restrictions, in each case commencing 90 days after the
effective date of this offering. In addition, non-Affiliates may sell Rule 701
shares without complying with the public information, volume and notice
provisions of Rule 144.
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<PAGE> 72
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their representatives, Hambrecht & Quist LLC,
BancAmerica Robertson Stephens and Lehman Brothers Inc. (the "Representatives")
have severally agreed to purchase from the Company the following respective
numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC.......................................
BancAmerica Robertson Stephens..............................
Lehman Brothers Inc.........................................
---------
Total............................................. 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow and such dealers may
reallow a concession not in excess of $ per share to certain other dealers.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the Representatives of the Underwriters. The
Representatives have advised the Company that the Underwriters do not intend to
confirm discretionary sales in excess of 5% of the shares of Common Stock
offered hereby.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
above table bears to the total number of shares of Common Stock offered hereby.
The Company will be obligated, pursuant to the option, to sell shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of Common Stock offered hereby.
Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling
71
<PAGE> 73
concession from a syndicate member in connection with the offering when shares
of Common Stock sold by the syndicate member are purchased in syndicate covering
transactions. Such transactions may be effected on the Nasdaq National Market,
in the over-the-counter market, or otherwise. Such stabilizing, if commenced,
may be discontinued at any time.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
Stockholders of the Company, including the executive officers and
directors, who hold in the aggregate 6,933,929 shares of Common Stock after the
offering, have agreed that they will not, without the prior written consent of
Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of Common
Stock, options or warrants to acquire shares of Common Stock or securities
exchangeable for or convertible into shares of Common Stock owned by them during
the 180-day period following the date of this Prospectus. The Company has agreed
that it will not, without the prior written consent of Hambrecht & Quist LLC,
offer, sell or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock during the 180-day period following the
date of this Prospectus, except that the Company may issue shares to DuPont
Merck in accordance with its stock purchase agreement and under agreements that
may be entered into with collaborators in the future. In addition, the Company
may issue shares upon the exercise of options granted prior to the date hereof
and may grant additional options and issue stock under its 1998 Equity Incentive
Plan, and Employee Stock Purchase Plan (whereby the Company will cause any
person to whom such options are granted or shares are issued to enter into an
agreement restricting the transfer of any securities of the Company held by such
person during the 180-day period following the date of this Prospectus without
the prior written consent of Hambrecht & Quist LLC). See "Shares Eligible for
Future Sale."
Prior to the offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation among the Company and the Representatives. Among the factors to
be considered in determining the initial public offering price are the
prevailing market and economic conditions, revenue and earnings of the Company,
market valuations of other companies engaged in activities similar to the
Company, estimates of the business potential and prospects of the Company, the
present state of the Company's business operations, the Company's management and
other factors deemed relevant. The estimated initial public offering price range
set forth on the cover of this Prospectus is subject to change as a result of
market conditions and other factors.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Cooley Godward LLP, San Diego, California. Certain legal
matters will be passed upon for the Underwriters by Brobeck, Phleger & Harrison
LLP, Palo Alto, California.
EXPERTS
The financial statements of Signal Pharmaceuticals, Inc. as of December 31,
1996 and 1997, and for each of the three years in the period ended December 31,
1997, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
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<PAGE> 74
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to the
Common Stock offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus, which is a part of the Registration Statement,
omits certain information, exhibits, schedules and undertakings set forth in the
Registration Statement. For further information pertaining to the Company and
the Common Stock offered hereby, reference is made to the Registration Statement
and the exhibits and schedules thereto. Statements contained in this Prospectus
as to the contents or provisions of any contract or other document referred to
herein are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. A copy of the Registration Statement may be inspected without
charge at the office of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located at the Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven
World Trade Center, 13th Floor, New York, New York 10048. Copies of all or any
part of the Registration Statement may be obtained from such offices upon the
payment of the fees prescribed by the Commission. In addition, registration
statements and certain other filings made with the Commission through its
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are publicly
available through the Commission's web site on the Internet at
http://www.sec.gov. The Registration Statement, including all exhibits thereto
and amendments thereof, has been filed with the Commission through EDGAR.
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<PAGE> 75
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SIGNAL PHARMACEUTICALS, INC.
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets as of December 31, 1996 and 1997 and March
31, 1998 (unaudited)...................................... F-3
Statements of Operations for each of the three years in the
period ended December 31, 1997 and the three months ended
March 31, 1997 (unaudited) and 1998 (unaudited)........... F-4
Statements of Stockholders' Equity for each of the three
years in the period ended December 31, 1997 and the three
months ended March 31, 1998 (unaudited)................... F-5
Statements of Cash Flows for each of the three years in the
period ended December 31, 1997 and the three months ended
March 31, 1997 (unaudited) and 1998 (unaudited)........... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 76
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Signal Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of Signal Pharmaceuticals,
Inc. as of December 31, 1996 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Signal Pharmaceuticals, Inc.
at December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
San Diego, California
January 16, 1998,
except for Note 7, as to which the date is
May 5, 1998
- --------------------------------------------------------------------------------
THE FOREGOING REPORT IS IN THE FORM THAT WILL BE SIGNED UPON THE COMPLETION OF
THE CHANGES IN CAPITALIZATION DESCRIBED IN NOTE 7 TO THE FINANCIAL STATEMENTS.
ERNST & YOUNG LLP
San Diego, California
May 5, 1998
F-2
<PAGE> 77
SIGNAL PHARMACEUTICALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
--------------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998
------------ ------------ ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 5,459,696 $ 8,736,469 $ 12,916,238
Short-term investments.......................... -- 12,129,506 7,754,955
Grant revenue receivable........................ 308,062 90,449 99,931
Other current assets............................ 218,750 189,366 502,383
------------ ------------ ------------
Total current assets.............................. 5,986,508 21,145,790 21,273,507
------------ ------------ ------------
Property and equipment, net....................... 2,280,168 2,252,568 2,776,621
Deposits and other assets......................... 530,476 189,438 455,114
Note receivable from officer...................... 250,000 250,000 250,000
------------ ------------ ------------
$ 9,047,152 $ 23,837,796 $ 24,755,242
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 426,718 $ 268,714 $ 538,702
Accrued liabilities............................. 312,599 1,207,719 591,355
Current portion of promissory note.............. 583,380 1,000,080 1,000,080
Current portion of obligations under capital 395,780 205,911 209,151
leases and equipment notes payable............
Current portion of deferred revenue under 1,662,497 3,083,956 4,298,743
collaborative agreements......................
------------ ------------ ------------
Total current liabilities......................... 3,380,974 5,766,380 6,638,031
------------ ------------ ------------
Promissory note, net of current portion........... 2,255,549 1,302,612 1,064,377
Obligations under capital leases and equipment 490,849 245,669 279,324
notes payable, net of current portion...........
Deferred revenue under collaborative agreements, 1,339,579 1,281,254 1,016,675
net of current portion..........................
Deferred rent..................................... 67,851 78,167 107,821
Commitments
Stockholders' equity:
Convertible Preferred Stock, $.001 par value; 3,698 6,051 6,051 $ --
6,113,485 shares authorized; 3,698,306,
6,050,949 and 6,050,949 shares issued and
outstanding at December 31, 1996, 1997 and
March 31, 1998, respectively; liquidation
preference -- $40,909,587 at December 31, 1997
and March 31, 1998 (5,000,000 shares
authorized, no shares issued and outstanding
pro forma)....................................
Common Stock, $.001 par value; 8,750,000 shares 522 664 716 6,767
authorized; 522,424, 664,602 and 716,314
shares issued and outstanding at December 31,
1996, 1997 and March 31, 1998, respectively,
(25,000,000 shares authorized, 6,767,263
shares issued and outstanding pro forma)......
Additional paid-in capital...................... 20,513,608 40,365,615 41,433,814 41,433,814
Deferred compensation........................... -- (511,510) (1,387,318) (1,387,318)
Accumulated other comprehensive income.......... -- 48,341 6,015 6,015
Accumulated deficit............................. (19,005,478) (24,745,447) (24,410,264) (24,410,264)
------------ ------------ ------------ ------------
Total stockholders' equity........................ 1,512,350 15,163,714 15,649,014 $ 15,649,014
------------ ------------ ------------ ============
$ 9,047,152 $ 23,837,796 $ 24,755,242
============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 78
SIGNAL PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue under collaborative agreements:
Related party.................................... $ -- $ -- $ 250,000 $ -- $ 750,000
Unrelated parties................................ -- 3,585,414 7,065,356 1,476,565 3,793,696
Grant income....................................... 299,152 347,198 264,257 72,261 99,932
----------- ----------- ----------- ----------- ----------
299,152 3,932,612 7,579,613 1,548,826 4,643,628
Expenses:
Research and development......................... 5,172,992 7,724,178 10,337,318 2,458,817 3,287,649
General and administrative....................... 1,937,226 2,470,910 2,791,084 671,325 1,203,118
----------- ----------- ----------- ----------- ----------
7,110,218 10,195,088 13,128,402 3,130,142 4,490,767
----------- ----------- ----------- ----------- ----------
Income (loss) from operations...................... (6,811,066) (6,262,476) (5,548,789) (1,581,316) 152,861
Interest income.................................... 452,609 187,488 325,529 59,859 282,863
Interest expense................................... (123,730) (134,019) (516,709) (152,274) (100,541)
----------- ----------- ----------- ----------- ----------
Net income (loss).................................. $(6,482,187) $(6,209,007) $(5,739,969) $(1,673,731) $ 335,183
=========== =========== =========== =========== ==========
Pro forma net income (loss) per share, basic and
diluted.......................................... $ (1.20) $ 0.05
=========== ==========
Number of shares used in computing pro forma net
income (loss) per share:
Basic.......................................... 4,775,952 6,628,046
=========== ==========
Diluted........................................ 4,775,952 6,875,100
=========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 79
SIGNAL PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
AND THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER
------------------ ---------------- PAID-IN DEFERRED COMPREHENSIVE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION INCOME (LOSS) DEFICIT
--------- ------ ------- ------ ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994........................ 3,573,306 $3,573 497,357 $497 $18,375,335 $ -- $ -- $(6,314,284)
Issuance of Common Stock,
net of repurchases...... -- -- 3,875 4 315 -- -- --
Offering costs related to
issuance of Series C
Preferred Stock......... -- -- -- -- (9,547) -- -- --
Net loss.................. -- -- -- -- -- -- -- (6,482,187)
--------- ------ ------- ---- ----------- ----------- -------- ------------
Balance at December 31,
1995........................ 3,573,306 3,573 501,232 501 18,366,103 -- -- (12,796,471)
Issuance of Series D
Preferred Stock......... 125,000 125 -- -- 1,974,875 -- -- --
Issuance of warrants...... -- -- -- -- 165,000 -- -- --
Issuance of Common Stock,
net of repurchases...... -- -- 21,192 21 7,630 -- -- --
Net loss.................. -- -- -- -- -- -- -- (6,209,007)
--------- ------ ------- ---- ----------- ----------- -------- ------------
Balance at December 31,
1996........................ 3,698,306 3,698 522,424 522 20,513,608 -- -- (19,005,478)
Issuance of Series D
Preferred Stock......... 58,150 58 -- -- (58) -- -- --
Issuance of Series E
Preferred Stock......... 1,613,865 1,614 -- -- 10,975,517 -- -- --
Issuance of Series F
Preferred Stock......... 680,628 681 -- -- 8,161,399 -- -- --
Issuance of Common Stock,
net of repurchases...... -- -- 141,774 142 99,294 -- -- --
Unrealized gain on
available for sale
securities.............. -- -- -- -- -- -- 48,341 --
Deferred compensation..... -- -- -- -- 615,855 (615,855) -- --
Amortization of deferred
compensation............ -- -- -- -- -- 104,345 -- --
Net loss.................. -- -- -- -- -- -- -- (5,739,969)
--------- ------ ------- ---- ----------- ----------- -------- ------------
Balance at December 31,
1997........................ 6,050,949 6,051 664,198 664 40,365,615 (511,510) 48,341 (24,745,447)
Issuance of Common Stock,
net of repurchases
(unaudited)............. -- -- 52,116 52 49,029 -- -- --
Unrealized loss on
available for sale
securities
(unaudited)............. -- -- -- -- -- -- (42,326) --
Deferred compensation
(unaudited)............. -- -- -- -- 1,019,170 (1,019,170) -- --
Amortization of deferred
compensation
(unaudited)............. -- -- -- -- -- 143,362 -- --
Net income (unaudited).... -- -- -- -- -- -- -- 335,183
--------- ------ ------- ---- ----------- ----------- -------- ------------
Balance at March 31, 1998
(unaudited)................. 6,050,949 $6,051 716,314 $716 $41,433,814 $(1,387,318) $ 6,015 $(24,410,264)
========= ====== ======= ==== =========== =========== ======== ============
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance at December 31,
1994........................ $12,065,121
Issuance of Common Stock,
net of repurchases...... 319
Offering costs related to
issuance of Series C
Preferred Stock......... (9,547)
Net loss.................. (6,482,187)
-----------
Balance at December 31,
1995........................ 5,573,706
Issuance of Series D
Preferred Stock......... 1,975,000
Issuance of warrants...... 165,000
Issuance of Common Stock,
net of repurchases...... 7,651
Net loss.................. (6,209,007)
-----------
Balance at December 31,
1996........................ 1,512,350
Issuance of Series D
Preferred Stock......... --
Issuance of Series E
Preferred Stock......... 10,977,131
Issuance of Series F
Preferred Stock......... 8,162,080
Issuance of Common Stock,
net of repurchases...... 99,436
Unrealized gain on
available for sale
securities.............. 48,341
Deferred compensation..... --
Amortization of deferred
compensation............ 104,345
Net loss.................. (5,739,969)
-----------
Balance at December 31,
1997........................ 15,163,714
Issuance of Common Stock,
net of repurchases
(unaudited)............. 49,081
Unrealized loss on
available for sale
securities
(unaudited)............. (42,326)
Deferred compensation
(unaudited)............. --
Amortization of deferred
compensation
(unaudited)............. 143,362
Net income (unaudited).... 335,183
-----------
Balance at March 31, 1998
(unaudited)................. $15,649,014
===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 80
SIGNAL PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $(6,482,187) $(6,209,007) $ (5,739,969) $(1,673,731) $ 335,183
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating
activities:
Depreciation and amortization............... 518,014 633,797 879,327 205,314 258,551
Amortization of warrants.................... -- 3,929 47,142 11,785 11,785
Amortization of deferred compensation....... -- -- 104,345 -- 143,362
Common stock issued for technology and
services.................................. -- -- 14,600 -- 8,400
Deferred revenue under collaborative
agreements................................ -- 3,002,076 1,363,134 (893,746) 950,208
Deferred rent............................... -- -- 10,316 (8,398) 29,654
Changes in operating assets and liabilities:
Other current assets.................... (158,072) (342,271) 246,997 150,967 (322,499)
Accounts payable........................ (546,392) 337,027 (158,004) 44,061 269,988
Accrued liabilities and other........... 14,824 188,550 895,120 139,629 (616,364)
----------- ----------- ------------ ----------- -----------
Net cash provided by (used for) operating
activities.................................... (6,653,813) (2,385,899) (2,336,992) (2,024,119) 1,068,268
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments............. (1,560,728) -- (12,081,165) -- --
Sales or maturities of short-term investments... -- 1,560,728 -- -- 4,332,225
Purchase of property and equipment.............. (1,009,941) (874,175) (630,220) (155,059) (695,502)
(Increase) decrease in deposits and other
assets........................................ 279,930 (349,074) 341,038 3,240 (265,676)
----------- ----------- ------------ ----------- -----------
Net cash provided by (used for) investing
activities.................................... (2,290,739) 337,479 (12,370,347) (151,819) 3,371,047
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on obligations under capital
leases, equipment notes payable and promissory
note.......................................... (426,737) (503,506) (1,239,935) (144,562) (300,227)
Proceeds from issuance of promissory note....... -- 3,000,000 -- -- --
Proceeds from issuance of equipment notes
payable....................................... 646,810 379,064 -- -- --
Issuance of Preferred Stock, net................ (9,547) 1,975,000 19,139,211 -- --
Issuance of Common Stock, net................... 319 7,651 84,836 42,889 40,681
----------- ----------- ------------ ----------- -----------
Net cash provided by (used for) financing
activities.................................... 210,845 4,858,209 17,984,112 (101,673) (259,546)
----------- ----------- ------------ ----------- -----------
Increase (decrease) in cash and cash
equivalents................................... (8,733,707) 2,809,789 3,276,773 (2,277,611) 4,179,769
Cash and cash equivalents at beginning of
period........................................ 11,383,614 2,649,907 5,459,696 5,459,696 8,736,469
----------- ----------- ------------ ----------- -----------
Cash and cash equivalents at end of period...... $ 2,649,907 $ 5,459,696 $ 8,736,469 $ 3,182,085 $12,916,238
=========== =========== ============ =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid................................... $ 123,730 $ 128,337 $ 469,565 $ 152,274 $ 100,541
=========== =========== ============ =========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Capital lease obligations entered into for
equipment..................................... $ -- $ -- $ 221,507 $ 221,507 $ 87,102
=========== =========== ============ =========== ===========
Warrant issued in conjunction with promissory
note.......................................... $ -- $ 165,000 $ -- $ -- $ --
=========== =========== ============ =========== ===========
Unrealized gain (loss) on investments........... $ -- $ -- $ 48,341 $ -- $ (42,326)
=========== =========== ============ =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 81
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Information subsequent to December 31, 1997, except for Note 7, and pertaining
to March 31, 1998
and the three months ended March 31, 1997 and 1998 is unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITY
Signal Pharmaceuticals, Inc. ("Signal" or the "Company") was incorporated
in California in July 1992. The Company is an integrated target and drug
discovery company focused on identifying new classes of small molecule drugs
that regulate genes and the production of disease-causing proteins. The Company
applies advanced cellular, molecular and genomic technologies to map gene
regulating pathways in cells and to identify proprietary molecular targets that
activate or deactivate genes and result in disease. Signal is advancing the
application of genomics beyond identifying and elucidating the functions of
genes to designing novel classes of disease-modifying drugs that selectively
regulate the activation of disease-causing genes.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
related disclosures at the date of the financial statements, and the amounts of
revenues and expenses reported during the period. Actual results could differ
from those estimates.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers instruments purchased with an original maturity of
three months or less, principally a money market account and U.S. government and
corporate debt securities, to be cash equivalents.
All investment securities are classified as available-for-sale, and are
carried at fair value. Unrealized gains and losses, if any, are reported in a
separate component of stockholders' equity. The cost of debt securities is
adjusted for amortization of premiums and accretion of discounts to maturity.
The amortization, along with realized gains and losses, is included in interest
income. The cost of securities sold is based on the specific identification
method.
FINANCIAL INSTRUMENTS
The fair values of the financial instruments approximate their carrying
value except as otherwise disclosed in the financial statements.
CONCENTRATION OF CREDIT RISK
Cash, cash equivalents and short-term investments are financial instruments
which potentially subject the Company to concentration of credit risk. The
Company invests its excess cash primarily in U.S. government securities and
marketable debt securities of financial institutions and corporations with
strong credit ratings. The Company also has established guidelines relative to
diversification and maturities to maintain safety and liquidity. These
guidelines are reviewed periodically and may be modified to take advantage of
trends in yields and interest rates. Due to Company policy, the Company has
historically held the financial instruments to maturity and has not experienced
any significant losses. However, the Company has the ability to sell these
investments before maturity.
F-7
<PAGE> 82
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(Information subsequent to December 31, 1997, except for Note 7, and pertaining
to March 31, 1998
and the three months ended March 31, 1997 and 1998 is unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over the
estimated useful lives of the assets (three to five years) using the
straight-line method. Leasehold improvements are stated at cost and amortized on
a straight-line basis over the shorter of the estimated useful life of the
assets or the lease term.
IMPAIRMENT OF LONG-LIVED ASSETS
Statement of Financial Accounting Standards ("SFAS") 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. To date, the Company has not identified any
indicators of impairment nor recorded any impairment losses.
DEFERRED RENT
Rent expense is recognized on a straight-line basis over the term of the
lease. Accordingly, rent expense incurred in excess of rent paid is accrued and
recorded as deferred rent in the accompanying balance sheets.
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
In May 1998, the Board of Directors authorized management of the Company to
file a registration statement with the SEC permitting the Company to sell shares
of its common stock to the public. If the initial public offering is closed
under the terms presently anticipated, the 6,050,949 shares of preferred stock
outstanding at March 31, 1998 will automatically convert into 6,050,949 shares
of common stock. Such conversion is reflected as "Unaudited Pro Forma
Stockholders' Equity" at March 31, 1998 in the accompanying balance sheet.
REVENUE RECOGNITION
Contract revenue is recognized ratably over the period during which the
research is conducted, which approximates the actual cost and performance of the
research services. Grant revenue is recognized as services are performed and
therefore equals the related research and development expense. Up-front license
fees received under these agreements are recorded as deferred revenue and
recognized ratably over the initial term of the contract. Revenues from the
achievement of research and development milestones will be recognized when and
if the milestones are achieved. Continuation of certain contracts and grants are
dependent upon the Company achieving specific contractual milestones; however,
none of the payments received are refundable under current contracts and grants.
Ares-Serono is a related party based on its ownership interest in the
Company, and revenues received from Ares-Serono therefore are classified as
related party revenue. The Company does not
F-8
<PAGE> 83
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(Information subsequent to December 31, 1997, except for Note 7, and pertaining
to March 31, 1998
and the three months ended March 31, 1997 and 1998 is unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
have the right or the obligation to repurchase any of the rights provided to, or
to refund any research payments received from, Ares-Serono under its
collaboration, nor does it intend to do so.
The Company's revenue is concentrated among a small number of customers, as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ ------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
DuPont Merck........................... -- -- -- -- *
Ares-Serono............................ -- -- * -- 16%
Roche Bioscience....................... -- 11% 21% 22% *
Organon................................ -- 19% 34% 35% 15%
Nippon Kayaku.......................... -- -- -- -- *
Tanabe................................. -- 62% 39% 38% 40%
</TABLE>
- ---------------
* Amount earned represents less than 10% of revenues for the period.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
STOCK-BASED COMPENSATION
As permitted by SFAS 123, the Company has elected to follow Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations ("APB 25") in accounting for its employee stock options.
Under APB 25, when the exercise price of the Company's employee stock options
equals the fair value of the underlying stock on the date of grant, no
compensation expense is recognized.
NET INCOME (LOSS) PER SHARE
Historical basic net income (loss) per share is computed using the weighted
average number of common shares outstanding during the periods presented. Common
equivalent shares resulting from Convertible Preferred Stock, options to
purchase Common Stock and warrants to purchase Convertible Preferred Stock are
excluded from the computation.
Historical diluted net income per share has been computed as described
above and also gives effect to the common equivalent shares resulting from
Convertible Preferred Stock, options to purchase Common Stock, and warrants to
purchase Convertible Preferred and Common Stock.
Historical net income (loss) per share information is as follows:
F-9
<PAGE> 84
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(Information subsequent to December 31, 1997, except for Note 7, and pertaining
to March 31, 1998
and the three months ended March 31, 1997 and 1998 is unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ ---------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Basic and diluted net loss per
share............................... $ (18.25) $ (14.57) $ (11.29) $ (3.53)
======== ======== ======== ========
Shares used in computing basic and
diluted net loss per share.......... 355,273 426,213 508,485 473,857
======== ======== ======== ========
Basic net income per share............ $ 0.58
==========
Diluted net income per share.......... $ 0.05
==========
Shares used in computing basic net
income per share.................... 577,097
==========
Shares used in computing diluted net
income per share.................... 6,875,100
==========
</TABLE>
Pro Forma Net Income (Loss) Per Share
Pro forma basic net income (loss) per share has been computed as described
above for historical basic net income (loss) per share and also gives effect to
the conversion of the Convertible Preferred Stock, which will convert to Common
Stock upon completion of the Company's initial public offering, using the as
if-converted method from the original date of issuance. Pro forma diluted net
income per share has been computed as described above for historical diluted net
income per share.
NEW ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted SFAS 130, Reporting
Comprehensive Income and SFAS 131, Disclosures about Segments of an Enterprise
and Related Information. The Company believes it operates in one business
segment, and therefore the adoption of SFAS 131 had no effect on the Company's
financial statements.
YEAR 2000 (UNAUDITED)
The Company currently has computer software and hardware which it believes
to be year 2000 compliant. The Company is working with its vendors and customers
to ensure their year 2000 compliance. Any necessary changes would be done in the
normal course of business during 1998 and 1999 at minimal incremental cost.
Therefore, the Company does not expect the year 2000 issue to have a significant
impact on its operations.
F-10
<PAGE> 85
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(Information subsequent to December 31, 1997, except for Note 7, and pertaining
to March 31, 1998
and the three months ended March 31, 1997 and 1998 is unaudited)
2. BALANCE SHEET INFORMATION
INVESTMENTS
The following is a summary of the Company's cash, cash equivalents and
short-term investments:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------------------------ --------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
GAINS ESTIMATED GAINS ESTIMATED
COST (LOSSES) FAIR VALUE COST (LOSSES) FAIR VALUE
---------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash...................... $3,446,901 $-- $3,446,901 $ 5,512,634 $ -- $5,512,634
Corporate debt
securities.............. 2,012,795 -- 2,012,795 15,305,000 48,341 15,353,341
---------- -- ---------- ----------- ------- -----------
$5,459,696 $-- $5,459,696 $20,817,634 $48,341 $20,865,975
========== == ========== =========== ======= ===========
<CAPTION>
MARCH 31, 1998
---------------------------------------
GROSS
UNREALIZED
GAINS ESTIMATED
COST (LOSSES) FAIR VALUE
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash...................... $13,165,178 $ -- $13,165,178
Corporate debt
securities.............. 7,500,000 6,015 7,506,015
----------- ------ -----------
$20,665,178 $6,015 $20,671,193
=========== ====== ===========
</TABLE>
There were no gross realized gains or losses on sales of available-for-sale
securities for the years ended December 31, 1996 or 1997 or the three months
ended March 31, 1998. The gross unrealized gains of $48,341 and $6,015 at
December 31, 1997 and March 31, 1998, respectively, are reflected as separate
components of stockholders' equity.
The cost and estimated fair values of cash, cash equivalents and short-term
investments at December 31, 1996 and 1997 and March 31, 1998, by contractual
maturity, are shown below:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997 MARCH 31, 1998
----------------------- ------------------------- -------------------------
ESTIMATED ESTIMATED ESTIMATED
COST FAIR VALUE COST FAIR VALUE COST FAIR VALUE
---------- ---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Due in one year or less....... $5,459,696 $5,459,696 $19,817,634 $19,824,100 $19,665,178 $19,668,068
Due in one year through two
years....................... -- -- 1,000,000 1,041,875 1,000,000 1,003,125
---------- ---------- ----------- ----------- ----------- -----------
$5,459,696 $5,459,696 $20,817,634 $20,865,975 $20,665,178 $20,671,193
========== ========== =========== =========== =========== ===========
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1996 1997 1998
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment............................ $2,334,021 $2,665,205 $2,826,308
Office furniture and equipment..................... 763,379 1,043,110 1,119,973
Leasehold improvements............................. 639,692 880,504 1,425,142
---------- ---------- ----------
3,737,092 4,588,819 5,371,423
Less accumulated depreciation and amortization..... (1,456,924) (2,336,251) (2,594,802)
---------- ---------- ----------
$2,280,168 $2,252,568 $2,776,621
========== ========== ==========
</TABLE>
F-11
<PAGE> 86
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(Information subsequent to December 31, 1997, except for Note 7, and pertaining
to March 31, 1998
and the three months ended March 31, 1997 and 1998 is unaudited)
2. BALANCE SHEET INFORMATION (CONTINUED)
DEPOSITS AND OTHER ASSETS
Deposits and other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1996 1997 1998
-------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Restricted cash....................................... $495,000 $150,000 $150,000
Other deposits........................................ 29,450 37,243 303,650
Organization costs, net............................... 6,026 2,195 1,464
-------- -------- --------
$530,476 $189,438 $455,114
======== ======== ========
</TABLE>
3. COMMITMENTS
LEASES
The Company leases its office and research facilities under two operating
lease agreements. The minimum annual rents are subject to specified annual
rental increases. The Company also reimburses the lessor for taxes, insurance
and operating costs associated with the leases. Under the terms of the leases,
the Company has an outstanding letter of credit for $150,000 in favor of the
lessor, fully collateralized by cash. In January 1998, the Company entered into
a six-year operating lease for additional office space. The minimum annual rents
are subject to specified increases and are included in the future minimum lease
payments.
In addition, the Company leases certain machinery, equipment and office
furniture under capital leases with three-year terms with options to extend the
lease term to five years. In January 1998, the Company entered into a $2.0
million equipment lease line to finance capital equipment and improvements.
LONG-TERM DEBT
In November 1996, the Company issued a secured promissory note for
$3,000,000. The proceeds of the note payable were used for general corporate
purposes and working capital. The note payable accrues interest at a rate of
14%, is due May 22, 2000, and is secured by certain assets of the Company. The
principal payments due on the promissory note are $1.0 million, $1.0 million and
$416,460 for 1998, 1999 and 2000, respectively.
In conjunction with the issuance of the promissory note, the Company issued
the creditor a warrant to purchase 62,500 shares of Series C-1 Preferred Stock
at a price of $8.40 per share. The warrant expires at the earliest of ten years
from the date of grant or five years from the date of an initial public
offering. The warrant is valued at $165,000, which has been recorded as a
discount on the related debt. The value of the warrant is being amortized as
interest expense over the period of the debt.
F-12
<PAGE> 87
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(Information subsequent to December 31, 1997, except for Note 7, and pertaining
to March 31, 1998
and the three months ended March 31, 1997 and 1998 is unaudited)
3. COMMITMENTS (CONTINUED)
In April 1995, the Company entered into a note payable to equip its
expanded research facility. The remaining balance on the note at December 31,
1996 was $377,270. The note was repaid in full in August 1997.
Annual future minimum lease and equipment note payments as of December 31,
1997, including the office lease signed in January 1998, are as follows:
<TABLE>
<CAPTION>
OBLIGATIONS
UNDER
CAPITAL
LEASES AND
EQUIPMENT
OPERATING NOTES
YEAR ENDED DECEMBER 31, LEASES PAYABLE
----------------------- ---------- -------------
<S> <C> <C>
1998...................................................... $ 760,530 $228,525
1999...................................................... 793,867 221,239
2000...................................................... 792,337 34,521
2001...................................................... 283,526 --
2002...................................................... 280,910 --
Thereafter................................................ 287,443 --
---------- --------
Total minimum lease and equipment note payments........... $3,198,613 484,285
==========
Less amount representing interest......................... 32,705
--------
Present value of remaining minimum capital lease and
equipment note payments................................. 451,580
Less amount due in one year............................... 205,911
--------
Long-term portion of obligations under capital leases and
equipment notes payable................................. $245,669
========
</TABLE>
Rent expense for equipment and facility leases was $293,719, $406,453,
$784,337, $124,377 and $267,860 for the years ended December 31, 1995, 1996,
1997 and the three months ended March 31, 1997 (unaudited) and 1998 (unaudited),
respectively.
Cost and accumulated depreciation of equipment under capital leases and
equipment notes payable were as follows:
<TABLE>
<CAPTION>
ACCUMULATED
COST DEPRECIATION
---------- ------------
<S> <C> <C>
December 31, 1996.......................................... $1,978,010 $952,884
December 31, 1997.......................................... 671,482 240,087
March 31, 1998 (unaudited)................................. 759,392 285,586
</TABLE>
F-13
<PAGE> 88
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(Information subsequent to December 31, 1997, except for Note 7, and pertaining
to March 31, 1998
and the three months ended March 31, 1997 and 1998 is unaudited)
4. SPONSORED RESEARCH AND LICENSE AGREEMENTS
In connection with certain license agreements, the Company paid fees of
$244,631, $602,007, $205,600, $40,000 and $38,000 for the years ended December
31, 1995, 1996, 1997 and the three months ended March 31, 1997 and 1998,
respectively, which were charged to research and development, and has future
commitments of up to $4.6 million which could be payable based on the
achievement of certain milestones, as well as royalties upon commercial sales,
if any, of certain products. Such milestone commitments may also involve the
issuance of 15,000 shares of Common Stock.
DUPONT MERCK
In December 1997, Signal entered into a collaborative agreement with The
DuPont Merck Pharmaceutical Company ("DuPont Merck"), under which DuPont Merck
agreed to fund certain research at Signal for three years. The agreement may be
extended for up to three additional years at DuPont Merck's option. The DuPont
Merck collaboration is focused on identifying compounds for the treatment or
prevention of HCV and HIV infections. Signal also has granted DuPont Merck an
option, exercisable through August 1998, to expand the collaboration to include
the identification of compounds directed toward an additional viral target.
Pursuant to this collaboration, Signal and Dupont Merck will be responsible for
developing target specific screening assays and will be jointly responsible for
identifying lead compounds. DuPont Merck will be solely responsible for lead
optimization and the worldwide development and commercialization of any drugs
arising from the collaboration.
DuPont Merck has paid Signal a $1.0 million license fee and has agreed to
provide Signal with annual research and development support at a level
approximating Signal's cost of these programs. DuPont Merck also is obligated to
make payments to Signal and to purchase $1.0 million of its stock based on the
achievement of certain research and development milestones and to pay Signal
royalties on any future product sales arising from the collaboration. In
addition, DuPont Merck has agreed to purchase $2.0 million of Common Stock of
Signal in a private transaction to be completed concurrent with the closing of
this offering at a price per share equal to the initial public offering price.
ARES-SERONO
In November 1997, Signal entered into a collaborative agreement with Ares
Trading S.A. (Ares-Serono), an affiliate of Ares-Serono S.A., under which
Ares-Serono agreed to fund certain research for an initial three-year period,
which term will automatically be extended for additional three-year periods
unless terminated at least six months prior to the end of the initial three-year
term. Ares-Serono may terminate the agreement upon six months' notice any time
after the end of the initial three-year term. The Ares-Serono collaboration is
focused on identifying compounds that modulate NF-kB gene regulating pathways to
which Ares-Serono has rights for all clinical indications in all countries of
the world excluding Asia. Ares-Serono S.A. has purchased approximately $10.0
million of Signal's Series E and Series F Preferred Stock. Ares-Serono also has
agreed to provide Signal with annual research and development support for
Signal's cost of this program at a percentage level approximating Ares-Serono's
relative share of worldwide marketing rights. In addition, Ares-Serono is
obligated to make payments to Signal based on the achievement of certain
research and development milestones and to pay Signal royalties on any future
product sales arising from the collaboration.
F-14
<PAGE> 89
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(Information subsequent to December 31, 1997, except for Note 7, and pertaining
to March 31, 1998
and the three months ended March 31, 1997 and 1998 is unaudited)
4. SPONSORED RESEARCH AND LICENSE AGREEMENTS (CONTINUED)
ROCHE BIOSCIENCE
In August 1996, Signal entered into a three-year collaborative agreement
with the Roche Bioscience division ("Roche Bioscience") of Syntex (USA) Inc., a
member of the Roche Group of Companies. Under the agreement, Signal is applying
its proprietary cell line development technology toward the development of human
PNS cell lines for use by Roche Bioscience in target and drug discovery.
Pursuant to an exclusive, worldwide, royalty-free license granted by Signal,
Roche Bioscience may utilize these PNS cells to discover and commercialize drugs
for treating pain, incontinence and peripheral vascular disease. Under the
agreement, Signal retains the right to use the PNS cell lines for its internal
target and drug discovery programs in other therapeutic fields. Roche Bioscience
has paid Signal a license fee of $500,000 and has agreed to pay annual research
and development support at a level approximating Signal's cost of the PNS cell
line program. To date, Signal has developed and transferred to Roche Bioscience
clonal human PNS cell lines as specified in the collaborative agreement.
Roche Bioscience may terminate the agreement beginning in August 1998 at
its discretion upon 90 days' written notice. If the collaboration agreement is
terminated for any reason, the licenses granted to Roche Bioscience by Signal
shall survive for as long as Roche Bioscience continues to pay annual license
maintenance fees to Signal. As long as Roche Bioscience pays these annual
license maintenance fees, Signal may not enter into any other collaborations
with respect to cloned immortalized PNS cell lines in the covered fields of
pain, incontinence and peripheral vascular disease.
ORGANON
In July 1996, Signal entered into a collaborative agreement with N.V.
Organon ("Organon"), a business unit of Akzo Nobel N.V., for the discovery of
new genomic targets, under which Organon agreed to fund certain research at
Signal for three years. Such agreement may be extended for up to two additional
years by mutual consent of the parties. Pursuant to an amendment dated January
1998, Organon may terminate the research, effective in either January 1999 or
July 1999, for failure to meet certain milestones by October 1998 or January
1999, respectively. Initially, Signal will utilize its cellular, molecular and
genomic technologies to identify and validate novel genes in certain target
tissues. Signal will then develop high throughput screening assays for use by
Organon in identifying small molecule drugs to treat cardiovascular,
neurological, gynecological and certain other diseases. Pursuant to this
collaboration, Organon has received rights for, and will be solely responsible
for, the worldwide development and commercialization of any drugs arising from
the collaboration.
To date, Organon has paid Signal an initial $1.0 million non-refundable
license fee and annual research and development support payments at a level
approximating Signal's cost of this program. In addition, Organon is obligated
to make payments to Signal based on the achievement of certain research and
development milestones, and Organon must pay Signal royalties on any future
product sales arising from the collaboration.
TANABE
From March 1996 to March 1998, Signal and Tanabe were engaged in a
collaborative program under which Tanabe funded certain research by Signal in
target and drug discovery in the fields of
F-15
<PAGE> 90
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(Information subsequent to December 31, 1997, except for Note 7, and pertaining
to March 31, 1998
and the three months ended March 31, 1997 and 1998 is unaudited)
4. SPONSORED RESEARCH AND LICENSE AGREEMENTS (CONTINUED)
inflammatory disease and osteoporosis. In connection with the collaboration,
Tanabe paid Signal an initial $1.0 million non-refundable license fee and
reimbursed Signal for research and development costs. Tanabe also purchased
125,000 shares of Signal's Series D Preferred Stock at $16.00 per share.
Pursuant to certain anti-dilution provisions of the Series D agreement, the
Company issued an additional 58,150 shares of Series D Preferred Stock to Tanabe
during 1997. In conjunction with the collaboration and stock purchase agreement
entered into in 1996, the Company issued Tanabe a warrant for the purchase of
$2,000,000 of Common Stock, which is only exercisable in connection with the
filing of an initial public offering by the Company, at the public offering
price per common share.
In March 1998, Signal and Tanabe mutually agreed to conclude their
collaboration and Tanabe licensed from Signal a lead compound that was
discovered during the collaboration. This lead has been validated in animal
models of arthritis, for the treatment of autoimmune, inflammatory and certain
other diseases. Signal retained all other intellectual property rights,
including rights to all other drug targets and drug leads, created before or
during the collaboration. Tanabe paid an additional license fee to Signal for
the exclusive worldwide license to the lead compound and is obligated to make
payments to Signal based on the achievement of certain research and development
milestones and to pay Signal royalties on any future product sales.
5. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
A summary of the Convertible Preferred Stock of the Company at December 31,
1997 and March 31, 1998 is as follows:
<TABLE>
<CAPTION>
SHARES ISSUED AND
OUTSTANDING
--------------------------
PREFERENCE IN DECEMBER 31, MARCH 31,
LIQUIDATION 1997 1998
------------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Series A....................................... $ 2,626,892 656,710 656,710
Series B....................................... 3,450,000 718,745 718,745
Series C....................................... 12,308,005 2,197,851 2,197,851
Series D....................................... 2,000,000 183,150 183,150
Series E....................................... 12,329,929 1,613,865 1,613,865
Series F....................................... 8,194,761 680,628 680,628
----------- --------- ---------
$40,909,587 6,050,949 6,050,949
=========== ========= =========
</TABLE>
Each of the Series A, B, C, D, E and F Preferred Stock is convertible on a
one-for-one basis, at the option of the holder, into shares of the Company's
Common Stock, which have been reserved for issuance upon conversion of the
Preferred Stock, subject to certain anti-dilution adjustments. The Preferred
Stock will convert automatically upon the closing of an underwritten public
offering of the Company's Common Stock with proceeds to the Company of at least
$15.0 million and at a price not less than $5.00 per share after adjustment for
any stock splits. The holders of the Series A, B, C, E and F Preferred Stock are
entitled to elect four directors to the Board of Directors, and in all other
matters
F-16
<PAGE> 91
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(Information subsequent to December 31, 1997, except for Note 7, and pertaining
to March 31, 1998
and the three months ended March 31, 1997 and 1998 is unaudited)
5. STOCKHOLDERS' EQUITY (CONTINUED)
the holder of each share of preferred stock is entitled to one vote for each
share of Common Stock into which it would convert.
Annual dividends of $0.32, $0.38, $0.45, $1.28, $0.61 and $0.96 per share
of Series A, B, C, D, E and F Preferred Stock, respectively, are payable
whenever funds are legally available and when and as declared by the Board of
Directors.
COMMON STOCK
In connection with certain stock purchase agreements, the Company has the
option to repurchase, at the original issue price, unvested shares in the event
of termination of employment or engagement. Shares issued under these agreements
generally vest over four to five years. At December 31, 1997 and March 31, 1998,
99,567 and 126,754 shares, respectively, were subject to repurchase by the
Company.
STOCK OPTION PLANS
In June 1993, the Company adopted its 1993 Founders' Stock Option Plan (the
"Founders' Plan"), under which 137,500 shares of Common Stock were reserved for
issuance upon exercise of options granted by the Company. The Founders' Plan
provides for the grant of incentive and nonstatutory options. The exercise price
of incentive stock options must equal at least the fair value on the date of
grant, and the exercise price of nonstatutory stock options may be no less than
85% of the fair value on the date of grant. The maximum term of options granted
under the Founders' Plan is ten years. Options generally are immediately
exercisable. Common Stock or options issued under the Founders' Plan generally
vest over five years. Unvested shares issued pursuant to the exercise of options
are subject to repurchase in the event of termination of employment or
engagement.
In November 1993, the Company adopted its 1993 Stock Option Plan, under
which 112,500 shares of the Company's Common Stock were reserved for issuance
upon exercise of options granted by the Company under provisions similar to the
Founders' Plan. In 1995 and 1996, the Company authorized an additional 250,000
and 262,500 shares, respectively, of the Company's Common Stock be reserved for
issuance upon exercise of options granted by the Company under the 1993 Stock
Option Plan.
In June 1997, the Company adopted its 1997 Stock Option Plan, under which
250,000 shares of Common Stock were reserved for issuance upon exercise of
options granted by the Company. In February 1998, the Company authorized an
additional 500,000 shares of the Company's Common Stock be reserved for issuance
upon exercise of options granted by the Company under the 1997 Stock Option
Plan. The options contain similar provisions to those options issued under the
1993 Founders' Stock Option Plan and the 1993 Stock Option Plan.
The Company recorded $615,855 and $1,019,170 of deferred compensation for
options granted during the year ended December 31, 1997 and the three months
ended March 31, 1998, respectively, representing the difference between the
option exercise price and the estimated fair value for financial statement
presentation purposes. The Company is amortizing the deferred compensation over
the vesting period of the options. The Company recorded $104,345 and $143,362 of
compensation expense during the year ended December 31, 1997 and the three
months ended March 31, 1998, respectively.
F-17
<PAGE> 92
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(Information subsequent to December 31, 1997, except for Note 7, and pertaining
to March 31, 1998
and the three months ended March 31, 1997 and 1998 is unaudited)
5. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the Company's stock option activity and related information
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE
---------------------------------------------------------------- MONTHS ENDED
1995 1996 1997 MARCH 31, 1998
------- ------- -------- -------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- --------- ------- --------- -------- --------- ------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period......................... 192,624 $0.44 286,874 $0.48 407,324 $0.51 542,115 $0.80
Granted...................... 102,625 $0.56 146,987 $0.56 299,162 $1.10 166,050 $1.12
Exercised.................... (3,875) $0.56 (16,924) $0.48 (138,519) $0.61 (44,618) $0.99
Cancelled.................... (4,500) $0.56 (9,613) $0.56 (25,852) $0.64 (871) $0.69
------- ------- -------- -------
Outstanding at end of period..... 286,874 $0.48 407,324 $0.51 542,115 $0.80 662,676 $0.87
------- ------- -------- -------
Vested options at end of
period......................... 171,467 $0.40 283,172 $0.45 421,842 $0.45 454,525 $0.46
------- ------- -------- -------
</TABLE>
Exercise prices for options outstanding as of March 31, 1998 ranged from
$0.08 to $1.12. The weighted average remaining contractual life of those options
is 8.4 years. The weighted average fair value of the options granted in 1995,
1996 and 1997 are $0.16, $0.16 and $0.28, respectively.
As of December 31, 1997, options for 79,433 common shares were available
for future grant. As of March 31, 1998, options for 414,254 common shares were
available for future grant.
Adjusted pro forma information regarding net loss is required to be
disclosed by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method prescribed in that
Statement. The fair value of options was estimated at the date of grant using
the minimum value pricing model with the following weighted average assumptions
for 1995, 1996 and 1997: risk-free interest rate of 6.0%, dividend yield of 0%;
and an expected life of five years.
The minimum value pricing model is similar to the Black-Scholes option
valuation model which was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable,
except that it excludes the factor for volatility. In addition, option valuation
models require the input of highly subjective assumptions. Because the Company's
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.
F-18
<PAGE> 93
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(Information subsequent to December 31, 1997, except for Note 7, and pertaining
to March 31, 1998
and the three months ended March 31, 1997 and 1998 is unaudited)
5. STOCKHOLDERS' EQUITY (CONTINUED)
For purposes of adjusted pro forma disclosures, the estimated fair value of
the options is amortized to expense over the vesting period of the related
options. The effects of applying SFAS 123 for adjusted pro forma disclosure
purposes are not likely to be representative of the effects on adjusted pro
forma net loss in future years because it does not take into consideration
adjusted pro forma compensation expense related to grants made prior to 1995.
The Company's adjusted pro forma information follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Adjusted pro forma net loss...................... $(6,483,838) $(6,214,581) $(5,757,845)
Adjusted pro forma basic net loss per share...... $ (18.25) $ (14.58) $ (11.32)
</TABLE>
6. INCOME TAXES
Significant components of the Company's deferred tax assets as of December
31, 1996 and 1997 are shown below. A valuation allowance of $10,477,000, of
which $2,278,000 is related to 1997, has been recognized as of December 31, 1997
to offset the deferred tax assets as realization of such assets is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Capitalized research expenses.......................... $ 825,000 $ 861,000
Net operating loss carryforwards....................... 6,576,000 8,422,000
Research and development credits....................... 825,000 1,163,000
Other, net............................................. 118,000 104,000
----------- -----------
Total deferred tax assets................................... 8,344,000 10,550,000
Deferred tax liability:
Depreciation........................................... (145,000) (73,000)
----------- -----------
Net deferred tax assets..................................... 8,199,000 10,477,000
Valuation allowance for deferred tax assets................. (8,199,000) (10,477,000)
----------- -----------
Net deferred taxes.......................................... $ -- $ --
=========== ===========
</TABLE>
At December 31, 1997, the Company has federal and California net operating
loss carryforwards of approximately $23,276,000 and $4,789,000, respectively.
The difference between the federal and California tax loss carryforwards is
attributable to the capitalization of research and development expenses for
California tax purposes and the fifty percent limitation on California loss
carryforwards. The federal and California tax loss carryforwards will begin
expiring in 2007 and 1998, respectively, unless previously utilized. The Company
also has federal and California research and development tax credit
carryforwards of approximately $857,000 and $470,000, respectively, which will
begin expiring in 2008 unless previously utilized.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, future
utilization of these carryforwards may be limited in any one fiscal year
pursuant to the Internal Revenue Code and similar
F-19
<PAGE> 94
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(Information subsequent to December 31, 1997, except for Note 7, and pertaining
to March 31, 1998
and the three months ended March 31, 1997 and 1998 is unaudited)
6. INCOME TAXES (CONTINUED)
state provisions; however, the annual limitation will not prevent the entire
amount of the carryforwards from being used during the carryforward period.
Therefore, the Company does not believe any such limitation will have a material
effect upon the utilization of these carryforwards.
7. SUBSEQUENT EVENTS
DEFERRED COMPENSATION
The Company granted an additional 221,525 options and recorded $1,267,123
of additional deferred compensation in May 1998, representing the difference
between the option exercise price and the estimated fair value of the Common
Stock for financial statement presentation purposes at the date of such grant.
CHANGES IN CAPITALIZATION
On May 5, 1998, the Company's Board of Directors authorized management of
the Company to file a Registration Statement with the Securities and Exchange
Commission for the Company to sell shares of its Common Stock in an initial
public offering and approved (subject to shareholder ratification) that, prior
to the effective date of the Offering contemplated by this Prospectus, the
Company will change the authorized shares of Preferred Stock from 6,113,482 to
5,000,000; authorized shares of Common Stock from 8,750,000 to 25,000,000 and
reincorporate the Company in Delaware and effect a 4-for-1 reverse split of the
Common Stock. The financial statements and accompanying notes have been
retroactively restated to reflect the effect of the reverse split and
reincorporation in Delaware.
AMENDMENT AND CONCLUSION OF COLLABORATIVE AGREEMENT
On March 31, 1998, Signal and Tanabe Seiyaku Co., Ltd. ("Tanabe") mutually
agreed to conclude the research and development collaboration component of their
Collaborative Development and Licensing Agreement and Tanabe subsequently
licensed from Signal a lead compound discovered during the collaboration, and
validated in animal models of arthritis, for the treatment of autoimmune,
inflammatory and other diseases. Signal retained all other intellectual property
rights, including rights to all other drug targets and drug leads, discovered
before or during the collaboration. Tanabe paid an additional $2.0 million
license fee to Signal for the exclusive worldwide license to the lead compound
and is obligated to make further payments to Signal based on the achievement of
certain research and development milestones and to pay Signal royalties on any
future product sales.
NEW COLLABORATIVE RESEARCH AGREEMENT
In February 1998, Signal entered into a collaborative agreement with Nippon
Kayaku Co., Ltd. ("Nippon Kayaku") under which Nippon Kayaku agreed to fund
certain research at Signal, totaling $4.0 million, for two years. Under the
agreement, Signal and Nippon Kayaku will develop and commercialize products
based on or derived from a compound supplied by Nippon Kayaku for the treatment
and prevention of diseases and disorders of the CNS and PNS. Signal will perform
combinatorial chemistry and use its proprietary human neuronal cell lines to
further optimize the compound and characterize its mechanism of action prior to
the start of clinical studies. Nippon Kayaku has agreed to provide Signal with
annual research and development support at a level
F-20
<PAGE> 95
SIGNAL PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(Information subsequent to December 31, 1997, except for Note 7, and pertaining
to March 31, 1998
and the three months ended March 31, 1997 and 1998 is unaudited)
7. SUBSEQUENT EVENTS (CONTINUED)
approximating Signal's cost of the program. Each party also is obligated to pay
the other royalties on future product sales arising from the collaboration.
Pursuant to a commercialization agreement to be concluded by Signal and
Nippon Kayaku following the initial research phase of the collaboration, Nippon
Kayaku will be solely responsible for the development and commercialization of
products in Japan for the treatment or prevention of diseases and disorders of
the PNS and will receive co-commercialization rights in Japan with respect to
products for the treatment and prevention of CNS diseases and disorders. Under
such future commercialization agreement, development and commercialization
rights for products outside Japan for the treatment or prevention of both PNS
and CNS diseases and disorders will be agreed upon by the parties on a
product-by-product basis, with Nippon Kayaku not guaranteed any minimum level of
co-commercialization rights. Signal and Nippon Kayaku also have granted each
other co-exclusive commercialization rights outside the field with respect to
each analog compound arising from the collaboration which is developed and
commercialized by one or both of the parties.
F-21
<PAGE> 96
[Graphic depicting logos or unstylized names of Signal's corporate
collaborators, including Ares-Serono, Roche Bioscience, Nippon Kayaku, Organon,
and DuPont Merck. Below each logo are disease programs addressed by the
collaboration. These logos or names surround the Signal logo centered on the
page.]
(inside back cover)
<PAGE> 97
- ------------------------------------------------------------
- ------------------------------------------------------------
NO 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 THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 6
Use of Proceeds.......................... 19
Dividend Policy.......................... 19
Capitalization........................... 20
Dilution................................. 21
Selected Financial Data.................. 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 23
Business................................. 28
Management............................... 53
Certain Transactions..................... 62
Principal Stockholders................... 64
Description of Capital Stock............. 66
Shares Eligible for Future Sale.......... 69
Underwriting............................. 71
Legal Matters............................ 72
Experts.................................. 72
Additional Information................... 73
Index to Consolidated Financial
Statements............................. F-1
</TABLE>
------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------------
- ------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
2,500,000 SHARES
LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
HAMBRECHT & QUIST
BANCAMERICA ROBERTSON STEPHENS
LEHMAN BROTHERS
, 1998
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 98
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the Common Stock being registered. All the amounts
shown are estimates except for the SEC registration fee, the NASD filing fee and
the Nasdaq listing fee.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 11,026
NASD filing fee............................................. 4,238
Nasdaq Stock Market Listing Application fee................. 74,625
Blue sky qualification fees and expenses.................... 5,000
Printing and engraving expenses............................. 125,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 100,000
Transfer agent and registrar fees........................... 15,000
Miscellaneous............................................... 15,111
--------
Total.................................................. $600,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act.
The Registrant's Second Amended and Restated Certificate of Incorporation
and Bylaws include provisions to (i) eliminate the personal liability of its
directors for monetary damages resulting from breaches of their fiduciary duty
to the extent permitted by Section 102(b)(7) of the General Corporation Law of
Delaware (the "Delaware Law") and (ii) require the Registrant to indemnify its
directors and executive officers to the fullest extent permitted by Section 145
of the Delaware Law, including circumstances in which indemnification is
otherwise discretionary. Pursuant to Section 145 of the Delaware Law, a
corporation generally has the power to indemnify its present and former
directors, officers, employees and agents against expenses incurred by them in
connection with any suit to which they are or are threatened to be made, a party
by reason of their serving in such positions so long as they acted in good faith
and in a manner they reasonably believed to be in or not opposed to, the best
interests of the corporation and with respect to any criminal action, they had
no reasonable cause to believe their conduct was unlawful. The Registrant
believes that these provisions are necessary to attract and retain qualified
persons as directors and officers. These provisions do not eliminate the
directors' duty of care, and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware Law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Registrant, for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for acts or omissions that the director believes to
be contrary to the best interests of the Registrant or its stockholders, for any
transaction from which the director derived an improper personal benefit, for
acts or omissions involving a reckless disregard for the director's duty to the
Registrant or its stockholders when the director was aware or should have been
aware of a risk of serious injury to the Registrant or its stockholders, for
acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the Registrant or its
stockholders, for improper transactions between the director and the Registrant
and for improper distributions to stockholders and loans to directors and
officers. The provision also does not affect a director's responsibilities under
any other law, such as the federal securities law or state or federal
environmental laws.
II-1
<PAGE> 99
The Registrant has entered into indemnity agreements with each of its
directors and executive officers that require the Registrant to indemnify such
persons against any and all expenses (including attorneys' fees), witness fees,
damages, judgments, fines, settlements and other amounts incurred (including
expenses of a derivative action) in connection with any action, suit or
proceeding, whether actual or threatened, to which any such person may be made a
party by reason of the fact that such person is or was a director, an officer or
an employee of the Registrant or any of its affiliated enterprises, provided
that 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 Registrant and,
with respect to any criminal proceeding, had no reasonable cause to believe his
conduct was unlawful. The indemnification agreements also set forth certain
procedures that will apply in the event of a claim for indemnification
thereunder.
At present, there is no pending litigation or proceeding involving a
Director, officer or key employee of the Registrant as to which indemnification
is being sought nor is the Registrant aware of any threatened litigation that
may result in claims for indemnification by any officer or Director.
The Registrant has an insurance policy covering the officers and Directors
of the Registrant with respect to certain liabilities, including liabilities
arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1995, the Registrant has sold and issued the following
unregistered securities:
1. On July 1, 1995, the Company issued 3,750 shares of Common Stock,
valued at $0.56 per share, to the New England Medical Center in connection
with the execution of a license agreement.
2. On March 31, 1996, the Company issued a warrant to purchase $2.0
million worth of Common Stock to Tanabe Seiyaku Co., Ltd., exercisable only
in connection with the initial public offering of the Company's Common
Stock on Form S-1 at the same per share price of such offering.
3. On March 31, 1996, the Company sold 125,000 shares of Series D
Preferred Stock at a price of $1.00 per share to Tanabe Seiyaku Co., Ltd.
On September 12, 1997, the Company issued an additional 58,150 shares of
Series D Preferred Stock to Tanabe Seiyaku Co., Ltd. for no additional
consideration as part of a purchase price adjustment with respect to its
prior sale of Series D Preferred Stock.
4. On October 19, 1996, the Company issued 2,500 shares of Common
Stock, valued at $0.56 per share, to the University of Massachusetts.
5. On November 22, 1996, the Company issued a warrant to purchase
62,500 shares of Series C-1 Preferred Stock to MMC/GATX Partnership No. 1
("MMC/GATX") at an exercise price of $8.40 per share. If such warrant is
exercised, the resulting shares of Series C-1 Preferred Stock would, upon
the closing of this offering, automatically convert into 62,500 shares of
Common Stock.
6. On December 2, 1996, the Company issued to MMC/GATX a Secured
Promissory Note in the principal amount of $3.0 million in connection with
a loan to the Company of the same amount. Such promissory note bears
interest at a rate of 13.6% annually.
7. On December 31, 1996, the Company issued 1,250 shares of Common
Stock, valued at $0.56 per share to The Regents of the University of
California.
8. On September 9, 11 and 12, 1997, the Company sold an aggregate of
1,613,865 shares of Series E Preferred Stock at a price of $7.64 per share
to the following purchasers: Accel Investors
'93 L.P., (935 shares), Accel IV L.P. (21,153 shares), Accel Japan L.P.
(2,022) shares), Accel Keiretsu L.P. (455 shares), Ares-Serono S.A.
(246,575 shares), Bayview Investors Ltd.
II-2
<PAGE> 100
(15,204 shares), Biocentive (130,890 shares), Ellmore C. Patterson Partners
(556 shares), Finsbury Worldwide Pharmaceutical Trust, plc (130,890
shares), Hambrecht & Quist LLC (10,798 shares), Harry F. Hixson, Jr.
Separate Property Trust, Dated December 15, 1995 (5,505 shares), InterWest
Investors V (124 shares), InterWest Partners V (19,702 shares), Kleiner
Perkins Caufield & Byers VI (25,273 shares), Lehman Brothers (21,596
shares), Lombard Odier & Cie (392,670 shares), Neuroscience Partners
Limited Partnership (130,890 shares), New York Life Insurance Company
(196,335 shares), Oxford Bioscience Partners (Adjunct) L.P. (2,643 shares),
Oxford Bioscience Partners (Bermuda) L.P. (2,296 shares), Oxford Bioscience
Partners, L.P. (8,277 shares), Pharma/wHealth (130,890 shares), Prosper
Partners (151 shares), Robertson, Stephens & Company LLC (10,798 shares),
Second Ventures II, L.P. (1,387 shares), The Health Care and Biotechnology
Venture Fund (65,445 shares), U.S. Venture Partners IV, L.P. (11,433
shares), USVP Entrepreneur Partners II, L.P. (396 shares), Venrock
Associates (10,867 shares), Venrock Associates II, L.P. (14,405 shares),
and Vertical Fund Associates, L.P. (3,304 shares).
9. On December 1, 1997, the Company sold 680,628 shares of Series F
Preferred Stock at a price of $12.04 per share to Ares-Serono, S.A.
10. On December 8, 1997, the Company issued 5,000 shares of Common
Stock, valued at $1.12 per share, to the University of Massachusetts.
11. On December 31, 1997, the Company issued 625 shares of Common
Stock, valued at $14.40 per share, to Dr. David J. Baylink pursuant to a
consulting agreement.
12. On January 14, 1998, the Company issued 1,250 shares of Common
Stock, valued at $1.12 per share, to The Regents of the University of
California.
13. On March 8, 1998, the Company issued 6,248 shares of Common Stock
in the aggregate, valued at $1.12 per share, to five scientists affiliated
with The Regents of the University of California.
14. As of March 31, 1998, the Company has granted options to purchase
an aggregate of 1,103,444 shares of its Common Stock to directors,
employees and consultants pursuant to its Prior Plans, and the Company has
issued an aggregate of 435,570 shares of its Common Stock upon the exercise
of stock options under its Prior Plans. The exercise price for such options
range from $0.08 to $1.12 per share.
The offers, sales and issuances of the above securities were deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2) of
the Securities Act, and/or Regulation D promulgated thereunder, or Rule 701
promulgated under Section 3(b) of the Securities Act as transactions by an
issuer not involving a public offering or transactions pursuant to compensatory
benefit plans and contracts relating to compensation as provided under such Rule
701. The recipients of securities in each such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and warrants issued in such transactions.
All recipients had adequate access, through employment or other relationships,
to information about the Company.
II-3
<PAGE> 101
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
<C> <S>
1.1+ Form of Underwriting Agreement.
3.1+ Articles of Incorporation effective prior to reincorporation
of the Company in Delaware.
3.2+ Bylaws effective prior to reincorporation of the Company in
Delaware.
3.3+ Certificate of Incorporation of the Company's Delaware
subsidiary.
3.4+ Form of Amended and Restated Certificate of Incorporation,
to be filed and become effective prior to the effectiveness
of this Registration Statement.
3.5+ Form of Second Amended and Restated Certificate of
Incorporation, to be filed and become effective upon
completion of the offering.
3.6+ Form of Bylaws to become effective prior to the
effectiveness of this Registration Statement.
4.1+ Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 3.5 and
3.6.
4.2++ Form of Common Stock Certificate.
5.1++ Opinion of Cooley Godward LLP.
10.1+ Second Amended and Restated Voting Agreement, dated
September 8, 1994, entered into between the Registrant and
certain of its stockholders.
10.2+ Form of Indemnity Agreement entered into between the
Registrant and its directors and officers.
10.3+ Registrant's 1998 Equity Incentive Plan.
10.4+ Form of Incentive and Nonstatutory Stock Option Agreements
under the 1998 Equity Incentive Plan.
10.5+ Registrant's Employee Stock Purchase Plan and related
offering document.
10.6+ Registrant's Non-Employee Directors' Stock Option Plan.
10.7+ Form of Nonstatutory Stock Option under Registrant's
Non-Employee Directors' Stock Option Plan.
10.8+ Registrant's Employees Retirement Investment Plan and Trust,
effective as of January 1, 1998.
10.9+ Management Rights Letter delivered by the Registrant to U.S.
Venture Partners IV, L.P., dated September 6, 1994.
10.10+ Management Rights Letter delivered by the Registrant to U.S.
Venture Partners IV, L.P., Second Ventures II, L.P. and USVP
Entrepreneur Partners II, L.P., dated September 8, 1994.
10.11+ Management Rights Letter delivered by the Registrant to
Oxford Bioscience Partners L.P., Oxford Bioscience Partners
(Bermuda) Limited Partnership and Oxford Bioscience Partners
(Adjunct) L.P., dated September 8, 1994.
10.12+ Management Rights Letter delivered by the Registrant to U.S.
Venture Partners IV, L.P. dated September 5, 1997.
10.13+ Amended and Restated Investors' Rights Agreement, dated
September 9, 1997, entered into between the Registrant and
certain of its stockholders.
10.14+ Amendment to the Amended and Restated Investors' Rights
Agreement dated November 25, 1997, entered into between the
Registrant and certain of its stockholders.
</TABLE>
II-4
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
<C> <S>
10.15+ Loan and Security Agreement, dated November 22, 1996,
entered into between the Registrant and MMC/GATX Partnership
No. 1.
10.16+ Warrant to Purchase 250,000 shares of Series C-1 Preferred
Stock, issued by the Registrant to MMC/GATX Partnership No.
1.
10.17+ Secured Promissory Note, dated December 2, 1996, issued by
the Registrant to MMC/ GATX Partnership No. 1.
10.18+ Series E Preferred Stock Purchase Agreement, dated September
9, 1997, between the Registrant and certain of its
stockholders.
10.19+ Series F Preferred Stock Purchase Agreement, dated November
25, 1997, between the Registrant and Ares-Serono S.A.
10.20+ Promissory Note, dated June 14, 1994, as amended, issued to
the Registrant by Alan J. Lewis.
10.21+ Security Agreement, dated June 14, 1994, entered into
between the Registrant to Alan J. Lewis.
10.22+ Employment letter agreement, dated December 8, 1993, between
the Registrant and Alan J. Lewis.
10.23+ Employment letter agreement, dated March 4, 1994, between
the Registrant and David W. Anderson.
10.24+ Employment letter agreement, dated August 18, 1994, between
the Registrant and Bradley B. Gordon.
10.25+ Employment letter agreement, dated June 13, 1995, between
the Registrant and Carl F. Bobkoski.
10.26+ Consulting Agreement, dated April 1, 1996, between the
Registrant and John P. Walker.
10.27+ Lease, dated April 30, 1993, as amended, between the
Registrant and Sorrento Valley Business Park.
10.28+ Master Lease Agreement, dated July 8, 1993, between the
Registrant and E.I. Dupont de Nemours & Co.
10.29+ Master Equipment Lease, dated September 1, 1993, between the
Registrant and Phoenix Leasing Incorporated.
10.30+ Master Lease Agreement, dated January 1, 1998, between the
Registrant and Transamerica Business Credit Corporation.
10.31+ Lease, dated January 1, 1998, between the Registrant and
Sorrento Valley Business Park.
10.32* Exclusive License Agreement, dated October 26, 1993, between
the Registrant and The Regents of the University of
California.
10.33* First Amendment to Exclusive License Agreement, dated June
22, 1997, between the Registrant and The Regents of the
University of California.
10.34* Second Amendment to Exclusive License Agreement, dated
February 2, 1998, between the Registrant and The Regents of
the University of California.
10.35+* Restricted Stock Purchase Agreement, dated October 26, 1993,
between the Registrant and the Regents of the University of
California.
10.36* License Agreement, dated February 18, 1998, between the
Registrant and The Regents of the University of California.
10.37+* Restricted Stock Purchase Agreement, dated February 18,
1998, between the Registrant and The Regents of the
University of California.
</TABLE>
II-5
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
<C> <S>
10.38* Collaborative Development and Licensing Agreement, dated
March 31, 1996, between the Registrant and Tanabe Seiyaku
Co., Ltd.
10.39+* Amendment to Collaborative Development and Licensing
Agreement, dated March 31, 1998, between the Registrant and
Tanabe Seiyaku Co., Ltd.
10.40+ Stock Purchase Agreement, dated March 31, 1996, between the
Registrant and Tanabe Seiyaku Co., Ltd.
10.41* Agreement dated July 30, 1996, between the Registrant and
N.V. Organon.
10.42* First Amendment to Agreement, dated January 30, 1998,
between the Registrant and N.V. Organon.
10.43+* Research Collaboration Agreement, dated August 26, 1996, and
as amended on September 5, 1997, between the Registrant and
Roche Bioscience.
10.44+* Exclusive License Agreement, dated October 1996, between the
Registrant and the University of Massachusetts.
10.45+* Restricted Stock Purchase Agreement, dated October 31, 1996,
between the Registrant and the University of Massachusetts.
10.46* License Agreement, dated October 28, 1997, between the
Registrant and the University of Massachusetts.
10.47+* Restricted Stock Purchase Agreement, dated December 7, 1997,
between the Registrant and the University of Massachusetts.
10.48* Research, Development and License Agreement, dated November
25, 1997, between the Registrant and Ares Trading S.A.
10.49* Collaborative Research and License Agreement, dated December
26, 1997, between the Registrant and The DuPont Merck
Pharmaceutical Company.
10.50+* Stock Purchase Agreement dated December 26, 1997, between
the Registrant and The DuPont Merck Pharmaceutical Company.
10.51* Collaboration Agreement, dated February 9, 1998, between the
Registrant and Nippon Kayaku Co., Ltd.
10.52+ Promissory Note, dated May 8, 1998, issued to the Registrant
by Alan J. Lewis.
10.53 Employment Letter Agreement, dated May 13, 1998, between the
Registrant and Merl F. Hoekstra.
11.1+ Computation of Net Loss per Share.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2++ Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
24.1+ Power of Attorney.
</TABLE>
- ------------------------------
* Confidential Treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
+ Previously filed.
++ To be filed by amendment.
(B) SCHEDULES.
All schedules are omitted because they are not required, are not applicable
or the information is included in the consolidated Financial Statements or Notes
thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-6
<PAGE> 104
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 of this Registration
Statement, or otherwise, the Registrant has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act)
that is incorporated by reference in the registration statement 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.
(2) That, for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(3) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 105
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Amendment No. 2 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Diego, County of San Diego, State of
California, on the 5th day of August 1998.
/s/ BRADLEY B. GORDON
By:
Bradley B. Gordon
Vice President, Finance,
Chief Financial Officer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President, Chief Executive Officer and August 5, 1998
- --------------------------------------------- Director (Principal Executive Officer)
Alan J. Lewis, Ph.D.
/s/ BRADLEY B. GORDON Vice President, Finance, Chief August 5, 1998
- --------------------------------------------- Financial Officer and Secretary
Bradley B. Gordon (Principal Financial and Accounting
Officer)
* Chairman of the Board August 5, 1998
- ---------------------------------------------
John P. Walker
* Director August 5, 1998
- ---------------------------------------------
Brook H. Byers
* Director August 5, 1998
- ---------------------------------------------
Luke B. Evnin, Ph.D.
* Director August 5, 1998
- ---------------------------------------------
Harry F. Hixson, Ph.D.
* Director August 5, 1998
- ---------------------------------------------
Patrick F. Latterell
* Director August 5, 1998
- ---------------------------------------------
Arnold Oronsky, Ph.D.
</TABLE>
*By: /s/ BRADLEY B. GORDON
---------------------------
(Bradley B. Gordon)
(Attorney-in-fact)
II-8
<PAGE> 106
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1+ Form of Underwriting Agreement.
3.1+ Articles of Incorporation effective prior to reincorporation
of the Company in Delaware.
3.2+ Bylaws effective prior to reincorporation of the Company in
Delaware.
3.3+ Certificate of Incorporation of the Company's Delaware
subsidiary.
3.4+ Form of Amended and Restated Certificate of Incorporation,
to be filed and become effective prior to the effectiveness
of this Registration Statement.
3.5+ Form of Second Amended and Restated Certificate of
Incorporation, to be filed and become effective upon
completion of the offering.
3.6+ Form of Bylaws to become effective prior to the
effectiveness of this Registration Statement.
4.1+ Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 3.5 and
3.6.
4.2++ Form of Common Stock Certificate.
5.1++ Opinion of Cooley Godward LLP.
10.1+ Second Amended and Restated Voting Agreement, dated
September 8, 1994, entered into between the Registrant and
certain of its stockholders.
10.2+ Form of Indemnity Agreement entered into between the
Registrant and its directors and officers.
10.3+ Registrant's 1998 Equity Incentive Plan.
10.4+ Form of Incentive and Nonstatutory Stock Option Agreements
under the 1998 Equity Incentive Plan.
10.5+ Registrant's Employee Stock Purchase Plan and related
offering document.
10.6+ Registrant's Non-Employee Directors' Stock Option Plan.
10.7+ Form of Nonstatutory Stock Option under Registrant's
Non-Employee Directors' Stock Option Plan.
10.8+ Registrant's Employees Retirement Investment Plan and Trust,
effective as of January 1, 1998.
10.9+ Management Rights Letter delivered by the Registrant to U.S.
Venture Partners IV, L.P., dated September 6, 1994.
10.10+ Management Rights Letter delivered by the Registrant to U.S.
Venture Partners IV, L.P., Second Ventures II, L.P. and USVP
Entrepreneur Partners II, L.P., dated September 8, 1994.
10.11+ Management Rights Letter delivered by the Registrant to
Oxford Bioscience Partners L.P., Oxford Bioscience Partners
(Bermuda) Limited Partnership and Oxford Bioscience Partners
(Adjunct) L.P., dated September 8, 1994.
10.12+ Management Rights Letter delivered by the Registrant to U.S.
Venture Partners IV, L.P. dated September 5, 1997.
10.13+ Amended and Restated Investors' Rights Agreement, dated
September 9, 1997, entered into between the Registrant and
certain of its stockholders.
10.14+ Amendment to the Amended and Restated Investors' Rights
Agreement dated November 25, 1997, entered into between the
Registrant and certain of its stockholders.
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.15+ Loan and Security Agreement, dated November 22, 1996,
entered into between the Registrant and MMC/GATX Partnership
No. 1.
10.16+ Warrant to Purchase 250,000 shares of Series C-1 Preferred
Stock, issued by the Registrant to MMC/GATX Partnership No.
1.
10.17+ Secured Promissory Note, dated December 2, 1996, issued by
the Registrant to MMC/ GATX Partnership No. 1.
10.18+ Series E Preferred Stock Purchase Agreement, dated September
9, 1997, between the Registrant and certain of its
stockholders.
10.19+ Series F Preferred Stock Purchase Agreement, dated November
25, 1997, between the Registrant and Ares-Serono S.A.
10.20+ Promissory Note, dated June 14, 1994, as amended, issued to
the Registrant by Alan J. Lewis.
10.21+ Security Agreement, dated June 14, 1994, entered into
between the Registrant to Alan J. Lewis.
10.22+ Employment letter agreement, dated December 8, 1993, between
the Registrant and Alan J. Lewis.
10.23+ Employment letter agreement, dated March 4, 1994, between
the Registrant and David W. Anderson.
10.24+ Employment letter agreement, dated August 18, 1994, between
the Registrant and Bradley B. Gordon.
10.25+ Employment letter agreement, dated June 13, 1995, between
the Registrant and Carl F. Bobkoski.
10.26+ Consulting Agreement, dated April 1, 1996, between the
Registrant and John P. Walker.
10.27+ Lease, dated April 30, 1993, as amended, between the
Registrant and Sorrento Valley Business Park.
10.28+ Master Lease Agreement, dated July 8, 1993, between the
Registrant and E.I. Dupont de Nemours & Co.
10.29+ Master Equipment Lease, dated September 1, 1993, between the
Registrant and Phoenix Leasing Incorporated.
10.30+ Master Lease Agreement, dated January 1, 1998, between the
Registrant and Transamerica Business Credit Corporation.
10.31+ Lease, dated January 1, 1998, between the Registrant and
Sorrento Valley Business Park.
10.32* Exclusive License Agreement, dated October 26, 1993, between
the Registrant and The Regents of the University of
California.
10.33* First Amendment to Exclusive License Agreement, dated June
22, 1997, between the Registrant and The Regents of the
University of California.
10.34* Second Amendment to Exclusive License Agreement, dated
February 2, 1998, between the Registrant and The Regents of
the University of California.
10.35+* Restricted Stock Purchase Agreement, dated October 26, 1993,
between the Registrant and the Regents of the University of
California.
10.36* License Agreement, dated February 18, 1998, between the
Registrant and The Regents of the University of California.
</TABLE>
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.37+* Restricted Stock Purchase Agreement, dated February 18,
1998, between the Registrant and The Regents of the
University of California.
10.38* Collaborative Development and Licensing Agreement, dated
March 31, 1996, between the Registrant and Tanabe Seiyaku
Co., Ltd.
10.39+* Amendment to Collaborative Development and Licensing
Agreement, dated March 31, 1998, between the Registrant and
Tanabe Seiyaku Co., Ltd.
10.40+ Stock Purchase Agreement, dated March 31, 1996, between the
Registrant and Tanabe Seiyaku Co., Ltd.
10.41* Agreement dated July 30, 1996, between the Registrant and
N.V. Organon.
10.42* First Amendment to Agreement, dated January 30, 1998,
between the Registrant and N.V. Organon.
10.43+* Research Collaboration Agreement, dated August 26, 1996, and
as amended on September 5, 1997, between the Registrant and
Roche Bioscience.
10.44+* Exclusive License Agreement, dated October 1996, between the
Registrant and the University of Massachusetts.
10.45+* Restricted Stock Purchase Agreement, dated October 31, 1996,
between the Registrant and the University of Massachusetts.
10.46* License Agreement, dated October 28, 1997, between the
Registrant and the University of Massachusetts.
10.47+* Restricted Stock Purchase Agreement, dated December 7, 1997,
between the Registrant and the University of Massachusetts.
10.48* Research, Development and License Agreement, dated November
25, 1997, between the Registrant and Ares Trading S.A.
10.49* Collaborative Research and License Agreement, dated December
26, 1997, between the Registrant and The DuPont Merck
Pharmaceutical Company.
10.50+* Stock Purchase Agreement dated December 26, 1997, between
the Registrant and The DuPont Merck Pharmaceutical Company.
10.51* Collaboration Agreement, dated February 9, 1998, between the
Registrant and Nippon Kayaku Co., Ltd.
10.52+ Promissory Note, dated May 8, 1998, issued to the Registrant
by Alan J. Lewis.
10.53 Employment Letter Agreement, dated May 13, 1998, between the
Registrant and Merl F. Hoekstra.
11.1+ Computation of Net Loss per Share.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2++ Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
24.1+ Power of Attorney.
</TABLE>
- ------------------------------
* Confidential Treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
+ Previously filed.
++ To be filed by amendment.
<PAGE> 1
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80,
200.83 and 230.406.
EXHIBIT 10.32
EXCLUSIVE LICENSE AGREEMENT
between
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
and
SIGNAL PHARMACEUTICALS, INC.
for
[***]
UC Case No. [92-116]
[***]
UC Case Nc. [93-173] and
[***]
UC Case No. [93-179]
***Confidential Treatment Requested
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article No. Title Page
<S> <C> <C>
RECITALS.............................................................1
1. DEFINITIONS..........................................................3
2. EXCLUSIVE GRANT......................................................5
3. SUBLICENSES..........................................................6
4. LICENSE-ISSUE FEE....................................................7
5. EARNED ROYALTIES AND MILESTONE PAYMENTS..............................7
6. DUE DILIGENCE.......................................................12
7. PROGRESS AND ROYALTY REPORTS........................................15
8. BOOKS AND RECORDS...................................................16
9. LIFE OF THE AGREEMENT...............................................17
10. TERMINATION BY THE REGENTS..........................................17
11. TERMINATION BY LICENSEE.............................................18
12. DISPOSITION OF LICENSED PRODUCTS
ON HAND UPON TERMINATION.......................................19
13. USE OF NAMES AND TRADEMARKS.........................................19
14. LIMITED WARRANTY....................................................19
15. PATENT PROSECUTION AND MAINTENANCE..................................21
16. PATENT MARKING......................................................23
17. PATENT INFRINGEMENT.................................................24
18. INDEMNIFICATION.....................................................26
19. NOTICES.............................................................27
20. ASSIGNABILITY.......................................................28
21. LATE PAYMENTS.......................................................28
22. WAIVER..............................................................28
23. FAILURE TO PERFORM..................................................29
24. GOVERNING LAWS......................................................29
25. PREFERENCE FOR UNITED STATES INDUSTRY...............................29
26. FOREIGN GOVERNMENT APPROVAL
OR REGISTRATION................................................29
27. EXPORT CONTROL LAWS.................................................30
28. SECRECY.............................................................30
29. MISCELLANEOUS.......................................................32
</TABLE>
<PAGE> 3
UC Case Nos. 92-116, 93-173 and 93-179
EXCLUSIVE LICENSE AGREEMENT
for
[***]
THIS LICENSE AGREEMENT (the "Agreement") is made and is effective this
26TH day of October , 1993 by and between THE REGENTS OF THE UNIVERSITY OF
CALIFORNIA, a California corporation having its statewide administrative offices
at 300 Lakeside Drive, 22nd Floor, Oakland, California 94612-3550, hereinafter
referred to as "The Regents", and Signal Pharmaceuticals, Inc., a California
corporation having a principal place of business at 11545 Sorrento Valley Road,
Suite 315, San Diego, California 92121, hereinafter referred to as the
"Licensee".
RECITALS
WHEREAS, certain inventions, generally characterized as methods for
the [***] and testing drugs therewith (UC Case No. 92-116), [***] (UC Case No.
93-173), and [***]
U.C. Agreement
Control Number
93-04-0786
***Confidential Treatment Requested
<PAGE> 4
[***] (UC Case No. 93-179), hereinafter collectively referred to as the
"Inventions", were made in the course of research at the University of
California, San Diego by [***] (UC Case No. 92-116), [***] (UC Case No. 93-173),
and [***] (UC Case No. 93-179) and are covered by Regents' Patent Rights as
defined below;
WHEREAS, the Licensee entered into Secrecy Agreements (U.C. Control
Nos. 92-20-0437) with The Regents effective September 7, 1992, for the purpose
of evaluating the Inventions;
WHEREAS, the development of the Inventions was sponsored at least in
part by the following organizations, and as a consequence this license in
certain respects is subject to overriding obligations to third party sponsoring
organizations:
(a) [***] (UC 92-116);
(b) [***] (UC 93-173);
(c) [***] (UC 93-179).
WHEREAS, the Licensee is a "small business firm" as defined in
15 U.S.C. 632;
WHEREAS, The Regents is desirous that the Inventions be developed and
utilized to the fullest extent so that the benefits can be enjoyed by the
general public;
WHEREAS, the Licensee is desirous of obtaining certain rights from The
Regents for the commercial development, use, and sale of the Inventions, and The
Regents is willing to grant such rights;
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<PAGE> 5
WHEREAS, both parties recognize and agree that royalties due hereunder
will be paid on both pending patent applications and issued patents; and
WHEREAS, both parties recognize and agree that royalties due hereunder
will be paid on products developed through the use of Regents' Technology Rights
and the Licensee is willing to pay such royalties in exchange for the early
access to The Regents' technology granted by this license, regardless of whether
or not some or all of The Regents' technology may have been published or may
become published;
WHEREAS, The Regents previously entered into Letters of Intent dated
[***] (U.C. Control No. [***]), and [***] (U.C. Control No. [***]), with the
Licensee for UC Case No. 92-116 and UC Case No. 92-130, which has been combined
into UC Case No. 92-116, and for UC Case No. 93-173 and UC Case No. 93-179;
- - 00 0 00 - -
the parties agree as follows:
1. DEFINITIONS
1.1 "Regents' Patent Rights" means patent rights assigned to The
Regents to any subject matter claimed in or covered by any of the following:
Pending U.S. Patent Application Serial No. [***], entitled [***], by [***],
filed [***]; pending U.S. Patent Application Serial No. [***] filed on [***],
under the title [***], by [***]; and pending U.S. Patent Application Serial
No.[***]
3
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<PAGE> 6
filed on [***], under the title "[***]", by [***]; and continuing applications
thereof including divisions and substitutions but including continuation-in-part
applications which contain claims supported in the original application; any
patents issuing on said application or continuing applications including
reissues; and any corresponding foreign applications or patents.
1.2 "Licensed Product" means any material either that is covered by
Regents' Patent Rights, that is identified or produced by the Licensed Method,
or that the use or sale of which would constitute, but for the license granted
to the Licensee pursuant to this Agreement, an infringement of any pending or
issued claim within Regents' Patent Rights.
1.3 "Licensed Method" means any method that is covered by Regents'
Patent Rights or Regents' Technology Rights, the use of which would constitute,
but for the license granted to the Licensee pursuant to this Agreement, an
infringement of any claim within Regents' Patent Rights or a misuse of Regents'
Technology Rights.
1.4 "Net Sales" means the total of the gross invoice prices of
Licensed Products sold by the Licensee, an Affiliate, or a sublicensee, less the
sum of the following actual and customary deductions where applicable: cash,
trade, or quantity discounts; sales, use, tariff, import/export duties or other
excise taxes imposed upon particular sales; transportation charges and
allowances or credits to customers because of rejections, breakage or returns.
1.5 "Affiliate" means any corporation or other business entity in
which the Licensee owns or controls, directly or indirectly, at least fifty
percent (50%) of the outstanding stock or other voting nights entitled to elect
directors; provided, however, that in
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<PAGE> 7
any country where the local law shall not permit foreign equity participation of
at least 50%, then an "Affiliate" shall include any company in which the
Licensee shall own or control, directly or indirectly, the maximum percentage of
such outstanding stock or voting rights permitted by local law.
1.6 "Regents' Technology Rights" means The Regents' interest in know
how and embodiments of know how relating to Regents' Patents Rights, whether or
not covered by Regents' Patent Rights, for example, unpublished patent
applications, notebooks, data, protocols, cell lines and other Biological
Materials (as defined below) which pertain to and/or are necessary for the
exercise of the rights granted herein. Regents' Technology Rights includes such
know how as may be transferred from time to time to personnel of the Licensee
during on site visits to the laboratories of the inventors named herein.
1.7 "[***]" means Regents' Patent Rights and Regents' Technology
Rights relating to UC 93-173 and UC 93-179 as identified herein.
1.8 "[***] Technologies" means Regents' Patent Rights and Regents'
Technology Rights relating to UC 92-116 as identified herein.
2. EXCLUSIVE GRANT
2.1 Subject to the limitations set forth in this Agreement, The
Regents hereby grants to the Licensee a world-wide license under Regents' Patent
Rights and Regents' Technology Rights to make, have made, use, and sell Licensed
Products and to practice Licensed Methods.
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2.2 Except as otherwise provided herein, the License granted in
section 2.1 shall be exclusive for the life of the Agreement and shall be for
all fields of use, except that the Licensee's license under Regents' Technology
Rights shall be Limited to such uses as are necessary for identifying, making,
using, or selling Licensed Products.
2.3 The license granted hereunder shall be subject to all the
applicable provisions of any License to the United States Government executed by
The Regents. The license granted hereunder shall be subject to the overriding
obligations to the U.S. Government set forth in 35 U.S.C. 200-212 and applicable
governmental implementing regulations.
2.4 The Regents expressly reserves the right to use the Inventions and
associated technology for educational and research purposes.
3. SUBLICENSES
3.1 The Regents also grants to the Licensee the right to issue
sublicenses to third parties to make, have made, use, and sell Licensed Products
and to practice Licensed Method, provided the Licensee has current exclusive
rights thereto under this Agreement. To the extent applicable, such sublicenses
shall include all of the rights of and obligations due to The Regents (and, if
applicable, the United States Government) that are contained in this Agreement.
3.2 The Licensee shall provide The Regents with a copy of each
sublicense issued hereunder; collect and Guarantee payment of all royalties due
The Regents from sublicensees, and summarize and deliver all reports due The
Regents from sublicensees.
6
<PAGE> 9
3.3 Upon termination of this Agreement for any reason, The Regents, at
its sole discretion, shall determine whether any or all sublicenses shall be
canceled or assigned to The Regents.
4. LICENSE-ISSUE FEE
4.1 The Licensee agrees to pay to The Regents a LICENSE-ISSUE FEE of
[***] plus issuance of [***] shares of common stock in accordance with the
Shareholders Agreement which is appended hereto as Appendix A and made a part of
this Agreement (the Shareholders Agreement) within seven days after the
execution of this Agreement. The Licensee shall also, at the same time pay to
The Regents extension fees in the amount of [***] in accordance with the Letter
of Intent dated September 16, 1992 (U.C. Control No. 92-30-0436).
4.2 These fees are non-refundable and are not an advance against
royalties.
5. EARNED ROYALTIES AND MILESTONE PAYMENTS
5.1 (a) The Licensee shall also pay to The Regents an EARNED ROYALTY
of [***] of the Net Sales of Licensed Products, provided that the earned royalty
shall be [***] of Net Sales of a Licensed Product if Net Sales of the Licensed
Product are less than [***] per year in any given calendar year of sales.
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<PAGE> 10
5.1(b) Any earned royalty due under Paragraph 5.1(a) shall be reduced
by [***] in the event that a Licensed Product is not covered by Regents' Patent
Rights but is covered by or developed from Regents' Technology Rights.
5.2 Paragraphs 1.1, 1.2, and 1.3 define Regents' Patent Rights,
Licensed Products and Licensed Methods so that royalties shall be payable on
products and methods covered by both pending patent applications and issued
patents, provided that no earned royalties shall be payable under Regents'
Patent Rights on pending claims that are abandoned or that are pending for more
than thirty (30) years from the effective date of this Agreement. In no event
shall any royalty be due under Regents' Patent Rights or Regents' Technology
Rights after the expiration of the last-to-expire patent licensed hereunder
which covers the Licensee's activities.
5.2(a) Paragraphs 1.6, 1.2, and 1.3 define Regents' Technology Rights,
Licensed Products and Licensed Methods so that royalties shall be payable on
products and methods covered by Regents' Technology Rights but not Regents'
Patent Rights, in accordance with Paragraph 5.1(a) and (b). No royalties shall
be payable under Regents' Technology Rights in any country after ten (10) years
from the date of first commercial sale in that country, or after a patent
licensed hereunder that covers the Licensee's activities has expired in that
country, as provided for in Paragraph 5.2 above. No royalties shall be payable
under Regents' Technology Rights on products developed independently of Regents'
Technology Rights.
5.3 Earned royalties shall accrue in each country for the duration of
Regents' Patent Rights or Regents' Technology Rights in that country and shall
be payable to The
8
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<PAGE> 11
Regents when Licensed Products are invoiced, or if not invoiced, when delivered
to a third party. For earned royalties accruing on sales for cash (or the
equivalent thereof) outside the United States, the Licensee may delay payment of
earned royalties until it actually receives payment from its customer, provided
that such delay does not exceed three (3) months from the date of invoice.
5.4 Royalties accruing to The Regents shall be paid to The Regents
quarterly on or before the following dates of each calendar year:
February 28
May 31
August 31
November 30
Each such payment will be for royalties which accrued within the Licensee's most
recently completed calendar quarter.
5.5 The Licensee shall pay to The Regents MILESTONE PAYMENTS.
Milestone payments for any particular milestone event shall be made within
thirty (30) days of the date of the milestone event. Milestone payments shall be
made as follows:
(a) [***]
(b) [***]
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<PAGE> 12
[***]
(c) [***]
(d) [***]
5.6 All monies due The Regents shall be payable in United States funds
collectible at par in San Francisco, California. When Licensed Products are sold
for monies other than United States dollars, the earned royalties will first be
determined in the foreign currency of the country in which such Licensed
Products were sold and then converted into equivalent United States funds. The
exchange rate will be that rate quoted in the Wall Street Journal on the last
business day of the reporting period.
5.7 Royalties earned with respect to sales occurring in any country
outside the United States shall not be reduced by any taxes, fees, or other
charges imposed by the Government of such country on the remittance of royalty
income. The Licensee shall also be for all bank transfer charges.
Notwithstanding this, all payments made by the response Licensee in fulfillment
of The Regents' tax liability in any particular country shall be credited
against Earned Royalties, royalties or fees due The Regents for that country.
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<PAGE> 13
5.7(a) The Licensee shall not be required to sell Licensed Product in
a particular country if taxes and fees or other charges imposed by the
government make such sales unprofitable to the Licensee. In such event, the
Licensee shall notify The Regents of its intention not to sell in such country,
and the Licensee shall be required to sublicense rights in such country to any
qualified company recommended by The Regents.
5.8 If at any time legal restrictions prevent the prompt remittance of
part or all royalties by the Licensee with respect to any country where a
Licensed Product is sold, the Licensee shall have the right and option to make
such payments by depositing the amount thereof in local currency to The Regents'
account in a bank or other depository in such country. The Regents will use its
best efforts to transfer the monies held in the account specified in Paragraph
5.8 to the United States. If after one year from the date of the first deposit
into that account there are still legal restrictions that prevent The Regents
from transferring the monies, The Regents shall transfer the impounded funds
back to the Licensee, and the Licensee shall convert the amount owed to The
Regents into United States funds and shall pay The Regents directly from its
U.S. source of funds for the amount impounded. The Licensee shall then pay all
future royalties due to The Regents from its U.S. source of funds so long as the
legal restrictions of paragraph 5.8 still apply.
5.9 Notwithstanding anything to the contrary in Paragraph 5.3 hereof,
in the event that any patent or any claim thereof included within the Regents'
Patent Rights shall be rejected or held invalid in a final decision by a patent
office from which no appeal or additional patent prosecution has or can be taken
or by a court of competent jurisdiction and last resort and from which no appeal
has or can be taken, all obligation to pay royalties
11
<PAGE> 14
based on such patent or claim or any claim patentably indistinct therefrom shall
cease as of the date of such final decision. The Licensee shall not, however, be
relieved from paying any royalties that accrued before such decision or that are
based on another patent or claim not involved in such decision, or that are
based on The Regents' Technology Rights as provided for in this Agreement.
5.10 No royalties shall be collected or paid hereunder on Licensed
Products sold to the account of the U.S. Government, any agency thereof, state
or domestic municipal government as provided for in applicable Licenses to the
Government relating to the Karin Technologies.
6. DUE DILIGENCE
6.1 The Licensee, upon execution of this Agreement, shall diligently
proceed with the development, manufacture and sale of Licensed Products and
shall earnestly and diligently endeavor to market the same within a reasonable
time after execution of this Agreement and in quantities sufficient to meet the
market demands therefor.
6.2 The Licensee shall be entitled to exercise prudent and reasonable
business judgment in meeting its due diligence obligations hereunder.
6.3 The Licensee shall endeavor to obtain all necessary governmental
approvals for the manufacture, use and sale of Licensed Products.
6.4 If the Licensee is unable to perform any of the following:
[***]
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<PAGE> 15
'
[***]
[***]
[***]
[***]
[***]
[***]
(6.4h) reasonably fill the market demand for Licensed Products
following commencement of marketing at any time during the exclusive period of
this Agreement;
then, subject to Paragraph 6.5, The Regents shall have the right and option
either to terminate this Agreement or to reduce the Licensee's exclusive license
to a nonexclusive license. This right, if exercised by The Regents, supersedes
the rights granted in Article 2 (GRANT).
6.5 Subject to Paragraphs 6. 1 and 6.2, if the Licensee is unable
to meet any of the dates set forth in Paragraph 6.4, with regard to either the
[***] Technologies or the [***] Technologies, respectively, the parties shall in
good faith re-establish a date or dates that are
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<PAGE> 16
reasonable under the then current circumstances. The Regents shall not exercise
its rights to terminate this Agreement or convert it to a non-exclusive
agreement unless a re-established date is not met. If a re-established date is
more than six months from the original date, The Licensee shall begin making an
annual license maintenance fee for the delayed product of [***] per year. The
annual license maintenance fee shall begin to be payable in [***] for the [***]
Technologies, or [***] for the [***] Technologies, on the anniversary date of
the effective date hereof and shall continue until sales of the delayed product
begin. The annual maintenance fee provided for in this Paragraph shall not
exceed [***] per year per Technology (i.e. the [***] Technologies or the [***]
Technologies, respectively). The re-established date shall not affect the date
when any milestone payment would be due under Paragraph 5.5.
6.6 Either party to this Agreement may refer a dispute arising
under this Agreement to arbitration. Such referral to arbitration shall be made
by so notifying the other party in writing in accordance with the provisions of
Article 19 hereto (NOTICES), stating the nature of the dispute to be resolved.
Any such arbitration shall be controlled by the provisions of the Commercial
Arbitration Rules of the American Arbitration Association then in effect, with
the proviso that the arbitrators shall not be employees of the parties and shall
establish an arbitration timetable resulting in a hearing, in San Francisco,
California, within 120 days of the original request to arbitrate. The decision
of the arbitrators shall be enforceable, but not appealable, in any court of
competent jurisdiction.
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7. PROGRESS AND ROYALTY REPORTS
7.1 Beginning February 28, 1994 and semi-annually thereafter, the
Licensee shall submit to The Regents a progress report covering the Licensee's
activities related to the development and testing of all Licensed Products and
the obtaining of the governmental approvals necessary for marketing. These
progress reports shall be made for each Licensed Product until the first
commercial sale of that Licensed Product occurs in the United States. These
progress reports shall be considered "Data" for all purposes of Article 28,
hereof and shall be subject to the terms thereof.
7.2 The progress reports submitted under section 7.1 should
include, but not be limited to, the following topics:
- summary of work completed
- key scientific discoveries
- summary of work in progress
- current schedule of anticipated events or milestones
- market plans for introduction of Licensed Products, and
- a summary of resources (dollar value) spent in the reporting
period.
7.3 The Licensee shall have a continuing responsibility to keep
The Regents informed of the large/small entity status (as defined by the United
States Patent and Trademark Office) of itself and its sublicensees and
Affiliates.
7.4 The Licensee also agrees to report to The Regents in its
immediately subsequent progress and royalty report the date of first commercial
sale of a Licensed Product in each country.
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<PAGE> 18
7.5 After the first commercial sale of a Licensed Product anywhere in
the world, the Licensee will make quarterly royalty reports to The Regents on or
before each February 28, May 31, August 31 and November 30 of each year. Each
such royalty report will cover the Licensee's most recently completed calendar
quarter and will show (a) the gross sales and Net Sales of Licensed Products
sold by the Licensee during the most recently completed calendar quarter; (b)
the number of each type of Licensed Product sold; (c) the royalties, in U.S.
dollars, payable hereunder with respect to such sales; (d) the method used to
calculate the royalty; and (e) the exchange rates used.
7.6 If no sales of Licensed Products has been made during any
reporting period, a statement to this effect shall be required.
8. BOOKS AND RECORDS
8.1 The Licensee shall keep books and records accurately showing all
Licensed Products manufactured, used, and/or sold under the terms of this
Agreement. Such books and records shall be preserved for at least five (5) years
from the date of the royalty payment to which they pertain and shall be open to
inspection by representatives or agents of The Regents at reasonable times.
8.2 The fees and expenses of The Regents' representatives performing
such an examination shall be borne by The Regents. However, if an error in
royalties of more than five percent (5%) of the total royalties due for any year
is discovered, then the fees and expenses of these representatives shall be
borne by the Licensee.
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<PAGE> 19
9. LIFE OF THE AGREEMENT
9.1 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the terms of this Agreement, this Agreement shall be
in force from the effective date recited on page one and shall remain in effect
for the life of the last-to-expire patent licensed under this Agreement; or, if
no patent in Regents' Patent Rights issues, for thirty (30) years from the
effective date of this Agreement, or for ten (10) years from the date of first
commercial sales in a given country, if such date is more than thirty (30) years
from the effective date.
9.2 Any termination of this Agreement shall not affect the rights and
obligations set forth in the following Articles:
Article 8 Books and Records
Article 12 Disposition of Licensed Products on Hand Upon
Termination
Article 13 Use of Names and Trademarks
Article 18 Indemnification
Article 23 Failure to Perform
Article 28 Secrecy
10. TERMINATION BY THE REGENTS
10.1 If the Licensee should violate or fail to perform any term or
covenant of this Agreement, then The Regents may give written notice of such
default (Notice of Default) to the Licensee. If the Licensee should fail to
repair such default within ninety (90) days of
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<PAGE> 20
the effective date of such notice, The Regents shall have the right to terminate
this Agreement and the licenses herein by a second written notice (Notice of
Termination) to the Licensee. If a Notice of Termination is sent to the
Licensee, this Agreement shall automatically terminate on the effective date of
such notice. Such termination shall not relieve the Licensee of its obligation
to pay any royalty or License fees owing at the time of such termination and
shall not impair any accrued right of The Regents. These notices shall be
subject to Article 19 (Notices).
11. TERMINATION BY LICENSEE
11.1 The Licensee shall have the right at any time to terminate this
Agreement in whole or as to any portion of Regents' Patent Rights or Regents'
Technology Rights by giving notice in writing to The Regents. Such notice of
termination shall be subject to Article 19 (Notices) and termination of this
Agreement shall be effective ninety (90) days from the effective date of such
notice.
11.2 Any termination pursuant to the above paragraph shall not relieve
the Licensee of any obligation or liability accrued hereunder prior to such
termination or rescind anything done by the Licensee or any payments made to The
Regents hereunder prior to the time such termination becomes effective, and such
termination shall not affect in any manner any rights of The Regents arising
under this Agreement prior to such termination.
18
<PAGE> 21
12. DISPOSITION OF LICENSED-PRODUCTS
ON HAND UPON TERMINATION
12.1 Upon termination of this Agreement pursuant to Article 10 or
Article 11, the Licensee shall have the privilege of disposing of all previously
made or partially made Licensed Products, but no more, within a period of one
hundred and twenty (120) days, provided, however, that the sale of such Licensed
Products shall be subject to the terms of this Agreement including, but not
limited to, the payment of royalties at the rate and at the time provided herein
and the rendering of reports thereon.
13. USE OF NAMES AND TRADEMARKS
13.1 Nothing contained in this Agreement shall be construed as
conferring any right to use in advertising, publicity, or other promotional
activities any name, trade name, trademark, or other designation of either party
hereto (including contraction, abbreviation or simulation of any of the
foregoing). Unless required by law, the use by Licensee of the name, "The
Regents of the University of California" or the name of any campus of the
University of California is expressly prohibited.
14. LIMITED WARRANTY
14.1 The Regents warrants to the Licensee that it has the lawful right
to grant this license.
14.2 This license and the associated Inventions are provided WITHOUT
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
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<PAGE> 22
OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED. THE REGENTS MAKES NO REPRESENTATION
OR WARRANTY THAT THE LICENSED PRODUCTS OR LICENSED METHODS WILL NOT INFRINGE ANY
PATENT OR OTHER PROPRIETARY RIGHT.
14.3 IN NO EVENT WILL THE REGENTS BE LIABLE FOR ANY INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR THE
USE OF THE INVENTIONS OR LICENSED PRODUCTS.
14.4 Nothing in this Agreement shall be construed as:
(14.4a) a warranty or representation by The Regents as to
the validity or scope of any Regents' Patent Rights;
or
(14.4b) a warranty or representation that anything made,
used, sold or otherwise disposed of under any
license granted in this Agreement is or will be free
from infringement of patents of third parties;
or
(14.4c) an obligation to bring or prosecute actions or suits
against third parties for patent infringement except
as provided in Article 17; or
(14.4d) conferring by implication, estoppel or otherwise any
license or rights under any patents of The Regents
other than Regents' Patent Rights as defined herein,
regardless
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<PAGE> 23
of whether such patents are dominant or
subordinate to Regents' Patent Rights; or
(14.4e) an obligation to furnish any know how not provided
in Regents' Patent Rights, except as specifically
provided for under Regents' Technology Rights.
15. PATENT PROSECUTION AND MAINTENANCE
15.1 Provided that the Licensee has paid patent expenses as provided
for in Paragraph 15.5, The Regents shall diligently prosecute and maintain the
United States and foreign patents comprising Regents' Patent Rights using
counsel of its choice, and The Regents shall provide the Licensee with copies of
all relevant documentation so that the Licensee may be informed and apprised of
the continuing prosecution and the Licensee agrees to keep this documentation
confidential. The Regents' counsel will take instructions only from The Regents.
15.2 The Regents shall use all reasonable efforts to amend any patent
application to include claims reasonably requested by the Licensee to protect
the products contemplated to be sold under this Agreement.
15.3 The Licensee shall apply for an extension of the term of any
patent included within Regents' Patent Rights if appropriate under the Drug
Price Competition and Patent Term Restoration Act of 1984 and/or European,
Japanese and other foreign counterparts of this Law. The Licensee shall prepare
all such documents, and The Regents
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<PAGE> 24
agrees to execute such documents and to take such additional action as the
Licensee may reasonably request in connection therewith.
15.4 In the event either party receives notice pertaining to
infringement or potential infringement of any issued patent included within
Regents' Patent Rights pursuant to the Drug Price Competition and Patent Term
Restoration Act of 1984 (and/or European and Japanese counterparts of this Law),
such party shall notify the other party within ten (10) days after receipt of
such notice.
15.5 The costs of preparing, filing, prosecuting and maintaining all
United States patent applications contemplated by this Agreement shall be borne
by the Licensee. Costs billed to The Regents by The Regents' counsel shall be
rebilled to Licensee and shall be due within 30 days of rebilling by The
Regents. This includes patent prosecution costs for these Inventions incurred by
The Regents prior to the execution of this Agreement. Such costs will be due
upon execution of this Agreement and billing by The Regents. Such prior costs
will be approximately Nine Thousand Six Hundred Dollars ($9,600.00).
15.6 The Licensee shall have the continuing responsibility to notify
The Regents if the Licensee or any of its sublicensees is not a small entity
under the provisions of 35 USC 41(h).
15.7 The Licensee shall have the right to request The Regents to
obtain patent protection on the Inventions in foreign countries if available and
if it so desires. The Licensee shall notify The Regents by January 6, 1993 of
its decision to obtain foreign patents. This notice concerning foreign filing
shall be in writing, must identify the countries desired, and reaffirm the
Licensee's obligation to underwrite the costs thereof. The absence
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<PAGE> 25
of such a notice from the Licensee to The Regents shall be considered an
election not to secure foreign rights.
15.8 The preparation, filing and prosecuting of all foreign patent
applications filed at the Licensee's request, as well as the maintenance of all
resulting patents, shall be at the sole expense of the Licensee. Such patents
shall be held in the name of The Regents and shall be obtained using counsel of
The Regents' choice.
15.9 The Licensee's obligation to underwrite and to pay patent
prosecution costs shall continue for so long as this Agreement remains in
effect, provided, however, that the Licensee may terminate its obligations with
respect to any given patent application or patent upon three (3) months written
notice to The Regents. The Regents will use its best efforts to curtail patent
costs when such a notice is received from the Licensee. The Regents may continue
prosecution and/or maintenance of such application(s) or patent(s) at its sole
discretion and expense; provided, however, that the Licensee shall have no
further right or licenses thereunder.
15.10 The Regents shall have the right to file, prosecute or maintain
patent applications at its own expense in any country in which the Licensee has
not elected to file, prosecute, or maintain patent rights in accordance with
this Article 15, and such applications and resultant patents shall not be
subject to this Agreement.
16. PATENT MARKING
16.1 The Licensee agrees to mark all Licensed Products made, used or
sold under the terms of this Agreement, or their containers, in accordance with
the applicable
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<PAGE> 26
patent marking laws.
17. PATENT INFRINGEMENT
17.1 In the event that the Licensee shall learn of the substantial
infringement of any patent licensed under this Agreement, the Licensee shall
call The Regents' attention thereto in writing and shall provide The Regents
with reasonable evidence of such infringement. Both parties to this Agreement
agree that during the period and in a jurisdiction where the Licensee has
exclusive rights under this Agreement, neither will notify a third party of the
infringement of any of Regents' Patent Rights without first obtaining consent of
the other party, which consent shall not be unreasonably denied. Both parties
shall use their best efforts in cooperation with each other to terminate such
infringement without litigation.
17.2 The Licensee may request that The Regents take legal action
against the infringement of Regents' Patent Rights. Such request shall be made
in writing and shall include reasonable evidence of such infringement and
damages to the Licensee. If the infringing activity has not been abated within
ninety (90) days following the effective date of such request, The Regents shall
have the right to:
(17.2a) commence suit on its own account; or
(17.2b) refuse to participate in such suit,
and The Regents shall give notice of its election in writing to the Licensee by
the end of the one-hundredth (100th) day after receiving notice of such request
from the Licensee. The Licensee may thereafter bring suit for patent
infringement if and only if The Regents elects
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<PAGE> 27
not to commence suit and if the infringement occurred during the period and in a
jurisdiction where the Licensee had exclusive rights under this Agreement.
However, in the event the Licensee elects to bring suit in accordance with this
paragraph, The Regents may thereafter join such suit at its own expense.
17.3 Such legal action as is decided upon shall be at the expense of
the party on account of whom suit is brought and all recoveries recovered
thereby shall belong to such party, provided, however, that legal action brought
jointly by The Regents and the Licensee and fully participated in by both shall
be at the joint expense of the parties and all recoveries shall be shared
jointly by them in proportion to the share of expense paid by each party. If the
Licensee pays all legal expenses, it shall have the right to offset one half of
its out-of-pocket legal expenses against any earned royalties payable under
Paragraph 5. 1, provided that earned royalties payable under Paragraph 5.1 shall
not be reduced in any given quarter by more than [***]; any unused credit may be
carried forward until the Licensee has received full credit for its creditable
legal expenses.
17.4 Each party agrees to cooperate with the other in litigation
proceedings instituted hereunder but at the expense of the party on account of
whom suit is brought. Such litigation shall be controlled by the party bringing
the suit, except that The Regents may be represented by counsel of its choice
pursuant to The Regents' determination in any suit brought by the Licensee, and
The Licensee may be represented by counsel of its choice pursuant to The
Licensee's determination in any suit brought by The Regents.
25
***Confidential Treatment Requested
<PAGE> 28
18. INDEMNIFICATION
18.1 The Licensee agrees to indemnify, hold harmless and defend The
Regents, its officers, employees, and agents; the sponsors of the research that
led to the Inventions; and the inventors of the patents and patent applications
in Regents' Patent Rights and their employers against any and all claims, suits,
losses, damage, costs, fees, and expenses resulting from or arising out of
exercise of this license or any sublicense. This indemnification will include,
but will not be limited to, any product liability.
18.2 The Licensee, at its sole cost and expense, shall insure its
activities in connection with the work under this Agreement and obtain, keep in
force and maintain insurance as follows, beginning with the date that materials
to be used on or by the third parties are first manufactured: Comprehensive or
Commercial Form General Liability Insurance (contractual liability included)
with limits as follows:
(a) Each Occurrence $1,000,000
(b) Products/Completed Operations Aggregate $5,000,000
(c) Personal and Advertising Injury $1,000,000
(d) General Aggregate (commercial form only) $5,000,000
It should be expressly understood, however, that the coverages and limits
referred to under the above shall not in any way limit the liability of the
Licensee. The Licensee shall furnish The Regents with certificates of insurance
evidencing compliance with all requirements. Such certificates shall:
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<PAGE> 29
(a) Provide for thirty (30) day advance written notice to The Regents
of any modification.
(b) Indicate that The Regents has been endorsed as an additional
insured under the coverages referred to under the above.
(c) Include a provision that the coverages will be primary and will
not participate with nor will be excess over any valid and collectable insurance
or program of self-insurance carried or maintained by The Regents.
18.3 The Regents shall promptly notify the Licensee in writing of any
claim or suit brought against The Regents in respect of which The Regents
intends to invoke the provisions of this Article 18. The Licensee will keep The
Regents informed on a current basis of its defense of any claims pursuant to
this Article 18.
19. NOTICES
19.1 Any notice or payment required to be given to either party shall
be deemed to have been properly given and to be effective (a) on the date of
delivery if delivered in person or (b) five (5) days after mailing if mailed by
first-class certified mail, postage paid, to the respective addresses given
below, or to such other address as it shall designate by written notice given to
the other party.
In the case of the Licensee: Signal Pharmaceuticals, Inc.
11545 Sorrento Valley Road, Suite 315
San Diego, CA 92121
Attention: Chief Executive Officer
27
<PAGE> 30
In the case of The Regents: THE REGENTS OF THE UNIVERSITY
OF CALIFORNIA
1320 Harbor Bay Parkway, Suite 150
Alameda, California 94502
Attention: Director;
Office of Technology Transfer
Referring to: UC Case Nos. 92-116,
93-173, and 93-179
20. ASSIGNABILITY
20.1 This Agreement is binding upon and shall inure to the benefit of
The Regents, its successors and assigns, but shall be personal to the Licensee
and assignable by the Licensee only with the written consent of The Regents,
which consent shall not be unreasonably withheld.
21. LATE PAYMENTS
21.1 In the event royalty payments, rebillings or fees are not
received by The Regents when due, the Licensee shall pay to The Regents interest
charges at a rate of ten (10) percent per annum. Such interest shall be
calculated from the date payment was due until actually received by The Regents.
22. WAIVER
22.1 It is agreed that no waiver by either party hereto of any breach
or default of any of the covenants or agreements herein set forth shall be
deemed a waiver as to any subsequent and/or similar breach or default.
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<PAGE> 31
23. FAILURE TO PERFORM
23.1 In the event of a failure of performance due under the terms of
this Agreement and if it becomes necessary for either party to undertake legal
action against the other on account thereof, then the prevailing party shall be
entitled to reasonable attorney's fees in addition to costs and necessary
disbursements.
24. GOVERNING LAWS
24.1 THIS AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA, but the scope and validity of any
patent or patent application shall be governed by the applicable laws of the
country of such patent or patent application.
25. PREFERENCE FOR UNITED STATES INDUSTRY
25. 1 Because this Agreement grants the exclusive right to use or sell
the Inventions in the United States, the Licensee agrees that any products
embodying these Inventions or produced through the use thereof will be
manufactured substantially in the United States.
26. FOREIGN GOVERNMENT APPROVAL
OR REGISTRATION
26.1 If this Agreement or any associated transaction is required by
the law of any nation to be either approved or registered with any governmental
agency, the Licensee
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<PAGE> 32
shall assume all legal obligations to do so.
27. EXPORT-CONTROL LAWS
27.1 The Licensee shall observe all applicable United States and
foreign laws with respect to the transfer of Licensed Products and related
technical data to foreign countries, including, without limitation, the
International Traffic in Arms Regulations (ITAR) and the Export Administration
Regulations.
28. SECRECY
28.1 With regard to confidential information ("Data"), which can be
oral or written or both, received from The Regents regarding these Inventions,
or received from the Licensee regarding its business, the receiving party
(hereinafter "Recipient") agrees:
(1) not to use the Data except for the sole purpose of
performing under the terms of this Agreement;
(2) to safeguard Data against disclosure to others with
the same degree of care as it exercises with its own
data of a similar nature;
(3) not to disclose Data to others (except to its
employees, agents or consultants who are bound to the
Licensee by a like obligation of confidentiality)
without the express written permission of the
disclosing party, except that the Recipient shall not
be prevented from using or disclosing any of the Data:
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<PAGE> 33
(a) which the Recipient can demonstrate by written
records was previously known to it;
(b) which is now, or becomes in the future, public
knowledge other than through acts or omissions of
the Recipient; or
(c) which is lawfully obtained by the Recipient from
sources independent of the disclosing party;
(4) that the secrecy obligations hereunder are subject to
the California Public Records Act; and
(5) that the secrecy obligations of the Recipient with
respect to Data shall continue for a period ending
five (5) years from the termination date of this
Agreement.
28.2 With regard to biological material received from The Regents,
including any cell lines, vectors, genetic material, derivatives, products
progeny or material derived therefrom ("Biological Material"), the Licensee
hereby agrees:
(1) not to use Biological Material except for the sole
purpose of performing under the terms of this
Agreement;
(2) not to transfer Biological Material to others (except
to its employees, agents or consultants who are bound
to the Licensee by like obligations conditioning and
restricting access, use and continued use of
Biological Material) without the express written
permission of The Regents, except that the Licensee
shall not be prevented from transferring Biological
Material which:
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<PAGE> 34
(a) becomes publicly available other than through acts
or omissions of the Licensee, or
(b) is lawfully obtained by the Licensee from sources
independent of The Regents;
(3) to safeguard Biological Material against disclosure
and transmission to others with the same degree of
care as it exercises with its own biological materials
of a similar nature;
(4) to destroy all copies of Biological Material at the
termination pursuant to Article 10 or Article 11 of
this Agreement; and
(5) that title to the Biological Material shall
automatically transfer to the Licensee at the
expiration of this Agreement.
29. MISCELLANEOUS
29.1 The headings of the several sections are inserted for convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.
29.2 This Agreement will not be binding upon the parties until it has
been signed below on behalf of each party, in which event, it shall be effective
as of the date recited on page one.
29.3 No amendment or modification hereof shall be valid or binding
upon the parties unless made in writing and signed on behalf of each party.
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<PAGE> 35
29.4 This Agreement embodies the entire understanding of the parties
and shall supersede all previous communications, representations or
understandings, either oral or written, between the parties relating to the
subject matter hereof. The Secrecy Agreements dated September 7, 1992 (U.C.
Control No. 92-20-0437), August 13, 1992 (U.C. Control No. 93-20-0575), August
13, 1993 (U.C. Control No. 93-20-0576), and the Letters of Intent dated
September 16, 1992 (U.C. Control No. 92-30-0436), and June 11, 1993 (U.C.
Control No. 93-30-0379), are hereby terminated.
29.5 In case any of the provisions contained in this Agreement shall
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions hereof, but
this Agreement shall be construed as if such invalid or illegal or unenforceable
provisions had never been contained herein.
29.6 This Agreement includes Appendix A which is attached hereto.
Appendix A is a Shareholder's Agreement. As long as The Regents is a shareholder
under the Shareholder's Agreement, or until the Common Stock of the Company (as
defined in Appendix A) is publicly traded, the Licensee agrees that it shall
give The Regents' designated representative notice of all of its Board of
Directors meetings, as it gives to its own board members. The designated
Regents' representative shall be permitted to attend at least one meeting of the
Board of Directors per year (the date and time of which shall be determined by
the Licensee in its sole discretion) and to comment and ask questions during the
proceedings. The Regents' representative shall be selected after consultation
with the
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<PAGE> 36
Licensee, and it is understood that the representative is not a Director and
cannot vote on matters before the Board.
IN WITNESS WHEREOF, both The Regents and the Licensee have executed
this Agreement, in duplicate originals, by their respective officers hereunto
duly authorized, on the day and year hereinafter written.
SIGNAL PHARMACEUTICALS, INC. THE REGENTS OF THE UNIVERSITY
OF CALIFORNIA
By: /s/ MARK D. CARMAN By: /s/ WILLIAM T. DAVIS
---------------------------- ----------------------------
(Signature) (Signature)
Name: MARK D. CARMAN Name: William T. Davis
---------------------------
(Please Print)
Title: V.P. OPERATION'S Title: Associate Director;
---------------------------- Office of Technology Transfer
CORPORATE DEV.
Date: 10/14/93 Date: 10/26/93
-------------------------- --------------------------
APPROVAL AS TO LEGAL FORM: /s/ P. MARTIN SIMPSON 10/6/93
------------------------------ ------------
P. Martin Simpson, Jr., Resident Date
Counsel
Office of Technology Transfer
University of California
34
<PAGE> 1
EXHIBIT 10.33
UC Case Nos. 92-116, 93-173, and 93-179
FIRST AMENDMENT TO EXCLUSIVE LICENSE AGREEMENT FOR METHODS FOR [***]
THIS FIRST AMENDMENT TO LICENSE AGREEMENT (the "First Amendment") is
effective this 22nd day of June 1997 between The Regents of the University of
California, a California corporation with administrative headquarters at 300
Lakeside Drive, 22nd Floor, Oakland, California 94612-3550 ("The Regents"), and
Signal Pharmaceuticals, Inc., a California corporation with an address at 11545
Sorrento Valley Road, Suite 315, San Diego, California 92121 ("Licensee").
BACKGROUND
A. The Regents and Licensee entered into an agreement effective October 26, 1993
(UC Control No. 93-04-0786) which is entitled [***] (the "License Agreement");
B. The Regents and Licensee wish to amend the License Agreement to include
rights to The Regents' undivided interest in pending U.S. Patent Application No.
[***]. Rights granted in this First Amendment are limited to The Regents'
undivided interest because the patent application is the result of a
collaboration between The Regents and The University of Massachusetts Medical
Center (UMMC) and is jointly assigned to both institutions.
C. UMMC has filed conflicting patent applications, which could lead to
interferences with patent applications filed under UC Case No. 93-173 and
increase Licensee's patent prosecution costs under this license.
D. The Regents and Licensee also wish to amend the License Agreement to show
negotiated and agreed upon changes to the terms on sublicensing,
confidentiality, patent enforcement, place of manufacture for Licensed Products,
and dispute resolution.
U.C. AGREEMENT
CONTROL NUMBER
93-04-0786I
1
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80, 200.83 and 230.406
<PAGE> 2
First Amendment to Exclusive License Agreement U.C. Control No. 93-04-0786
E. The parties wish to clarify and bring current the patents and patent
applications that are subject to this agreement, including the addition of
certain continuation-in-part applications.
F. As recited in Paragraph 6.5 of the License Agreement, if the Licensee is
unable to meet any of the dates set forth in Paragraph 6.4 of the License
Agreement, with regard to either the [***] Technologies or the [***]
Technologies, the parties shall in good faith re-establish a date or dates that
are reasonable under the then current circumstances. Since Signal has made
significant progress in the development of both the [***] Technologies and the
[***] Technologies, The Regents wishes to amend the License Agreement to extend
the due diligence dates recited in Paragraph 6.4 by [***] as requested by
Licensee.
Licensee and The Regents agree:
1. Paragraph 1. 1 of Article 1 (Definitions) of the License Agreement is
removed in its entirety and replaced with the following:
1.1 "Regents' Patent Rights" means The Regents' interest in subject
matter claimed in or covered by any of the following:
1.1.(1) Pending U.S. Patent Application Serial No. [***] entitled
"[***]", filed [***], [***] by [***] (UC Case 92-116-2), which is
a continuation application to U.S. Patent Application [***] (UC Case
No. 92-116-1);
1.1.(2) Pending U.S. Patent Application Serial [***] entitled
"[***]", filed [***] by [***] (UC Case 92-116-3);
1.1.(3) U.S. Patent No. [***] entitled "[***] [***]", filed on [***]
by [***] (UC Case No. 93-173-1);
1.1.(4) Pending U.S. Patent Application Serial No. [***] entitled
"[***]", filed [***] by [***] (UC Case No. 93-173-2);
2
***Confidential Treatment Requested
<PAGE> 3
First Amendment to Exclusive License Agreement U.C. Control No. 93-04-0786
1. 1. (5) U. S. Patent No. [***] entitled "[***]", filed [***] by
[***] (UC Case No. 93-173-3);
1. 1. (6) U. S. Patent No. [***] entitled "[***]", filed on [***] by
[***] (UC Case No. 93-173-4);
1. 1. (7) Pending U.S. Patent Application Serial No. [***] entitled
"[***]", filed [***] by [***] (UC Case No. 93-173-5);
1.1.(8) Pending U.S. Patent Application Serial No. [***], entitled
"[***]", filed [***] by [***] (UC Case No. 93-179-1);
1.1.(9) Pending U.S. Patent Application Serial No. [***], entitled
"[***]", filed [***] by [***] (UC Case No. 93-179-2);
and continuing applications thereof including divisions and substitutions
but excluding continuation-in-part applications, except to the extent that
those continuation-in-part applications contain claims supported in the
original application; any patents issuing on said application or
continuing applications including reissues; and any corresponding foreign
applications or patents.
2. Paragraph 3.3 of Article 3 (Sublicensing) of the License Agreement is
removed in its entirety and replaced with the following:
3.3 Upon termination of this Agreement or reduction of its licenses to
non-exclusive, for any reason, The Regents shall accept assignment of
sublicenses, to the extent that it is not unreasonable for The Regents to
do so as a public entity and provided that:
(a) The Licensee was not in breach of this Agreement when entering
into the sublicense;
3
***Confidential Treatment Requested
<PAGE> 4
First Amendment to Exclusive License Agreement U.C. Control No. 93-04-0786
(b) The sublicensee is not in breach of its sublicense agreement at
the time of termination of this Agreement; and
(c) The sublicensee acquires no rights from or obligations on the
part of The Regents other than those that are specifically granted
in this Agreement, and the sublicensee assumes all obligations to
The Regents required of Licensee by this Agreement, including past
due obligations existing at the time of assumption of the
sublicense, as well as any additional payments required by the
sublicense.
3. Paragraph 6.4 of Article 6 (Due Diligence) of the License Agreement is
removed in its entirety and replaced with the following:
[***]
6.4h reasonably fill the market demand for Licensed Products following
commencement of marketing at any time during the exclusive period of this
Agreement;
4
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<PAGE> 5
First Amendment to Exclusive License Agreement U.C. Control No. 93-04-0786
then, subject to Paragraph 6.5, The Regents shall have the right and
option either to terminate this Agreement or to reduce the Licensee's
exclusive license to a nonexclusive license. This right, if exercised by
The Regents, supersedes the rights granted in Article 2 (Grant).
4. The fourth sentence of Paragraph 6.5 of the License Agreement which reads,
"The annual license maintenance fee shall begin to be payable in [***] for the
[***] Technologies, or [***] for the [***] Technologies, on the anniversary date
of the effective date hereof and shall continue until sales of the delayed
product begin," is removed and replaced with the following:
"The annual license maintenance fee shall begin to be payable in [***] for
the [***] Technologies, or [***] for the [***] Technologies, on the
anniversary date of the effective date hereof and shall continue until
sales of the delayed product begin. "
5. Paragraph 6.6 of Article 6 (Due Diligence) of the License Agreement is
removed in its entirety and replaced with the following:
6.6 Either party to this Agreement shall refer a dispute arising under
this Article to mediation prior to commencing litigation with the other
party under this Agreement. The mediation shall be conducted in accordance
with the rules of the Commercial Arbitration and Mediation Center for the
Americas.
6. Article 25 (Preference for United States Industry) of the License
Agreement is removed in its entirety and replaced with the following:
25.1 Because this Agreement grants the exclusive right to use or sell the
Inventions in the United States, the Licensee agrees that any products
sold in the U.S. embodying these Inventions or produced through the use
thereof will be manufactured substantially in the United States.
5
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<PAGE> 6
First Amendment to Exclusive License Agreement U.C. Control No. 93-04-0786
7. Subparagraph 28.1(3) of Article 28 (Secrecy) of the License Agreement is
removed in its entirety and replaced with the following:
28.1(3) not to disclose Data to others (except to its employees, agents,
consultants, investors or collaborators who are bound to the Licensee by a
like obligation of confidentiality) without the express written
permission of the disclosing party, except that the Recipient shall not
be prevented from using or disclosing any of the Data:
(a) which the Recipient can demonstrate by written records was previously
known to it;
(b) which is now, or becomes in the future, public knowledge other than
through acts or omissions of the Recipient; or
(c) which is lawfully obtained by the Recipient from sources independent
of the disclosing party.
8. Licensee and The Regents recognize that the license granted in the License
Agreement to pending U.S. Patent Application No. [***] may be limited by
the outcome of an interference, if one is declared, between The Regents and
UMMC. The Licensee will, however, have a license under any rights remaining to
The Regents following any interference proceeding.
6
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<PAGE> 7
First Amendment to Exclusive License Agreement U.C. Control No. 93-04-0786
9. Except as amended, modified and supplemented by the terms of this First
Amendment, the License Agreement shall remain in full force and effect in
accordance with its terms.
The parties have executed this FIRST AMENDMENT TO THE LICENSE AGREEMENT by their
respective and duly authorized officers, as evidenced by the signatures below.
SIGNAL PHARMACEUTICALS, INC. THE REGENTS OF THE UNIVERSITY
OF CALIFORNIA
By: /s/ CARL BOBKOSKI By: /s/ TERENCE A. FEUERBORN
-------------------------------- ---------------------------------
(Signature) (Signature)
Name: /s/ CARL BOBKOSKI Name:
------------------------------ -------------------------------
(Please Print) Terence A. Feuerborn
Title: E.V.P. Title: Executive Director
Research Administration and
Technology Transfer
Date: 6/19/97 Date: 6/22/97
------------------------------ -------------------------------
Approved as to legal form: /s/ SANDRA S. SCHULTZ 6/14/92
----------------------- -------
Sandra S. Schultz, Attorney Date
Office of Technology Transfer
University of California
7
<PAGE> 1
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80,
200.83 and 230.406.
EXHIBIT 10.34
[UNIVERSITY OF CALIFORNIA LETTERHEAD]
February 2,1998
Carl F. Bobkoski
Executive Vice President
Signal Pharmaceuticals, Inc.
5555 Oberlin Drive
San Diego, CA 92121
RE: Second Amendment to Exclusive License Agreement for:
Methods for Production of Neuroblasts and Testing Drugs...
UC Case No. 92-116 etc.: UC Agreement Control No. 93-04-0786
Dear Carl:
I write regarding a proposed designated sublicense agreement, which Signal
Pharmaceuticals, Inc. "Signal") is negotiating for the [***] Technologies (as
defined in the subject License Agreement) with a certain other party
("Designated Sublicensee"). Signal wishes to issue this sublicense with a
royalty base that differs from the royalty base defined in the License Agreement
and on other terms and conditions which vary from the License Agreement.
Accordingly:
The Regents agrees to waive certain provisions of the License Agreement solely
for this designated sublicense in consideration of Signal agreeing that
(capitalized terms should have the meaning set forth herein, if not specified
herein, the meaning defined in the above referenced License Agreement):
(a) The designated sublicense grant will be confined to a field allowing
the Designated Sublicensee to use the [***] Technologies in connection
with [***]
***Confidential Treatment Requested
<PAGE> 2
Carl F. Bobkoski
February 2, 1998
Page 2
(b) Signal will pay The Regents an earned royalty on Net Sales of
Licensed Product sold by the Designated Sublicensee, its affiliates and
sublicensees as set forth in Appendix A hereto; accordingly, solely for
purposes of the designated sublicense agreement. Paragraphs 5.1 through
5.3 and 5.9 of the License Agreement are hereby superseded by the terms
and conditions set forth in Appendix A.
(c) Upon termination of the License Agreement or reduction of Signal's
license under the License Agreement to non-exclusive, for any reason, The
Regents shall accept assignment of this designated sublicense, as provided
for in the First Amendment to Exclusive License Agreement for [***]
effective June 22, 1997. Notwithstanding the foregoing, The Regents shall
accept assignment of this sublicense even if Signal was in breach of the
License Agreement when entering into the sublicense.
(d) The designated sublicense agreement will require that Sublicensee
(itself or through a designee) develop at least [***] as follows:
- [***]
- [***]
- [***]
- [***]
Notwithstanding the foregoing, the designated sublicense agreement may provide
for reasonable extensions of the foregoing diligence deadlines, if despite
diligent efforts such deadline is or may not be met. However, in the event that
The Regents accepts assignment of the sublicense, The Regents shall not be
required to provide any extension of the diligence deadlines and any extension
of the diligence deadlines shall be at the sole discretion of The Regents.
Apart from the above-specified changes, the subject sublicense agreement will
adhere to all the sublicensing provisions of the License Agreement. However, to
the extent this letter and the License Agreement conflict solely with respect
to the designated sublicense agreement this letter will control.
***Confidential Treatment Requested
<PAGE> 3
Carl F. Bobkoski
February 2, 1998
Page 3
If you agree to the terms of this letter, please sign both enclosed originals
and return them to me. I will return a fully executed original to you for your
records.
Sincerely,
/s/ PATRICIA ANDERSON COTTON, PH.D.
-----------------------------------
Patricia Anderson Cotton, Ph.D.
Licensing Officer
______________________________________________________________________________
SIGNAL PHARMACEUTICALS THE REGENTS OF THE UNIVERSITY
INC.: OF CALIFORNIA:
By: /s/ CARL F. BOBKOSKI By: /s/ TERENCE A. FEUERBORN
------------------------------- -------------------------------
(Signature) (Signature)
Name: Carl F. Bobkoski Name: Terence A. Feuerborn
Title: Executive Vice President Title: Executive Director
Office of Research Administration
and Technology Transfer
Date: Feb. 13, 98 Date: 3-2-98
----------------------------- -----------------------------
[ILLEGIBLE]
/s/ P. Martin Simpson, Jr. 3-Jan 98
----------------------- --------
P. Martin Simpson, Jr. Date
Resident Counsel
Office of Technology Transfer
University of California
<PAGE> 4
APPENDIX A TO SECOND AMENDMENT DATED FEBRUARY 2, 1998
Signal and The Regents agree that solely for purposes of the designated
sublicense agreement:
1. The following terms defined in Paragraphs 1.2, 1.3, 1.4 and 1.5 of the
License Agreement shall have the following meanings:
1.2 "Licensed Product" means any product, composition or material (i) the
sale of which would, but for the licenses granted to the Designated
Sublicensee, infringe a Valid Claim within The Regents' Patent Rights in the
country for which such product, composition or material is sold or (ii) is
manufactured or administered to a patient by a Licensed Method.
1.3 "Licensed Method" means any method (i) the practice of which would,
but for the license granted to Designated Sublicensee, infringe a Valid Claim
within Regents' Patent Rights or (ii) consisting of a method of [***]
1.4 "Net Sales" means the total amount invoiced to third parties on sales of
Licensed Products by Designated Sublicensee, its affiliates or sublicensees,
less the following reasonable and customary deductions to the extent applicable
to such invoiced amounts: (i) all trade, cash and quantity credits, discounts,
refunds or government rebates; (ii) amounts for claims, allowances or credits
for returns, retroactive price reductions, or chargebacks; (iii) packaging,
handling fees and prepaid freight, sales taxes, duties and other governmental
charges (including value added tax); and (iv) provisions for uncollectible
accounts determined in accordance with reasonable accounting practices,
consistently applied to all products of the selling party; provided, however,
that in the case of Patient-Specific Licensed Products, "Net Sales" shall equal
[***] of the foregoing amounts (after the deductions described in (i) through
(iv) above). For purposes of the foregoing, it is understood that Net Sales
shall include only the amount invoiced for materials consisting of Licensed
Products (less the foregoing deductions and adjustments) and shall not include
charges related to services [***] performed in connection with the sale of such
Licensed Products; accordingly, Net Sales shall not include, without limitation,
charges for [***] or the like. For the removal of doubt, Net Sales shall not
include sales by Sublicensee to its affiliates for resale, provided that if
Sublicensee sells a Licensed Product to an affiliate for resale, Net Sales shall
include the amounts invoiced by such affiliate to third parties on the resale of
such Licensed Product.
1.5 "Affiliate" means any corporation or other business entity in which
the Licensee or Designated Sublicensee owns or controls, directly or
indirectly, at least fifty (50%) of the outstanding stock or other voting
rights entitled to elect directors; provided however, that any country where
the local law shall not permit foreign equity participation of at least 50%,
then an
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<PAGE> 5
"Affiliate" shall include any company in which the Licensee or Sublicensee owns
or controls, directly or indirectly, the maximum percentage of such outstanding
stock or voting rights permitted by local law.
2. The following definitions are added to Article I (Definitions) of the
License Agreement:
1.9 [***]
2.0 "Valid Claim" shall mean a claim of an issued and unexpired patent or
a claim of a pending patent application within Regents' Patent Rights which has
not been held unpatentable, invalid or unenforceable by a court or other
government agency of competent jurisdiction and has not been admitted to be
invalid or unenforceable through reissue, re-examination, disclaimer or
otherwise. Notwithstanding the foregoing, if a claim of a pending patent
application within Regents' Patent Rights has not issued as a claim of an
issued patent within Regent's Patent Rights, on or before [***]
such pending claim shall not be a Valid Claim for purposes of the sublicense
agreement unless and until such claim issues.
3. Paragraphs 5.1, 5.2, 5.3 and 5.9 of the License Agreement shall be removed
and replaced with the following:
5.1(a) The Licensee shall pay The Regents an earned royalty of [***] of
the Net Sales of Licensed Product sold by the Designated Sublicensee, its
Affiliates or sublicensees; provided that the earned royalty shall be [***] of
the Net Sales of Licensed Products, if such Net Sales by Licensee, its
Affiliates and sublicensees (including without limitation, Designated
Sublicensee, its Affiliates and sublicensees) are less than [***] per year in
any given calendar year of sales.
5.1(b) The earned royalty due under Paragraph 5.1(a) above with respect
to a Licensed Product which is not covered by any Valid Claim but is
manufactured or administered to patients using a Licensed Method not covered by
a Valid Claim shall be [***].
5.2 Royalties shall continue under Paragraph(s) 5.1(a) and 5.1(b) above
with respect to each Licensed Product, (i) on a country-by-country basis for so
long as the sale of such Licensed Product would, but for the license granted to
Designated Sublicensee, infringe a Valid Claim within the Regents' Patent rights
in such country or (ii) with respect to a Licensed Product(s) not covered by any
Valid Claim but that is manufactured or administered to patients using a
Licensed Method not covered by a Valid Claim for ten (10) years from the date of
first commercialization of the first such Licensed Product in any country.
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<PAGE> 6
5.3 Earned royalties due on Net Sales of Licensed Products by Designated
Sublicensee, its affiliates or sublicensees shall be deemed accrued in the
quarter in which Licensee receives payment from the Sublicensee with respect to
such Net Sales, but in no event later than the quarter following the quarter in
which Net Sales are made by the Sublicensee, its affiliates or sublicensee.
<PAGE> 1
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80, 200.83 and 230.406.
EXHIBIT 10.36
LICENSE AGREEMENT
BETWEEN
SIGNAL PHARMACEUTICALS, INC.
AND
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
Case No. SD97-026
<PAGE> 2
EXCLUSIVE LICENSE AGREEMENT
This agreement ("Agreement") is made this 18th day of February, 1998
("Effective Date") by and between Signal Pharmaceuticals, Inc., a California
corporation having a principal place of business at 5555 Oberlin Drive, San
Diego, California 92121 ("LICENSEE") and The Regents Of The University of
California, a California corporation having its statewide administrative offices
at 300 Lakeside Drive, 22nd Floor, Oakland, California 94612-3550 ("THE
REGENTS"), represented by its San Diego campus having an address at University
of California, San Diego, Technology Transfer Office, Mailcode 0910, 9500 Gilman
Drive, La Jolla, California 92093-0910 ("UCSD")
RECITALS
Whereas, certain inventions, generally characterized as [***]
("Invention"), Case No. SD97-026, were made in the course of research at UCSD by
[***] ("Inventors") and are covered by Regents' Patent Rights as defined below;
Whereas, U.S. Patent Application, Serial No. [***] was filed in the
United States Patent and Trademark Office by the Inventors on [***]
and such application is included within Regents' Patent Rights;
Whereas, the Inventors are employees of UCSD and as such are under an
obligation to assign their rights to the Invention to THE REGENTS;
Whereas, the development of the Invention was sponsored by Department of
Health and Human Services and as a consequence this license is subject to
overriding obligations to the Federal Government under 35 U.S.C. Sections
200-212 and applicable regulations;
Whereas, LICENSEE and THE REGENTS executed a secrecy agreement,
identified as U.C. Control No. 97-20-0108 and effective on April 17, 1997
("Secrecy Agreement") under which LICENSEE evaluated the Invention;
Whereas, LICENSEE and THE REGENTS executed a letter agreement,
identified as U.C. Control No. 97-30-0130 and effective on June 10, 1997
("Letter Agreement"), under which THE REGENTS and LICENSEE have negotiated the
grant of license under Regents' Patent Rights;
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<PAGE> 3
Page 2 of 25
Exclusive License Agreement
Case No. SD97-026
Whereas, LICENSEE is a "small business concern" as defined in 37 CFR
Section 121-12(a);
Whereas, THE REGENTS is desirous that the Invention be developed and
utilized to the fullest possible extent so that its benefits can be enjoyed by
the general public;
Whereas, LICENSEE is desirous of obtaining certain rights from THE
REGENTS for commercial development, use, and sale of the Invention, and THE
REGENTS is willing to grant such rights;
Whereas, LICENSEE desires to issue common stock of LICENSEE to THE
REGENTS under the agreement appended hereto in Appendix A ("Shareholder's
Agreement") as partial consideration for such rights; and
Whereas, both parties recognize and agree that royalties due hereunder
shall be paid on both pending patent applications and issued patents.
Now, Therefore, the parties agree:
ARTICLE 1. DEFINITIONS.
1.1 "Affiliate" means any corporation or other business entity in which
LICENSEE owns or controls, directly or indirectly, at least fifty percent (50%)
of the outstanding stock or other voting rights entitled to elect directors, or
in which LICENSEE is owned or controlled directly or indirectly by at least 50%
of the outstanding stock or other voting rights entitled to elect directors; but
in any country where the local law does not permit foreign equity participation
of at least 50%, then an "Affiliate" includes any company in which LICENSEE owns
or controls or is owned or controlled by, directly or indirectly, the maximum
percentage of outstanding stock or voting rights permitted by local law.
1.2 "Licensed Method" means any method that is covered by Regents'
Patent Rights, the use of which would constitute, but for the license granted to
LICENSEE under this Agreement, an infringement of any pending or issued claim
within Regents' Patent Rights.
1.3 "Licensed Product" means any material that is either
<PAGE> 4
Exclusive License Agreement Page 3 of 25
Case No. SD97-026
covered by Regents' Patent Rights, that is identified or produced by the
Licensed Method, or that the use of which would constitute, but for the license
granted to LICENSEE under this Agreement, an infringement of any pending or
issued claim within Regents' Patent Rights.
1.4 "Net Sales" means the total of the gross invoice prices of Licensed
Products sold by LICENSEE, an Affiliate, or a sublicensee of LICENSEE, less the
sum of the following actual and customary deductions where applicable: cash,
trade, or quantity discounts, including chargebacks; sales, use, tariff,
import/export duties or other excise taxes imposed on particular sales;
transportation charges and allowances; credits to customers because of
rejections or returns; or bad debts. For purposes of calculating Net Sales,
transfers to an Affiliate or sublicensee for end use by the Affiliate or
sublicensee shall be treated as sales at list price.
1.5 "Regents' Patent Rights" means any of the following: the U.S. patent
application, serial number [***], entitled [***] disclosing and claiming the
Invention, filed by Inventors and assigned to THE REGENTS; and continuing
applications thereof including divisions, substitutions, and
continuations-in-part (but only to extent the claims thereof are enabled by
disclosure of the parent application); any patents issuing on said applications
including reissues, reexaminations and extensions; and any corresponding foreign
applications or patents.
ARTICLE 2. GRANT.
2.1 Subject to the limitations set forth in this Agreement, THE REGENTS
grants to LICENSEE a world-wide license under Regents' Patent Rights to make,
have made, use, sell, have sold, offer for sale and import Licensed Products and
to practice Licensed Methods.
2.2 Except as otherwise provided in this Agreement, the license granted
in Paragraph 2.1 hereof shall be exclusive for the life of the Agreement.
2.3 The license granted in Paragraph 2.1 hereof is subject to all the
applicable provisions of any license to the United
***Confidential Treatment Requested
<PAGE> 5
Exclusive License Agreement Page 4 of 25
Case No. SD97-026
States Government executed by THE REGENTS and is subject to the overriding
obligations to the U.S. Government under 35 U.S.C. Sections 200-212 and
applicable governmental implementing regulations.
2.4 The license granted in Paragraph 2.1 hereof is for all fields of
use.
2.5 THE REGENTS reserves the right to use the Invention and associated
technology for educational and research purposes.
ARTICLE 3. SUBLICENSES.
3.1 THE REGENTS also grants to LICENSEE the right to issue sublicenses
to third parties to make, have made, use, sell, have sold, offer for sale and
import Licensed Products and to practice Licensed Methods, as long as LICENSEE
has current exclusive rights thereto under this Agreement. To the extent
applicable, sublicenses shall include all of the rights of and obligations due
to THE REGENTS (and, if applicable, the United States Government) that are
contained in this Agreement.
3.2 LICENSEE shall promptly provide THE REGENTS with a copy of each
sublicense issued; collect and guarantee payment of all payments due THE REGENTS
from sublicensees; and summarize and deliver all reports due THE REGENTS from
sublicensees.
3.3 In the event that the license granted in this Agreement is
terminated, THE REGENTS shall assume any sublicenses granted by LICENSEE
hereunder, and THE REGENTS shall be held only to the obligations of THE REGENTS
under this Agreement.
ARTICLE 4. LICENSE-ISSUE FEE.
4.1 Within seven days after the Effective Date, LICENSEE shall pay to
THE REGENTS [***], and issue to THE REGENTS [***] shares of LICENSEE's common
stock (collectively, the "License Issue Fee") in accordance with the
Shareholder's Agreement and in the manner provided in paragraph 7.1 hereof.
4.2 The License-Issue Fee payable by LICENSEE as specified in paragraph
4.1 hereinabove is non-refundable, non-cancelable,
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<PAGE> 6
Exclusive License Agreement Page 5 of 25
No. SD971-0426
and is not an advance against royalties.
ARTICLE 5. MILESTONE PAYMENTS.
5.1 Within thirty (30) days following (i) [***] (ii) [***], whichever
occurs first, LICENSEE shall pay to THE REGENTS [***] shares of LICENSEE's
common stock in accordance with the Shareholder's Agreement and in the manner
provided in paragraph 7.1 hereof.
5.2 Within thirty (30) days following the date LICENSEE [***], LICENSEE
shall pay to THE REGENTS [***] and issue to THE REGENTS [***] shares of
LICENSEE's common stock in accordance with the Shareholder's Agreement and in
the manner provided in paragraph 7.1 hereof.
5.3 Within thirty (30) days following the date LICENSEE [***], LICENSEE
shall pay to THE REGENTS [***] and issue to THE REGENTS [***] shares of
LICENSEE's common stock in accordance with the Shareholder's Agreement and in
the manner provided in paragraph 7.1 hereof.
5.4 The milestone payments specified in paragraphs 5.1, 5.2 and 5.3
hereinabove are non-refundable and are not an advance against earned royalties.
ARTICLE 6. ROYALTIES.
6.1 Earned Royalties. LICENSEE shall also pay to THE REGENTS an earned
royalty of one percent (1.0%) of the Net Sales, except that in any given
calendar quarter in which the Net Sales
***Confidential Treatment Requested
<PAGE> 7
Exclusive License Agreement Page 6 of 25
Case No. SD97-026
total less than [***] the earned royalty payable by LICENSEE to THE REGENTS
shall be [***] of such Net Sales.
ARTICLE 7. PAYMENT TERMS.
7.1 Stock Payments. The parties understand that THE REGENTS' Patent
Policy (effective November 18, 1985) provides that the Inventors as a group are
entitled to forty-two and one-half percent (42.5%) of net royalties and fees,
whether in the form of cash or equity, received by THE REGENTS for licensing of
the Invention to LICENSEE. The parties further understand that THE REGENTS'
Policy on Accepting Equity When Licensing University Technology (effective
February 16, 1996) provides that each of the Inventors may elect to: (i)
directly receive his or her share of such equity, or (ii) have THE REGENTS
accept his or her share of the equity. Accordingly, with respect to any payment
in the form of equity due to THE REGENTS under this Agreement, THE REGENTS shall
provide written notice to LICENSEE, within thirty (30) days after the execution
of this Agreement by both parties, of the manner in which THE REGENTS would like
any equity payments due under this Agreement distributed.
7.2 Cash Payments. All monies due THE REGENTS are payable in United
States dollars, all checks for such monies shall be made payable to "The Regents
of the University of California", referencing THE REGENTS' taxpayer
identification number, 95-6006144, and such checks shall be delivered to THE
REGENTS pursuant to Article 20 (NOTICES). When Licensed Products are sold for
monies other than United States dollars, LICENSEE shall first determine the
earned royalty in the currency of the country in which Licensed Products were
sold and then convert the amount into equivalent United States funds, using the
exchange rate quoted in the Wall Street Journal on the last business day of the
applicable reporting period.
7.3 Royalties shall accrue in each country for the duration of Regents'
Patent Rights in that country and are payable to THE REGENTS when Licensed
Products are invoiced, or if not invoiced, when delivered to a third party. For
earned royalties accruing on sale for cash (or the equivalent thereof) outside
the United States, LICENSEE may delay payment of earned royalties until it
actually receives payment from its customer, provided that such
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<PAGE> 8
Exclusive License Agreement Page 7 of 25
Case No. SD97-026
delay does not exceed three (3) months from the date of invoice.
7.4 Paragraphs 1.3, 1.4 and 1.6 define Licensed Methods, Licensed
Products and Regents' Patent Rights so that royalties shall be payable on
products and methods covered by pending applications and issued patents,
provided that no earned royalties shall be payable under Regents' Patent Rights
on pending claims once the claims are no longer pending due to abandoning
prosecution thereof or that are pending more than thirty (30) years from the
Effective Date. In no event shall any royalty be due under Regents' Patent
Rights after the expiration of the last-to-expire patent licensed hereunder
which covers LICENSEE's activities.
7.5 LICENSEE shall pay earned royalties quarterly on or before February
28, May 31, August 31 and November 30 of each calendar year. Each such payment
shall be for earned royalties accrued within LICENSEE's most recently completed
calendar quarter.
7.6 Royalties earned on sales occurring in any country outside the
United States may not be reduced by any taxes, fees, or other charges imposed by
the government of such country on the payment of royalty income. LICENSEE is
also responsible for all bank transfer charges. Notwithstanding this, all
payments made by LICENSEE in fulfillment of THE REGENTS' tax liability in any
particular country shall be credited against earned royalties or fees due THE
REGENTS for that country.
7.7 If at any time legal restrictions prevent the prompt remittance of
part or all royalties by LICENSEE with respect to any country where a Licensed
Product is sold, LICENSEE shall have the right and option to make such payments
by depositing the amount thereof in local currency to THE REGENTS' account, if
any, in a bank or other depository in such country. THE REGENTS will use
reasonable efforts to transfer the monies held in the account specified in this
Paragraph 7.7 to the United States. If after one (1) year from the date of the
first deposit into that account, there are still legal restrictions that prevent
THE REGENTS from transferring the monies, THE REGENTS shall transfer the
impounded funds back to LICENSEE, and LICENSEE shall convert the amount owed to
THE REGENTS into United States funds and shall pay THE REGENTS directly from its
U.S. source of funds for the amount impounded. LICENSEE shall then pay all
future royalties
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Exclusive License Agreement Page 8 of 25
Case No. SD97-026
due to THE REGENTS with respect to Net Sales in such country from its U.S.
source of funds so long as the legal restrictions described in this Paragraph
7.7 still apply.
7.8 In the event that any patent or patent claim within The Regents'
Patent Rights is held invalid in a final decision by a patent office from which
no appeal or additional patent prosecution has been or can been taken, or by a
court of competent jurisdiction and last resort and from which no appeal has
been or can be taken, all obligation to pay royalties based on that patent or
claim or any claim patentably indistinct therefrom shall cease as of the date of
such final decision. LICENSEE shall not, however, be relieved from paying any
royalties that accrued before such final decision or that are based on another
patent or claim not involved in such final decision.
7.9 No royalties may be collected or paid on Licensed Products sold to
the account of the U.S. Government or any agency thereof as provided for in the
license to the U.S. Government.
7.10 In the event royalty payments, rebillings or fees payable in cash
are not received by THE REGENTS when due, LICENSEE shall pay to THE REGENTS
interest charges at a rate of ten (10) percent per annum. Such interest shall be
calculated from the date payment was due until actually received by THE REGENTS.
ARTICLE 8. DUE DILIGENCE.
8.1 Upon execution of this Agreement, LICENSEE shall diligently proceed
with the development, manufacture and sale of Licensed Products and shall
earnestly and diligently endeavor to market the same within a reasonable time
after execution of this Agreement.
8.2 LICENSEE shall endeavor to obtain all necessary governmental
approvals for the manufacture, use and sale of Licensed Products.
8.3 LICENSEE shall:
(a) [***]
***Confidential Treatment Requested
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(b) [***]
(c) [***]
(d) [***]
(d) reasonably fill the market demand for Licensed Products
following commencement of marketing at any time during the exclusive period of
this Agreement.
8.4 In addition to the obligations set forth above, LICENSEE shall spend
not less than [***] during [***] of this Agreement for the development of
Licensed Products. LICENSEE may, at its sole option, fund the research of [***]
and credit the amount of such funding actually paid to UCSD against its
obligation under this paragraph.
8.5 Subject to paragraphs 8.1, 8.2 and 8.6 hereof, if LICENSEE believes
that it will be unable to perform any of its obligations under paragraphs 8.3 or
8.4 hereinabove, LICENSEE shall deliver notice to THE REGENTS of its belief in
its prospective inability to perform and reasons therefor, at least three (3)
months before the date when such obligation or obligations to perform comes due.
This notice shall be subject to Article 20 (NOTICES). Upon receipt of such
notice, LICENSEE and THE REGENTS shall negotiate in good faith and for a period
not to exceed three (3) months from the date of such notice ("Renegotiation
Period") to re-establish a date or dates for performance of such obligation or
obligations, which date or dates the parties consider reasonable under the
then-current circumstances, and to establish what consideration, if any, THE
REGENTS shall be entitled to in consideration for such re-established date or
dates. If LICENSEE and THE REGENTS are unable to mutually agree within the
Renegotiation Period to a reestablished date or dates for performance by
LICENSEE and/or consideration for THE REGENTS, then THE REGENTS shall have the
*** Confidential Treatment Requested
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right and option to either terminate this Agreement or reduce LICENSEE's
exclusive license to a nonexclusive license. This right, if exercised by THE
REGENTS, shall supersede the rights granted in Article 2 (GRANT).
8.6 Notwithstanding any other provision of this Article 8, LICENSEE
shall be entitled to exercise its prudent and reasonable business judgment in
the manner in which LICENSEE proceeds to meet its obligations under paragraphs
8.1, 8.2, 8.3 and 8.4 hereinabove.
ARTICLE 9. PROGRESS AND ROYALTY REPORTS.
9.1 Progress Reports.
(a) Beginning February 28, 1998 and semi-annually thereafter,
LICENSEE shall submit to THE REGENTS a progress report covering LICENSEE's (and
any Affiliate's or sublicensee's) activities related to the development and
testing of all Licensed Products and the obtaining of the governmental approvals
necessary for marketing. Progress reports shall be made for each Licensed
Product until the first commercial sale of that Licensed Product occurs in the
United States. These progress reports shall be considered "Confidential
Information" for all purposes of Article 28 (SECRECY) hereof and shall be
subject to the terms thereof.
(b) Progress reports submitted under this paragraph should
include, but are not limited to, the following topics:
(1) summary of work completed;
(2) summary of work in progress;
(3) current schedule of anticipated events or milestones;
(4)market plans for introduction of Licensed Products; and
(5) a summary of resources (dollar value) spent in the
reporting period.
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(c) LICENSEE shall report to THE REGENTS, in its immediately
subsequent progress report, the date of first commercial sale of a Licensed
Product in each country.
9.2 Royalty Reports. After the first commercial sale of a Licensed
Product anywhere in the world, LICENSEE shall make quarterly royalty reports to
THE REGENTS on or before each February 28, May 31, August 31 and November 30 of
each year. Each royalty report shall cover LICENSEE's most recently completed
calendar quarter and shall show:
(a) the gross sales and Net Sales of Licensed Products sold
during the most recently completed calendar quarter;
(b) the number of each type of Licensed Product sold;
(c) the royalties, in U.S. dollars, payable with respect to
sales of Licensed Products;
(d) the method used to calculate the royalty; and
(e) the exchange rates used.
If no sales of Licensed Products have been made during any reporting period, a
statement to this effect is required.
ARTICLE 10. BOOKS AND RECORDS.
10.1 LICENSEE shall keep accurate books and records showing all Licensed
Products manufactured, used, and/or sold under the terms of this Agreement.
Books and records must be preserved for at least five (5) years from the date of
the royalty payment to which they pertain.
10.2 Books and records shall be open to inspection by representatives or
agents of THE REGENTS at reasonable times. THE REGENTS shall bear the fees and
expenses of examination; but if an error in royalties of more than ten percent
(10%) of the total royalties due for any year is discovered in any examination,
then LICENSEE shall bear the fees and expenses of that examination.
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ARTICLE 11. TERM OF THE AGREEMENT.
11.1 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the terms of this Agreement, this Agreement shall be
in force from the Effective Date and shall remain in effect for the life of the
last-to-expire issued patent licensed under this Agreement; or if no patent in
the Regents' Patent Rights issues, until the date of abandonment of the last
patent application in the Regents' Patent Rights.
11.2 Any termination of this Agreement shall not affect the rights and
obligations set forth in the following Articles:
(a) Article 10 (BOOKS AND RECORDS);
(b) Article 13 (DISPOSITIONS OF LICENSED PRODUCT ON HAND UPON
TERMINATION);
(c) Article 14 (USE OF NAMES AND TRADEMARKS);
(d) Article 19 (INDEMNIFICATION);
(e) Article 23 (FAILURE TO PERFORM);
(f) Article 28 (SECRECY); and
(g) Article 29 (DISPUTE RESOLUTION).
ARTICLE 12. TERMINATION.
12.1 Termination by The Regents. If LICENSEE fails to perform or
violates any term of this Agreement, then THE REGENTS may give written notice of
default ("Notice of Default") to LICENSEE. If LICENSEE fails to repair the
default within ninety (90) days of the effective date of Notice of Default, THE
REGENTS may terminate this Agreement and the licenses herein by a second written
notice ("Notice of Termination") to LICENSEE. If a Notice of Termination is sent
to LICENSEE, this Agreement shall automatically terminate on the effective date
of that notice. Termination shall not relieve LICENSEE of its obligation to pay
any fees owing at the time of termination and shall not impair any accrued right
of THE REGENTS. These notices are subject to
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Article 20 (Notices).
12.2 Termination by Licensee.
(a) LICENSEE has the right at any time to terminate this
Agreement in whole or as to any portion of Regents' Patent Rights by giving
notice in writing to THE REGENTS. Notice of termination shall be subject to
Article 20 (NOTICES), and termination of this Agreement shall be effective
ninety (90) days from the effective date of notice.
(b) Any termination under the above paragraph does not relieve
LICENSEE of any obligation or liability accrued under this Agreement prior to
termination or rescind any payment made to THE REGENTS or anything done by
LICENSEE prior to the time termination becomes effective. Termination does not
affect in any manner any rights of THE REGENTS arising under this Agreement
prior to termination.
ARTICLE 13. DISPOSITION OF LICENSED PRODUCTS
ON HAND UPON TERMINATION.
13.1 Upon termination of this Agreement, LICENSEE is entitled to dispose
of all previously made or partially made Licensed Products, but no more, within
a period of one hundred and twenty (120) days provided that the sale of those
Licensed Products is subject to the terms of this Agreement, including but not
limited to the rendering of reports and payment of royalties required under this
Agreement.
ARTICLE 14. USE OF NAMES AND TRADEMARKS.
14.1 Nothing contained in this Agreement confers any right to use in
advertising, publicity, or other promotional activities any name, trade name,
trademark, or other designation of either party hereto (including contraction,
abbreviation or simulation of any of the foregoing). Unless required by law, the
use by LICENSEE of the name, "The Regents Of The University Of California" or
the name of any campus of the University Of California is prohibited.
14.2 THE REGENTS may disclose to the Inventors the terms and
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conditions of this Agreement upon their request. If such disclosure is made, THE
REGENTS shall require that the Inventors not disclose any such terms or
conditions to others.
14.3 If a third party inquires whether a license to Regents' Patent
Rights is available, THE REGENTS may disclose the existence of this Agreement
and the extent of the grant in Article 2 to such third party, but shall not
disclose the name of LICENSEE or any other term of this Agreement, except where
THE REGENTS are required to disclose such information under either the
California Public Records Act or other requirement of applicable law.
ARTICLE 15. LIMITED WARRANTY.
15.1 THE REGENTS warrants to LICENSEE that it has the lawful right to
grant this license.
15.2 This license and the associated Invention are provided WITHOUT
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER
WARRANTY, EXPRESS OR IMPLIED. THE REGENTS MAKES NO REPRESENTATION OR WARRANTY
THAT THE LICENSED PRODUCTS OR LICENSED METHODS WILL NOT INFRINGE ANY PATENT OR
OTHER PROPRIETARY RIGHT.
15.3 IN NO EVENT MAY THE REGENTS BE LIABLE FOR ANY INCIDENTAL, SPECIAL
OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR THE USE OF
THE INVENTION OR LICENSED PRODUCTS.
15.4 Nothing in this Agreement shall be construed as:
(a) a warranty or representation by THE REGENTS as to the
validity or scope of any Regents' Patent Rights;
(b) a warranty or representation that anything made, used, sold
or otherwise disposed of under any license granted in this Agreement is or will
be free from infringement of patents of third parties;
(c) an obligation to bring or prosecute actions or suits against
third parties for patent infringement except as provided in Article 18 (PATENT
INFRINGEMENT);
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(d) conferring by implication, estoppel or otherwise any license
or rights under any patents of THE REGENTS other than Regents' Patent Rights as
defined in this Agreement, regardless of whether those patents are dominant or
subordinate to Regent's Patent Rights; or
(e) an obligation to furnish any know-how not provided in
Regents' Patent Rights.
ARTICLE 16. PATENT PROSECUTION AND MAINTENANCE.
16.1 Provided that LICENSEE has paid patent costs as provided for in
Paragraph 16.5, THE REGENTS shall diligently prosecute and maintain the United
States and foreign patents comprising Regents' Patent Rights using counsel of
its choice, and THE REGENTS shall provide LICENSEE with copies of all relevant
documentation so that LICENSEE may be informed of the continuing prosecution and
LICENSEE agrees to keep this documentation confidential. The Regents' counsel
shall take instructions only from THE REGENTS, and all patents and patent
applications under this Agreement shall be assigned solely to THE REGENTS.
16.2 THE REGENTS shall use all reasonable efforts to amend any patent
application to include claims reasonably requested by LICENSEE to protect the
products contemplated to be sold under this Agreement.
16.3 LICENSEE shall apply for an extension of the term of any patent
included within Regents' Patent Rights if appropriate under the Drug Price
Competition and Patent Term Restoration Act of 1984 and/or European, Japanese
and other foreign counterparts of this law. LICENSEE shall prepare all documents
for such application, and THE REGENTS agrees to execute such documents and to
take any other additional action as LICENSEE reasonably requests in connection
therewith.
16.4 In the event THE REGENTS as represented by the licensing associate
at UCSD responsible for the administration of the license granted in this
Agreement receives notice pertaining to infringement or potential infringement
of any issued patent within Regents' Patent Rights pursuant to the Drug Price
Competition Act and Patent Term Restoration Act of 1984 (and/or
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European and Japanese counterparts of such law), THE REGENTS shall notify
LICENSEE within thirty (30) days after receipt of such notice.
16.5 LICENSEE shall bear the costs of preparing, filing, prosecuting and
maintaining all United States and foreign patent applications contemplated by
this Agreement. Costs billed to THE REGENTS by THE REGENTS' counsel shall be
rebilled to LICENSEE and shall be due within 30 days of rebilling by THE
REGENTS. These costs include patent prosecution costs for the Invention incurred
by THE REGENTS prior to the execution of this Agreement and any patent
prosecution costs that may be incurred with respect to the Invention for
patentability opinions, re-examination, re-issue, interferences, or inventorship
determinations. Prior costs shall be due on execution of this Agreement and
billing by THE REGENTS. Such prior costs will be approximately
twenty-two thousand U.S. dollars ($22,000).
16.6 LICENSEE may request THE REGENTS to obtain patent protection on the
Invention in foreign countries if available and if it so desires. LICENSEE shall
notify THE REGENTS of its decision to obtain or maintain foreign patents not
less than sixty (60) days prior to the deadline for any payment, filing, or
action to be taken in connection therewith. This notice concerning foreign
filing shall be in writing, shall identify the countries desired, and shall
reaffirm LICENSEE's obligation to underwrite the costs thereof. The absence of
such a notice from LICENSEE to THE REGENTS shall be considered an election not
to obtain or maintain foreign rights.
16.7 LICENSEE's obligation to underwrite and to pay patent prosecution
costs shall continue for so long as this Agreement remains in effect; provided,
however, that LICENSEE may terminate its obligations with respect to any given
patent application or patent upon three (3) months' written notice to THE
REGENTS. THE REGENTS shall use reasonable efforts to curtail patent costs when
such a notice is received from LICENSEE. THE REGENTS may continue prosecution
and/or maintenance of such applications or patent(s) at its sole discretion and
expense; provided, however, that LICENSEE shall have no further right or
licenses thereunder. Non-payment of patent costs may be deemed by THE REGENTS as
an election by LICENSEE not to maintain applications) or Patents).
16.8 THE REGENTS may file, prosecute or maintain patent
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applications and/or patents arising therefrom at its own expense in any country
in which LICENSEE has not elected to file, prosecute, or maintain such patent
applications or patents in accordance with this Article, and those applications
and resultant patents shall not be subject to this Agreement.
ARTICLE 17. PATENT MARKING.
17.1 LICENSEE shall mark all Licensed Products made, used or sold under
the terms of this Agreement, or their containers, in accordance with the
applicable patent marking laws.
ARTICLE 18. PATENT INFRINGEMENT.
18.1 If LICENSEE learns of the substantial infringement of any patent
licensed under this Agreement, LICENSEE shall call THE REGENTS' attention
thereto in writing within thirty (30) days after so learning and provide THE
REGENTS with reasonable evidence of such infringement. Neither party shall
notify a third party of the infringement of any of Regents' Patent Rights
without first obtaining consent of the other party, which consent shall not be
unreasonably denied. Both parties shall use reasonable efforts in cooperation
with each other to terminate infringement without litigation.
18.2 LICENSEE may request that THE REGENTS take legal action against the
infringement of Regents' Patent Rights. Such request shall be made in writing
and shall include reasonable evidence of such infringement and damages to
LICENSEE. If the infringing activity has not abated within ninety (90) days
following the effective date of request, THE REGENTS then shall have the right
to:
(a) commence suit on its own account, or
(b) refuse to participate in the suit;
and THE REGENTS shall give notice of its election in writing to LICENSEE by the
end of the one-hundredth (100th) day after receiving notice of such request from
LICENSEE. LICENSEE may thereafter bring suit for patent infringement, at its own
expense, if and only if THE REGENTS elects not to commence suit
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and if the infringement occurred during the period and in a jurisdiction where
LICENSEE had exclusive rights under this Agreement. If, however, LICENSEE elects
to bring suit in accordance with this paragraph, THE REGENTS may thereafter join
that suit at its own expense.
18.3 Such legal action as is decided on shall be at the expense of the
party bringing suit and all recoveries recovered thereby shall belong to the
party bringing suit; provided, however, that legal action brought jointly by THE
REGENTS and LICENSEE and fully participated in by both shall be at the joint
expense of the parties and all recoveries shall be shared jointly by them in
proportion to the share of expense paid by each party. If LICENSEE pays all
legal expenses, it shall have the right to offset one half of its out-of-pocket
legal expense, to the extent they exceed any recoveries recovered by LICENSEE in
such legal action, against any earned royalties payable under Paragraph 6.1;
provided, however, that earned royalties payble under Paragraph 6.1 shall not be
reduced in any given quarter by more than [***]. Any unused credit may be
carried forward until LICENSEE has received full credit for its creditable legal
expenses.
18.4 Each party shall cooperate with the other in litigation proceedings
instituted hereunder but at the expense of the party bringing suit. Litigation
shall be controlled by the party bringing the suit, except that THE REGENTS may
be represented by counsel of its choice in any suit brought by LICENSEE.
ARTICLE 19. INDEMNIFICATION.
19.1 LICENSEE shall indemnify, hold harmless and defend THE REGENTS, its
officers, employees, and agents; the sponsors of the research that led to the
Invention; and the Inventors of the patents and patent applications in Regents'
Patent Rights and their employers against any and all claims, suits, losses,
damage, costs, fees, and expenses resulting from or arising out of exercise of
this license or any sublicense. This indemnification will include, but not be
limited to, any product liability.
19.2 LICENSEE, at its sole cost and expense, shall insure its activities
in connection with the work under this Agreement
*** Confidential Treatment Requested
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and obtain, keep in force and maintain insurance as follows, beginning with the
date that Licensed Products or Licensed Methods are to used on or by third
parties are first manufactured:
(a) Comprehensive or commercial form general liability insurance
(contractual liability included) with limits as follows!
(1) Each Occurrence, $1,000,000,
(2) Products/Completed Operations Aggregate, $5,000,000,
(3) Personal and Advertising Injury, $1,000,000, and
(4) General Aggregate (commercial form only), $5,000,000;
and
(b) The coverage and limits referred to under the above do not in
any way limit the liability of LICENSEE. LICENSEE shall furnish THE REGENTS with
certificates of insurance showing compliance with all requirements. Such
certificates shall:
(1) provide for thirty (30) day advance written notice
to THE REGENTS of any modification,
(2) indicate that THE REGENTS has been endorsed as an
additional insured under the coverage referred to above, and
(3) include a provision that the coverage shall be
primary and shall not participate with nor shall be excess over
any valid and collectable insurance or program of self-insurance
carried or maintained by THE REGENTS.
19.3 THE REGENTS shall within a reasonable time notify LICENSEE in
writing of any claim or suit brought against THE REGENTS in respect of which THE
REGENTS intends to invoke the provisions of this Article. LICENSEE shall keep
THE REGENTS informed on a current basis of its defense of any claims under this
Article.
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ARTICLE 20. NOTICES.
20.1 Any notice or payment required to be given to either party shall be
deemed to have been properly given and effective:
(a) on the date of delivery if delivered in person, or
(b) five (5) days after mailing if mailed by first-class
certified mail, postage paid, to the respective addresses given below, or to
such other address as is designated by written notice given to the other party.
In the case of LICENSEE:
Signal Pharmaceuticals, Inc.
5555 Oberlin Drive
San Diego, California 92121
Attention: Chief Executive Officer
In the case of THE REGENTS:
University of California, San Diego
Technology Transfer Office, Mailcode 0910
9500 Gilman Drive
La Jolla, CA 92093-0910
Attention: Director
ARTICLE 21. ASSIGNABILITY.
21.1 This Agreement may be assigned by THE REGENTS, but shall be
personal to LICENSEE and assignable by LICENSEE only with the written consent of
THE REGENTS, which consent shall not be unreasonably withheld.
ARTICLE 22. NO WAIVER.
22.1 No waiver by either party of any breach or default of any of the
covenants or agreements set forth in this Agreement shall be deemed a waiver as
to any subsequent and/or similar breach or default.
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ARTICLE 23. FAILURE TO PERFORM.
23.1 In the event of a failure of performance due under this Agreement
and if it becomes necessary for either party to undertake legal action against
the other on account thereof, then the prevailing party shall be entitled to
reasonable attorneys' fees in addition to costs and necessary disbursements.
ARTICLE 24. GOVERNING LAWS.
24.1 THIS AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA, but the scope and validity of any
patent or patent application shall be governed by the applicable laws of the
country of the patent or patent application.
ARTICLE 25. PREFERENCE FOR UNITED STATES INDUSTRY.
25.1 Because this Agreement grants the exclusive right to use or sell
the Invention in the United States, LICENSEE agrees that any products sold in
the U.S. embodying this Invention or produced through the use thereof shall be
manufactured substantially in the United States.
ARTICLE 26. GOVERNMENT APPROVAL OR REGISTRATION.
26.1 If this Agreement or any associated transaction is required by the
law of any nation to be either approved or registered with any governmental
agency, LICENSEE shall assume all legal obligations to do so. Licensee shall
notify THE REGENTS if it becomes aware that this Agreement is subject to a
United States or foreign government reporting or approval requirement. Licensee
shall make all necessary filings and pay all costs including fees, penalties,
and all other out-of-pocket costs associated with such reporting or approval
process.
ARTICLE 27. EXPORT CONTROL LAWS.
27.1 LICENSEE shall observe all applicable United States and foreign
laws with respect to the transfer of Licensed Products
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and related technical data to foreign countries, including, without limitation,
the International Traffic in Arms Regulations (ITAR) and the Export
Administration Regulations.
ARTICLE 28. SECRECY.
28.1 "Confidential Information" shall mean information regarding the
Invention disclosed by THE REGENTS to LICENSEE, or information regarding
LICENSEE's business disclosed by LICENSEE to THE REGENTS, which if disclosed in
writing shall be marked "Confidential", or if first disclosed otherwise, shall
within thirty (30) days of such disclosure be reduced to writing by the
disclosing party (hereinafter, the "Disclosing Party"), marked as "Confidential"
and sent to the receiving party (hereinafter, the "Recipient")
28.2 Recipient hereby agrees:
(a) not to use the Confidential Information of the Disclosing
Party except for the sole purpose of performing under the terms of this
Agreement;
(b) to safeguard such Confidential Information against disclosure
to others with the same degree of care as it exercises with its own data of a
similar nature; and
(c) not to disclose such Confidential Information to others
(except to its employees, agents or consultants who are bound to Recipient by a
like obligation of confidentiality) without the express written permission of
the Disclosing Party, except that Recipient shall not be prevented from using or
disclosing any of the Confidential Information that:
(1) Recipient can demonstrate by written records was
previously known to it,
(2) is now, or becomes in the future, public knowledge
other than through acts or omissions of Recipient,
(3) is lawfully obtained by Recipient from sources
independent of the Disclosing Party, or
(4) is required to be disclosed by the California
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Public Records Act or other requirement of law.
28.3 The secrecy obligations of Recipient with respect to Confidential
Information shall continue for a period ending five (5) years from the
termination date of this Agreement.
ARTICLE 29. DISPUTE RESOLUTION.
29.1 Mediation. Either party to this Agreement may refer a dispute
arising under this Agreement and which cannot be resolved among themselves
without assistance, to third-party mediation in accordance with the rules of the
American Arbitration Association then in effect or successor thereto. Such
referral to mediation shall be made by notifying the other party in writing in
accordance with the provisions of Article 20 (NOTICES) hereto, stating the
nature of the dispute to be resolved by such mediation. Any resolution of such
dispute arrived at in such mediation shall not be binding on either of the
parties.
29.2 Arbitration.
(a) Any such dispute that is not resolved within ninety (90) days
after the date of such request for mediation in accordance with this Article 29
may be referred to and decided by arbitration, except for disputes based, in
whole or in part, on Article 14 (USE OF NAME AND TRADEMARKS) hereof; Article 15
(LIMITED WARRANTY) hereof; Article 18 (PATENT INFRINGEMENT) hereof; Article 19
(INDEMNIFICATION) hereof; the validity of any claim of any patent or patent
application within Regents' Patent Rights; or infringement by a party hereto, or
a third party, of any claim of any patent within Regents' Patent Rights. Such
referral to arbitration shall be made by notifying the other party in writing in
accordance with the provisions of Article 20 (NOTICES) hereof, stating the
nature of the dispute to be resolved.
(b) The arbitration shall be held in San Diego, California, and
shall be conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect or any successor thereto. None
of the arbitrators selected by the parties to conduct such arbitration shall be
employees of the parties. If the parties cannot agree on mutually satisfactory
arbitrators within thirty (30) days of
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the request of any party hereto for arbitration hereunder, such arbitrators
shall forthwith be appointed pursuant to the aforesaid rules of the American
Arbitration Association. The arbitrators shall establish an arbitration
timetable resulting in a hearing, within one hundred and twenty (120) days of
the original request to arbitrate.
(c) The arbitrators as a panel may grant injunctions and any and
all other forms of relief in such dispute permitted under the American
Arbitration Association rules then in effect or successor thereto; provided,
however, that such panel shall not award punitive damages and shall not award
costs and expenses, including attorney's fees and expenses. The decision of the
panel shall be final, conclusive and binding on the parties to such arbitration,
and shall not be appealable. The decision of the panel shall be enforceable in
any court of competent jurisdiction.
ARTICLE 30. MISCELLANEOUS.
30.1 The headings of the several sections are inserted for convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.
30.2 This Agreement is not binding on the parties until it has been
signed below on behalf of each party. It shall be effective as of the Effective
Date.
30.3 No amendment or modification of this Agreement shall be valid or
binding on the parties unless made in writing and signed on behalf of each
party.
30.4 This Agreement and the Shareholder's Agreement, together, embodies
the entire understanding of the parties and supersedes all previous
communications, representations or understandings, either oral or written,
between the parties relating to the subject matter hereof. The Secrecy Agreement
and Letter Agreement are both hereby terminated.
30.5 In case any of the provisions contained in this Agreement is held
to be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions of this
Agreement, and this
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Agreement shall be construed as if the invalid, illegal, or unenforceable
provisions had never been contained in it.
In Witness Whereof, both THE REGENTS and LICENSEE have executed this
Agreement, in duplicate originals, by their respective and duly authorized
officers on the day and year written.
SIGNAL PHARMACEUTICALS, INC.: THE REGENTS OF THE
UNIVERSITY OF CALIFORNIA:
By /s/ CARL BOBKOSKI By /s/ ALAN S. PAAU
---------------------------- -----------------------------------
(Signature) (Signature)
Name: EVP Alan S. Paau, Ph.D
---------------------------
Title Carl Bobkoski Director, Technology
--------------------------- Transfer Office
Date Februaty 23, 1998 Date 2/25/98
---------------------------- -------------------------------
<PAGE> 1
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80,
200.83 and 230.406.
EXHIBIT 10.38
COLLABORATIVE DEVELOPMENT AND LICENSING
AGREEMENT
AMONG
SIGNAL PHARMACEUTICALS, INC.,
AND
TANABE SEIYAKU CO., LTD.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. DEFINITIONS................................................................. 1
2. RESEARCH AND DEVELOPMENT COLLABORATION; RESEARCH PERIOD..................... 10
3. PRODUCT DEVELOPMENT. ....................................................... 22
4. PAYMENT..................................................................... 23
5. LICENSES OF TECHNOLOGY...................................................... 25
6. GLOBAL RELATIONSHIP......................................................... 33
7. ARBITRATION................................................................. 34
8. CONFIDENTIALITY, DISCLOSURE AND PUBLICATION................................. 34
9. INDEMNIFICATION............................................................. 37
10. INDEPENDENT CONTRACTORS..................................................... 38
11. NO SOLICITATION OF EMPLOYEES................................................ 38
12. TERM. ..................................................................... 39
13. TERMINATION OF AGREEMENT.................................................... 39
14. PUBLIC ANNOUNCEMENT OF AGREEMENT............................................ 40
15. INVENTIONS AND PATENT MATTERS............................................... 41
16. RESEARCH EXPENSES........................................................... 46
17. REPRESENTATIONS AND WARRANTIES.............................................. 46
18. OPTION TO EXPAND TERRITORY.................................................. 48
19. MISCELLANEOUS............................................................... 48
</TABLE>
i.
<PAGE> 3
COLLABORATIVE DEVELOPMENT AND LICENSING AGREEMENT
This Agreement is made effective as of the 31st day of March,
1996 (the "Effective Date") by and among Signal Pharmaceuticals, Inc., a
California corporation, with its principal office at 5555 Oberlin Drive, San
Diego, California, USA ("Signal") and Tanabe Seiyaku Co., Ltd., a Japanese
corporation, with its principal office at 2-10 Dosho-machi 3-chome, Chuo-ku,
Osaka 541, Japan ("Tanabe").
RECITALS
WHEREAS, the parties desire to collaborate in the discovery and
development and commercialization of therapeutic products for the prevention and
treatment of inflammation and osteoporosis.
NOW THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. DEFINITIONS
1.1 "Active Development" means, with respect to any Compound,
that Tanabe is using at least such level of effort, in accordance with Tanabe's
business, legal, medical and scientific judgement and Tanabe's normal practices
and procedures, to continue the development of such Compound through preclinical
and clinical studies and other registration directed activities as Tanabe spends
on its own products in pre-clinical and clinical study with similar technical
and commercial potential.
1.2 "Affiliates" means, with respect to any specified Person, a
Person that is controlled by, controlling or under common control with the
Person specified. For the purposes of this definition, control of a corporation
or other business entity shall mean (i) direct or indirect beneficial ownership
of greater than fifty percent (50%) of the voting stock or a greater than fifty
percent (50%) interest in the income of such corporation or other business
entity or (ii) the power to direct or cause the direction of the management of
such corporation or other business entity.
1.3 "Agreement" means this Agreement, all exhibits and
attachments referenced herein and all amendments and modifications hereto and
thereto.
1.4 "Chemical Lead Compound" means any Potential Compound which
(i) the applicable Research and Development Committee determines has met the
requirements set forth on Exhibit A hereto, or (ii) Tanabe has selected in
writing as a Chemical Lead Compound from a Signal Compound Library or a Joint
Compound Library, or (iii) Tanabe has selected, in its sole discretion, from a
Tanabe Compound Library for inclusion in the Collaborative Project.
<PAGE> 4
1.5 "Chemical Modification" means any compound resulting from
process or activity (initiated after the date of this Agreement) of deriving
alternative chemical structures from a Chemical Lead Compound or a chemical
modification of a Chemical Lead Compound, e.g. development of analogs.
1.6 "Collaborative Project" means the joint research and
development collaboration of the Parties described in Article 2 of this
Agreement, in Exhibit C and in the annual workplans prepared in coordination
with the applicable Research and Development Committees, pursuant to which the
parties shall test, evaluate and identify compounds as Potential Compounds,
shall test and evaluate Potential Compounds and chemical modifications of
Potential Compounds as potential Chemical Lead Compounds, and shall chemically
modify, test and evaluate Compounds as potential Clinical Candidates.
1.7 "Compound" means any Chemical Lead Compound and all Chemical
Modifications thereof. A Compound shall be either a Signal Compound, a Tanabe
Compound or a Collaboration Compound.
1.7.1 "Signal Compound" means any Compound which is owned
by or licensed to Signal or its Affiliates (other than from Tanabe
pursuant to this Agreement), together with all Chemical Modifications
thereof developed by Signal, by Tanabe, or by their Affiliates.
1.7.2 "Tanabe Compound" means any Compound which is owned
by or licensed to Tanabe or its Affiliates (other than from Signal
pursuant to this Agreement) together with all Chemical Modifications
thereof developed by Signal, Tanabe, or by their Affiliates.
1.7.3 "Collaboration Compound" means a Compound which is
neither a Signal Compound nor a Tanabe Compound but is contained in a
Joint Compound Library, together with all Chemical Modifications thereof
developed by Signal or Tanabe, or by their Affiliates.
1.8 "Clinical Candidate" means a Compound which (i) Tanabe
determines meets the criteria set forth in Exhibit B or (ii) which Tanabe has
otherwise selected in writing as a Clinical Candidate.
1.9 "IND" means an Investigational New Drug application filed
with the United States Food and Drug Administration, or an equivalent
application filed with a foreign regulatory authority.
1.10 "Inflammation" means a localized protective response or
non-specific immune response, including but not limited to a hypersensitive
response (an "inflammatory response"), elicited by injury, invasion or
destruction of tissues, which
2.
<PAGE> 5
serves to destroy, dilute, or wall off both the injurious agent and the injured
tissue. Inflammation shall include, without limitation, the following generally
recognized categories of inflammation: acute, chronic, subacute, adhesive,
atrophic, catarrhal, croupous, fibrinous, diffuse, disseminated, exudative,
fibroid, focal, granulomatous, hyperplastic, hypertrophic, interstitial,
metastatic, necrotic, obliterative, parenchymatous, pseudomembranous, purulent,
sclerosing, serous, simple, specific, toxic, traumatic, and ulcerative.
Inflammation may be manifested, without limitation, as a condition, symptom,
process or component in those diseases, disease processes, or host conditions
(collectively, "Inflammatory Diseases") in which the inflammatory response is
etiological in the health of the host and/or exacerbates (as opposed to
ameliorates) the severity of the host's disease, disease process, symptom or
condition, and in which the therapeutic goal is to directly intervene in the
host's disease, disease process, symptom or condition by reducing, controlling
or limiting the level or degree of the inflammatory response. Inflammatory
Diseases shall include, without limitation, rheumatism (including arthritis),
lupus (including discoid and systemic erythematosus, pernio and vulgaris),
glomerulonephritis, transplant rejections, allergies, asthma and autoimmune
diseases, but shall exclude osteoarthritis, multiple sclerosis, cardiovascular
disease, oncologic indications and neuro-degenerative diseases, even where such
diseases may have an inflammatory component.
1.11 "Joint Compound Libraries" means all chemical compounds
(excluding Chemical Modifications of Tanabe Compounds or Signal Compounds) owned
jointly by the Parties or licensed jointly to the Parties during the Research
Period which they have the right to select or license for further development
and commercialization pursuant to this Agreement.
1.12 "Joint Inflammation Committee" means the committee of two
Signal scientific representatives and one Signal business representative and two
Tanabe scientific representatives and one Tanabe business representative
appointed by such respective Party to coordinate the research and development
activities with respect to Compounds for the prevention and treatment of
Inflammation under the Collaborative Project and carry out such other duties as
are agreed to in writing by the Parties from time to time.
1.13 "Joint Invention" has the meaning set forth in Section 15.3.
1.14 "Joint Osteoporosis Committee" means the committee of two
Signal scientific representatives and one Signal business representative and two
Tanabe scientific representatives and one Tanabe business representative
appointed by such respective Party (with the business representatives on the
Joint Inflammation Committee and the Joint Osteoporosis Committee being for each
party the same individual) to coordinate the research and development activities
with respect to Compounds for the prevention and treatment of Osteoporosis under
the Collaborative Project and carry out such other duties as are agreed to in
writing by the Parties from time to time.
3.
<PAGE> 6
1.15 "Joint Patent" means all patents and inventors' certificates
and applications therefor throughout the world, including any renewal, division,
continuation or continuation-in-part of any such applications and any patents
issuing thereon, and any reissues, extensions, substitutions, confirmations,
registrations, revalidations, revisions and additions of or to any such patents,
to the extent that such patents, inventors' certificates and applications claim
a discovery or an invention (including any Joint Invention) that is made,
conceived or reduced to practice by one or more employees or agents from each
Party in performing the Collaborative Project, and as to which such employees or
agents would be inventors under the applicable patent laws.
1.16 "Main Activity Compound" means (i) any compound which, with
respect to Inflammation and Osteoporosis, demonstrates, as of the Effective Date
or during the Research Period, potency in an Inflammation Pathway or an
Osteoporosis Pathway, respectively, at a level at least as high as the activity
shown for that compound in any other signaling pathway, and (ii) any analog of
any compound described in clause (i) above from the Signal Compound Libraries,
Tanabe Compound Libraries or Joint Compound Libraries, or any chemical
modification of any compound described in clause (i) above which chemical
modification is identified during the term of this Agreement, in each case which
demonstrates potency in an Inflammation Pathway or an Osteoporosis Pathway,
respectively, at a level at least as high as the activity shown for that
compound in any other signaling pathway.
1.17 "Net Sales" means with respect to any Product, the aggregate
amount invoiced by a Party (including by its Affiliates, licensees and
sublicensees) for or on account of any sale to a non-affiliated purchaser of
such Product, less (i) normal and customary trade discounts, cash discounts,
quantity discounts, rebates and other price reduction programs to purchasers
allowed and taken; (ii) rebates to wholesalers; (iii) credits, allowances,
discounts and rebates to, and chargebacks from the account of, such purchasers
for spoiled, damaged, out-dated and returned Product; (iv) actual freight and
insurance costs incurred or accrued in transporting such Product; (v) sales,
value-added and other direct taxes (other than taxes on income); (vi) customs
duties, surcharges and other governmental charges incurred in connection with
the exportation or importation of such Product; and (vii) contributions made by
Tanabe to the Japanese Fund for Sufferers from Adverse Drug Reactions not to
exceed 1% of what would otherwise be Net Sales (the "Fund Contribution Cap");
provided that in no event shall items (i) and (ii) exceed that amount equal to
the average discount, price reduction or rebate for a similar class of Tanabe
products sold or offered to the same class of customer, such average to be
weighted according to dollar volume ("Discount Ceiling"); provided further that
the Parties agree to discuss in good faith a possible renegotiation of such Fund
Contribution Cap and the Discount Ceiling before the first Product is launched
for commercial sale in the Territory, taking into account then existing market
conditions. In the event that Tanabe shall be required with respect to a Product
to pay royalties to a third party (other than Signal or its licensors) for the
sale of such Product, then Tanabe shall be entitled to deduct the amount of any
such royalty actually paid by
4.
<PAGE> 7
it from the amount that would otherwise constitute "Net Sales," provided such
aggregate deduction shall not exceed 5% of Net Sales. Any commercial use of a
Product by a Party (including its Affiliates, licensees and sublicensees) shall
be considered a sale hereunder for accounting and royalty purposes.
Notwithstanding the foregoing, (i) with respect to a Product
which is sold in combination with one or more therapeutically active ingredients
as a combination product (a "Combination Product"), then Net Sales of such
Product shall be determined by multiplying the Net Sales of such Combination
Product by a fraction, as determined by the mutual agreement of the parties,
which represents the proportionate economic value of such Product relative to
the economic value contributed by the other therapeutically active ingredients
in such Combination Product; and (ii) with respect to a Product which is sold
together with any other products and/or services at one unit price, whether
packaged together or separately (a "Bundled Product"), then Net Sales of such
Product shall be determined by multiplying the Net Sales of such Bundled Product
by the fraction A/(A+B), where A is the average selling price of such Product if
sold separately, and B is the total average selling price of such other products
and/or such services in such Bundled Product if sold separately; provided,
however, if either the average selling price of such Product or the total
average selling price of such other products and/or such services in such
Bundled Product is not available as of such date, then Net Sales of such Product
shall be determined by multiplying the Net Sales of such Bundled Product by a
fraction, as determined by the mutual agreement of the parties, which represents
the proportionate economic value of such Product relative to the economic value
contributed by the other products and/or such services in such Bundled Product;
and (iii) with respect to a Product which is sold as a pharmaceutical product in
a Delivery System (the "Delivery System Product"), then Net Sales of such
Product shall be determined by reducing the Net Sales of such Delivery System
Product by the amount of the reasonable fully-burdened cost to Tanabe, its
Affiliate, licensee or sublicensee of such Delivery System determined in
accordance with the standard accounting practices of Tanabe, its Affiliate,
licensee or sublicensee (as applicable), consistently applied. For purposes of
this Section 1.17, "Delivery System" means, with respect to a Product, any drug
delivery system comprising the device(s), equipment, instrumentation or other
components (but not solely containers or packaging) designed to accomplish or
assist in the administration of such Product.
1.18 "Osteoporosis" means any disease, disease process and/or
condition involving bone resorption and demineralization of bone (including
abnormal rarefaction of bone and a general reduction in the mass of bone per
unit of volume), bone formation, bone growth, calcium and phosphorus metabolism
(including calcium and phosphorus absorption and reabsorption) and deformities
such as loss of stature and pathological fractures.
1.19 "Party(ies)" means Signal and Tanabe.
5.
<PAGE> 8
1.20 "Person" means an individual, a partnership, a joint
venture, a corporation, a trust, an estate, an unincorporated organization or
any other entity.
1.21 "Phase III Clinical Trials" means those pivotal human
clinical trials in a particular country which are most nearly equivalent to
those described as such in the United States Federal Food, Drug, and Cosmetics
Act, as amended.
1.22 "Potential Compound" means a compound (a) which is identified
prior to or during the term of the Research Period to have potential for the
prevention or treatment of either (i) Inflammation, [***] or (ii) Osteoporosis,
[***]; (b) which was tested, evaluated or derived by either or both Parties
pursuant to the Collaborative Project; and (c) which possesses at least the
following characteristics: (i) [***]
1.23 "Pricing Approval" means the determination of an allowable resale
price for a Product by the applicable governmental authority in any situation in
which commercial sales of such Product are not permitted until such Pricing
Approval has been received.
1.24 "Product" means any composition (whether in the form of drug
substance, bulk drug or final dosage form), which may be used in the prevention
or treatment of either (i) Inflammation, [***] or (ii) Osteoporosis, [***] and
that contains a Compound as an active ingredient.
1.25 "Regulatory Approval" means the granting of all governmental
or regulatory approvals required, if any, for the sale of a Product in a given
country or jurisdiction within the Territory.
1.26 "Research and Development Committee(s)" means the Joint
Inflammation Committee and the Joint Osteoporosis Committee.
1.27 "Research Period" shall have the meaning given in Section
2.1.
6.
***Confidential Treatment Requested
<PAGE> 9
1.28 "Rest of the World" means all of the nations of the world
other than those in the Territory.
1.29 "Signal Compound Libraries" means all chemical compounds
owned by Signal or licensed to Signal (other than by Tanabe) as of the Effective
Date or during the Research Period which Signal has the right to select or
license for further development and commercialization pursuant to this
Agreement.
1.30 "Signal Technical Information" shall mean either "Signal
Lead Identification Information," "Signal Compound Information," or "Signal
Product Information," each as defined below:
(a) "Signal Lead Identification Information" shall mean as
to each Potential Compound, the information in Signal's or its Affiliates'
possession or control which is necessary or useful to allow Tanabe to conduct
its obligations pursuant to the Collaborative Project, and which is necessary or
useful to allow the appropriate Research and Development Committee and Tanabe to
evaluate whether or not such Potential Compound satisfies the Selection Criteria
set forth on Exhibit A or otherwise is desirable for Tanabe to designate as a
Chemical Lead Compound. Such information shall include information regarding
Signal's non-proprietary and/or functional assays useful for confirming
activity, but shall exclude information regarding the design or substance of any
Signal proprietary primary or high throughput screening assays.
(b) "Signal Compound Information" shall mean as to any
Compound, (i) the information in Signal's or its Affiliates' possession or
control regarding such Compound, which is necessary or useful to allow the
appropriate Research and Development Committee and Tanabe to evaluate whether or
not such Compound satisfies the Selection Criteria set forth on Exhibit B or
otherwise is desirable for Tanabe to designate as a Clinical Candidate, or which
is necessary or desirable to enable Tanabe to determine structure activity
relationship and to synthesize and evaluate Chemical Modifications thereof, and
(ii) provided that the Parties have first entered into a mutually acceptable
written agreement regarding the reciprocal sharing of additional information
(without additional charge, other than direct translation costs) regarding such
Compound, such additional information regarding such Compound as the Parties
mutually agree in writing which is in Signal's, its Affiliates' or sublicensees'
(including the Western Pharmaceutical Partner's) possession or control regarding
such Compound, and which is necessary or useful to the preclinical development
of such Compound in the Territory.
(c) "Signal Product Information" shall means as to any
Compound and any Product containing such Compound, provided that the Parties
have first entered into a mutually acceptable written agreement regarding the
reciprocal sharing of information (without additional charge, other than direct
translation costs) regarding such Compound, such information regarding such
Compound as the Parties
7.
<PAGE> 10
mutually agree in writing which is in Signal's, its Affiliates' or sublicensees'
(including the Western Pharmaceutical Partner's) possession or control regarding
such Compound, and which is necessary or useful to the clinical development,
regulatory approval and commercialization of such Compound in the Territory.
1.31 "Signal Patents" means, with the exclusion of the Joint
Patent Rights, all rights of Signal in any patents and inventors' certificates
and applications therefor throughout the world, including any renewal, division,
continuation or continuation-in-part of any such applications and any patents
issuing thereon, and any reissues, extensions, substitutions, confirmations,
registrations, revalidations, revisions and additions of or to any such patents,
to the extent that such patents, inventors' certificates and applications claim
a Compound or a Product or any use or method or process of manufacture of a
specific Compound or Product.
1.32 "Signal Screens" means any primary or high throughput assays
which are designed to test for activity in the same cell type/signaling pathway
combination as any of the assays being employed by Signal in the Collaborative
Project which assays are set forth in Exhibit C or as subsequently set forth in
an annual workplan approved by the applicable Research and Development Committee
(whether or not such assays are protected by any patent rights, trade secrets or
other intellectual property rights of Signal).
1.33 "Tanabe Compound Libraries" means all chemical compounds
(including organic compounds and extracts of microbial metabolites) owned by
Tanabe or licensed to Tanabe (other than by Signal) as of the Effective Date or
during the Research Period which Tanabe has the right to select or license for
further development and commercialization pursuant to this Agreement.
1.34 "Tanabe Other Screens" means any primary or high throughput
assays, other than Signal Screens, developed or in-licensed by Tanabe (excluding
animal model and functional assays).
1.35 "Tanabe Patents" means, with the exclusion of the Joint
Patent Rights, all rights of Tanabe in any patents and inventors' certificates
and applications therefor throughout the world, including any renewal, division,
continuation or continuation-in-part of any such applications and any patents
issuing thereon, and any reissues, extensions, substitutions, confirmations,
registrations, revalidations, revisions and additions of or to any such patents,
to the extent that such patents, inventors' certificates and applications claim
a Compound or a Product or any use or method or process of manufacture of a
specific Compound or Product.
1.36 "Tanabe Technical Information" shall mean either "Tanabe
Lead Identification Information," "Tanabe Compound Information," or "Tanabe
Product Information," each as defined below:
8.
<PAGE> 11
(a) "Tanabe Lead Identification Information" shall mean
as to each compound from the Tanabe Compound Libraries which Tanabe, in its sole
discretion, provides to Signal for screening under the Collaborative Project,
the information in Tanabe's or its Affiliates' possession or control which is
necessary or useful to allow Signal to conduct its obligations pursuant to the
Collaborative Project, or which is necessary or desirable to enable Signal to
determine structure activity relationship and to synthesize and evaluate
chemical modifications thereof, and which is necessary or useful to allow the
appropriate Research and Development Committee to evaluate whether or not such
Potential Compound satisfies the Selection Criteria set forth on Exhibit A.
(b) "Tanabe Compound Information" shall mean as to any
Compound, (i) the information in Tanabe's or its Affiliates' possession or
control regarding such Compound, which is necessary or useful to allow the
appropriate Research and Development Committee to evaluate whether or not such
Compound satisfies the Selection Criteria set forth on Exhibit B, and (ii)
provided that the Parties have first entered into a mutually acceptable written
agreement regarding the reciprocal sharing of additional information (without
additional charge, other than direct translation costs) regarding such Compound,
such additional information regarding such Compound as the Parties mutually
agree in writing which is in Tanabe's, its Affiliates' or sublicensees'
possession or control regarding such Compound, and which is necessary or useful
to the preclinical development of such Compound in the Rest of the World.
(c) "Tanabe Product Information" shall mean as to any
Compound and any Product containing such Compound, provided that the Parties
have first entered into a mutually acceptable written agreement regarding the
reciprocal sharing of information (without additional charge, other than direct
translation costs) regarding such Compound, such information regarding such
Compound as the Parties mutually agree in writing which is in Tanabe's, its
Affiliates' or sublicensees' possession or control regarding such Compound, and
which is necessary or useful to the clinical development, regulatory approval
and commercialization of such Compound in the Rest of the World.
1.37 "Territory" means Japan, China, South Korea, Taiwan,
Thailand, Cambodia, Laos, Vietnam, Indonesia, Nepal, the Philippines, Singapore,
Malaysia, Hong Kong, Myanmar and Brunei; provided that in the event that the
option set forth in Section 18 is exercised, the "Territory" shall also include
Australia, New Zealand and other Oceania countries.
1.38 "Use or Structure Contribution" means, with respect to
Tanabe, Signal or both, an invention or discovery made by Tanabe, Signal or
both, as applicable, regarding the composition of matter or use of any Compound
which invention or discovery is claimed in a pending patent application or
issued patent (a "Contribution
9.
<PAGE> 12
Patent") in any of the following countries: United States, Japan, France,
Germany and the United Kingdom (the "Measurement Countries").
1.39 "Western Pharmaceutical Partner(s)" means one or more
pharmaceutical companies other than Tanabe with which Signal from time to time
agrees to collaborate to develop and/or market products for the prevention or
treatment of Inflammation and/or Osteoporosis outside the Territory.
2. RESEARCH AND DEVELOPMENT COLLABORATION; RESEARCH PERIOD
2.1 Research Period. Unless the Collaborative Project is sooner
terminated pursuant to Section 2.3(f), 13.4 or 13.5, the Collaborative Project
shall terminate upon the date which is four (4) years from the Effective Date in
Inflammation and Osteoporosis, respectively (the "Research Period"); provided
that the Research Period may be extended twice for periods of one (1) year each
by mutual written agreement of the Parties.
2.2 Joint Obligations.
(a) Prioritization of Efforts. The Parties mutually agree
that during the term of the Research Period each of the Parties (i) shall use
its commercially reasonable efforts to carry out its responsibilities under the
Collaborative Project; (ii) shall accord the Collaborative Project at least as
high a priority as its other active research programs at similar stages with
similar technical and commercial potential; and (iii) shall cooperate with each
other in the Collaborative Project for the development of Products for the
prevention or treatment of Inflammation and Osteoporosis.
(b) Exchange of Technical Information During Research
Period. During the term of the Research Period, (i) Signal shall inform the
appropriate Research and Development Committee and Tanabe, to the extent it has
not already done so, of all Signal Lead Identification Information, Signal
Compound Information and Signal Product Information; (ii) Tanabe shall inform
the appropriate Research and Development Committee and Signal, to the extent it
has not already done so, of all Tanabe Lead Identification Information, Tanabe
Compound Information and Tanabe Product Information; and (iii) each Party shall
provide to the other Party, to the extent it has not already done so, summary
written reports regarding such additional information regarding Potential
Compounds, Compounds and Main Activity Compounds which is necessary or useful
for the other Party to monitor the other Party's activities and progress. Each
Party will permit access at reasonable times and with reasonable frequency to
the appropriate personnel of the other Party to accomplish such information
exchange. Each Party shall, at least at each meeting of each Research and
Development Committee, (i) provide the other party with a progress report on its
efforts and results on the Collaborative Project with respect to Inflammation
and Osteoporosis, as appropriate,
10.
<PAGE> 13
and (ii) inform the other Party of any Technical Information obtained by it to
the extent and at the time required by this Section 2.2(b). Notwithstanding the
foregoing, Signal shall not be entitled to disclose Tanabe Technical Information
to any Western Pharmaceutical Partner until Tanabe and such Western
Pharmaceutical Partner have mutually agreed in writing to share such
information.
(c) Exchange of Technical Information After Research
Period. During the term of this Agreement, but after the expiration or
termination of the Research Period, (i) Signal shall inform Tanabe, to the
extent it has not already done so, of all Signal Compound Information and Signal
Product Information; (ii) Tanabe shall inform Signal, to the extent it has not
already done so, of all Tanabe Compound Information and Tanabe Product
Information; and (iii) each Party shall provide to the other Party, to the
extent it has not already done so, summary written reports regarding such
additional information regarding Potential Compounds, Compounds and Main
Activity Compounds which is necessary or useful for the other Party to monitor
the other Party's activities and progress. Each Party will permit access at
reasonable times and with reasonable frequency to the appropriate personnel of
the other Party to accomplish such information exchange. Notwithstanding the
foregoing, Signal shall not be entitled to disclose Tanabe Technical Information
to any Western Pharmaceutical Partner until Tanabe and such Western
Pharmaceutical Partner have mutually agreed in writing to share such
information.
2.3 Obligations of Signal.
(a) Screening Efforts. Signal shall screen those compounds
which Tanabe selects in its sole discretion from Tanabe Compound Libraries, all
compounds from Signal Compound Libraries and all compounds from Joint Compound
Libraries using Signal's proprietary and non-proprietary whole-cell and enzyme
assays and carry out its other obligations as set forth in Exhibit C and the
annual workplans submitted hereunder. In performing the screening, Signal shall
use its commercially reasonable efforts to identify a primary Compound and a
back-up Compound for at least one molecular target within each of following
pathways within Inflammation: [***]; and within Osteoporosis: (i) [***]. Signal
shall allocate sufficient time, effort, equipment and facilities to the
Collaborative Project, and shall proceed diligently, to conduct its obligations
under the Collaborative Project and to accomplish the objectives thereof. Signal
shall present all results of its screening of Potential Compounds to Tanabe and
the applicable Research and Development Committee for review and for the
applicable Research and Development Committee to determine whether a Potential
Compound meets the criteria set forth in Exhibit A. When Signal discovers a
Potential Compound during the Research Period that Signal believes may meet the
Selection Criteria set forth on Exhibit A hereto or otherwise determines that a
Potential Compound may be desirable to Tanabe as a Chemical Lead Compound,
Signal shall
11.
***Confidential Treatment Requested
<PAGE> 14
promptly notify the applicable Research and Development Committee and present
the applicable Signal Lead Identification Information. Such Research and
Development Committee shall review the results of Signal's screening of such
Potential Compound and such other information and notify Tanabe and Signal in
writing of its determination within ninety (90) days of the receipt of such
information. If such Research and Development Committee determines that a
Potential Compound meets the criteria set forth in Exhibit A or otherwise
determines that a Potential Compound may be desirable to Tanabe as a Chemical
Lead Compound, Signal promptly shall present and supply such Potential Compound
to Tanabe in accordance with Section 2.4(d). Such presentation shall include all
Signal Lead Identification Information as reasonably necessary to verify the
Potential Compound meets the criteria set forth in Exhibit A and sufficient
quantities of drug substance to allow Tanabe to conduct studies to confirm
Signal's test results. In addition, Signal shall transfer to Tanabe Signal's
non-proprietary functional assays and shall assist Tanabe in implementing such
assays and to confirm the activity of such Potential Compounds in such assays
(provided that Tanabe shall reimburse Signal for its direct out-of-pocket costs
incurred in connection with such transfer or assistance). At the end of the
second year of the Research Period, the Parties will jointly reassess the
appropriateness of the staffing levels and will determine whether any material
changes are appropriate. If so, then the parties will in good faith determine an
adjustment for the following year.
(b) Visiting Tanabe Scientist. During the Research Period,
Signal shall accept at its research facilities up to [***] who shall be mutually
agreeable to the Parties for Inflammation and/or Osteoporosis projects. Tanabe
shall be responsible for all expenses relating to visas, transportation,
lodging, salaries and benefits of such Tanabe scientist and Signal shall be
responsible for expenses, including laboratory space, office space, instruments,
equipment and materials, necessary to allow such Tanabe scientist to engage in
research under the Collaborative Project on Signal's premises. The Tanabe
scientist shall, to the extent possible, be included in the activities of
Signal's research team for the Collaborative Project and shall be required to
execute all confidentiality agreements as are used from time to time by Signal.
It is acknowledged and agreed that Signal shall also be conducting research and
development activities outside the scope of the Collaborative Project and shall
be entitled to exclude the Tanabe scientist from participation in projects to
the extent required to protect the confidentiality of such non-Collaborative
Project work.
(c) Ongoing Screening Services. Signal shall, for a period
of one (1) year following the full completion of the Research Period (all four
years), provide to Tanabe, at Tanabe's request, ongoing screening services for
assays developed during (and not before or after) the Research Period on
compounds developed or acquired by Tanabe following the end of the Research
Period. Tanabe shall pay Signal the greater of [***] and shall owe Signal the
same (as applicable) license terms and royalty terms therein as outlined in
Sections 4.3 and 5.4.
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<PAGE> 15
(d) Assistance in Chemical Modification. As and when
requested by the applicable Research and Development Committee, Signal may
conduct any in-vitro screening described on Exhibit A with respect to Chemical
Modifications or chemical modifications of compounds from the Tanabe Compound
Libraries, selected by Tanabe in its sole discretion, for the purpose of
identifying Potential Compounds or Compounds under the Collaborative Project.
(e) Assistance in In-Vitro Studies. As and when requested
by Tanabe, Signal shall study a compound, which originated from a Tanabe
Compound Library and the composition of matter and use of which is characterized
as a Tanabe Use or Structure Contribution, using Signal's proprietary and
non-proprietary assays to attempt to define the mechanism of action of such
compound in the Inflammation Pathways or Osteoporosis Pathways, as applicable.
The data resulting from such studies shall be owned by Tanabe.
(f) Development Obligations During Research Period.
.1 Western Pharmaceutical Partner. Signal shall
enter into a collaborative research and development agreement with respect to
either its Inflammation program or its Osteoporosis program not later than
August 31, 1996 (a "Minimum Partnering Transaction"). If a Minimum Partnering
Transaction has not occurred on or before August 31, 1996, then Tanabe shall
have the right to give Signal advance written notice of, and opportunity to
cure, its failure to complete a Minimum Partnering Transaction. If Signal has
failed to cure such default within such notice period, then Tanabe shall be
entitled to terminate the Collaborative Project with such termination being
effective six (6) months after the expiration, without cure, of such notice
period. The applicable notice period shall be (i) ninety (90) days or (ii)
one-hundred-eighty days in the event that Tanabe has selected at least one (1)
Chemical Lead Compound which is first identified after screening in a Signal
primary or high throughput assay on or before the date of such notice.
.2 Periodic Reviews. At Tanabe's request and not
more frequently than once in every six (6)-month period, Signal shall review
with Tanabe its cash flow and headcount allocations to the Collaborative
Project. As part of such review Signal shall demonstrate to Tanabe's reasonable
satisfaction that (i) Signal has the ability over the following six (6)-month
period to fund the Inflammation program at a level of at least [***] in [***]
and [***] per year in [***] and the Osteoporosis program at a level of at least
[***] in [***] and [***] per year in [***] (or such lesser or greater amount
agreed to by the Parties and reflected in the workplan for that period); and
(ii) Signal is expending effort at an activity level in the Inflammation program
and in the Osteoporosis program consistent with the expenditure levels set forth
in clause (i) above (or such lesser or greater amount agreed to by the Parties
and reflected in the workplan for that period). If Signal defaults in its
obligations under clause (i) or (ii) above, then Tanabe shall have the right to
give
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Signal advance written notice of, and opportunity to cure, its defaults in its
obligations under clause (i) or (ii) above. If Signal has failed to cure such
default within such notice period, then Tanabe shall be entitled to terminate
the Collaborative Project with such termination being effective six (6) months
after the expiration, without cure, of such notice period. The applicable notice
period shall be [***].
.3 Commitment of FTEs. Signal shall allocate at
least that number of research personnel (measured as full-time equivalents
("FTEs") and post-doctoral fellows ("Post-Docs")) to the Inflammation program
and the Osteoporosis program as are set forth in the following schedule
("Minimum Staffing Requirement"):
<TABLE>
<CAPTION>
Inflammation Program Allocated FTEs & Post-Docs
-------------------- --------------------------
<S> <C>
[***] [***]
</TABLE>
<TABLE>
<CAPTION>
Osteoporosis Program Allocated FTEs & Post-Docs
-------------------- --------------------------
<S> <C>
[***] [***]
</TABLE>
If the Minimum Staffing Requirement has not been met during any one year period,
then Tanabe shall have the right to give Signal advance written notice of, and
opportunity to cure, its failure to meet the Minimum Staffing Requirement. If
Signal has failed to cure such default within such notice period, then Tanabe
shall be entitled to terminate the Collaborative Project with such termination
being effective six (6) months after the expiration, without cure, of such
notice period. The applicable notice period shall be [***].
(g) Active Development in Inflammation and Osteoporosis.
Signal must use at least such level of efforts, in accordance with Signal's
business, legal, medical and scientific judgement and Signal's normal practices
and procedures, to continue the development of Compounds, Clinical Candidates or
Products licensed to Signal in this Agreement through pre-clinical and clinical
studies, and other registration directed activities as Signal spends on its own
products in pre-clinical and clinical study with similar technical and
commercial potential in the Rest of the World.
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<PAGE> 17
2.4 Obligations of Tanabe.
(a) Delivery of Compound Library. As soon as reasonably
feasible, but in no event later than sixty (60) days after the execution of this
Agreement, Signal shall request and Tanabe shall deliver to Signal up to [***]
organic compounds and [***] samples of [***] which shall be selected by Tanabe
in its sole discretion from Tanabe Compound Libraries in a high throughput
format reasonably necessary to enable Signal to screen, for use in Signal's
screening activities. Thereafter, Tanabe shall make available such additional
compounds from the Tanabe Compound Libraries as Tanabe determines in its sole
discretion. All compounds from Tanabe Compound Libraries provided to Signal
under this Agreement shall be and remain the sole property of Tanabe, shall
(other than Compounds) be used by Signal solely for the purpose of carrying out
its obligations under this Agreement, and shall (other than Compounds) not be
transferred to any other Person for any purpose unless agreed to by the Parties
pursuant to Section 6 of this Agreement. Tanabe may request Signal to conduct
chemical modification, structural elucidation and testing of compounds from
Tanabe Compound Libraries. Except to the extent so requested, Signal shall not
undertake any efforts to elucidate the structure of any compound from the Tanabe
Compound Libraries delivered to it by Tanabe for in-vitro testing or make any
chemical modifications thereof until such compound is designated as a Chemical
Lead Compound pursuant to Section 2.4(d) below.
(b) Tanabe Screening Activities. Subject to the provisions
of Sections 5.4(a)(v), (vi), (vii) and (viii) below, during the Research Period,
Tanabe shall have the right to screen any compounds in any assays whatsoever.
(c) Assistance in Screening Activities. As and when
requested by the applicable Research and Development Committee, Tanabe may
conduct any animal studies described on Exhibit A with respect to Potential
Compounds. Tanabe agrees that it will not, in connection with any such studies,
undertake any efforts to elucidate the structure of any Potential Compounds from
the Signal Compound Libraries delivered to it by Signal for animal testing until
such Potential Compounds are designated as Chemical Lead Compounds pursuant to
Section 2.4(d) below.
(d) Evaluation Obligations; Chemical Lead Compounds. The
applicable Research and Development Committee shall have a period of ninety (90)
days from the date a Potential Compound is delivered to it pursuant to Section
2.3(a), to review such Potential Compound for the purpose of confirming that
such Potential Compound meets the Selection Criteria set forth on Exhibit A
hereto. Tanabe shall have the right, within thirty (30) days after such ninety
(90) day period, to either (i) designate such Potential Compound for Active
Development as a Chemical Lead Compound or (ii) reject such Potential Compound.
Tanabe shall request samples of such Potential Compound not later than two (2)
months after first notification by Signal to the
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<PAGE> 18
applicable Research and Development Committee of Signal's determination pursuant
to Section 2.3(a) that such Potential Compound may meet the Selection Criteria
set forth on Exhibit A hereto or that a Potential Compound otherwise may be
desirable to Tanabe as a Chemical Lead Compound (to allow Tanabe to set up its
feasibility tests). Provided that Signal has assisted Tanabe in transferring and
implementing such feasibility tests pursuant to Section 2.3(a), Tanabe shall
notify Signal in writing within thirty (30) days after receipt of the drug
substance of a Potential Compound whether it agrees with the determination of
the applicable Research and Development Committee that a Potential Compound
meets the criteria set forth in Exhibit A or that a Potential Compound otherwise
shall be designated by Tanabe as a Chemical Lead Compound. Any Potential
Compound designated by Tanabe (whether or not it meets the Selection Criteria
set forth in Exhibit A) shall thereafter be a "Chemical Lead Compound." Any
Potential Compound which is presented to Tanabe and not designated by Tanabe as
a Chemical Lead Compound shall thereafter no longer be subject to the
Collaborative Project. Prior to the designation of a Potential Compound from a
Signal Compound Library as a Chemical Lead Compound pursuant to Section 2.4(d),
Tanabe shall not engage in any attempts to elucidate the chemical structure of
such Potential Compound, make any chemical modification to such Potential
Compound, or test such Potential Compound for use outside the Inflammation
Pathways or the Osteoporosis Pathways, as applicable.
(e) Development and Qualification of Chemical Lead
Compounds. Once a Potential Compound has been designated as a Chemical Lead
Compound for any of (i) with respect to Inflammation: [***], and (ii) with
respect to Osteoporosis [***], then Tanabe shall promptly conduct any chemical
modifications or studies necessary with respect to such Compound to determine
whether or not any such Compound meets the criteria for a Clinical Candidate as
set forth in Exhibit B or Tanabe otherwise desires to designate such Compound as
a Clinical Candidate. Subject to the limitations of Section 4.3, any Compound
that Tanabe designates as a Clinical Candidate shall thereafter be a "Clinical
Candidate" and such designation shall be subject to the milestone payment as
described in Section 4.3(a) below. If Tanabe files in the Territory a request
for initiation of human clinical studies of a Compound prior to designating such
Compound as a Clinical Candidate, then upon the filing in the Territory of a
request for initiation of human clinical studies for such Compound, such
Compound thereafter shall be a "Clinical Candidate" and such designation shall
be subject to the milestone payment as described in Section 4.3(a) below. All
Potential Compounds from Signal Compound Libraries provided to Tanabe under this
Agreement shall be and remain the sole property of Signal, shall (other than
Compounds) be used by Tanabe solely for the purpose of carrying out its
obligations under this Agreement and shall (other than Compounds) not be
transferred to any other Person for any purpose unless agreed to by the Parties
pursuant to this Agreement. Tanabe agrees that it will not, in connection with
any such studies, undertake any efforts to elucidate the structure of any
Potential Compounds
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***Confidential Treatment Requested
<PAGE> 19
from the Signal Compound Libraries delivered to it by Signal until such
Potential Compounds are designated as Chemical Lead Compounds pursuant to
Section 2.4(d) above.
All Chemical Modifications developed from (i) Signal
Compounds shall constitute Signal Compounds, (ii) Tanabe Compounds shall
constitute Tanabe Compounds, and (iii) Collaboration Compounds shall constitute
Collaboration Compounds. To the extent either Party creates a Chemical
Modification, such Party shall endeavor to provide the other Party with [***]
of each Chemical Modification and a summary report describing how such Chemical
Modification was synthesized and characterized.
(f) Reversion of Rights to Compounds. Notwithstanding any
other Section of this Agreement, if Tanabe "abandons its efforts" to conduct
research, pre-clinical and clinical development, application for Regulatory
Approval and commercialization of Compounds, Clinical Candidates and Products
which may be used in the prevention or treatment of Inflammation in the
Territory, then upon ninety (90) days prior written notice from Signal, the
exclusive right and license granted to Tanabe under Section 5.1 in all
Compounds, Clinical Candidates and Products which may be used in the prevention
or treatment of Inflammation in the Territory shall terminate and such exclusive
right and license granted to Tanabe under Section 5.1 shall revert to Signal.
Tanabe shall not have "abandoned its efforts" if Tanabe at any such time either
[***]
Notwithstanding any other Section of this Agreement,
if Tanabe "abandons its efforts" to conduct research, pre-clinical and clinical
development, application for Regulatory Approval and commercialization of
Compounds, Clinical Candidates and Products which may be used in the prevention
or treatment of Osteoporosis in the Territory, then upon ninety (90) days prior
written notice from Signal, the exclusive right and license granted to Tanabe
under Section 5.1 in all Compounds, Clinical Candidates and Products which may
be used in the prevention or treatment of Osteoporosis in the Territory shall
terminate and such exclusive right and license granted to Tanabe under Section
5.1 shall revert to Signal. Tanabe shall not have "abandoned its efforts" if
Tanabe at any such time either [***]
(g) Visiting Signal Scientist. During the Research Period,
Tanabe shall accept at its research facilities up to [***] who shall be mutually
agreeable to the Parties for Inflammation and/or Osteoporosis projects. Signal
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<PAGE> 20
shall be responsible for all expenses relating to visas, transportation,
lodging, salaries and benefits of such Signal scientist and Tanabe shall be
responsible for expenses, including laboratory space, office space, instruments,
equipment and materials, necessary to allow such Signal scientist to engage in
research on Tanabe's premises under the Collaborative Project. The Signal
scientist shall, to the extent possible, be included in the activities of
Tanabe's research team for the Collaborative Project and shall be subject to all
confidentiality obligations as are imposed usually by Tanabe. It is acknowledged
and agreed that Tanabe shall also be conducting research and development
activities outside the scope of the Collaborative Project and shall be entitled
to exclude the Signal scientist from participation in projects to the extent
required to protect the confidentiality of such non-Collaborative Project work.
2.5 Research and Development Committees. In order to effectively
coordinate and communicate their respective research and development efforts in
Inflammation and Osteoporosis: (i) Signal and Tanabe shall each promptly appoint
their representatives to the Joint Inflammation Committee and the Joint
Osteoporosis Committee; and (ii) each of Signal and Tanabe shall delegate the
powers and authority to the Joint Inflammation Committee and the Joint
Osteoporosis Committee that each Party deems desirable to allow each Research
and Development Committee to effectively coordinate and communicate the Parties'
respective efforts under the Collaborative Project in Inflammation and
Osteoporosis, respectively; provided, that neither such Research and Development
Committee shall have the power to enter into contracts or otherwise bind either
of the Parties. Without limitation, each Research and Development Committee
shall be responsible for (i) coordinating the research activities with respect
to Compounds for the treatment of Inflammation or Osteoporosis, as applicable;
(ii) working with Signal to prepare annual workplans for the testing, evaluation
and identification of Potential Compounds as potential Chemical Lead Compounds,
and the Chemical Modification, testing, evaluation and identification of
Compounds as potential Clinical Candidates; (iii) assisting Signal in preparing
annual budgets corresponding to such workplans; (iv) monitoring performance
under the Collaborative Project in relation to the annual workplans and
expenditures in relation to the corresponding budgets; and (v) reviewing the
information regarding Potential Compounds and determining whether Potential
Compounds satisfy the criteria set forth in Exhibit A. Each Party may change any
of its representatives at any time and from time to time by written notice to
the other Party prior to appointing a new representative to either Committee.
Any vacancy on a Research and Development Committee caused by death,
resignation, disability or otherwise shall be filled within thirty (30) days
following the occurrence of such vacancy.
2.6 Meetings of the Research and Development Committees. The
Research and Development Committees shall each meet, during the term of the
Research Period, at least every six (6) months beginning as soon as possible
after the Effective Date of this Agreement, and thereafter upon request by
either Party (not to exceed four (4) meetings per year unless mutually agreed
upon), at sites which shall be
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<PAGE> 21
designated by each of the Parties in alternating sequence, with the first
meeting to be held as soon as practicable. Meetings are expected to be held
either at the offices of Signal or Tanabe or at some other mutually agreeable
site. Each Party shall pay its own costs in attending meetings of each Research
and Development Committee. Executive officers from Signal or Tanabe may attend
such meetings at their discretion.
Once during each year, at annual meetings during the Research
Period, the Research and Development Committees will conduct an annual review of
the actual progress of the Collaborative Project with respect to Inflammation or
Osteoporosis, as appropriate (the "Annual Review"), will review and approve the
development plans, workplans and budgets and objectives for the Collaborative
Project for the following year, and will take such mutually agreeable actions as
may be reasonable to facilitate the commercial success of the Collaborative
Project with respect to Inflammation or Osteoporosis, as appropriate.
2.7 Procedure. A hosting Party shall designate a member to act as
Chairman of each Research and Development Committee meeting. Each such Chairman
shall be responsible for developing an agenda for the meeting to be chaired by
him or her and shall distribute such agenda no later than fourteen (14) days
prior to the scheduled meeting. The Chairman shall promptly, after each meeting,
prepare and distribute to the members minutes reflecting the discussions of the
Research and Development Committee. All meetings shall be conducted and records
kept in English.
2.8 Dispute Resolution. In the event that a Research and
Development Committee is unable to resolve any disagreement, either Party shall
do their best efforts to resolve the dispute amicably, and shall prior to
proceeding with any dispute resolution mechanisms conduct a meeting of the
president of Signal and the Senior Executive Director of Research and
Development of Tanabe to attempt in good faith to resolve such dispute.
2.9 Exclusivity.
(a) Signal Obligations.
(i) During the Research Period, Signal shall not,
and shall cause its Affiliates and (sub)licensees collaborating with Signal in
the development of Compounds, including the Western Pharmaceutical Partner, not
to, conduct any research, development or commercialization activities relating
to the discovery or use of compounds in an Inflammation Pathway(s) for the
prevention or treatment of Inflammation (to the extent, with respect to any
(sub)licensee, such collaboration involves such Inflammation Pathway(s)), or in
an Osteoporosis Pathway(s) for the prevention or treatment of Osteoporosis (to
the extent, with respect to any (sub)licensee, such collaboration involves such
Osteoporosis Pathway(s)), in the Territory, for its own benefit, or with or for
the benefit of any other Person, other than to the extent that any
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<PAGE> 22
compounds developed for use in the respective pathways shall be licensed to
Tanabe hereunder in the Territory;
(ii) Following the Research Period but during the
term of this Agreement, Signal shall not, and shall cause its Affiliates and
(sub)licensees collaborating with Signal in the development of Compounds,
including the Western Pharmaceutical Partner, not to, conduct any research,
development or commercialization activities relating to the use of Main Activity
Compounds in an Inflammation Pathway(s) for the prevention or treatment of
Inflammation (to the extent, with respect to any (sub)licensee, such
collaboration involves such Inflammation Pathway(s)), or in an Osteoporosis
Pathway(s) for the prevention or treatment of Osteoporosis (to the extent, with
respect to any (sub)licensee, such collaboration involves such Osteoporosis
Pathway(s)), in the Territory, for its own benefit, or with or for the benefit
of any other Person, other than to the extent that any Main Activity Compounds
developed for use in the respective pathways shall be licensed to Tanabe
hereunder in the Territory;
(iii) During the term of the Agreement and subject
to the provisions of Section 2.4(f), Signal shall not, and shall cause its
Affiliates and (sub)licensees collaborating with Signal in the development of
Compounds, including the Western Pharmaceutical Partner, not to, conduct any
research, development or commercialization activities relating to the use of (a)
Compounds, (b) Potential Compounds or (c) chemical modifications of Potential
Compounds which if they were tested during the Research Period would have been
Potential Compounds, for its own benefit, or with or for the benefit of any
other Person, other than to the extent that any compounds described in clauses
(a) through (c) above developed for use in the respective pathways shall be
licensed to Tanabe hereunder in the Territory; and
(iv) During the term of this Agreement, Signal
shall not, and shall cause its Affiliates and (sub)licensees collaborating with
Signal in the development of Compounds, including the Western Pharmaceutical
Partner, not to, conduct any research, development or commercialization
activities relating to the use of any Tanabe Compound other than in the
prevention or treatment of Inflammation or Osteoporosis in the Rest of the
World, for its own benefit, or with or for the benefit of any other Person,
unless such Tanabe Compound first is designated by Tanabe as a Clinical
Candidate or Signal, its Affiliate or sublicensee has [***]
(b) Tanabe Obligations.
(i) During the Research Period, Tanabe shall not,
and shall cause its Affiliates and (sub)licensees collaborating with Tanabe in
the development of Compounds not to, conduct any research, development or
commercialization activities relating to the discovery or use of compounds in an
Inflammation Pathway(s) for the
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prevention or treatment of Inflammation (to the extent, with respect to any
(sub)licensee, such collaboration involves such Inflammation Pathway(s)), or in
an Osteoporosis Pathway(s) for the prevention or treatment of Osteoporosis (to
the extent, with respect to any (sub)licensee, such collaboration involves such
Osteoporosis Pathway(s)), in the Rest of the World, for its own benefit, or with
or for the benefit of any other Person, other than to the extent that any
compounds developed for use in the respective pathways shall be licensed to
Signal hereunder in the Rest of the World;
(ii) Following the Research Period but during the
term of this Agreement, Tanabe shall not, and shall cause its Affiliates and
(sub)licensees collaborating with Tanabe in the development of Compounds not to,
conduct any research, development or commercialization activities relating to
the use of Main Activity Compounds in an Inflammation Pathway(s) for the
prevention or treatment of Inflammation (to the extent, with respect to any
(sub)licensee, such collaboration involves such Inflammation Pathway(s)), or in
an Osteoporosis Pathway(s) for the prevention or treatment of Osteoporosis (to
the extent, with respect to any (sub)licensee, such collaboration involves such
Osteoporosis Pathway(s)), in the Rest of the World, for its own benefit, or with
or for the benefit of any other Person, other than to the extent that any Main
Activity Compounds developed for use in the respective pathways shall be
licensed to Signal hereunder in the Rest of the World;
(iii) During the term of the Agreement, Tanabe
shall not, and shall cause its Affiliates and (sub)licensees collaborating with
Tanabe in the development of Compounds not to, conduct any research, development
or commercialization activities relating to the use of (a) Compounds, (b)
Potential Compounds, (c) chemical modifications of Potential Compounds which if
they were tested during the Research Period would have been Potential Compounds,
or (d) compounds identified from the Tanabe Compound Libraries which if they
were tested during the Research Period would have been Potential Compounds, for
its own benefit, or with or for the benefit of any other Person, other than to
the extent that any compounds described in clauses (a) through (d) above
developed for use in the respective pathways shall be licensed to Signal
hereunder in the Rest of the World; and
(iv) During the term of this Agreement, Tanabe
shall not, and shall cause its Affiliates and (sub)licensees collaborating with
Tanabe in the development of Compounds not to, conduct any research, development
or commercialization activities relating to the use of any Signal Compound other
than in the prevention or treatment of Inflammation or Osteoporosis in the
Territory, for its own benefit, or with or for the benefit of any other Person,
unless such Signal Compound first is designated by Tanabe as a Clinical
Candidate.
21.
<PAGE> 24
3. PRODUCT DEVELOPMENT.
3.1 Development Activities. Tanabe shall control all activities
regarding the pre-clinical and clinical development, application for Regulatory
and Pricing Approval and commercialization of all Compounds, Clinical Candidates
and Products in the Territory. Signal shall control all activities regarding the
pre-clinical and clinical development, application for Regulatory Approval and
commercialization of all Compounds, Clinical Candidates and Products in the Rest
of the World. If the parties mutually agree, Signal and Tanabe shall, in mutual
cooperation with one another, establish a development plan for each Compound,
Clinical Candidate and Product with respect to the development and regulatory
approval of such Product on a worldwide basis (the "Development Plan"). In the
event that both Parties are unable to agree on the Development Plan, Tanabe's
decisions shall control all activities regarding the pre-clinical and clinical
development, application for Regulatory and Pricing Approval and
commercialization of all Compounds, Clinical Candidates and Products in the
Territory and Signal's decisions shall control all activities regarding the
pre-clinical and clinical development, application for Regulatory and Pricing
Approval and commercialization of all Compounds, Clinical Candidates and
Products in the Rest of the World; provided that in no event will either Party
(and Signal shall similarly bind its Western Pharmaceutical Partner) knowingly
take any action that will unnecessarily impair the other Party's efforts to have
a Product achieve the relevant Regulatory Approvals. Each Party shall
immediately inform the other at such time as it receives notice of any
governmental or regulatory approvals and disapprovals for Products. Signal shall
not be entitled to share any information received pursuant to this Section 3.1
with its Western Pharmaceutical Partner until Tanabe and such Western
Pharmaceutical Partner have reached an agreement covering such exchange of
information.
3.2 Development Efforts. Once a Clinical Candidate has been
designated by Tanabe, Tanabe shall use its good faith efforts in proceeding with
(i) the development, testing and, where applicable, manufacturing of a Product
based on such Clinical Candidate or Chemical Modification thereof, including,
without limitation, pre-clinical and clinical development, (ii) obtaining
Regulatory and Pricing Approvals in the Territory and (iii) the subsequent
manufacturing, marketing and sale of that Product in the Territory. Tanabe shall
exercise its reasonable efforts and diligence in conducting such activities with
respect to any Compound, Clinical Candidate or Product in accordance with
Tanabe's business, legal, medical and scientific judgment and Tanabe's normal
practices and procedures for compositions having similar technical and
commercial potential for similar uses.
3.3 Inflammation Clinical Matters. Tanabe shall take all
reasonable action and bear all costs to conduct the regulatory application and
pre-clinical and clinical testing and the development of all Inflammation
Products that result from the Collaborative Project contemplated by this
Agreement within the Territory.
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<PAGE> 25
3.4 Osteoporosis Clinical Matters. Tanabe shall take all
reasonable action and bear all costs to conduct the regulatory application and
pre-clinical and clinical testing and the development of all Osteoporosis
Products that result from the Collaborative Project contemplated by this
Agreement within the Territory.
3.5 Synthesized Compounds; Manufacturing. In the event Tanabe
synthesizes Compounds or Clinical Candidates, Tanabe agrees to cooperate with
Signal, based upon its manufacturing and supply capabilities, to make a
reasonable effort to make research quantities of such Compounds or Clinical
Candidates, as the case may be, available to Signal at a reasonable cost plus
shipping charges. Tanabe agrees that, during the term of this Agreement, Tanabe
will at the request of Signal negotiate in good faith with Signal with respect
to entering into a manufacturing and supply agreement pursuant to which Tanabe
would provide Signal with Signal's (but not its Western Pharmaceutical
Partner's, which shall be subject to Tanabe's agreement with such Western
Pharmaceutical Partner) requirements of each Inflammation and Osteoporosis
Compound or Product selected for development hereunder.
4. PAYMENT.
4.1 Initial Payment. Within ten (10) days following execution of
this Agreement, Tanabe shall pay to Signal, in consideration of the licenses
granted by Signal to Tanabe hereunder, [***] by wire transfer of immediately
available funds to the Signal bank account set forth in Section 4.4.
4.2 Research Funding. In consideration of Signal's research
obligations set forth in Section 2 hereof, Tanabe shall pay to Signal the
following amounts: (a) with respect to the Inflammation Program, [***] per year
of the Research Period; and (b) with respect to the Osteoporosis Program, (i)
[***] per annum for the [***] following the Effective Date [***], and (ii) [***]
per year of the Research Period for each year following [***]. The per annum
payments shall be made in two (2) equal semi-annual installments, in advance,
with the first payment being due within ten (10) days following execution of
this Agreement and subsequent payments being due and payable at each six (6)
month interval thereafter by wire transfer of immediately available funds to the
Signal bank account set forth in Section 4.4. At the end of each year, Signal
shall determine its actual spending with respect to each program on a
fully-allocated cost basis and in the event that the research funding received
from Tanabe exceeds [***] of Signal's actual expenditures in [***] of the
Research Period for Inflammation and in years [***] of the Research Period for
Osteoporosis, then Signal shall refund such excess to Tanabe within ninety (90)
days after the end of each of [***], and shall prepare and provide Tanabe with a
written report in reasonable specific detail of all expenditures by Signal (on a
fully-allocated cost basis determined in accordance with generally accepted
accounting principles consistently applied) under the Collaborative Project
during the
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preceding one (1) year period, compared to the budgeted amounts therefor, and
itemized by program and major cost category for such reporting period. In the
event that Tanabe terminates the Research Period with respect to either
Inflammation or Osteoporosis or both prior to the completion of [***], pursuant
to Section 2.3(f), 13.4 and 13.5 hereof, then Tanabe shall continue to fund its
otherwise applicable funding obligations until the effective date of such
termination. Signal shall keep complete and accurate records in sufficient
detail to properly reflect all expenditures by Signal under the Collaborative
Project. Upon the written request of Tanabe and not more than once in each
calendar year, Signal shall permit an independent certified public accounting
firm of internationally recognized standing, selected by Tanabe and reasonably
acceptable to Signal, at Tanabe's expense, to have access during normal business
hours to such of the records of Signal as may be reasonably necessary to verify
the accuracy of the research expenditure reports hereunder for any year ending
not more than twenty-four (24) months prior to the date of such request. The
accounting firm shall disclose to Tanabe only whether the reports are correct or
not and the specific details concerning any discrepancies. No other information
shall be shared.
4.3 Milestone Payments. Tanabe shall pay to Signal each of the
amounts set forth below, by wire transfer of immediately available funds to the
Signal bank account set forth in Section 4.4, upon the first achievement of each
of the milestones set forth below, except that if a Compound is subsequently
approved for indications other than Inflammation or Osteoporosis, the milestone
payment described in Section 4.3(d) if not previously paid with respect to such
Compound will be payable by Tanabe to Signal for such approved indication.
(a) Upon the [***]
(b) Upon the [***]
(c) Upon the [***]
(d) Upon receipt of governmental Pricing Approval for a
Product, but in no event later than the first end user sale of such Product for
any
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[***]
Notwithstanding the foregoing, (i) Tanabe shall not be required to [***], and
(ii) the maximum aggregate amount which Tanabe shall be required to pay pursuant
to this Section 4.3 with respect to all Compounds and Products shall be [***],
and (iii) [***]
4.4 Payment Terms. All payments under this Agreement shall be by
wire transfer of immediately available funds to the bank account set forth below
and shall be non-refundable (except as otherwise set forth herein).
First Interstate Bank of California #657
136 2nd Avenue
P.O. Box 1488
San Mateo, California 94401-0870
Routing: 122000218
Name: Signal Pharmaceuticals, Inc.
Account Number: [***]
5. LICENSES OF TECHNOLOGY; ROYALTIES.
5.1 License to Tanabe.
(a) Subject to the terms and conditions of this Agreement
and the payment in full of any milestone obligations which are owing to Signal
as set forth in Section 4.3, Signal hereby grants to Tanabe an exclusive (even
as to Signal) license under the Signal Patents, the Joint Patents and, to the
extent required to be provided pursuant to Section 2.2 and 2.3, the Signal
Technical Information to develop, make, have made, use, sell, have sold and
import Products in the Territory.
(b) Subject to the terms and conditions of this Agreement,
Tanabe shall have the right to grant licenses or sublicenses to develop, make,
have made, use, sell, have sold, and import Products in the Territory, provided
that such licensees and sublicensees agree in writing to be bound by the
applicable terms, if any, of this Agreement. Tanabe shall be responsible for the
operations and activities of its licensees and sublicensees as if such
operations and activities were carried out by Tanabe. As to each sublicense of a
Signal Patent or a Joint Patent, Tanabe agrees to deliver to Signal notification
of each sublicense granted by Tanabe and termination thereof, within fifteen
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(15) days after execution or termination, setting forth the name of the
sublicensee and the territory as to which the sublicense is effective.
5.2 License to Signal.
(a) Subject to the terms and conditions of this Agreement,
Tanabe hereby grants to Signal an exclusive (even as to Tanabe), license under
the Tanabe Patents, the Joint Patents and, to the extent required to be provided
pursuant to Section 2.2, the Tanabe Technical Information, to develop, make,
have made, use, sell, have sold and import Products in the Rest of the World.
(b) Subject to the terms and conditions of this Agreement,
including, without limitation, Section 6.3 hereof, Signal shall have the right
to grant licenses or sublicenses to develop, manufacture, market and sell all
Products in the Rest of the World provided that such licensees and sublicensees
agree in writing to be bound by the applicable terms, if any, of this Agreement.
Signal shall be responsible for the operations and activities of its licensees
and sublicensees as if such operations and activities were carried out by
Signal. As to each sublicense of a Tanabe Patent or a Joint Patent, Signal
agrees to deliver to Tanabe notification of each sublicense granted by Signal
and termination thereof, within fifteen (15) days after execution or
termination, setting forth the name of the sublicensee and the territory as to
which the sublicense is effective.
5.3 Improvements. Any modification or improvement to the
Compounds and/or Products (including any Tanabe Technical Information or Signal
Technical Information regarding to such modification) licensed under this
Agreement made before the termination of this Agreement shall be included in the
license(s) granted under this Section 5 without additional charge to the
licensing Party. The Parties agree to promptly disclose any such modifications
or improvements.
5.4 Royalty Payments; Reports. Tanabe shall, (i) for a period
equaling the longer of ten (10) years from the date of the initial sale of each
Product for each indication in the Territory or the expiration of the last
Signal Patent, Joint Patent or Tanabe Patent (including in each case patents
deemed to exist as a result of a Use or Structure Contribution by Tanabe, Signal
or both Parties) which claims the use or sale of such Product in the country of
sales, pay to Signal a royalty in U.S. dollars equal to the percentages
("Royalty Rates") set forth in Exhibit D and (ii) for so long as sales of any
Product gives rise to an obligation by Signal to pay patent royalties to a Third
Party, reimburse Signal for any and all such Third-Party patent royalties
("Third-Party Royalties"), subject to Section 5.4(e) below, due by Signal
pursuant to its license ("Reimbursements"). Thereafter, [***] Tanabe shall
remain liable for all royalties payable by its Affiliates or sublicensees.
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(a) The applicable Royalty Rate shall be determined on the
basis of:
(i) [***]
(ii) [***]
(iii) [***]
(iv) [***]
(v) [***]
(A) if the applicable Research and Development
Committee determines that the greater
therapeutically relevant activity of such Compound
is identified in the Tanabe Other Screen, the
screening of such Compound shall constitute a
Signal Use or Structure Contribution (to the
extent there exists either a Signal or a Tanabe
Contribution Patent which claims the use of such
Compound); provided, however, that the applicable
Royalty Rate in the Territory shall be reduced by
[***], the applicable Royalty Rate in the Rest of
the World shall be increased by [***], the
applicable milestone credit shall be increased by
[***]; and
(B) if the applicable Research and Development
Committee determines that the greater
therapeutically relevant activity of
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such Compound is identified in the Signal Screen,
the screening of such Compound shall constitute a
Signal Use or Structure Contribution (to the
extent there exists either a Signal or a Tanabe
Contribution Patent which claims the use of such
Compound).
(vi) If Signal demonstrates to the satisfaction of
the applicable Research and Development Committee that a Compound is Active in a
Signal Screen when screened by Signal, and Tanabe is unable to demonstrate to
the satisfaction of the applicable Research and Development Committee that such
Compound is Active in a Tanabe Other Screen when screened by Tanabe, then for
purposes of calculating the applicable Royalty Rate in the Territory and the
Rest of the World and the applicable milestone credit, the screening of such
Compound shall constitute a Signal Use or Structure Contribution (to the extent
there exists either a Signal or a Tanabe Contribution Patent which claims the
use of such Compound).
(vii) If Signal is unable to demonstrate to the
satisfaction of the applicable Research and Development Committee that a
Compound is Active in a Signal Screen when screened by Signal, and Tanabe
demonstrates to the satisfaction of the applicable Research and Development
Committee that such Compound is Active in a Signal Screen or a Tanabe Other
Screen when screened by Tanabe, then for purposes of calculating the applicable
Royalty Rate in the Territory and the Rest of the World and the applicable
milestone credit, the screening of such Compound shall constitute a Tanabe Use
or Structure Contribution (to the extent there exists either a Tanabe or a
Signal Contribution Patent which claims the use of such Compound).
(viii) For purposes of Sections 5.4(a)(v), (vi) and
(vii), "Active" means, with respect to any Compound in any Signal Screen or
Tanabe Other Screen, that such Compound exhibits at least [***]
in such Signal Screen or Tanabe Other Screen.
(ix) In the event the applicable claim(s) of a
Structure Patent or a Use Patent falls within the scope of the applicable
claim(s) of another Structure Patent or Use Patent, the Parties shall determine
whether any of the claims of one such patent "dominate" the claims of the other
patent(s) and the applicable Royalty Rate shall be determined on the basis of
which patents are "Dominant Patents." For purposes of this Agreement, a
"Dominant Patent" means, with respect to any Compound, a patent application or
issued patent of which the priority date is the earliest among all patent
applications or patents which claim the composition of matter (in the case of
Structure Patents) or the use (in the case of Use Patents) which would be
infringed, absent the ownership thereof or the licenses granted herein, by the
use or sale of a Product containing such Compound as an active ingredient.
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(x) In the event that a majority of the members
of the applicable Research and Development Committee is unable to agree upon any
determination or decision under Section 5.4(a)(v), (vi) or (vii) above, then the
parties first shall attempt to resolve such disagreement pursuant to Section 2.8
above, and if the parties are unable to so resolve such disagreement, such
disagreement shall be finally resolved by binding arbitration pursuant to
Article 7 below.
In the event the applicable claim(s) of a Structure Patent
or a Use Patent falls within the scope of the applicable claim(s) of another
Structure Patent or Use Patent, the Parties shall determine whether any of the
claims of one such patent "dominate" the claims of the other patent(s) and the
applicable Royalty Rate shall be determined on the basis of which patents are
"Dominant Patents." For purposes of this Agreement, a "Dominant Patent" means,
with respect to any Compound, a patent application or issued patent of which the
priority date is the earliest among all patent applications or patents which
claim the composition of matter (in the case of Structure Patents) or the use
(in the case of Use Patents) which would be infringed, absent the ownership
thereof or the licenses granted herein, by the use or sale of a Product
containing such Compound as an active ingredient.
(b) If the Compound originated from a Tanabe Compound
Library which is a "natural product library", then the applicable Royalty Rate
shall [***] unless annual Net Sales of the Product in the Territory are [***]
in which case the Royalty Rate in any such year shall not be reduced.
(c) A [***] Royalty Rate corresponding to [***] shall
apply as follows:
Annual Net Sales Royalty Rate Tier
[***] [***]
[***] [***]
[***] [***]
For example, if a Product contains a Compound which
originated from a compound in a Tanabe Compound Library, was screened by Signal
in its primary assays resulting in a Signal Use or Structure Contribution (and
is claimed or deemed to be claimed in a Signal Use Patent), and was chemically
modified by Tanabe resulting in a Tanabe Use or Structure Contribution (and is
claimed or deemed to be claimed in a Tanabe Structure Patent), then the Royalty
Rates applicable to sales of the Product in the Territory are 6.5% for annual
Net Sales less than $50,000,000 (Tier 1), 7.5% for annual Net Sales between
$50,000,000 and $100,000,000 (Tier 2) and 8.5% for annual Net Sales above
$100,000,000 (Tier 3). With respect to Signal's sales of the Product in
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the Rest of the World, the applicable Royalty Rate is [***].
(d) Tanabe shall be entitled to credit up to the
percentage set forth on Exhibit D of its aggregate milestone payments made
pursuant to Section 4.3 above against up to [***] of any royalty
payment then due Signal (excluding from such credit any pass-throughs of Third
Party Royalties).
(e) Reimbursements payable by Tanabe with respect to
Third- Party Royalties in the Territory shall not exceed (i) [***]
with respect to each Product derived from a Tanabe Compound Library
or (ii) [***] of Net Sales, with respect to each Product derived from a Signal
Compound Library. Any Third Party Royalties payable with respect to a Joint
Compound Library derived Product shall be paid by the Party responsible for the
sale(s) on which a Third-Party Royalty is payable, including sales by its
Affiliates, licensees and sublicensees (other than the other Party).
(f) Tanabe shall provide a royalty report and, if
applicable, a royalty payment to Signal every six (6) months. The report and
payment relating to Net Sales shall be provided within sixty (60) days after the
end of March and September of each calendar year, and shall include all sales of
Products by Tanabe and its Affiliates and sublicensees.
(g) Tanabe shall provide Signal with a nonbinding, but
good faith estimate, quarterly forecast of its projected sales of any Product
during the upcoming calendar year not later than thirty (30) days prior to the
start of each calendar year.
(h) Signal shall provide to Tanabe a report detailing the
calculation of the Reimbursements, together with a copy of the agreement
providing for such Third Party royalties, within two (2) months of receiving the
Tanabe royalty report. The payment for the Reimbursements shall be due and
payable within one (1) month of receipt by Tanabe.
(i) Tanabe shall keep, and require any Affiliate, licensee
and sublicensee to keep, for a period of not less than seven (7) years, complete
and accurate records of all Net Sales (including all discounts, rebates, returns
and allowances) of each Product. Signal shall have the right, at Signal's sole
expense, through an independent certified public accounting firm of
internationally recognized standing, selected by Signal and reasonably
acceptable to Tanabe, and following reasonable notice, to examine such records
during regular business hours during the life of the Tanabe obligation to pay
royalties on Net Sales of each Product, Delivery Systems Product and Combination
Product; provided, however, that such examination shall not (i) be of records
for any year ending not more than twenty-four (24) months prior to the date of
such request, and (ii) take place more than once in any calendar year; and
provided, further, that, such
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accountants shall report to Signal only as to the accuracy of the royalty
statements and payments. Copies of such reports shall be supplied to Tanabe. In
the event the report demonstrates that Tanabe has underpaid royalties, Tanabe
shall pay such royalties immediately upon request of Signal. If Tanabe has
overpaid royalties, Tanabe may deduct such overpayments from future royalties
owed to Signal. The fees charged by such accounting firm shall be paid by
Signal; provided, however, if the audit discloses that the royalties payable by
Tanabe for the audited period are more than one hundred ten percent (110%) of
the royalties actually paid for such period, then Tanabe shall pay the
reasonable fees and expenses charged by such accounting firm. Signal shall treat
all financial information subject to review under this Section 5.4(i) as
confidential, and shall cause its accounting firm to retain all such financial
information in confidence.
(j) Any tax paid or required to be withheld by Tanabe for
the benefit of Signal on account of royalties payable to Signal under this
Agreement shall be deductible from the amount of royalties otherwise due. Tanabe
shall secure and send to Signal proof of any such taxes withheld and paid by
Tanabe for the benefit of Signal and shall, at Signal's request, provide
reasonable assistance to Signal in recovering said taxes, if possible.
(k) The parties shall use all reasonable efforts to
minimize any withholding taxes required to be taken on any amounts paid
hereunder.
5.5 Signal and its sublicensees shall, (i) for a period equalling
the longer of ten (10) years from the date of the initial sale of each Product
in the Rest of the World or the expiration of the last Signal Patent, Joint
Patent or Tanabe Patent (including in each case patents deemed to exist as a
result of a Use or Structure Contribution by Tanabe, Signal or both Parties)
which claims the use or sale of such Product in the country of sales, pay to
Tanabe a royalty in U.S. dollars equal to the percentages ("Royalty Rates") set
forth in Exhibit D and (ii) [***], reimburse Tanabe for any and all such
Third-Party patent royalties ("Third-Party Royalties"), subject to Section
5.5(b) below, due by Tanabe pursuant to its license ("Reimbursements").
Thereafter, the [***]. Signal shall remain liable for all royalties payable by
its Affiliates or sublicensees.
(a) The applicable Royalty Rate shall be determined on the
basis set forth in Section 5.4(a) above and on Exhibit D.
(b) Reimbursements payable by Signal with respect to
Third- Party Royalties in the Rest of the World (on patent applications or
patents claiming composition of matter or use licensed by Tanabe from a Third
Party) shall not exceed (i) [***] of Net Sales, with respect to each
Product derived from a Signal Compound Library or (ii) [***], with respect
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to each Product derived from a Tanabe Compound Library. Any Third Party
Royalties payable with respect to a Joint Compound Library derived Product shall
be paid by the Party responsible for the sale(s) on which a Third-Party Royalty
is payable, including sales by its Affiliates, licensees and sublicensees (other
than the other Party).
(c) Signal shall provide a royalty report and, if
applicable, a royalty payment to Tanabe every six (6) months. The report and
payment relating to Net Sales shall be provided within sixty (60) days after the
end of March and September of each calendar year, and shall include all sales of
Products by Signal and its Affiliates and sublicensees.
(d) Signal shall provide Tanabe with a nonbinding, but
good faith estimate, quarterly forecast of its projected sales of any Product
during the upcoming calendar year not later than thirty days prior to the start
of each calendar year.
(e) Tanabe shall provide to Signal a report detailing the
calculation of the Reimbursements, together with a copy of the agreement
providing for such Third Party Royalties, within two (2) months of receiving the
Signal royalty report. The payment for the Reimbursements shall be due and
payable within one (1) month of receipt by Signal.
(f) Signal shall keep, and require any Affiliate, licensee
and sublicensee to keep, for a period of not less than seven (7) years, complete
and accurate records of all Net Sales (including all discounts, rebates, returns
and allowances) of each Product. Tanabe shall have the right, at Tanabe's sole
expense, through an independent certified public accounting firm of
internationally recognized standing, selected by Tanabe and reasonably
acceptable to Signal, and following reasonable notice, to examine such records
during regular business hours during the life of the Signal obligation to pay
royalties on Net Sales of each Product, Delivery System Product and Combination
Product; provided, however, that such examination shall not (i) be of records
for any year ending not more than twenty-four (24) months prior to the date of
such request, and (ii) take place more than once in any calendar year; and
provided, further, that, such accountants shall report to Tanabe only as to the
accuracy of the royalty statements and payments. Copies of such reports shall be
supplied to Signal. In the event the report demonstrates that Signal has
underpaid royalties, Signal shall pay such royalties immediately upon request of
Tanabe. If Signal has overpaid royalties, Signal may deduct such overpayments
from future royalties owed to Tanabe. The fees charged by such accounting firm
shall be paid by Tanabe, provided, however, if the audit discloses that the
royalties payable by Signal for the audited period are more than one hundred ten
percent (110%) of the royalties actually paid for such period, then Signal shall
pay the reasonable fees and expenses charged by such accounting firm. Tanabe
shall treat all financial information subject to review under this Section
5.5(f) as confidential, and shall cause its accounting firm to retain all such
financial information in confidence.
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(g) Any tax paid or required to be withheld by Signal for
the benefit of Tanabe on account of royalties payable to Tanabe under this
Agreement shall be deductible from the amount of royalties otherwise due. Signal
shall secure and send to Tanabe proof of any such taxes withheld and paid by
Signal for the benefit of Tanabe and shall, at Tanabe's request, provide
reasonable assistance to Tanabe in recovering said taxes, if possible.
(h) The parties shall use all reasonable efforts to
minimize any withholding taxes required to be taken on any amounts paid
hereunder.
6. GLOBAL RELATIONSHIP.
6.1 Overall Relationship. Signal intends to enter into one or
more relationships with a Western Pharmaceutical Partner(s) to develop
therapeutic products for the prevention or treatment of Inflammation and
Osteoporosis and the Parties agree that the Collaborative Project may benefit
from the joint efforts of Signal, Tanabe and such Western Pharmaceutical
Partner(s). To this end, the Parties agree that in the event that Signal enters
into a collaborative agreement with a Western Pharmaceutical Partner and the
Western Pharmaceutical Partner and Tanabe have each chosen to develop a
therapeutic product for the prevention or treatment of Inflammation and/or
Osteoporosis containing the same Compound in development and having
substantially the same identity for marketing, sales or regulatory purposes (a
"Mutual Product"), the Parties shall consider in good faith whether it is in
their mutual best interest to enter into a global collaboration with such
Western Pharmaceutical Partner.
6.2 Global Development Plan; Coordination. If the Parties and the
Western Pharmaceutical Partner mutually agree in writing to enter into such a
global collaboration, such a global collaboration would be on mutually
acceptable financial and other terms and conditions and evidenced by a separate
mutually acceptable definitive written agreement duly approved, executed and
delivered by Tanabe, Signal and the Western Pharmaceutical Partner. Subject to
the mutual agreement of Tanabe, Signal and the Western Pharmaceutical Partner,
such global collaboration may (i) establish a worldwide development plan for
such Mutual Product with respect to each indication, the pre-clinical and
clinical studies of such Mutual Product, to coordinate their respective
development efforts and to create and maintain a single worldwide safety
database and shall share the results of the clinical trials in order to
facilitate such development, including, when feasible, elimination of duplicate
development efforts; (ii) establish a collaborative committee to coordinate and
communicate the research, development and commercialization efforts under the
collaboration; and (iii) provide that each of Tanabe, Signal and the Western
Pharmaceutical Partner would have certain license or other rights to access
certain technical information (including without limitation Compound Information
and Product Information) of the others, on mutually acceptable license terms and
conditions, for the purpose of developing and commercializing the Mutual
Product. It is understood and agreed that Signal will use its commercially
reasonable
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efforts to negotiate a provision similar to that contained in Section 6.3 below,
in its definitive agreement with its Western Pharmaceutical Partner allowing
disclosure to Tanabe of pre-clinical and clinical data generated by such Western
Pharmaceutical Partner based on any Compound designated by Tanabe which is also
chosen for development by the Western Pharmaceutical Partner.
6.3 Transfer of Information; License Obligations. Once Signal has
identified the Western Pharmaceutical Partner to Tanabe and each of Tanabe and
the Western Pharmaceutical Partner has agreed to accept reciprocity on exchanges
of Technical Information, then during the term of this Agreement, Signal, Tanabe
and the Western Pharmaceutical Partner shall make available, without charge, to
each other the applicable Signal, Tanabe or Western Pharmaceutical Partner such
Compound Information and Product Information, respectively as the three parties
mutually agree, for any Compound which is simultaneously under development by
Tanabe and by such Western Pharmaceutical Partner in whatever form is best
suited to fully deliver such information. Notwithstanding the foregoing, Tanabe,
Signal and the Western Pharmaceutical Partner shall at all times make available
to each other any information required to be disclosed by Section 9.1.
7. ARBITRATION. All disputes arising in any way out of or related to
this Agreement, including, without limitation, its existence, validity, scope,
application, termination or breach of this Agreement and the ownership of any
inventions, the obligations of the Parties or these arbitration provisions shall
be referred to and finally resolved by arbitration at the request of either
Party in accordance with the provisions of the Commercial Rules of Arbitration
of the American Arbitration Association in force at such time, which rules are
deemed to be incorporated by reference into this Agreement.
7.1 Arbitration Tribunal. Unless otherwise agreed to by the
parties, the arbitration tribunal shall consist of three (3) arbitrators,
including two (2) members and a chairman. Tanabe and Signal shall each appoint
one member. The chairman shall be appointed according to the American
Arbitration Association Commercial Arbitration Rules.
7.2 Situs of Arbitration. The arbitration shall be held in Osaka,
Japan.
8. CONFIDENTIALITY, DISCLOSURE AND PUBLICATION.
8.1 Prior Agreement. This Agreement supersedes but does not
invalidate or cancel any and all previous agreements and understandings, whether
oral or written, between the Parties regarding the treatment of confidential
information.
8.2 Confidentiality. During the term of this Agreement and for
ten (10) years thereafter, each Party shall maintain in confidence all
information and materials disclosed by the other Party and marked as
confidential or which such Party knows or
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has reason to know are or contain trade secrets or other proprietary information
of the other, including, without limitation, information relating to the
Technical Information of the other Party, Joint Inventions and inventions of the
other Party, and the business plans of the other Party, including information
provided by either Party to the other Party prior to the Effective Date
(collectively, the "Confidential Information and Materials"), and shall not use
the Confidential Information and Materials of the other Party for any purpose
except as permitted by this Agreement or disclose the same to anyone other than
those of its Affiliates, sublicensees, employees, consultants, agents or
subcontractors as are necessary in connection with such Party's activities as
contemplated in this Agreement. Each Party shall obtain binding agreement from
any such employee, and binding written agreement from each such Affiliate,
sublicensee, consultant, agent and subcontractor, prior to disclosure, to hold
in confidence and not make use of the Confidential Information and Materials of
the other Party for any purpose other than those permitted by this Agreement.
8.3 Exceptions.
(a) The obligation of confidentiality contained in this
Agreement shall not apply to the extent that: (i) either Party (the "Recipient")
is required to disclose Confidential Information or Materials of the other Party
by order or regulation of a governmental agency or a court of competent
jurisdiction, provided that the Recipient shall not make any such disclosure
(other than a filing of information or materials with the U.S. Securities and
Exchange Commission, a similar filing of information or materials with the
National Association of Securities Dealers or state securities regulators or a
filing of information or materials pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder,
as amended or an equivalent filing with a foreign applicable authority) without
first notifying the other Party and allowing the other Party a reasonable
opportunity to seek injunctive relief from (or protective order with respect to)
the obligation to make such disclosure; or (ii) the Recipient can demonstrate
that (A) the disclosed information was at the time of such disclosure to the
Recipient already in (or thereafter enters) the public domain other than as a
result of actions of the Recipient, its Affiliates, employees, sublicensees,
agents or subcontractors in violation hereof; (B) the disclosed information was
rightfully known by the Recipient or its Affiliates (as shown by its written
records) prior to the date of disclosure to the Recipient in connection with the
negotiation, execution or performance of this Agreement; or (C) the disclosed
information was received by the Recipient or its Affiliates on an unrestricted
basis from a source unrelated to any Party to this Agreement and not under a
duty of confidentiality to the other Party; or (D) the disclosed information was
independently developed by the Recipient or its Affiliates (as shown by written
records) by persons without access to or use of the Confidential Information and
Materials of the other Party; or (iii) disclosure is required to be made to a
government regulatory agency as part of such agency's product license approval
process.
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(b) In the event (i) that each of Tanabe and the Western
Pharmaceutical Partner have agreed in writing to accept reciprocity on exchanges
of Technical Information and (ii) that Signal's Western Pharmaceutical Partner
chooses to develop a Product for the prevention or treatment of Inflammation
and/or Osteoporosis based on a Compound and (iii) provided the Western
Pharmaceutical Partner agrees to be bound by the terms specified in Section 6 of
this Agreement, Signal shall have the right to disclose to the Western
Pharmaceutical Partner any applicable Compound Information and Product
Information with respect to such Compound provided to Signal by Tanabe. As a
condition to such disclosure, Signal will require its Western Pharmaceutical
Partner to enter into confidentiality provisions equivalent to those set forth
in this Section 8.
8.4 Publications. Prior to any public disclosure or submission
for publication by or on behalf of the Parties of a manuscript or other document
describing the results of any aspect of the Collaborative Project or other
scientific or clinical activity or collaboration between Tanabe and Signal or
their Affiliates, the Party disclosing or submitting such a manuscript
("Disclosing Party") shall first send a copy of the manuscript to the applicable
Joint Inflammation Committee or the Joint Osteoporosis Committee for their
review for a period of 15 days. If such Research and Development Committee
approves such publication, the Disclosing Party shall then send the other Party
("Responding Party") a copy of the manuscript to be submitted and shall allow
the Responding Party not less than thirty (30) days from the date of receipt in
which to determine whether the manuscript contains subject matter for which
patent protection should be sought prior to publication of such manuscript for
the purpose of protecting an invention of commercial value to the Responding
Party, or whether the manuscript contains confidential information belonging to
the Responding Party or whether such disclosure implicates issues regarding
compliance with applicable securities laws. After the expiration of such thirty
(30) day period, if the Responding Party has not objected in writing, the
Disclosing Party may submit such manuscript for publication and publish or
otherwise disclose to the public such research results. If the Responding Party
believes the subject matter of the manuscript contains confidential information
or a patentable invention of commercial value to the Responding Party, then
prior to the expiration of such thirty (30) day period, the Responding Party
shall notify the Disclosing Party in writing of its determination. Upon receipt
of such written notice from the Responding Party, the Disclosing Party shall
delay public disclosure of such information or submission of the manuscript to
permit preparation and filing of a patent application on the disclosed subject
matter. The Disclosing Party shall thereafter be free to publish or disclose
such manuscript, except that the Disclosing Party may not disclose any
confidential information of the Responding Party in violation of this Section 8
without the prior written consent of the Responding Party and that no
publication of a patentable invention shall be made until a patent application
covering such invention has been filed. Determination of authorship for any
manuscript shall be in accordance with accepted scientific practice. Should any
questions on authorship arise, this will be
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determined by good faith consultation between the members of the appropriate
Research and Development Committee.
9. INDEMNIFICATION. Each Party shall defend, indemnify and hold the
other Party, any Affiliate of the other Party, any officer, director or employee
of such other Party or of any of its Affiliates (individually, an "Exculpated
Party") harmless from and against any damage, loss, liability or expense
(including, without limitation, reasonable attorneys' fees, settlement costs,
litigation costs and costs on appeal regardless of outcome) incurred or suffered
by any Exculpated Party arising out of any claim, demand, action or other
proceeding by any person or entity (other than an Affiliate of the Exculpated
Party) arising out of: (a) the material breach of any covenant or agreement by
such Party; (b) any material misrepresentation or breach of warranty made by
such Party pursuant to this Agreement; (c) any claim arising from the gross
negligence or intentional misconduct of any of such Party's by or on behalf of
such Party or its Affiliates, licensees, sublicensees, employees, consultants,
agents or subcontractors (other than the other Party or its Affiliates) pursuant
to its rights under this Agreement; (d) any claim of any kind whatsoever arising
from the testing, manufacture, use, sale, consumption, distribution or
advertising of any of the Compounds or Products by or on behalf of such Party or
its Affiliates, licensees, sublicensees, employees, consultants, agents or
subcontractors (other than the other Party or its Affiliates) pursuant to its
rights under this Agreement; or (e) the operations or activities of such a
Party's Affiliates, licensees or sublicensees in material contravention of the
requirements of this Agreement (and such Party shall terminate immediately any
such sublicense where a breach of its obligations by a sublicensee cannot be
readily compensated through monetary damages).
9.1 Each Party shall notify the other immediately of any
information concerning any material adverse side effect, injury, toxicity or
sensitivity reaction, whether or not serious or unexpected (collectively, any
"adverse event"), or any unexpected incidence, and the severity thereof,
associated with the clinical uses, studies, investigations, tests and marketing
of any Product, whether or not determined to be attributable to such Product.
Without limiting the generality of the foregoing, each Party shall notify the
other Party of any event or incidence regarding any Product, which it is
required to notify or report to any governmental authority of the country in
which it sells such Product, prior to the date when it is required to give such
notice or to make such report. Each Party further shall immediately notify the
other of any information received regarding any threatened or pending action by
a governmental agency or any other third party arising out of or relating to an
alleged adverse effect or unexpected incidence regarding any Product. Upon
receipt of any such information, the Parties shall consult with each other in an
effort to arrive at a mutually acceptable procedure for taking appropriate
action; provided, however, that nothing contained herein shall be construed as
restricting either Party's right to make a timely report of such matter to any
government agency or take other action that it deems to be appropriate or
required by applicable law or regulation, including the right of a Party to
recall or withdraw such
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Product from marketing and selling. Signal shall cause any Western
Pharmaceutical Partner to agree in writing to be bound by the provisions of this
Section 9.1. The obligations in this Section 9.1 pertaining to Products shall
survive the expiration or termination of this Agreement.
9.2 Either Party (the "Notifying Party") shall promptly notify
the other Party (the "Indemnifying Party") of the existence of any third party
claim, demand or other action giving rise to a claim for indemnification under
this Agreement (a "Third Party Claim") and shall give the Indemnifying Party a
reasonable opportunity to defend the same at its own expense and with its own
counsel, provided that the Notifying Party shall at all times have the right to
participate in such defense at its own expense. If, within a reasonable time
after receipt of notice of a Third Party Claim, the Indemnifying Party shall
fail to undertake to so defend, the Notifying Party shall have the right, but
not the obligation, to defend and to compromise or settle (exercising reasonable
business judgment) the Third Party Claim for the account and at the risk and
expense of the Indemnifying Party. The indemnity obligations under this Article
9 shall not apply to amounts paid in settlement of any claim, demand, action or
other proceeding if such settlement is effected without the consent of the
Indemnifying Party, which consent shall not be withheld unreasonably. The
Indemnifying Party may not settle the action or otherwise consent to an adverse
judgment in such action that diminishes the rights or interests of the
Exculpated Party without the express written consent of the Exculpated Party.
Each Party shall make available to the other at the other's expense such
information and assistance as the other shall reasonably request in connection
with the defense of a Third Party Claim.
9.3 Notwithstanding anything to the contrary in this Agreement,
except as set forth in the first paragraph of this Article 9, neither Party
shall be liable to the other Party for any special, consequential or incidental
damages arising out of or related to this Agreement.
10. INDEPENDENT CONTRACTORS. Both Parties shall act solely as
independent contractors and nothing in this Agreement shall be construed to give
either Party the power or authority to act for, bind or commit the other Party.
Each Party shall indemnify the other and hold it harmless against any claim
based on a representation of authority in excess of that provided herein,
subject to the provisions of Section 9.2.
11. NO SOLICITATION OF EMPLOYEES. During the Research Period and for
[***] thereafter, neither Party shall solicit the other's employees (or
advisors and collaborators who are individuals and are identified in writing at
the time of execution of this Agreement) without the prior written approval of
the other Party. This provision will not preclude any Party from hiring any such
employees, advisors and collaborators if they independently apply for a job
without solicitation or pursuant to a general solicitation not specifically
directed at such employee, advisor or collaborator.
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***Confidential Treatment Requested
<PAGE> 41
12. TERM. This Agreement shall become effective as of the Effective Date
first written above and, unless sooner terminated pursuant to the provisions of
Section 13 below, shall remain in full force and effect for so long as Tanabe or
Signal shall be obligated to make royalty or Reimbursement payments to the other
Party pursuant to Section 5.4 or 5.5. Upon a termination of this Agreement
pursuant to this Article 12, (a) Tanabe shall have a non-exclusive, royalty-free
license to continue to make, have made, use, and sell Products in the Territory,
and (b) Signal shall have a non-exclusive, royalty-free license to continue to
make, have made, use, and sell Products in the Rest of the World.
13. TERMINATION OF AGREEMENT.
13.1 Termination by Mutual Agreement. This Agreement may be
terminated in its entirety by mutual written agreement of both Parties.
13.2 Breach of Material Term. This Agreement may be terminated at
the option of either Party upon written notice to the other, if such other Party
is in material breach or default with respect to any material term or provision
hereof (other than any breach or default described in Section 2.3(f) hereof,
which breach or default shall be subject to the provisions of Section 2.3) and
fails to cure the same within sixty (60) days (one-hundred and twenty (120) days
if a cure would be impossible in sixty (60) days but can be accomplished within
the 120 day period) after written notice of said breach or default. Such
termination rights shall be in addition to and not in substitution of any other
remedies that may be available to the Party serving such notice against the
Party in default. Termination pursuant to this Section 13.2 shall not relieve
the Party in default from liability and damages to the other Party for breach of
this Agreement.
13.3 Termination Upon Bankruptcy. This Agreement may be
terminated at the option of either Party upon written notice to the other, if
such other Party is adjudged bankrupt, files or has filed against it any
petition under any bankruptcy, insolvency or similar law, which petition is not
dismissed within sixty (60) days, has a receiver appointed for its business or
property or makes a general assignment for the benefit of its creditors.
13.4 Infringement of Third Party Patents. If, as a result of any
claim, proceeding or litigation by any Third Party against Signal regarding
Signal's proprietary whole-cell and enzyme assays occurring during the term of
this Agreement, Signal or Tanabe is barred from carrying out its future material
obligations herein, Tanabe has a right to terminate the Collaborative Project.
13.5 Termination of the Collaborative Project by Tanabe. Except
as set forth in this Section 13.5, the Collaborative Project with respect to
Inflammation or Osteoporosis or both, may be terminated prior to its four (4)
year period at Tanabe's option upon six (6) months' advance written notice to
Signal. Tanabe may not deliver
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such notice of termination to Signal prior to the completion of two (2) years
from the Effective Date. Tanabe further may not deliver such notice of
termination with respect to the Inflammation program if either (i) Signal has
delivered to Tanabe at least two (2) Potential Compounds, which are first
identified after screening in a Signal proprietary assay, which have been
designated as Chemical Lead Compounds for any one or more Inflammation Pathways,
or (ii) Signal has delivered to Tanabe at least one (1) Potential Compound,
which is first identified after screening in a Signal proprietary assay, which
has been designated as a Clinical Candidate for any one or more Inflammation
Pathways. Tanabe further may not deliver such notice of termination with respect
to the Osteoporosis program if either (i) Signal has delivered to Tanabe at
least two (2) Potential Compounds, which are first identified after screening in
a Signal primary or high throughput assay, which have been designated as
Chemical Lead Compounds for any one or more Osteoporosis Pathways, or (ii)
Signal has delivered to Tanabe at least one (1) Potential Compound, which is
first identified after screening in a Signal proprietary assay, which has been
designated as a Clinical Candidate for any one or more Osteoporosis Pathways.
Additionally, such termination shall not be effective during any period where
Tanabe has failed to meet its obligations pursuant to Section 2.4.
13.6 Effect of Termination; Survival. Termination of this
Agreement for any cause shall not release a Party from any liability, which at
the time of termination has already accrued to another Party, or which
thereafter may accrue in respect of any act or omission prior to such
termination. The obligations and rights established in Sections 4 and 5 (with
respect to Compounds subject to a license to Tanabe) shall survive the
termination of this Agreement by Tanabe pursuant to Section 13.2 or 13.3. The
obligations and rights established in Sections 4 and 5 (with respect to
Compounds subject to a license to Signal) shall survive the termination of this
Agreement by Signal pursuant to Section 13.2 or 13.3. The obligations and rights
established in Sections 7, 8, 9, 11, 15 and 19 shall survive the termination of
this Agreement for any reason.
14. PUBLIC ANNOUNCEMENT OF AGREEMENT. Except as required to comply with
federal and state securities laws or equivalent Japanese laws or any order of a
court or government agency, and except as provided below, neither Party shall
release information concerning this Agreement or the subject matter hereof to
the public, news media, or other media, without first sending the other Party by
express mail or facsimile, a copy of the information to be disclosed and
allowing the other Party a reasonable time (as soon as reasonably possible but
in no event greater than four (4) business days from the date of receipt) in
which to comment on the information. If the other Party objects to the
information to be disclosed and prior to the expiration of the four (4) business
day period, the other Party shall so notify the disclosing Party who shall then
delay public disclosure of the information and make reasonable efforts to
accommodate any request for revisions by the other Party. If no notification is
received during the four (4) business day period, the Party proposing disclosure
shall be free to disclose the information. The Parties designate the following
individuals to receive and approve announcements under this provision: Signal,
its Executive Vice President; Tanabe, its
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President. The Parties agree that Signal may discuss the general terms of the
Agreement with potential Western Pharmaceutical Partners and other potential
investors in Signal without disclosing any Confidential Information of Tanabe or
Tanabe Technical Information without Tanabe's prior written consent; and that
the parties will cooperate in good faith with one another to formulate a form of
announcement that Signal and Tanabe may release as soon as practicable after the
Effective Date.
15. INVENTIONS AND PATENT MATTERS. The ownership rights and other
matters regarding discoveries and inventions (whether or not patentable) first
conceived or reduced to practice under the Collaborative Project pursuant to
this Agreement (together with all patents and other intellectual property rights
thereto) shall be as follows:
15.1 Signal Inventions and Patent Rights. Any Compounds or
Products or other discoveries or inventions first made, conceived or reduced to
practice solely by one or more employees or agents of only Signal or its
Affiliates ("Signal Inventions"), together with all patents and other
intellectual property rights thereto, shall be owned by Signal, subject to the
licenses granted herein.
15.2 Tanabe Inventions and Patent Rights. Any Compounds or
Products or other discoveries or inventions first made, conceived or reduced to
practice solely by one or more employees or agents of only Tanabe or its
Affiliates ("Tanabe Inventions"), together with all patents and other
intellectual property rights thereto, shall be owned by Tanabe, subject to the
licenses granted herein.
15.3 Joint Inventions and Patent Rights. All inventions or other
discoveries first made, conceived or reduced to practice by one or more
employees or agents from each party ("Joint Inventions"), together with all
patents and other intellectual property rights thereto, shall be owned by each
party with the other party as equal, undivided property, subject to the licenses
granted herein. Each party shall promptly disclose to the other party and
applicable Research and Development Committee the conception or reduction to
practice of Joint Inventions. Signal shall control the filing, prosecution,
issuance and maintenance of Joint Patents in the Rest of the World. Tanabe shall
control the filing, prosecution, issuance and maintenance of Joint Patents in
the Territory. Each Party shall retain patent counsel reasonably acceptable to
the other Party to assist in the filing, prosecution, issuance and maintenance
of Joint Patents. Each Party shall cause to be provided to the other Party the
text of such patent applications before filing them and consider in good faith
and incorporate the other Party's reasonable requests related thereto. In all
other matters related to the filing, prosecution, issuance and maintenance of
Joint Patents, each Party shall provide to the other Party copies of any
official action or submission and shall confer with the other Party giving due
consideration to the other Party's reasonable requests.
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15.4 General Provisions Relating to Prosecution and Maintenance.
(a) Signal shall be responsible for and shall control the
preparation, filing, prosecution and maintenance of all patents and patent
applications which claim a Signal Invention, and shall pay all costs incurred in
connection therewith. Signal shall use its good faith efforts to provide Tanabe
with an opportunity to review and comment on the text of each patent application
which constitutes a Structure Patent or a Use Patent in the Territory before
filing such application in the Territory and shall supply Tanabe with a copy of
such patent application as filed, together with notice of its filing date and
serial number and shall keep Tanabe generally informed regarding the status
thereof. Tanabe shall cooperate with Signal, execute all lawful papers and
instruments and make all rightful oaths and declarations as may be necessary in
the preparation, prosecution and maintenance of all such patent applications
which constitute a Structure Patent or a Use Patent in the Territory. Any
information provided to Tanabe under this Section 15.4(a) shall be deemed
Confidential Information and Materials of Signal. If Signal decides to abandon
or not to maintain a Signal Patent in the Territory, Signal shall first offer to
assign to Tanabe such Signal Patent without charge or obligation at least ninety
(90) days prior to the expiration of any time limit for response or payment due
date.
(b) Tanabe shall be responsible for and shall control the
preparation, filing, prosecution and maintenance of all patents and patent
applications which claim a Tanabe Invention, and shall pay all costs incurred in
connection therewith. Tanabe shall use its good faith efforts to provide Signal
with an opportunity to review and comment on the text of each patent application
which constitutes a Structure Patent or a Use Patent in the Rest of the World
before filing such application in the Rest of the World and shall supply Signal
with a copy of such patent application as filed, together with notice of its
filing date and serial number and shall keep Signal generally informed regarding
the status thereof. Signal shall cooperate with Tanabe, execute all lawful
papers and instruments and make all rightful oaths and declarations as may be
necessary in the preparation, prosecution and maintenance of all such patent
applications which constitute a Structure Patent or a Use Patent in the Rest of
the World. Any information provided to Signal under this Section 15.4(b) shall
be deemed Confidential Information and Materials of Tanabe. If Tanabe decides to
abandon or not to maintain a Tanabe Patent in the Rest of the World, Tanabe
shall first offer to assign to Signal such Tanabe Patent without charge or
obligation at least ninety (90) days prior to the expiration of any time limit
for response or payment due date.
(c) For any and all Joint Inventions, the parties shall
exert reasonable efforts in cooperation with each other, through the Research
and Development Committee or otherwise, to investigate, evaluate, and determine
to the mutual satisfaction of both parties the manner of obtaining and
protecting their respective intellectual property rights in such Joint
Inventions, including whether any patent applications are to be filed, by whom,
and where. Patent applications for Joint
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Inventions shall be filed initially in the United States or in Japan, unless the
appropriate Research and Development Committee determines for a compelling
business reason that the application should first be filed in another
jurisdiction. Each party shall cooperate and assist the other party in
connection with its filing, prosecution, issuance and maintenance of Joint
Patents. Each party shall keep the other party informed at regular intervals, or
upon request, of the status of all patent applications and patents with respect
to Joint Patents for which it has responsibility. Where appropriate, each party
shall sign or cause to have signed all documents relating to the patent
applications or patents for the Joint Patents and shall cause such patent
applications and patents to be assigned to Signal and Tanabe jointly. In the
event that Signal or Tanabe elect not to file, prosecute, issue or maintain a
Joint Patent, they shall each promptly provide adequate notice to the other
Party and allow the other Party, at its expense, the opportunity to proceed with
a Joint Patent. During the prosecution of patent applications filed on such
Joint Inventions, the party receiving copies of correspondence from the
respective patent office shall keep the other party timely informed of such
communications, thereby providing the other party with a reasonable opportunity
for comment. Such communication is intended to promote coordination and
consistency in the prosecution of patent applications for Joint Inventions
throughout the world.
15.5 Payments; Disputes. With respect to Joint Patent application
filings, each Party shall bear all costs and expenses for fees or other payments
required to submit and maintain joint applications and patents in their
respective territories. In the event there is a dispute as to whether a
particular invention constitutes a Joint Invention or should be the subject of a
Signal Patent or Tanabe Patent, the issue shall be resolved by the appropriate
Research and Development Committee.
15.6 Infringement of Signal Patents by a Third Party. If at any
time either Party hereto shall become aware of any infringement or threatened
infringement by a third party in the Territory of any or all of the Signal
Patents, Tanabe Patents or Joint Patents to which the Party having the knowledge
thereof claims an interest pursuant to the Agreement, the Party having the
knowledge thereof shall forthwith give notice thereof to the other Party. Upon
notice of any such infringement, the Parties shall promptly consult with one
another with a view toward reaching agreement on a course of action to be
pursued.
(a) Signal shall take all reasonable steps to defend
Signal Patents against infringement and Tanabe shall in such event give all
reasonable assistance to Signal with respect to patent and legal questions
against reimbursement by Signal to Tanabe of all out-of-pocket costs occasioned
thereby and in case any monetary recovery is obtained, such recovery shall
belong to Signal. In addition, Tanabe shall have the right to join any suit by
Signal covering the enforcement of a Signal Patent in the Territory.
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(b) Except as provided in Section 15.6(a), (c) and (d), in
the event any monetary recovery in connection with the prosecution of such
infringement action is obtained, such monetary recovery shall be applied in the
following priority: first, to the reimbursement of Signal and Tanabe for their
out-of-pocket expenses (including attorneys' fees) in prosecuting such
infringement action; second, the balance of the monetary recovery to be shared
equally by Signal and Tanabe. If the monetary recovery is less than the
out-of-pocket expenses of Signal and Tanabe, reimbursement shall be on a
pro-rata basis, based upon cost incurred. Any expense or liability in connection
with the prosecution of such infringement action (including legal costs incurred
by the defendant(s)) shall be shared equally by Signal and Tanabe. To the extent
only one Party is permitted to bring suit, Signal and Tanabe shall consult in
good faith to determine the most appropriate Party to bring suit, with the
sharing of recoveries as set forth above, to the extent permitted by law. Any
expense or liability in connection with the defense of any counterclaim or
cross-claim action shall be borne by the Parties as determined in the court
proceeding for said counterclaim or cross-claim.
(c) If Signal declines to bring suit to enforce a Signal
Patent, Tanabe may, subject to the written consent of Signal which shall not be
unreasonably withheld, file an infringement action in the Territory in its name
or on behalf of Signal where necessary, at its own expense. In such case, Tanabe
shall be the sole recipient of the proceeds of any recovery, provided that
Tanabe shall indemnify Signal against any expenses or liability incurred by
Signal relating to such proceedings, excluding however any expenses or
liabilities relating to the defense by Signal of any counterclaim or cross-claim
that may be brought against Signal.
(d) If Signal and Tanabe, after consultation with each
other, elect not to bring suit, individually or jointly, or if Signal and/or
Tanabe, as the case may be, are/is not able to stop such infringing activities,
the Parties shall renegotiate in good faith their arrangement applicable in the
country affected by such infringement, including but not limited to, a reduction
of royalty rate payable by Tanabe to Signal.
15.7 Infringement of Tanabe Patents by a Third Party. If at any
time either Party hereto shall become aware of any infringement or threatened
infringement by a third party in the Rest of the World of any or all of the
Signal Patents, Tanabe Patents or Joint Patents to which the Party having the
knowledge thereof claims an interest pursuant to the Agreement, the Party having
the knowledge thereof shall forthwith give notice thereof to the other Party.
Upon notice of any such infringement, the Parties shall promptly consult with
one another with a view toward reaching agreement on a course of action to be
pursued.
(a) Tanabe shall take all reasonable steps to defend
Tanabe Patents against infringement and Signal shall in such event give all
reasonable assistance to Tanabe with respect to patent and legal questions
against reimbursement by Tanabe to Signal of all out-of-pocket costs occasioned
thereby and in case any monetary recovery
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is obtained, such recovery shall belong to Tanabe. In addition, Signal shall
have the right to join any suit by Tanabe covering the enforcement of a Tanabe
Patent in the Rest of the World.
(b) Except as provided in Section 15.7(a), (c) and (d), in
the event any monetary recovery in connection with the prosecution of such
infringement action is obtained, such monetary recovery shall be applied in the
following priority: first, to the reimbursement of Signal and Tanabe for their
out-of-pocket expenses (including attorneys' fees) in prosecuting such
infringement action; second, the balance of the monetary recovery to be shared
equally by Signal and Tanabe. If the monetary recovery is less than the
out-of-pocket expenses of Signal and Tanabe, reimbursement shall be on a
pro-rata basis, based upon cost incurred. Any expense or liability in connection
with the prosecution of such infringement action (including legal costs incurred
by the defendant(s)) shall be shared equally by Signal and Tanabe. To the extent
only one Party is permitted to bring suit, Signal and Tanabe shall consult in
good faith to determine the most appropriate Party to bring suit, with the
sharing of recoveries as set forth above, to the extent permitted by law. Any
expense or liability in connection with the defense of any counterclaim or
cross-claim action shall be borne by the Parties as determined in the court
proceeding for said counterclaim or cross-claim.
(c) If Tanabe declines to bring suit to enforce a Signal
Patent, Signal may, subject to the written consent of Tanabe which shall not be
unreasonably withheld, file an infringement action in the Rest of the World in
its name or on behalf of Tanabe where necessary, at its own expense. In such
case, Signal shall be the sole recipient of the proceeds of any recovery,
provided that Signal shall indemnify Tanabe against any expenses or liability
incurred by Tanabe relating to such proceedings, excluding however any expenses
or liabilities relating to the defense by Tanabe of any counterclaim or
cross-claim that may be brought against Tanabe.
(d) If Signal and Tanabe, after consultation with each
other, elect not to bring suit, individually or jointly, or if Signal and/or
Tanabe, as the case may be, are/is not able to stop such infringing activities,
the Parties shall renegotiate in good faith their arrangement applicable in the
country affected by such infringement, including but not limited to, a reduction
of royalty rate payable by Tanabe to Signal.
15.8 Alleged Infringement of Patents. In the event of dispute
concerning a third party's patent rights in the Territory, Signal and Tanabe
will proceed as follows:
(a) While a dispute concerning an alleged infringement of
a third party's patent rights is in progress, the Party which had a claim
brought against it by a third party (the "Defendant Party") will use its
commercially reasonable best efforts to defend against the infringement claim
and resolve the dispute; and the Defendant Party will pay all of its attorneys'
fees and expenses associated with the resolution of this dispute. Additionally,
the other Party will assist and use its commercially reasonable best
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efforts to help the Defendant Party resolve the dispute on favorable terms, with
the other Party to bear its own expenses.
(b) In the event the dispute is resolved against Signal
and Tanabe, with a finding of an infringement, then each Party shall bear its
own costs and expenses; provided the Party who made, manufactured or sold the
Product in the area where the infringement was deemed to have occurred, shall
bear the entire responsibility for all damages to the third party and shall
indemnify and hold harmless the other Party for the payment of such damages.
16. RESEARCH EXPENSES. Except as otherwise expressly provided by this
Agreement, each Party shall bear its own internal research, development and
regulatory costs.
17. REPRESENTATIONS AND WARRANTIES. Signal and Tanabe each represent and
warrant to the other as set forth below:
17.1 Representations and Warranties of Signal. Signal represents
and warrants that:
(a) The execution, delivery and performance of this
Agreement by Signal will not, with or without notice, the passage of time or
both, result in any violation of, be in conflict with, or constitute a default
under any material contract, obligation or commitment to which Signal is a party
or by which it is bound, or to Signal's knowledge, any statute, rule or
governmental regulation applicable to Signal.
(b) Signal has all requisite legal and corporate power and
authority to enter into this Agreement, to grant the licenses to be granted by
Signal hereunder and to carry out and perform its obligations under the terms of
this Agreement. It has the capacity and skills required to carry out its
obligations with respect to the research and development of Compounds and
Products as contemplated by this Agreement. All corporate action on the part of
Signal, its officers and directors necessary for the grants of licenses pursuant
hereto and the performance of Signal's obligations hereunder has been taken.
This Agreement constitutes a valid and binding obligation of Signal, enforceable
in accordance with its terms, except as: (i) the enforceability hereof may be
limited by bankruptcy, insolvency, moratorium or other similar law as affecting
the enforcement of creditors' rights generally; (ii) the availability of
equitable remedies (e.g., specific performance, injunctive relief and other
equitable remedies) may be limited by equitable principles or general
applicability; (iii) to the extent the indemnification provisions contained in
this Agreement may be limited by applicable federal or state securities law; and
(iv) that no representation is made regarding the effect of laws relating to
competition, antitrust or misuse or the effect of Tanabe's or third parties'
intellectual property rights.
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(c) All employees of Signal who are expected to
participate in the Collaborative Project have signed agreements regarding
proprietary information and inventions with Signal in a form reasonably
considered by Signal and its counsel to assure Signal's title to any Joint
Inventions, Signal Technical Information or Signal Patents that may arise or be
developed by such employees hereunder. Such agreements are legal, valid and
binding obligations of Signal and its employees and are enforceable in
accordance with their terms, except as limited by applicable bankruptcy laws and
other similar laws affecting the creditors' rights and remedies generally and
except insofar as the availability of equitable remedies may be limited.
17.2 Representations and Warranties of Tanabe. Tanabe represents
and warrants that:
(a) The execution, delivery and performance of this
Agreement by Tanabe will not, with or without notice, the passage of time or
both, result in any violation of, be in conflict with, or constitute a default
under any material contract, obligation or commitment to which Tanabe is a party
or by which Tanabe is bound, or to Tanabe's knowledge, any statute, rule or
governmental regulation applicable to Tanabe.
(b) Tanabe has all requisite legal and corporate power and
authority to enter into this Agreement, to grant the licenses to be granted by
Tanabe hereunder and to carry out and perform its obligations under the terms of
this Agreement. It has the capacity and skills required to carry out its
obligations with respect to the development and the marketing/sales of the
Products as contemplated by this Agreement. All corporate action on the part of
Tanabe and its officers and directors necessary for the grants of licenses
pursuant hereto and the performance of Tanabe's obligations hereunder has been
taken. This Agreement constitutes a valid and binding obligation of Tanabe,
enforceable in accordance with its terms, except as (i) the enforceability
hereof may be limited by bankruptcy, insolvency, moratorium or other similar law
as affecting the enforcement of creditors' rights generally, (ii) the
availability of equitable remedies (e.g., specific performance, injunctive
relief, and other equitable remedies) may be limited by equitable principles or
general applicability, (iii) to the extent the indemnification provisions
contained in this Agreement may be limited by applicable law and (iv) and that
no representation is made regarding the effect of laws relating to competition,
antitrust or misuse or the effect of Signal's or third parties' intellectual
rights.
(c) All employees of Tanabe who are expected to
participate in the Collaborative Project have agreements regarding proprietary
information and inventions with Tanabe in a form reasonably considered by Tanabe
and its counsel to assure Tanabe's title to any Joint Inventions or Tanabe
Technical Information that may arise or be developed by such employees
hereunder. Such agreements are legal, valid and binding obligations of Tanabe
and its employees and are enforceable in accordance with their terms, except as
limited by applicable bankruptcy laws and other similar laws
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affecting the creditors' rights and remedies generally and except insofar as the
availability of equitable remedies may be limited.
17.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT,
SIGNAL AND TANABE MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND,
EITHER EXPRESS OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
18. OPTION TO EXPAND TERRITORY. If Signal's Western Pharmaceutical
Partner or its Affiliates do not have operations in Australia or New Zealand and
if the Western Pharmaceutical Partner does not require rights in Australia or
New Zealand in order for Signal to complete a research collaboration with such
Western Pharmaceutical Partner in Signal's judgment, Signal will grant to Tanabe
the exclusive option set forth below to acquire exclusive rights to
commercialize Compounds or Products in Australia, New Zealand and other Oceania
countries (the "Marketing Option") on terms and conditions to be negotiated.
Prior to entering into any agreement with a third party to grant exclusive
rights to commercialize a Compound or a Product in Australia, New Zealand and
other Oceania countries, Signal shall notify Tanabe in writing of the terms of
any such proposed agreements. Such notice shall be deemed an offer to Tanabe to
enter into agreements on the proposed terms and conditions. Tanabe shall have
thirty (30) days to accept the offer contained in such notice. Upon acceptance
by Tanabe, the parties will negotiate in good faith to draft and execute
definitive agreements within two (2) months of acceptance. Signal and Tanabe
shall negotiate in good faith with respect to the option described in this
Section 18. In the event that Signal and Tanabe are not able to negotiate an
agreement on mutually agreeable terms within two (2) months of the beginning of
negotiations with respect to the Marketing Option, Signal hereby agrees that if
Signal intends to accept any offer from a third party which is not more
favorable to it than Tanabe's last offer, Signal shall promptly notify Tanabe
and Tanabe shall have the right to enter into an agreement with Signal on the
terms and conditions of such third party offer. This right of first refusal
shall survive termination of negotiations pursuant to this Section 18 for a
period of nine (9) months.
19. MISCELLANEOUS.
19.1 Successors and Assigns. This Agreement shall be binding on
the Parties hereto and their respective successors and assigns. Neither of the
Parties hereto shall be entitled to assign this Agreement or any of its rights
or obligations hereunder, including an assignment to one of its Affiliates,
without the consent of the other. If either Party is acquired or merged with
another entity, that entity shall succeed to all of the rights and obligations
of the disappearing Party; provided in the event either Party is acquired or
merged with another entity, such acquiring or successor entity shall expressly
assume in writing the due and punctual performance and observance of all
obligations under this Agreement of the Party it has acquired or with which it
has merged, with the
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same effect as if such entity had originally been such Party hereunder; and
further provided if such acquiring or successor entity does not so assume the
obligations of the Party it has acquired or with which it has merged, the other
Party may terminate this Agreement pursuant to Section 13 hereof.
Notwithstanding the foregoing, nothing contained in this Section 19.1 shall be
construed as preventing either Party from sublicensing its rights to any
Products granted hereunder.
19.2 Further Assurances. Signal and Tanabe shall cooperate with
each other and execute and deliver to each other such other instruments and
documents and take such other actions as may be reasonably requested from time
to time in order to carry out, evidence and confirm the rights and intended
purposes of this Agreement.
19.3 English Language. This Agreement is entered into in the
English language. All meetings and correspondence between the Parties are to be
in English. In the event of any dispute concerning the construction or meaning
of this Agreement, reference shall be made only to this Agreement as written in
English and not to any translation into any other language.
19.4 Governing Law. Disputes arising out of or based upon this
Agreement shall be governed by and construed in accordance with the laws of the
State of California, United States of America, as applied to agreements among
California residents entered into and to be performed entirely within
California.
19.5 Notices. Notices, demands or other communications required
or permitted to be given or made hereunder shall be in writing and delivered
personally or sent by private overnight mail delivery, with recorded delivery or
by legible telefax or by any other lawful means addressed to the intended
recipient at its address set forth below in this Section or to such other
address or telefax number as any Party may from time to time duly notify to the
other. Any such notice, demand or communication shall, unless contrary as
proved, be effective upon receipt. Correspondence to Signal shall be addressed
to:
Carl F. Bobkoski
Executive Vice President
Signal Pharmaceuticals, Inc.
5555 Oberlin Drive
San Diego, CA 92121
Telefax number: (619) 558-7513
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with a copy to:
Brobeck, Phleger & Harrison
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attn: J. Stephan Dolezalek
Telefax number: (415) 496-2736
Correspondence to Tanabe shall be addressed to:
Tanabe Seiyaku Co., Ltd.
2-10 Dosho-machi 3-chome
Chuo-ku, Osaka 541, Japan
Attn: President
Telefax number: (06) 205-5509
19.6 Entire Agreement. This Agreement, together with the
schedules, appendices and exhibits hereto, constitutes the entire agreement
between the Parties with respect to the subject matter hereof and supersedes all
prior representations, understandings and agreements between the Parties
regarding the subject matter hereof. Except as otherwise expressly provided no
modification, amendment or waiver of any of the provisions of this Agreement
shall be effective unless made in writing specifically referred to this
Agreement and duly signed and delivered by the Parties hereto.
19.7 No Waiver. No failure or delay on the part of Signal or
Tanabe in exercising any right under this Agreement, irrespective of the length
of time for which such failure or delay shall continue, will operate as a waiver
of, or impair, any such right. No single or partial exercise of any such right
will preclude any other or further exercise thereof or the exercise of any other
right. No waiver of any such right will be effective unless given in a signed
writing. No waiver of any such right will be deemed a waiver of any other right
hereunder or thereunder.
19.8 Severability. In case any provision of this Agreement shall
be invalid, illegal, or unenforceable, it shall to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the Parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
19.9 Force Majeure. Neither Party shall be held liable or
responsible to the other Party nor be deemed to have defaulted under or breached
this Agreement for failure or delay in fulfilling or performing any terms of
this Agreement to the extent, and for so long as, such failure or delay is
caused by or results from fires, floods, embargoes, government regulations or
administrative guidance, prohibitions or interventions, war,
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acts of war (whether war be declared or not), insurrections, riots, civil
commotions, strikes, lockouts, acts of God, or any other cause beyond their
respective reasonable control, but they shall make every reasonable effort to
remove any such cause of their failure or delay as soon as possible.
19.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
51.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as
of the Effective Date written above.
SIGNAL PHARMACEUTICALS, INC.
By: [SIG]
-------------------------------------
Name: (Illegible)
Title: PRESIDENT
TANABE SEIYAKU CO., LTD.
By: /s/ TETSUYA TOSA
-------------------------------------
Tetsuya Tosa, Ph.D.
Senior Executive Director
Research and Development
Representative Director
[SIGNATURE PAGE TO COLLABORATIVE DEVELOPMENT
AND LICENSING AGREEMENT]
52.
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EXHIBIT A
SELECTION CRITERIA FOR A CHEMICAL LEAD COMPOUND
A. Definition
A Chemical Lead Compound is a [***]:
Tanabe may designate a specific compound as a Chemical Lead Compound
even if the compound fails to meet one or more such criteria.
B. [***]
A-1
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C. [***]
A-2
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EXHIBIT B
SELECTION CRITERIA FOR THE CLINICAL CANDIDATE
[***]
B-1
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EXHIBIT C
INFLAMMATION PROGRAM
[***]
C-1
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EXHIBIT D
[***]
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*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 16 C.F.R. Sections 200.80,
200.83 and 230.406.
EXHIBIT 10.41
AGREEMENT
THIS AGREEMENT is made this ____ day of July, 1996 (the "Effective
Date") between N.V. ORGANON, Molenstraat 110, P.O. Box 20, 5340 BH Oss, the
Netherlands (hereinafter referred to as "Organon") and SIGNAL PHARMACEUTICALS,
5555 Oberlin Drive, San Diego, California 92121, USA (hereinafter referred to as
"Signal").
INTRODUCTION
A. Signal has considerable experience in making biological assays useful
for screening compounds:
B. Organon has experience in medicinal chemistry and has certain
proprietary technology regarding the optimization of lead compounds arising from
screening in assay systems.
C. Organon wishes to retain the services of Signal to assist Organon in
the discovery and development of new assays for the targets which are selected
as provided below.
THEREFORE THE PARTIES HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS
1.1. "Affiliate" means in the case of each party any entity that
directly or indirectly controls, is controlled by, or is under common control
with that party. For such purpose the terms "control" means ownership or control
of at least 50% of the voting interest in the entity in question.
1.2. "Compound Patent" means a patent or patent application claiming an
invention or discovery specific to a Lead Compound and a genus of compounds
reasonably expected to have the same or similar activity, which Lead Compound or
genus of compounds result from the use of a Research Assay.
1.3. "Development Compound" means a compound which has undergone
preclinical animal studies, formulation and production work necessary to
commence formal animal toxicology studies, and is selected for formal animal
toxicology studies in preparation for the submission of an U.S. IND or an
equivalent foreign filing.
1.4. "Executive Committee" means the committee to be established
pursuant to Article 2 hereof.
1.5. "FTE" means the full time equivalent effort, for one year, of one
person who participates directly in the research and development activities
contemplated under
1.
<PAGE> 2
this Agreement. Such participation includes, without limitation, production of
chemical, biological and/or other materials or reagents provided for use under
this Agreement (and the resupply thereof if shelf stock is provided, as
reasonably determined by Signal).
1.6. "Gene/gen products Patents" means a patent or patent application
claiming an invention or discovery specific to [***], having been identified
under the Target Research.
1.7. "Lead Compound" will have the meaning assigned in Section 3.2.
1.8. "Library" means a library or mixture of compounds, including the
compounds contained or proposed to be contained therein.
1.9. "Net Sales" means the total revenue from commercial sales received
by a party hereto, its Affiliates and/or licensees from the sale of an Organon
Product to independent third parties less the following amounts:
(i) discounts, including cash discounts, trade allowances or
rebates actually allowed or granted and taken,
(ii) credits or allowances actually granted upon claims or
returns, regardless of the party requesting the return,
(iii) separately itemized freight charges paid for delivery and
(iv) taxes or other governmental charges levied on or measured
by the invoiced amount, whether absorbed by the billing party or the billed
party.
1.10. "Organon Compound" means a compound selected from an Organon
Library, Organon internal development or otherwise from a third party source
other than Signal engaged by Organon to provide compounds.
1.11. "Organon Library" means a Library designed and/or synthesized or
acquired by Organon (alone or with third parties)
1.12. "Organon Product" means any product in the Target Research Field
which contains one or more active compounds (i) selected by use of a Research
Assay (ii) derived from one or more compounds so selected or (iii) significantly
altered or advanced to the next stage of development by use of a Research Assay
(a "Selected Compound"). Organon shall inform Signal about all compounds
identified as having biological activity in any Research Assays and whether such
compounds are Selected
2.
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Compounds or were selected by Organon through other means prior to running such
compounds in a Research Assay. If such compounds were selected by Organon
through other means prior to running such compounds in a Research Assay, Organon
will provide Signal access to its lab journals and demonstrate to Signal's
reasonable satisfaction that such compounds were selected by Organon through
other means prior to running such compounds in a Research Assay. All Organon
Products, containing the same active compound, or a compound which is derived
from the active compound (such as a different salt, ester, crystal form or the
like), regardless of other differences, such as dose, dosage form, indication
and the like shall be considered a single Organon Product, as the case may be,
unless such Organon Product also contains another active compound that is
selected by use of a Research Assay or is derived from such a compound. Organon
Product shall exclude any compound that was already "in active development" by
Organon before screening such compound in a Research Assay or was already
selected by Organon prior to screening with the Research Assays as described
above, except as set forth below. The compound will be deemed to be in "active
development" after (i) toxicology studies have been finished, and/or (ii)
efficacious results in an animal model have been obtained, and/or (iii)
efficacious results in at least two in vitro models have been obtained.
Notwithstanding the foregoing, such a compound shall be an Organon Product if
the compound's development is significantly altered by the results of screening
the compound in a Research Assay.
1.13. "Research Assay" means an assay based on [***].
1.14. "Research Assay Patent" means a patent or patent application
claiming a Research Assay.
1.15. "Research Committee" means a team to be established for the
purposes of the Target Research pursuant to Section 3.1.2 hereof.
1.16. "Research Plan" shall mean the research activities to be conducted
by the parties pursuant to the Target Research. The initial Research Plan is
attached as Exhibit A which may be amended from time to time upon the mutual
agreements of the parties.
1.17. "Research Term" shall mean the term of the Target Research
referenced in Article 3.
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1.18. "Signal Compound" means a compound selected from a Signal Library,
Signal internal development or otherwise from a third party source engaged by
Signal to provide compounds.
1.19. "Signal Library" means a Library designed and/or synthesized or
acquired by Signal (alone or with third parties).
1.20. "Signal Technology" means all inventions, know-how, trade secrets,
and other proprietary information (whether patented or not), which are owned by
Signal as of the Effective Date or developed during the Research Term, as to
which Signal has the right to grant to Organon a license hereunder, and
consisting of methods and materials for the production and/or use of biological
assays. Signal Technology shall not include any inventions covered by any
Research Assay Patent, Gene/gen product Patent or Compound Patent.
1.21. "Signal Technology Patents" means all patents and patent
applications (including provisionals, divisionals, continuations, continuations
in part, reissues, re-examinations, substitutions, additions and any extensions
to such patents) claiming Signal Technology. Signal Technology Patents shall not
include any Research Assay Patent, Gene/gen product Patent or Compound Patent.
1.22. "Target Research" means the research and development program
directed toward the Target Research Field conducted by the parties pursuant to
Article 3 of this Agreement.
1.23. "Target Research Field" means [***], for human therapeutic and/or
diagnostic use; provided, however, the Target Research shall exclude [***].
2. EXECUTIVE COMMITTEE
2.1. The parties will establish an Executive Committee for the purposes
of developing, reviewing and monitoring research plans, research budgets and
changes thereto, and supervising the Target Research within the parameters
established in this Agreement. The Executive Committee shall have such even
number of members as the parties shall agree, half of the members being
appointed by each party, with each of Signal and Organon having one vote. In the
event of deadlock on any issue, such issue shall be referred for decision to a
senior officer designated by each party, which officer shall have the
appropriate responsibility and authority to represent and bind such party with
respect to such issue or dispute. During the Research Term, the Executive
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Committee shall meet not less than twice per year, and the location of such
meetings shall alternate between San Diego and Oss, all unless otherwise agreed
by the parties.
3. TARGET RESEARCH
The Target Research shall commence upon the Effective Date and shall
continue for three years thereafter, extendible for up to two additional years
under substantially the same FTE funding and other terms as are set forth
herein, with mutual consent. If the milestone described in Exhibit B is not met
within 8 months after the Effective Date Organon at its sole discretion may
forthwith terminate the Target Research by written notice effective as of the
first anniversary of the Effective Date. If the milestone described in Exhibit C
is not met within 18 months after the Effective Date Organon at its sole
discretion may terminate the Target Research effective as of the second
anniversary of the Effective Date. For purposes of this Agreement, the "Research
Term" shall be the period from the Effective Date until the Target Research
expires or is terminated pursuant to this Article 3. Under the Target Research
Signal shall use reasonable efforts to deliver up to [***] Research Assays to
Organon.
If Organon elects to terminate the Target Research (a) at the end of the
first year as provided above or (b) prior to receiving the [***] and paying the
first milestone under Section 3.2.1(a), whichever is earlier, then this
Agreement and all licenses granted hereunder shall terminate, except that the
provisions listed in Section 9.3(b) shall survive. Otherwise, this Agreement
shall survive termination or expiration of the Target Research.
3.1. RESEARCH PROGRAM
3.1.1. The parties agree to execute the Research Plan subject to
the following:
(a) Signal agrees that, during the Research Term, Signal
shall collaborate exclusively with Organon within the Target Research Field.
(b) Signal will not actively participate with third
parties in the design of new Research Assays, for use within the Target Research
Field, during the Research Term or for one year after termination of the Target
Research by Organon pursuant to Section 3 above. If the Target Research
continues for the full three year term, Signal will refrain from such activities
for one year after the end of the Research Term, provided, however, if any
milestone payments pursuant to Sections 3.2.1(b) or 3.2.1(c) are made during
such four-year period, then Signal will refrain from such activities for five
years after the end of the Research Term, and if any royalties are paid under
Section
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3.2.3 during such five-year period, then Signal will refrain from such
activities for the term of this Agreement.
(c) Organon shall, at its discretion, provide access to
its proprietary technologies and know-how, as may be useful in connection with
the Target Research. For clarity of understanding, Signal shall not have the
right to utilize such technologies and know-how other than in connection with
the Target Research.
3.1.2. The Target Research shall be implemented by the Research
Committee which shall be comprised of an equal number of members, but not more
than four, from each party.
Membership of the Research Committee will be determined according
to the needs of the particular project. The leaders of the Research Committee
shall be nominated by the Executive Committee. In the event of deadlock on any
matter the Research Committee shall refer such matter to the Executive
Committee.
The Research Committee shall meet as often as may be required for
the purposes of the Target Research but in any event not less than four times
per year, again unless otherwise agreed by the parties. Written reports of such
meetings and of the status of the individual projects shall be submitted to the
Executive Committee. Unless otherwise agreed, meetings shall alternate between
the relevant sites of Signal and Organon.
3.1.3. In consideration of the exclusive rights given to it
Organon shall pay, within five (5) days after the Effective Date, to Signal a
fee of One Million Dollars (U.S. $1,000,000).
3.1.4. In addition, Organon shall pay Signal's fully-burdened costs per
year per FTE actively engaged in the Target Research. The initial rate shall be
[***] per FTE per year, this amount to be increased annually, effective January
1 of each calendar year, commencing January 1, 1998, based on increases in the
United States Consumer Price Index for all Urban Consumers, all items not
seasonally adjusted (sources Bureau of Labor Statistics) for the previous
calendar year. This payment also compensates Signal for all ordinary travel
expenses incurred by such FTE's in attending meetings or the Research Committee
and/or Executive Committee.
Unless otherwise agreed in writing, Signal shall make available,
on average, the FTEs as set forth in Exhibit D. Such FTEs shall include a
balanced group of Ph.D. or equivalent, scientists and other technical support
personnel.
The annual cost of such FTEs shall be due and payable in equal
quarterly installments in advance, on the following schedule. The first such
payment shall be due
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and payable upon the Effective Date, and shall cover the FTE cost from such date
through the end of the then current quarterly period, on a prorated basis.
Thereafter, for the remainder of the Target Research, FTE payments for each
quarterly period shall be due and payable on each January 15, April 15th, July
15th and September 15th in U.S. dollars by bank wire transfer. Signal shall
submit corresponding invoices to Organon no later than forty-five (45) days
before the date upon which payment is due, with the last payment also being
prorated. Such payments shall be subject to reconciliation in accordance with
Section 3.1.5 herein.
3.1.5. Signal will keep records of the time spent by its FTEs on
the Target Research, Organon shall have the right to have these records audited,
in the same manner as is set forth in Section 6.4. Signal will report the level
of FTE effort to Organon on a quarterly basis. During the course of the Target
Research, Signal will notify Organon if it becomes apparent that the level of
effort at Signal is expected to deviate from the level required under Section
3.1.4.
If the level of effort is less than an average, on an annual
basis, of the number of FTE's required pursuant to Section 3.1.4, Organon will
be entitled to additional FTE effort in subsequent quarterly periods, such that
the required annual average is restored. Conversely, if the average annual level
of effort by Signal exceeds the number of FTE's required and funded pursuant to
Section 3.1.4, Signal will be entitled to reduce the FTE effort in subsequent
quarterly periods, such that the required annual average is restored. At the end
of the Target Research the parties will restore any such imbalance between
actual and funded FTE's either through appropriate payments or refunds, or
through the extension of the Target Research until the balance is restored, as
mutually agreed to by the parties.
3.2. DEVELOPMENT AND COMMERCIALIZATION
The provisions of this Section 3.2 shall apply to all compounds (the
"Lead Compounds") which result from the use of Research Assays.
3.2.1. ORGANON MILESTONE PAYMENTS.
(a) Organon shall pay Signal [***].
(b) [***].
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(c) For Development Compounds, the following milestone
payments shall be made by Organon to Signal.
(i) [***]
(ii) [***]
(iii) [***]
For clarity of understanding the milestones referred
to in Section 3.2.1(c) shall each be payable only once for each compound; such
that the maximum aggregate milestone payments for a single compound will be
[***].
(d) If more than one Organon Product is commercialized
originating from the same selection criteria and Research Assay(s) as a back-up
to another Organon Product for which milestones have already been paid, and
which is approved for the same therapeutic indication as such Organon product,
Organon shall pay Signal retroactively the payments under Section 3.2.1(b) and
(c) upon the date of first commercial sale of each such second or further
Organon Product.
3.2.2. THIS SECTION INTENTIONALLY LEFT BLANK
3.2.3. ROYALTIES
As a further compensation for providing the Research Assays to
Organon, on each Organon Product Organon shall pay the following royalties to
Signal:
(a) For each Organon Product which contains an Organon
Compound, or an analog, derivative or homolog of an Organon Compound and not an
analog, derivative or homolog of a Signal Compound, Organon shall pay to Signal
royalties on Net Sales made by Organon, its Affiliates or licensees, at the rate
of [***] of Net Sales if aggregate annualized worldwide Net Sales for the
Organon Product do not exceed [***], at the rate of [***] if aggregate
annualized worldwide Net Sales for the Organon Product are greater than [***]
and do not exceed [***], and [***] of Net Sales if aggregate annualized
worldwide Net Sales for the Organon Product exceed [***].
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For each Organon Product which contains a Signal Compound, or an analog,
derivative or homolog of a Signal Compound, Organon shall pay to Signal
royalties on Net Sales made by Organon, its Affiliates or licensees, at the rate
of [***] of Net Sales if aggregate annualized worldwide Net Sales for the
Organon Product does not exceed [***], at the rate of [***] if aggregate
annualized worldwide Net Sales for such Organon Product are greater than [***]
and do not exceed [***], and [***] of Net Sales if aggregate annualized
worldwide Net Sales for such Organon Product exceed [***].
(b) In addition to the royalties set forth above, Organon
shall pay to Signal all royalties owed by Signal, pursuant to its agreements
with third parties, for the use of Signal Compounds, Compound Patents, Signal
Technology, Signal Technology Patents, Research Assay Patents or Gene/gen
product Patents in the Target Research or otherwise under this Agreement.
Notwithstanding the foregoing, Signal shall notify the Research Committee before
using in the Target Research, any Signal Technology or invention covered by
Signal Technology Patents, Research Assay Patents or Gene/gen product Patents
(but not Signal Compounds or Compound Patents) which is subject to such a
royalty obligation to a third party. If the Research Committee elects to make
use of such technology or inventions, Organon shall pay such royalties as
provided above. If the Research Committee elects not to make use of such
technology or invention, no such royalties shall be owed by Organon and neither
party shall apply such technology or invention to the Target Research. As of the
date of this Agreement, Signal has no agreements with third parties pertaining
to the use of Signal Compounds, Compound Patents, Signal Technology, Signal
Technology Patents, Research Assay Patents or Gene/gen product Patents under
which royalties will be due for the use of such compounds, technology or patents
in the manner contemplated under this Agreement.
(c) Royalties shall be paid until the later of
(i) the expiration or disclaimer of the last Research
Assay Patent Genes/Receptor Patent Compound Patent, a Signal Technology Patent
that covers the relevant Organon Product or the manufacture or use thereof for
an approved indication on a country by country basis or
(ii) ten (10) years from the first commercial
launch in each country.
Each party acknowledges and agrees that the Signal
Technology generally, and the Research Assays in particular, constitute highly
valuable materials and information, as reflected for example in the payments to
be made by Organon under Section 3.2.1(a), as well as those to be made under
Sections 3.1.3 and 3.1.4. Signal has made every effort to retain such materials
and information in
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confidence. Irrespective of whether the Research Assays, for example, are
covered by Research Assay Patents, access to such assays will provide Organon
with substantial competitive advantage in the discovery and development of
products in the Target Research Field. In order to induce Signal to make such
assays available to Organon, in addition to other payments provided in this
Agreement, Organon agrees to pay, even if no Research Assay Patents or other
patents cover such Organon Product, (i) royalties on Net Sales in North America
at the rate set forth above for [***] from commercial launch of each Organon
Product in each North American country, and (ii) a royalty of [***] on Net Sales
in each other country for [***] from commercial launch of each Organon Product
in each such country.
3.2.4. Lead Compound Development; Abandoned Products
(a) Organon agrees to use commercially reasonable
diligence to develop and commercialize Lead Compounds for development and
commercialization as an Organon Product. Organon will keep Signal informed of
the progress of its development of products under this Section 3.2, at each
meeting of the Executive Committee during the Research Term, and not less
frequently than once per year thereafter.
(b) If at any time Organon has conducted no significant
development activity with regard to a particular Signal Compound for a period of
twelve months, Signal will have the right to develop and commercialize products
incorporating such Signal Compound ("Abandoned Products"), subject to the
following. Signal shall not develop or commercialize any Abandoned Product so
long as Organon is developing an Organon Product with demonstrated activity in
the same Research Assay (or set of Research Assays) as the Abandoned Product
demonstrates activity in. Signal may not commence development of any Abandoned
Product until the first anniversary of the conclusion of the Target Research.
(c) For the one year period commencing on the date Signal
first obtains the right to develop an Abandoned Product, Organon shall have the
following right of first negotiation to re-acquire rights to such Abandoned
Product. Upon notice by either party during such one year period, the parties
shall negotiate in good faith for up to sixty (60) days to reach a Term Sheet
providing for Organon to re-acquire such rights. If a Term Sheet can be agreed
upon, the parties shall negotiate in good faith for up to sixty (60) additional
days to reach a definitive agreement. If no definitive agreement is executed
within such time period, Signal shall be free to pursue such Abandoned Product
alone or with third parties subject only to royalties at the following rates:
[***] of Net Sales if aggregate annualized worldwide Net Sales for the Abandoned
Product do not exceed [***], [***] of Net Sales if aggregate annualized
worldwide Net Sales for the Abandoned Product are greater than [***] and do not
exceed [***],
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and [***] of Net Sales if aggregate annualized worldwide Net Sales for the
Abandoned Product exceed [***], which shall be paid in accordance with the
mechanisms set forth in Sections 3.2.3(c) and Section 6 with respect to Organon
Products.
3.3. TITLE TO NEW INVENTIONS AND PATENT RIGHTS
3.3.1. Inventions and discoveries made by inventors employed by
Signal shall be owned by Signal, Inventions and discoveries made by inventors
employed by Organon shall be owned by Organon. Inventions and discoveries made
by both inventors employed by Signal as inventors employed by Organon shall be
jointly owned.
Each party shall provide the other party with any and all
available information and documentation needed to prepare, file, prosecute,
re-examine patent applications. Both parties shall refrain from any action that
might endanger possible patent rights arising from the Target Research.
3.3.2. PATENT COMMITTEE. The parties shall form a joint Patent
Committee to review the preparation and prosecution of patents arising from the
Target Research. The Patent Committee shall include a patent attorney designated
by each party and the chemistry program head designated by each party. All
patent applications arising from the Target Research shall be evaluated in
accordance with the following process:
(a) The designated patent attorneys from each party shall
advise the Executive Committee on inventorship issues related to patents arising
from the Target Research.
(b) Unless otherwise agreed, patents and patent
applications owned by one party shall be drafted, filed, prosecuted and
maintained by the party that owns the patent rights, as provided in Section
3.3.1 at that party's expense. The Patent Committee shall decide which party
will draft and prosecute joint patents in consultation with the other party: the
expenses for the drafting and prosecution of such patent shall be shared equally
between the parties. In all cases, each party shall keep the other party
informed as to the status and progress of all relevant patents and patent
applications; and shall draft, file, prosecute and maintain joint patents and
patent applications in consultation with the other party.
(c) If there is a dispute between Signal and Organon
related to patents arising from the Target Research, including, without
limitation, issues regarding patent claims, the scope of patent claims; and
inventorship, the parties shall refer the matter to an independent patent
attorney acceptable to both parties for resolution.
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3.4. LICENSES AND OPTION RIGHTS
Subject to the terms and conditions of this Agreement, Signal hereby
grants to Organon a world-wide non-exclusive license, during the Research Term
only under the Signal Technology within the Target Research Field to conduct
research in accordance with the Research Plan. Subject to the terms of this
Agreement, Signal hereby grants to Organon a world-wide exclusive license, for
the period following the end of the Research Term until this Agreement expires
or is terminated, to use the Signal Compounds and under the Research Assay
Patents, Gene/gen product Patents and Compound Patents to research, develop,
make, have made, use and sell Organon Products; provided, however, that any
compound from any source that is useful for the [***] shall be specifically
excluded from the scope of the foregoing license. If, however, a compound has
been selected in the Target Research Field that potentially is useful for the
[***], the parties shall negotiate in good faith, together with any of Signal's
licensee(s) in such field, a possible extension of the foregoing license with
regard to such compound. Subject to the terms of this Agreement, Signal hereby
grants to Organon a world-wide non-exclusive license, for the period following
the end of the Research Term until this Agreement expires or is terminated, to
use the Signal Technology and Signal Technology Patents for any purpose in the
Target Research Field. Organon shall have the right to grant sublicenses under
its exclusive license rights, with the prior written consent of Signal, not to
be unreasonably withheld; provided that such consent shall not be required for
sublicenses to Organon's Affiliates.
4. PATENT ENFORCEMENTS
4.1. INFRINGEMENT ACTION BY A THIRD PARTY
4.1.1. NOTICE. Each party shall promptly notify the other party
if any legal proceedings are commenced against any party or any purchaser of a
Organon Product, claiming that the manufacture, use or sale of such Organon
Product is an infringement of a third party's patent or other intellectual
property rights.
4.1.2. DEFENSE OF CLAIMS INVOLVING ORGANON PRODUCT. Organon shall
have the right, and to the extent required by Section 5.1, the obligation to
assume and solely manage the defense of any such infringement claim relating to
the Organon Product in its own name or in the name of Signal, if necessary, in
such event.
(i) Signal shall take all appropriate or necessary
actions to assist in the defense of such action or claim
(ii) Organon shall bear all costs and expenses
associated with such action or claim (including, without limitation, legal fees
and expenses).
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(iii) Organon shall not settle any such claim in any
manner which adversely affects Signal without Signal's prior written consent.
4.2. INFRINGEMENT ACTION AGAINST A THIRD PARTY
4.2.1. NOTICE. Each party shall promptly notify the other party
if it becomes aware of any infringement of any Signal Patents or Organon Patents
by any third party.
4.2.2. MAINTENANCE OF LAWSUITS INVOLVING SIGNAL PATENTS. Signal
shall have the first right (but not the obligation) to file and maintain
lawsuits for infringement of any Signal Patents by any third party, in its own
name or in the name of Organon, if necessary. If Signal exercises its right to
file and maintain such a lawsuit, Signal shall promptly notify Organon thereof
and Organon shall have the right to join Signal in such action. Within 30 days
of the date of such notice,
(i) Organon shall exercise or waive its right to join Signal in such
action; and
(ii) representatives of Signal and Organon shall meet and confer
(whether or not Organon joins Signal in such action) to allocate between the
parties (a) the costs incurred in maintaining such an action and (b) any
monetary recovery in connection with any such infringement.
Organon shall give Signal all reasonable assistance and cooperate in any
such proceedings filed by Signal, including the entry into additional agreements
necessary to perfect Signal's right to bring or maintain such lawsuits. If
Signal does not exercise its rights to enforce a patent covering Organon Product
within 90 days after the date of such notice of infringement under Section
4.2.1, Organon shall have the right to file and maintain such infringement
action at its own cost and expense, provided that the third party product which
is the subject of such infringement action is a competing product with respect
to the Organon Product. [***] of the costs incurred by Organon in maintaining
such infringement action shall be credited against Organon's royalty obligation
with respect to sales of Organon Product in such country pending the conclusion
of such infringement action, provided that such credit shall not exceed [***] of
the royalty otherwise payable by Organon in any quarter (the "Royalty Offset").
Any monetary recovery in connection with any such infringement action shall
first be applied to reimburse the party bringing such suit for all costs and
expenses incurred by such party, both internal and external, including
attorney's fees and expenses (excluding any amounts funded out of the Royalty
Offset). In the event that Signal declines to file and maintain a lawsuit for
infringement of Signal Patents and Organon assumes the maintenance of such
claim, then any sums withheld by Organon by virtue of the Royalty Offset shall
be reimbursed to Signal pro rata with Organon's recovery of its costs and
expenses which were not covered
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<PAGE> 14
by the Royalty Offset. Any remaining recovery shall be divided equally between
the parties unless Organon elects not to bear [***] the expenses of a suit
brought by Signal, in which case Signal shall retain any remaining recovery,
unless otherwise agreed by the parties as a part of a cost recovery agreement
between the parties.
4.2.3. MAINTENANCE OF CLAIMS INVOLVING ORGANON PATENTS. Organon
shall have the first right (but not the obligation) to file and maintain
lawsuits for infringement of any Organon Patents by any third party in its own
name or in the name of Signal, if necessary. If Organon exercises its right to
file and maintain such a lawsuit, and the infringer is developing or marketing a
product that would compete with an Abandoned Product which Signal is developing
or commercializing, then Organon shall promptly notify Signal thereof and Signal
shall have the right to join Organon in such an action. Within 30 days of the
date of such notice
(i) Signal shall exercise or waive its right to join Organon in such
action; and
(ii) representatives of Signal and Organon shall meet and confer
(whether or not Signal joins Organon in such action) to allocate between the
parties (a) the costs incurred in maintaining such an action and (b) any
monetary recovery in connection with any such infringement. In any case, Signal
shall give such Organon all reasonable assistance and cooperation in any such
proceedings filed by Organon, including the entry into additional agreements
necessary to perfect Organon's right to bring or maintain such lawsuits. If
Organon does not exercise its right to enforce an Organon Patent within 90 days
after the date of such notice of infringement under Section 4.2.1, then Signal
shall have the right to file and maintain such infringement action at its own
cost and expense, provided that the third party product which is the subject of
such infringement action is a competing product with respect to the Abandoned
Product which Signal is developing or commercializing. [***] of the costs
incurred by Signal in maintaining such infringement action shall be credited
against Signal's royalty obligations with respect to sales of such Abandoned
Product in such country pending the conclusion of such infringement action,
provided that such credit shall not exceed [***] of the royalty otherwise
payable by Organon in any quarter (the "Royalty Offset"). Any monetary recovery
in connection with any such infringement action first will be applied to
reimburse the party bringing such suit for all costs and expenses incurred by
such party, both internal and external, including attorneys' fees and expenses
(excluding any amounts funded out of the Royalty Offset). In the event that
Organon declines to file and maintain a lawsuit for infringement of such an
Organon Patent, and Signal assumes the maintenance of such claim, then any sums
withheld by Signal by virtue of the Royalty Offset shall be reimbursed to
Organon pro rata with Signal's recovery of its costs and expenses which were not
covered by the Royalty Offset. Any remaining recovery shall be divided equally
between the parties unless Signal elects not to bear [***] the expenses of a
suit brought by Organon, in which case Organon shall retain any remaining
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<PAGE> 15
recovery, unless otherwise agreed by the parties as a part of a cost recovery
agreement between the parties
5. INDEMNITY; NO WARRANTIES
5.1. ORGANON PRODUCTS
5.1.1. Organon agrees to indemnify, defend and hold harmless
Signal, and its respective officers, directors, shareholders, and employees from
and against all claims, losses, costs, damages and liability of any kind,
including without limitation attorneys fees, (collectively "Liabilities")
arising in connection with the development, manufacture, use or sale of Organon
Products, except for Liabilities arising as a result of breach by Signal of its
obligations under this Agreement, or any manufacturing, marketing or other
agreement between the parties with respect to the product in question. Signal
shall not make any admission of liability nor take any other action which could
prejudice the defense of such claim or lawsuit by Organon.
5.1.2. Signal shall promptly notify Organon of receipt of any
claim or lawsuit subject to Section 5.1.1 and shall cooperate with Organon in
connection with the investigation and defense of such claim or lawsuit. Organon
shall have the right to control the defense, with counsel of its choice,
provided that the indemnified party shall have the right to be represented by
advisory counsel at its own expense.
5.2. ABANDONED PRODUCTS
5.2.1. Signal agrees to indemnify, defend and hold harmless
Organon, and its respective officers, directors, shareholders, and employees
from and against all Liabilities arising in connection with the development,
manufacture, use or sale of Abandoned Products, except for Liabilities arising
as a result of breach by Organon of its obligations under this Agreement, or any
manufacturing, marketing or other agreement between the parties with respect to
the product in question. Organon shall not make any admission of liability nor
take any other action which could prejudice the defense of such claim or lawsuit
by Signal.
5.2.2. Organon shall promptly notify Signal of receipt of any
claim or lawsuit subject to Section 5.2.1 and shall cooperate with Signal in
connection with the investigation and defense of such claim or lawsuit. Signal
shall have the right to control the defense, with counsel of its choice,
provided that the indemnified party shall have the right to be represented by
advisory counsel at its own expense.
5.3. EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT, NEITHER PARTY MAKES
ANY, AND EACH PARTY EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING
WARRANTIES OF
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MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO ANY
LIBRARIES OR OTHER BIOLOGICAL OR CHEMICAL MATERIALS OR INFORMATION PROVIDED TO
THE OTHER PARTY PURSUANT TO THIS AGREEMENT OR THE PATENTABILITY OR FREEDOM FROM
INFRINGEMENT OF ANY OF THE FOREGOING.
6. PAYMENTS AND ACCOUNTING
6.1. All payments hereunder shall be made in U.S. Dollars.
6.2. Organon shall keep true and correct accounts of sales of all
products in respect of which royalties are payable to Signal pursuant to this
Agreement, and the calculation of Net Sales and royalties with respect thereto,
and shall deliver to Signal written statements thereof in such form as both
shall agree upon within sixty (60) days following the end of each calendar
quarter and at the same time shall pay to Signal the amount of such royalties
shown to be due.
6.3. All royalties shall be earned in the local currency of the country
where the applicable Net Sales are made, but shall be converted for payment into
U.S. Dollars, in accordance with the standard procedures used by the Organon in
converting currencies of world-wide product sales for its products generally.
If royalties cannot be remitted from a country, the parties will
work together to arrive at an equitable solution for paying such royalties to
Signal. Unless the parties mutually agree to the contrary, such obligation shall
be satisfied if royalty payments are paid to an account of the party in the
country in question.
Any withholding or other tax that Organon is required by law to
withhold and pay on behalf of Signal with respect to the royalties payable to
Signal under this Agreement shall be deducted from said royalties and paid
contemporaneously with the remittance to Signal; provided, however, that in
regard to any tax so deducted, Organon shall furnish Signal with proper evidence
of the taxes paid on its behalf.
6.4. Signal shall have the right to have an independent certified public
accountant of its own selection and at its own expense, except one to whom
Organon may have reasonable objection, examine the relevant books and records of
account of Organon during reasonable business hours, to determine whether
appropriate accounting and payment have been made hereunder. Said independent
certified public accountant shall treat as confidential, and shall not disclose
to Signal any other information not pertaining to the royalty amounts payable
under this Agreement. Such examination can be undertaken at any time within two
years after the date on which such royalty amounts were due and payable.
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7. PUBLICITY AND PUBLICATION
7.1. The parties will mutually agree on a press release to be issued
upon execution of this Agreement. Neither party shall make any subsequent public
announcement concerning the terms of this Agreement not previously made public
without the prior written approval of the other party with regard to the form,
content and precise timing of such announcement, except such as may be required
to be made by either party in order to comply with applicable law, regulations
or court orders. Such consent shall not be unreasonably withheld or delayed by
the other party. Prior to any such public announcement, the party wishing to
make the announcement will submit a draft of the proposed announcement of the
other party in sufficient time to enable the other party to consider and comment
thereon. Nothing in this section shall preclude disclosures by either party to
third parties under confidentiality restrictions in order to carry out the
purposes of this Agreement or to define the scope of rights which may be granted
to a third party without violating this Agreement.
7.2. PUBLICATIONS. Neither party will publish or publicly disclose
results arising from the Target Research without the prior consent of the other
party, which consent shall not be unreasonably withheld. With respect to any
proposed publication or public disclosure of such results, the following shall
apply:
7.2.1. The Research Committee shall review any proposed
publication with respect to the content, authorship, acknowledgment, and shall
either approve release of the publication, or propose revisions to the
publication. Any disputes relating to the contents or authorship of any
publication(s) prepared by Signal and Organon scientists participating in the
Target Research shall be referred to the Executive Committee for resolution.
7.2.2. The proposed publication shall be reviewed by the patent
departments and any other departments of Organon and Signal in accordance with
their customary procedures.
7.2.3. At such time as the proposed publication has been reviewed
and approved by the Research Committee and the patent and/or other departments
of Organon and Signal, the publication may be submitted for publishing.
8. CONFIDENTIALITY
8.1. Except as specifically authorized under the terms of this Agreement
each party shall, for the term of this Agreement and for five (5) years after
its termination for any reason whatsoever, treat any proprietary information
disclosed to it by the other party as strictly confidential, and shall not
disclose such proprietary information to third parties or use it for purposes
other than those authorized therein.
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Except as set forth in the exceptions hereinafter any
information, data or material, including without limitation, software,
technology, business plans or information, communicated to the other which is
identified as confidential, or which the other party has reason to believe is
confidential, will be deemed and treated as Proprietary Information.
Proprietary Information also includes proprietary chemical,
physical or biological materials, identified as confidential, exchanged pursuant
to this Agreement. Access to such Proprietary Information will be limited to
those employees or consultants of the party receiving such information or of
such party's Affiliates or sublicensees, who reasonably require such information
in order to carry out activities authorized pursuant to this Agreement. Such
employees or consultants will be advised of the confidential nature of the
Proprietary Information and the related confidentiality undertaking.
Proprietary Information shall not include, and the above
confidentiality undertaking shall in no event restrict or impair each party's
right to use or disclose any information which:
(a) at the time of disclosure is in the public domain or
thereafter becomes part of the public through no fault of the party receiving
such information;
(b) the party receiving such information can conclusively
establish that it was in its possession prior to the time of disclosure;
(c) is independently made available to the party receiving
such information by a third party who is not thereby in violation of a
confidential relationship with the other party; or
(d) the receiving party can establish was independently
developed without use of the Proprietary Information of the other party.
The receiving party shall not be restricted from disclosing such
information as is required to be disclosed by law, regulation, or court or
governmental order, provided that the receiving party reasonably notifies the
disclosing party prior to such disclosure of such requirement.
Upon termination of this Agreement, and provided the Proprietary
Information is still of a confidential nature, the party recipient of the
Proprietary Information will upon request from the disclosing party either
return any such information or destroy the same.
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9. TERM AND TERMINATION
9.1. The Research Term shall be as set forth in Article 3.
9.2. Unless terminated earlier under Section 9.3, this Agreement shall
continue in full force and effect until the expiration of all milestone and
royalty obligations or Organon under Article 3. Upon expiration of this
Agreement under this Section 9.2, Organon shall have fully paid-up licenses,
respectively, under Section 3.4.1, and the provisions identified in Section
9.3(a) shall survive expiration hereof.
9.3. Early termination.
(a) In the event of material breach of this Agreement by
either party, the matter shall be submitted for resolution to the chief
executive officers of each party. If, 30 days after submission to the respective
chief executive officers, no resolution is achieved, then the non-breaching
party may send written notice of the alleged default to the breaching party. If
the material breach is not cured with sixty (60) days following receipt of such
notice, the non-breaching party may terminate this Agreement immediately upon
written notice to the breaching party.
(b) The parties acknowledge that under this Agreement,
each party holds a complex series of ongoing technology rights and licenses,
development rights and obligations, and economic rights and obligations; the
breach of which may not be adequately compensated in monetary damages alone. The
parties therefore agree that each may be entitled to remedies in the nature of
specific performance of the obligations of the other.
(c) In all cases of early termination or expiration of
this Agreement, the following provisions shall survive, together with any other
obligations of either party which have accrued as of the effective date of
termination or expiration: Articles 5, 7, 8, 9 and 10 and Section 6.4.
9.4. All licenses granted under this Agreement and deemed to be, for
purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to
"intellectual property" as defined in Section 101 of such Code. The parties
agree that Organon may fully exercise all of its rights and elections under the
Bankruptcy code. The parties further agree that, in the event Organon elects to
retain its rights as a licensee under such Code, Organon shall be entitled to
complete access to any technology licensed to it hereunder and all embodiments
of such technology. Such embodiments of the technology shall be delivered to
Organon not later than:
19.
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(a) the commencement of bankruptcy proceedings against
Signal, upon written request, unless Signal elects to perform its obligations
under the Agreement, or
(b) if not delivered under (a) above, upon the rejection
of this Agreement by or on behalf of Signal, upon written request by Organon.
9.5. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR LOST
PROFITS OR ANY CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES TO THE OTHER PARTY,
HOWEVER CAUSED, IN CONNECTION WITH THIS AGREEMENT, PROVIDED THAT NOTHING IN THIS
SECTION 9.5 SHALL LIMIT THE INDEMNIFICATION OBLIGATIONS OF EITHER PARTY PURSUANT
TO ARTICLE 5 AS TO CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES TO THIRD
PARTIES FOR WHICH THE INDEMNITEES MAY BE LIABLE.
10. MISCELLANEOUS
10.1. Neither party shall have the right to assign its rights or
obligations under this Agreement to any third party, other than an Affiliate of
such party, or a successor in a change of control by way of merger, acquisition
or otherwise, without the prior written consent of the other party, which
consent shall not be unreasonably withheld. The foregoing notwithstanding,
Organon's prior written consent shall be required during the period beginning
with the Effective Date and ending on the date that is one year following the
Research Term, with regard to assignment under this Agreement to a successor to
Signal which is a direct competitor with Organon. If Organon withholds consent
to an assignment to such a direct competitor, Signal shall have the right to
terminate the Target Research and Organon shall retain all rights as if the
Target Research Program had continued for the full term. This Agreement shall be
binding on, and inure to the benefit of, the permitted successors and assigns of
the parties. All permitted sublicenses and/or assignments by either party of any
of its rights under this Agreement shall be subject to all of the terms and
conditions of this Agreement, which shall be binding on the sublicensees and/or
assignees.
10.2. The parties hereto are independent contractors. Nothing contained
herein shall constitute either party the agent of the other party for any
purpose whatsoever, or constitute the parties as partners or joint venturers.
Employees of each party remain employees of said party and shall be considered
at no time agents of or render a fiduciary duty to the other party. Neither
party hereto shall have any implied right or authority to assume or create any
obligations on behalf of or in the name of the other party or to bind the other
party to any other contract, agreement or undertaking with any third party.
20.
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10.3. No amendment, waiver of modification of this Agreement shall be
valid or binding on either party unless made in writing and signed by both
parties. The failure of either party to enforce any provision of this Agreement
at any time shall not be construed as a present or future waiver of such or any
other provision of this Agreement. The express waiver by either party of any
provision or requirement hereunder shall not operate as a future waiver of such
or any other provision or requirement.
10.4. In the event that any provision in this Agreement shall be held to
be unlawful or invalid in any jurisdiction, the meaning of such provision shall
be construed to the greatest extent possible so as to render it enforceable. If
no such construction can render such provision enforceable, it shall be severed,
and the remainder of the Agreement shall remain in full force and effect, only
to the extent that such remainder is consistent with the intentions of the
parties as evidenced by this Agreement as a whole. The parties shall use best
efforts to negotiate in good faith a reasonable substitute, valid and
enforceable provision effective in such jurisdiction.
10.5. Any notice required or permitted to be given by either party under
this Agreement shall be in writing, addressed, in the case of Signal, to its
Chief Executive Officer, with copy to its General Counsel, and in the case of
Organon, to its President with copy to its General Counsel, at the respective
addresses of the parties shown in the first paragraph of this Agreement, or such
other address as may from time to time be indicated in a notice given under this
Section 10.5. All notices shall be sent by certified or registered first class
mail, telefax confirmed by certified or registered first class mail, or personal
delivery, and shall be effective on receipt at the address referenced above.
10.6. Neither party will be deemed in breach of this Agreement as a
result of default, delay or failure to perform by such party which is due to
causes beyond the reasonable control of such party, including without
limitation, fire, earthquake, act of God, severe weather, act of war, strikes,
lockouts or other labor disputes, riots, civil disturbances, actions or
inactions of governmental authorities (except in response to a breach by such
party), or epidemics. In the event of any such force majeure, the party affected
shall promptly notify the other party, shall use all reasonable efforts to
overcome such force majeure, and shall keep the other party informed with
respect thereto.
10.7. All headings and captions used in this Agreement are for
convenience only, and are not intended to have substantive effect.
10.8. This Agreement may be executed by the parties in one or more
identical counterparts, all of which together shall constitute this Agreement.
10.9. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware.
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10.10. DISPUTE RESOLUTION
10.10.1. All disputes of all types under this Agreement shall be
referred to the Executive Committee for resolution. The Executive Committee
shall use all reasonable efforts to resolve such matters within thirty (30) days
after such referral, including referral of questions to outside independent
experts where the Executive Committee deems appropriate.
10.10.2. If the Executive Committee is unable to resolve such
dispute the dispute shall be referred to the Chief Executive Officers ("CEOs")
of the parties for resolution.
10.10.3. In the event the CEOs are not able to resolve such
dispute within thirty (30) days after the matter is referred to them, the
following shall apply:
(a) Prior to entering into binding arbitration in
accordance with the provisions of Section 10.10.3(b) below, the parties shall
enter into non-binding mediation. The mediation shall be conducted by an
independent mediator acceptable to both parties. Either party may serve upon the
other party a written demand for mediation. Such mediation shall commence within
thirty (30) days of the other party's receipt of such demand, unless otherwise
agreed in writing by the parties. Each party shall make available to the
mediation an authorized representative with the capacity to bind such party, and
the mediation shall be conducted as deemed appropriate by the mediator.
(b) In the event that the dispute cannot be resolved by
the mediation mechanism referenced in Section 10.10.3(a) the dispute shall be
referred to arbitration in accordance with the rules then prevailing of the
Center for Public Resources ("CPR") 680 Fifth Avenue, New York, New York 10019
unless otherwise mutually agreed. The arbitration shall be conducted in New York
City, New York. Unless otherwise agreed by the parties the arbitration panel
shall consist of arbitrator selected in accordance with the CFR rules.
This section 10.10.3 shall not limit the rights of any
party to seek in court of competent jurisdiction interim relief and only such
interim relief, as may be needed to maintain the status quo or otherwise protect
the subject matter of the dispute until the arbitrators have been appointed and
shall have had an opportunity to act.
10.11. This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and supersedes all previous agreement,
understandings and negotiations, whether oral or written, with respect to such
subject matter. All information exchanged pursuant to the Confidentiality
Agreement dated _________, 199_ shall be governed by Article 8.
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Executed and effective as of the date first set forth above.
N.V. ORGANON SIGNAL PHARMACEUTICALS, INC.
By:________________________ By:_________________________________
Title:_____________________ Title:______________________________
By:________________________
Title:_____________________
23.
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EXHIBIT A
[***]
***Confidential Treatment Requested
24.
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EXHIBIT B
[***]
***Confidential Treatment Requested
25.
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EXHIBIT C
[***]
***Confidential Treatment Requested
26.
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EXHIBIT D
[***]
***Confidential Treatment Requested
27.
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*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80,
200.83 and 230.406.
EXHIBIT 10.42
FIRST AMENDMENT TO AGREEMENT
THIS FIRST AMENDMENT (the "First Amendment") to the Agreement by and
between N.V. ORGANON, Molenstraat 110, P.O. Box 20, 5340 BH Oss, the Netherlands
(hereinafter referred to as "Organon"), and SIGNAL PHARMACEUTICALS, INC., 5555
Oberlin Drive, San Diego, California 92121, USA (hereinafter referred to as
"Signal"), dated as of July 30, 1996 (the "Agreement") is entered into as of
March 17, 1998 (the "First Amendment Date"). Capitalized terms used but not
otherwise defined in this First Amendment shall have the meanings given such
terms in the Agreement.
RECITALS
WHEREAS, Organon and Signal entered into the Agreement to collaborate in
the discovery and development of new assays for the targets selected as provided
in the Agreement; and
WHEREAS, Organon and Signal wish to amend the Agreement in the manner
set forth in this First Amendment and otherwise to provide for certain
agreements by the parties as set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, the parties hereto agree as follows:
1. AMENDMENT AND RESTATEMENT OF SECTION 3. The first and second paragraphs of
Section 3 of the Agreement are hereby amended and restated in their entirety as
follows:
"3. TARGET RESEARCH.
The Target Research shall commence upon the Effective Date and
shall continue for three years thereafter, extendible for up to two
additional years under substantially the same FTE funding and other
terms as are set forth herein, with mutual consent. If the milestone
described in Exhibit B is not met within 9 months after the First
Amendment Date, Organon at its sole discretion may forthwith terminate
the Target Research by written notice effective as of the first
anniversary of the Effective Date. If the milestone described in Exhibit
C is not met within 12 months after the First Amendment Date, Organon at
its sole discretion may terminate the Target Research effective as of
the end of the 18th month following the First Amendment Date. For
purposes of this Agreement, the "Research Term" shall be the period from
the Effective Date until the Target Research expires or is terminated
pursuant to this Article 3. Under the Target Research
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Signal shall use reasonable efforts to deliver up to [***] Research
Assays to Organon.
If Organon elects to terminate the Target Research (a) as of the
first anniversary of the First Amendment Date as provided above or (b)
prior to receiving the First Research Assay from Signal and paying the
first milestone under Section 3.2.1(a), whichever is earlier, then this
Agreement and all licenses granted hereunder shall terminate, except
that the provisions listed in Section 9.3(b) shall survive. Otherwise,
this Agreement shall survive termination or expiration of the Target
Research."
2. AMENDMENT AND RESTATEMENT OF SECTION 3.4. Section 3.4 of the Agreement is
hereby amended and restated in its entirety as follows:
"3.4. LICENSES AND OPTION RIGHTS
3.4.1. Subject to the terms and conditions of this
Agreement, Signal hereby grants to Organon a worldwide, non-exclusive
license, during the Research Term only, under the Signal Technology
within the Target Research Field to conduct research in accordance with
the Research Plan.
3.4.2. Subject to the terms and conditions of this
Agreement, Signal hereby grants to Organon a worldwide, exclusive
(except as to Signal) license to use any cell lines which are developed
in the conduct of the Target Research (whether solely by Signal or
jointly by the parties) for Organon's internal research purposes during
the term of this Agreement. Notwithstanding any other provision of this
Agreement, Organon shall not have the right to sublicense the rights
granted under this Section 3.4.2 to any third party without the prior
written consent of Signal, which consent may be given or withheld in
Signal's sole discretion; provided, however, that Organon may, without
Signal's prior written consent, sublicense such rights to an Affiliate
of Organon that is controlled by Organon. The parties hereby acknowledge
that Signal retains the right to use the cell lines licensed hereunder
for any purpose.
3.4.3. Subject to the terms of this Agreement, Signal
hereby grants to Organon a worldwide, exclusive license, for the period
following the end of the Research Term until this Agreement expires or
is terminated, to use the Signal Compounds and under the Research Assay
Patents, Gene/gen product Patents and Compound Patents to research,
develop, make, have made, use and sell Organon Products; provided,
however, that any compound from any source that is useful for the [***]
shall be specifically excluded from
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the scope of the foregoing license. If, however, a compound has been
selected in the Target Research Field that potentially is [***], the
parties shall negotiate in good faith, together with any of Signal's
licensee(s) in such field, a possible extension of the foregoing license
with regard to such compound.
3.4.4. Subject to the terms of this Agreement, Signal
hereby grants to Organon a worldwide, non-exclusive license, for the
period following the end of the Research Term until this Agreement
expires or is terminated, to use the Signal Technology and Signal
Technology Patents for any purpose in the Target Research Field.
3.4.5. Except as set forth in Section 3.4.2 above, Organon
shall have the right to grant sublicenses under its exclusive license
rights, with the prior written consent of Signal, not to be unreasonably
withheld; provided that such consent shall not be required for
sublicenses to Organon's Affiliates."
3. AMENDMENT AND RESTATEMENT OF RESEARCH PLAN. The Research Plan is hereby
amended and restated in its entirety as attached hereto.
4. AMENDMENT AND RESTATEMENT OF EXHIBIT B. Exhibit B of the Agreement is hereby
amended and restated in its entirety as attached hereto.
5. FULL FORCE AND EFFECT. Except as specifically amended by this First
Amendment, the terms and conditions of the Agreement shall remain in full force
and effect.
6. GOVERNING LAW. This First Amendment shall be governed by and construed in
accordance with the laws of the State of Delaware.
7. COUNTERPARTS. This First Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have executed this First Amendment on
the day and year first written above.
N.V. ORGANON SIGNAL PHARMACEUTICALS, INC.
By: [SIG] By: [SIG]
-------------------------- --------------------------
Title: Managing Director R&D Title: E.V.P.
----------------------- -----------------------
By: [SIG]
--------------------------
Title: Director Research
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ORGANON-SIGNAL RESEARCH OUTLINE
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ORGANON-SIGNAL RESEARCH OUTLINE
CONFIDENTIAL
================================================================================
EXHIBIT B
Project Goals
[***]
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*** Text Omitted and Filed Separately
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Under 17 C.F.R. Sections 200.80,
200.83 and 230.406.
EXHIBIT 10.46
LICENSE AGREEMENT
This Agreement, effective as of October 28, 1997 (the "Effective Date"),
is between the University of Massachusetts ("University"), a public institution
of higher education of the commonwealth of Massachusetts, and Signal
Pharmaceuticals, Inc. ("Company"), a Delaware corporation.
RECITALS
WHEREAS, University is the joint owner, together with the Regents of the
University of California ("UC"), of the inventions claimed in U.S. Patent
Application Serial No. [***] and has filed with the U.S. Patent & Trademark
Office the cases included under the U.S. Patent Applications listed on EXHIBIT
A;
WHEREAS, Company desires the University grant to Company a worldwide
license in the field of drug discovery under the rights of University in Patent
Rights and Related Technology (as defined below); and
WHEREAS, University is willing to grant Company such license on the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, University and Company hereby agree as follows:
1. DEFINITIONS.
1.1 "AFFILIATE" shall mean any legal entity (such as a corporation,
partnership, or limited liability company) that is controlled by Company. For
the purposes of this definition, the term "control" means any or both of the
following: (i) beneficial ownership of at least fifty percent (50%) of the
voting securities of a corporation or other business organization with voting
securities or (ii) a fifty percent (50%) or greater interest in the net assets
or profits of a partnership or other business organization without voting
securities.
1.2 "CONFIDENTIAL INFORMATION" shall mean any confidential or
proprietary information furnished by one party (the "Disclosing Party") to the
other party (the "Receiving Party") in connection with this Agreement, provided
that such information is specifically designated as confidential. Such
Confidential Information shall include, without limitation, any
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diligence reports furnished to University under Section 3.1. and royalty reports
furnished to University under Section 5.1.
1.3 "FDA" shall mean the United States Food and Drug Administration.
1.4 "FIELD" shall mean the field of drug discovery and shall not include
reagents other than for drug discovery and shall not include the field of
diagnostics.
1.5 "IND" (or "Investigational New Drug Application") shall mean an
application to the FDA to commence human clinical testing of a drug, as defined
by the FDA.
1.6 "JOINT PATENT RIGHTS" shall mean U.S. Patent Application Serial No.
[***], and, to the extent of claims therein directed to subject matter
specifically described in U.S. Patent Application Serial No. [***], any
divisional, continuation, or continuation-in-part of such patent application, as
well as any patent issued thereon and any reissue, reexamination or extension of
such patent, and any foreign counterparts to such patent and patent application.
1.7 "LICENSED PRODUCT" shall mean any material either that is covered by
the Patent Rights or the Related Technology, that is identified or produced by a
Licensed Method, or that the manufacture, use or sale of which would constitute,
but for the license granted to Company pursuant to this Agreement, an
infringement of any pending or issued claim within the Patent Rights.
1.8 "LICENSED METHOD" shall mean any method that is covered by the
Patent Rights or Related Technology, the use of which would constitute, but for
the license granted to Company pursuant to this Agreement, an infringement of
any pending or issued claim within the Patent Rights or a misuse of Related
Technology.
1.9 "NDA" (or "New Drug Application") shall mean an application to the
FDA to commence commercial sale of a drug, as defined by the FDA.
1.10 "NET SALES" shall mean the total of the gross invoice prices of
Licensed Products and of Royalty-Bearing Products sold by Company, an Affiliate,
or a Sublicensee, less the sum of the following actual deductions where
applicable: cash, trade, or quantity discounts; sales, use, tariff,
import/export duties, or other excise taxes; transportation charges and
allowances or credits because of rejections, breakage, or returns.
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In any transfers of Licensed Products or Royalty-Bearing Products
between Company and an Affiliate or Sublicensee, Net Sales shall be calculated
based on the final sale of the Licensed Product or Royalty-Bearing Product to an
independent third party only, and the transfers between Company and an Affiliate
or Sublicensee shall be excluded from the calculation of Net Sales.
In the event that the Company or any Affiliate receives non-monetary
consideration for any Licensed Products or Royalty-Bearing Products, Net Sales
shall be calculated based on the fair market value of such consideration as
determined by the parties. In the event that company or its Affiliates use or
dispose of a Licensed Product or Royalty-Bearing Product in the provision of a
commercial service, the Licensed Product or Royalty-Bearing Product shall be
considered sold and the Net Sales shall be calculated based on the sales price
of the Licensed Product or Royalty-Bearing Product under a hypothetical sale to
an independent third party, during the same Royalty Period or, in the absence of
such sales, on the fair market value of the Licensed Product or Royalty-Bearing
Product as determined by the parties.
1.11 "PATENT RIGHTS" shall mean the Joint Patent Rights and the UMMC
Cases.
1.12 "RELATED TECHNOLOGY" shall mean any know-how, technical
information, research and development information, test results, and data
necessary for the effective exercise of the Patent Rights which has been
developed in the laboratory of [***] as of the first filing date of U.S.
Patent Application No. [***] and which is owned by University, provided that
data necessary for the effective exercise of the Patent Rights and developed in
the laboratory of [***] as of the effective date will be made available to
Company upon reasonable request by Company.
1.13 "ROYALTY-BEARING PRODUCTS" shall mean any material either that is
covered by the Patent Rights, Related Technology, Licensed Method, UC Patent
Rights or UC Technology Rights, or that the manufacture, use or sale of which
would constitute, but for the licenses granted to the Company pursuant to this
Agreement and the UC Agreement, an infringement of any issued claim within the
Patent Rights or the UC Patent Rights.
1.14 "ROYALTY PERIOD" shall mean each of (a) the partial calendar
quarter commencing on the date on which the first Royalty-Bearing Product is
sold or used and (b) every complete or partial calendar quarter thereafter until
the later of (i) the end of the Term, or (ii) the Company is
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no longer obligated to make royalty payments to UC with respect to UC Patent
Rights under that certain Exclusive License Agreement between UC and Company
dated October 26, 1993 (UC Control Number 93-04-0786) (the "UC Agreement", a
redacted copy of which is EXHIBIT B to this Agreement) or under any equivalent
or replacement agreement between UC and Company. In addition, the term "Royalty
Period" shall also include any calendar quarter subsequent to the last "Royalty
Period" as defined in the preceding sentence during which Company has the right
to complete and sell work-in-progress and inventory of Royalty-Bearing Products
pursuant to Section 8.4.
1.15 "SUBLICENSEE" shall mean any permitted sublicensee of the rights
granted Company under this Agreement, as further described in Section 2.2.
1.16 "TERM" shall mean the term of this Agreement as further defined in
Section 8.1 below.
1.17 "UMMC CASES" shall mean the U.S. Patent Applications listed on
EXHIBIT A and, to the extent of claims therein directed to subject matter
specifically described in the patent applications listed on EXHIBIT A, any
divisional, continuation, or continuation-in-part of such patent applications,
as well as any patent issued thereon and any reissue, reexamination or extension
of such patent, and any foreign counterparts to such patents and patent
applications.
1.18 "UC PATENT RIGHTS" shall mean U.S. Patent No. [***]; U.S. Patent
No. [***]; and U.S. Patent No. [***] and any divisional, continuation, or
continuation-in-part of such patent or patent applications, as well as any
patents issued thereon and any reissue or reexams or extension of such patents,
and any foreign counterparts to such patents and patent applications.
1.19 "UC TECHNOLOGY RIGHTS" shall mean any know-how, technical
information, research and development information, test results, and data
relating to UC Case No. 93-173 (as identified in the UC Agreement) and necessary
for the effective exercise of the UC Patent Rights which have been licensed to
Company pursuant to the UC Agreement.
2. GRANT OF RIGHTS.
2.1 LICENSE GRANT.
(a) PATENT RIGHTS. Subject to the terms of this Agreement,
University hereby grants to Company and its Affiliates an exclusive, worldwide,
royalty-bearing license (with the
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right to sublicense) under the Patent Rights to develop, make, have made, use,
offer for sale, sell, and import Licensed Products in the Field.
(b) RELATED TECHNOLOGY AND LICENSED METHOD. Subject to the terms
of this Agreement, University hereby grants to Company and its Affiliates a
non-exclusive, worldwide, royalty-bearing license (with the right to sublicense)
under the Related Technology and the Licensed Method to develop, make, have
made, use, offer for sale, sell, and import Licensed Products in the Field.
2.2 SUBLICENSES. Company shall have the right to grant sublicenses of
its rights under Section 2.1. All sublicense agreements executed by Company
pursuant to this Article 2 shall be consistent with the terms of this Agreement
and shall provide for the automatic assignment of such agreement to University
if this Agreement is terminated. Company shall promptly furnish University with
a fully executed copy of any such sublicense agreement.
2.3 RETAINED RIGHTS.
(a) UNIVERSITY. University retains the right to make and use
Licensed Products covered by Patent Rights for academic research and academic
patient care, without payment of compensation to Company. University may license
its retained rights under this Section to research collaborators of University
faculty members, to post-doctoral fellows, and to students solely for academic
research and academic patient care. Notwithstanding the above retention of
rights, the University does not retain any right to make, use, or sublicense any
third party the right to use the license or sublicense of its retained rights
under this Section for commercial applications in the Field.
(b) FEDERAL GOVERNMENT. To the extent that any invention claimed
in the Patent Rights has been partially funded by the federal government, this
Agreement and the grant of any rights in such Patent Rights are subject to and
governed by federal law as set forth in 35 U.S.C. SectionSection201-211, and the
regulations promulgated thereunder, as amended, or any successor statutes or
regulations. Company acknowledges that these statutes and regulations reserve to
the federal government a royalty-free, non-exclusive, non-transferable license
to practice any government-funded invention claimed in any non-transferable
license to practice any government-funded invention claimed in any Patent
Rights. If any term of this Agreement fails to conform with such laws and
regulations, the relevant term shall be deemed an invalid provision and modified
in accordance with section 10.10.
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At least some of the inventions claimed in the Patent Rights and the
Related Technology were conceived or reduced to practice by [***], an employee
of the [***] and a faculty member of University, and were assigned to University
by [***] in accordance with the Collaboration Agreement, between [***] and
University dated November 16, 1990, as amended (the "Collaboration Agreement").
Pursuant to the Collaboration Agreement, University is required to grant [***] a
paid-up, non-exclusive, irrevocable license to use such Patent Rights and such
Related Technology which correspond to such inventions for [***] non-commercial
purposes (the "[***] License"), but notwithstanding any provision of this
Agreement to the contrary, Company acknowledges that [***] shall have the [***]
License.
2.4 EFFECT OF EXPIRATION OF ROYALTY PERIOD. Unless this Agreement is
earlier terminated in accordance with Section 8 below, upon the expiration of
the last Royalty Period, Company will have a fully paid, non-exclusive,
irrevocable, worldwide, perpetual license (with the right to sublicense) under
any Patent Rights that are then expired or are no longer enforceable, Related
Technology, and Licensed Method to develop, make, have made, use, offer for
sale, sell, and import Licensed Products, provided Company is then in
substantial compliance with all provisions of this Agreement.
3. COMPANY OBLIGATIONS RELATING TO COMMERCIALIZATIONS.
3.1 DILIGENCE REQUIREMENTS.
(a) Company, upon execution of this Agreement, shall diligently
proceed with the development, manufacture, and sale of Licensed Products and/or
Royalty-Bearing Products and shall earnestly and diligently endeavor to market
the same within a reasonable time after execution of this Agreement. Company
shall have the responsibility to obtain all necessary governmental approvals for
the manufacture, use, and sale of Licensed Products and Royalty-Bearing
Products. If Company is unable to perform any of the following:
(i) [***];
(ii) [***];
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(iii) [***];
(iv) [***]
(v) reasonably fill the market demand for Licensed
Products or Royalty-Bearing Products following commencement of marketing at any
time during the exclusive period of this Agreement;
then, subject to subsection (b) of this Section 3.1, University shall have the
right and option either to terminate this agreement or to reduce Company's
exclusive license to a non-exclusive license. This right, if exercised,
supersedes the rights granted in Section 2.1;. So long as at least one of the
Company or its Affiliates or Sublicensees continues to meet the diligence
requirements set forth above, the University shall not have any termination
rights under this Section 3.1.
(b) Subject to subsection (a) of this Section 3.1, if Company is
unable to meet any of the dates set forth in subsection (a), the parties shall
in good faith re-establish a date or dates that are reasonable under the then
current circumstances. Provided Company is then in full compliance with all
other material provisions of this Agreement, University shall not exercise its
rights to terminate this Agreement or convert it to a non-exclusive agreement
unless a reestablished date is not met. If a reestablished date is more than six
(6) months from the original date, Company shall begin making an annual license
maintenance fee for the delayed product of [***] per year, which fee shall begin
to be payable in [***], on the anniversary date of the Effective Date, and shall
continue until sales of the delayed product begin. The annual maintenance fee
provided for in this Section 3.1 shall not exceed [***] per year. The
re-established date shall not affect the date when any milestone payment would
be due under Section 4.3.
3.2 INDEMNIFICATION.
(a) INDEMNITY. Company shall indemnify, defend and hold harmless
University and its trustees, officers, faculty, students, employees, and agents
and their respective successors, heirs and assigns (the "Indemnitees"), against
any liability, damage, loss, or expense
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(including reasonable attorneys' fees and expenses of litigation) incurred by or
imposed upon any of the Indemnitees in connection with any third-party claims,
suits, actions, demands or judgments arising out of any theory of liability
(including without limitation actions in the form of tort, warranty, or strict
liability and regardless of whether such action has any factual basis)
concerning any Licensed Product or Royalty-Bearing Product, process, or service
that is made, used, or sold pursuant to any right or license granted under this
Agreement; provided, however, that such right or license granted under this
Agreement; provided, however, that such indemnification shall not apply to any
liability, damage, loss, or expense to the extent directly attributable to (i)
the negligent activities or intentional misconduct of the Indemnitees or (ii)
the settlement of a claim, suit, action, or demand by Indemnities without the
prior written approval of Company. Company also shall indemnify, defend, and
hold harmless [***] and its trustees, officers, employees, and agents, and their
respective successors, heirs and assigns (the "[***] Indemnitees"), from and
against any claims, liability, cost, expense, damage deficiency, loss, or
obligation (including, without limitation, reasonable attorney's fees and
costs), based upon, arising out of, or otherwise relating to any actions taken
or omissions made in connection with or pursuant to this License Agreement. The
[***] Indemnitees agree to provide Company with prompt written notice of any
claim, suit action, demand or judgment for which indemnification is sought under
this Agreement. Company agrees that any Sublicensee shall agree to provide [***]
with the same indemnity provided by Company herein.
(b) PROCEDURES. The indemnities agree to provide Company with prompt
written notice of any claim, suit, action, demand, or judgment for which
indemnification is sought under this Agreement. Company agrees, at its own
expense, to provide attorneys reasonably acceptable to University to defend
against any such claim. The Indemnitees shall cooperate fully with Company in
such defense and will permit Company to conduct and control such defense and the
disposition of such claim, suit, or action (including all decisions relative to
litigation, appeal, and settlement); provided, however, that any Indemnitee
shall have the right to retain its own counsel, at the expense of Company, if
representation of such Indemnitee by the counsel retained by Company would be
inappropriate because of actual or potential differences in the interests of
such Indemnitee and any other party represented by such counsel. Company agrees
to keep University informed of the progress in the defense and disposition of
such claim and to consult with University with regard to any proposed
settlement. The failure to deliver a written notice to Company within a
reasonable time after the commencement of such claim, suit, or action, if
prejudicial to Company's ability to defend such action, shall correspondingly
appropriately reduce Company's liability to the Indemnitees under Section 3.2,
but the omission to deliver shall
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not relieve Company of any liability that it may have to indemnitees other than
under this Section 3.2.
(c) INSURANCE. Effective as of such time as a Licensed Product or
Royalty-Bearing Product enters human clinical trials, Company shall maintain
insurance or self-insurance that is reasonable adequate to fulfill any potential
obligation to the Indemnitees, but in any event not less than one million
dollars ($1,000,000) for injuries to any one person arising out of a single
occurrence and five million dollars ($5,000.000) for injuries to all persons
arising out of a single occurrence. Company shall provide University, upon
request, with rewritten evidence of such insurance or self-insurance. Company
shall continue to maintain such insurance or self-insurance after the expiration
or termination of this Agreement during any period in which Company or Affiliate
or Sublicensee continues to make, use, or sell a product that was a Licensed
Product or Royalty-Bearing Product under this Agreement and thereafter for a
period of five (5) years. Until such time as a Licensed Product or
Royalty-Bearing Product enters human clinical trials, Company shall maintain
insurance or self-insurance in such amount as Company customarily maintains
covering similar activities, and shall maintain such insurance so long as
Company customarily carries such insurance coverage or until a Licensed Product
or Royalty-Bearing Product enters human clinical trials.
3.3 USE OF UNIVERSITY NAME. In accordance with Section 7.3., Company and
its Affiliates and Sublicensees shall not use the name "University of
Massachusetts" or any variation of that name in connection with the marketing or
sale of any Licensed Products.
3.4 MARKING OF LICENSED PRODUCTS. To the extent commercially feasible
and consistent with prevailing business practices, Company shall mark, and shall
cause its Affiliates and Sublicensees to mark, all Licensed Products that are
manufactured or sold under this Agreement with the number of each issued patent
under the Patent Rights that applies to such Licensed Product.
3.5 COMPLIANCE WITH LAW. Company shall comply with, and shall require
its Affiliates and Sublicensees comply with, all local, state, federal, and
international laws and regulations relating to the development, manufacture,
use, and sale of Licensed Products. Company expressly agrees to comply with the
following:
(i) Company or its Affiliates or Sublicensees shall obtain all necessary
approvals from the United States Food & Drug Administration and any similar
governmental authorities of
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any foreign jurisdiction in which Company or an Affiliate or Sublicensee intends
to make, use, or sell Licensed Products.
(ii) Company and its Affiliates and Sublicensees shall comply with all
United States laws and regulations controlling the export of certain commodities
and technical data, including without limitation all Export Administration
Regulations of the United States Department of Commerce,. Among other things,
these laws and regulations prohibit, or require a license for, the export of
certain types of commodities and technical data to specified countries. Company
hereby gives written assurance that it will comply with, and will require its
Affiliates and Sublicensees to comply with, all United States export control
laws and regulations, and that it will indemnify, defend, and hold University
harmless (in accordance with Section 3.2) for the consequences of any such
violation.
(iii) To the extent that any invention claimed in the Patent Rights has
been partially funded by the United States government, and only to the extent
required by applicable laws and regulations, Company agrees that any Licensed
Products used or sold in the United States will be manufactured substantially in
the United States or its territories. Current law provides that if domestic
manufacture is not commercially feasible under the circumstances, University may
seek a waiver of this requirement from the relevant federal agency on behalf of
Company.
4. CONSIDERATION FOR GRANT OF RIGHTS.
4.1 LICENSE FEE. In partial consideration of the rights granted Company
under this Agreement, Company shall pay to University, within thirty (30) days
after the Effective Date, a license fee of [***]. In addition, Company shall
reimburse University for patent prosecution expenses in the aggregate amount of
[***] incurred by University as of the Effective Date with respect to Patent
Rights; provided, however, that Company's obligation to reimburse such patent
prosecution expenses shall be conditioned upon University's delivery to Company
of a reasonably detailed, written itemization of such expenses. Copies of
University patent prosecution invoices which provide reasonable detail shall be
sufficient written itemization of such expenses. These license fee payments and
reimbursements are non refundable and are not creditable against any other
payments due to University under this Agreement.
4.2 EQUITY. In partial consideration of the license granted Company
under this Agreement, Company shall issue to University, within thirty (30) days
after the Effective Date, a
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total of [***] shares of Common Stock of Company (subject to adjustment upon
changes in stock through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), under the terms of the Common Stock
Purchase Agreement dated as of the Effective Date between Company and University
(the "Common Stock Purchase Agreement").
4.3 MILESTONE PAYMENTS. Company shall pay University the following
milestone payments and make the following issuances of Company Common Stock
(subject to adjustment upon changes in stock through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise ) to University within thirty
(30) days after the occurrence of each event described below:
<TABLE>
<CAPTION>
MILESTONE PAYMENT STOCK ISSUANCE
<S> <C> <C>
[***]
</TABLE>
In addition, in the event that Company makes any milestone payment(s) to UC with
respect to subsequent compounds utilizing Patent Rights, Related Technology,
Licensed Method, UC patent Rights, or UC Technology Rights, Company shall pay to
University an amount equal to [***] of such milestone payment(s).
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These milestone payments and stock issuances are nonrefundable and are not
creditable against any other payments due to University under this Agreement.
Company shall pay University such amounts and shall issue such stock regardless
of who achieves the milestone, whether the Company or an Affiliate or
Sublicensee.
4.4 ROYALTIES
(a) BASE ROYALTY. In partial consideration of the rights granted
Company under this Agreement, Company shall pay to University an earned royalty
of [***] of Not Sales of Licensed Products and Royalty-Bearing Products by
Company, an Affiliate or a Sublicensee (the "[***] Royalty"), provided that the
earned royalty shall be [***] of Net Sales of a Licensed Product or
Royalty-Bearing Product if Net Sales of the Licensed Product or Royalty-Bearing
Product are less than [***] per year in any given calendar year of sales (the
"[***]"). Company shall pay the [***] Royalty to University for any Royalty
Period as to which it cannot be ascertained at the time royalty payments are due
whether Net Sales for the calendar year of such Royalty Period will be less than
[***]; provided, however, that Company shall be entitled to credit from
University in accordance with section 5.4 in the event that the Year-End Report
(as defined in Section 5.1) indicates that Company has made excessive royalty
payments to University for a calendar year. Any earned royalty due under this
Section 4.4 shall be reduced by fifty percent (50%) in the event that a Licensed
Product or Royalty-Bearing Product is not covered by Patent Rights or UC Patent
Rights but is covered by or developed from related Technology or UC Technology
Rights.
(b) NO MULTIPLE ROYALTIES. No multiple royalties shall be payable
because a particular Licensed Product or its manufacture, use, or sale are or
shall be covered by more than one patent application or patent included within
the Patent Rights.
4.5 MINIMUM ROYALTY. In each calendar year after the Effective Date,
Company shall pay and University shall receive the following minimum royalty
payments:
<TABLE>
<S> <C> <C>
[***]
</TABLE>
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If the actual royalty payments to University in any calendar year are less than
the minimum royalty payment required for that year, Company shall have the right
to pay University the difference between the actual royalty payment and the
minimum royalty payment in full satisfaction of its obligations under this
Section, provided such minimum payment is made to University within sixty (60)
days after the conclusion of the calendar year. Waiver of any minimum royalty
payment by University shall not be construed as a waiver of any subsequent
minimum royalty payment.
4.6 SUBLICENSE INCOME. In the event the Company pays to UC any portion
of any payments the Company receives in consideration for the sublicense of the
Patent Rights, Related Technology, Licensed Method, UC Patent Rights or UC
Technology Rights, Company shall pay to University an amount equal to
[***] of such payment(s).
5. ROYALTY REPORTS; PAYMENTS; RECORDS.
5.1 REPORTS AND PAYMENTS. Within sixty (60) days after the conclusion of
each Royalty Period, Company shall deliver to University a report (each a
"Report") containing the following information:
(i) the number of Licensed Products and Royalty-Bearing
Products sold to independent third parties in each country, and the number of
Licensed Products and Royalty-Bearing Products used by Company and its
Affiliates and Sublicensees to provide commercial services in each country;
(ii) the gross sales price for each Licensed Product and
Royalty-Bearing Product by Company and its Affiliates during the applicable
Royalty Period in each country;
(iii) calculation of Net Sales for the applicable Royalty
Period in each country, including a listing of applicable deductions;
(iv) total royalty payable on Net Sales in U.S. dollars
together with the exchange rates used for conversion; and
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(v) withholding taxes, if any, required by law to be
deducted as a payment by University in respect of such Net Sales.
In addition, the Report for the Royalty Period ending on December 31 of a given
calendar year (the "Year-End Report") shall state whether Company is entitled to
credit pursuant to Section 4.4(a) as a result of having paid the [***] Royalty
during a calendar year in which Net Sales exceeded [***] and, if Company is
entitled to such credit, shall also set forth the amount of the credit to which
Company is entitled, as calculated in accordance with Section 5.4. If no
royalties are due to University for any Royalty Period, the Report for such
Royalty Period shall so state. Concurrent with the delivery of each Report,
Company shall remit to University any payment due for the applicable Royalty
Period. All such reports shall be considered Company Confidential Information.
5.2 PAYMENTS IN U.S. DOLLARS. All payments due under this Agreement
shall be payable in U.S. dollars. Conversion of foreign currency to U.S. dollars
shall be made at the conversion rate existing in the United States (as reported
in the Wall Street Journal) on the last working day of the calendar quarter
preceding the applicable Royalty Period. Such payments shall be without
deduction of exchange, collection, or other charges.
5.3 PAYMENT IN OTHER CURRENCIES. If by law, regulation, or fiscal policy
of a particular country, conversion into United States dollars or transfer of
funds of a convertible currency to the United States is restricted or forbidden,
Company shall give University prompt written notice of such restriction, which
notice shall satisfy the sixty-day payment deadline described in Section 5.1.
Company shall pay any amounts due University through whatever awful methods
University reasonably designates; provided, however, that if University fails to
designate such payment method within thirty (30) days after University is
notified of the restriction, Company may deposit such payment in local currency
to the credit of University in a recognized banking institution selected by
Company and identified by written notice to University and such deposit shall
fulfill all obligations of Company to University with respect to such payments.
5.4 CREDIT FOR OVERPAYMENTS. Within thirty (30) days of University's receipt of
a Year-End Report disclosing overpayment of royalties by Company, University
shall credit to Company an amount equal to the lesser of (a) the difference
between the [***] royalty paid to University and the [***] Royalty to which
University was actually entitled and (b) the difference
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between the [***] Royalty and the applicable minimum royalty for such calendar
year, as specified in Section 4.5.
5.5 RECORDS. Company shall maintain and shall require its Affiliates and
Sublicensees to maintain, complete and accurate records of Licensed Products and
Royalty-Bearing Products that are made, used, or sold under this Agreement and
any amounts payable to University in relation to such Licensed Products and
Royalty Bearing Products, which records shall contain sufficient information to
permit University to confirm the accuracy of any Reports due to University under
Section 5.1. The relevant party shall retain such records relating to a given
Royalty Period for at least three (3) years after the conclusion of that Royalty
Period during which time University shall have the right, at its expense, to
cause its internal accountants or an independent, certified public accountant to
inspect such records during normal business hours for the sole purpose of
verifying any reports and payments due under this Agreement. Such accountant
shall not disclose to University any information other than information relating
to accuracy of reports and payments delivered under this Agreement. The parties
shall reconcile any underpayment or overpayment within thirty (30) days after
the accountant delivers the results of the audit. In the event that any audit
performed under this Section reveals an underpayment in excess of ten percent
(10%) in any Royalty Period, Company shall bear the full cost of such audit;
however, Company shall have the right to review and verify the audit results for
thirty (30) days after the accountant delivers the results of the audit, prior
to being required to pay the cost of the audit. University may exercise its
rights under this Section only once every year and only with reasonable prior
notice to Company.
5.6 LATE PAYMENTS. Any payment by Company that are not paid on or before
the date such payments are due under this Agreement shall bear interest, to the
extent permitted by law, at two percentage points above the Prime Rate of
interest as reported in the Wall Street Journal on the date payment is due, with
interest calculated based on the number of days that payment is delinquent.
5.7 METHOD OF PAYMENT. All payments under this Agreement should be made
in the name of the "University of Massachusetts" and sent to the address
identified below. Each payment should reference this Agreement and identify the
obligation under this Agreement that the payment satisfies.
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5.8 WITHHOLDING AND SIMILAR TAXES. Royalty payments and other payments
due to University under this Agreement shall not be reduced by reason of any
withholding or similar taxes applicable to such payments to University.
6. PATENTS AND INFRINGEMENT.
6.1 RESPONSIBILITY FOR JOINT PATENT RIGHTS. Company shall have primary
responsibility, at Company's expense, for the preparation, filing, prosecution,
and maintenance of all Joint Patent Rights (except as otherwise agreed in
writing by University and by UC), using patent counsel selected by Company.
Company shall consult with University as to the preparation, filing,
prosecution, and maintenance of all such Joint Patent Rights reasonably prior to
any deadline or action with the U.S. Patent & Trademark Office or any foreign
patent office (a "Patent Office") and shall furnish University with copies of
all relevant documents reasonably in advance of such consultation.
Responsibility for any patent rights covered by the UMMC Cases shall be
determined in accordance with Section 6.2 below.
6.2 CONTROL OF UMMC CASES. From and after the Effective date, University
shall have responsibility for and control over the prosecution and maintenance
of the UMMC Cases and Company shall bear responsibility for the expenses of such
prosecution and maintenance. For so long as University controls prosecution and
maintenance of the UMMC Cases, University shall (a) not make any filings of any
nature or type with a Patent Office in connection with the UMMC Cases
(including, without limitation any initial filing, any amendments to such
filing, any continuations-in-part or any response to any Patent Office action or
communication) without the prior approval of Company, (b) keep Company fully
informed of the status of the UMMC Cases, (c) furnish Company with copies of all
relevant documents in connection with University's preparation, filing,
prosecution, maintenance or abandonment of the UMMC Cases reasonably prior to
any deadline or action with any Patent Office, and (d) consult with Company
regarding such documents and endeavor in good faith to consider and incorporate
any comments on such documents that Company may have (University to have final
authority with respect to such prosecution and maintenance in the event of
disagreement between it and Company).
Notwithstanding the foregoing, University acknowledges and agrees that it will
not prosecute any subject matter with respect to UMMC Cases which would
interfere, as defined by 35 U.S.C. Section135, with subject matter in issued
claims of the UC Patent Rights or the Joint Patent Rights, or take any other
action to prompt a declaration of interference of the UMMC Cases with any such
patent rights and, in the event that such an interference is declared, will
immediately take steps
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reasonably necessary to dissolve such interference including, if necessary,
abandoning the claims.
The University shall not abandon any of the UMMC Cases, fail to respond to any
outstanding action from a Patent Office or fail to pay any applicable issue fee
or maintenance fee without first offering to transfer to Company responsibility
for control over prosecution and maintenance of the applicable rights under the
UMMC Cases with a reasonable amount of time to allow Company to prevent the
abandonment of the UMMC Cases, or respond to such Patent Office action or pay
such issue fee or maintenance fee.
Company shall reimburse University for the expenses of such preparation, filing,
prosecution and maintenance with respect to UMMC Cases; provided, however, that
Company's obligation to reimburse such expenses shall be conditioned upon
University's delivery to Company of a reasonable written itemization of such
expenses. The amount of such expenses incurred to date which Company shall be
obligated to reimburse University is $51,500 (as of July 25, 1997). Copies of
University's invoices with respect to such expenses shall be deemed to be
sufficient written itemization of such expenses.
6.3 INFRINGEMENT.
(a) NOTIFICATION OF INFRINGEMENT. Each party agrees to provide
written notice to the other party promptly after becoming aware of any
infringement of the Patent Rights.
(b) COMPANY RIGHT TO PROSECUTE. So long as the license granted
Company under Section 2.1(a) remains exclusive (subject to the retained rights
under Section 2.3 and any applicable rights of UC with respect to Joint Patent
Rights), Company shall have the right, under its own control and its own
expense, to prosecute any third party infringement of the Patent Rights in the
Field or, together with other licensees of the Patent Rights in other fields, to
defend the Patent Rights in any declaratory judgment action brought by a third
party which alleges invalidity, unenforceability, or non-infringement of the
Patent Rights. Prior to commencing any action as aforesaid, Company shall
consult with University and shall consider the views of University regarding the
advisability of the proposed action and its effect on the public interest.
Company shall not enter into any settlement, consent judgment, or other
voluntary final disposition of any infringement action under this Subsection
without the prior written consent of the University, which consent shall not be
unreasonably withheld or delayed. Any recovery obtained in an action under this
Subsection which relates solely to the Patent Rights shall be distributed as
follows: (i) each party shall be reimbursed for any expenses incurred in the
action
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(including the amount of any royalty payments withheld from University as
described below); (ii) as to ordinary damages, Company shall receive an amount
equal to its lost profits or a reasonable royalty on the infringing sales
(whichever measure of damages the court shall have applied), and shall remit to
University a reasonable approximation of the royalties that Company would have
paid to University if Company had sold the infringing products and services
rather than the infringer, and (iii) as to special or punitive damages, the
parties shall share any award in proportion to the share of expense paid by each
party. Company may offset a total of [***] of any expenses incurred under this
Subsection against any royalty payments due to University under this Agreement,
provided that in no event shall the royalty payments under Section 4.4., when
aggregated with any other offsets and credits allowed under this Agreement, be
reduced by more than [***] in any Royalty Period.
(c) UNIVERSITY AS INDISPENSABLE PARTY. University shall permit
any action under this Section to be brought in its name if required by law,
provided that Company shall hold University harmless from, and if necessary
indemnify University against, any costs, expenses, or liability that University
may incur in connection with such action.
(d) UNIVERSITY RIGHT TO PROSECUTE. In the event that Company
fails to initiate an infringement action with respect to Patent Rights within a
reasonable time after it first becomes aware of the basis for such action, or to
answer a declaratory judgment or other action within a reasonable time after
such action is filed, University shall have the right to prosecute such
infringement or answer such declaratory judgment action, under its sole control
and its sole expense, and any recovery obtained shall be given to University.
(e) COOPERATION. Each party agrees to cooperate fully in any
action under this Section 6.3 which is controlled by the other party, provided
that the controlling party reimburses the cooperating party promptly for
reasonable costs and expenses incurred by the cooperating party in connection
with providing such assistance.
7. CONFIDENTIAL INFORMATION; PUBLICATIONS; PUBLICITY.
7.1 CONFIDENTIAL INFORMATION
(a) DESIGNATION. Confidential Information that is disclosed in
writing shall be marked with a legend indicating its confidential status (such
as "Confidential" or "Proprietary"). Confidential Information that is disclosed
orally or visually shall be documented in a written
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notice prepared by the Disclosing Party and delivered to the Receiving Party
within thirty (30) days of the date of disclosure; such notice shall summarize
the Confidential Information disclosed to the Receiving Party and reference the
time and place of disclosure.
(b) OBLIGATIONS. For a period of five (5) years after disclosure
of any portion of Confidential Information, the Receiving Party shall (i)
maintain such Confidential Information in strict confidence, except that the
Receiving Party may disclose or permit the disclosure of any Confidential
Information to its directors, officers, employees, consultants, and advisors who
are obligated to maintain the confidential nature of such Confidential
Information and who need to know such Confidential Information solely for the
performance and administration of this Agreement; and (ii) allow its trustees or
directors, officers, employees, consultants, and advisors to reproduce the
Confidential Information only to the extent necessary for the purposes of this
Agreement, with all such reproductions being considered Confidential
Information.
(c) EXCEPTIONS. The obligations of the Receiving Party under
Subsection 7.1(b) above shall not apply to the extent that the receiving Party
can demonstrate that certain Confidential Information (i) was in the public
domain prior to the time of its disclosure under this Agreement; (ii) entered
the public domain after the time of its disclosure under this Agreement through
means other than an unauthorized disclosure resulting from an act or omission by
the Receiving Party; (iii) was independently developed or discovered by the
Receiving Party without use of the Confidential Information; (iv) is or was
disclosed to the Receiving Party at any time whether prior to or after the time
of its disclosure under this Agreement, by a third party having no fiduciary
relationship with the Disclosing Party and having no obligation of
confidentiality with respect to such Confidential Information; or (v) is
required to be disclosed to comply with applicable laws or regulations, or with
a court or administrative order, provided that the Disclosing Party receives
reasonable prior written notice of such obligation for disclosure.
(d) OWNERSHIP AND RETURNS. The Receiving Party acknowledges that
the Disclosing Party (or any third party entrusting its own information to the
Disclosing Party) claims ownership of its Confidential Information in the
possession of the Receiving Party. Upon the expiration or termination of this
Agreement, and at the request of the Disclosing Party, the Receiving Party shall
return to the Disclosing Party all originals, copies, and summaries of
documents, materials and other tangible manifestations of Confidential
Information in the possession or control of the Receiving Party, except that the
Receiving Party may retain one copy
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of the Confidential Information in the possession of its legal counsel solely
for the purpose of monitoring its obligations under this Agreement.
7.2 PUBLICATIONS. University and its employees will be free to disclose
publicly (through journals, lectures, or otherwise) the results of any research
in the Field or relating to the subject matter of the Patent Rights, except as
otherwise provided by written agreement between University and Company (e.g., a
sponsored research agreement).
7.3 PUBLICITY RESTRICTIONS. Company shall not use the name of University
or any of its trustees, officers, faculty, students, employees, or agents, or
any adaptation of such names, or any terms of this Agreement in any promotional
material or other public announcement or disclosure without the prior written
consent of University. The foregoing notwithstanding, Company shall have the
right to disclose such information without the consent of University in any
prospectus, offering memorandum, or other document or filing required by
applicable securities laws or other applicable law or regulation, provided that
Company shall have given University at least ten (10) days prior written notice
of the proposed text and of the requirement for the proposed disclosure for the
purpose of giving University the opportunity to comment on such text. Company
and its Affiliates and Sublicensees shall not use the name, likeness, or logos
of the [***] in any press release, general publication, advertising, marketing,
promotional or sales literature without prior written consent from an authorized
official of the [***].
8. TERM AND TERMINATION.
8.1 TERM. This Agreement shall commence on the Effective Date and shall
remain in effect until (i) the expiration of all issued patents within the
Patent Rights or (ii) for a period of ten (10) years after the Effective Date if
no such patents have issued within that ten-year period, unless earlier
terminated in accordance with the provisions of this Agreement (the "Term").
8.2 TERMINATION FOR DEFAULT. In the event that either party commits a
material breach of its obligations under this Agreement and fails to cure that
breach within sixty (60) days after receiving written notice thereof, the other
party may terminate this Agreement immediately upon written notice to the party
in breach. If the alleged breach involves nonpayment of any amounts due
University under this Agreement, Company shall be entitled to the sixty-day cure
period only with respect to the first such breach, with the cure period for each
subsequent breach shortened as follows: thirty (30) days for the second breach;
fifteen (15) days for the third
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breach; and termination immediately upon written notice to Company, without any
cure period for any subsequent breach.
8.3 FORCE MAJEURE. Neither party will be responsible for delays
resulting from causes beyond the reasonable control of such party, including
without limitation fire, explosion, flood, war, strike, or riot, provided that
the nonperforming party uses commercially reasonable efforts to avoid or remove
such causes of nonperformance and continues performance under this Agreement
with reasonable dispatch whenever such causes are removed.
8.4 EFFECT OF TERMINATION. The following provisions shall survive the
expiration or termination of this Agreement: Articles 1, 5 (except that Section
5.1 shall only survive as to the obligation to provide final report and
payment), 7 and 9; Sections 3.2, 3.5, 8.4, 10.8 and 10.9. In addition, Sections
4.3, 4.4 and 4.5 shall survive the expiration (but not the termination) of this
Agreement until the end of the last Royalty Period. Upon the early termination
of this Agreement, Company and its Affiliates and Sublicensees may complete and
sell any work-in-progress and inventory of licensed products that exist as of
the effective date of termination, provided that (i) Company is current in
payment of all amounts due University under this Agreement, (ii) Company pays
University the applicable royalty on such sales of Licensed Products and
Royalty-Bearing Products in accordance with the terms and conditions of this
Agreement, and (iii) Company and its Affiliates and Sublicensees shall complete
and sell all work-in-progress and inventory of Licensed Products within six (6)
months after the effective date of termination.
9. DISPUTE RESOLUTION.
9.1 PROCEDURES MANDATORY. The parties agree that any dispute arising out
of or relating to this Agreement shall be resolved solely by means of the
procedures set forth in this Article, and that such procedures constitute
legally binding obligations that are an essential provision of this Agreement;
provided, however, that all procedures and deadlines specified in this Article
may be modified by written agreement of the parties. If either party fails to
observe the procedures of this Article, as modified by their written agreement,
the other party may bring an action for the specific performance in any court of
compentent jurisdiction.
9.2 DISPUTE RESOLUTION PROCEDURES.
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(a) NEGOTIATION. In the event of any dispute arising out of or
relating to this Agreement, the affected party shall notify the other party, and
the parties shall attempt in good faith or resolve the matter within ten (10)
days after the date of such notice (the "Notice Date"). Any disputes not
resolved by good faith discussions shall be referred to senior executives of
each party, who shall meet at a mutually acceptable time and location within
thirty (30) days after the Notice Date and attempt to negotiate a settlement.
(b) MEDIATION. If the matter remains unresolved within sixty (60)
days after the notice Date, or if the senior executives fail to meet within
thirty (30) days after the Notice Date, either party may initiate mediation upon
written notice to the other party, whereupon both parties shall be obligated to
engage in a mediation proceeding under then current Center for Public Resources
("CPR") Model Procedure for Mediation of Business Disputes, except that specific
provisions of this Section shall override inconsistent provisions of the CPR
Model Procedure. The mediator will be selected from the CPR Panels of Neutrals.
If the parties cannot agree upon the selection of a mediator within ninety (90)
days after the Notice Date, then upon the request of either party, the CPR shall
appoint the mediator. The parties shall attempt to resolve the dispute through
mediation until one of the following occurs: (i) the parties reach a written
settlement; (ii) the mediator notifies the parties in writing that they have
reached an impasse; (iii) the parties agree in writing that they have reached an
impasse; or (iv) the parties have not reached a settlement within one hundred
and twenty (120) days after the Notice Date.
(c) TRIAL WITHOUT JURY. If the parties fail or resolve the
dispute through mediation, or if neither party elects to initiate mediation,
each party shall have the right to pursue any other remedies legally available
to resolve the dispute, provided, however, that the parties expressly waive any
right to a jury trial in any legal proceeding under this Section.
9.3 PRESERVATION OF RIGHTS PENDING RESOLUTION.
(a) PERFORMANCE TO CONTINUE. Each party shall continue to perform
its obligations under this Agreement pending final resolution of any dispute
arising out or relating to this Agreement; provided, however, that a party may
suspend performance of its obligations during any period in which the other
party fails or refuses to perform its obligations.
(b) PROVISIONAL REMEDIES. Although the procedures specified in
this Article are the sole and exclusive procedures for the resolution of
disputes arising out of relating to this Agreement, either party may seek a
preliminary injunction or other provisional equitable relief if,
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in its reasonable judgment, such action is necessary to avoid irreparable harm
to itself or to preserve its rights under this Agreement.
(c) STATUTE OF LIMITATIONS. The parties agree that all applicable
statutes of limitation and time-based defenses (such as estoppel and laches)
shall be tolled while the procedures set forth in Subsections (9.2.(a) and
9.2(b) are pending. The parties shall take any actions necessary to effectuate
this result.
10. MISCELLANEOUS.
10.1 REPRESENTATIONS AND WARRANTIES. University represents and warrants
that its employees have assigned to University their entire right, title, and
interest in the Patent Rights and that it has authority to grant the rights and
licenses set forth in this Agreement. UNIVERSITY MAKES NO OTHER WARRANTIES
CONCERNING THE PATENT RIGHTS AND RELATED TECHNOLOGY, INCLUDING WITHOUT
LIMITATION ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. Specifically, University makes no warranty or representation
(i) regarding the validity or scope of the Patent Rights (ii) that the
exploitation of Patent Rights or any Licensed Product will not infringe any
patents or other intellectual property rights of a third party, and (iii) that
any third party is not currently infringing or will not infringe the Patent
Rights.
10.2 TAX-EXEMPT STATUS. Company acknowledges that University, as a
public institution of the Commonwealth of Massachsuetts, holds the status of an
exempt organization under the United States Internal Revenue Code. Company also
acknowledges that ascertain facilities in which the licensed inventions were
developed may have been financed through offerings of tax-exempt bonds. If the
Internal Revenue Service determines, or if counsel to University reasonably
determines, that any term of this Agreement jeopardizes the tax-exempt status of
University or the bonds used to finance University facilities, the relevant term
shall be deemed in invalid provisions and modified in accordance with Section
10.10.
10.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
10.4 HEADINGS. All headings are for convenience only and shall not
affect the meaning of any provision of this Agreement.
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10.5 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective permitted successors and
assigns.
10.6 ASSIGNMENT. This Agreement may not be assigned by either party
without the prior written consent of the other party, except that Company may
assign this Agreement to an affiliate or to a successor in connection with the
merger, consolidation, or sale of all or substantially all of its assets or that
portion of its business to which this Agreement relates.
10.7 AMENDMENT AND WAIVER. This Agreement may be amended, supplemented,
or otherwise modified only by means of a written instrument signed by both
parties. Any waiver of any rights or failure to act in a specific instance shall
relate only to such instance and shall not be construed as an agreement to waive
any rights or fail to act in any other instance, whether or not similar.
10.8. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts irrespective of
any conflicts of law principles.
10.9 NOTICE. Any notices required or permitted under this Agreement
shall be in writing, shall specifically refer to this Agreement, and shall be
sent by hand, recognized national overnight courier, confirmed facsimile
transmission, confirmed electronic mail, or registered or certified mail,
postage prepaid, return receive requested, to the following addresses or
facsimile numbers of the parties.
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If to University:
Office of Commercial Ventures and Intellectual Property
University of Massachsuetts
55 Lake Avenue North
Worcester, MA 01605
Attention: Joseph F. X. McGuirl
Executive Director
Tel: (508) 856-1626
Fax: (508) 856-5004
If to Company:
Signal Pharmaceuticals, Inc.
5555 Oberlin Drive
San Diego, CA 92121
Attention: Alan J. Lewis, Ph.D.
President and Chief Executive Officer
Tel: (619) 558-7500
Fax: (619) 558-7513
All notices under this Agreement shall be deemed effective upon receipt. A party
may change its contact information immediately upon written notice to the other
party in the manner provided in this Section.
10.10 SEVERABILITY. In the event that any provision of this Agreement
shall be held invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect any other provision of this Agreement, and the
parties shall negotiate in good faith to modify the Agreement to preserve (to
the extent possible) their original intent. If the parties fail to reach a
modified agreement within sixty (60) days after the relevant provision is held
invalid or unenforceable, then the dispute shall be resolved in accordance with
the procedures set forth in Article 9. While the dispute is pending resolution,
this Agreement shall be construed as if such provision were deleted by agreement
of the parties.
10.11 ENTIRE AGREEMENT. Except for the Common Stock Purchase Agreement,
this Agreement constitutes the entire agreement between the parties with respect
to its subject
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and supersedes all prior agreement or understandings between the parties
relating to its subject matter.
IN WITNESS WHEREOF, The parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first written
above.
UNIVERSITY OF MASSACHUSETTS SIGNAL PHARMACEUTICALS, INC.
By: /s/ JOSEPH F.X. McGUIRL By: /s/ CARL BOBKOSKI
-------------------------------- ------------------------------
Joseph F.X. McGuirl Carl Bobkoski
Executive Director, CVIP Executive Vice President
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EXHIBIT A
LIST OF UMMC CASES
U.S. PATENT APPLICATION SERIAL NO. [***]
U.S. PATENT APPLICATION SERIAL NO. [***]
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* Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80,
200.83 and 230.406.
EXHIBIT 10.48
RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT
Dated November 25, 1997
by and between
SIGNAL PHARMACEUTICALS, INC.
and
ARES TRADING S.A.
<PAGE> 2
RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT
-------------------------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I DEFINITIONS ............................................................. 1
-----------
1.01 Affiliate ....................................................... 2
1.02 ARES Know-How ................................................... 2
1.03 ARES Patents .................................................... 2
1.04 Business Day .................................................... 2
1.05 Effective Date .................................................. 2
1.06 Facilities ...................................................... 3
1.07 FDA ............................................................. 3
1.08 Field ........................................................... 3
1.09 Initial Term .................................................... 3
1.10 Joint Know-How .................................................. 3
1.11 Joint Patents ................................................... 3
1.12 Joint Research Committee ........................................ 3
1.13 Licensed Product ................................................ 4
1.14 Net Sales ....................................................... 4
1.15 NF-kB ........................................................... 4
1.16 Protocol ........................................................ 5
1.17 Research ........................................................ 5
1.18 SIGNAL Know-How ................................................. 5
1.19 SIGNAL Patents .................................................. 5
1.20 SIGNAL Technology ............................................... 5
1.21 Subsequent Term ................................................. 6
1.22 Tanabe .......................................................... 6
1.23 Term ............................................................ 6
1.24 Territory ....................................................... 6
1.25 Valid Claim ..................................................... 6
ARTICLE II RESEARCH ................................................................ 6
--------
2.01 Joint Research Committee ........................................ 6
2.01.01 Purpose ................................................. 6
2.01.02 Membership .............................................. 7
2.01.03 Schedule ................................................ 7
2.01.04 Procedures .............................................. 7
2.02 Performance of the Research ..................................... 7
2.03 Performance Standard ............................................ 8
2.03.01 SIGNAL .................................................. 8
2.03.02 ARES .................................................... 8
</TABLE>
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<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
2.04 Commitment of Research Personnel ................................ 8
2.05 Exclusive Relationship .......................................... 8
2.05.01 SIGNAL .................................................. 8
2.05.02 Tanabe Agreement ........................................ 9
2.06 Facilities ...................................................... 9
2.07 Records ......................................................... 10
2.08 Audit ........................................................... 10
2.09 Research by ARES ................................................ 10
2.10 Term of the Research ............................................ 10
2.11 Research Funding ................................................ 11
2.12 Materials ....................................................... 12
2.12.01 ARES Materials .......................................... 12
2.12.02 SIGNAL Materials ........................................ 12
2.13 Ownership of SIGNAL Technology .................................. 13
2.13.01 No Ownership by SIGNAL Employees ........................ 13
2.13.02 SIGNAL Know-How and SIGNAL Patents ...................... 13
2.13.03 Joint Know-How and Joint Patents........................ 13
2.14 License of ARES Know-How and ARES Patents ....................... 14
ARTICLE III LICENSE ................................................................. 14
-------
3.01 Grant of License ................................................ 14
3.02 Disclosure of SIGNAL Know-How and Joint Know-How ................ 15
3.03 License Fees .................................................... 15
3.03.01 New Target or Indication ................................ 15
3.03.02 Other Licensed Products ................................. 16
3.03.03 New Dosage or Formulation of Licensed Product ........... 17
3.04 Equity Investment ............................................... 17
3.05 Ongoing Royalty ................................................. 17
3.06 Deduction for ARES Discovery .................................... 18
3.07 Adverse Patents ................................................. 18
3.08 Reimbursement to SIGNAL ......................................... 18
3.09 Single Royalty .................................................. 19
3.10 Taxes Withheld .................................................. 19
3.11 Report of Royalties ............................................. 19
3.12 Payment of Royalties ............................................ 19
3.13 Interest on Payments ............................................ 20
3.14 Records ......................................................... 20
3.15 Reversion of Rights to Signal ................................... 20
3.15.01 Exercise of Reversion Option ............................ 20
3.15.02 SIGNAL Obligation to Make Payment ....................... 21
3.15.03 ARES Grant of License ................................... 22
</TABLE>
ii
<PAGE> 4
<TABLE>
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<S> <C> <C>
ARTICLE IV ADDITIONAL RIGHTS ....................................................... 22
-----------------
4.01 Co-Promotion .................................................... 22
4.01.01 Exercise of Option ...................................... 22
4.01.02 Royalty Calculations .................................... 24
4.02 Supply of Licensed Products and/or
4.03 Combination Products ............................................ 24
ARTICLE V PATENT PROSECUTION AND ENFORCEMENT ...................................... 25
----------------------------------
5.01 Prosecution and Maintenance by SIGNAL ........................... 25
5.02 Prosecution and Maintenance by ARES ............................. 25
5.03 Prosecution of Infringement or Patent Defense
by SIGNAL ....................................................... 26
5.04 Participation in Prosecution of Infringement
or Patent Defense by ARES ....................................... 26
5.05 Prosecution of Infringement or Patent Defense
by ARES ......................................................... 27
ARTICLE VI TERM AND TERMINATION .................................................... 28
--------------------
6.01 Term ............................................................ 28
6.02 Termination by ARES ............................................. 28
6.03 Termination for Breach .......................................... 28
6.04 Termination upon ARES' Bankruptcy ............................... 29
6.05 No Termination upon SIGNAL's Bankruptcy ......................... 29
6.06 Effect of Termination ........................................... 29
6.07 Cumulative Rights and Remedies .................................. 30
ARTICLE VII REPRESENTATIONS, WARRANTIES AND
------------------------------
INDEMNIFICATION ......................................................... 30
---------------
7.01 SIGNAL Representations .......................................... 30
7.02 ARES Representations ............................................ 32
7.03 SIGNAL Indemnification .......................................... 32
7.04 ARES Indemnification ............................................ 33
7.05 Disclaimer of Warranties ........................................ 34
ARTICLE VIII GENERAL PROVISIONS ...................................................... 35
------------------
8.01 No Waiver ....................................................... 35
8.02 Force Majeure ................................................... 35
8.03 Notices ......................................................... 35
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
8.04 Independent Contractors ......................................... 36
8.05 Assignment ...................................................... 37
8.05.01 General ................................................. 37
8.05.02 Acquisition or Merger ................................... 37
8.06 No Sale or Other Disposal of SIGNAL Technology .................. 38
8.07 Reference to Patents ............................................ 38
8.08 No Third-Party Beneficiary ...................................... 38
8.09 Publicity ....................................................... 38
8.10 Confidential Information ........................................ 39
8.11 Publication ..................................................... 40
8.12 Counterparts .................................................... 41
8.13 No Strict Construction .......................................... 41
8.14 Governing Law ................................................... 41
8.15 Dispute Resolution .............................................. 41
8.15.01 Negotiation ............................................. 41
8.15.02 Arbitration ............................................. 42
8.16 Cooperation ..................................................... 43
8.17 Integration ..................................................... 43
EXHIBIT A ARES Know-How ........................................................... 45
EXHIBIT B ARES Patents ........................................................... 46
EXHIBIT C Protocol ................................................................ 47
EXHIBIT D SIGNAL Know-How ......................................................... 48
EXHIBIT E SIGNAL Patents .......................................................... 49
EXHIBIT F SIGNAL Third-Party Agreements ........................................... 50
EXHIBIT G Third-Party Rights in SIGNAL Know-How and
SIGNAL Patents .......................................................... 51
</TABLE>
iv
<PAGE> 6
RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT
THIS RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT (the "Agreement")
effective as of the ___ day of November 1997 by and between ARES TRADING S.A., a
Swiss company with its principal place of business at Chateau de Vaumarcus, 2028
Vaumarcus, Switzerland (hereinafter "ARES"), and SIGNAL PHARMACEUTICALS, INC. a
California corporation with a principal place of business at 5555 Oberlin Drive,
San Diego, California 92121, U.S.A. (hereinafter "SIGNAL") (ARES and SIGNAL are
sometimes hereinafter referred to collectively as the "Parties" or individually
as a "Party");
WITNESSETH:
WHEREAS, ARES in conjunction with its affiliates and/or agents desires to
perform and have performed research within the field of the modulation of
nuclear factor kappa B; and
WHEREAS, SIGNAL in conjunction with its agents, consultants and/or
academic collaborators is willing to perform and to collaborate with ARES in the
performance of such research; and
WHEREAS, in connection with such research collaboration, ARES wishes to
obtain an exclusive license within the Territory (as defined herein) to develop,
make, have made, import, use, and sell Licensed Products (as also defined
herein); and
WHEREAS, SIGNAL is willing to grant such a license to ARES;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the Parties hereto have agreed as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, each term listed below shall have the meaning
that is given after it:
<PAGE> 7
Section 1.01. Affiliate. Any corporation, firm, partnership or other
entity that controls, is controlled by or is under common control with the Party
in question. For this purpose, "control" shall mean the ownership, whether
direct or indirect, of fifty percent (50%) or more of the equity having the
power to vote on or otherwise direct the affairs of the entity.
Section 1.02. ARES Know-How. Any invention, discovery, formula, design,
process, know-how, data, composition, matter, device, or any improvement
thereof, whether patentable or not, in which ARES or its Affiliates have any
right, title or interest that is necessary or useful for the research,
discovery, development, manufacture, use, import or sale of products within the
Field, including without limitation any invention, discovery, formula, design,
process, know-how, data, composition, matter, device, or any improvement
thereof, whether patentable or not, set forth on Exhibit A hereto or obtained,
developed, made, conceived or first reduced to practice in connection with the
Research solely by ARES, its Affiliates and/or agents, but excluding any Joint
Know-How.
Section 1.03. ARES Patents. (i) Patents (including the inventor's
certificates) that include one or more Valid Claims, including without
limitation any substitution, extension (including supplemental protection
certificate), registration, confirmation, reissue, continuation, divisional,
continuation-in-part, reexamination, renewal or the like thereof or thereto,
(ii) pending applications for patents, including without limitation any
continuation, divisional or continuation-in-part thereof, and any provisional
applications with respect thereto, that, in each case, are listed in Exhibit B
to this Agreement or claim any ARES Know-How, and (iii) any foreign counterparts
of any of the foregoing.
Section 1.04. Business Day. Any day other than a Saturday, Sunday or other
day on which the principal commercial banks located in Vaumarcus, Switzerland or
San Diego, California are not open for business during normal banking hours.
Section 1.05. Effective Date. November ___, 1997.
- 2 -
<PAGE> 8
Section 1.06. Facilities. A Party's research facilities and the research
facilities of any of such Party's agents, Affiliates, consultants and/or
academic collaborators who collaborate in the performance of the Research.
Section 1.07. FDA. The United States Food and Drug Administration.
Section 1.08. Field. The modulation of NF-(kappa)B, [***]
Section 1.09. Initial Term. The period beginning on the Effective Date and
ending three (3) years thereafter, unless sooner terminated in accordance with
the terms and conditions of Article VI.
Section 1.10. Joint Know-How. Any invention, discovery, formula, design,
process, know-how, data, composition, matter, device, or any improvement
thereof, whether patentable or not, obtained, developed, made, conceived or
first reduced to practice in connection with the Research jointly by ARES, its
Affiliates and/or agents and SIGNAL, its agents, consultants and/or academic
collaborators.
Section 1.11. Joint Patents. (i) Patents (including the inventor's
certificates) that include one or more Valid Claims, including without
limitation any substitution, extension (including supplemental protection
certificate), registration, confirmation, reissue, continuation, divisional,
continuation-in-part, reexamination, renewal or the like thereof or thereto,
(ii) pending applications for patents, including without limitation any
continuation, divisional or continuation-in-part thereof, and any provisional
applications with respect thereto, that, in each case, claim any Joint Know-How,
and (iii) any foreign counterparts of any of the foregoing.
Section 1.12. Joint Research Committee. A committee established by the
Parties for the purpose of defining and overseeing the implementation of the
Research.
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<PAGE> 9
Section 1.13. Licensed Product. A product, the development, manufacture,
import, use, or sale of which (i) but for the license granted in this Agreement,
would infringe one or more Valid Claims of a SIGNAL Patent or Joint Patent
licensed hereunder, or (ii) utilizes the SIGNAL Know-How or Joint Know-How
licensed hereunder.
Section 1.14. Net Sales. The amount received for a sale of the Licensed
Product or Combination Product (as defined below), as applicable, to third
parties by ARES, its Affiliates or sublicensees, less: (i) trade, cash and
quantity discounts, rebates or reimbursements, if any, actually allowed or paid;
(ii) returns, allowances and adjustments actually granted to customers; (iii)
freight, insurance and other transportation charges actually accrued or paid;
and (iv) taxes (other than taxes on ARES' income), duties or other governmental
charges on sales or use actually absorbed by ARES or its Affiliates or
sublicensees with respect to the sale of such Licensed Product or Combination
Product. If the Licensed Product is sold in combination with other ingredients,
products, devices, equipment or components (a "Combination Product"), Net Sales
for any such Combination Product shall be computed by multiplying what would
otherwise be the Net Sales of such Combination Product by the Combination
Allocation Fraction (as defined below) attributable to such Combination Product.
The "Combination Allocation Fraction" as used herein shall be a fraction, the
numerator of which shall be the fair market value of the Licensed Product
included in the Combination Product and the denominator of which shall be the
fair market value of such Licensed Product plus the fair market value of the
ingredients, products, equipment or components of such Combination Product that
are not Licensed Product. If no market price exists, fair market value shall be
determined in good faith by ARES and SIGNAL. Sales among ARES and its Affiliates
or sublicensees shall be disregarded and only final sales to unrelated third
parties shall be included in Net Sales.
Section 1.15. NF-(kappa)B. Nuclear factor kappa B.
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<PAGE> 10
Section 1.16. Protocol. A protocol for a research project established from
time to time by the Joint Research Committee in accordance with Section 2.01
hereof and the sample protocol set forth as Exhibit C to this Agreement.
Section 1.17. Research. Research performed pursuant to the Protocols by
SIGNAL, its agents, consultants and/or academic collaborators, either alone or
in collaboration with ARES, its Affiliates and/or agents, relating to the Field.
Section 1.18. SIGNAL Know-How. Any invention, discovery, formula, design,
process, know-how, data, composition, matter, device, or any improvement
thereof, whether patentable or not, in which SIGNAL has any right, title or
interest that is necessary or useful for the research, discovery, development,
manufacture, use, import or sale of products within the Field, including without
limitation any invention, discovery, formula, design, process, know-how, data,
composition, matter, device or any improvement thereof, whether patentable or
not, set forth on Exhibit D hereto or obtained, developed, made, conceived or
first reduced to practice in connection with the Research solely by SIGNAL, its
agents, consultants and/or academic collaborators, but excluding any Joint
Know-How.
Section 1.19. SIGNAL Patents. (i) Patents (including the inventor's
certificates) that include one or more Valid Claims, including without
limitation any substitution, extension (including supplemental protection
certificate), registration, confirmation, reissue, continuation, divisional,
continuation-in-part, reexamination, renewal or the like thereof or thereto,
(ii) pending applications for patents, including without limitation any
continuation, divisional or continuation-in-part thereof, and any provisional
applications with respect thereto, that, in each case, are listed in Exhibit E
to this Agreement or claim any SIGNAL Know-How, and (iii) any foreign
counterparts of any of the foregoing.
Section 1.20. SIGNAL Technology. SIGNAL Patents and SIGNAL Know-How and
SIGNAL's right, title and interest in, to and under Joint Patents and Joint
Know-How, collectively.
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<PAGE> 11
Section 1.21. Subsequent Term. The period beginning upon the expiration of
the Initial Term and continuing until the expiration of the Term.
Section 1.22. Tanabe. Tanabe Seiyaku Co., Ltd.
Section 1.23. Term. As defined in Section 6.01 hereof.
Section 1.24. Territory. All countries of the world, with the exception of
Japan, China, South Korea, Taiwan, Thailand, Cambodia, Laos, Vietnam, Indonesia,
Nepal, the Philippines, Singapore, Malaysia, Hong Kong, Myanmar and Brunei.
Section 1.25. Valid Claim. A claim of an issued patent which claim has not
lapsed, been canceled or become abandoned and has not been declared invalid by
an unreversed and unappealable decision or judgment of a court or other
appropriate body of competent jurisdiction, and that has not been admitted to be
invalid or unenforceable through reissue or disclaimer.
ARTICLE II
RESEARCH
Section 2.01. Joint Research Committee.
2.01.01. Purpose. The Joint Research Committee shall establish
written Protocols for the performance of the Research, including schedules
therefor and interim and final reporting obligations with respect thereto, and
allocate responsibility for performance of the Research between the Parties,
with the expectation that the Research shall principally be performed by SIGNAL,
its agents, consultants and/or academic collaborators. The Joint Research
Committee shall review the performance of the Research pursuant to the Protocols
and, if necessary, approve amendments to a Protocol or terminate the Research
being performed pursuant to a Protocol. Upon the completion or earlier
termination of the Research being performed pursuant to a Protocol, the Joint
Research Committee shall analyze the results of such Research.
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<PAGE> 12
2.01.02. Membership. The Joint Research Committee shall
initially comprise three (3) representatives appointed by ARES and three (3)
representatives appointed by SIGNAL but the composition of the Joint Research
Committee may be modified from time to time upon the mutual written agreement of
the Parties. One representative of each Party shall be designated as the contact
person for that Party. Each Party shall have the right to change its
representatives to the Joint Research Committee or its contact person at any
time upon notice to the other Party.
2.01.03. Schedule. The Joint Research Committee shall meet
within thirty (30) days of the Effective Date, and thereafter at least quarterly
or more frequently as requested by either Party. The contact person for each
Party shall agree upon the time and place of each meeting.
2.01.04. Procedures. A meeting of the Joint Research Committee
may be held only if a quorum of at least two (2) representatives of each Party
is present. All decisions of the Joint Research Committee must be made by the
unanimous consent of the representatives of both Parties present at a meeting.
The proceedings of the meetings of the Joint Research Committee shall be
summarized in minutes signed by the contact person of each Party or his/her
designee.
Section 2.02. Performance of the Research. SIGNAL agrees to use its
commercially reasonable and diligent efforts consistent with prevailing
practices within the pharmaceutical and biotechnology industries to perform, and
as necessary to cause its agents, consultants and/or academic collaborators to
perform, the Research. SIGNAL shall accord the Research at least as high a
priority as it accords its other active research programs for which it receives
comparable funding. SIGNAL shall cooperate with ARES in the performance of the
Research as required by the relevant Protocols.
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<PAGE> 13
Section 2.03. Performance Standard.
2.03.01. SIGNAL. SIGNAL represents and warrants that it has
the experience, capability and resources, including but not limited to
sufficient qualified personnel, including its agents, consultants and/or
academic collaborators, to perform the Research in accordance with the terms and
conditions of this Agreement. SIGNAL agrees to perform and to have performed the
Research in accordance with such terms and conditions and in conformity with
generally accepted standards of good laboratory practice and with all applicable
federal, state and local laws, guidelines, rules and regulations including
without limitation the United States Food, Drug and Cosmetic Act and guidelines,
rules and regulations promulgated by the FDA.
2.03.02. ARES. ARES represents and warrants that it and its
Affiliates have the experience, capability and resources, including but not
limited to sufficient qualified personnel, to perform the preclinical, clinical
and regulatory activities contemplated by this Agreement. ARES agrees to perform
and to have performed such activities in conformity with generally accepted
standards of good laboratory practice and good clinical practice and with all
applicable federal, state and local laws, guidelines, rules and regulations
including without limitation the United States Food, Drug and Cosmetic Act and
guidelines, rules and regulations promulgated by the FDA.
Section 2.04. Commitment of Research Personnel. SIGNAL shall allocate to
the Research a total of [***] research personnel (measured as full-time
equivalents) and post-doctoral fellows combined. SIGNAL shall also allocate any
additional research personnel to the Research as SIGNAL believes in good faith
are required from time to time to comply with Sections 2.02 and 2.03 hereof.
Section 2.05. Exclusive Relationship.
2.05.01. SIGNAL. ARES acknowledges and agrees that SIGNAL and
Tanabe have entered into a Collaborative Development and Licensing Agreement
dated March
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***Confidential Treatment Requested
<PAGE> 14
31, 1996, as amended to date (the "Tanabe Agreement"), pursuant to which SIGNAL
has granted certain exclusive rights to Tanabe within the Field, as set forth in
the Tanabe Agreement, for those countries specifically excluded from the
definition of the Territory in Section 1.24 hereof. Except for its obligations
under the Tanabe Agreement, SIGNAL represents and warrants that it shall not
perform any research relating to the Field other than the Research.
2.05.02. Tanabe Agreement. ARES acknowledges and agrees that,
in accordance with the terms of the Tanabe Agreement, once each of Tanabe and
ARES has agreed to accept reciprocity on exchanges of Signal Technical
Information and Tanabe Technical Information (as defined in the Tanabe
Agreement), then during the term of the Tanabe Agreement, SIGNAL, Tanabe and
ARES shall make available to each other such Signal Compound Information, Tanabe
Compound Information, Signal Product Information and Tanabe Product Information
(as defined in the Tanabe Agreement) as the three parties may mutually agree for
any Compound (as defined in the Tanabe Agreement) that is under development by
Tanabe and ARES in whatever form is best suited fully to deliver such
information. Unless and until Tanabe and ARES have so agreed to accept
reciprocity on exchanges of information, SIGNAL shall not disclose to Tanabe any
ARES Know-How or ARES Patents. In addition ARES hereby agrees to be bound by the
provisions of Section 9.1 of the Tanabe Agreement, and SIGNAL hereby agrees to
immediately notify ARES of, and consult with ARES regarding, any information it
receives from, or provides to, Tanabe pursuant to Section 9.1 of the Tanabe
Agreement.
Section 2.06. Facilities. SIGNAL shall perform the Research and shall
cause the Research to be performed at the Facilities of SIGNAL, its agents,
consultants and/or academic collaborators, that SIGNAL represents and warrants
are adequate to perform the Research. SIGNAL has taken, or shall take, all
standard precautions consistent with pharmaceutical and biotechnology industry
practices to ensure that such Facilities are protected by security systems
- 9 -
<PAGE> 15
that will maintain the confidentiality and prevent the loss of records and
information obtained or developed pursuant to this Agreement.
Section 2.07. Records. In conformity with standard pharmaceutical and
biotechnology industry practices and the terms and conditions of this Agreement,
SIGNAL shall prepare and maintain, and shall cause to be prepared and
maintained, complete and accurate written records, accounts, notes, reports and
data with respect to all laboratory work conducted in the performance of the
Research, and upon ARES' request shall send legible copies of the aforesaid to
ARES.
Section 2.08. Audit. SIGNAL shall notify ARES of any request for an audit
of the Facilities or records pertaining to the Research sufficiently in advance
of such audit to allow a representative of ARES to be present during such audit.
Section 2.09. Research by ARES. To the extent that the Joint Research
Committee or the Parties agree, whether in connection with one or more Protocols
or otherwise, that any of the Research is to be performed by ARES, its
Affiliates and/or agents or at the Facilities of ARES, its Affiliates and/or
agents, ARES shall be obligated to fulfill the same requirements and meet the
same standards as are required of SIGNAL in Sections 2.02, 2.06, 2.07 and 2.08
hereof.
Section 2.10. Term of the Research. Unless at least six (6) months prior
to the expiration of the Initial Term, or at least six (6) months prior to the
expiration of any subsequent three-year period during the Subsequent Term, ARES
gives SIGNAL notice of its decision to terminate the Research, the Research
shall continue for an additional three-year period, subject to termination of
the Agreement pursuant to Article VI. Upon termination of the Research, ARES
shall have no right, title and interest in, to and under any invention,
discovery, formula, design, process, know-how, data, composition, matter,
device, or product, or any improvement thereof, whether patentable or not,
obtained, developed, made, conceived or first reduced to practice by SIGNAL, its
agents, consultants and/or collaborators (including Tanabe) following
termination of the Research, and the only rights of ARES hereunder shall be
rights to (i) ARES Know-How and
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<PAGE> 16
ARES Patents and (ii) SIGNAL Technology obtained, developed, made, conceived or
first reduced to practice prior to such termination.
Section 2.11. Research Funding. As full compensation for SIGNAL's, its
agents', consultants' and academic collaborators' performance of the Research
during the Initial Term, ARES shall pay, or cause to be paid, to SIGNAL
Nine Million United States Dollars (U.S. $9,000,000) which shall be due and
payable in accordance with the following schedule:
(i) One Million United States Dollars (U.S. $1,000,000) upon execution and
delivery of this Agreement;
(ii) One Million United States Dollars (U.S. $1,000,000) four months after
the Effective Date;
(iii) One Million United States Dollars (U.S. $1,000,000) eight (8) months
after the Effective Date;
(iv) One Million United States Dollars (U.S. $1,000,000) one (1) year
after the Effective Date;
(v) One Million United States Dollars (U.S. $1,000,000) sixteen (16) months
after the Effective Date;
(vi) One Million United States Dollars (U.S. $1,000,000) twenty (20) months
after the Effective Date;
(vii) One Million United States Dollars (U.S. $1,000,000) two (2) years
after the Effective Date;
(viii) One Million United States Dollars (U.S. $1,000,000) twenty-eight (28)
months after the Effective Date;
(ix) One Million United States Dollars (U.S. $1,000,000) thirty-two (32)
months after the Effective Date.
In the event the Research continues for any three-year period during the
Subsequent Term, then as full compensation for SIGNAL's, its agents',
consultants' and academic collaborators'
- 11 -
<PAGE> 17
performance of the Research during such three-year period, ARES shall pay, or
cause to be paid, to SIGNAL the amount paid during the prior three-year period
adjusted to reflect the percentage increase for the prior three-year period in
the Consumer Price Index of the Bureau of Labor Statistics of the United States
Department of Labor. [***] of such adjusted amount shall be due and payable at
the start of such three-year period and thereafter at [***] intervals.
Section 2.12. Materials.
2.12.01. ARES Materials. To the extent required to do so
pursuant to any Protocol, ARES shall make available to SIGNAL quantities of
proprietary ARES materials sufficient to carry out the applicable Research,
which materials shall be used for no other purpose, it being understood that
SIGNAL shall take reasonable care to handle, store and use these materials so as
to avoid loss, contamination and waste. All materials so furnished shall be
deemed to be ARES "Confidential Information" subject to the obligations set
forth in Section 8.10 hereof and SIGNAL shall return any unused ARES materials
at the conclusion of the relevant Research or the earlier termination of this
Agreement, unless written authorization to destroy such materials is given by
ARES. SIGNAL shall account for all materials not returned.
2.12.02. SIGNAL Materials. To the extent required to do so
pursuant to any Protocol, SIGNAL shall make available to ARES quantities of
proprietary SIGNAL materials sufficient to carry out the applicable Research,
which materials shall be used for no other purpose, it being understood that
ARES shall take reasonable care to handle, store and use these materials so as
to avoid loss, contamination and waste. All materials so furnished shall be
deemed to be SIGNAL "Confidential Information" subject to the obligations set
forth in Section 8.10 hereof and ARES shall return any unused SIGNAL materials
at the conclusion of the relevant Research or the earlier termination of this
Agreement, unless written authorization to destroy such materials is given by
SIGNAL. ARES shall account for all materials not returned.
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***Confidential Treatment Requested
<PAGE> 18
Section 2.13. Ownership of SIGNAL Technology.
2.13.01. No Ownership by SIGNAL Employees. All employees of
SIGNAL who are expected to perform the Research have signed agreements regarding
proprietary information and inventions with SIGNAL in a form reasonably
considered by SIGNAL and its counsel to assure SIGNAL's right, title and
interest in, to and under the SIGNAL Technology in accordance with Subsections
2.13.02 and 2.13.03 below.
2.13.02. SIGNAL Know-How and SIGNAL Patents. All right, title
and interest in, to and under all SIGNAL Know-How and SIGNAL Patents obtained,
developed, made, conceived or first reduced to practice in connection with the
Research shall be owned by or licensed to SIGNAL. SIGNAL shall enter into
customary agreements with its agents, consultants and/or academic collaborators
that provide that all of such agents', consultants' and/or academic
collaborators' right, title and interest in, to and under such SIGNAL Know-How
and SIGNAL Patents shall be assigned or licensed exclusively to SIGNAL, unless
SIGNAL and ARES agree in writing (including as reflected in the signed minutes
of meetings of the Joint Research Committee) that such exclusivity is not
required to protect SIGNAL's competitive position with respect to the
performance of the Research and ARES' competitive position with respect to the
development, manufacture, import, use, and sale of Licensed Products and
Combination Products. SIGNAL's right, title and interest in, to and under such
SIGNAL Know-How and SIGNAL Patents shall be licensed to ARES pursuant to Section
3.01 hereof.
2.13.03. Joint Know-How and Joint Patents. All right, title
and interest in, to and under all Joint Know-How and Joint Patents shall be
owned jointly and equally by SIGNAL and ARES, each with an undivided one-half
interest. SIGNAL shall enter into customary agreements with its agents,
consultants and academic collaborators that provide that all of such agents',
consultants' and academic collaborators' right, title and interest in, to and
under such Joint Know-How and Joint Patents shall be assigned or licensed
exclusively to SIGNAL, unless SIGNAL and ARES agree in writing (including as
reflected in the signed
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<PAGE> 19
minutes of meetings of the Joint Research Committee) that such exclusivity is
not required to protect SIGNAL's competitive position with respect to the
performance of the Research and ARES' competitive position with respect to the
development, manufacture, import, use, and sale of Licensed Products and
Combination Products. SIGNAL's right, title and interest in, to and under such
Joint Know-How and Joint Patents shall be licensed to ARES pursuant to Section
3.01 hereof.
Section 2.14. License of ARES Know-How and ARES Patents. ARES hereby
grants to SIGNAL, and SIGNAL hereby accepts, [ *** ] solely for the purpose of
conducting the Research pursuant to this Agreement. Such license shall be valid
for the term of the Research as set forth in Section 2.10 hereof.
ARTICLE III
LICENSE
Section 3.01. Grant of License. SIGNAL hereby grants to ARES, and ARES
hereby accepts, an exclusive license under the SIGNAL Technology, valid for the
Term and with the right to grant sublicenses, to develop, make, have made,
import, use, and sell Licensed Products and Combination Products within the
Territory. ARES shall notify any sublicensee of the SIGNAL Technology of all
rights and obligations of ARES hereunder licensed to such sublicensee. For the
avoidance of doubt, except in connection with Sections 2.09 and 6.05 and
Subsection 8.05.02 hereof, and other than with respect to inventions,
discoveries, formulas, designs, processes, know-how, data, compositions, matter,
devices, or any improvements thereof, whether patentable or not, obtained,
developed, made, conceived or first reduced to practice in connection with the
Research, the foregoing is not intended to grant ARES a license to the SIGNAL
Technology for research purposes.
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Section 3.02. Disclosure of SIGNAL Know-How and Joint Know-How. Following
the execution and delivery of this Agreement and as appropriate from time to
time thereafter during the Term, SIGNAL shall disclose to ARES the SIGNAL
Know-How and the Joint Know-How pursuant to a program and in a form (e.g.
writings, visual representations, computer software, models or instruction) as
shall best facilitate the use of such SIGNAL Know-How and Joint Know-How by
ARES.
Section 3.03. License Fees. In addition to the royalties that shall be
payable under Sections 3.05 and 4.01 hereof, the purchase of SIGNAL Series F
Preferred Stock by ARES' Affiliate pursuant to Section 3.04 hereof, and in
consideration of the grant of the exclusive license set forth in Section 3.01
hereof, ARES shall pay SIGNAL the following license fees on a Licensed Product
by Licensed Product basis.
3.03.01 New Target or Indication. For each Licensed Product
for which no license fee has yet been paid and that is either (A) [***] or
(B) [***], its Affiliates or sublicensees then within thirty (30) days of the
corresponding event, ARES shall pay, or cause to be paid, to SIGNAL the
following nonrefundable license fees:
(i) [***]
(ii) [***]
(iii) [***]
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(iv) [***]
(v) [***]
ARES shall promptly notify SIGNAL of the occurrence of any event described
above.
3.03.02 Other Licensed Products. For each Licensed Product
being developed by ARES, its Affiliates or sublicensees for which no license fee
has yet been paid and that is not subject to Subsection 3.03.01 above, ARES
shall pay, or cause to be paid, to SIGNAL the following nonrefundable license
fees:
(i) [***]
(ii) [***]
(iii) [***]
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ARES shall promptly notify SIGNAL of the occurrence of any event described
above.
3.03.03. New Dosage or Formulation of Licensed Products. For
the avoidance of doubt, if a license fee has been paid pursuant to this Section
3.03 with respect to any Licensed Product, then no additional license fee shall
be payable hereunder with respect to any new dosage, presentation or formulation
of such Licensed Product (including any inclusion of such Licensed Product in a
Combination Product).
Section 3.04. Equity Investment. On or before December 1, 1997, ARES'
Affiliate, Ares-Serono S.A., shall purchase 2,722,513 shares of the Series F
Preferred Stock of SIGNAL for total consideration of Eight Million Two Hundred
Thousand United States Dollars and Seventy-Two United States Cents (U.S.
$8,200,000.72) pursuant to a stock purchase agreement that shall be executed
and delivered simultaneously herewith.
Section 3.05. Ongoing Royalty. Subject to the provisions of this Article
III, ARES shall during the Term pay or cause to be paid to SIGNAL royalties on
Net Sales of Licensed Products or Combination Products at the following rates:
(i) [***] of total annual Net Sales of Licensed
Products and Combination Products at or below [***];
(ii) [***] of total annual Net Sales of Licensed
Products and Combination Products above [***];
(iii) [***] of total annual Net Sales of Licensed
Products and Combination Products above [***]; and
(iv) [***] of total annual Net Sales of
Licensed Products and Combination Products above [***];
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provided, however, that upon the expiration or invalidation of the last
remaining Valid Claim of a SIGNAL Patent or Joint Patent in effect in a country
that covers such Licensed Product or Combination Product, royalties payable for
such country with respect to such Licensed Product or Combination Product shall
be reduced by [***]
Section 3.06. [***] ARES may [***] hereof, [***] of total annual Net Sales
for any Licensed Product or Combination Product whose primary pharmacological
activity is the modulation of an intracellular molecule [***].
Section 3.07. Adverse Patents. ARES may deduct from up to [***] of the
royalties due SIGNAL for any Licensed Product or Combination Product under
Sections 3.05 and 4.01 hereof (following any deduction made pursuant to Section
3.06 hereof) an amount equal to [***] royalties paid to third parties by ARES,
its Affiliates and/or sublicensees in order to develop, manufacture, import, use
or sell such Licensed Product or Combination Product pursuant to agreements that
may be entered into in good faith after the Effective Date with parties owning
or controlling a patent that, but for such agreements, would bar the
development, manufacture, import, use or sale of such Licensed Product or
Combination Product.
Section 3.08. Reimbursement to SIGNAL. In addition to the royalties due
SIGNAL under Sections 3.05 and 4.01 hereof, ARES shall during the Term
reimburse, or cause to be reimbursed, SIGNAL for royalties paid to third parties
by SIGNAL pursuant to agreements in existence on the Effective Date with respect
to the development, manufacture, import, use or sale of a Licensed Product or
Combination Product, as set forth on Exhibit F hereto, or agreements
subsequently approved in writing by the Parties; provided, however, in no event
shall such reimbursement exceed [***] of the total annual Net Sales of such
Licensed Product or Combination Product.
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Section 3.09. Single Royalty. Nothing herein contained shall obligate
ARES, its Affiliates and/or sublicensees to pay or cause to be paid to SIGNAL
more than one royalty on any unit of Licensed Product or Combination Product.
Section 3.10. Taxes Withheld. Any and all taxes that are levied on
royalties accruing under this Agreement in a country in which provision is made
in the law or by regulation for withholding may be deducted by the payor from
such royalties and paid to the proper taxing authority and evidence of such
payment shall be secured and sent to SIGNAL within one (1) month of such
payment. The Parties shall do all such lawful acts and things and sign all such
lawful deeds and documents as either Party may reasonably request from the other
Party to enable ARES, its Affiliates and/or sublicensees to take advantage of
any applicable legal provision or any double taxation treaties with the object
of paying the sums due to SIGNAL hereunder without withholding any tax.
Section 3.11. Report of Royalties. Within sixty (60) days of the end of
each calendar quarter during the Term (including the sixty (60) day period
following the end of the calendar quarter in which the Term terminates), ARES
shall deliver to SIGNAL a written report showing its computation of royalties
due under this Agreement on Net Sales during such calendar quarter. All such Net
Sales shall be segmented by each report according to sales by ARES, its
Affiliates and/or sublicensees as well as on a country by country basis,
including the rates of exchange used to convert such royalties into United
States dollars from the currency in which the sales were made. The rate of
exchange to be used in any such conversion shall be the rate reported in the
Wall Street Journal for the purchase of United States dollars with such currency
on the last Business Day of the quarter for which the report is being prepared.
Section 3.12. Payment of Royalties. Royalties shall be payable hereunder
by ARES on behalf of itself, its Affiliates and/or sublicensees, whichever shall
have effected the sales on which a royalty is due. Simultaneous with the
delivery of the report described in Section 3.11
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hereof ARES shall pay or cause to be paid to SIGNAL at such place as SIGNAL may
from time to time designate all royalties earned in the preceding calendar
quarter.
Section 3.13. Interest on Payments. In the event that any payment due
pursuant to this Agreement, including research payments, license fees and
royalties, is not made when due, the payment shall accrue interest from the date
due until paid at the rate of one percent (1%) per month; provided, however,
that in no event shall such rate exceed the maximum legal annual interest rate.
The payment of such interest shall not limit SIGNAL's right to exercise any
other rights it may have as a consequence of the lateness of any payment.
Section 3.14. Records. ARES shall keep or cause to be kept accurate
records in sufficient detail to enable the royalties payable hereunder to be
determined. During the Term and for a period of two years following the
termination of this Agreement, upon the request of SIGNAL (but not more
frequently than once in each calendar year) an independent public accountant
selected by SIGNAL and approved by ARES shall be allowed access, during ordinary
business hours, to such records pertaining to the preceding two (2) calendar
years solely to verify the accuracy of royalty payments made or payable
hereunder. SIGNAL and ARES shall mutually determine a general strategy for such
audit in advance of its conduct. Said accountant shall not disclose to SIGNAL
any information except that which should properly be contained in a royalty
report required under this Agreement. SIGNAL shall bear the full cost of such
audit unless such audit reveals an under-reporting of royalties in excess of
five percent (5%) of the amount due under this Agreement, in which case the full
cost of the audit shall be borne by ARES.
Section 3.15. Reversion of Rights to SIGNAL.
3.15.01. Exercise of Reversion Option. In the event ARES, its
Affiliates and/or sublicensees cease to pursue development or commercialization
of at least one Licensed Product or Combination Product at any time when ARES is
no longer providing research funding to SIGNAL pursuant to Section 2.11 hereof,
ARES shall immediately notify SIGNAL and,
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SIGNAL may exercise an option, on a product by product basis, to obtain a
reversion of all right, title and interest granted to ARES hereunder with
respect to any potential Licensed Product or Combination Product. SIGNAL shall
exercise such option by providing ARES ninety (90) days prior notice of such
intended reversion of rights, specifying the potential Licensed Product or
Combination Product that is the subject of such reversion. Such reversion of
rights shall become effective at the end of such notice period, unless during
such notice period (i) ARES can demonstrate that ARES, its Affiliates and/or
sublicensees are diligently pursuing the development or commercialization of at
least one Licensed Product or Combination Product or (ii) ARES provides to
SIGNAL a reasonably detailed written plan for commercially reasonable
development and commercialization of such Licensed Product or Combination
Product and takes affirmative steps to begin implementation of such plan.
3.15.02. SIGNAL Obligation to Make Payments. For each Licensed
Product or Combination Product for which rights have reverted to SIGNAL pursuant
to Subsection 3.15.01 hereof, SIGNAL shall pay to ARES [***] of the amount or
fair market value, as applicable, of any and all consideration received by
SIGNAL with respect to such Licensed Product or Combination Product (other than
payments received for equity at fair market value or payments received to
support further research and development of such Licensed Product or Combination
Product so long as such payments do not exceed SIGNAL's cost of conducting such
further research and development), whether such consideration is in cash,
payment in kind, exchange or other form, until the total amount of such payments
to ARES equals [***] of the following amount: [***]
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3.15.03. ARES Patents ARES Grant of License. To the extent
necessary to permit SIGNAL to develop, make, have made, import, use, and sell
Licensed Products or Combination Products within the Territory following a
reversion of rights pursuant to Subsection 3.15.01 hereof, ARES shall grant
SIGNAL a nonexclusive royalty-free license valid for the Term under the ARES
Know-How and ARES Patents pursuant to an agreement to be negotiated in good
faith between the Parties; provided, however, that in addition to the payments
due ARES under Subsection 3.15.02 hereof, SIGNAL shall reimburse ARES for
royalties paid to third parties by ARES or its Affiliates with respect to the
development, manufacture, import, use or sale of such Licensed Products or
Combination Products.
ARTICLE IV
ADDITIONAL RIGHTS
Section 4.01. Co-Promotion.
4.01.01. Exercise of Option. Within thirty (30) days following
notice from ARES to SIGNAL of submission by ARES or its Affiliates of a New Drug
Application (NDA) or equivalent for a Licensed Product or Combination Product in
the United States, SIGNAL shall have the right by notice to ARES to exercise its
option to participate with ARES or its Affiliates in promoting such Licensed
Product or Combination Product in the United States; provided, however, that
SIGNAL can demonstrate concurrently with such option exercise that it can commit
to making a material investment in, and contribution to, promotion of such
Licensed Product or Combination Product. Upon SIGNAL's exercise of such option
on these terms and conditions, ARES in its sole discretion shall within sixty
(60) days of such option exercise select one of the following two alternatives:
(i) [***]
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[***]
(ii) ARES may agree to negotiate in good faith with
SIGNAL a co-promotion agreement for such Licensed Product or Combination Product
in the United States containing customary terms and conditions. The period for
such negotiation shall begin upon SIGNAL's exercise of its option and end six
months thereafter. , [***] such co-promotion agreement shall also provide for
defined standards for promotional diligence sufficient to ensure that SIGNAL
makes a material investment in, and contribution to, promotion of such Licensed
Product or Combination Product. In addition the co-promotion agreement shall, to
the extent necessary, [***] to permit SIGNAL to fulfill its co-promotion
obligations with respect to Licensed Products or Combination Products and shall,
in any event, reflect the following terms and conditions with respect to
royalties and allocation of Net Sales for each such Licensed Product or
Combination Product:
(A) SIGNAL shall receive a royalty of [***] of
such Net Sales;
(B) [***] of such Net Sales shall then be
allocated to ARES;
(C) a portion of the remainder of such Net
Sales shall then be allocated to the Party that has manufactured, or contracted
to have manufactured (including pursuant to Section 4.02 hereof), such Licensed
Product or Combination Product, the amount of such allocation to equal such
Party's direct costs associated with the manufacture of the Licensed Product or
Combination Product;
(D) [***] of Net Sales remaining after the
allocations set forth in Subsections 4.01.01(ii)(A), (B) and (C) above shall be
divided by the
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Parties in proportion to their respective direct costs associated with the
co-promotion of such Licensed Product or Combination Product; and
(E) [***] of Net Sales remaining after the
allocations set forth in Subsections 4.01.01(ii)(A), (B) and (C) above shall be
allocated to ARES until an amount has been recouped equal to the total of [***]
and thereafter any remaining amount shall be allocated in accordance with the
terms and conditions of Subsection 4.01.01(ii)(D) above.
4.01.02. Royalty Calculations. The royalties and allocation of
Net Sales set forth in Subsection 4.01.01 above shall be in lieu of the
royalties set forth in Section 3.05 hereof with respect to Net Sales of Licensed
Products or Combination Products for the United States. Net Sales for the United
States subject to royalty calculations pursuant to Subsection 4.01.01 shall also
not be used in computing total annual Net Sales of Licensed Products and
Combination Products pursuant to Section 3.05. Upon the expiration or
invalidation of the last Valid Claim of a Patent in effect in the United States
that covers a Licensed Product or Combination Product, royalties payable for the
United States pursuant to Subsection 4.01.01 (i) and (ii)(A) above shall be
[***]
Section 4.02. Supply of Licensed Products and/or Combination Products. At
the request and option of [***] the Parties agree to negotiate in good faith a
supply agreement pursuant to which [***] for sale upon such reasonable terms and
conditions as the Parties shall mutually agree; provided, however, if the
Parties have entered into a co-promotion agreement pursuant to Subsection
4.01.01 (ii) hereof, then such supply agreement shall provide for [***]
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[***]
ARTICLE V
PATENT PROSECUTION AND ENFORCEMENT
Section 5.01. Prosecution and Maintenance by SIGNAL. SIGNAL shall
prosecute and maintain the SIGNAL Patents and Joint Patents in the Territory in
accordance with reasonable commercial standards and reasonable principles of
intellectual property protection. All applications for SIGNAL Patents shall be
filed in the name of SIGNAL and all applications for Joint Patents shall be
filed in the name of ARES or its Affiliates and SIGNAL. SIGNAL shall keep ARES
currently advised of all steps that will be taken in the prosecution of the
SIGNAL Patents and Joint Patents. SIGNAL shall furnish ARES with copies of all
substantive communications between SIGNAL and applicable patent offices
regarding the SIGNAL Patents and Joint Patents. SIGNAL shall provide draft
applications for SIGNAL Patents and Joint Patents to ARES sufficiently in
advance of filing for ARES to have the opportunity to comment thereon. ARES
shall provide all reasonable cooperation to SIGNAL at SIGNAL's cost and expense
in connection with SIGNAL's prosecution and maintenance of the SIGNAL Patents
and Joint Patents including without limitation signing all documents necessary
to prosecute and maintain the SIGNAL Patents and Joint Patents. SIGNAL shall
bear the cost of prosecuting and maintaining the SIGNAL Patents and Joint
Patents in force and of filing all applications for SIGNAL Patents and Joint
Patents.
Section 5.02. Prosecution and Maintenance by ARES. If SIGNAL does not
fulfill its obligations to prosecute and maintain the SIGNAL Patents and Joint
Patents in the Territory pursuant to Section 5.01 above, then SIGNAL shall so
advise ARES in time to enable ARES to fulfill these obligations. ARES shall
deduct all reasonable cost and expense it incurs in so doing from the royalties
due SIGNAL pursuant to Sections 3.05 and 4.01 hereof. SIGNAL shall provide all
reasonable cooperation to ARES at SIGNAL's cost and expense in connection with
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ARES' prosecution and maintenance of the SIGNAL Patents and Joint Patents,
including without limitation signing and delivering to ARES, within ten (10)
days of ARES' request therefor, all documents necessary for ARES to prosecute
and maintain the SIGNAL Patents and Joint Patents in the name of SIGNAL.
Section 5.03. Prosecution of Infringement or Patent Defense by SIGNAL. If
either Party learns of (i) any infringement or potential infringement of a
SIGNAL Patents or Joint Patent by a third party in the Territory and/or (ii) any
claim by a third party that a SIGNAL Patent or Joint Patent is invalid in the
Territory, it shall promptly notify the other Party. SIGNAL shall have the right
to prosecute such infringement or to defend against such claim (an "Action").
SIGNAL shall keep ARES informed of, and shall from time to time consult with
ARES regarding, the status of any such Action and shall provide ARES with copies
of all documents filed in, and all written communications relating to, such
Action. ARES shall provide all reasonable cooperation to SIGNAL in connection
with such Action, and SIGNAL shall reimburse ARES for its out-of-pocket expenses
incurred in rendering such cooperation. In the event SIGNAL obtains any recovery
from such Action or the compromise or settlement thereof, the total amount of
such recovery shall first be used to reimburse SIGNAL for its reasonable
expenses incurred in connection with such Action and the balance of such
recovery shall be allocated [***] to SIGNAL and [***] to ARES.
Section 5.04. Participation in Prosecution of Infringement or Patent
Defense by ARES. In the event ARES wishes do so, ARES shall have the right to
participate and be represented in an Action by its own counsel at its own
expense, but may not take any steps to direct such Action nor to compromise or
settle such Action, as SIGNAL shall have the primary responsibility for
directing such Action. SIGNAL agrees that it shall not compromise or settle any
Action in which ARES has exercised its right to participate without ARES' prior
written consent, which consent shall not unreasonably be withheld. In the event
SIGNAL and ARES obtain any recovery from such Action or the compromise or
settlement thereof, the total amount of such
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recovery shall first be used to reimburse the Parties pro-rata, based on costs
incurred, for their reasonable expenses incurred in connection with such Action
and the balance of such recovery shall be shared equally between the Parties.
Section 5.05. Prosecution of Infringement or Patent Defense by ARES. If
within ninety (90) days from the date on which SIGNAL is notified or otherwise
becomes aware of an infringement or potential infringement of a SIGNAL Patent or
Joint Patent in the Territory or a claim that a SIGNAL Patent or Joint Patent is
invalid in the Territory, either (i) the infringement has not been terminated or
the claim has not been withdrawn or (ii) SIGNAL has not initiated an Action
against such third party, SIGNAL shall, upon request of ARES, grant ARES the
right to initiate an Action against such third party at its own cost and
expense, provided, however, that ARES shall be entitled to deduct such cost and
expense from up to [***] of the royalties due SIGNAL thereafter pursuant to
Sections 3.05 and 4.01 hereof. Notwithstanding the ninety (90) day period
established in the previous sentence, in the event that SIGNAL has not
instituted a summary proceeding with respect to an infringement or potential
infringement of a SIGNAL Patent or Joint Patent and the right to institute such
a summary proceeding shall lapse within two weeks, ARES may institute such a
summary proceeding. ARES shall keep SIGNAL informed of, and shall from time to
time consult with SIGNAL regarding, the status of any such Action or summary
proceeding and shall provide SIGNAL with copies of all documents filed in, and
all written communications relating to, such Action or summary proceeding.
SIGNAL agrees, in the event that ARES cannot prosecute such Action or summary
proceeding in its own name, to sign and deliver to ARES, within ten (10) days of
ARES' request therefor, all documents necessary for ARES to prosecute such
Action or summary proceeding in the name of SIGNAL, but ARES shall control the
prosecution of any such Action or summary proceeding. SIGNAL shall have the
right to participate and be represented in such Action or summary proceeding by
its own counsel at its own expense. SIGNAL shall provide all reasonable
cooperation to ARES in connection with such Action or summary proceeding, and
ARES shall
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reimburse SIGNAL for its out-of-pocket expenses incurred in rendering such
cooperation. ARES may not compromise or settle such Action or summary proceeding
without SIGNAL's prior written consent, which consent shall not unreasonably be
withheld. In the event ARES obtains any recovery from such Action or the
compromise or settlement thereof, the total amount of such recovery shall first
be used to reimburse ARES for any costs and expense not deducted from royalty
payments due hereunder, then to reimburse SIGNAL for any cost and expense so
deducted, [***]
ARTICLE VI
TERM AND TERMINATION
Section 6.01. Term. The license granted under Article III hereof shall
continue in force in each country from the Effective Date until (i) the
expiration or invalidation of the last Valid Claim of a SIGNAL Patent or Joint
Patent in effect in such country covering a Licensed Product or Combination
Product, or (ii) ten years from the first commercial sale of a Licensed Product
or Combination Product by ARES, its Affiliates or sublicensees in such country
following the receipt of marketing approval therein, whichever shall last occur,
and this Agreement shall terminate upon the expiration or invalidation of the
last of such Valid Claims or the termination of the last of such ten-year
periods, unless the Agreement is terminated at an earlier date pursuant to
Sections 6.02, 6.03 or 6.04 hereof.
Section 6.02. Termination by ARES: ARES may terminate this Agreement
effective at any time after the end of the Initial Term by giving six (6) months
prior notice to SIGNAL.
Section 6.03. Termination for Breach. Either Party may terminate this
Agreement sixty (60) days after giving the other Party notice of breach of any
material provision of this Agreement (including without limitation the
representations and warranties set forth in Article VII hereof) by the other
Party, unless such breach is cured within the period of such notice.
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Section 6.04. Termination upon ARES' Bankruptcy. SIGNAL may terminate this
Agreement if an insolvency proceeding is instituted by or against ARES, ARES
makes an assignment for the benefit of creditors, admits in writing its
inability to pay its debts as they become due, commences a proceeding for the
appointment of a receiver, trustee, liquidator or conservator of itself or of
the whole or any substantial part of its property, or files a petition seeking
reorganization, composition, liquidation, dissolution or similar arrangement
under any present or future statute, law or regulation.
Section 6.05. No Termination upon SIGNAL's Bankruptcy. All rights and
licenses granted under or pursuant to this Agreement by SIGNAL to ARES are, and
shall otherwise be deemed to be, for purposes of Section 365(n) of the United
States Bankruptcy Code (the "Bankruptcy Code"), licenses of rights to
"intellectual property" as defined under Section 101(56) of the Bankruptcy Code.
The Parties agree that ARES, as a licensee of such rights under this Agreement,
shall retain and may fully exercise all of its rights and elections under the
Bankruptcy Code. The Parties further agree that, in the event of the
commencement of a bankruptcy proceeding by or against SIGNAL under the
Bankruptcy Code, ARES shall be entitled to a complete duplicate of (or complete
access to, as appropriate) any such intellectual property and all embodiment of
such intellectual property, and the same, if not already in its possession,
shall be promptly delivered to ARES (i) upon any such commencement of a
bankruptcy proceeding upon written request therefor by ARES, unless SIGNAL
elects to continue to perform all of its obligations under this Agreement, or
(ii) if not delivered under (i) above, upon the rejection of this Agreement by
or on behalf of SIGNAL, upon written request therefor by ARES.
Section. 6.06. Effect of Termination. If this Agreement is not terminated
at an earlier date by ARES pursuant to Sections 6.02 or 6.03 hereof or by SIGNAL
pursuant to Sections 6.03 or 6.04 hereof, then upon its termination in
accordance with Section 6.01 hereof ARES shall have an irrevocable, fully
paid-up license within the Territory under the SIGNAL Technology to
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develop, make, have made, import, use, and sell any Licensed Products or
Combination Products to which ARES had any right, title or interest prior to the
termination of this Agreement. If this Agreement is terminated by ARES pursuant
to Sections 6.02 or 6.03 hereof or by SIGNAL pursuant to Sections 6.03 or 6.04
hereof, then upon its termination all rights and obligations of the Parties
hereunder, including without limitation the rights and obligations with respect
to the licenses granted under Article III hereof, shall terminate.
Notwithstanding the foregoing, termination of this Agreement shall not release
either Party from its obligations accrued prior to the effective date of
termination nor deprive either Party from any rights that this Agreement
provides shall survive termination.
Section 6.07. Cumulative Rights and Remedies. Any right to terminate this
Agreement shall be in addition to and not in lieu of all other rights or
remedies that the Party giving notice of termination may have at law or in
equity or otherwise, including without limitation rights under the United States
Bankruptcy Code.
ARTICLE VII
REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION
Section 7.01. SIGNAL Representations. SIGNAL represents and warrants to
ARES as follows:
(i) SIGNAL has the right, power and authority to enter into
this Agreement and to perform the Research and grant ARES a license under the
SIGNAL Technology in accordance with the terms and conditions of this Agreement;
(ii) all requisite corporate action has been taken to
authorize SIGNAL's execution, delivery and performance of this Agreement;
(iii) SIGNAL has all right, title and interest in, to and
under the SIGNAL Technology, which, with the exception of rights granted to
Tanabe, is free and clear of any liens, charges, encumbrances or rights of
others to possession or use;
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(iv) with the exception of rights granted to Tanabe, SIGNAL
has not previously licensed, assigned, transferred, or otherwise conveyed any
right, title or interest in, to or under the SIGNAL Technology to any third
party;
(v) all third parties who have or had any right, title and
interest in, to and under the SIGNAL Know-How and SIGNAL Patents, as identified
on Exhibit G, have assigned or licensed such right, title and interest to SIGNAL
under the terms and conditions set forth on Exhibit G;
(vi) to the best of SIGNAL's knowledge after due inquiry, the
practice and use of the SIGNAL Technology pursuant to the terms and conditions
of this Agreement shall not infringe any patent, copyright, trademark, or other
proprietary or property rights of any third parties;
(vii) to the best of SIGNAL's knowledge after due inquiry, no
third party has filed, pursued or maintained or threatened to file, pursue or
maintain any claim, lawsuit, charge, complaint or other action alleging that the
SIGNAL Technology infringes any patent, copyright or trademark or other
proprietary or property rights of any third parties;
(viii) there are no suits, proceedings, arbitrations, claims
or counterclaims or governmental investigations pending or asserted in writing
to SIGNAL, and to the best of SIGNAL's knowledge, there are no suits,
proceedings, arbitrations, claims or counterclaims or governmental
investigations threatened against SIGNAL that would give any third party the
right to enjoin or rescind the transactions contemplated by this Agreement or
would otherwise prevent SIGNAL from complying with the terms and conditions of
this Agreement;
(ix) execution and delivery of this Agreement and performance
hereunder does not breach, violate, contravene or constitute a default under any
contracts, arrangements or commitments to which SIGNAL is a party or by which it
is bound; and
(x) no warranty or representation by SIGNAL in this Agreement
and no other agreement, exhibit, or instrument required to be delivered by
SIGNAL to ARES pursuant
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to this Agreement contains or will contain any untrue statement of material fact
or omit to state a material fact required in order to make such warranty,
representation, other agreement, exhibit or instrument not misleading.
Section 7.02. ARES Representations. ARES represents and warrants to SIGNAL
as follows:
(i) ARES has the right, power and authority to enter into this
Agreement;
(ii) all requisite corporate action has been taken to
authorize ARES' execution, delivery and performance of this Agreement;
(iii) there are no suits, proceedings, arbitrations, claims or
counterclaims or governmental investigations pending or asserted in writing to
ARES, and to the best of ARES' knowledge, there are no suits, proceedings,
arbitrations, claims or counterclaims or governmental investigations threatened
against ARES that would give any third party the right to enjoin or rescind the
transactions contemplated by this Agreement or would otherwise prevent ARES from
complying with the terms and conditions of this Agreement;
(iv) execution and delivery of this Agreement and performance
hereunder does not breach, violate, contravene or constitute a default under any
contracts, arrangements or commitments to which ARES is a party or by which it
is bound; and
(v) no warranty or representation by ARES in this Agreement
and no other agreement, exhibit or instrument required to be delivered by ARES
to SIGNAL pursuant to this Agreement contains or will contain any untrue
statement of material fact or omit to state a material fact required in order to
make such warranty, representation, other agreement, exhibit or instrument not
misleading.
Section. 7.03. SIGNAL Indemnification. SIGNAL shall defend, indemnify and
hold harmless ARES, its Affiliates and sublicensees, their officers, agents and
employees (each individually a "SIGNAL Indemnified Party," and collectively the
"SIGNAL Indemnified Parties"), from and against any and all liabilities, losses,
damages, actions, claims, costs or
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<PAGE> 38
expenses suffered or incurred by the SIGNAL Indemnified Parties (including
reasonable attorneys' fees) (individually a "SIGNAL Liability," and collectively
the "SIGNAL Liabilities") that arise from (i) personal injury or property damage
to third parties resulting from a breach of this Agreement by SIGNAL (including
without limitation a breach of SIGNAL's representations and warranties in
Section 7.01 hereof); or (ii) the enforcement by a SIGNAL Indemnified Party of
its rights under this Section 7.03; provided, however, that SIGNAL shall have no
obligation to defend, indemnify, and hold harmless hereunder to the extent a
SIGNAL Liability arises from the negligence or willful misconduct of a SIGNAL
Indemnified Party or from the negligence, failure to comply with instructions
regarding use of a Licensed Product or Combination Product or other wrongdoing
of any user of the Licensed Product or Combination Product. ARES shall promptly
notify SIGNAL of any claim or action giving rise to SIGNAL Liabilities subject
to the provisions of this Section 7.03. SIGNAL shall have the right to defend
any such claim or action, at its cost and expense, and shall keep ARES informed
of developments in any such claim or action. ARES shall cause the SIGNAL
Indemnified Parties to cooperate with SIGNAL in the defense of any such claim or
action. SIGNAL shall not settle or compromise any such claim or action in a
manner that imposes any restrictions or obligations on a SIGNAL Indemnified
Party or grants any rights to Licensed Products or Combination Products, or to
SIGNAL Technology necessary or useful to develop, make, have made, import, use,
and sell Licensed Products or Combination Products, without ARES' prior written
consent. The indemnification rights of any SIGNAL Indemnified Party contained
herein are in addition to and not in lieu of all other rights that such SIGNAL
Indemnified Party may have at law or in equity or otherwise and shall survive
the termination of this Agreement.
Section 7.04. ARES Indemnification. ARES shall defend, indemnify and hold
harmless SIGNAL, its officers, agents and employees (each individually a "ARES
Indemnified Party," and collectively the "ARES Indemnified Parties"), from and
against any and all liabilities, losses, damages, actions, claims, costs or
expenses suffered or incurred by the ARES Indemnified
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<PAGE> 39
Parties (including reasonable attorneys' fees) (individually a "ARES Liability,"
and collectively the "ARES Liabilities") that arise from (i) personal injury or
property damage to third parties resulting from (A) a breach of this Agreement
by ARES (including without limitation a breach of ARES' representations and
warranties in Section 7.02 hereof) or (B) ARES', its Affiliates' or
sublicensees' development, manufacture, import, use or sale of Licensed Products
or Combination Products pursuant to this Agreement; or (ii) the enforcement by
an ARES Indemnified Party of its rights under this Section 7.04; provided,
however, that ARES shall have no obligation to defend, indemnify, and hold
harmless hereunder to the extent an ARES Liability arises from the negligence or
willful misconduct of an ARES Indemnified Party or from the negligence, failure
to comply with instructions regarding use of a Licensed Product or Combination
Product or other wrongdoing of any user of the Licensed Product or Combination
Product. SIGNAL shall promptly notify ARES of any claim or action giving rise to
ARES Liabilities subject to the provisions of this Section 7.04. ARES shall have
the right to defend any such claim or action, at its cost and expense, and shall
keep SIGNAL informed of developments in any such claim or action. SIGNAL shall
cause the ARES Indemnified Parties to cooperate with ARES in the defense of any
such claim or action. ARES shall not settle or compromise any such claim or
action in a manner that imposes any restrictions or obligations on an ARES
Indemnified Party. The indemnification rights of any ARES Indemnified Party
contained herein are in addition to and not in lieu of all other rights that
such ARES Indemnified Party may have at law or in equity or otherwise and shall
survive the termination of this Agreement.
Section 7.05. Disclaimer of Warranties. Neither Party guarantees the
safety or usefulness of any Licensed Product or Combination Product. EXCEPT AS
EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR
WARRANTY TO THE OTHER PARTY OF ANY NATURE, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION ANY WARRANTY OF NONINFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
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<PAGE> 40
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. No Waiver. No failure on the part of either Party to
exercise, and no delay in exercising, any right shall operate as a waiver
thereof, nor shall any single or partial exercise by either Party of any right
preclude any other future exercise thereof or the exercise of any other right.
Section 8.02. Force Majeure. Neither Party shall lose any rights hereunder
or be liable to the other Party for damages or losses on account of failure of
performance by the defaulting Party to the extent the failure is occasioned by
government action, war, fire, explosion, flood, strike, lockout, embargo, act of
God, or any other similar cause beyond the reasonable control of the defaulting
Party; provided, however, the Party claiming force majeure shall promptly notify
the other Party of the existence of such force majeure, shall use its best
efforts to avoid or remedy such force majeure and shall continue performance
hereunder with the utmost dispatch whenever such force majeure is avoided or
remedied.
Section 8.03. Notices. All notices, reports, requests or demands required
or permitted under this Agreement shall be sent by air courier or by facsimile,
with confirmed transmission, properly addressed to the respective Parties as
follows:
If to SIGNAL:
SIGNAL PHARMACEUTICALS, INC.
5555 Oberlin Drive
San Diego, California 92121
U.S.A.
Attention: President and Chief Executive Officer
Telephone: 619-558-7500
Facsimile: 619-558-7513
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<PAGE> 41
With a copy to:
COOLEY GODWARD LLP
4365 Executive Drive
Suite 1100
San Diego, California 92121
U.S.A.
Attention: Frederick T. Muto
Telephone: 619-550-6000
Facsimile: 619-453-3555
If to ARES:
ARES TRADING S.A.
Chateau de Vaumarcus
2028 Vaumarcus
Switzerland
Attn.: General Manager
Telephone: 41-38-55-3231
Facsimile: 41-38-55-3208
With a copy to:
ARES-SERONO INTERNATIONAL S.A.
15 bis, chemin des Mines
1202 Geneva
Switzerland
Attention: General Counsel
Telephone: 41-22-738-8000
Facsimile: 41-22-739-3070
or to such addresses or addresses as the Parties hereto may designate for such
purposes during the Term. Notices shall be deemed to have been sufficiently
given or made: (i) if by facsimile with confirmed transmission, when performed,
and (ii) if by air courier, three (3) days after delivery to the air courier
company.
Section 8.04. Independent Contractors. No agency, partnership or joint
venture is hereby established; each Party shall act hereunder as an independent
contractor. Neither SIGNAL nor ARES shall enter into, or incur, or hold itself
out to third parties as having authority to enter into or incur on behalf of the
other Party any contractual obligations, expenses or liabilities whatsoever.
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<PAGE> 42
Section 8.05. Assignment.
8.05.01. General. This Agreement shall be binding upon the
Parties and their respective permitted successors and assigns. This Agreement
may be assigned by either Party in whole or in part to its Affiliates. Except as
otherwise set forth in Subsection 8.05.02 hereof, this Agreement may be
otherwise assigned by either Party in whole or in part only with the prior
written consent of the other Party.
8.05.02. Acquisition or Merger. If either Party (or
substantially all its assets) is acquired by or merged with a third party or if
either Party acquires a third party (or substantially all its assets), the
entity that results from that transaction (the "Combined Entity") shall succeed
to all of the rights and obligations of the affected Party under this Agreement
with the same effect as if the Combined Entity had originally been a Party
hereunder. Notwithstanding the foregoing, upon such succession of the Combined
Entity to the rights and obligations hereunder, the Parties may agree to
terminate this Agreement or the other Party may elect to terminate this
Agreement (including upon commission by the Combined Entity of a material breach
of the Agreement following such succession), with the following result:
(i) if the terminating Party is SIGNAL, then to the
extent necessary to develop, manufacture, import, use or sell Licensed Products
or Combination Products in existence prior to such termination, SIGNAL shall be
granted an irrevocable, fully paid-up, nonexclusive license within the Territory
under the ARES Know-How and ARES Patents; provided, however, that SIGNAL shall
reimburse ARES for royalties paid to third parties by ARES or its Affiliates
with respect to the development, manufacture, import, use or sale of such
Licensed Products or Combination Products; and
(ii) if the terminating Party is ARES, ARES shall be
granted an irrevocable, fully paid-up, exclusive license, with the right to
grant sublicenses, within the Territory under the SIGNAL Technology to develop,
make, have made, import, use, and sell any Licensed Products or Combination
Products to which ARES had any right, title or interest prior
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<PAGE> 43
to such termination. ARES shall also be entitled to a complete duplicate of (A)
all records, notes, reports and data with respect to all laboratory work
performed in the conduct of the Research and (B) all biological and chemical
materials used in connection with the Research prior to such termination and the
same, if not already in its possession, shall be promptly delivered to ARES upon
such termination. Notwithstanding the foregoing, termination of this Agreement
shall not release either Party, or the Combined Entity of which it is a part,
from any obligations accrued prior to the effective date of termination nor
deprive either Party, or such Combined Entity, from any rights that this
Agreement provides shall survive termination.
Section 8.06. No Sale or Other Disposal of SIGNAL Technology. Without
ARES' prior written consent, SIGNAL shall not sell, transfer, assign, or
otherwise dispose of, or purport to sell, transfer, assign or otherwise dispose
of, any right, title or interest in, to and under SIGNAL Technology that is
necessary or useful to develop, make, have made, import, use, and sell Licensed
Products or Combination Products; provided, however, that ARES acknowledges
that, prior to the date hereof, SIGNAL has granted certain rights in the SIGNAL
Technology to Tanabe.
Section 8.07. Reference to Patents. ARES shall mark or cause to be marked
the Licensed Products and Combination Products developed, made, imported, used
or sold pursuant to this Agreement with such references to the SIGNAL Patents or
Joint Patents as are required by the applicable laws of the territories in which
such Licensed Products or Combination Products are developed, made, imported
used and sold.
Section 8.08. No Third-Party Beneficiary. Nothing in this Agreement,
express or implied, is intended to confer on any person other than the Parties
hereto, or their respective permitted successors and assigns, any benefits,
rights or remedies.
Section 8.09. Publicity. Neither Party may use in any manner the other
Party's name or insignia, or any contraction, abbreviation or adaptation
thereof, without the express written
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<PAGE> 44
consent of the other Party. Neither Party may publicly disclose or issue press
releases concerning the existence of this Agreement or the terms and conditions
hereof except with the express written consent of the other Party, which consent
shall not unreasonably be withheld. Notwithstanding the foregoing, either Party
shall have the right to disclose information concerning this Agreement in any
prospectus, offering memorandum or other document or filing to the extent
required by applicable securities laws but only after providing the other Party
reasonable notice of such intended disclosure and consulting with the other
Party to determine the reasonable nature and scope of such intended disclosure.
Section 8.10. Confidential Information. For the purpose of this Agreement,
the term "Confidential Information" shall mean any information disclosed by
either Party to the other pursuant to this Agreement in tangible form clearly
marked "secret," "confidential" or "proprietary" or, if disclosed otherwise,
summarized or described in tangible form and clearly marked as above within
thirty (30) days of the initial disclosure. Each Party shall hold Confidential
Information it has received in confidence during the Term and for a period of
five (5) years thereafter and shall not disclose such Confidential Information
to third parties without the consent of the disclosing Party, other than
Confidential Information that:
(i) was known to the receiving Party prior to disclosure by
the disclosing Party as evidenced by the receiving Party's prior written
records;
(ii) is disclosed to the receiving Party by a third party,
except if such disclosure is made on a confidential basis or in violation of a
confidentiality obligation to the disclosing Party or its Affiliates;
(iii) is or becomes public knowledge other than by the
receiving Party's breach of this confidentiality obligation;
(iv) the receiving Party must disclose to government
authorities for the purpose of seeking marketing approval of Licensed Products
or Combination Products pursuant to this Agreement;
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<PAGE> 45
(v) the receiving Party must disclose to individuals who have
a need to know to effectuate the development and commercialization of Licensed
Products or Combination Products pursuant to this Agreement, provided each such
individual is bound by a confidentiality obligation comparable to the obligation
set forth in this Section 8.10;
(vi) the receiving Party independently develops or discovers
without use of or reference to the Confidential Information; or
(vii) the receiving Party must disclose, pursuant to a
requirement of law, provided the receiving Party has given the disclosing Party
prompt notice of such fact, so the disclosing Party may obtain a protective
order or other appropriate remedy concerning any such disclosure and/or waive
compliance with the confidentiality obligations of this Section 8.10. The
receiving Party shall fully cooperate with the disclosing Party in connection
with the disclosing Party's efforts to obtain any such order or other remedy. If
any such order or other remedy does not fully preclude disclosure, or the
disclosing Party waives such compliance, the receiving Party shall make such
disclosure, but only to the extent such disclosure is legally required, and
shall use its best efforts to have confidential treatment accorded to the
disclosed Confidential Information. Each Party may disclose Confidential
Information only to those of its employees, agents, Affiliates, consultants and
academic collaborators who are bound by confidentiality obligations comparable
to the obligation set forth in this Section 8.10. All Confidential Information
shall be returned to the disclosing Party by the receiving Party upon request by
the disclosing Party upon the termination of this Agreement, with the exception
of a single copy to be retained by the receiving Party in a confidential file
for the purpose of determining compliance with this confidentiality obligation.
This obligation shall survive termination of this Agreement.
Section 8.11. Publication. Any manuscript, abstract or other publication
or presentation prepared by or on behalf of either Party and relating to the
SIGNAL Technology must be submitted to the other Party for review and approval
at least thirty (30) Business Days prior to
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<PAGE> 46
submission for publication or public release, which approval shall not
unreasonably be withheld. Publication or public release of any such manuscript,
abstract or other publication or presentation is subject to the confidentiality
and nondisclosure obligations set forth in Section 8.10 hereof.
Section 8.12. Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures to each counterpart were
upon a single instrument, and all such counterparts together shall be deemed an
original of this Agreement.
Section 8.13. No Strict Construction. This Agreement has been prepared
jointly and shall not be strictly construed against either Party.
Section 8.14. Governing Law. The form, execution, validity, construction
and effect of this Agreement shall be determined in accordance with the laws of
the Commonwealth of Massachusetts and the United States of America, regardless
of the choice of law principles of those or any other jurisdictions.
Section 8.15. Dispute Resolution. Any disputes, questions or claims raised
by a Party and arising out of or in connection with this Agreement that cannot
be settled by negotiation between the Parties within fifteen (15) days after
notice thereof shall be resolved in accordance with the terms and conditions set
forth in this Section 8.15. The Parties agree that any such dispute, question or
claim shall be resolved solely by application of the procedures set forth in
this Section 8.15. These procedures, however, may be modified by written
agreement of the Parties with respect to any particular dispute, question or
claim that may arise under this Agreement.
8.15.01. Negotiation. The procedures of this Section 8.15
shall be initiated by a notice (the "Dispute Notice") given by one Party (for
purposes of this Section 8.15, the "Claimant") to the other Party. The Dispute
Notice shall be accompanied by (i) a statement of the Claimant describing the
dispute, question or claim in reasonable detail, and (ii) documentation
supporting the Claimant's position with respect to the dispute, question or
claim, if applicable. Within twenty (20) days after receipt by the other Party
(for purposes of this
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<PAGE> 47
Section 8.15, the "Respondent") of the Dispute Notice and accompanying
materials, if any, the chief executive officers of the Parties in question, or
other members of senior management of such Parties, each with full authority
from the chief executive officer to settle the dispute, shall meet (the
"Management Meeting") in a mutually agreeable location to resolve the dispute.
If the Parties cannot agree on a time or location for the Management Meeting,
(i) the Meeting shall be held at 10:00 A.M., local time, on the twentieth (20th)
day after the Respondent's receipt of the Dispute Notice, (ii) the location of
such Meeting shall be in a first-class hotel suite identified and paid for by
the Claimant in Boston, Massachusetts. If the senior management representative
of either Party intends to be accompanied at the Management Meeting by counsel,
the other Party shall be given at least four (4) days notice of such intention
and may also be accompanied by counsel. All negotiations pursuant to this
Subsection 8.15.1 shall be confidential and treated as compromise and settlement
negotiations and shall not be admissible in any arbitration or other proceeding.
8.15.02. Arbitration. If the Parties are unable to resolve the
dispute, question or claim within thirty (30) days following the day of the
Management Meeting, the dispute, question or claim shall be finally settled by
arbitration in accordance with the Center for Public Resources Rules for
Non-Administered Arbitration of International Disputes (and the Center for
Public Resources shall serve, if necessary, as the "Neutral Organization") by
three arbitrators appointed in accordance with such Rules who shall be impartial
and disinterested individuals who do not have a direct or indirect interest in
either Party or the subject matter of the arbitration. The Parties agree that
notices served in the manner provided herein shall be valid for such
arbitration. Any such arbitration shall be conducted in English and shall be
held in Boston, Massachusetts. The arbitrators shall apply the substantive law
that the Parties have chosen as the governing law pursuant to Section 8.14
hereof. Pending the issuance of the arbitrators' decision, the Parties shall
continue to operate under the Agreement as it existed on the date the Dispute
Notice was given; provided, however, that the arbitrators' decision shall be
retroactive to such
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<PAGE> 48
date. The costs of the arbitration (including without limitation the fees and
expenses of the arbitrators, attorneys and experts, the travel and other
expenses of witnesses, as well as the fees and expenses in any collateral
actions, such as actions for enforcement) shall be borne in their entirety by
the nonprevailing Party in the arbitration. The Parties hereby exclude any right
of appeal to any court on the merits of the dispute, question or claim. Judgment
on the award may be entered in any court having jurisdiction over the award or
any of the Parties or their assets The award may grant any relief appropriate
under the applicable law, including without limitation declaratory relief and/or
specific performance.
Section 8.16. Cooperation. Both Parties shall cooperate in good faith and
take all necessary steps at the request of either Party to ensure that this
Agreement is enforceable in accordance with its terms.
Section 8.17. Integration. This Agreement, together with the Exhibits
hereto, constitutes the entire agreement between the Parties hereto relating to
the subject matter hereof and supersedes all prior and contemporaneous
negotiations, agreements, representations, understandings and commitments with
respect thereto, including without limitation the Letter between the Parties
dated September 9, 1997. No terms or provisions of this Agreement shall be
varied, extended or modified by any prior or subsequent statement, conduct or
act of either of the Parties, except by a written instrument specifically
referring to and executed in the same manner as this Agreement.
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<PAGE> 49
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed and delivered as of the day and year first above written.
"SIGNAL" "ARES"
SIGNAL PHARMACEUTICALS, INC. ARES TRADING S.A.
By: By: /s/ ERNESTO BERTARELLI
---------------------------- ---------------------------------
Name: Name: ERNESTO BERTARELLI
---------------------------- ---------------------------------
Title: Title: DIRECTOR
---------------------------- ---------------------------------
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<PAGE> 50
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed and delivered as of the day and year first above written.
"SIGNAL" "ARES"
SIGNAL PHARMACEUTICALS, INC. ARES TRADING S.A.
By: /s/ ALAN J. LEWIS By:
---------------------------- ---------------------------------
Name: ALAN J. LEWIS Name:
---------------------------- ---------------------------------
Title: PRESIDENT / CEO Title:
---------------------------- ---------------------------------
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<PAGE> 51
EXHIBIT A
ARES Know-How
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<PAGE> 52
EXHIBIT B
ARES Patents
[***]
* World Intellectual Property Organization country codes
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***Confidential Treatment Requested
<PAGE> 53
EXHIBIT C
Protocol
Description of
Research Project:
Responsible Party
(SIGNAL, ARES, or Joint):
Methodology (including milestones):
Personnel (including
Consultants and Academic Collaborators):
Materials:
Reports (Interim and Final):
Schedule (including Completion Date):
Budget:
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<PAGE> 54
EXHIBIT D
SIGNAL Know-How
[***]
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***Confidential Treatment Requested
<PAGE> 55
EXHIBIT E
SIGNAL Patents
[***]
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***Confidential Treatment Requested
<PAGE> 56
EXHIBIT F
SIGNAL Third-Party Agreements
[***]
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***Confidential Treatment Requested
<PAGE> 57
EXHIBIT G
Third-Party Rights in SIGNAL Know-How and SIGNAL Patents
[***]
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***Confidential Treatment Requested
<PAGE> 1
***Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80, 200.83
and 230.406
EXHIBIT 10.49
================================================================================
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
between
SIGNAL PHARMACEUTICAL, INC.
and
THE DUPONT MERCK PHARMACEUTICAL COMPANY
================================================================================
<PAGE> 2
-2-
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
THIS COLLABORATIVE RESEARCH AND LICENSE AGREEMENT (the "Agreement") is
made as of ___________, 1997 (the "Effective Date") by and between SIGNAL
PHARMACEUTICALS, INC., a Delaware corporation with its principal office at 5555
Oberlin Drive, San Diego, California 92121 ("SIGNAL") and THE DUPONT MERCK
PHARMACEUTICAL COMPANY, a general partnership organized and existing under the
laws of the State of Delaware and having its principal offices at 974 Centre
Road, Wilmington, Delaware 19807 ("DPM").
RECITALS
WHEREAS, SIGNAL is a biotechnology company engaged in identifying new
classes of small molecule drugs that regulate genes and the production of
disease-causing proteins;
WHEREAS, DPM is a pharmaceutical company dedicated to the research,
development, manufacture and commercialization of pharmaceutical products;
WHEREAS, SIGNAL and DPM wish to establish a collaborative relationship
to develop and commercialize novel products for the treatment and prevention of
human immunodeficiency virus ("HIV") and hepatitis C virus ("HCV");
WHEREAS, DPM desires to obtain, and SIGNAL is willing to grant, an
option to expand the collaborative relationship to include the development and
commercialization of novel products for the treatment and prevention of [***];
WHEREAS, it is recognized and acknowledged by SIGNAL that DPM has
carried out and will continue to carry out programs to discover, develop and
commercialize products for the treatment and prevention of HIV and HCV which are
outside of this collaboration; and
WHEREAS, SIGNAL and DPM wish to enter into this Agreement to establish
the collaboration on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the parties hereto, intending
to be legally bound, do hereby agree as follows.
***Confidential Treatment Requested
<PAGE> 3
-3-
ARTICLE 1
DEFINITIONS
The terms in this Agreement with initial letters capitalized,
whether used in the singular or plural, shall have the meaning designated below
or, if not designated below, the meaning as designated in places throughout this
Agreement.
1.1 "Affiliate" means an individual, trust, business trust, joint
venture, partnership, corporation, association or any other entity which owns,
is owned by or is under common ownership with a party. For the purposes of this
definition, the term "owns" (including, with correlative meanings, the terms
"owned by" and "under common ownership with") as used with respect to any party,
shall mean the possession (directly or indirectly) of more than 50% of the
outstanding voting securities of a corporation or comparable equity interest in
any other type of entity.
1.2 "Annual Research Plan" means the plan for conducting the
research activities under the Collaboration as described in Article 3 hereof.
1.3 "Assay" means one or more of the following assays which are
described in Appendix 1 attached hereto, which have been developed or are to be
developed in HTS format under this Agreement in accordance with the Research
Plan: [***]
1.4 "Assay Technology" means SIGNAL Technology necessary or useful
for performing the Assays.
1.5 "Calendar Quarter" means the respective periods of three (3)
consecutive calendar months ending on March 31, June 30, September 30 and
December 31.
1.6 "Calendar Year" means each successive period of twelve (12)
months commencing on January 1 and ending on December 31.
1.7 "Collaboration" means the activities of SIGNAL and DPM carried
out in performance of the Research Project under this Agreement.
1.8 "Collaboration Know-How" means Know-How (i) arising from or in
connection with the conduct of the Collaboration under this Agreement in
accordance with the Research Plan and (ii) which is jointly developed by or
under the common Control of SIGNAL or one of its Affiliates, on the
***Confidential Treatment Requested
<PAGE> 4
-4-
one hand, and DPM or one of its Affiliates, on the other hand.
1.9 "Collaboration Patent Rights" means all Patent Rights that claim
or cover inventions (i) conceived of and reduced to practice jointly (as
determined in accordance with the rules of inventorship under United States
patent law) by employees or others acting on behalf of SIGNAL or one of its
Affiliates, on the one hand, and employees or others acting on behalf of DPM or
one of its Affiliates, on the other hand, in connection with activities
conducted pursuant to the Research Plan or (ii) which come under the common
Control of SIGNAL or one of its Affiliates, on the one hand, and DPM or one of
its Affiliates, on the other hand, during the Research Term and any Extended
Research Term and are necessary or appropriate for the full commercial
exploitation of the Field.
1.10 "Collaboration Technology" means Collaboration Know-How and
Collaboration Patent Rights.
1.11 "Combination Product" means a Product containing a Compound
which includes one or more additional active ingredients other than a Compound.
1.12 "Compound" means any compound or any analog or derivative
thereof identified or selected for development by DPM or SIGNAL based upon use
of the Assays during, or otherwise in the course of and as a result of the
Collaboration during the Research Term and any Extended Research Term or by DPM
during the period of up to [***] thereafter and subject to Section 4.1.
It is to be understood that this definition of Compound excludes molecules or
compounds that are acquired or discovered by DPM other than by the use of Assays
(or target scopes) of this Agreement, but are subjected to an Assay for further
knowledge or characterization as a standard. A derivative Compound is a molecule
derived from and related to a screened compound identified or synthesized during
the Research Term and any Extended Research Term in the course of and as a
result of the Collaboration.
1.13 "Confidential Information" means all information and materials
received by either party from the other party pursuant to this Agreement and all
information and materials developed in the course of the Collaboration,
including, without limitation, Know-How of each party and Collaboration
Know-How.
1.14 "Control" means possession of the ability to grant a license or
sublicense as provided for herein without violating the terms of any agreement
with or other arrangement with any Third Party.
***Confidential Treatment Requested
<PAGE> 5
-5-
1.15 "Distributor" shall mean a Third Party distributor engaged by
DPM to market and distribute Product in any Distributor Market.
1.16 "Distributor Markets" means the markets in which DPM does not
have a field selling organization for direct sales and marketing, where DPM
markets Products through distributors. For purposes of this definition,
"Distributor Markets" shall not include [***]
1.17 "Effective Date" means the date appearing in the first paragraph
of the Agreement.
1.18 "FDA" means the United States Food and Drug Administration.
1.19 "Field" means the use of the Assays for the discovery,
identification and development of Compounds and Products for the treatment or
prevention of HIV and HCV and the use, manufacture, distribution, marketing and
sale of Compounds and Products for the treatment or prevention of HIV and HCV.
If DPM exercises the option set forth in Section 4.3, the definition of the
Field shall be expanded to include the discovery, identification and development
of Compounds and Products for the treatment or prevention of [***] and the use,
manufacture, distribution, marketing and sale of Compounds and Products for the
treatment or prevention of [***].
1.20 "First Commercial Sale" of a Product means the first sale for
use or consumption of such Product in a country after required marketing and
pricing approval has been granted by the governing health regulatory authority
of such country. Sale to an Affiliate shall not constitute a First Commercial
Sale unless the Affiliate is the end user of the Product.
1.21 "FTE" means a full time equivalent researcher employed by SIGNAL
or DPM and assigned to work on the Research Project with such time and effort to
constitute one researcher working on the Research Project on a full time basis
consistent with normal business and scientific practice (at least 40 hours per
week of dedicated effort; on an annual basis, at least 40 hours per week of
dedicated effort for at least 48 weeks (excluding official SIGNAL holidays) per
year).
1.22 "HCV Constructs" mean collectively or individually
polynucleotide constructs, which are owned or Controlled by SIGNAL, and which
SIGNAL may now possess or acquire during the Research Term and any Extended
Research Term, containing HCV polynucleotide sequences, including but not
limited to those polynucleotide constructs listed in
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Appendix 2 hereto.
1.23 "Hit" means any compound that demonstrates reproducible
significant activity in an Assay. The level of activity required to be
designated a Hit will be set by the RMC.
1.24 "HTS" means high throughput screening.
1.25 "IND" means an Investigational New Drug Application filed with
the FDA to commence human clinical testing of a Product, or the equivalent in
any other country or jurisdiction.
1.26 "Know-How" means technical information and materials, including
without limitation, technology, data, cell lines, constructs, chemicals,
inventions (patentable or otherwise), practices, methods, knowledge, skill, and
experience relating to Compounds, Hits, Lead Compounds, Assays, and Products.
1.27 "Lead Compound" means any Hit or any analog or derivative of a
Hit showing potential therapeutic activity in cellular or animal models in
follow-up testing after testing in an Assay and which is selected for
pre-clinical safety assessment testing. Lead Compounds will be selected by the
RMC as set forth in Section 2.1.
1.28 "NDA" means a New Drug Application filed in the FDA to obtain
marketing approval for a Product, or the equivalent in any other country or
jurisdiction.
1.29 "Net Sales" means the gross amounts invoiced for sales of
Compound or Product by DPM and its Affiliates to non-Affiliated Third Parties,
including but not limited to Distributors and Sublicensees, in bona fide,
arms-length transactions, less (to the extent actually incurred or reasonably
estimated and accrued in accordance with GAAP and to the extent not already
deducted in the amount invoiced): (a) trade and quantity discounts, (b) credits
or allowances upon claims, damaged goods, rejections or returns, including
recalls, (c) freight, postage, shipping and insurance charges for delivery of
Product, (d) custom duties, surcharges, sales or excise taxes and other
governmental charges (other than income taxes) incurred directly related to the
sale, (e) rebates, chargebacks and other amounts paid, credited or accrued, (f)
retroactive price reductions, (g) bad debt expense, and (h) amounts incurred
resulting from governmental mandated rebate programs.
Sales of Products for use in clinical trials (including expanded access
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programs) prior to receipt of regulatory approval to market such Product shall
not be included in Net Sales.
With respect to the sales of Combination Product, Net Sales shall be
calculated on the basis of the invoice price of a Product containing the same
weight of Compound sold without other active ingredients. In the event such
Compound is not sold without other active ingredients, Net Sales shall be
calculated by multiplying the amounts received by DPM or its Affiliates
attributable to Combination Products by the Combination Allocation Portion (as
defined below) attributable to such Combination Product. The "Combination
Allocation Portion," as used herein, shall mean that portion of any amounts
received by DPM or its Affiliates from the sale of any Combination Product that
results from multiplying the total amount received by DPM or its Affiliates from
such sale by a fraction, the numerator of which is the fair market value of the
Compound included in the Combination Product and the denominator of which is the
fair market value of such Compound and the fair market value of the products or
parts of such Combination Product which are not Compounds. Fair market value
shall be determined in good faith by DPM and SIGNAL either together or with a
mutually agreeable third party in the event that no market price is available.
In the event that the parties shall disagree regarding the fair market value
denomination, the parties shall resolve such dispute in accordance with Article
12 hereof.
1.30 "Pass-Through Net Sales" means the gross amounts invoiced for
sales of Product by Distributors and Sublicensees to non-Affiliated Third
Parties, in bona fide, arms-length transactions, less deductions listed in the
[***] or other SIGNAL License Agreement. SIGNAL shall include in each SIGNAL
License Agreement entered into after the Effective Date a definition of Net
Sales and/or Pass-Through Net Sales that is consistent with the definition of
Net Sales in Section 1.29 above or as provided in the SIGNAL License Agreement
with [***] The purpose for such consistency being to prevent any obligation to
keep a multiplicity of books and records.
1.31 "Patent Rights" means all rights under (a) patents (including
the inventor's certificates) that include one or more Valid Claims, including
without limitation any substitution, extension (including supplemental
protection certificate), registration, confirmation, reissue, continuation,
divisional, continuation-in-part, re-examination, renewal or the like, and (b)
pending applications for patents, including, without limitation, any
continuation, division or continuation-in-part thereof, and any provisional
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applications, which applications are listed and will be listed during the Term
of this Agreement in attached Schedule A and which are considered to be either
Collaboration Patent Rights or Signal Patent Rights.
1.32 "Phase IIb" means such studies in humans of the safety, dose
ranging and efficacy of a Product designed to generate sufficient data to make a
decision about whether to commence a Pivotal Trial, as more specifically defined
by the rules and regulations of the FDA and corresponding rules and regulations
in other countries or jurisdictions.
1.33 "Pivotal Trial" means a controlled study in humans on sufficient
numbers of patients designed to establish the efficacy and safety of a Product
which is prospectively designed to demonstrate statistically whether the Product
is safe and effective for use in a particular indication in a manner sufficient
to obtain full Regulatory Approval to market that Product.
1.34 "Product" means any marketed product (a) containing a
formulation or dosage of a Compound; or (b) the manufacture, use or sale of
which is covered by one or more of SIGNAL Patent Rights, Collaboration Know-How
or Collaboration Patent Rights.
1.35 "Regulatory Approval" means any approvals (including pricing and
reimbursement approvals), licenses, registrations or authorizations of any
national, supra-national, regional, state or local regulatory agency, department
or other governmental entity necessary for the manufacture, distribution, use
and sale of a Product in a regulatory jurisdiction. "Regulatory Approval" in the
U.S. means NDA approval.
1.36 "Research Project" means the research activities under the
Collaboration carried out in accordance with the Research Plan as described in
Article 3 hereof.
1.37 "Research Term" means the period beginning on the Effective Date
and ending on the third anniversary of the Effective Date; provided, however,
that the Research Term may be extended for up to three (3) additional one-year
periods ("Extended Research Term") at DPM's option upon written notice to SIGNAL
given no less than ninety (90) days prior to the expiration of the Research Term
or any extension thereof, as the case may be.
1.38 "Research Year" means each twelve month period during the
Research Term and any Extended Research Term, with the first Research Year
beginning on the Effective Date.
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1.39 "RMC" means the Research Management Committee established
pursuant to Section 2.1 hereof.
1.40 "Royalty Term" means, in the case of any Product, in any
country, the period of time commencing on the First Commercial Sale and ending
upon the later of (a) 10 years from the date of First Commercial Sale in such
country, or (b) the expiration of the last to expire of the SIGNAL Patent Rights
and the Collaboration Patent Rights containing a Valid Claim covering such
Product in such country.
1.41 "Signal Compound" means a compound contained in the Signal
Compound Library.
1.42 "Signal Compound Library" means all compounds owned or
Controlled by SIGNAL which are available for screening in the Assays in
accordance with the terms and conditions of this Agreement, including but not
limited to the compounds and compound libraries identified in Appendix 3 hereto
(but excluding, for purposes of HIV and the [***] drug target, any compounds
licensed by SIGNAL from [***]).
1.43 "SIGNAL Know-How" means all Know-How, which are owned or
Controlled by SIGNAL, which SIGNAL may now possess or acquire during the
Research Term and any Extended Research Term, which are necessary or useful for
DPM to utilize the Assays or in the discovery, development, manufacture,
marketing, use or sale of Compounds or Products.
1.44 "Signal License Agreements" shall mean any license agreement
which SIGNAL has entered into as of the Effective Date pursuant to which SIGNAL
Controls Assay Technology, any part of the Signal Compound Library or any Signal
Compound or any such subsequent license agreement which SIGNAL has entered into
which is approved as a Signal License Agreement by the RMC after review and
approval by the Finance Division of DPM with respect to the definition of Net
Sales and for any payments which may be assumed by DPM for milestone and royalty
payments. These are listed in Appendix 5 and any subsequent such Agreements, if
any, will be added during the Research Term and any Extended Research Term.
1.45 "SIGNAL Patent Rights" means the Patent Rights owned or
Controlled by SIGNAL, either solely or jointly with another party, which SIGNAL
may now possess or acquire in the future, which (i) are necessary or useful for
DPM to utilize the Assays or in the discovery, development, manufacture,
marketing, use or sale of Compounds or Products or (ii) which contains a claim
which would be infringed by a third party's
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manufacture, use, import or sale of any Compound or Product. These are listed in
Appendix 6 and will be added during the Research Term and any Extended Research
Term.
1.46 "SIGNAL Technology" means the SIGNAL Patent Rights and the
SIGNAL Know-How.
1.47 "Sublicense Territory" means all countries in which a license
has been granted to a Sublicensee, but shall specifically exclude the [***]
except with the prior approval of SIGNAL.
1.48 "Sublicensee" means a Third Party to whom DPM has granted a
license or sublicense to develop, make, have made, use, offer for sale, sell and
import Products in the Field.
1.49 "Sublicensing Revenue" means the amount actually paid to DPM by
a Sublicensee arising from the license or sublicense of the right to develop,
make, have made, use, offer for sale, sell and import Products in the Field.
Sublicensing Revenue shall include license fees, royalties, and any other
payments with respect to the SIGNAL Technology or the Collaboration Technology
but shall not include any payments tied to the provision of goods and services
by DPM to such Sublicensee to compensate DPM for the provision of such goods and
services.
1.50 "Term" means the period commencing on the Effective Date and
ending on the Termination Date.
1.51 "Termination Date" means the last date on which DPM is obligated
to make any payments to SIGNAL pursuant to Section 5.
1.52 "Third Party" means any entity other than SIGNAL or DPM or an
Affiliate of SIGNAL or DPM.
1.53 "Valid Claim" means a claim of an issued patent or pending
patent application which claim has not lapsed, been canceled or become abandoned
and has not been declared invalid by an unreversed and unappealable decision or
judgment of a court or other appropriate body of competent jurisdiction, and
which has not been admitted to be invalid or unenforceable through reissue or
disclaimer.
1.54 "Viral Target" means the viral target of an Assay, HIV, HCV
[***] as the case may be, as specified in Appendix 1 hereto.
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ARTICLE 2
RESEARCH MANAGEMENT COMMITTEE
2.1 Research Management Committee. The Collaboration will be managed
by the RMC, which will be comprised of three representatives appointed by SIGNAL
and three representatives appointed by DPM. The RMC shall be co-chaired jointly
by a representative of each party. Either party may appoint substitute or
replacement members of the RMC to serve as their representatives upon notice to
the other party. The initial members of the RMC shall be appointed by the
parties within thirty (30) days following the Effective Date. The RMC shall
oversee the principal research aspects of the Collaboration; and DPM shall be
solely responsible for development, manufacturing and marketing activities. The
RMC shall have the responsibility and authority to (a) set and modify research
goals including recommendations to pursue different assays, (b) assign tasks and
responsibilities under the Research Plan to the parties, (c) set criteria for
identification of Lead Compounds and Hits, (d) recommend Hits to be developed as
Lead Compounds and/or to be chemically modified for development as Lead
Compounds, (e) monitor the progress of the Collaboration and (f) review and
modify the Research Plan, as it shall deem appropriate to achieve the parties'
objectives under this Agreement.
2.2 Meetings. The RMC shall meet in-person or by teleconference on a
Calendar Quarter basis or more frequently as may be agreed upon, to review the
progress of the parties in performing the Research Project, with each party to
bear all travel and related costs for its representatives.
2.3 Decision-Making Process. Each member of the RMC shall have one
vote, and decisions by the RMC shall be made by a majority vote. Any
disagreement among members of the RMC will be resolved within the RMC based on
the efficient achievement of the objectives of this Agreement. Any disagreement
which cannot be resolved by a majority vote of the RMC shall be referred to the
appropriate officers of SIGNAL and DPM for resolution under Article 12. It is
the intent of the parties to resolve issues through the RMC whenever possible
and to refer issues to the officers of SIGNAL and DPM only when resolution
through the RMC cannot be achieved.
ARTICLE 3
CONDUCT OF COLLABORATION
3.1 Exclusivity. All Compounds discovered or licensed by either DPM
or Signal shall be developed and commercialized for use in the Field pursuant to
and subject to the provisions of this Agreement. During the
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Research Term and any Extended Research Term, and for a period of two (2) years
following the Research Term or any Extended Research Term, DPM and its
Affiliates, shall not work independently of SIGNAL, either alone or with any
Third Party, and shall not enter into any negotiations or agreements with any
Third Party, with respect to the use of the Assays. During the Research Term and
any Extended Research Term and for a period of two (2) years following the
Research Term or any Extended Research Term, SIGNAL and its Affiliates, shall
not work independently of DPM, either alone or with any Third Party, and shall
not enter into any negotiations or agreements with any Third Party, with respect
to the Field. This Section 3.1 shall not in any way limit or modify the licenses
granted to DPM by SIGNAL under this Agreement.
3.2 Objectives of Collaboration. The objective of the Collaboration
is to identify Hits and Lead Compounds that are suitable for development by DPM
as Products for commercialization in the Field. DPM shall be responsible for the
development of Products, including all preclinical and clinical testing,
obtaining Regulatory Approval for Products, manufacturing of Compounds and
Products, and the commercialization of Products in the Field. The parties agree
that the Collaboration shall be conducted in accordance with the initial
research plan attached hereto as Appendix 2, its modifications, and each Annual
Research Plan. The parties expect that: (i) initially, SIGNAL will be primarily
responsible for screening the compound libraries of each party using Assays
developed or to be developed primarily by SIGNAL, which responsibility may
thereafter be shifted in whole or in part to DPM in the RMC's discretion; (ii)
SIGNAL will initially have primary responsibility for follow-up and confirmation
of any Hits in HCV Assays; (iii) DPM will have primary responsibility for
follow-up and confirmation of any Hits in HIV Assays; (iv) the parties will
share responsibility for assessment of antiviral activity of Hits; and (v) DPM
will have primary responsibility for in vivo testing of Compounds and any
follow-up medicinal chemistry.
3.3 Annual Research Plan. The Research Project will be conducted
under an Annual Research Plan which describes the work to be pursued by SIGNAL
and DPM during the Research Year. The first Annual Research Plan shall be
prepared by the RMC within forty-five (45) days after the Effective Date.
Subsequent Annual Research Plans shall be prepared by the RMC, not later than
sixty (60) days prior to the start of each Research Year. The Annual Research
Plan shall outline the work on the Research Project proposed to be carried out
during the subsequent Research Year and the number of FTEs to be assigned to
such work.
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3.4 Research Efforts. Each party shall use good faith commercially
reasonable and diligent efforts (as defined below) to perform its
responsibilities under the Annual Research Plan. In particular, DPM will provide
funding to SIGNAL pursuant to Section 5.3 in each Research Year during the
Research Term and any Extended Research Term to support [***] qualified FTEs
at SIGNAL specified in the Annual Research Plan, unless modified by the RMC
during the Research Term and any Extended Research Term which funding by DPM
shall be contingent upon SIGNAL providing and retaining such qualified FTEs. In
addition, DPM will commit the number(s) of appropriately qualified FTEs to the
performance of DPM's responsibilities as specified in the Annual Research Plan.
Any modification in such FTE commitments by the parties shall be made by the RMC
in accordance with Article 2. As used herein, the term "commercially reasonable
and diligent efforts" will mean, unless the parties agree in writing otherwise,
those efforts consistent with the exercise of prudent scientific and business
judgment in accordance with industry standards, as applied to other products of
similar scientific and commercial potential.
The Research Project will be conducted in good scientific
manner, and in compliance with all applicable good laboratory practices, and
applicable legal requirements, to attempt to achieve efficiently and
expeditiously the objectives of the Collaboration. Throughout the Research Term
and any Extended Research Term, SIGNAL shall assign a balanced number of FTE
Ph.D. or equivalent scientists and other technical support personnel as
specified in the Annual Research Plan to perform the work set forth in each
Annual Research Plan. The name, curriculum vitae, and percentage of time devoted
to working on the Research Project for each scientist comprising [***] potential
FTE scientists shall be provided to DPM within sixty (60) days of the Effective
Date and not later than sixty (60) days prior to the start of each subsequent
Research Year. The mixture of skills and levels of such FTEs shall be
appropriate to the scientific objectives of the Research Project. The scientists
comprising such [***] FTEs and their percentage of time devoted to working on
the Research Project shall be identified in each Annual Research Plan. The
selection of such scientists shall be communicated to DPM at the same time
offers of employment are made.
3.5 Availability of Resources. Each party will maintain
laboratories, offices and all other facilities at its own expense and risk
necessary to carry out its responsibilities under the Collaboration pursuant to
the Annual Research Plan. In particular, within ninety (90) days following the
Effective Date, SIGNAL will have established, and will thereafter during the
Research Term and any Extended Research Term
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maintain, a non-shared BSL-2 laboratory space for conducting antiviral work.
Each party agrees to make its employees and non-employee consultants reasonably
available at their respective places of employment to consult with the other
party on issues arising during the Collaboration and in connection with any
request from any regulatory agency, including, without limitation, regulatory,
scientific, technical and clinical testing issues.
3.6 Transfer of Technical Information, Know-How and Materials. As
the Assays are established and as improvements to the Assays are made, SIGNAL
shall provide DPM with all technical information, Know-How and materials
necessary to enable DPM to utilize such Assays.
Within thirty (30) days following the Effective Date, SIGNAL shall
provide DPM with access to all HCV Constructs owned or Controlled by SIGNAL as
of the Effective Date, including those listed in Appendix 2 hereof.
3.7 Screening of Signal Compounds in the Assays. As the Assays are
developed and validated, SIGNAL shall promptly proceed to diligently screen in
the Assays such Signal Compounds which exist prior to the Effective Date or are
synthesized or acquired by SIGNAL during the Research Term and any Extended
Research Term as determined by the RMC. The results of such testing and the
structure of any Hits shall be promptly disclosed to DPM as such results are
obtained. Likewise, DPM shall promptly disclose to SIGNAL the results of its
biologic screening activities during the Research Term and any Extended Research
Term.
3.8 Disclosure; Reports. SIGNAL will make available and disclose to
DPM promptly after the Effective Date all Signal Know-How known as of the
Effective Date. Each party will make available and disclose to the other party
all SIGNAL Know-How or Collaboration Know-How, as applicable, learned, acquired
or discovered by such party at any time on or before the end of the Research
Term and any Extended Research Term, as promptly as is reasonably practicable
after such Know-How is learned. In addition, each party shall inform the other
promptly upon identifying any Hits in its performance of screening activities
pursuant to the Research Plan and shall provide such additional information with
respect thereto as the other party or the RMC shall reasonably request. The
parties will exchange at a minimum quarterly written reports (with copies to the
RMC) presenting a meaningful summary of the work performed on the Research
Project. In addition, on reasonable request by a party, the other party will
make presentations of its activities under this Agreement to inform such party
of the details of the work done under this Agreement. Know-How and other
information regarding the Research Project disclosed by one party to the
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other party pursuant hereto may be used only in accordance with the rights
granted under this Agreement.
Within thirty (30) days following the end of each Calendar Quarter,
SIGNAL and DPM shall each provide to the RMC a written report summarizing in
reasonable detail the work performed by it under the Research Project during the
preceding Calendar Quarter. Subsequent to the termination or expiration of the
Research Term and any Extended Research Term, DPM shall provide SIGNAL with
quarterly reports concerning the status of its development activities concerning
the commercialization of Products, including but not limited to the results of
preclinical and clinical studies.
3.9 Records. SIGNAL and DPM shall each maintain records in
sufficient detail and in good scientific manner appropriate for patent purposes
and as will properly reflect all work done and results achieved in the
performance of the Research Project (including all data in the form required to
be maintained under any applicable governmental regulations). Such records shall
include books, records, reports, research notes, charts, graphs, comments,
computations, analyses, recordings, photographs, computer programs and
documentation thereof, computer information storage means, samples of materials
and other graphic or written data generated in connection with the Research
Project. SIGNAL and DPM shall each provide the other the right to inspect such
records, and shall provide copies of all requested records, to the extent
reasonably required for the performance of the requesting party's obligations
under this Agreement; provided, however, that each party shall maintain such
records and the information of the other contained therein in confidence in
accordance with Article 8 below and shall not use such records or information
except to the extent otherwise permitted by this Agreement.
3.10 DPM Compounds. To further the objectives of the Collaboration,
DPM shall transfer to SIGNAL certain DPM compounds for testing by SIGNAL in the
Assays in accordance with the applicable Annual Research Plan. Such compounds
provided or otherwise disclosed by DPM to SIGNAL under this Agreement are
referred to herein as "DPM Compounds". Such DPM Compounds and all information
relating to such DPM Compounds and information and materials derived from the
use of such DPM Compounds will be used by SIGNAL solely for the testing of the
DPM Compounds in the Assays as specified in the Annual Research Plan and shall
be used for no other purpose. SIGNAL will promptly provide to DPM all data from
such testing of DPM Compounds as such data is developed. Upon expiration or
termination of the Research Project, SIGNAL shall, upon the request of
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DPM, return or destroy all compounds and other materials provided to SIGNAL by
DPM in the performance of the Research Project. DPM shall at all times own all
rights to the DPM Compounds it provides or discloses to SIGNAL hereunder,
including without limitation, all rights with respect to the manufacture, use or
sale of such DPM Compounds. Accordingly, SIGNAL agrees to: (i) disclose to DPM
any inventions it conceives or makes covering the manufacture, use, or sale of
DPM Compounds; (ii) assign to DPM all patent rights of SIGNAL covering the
manufacture, use, or sale of DPM Compounds; (iii) execute any necessary papers
and otherwise reasonably cooperate with DPM in securing such patent rights.
Anything to the contrary not withstanding, any such patent rights conveyed by
SIGNAL to DPM under this Section 3.10 shall be included in Collaboration Patent
Rights as set forth in (ii) of Section 1.9.
3.11 Subcontracts. Notwithstanding Section 3.1, subject to the
provisions of Article 8 and subject to the prior written approval of the RMC,
SIGNAL and DPM may subcontract portions of the Research Project to be performed
by them in the normal course of their business to a Third Party upon prior
written notice to the other; provided, however, that such Third Party has
entered into an appropriate confidentiality agreement with SIGNAL and/or DPM
obligating such Third Party to be bound by the obligations contained in this
Agreement.
ARTICLE 4
GRANT OF LICENSES
4.1 License Under Assay Technology. Subject to the terms and
conditions of this Agreement and during the Research Term and Extended Research
Term, and for a period of two (2) years following the Research Term and any
Extended Research Term, Signal grants to DPM a worldwide, exclusive (except as
to SIGNAL, as described below) license under the Assay Technology to conduct
screening of compounds in the Assays in the Field, including the right to grant
sublicenses solely to its Affiliates for such purposes. Notwithstanding the
preceding sentence, SIGNAL retains the right under the Assay Technology solely
to perform its obligations under this Agreement, including but not limited to
conducting screening of DPM Compounds and Signal Compound Libraries as
contemplated by and in accordance with the Research Plan, including the right to
grant sublicenses solely to its Affiliates for such purposes.
Subject to the terms and conditions of this Agreement, during the [***]
period after the Research Term and any Extended Research Term ("Post Research
Term"), SIGNAL shall have the right to conduct screening of Signal Compound
Libraries in the Assays. Any compound
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identified by DPM or by SIGNAL with the acceptance of DPM based upon use of the
Assays during such Post Research Term shall be a Compound subject to all of the
terms and conditions of this Agreement. Any such Compound identified by SIGNAL
or DPM during such Post Research Term shall be disclosed to the other party at
the time such Compound is identified.
For up to a [***] period after the Post Research Term referred to in the
preceding paragraph DPM will continue to pay for Compounds first identified,
continued or selected for development by DPM based upon use of the Assays during
or otherwise in the course of and as a result of the Collaboration as long as
the Assays are not in the public domain to be used by independent Third Parties.
During this additional extended period, the milestone and royalty payments set
forth in Sections 5.4.3, 5.4.4, 5.4.5 and 5.5 shall be equal to the amounts set
forth therein multiplied by:
[***] if such Compound is identified within the [***] after expiration
of the Post Research Term;
[***] if such Compound is identified between [***] after the expiration
of the Post Research Term.
After expiration of the Post Research Term, DPM has a non-exclusive,
fully paid-up license under the Assay Technology.
4.2 License Under Signal Technology and Collaboration Technology.
Subject to the terms and conditions of this Agreement, particularly Section 5.8,
SIGNAL hereby grants to DPM a worldwide, exclusive, royalty-bearing license
during the Royalty Term, with right to sublicense, under the SIGNAL Technology
and the Collaboration Technology to develop, make, have made, use, offer for
sale, sell, and import Compounds and Products in the Field, including the right
to grant sublicenses to Affiliates and Sublicensees.
DPM shall diligently pursue development of Products. If DPM ceases to
pursue diligently development and commercialization of at least one Product
during or subsequent to the Research Term, SIGNAL shall have the right to
terminate the license granted to DPM hereunder on a Product by Product basis in
the event SIGNAL disagrees with DPM on the reasons for ceasing development of
such Product. Upon termination of such license for any such terminated Product,
SIGNAL shall receive an exclusive license, with the right to grant sublicenses,
to all Collaboration Technology for such terminated Product and to
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make, have made, use, offer for sale, sell or import all Lead Compounds selected
from DPM's compound library relating thereto in the Field on terms and
conditions to be negotiated. In addition, if a compound is selected as a Lead
Compound from the SIGNAL Compound Library and DPM ceases to pursue diligently
development and commercialization of such compound, all rights to such Lead
Compound shall revert to SIGNAL.
4.3 [***] Option. During the period of eight (8) months following
the Effective Date [***], DPM shall have the option, upon commitment by DPM to
fund [***] additional SIGNAL FTEs for the duration of the Research Term and any
Extended Research Term, to expand the Collaboration, the definition of the Field
to include [***], and the definition of Assays to the [***] as set forth in
Appendix 1 hereto. In the event that DPM has not exercised such option by
providing notice to SIGNAL of its desire to exercise such option prior to the
expiration of the [***], then SIGNAL shall thereafter be free to license such
assays to a Third Party. If DPM exercises such option, DPM shall be responsible
for all milestone, royalty and other payments due under any SIGNAL License
Agreement with respect to any [***]
4.4 Sublicenses. DPM shall notify any permitted Sublicensee
hereunder of all rights and obligations of such party under this Agreement
licensed to such Sublicensee and require such Sublicensee to be bound by all of
the terms and conditions of this Agreement. Upon termination of this Agreement
by DPM pursuant to Section 10.2, no existing sublicenses shall be affected by
such termination as long as such sublicense is in compliance with all of the
terms and conditions of this Agreement, and all such sublicenses shall remain in
effect according to their terms shall be either (a) assigned to SIGNAL, if
acceptable to SIGNAL, or (b) continue as Sublicensees of DPM following such
termination.
4.5 No Other License. No right or license under any patent or patent
application is granted by DPM or SIGNAL under this Agreement, except as
specifically and expressly set forth herein.
4.6 Limitation on Right to Sublicense. DPM agrees not to sublicense
rights granted hereunder to either Merck & Company or E.I. duPont deNemours &
Company ("Parents," which term shall include any entity in which either Parent
has a controlling interest as defined below) without the written consent of
SIGNAL, such consent not to be unreasonably withheld. In the event DPM decides
to
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sublicense rights granted hereunder to a Parent, then DPM agrees it will do so
only under terms and conditions substantially the same as those it receives
through arms length negotiation with an independent third party. DPM agrees not
to sublicense rights granted hereunder to non-Affiliates in which DPM has a
controlling interest without the written consent of SIGNAL, such consent not to
be unreasonably withheld. For the purposes of this Section 4.6, an entity shall
be regarded as in DPM's control or a Parent's control if DPM or such Parent owns
or directly or indirectly controls more than twenty percent (20%) of the voting
stock or other ownership interest of the entity, or has the power to elect or
appoint more than twenty percent (20%) of the members of the governing body of
the entity. There shall be no other limitation on DPM's right to sublicense
except as expressed in this Section 4.6. DPM may sublicense its Affiliates
without SIGNAL's consent.
ARTICLE 5
PAYMENT OBLIGATIONS
5.1 License Fee. In partial consideration of the grant of the
licenses set forth in Article 4 above, DPM agrees to pay to SIGNAL within ten
(10) days of the Effective Date a one-time, non-refundable fee of $1.0 million.
In addition, DPM shall pay SIGNAL the amount of [***] within ten (10) days of
its receipt of the HCV Constructs as set forth under Section 3.6 hereof.
5.2 Equity Investment. In the event that, at any time during the
Research Term, SIGNAL completes an initial public offering of its Common Stock
("IPO"), DPM shall, as part of the IPO, purchase $2.0 million of shares of
Common Stock of SIGNAL in a private placement completed simultaneously with the
IPO and subject to Rule 144 of the Securities Act at a price per share equal to
the share price to the public in the IPO. Such equity investment shall be made
pursuant to a Stock Purchase Agreement substantially in the form attached hereto
as Appendix 7 (the "Stock Purchase Agreement").
5.3 Research Funding. DPM agrees to fund the Research Project at
SIGNAL, during the Research Term and any Extended Research Term on a fully
allocated FTE basis in an amount equal to [***] per FTE per year in accordance
with the FTE requirements set forth in the Annual Research Plan. Such amount
shall be payable in advance in four quarterly installments during each Calendar
Year on or before the end of the Calendar Quarter. Any payment for a portion of
a quarterly period shall
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be made on a pro rata basis. The first such payment shall be made within ten
(10) days the Effective Date. Such annual funding shall be reevaluated annually
and adjusted in proportion to the percentage increase in the Consumer Price
Index. Except as provided in this Section 5.3, or as may be agreed from time to
time by the parties in writing, each of SIGNAL and DPM will bear all of its own
expenses incurred in connection with the Collaboration. Research funding by DPM
shall be contingent upon SIGNAL providing and retaining the number of qualified
FTEs set forth in Section 3.3 and 3.4 (or adjusted for any shortfall on a
prorata basis), the applicable Annual Research Plan and SIGNAL using good faith
commercially reasonable and diligent efforts to achieve the goals of the Annual
Research Plan.
5.4 Milestone Payments. Within thirty (30) days after achievement of
each of the milestone events set forth below, subject to the terms and
conditions of this Agreement, DPM shall pay to SIGNAL the indicated
nonrefundable milestone payment, in cash or as an equity investment, as the case
may be, set forth below.
5.4.1 [***]
5.4.2 [***]
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5.4.3 Milestone Payments for HIV.
(a) For a Compound in each Viral Target developed for the
treatment or prevention of HIV, DPM shall pay to SIGNAL:
[***]
For such Compounds developed for the prevention or treatment of
HIV infection, the milestone payments above shall be paid only [***]
(b) For each subsequent new Compound for which Regulatory
Approval is obtained for the prevention or treatment of HIV infection, DPM will
pay milestone payments not to exceed [***] as follows:
(i) [***]
(ii) [***]
5.4.4 Milestone Payments for HCV.
(a) For a Compound in each Viral Target developed for the
treatment or prevention of HCV, DPM shall pay to SIGNAL:
(i) [***]
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(ii) [***]
(iii) [***]
(iv) [***]
For such Compounds developed for the prevention or treatment of
HCV infection, the milestone payments above shall be paid only once upon the
first occurrence of such milestone event.
(b) For each subsequent new Compound for which Regulatory
Approval is obtained for the prevention or treatment of HCV infection, DPM will
pay milestone payments not to exceed [***] as follows:
(i) [***]
(ii) [***]
5.4.5 Milestone Payments for [***]. In the event that DPM
exercises its option with respect to [***] and the [***] are included in the
definition of Assays hereunder, DPM shall pay the following milestone payments.
(a) For a Compound in each Viral Target developed for the
treatment or prevention of [***], DPM shall pay to SIGNAL:
(i) [***]
(ii) [***]
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(iii) [***]
(iv) [***]
For such Compounds developed for the prevention or treatment of
[***], the milestone payments above shall be paid only once upon the first
occurrence of such milestone event.
(b) For each subsequent new Compound for which Regulatory
Approval is obtained for the prevention or treatment of [***], DPM will pay
milestone payments not to exceed [***] as follows:
[***]
5.5 Royalty Payments. Subject to the terms and conditions of this
Agreement, particularly Section 5.5.4, DPM shall pay to SIGNAL a royalty on Net
Sales of Product as set forth below.
5.5.1 Royalty on Products for HIV.
(a) DPM shall pay to SIGNAL the following royalty on Net
Sales of Products for the treatment or prevention of HIV as follows:
(i) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product less than [***];
(ii) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product between [***] and [***]
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(iii) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product between [***] and [***];
and
(iv) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product which exceed [***].
5.5.2 Royalty on Products for HCV.
(a) DPM shall pay to SIGNAL the following royalty on Net
Sales of Products for the treatment or prevention of HCV as follows:
(i) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product less than [***];
(ii) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product between [***] and [***];
(iii) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product between [***] and [***];
and
(iv) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product which exceed [***].
5.5.3 Royalty on Products for [***].
(a) In the event that DPM exercises its option with respect
to [***] and the [***] Assays are included in the definition of Assays
hereunder, DPM shall pay to SIGNAL the following royalty on Net Sales of
Products for the treatment or prevention of [***] as follows:
(i) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product less than [***];
(ii) [***] of the aggregate annual Net Sales of such
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Product for aggregate annual Net Sales of such Product between [***] and [***];
(iii) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product between [***] and
[***]; and
(iv) [***] of the aggregate annual Net Sales of such
Product for aggregate annual Net Sales of such Product which exceed [***].
5.5.4 With respect to each Product such royalty payments shall
be payable on a country-by-country basis during the Royalty Term for such
Product in such country.
5.5.5 The royalties payable hereunder shall be subject to the
following conditions:
(i) subject to 5.5.6 and 5.5.7, only one royalty shall be due with
respect to the same unit of Product;
(ii) that no royalties shall be due upon the sale or other transfer
among DPM and its Affiliates, but in such cases the royalty shall be due
and calculated upon DPM's or its Affiliate's Net Sales of Product to the
first independent third party;
(iii) no royalties shall accrue on the disposition of Product in
reasonable quantities by DPM or its Affiliates as bona fide samples or
as donations to non-profit institutions or government agencies for
non-commercial purposes;
(iv) if a compulsory license is granted with respect to Product in
any country with a royalty rate lower than the royalty rate provided
above, then the royalty rate to be paid by DPM shall be [***]; and
(v) notwithstanding the above royalty rates, upon DPM's request, the
parties agree to discuss in good faith a reduction (without any
obligation to agree to such a reduction) of such royalty rate in any
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given country in the event the level of development, patent protection
or general commercial environment affects the commercial viability of
the Product under such royalty rate.
5.5.6 Sales by Distributors in Distributor Markets. In the
case of sales of Product by any Distributor in any Distributor Market, to the
extent that SIGNAL is obligated under any Signal License Agreement to pay
royalty payments on such sales of Product by Distributors in Distributor
Markets, then, in addition to any royalty amounts payable to SIGNAL under
Section 5.5.1, 5.5.2 or 5.5.3, DPM shall pay to SIGNAL an amount equal to the
amount SIGNAL is obligated to pay and actually pays to its licensors with
respect to such Distributor sales under such Signal License Agreement, provided
however, that such amount payable by DPM to SIGNAL under this Section 5.5.6
shall in no event exceed [***] of the applicable annual Pass-Through Net Sales
of Product by such Distributor. In no event, however, shall the total royalties
paid to SIGNAL under this Section 5.5.6 be higher than what they would have been
if calculated on sales to the ultimate third party as set forth in Sections
5.5.1, 5.5.2, and 5.5.3 as if DPM marketed the Product to the ultimate third
party itself rather than through a Distributor. See Appendix 4 for example
calculations.
5.5.7 Sales by Sublicensees.
(a) In the event that DPM licenses or sublicenses the right
to sell Product to a Sublicensee and DPM does not supply and sell Compound or
Product to such Sublicensee, then DPM shall pay to SIGNAL [***] of all
Sublicensing Revenue that DPM receives from such Sublicensee.
(b) In the event that DPM licenses or sublicenses the right
to sell Product to a Sublicensee and DPM supplies and sells Compound or Product
to such Sublicensee, then the term "Net Sales" in Section 5.5.1, 5.5.2 and 5.5.3
with respect to such Compound or Product sold by DPM to such Sublicensee shall
include any payments received by DPM from such Sublicensee based on sales of
Product by such Sublicensee.
(c) To the extent that SIGNAL is obligated under any Signal
License Agreement to pay royalty payments on sales of Product by any
Sublicensee, then, in addition to any royalty amounts payable to SIGNAL under
Section 5.5.1, 5.5.2, 5.5.3, 5.5.7(a) or 5.5.7(b), DPM shall pay to SIGNAL an
amount equal to the amount SIGNAL is obligated to pay and actually pays to its
licensors with respect to such Sublicensee
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sales under such Signal License Agreement, provided however, that such amount
payable by DPM to SIGNAL under this Section 5.5.7 shall in no event exceed [***]
based on sales of Product by such Sublicensee. In no event, however, shall the
total royalties paid to SIGNAL under this Section 5.5.7 be higher than what they
would have been if calculated on sales to the ultimate third party as set forth
in Sections 5.5.1, 5.5.2, and 5.5.3 as if DPM marketed the Product to the
ultimate third party itself rather than through a Sublicensee. See Appendix 4
for example calculations.
5.6 Signal License Agreements. Unless otherwise specified in this
Agreement SIGNAL shall be responsible for all payment obligations, costs and
expenses with respect to the Signal License Agreements, including but not
limited to, any upfront payments, license maintenance fees, milestone payments,
royalty payments and legal fees and disbursements.
5.7 Third Party Patents. If DPM in its reasonable judgment and after
consultation with SIGNAL is required to obtain a license from a non-Affiliated
third party under a valid claim of a dominating patent in order to import,
manufacture, use or sell a Product or Compound, and to pay a royalty under such
license, and the infringement of such patent cannot reasonably be avoided by
DPM, the reasonableness of which shall be determined mutually by DPM and SIGNAL,
DPM's obligation to pay royalties under Section 5.5 shall be reduced by [***]
the amount of the royalty actually paid to such third party, provided, however,
that the royalties payable under Section 5.5 shall not be reduced in any event
below [***] of the amounts paid according to Section 5.5. In addition, if DPM is
required to pay up-front payments and/or milestone payments in consideration for
such license, then the milestone payments under Section 5.4 shall be reduced by
[***] the amount of the up-front payments and milestone payments paid to such
third party, provided, however, that the amount of such up-front payments and
milestone payments paid to such third party shall not be reduced in any event
below [***] of the amounts set forth in Section 5.4.
5.8 Paid-up License. For each country, upon expiration of DPM's
obligation to pay royalties hereunder with respect to a Product, DPM shall have
a fully paid-up, non-exclusive license under any Signal Know-How or Signal
Patent Rights, to make, have made, use, sell, offer for sale and import the
applicable Product in that country.
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ARTICLE 6
PAYMENTS; RECORDS; AUDITS
6.1 Payment; Reports. Royalty payments and reports for the sale of
Products shall be calculated and reported for each Calendar Quarter. All royalty
payments due to SIGNAL under this Agreement shall be paid within sixty (60) days
of the end of each Calendar Quarter, unless otherwise specifically provided
herein. Each payment of royalties shall be accompanied by a report of Net Sales
of Products in sufficient detail to permit confirmation of the accuracy of the
royalty payment made, including, without limitation, the number of Products
sold, the gross sales and Net Sales of Products, the royalties, in U.S. dollars,
payable, the method used to calculate the royalty and the exchange rates used.
6.2 Exchange Rate; Manner and Place of Payment. All payments
hereunder shall be payable in U.S. dollars. With respect to each quarter, for
countries other than the United States, whenever conversion of payments from any
foreign currency shall be required, such conversion shall be made at the rate of
exchange reported in The Wall Street Journal on the last business day of the
applicable reporting period. All payments owed under this Agreement shall be
made by wire transfer, unless otherwise specified by SIGNAL.
6.3 Late Payments. In the event that any payment, including royalty,
milestone and research payments, due hereunder is not made when due, the payment
shall accrue interest from the date due at the rate of 1.5% per month; provided,
however, that in no event shall such rate exceed the maximum legal annual
interest rate. The payment of such interest shall not limit SIGNAL from
exercising any other rights it may have as a consequence of the lateness of any
payment.
6.4 Records and Audits. During the Term and for a period of two (2)
years thereafter, DPM shall be obligated to keep complete and accurate records
pertaining to the development and sale or other disposition of Products in
sufficient detail to permit SIGNAL to confirm the accuracy of all payments due
hereunder. SIGNAL shall have the right to cause an independent, certified public
accountant of nationally recognized standing reasonably acceptable to DPM to
audit such records to confirm Net Sales and royalty and other payments for the
preceding year. Such audits may be exercised during normal business hours once a
year upon at least thirty (30) working days' prior written notice to DPM. SIGNAL
shall bear the full cost of such audit unless such audit correctly discloses a
variance of more than 10% from the amount of the Net Sales or royalties or other
payments
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due under this Agreement. In such case, DPM shall bear the full cost of such
audit. DPM's obligation to retain such records shall expire two (2) years after
a payment has been made. DPM shall include in each sublicense granted by it
pursuant to this Agreement and in each distribution agreement with a Distributor
in a Distributor Market, a provision requiring the Sublicensee and the
Distributor to make reports to DPM, to keep and maintain books and records of
sales made pursuant to such sublicense and distribution agreement, and to grant
access to such books and records by DPM's independent accountant to the same
extent and under the same obligations as required by DPM under this Agreement.
SIGNAL shall treat all financial information subject to review under
this Section in accordance with the confidentiality provisions of this
Agreement, and shall cause its accounting firm to enter into an acceptable
confidentiality agreement with DPM obligating it to retain all such financial
information in confidence pursuant to such confidentiality agreement.
6.5 Taxes. All turnover and other taxes levied on account of the
royalties and other payments accruing to SIGNAL under this Agreement shall be
paid by SIGNAL for its own account, including taxes levied thereon as income to
SIGNAL. If provision is made in law or regulation for withholding, such tax
shall be deducted from the royalty or other payment made by DPM to the proper
taxing authority and a receipt of payment of the tax secured and promptly
delivered to SIGNAL. Each party agrees to assist the other party in claiming
exemption from such deductions or withholdings under any double taxation or
similar agreement or treaty from time to time in force.
6.6 Prohibited Payments. Notwithstanding any other provision of this
Agreement, if DPM is prevented from paying any such royalty by virtue of the
statutes, laws, codes or governmental regulations of the country from which the
payment is to be made, then such royalty may be paid by depositing funds in the
currency in which accrued to SIGNAL's account in a bank acceptable to Signal in
the country whose currency is involved.
ARTICLE 7
PATENT RIGHTS AND INFRINGEMENT
7.1 Ownership of Patent Rights. SIGNAL shall own all inventions
invented solely by employees or agents of SIGNAL or its Affiliates in connection
with the Collaboration and all Patent Rights claiming such inventions. DPM shall
own all inventions invented solely by employees or agents of DPM or its
Affiliates in connection with the Collaboration and all
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Patent Rights claiming such inventions. All inventions invented jointly by
employees or agents of SIGNAL and DPM or their respective Affiliates in
connection with the Collaboration, and all Patent Rights claiming such
inventions shall be owned jointly by DPM and SIGNAL as Collaboration Patents
Rights. Inventorship shall be determined under U.S. patent law.
7.2 Prosecution and Maintenance of Patent Rights.
(a) It is the intention of the parties to secure broad
patent protection for discoveries and inventions made in connection with the
Collaboration. SIGNAL shall be responsible for the filing, prosecution and
maintenance of all SIGNAL Patent Rights and all patent applications and patents
covering any inventions owned solely by SIGNAL under Section 7.1. DPM shall be
responsible for the filing, prosecution and maintenance of all patent
applications and patents covering any inventions owned solely by DPM under
Section 7.1. Each party shall consider in good faith the requests and
suggestions of the other party with respect to strategies for filing and
prosecuting such patent applications. The inventing party shall keep the other
party informed of progress with regard to the filing, prosecution, maintenance,
enforcement and defense of patents applications and patents subject to this
Section 7.2(a).
(b) In the case of Collaboration Patent Rights, the parties
shall agree on the allocation of responsibility for the preparation, filing,
prosecution, and maintenance of any such Collaboration Patent Rights. The party
controlling a Collaboration Patent Right shall consult with the other party as
to the preparation, filing, prosecution, and maintenance of such Collaboration
Patent Right reasonably prior to any deadline or action with the U.S. Patent &
Trademark Office or any foreign patent office, and shall furnish to the other
party copies of all relevant documents reasonably in advance of such
consultation. In the event that the party controlling a Collaboration Patent
Right desires to abandon such Collaboration Patent Right, or if the party
assuming control of a Collaboration Patent Right later declines responsibility
for such Collaboration Patent Right, the controlling party shall provide
reasonable prior written notice to the other party of such intention to abandon
or decline responsibility, and such other party shall have the right, at its
expense, to prepare, file, prosecute, and maintain any Collaboration Patent
Rights. The costs for the preparation, filing, prosecution and maintenance of
Collaboration Patent Rights shall be shared on a 50/50 basis; however, neither
party shall be subject to any internal costs for work done in-house by the other
party.
(c) Each party will promptly disclose to the other party
such inventions arising from or made in the performance of the Research Project
and any patent or patent applications claiming such inventions, to the extent
that such inventions are necessary or useful to the Research Project or the
rights licensed hereunder.
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(d) In no event will the Signal Patent Rights be abandoned
without DPM first being given an opportunity to maintain such Signal Patent
Rights. In the event that SIGNAL decides not to continue the prosecution or
maintenance of a patent application or patent within the Signal Patent Rights in
a country, SIGNAL shall provide DPM with prior written notice of this decision
and cooperate with DPM so as to provide DPM reasonable opportunity to assume
full responsibility for the continued prosecution or maintenance of such patent
application or patent. In such event that SIGNAL desires to discontinue
maintenance or prosecution of the Signal Patent Rights, SIGNAL agree to then
assign such SIGNAL Patent Rights to DPM at no cost.
7.3 Cooperation of the Parties. Each party agrees to cooperate fully
in the preparation, filing, and prosecution of any Collaboration Patent Rights
under this Agreement. Such cooperation includes, but is not limited to:
(a) executing all papers and instruments, or requiring its
employees or agents, to execute such papers and instruments, so as to effectuate
the ownership of Patent Rights set forth in Section 7.1 above and to enable the
other party to apply for and to prosecute patent applications in any country;
and
(b) promptly informing the other party of any matters coming
to such party's attention that may affect the preparation, filing, or
prosecution of any such patent applications.
7.4 Infringement by Third Parties.
(a) SIGNAL and DPM each shall immediately give notice to the
other of any potential infringement by a third party of any Signal Patent Rights
or Collaboration Patent Rights in the Field of which they become aware or of any
certification of which they become aware filed under the United States "Drug
Price Competition and Patent Term Restoration Act of 1984" claiming that any
Signal Patent Rights or Collaboration Patent Rights covering any Product are
invalid or unenforceable or that infringement will not arise from the
manufacture, use or sale of Product by a third party.
(b) DPM as exclusive licensee with respect to the Signal
Patent Rights will have the right in the Field to bring suit or other proceeding
at its expense against the infringer in its own name or in the name of SIGNAL
where necessary, after consultation with SIGNAL. SIGNAL shall be kept advised
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at all times of such suit or proceedings brought by DPM. SIGNAL may, in its
discretion and at its expense, join DPM as party to the suit or other
proceeding, provided that DPM shall retain control of the prosecution of such
suit or proceedings in such event. DPM has the right to approve of any outside
counsel selected by SIGNAL. SIGNAL agrees to cooperate with DPM in its efforts
to protect Signal Patent Rights, including joining as a party where necessary.
(c) If DPM does not bring suit or other proceeding against
the infringer, SIGNAL may in its discretion, bring suit or other proceeding at
its expense against the infringer, provided however, that SIGNAL shall first
consult with DPM as to whether such act(s) by a third party reasonably
constitute infringement and whether it is commercially advisable to bring such
suit or proceeding, as reasonably determined by DPM. DPM shall be kept advised
at all times of such suit or proceedings brought by SIGNAL. DPM may, in its
discretion and at its expense, join SIGNAL as party to the suit or other
proceeding, provided that SIGNAL shall retain control of the prosecution of such
suit or proceedings in such event. SIGNAL has the right to approve of any
outside counsel selected by DPM. DPM agrees to cooperate with SIGNAL in its
efforts to protect SIGNAL Patent Rights, including joining as a party where
necessary.
(d) Neither party shall have the right to settle any patent
infringement litigation under this Section 7.4 in a manner that diminishes the
rights or interests of the other party without the consent of the other party.
(e) Each party will bear its own expenses with respect to
any suit or other proceeding against an infringer. Any recovery in connection
with such suit or proceeding will first be applied to reimburse SIGNAL and DPM
for their out-of-pocket expenses, including attorney's fees. The party
controlling the suit will retain the balance of any recovery. However, if
damages are awarded to DPM based on lost sales or profit then DPM shall pay to
SIGNAL royalties that it would have paid had DPM made the sales.
7.5 Infringement of Third Party Rights. DPM and SIGNAL shall
promptly notify the other in writing of any allegation by a Third Party that the
activity of either of the parties in the Field infringes or may infringe the
intellectual property rights of such Third Party. DPM shall have the first right
to control any defense of such claim at its own expense and by counsel of its
own choice, and SIGNAL shall have the right, at its own expense, to be
represented in any such action by counsel of its own choice. If DPM fails to
proceed in a timely fashion with regard to such defense, SIGNAL shall have the
right to control any such defense of such claim at its
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own expense and by counsel of its own choice, and DPM shall have the right, at
its own expense, to be represented in any such action by counsel of its own
choice. Neither party shall have the right to settle any patent infringement
litigation under this Section 7.5 in a manner that diminishes the rights or
interests of the other party without the consent of such other party.
7.6 Patent Term Extension. SIGNAL shall cooperate with DPM in
obtaining patent term restoration or supplemental protection certificates or
their equivalents in any country with respect to the Signal Patent Rights. In
the event that elections with respect to obtaining such patent term restoration,
supplemental protection certificates or their equivalents are to be made, DPM
shall have the right to make the election and SIGNAL agrees to abide by such
election.
ARTICLE 8
CONFIDENTIALITY
8.1 Nondisclosure. The Confidential Disclosure Agreement between the
parties dated November 11, 1996, is hereby incorporated into this Agreement;
and, the obligations therein will be further subject to the terms and conditions
of this Agreement. During the Research Term and any Extended Research Term and
for a period of five (5) years thereafter, each party will maintain all
Confidential Information in trust and confidence and will not disclose any
Confidential Information to any Third Party or use any Confidential Information
for any purpose except (a) as expressly authorized by this Agreement, (b) as
required by law or court order, or (c) to its Affiliates. Each party may use
such Confidential Information only to the extent required to accomplish the
purposes of this Agreement. Each party will use at least the same standard of
care as it uses to protect proprietary or confidential information of its own to
ensure that its Affiliates, employees, agents, consultants and other
representatives do not disclose or make any unauthorized use of the Confidential
Information. Each party will promptly notify the other upon discovery of any
unauthorized use or disclosure of the Confidential Information.
8.2 Exceptions. Confidential Information shall not include any
information which the receiving party can prove by competent evidence:
(a) is now, or hereafter becomes, through no act or failure
to act on the part of the receiving party, generally known or available;
(b) is known by the receiving party at the time of receiving
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such information, as evidenced by its records;
(c) is hereafter furnished to the receiving party by a Third
Party, as a matter of right and without restriction on disclosure;
(d) is independently developed by the receiving party
without the aid, application or use of Confidential Information; or
(e) is the subject of a written permission to disclose
provided by the disclosing party.
8.3 Publications. Each party to this Agreement recognizes that the
publication of papers regarding results of Collaboration hereunder, including
oral presentations and abstracts, may be beneficial to both parties provided
such publications are subject to reasonable controls to protect Confidential
Information. In particular, it is the intent of the parties to maintain the
confidentiality of any Confidential Information included in any foreign patent
application until such foreign patent application has been published.
Accordingly, each party shall have the right to review and approve any paper
proposed for publication by the other party, including oral presentations and
abstracts, which utilizes data generated from the Collaboration and/or includes
Confidential Information of the other party. Before any such paper is submitted
for publication, the party proposing publication shall deliver a complete copy
to the other party at least sixty (60) days prior to submitting the paper to a
publisher. The receiving party shall review any such paper and give its comments
to the publishing party within twenty (20) days of the delivery of such paper to
the receiving party. The publishing party shall comply with the other party's
request to delete references to such other party's Confidential Information in
any such paper and agrees to withhold publication of same for an additional
ninety (90) days in order to permit the parties to obtain patent protection, if
either of the parties deem it necessary, in accordance with the terms of this
Agreement. With respect to oral presentation materials and abstracts, the
parties shall make reasonable efforts to expedite review of such materials and
abstracts, and shall return such items as soon as practicable to the publishing
party with appropriate comments, if any, but in no event later than thirty (30)
days from the date of delivery to the receiving party.
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ARTICLE 9
REPRESENTATIONS, WARRANTIES AND COVENANTS
9.1 Representations and Warranties.
(a) Each party hereby represents and warrants that it is
duly organized and validly existing under the laws of the state of its
incorporation and that it has the corporate power and authority to enter into
this Agreement and to carry out the provisions hereof.
(b) Each party hereby represents and warrants that it is
duly authorized to execute and deliver this Agreement and to perform its
obligations hereunder.
(c) Each party hereby represents and warrants (i) that this
Agreement is a legal and valid obligation binding upon it and is enforceable in
accordance with its terms, (ii) that the execution, delivery and performance of
this Agreement by such party does not conflict with any agreement, instrument or
understanding, oral or written, to which it is a party or by which it may be
bound, nor violate any law or regulation of any court, governmental body or
administrative or other agency having authority over it, (iii) and that it is
not aware of any impediment which would inhibit its ability to perform the terms
and conditions imposed on it by this Agreement.
(d) Each party warrants that it has enforceable written
agreements with all of its employees who receive Confidential Information under
this Agreement assigning to such party ownership of all intellectual property
rights created in the course of their employment.
(e) SIGNAL warrants that the only license agreements it has
as of the Effective Date within the scope of this Agreement are with [***] by
which SIGNAL acquired rights to [***] library of compounds, and [***] HCV
Constructs.
(f) SIGNAL warrants that there is no infringement of [***]
U.S. Patents granted prior to the Effective Date which relate to HCV protease.
(g) SIGNAL warrants that it owns or possesses adequate
licenses or other rights to use all SIGNAL Technology necessary to the conduct
of the Collaboration. As of the Effective Date, no claim is pending or, to the
best of SIGNAL's knowledge, threatened, to the effect that any SIGNAL Patent
Rights owned or licensed by SIGNAL, or which SIGNAL otherwise has the right to
use, is invalid or unenforceable by SIGNAL,
***Confidential Treatment Requested
<PAGE> 36
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and, to the best of SIGNAL's knowledge, there is no basis for any such claim
(whether or not pending or threatened). To the best of SIGNAL's knowledge, all
SIGNAL Know-How developed by and belonging to SIGNAL for which patent protection
has not been sought has been kept confidential. SIGNAL has not granted or
assigned to any Third Party any right to manufacture, have manufactured,
assemble or sell any Compound or Product.
9.2 Disclaimer of Warranties. Neither party guarantees the safety or
usefulness of any Product. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY TO THE OTHER PARTY OF ANY
NATURE, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
NONINFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
9.3 Indemnification.
9.3.1 Indemnification by SIGNAL. SIGNAL shall defend,
indemnify, and hold harmless DPM and its directors, officers, agents, parent
companies, affiliates, and employees, from and against any and all claim, loss,
damage, liability, injury (including death), cost or expense, including without
limitation expenses of litigation and reasonable attorneys' fees, in connection
with any claims made or suits brought against DPM relating to this Agreement
which are alleged to arise from the negligence, willful misconduct, or material
breach of this Agreement by SIGNAL, its Affiliates, subcontractors or agents;
provided however that SIGNAL shall not be obligated to provide indemnification
hereunder to the extent that any such claim, loss, damage, liability, injury,
cost or expense results from the negligence, willful misconduct, or material
breach of this Agreement by DPM.
9.3.2 Indemnification by DPM. DPM shall at all times during
the term of this Agreement and thereafter, indemnify, defend and hold SIGNAL,
its directors, agents, officers, employees and affiliates, from and against any
and all claim, loss, damage, liability, injury (including death), cost or
expense, including without limitation expenses of litigation and reasonable
attorneys' fees, in connection with any claims made or suits brought against
SIGNAL relating to this Agreement and alleged to arise: (i) from the negligence,
willful misconduct, or material breach of this Agreement by DPM, its Affiliates,
subcontractors or agents or (ii) out of the death of or injury to any person or
persons or out of any damage to property and resulting from the production,
manufacture, sale, use, lease,
<PAGE> 37
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consumption or advertisement of Product; provided however that DPM shall not be
obligated to provide indemnification hereunder to the extent that any such
claim, loss, damage, liability, injury, cost or expense results from the
negligence, willful misconduct, or material breach of this Agreement by SIGNAL.
9.3.3 Procedure. Should a party or any of its officers,
agents, parent companies, affiliates, or employees (the "Indemnitee") intend to
claim indemnification under this Article, such Indemnitee shall promptly notify
the other party (the "Indemnitor") in writing of any alleged loss, claim,
damage, liability or action in respect of which the Indemnitee intends to claim
such indemnification, and the Indemnitor shall be entitled to assume the defense
thereof with counsel selected by the Indemnitor and approved by the Indemnitee,
such approval not to be unreasonably withheld; provided, however, that if
representation of Indemnitee by such counsel first selected by the Indemnitor
would be inappropriate due to a conflict of interest between such Indemnitee and
any other party represented by such counsel, then Indemnitor shall select other
counsel for the defense of Indemnitee, with the fees and expenses to be paid by
the Indemnitor, such other counsel to be approved by Indemnitee and such
approval not to be unreasonably withheld. The indemnity agreement in this
Article shall not apply to amounts paid in settlement of any loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Indemnitor, which consent shall not be withheld unreasonably. The failure
to deliver notice to the Indemnitor within a reasonable time after the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such Indemnitor of any liability to the Indemnitee under
this Article, but the omission so to deliver notice to the Indemnitor will not
relieve it of any liability that it may have to any Indemnitee otherwise than
under this Article. The Indemnities under this Article, its employees and
agents, shall cooperate fully with the Indemnitor and its legal representatives
in the investigation of any action, claim or liability covered by this
indemnification.
Article 10
Term And Termination
10.1 Term. This Agreement shall commence as of the Effective Date
and, unless sooner terminated as provided herein, shall expire as of the end of
the Royalty Term.
10.2 Termination for Cause. Either party may terminate this Agreement
upon sixty (60) days' written notice upon the occurrence of any
<PAGE> 38
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of the following:
(a) Upon or after the bankruptcy, insolvency, dissolution or
winding up of the other party (other than dissolution or winding up for the
purposes of reconstruction or amalgamation); or
(b) Upon or after the breach of any material provision of
this Agreement by the other party by causes and reasons within its control, as
shown by credible evidence, if the breaching party has not commenced to cure
such breach within sixty (60) days after notice thereof by the other party.
10.3 Effect of Expiration or Termination.
(a) Expiration or termination of this Agreement shall not
relieve the parties of any obligation accruing prior to such expiration or
termination. Without limiting the foregoing, except as set forth in this
Agreement, the obligations and rights of the parties under Articles 5 and 8,
Sections 6.4, 9.2, 9.3 and 10.3 and Articles 12 and 13 shall survive termination
or expiration of this Agreement.
(b) Following the expiration of the Research Term and any
Extended Research Term, (i) the parties will continue to collaborate on the same
terms and conditions for Compounds and Products in development as of the last
day of the Research Term and any Extended Research Term, (ii) the RMC will
continue to manage the Research Project until the date on which the last
Compound and Product in development as of the last day of the Research Term and
any Extended Research Term commences a Phase I clinical trial, and (iii) without
limitation, the rights and obligations of the parties with respect to such
Products under Sections 4.1, 4.2, 4.4, 5.4, 5.5 and 5.6 and Articles 6 and 7
shall survive through the end of the Royalty Term.
(c) Without limiting any remedies otherwise available to
DPM, if DPM terminates this Agreement for cause pursuant to Section 10.2, (a)
all licenses set forth in Article 4 shall continue for so long as DPM is not in
breach of its obligations to pay to SIGNAL all milestone payments and royalty
payments in accordance with this Agreement and complies with the provisions of
Article 6 of this Agreement, and (b) SIGNAL shall return to DPM any Confidential
Information of DPM.
(d) Without limiting any remedies otherwise available to
SIGNAL, if SIGNAL terminates this Agreement for cause pursuant to
<PAGE> 39
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Section 10.2, (a) all licenses granted by SIGNAL to DPM hereunder shall
terminate and revert to SIGNAL, and (b) DPM shall return to SIGNAL any
Confidential Information of SIGNAL.
10.4. Failure to Pursue. If DPM is not diligently pursuing the
development of at least one Product using good faith commercially reasonable
efforts in accordance with industry standards and consistent with the usual
practice followed by DPM in pursuing the development of its other similar
pharmaceutical products, then SIGNAL shall have the right to terminate the
license right granted to DPM pursuant to Article 4 only with respect to such
Product which SIGNAL asserts is not being diligently pursued by DPM. SIGNAL
shall not have the right to terminate under this Section 10.4 with respect to
such Product unless (a) DPM is given ninety (90) days prior written notice by
SIGNAL of SIGNAL's intent to terminate with respect to such Product, stating the
reasons and justification for such termination and recommending steps which DPM
should take in such development, and (b) DPM has not taken good faith
commercially reasonable steps during such ninety (90) day period to diligently
pursue development of such Product. Notwithstanding the foregoing, SIGNAL shall
in no event have the right to terminate such license for such Product if the
development of such Product is not being pursued on the basis that a competitive
product is being diligently developed by DPM pursuant to this Agreement, or that
such Product is deemed by DPM unlikely to yield satisfactory results in clinical
trials or regulatory submissions, or that such Product is believed by DPM to be
commercially unattractive. In the event SIGNAL disagrees with the reasons why
DPM is not pursuing such Product, SIGNAL can so notify DPM and the further
development and commercialization of such Product may be undertaken by SIGNAL at
its risk and expense, and subject to SIGNAL negotiating a license with DPM under
Collaboration Technology for such Product as set forth in Section 4.2, second
paragraph.
10.5. Failure to Retain Qualified Scientists. DPM may terminate this
Agreement upon ninety (90) days prior written notice in the event that SIGNAL is
unable to retain sufficient qualified researchers to provide commercially
reasonable support for the Research Project.
ARTICLE 11
PUBLICITY
11.1 Publicity Review. DPM and SIGNAL will jointly discuss and agree,
based on the principles of Section 11.2, on any statement to the
<PAGE> 40
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public regarding the execution and the subject matter of this Agreement or any
other aspect of this Agreement, except with respect to disclosures required by
law or regulation. Promptly following the Effective Date, the parties shall
issue a joint press release, which press release shall not refer to any
contingent payments in aggregate. Neither party shall use the name of the other
party in any public statement, prospectus, annual report, or press release
without the prior written approval of the other party, which approval shall not
be unreasonably withheld or delayed, provided, however, that both parties shall
endeavor in good faith to give the other party a minimum of five business days
to review such press release, prospectus, annual report, or other public
statement; and provided, further, that either party may use the name of the
other party in any public statement, prospectus, annual report, or press release
without the prior written approval of the other party, if such party is advised
by counsel that such disclosure is required to comply with applicable law.
However, any such use of the name of the other party shall be submitted to that
party in advance of such use in order to make any reasonable, good faith
modifications.
11.2 Standards. In the discussion and agreement referred to in
Section 11.1, the principles observed by DPM and SIGNAL will be accuracy, the
requirements for confidentiality under Article 8, the advantage a competitor of
DPM or SIGNAL may gain from any public or Third Party statements under Section
11.1, the requirements of disclosure under any securities laws or regulations of
the United States, including those associated with public offerings, and the
standards and customs in the pharmaceutical industry for such disclosures by
companies comparable to DPM and SIGNAL.
ARTICLE 12
DISPUTE RESOLUTION
12.1 Disputes. The parties recognize that disputes as to certain
matters may from time to time arise which relate to either party's rights and/or
obligations hereunder. It is the objective of the parties to establish
procedures to facilitate the resolution of such disputes in an expedient manner
by mutual cooperation and without resort to litigation.
Any disputes arising between the parties relating to, arising out of or
in any way connected with the Agreement or any term or condition hereof, or the
performance by either party of its obligations hereunder (including any disputes
between the representatives of SIGNAL and DPM on the RMC), whether before or
after termination of the Agreement, ("Disputes") will be resolved as set forth
in this Section. Any Dispute between
<PAGE> 41
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representatives of SIGNAL and DPM shall be resolved by the RMC. Failing
resolution of such Dispute by the RMC, or in the event of a Dispute between
representatives of SIGNAL and DPM on the RMC, the Dispute will be presented to
the chief executive officers of DPM and SIGNAL, who shall attempt in good faith
to promptly resolve such Dispute. If such chief executive officers are unable to
resolve such Dispute, any litigation instituted by DPM shall, unless otherwise
agreed to in writing by SIGNAL, be filed in a California federal or state court
and any litigation instituted by SIGNAL shall, unless otherwise agreed to in
writing by DPM, be filed in a Delaware federal or state court.
ARTICLE 13
MISCELLANEOUS
13.1 Activities Outside of Collaboration. Except as otherwise
specifically provided herein, all activities of the parties outside of the
Collaboration are outside of the scope of this Agreement and nothing herein is
intended to limit SIGNAL or its Affiliates from using the SIGNAL Technology for
other purposes.
13.2 Assignment.
(a) Either party may assign any of its rights or obligations
under this Agreement in any country to any Affiliates; provided, however, that
such assignment shall not relieve the assigning party of its responsibilities
for performance of its obligations under this Agreement.
(b) This Agreement may not be assigned or otherwise
transferred by either party, except to Affiliates, without the consent of the
other party; provided, however, that DPM or SIGNAL may, without such consent,
assign this Agreement and its rights and obligations hereunder to its Affiliates
and parent corporations, or in connection with the transfer or sale of all or
substantially all of its business, or in the event of its merger or
consolidation or change in control or similar transaction; and provide further,
that in the event of such a transaction, no intellectual property rights of the
acquiring corporation shall be included in the technology licensed hereunder
except with the approval of the acquiring corporation.
(c) This Agreement shall be binding upon and inure to the
benefit of the successors and permitted assigns of the parties. Any assignment
not in accordance with this Agreement shall be void.
<PAGE> 42
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13.3 Force Majeure. Neither party shall lose any rights hereunder or
be liable to the other party for damages or losses on account of failure of
performance by the defaulting party if the failure is occasioned by government
action, war, fire, explosion, flood, strike, lockout, embargo, act of God, or
any other similar cause beyond the control of the defaulting party; provided,
however, that the party claiming force majeure has exerted all reasonable
efforts to avoid or remedy such force majeure.
13.4 Notices. Any notice or other communication pursuant to this
Agreement shall be sufficiently made or given on the date of mailing if sent to
such party by facsimile on such date, with paper copy being sent by certified
first class mail, postage prepaid, or by next day express delivery service,
addressed to it at its address below (or such address as it shall designate by
written notice given to the other party).
In the case of DPM:
President, DuPont Merck Research Laboratories
The DuPont Merck Pharmaceutical Company
Experimental Station, Bldg. 400
Wilmington, Delaware 19880-0400
(fax number: 302-992-3040)
with copy to:
Associate General Counsel
Legal Department
The DuPont Merck Pharmaceutical Company
974 Centre Road, DuPont Merck Plaza, WR722
Wilmington, Delaware 19807-2802
(fax number: 302-892-8536)
In the case of SIGNAL:
Chief Executive Officer
Signal Pharmaceuticals Inc.
5555 Oberlin Drive
San Diego, CA 92121
<PAGE> 43
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(fax number: 619-558-7513)
with a copy to:
Frederick T. Muto, Esquire
Cooley Godward LLP
4365 Executive Drive
San Diego, CA 92121
(fax number: 619-453-3555)
13.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without reference to any
rules of conflict of laws, except that all questions concerning the construction
or effect of patent rights will be construed in accordance with the laws of the
country granting those rights.
13.6 Waiver. Except as specifically provided for herein, the waiver
from time to time by either of the parties of any of their rights or their
failure to exercise any remedy shall not operate or be construed as a continuing
waiver of same or of any other of such party's rights or remedies provided in
this Agreement.
13.7 Severability. If any term, covenant or condition of this
Agreement or the application thereof to any party or circumstance shall, to any
extent, be held to be invalid or unenforceable, then (a) the remainder of this
Agreement, or the application of such term, covenant or condition to parties or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant or condition of this
Agreement shall be valid and be enforced to the fullest extent permitted by law;
and (b) the parties hereto covenant and agree to renegotiate any such term,
covenant or application thereof in good faith in order to provide a reasonably
acceptable alternative to the term, covenant or condition of this Agreement or
the application thereof that is invalid or unenforceable, it being the intent of
the parties that the basic purposes of this Agreement are to be effectuated.
13.8 Independent Contractors. It is expressly agreed that SIGNAL and
DPM shall be independent contractors and that the relationship between the two
parties shall not constitute a partnership or agency of any kind. Neither SIGNAL
nor DPM shall have the authority to make any statements, representations or
commitments of any kind, or to take any action, which shall be binding on the
other, without the prior written
<PAGE> 44
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authorization of the party to do so.
13.9 Entire Agreement. This Agreement sets forth all of the
covenants, promises, agreements, warranties, representations, conditions and
understandings between the parties hereto with respect to the subject matter
hereof and supersedes and terminates all prior agreements and understanding
between the parties, except all obligations of the parties under the
Confidential Disclosure Agreement referenced in Section 8.1 survive and are
subject to further terms and conditions of this Agreement. There are no
covenants, promises, agreements, warranties, representations conditions or
understandings, either oral or written, between the parties other than as set
forth herein and therein. No subsequent alteration, amendment, change or
addition to this Agreement shall be binding upon the parties hereto unless
reduced to writing and signed by the respective authorized officers of the
parties.
13.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.11 EEOC Compliance. SIGNAL agrees to comply with the following
Equal Employment Opportunity Compliance statement:
(a) SIGNAL will not discriminate against any individual
performing of behalf of SIGNAL under this Agreement because of race, religion,
sex, age within statutory limits, disability, national origin, or veteran
status. SIGNAL agrees to post in conspicuous places notices setting forth the
provisions of this non-discrimination clause.
(b) SIGNAL will, in all solicitation or advertisements for
candidates or applicants for employment with SIGNAL and involving the
performance of this Agreement, state that all qualified applicants will receive
consideration for employment without regard to race, religion, sex, age within
statutory limits, national origin, disability or veteran status.
(c) In the event of SIGNAL non-compliance with these
non-discrimination clauses or with any laws, rules, regulations, or orders, this
Agreement may be canceled, terminated, or suspended at the discretion of DPM in
accordance with Section 10.2.
SIGNAL warrants that it has complied with all applicable laws, rules, orders and
regulations covering services specified herein, including but not limited to
Executive Order 11246 (and the rules and regulations promulgated thereunder),
the Rehabilitation Act of 1973 and the Vietnam Era Veterans Readjustment Act of
1974.
<PAGE> 45
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13.12 Use of Trade Names. Subject to Section 11.1, neither party will,
without prior written consent of the other party, use any trademark or trade
name owned by the other party, or owned by an Affiliate or Parent corporation of
the other party, in any publication, publicity, advertising, or otherwise.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their duly authorized officers as of the date first above
written.
THE DUPONT MERCK PHARMACEUTICAL SIGNAL PHARMACEUTICALS, INC.
COMPANY
By: [SIG] By: /s/ ALAN LEWIS
--------------------------------- -----------------------------------
Name: President & CEO Name: Alan Lewis
------------------------------- ---------------------------------
Title: December 26, 1997 Title: PRES/CEO
------------------------------ --------------------------------
<PAGE> 46
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Appendix 1
[***]
***Confidential Treatment Requested
<PAGE> 47
Appendix 2
List of HCV Constructs
[***]
***Confidential Treatment Requested
<PAGE> 48
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Appendix 3
Signal Compound Libraries
[***]
***Confidential Treatment Requested
<PAGE> 49
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Appendix 4
Example 1
[***]
***Confidential Treatment Requested
<PAGE> 50
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Appendix 5
Signal License Agreement
[***]
***Confidential Treatment Requested
<PAGE> 51
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Appendix 6
Signal Patent Rights
None as of the Effective Date.
<PAGE> 52
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Schedule A
Collaboration Patent Rights or
Signal Patent Rights
None as of the Effective Date
<PAGE> 1
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80,
200.83 and 230.406.
EXHIBIT 10.51
COLLABORATION AGREEMENT
BETWEEN
SIGNAL PHARMACEUTICALS, INC.,
A CALIFORNIA CORPORATION
AND
NIPPON KAYAKU CO., LTD.,
A JAPANESE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1 DEFINITIONS..............................................................2
1.1 "Affiliate"...................................................................2
1.2 "CNS".........................................................................2
1.3 "CNS Field"...................................................................2
1.4 "Collaboration"...............................................................2
1.5 "Collaboration Know-How"......................................................2
1.6 "Collaboration Patents".......................................................2
1.7 "Commercializing Party".......................................................3
1.8 "Compound"....................................................................3
1.9 "Control".....................................................................3
1.10 "Effective Date"..............................................................3
1.11 "FDA".........................................................................3
1.12 "Field".......................................................................3
1.13 "FTE".........................................................................3
1.14 "Joint Commercialization Agreement"...........................................3
1.15 "Joint Commercialization Alternative".........................................3
1.16 "Know-How"....................................................................3
1.17 "Net Sales of Other Products".................................................3
1.18 "Net Sales of Products".......................................................4
1.19 "Nippon Kayaku Know-How"......................................................4
1.20 "Nippon Kayaku Patents".......................................................4
1.21 [***] .....................................................................4
1.22 "Other Product"...............................................................4
1.23 "Patent"......................................................................4
1.24 "Patent Committee"............................................................4
1.25 "Patent Costs"................................................................5
1.26 "PNS Field"...................................................................5
1.27 "Product".....................................................................5
1.28 "Research"....................................................................5
1.29 "Research Lead"...............................................................5
</TABLE>
i.
***Confidential Treatment Requested
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1.30 "Research Management Committee"...............................................5
1.31 "Research Plan"...............................................................5
1.32 "Research Term"...............................................................5
1.33 "Rest of the World"...........................................................5
1.34 "Royalty Alternative".........................................................5
1.35 "Signal Know-How".............................................................5
1.36 "Signal Patents"..............................................................6
1.37 "Third Party".................................................................6
1.38 "Valid Claim".................................................................6
ARTICLE 2 RESEARCH PHASE OF COLLABORATION..........................................6
2.1 Research......................................................................6
2.2 Responsibilities of the RMC...................................................6
2.3 Determination of Research Lead................................................7
2.4 Know-How, Reports and Delivery of Compounds...................................7
2.5 Animal Models.................................................................8
2.6 Research Contributions........................................................9
2.7 Research Expenses.............................................................9
2.8 Visiting Scientists...........................................................9
ARTICLE 3 DEVELOPMENT AND COMMERCIALIZATION PHASE OF COLLABORATION..................10
3.1 Co-Development and Commercialization of the Products in the Field............10
3.2 Royalty Alternative in the Field.............................................11
ARTICLE 4 PAYMENTS..................................................................12
4.1 Funding for Research.........................................................12
4.2 Nippon Kayaku Royalties on Sales of Products in the PNS Field in Japan.......12
4.3 Royalties on Sales of Products Outside the Field.............................12
4.4 Royalties on Sales of Other Products in the Field............................12
4.5 Royalties on Sales of Other Products Outside the Field.......................13
4.6 Royalties Under Royalty Alternative..........................................13
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 5 ROYALTY OBLIGATIONS.....................................................13
5.1 Royalties For Sales of Products or Other Products............................13
5.2 Foreign Exchange.............................................................13
5.3 Blocked Currency.............................................................13
5.4 Taxes........................................................................13
5.5 Payment......................................................................14
5.6 Duration.....................................................................14
5.7 Accounting...................................................................14
5.8 Sales by Sublicensees........................................................14
ARTICLE 6 LICENSE GRANTS..........................................................15
6.1 Licenses During Collaboration................................................15
6.2 Commercialization Licenses...................................................17
6.3 Sublicenses..................................................................18
ARTICLE 7 CONFIDENTIALITY; PUBLICATIONS...........................................18
7.1 Confidentiality; Exceptions..................................................18
7.2 Authorized Disclosure........................................................19
7.3 Publications.................................................................19
7.4 Public Disclosure............................................................19
ARTICLE 8 OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS......................20
8.1 Ownership of Collaboration Patents; Nippon Kayaku Patents; Signal
Patents......................................................................20
8.2 Patent Filings...............................................................20
8.3 Enforcement Rights...........................................................21
ARTICLE 9 REPRESENTATIONS AND WARRANTIES; EXCLUSIVITY.............................23
9.1 Representations and Warranties...............................................23
9.2 Limitation on Warranties.....................................................24
9.3 Negative Covenants...........................................................24
ARTICLE 10 TERM AND TERMINATION....................................................25
10.1 Term.........................................................................25
10.2 Termination For Breach.......................................................25
</TABLE>
iii.
<PAGE> 5
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
10.3 Termination For Bankruptcy...................................................25
10.4 Surviving Rights.............................................................25
10.5 Accrued Rights, Surviving....................................................25
10.6 Termination Not Sole Remedy..................................................26
ARTICLE 11 INDEMNIFICATION; INSURANCE..............................................26
11.1 Research and Development Indemnification.....................................26
11.2 Indemnification Procedures...................................................26
11.3 Insurance....................................................................27
ARTICLE 12 DISPUTE RESOLUTION......................................................27
12.1 Disputes.....................................................................27
12.2 Dispute Resolution Procedures................................................27
ARTICLE 13 MISCELLANEOUS...........................................................28
13.1 Assignment...................................................................28
13.2 Research and Development Entities............................................28
13.3 Consents Not Unreasonably Withheld...........................................28
13.4 Force Majeure................................................................29
13.5 Further Actions..............................................................29
13.6 No Trademark Rights..........................................................29
13.7 Notices......................................................................29
13.8 Waiver.......................................................................30
13.9 Severability.................................................................30
13.10 Ambiguities..................................................................30
13.11 Counterparts.................................................................30
13.12 Entire Agreement.............................................................30
13.13 Governing Law................................................................31
13.14 Headings.....................................................................31
</TABLE>
iv.
<PAGE> 6
COLLABORATION AGREEMENT
THIS COLLABORATION AGREEMENT (the "Agreement") is made effective as of
February 9, 1998 by and between SIGNAL PHARMACEUTICALS, INC., a California
corporation having its principal place of business at 5555 Oberlin Drive, San
Diego, California 92121 ("Signal"), and NIPPON KAYAKU CO., LTD., a Japanese
corporation having its principal place of business at Tokyo Fujimi Building,
11-2, Fujimi 1-chome, Chiyoda-ku, Tokyo 102, Japan ("Nippon Kayaku"). Signal and
Nippon Kayaku may be referred to herein as a "Party" or, collectively, as
"Parties."
RECITALS
WHEREAS, Signal has developed and licensed certain technology and
intellectual property in the area of drug discovery and lead optimization and is
experienced in the research and development of small-molecule drugs;
WHEREAS, Nippon Kayaku is a pharmaceutical company dedicated to the
research, development and commercialization of pharmaceutical products;
WHEREAS, Nippon Kayaku has identified the compound [***] (as described
in Exhibit A hereto) and the derivatives thereof;
WHEREAS, Signal and Nippon Kayaku concluded a secrecy agreement dated
September 20, 1996 (the "Secrecy Agreement") and a material transfer agreement
dated May 19, 1997 (the "Material Transfer Agreement"), under which Signal has
conducted the evaluation of certain information and a sample of the compound
[***] received from Nippon Kayaku, and Signal has notified Nippon Kayaku of its
desire to conduct a pilot experiment to examine the effects of the compound
[***] and to conclude a further agreement relating to a right to research and
develop the compound [***] and the derivatives thereof jointly with Nippon
Kayaku;
WHEREAS, Nippon Kayaku has exclusive rights to the compound [***];
WHEREAS, Signal and Nippon Kayaku wish to establish a collaborative
relationship to develop and commercialize novel products based on or derived
from [***] for the treatment and prevention of diseases and disorders of the
central nervous system and peripheral nervous system; and
WHEREAS, Signal and Nippon Kayaku wish to enter into this Agreement to
establish the collaboration on the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the Parties hereto, intending
to be legally bound, do hereby agree as follows:
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ARTICLE 1
DEFINITIONS
The following terms shall have the following meanings as used in the
Agreement:
1.1 "AFFILIATE" means an individual, trust, business trust, joint
venture, partnership, corporation, association or any other entity which
(directly or indirectly) is controlled by, controls or is under common control
with a Party. For the purposes of this definition, the term "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with") as used with respect to any Party, shall mean the
possession (directly or indirectly) of at least fifty percent (50%) of the
outstanding voting securities of a corporation or comparable equity interest in
any other type of entity, or, where the laws of the jurisdiction in which such
entity operates prohibit ownership by a Party of fifty percent (50%), such
ownership shall be at the maximum level of ownership allowed by such laws.
1.2 "CNS" means central nervous system.
1.3 "CNS FIELD" means the treatment or prevention of CNS diseases or
disorders in humans.
1.4 "COLLABORATION" means the activities, rights and obligations of
Signal and Nippon Kayaku encompassed in their relationship in accordance with
the Research Plan during the Research Term and, in any further relationship
between the Parties pursuant to the Joint Commercialization Agreement, during
the life of such further relationship.
1.5 "COLLABORATION KNOW-HOW" means Know-How (i) relating to Compounds;
(ii) relating to results and data from animal studies conducted as part of the
Research under this Agreement in accordance with the Research Plan; or (iii)
otherwise arising from or in connection with the conduct of the Research under
this Agreement in accordance with the Research Plan and jointly owned by or
within the common Control of the Parties or their respective Affiliates, but
excluding Collaboration Patents.
1.6 "COLLABORATION PATENTS" means all Patents that claim or cover
inventions (i) made jointly (as determined in accordance with the rules of
inventorship under United States patent law) by officers, employees, consultants
or agents of Signal or one of its Affiliates, on the one hand, and officers,
employees, consultants or agents of Nippon Kayaku or one of its Affiliates, on
the other hand, in connection with activities conducted pursuant to the Research
Plan, (ii) which come under the common Control of Signal or one of its
Affiliates, on the one hand, and Nippon Kayaku or one of its Affiliates, on the
other hand, prior to the end of the Research Term or (iii) based on or derived
from a Compound and conceived or reduced to practice during the Research Term by
officers, employees, consultants or agents of one or both of the Parties.
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1.7 "COMMERCIALIZING PARTY" shall have the meaning assigned to it in
Section 5.1.
1.8 "COMPOUND" shall mean a small-molecule compound based on or derived
from [***], which is either synthesized through medicinal chemistry and
combinatorial chemistry techniques or identified through searching the database
of Signal's compound library as described in Section 2.4(c), that, in each case,
is identified in the course of the Research by one or both of the Parties.
1.9 "CONTROL" means, with respect to an item of information or
intellectual property right, possession of the ability to grant a license or
sublicense as provided for herein under such item or right without violating the
terms of any agreement or other arrangement with any Third Party.
1.10 "EFFECTIVE DATE" means the date first written above in this
Agreement.
1.11 "FDA" means the United States Food and Drug Administration.
1.12 "FIELD" means the CNS Field and the PNS Field.
1.13 "FTE" means full-time equivalent scientific personnel.
1.14 "JOINT COMMERCIALIZATION AGREEMENT" shall have the meaning assigned
to it in Section 3.1(a).
1.15 "JOINT COMMERCIALIZATION ALTERNATIVE" shall have the meaning
assigned to it in Section 3.1(a).
1.16 "KNOW-HOW" means techniques, data, materials and chemicals
materially relating to the Field, including, without limitation, inventions,
practices, methods, knowledge, know-how, skill, experience, test data including
pharmacological, toxicological and clinical test data, analytical and quality
control data, patent and legal data or descriptions.
1.17 "NET SALES OF OTHER PRODUCTS" means the gross amounts invoiced for
sales of Other Products by Signal or Nippon Kayaku, as the case may be, and its
Affiliates and sublicensees to Third Parties pursuant to one or more of the
licenses granted under Article 6 less (a) discounts actually granted, (b)
credits or allowances actually granted upon claims, damaged goods, rejections or
returns of any such Other Product, including recalls, (c) freight, postage,
shipping and insurance charges actually allowed or paid for delivery of any such
Other Product, to the extent billed and (d) taxes, duties or other governmental
charges (other than income taxes) levied on, absorbed or otherwise imposed on
sales of any such Other Products. Sales of Other Products for use in clinical
trials prior to receipt of regulatory approval for such Other Products shall not
be included in Net Sales of Other Products.
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1.18 "NET SALES OF PRODUCTS" means the gross amounts invoiced for sales
of Products by Signal or Nippon Kayaku, as the case may be, and its Affiliates
and sublicensees to Third Parties pursuant to one or more of the licenses
granted under Article 6 less (a) discounts actually granted, (b) credits or
allowances actually granted upon claims, damaged goods, rejections or returns of
any such Product, including recalls, (c) freight, postage, shipping and
insurance charges actually allowed or paid for delivery of any such Product, to
the extent billed and (d) taxes, duties or other governmental charges (other
than income taxes) levied on, absorbed or otherwise imposed on sales of any such
Products. Sales of Products for use in clinical trials prior to receipt of
regulatory approval for such Products shall not be included in Net Sales of
Products.
1.19 "NIPPON KAYAKU KNOW-HOW" means Know-How that is (i) owned or within
the Control of Nippon Kayaku or an Affiliate of Nippon Kayaku prior to the end
of the Research Term and (ii) necessary or useful for the manufacture, use, sale
or import of products pursuant to one or more of the licenses granted under
Article 6, but excluding Nippon Kayaku Patents and Collaboration Know-How.
1.20 "NIPPON KAYAKU PATENTS" means all Patents owned or Controlled by
Nippon Kayaku or an Affiliate of Nippon Kayaku (excluding Collaboration Patents)
necessary or useful for the manufacture, use, sale or import of products
pursuant to one or more of the licenses granted under Article 6, including,
without limitation, any such Patents related to [***], where such Patents cover
(i) inventions made prior to the Effective Date of this Agreement, (ii)
inventions made solely by employees or agents of Nippon Kayaku or an Affiliate
of Nippon Kayaku after the Effective Date and prior to the end of the Research
Term (but specifically excluding Collaboration Patents covered by Section
1.6(iii)), or (iii) inventions which come under the Control of Nippon Kayaku or
its Affiliates after the Effective Date and prior to the end of the Research
Term; a list of the Nippon Kayaku Patents as of the Effective Date is set forth
on Schedule I.
1.21 "[***]" means the compound Controlled by Nippon Kayaku known as
[***] and described on Exhibit A hereto.
1.22 "OTHER PRODUCT" shall mean any pharmaceutical product based on or
derived from a Compound other than a Research Lead.
1.23 "PATENT" means (i) foreign and domestic Letters Patent including
one or more Valid Claims, including any extension (including Supplemental
Protection Certificate), registration, confirmation, reissue, continuation,
divisional, continuation-in-part, reexamination or renewal thereof, and (ii)
pending applications for any of the foregoing.
1.24 "PATENT COMMITTEE" means the committee established pursuant to
Section 8.2(c) herein.
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1.25 "PATENT COSTS" means the out-of-pocket fees and expenses paid to
outside legal counsel and other Third Parties and filing, prosecution and
maintenance expenses incurred in connection with the establishment and
maintenance of rights under Patents.
1.26 "PNS FIELD" means the treatment or prevention of diabetic
neuropathy, chemotherapy-induced neuropathy or other neuropathies in humans but
specifically excluding therapeutic and diagnostic products directed at pain,
lower urinary tract dysfunction and peripheral vascular disease.
1.27 "PRODUCT" shall mean any pharmaceutical product based on or derived
from any Research Lead that is covered by one or more of Signal Patents, Signal
Know-How, Nippon Kayaku Patents, Nippon Kayaku Know-How, Collaboration Patents
or Collaboration Know-How.
1.28 "RESEARCH" means all work performed by the Parties or on their
behalf pursuant to the Research Plan directed towards or in connection with the
discovery, identification and investigation of Research Leads during the
Research Term.
1.29 "RESEARCH LEAD" means a Compound identified by either Party
(separately or jointly) pursuant to Research performed during the Research Term
showing at least [***] more potency than [***], as decided by the RMC. [***]
greater potency will be determined as follows: [***]
1.30 "RESEARCH MANAGEMENT COMMITTEE" or "RMC" means the committee
established pursuant to Section 2.2 herein.
1.31 "RESEARCH PLAN" means the plan for conducting the Research as
described in Section 2.1 hereof and attached as Exhibit B hereto, as such plan
may be modified or amended by the RMC from time to time in writing.
1.32 "RESEARCH TERM" means the period commencing on the Effective Date
and ending on the second anniversary of the Effective Date, unless terminated
earlier pursuant to Sections 10.2 or 10.3.
1.33 "REST OF THE WORLD" means the entire world excluding Japan.
1.34 "ROYALTY ALTERNATIVE" shall have the meaning assigned to it in
Section 3.2.
1.35 "SIGNAL KNOW-HOW" means Know-How that is (i) owned or within the
Control of Signal or an Affiliate of Signal prior to the end of the Research
Term and (ii) necessary or useful for the manufacture, use, sale or import of
products pursuant to
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one or more of the licenses granted under Article 6, but excluding Signal
Patents and Collaboration Know-How.
1.36 "SIGNAL PATENTS" means all Patents owned or Controlled by Signal or
an Affiliate of Signal (excluding Collaboration Patents) necessary or useful for
the manufacture, use, sale or import of products pursuant to one or more of the
licenses granted under Article 6 where such Patents cover (i) inventions made
prior to the Effective Date of this Agreement, (ii) inventions made solely by
employees or agents of Signal or an Affiliate of Signal after the Effective Date
and prior to the end of the Research Term (but specifically excluding
Collaboration Patents covered by Section 1.6(iii)), or (iii) inventions which
come under the Control of Signal or an Affiliate of Signal after the Effective
Date and prior to the end of the Research Term; a list of the Signal Patents as
of the Effective Date is set forth on Schedule II.
1.37 "THIRD PARTY" means any entity or individual other than Signal,
Nippon Kayaku and Affiliates of either.
1.38 "VALID CLAIM" means a claim of an issued patent which claim has not
lapsed, been canceled or become abandoned and has not been declared invalid by a
court or other appropriate body of competent jurisdiction, and which has not
been admitted to be invalid or unenforceable through reissue or disclaimer.
ARTICLE 2
RESEARCH PHASE OF COLLABORATION
2.1 RESEARCH. The purpose of the Research is to identify Research Leads
that are suitable for development into Products for commercialization in the
Field. The Parties agree that the Research shall be conducted as specified in
the Research Plan attached hereto as Exhibit B, as such Research Plan may be
amended from time to time in writing by the RMC, with each Party to use
commercially reasonable and diligent efforts (as defined below) to perform its
responsibilities under the Research Plan.
2.2 RESPONSIBILITIES OF THE RMC. The Parties shall establish a Research
Management Committee ("RMC") promptly after the date of the execution of this
Agreement. The RMC shall be comprised of three (3) representatives of each
Party. The initial members of the RMC are set forth on Schedule III. Either
Party may appoint substitute or replacement members of the RMC to serve as their
representatives as long as any such substitutes or replacements are persons of
comparable standing and authority within the Parties' organizations. Decisions
by the RMC shall be made by unanimous vote. The RMC shall have the
responsibility and authority to:
(a) plan and monitor the Research;
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(b) review and modify the Research Plan;
(c) evaluate the results of the Research;
(d) discuss information relating to the Research;
(e) review scientific publications of the Parties concerning the
Research;
(f) determine whether a Compound is a Research Lead;
(g) determine whether a Compound is not suitable for pursuit
under the Collaboration; and
(h) review and approve a protocol of Research furnished by either
Party with respect to animal models in the Field.
Either Party may refer any dispute to the appropriate officers of the Parties
for consideration and resolution pursuant to Article 12. The RMC shall meet at
least once per calendar quarter, with two of such meetings per calendar year
being conducted in each of San Diego, California and Tokyo, Japan, or at such
other times and places agreed to by the Parties, until the end of the Research
Term.
2.3 DETERMINATION OF RESEARCH LEAD. Upon the identification by one or
both of the Parties in the course of the Research of a Research Lead, such Party
or Parties shall promptly provide notice thereof (the "Research Lead Notice"),
which notice shall include all relevant data regarding such Research Lead, to
the RMC and, if applicable, the other Party. The identification of a Research
Lead shall give rise to the Parties' rights set forth in Article 3 with respect
to such Research Lead. In the event that no Research Lead has been identified on
or before the end of the Research Term, the Collaboration shall terminate.
2.4 KNOW-HOW, REPORTS AND DELIVERY OF COMPOUNDS.
(a) Each Party shall disclose to the other Party all
Collaboration Know-How learned, acquired or discovered by such Party at any time
on or before the end of the Research Term, as promptly as is reasonably
practicable after such Collaboration Know-How is learned. At the time of
effectiveness of any license granted hereunder, Signal and/or Nippon Kayaku, as
appropriate under the license granted, (i) shall make available and disclose to
the other Party such Signal Know-How or Nippon Kayaku Know-How, as the case may
be, known by such Party as of such date, and (ii) shall also disclose any Signal
Know-How or Nippon Kayaku Know-How, as the case may be, learned, acquired or
discovered by such Party at any time thereafter for so long as such license
continues in full force and effect, as promptly as is reasonably practicable
after such Signal Know-How or Nippon Kayaku Know-How is learned. The Parties
shall exchange at a minimum quarterly written reports (with copies to the RMC)
presenting a meaningful summary of
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Research done under this Agreement. Each Party shall provide the other with raw
data, including QSAR, for work carried out in the course of the Research, if
reasonably requested by the other Party. Know-How and other information
regarding the Research disclosed by one Party to the other Party pursuant hereto
may be used only in accordance with the rights granted under this Agreement.
(b) All Compounds synthesized in the course of the Research shall
first be used for purposes of the Collaboration. When the RMC determines that
Compounds are not suitable for pursuit under the Collaboration, then in order to
avoid any conflict with its other corporate partners, Signal shall, within
thirty (30) days following such determination, test such Compounds in assays
under certain other Signal programs; a list of such Signal programs as of the
Effective Date is set forth on Schedule IV. In the event that a Compound shows
activity in any such assay, Signal shall not be obligated to disclose or provide
such Compound to Nippon Kayaku, and no license granted to Nippon Kayaku
hereunder with respect to such Compound shall be effective, unless and until
such time as Signal is not contractually prohibited from disclosing, providing
or licensing such Compound to Nippon Kayaku. In the event that a Compound shows
no activity in any such assay or if development of such Compound is discontinued
under any such other Signal program, such Compound shall be freely available for
use outside the Field by each of the Parties in accordance with the terms of
this Agreement.
(c) It is understood, and the Parties hereby acknowledge and
agree, that as Signal chemists develop structure-activity relationships from the
active analogues of [***] in the course of the Collaboration, Signal shall,
using its database management program, conduct sub-structure searches of the
Signal compound library for compounds to screen in the Collaboration, which may
include compounds made or acquired with financial support from Signal's existing
collaborative partners, as set forth on Schedule IV hereto. Any of these
compounds that are not active in such existing partners' assays shall be
evaluated in the Collaboration, regardless of whether such compounds were made
or acquired as part of such existing partners' programs.
(d) The mechanism by which Signal will deliver samples and
supplies of Compounds to Nippon Kayaku is described in Exhibit C hereto. Signal
will provide Nippon Kayaku with the experimental details to reproduce any and
all parts of the libraries provided under this Agreement.
2.5 ANIMAL MODELS. Studies in the Research with respect to animal models
in the Field shall be done in the U.S. and in Japan with the RMC's approval.
Signal shall be responsible for the conduct of any such studies done in the
U.S., and Nippon Kayaku shall be responsible for the conduct of any such studies
done in Japan. Costs of animal model studies conducted in the U.S. and in Japan
shall be shared equally by the Parties; provided, however, that, at Nippon
Kayaku's option and expense, Nippon Kayaku may conduct any such animal model
studies Signal does not agree to do.
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2.6 RESEARCH CONTRIBUTIONS.
(a) BY SIGNAL. Signal agrees to exert commercially reasonable and
diligent efforts to perform its obligations under the Research Plan. In the
performance of such work, Signal shall maintain and utilize scientific and other
staff (including consultants), laboratories, offices and other facilities
consistent with such undertaking. Nippon Kayaku understands that Signal has
engaged certain scientific collaborators and consultants to perform research
services relating to the Field, and that the efforts of such collaborators and
consultants relating to the Field shall be included within the Research to the
extent contemplated by the Research Plan. Subject to Nippon Kayaku's fulfillment
of its obligation to provide research funding as set forth in Section 4.1,
Signal agrees to commit an average of at least [***] FTEs to the Research
during the Research Term. Notwithstanding the foregoing, the Parties hereby
acknowledge that during the initial calendar quarter of the Research Term,
Signal may commit [***] FTEs to the Research.
(b) BY NIPPON KAYAKU. Nippon Kayaku agrees to exert commercially
reasonable and diligent efforts to perform its obligations under the Research
Plan. In the performance of such work, Nippon Kayaku shall maintain and utilize
scientific and other staff (including consultants), laboratories, offices and
other facilities consistent with such undertaking.
(c) COMMERCIALLY REASONABLE AND DILIGENT EFFORTS. As used herein,
the term "commercially reasonable and diligent efforts" will mean, unless the
Parties agree otherwise in writing, those efforts consistent with the exercise
of prudent scientific and business judgment, as applied to research activities
conducted with regard to other products of similar potential and market size. In
the event of any unanticipated and severe changes in regulatory affairs or
technical developments or in the event of extreme conditions or similar
unforeseen events with respect to the Research, the Parties agree to discuss
such changed circumstances and appropriate mechanisms to address them.
2.7 RESEARCH EXPENSES. All expenses of the Research shall be borne by
the Party incurring such expenses without contribution from or offset by the
other Party, unless otherwise agreed in writing by the Parties or expressly
provided herein.
2.8 VISITING SCIENTISTS. Nippon Kayaku may, at its option, send up to
[***] visiting scientists [***], each of whom must be
acceptable to Signal) to Signal's facilities in San Diego. Nippon Kayaku shall
be responsible for such scientists' salaries and living and other expenses, and
Signal shall provide laboratory space and supervision. Such scientists shall
sign Signal's standard form of Confidential Disclosure Agreement and shall work
exclusively on projects relating to the Research while at Signal's facilities.
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Signal shall give Nippon Kayaku's scientists full and correct
instructions necessary to avoid any loss, damage, death or injury, and Nippon
Kayaku shall cause such scientists to obey such instructions.
ARTICLE 3
DEVELOPMENT AND COMMERCIALIZATION PHASE OF COLLABORATION
3.1 CO-DEVELOPMENT AND COMMERCIALIZATION OF THE PRODUCTS IN THE FIELD.
(a) STRUCTURE. Within thirty (30) days following the date of any
Research Lead Notice pursuant to which the RMC has determined that a Compound
identified in the course of the Research is a Research Lead (the "Election
Period"), the Parties will meet to discuss whether to pursue the development of
such Research Lead jointly by entering into a joint venture arrangement through
the creation of a separate entity or otherwise sharing the expenses and profits
of the development and commercialization of Products based on such Research Lead
worldwide in the CNS Field and in the Rest of the World in the PNS Field (the
"Joint Commercialization Alternative"). If, during the Election Period, the
Parties agree to pursue the Joint Commercialization Alternative, the Parties
will negotiate in good faith the formal structure of such development and
commercialization arrangement pursuant to separate agreement or arrangement (a
"Joint Commercialization Agreement"), which shall include the principles set
forth in this Section 3.1 and in Exhibit D, within six (6) months following
delivery of the Research Lead Notice. A new six (6) month period will commence
upon the subsequent delivery of a Research Lead Notice with respect to a
different Research Lead or the substitution by the RMC or the Parties of one
Research Lead for another. Any such Joint Commercialization Agreement shall
specify the Parties' relative rights and responsibilities with respect to
continued pre-clinical development, clinical development, and marketing and
promotion rights, and shall include all appropriate licenses pursuant to Article
6 hereof.
(b) PROFITS, LOSSES AND OPERATING EXPENSES. The Joint
Commercialization Agreement shall reflect equal sharing by the Parties of
Profits and Losses and Operating Expenses for Products based on the applicable
Research Lead (except for Products developed and commercialized by Nippon Kayaku
pursuant to the license granted under Section 6.1(b)(i)); provided, however,
that in the event the Parties agree with respect to a particular country to some
other cost-sharing arrangement, Profits and Losses and Operating Expenses in
such country will be shared according to costs incurred.
Royalties and license fees payable by either Party (or any joint venture entity
formed by the Parties hereunder or under the Joint Commercialization Agreement
by the Parties) to Third Parties with respect to such Products shall be treated
as an expense. Under any
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such Joint Commercialization Agreement, the terms "Profits," "Losses" and
"Operating Expenses" would have the meanings given them in Exhibit D.
(c) CONTRACTING FOR SERVICES. Any such Joint Commercialization
Agreement would further contemplate contracting with each Party and/or their
Affiliates, or contracting with Third Parties, for services such as pre-clinical
and clinical development, clinical trials, regulatory affairs, manufacturing,
marketing, promotion, training, distribution and sales of Products. Any such
contracting shall be determined by the Parties on a Product-by-Product basis.
Each Party and its Affiliates shall provide any such service at cost plus a
commercially reasonable mark-up determined with reference to prevailing
standards in the industry for similar services.
(d) SUPPLY OF BULK DRUG SUBSTANCE AND DRUG PRODUCT. The Joint
Commercialization Agreement between the Parties shall, at Nippon Kayaku's
option, provide for Nippon Kayaku to supply bulk drug substance on a worldwide
basis for a percentage of Net Sales of Products on commercially reasonable terms
to be negotiated in good faith by the Parties. In anticipation of this supply
arrangement, Nippon Kayaku will provide compounds and formulations of Research
Leads for all pre-clinical and clinical studies (including toxicology studies)
at a price and on such other commercially reasonable terms to be negotiated in
good faith by the Parties, and Nippon Kayaku will ensure that its facilities
meet all GMP and GLP standards, maintain DMFs and comply with all regulatory
requirements necessary to obtain regulatory and marketing approvals. In the
event that Nippon Kayaku does not provide such bulk drug substance and such drug
product for all pre-clinical and clinical studies (including toxicology
studies), then the foregoing option to supply bulk drug substance on a worldwide
basis for a percentage of Net Sales of Products shall lapse and be of no further
force or effect.
(e) ADDITIONAL TERMS. The Joint Commercialization Agreement would
also provide for: (i) common Product brand names; (ii) common regulatory filings
and indications; (iii) common Product positioning and marketing plans; and (iv)
with respect to the development and commercialization of Products in the CNS
Field, an option to seek Third Party support for funding and/or expertise;
provided, however, that, notwithstanding any such Third Party support, Nippon
Kayaku shall have the right to develop and commercialize Products jointly with
any entity formed by the Parties hereunder or under the Joint Commercialization
Agreement in the CNS Field in Japan.
3.2 ROYALTY ALTERNATIVE IN THE FIELD. In the event that, during the
Election Period, one Party (the "non-participating Party") elects not to
participate in the development and commercialization of Products, then the other
Party, if it elects to proceed with development and commercialization of
Products in the Field (the "Royalty Alternative"), shall be solely responsible
for the costs of development and commercialization and shall pay to the
non-participating Party a royalty of [***] of Net Sales of
Products by such Commercializing Party (as defined below) or its Affiliates or
sublicensees. In addition, in the event that the Parties have entered into a
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Joint Commercialization Agreement, either Party may thereafter at any time elect
by written notice to the other Party to convert to the Royalty Alternative in a
particular country and receive the royalty described in the preceding sentence
with respect to Net Sales of Products in such country.
ARTICLE 4
PAYMENTS
4.1 FUNDING FOR RESEARCH. Nippon Kayaku agrees to fund the Research at
Signal over a two (2) year period in the aggregate amount of [***] for
(a) the costs and expenses for Signal's committing an average of at least
[***] to the Research, (b) any supervision provided by Signal relating to the
Research to the visiting scientists of Nippon Kayaku and (c) the use of Signal's
facilities by such visiting scientists of Nippon Kayaku for the purposes of
Research. Such amount shall be payable in advance in two (2) installments of
[***] within one (1) week following each of the Effective Date and the
first anniversary of the Effective Date.
4.2 NIPPON KAYAKU ROYALTIES ON SALES OF PRODUCTS IN THE PNS FIELD IN
JAPAN. In consideration of the license granted to Nippon Kayaku pursuant to
Section 6.1(b)(i), Nippon Kayaku shall pay to Signal a royalty of [***] of Net
Sales of Products by Nippon Kayaku, its Affiliates or sublicensees of Products
in the PNS Field in Japan.
4.3 ROYALTIES ON SALES OF PRODUCTS OUTSIDE THE FIELD.
(a) In consideration of the license granted to Signal under
Section 6.2.1(a), Signal shall pay to Nippon Kayaku a royalty of [***]
of Net Sales of Products by Signal, its Affiliates or sublicensees outside
the Field plus any pass-through royalties.
(b) In consideration of the license granted to Nippon Kayaku
under Section 6.2.1(b), Nippon Kayaku shall pay to Signal, a royalty of
[***] of Net Sales of Products by Nippon Kayaku, its Affiliates or
sublicensees outside the Field plus any pass through royalties.
4.4 ROYALTIES ON SALES OF OTHER PRODUCTS IN THE FIELD
(a) In consideration of the license granted to Signal under
Section 6.2.2(a), Signal shall pay to Nippon Kayaku a royalty of [***]
of Net Sales of Other Products by Signal, its Affiliates or sublicensees in
the Field plus any pass-through royalties.
(b) In consideration of the license granted to Nippon Kayaku
under Section 6.2.2(b), Nippon Kayaku shall pay to Signal, a royalty of [***]
of Net
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Sales of Other Products by Nippon Kayaku, its Affiliates or sublicensees in the
Field plus any pass through royalties.
4.5 ROYALTIES ON SALES OF OTHER PRODUCTS OUTSIDE THE FIELD.
(a) In consideration of the license granted to Signal under
Section 6.2.3(a), Signal shall pay to Nippon Kayaku a royalty of [***]
of Net Sales of Other Products by Signal, its Affiliates or sublicensees
outside the Field plus any pass-through royalties.
(b) In consideration of the license granted to Nippon Kayaku
under Section 6.2.3(b), Nippon Kayaku shall pay to Signal, a royalty of
[***] of Net Sales of Other Products by Nippon Kayaku, its Affiliates or
sublicensees outside the Field plus any pass through royalties.
4.6 ROYALTIES UNDER ROYALTY ALTERNATIVE. In the event of election of the
Royalty Alternative by a Party pursuant to Section 3.2, the Commercializing
Party shall pay to the non-participating Party the royalty specified in Section
3.2.
ARTICLE 5
ROYALTY OBLIGATIONS
5.1 ROYALTIES FOR SALES OF PRODUCTS OR OTHER PRODUCTS. Any royalty
obligations of a Party (the "Commercializing Party") shall be subject to the
provisions of this Article 4.
5.2 FOREIGN EXCHANGE. All amounts payable hereunder shall be paid in
U.S. dollars. The remittance of royalties payable on Net Sales of Products or
Net Sales of Other Products will be payable in U.S. dollars to the Party
entitled to receive the royalty hereunder (the "Receiving Party") at a bank and
to an account designated by the Receiving Party using the selling rate of
exchange for the currency of the country from which the royalties are payable as
published by the Wall Street Journal, New York, NY, USA, for the last business
day of the quarterly period for which the royalties are due.
5.3 BLOCKED CURRENCY. In each country where the local currency is
blocked and cannot be removed from the country, at the election of the
Commercializing Party, royalties accrued in that country shall be paid to the
Receiving Party in the country in local currency by deposit in a local bank
designated by the Receiving Party.
5.4 TAXES. The Receiving Party shall pay any and all taxes levied on
account of such payments it receives under this Agreement. If laws or
regulations require that taxes be withheld, the Commercializing Party will (i)
deduct those taxes from the remittable payment, (ii) timely pay the taxes to the
proper taxing authority, and (iii) send
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proof of payment to the Receiving Party and certify its receipt by the tax
authorities within sixty (60) days following that payment.
5.5 PAYMENT. Royalty payments under this Agreement shall be made to the
Receiving Party or its designee quarterly within sixty (60) days following the
end of each calendar quarter for which royalties are due from the
Commercializing Party. Each royalty payment shall be accompanied by a report
summarizing the Net Sales of Products or Net Sales of Other Products during the
relevant three-month period.
5.6 DURATION. The Commercializing Party shall pay royalties hereunder,
on a country by country basis, until the later of: (i) the last to expire Signal
Patent or Collaboration Patent (if Nippon Kayaku is the Commercializing Party)
or Nippon Kayaku Patent or Collaboration Patent (if Signal is the
Commercializing Party), a Valid Claim of which covers the manufacture, use or
sale of such Product or Other Product in such country, or (ii) the date ten (10)
years after the date of first commercial sale of such Product or Other Product
in such country by the Party, its Affiliates, or sublicensees; provided,
however, that all royalty obligations of the Parties shall cease thirty (30)
years after the Effective Date.
5.7 ACCOUNTING. The Commercializing Party shall maintain complete and
accurate records, consistent with its general internal recordkeeping policies,
which are relevant to costs, expenses and payments under this Agreement and
shall make its internal sales ledgers for sales of Products or Other Products
upon which royalties are payable available during reasonable business hours for
a period of five (5) years from creation of individual records for examination
of any one calendar year's records at the other Party's expense and not more
often than once every two (2) years by a certified public accountant selected by
the other Party and reasonably acceptable to the Commercializing Party, audited
for the sole purpose of verifying for the inspecting Party the correctness of
calculations of such costs, expenses or payments made under this Agreement. If
any such audit fails to identify material underpayments (in excess of five
percent (5%) of the amounts that should have been paid) by the Commercializing
Party for any calendar year audited, the out-of-pocket expenses of both Parties
in such audit shall be borne by the Party requesting the audit. If any such
material discrepancies are identified by any such audit for any calendar year
audited, the Commercializing Party shall reimburse the Party requesting the
audit for such discrepancies and shall bear the out-of-pocket expenses of both
Parties in such audit. Any records or accounting information received from the
other Party shall be Confidential Information for purposes of Article 7.
5.8 SALES BY SUBLICENSEES. In the event the Commercializing Party grants
licenses or sublicenses to Third Parties to make, use and sell a Product or
Other Product with respect to which a royalty payment is due hereunder, and the
Commercializing Party is not otherwise supplying any Product or Other Product to
such licensee or sublicensee, such licenses or sublicenses shall include an
obligation for the licensee or sublicensee to
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account for and report its Net Sales of such Products or Net Sales of such Other
Products on the same basis as if such sales were Net Sales of such Products or
Net Sales of such Other Products by the Party granting the license or
sublicense, and such Party shall account for, report and pay appropriate
royalties to the Party receiving royalties under this Agreement as if the Net
Sales of such Products or Net Sales of such Other Products of the sublicensee
were Net Sales of such Products or Net Sales of such Other Products of the Party
granting the license or sublicense (regardless of whether such Party has
actually received payment from the party to whom it granted such license or
sublicense), subject to the provisions of Section 5.3 above regarding blocked
currency payments.
ARTICLE 6
LICENSE GRANTS
6.1 LICENSES DURING COLLABORATION.
(a) RESEARCH TERM LICENSES.
(i) Signal grants to Nippon Kayaku an exclusive, except as
to Signal, royalty-free, worldwide license to make and use methods and materials
solely to carry out the Research for the discovery, identification and
investigation of Compounds in the Field, with the right to grant sublicenses to
Affiliates only (except as agreed by the Parties in writing), under Signal
Patents, Signal Know-How, Collaboration Patents and Collaboration Know-How,
during the Research Term.
(ii) Nippon Kayaku grants to Signal an exclusive, except
as to Nippon Kayaku, royalty-free, worldwide license to make and use methods and
materials solely to carry out the Research for the discovery, identification and
investigation of Compounds in the Field, with the right to grant sublicenses to
Affiliates only (except as agreed by the Parties in writing), under Nippon
Kayaku Patents, Nippon Kayaku Know-How, Collaboration Patents and Collaboration
Know-How, during the Research Term.
(b) LICENSES IN THE PNS FIELD.
(i) Signal shall and hereby does grant to Nippon Kayaku an
exclusive (even as to Signal), royalty-bearing license, with the right to grant
sublicenses, under Signal Patents, Signal Know-How, Collaboration Patents and
Collaboration Know-How to make, have made, use and sell Products in the PNS
Field solely in Japan.
(ii) In the event of the election of the Joint
Commercialization Alternative, effective upon execution or consummation by the
Parties of a definitive Joint Commercialization Agreement, Signal shall and
hereby does grant to Nippon Kayaku or to the joint venture (in the event that a
separate joint venture entity is formed), such licenses under Signal Patents,
Signal Know-How, Collaboration Patents and
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Collaboration Know-How, and Nippon Kayaku shall and does hereby grant to Signal
or to the joint venture (in the event that a separate joint venture entity is
formed) such licenses under the Nippon Kayaku Patents, Nippon Kayaku Know-How,
Collaboration Patents and Collaboration Know-How, as are necessary or useful to
make, have made, use, sell and import Products in the PNS Field in the Rest of
the World in the manner agreed to by the Parties under the Joint
Commercialization Agreement.
(iii) In the event of election of the Royalty Alternative,
the non-participating Party shall and hereby does grant to the Commercializing
Party an exclusive (even as to the non-participating Party) license, with the
right to grant sublicenses, under non-participating Party Patents,
non-participating Party Know-How, Collaboration Patents and Collaboration
Know-How to make, have made, use, sell and import Products in the PNS Field in
those countries in the Rest of the World as to which the Royalty Alternative
applies.
(c) LICENSES IN THE CNS FIELD.
(i) In the event of the election of the Joint
Commercialization Alternative, effective upon execution or consummation by the
Parties of a definitive Joint Commercialization Agreement, Signal shall and
hereby does grant to Nippon Kayaku or to the joint venture (in the event that a
separate joint venture entity is formed), such licenses under Signal Patents,
Signal Know-How, Collaboration Patents and Collaboration Know-How, and Nippon
Kayaku shall and does hereby grant to Signal or to the joint venture (in the
event that a separate joint venture entity is formed) such licenses under the
Nippon Kayaku Patents, Nippon Kayaku Know-How, Collaboration Patents and
Collaboration Know-How, as are necessary or useful to make, have made, use, sell
and import Products in the CNS Field in the manner agreed to by the Parties
under the Joint Commercialization Agreement.
(ii) In the event of election of the Royalty Alternative,
the non-participating Party shall and hereby does grant to the Commercializing
Party an-exclusive (even as to the non-participating Party) license, with the
right to grant sublicenses, under non-participating Party Patents,
non-participating Party Know-How, Collaboration Patents and Collaboration
Know-How to make, have made, use, sell and import Products in the CNS Field in
those countries as to which the Royalty Alternative applies.
The licenses granted pursuant to subsections (b)(ii) and (c)(i) above shall be
subject to the obligation of the Parties to share Profits and Losses and
Operating Expenses in accordance with Section 3.1 above and shall not be
royalty-bearing.
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6.2 COMMERCIALIZATION LICENSES.
6.2.1 PRODUCTS OUTSIDE THE FIELD.
(a) Nippon Kayaku shall and hereby does grant to Signal a
co-exclusive (with Nippon Kayaku), worldwide, royalty-bearing license, with the
right to grant sublicenses, under Nippon Kayaku Patents, Nippon Kayaku Know-How,
Collaboration Patents and Collaboration Know-How to make, have made, use and
sell Products outside the Field, subject to the Parties' rights and obligations
under Section 4.3; and
(b) Signal shall and hereby does grant to Nippon Kayaku a
co-exclusive (with Signal), worldwide, royalty-bearing license, with the right
to grant sublicenses, under Signal Patents, Signal Know-How, Collaboration
Patents and Collaboration Know-How to make, have made, use and sell Products
outside the Field, subject to the Parties' rights and obligations under Section
4.3.
Promptly following the effectiveness of such license grants, each Party shall
deliver to the other Party copies of all confidential information and materials
relating to the applicable Patents and Know-How to enable such other Party to
fully utilize the license rights granted hereunder.
6.2.2 OTHER PRODUCTS IN THE FIELD.
Effective upon expiration of the Research Term:
(a) Nippon Kayaku shall and hereby does grant to Signal a
co-exclusive (with Nippon Kayaku), worldwide, royalty-bearing license, with the
right to grant sublicenses, under Nippon Kayaku Patents, Nippon Kayaku Know-How,
Collaboration Patents and Collaboration Know-How to make, have made, use and
sell Other Products in the Field, subject to the Parties' rights and obligations
under Section 4.4; and
(b) Signal shall and hereby does grant to Nippon Kayaku a
co-exclusive (with Signal), worldwide, royalty-bearing license, with the right
to grant sublicenses, under Signal Patents, Signal Know-How, Collaboration
Patents and Collaboration Know-How to make, have made, use and sell Other
Products in the Field, subject to the Parties' rights and obligations under
Section 4.4.
6.2.3 OTHER PRODUCTS OUTSIDE THE FIELD.
Effective upon expiration of the Research Term:
(a) Nippon Kayaku shall and hereby does grant to Signal a
co-exclusive (with Nippon Kayaku), worldwide, royalty-bearing license, with the
right to grant sublicenses, under Nippon Kayaku Patents, Nippon Kayaku Know-How,
Collaboration
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Patents and Collaboration Know-How to make, have made, use and sell Other
Products outside the Field, subject to the Parties' rights and obligations under
Section 4.5; and
(b) Signal shall and hereby does grant to Nippon Kayaku a
co-exclusive (with Signal), worldwide, royalty-bearing license, with the right
to grant sublicenses, under Signal Patents, Signal Know-How, Collaboration
Patents and Collaboration Know-How to make, have made, use and sell Other
Products outside the Field, subject to the Parties' rights and obligations under
Section 4.5.
6.3 SUBLICENSES. Each Party shall notify any permitted sublicensee
hereunder of all rights and obligations of such Party under this Agreement
licensed to such sublicensee. Upon termination of this Agreement for breach
pursuant to Section 10.2, no existing sublicenses granted by the defaulting or
terminating Party shall be affected by such termination, and all such
sublicenses shall remain in effect according to their terms as sublicenses of
the non-defaulting Party.
ARTICLE 7
CONFIDENTIALITY; PUBLICATIONS
7.1 CONFIDENTIALITY; EXCEPTIONS.
(a) NONDISCLOSURE. Except to the extent expressly authorized by
this Agreement or otherwise agreed in writing, the Parties agree that, during
the term of this Agreement and a ten (10) year period thereafter, the receiving
Party shall keep confidential and shall not publish or otherwise disclose or use
for any purpose, other than as provided for in this Agreement, any Know-How,
information included in any pending application included in the applicable
Patents or other materials furnished to it by the other Party pursuant to this
Agreement or developed or acquired in connection with the Collaboration
(collectively, "Confidential Information").
(b) EXCEPTIONS. The restrictions under this Section 7.1 shall not
apply to the extent that it can be established by the receiving Party that such
Confidential Information:
(i) was already known to the receiving Party, other than
under an obligation of confidentiality, at the time of disclosure by the other
Party;
(ii) was generally available to the public or otherwise
part of the public domain at the time of its disclosure to the receiving Party;
(iii) becomes generally available to the public or
otherwise part of the public domain after its disclosure and other than through
any act or omission of the receiving Party in breach of this Agreement; or
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(iv) is lawfully received by the receiving Party from a
Third Party who does not acquire it, directly or indirectly, from the other
Party under an obligation of confidence after its disclosure.
7.2 AUTHORIZED DISCLOSURE. Each Party may disclose Confidential
Information hereunder to the extent such disclosure is reasonably necessary in
filing or prosecuting patent applications, prosecuting or defending litigation,
complying with applicable governmental regulations or conducting pre-clinical or
clinical trials, provided that a Party making any such disclosure will give
prompt notice to the other Party of such disclosure requirement and, except to
the extent inappropriate in the case of patent applications, will use its
reasonable efforts to secure confidential treatment of such Confidential
Information required to be disclosed and to minimize the extent of such
disclosure. Each Party also may disclose to its collaborators for the
Collaboration, under confidentiality obligations, Confidential Information
developed by such Party during the course of this Collaboration.
7.3 PUBLICATIONS. Either Party may publish or present the results of the
Research subject to the prior review by the other Party for patentability and
protection of Confidential Information. Each party (the "submitting Party")
shall provide to the other the opportunity to review any proposed abstract,
manuscript or presentation which covers the results of the Research by
delivering a copy thereof to the other Party (the "reviewing Party") no less
than forty-five (45) days before its intended submission for publication or
presentation. The reviewing Party shall have thirty (30) days from its receipt
of any such abstract, manuscript or presentation in which to notify the
submitting Party in writing of any specific concern, based upon either the need
to seek patent protection or concern regarding competitive disadvantage arising
from the proposal. In the absence of such a notice within such thirty (30) day
period, the publication or presentation of such abstract, manuscript or
presentation shall be deemed approved by the reviewing Party. In the event of
concern, the submitting Party agrees not to submit such publication or to make
such presentation that contains such Confidential Information until the
reviewing Party is given a reasonable period of time (not to exceed forty-five
(45) days) to seek patent protection for any material in such publication or
presentation which it believes is patentable or to resolve any other issues.
Each Party also agrees to delete from any such proposed publication any
Confidential Information of the other Party upon its reasonable request based
upon the commercial value of the secrecy of such Confidential Information.
7.4 PUBLIC DISCLOSURE. The Parties shall agree to the public
announcement of the execution of this Agreement excluding provisions relating to
economical conditions; provided, however, that the Parties shall negotiate the
contents of the public announcement with each other and decide on them prior to
the public announcement. Thereafter, the Parties shall consult and agree with
each other prior to the issuances of any press releases that discuss aspects of
the Collaboration; provided, however, that each
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Party shall be entitled to make public disclosures required by law, including
compliance with securities laws.
ARTICLE 8
OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS
8.1 OWNERSHIP OF COLLABORATION PATENTS; NIPPON KAYAKU PATENTS; SIGNAL
PATENTS. Nippon Kayaku and Signal shall be joint owners of all Collaboration
Patents with all ownership rights under such Collaboration Patents as fully
entitled by law, subject only to the licenses expressly granted herein. The
Parties agree to take all such actions, including execution of all documents,
necessary or appropriate so that the Collaboration Patents shall be owned
jointly by Nippon Kayaku and Signal. Nippon Kayaku shall retain all right, title
and interest in and to any Nippon Kayaku Patents, subject only to the licenses
expressly granted herein. Signal shall retain all right, title and interest in
and to any Signal Patents, subject only to the licenses expressly granted
herein. Each Party acknowledges and agrees, subject to the first sentence of
this Section 8.1, that any and all discoveries, know-how, inventions, methods
and ideas and the like made or discovered solely by its officers, employees,
consultants or agents shall be owned solely by it and that any and all
discoveries, know-how, inventions, methods, ideas and the like made jointly by
officers, employees, consultants or agents of each will be jointly owned, as
determined in accordance with the rules of inventorship under United States
patent law.
8.2 PATENT FILINGS.
(a) NIPPON KAYAKU PATENTS. Nippon Kayaku shall supervise and
direct patenting of all inventions covered by any Nippon Kayaku Patents, and
shall file and prosecute all patent applications covering any Nippon Kayaku
Patents. All Patent Costs and Nippon Kayaku's internal costs and expenses of
filing, prosecuting and maintaining the Nippon Kayaku Patents shall be borne by
Nippon Kayaku. Nippon Kayaku shall maintain all Patents that issue on such
applications.
(b) SIGNAL PATENTS. Signal shall supervise and direct patenting
of all inventions covered by any Signal Patents, and shall file and prosecute
all patent applications covering any Signal Patents. All Patent Costs and
Signal's internal costs and expenses of filing, prosecuting and maintaining the
Signal Patents shall be borne by Signal. Signal shall maintain all Patents that
issue on such applications.
(c) COLLABORATION PATENTS. The responsibility for the
preparation, filing, prosecution and maintenance of Collaboration Patents will
be administered through a Patent Committee comprised of two (2) members: one (1)
appointed by Signal and one (1) appointed by Nippon Kayaku. The Parties intend
that:
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(i) The Patent Committee shall meet together at such site
and timing or conduct discussion by means of telephone calls, by letter, by
telefax or by E-mail at such site and means, as may be agreed by the Parties.
Each Party shall pay its own costs in attending Patent Committee meetings. The
Patent Committee shall provide reports to the RMC on a semi-annual basis of the
status of the Collaboration Patents. Either Party may refer any dispute to the
appropriate officers of the Parties for consideration and resolution pursuant to
Article 12;
(ii) Unless otherwise determined by the Patent Committee,
the supervision and direction of patenting of all inventions covered by the
Collaboration Patents, and filing and prosecution of all patent applications
covering Collaboration Patents, shall be the responsibility of Signal in the
United States and shall be the responsibility of Nippon Kayaku in Japan; and
(iii) The Parties shall share equally the Patent Costs of
preparing, filing, prosecuting and maintaining the Collaboration Patents and
shall each bear their own internal costs and expenses of filing, prosecuting and
maintaining the Collaboration Patents.
(d) COOPERATION. Each Party agrees to cooperate with the Party
responsible for the filing, prosecution and maintenance of Patents. Such
cooperation will include the execution of all documents necessary or appropriate
for such responsible Party to fulfill its obligations hereunder.
(e) RESTRICTIONS ON TRANSFER. No Collaboration Patents shall be
assigned, transferred or licensed by a Party to any Third Party without the
prior written consent of the other Party; provided, however, that a Party may,
without the consent of the other Party, grant sublicenses under Section 6.2.2 or
6.2.3.
(f) ELECTION NOT TO PURSUE. If a Party decides, at any time, not
to file or maintain any Patent as provided hereunder, it shall give the other
Party notice to this effect and upon such notice such other Party shall have the
right, but not the obligation, to file and maintain such Patent, in its own name
and at its own expense, and, if it so elects to file and maintain, then the
Party deciding not to so file or maintain shall assign to such other Party the
rights in such Patent.
8.3 ENFORCEMENT RIGHTS.
(a) DEFENSE AND SETTLEMENT OF THIRD PARTY CLAIMS. If a Third
Party asserts that a Patent or other right owned by it is infringed by the
manufacture, use or sale of any pharmaceutical product subject to any of the
licenses granted under Article 6 during the term of this Agreement, the Party
commercializing such product shall control the defense of such claim at its
initial cost and expense; provided, however, that in the event that such matter
includes claims with respect to the Collaboration Patents or
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Collaboration Know-How, the RMC (or, if after the Research Term, the Parties
mutually) shall determine how to respond to such claim, and shall control the
defense of such claim, with the initial cost and expense of such defense to be
shared equally by the Parties. No settlement shall be entered into without the
prior written consent of the Party commercializing any such product if such
settlement would adversely affect its interests, which consent shall not be
unreasonably withheld.
(b) INFRINGEMENT BY THIRD PARTIES WITH RESPECT TO PRODUCTS DURING
RESEARCH TERM. If any Signal Patent, Nippon Kayaku Patent or Collaboration
Patent is infringed by a Third Party in any country in connection with the
manufacture, use and sale of any pharmaceutical product subject to any of the
licenses granted under Article 6 in such country during the Research Term, the
Party to this Agreement first having knowledge of such infringement shall
promptly notify the other in writing. The notice shall set forth the facts of
that infringement in reasonable detail. In the event a Collaboration Patent is
infringed by a Third Party, the RMC shall control any action or proceeding with
respect to such infringement, at its expense by counsel of its choice, and the
Parties shall share equally in the costs thereof. In the case of Signal Patents
or Nippon Kayaku Patents, the Party owning or Controlling such Patent shall have
the primary right, but not the obligation, to institute, prosecute, and control
any action or proceeding with respect to such infringement, by counsel of its
own choice, and the other Party shall have the right, at its own expense, to be
represented in any action involving any such Patent by counsel of its own
choice. If the Party owning or Controlling such Patent fails to bring an action
or proceeding within a period of sixty (60) days after having knowledge of
infringement of such Patent and such infringement would have a commercially
significant adverse effect on such products, the other Party shall have the
right to bring and control any such action by counsel of its own choice, and the
first Party shall have the right to be represented in any such action by counsel
of its own choice at its own expense. If one Party brings any such action or
proceeding, the other Party agrees to be joined as a Party plaintiff if
necessary to prosecute the action and to give the first Party reasonable
assistance and authority to file and prosecute the suit.
(c) INFRINGEMENT BY THIRD PARTIES WITH RESPECT TO PRODUCTS AFTER
RESEARCH TERM. If any Signal Patent, Nippon Kayaku Patent or Collaboration
Patent is infringed by a Third Party in any country in connection with the
manufacture, use or sale of any pharmaceutical product subject to this Agreement
in such country following the Research Term and prior to any termination of the
Collaboration, the Party to this Agreement first having knowledge of such
infringement shall promptly notify the other in writing. The notice shall set
forth the facts of that infringement in reasonable detail. In the event that the
Parties have entered into a Joint Commercialization Agreement, infringement
matters shall be handled in the manner specified in such Agreement. Otherwise,
the Commercializing Party shall have the primary right, but not the obligation,
to institute, prosecute, and control any action or proceeding with respect to
such infringement of any Signal Patent, Nippon Kayaku Patent or Collaboration
Patent,
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by counsel of its own choice, and the other Party shall have the right, at its
own expense, to be represented in any action involving any of its Patents or any
Collaboration Patent by counsel of its own choice. If the Commercializing Party
fails to bring an action or proceeding within a period of sixty (60) days after
having knowledge of infringement of such Patent and such infringement would have
a commercially significant adverse effect on such products, the other Party
shall have the right to bring and control any such action by counsel of its own
choice, and the Commercializing Party shall have the right to be represented in
any such action by counsel of its own choice at its own expense. If one Party
brings any such action or proceeding, the other Party agrees to be joined as a
party plaintiff if necessary to prosecute the action and to give the first Party
reasonable assistance and authority to file and prosecute the suit.
(d) MONETARY AWARDS. Any damages or other monetary awards
recovered shall be allocated first, to the costs and expenses of the Party
bringing suit, and the costs and expenses, if any, of the other Party. Any
amounts remaining shall be allocated as follows: (i) in accordance with the
allocation of Profits and Losses if the Parties have entered into a Joint
Commercialization Agreement, or (ii) to the Party bringing the suit, which
amounts shall be treated as Net Sales of Products or Net Sales of Other Products
subject to the applicable royalty obligations set forth in this Agreement. A
settlement or consent judgment or other voluntary final disposition of a suit
under Sections 8.4(b) or (c) may not be entered into without the prior written
consent of the Party not bringing the suit.
(e) INFRINGEMENT OF COLLABORATION PATENTS OUTSIDE THE FIELD. With
respect to infringement of the Collaboration Patents outside the Field, the
Parties shall consult with each other regarding the institution, prosecution and
control of any action or proceeding with respect to the infringement of any of
the Collaboration Patents. In the absence of agreement, each Party may proceed
in such manner as the law permits. Each Party shall bear its own expenses, with
any recovery allocated pro rata according to costs and any excess shared equally
by the Parties.
ARTICLE 9
REPRESENTATIONS AND WARRANTIES; EXCLUSIVITY
9.1 REPRESENTATIONS AND WARRANTIES. Each of the Parties hereby
represents and warrants and covenants as follows:
(a) BINDING OBLIGATION. This Agreement is legally and validly
binding upon each Party and enforceable in accordance with its terms. The
execution, delivery and performance of the Agreement by each Party does not
conflict with any agreement, instrument or understanding, oral or written, to
which it is a party or by which it is bound, nor violate any law or regulation
of any court, governmental body or administrative or other agency having
jurisdiction over it.
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(b) NO CONFLICTING GRANTS. Except as set forth in Section 2.4(b)
and Schedule IV hereto, each Party has not granted, and during the term of the
Agreement will not grant, any right to any Third Party relating to its
respective technology including Know-How and Patents in the Field which would
conflict with the rights granted to the other Party hereunder.
(c) VALID LICENSE. Each Party owns or Controls under valid
licenses with right of sublicense all of the rights, title and interest in and
to its Know-How. Each Party warrants that to the best of its knowledge, except
as otherwise disclosed, no license, sublicense or any of its Patents for which
the other Party is granted rights hereunder is invalid as of the Effective Date
and each Party will inform the other Party immediately if it makes any
determination to the contrary.
(d) NO THIRD PARTY LICENSES NEEDED. Neither Party is currently
aware of any license from any Third Party (other than any license such Party has
previously obtained) necessary to enable the Parties to conduct the Research
contemplated by the Research Plan or commercialize the pharmaceutical products
contemplated by this Agreement.
9.2 LIMITATION ON WARRANTIES. Nothing herein shall be construed as a
representation or warranty by either Party to the other that any Patent or
Know-How or other intellectual property right owned or Controlled by such Party
is valid, enforceable, or not infringed by any Third Party, or that the practice
of such rights does not infringe any property right of any Third Party. Neither
Party makes any warranties, express or implied, concerning the success of the
Research, or the commercial utility of Research Leads or any pharmaceutical
products developed or commercialized hereunder.
EXCEPT AS EXPRESSLY MADE HEREIN, EACH PARTY DISCLAIMS ANY WARRANTY, EXPRESS OR
IMPLIED, INCLUDING ANY WARRANTY OF NONINFRINGEMENT, MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE, OF ANY PRODUCT, OR ANY REPRESENTATION OR WARRANTY THAT
A PRODUCT ENCOMPASSED BY THE RIGHTS LICENSED HEREUNDER WILL NOT INFRINGE ANY
THIRD PARTY'S INTELLECTUAL PROPERTY RIGHTS.
9.3 NEGATIVE COVENANTS. Each Party hereby covenants to the other that
such Party shall not use or practice the other Party's Patents or Know-How in
any field or in any manner except as specifically licensed under this Agreement.
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ARTICLE 10
TERM AND TERMINATION
10.1 TERM. This Agreement shall commence as of the Effective Date and,
unless sooner terminated as provided herein, shall continue in effect until the
later of (i) the conclusion of the Collaboration between the Parties or (ii) the
date on which all royalty obligations of the Parties cease pursuant to Section
5.6.
10.2 TERMINATION FOR BREACH.
(a) BREACH BY SIGNAL. If Signal materially breaches this
Agreement at any time, and has not cured such breach within ninety (90) days
after written notice thereof from Nippon Kayaku, then Nippon Kayaku shall have
the right to terminate this Agreement effective upon written notice thereof,
whereupon (i) all licenses granted by Nippon Kayaku to Signal hereunder shall
terminate and revert to Nippon Kayaku, (ii) all licenses granted to Nippon
Kayaku shall remain in full force and effect so long as Nippon Kayaku is not in
breach of its obligations to Signal under this Agreement and (iii) Signal shall
return to Nippon Kayaku all Confidential Information of Nippon Kayaku.
(b) BREACH BY NIPPON KAYAKU. If Nippon Kayaku materially breaches
this Agreement, at any time, and has not cured such breach within ninety (90)
days after written notice thereof from Signal, then Signal shall have the right
to terminate this Agreement effective upon written notice thereof, whereupon (i)
all licenses granted by Signal to Nippon Kayaku hereunder shall terminate and
revert to Signal, (ii) all licenses granted to Signal shall remain in full force
and effect so long as Signal is not in breach of its obligations to Nippon
Kayaku under this Agreement and (iii) Nippon Kayaku shall return to Signal all
Confidential Information of Signal.
10.3 TERMINATION FOR BANKRUPTCY. Either Party hereto shall have the
right to terminate this Agreement forthwith by written notice to the other Party
(i) if the other Party is declared insolvent or bankrupt by a court of competent
jurisdiction, (ii) if a voluntary or involuntary petition in bankruptcy is filed
in any court of competent jurisdiction against the other Party, or (iii) if the
other Party shall make or execute an assignment for the benefit of creditors.
10.4 SURVIVING RIGHTS. In addition to the rights described in Section
10.2, the obligations and rights of the Parties under Sections 6.3, 8.1, 8.2(c),
8.2(d), 10.4, 10.5, 10.6, 11.1 and 11.2 and Articles 5, 7, 12 and 13 shall
survive termination or expiration of this Agreement.
10.5 ACCRUED RIGHTS, SURVIVING. Termination or expiration of the
Agreement for any reason shall be without prejudice to any rights which shall
have accrued to the benefit of either Party prior to such termination or
expiration, including, without
25.
<PAGE> 31
limitation, any payment obligations of the Parties and any and all damages
arising from any breach hereunder. Such termination or expiration shall not
relieve either Party from obligations which are expressly indicated to survive
termination or expiration of the Agreement.
10.6 TERMINATION NOT SOLE REMEDY. Termination is not the sole remedy
under this Agreement and, whether or not termination is effected, all other
remedies will remain available except as agreed to otherwise herein.
ARTICLE 11
INDEMNIFICATION; INSURANCE
11.1 RESEARCH AND DEVELOPMENT INDEMNIFICATION. Each Party (the
"Indemnifying Party") shall indemnify, defend and hold the other Party (the
"Indemnified Party") harmless from and against any and all suits, judgments,
damages, claims, actions, demands, liabilities, expenses and/or losses,
including reasonable legal expenses and attorneys' fees ("Losses"):
(a) arising out of (i) any injuries to person and/or damage to
property resulting from negligent acts of the Indemnifying Party performed in
carrying out the Research hereunder, including failure by the Indemnifying Party
to provide the Indemnified Party with any Know-How of the Indemnifying Party
which, if timely received, would have avoided injury, death or damage, provided
such failure to provide such Know-How is due to negligence on the part of the
Indemnifying Party, or (ii) personal injury to the Indemnified Party's employees
or agents or damage to the Indemnified Party's property resulting from acts
performed by, under the direction of, or at the request of the Indemnifying
Party (other than acts otherwise required to be performed by the Indemnified
Party by this Agreement) in carrying out activities contemplated by this
Agreement; or
(b) with respect to pharmaceutical products covered by this
Agreement (determined on a country-by-country basis), resulting directly from
the manufacture, use, handling, storage, sale or other disposition of chemical
agents or such products by the Indemnifying Party, its Affiliates, agents or
sublicensees, except to the extent such Losses result directly from the
negligence of the Indemnified Party, its Affiliates, agents or sublicensees.
11.2 INDEMNIFICATION PROCEDURES. In the event that Indemnified Party is
seeking indemnification under Section 11.1, it shall inform the Indemnifying
Party of a claim as soon as reasonably practicable after it receives notice of
the claim, shall permit the Indemnifying Party to assume direction and control
of the defense of the claim (including the right to settle the claim solely for
monetary consideration), and shall
26.
<PAGE> 32
cooperate as requested (at the expense of the Indemnifying Party) in the defense
of the claim.
11.3 INSURANCE. The Parties will work with one another to coordinate
appropriate insurance coverage for the activities contemplated by the Parties
under this Agreement.
ARTICLE 12
DISPUTE RESOLUTION
12.1 DISPUTES. The Parties recognize that disputes as to certain matters
may from time to time arise which relate to either Party's rights and/or
obligations hereunder. It is the objective of the Parties to establish
procedures to facilitate the resolution of such disputes in an expedient manner
by mutual cooperation and without resort to litigation. To accomplish this
objective, the Parties agree to follow the procedures set forth in this Article
12 if and when such a dispute arises between the Parties.
12.2 DISPUTE RESOLUTION PROCEDURES.
(a) If the Parties or the RMC cannot resolve the dispute within
twenty (20) days of formal request by either Party to the other, any Party may,
by written notice to the other (the "Dispute Notice"), have such dispute
referred to their respective officers designated below or their successors, for
attempted resolution by good faith negotiations within thirty (30) days after
such notice is received. Said designated officers are as follows:
<TABLE>
<S> <C>
For Nippon Kayaku: Head, Research & Development Division
Pharmaceuticals Group
For Signal: Chief Executive Officer
</TABLE>
(b) Any such dispute arising out of or relating to this Agreement
which is not resolved between the Parties or the designated officers of the
Parties pursuant to the foregoing shall be resolved by final and binding
arbitration conducted in Honolulu, Hawaii, USA under the current Licensing
Agreement Arbitration Rules of the American Arbitration Association ("AAA");
provided, however, that depositions shall be permitted as follows: each Party
may take no more than seven (7) depositions with a maximum of six (6) hours of
examination time per deposition, and each such deposition shall take place in
Honolulu, Hawaii, USA, unless otherwise agreed by the Parties. The arbitration
shall be conducted by three (3) arbitrators who are knowledgeable in the subject
matter which is at issue in the dispute and who are selected by mutual agreement
of the Parties or, failing such agreement, shall be selected according to the
AAA rules. In conducting the arbitration, the arbitrators shall be able to
decree any and all relief of an equitable
27.
<PAGE> 33
nature, including but not limited to such relief as a temporary restraining
order, a preliminary injunction, a permanent injunction or replevin of property.
The arbitrators shall also be able to award actual, general or consequential
damages, but shall not award any other form of damages (i.e., punitive damages).
The Parties shall share equally the arbitrators' fees and expenses pending the
resolution of the arbitration unless the arbitrators, pursuant to their right
but not their obligations, require the nonprevailing Party to bear all or any
portion of the costs of the prevailing Party. The decision of the arbitrators
shall be final and may be sued on or enforced by the Party in whose favor it
runs in any court of competent jurisdiction at the option of such Party.
ARTICLE 13
MISCELLANEOUS
13.1 ASSIGNMENT.
(a) TO AFFILIATES. Notwithstanding any provision of this
Agreement to the contrary, either Party may assign any of its rights or
obligations under this Agreement in any country to any Affiliates; provided,
however, that such assignment shall not relieve the assigning Party of its
responsibilities for performance of its obligations under this Agreement.
(b) ON SALE OF COMPANY. Either Party may also assign its rights
or obligations under this Agreement in connection with the sale of all or
substantially all of its assets, or otherwise with the prior written consent of
the other Party. This Agreement shall survive any merger of either Party with or
into a Third Party and no consent for a merger or similar reorganization shall
be required hereunder; provided, that in the event of such merger or in the
event of a sale of all assets, no intellectual property rights of the acquiring
corporation shall be included in the technology licensed hereunder.
(c) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the successors and permitted assigns of the Parties.
Any assignment not in accordance with this Agreement shall be void.
13.2 RESEARCH AND DEVELOPMENT ENTITIES. Either Party may assign its
rights and obligations under this Agreement to an entity or entities (e.g.,
partnership or corporation) that are specifically formed for financial purposes
that would not jeopardize the collaboration hereunder and that finance research
and development performed by such Party, which entity able to carry out such
Party's obligations hereunder; provided, however, that such assignment shall not
relieve the assigning Party of responsibility for performance of its obligations
under this Agreement.
13.3 CONSENTS NOT UNREASONABLY WITHHELD. Whenever provision is made in
this Agreement for either Party to secure the consent or approval of the other,
that
28.
<PAGE> 34
consent or approval shall not unreasonably be withheld, and whenever in this
Agreement provision is made for one Party to object to or disapprove a matter,
such objection or disapproval shall not unreasonably be exercised.
13.4 FORCE MAJEURE. Neither Party shall lose any rights hereunder or be
liable to the other Party for damages or losses on account of failure of
performance by the defaulting Party if the failure is occasioned by government
action, war, fire, explosion, flood, strike, lockout, embargo, act of God, or
any other similar cause beyond the control of the defaulting Party, provided
that the Party claiming force majeure has exerted all reasonable efforts to
avoid or remedy such force majeure; provided, however, that in no event shall a
Party be required to settle any labor dispute or disturbance.
13.5 FURTHER ACTIONS. Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or useful in order to carry out the purposes and intent of this
Agreement.
13.6 NO TRADEMARK RIGHTS. Except as otherwise provided herein, no right,
express or implied, is granted by the Agreement to use in any manner the name
"Signal" or "Nippon Kayaku" or any other trade name or trademark of the other
Party or its Affiliates in connection with the performance of the Agreement.
13.7 NOTICES. All notices hereunder shall be in writing and shall be
deemed given if delivered personally, mailed by registered or certified mail
(return receipt requested), postage prepaid, or sent by express courier service,
to the Parties at the following addresses (or at such other address for a Party
as shall be specified by like notice; provided, that notices of a change of
address shall be effective only upon receipt thereof):
If to Signal, to: Signal Pharmaceuticals, Inc.
5555 Oberlin Drive
San Diego, CA 92121
Attention: Alan J. Lewis, Ph.D.
Chief Executive Officer
Telephone: (619) 558-7500
Telecopy: (619) 558-7513
29.
<PAGE> 35
If to Nippon Kayaku, to: Nippon Kayaku Co., Ltd.
Tokyo Fujimi Building
11-2, Fujimi 1-chome
Chiyoda-ku, Tokyo 102
Japan
Attention: Mr. Motonobu Yazaki
Managing Director
Telephone: 03-3237-5011
Telecopy: 03-3237-5081
13.8 WAIVER. Except as specifically provided for herein, the waiver from
time to time by either of the Parties of any of their rights or their failure to
exercise any remedy shall not operate or be construed as a continuing waiver of
same or of any other of such Party's rights or remedies provided in this
Agreement.
13.9 SEVERABILITY. If any term, covenant or condition of this Agreement
or the application thereof to any Party or circumstance shall, to any extent, be
held to be invalid or unenforceable, then (i) the remainder of this Agreement,
or the application of such term, covenant or condition to Parties or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant or condition of this
Agreement shall be valid and be enforced to the fullest extent permitted by law;
and (ii) the Parties hereto covenant and agree to renegotiate any such term,
covenant or application thereof in good faith in order to provide a reasonably
acceptable alternative to the term, covenant or condition of this Agreement or
the application thereof that is invalid or unenforceable, it being the intent of
the Parties that the basic purposes and economic terms of this Agreement are to
be effectuated.
13.10 AMBIGUITIES. Ambiguities, if any, in this Agreement shall not be
construed against any Party, irrespective of which Party may be deemed to have
authored the ambiguous provision.
13.11 COUNTERPARTS. This Agreement may be executed in two (2)
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
13.12 ENTIRE AGREEMENT. This Agreement sets forth all the covenants,
promises, agreements, warranties, representations, conditions and understandings
between the Parties hereto and supersedes and terminates all prior agreements
and understanding between the Parties, except the Secrecy Agreement and the
Material Transfer Agreement. There are no covenants, promises, agreements,
warranties, representations conditions or understandings, either oral or
written, between the Parties other than as set forth herein and therein. No
subsequent alteration, amendment, change or addition to this Agreement shall be
binding upon the Parties hereto unless reduced to writing and signed by the
respective authorized officers of the Parties.
30.
<PAGE> 36
13.13 GOVERNING LAW. Resolution of all disputes arising out of or
related to this Agreement or the performance, enforcement, breach or termination
of this Agreement and any remedies relating thereto, shall be governed by and
construed under the substantive laws of the State of California and the federal
law of the United States of America, without regard to conflicts of law rules.
13.14 HEADINGS. The Article headings and Section headings are placed
herein merely as a matter of convenience and are not to be constructed as a part
of this Agreement.
31.
<PAGE> 37
IN WITNESS WHEREOF, the Parties have executed this Agreement in
duplicate originals by their proper officers as of the date and year first above
written.
NIPPON KAYAKU CO., LTD.
By: /s/ MOTONOBU YAZAKI
--------------------------------------
Name: Motonobu Yazaki
------------------------------------
Title: Managing Director
-----------------------------------
SIGNAL PHARMACEUTICALS, INC.
By: /s/ ALAN LEWIS
--------------------------------------
Name: Alan Lewis
------------------------------------
Title: Pres/CEO
-----------------------------------
32.
<PAGE> 38
EXHIBIT A
[***]
33.
***Confidential Treatment Requested
<PAGE> 39
EXHIBIT B
RESEARCH PLAN
[***]
34.
***Confidential Treatment Requested
<PAGE> 40
EXHIBIT C
[***]
35.
***Confidential Treatment Requested
<PAGE> 41
EXHIBIT D
PROFITS, LOSSES AND OPERATING EXPENSES
For purposes of the Joint Commercialization Agreement, the terms set
forth below shall have the following meaning (all references to "overhead" in
this Exhibit D shall be determined in accordance with generally accepted
accounting principles):
1. "ADVERTISING AND EDUCATION EXPENSE" means costs, including direct
overhead directly attributable to the Collaboration but excluding other
overhead, incurred by a Party or for its account which are specifically
identifiable to the advertising and marketing of Products, and related
professional education, of a Product and consistent with a marketing plan and
budget mutually acceptable to the Parties; provided, however, that such term
shall exclude Selling and Promotion Expenses.
2. "CLINICAL DEVELOPMENT COSTS" means costs, including direct overhead
directly attributable to the Collaboration but excluding other overhead,
incurred by a Party or for its account, specifically identifiable to the
development of a Product, which is aimed at achieving regulatory approval to
market such Product or an expanded or significantly modified label for a Product
as to which regulatory approval to market such Product has been previously
obtained, including Cost of Goods for Product for use in clinical trials and
costs incurred with regulatory submissions, wages and benefits to the extent
employees work on clinical trials or regulatory submissions (calculated on a
full-time equivalent basis) and investigator grants and laboratory materials.
3. "COST OF GOODS" means the cost of Products shipped in either bulk or
final therapeutic form, as the Parties may then agree. As used herein, the cost
of Products means (i) in the case of products and services acquired from Third
Parties, payments made to such Third Parties, and (ii) in the case of
manufacturing services performed by the Parties, including manufacturing
services in support of Third Party manufacturing, the actual unit costs of
manufacture in bulk form or final manufacturing, as the case may be, plus the
variances and other costs specifically provided for herein. Actual unit costs
shall consist of direct material and direct labor costs plus manufacturing
overhead directly attributable to the Products at standard, all calculated in
accordance with reasonable cost accounting methods, consistently applied, of the
Party performing the work.
Direct material costs shall include the costs incurred in purchasing
materials, including sales and excise taxes imposed thereon and customs duty and
charges levied by government authorities, and all costs of packaging components.
Direct labor shall include the cost of employees engaged in direct
manufacturing activities and direct or indirect quality control and quality
assurance activities who are directly employed in Product manufacturing and
packaging.
36.
<PAGE> 42
Overhead attributable to the Products shall include a reasonable
allocation of indirect labor (not previously included in direct labor), a
reasonable allocation of administrative costs, and a reasonable allocation of
facilities costs. Such allocations shall be in accordance with reasonable cost
accounting methods, consistently applied, of the Party performing the work.
4. "DISTRIBUTION COSTS" means the costs, including direct overhead
directly attributable to the Collaboration but excluding other overhead,
incurred by a Party or for its account, specifically identifiable to the
distribution of a Product to a Third Party including (i) handling and
transportation to fulfill orders (excluding such costs, if any, treated as a
deduction in the definition of Net Sales), (ii) customer services including
order entry, billing and adjustments, inquiry and credit and collection, and
(iii) direct cost of facilities utilized for the storage and distribution of
Products.
5. "LOSSES" means Net Sales of Products less Operating Expenses, if such
amount is less than zero (0).
6. "OPERATING EXPENSES" means (i) Clinical Development Costs, (ii) Cost
of Goods, (iii) Distribution Costs, (iv) Selling and Promotion Expenses, (v)
Advertising and Education Expenses, (vi) royalties payable to a Third Party for
the manufacture, use or sale of Products, (vii) the direct costs of ongoing
medical studies to support such Product, excluding overhead, (viii) direct
expenses associated with market withdrawals, field adjustments or recalls, (ix)
capital expenditures specifically identifiable to the development and
commercialization of Products (and not otherwise included herein), and (x)
direct expenses relating to selling by non-Affiliates, training, adverse event
reporting, patents and trademarks.
7. "PROFITS" means Net Sales of Products less Operating Expenses, if
such amount is greater than or equal to zero (0).
8. "SELLING AND PROMOTION EXPENSES" means costs incurred to operate and
maintain the sales force which promotes Products, sales bulletins and other
communications, sales meetings, specialty sales forces, consultants, call
reporting and other monitoring/tracking costs, district and regional sales
management, home office personnel who support the sales force, and other
ancillary services.
37.
<PAGE> 43
SCHEDULE I
[***]
***Confidential Treatment Requested
<PAGE> 44
SCHEDULE II
[***]
***Confidential Treatment Requested
<PAGE> 45
SCHEDULE III
INITIAL MEMBERS OF RESEARCH MANAGEMENT COMMITTEE
Initial Signal Representatives:
[***]
Initial Nippon Kayaku Representatives:
[***]
42.
***Confidential Treatment Requested
<PAGE> 46
SCHEDULE IV
CERTAIN SIGNAL PROGRAMS
1. Molecular Targets
[***]
2. Cell Based Targets
[***]
3. Viral Targets
[***]
43.
***Confidential Treatment Requested
<PAGE> 1
EXHIBIT 10.53
May 13, 1998
Merl F. Hoekstra, Ph.D.
10321-216th St. S.E.
Snohomish, WA 98296
Dear Merl:
Signal Pharmaceuticals, Inc. ("Signal" or the "Company") is pleased to offer
you the position of Vice President Target Discovery, reporting to Dr. Alan
Lewis, President/Chief Executive Officer. Your employment with Signal will
commence on June __, 1998.
Your starting salary will be $6,250.00 semi-monthly (which when annualized
would equal $150,000), less all required withholding for taxes, employee's
share of FICA and other deductions. Signal is offering you a one time signing
bonus of $15,000 to help you quickly make the transition to join us. The bonus
shall be repayable to Signal if you voluntarily leave, or are terminated for
cause within the first year of your employment. A bonus of up to 15% of salary
will be awarded based upon performance against measurable, mutually agreed upon
goals. Individual goals will be assigned specific percent weighting.
You will be eligible for all standard Company benefits, including medical,
401k, and paid vacation benefits. If our medical benefits do not permit your
immediate participation in our plan, we will pay your COBRA expenses until you
become eligible. Signal reserves the right to modify Company benefits from time
to time as it deems necessary.
In addition, under Signal's 1997 Stock Option Plan (the "Plan"), the Company
will offer you an Incentive Stock Option to purchase outright 200,000 (two
hundred thousand) shares of Signal Common Stock at fair market value
(which presently is $0.50 per share). Under the Plan, one-fourth (25%) of the
shares will vest on the first day of your thirteenth month of employment. The
remaining shares will vest in equal monthly installments over a three year
period. The unvested shares will be subject to repurchase by the company at
their cost to you, should you leave the company before all shares have vested.
In addition, all shares issued under the Plan are subject to certain
limitations on the sale and use of the stock.
Signal will pay for up to 120 days in the Residence Inn, or comparable
accommodations, to allow time for you to locate suitable housing. Signal will
work with you to coordinate the transport of your household goods from
Snohomish, WA to San Diego, and will reimburse you for all reasonable costs
associated with the move. Reimbursed moving expenses will include reasonable
and customary closing costs for the sale of your house, including realtor's
fees and real estate excise tax, reasonable and customary costs for the
purchase of a
<PAGE> 2
Merl F. Hoekstra, Ph.D.
May 13, 1998
page 2
new home, including loan origination fees and points, and the cost of recording
the deed or mortgage; payment for movement of household goods (and two cars),
including packing, unpacking, insurance and up to 4 months storage. In
addition, Signal will reimburse you or up to four trips home to Snohomish, WA
from San Diego until such time your family has relocated to the San Diego area.
All expenses will be documented and paid either directly to the vendor or
reimbursed to you by normal means. The Company will follow federal, state and
local tax regulations with regards to reporting reimbursements associated with
the move and will "gross up" any compensation element of directly paid or
reimbursed relocation expenses so that you will net such amounts after payment
of taxes, social security etc. Notwithstanding the above, Signal will reimburse
a maximum of $50,000 for such moving expenses.
Your employment is for an indefinite term. In other words, the employment
relationship is "at will," and either you or Signal has the right to terminate
that employment relationship at any time, provided however that if you are
terminated prior to the end of one year's service for any reason other than
your death, disability or termination for cause (defined below) you will be
paid the equivalent of six months base salary as a severance payment.
Termination "for cause" is limited to the following events: your conviction of
any felony, or conviction of embezzlement or misappropriation of money or
other property of the company; your failure, refusal, or inability to perform
your duties on behalf of Signal, which are consistent with the scope and nature
of your responsibilities as an officer of the Company and which are not remedies
by you within a reasonable time period after receipt of written notice of such
alleged violative activities, or the commission of any intentional tort by you
against the company; or any act of gross negligence, corporate waste,
disloyalty, or unfaithfulness by you to Signal.
Signal requires a baseline blood draw from all new employees. This will be done
on your first day of employment at Signal. These vials will be stored offsite
to protect your privacy. No testing will be done to the sample unless required
by legal proceedings.
You will be asked to sign Signal's Proprietary Information and Inventions
Agreement. In addition, you will be expected to abide by Company rules and
regulations as described in the Company handbook. Proprietary Information for
purposes of the Proprietary Information and Inventions Agreement includes
Proprietary Information only to the extent such matters have not previously been
made public, are not thereafter made public or do not otherwise become available
to you from a third party not, to your best knowledge, bound by any
confidentiality agreement with the Company. The phrase "made public" as used in
the Proprietary Information and Inventions Agreement shall apply to matters
within the domain of (a) the general public or (b) Company's industry. Further,
the provision in paragraph 2(c) in Signal's Proprietary Information and
Inventions Agreement will be limited to "Inventions" developed during the term
of your employment relationship with the company (i.e. not apply to Inventions
that might arise out of subsequent employment during the year following the
termination of your employment with Company).
<PAGE> 3
Merl F. Hoekstra, Ph.D.
May 13, 1998
page 3
The employment terms in this letter supersede any other agreements or promises
made to you. As required by law, this offer is subject to satisfactory proof of
your right to work in the United States.
Please indicate your acceptance of this offer by signing one of the originals
and returning it to Laurie Cain, in our Human Resources Department. This offer
will expire at 5 p.m. on May 20, 1998. If we do not receive a reply from you by
this time (verbally or written), this offer will be officially rescinded.
We have greatly enjoyed our meetings with you and look forward to your joining
the Signal team. We feel that your experience and enthusiasm can make a
substantial contribution to the success of Signal.
Sincerely,
/s/ ALAN J. LEWIS
- -------------------------------------
Alan J. Lewis
President and Chief Executive Officer
ACCEPTED BY:
/s/ MERL F. HOEKSTRA
- --------------------------------
Merl F. Hoekstra, PhD
May 14, 1998
- --------------------------------
Date
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Experts" and
"Selected Financial Data" and to the use of our report dated January 16, 1998,
except for Note 7, as to which the date is May 5, 1998, in Amendment No. 2 to
the Registration Statement (Form S-1 No. 333-52901) and related Prospectus of
Signal Pharmaceuticals, Inc. for the registration of its common stock.
/s/ ERNST & YOUNG LLP
San Diego, California
August 5, 1998
