<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
APOLLO BIOPHARMACEUTICS, INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 2834 04-3160456
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification
organization) Code Number) Number)
</TABLE>
ONE KENDALL SQUARE, BUILDING 200, SUITE 2200, CAMBRIDGE, MASSACHUSETTS 02139
(Address, Including zip code, and telephone number, including area code, of
registrant's principal executive offices)
KATHERINE GORDON, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Apollo BioPharmaceutics, Inc.
One Kendall Square, Building 200, Suite 2200
Cambridge, Massachusetts 02139
(617) 621-7154
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL LYTTON, ESQ. HAROLD E. BERRITT, ESQ.
Palmer & Dodge LLP Rubin Baum Levin Constant Friedman &
One Beacon Street Bilzin
Boston, Massachusetts 2500 First Union Financial Center
02108-3190 Miami, Florida 33131-2336
(617) 573-0100 (305) 374-7580
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) UNIT PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Units, each consisting of one share of Common
Stock, $.02 par value per share, and a Warrant
to purchase one share of Common Stock.......... 1,380,000 $5.75(2) $7,935,000(1)(2) $2,404.54
Warrants to purchase Common Stock................ 120,000 $0.01 $1,200 $0.36
Common Stock, $.02 par value per share(3)........ 1,500,000 $7.15(2) $10,725,000(2) $3,250.00
</TABLE>
(1) Includes 180,000 Units which the Underwriters may purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(3) Represents shares of Common Stock issuable upon exercise of the Warrants and
120,000 shares of Common Stock to be issued to the Underwriters upon
exercise of certain other warrants.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS IN PART I OF FORM SB-2
<TABLE>
<CAPTION>
FORM SB-2 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Front of the Registration Statement and Outside Front
Cover Page of Prospectus............................ Forepart of the Registration Statement and Outside
Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors................. Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price...................... Underwriting
6. Dilution............................................. Risk Factors; Dilution
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Outside Front Cover Page; Underwriting
9. Legal Proceedings.................................... Business
10. Directors, Executive Officers, Promoters and Control
Persons............................................. Management; Principal Stockholders; Certain
Transactions
11. Security Ownership of Certain Beneficial Owners and
Management.......................................... Management; Principal Stockholders
12. Description of Securities............................ Outside Front Cover Page; Description of Securities
13. Interests of Named Experts and Counsel............... Not Applicable
14. Disclosure of Commission Position on Indemnification
For Securities Act Liabilities...................... Management
15. Organization Within Last Five Years.................. Certain Transactions
16. Description of Business.............................. Prospectus Summary; Capitalization; Selected
Financial Data; Business; Management; Certain
Transactions; Principal Stockholders; Financial
Statements
17. Management's Discussion and Analysis or Plan of
Operation........................................... Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property.............................. Business
19. Certain Relationships and Related Transactions....... Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters............................................. Inside Front Cover Page; Risk Factors; Description of
Securities; Underwriting
21. Executive Compensation............................... Management
22. Financial Statements................................. Financial Statements
23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER , 1996
1,200,000 UNITS
[APOLLO LOGO]
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE COMMON STOCK PURCHASE WARRANT
--------------------------
Apollo BioPharmaceutics, Inc. (the "Company") is hereby offering
1,200,000 units ("Units"), each Unit consisting of one share of the Company's
common stock, $0.02 par value per share (the "Common Stock"), and one redeemable
warrant (each, a "Warrant" and collectively, the "Warrants") to purchase one
share of Common Stock of the Company. Each Warrant entitles the registered
holder thereof to purchase, at any time until the fifth anniversary of the date
of this Prospectus (the "Expiration Date"), one share of Common Stock at an
exercise price of $ per share [130% of the initial public offering price of the
Common Stock], subject to adjustment under certain circumstances. The components
of the Units are separately transferable immediately upon issuance. The Warrants
are redeemable by the Company, in whole or in part, at a redemption price of
$0.25 per Warrant, upon at least 30 days' prior written notice, commencing one
year from the date of this Prospectus, if the average of the closing bid prices
of the Common Stock shall equal or exceed $ per share [200% of the initial
public offering price of the Common Stock] for 20 consecutive business days
ending within 10 business days of the date on which notice of redemption is
given. See "Description of Securities -- The Warrants Offered." Prior to this
offering, there has been no public market for any securities of the Company. It
is currently anticipated that the initial public offering price of the Units
will be between $4.75 and $5.75 per Unit. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering price.
Application has been made for quotation of the Common Stock and the Warrants on
the Nasdaq SmallCap-SM- Market under the symbols "ABPI" and "ABPW,"
respectively.
--------------------------
THE UNITS OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 6-17.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Unit................................................. $ $ $
Total(3)................................................. $ $ $
</TABLE>
(1) Does not reflect additional compensation to be received by the Underwriters
in the form of (i) a non-accountable expense allowance equal to 3% of the
gross proceeds of this offering, payable to the managing underwriter of the
several underwriters (the "Managing Underwriter"), (ii) five-year warrants
(the "Managing Underwriter's Warrants") entitling the Managing Underwriter
to purchase up to 120,000 shares of Common Stock at an exercise price of
$ per share [130% of the initial offering price of the Common Stock],
(iii) a commission, based upon the exercise price of the Warrants, equal to
5% of the exercise price of the Warrants and (iv) a three-year consulting
agreement with the Company providing for an annual fee of $36,000. In
addition, the Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $590,000,
including the Managing Underwriter's non-accountable expense allowance.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
an additional 180,000 Units solely to cover over-allotments, if any. If this
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to Company will be $7,245,000,
$724,500, and $6,520,500, respectively. See "Underwriting."
--------------------------
The Units are offered by the several Underwriters named herein on a firm
commitment basis subject to prior sale, when, as and if accepted by them and
subject to certain conditions. The Underwriters reserve the right to withdraw,
cancel or modify this offer and to reject orders in whole or in part. It is
expected that delivery of the Units will be made at the offices of First United
Equities Corporation, 200 Garden City Plaza, Suite 518, Garden City, New York
11530 on or about , 1997.
FIRST UNITED EQUITIES CORPORATION
The date of this Prospectus is , 1997
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
NEUROCALC-TM- and NEUROMIDOL-TM- are trademarks of the Company.
Neurestrol-TM- is a registered trademark of Endocon, Inc.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS. THE UNITS OFFERED HEREBY INVOLVE A HIGH DEGREE OF
RISK. INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE
HEADING "RISK FACTORS." EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN THIS
PROSPECTUS (I) HAS BEEN ADJUSTED TO REFLECT A RECENTLY COMPLETED 3 1/3-FOR-1
REVERSE STOCK SPLIT OF THE OUTSTANDING COMMON STOCK AND (II) ASSUMES NO EXERCISE
OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. SEE "UNDERWRITING."
THE COMPANY
Apollo BioPharmaceutics, Inc. ("Apollo" or the "Company") is a
development-stage company engaged in the development of proprietary drugs that
protect brain cells from damage caused by disease, injury and aging. The
Company's target applications include the treatment of Alzheimer's disease,
Parkinson's disease, brain damage resulting from stroke and other age-related
diseases and conditions. The Company's lead product candidates are based on
naturally-occurring hormones that have been demonstrated by Company-sponsored
research to protect brain cells from damage caused by disease, trauma and aging.
The Company's major product initiatives are based on estrogen compounds,
calcitriol or vitamin D-related compounds and other types of neurosteroids.
NEUROMIDOL-TM- and NEURESTROL-REGISTERED TRADEMARK-, two of the
Company's lead product candidates, are in development by the Company for the
prevention of neurodegeneration in Alzheimer's disease. NEUROMIDOL is a type of
estrogen that the Company's management believes will be useful in preventing
brain cell death without inducing feminizing side effects (e.g. breast
enlargement) and therefore could be used to treat men as well as women.
NEURESTROL is an estrogen-based, subcutaneous implant in development for the
long-term, controlled delivery of estrogen in a single dose for the treatment of
Alzheimer's disease. NEURESTROL is the subject of an Investigational New Drug
Application for Phase I testing in humans. An additional product candidate,
NEUROCALC-TM-, a derivative of vitamin D, is currently being evaluated in a
small number of patients with Alzheimer's disease in a trial funded by the
National Institutes of Health at the University of Kentucky Medical School. The
Company continues to test these as well as other potentially neuroprotective
compounds for efficacy in other neurodegenerative conditions such as Parkinson's
disease, Age-Related Memory Impairment and brain-cell death from stroke. In
addition to its pharmaceutical product candidates, the Company is also currently
evaluating a Hormone Responsiveness Diagnostic test that may predict
responsiveness to hormone therapy.
The Company's development activities to date have been based, in large
part, on intellectual property it has licensed and research it has sponsored at
the medical schools of two universities. The Company intends to continue to
acquire licenses to intellectual property that could advance the Company's
product development efforts. Two patents licensed exclusively to the Company
have recently been issued in the United States. The first patent covers the use
of estrogen compounds for neuroprotection in the treatment of certain diseases,
including Alzheimer's disease, and the second patent covers the Company's
Hormone Responsiveness Diagnostic test.
The Company's commercialization strategy is to enter into strategic
alliances with biotechnology and pharmaceutical companies for the development
and marketing of its product candidates. The Company currently has a strategic
alliance with Athena Neurosciences, Inc. ("Athena"), for the development of
estrogen products for chronic neurodegenerative diseases, and with Endocon, Inc.
("Endocon"), for the joint development of NEURESTROL. The Company plans to seek
additional strategic partners for the development of its product candidates.
The Company is a Delaware corporation that was incorporated on July 9,
1992 as Apollo Genetics, Inc. and subsequently changed its name to Apollo
BioPharmaceutics, Inc. in December 1996. The Company's offices are located at
One Kendall Square, Building 200, Suite 2200, Cambridge, Massachusetts 02139.
The Company's telephone number is (617) 621-7154.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by Company..... 1,200,000 Units, each Unit consisting of one share of
Common Stock and a Warrant to purchase one share of
Common Stock. The Common Stock and the Warrants will be
separately transferable immediately following the
offering. See "Description of Securities."
Terms of Warrants................. Each Warrant entitles the holder to purchase one share
of Common Stock for an exercise price of $ at any
time until the fifth anniversary of the date of this
Prospectus (the "Expiration Date"), subject, in certain
circumstances, to earlier redemption by the Company. The
exercise price and number of shares issuable upon the
exercise of the Warrants are subject to adjustment in
certain circumstances. See "Description of
Securities--The Warrants Offered."
Shares of Capital Stock
Outstanding Common Stock:
Prior to this Offering.......... 3,905,348 shares(1)
After this Offering............. 5,105,348 shares(1)
Use of Proceeds................... The Company intends to utilize the net proceeds of this
offering to fund product development activities, hire
additional personnel, establish a small laboratory
facility and for general working capital purposes and
operating expenses. See "Use of Proceeds."
Risk Factors...................... Investment in these securities is speculative and
involves a high degree of risk and immediate and
substantial dilution. See "Risk Factors" and "Dilution."
Proposed Nasdaq SmallCap-SM-
Market Symbols(2)............... ABPI; ABPW.
</TABLE>
- ------------------------
(1) Does not include the possible issuance of (i) 600,000 shares of Common Stock
reserved for issuance upon the exercise of options granted or available for
grant under the Company's 1993 Incentive and Non-Qualified Stock Option
Plan; (ii) 90,000 shares reserved for issuance upon the exercise of options
granted or available for grant under the Company's 1996 Director Stock
Option Plan; (iii) 210,000 shares of Common Stock reserved for issuance upon
exercise of certain warrants previously issued by the Company; (iv)
1,200,000 shares of Common Stock reserved for issuance upon exercise of the
Warrants to be issued in this offering; (v) 180,000 Units reserved for
issuance upon exercise of the Underwriters' over-allotment option; and (vi)
120,000 shares of Common Stock reserved for issuance upon exercise of the
Managing Underwriter's Warrants. See "Management;" "Certain Transactions;"
"Description of Securities;" and "Underwriting."
(2) No assurance can be given that a trading market will develop for any of the
Company's securities. See "Risk Factors--Possible Delisting of Securities
from the Nasdaq SmallCap-SM- Market."
4
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------------
1995 1994 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................................... $ 2,535 $ 3,954 $ 177,301 $ --
Expenses................................................... 394,684 526,961 400,213 305,906
Net loss................................................... $ (392,149) $ (523,007) $ (222,912) $ (305,906)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net loss per share......................................... $ (.10) $ (.14) $ (.05) $ (.08)
Weighted Average number of shares outstanding.............. 3,784,623 3,660,514 4,185,555 3,649,496
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
AS
ACTUAL ADJUSTED(1)
---------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 373,645 $ 5,458,645
Working capital....................................................................... 309,739 5,394,739
Total assets.......................................................................... 492,019 5,572,019
Stockholders' equity 315,613 5,395,613
</TABLE>
(1) Adjusted to reflect the sale by the Company of the 1,200,000 Units offered
hereby at an assumed public offering price of $5.25 per Unit. See "Use of
Proceeds," "Capitalization" and "Underwriting."
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE
SECURITIES OFFERED BY THIS PROSPECTUS.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS OF OPERATIONS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK
FACTORS AND ELSEWHERE IN THIS PROSPECTUS.
HISTORY OF OPERATING LOSSES; FUTURE PROFITABILITY UNCERTAIN
The Company is a development-stage biotechnology company. From its
inception in 1992 through September 30, 1996, the Company incurred losses of
approximately $1.6 million, substantially all of which consisted of product
development and general and administrative expenses. Although the Company has
generated fees from options and licenses pursuant to the terms of certain
licensing agreements it maintains with third parties, it has not generated any
revenues from product sales to date, and there can be no assurance that revenues
from product sales will ever be achieved. Moreover, even if the Company
eventually generates revenues from product sales, the Company nevertheless
expects to incur significant operating losses over the next several years. The
Company's ability to achieve profitable operations in the future will depend in
large part upon completing development of its products, obtaining regulatory
approvals for these products and bringing several of these products to market.
The likelihood of the long-term success of the Company must be considered in
light of the expenses, difficulties and delays frequently encountered in the
development and commercialization of new pharmaceutical products, competitive
factors in the marketplace, as well as the regulatory environment in which the
Company operates. There can be no assurance that the Company will ever achieve
substantial revenues or profitable operations. See "Summary Financial Data;"
"Selected Financial Data;" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
TECHNOLOGICAL UNCERTAINTY; EARLY STATE OF PRODUCT DEVELOPMENT; NO ASSURANCE OF
REGULATORY APPROVALS
The Company's proposed products will require significant further
research, development, clinical testing and regulatory clearance. The Company
has no products available for sale and does not expect to have any products
resulting from its research efforts commercially available for at least several
years. With the exception of limited clinical testing of NEUROCALC, none of the
Company's proposed pharmaceutical products has been tested in humans. The
Company has filed an Investigational New Drug Application ("IND") with the
United States Food and Drug Administration (the "FDA") to begin a
pharmacokinetic evaluation of NEURESTROL; however, there can be no assurance
that this product or any product the Company may develop in the future will
prove to be safe to use or effective in humans. The Company's proposed products
are subject to the risk of failure inherent in the development of products based
on innovative technologies. These risks include the possibilities that some or
all of the proposed products could be found to be ineffective or toxic or
otherwise fail to receive necessary regulatory clearances; that effective
products will be uneconomical to manufacture or market; that third parties may
now or in the future hold proprietary rights that preclude the Company from
marketing such products; or that third parties will market a superior or
equivalent product. Accordingly, the Company is unable to predict whether its
product development activities will result in any commercially viable products
or applications. Furthermore, due to the extended testing and regulatory review
process required before marketing clearance can be obtained, the Company does
not expect to be able to commercialize any therapeutic drug for at least several
years, either directly or through any existing and potential corporate partners
or licensees. There can be no assurance that the Company's proposed products
will prove to be safe or effective in humans or will receive the regulatory
approvals that are required for commercial sale. See "Business."
6
<PAGE>
NEED FOR ADDITIONAL FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL
The Company will require substantial funds for further development and
clinical testing of its potential products and to commercialize any products
that may be developed. The Company's capital requirements will depend on
numerous factors, including the progress of its product development programs,
the progress of pre-clinical and clinical testing, the time and cost involved in
obtaining regulatory approvals, the cost of filing, prosecuting, defending and
enforcing patent claims and other intellectual property rights, competing
technological and market developments and the ability of the Company to
establish strategic alliances. The Company has no current sources of significant
funding beyond the proceeds from this offering. The Company believes that its
existing capital resources, including the estimated net proceeds of this
offering and interest thereon, will be sufficient to satisfy its operations for
at least 24 months from the date of this Prospectus. The Company anticipates
that after 24 months, it will require substantial additional capital. Moreover,
if the Company experiences unanticipated cash requirements during the next 24
months, the Company will require additional capital to fund its operations, to
continue product development programs, including the pre-clinical and clinical
testing of its potential products, and to commercialize any products that may be
developed. The Company may seek additional funding through public or private
sales of equity securities or collaborative or other arrangements with third
parties. There can be no assurance that additional funds will be available on
acceptable terms, if at all. If additional funds are raised by issuing equity
securities, further substantial dilution to existing stockholders, including
purchasers of the Units offered hereby, may result. If adequate funds are not
available, the Company may be required to delay, scale back or eliminate one or
more of its development programs, or to obtain funds by entering into
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its products or technologies that the Company
would not otherwise relinquish. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON STRATEGIC ALLIANCES
The Company has established strategic alliances with Athena and Endocon
with respect to the development and commercialization of certain of the
Company's products. The Company is dependent upon its strategic partners to
conduct preclinical tests and human trials, to obtain required regulatory
approvals for product candidates and, in the case of Athena, to provide adequate
funding for product testing. In addition, the Company is dependent on the
cooperation of these partners in selecting compounds for subsequent development
as product candidates, conducting preclinical testing and clinical trials and
obtaining required regulatory approvals for the Company's drug candidates.
Failure of these partners to undertake reasonable efforts toward product
development would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's strategy for
development and commercialization of its products is dependent upon entering
into additional arrangements with research collaborators, corporate partners and
others, and upon the subsequent success of these third parties in performing
their obligations. There can be no assurance that the Company will be able to
enter into additional strategic alliances on terms favorable to the Company, if
at all. Failure of the Company to enter into additional strategic alliances
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Strategic Alliances and
Licenses."
The Company cannot control the amount and timing of resources which its
corporate partners devote to the Company's programs or potential products. If
any of the Company's corporate partners breach or terminate their respective
agreements with the Company or otherwise fail to conduct their development
activities in a timely manner, the preclinical testing, clinical development or
commercialization of product candidates will be delayed, and the Company will be
required to devote additional resources to product development and
commercialization, terminate certain development programs or seek new corporate
partners. The Company's strategic alliances with Athena and Endocon are subject
to
7
<PAGE>
termination by each of them. There can be no assurance that Athena or Endocon
will not elect to terminate their strategic alliances with the Company prior to
their scheduled expiration dates. In addition, if the Company's corporate
partners effect a merger with a third party, there can be no assurance that the
strategic alliances will not be terminated or otherwise materially adversely
affected. The termination of any current or future strategic alliances could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company's corporate partners may develop, either
alone or with others, products that compete with the development and marketing
of the Company's potential products. Competing products, either developed by the
Company's corporate partners or to which the corporate partners have rights, may
result in their withdrawal of support with respect to all or a portion of the
Company's technology, which would have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that disputes will not arise in the future with respect to the
ownership of rights to any products or technology developed with corporate
partners. These and other possible disagreements between corporate partners and
the Company could lead to delays in the collaborative research, development or
commercialization of certain product candidates or could require or result in
litigation or arbitration, which would be time-consuming and expensive, and
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Strategic Alliances and
Licenses."
UNCERTAIN ABILITY TO PROTECT PROPRIETARY TECHNOLOGY
The Company's success, competitive position and potential future income
will depend, in part, on its ability to obtain patent protection, in various
jurisdictions, relating to the technologies, processes and products it is
developing and may develop in the future. The Company has licensed rights to
certain proprietary technologies from the University of Kentucky Research
Foundation and the University of Florida Research Foundation, Inc. To date, 2
patents have been issued relating to these technologies and 10 related patent
applications are pending in major markets of the developed world. Additional
applications have been filed in certain other countries. The Company plans to
seek additional patents in the future and to file patent applications in other
countries and to license additional rights to certain unpatented and patented
proprietary technology from research institutions. See "Business--Strategic
Alliances and Licenses;" and "Business--Intellectual Property Rights."
The patent positions of pharmaceutical, biotechnology and drug delivery
companies, including the patent rights licensed by the Company, are uncertain
and involve complex legal and factual issues. Additionally, the coverage claimed
in a patent application can be significantly reduced if and when a patent is
issued. As a consequence, the Company does not know whether its pending patent
applications will result in the issuance of patents. Since patent applications
in the United States are maintained in secrecy until patents issue, and since
publication of discoveries in the scientific or patent literature often lag
behind actual discoveries, the Company cannot be certain that the inventions
described in its patent applications are not subject to prior art, that the
inventors of inventions covered in the pending patent applications were the
first inventors or that the patent applications for these inventions were the
first to be filed. Moreover, the Company may have to participate in any
interference proceedings which may be declared by the United States Patent and
Trademark Office to determine the priority of any inventions covered by its
patent applications, which could result in substantial cost to the Company,
whether or not the eventual outcome is favorable to the Company.
There can be no assurance that the Company will develop additional
proprietary products that are patentable, that any patents issued to, or
licensed by, the Company will be valid or enforceable, or that patents issued
to, or licensed by, the Company will afford protection against competitors with
similar technology. An adverse outcome could subject the Company to significant
liabilities to third parties, require disputed rights to be licensed from or to
third parties or require the Company to cease using the technology in dispute.
In addition, there can be no assurance that others will not independently
develop substantially equivalent proprietary information or otherwise obtain
access to the Company's know-how or
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that others may not be issued patents that may prevent the sale of the Company's
products or may require licensing and the payment of significant fees or
royalties by the Company for the pursuit of its business. Moreover, there can be
no assurance that the Company's technology does not infringe upon any valid
claims of patents owned by others. If the Company was found by a court to be
infringing on a patent held by another, the Company would have to discontinue
all activities related to that patented technology or seek a license to use that
patented technology.
If a legal action claiming patent infringement were to be brought
against the Company or its licensees, the Company could incur substantial costs
in defending itself, and there can be no assurance that an action of this sort
would be resolved in the Company's favor. If such a dispute were to be resolved
against the Company, in addition to incurring potential damages, the Company's
continued testing, manufacture or sale of one or more of its technologies or
proposed products, if developed, could be enjoined. Defense of any lawsuit or
failure to obtain any required license could, depending on the circumstances,
have a material adverse effect on the Company.
Some of the intellectual property and prospective products that the
Company has licensed or invented may involve naturally occurring or synthetic
molecules, the patentability of which is uncertain and involves complex legal
and factual questions. Legal standards surrounding the viability of
biotechnology patents are in transition, and no assurance can be given as to
whether patents will be issued, the degree of protection that any patents will
afford or the Company's ability to avoid violating or infringing upon patents
issued to others.
All of the Company's licenses from universities involve programs that
were originally funded by the United States Government and, as a result, the
United States Government commonly retains certain statutory rights, including a
non-exclusive, royalty-free license to use the licensed inventions, and to
manufacture and distribute products based thereon, for Government use only.
Several of the patents and patent applications licensed to the Company
are so-called "use patents" and describe novel uses rather than the specific
composition of matter of certain compounds. In these cases, another company
could, without infringing on the Company's intellectual property, market these
compounds for unrelated disease indications to the extent that those companies
already have FDA approval. Marketing of an existing or new compound described by
the Company's use patents for the described indication requires that the
marketer secure a license from the Company or one of its sublicensees. If a
company were to market a product which is the subject of one of the Company's
patents, the Company or its sublicensees might have to file suit in order to
stop the infringement and report such activities to the FDA.
Despite the issuance of patents and the underlying commercial protection
afforded by the Company's intellectual property, products produced by third
parties may compete "off label" with the Company's products. For example, once
prescribed, patients may take commercially available estrogen products for
indications other than those that are approved by the FDA. According to current
law, companies may not market for off-label indications.
The Company relies on certain technologies that are not patentable or
proprietary and are therefore available to the Company's competitors. The
Company also relies on certain proprietary trade secrets and know-how that are
not patentable. Although the Company has taken steps to protect its unpatented
trade secrets and know-how, in part through the use of confidentiality
agreements with its employees, consultants, and certain of its collaborators,
there can be no assurance that (i) these agreements will not be breached; (ii)
the Company would have adequate remedies for any breach; or (iii) the Company's
trade secrets will not otherwise become known or be independently developed or
discovered by its competitors. See "Business--Intellectual Property Rights."
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COMPETITION
Competition in the area of pharmaceutical products is intense. There are
many companies, both public and private, including well-known pharmaceutical
companies, that are engaged in the development of products for certain of the
applications being pursued by the Company. The Company's larger competitors
include Amgen, Inc., Warner-Lambert Co., Bristol-Meyers Squibb Company, Glaxo
Wellcome plc, Regeneron Pharmaceuticals, Inc., Hoechst Marion Roussel Ltd. and
Pfizer, Inc., as well as Athena. There are public and private companies that are
also developing products to treat neurodegenerative diseases. There may be other
companies of which the Company is not aware with research and development
programs similar to those of the Company. Many of the Company's competitors have
substantially greater financial, research and development, manufacturing and
marketing experience and resources than the Company and represent substantial
long-term competition for the Company. Companies may succeed in developing
pharmaceutical products that are more effective and/or less costly than any
products that may be developed by the Company or its strategic partners.
Factors affecting competition in the pharmaceutical industry vary,
depending on the extent to which a competitor is able to achieve a competitive
advantage based on its proprietary technology. If the Company is able to
establish and maintain a significant proprietary position with respect to its
products, competition will likely depend primarily on the effectiveness of the
product and the number and severity of its unwanted side effects as compared to
alternative products.
The industry in which the Company competes is characterized by extensive
research and development efforts and rapid technological progress. Although the
Company believes that its proprietary position may give it a competitive
advantage with respect to its proposed drugs, new developments are expected to
continue and there can be no assurance that discoveries by others will not
render the Company's potential products noncompetitive. The Company's
competitive position also depends on its ability to attract and retain qualified
scientific and other personnel, develop effective proprietary products,
implement development and marketing plans, obtain patent protection and secure
adequate capital resources. There can be no assurance that the Company will be
able to successfully achieve all of the foregoing objectives. See
"Business--Competition."
DEPENDENCE ON THIRD PARTIES FOR CLINICAL TESTING, MANUFACTURING AND MARKETING
Presently, the Company does not intend to conduct clinical trials or
manufacture or market any of its proposed products without the involvement of
strategic partners. The Company seeks to enter into arrangements with third
parties to conduct these activities for its products. There can be no assurance
that any third-party arrangements can be successfully negotiated or that desired
arrangements will be on commercially reasonable terms. To the extent that the
Company arranges with any third parties to conduct clinical trials, or to
manufacture or market its products, the success of clinical trials and/or the
manufacture or marketing of the Company's products will depend on the efforts of
these third parties. There can be no assurance that either the Company or its
third-party collaborators can successfully introduce the Company's proposed
products, that they will achieve acceptance by patients, health care providers
and insurance companies, or that they can be manufactured and marketed at prices
that would permit the Company to operate profitably. See "Business--Marketing
and Sales Strategy."
LACK OF OPERATING EXPERIENCE
To date, the Company has engaged in the development of pharmaceutical
technologies and products through the sponsorship of research programs in
universities. Although members of the Company's management have substantial
experience in biotechnology company operations, the Company has no experience in
conducting research, manufacturing, procuring products in commercial quantities,
or the marketing and sales of pharmaceutical products. In addition, management
of the Company has only limited experience in negotiating and maintaining
strategic relationships, conducting clinical trials and
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other later-stage phases of the regulatory approval process and the
commercialization of pharmaceutical products. There can be no assurance that the
Company will be able to successfully engage in any of these activities with
respect to any of its products. In the event the Company decides to establish a
commercial-scale manufacturing facility for its products, the Company will
require substantial additional funds and personnel and will be required to
comply with extensive regulations applicable to this type of facility. There can
be no assurance that the Company will be able to secure funds on acceptable
terms, if at all, or will successfully manufacture or market any product it may
develop, either independently or pursuant to manufacturing or marketing
arrangements, if any, with third parties. See "Business--Manufacturing Plans"
and "--Marketing and Sales Strategy."
DEPENDENCE ON QUALIFIED PERSONNEL
Because of the specialized scientific nature of the Company's business,
the Company will be highly dependent upon its ability to attract and retain
qualified scientific and technical personnel. There is intense competition for
qualified personnel in the areas of the Company's activities, and there can be
no assurance that the Company will be able to attract and retain qualified
personnel necessary for the development of its business.
The Company is highly dependent upon the principal members of its
scientific and management staff, including, in particular, Dr. Katherine Gordon.
The loss of Dr. Gordon or other key scientific and technical personnel could be
harmful to the Company. The Company's employment agreement with Dr. Gordon
extends until October 31, 1998 and will thereafter be extended for additional
two-year terms unless either party provides notice of its intent not to renew.
However, there can be no assurance that the Company will be successful in
retaining Dr. Gordon. See "Management--Employment Agreements, Executive
Compensation and Agreements With Directors." The Company plans to recruit
additional management and scientific personnel, which may require the Company to
offer competitive compensation packages, including stock options. Its failure to
recruit personnel could have a material adverse effect on the Company's business
and results of operations.
All of the Company's scientific and clinical advisors are employed on a
full-time basis by academic or medical institutions. Accordingly, the Company's
advisors and consultants will only be able to devote a small portion of their
time to the Company. In addition, in certain circumstances, inventions or
processes discovered by the Company's advisors and consultants independently of
the Company's sponsored research programs may remain the property of their
full-time employers or of other companies and institutions for which they now
consult. See "Management--Scientific and Clinical Advisors."
Certain agreements for research funded by the Company provide the
principal investigators conducting research on the Company's behalf with full
discretionary authority over the conduct of the research activities at their
laboratories, and further provide for payment on a chronological, rather than
performance, basis. There can be no assurance that the interests and motivations
of the Company's academic partners will remain consistent with those of the
Company. Moreover, there can be no assurance that the Company will be able to
successfully negotiate license rights to the intellectual property that may
result from these sponsored research programs or that such licenses will be on
commercially acceptable terms.
DEVELOPMENT OF NEW TECHNOLOGIES AND PRODUCTS
The Company is engaged in the biopharmaceutical field, which is
characterized by extensive research efforts and rapid technological progress.
New developments in molecular cell biology, molecular pharmacology, recombinant
DNA technology and other areas are expected to continue at a rapid pace in both
industry and academia. There can be no assurance that research and discoveries
by others will not render some or all of the Company's programs or products
noncompetitive or obsolete.
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Some of the Company's projects involve the attempt to develop new
technologies or to apply existing technologies, several of which are
experimental, to the development of new products. This type of experimentation
is costly, time consuming and prone to produce unsatisfactory results. No
assurance can be given that unforeseen problems will not develop with these
technologies or applications or that commercially feasible products will
ultimately be developed by the Company. Moreover, even when a new technology or
product is successfully developed, the refinement of the new technology or
product and the definition of the clinical applications and limitations of the
new technology or product may take years and require the expenditure of large
sums of money or may prove to be commercially unfeasible.
NO ASSURANCE OF UNITED STATES OR FOREIGN REGULATORY APPROVAL; GOVERNMENT
REGULATION
Human therapeutic and diagnostic products such as the Company's proposed
products are subject to premarket approval by the FDA and comparable agencies in
foreign countries. The process of obtaining these approvals involves several
years of laboratory and clinical testing and other costly and time consuming
procedures. The Company cannot predict with certainty when it might submit
products, if any, for FDA or other regulatory approval. Government regulation
also controls the manufacture and marketing of these types of products.
The process of obtaining FDA and other required regulatory approvals is
lengthy, expensive, and uncertain. Moreover, regulatory approvals, if granted,
may include significant limitations on the indicated uses for which a product
may be marketed. The FDA actively enforces the provisions of the Federal Food,
Drug and Cosmetic Act (the "FDC Act") and associated regulations, including
certain regulations which prohibit the marketing of products for uses not
indicated in the labeling of products, and conducts periodic inspections to
determine compliance with certain "current Good Manufacturing Practices"
("cGMPs") as described in the applicable regulations. Failure to comply with
applicable regulatory requirements can result in, among other things, fines,
suspensions of approvals, seizures or recalls of products, operating
restrictions, and criminal prosecutions. Furthermore, changes in existing
regulations or adoption of new regulations could prevent the Company from
obtaining, or affect the timing and cost of, future regulatory approvals. The
extent of potentially adverse government regulation which might arise from
future legislation or administrative action cannot be predicted. See
"Business--Government Regulations." The regulatory process may delay marketing
of the Company's products. Government regulation may also impose costly
procedures upon the Company's activities and effectively furnish a competitive
advantage to larger companies that compete with the Company. There can be no
assurance that any approvals will be granted on a timely basis, if at all. Any
delay in obtaining or any failure to obtain these approvals would adversely
affect the marketing of the Company's products and the ability to generate
product revenue.
Clinical testing of a pharmaceutical product is itself subject to
approval by various government regulatory authorities, including approval of an
Investigational New Drug Application ("IND") with the FDA. No assurance can be
given that the Company will be permitted by regulatory authorities in the United
States or elsewhere to carry out further testing, or that, if permitted,
additional clinical testing will prove that the Company's products are safe and
efficacious to the extent necessary to permit the Company to continue product
testing or obtain marketing approvals for these products from regulatory
authorities. The failure to adequately demonstrate the safety and efficacy of a
therapeutic product under development could delay or prevent regulatory approval
of the product and would have a materially adverse effect on the Company. Delays
in obtaining United States or foreign approvals could adversely affect the
marketing of the Company's products and diminish any competitive advantage the
Company may attain. In addition, delays in regulatory approvals that may be
encountered by corporate collaborators or other licensees of the Company, if
any, could adversely affect the Company's ability to receive royalties. There
can be no assurance that, if clinical trials are completed, the Company will be
able to submit a New Drug Application ("NDA") as scheduled or that the Company's
NDA will be reviewed and approved by the FDA or foreign regulatory agencies in a
timely manner, or at all. See "Business--Marketing and Sales Strategy" and
"Business--Government Regulations."
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While the Company and certain of the Company's collaborators have
performed initial testing of some of the Company's products, further testing,
including clinical testing, will be required before the Company can obtain
marketing approval from regulatory authorities. The results of initial
preclinical and clinical testing are not necessarily predictive of results that
will be obtained from subsequent or more extensive preclinical and clinical
testing, and there can be no assurance that further trials will be successful.
The proceeds from this offering will not be sufficient to finance the
laboratory and clinical trials and other costs associated with the FDA
application and approval process for any products that the Company may develop.
Therefore, the future ability of the Company to market its products will depend
in part upon its ability to obtain additional funding or to enter into licensing
or joint venture arrangements with other companies to finance the FDA
application and approval process.
BROAD DISCRETION OF MANAGEMENT TO ALLOCATE OFFERING PROCEEDS
The Company expects that the proceeds of this offering will be used for
product development, establishment of a small laboratory facility, the hiring
and retention of administrative and scientific personnel and for working capital
and general corporate purposes. The Company is not currently able to estimate
precisely the allocation of the proceeds among these uses, and the timing and
amount of expenditures will vary depending upon numerous factors. The Company's
management will have broad discretion to allocate the proceeds of this offering
and to determine the timing of expenditures. See "Use of Proceeds."
UNCERTAINTY OF PHARMACEUTICAL PRICING AND REIMBURSEMENT
The Company's business 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 are subject to
government control. In the United States, there have been, and the Company
expects that there will continue to be, a number of federal and state proposals
to implement similar government control in those jurisdictions. In addition, an
increasing emphasis on managed care in the United States has put, and will
continue to put, pressure on pharmaceutical pricing. These proposals and trends
could decrease the price that the Company receives for any products it may
develop and thereby have a material adverse effect on the Company's business,
financial condition and results of operations. Further, to the extent that these
proposals or initiatives have a material adverse effect on other pharmaceutical
companies that are corporate partners or prospective corporate partners for
certain of the Company's potential products, the Company's ability to
commercialize its potential products may be materially adversely affected.
The Company's ability to commercialize pharmaceutical products may
depend in part on the extent to which reimbursement for the costs of these
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. Government and other
third-party payors are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement for new therapeutic
products, and by refusing, in some cases, to provide coverage for uses of
approved products for disease indications for which the FDA has not granted
marketing approval. If adequate coverage and reimbursement levels are not
provided by government and third-party payors for the Company's products, the
market acceptance of these products would be materially adversely affected.
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PRODUCT LIABILITY; RISK OF NO INSURANCE
The use of the Company's products in clinical trials and the marketing
of the Company's products may expose the Company to product liability claims.
Although the Company will attempt to obtain product liability insurance and/or
be included as an additional insured party under the respective insurance
policies of the Company's collaborators prior to the marketing of any of its
proposed products, there can be no assurance that the Company will be able to
obtain insurance or additional coverage, or, if obtainable, that the insurance
and/or coverage can be acquired at a reasonable cost or will be sufficient to
cover all possible liabilities. In the event of a successful suit against the
Company, lack or insufficiency of insurance coverage could have a material
adverse effect on the Company. Further, certain distributors of pharmaceutical
and biological products require a minimum level of product liability insurance
coverage as a condition precedent to purchasing or accepting products for
distribution. Failure to satisfy insurance requirements could impede the ability
of the Company to achieve broad distribution of its proposed products, which
would have a material adverse effect on the business and financial condition of
the Company.
CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers will, in the aggregate,
beneficially own approximately 13.8% of the Company's outstanding Common Stock
following the completion of this offering, assuming no exercise of the Warrants,
the Underwriters' over-allotment option or the Managing Underwriter's Warrant.
These stockholders, if acting together, would have a significant impact on all
matters requiring approval by the stockholders of the Company, including the
election of directors and the approval of mergers or other business combination
transactions. This concentration of ownership could discourage or prevent a
change in control of the Company. See "Principal Stockholders."
POSSIBLE VOLATILITY OF STOCK PRICE
The stock market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
market price of the Company's Common Stock and/or the Warrants. In addition, the
market price of the Common Stock and/or the Warrants is likely to be highly
volatile. Factors such as fluctuations in the Company's results of operations,
timing and announcements of technological innovations or new products by the
Company or its competitors, FDA and foreign regulatory actions, developments
with respect to patents and proprietary rights, public concern as to the safety
of products developed by the Company or others, changes in health care policy in
the United States and in foreign countries, changes in stock market analyst
recommendations regarding the Company, the pharmaceutical industry generally and
general market conditions each may have a significant adverse effect on the
market price of the Common Stock and/or the Warrants. In addition, it is likely
that, during at least some future financial reporting periods, the Company's
results of operations will fail to meet the expectations of stock market
analysts and investors and, in that event, the market price of the Company's
Common Stock and/or the Warrants could be materially and adversely affected.
NO PUBLIC TRADING MARKET
Prior to this offering, there has been no public market for the Common
Stock and no public market for the Warrants. There can be no assurance that an
active trading market will develop or, if one does develop, that it will be
maintained. The initial public offering price of the Units and the exercise
price of the Warrants were established by negotiations between the Company and
the Managing Underwriter and may not be indicative of prices that will prevail
in the public trading market. See "Underwriting."
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EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and By-laws may have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. These provisions could limit the price that
certain investors might be willing to pay in the future for shares of Common
Stock. These provisions may also make it more difficult for stockholders to take
certain corporate actions and could have the effect of delaying or preventing a
change in control of the Company. See "Management" and "Description of
Securities."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of Common Stock (including Common Stock issued upon the exercise
of outstanding options and warrants) in the public market after this offering
could materially adversely affect the market price of the Common Stock. These
sales also might make it more difficult for the Company to sell equity
securities or equity-related securities in the future at a time and price that
the Company's management deems acceptable, or at all. Upon the completion of
this offering, the Company will have 5,105,348 shares of Common Stock
outstanding, assuming no exercise of options or warrants after December 19, 1996
and assuming no exercise of the Underwriters' over-allotment option. Of these
outstanding shares of Common Stock, the 1,200,000 shares sold in this offering
as part of the Units will be freely tradeable, without restriction under the
Securities Act, unless purchased by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act. The remaining 3,905,348 shares of
Common Stock held by existing stockholders are "restricted securities" as that
term is defined in Rule 144 under the Securities Act and were issued and sold by
the Company in reliance on exemptions from the registration requirements of the
Securities Act. These shares may be resold in the public market only if
registered or pursuant to an exemption from registration, such as Rule 144 or
Rule 701 under the Securities Act. All officers, directors and certain holders
of Common Stock owning, in the aggregate, shares of Common Stock
have agreed, pursuant to certain lock-up agreements, that they will not offer,
sell, contract to sell, grant any option to sell, pledge, hypothecate or
otherwise dispose of, directly or indirectly, any shares of Common Stock owned
by them, or that could be purchased by them through the exercise of options or
warrants to purchase Common Stock of the Company, for a period of 13 months
after the date of this Prospectus without the prior written consent of the
Managing Underwriter. Upon expiration of the lock-up agreements, approximately
shares of Common Stock held by existing stockholders will be
immediately eligible for resale pursuant to Rule 144, and approximately
shares will be eligible for resale under Rule 144 from time to time
thereafter. The remaining shares held by existing stockholders will
become eligible for resale pursuant to Rule 144 upon the expiration of their
respective two-year holding periods. As of December 19, 1996, shares
were subject to outstanding options and warrants, of which shares
are subject to the lock-up agreements described above. Immediately following the
completion of this offering, 214,285 of the outstanding shares will be entitled
to certain registration rights. The number of shares sold in the public market
could increase if registration rights are exercised. See "Description of
Securities--Registration Rights" and "Shares Eligible for Future Sale."
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS; ADVERSE
EFFECT OF POSSIBLE REDEMPTION OF WARRANTS
Purchasers of the Units will be able to exercise the Warrants included
therein only if a current prospectus relating to the securities underlying the
Warrants is then in effect under the Securities Act and if the securities are
qualified for sale or exempt from qualification under the applicable securities
or "blue sky" laws of the states in which the various holders of the Warrants
then reside. The value of the Warrants may be greatly reduced if a current
prospectus covering the securities issuable upon the exercise of the Warrants is
not kept effective or if the securities are not qualified or exempt from
qualification in the states
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in which the holders of the Warrants then reside. There can be no assurance that
the Company will be able to keep effective any prospectus or obtain any
qualifications or exemptions. See "Description of Securities--The Warrants
Offered."
In addition, the Warrants are subject to redemption by the Company at
$0.25 per Warrant, commencing on the date one year from the date of this
Prospectus, on at least 30 days' prior written notice if the average of the
closing bid prices of the Common Stock for 20 consecutive business days ending
within 10 business days of the date on which the notice of redemption is given
equals or exceeds $ per share [200% of the initial public offering price of
the Common Stock]. If the Warrants are redeemed, holders of Warrants will lose
their right to exercise the Warrants, except during the 30-day notice of
redemption period. Upon the receipt of a notice of redemption of the Warrants,
the holders thereof would be required to: exercise the Warrants and pay the
exercise price at a time when it may be disadvantageous for them to do so; sell
the Warrants at the then market price, if any, when they might otherwise wish to
hold the Warrants; or accept the redemption price, which is likely to be
substantially less than the market value of the Warrants at the time of
redemption. See "Description of Securities--The Warrants Offered."
DILUTION
Investors acquiring shares of Common Stock included within the Units
offered hereby will incur immediate and substantial net tangible book value
dilution of $4.19. To the extent that currently outstanding options and warrants
to purchase the Company's securities are exercised, there will be further
dilution. See "Dilution."
POSSIBLE DELISTING OF SECURITIES FROM THE NASDAQ STOCK MARKET
In order to qualify for initial listing on the Nasdaq SmallCap-SM-
Market, a company must, among other requirements, have at least $4,000,000 in
total assets and a minimum bid price for its common stock of $3.00 per share.
While it is presently expected that the Company's Common Stock and Warrants will
be eligible for initial listing on the Nasdaq SmallCap-SM- Market upon the
completion of this offering, there can be no assurance that this will actually
occur. In addition, even if the Company qualifies for initial listing on the
Nasdaq SmallCap-SM- Market, there can be no assurance that the Company will meet
the criteria for continued listing of securities on the Nasdaq SmallCap-SM-
Market adopted by the Securities and Exchange Commission (the "Commission").
These continued listing criteria include a minimum of $2,000,000 in total assets
and a minimum bid price of $1.00 per share of common stock. If an issuer does
not meet the $1.00 minimum bid price standard, it may, however, remain on the
Nasdaq SmallCap-SM- Market if the market value of its public float is at least
$1,000,000 and the issuer has capital surplus of at least $2,000,000. If the
Company became unable to meet the continued listing criteria of the Nasdaq
SmallCap-SM- Market because of continued operating losses or otherwise and
became delisted therefrom, trading, if any, in the Common Stock and the Warrants
would thereafter be conducted in the over-the-counter market in the so-called
"pink sheets" of the NASD's "Electronic Bulletin Board." As a result, an
investor may find it more difficult to dispose of the Company's securities.
RISK OF LOW-PRICE; "PENNY STOCK" REGULATIONS
If the Company's securities are delisted from the Nasdaq SmallCap-SM-
Market, they may become subject to Rule 15g-9 under the Securities Exchange Act
of 1934 (the "Exchange Act"), which imposes additional sales practice
requirements on broker-dealers that sell these securities, except in
transactions exempted by Rule 15g-9, including transactions meeting the
requirements of Rules 505 or 506 or Regulation D under the Securities Act, and
transactions in which the purchaser is an institutional accredited investor (as
defined) or an established customer (as defined) of the broker/dealer. For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, the rule may
affect the ability and/or willingness of broker-dealers to sell the Company's
securities and may
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consequently affect the ability of purchasers in this offering to sell any of
the securities acquired in this offering in the secondary market.
The Commission has also adopted regulations which define a "penny stock"
to be any equity security that has a market price (as therein defined) of less
than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. Unless exempt, the rules require the delivery,
prior to any transactions in a penny stock, of a disclosure schedule prepared by
the Commission relating to the penny stock market. Disclosure also has to be
made about commissions payable to both the broker-dealer and the registered
representative and about current quotations for the securities. Finally, monthly
statements have to be sent, disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
The foregoing penny stock restrictions will not apply to the Company's
securities if those securities are listed on the Nasdaq SmallCap-SM- Market and
have certain price and volume information provided on a current and continuing
basis or if the Company meets certain minimum net tangible assets or average
revenue criteria. There can be no assurance that the Company's securities will
qualify for exemption from these restrictions. In any event, even if the Company
were exempt from these restrictions, it would remain subject to Section 15(b)(6)
of the Exchange Act, which gives the Commission the authority to prohibit any
person that is engaged in unlawful conduct while participating in a distribution
of penny stock from associating with a broker-dealer or participating in a
distribution of penny stock, if the Commission finds that a restriction would be
in the public interest. If the Company's securities were subject to the rules on
penny stocks, the prices of and market liquidity for the Company's securities
would be severely adversely affected.
ABSENCE OF DIVIDENDS
The Company has never paid cash dividends on its Common Stock and does
not anticipate paying cash dividends in the foreseeable future. See "Dividend
Policy."
INEXPERIENCE OF MANAGING UNDERWRITER
The Managing Underwriter, which commenced operations in 1994, has acted
as an underwriter, or a member of an underwriting syndicate, in only three
public offerings of securities. The Managing Underwriter's lack of experience
may have an adverse impact on its ability to market the Common Stock offered
hereby as well as the development and maintenance of a trading market for the
Company's Common Stock following this offering. The Managing Underwriter intends
to make a market in the Company's Common Stock. The Managing Underwriter's
inexperience may result in the potential inability of the Managing Underwriter
to utilize correctly over-allotment, stabilization and market maintenance
strategies that more experienced underwriters employ to assist in maintaining
orderly trading markets. This may adversely affect the proposed public offering
of the Units and the ability of purchasers in the offering to resell any Units
and/or any component thereof. See "Underwriting."
17
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Units offered hereby are estimated
to be $5,080,000 ($5,902,150 if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $5.25 per Unit,
after deducting the estimated underwriting discounts and commissions and
estimated offering expenses and assuming no exercise of the Warrants.
The Company's management expects to use approximately $3.1 million of
the net proceeds of this offering to fund future development of products, of
which approximately $1.9 million will be used for sponsored research,
approximately $900,000 will be used to establish a small laboratory facility and
approximately $300,000 will be used to hire and retain scientific personnel for
approximately the next 24 months. The balance of the net proceeds of this
offering will be used for working capital and general corporate purposes. Where
the Company's management believes appropriate, proceeds of this offering may
also be used to acquire products or technologies that complement the Company's
existing business, although there are no present understandings, agreements or
commitments with respect to any acquisitions. The amount and the timing of the
expenditures will depend on numerous factors, including the progress of the
Company's research and development programs. The amounts actually expended on
any particular project may vary significantly from the Company's current plans,
particularly given the Company's early stage of development and the uncertainty
of the drug development process.
Pending the uses described above, the net proceeds will be invested in
short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
The Company has never paid dividends on its capital stock. The Company
currently intends to retain earnings, if any, and does not anticipate paying
cash dividends in the foreseeable future. Future cash dividends, if any, will be
determined by the Board of Directors.
18
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1996, (i) the actual
capitalization of the Company and (ii) capitalization of the Company, as
adjusted to reflect the sale of the 1,200,000 Units offered hereby, after
deducting the underwriting discount and offering expenses, at an assumed initial
public offering price of $5.25 per Unit. This table should be read in
conjunction with the financial statements, related notes and other financial
information included herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------------
ACTUAL AS ADJUSTED(1)
------------- --------------
<S> <C> <C>
Notes payable...................................................................... $ 73,425 $ 73,425
Stockholders' equity:
Preferred Stock - $0.01 par value; 1,000,000 shares authorized, no shares issued
and outstanding................................................................ -- --
Common Stock - $0.02 par value; 20,000,000 shares authorized, 3,905,348 shares
issued, actual; 5,105,348 shares issued, as adjusted........................... 78,107 102,107
Additional paid-in capital....................................................... 1,807,879 6,863,879
Deficit accumulated during the development stage................................... (1,570,373) (1,570,373)
------------- --------------
Total stockholders' equity....................................................... 315,613 5,395,613
------------- --------------
Total capitalization............................................................. $ 389,038 $ 5,469,038
------------- --------------
------------- --------------
</TABLE>
- ------------------------
(1) Does not include (a) Units issuable upon the exercise of the Underwriters'
over-allotment option, (b) shares issuable upon exercise of the Managing
Underwriter's Warrants, or (c) 570,000 shares reserved for issuance upon the
exercise of options and warrants outstanding as of September 30, 1996 having
a weighted average exercise price of $0.96 per share. See "Management--Stock
Option Plans"; "Description of Securities--Other Warrants and Convertible
Notes."
19
<PAGE>
DILUTION
The net tangible book value of the Company as of September 30, 1996 was
$309,739 or approximately $0.08 per share. Net tangible book value per share
represents the total tangible assets of the Company, less total liabilities,
divided by 3,905,348 shares of Common Stock outstanding before the completion of
this offering. Assuming the receipt by the Company of the net proceeds from the
sale of 1,200,000 Units offered hereby at an assumed initial public offering
price of $5.25 per Unit, the net tangible book value of the Company as of
September 30, 1996 would have been $5,394,739, or $1.06 per share. This
represents an immediate increase in the net tangible book value of $0.98 per
share to existing stockholders of the Company and an immediate dilution of $4.19
per share to new investors purchasing Units in this offering. The following
table illustrates the per share dilution to be incurred by new investors as of
September 30, 1996:
<TABLE>
<S> <C> <C>
Assumed initial public offering price......................... $ 5.25
Net tangible book value per share at September 30, 1996....... 0.08
Increase per share attributable to new investors.............. 0.98
Net tangible book value per share after the offering..........
</TABLE>
<TABLE>
<S> <C> <C>
1.06
Dilution per share to new investors...........................
</TABLE>
<TABLE>
<S> <C> <C>
$ 4.19
</TABLE>
The following table sets forth, as of September 30, 1996, the difference
between the existing stockholders and the new investors with respect to the
number of shares of Common Stock acquired from the Company, the total
consideration paid and the average price per share, assuming an initial public
offering price of $5.25 per Unit:
<TABLE>
<CAPTION>
SHARES PURCHASED CASH CONSIDERATION
----------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders............................. 3,905,348 76.5% $ 1,866,000 22.9% $ .48
New Investors..................................... 1,200,000 23.5 6,300,000 77.1 5.25
---------- ----- ------------ -----
Total......................................... 5,105,348 100.0% $ 8,166,000 100.0%
---------- ----- ------------ -----
---------- ----- ------------ -----
</TABLE>
The above information assumes that $0.25 of the Unit price is
attributable to the Warrant and excludes (a) Units issuable upon the exercise of
the Underwriters' over-allotment option, (b) shares of Common Stock issuable
upon exercise of the Managing Underwriter's Warrants and (c) an aggregate of
570,000 shares of Common Stock issuable upon the conversion of convertible notes
and the exercise of options and warrants outstanding as of September 30, 1996
with a weighted average conversion/exercise price of $0.96 per share. To the
extent that rights to acquire Common Stock of the Company are exercised, there
will be further dilution to new investors. See "Management--Stock Option Plans,"
"Description of Securities--The Warrants Offered," "--Other Warrants and
Convertible Notes," and Note E of Notes to Financial Statements.
20
<PAGE>
SELECTED FINANCIAL DATA
The data set forth below with respect to the balance sheet as of
December 31, 1995 and the related statement of operations for the two years
ended December 31, 1995 have been derived from the Company's audited financial
statements. The selected data presented below at September 30, 1996 and for the
nine months ended September 30, 1994 and 1995 have been derived from, and are
qualified by reference to, the Company's unaudited financial statements also
appearing herein. The unaudited financial statements, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the unaudited
interim period. Operating results for the nine months ended September 30, 1996
are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 1996. The data should be read in conjunction
with the Financial Statements and the notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this Prospectus. The historical results are not necessarily
indicative of the results of operations to be expected in the future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------------
1995 1994 1996 1995
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Licensing and option revenue............................. $ -- $ -- $ 170,000 $ --
Interest income.......................................... 2,535 3,954 7,301 --
----------- ----------- ----------- -----------
Total revenue.......................................... 2,535 3,954 177,301 --
Expenses:
Research and development................................. 131,842 199,654 100,716 94,966
General and administrative............................... 230,592 323,613 268,819 187,462
Amortization expense..................................... 1,049 1,049 787 787
Interest expense......................................... 31,201 2,645 29,891 22,691
----------- ----------- ----------- -----------
Total expenses......................................... 394,684 526,961 400,213 305,906
----------- ----------- ----------- -----------
Net loss................................................. $ (392,149) $ (523,007) $ (222,912) $ (305,906)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net loss per share (1)................................... $ (.10) $ (.14) $ (.05) $ (.08)
Weighed average number of shares
outstanding (1)........................................ 3,784,623 3,660,514 4,185,555 3,649,496
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
DECEMBER 31, --------------------------
1995 ACTUAL AS ADJUSTED(2)
------------ ---------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents................................................ $ 246,721 $ 373,645 $ 5,458,645
Working capital...................................................... 84,798 309,739 5,394,739
Total assets......................................................... 248,382 492,019 5,572,019
Notes payable........................................................ 204,400 73,425 73,425
Total stockholders' equity (deficit)................................. $ (117,941) $ 315,613 $ 5,395,613
</TABLE>
- ------------------------
(1) In each case, gives effect to a 3 1/3 to 1 reverse stock split effective
December 20, 1996.
(2) Gives effect to the sale of 1,200,000 Units offered by the Company hereby,
after deducting the underwriting discount and offering expenses, at an
assumed initial public offering price of $5.25 per Unit.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S FUTURE RESULTS MAY DIFFER
CONSIDERABLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Since its founding in July 1992, the Company has been engaged in the
development of pharmaceutical and diagnostic products for age-related
neurodegenerative diseases. To date, the Company has not had any revenue from
the sale of products and does not expect to generate any revenue from product
sales in the foreseeable future. The Company's accumulated deficit was
$1,570,373 as of September 30, 1996.
The Company has financed its operations through the sale of Common Stock
and Convertible Notes and from option and license fees received from Athena
Neurosciences ("Athena") and Cephalon, Inc. ("Cephalon"). The Company has raised
a total of $1,615,000 from the sale of Common Stock in three private placement
offerings resulting in gross proceeds as follows: $640,000 in 1992, $475,000 in
1995 and $500,000 through the first nine months of 1996. The Company issued
Convertible Notes in 1994 and 1995, which provided gross proceeds to the Company
of $210,000. Through September 30, 1996, certain of the Company's strategic
partners made aggregate payments to the Company totaling $170,000 under option
and license arrangements. As of September 30, 1996, the Company had incurred a
cumulative net loss of $1,570,373 and expects to incur substantial additional
operational losses in the future.
In April 1996, the Company entered into an exclusive License and
Collaboration Agreement with Athena, which became a wholly-owned subsidiary of
Elan Corporation plc ("Elan") as of July 1, 1996, for the development of certain
estrogen compounds for chronic neurodegenerative diseases, such as Alzheimer's
disease. During the term of the Athena agreement, Athena is obligated to pay the
Company yearly license fees and royalties based on future product sales. Athena
is also obligated to pay certain research and development expenses and costs
associated with performing clinical trials.
In October 1996, the Company entered into an agreement with Cephalon on
a non-exclusive basis for the license of intellectual property related to
vitamin-D compounds for the treatment of neurodegenerative diseases. Cephalon is
obligated to pay the Company yearly license fees that increase if the patent
covering this technology is issued. The yearly maintenance fee also increases if
Cephalon files for regulatory approval for one or more products covered by this
technology. Cephalon is also obligated to pay the Company royalties based on
future product sales.
In June 1994, the Company entered into an agreement with Endocon to
co-develop certain estrogens within subcutaneous drug delivery vehicles. As
currently in effect, the Endocon agreement focuses on the development of
17b-estradiol in a subcutaneous drug delivery vehicle for the treatment of
Alzheimer's disease (NEURESTROL). Neither the Company nor Endocon is obligated
to pay the other for any rights to intellectual property underlying their
agreement or for development of the product. The parties intend to seek a
strategic partner for the commercialization and development of NEURESTROL. Any
future proceeds to the parties relating to NEURESTROL will be allocated 60% to
the Company and 40% to Endocon.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
The Company had licensing and option revenues of $170,000 in the nine
months ended September 30, 1996 as a result of the Company's agreements with
Athena and Cephalon and no revenues during the corresponding period for 1995.
Total expenses were $400,213 in the nine months ended September 30,
22
<PAGE>
1996, compared to $305,906 for the nine months ended September 30, 1995. The
increase in operating expenses was principally due to an increase in general and
administrative expenses of $81,357 or 43.4%, resulting primarily from increases
in patent prosecution expenses associated with the filing of several patent
applications and increased consulting costs.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
There were no licensing and option revenues in the years ended December
31, 1995 and 1994. Total expenses were $394,684 in 1995, compared to $526,961 in
1994. Total expenses decreased $132,277 or 25.1%, primarily due to a decrease in
general and administrative expenses of $93,021 or 28.7% associated with a
decrease in legal and patent expenses of approximately $56,000 due to reduced
activity. Research and development expenses decreased by $67,812 or 34.0%,
primarily due to a decrease in sponsored research expenses of approximately
$56,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations since inception primarily through
private placements of Common Stock and Convertible Notes. From its inception
through September 30, 1996, the Company raised approximately $1,825,000 in total
proceeds from these private placements.
On September 30, 1996, the Company's cash and cash equivalents totaled
$373,645. This excludes an additional $1.0 million received by the Company in
December 1996.
In December 1996, Neuroscience Partners Limited Partnership ("NPLP"), a
limited partnership of which MDS Associes--Neuroscience Inc. is the general
partner, purchased shares of the Company's Common Stock for $500,000.
Also in December 1996, the Company entered into a Royalty Purchase
Agreement with NPLP, pursuant to which NPLP paid the Company an additional
$500,000, in exchange for the issuance by the Company of warrants to purchase
Common Stock and the agreement by the Company to pay NPLP a certain percentage
of the Company's revenues earned from future sales of certain products.
The Company's future cash requirements will depend on many factors,
including the speed and progress of the Company's product development programs,
the scope and results of clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in filing, prosecuting and
enforcing patents, competing technological and market developments and the cost
of product commercialization. For the foreseeable future, the Company's cash
requirements will exceed its revenues. The Company intends to seek additional
funding through agreements with suitable corporate collaborators and through
public or private financing. There are no assurances that strategic alliances,
or any public or private financing, will be available on acceptable terms, if at
all. If adequate funds are not available, the Company may be required to delay,
reduce the scope of, or eliminate one or more of its product development
programs.
The Company estimates that its existing capital resources, including the
net proceeds of this offering and interest thereon will be sufficient to fund
its current and planned operations through approximately January 1999. There can
be no assurance, however, that changes in the Company's product development
plans or other changes affecting the Company's operating expenses will not
result in the expenditure of these resources before such time.
23
<PAGE>
BUSINESS
THE FOLLOWING BUSINESS SECTION CONTAINS FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
CONSIDERABLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Apollo BioPharmaceutics, Inc. ("Apollo" or the "Company") is a
development-stage company engaged in the development of proprietary drugs that
protect brain cells from damage caused by disease, injury and aging. The
Company's target applications include the treatment of Alzheimer's disease,
Parkinson's disease, brain damage resulting from stroke and other age-related
diseases and conditions. The Company's lead product candidates are based on
naturally-occurring hormones that have been demonstrated by Company-sponsored
research to protect brain cells from damage caused by disease, trauma and aging.
The Company's major product initiatives are based on estrogen compounds,
calcitriol or vitamin D-related compounds and other types of neurosteroids.
NEUROMIDOL-TM- and NEURESTROL-REGISTERED TRADEMARK-, two of the
Company's lead product candidates, are in development by the Company for the
prevention of neurodegeneration in Alzheimer's disease. NEUROMIDOL is a type of
estrogen that the Company's management believes will be useful in preventing
brain cell death without inducing feminizing side effects (e.g. breast
enlargement) and therefore could be used to treat men as well as women.
NEURESTROL is an estrogen-based, subcutaneous implant in development for the
long-term, controlled delivery of estrogen in a single dose for the treatment of
Alzheimer's diesease. NEURESTROL is the subject of an Investigational New Drug
Application for Phase I testing in humans. An additional product candidate,
NEUROCALC-TM-, a derivative of vitamin D, is currently being evaluated in a
small number of patients with Alzheimer's disease in a trial funded by the
National Institutes of Health at the University of Kentucky Medical School. The
Company continues to test these as well as other potentially neuroprotective
compounds for efficacy in other neurodegenerative conditions such as Parkinson's
disease, Age-Related Memory Impairment and brain-cell death from stroke. In
addition to its pharmaceutical product candidates, the Company is also currently
evaluating a Hormone Responsiveness Diagnostic test that may predict
responsiveness to hormone therapy.
The Company's development activities to date have been based, in large
part, on intellectual property it has licensed and research it has sponsored at
the medical schools of two universities. The Company intends to continue to
acquire licenses to intellectual property that could advance the Company's
product development efforts. Two patents licensed exclusively to the Company
have recently been issued in the United States. The first patent covers the use
of estrogen compounds for neuroprotection in the treatment of certain diseases,
including Alzheimer's disease, and the second patent covers the Company's
Hormone Responsiveness Diagnostic test.
The Company's commercialization strategy is to enter into strategic
alliances with biotechnology and pharmaceutical companies for the development
and marketing of its product candidates. The Company currently has strategic
alliances with Athena Neurosciences, Inc. ("Athena"), for the development of
estrogen products for chronic neurodegenerative diseases, and with Endocon, Inc.
("Endocon"), for the joint development of NEURESTROL. The Company plans to seek
additional strategic partners for the development of its product candidates.
BACKGROUND
INTRODUCTION
The human brain contains some 10 billion cells known as neurons, each of
which has connections with many other neurons. Sensory, motor and cognitive
activities are all governed by this complex network
24
<PAGE>
of brain cells each member of which communicates with other neurons across
junctions known as synapses. Communication between neurons involves chemical
"messengers" known as neurotransmitters, which are released by the sending
neuron and bind to corresponding receptors on the receiving neuron after
crossing a synapse. In many neurodegenerative diseases like Alzheimer's and
Parkinson's, this communication malfunctions, largely as a result of brain cell
death.
The treatment of many diseases is facilitated by cell regeneration, a
natural component of human healing. However, in the highly complex realm of
neurological diseases, treatment is more difficult because brain cells do not
naturally regenerate. Currently available drugs for the treatment of some
neurological disorders act by increasing or replacing supplies of some
neurotransmitters. The benefits realized from these drugs are limited, however,
because the eventual loss of brain cells, without regeneration, means there are
fewer brain cells for neurotransmitters to activate. The Company's proposed
products are intended to prevent the deterioration and death of these brain
cells.
BRAIN CELL LOSS DURING AGING
Neurons do not multiply after birth. As adults age, the number of brain
cells decreases as cells die and are not regenerated, even in the absence of
disease. The rate of brain cell loss varies from individual to individual. The
genetic or environmental causes that determine the rate of brain cell loss
during aging are unknown. The progressive and cumulative effect of brain cell
loss over a prolonged period results in many physiological changes and
short-term memory loss.
There is evidence suggesting that almost everyone who lives long enough
is subject to some form of age-related disease, such as Alzheimer's or
Parkinson's, each of which is generally associated with brain cell loss in
different regions of the brain. The prevalence of many neurodegenerative
diseases increases with aging. Scientific studies have shown that, although less
than 5% of individuals below age 65 have Alzheimer's disease, this prevalence
increases almost exponentially over age 65, with the result that as many as 50%
of individuals over 85 years of age may have Alzheimer's disease to some extent.
Thus, aging itself is a major risk factor for many types of neurodegenerative
diseases.
The following table summarizes physiological changes in various parts of
the brain in both normal and disease-related situations.
25
<PAGE>
BRAIN CELL LOSS AND OTHER DEGENERATIVE CHANGES
THAT OCCUR IN AGING AND CERTAIN DISEASES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PARKINSON'S
BRAIN REGION NORMAL CHANGES DURING AGING ALZHEIMER'S DISEASE DISEASE
- --------------- ------------------------------------------ -------------------- ----------------
Hippocampus and -Loss of neurons in subiculum; -Extensive neuron
Amygdala -Some other loss neuron or shrinkage; degeneration/death;
-Few amyloid plaques; -Extensive plaques
-Few neurofibrillary tangles; and tangles;
Cerebral Cortex -Large neurons shrink or die; -Neurons die; -Lewy bodies
-Few amyloid plaques; -Extensive plaques;
-Few neurofibrillary tangles; -Extensive tangles;
Basal Forebrain -Shrinkage of neurons; -Loss of cholinergic -Some loss of
-Decline in acetylcholine content; neurons; cholinergic
-Extensive loss of neurons
acetylcholine;
Substantia -Gradual loss of dopamine (DA) neurons in -Extensive loss
Nigra and Basal the substantia nigra; of
Ganglia -Gradual decline of DA DA neurons in
receptors in basal ganglia; substantia
nigra;
-Lewy bodies;
Locus Coeruleus -Significant but gradual loss of neurons -Loss of neurons in -Loss of
with some cases neurons;
aging -Lewy bodies
Note: See glossary for technical definitions.
</TABLE>
HORMONAL CHANGES DURING AGING
The brain controls the output of certain hormones, including estrogen,
which in turn controls the function of many different organs in the human body.
Many neuroendocrine hormones (e.g., growth hormone, estrogen and progesterone)
undergo age-related declines which can lead to deterioration of tissues and
organs and the malfunctioning of major organ systems. These include the thymus,
kidneys, cardiovascular system, muscle and bone. Recent studies have shown that
hormone replacement therapy can be used to bypass, and even reverse, the
degenerative effects of these dwindling hormones. For example, estrogen
administered to postmenopausal women has been shown to protect against
osteoporosis and cardiovascular disease.
ESTROGEN AND PREVENTION OF ALZHEIMER'S DISEASE
Several clinical studies have shown that women undergoing estrogen
replacement therapy tend to be diagnosed with Alzheimer's disease about half as
frequently as women who are not taking estrogen supplements. In one study in
which the post-mortem records of 2,519 women were analyzed, there was a
significant difference in the apparent incidence of Alzheimer's disease among
women who had taken estrogen as compared to women who did not take estrogen. The
National Institutes of Health is currently sponsoring a study to evaluate the
effectiveness of a certain commercially-marketed estrogen product in
post-menopausal women with Alzheimer's disease.
A separate clinical study, published in 1996 in the medical journal THE
LANCET, analyzed a group of 1,124 women over a five-year period. In each year of
the study, approximately 3% of the women who
26
<PAGE>
took estrogen supplements developed Alzheimer's disease, while approximately 8%
of the women who did not take the hormone developed the disease. Furthermore,
the women who took estrogen and did develop Alzheimer's disease developed it
later than women who did not take estrogen. The graph below, excerpted from the
article in THE LANCET, shows the significant difference in the age of onset of
Alzheimer's disease between women taking estrogen compared to women who did not
take estrogen. Among 90 year olds, for example, approximately 50% of the women
who never took estrogen had some form of Alzheimer's disease whereas only
approximately 10% of women using estrogen for more than one year had Alzheimer's
disease. The researchers concluded that estrogen use leads to a reduction in the
incidence and a delay in the onset of Alzheimer's disease. Management expects
that the Company's estrogen-based products will also reduce the incidence and
delay the onset of Alzheimer's disease.
[CHART]
[Graph showing the relative effects of estrogen at differing durations of use by
elderly women in delaying the onset of Alzheimer's disease.]
(Excerpted with permission)
BUSINESS STRATEGY
STRATEGIC FOCUS ON HORMONES AND NEUROPROTECTION
The Company's overall business strategy is to identify and develop
neuroprotective products that are based on substances produced by the human
body. The Company's lead product candidates are based on hormones such as
estrogens which have been demonstrated by the Company's sponsored research to
protect brain cells from the damage caused by disease, trauma or aging. The
Company is developing and evaluating a number of products for the treatment of
Alzheimer's disease, Parkinson's disease and brain damage resulting from stroke.
By understanding the mechanisms by which these substances protect brain cells
from death and damage, the Company intends to design new products which have
improved properties and which will be useful for treating a wide range of
neurodegenerative diseases. The Company's lead product candidates are currently
in various stages of development.
27
<PAGE>
ACQUISITION AND LICENSING OF INTELLECTUAL PROPERTY
The Company has acquired and plans to continue to acquire proprietary
rights to intellectual property and technologies which have been developed at
universities and other research institutions. In exchange for exclusive
licenses, the Company has sponsored several research programs at the University
of Florida School of Medicine and the University of Kentucky School of Medicine.
See "--Intellectual Property Rights." To date, all of the Company's basic
research has been conducted in academic laboratories through sponsored research
programs. The Company has also outsourced most of its regulatory and clinical
development activities. The Company's strategy has been to use outside resources
for research and development activities in order to minimize fixed costs and
preserve capital. The Company plans to lease a small laboratory facility in the
future and to continue this outsourcing strategy in order to preserve its
capital. See "Use of Proceeds."
PRODUCT COMMERCIALIZATION THROUGH STRATEGIC ALLIANCES
The Company does not intend to become a fully-integrated pharmaceutical
company combining marketing, sales, manufacturing and regulatory capabilities.
Rather, the Company's strategy is to enter into strategic alliances with
biotechnology and pharmaceutical companies that have the technological
resources, operational expertise or financial resources that will aid in the
development and sale of the Company's products. The Company has entered into two
strategic alliances to date: (i) Athena, for the development of certain estrogen
compounds for chronic neurodegenerative diseases; and (ii) Endocon, for the co-
development of NEURESTROL. There can be no assurance that either of these
alliances will result in the development of any products. See "--Strategic
Alliances and Licenses."
PRODUCTS IN DEVELOPMENT
The Company's lead product candidates, which are based on hormones such
as estrogen, are designed to protect brain cells from the damage caused by
disease, trauma or aging. The predominant circulating form of estrogen in the
body is 17b-estradiol, which is produced primarily by the ovaries. Only small
amounts of 17b-estradiol are produced in women after menopause. Men of all ages
have small amounts of circulating estrogen produced by the conversion of male
hormones. Estrogen is used by many women following the menopause in hormone
replacement therapy to treat hot flashes, and to protect against osteoporosis
and cardiovascular disease. In the United States, an estrogen product known as
Premarin, produced from the urine of horses, is widely used. Several clinical
studies have indicated that estrogen use may reduce the incidence and delay the
onset of Alzheimer's disease. Even though none of the Company's estrogen-based
product candidates has been tested in humans with respect to neuroprotection,
management believes that the potential effectiveness of the Company's products
is supported by reported results of research conducted by others on similar
compounds. See "--Estrogen and the Prevention of Alzheimer's Disease."
The following table summarizes the Company's most advanced product
candidates currently in development, along with the disease targets, strategic
partners and commercial rights associated with each product candidate. In the
future, the Company may choose to evaluate these product candidates for the
treatment of other diseases or for prophylaxis of certain neurodegenerative
diseases. All information presented in this table is qualified by more detailed
descriptions presented elsewhere in this Prospectus.
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APOLLO BIOPHARMACEUTICS, INC.
PRODUCTS UNDER DEVELOPMENT
<TABLE>
<CAPTION>
STRATEGIC PARTNERSHIP
---------------------------------------------
PROGRAM/LEAD COMPOUND DISEASE TARGET DEVELOPMENT STATUS COMMERCIAL RIGHTS RELATIONSHIP
- ------------------------ -------------------- ---------------------- ------------------- ------------------------
<S> <C> <C> <C> <C>
ESTROGEN COMPOUNDS
NEUROMIDOL -Alzheimer's disease Lead candidate(1) Athena Exclusive license
-Parkinson's disease Planning(2) Athena Exclusive license
-Other chronic Planning Athena Exclusive license
neurodegenerative
diseases
-Stroke and other Research(3) Athena Right of first refusal
acute for exclusive license
neurodegenerative
diseases
NEURESTROL -Alzheimer's disease IND filed(4) Apollo/Endocon Co-development
-Parkinson's disease IND filed Apollo/Endocon Co-development
-Age-Associated IND filed Apollo/Endocon Co-development
Memory Impairment
CALCITRIOL-RELATED
COMPOUNDS
NEUROCALC -Alzheimer's disease Physician's Phase I(5) Apollo(7) (8)
OTHER VITAMIN D -Alzheimer's disease Research Apollo(7) (8)
COMPOUNDS
-Other chronic Planning Apollo(7) (8)
neurodegenerative
diseases
OTHER NEUROSTEROIDS -Chronic Research Apollo (8)
neurodegenerative
diseases
-Acute
neurodegenerative
diseases
HORMONE RESPONSIVENESS -Determination of Clinical testing(6) Apollo (8)
DIAGNOSTIC responsiveness
</TABLE>
- --------------------------
(1) "Lead candidate" means that a particular compound (or compounds) has been
selected for further preclinical study, based on positive results from one
or more IN VITRO or IN VIVO disease models.
(2) "Planning" means that the disease target is being assessed by the Company
for potential future research and clinical activities.
(3) "Research" means that research is underway by the Company to synthesize
and/or select compounds for further development.
(4) "IND filed" means that an Investigational New Drug Application has been
submitted to the FDA to initiate human testing. This IND was co-sponsored by
Endocon and the Company. Phase I dosing studies on female volunteers is to
be conducted at the National Institutes of Health (NIH).
(5) "Physician's Phase I" means that a Phase I human trial is being conducted
based on a Physician's IND. In the case of NEUROCALC, the Physician's IND
was filed by an independent physician and a small NIH-funded study is
underway in humans at the University of Kentucky School of Medicine.
(6) "Clinical testing" means that, in the case of the Company's diagnostic
initiative, the Hormone Responsiveness Diagnostic test has been, and
continues to be, evaluated using blood samples from human volunteers.
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(7) The Company has sublicensed to Cephalon, on a non-exclusive basis, certain
of the Company's rights to its intellectual property in the vitamin-D area
for neuroprotection. See "--Strategic Alliances and Licenses."
(8) The Company will evaluate the potential for sublicensing these potential
products and programs to corporate partners in the future, as appropriate.
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The Company's product candidates are hormones or compounds similar in
structure to known hormones, including estrogen, as well as compounds based on
vitamin D, which are able to penetrate the blood-brain barrier due to their
physical characteristics. The blood-brain barrier is a physical structure formed
by a tight network of cells which separates the brain from the circulatory
system and which restricts the passage of most molecules into the brain.
Normally, access to the brain occurs only through the circulation of blood.
Large proteins, such as nerve growth factor and other neurotrophic factors,
cannot gain access through the blood-brain barrier on their own. While the
blood-brain barrier serves to protect the brain from being exposed to
potentially harmful compounds, it makes delivery of pharmaceutical drugs
extremely difficult, requiring either a short-term breakdown of the barrier, the
physical placement of a shunt through the skull for the direct delivery of drugs
or the use of a chemical carrier system. These procedures are difficult to
implement and can be risky or invasive. Inaccessibility of the brain due to the
blood-brain barrier has greatly limited drug development for the treatment of
diseases of the central nervous system. The Company's product candidates are
expected to diffuse to the brain through the blood-brain barrier.
ESTROGEN COMPOUNDS
Estrogens are believed to act directly on brain cells to reduce the
incidence and to delay the onset of Alzheimer's disease. Estrogens readily enter
the brain and interact with brain cells to provide neuroprotection. Estrogens
have been shown to be highly neuroprotective in situations where brain cell
viability is compromised by trauma, or by glucose or oxygen deprivation.
Activation of estrogen receptors at other sites in the body causes cell growth
in the breast, the uterus and the endometrium. Currently, the use of estrogen
therapy is not recommended for men due to its feminizing side effects (e.g.
breast enlargement), or for certain women because of a history of breast cancer
or because of some women's intolerance to the hormonal side effects of
estrogens. Discoveries resulting from the Company's sponsored research indicate
that it is possible for estrogens to act on brain cells through a novel
mechanism that does not require the estrogen to bind to its normal receptor.
Management believes that this mechanism would result in fewer hormonal side
effects. This novel approach should enable the Company to design and evaluate a
variety of estrogens that lack sex hormone activity and therefore will be useful
in the treatment of men, as well as women.
The Company's lead product candidates in this area are NEUROMIDOL and
NEURESTROL. Both products are in development primarily to treat
neurodegeneration associated with Alzheimer's disease. NEUROMIDOL is a trademark
of the Company representing certain novel estrogens for use in the prevention of
neurodegeneration. NEUROMIDOL is being developed by the Company together with
Athena for the treatment of Alzheimer's disease. See "--Strategic Alliances and
Licenses." NEUROMIDOL has been shown by the Company's sponsored research to
protect brain cells, while it is not known to interact with other tissues.
Management believes that NEUROMIDOL and related products will have specificity
for the central nervous system and therefore will have fewer side effects than
compounds which are active as sex hormones. The Company and Athena are currently
evaluating NEUROMIDOL and other compounds in Athena's proprietary animal model
for Alzheimer's disease. The Company is the exclusive licensee of a broad patent
recently issued in the United States covering the use of estrogen in the
prevention of neurodegeneration, including the treatment of Alzheimer's disease.
NEURESTROL is the brand name for 17b-estradiol formulated within
Endocon's bioerodible implant for the treatment of women with neurodegenerative
diseases, such as Alzheimer's. NEURESTROL is delivered in the form of a small
pellet, inserted into the underside of a patients' forearm, which is capable of
the sustained release of an active drug for in excess of one year. Because the
pellet is fully bioerodible, there is no need for its retrieval. This type of
formulation is expected to greatly increase patient compliance and will relieve
a burden currently placed on caregivers of patients undergoing long-term
therapy. The Company and Endocon have agreed to co-develop NEURESTROL. See
"--Strategic Alliances and Licenses." The Company and Endocon have submitted an
IND for NEURESTROL to the FDA in order to begin Phase I
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dosing studies on female volunteers at the National Institutes of Health.
NEURESTROL is the subject of intellectual property licensed to the Company on
the use of estrogens for neuroprotection and numerous Endocon patents related to
the proprietary delivery system. See "--Intellectual Property Rights."
CALCITRIOL-RELATED COMPOUNDS
As people age, develop neurodegenerative disease or are subjected to
injury, their brain cells tend to accumulate calcium in greater quantities than
brain cells of young, healthy people. This is due, in part, to the inability of
aged, diseased or injured brain cells to extrude calcium efficiently. Calcium
accumulation in brain cells, especially over long periods of time, can make
brain cells increasingly vulnerable to certain environmental factors and can
lead to brain cell death. Levels of calcium in the body are regulated by complex
interactions of a number of "calcitropic" hormones, including calcitriol. In
aging and neurodegenerative diseases, such as Alzheimer's, these hormones can
become inappropriately regulated. Several studies have indicated that
Alzheimer's patients have low vitamin-D levels. Low serum calcium and
phosphorous levels (which are indicative of low vitamin-D activity) are believed
to precede the onset of Alzheimer's disease symptoms. Calcitriol, the active
metabolite of vitamin D, is an extremely potent hormone that regulates calcium
and phosphorous levels. NEUROCALC is the Company's brand name for calcitriol.
The Company's academic partners have demonstrated that animals treated with
calcitriol for 8-12 months show significant neuroprotection and a greater
density of brain cells than animals without calcitriol administration.
A small-scale human trial sponsored by the National Institutes of Health
is underway at the University of Kentucky School of Medicine to evaluate the
therapeutic effectiveness of NEUROCALC in deterring the long-term progression of
Alzheimer's disease.
The Company has plans to produce its own and/or license from other
companies or research institutions certain novel vitamin-D compounds and
evaluate these compounds for efficacy in the treatment of neurodegenerative
disorders. If any of these compounds are identified, the Company may further
test these compounds in humans. In addition, the Company has entered into a
non-exclusive license relationship with Cephalon pursuant to which the Company
has licensed to Cephalon certain of its intellectual property in this area. See
"--Strategic Alliances and Licenses." The Company may choose to issue additional
licenses to its intellectual property in this field.
ADDITIONAL COMPOUNDS IN DEVELOPMENT
Neurosteroids are a class of steroidal compounds located in the central
nervous system that have a wide range of effects on brain cells. The Company has
sponsored research to design and produce a number of additional neurosteroid
compounds in order to test their ability to protect against brain cell death. A
library of approximately 40 compounds has been synthesized in connection with
the Company's sponsored research. These include certain compounds derived from
adrenal steroids such as dehydroepiandrosterone (DHEA) (which has been shown in
animal studies to have memory-enhancing effects) and dehydroepiandrosterone
sulfate (DHEAS). Research sponsored by the Company indicates that certain
structural properties of a number of other neurosteroids can predict their
neuroprotective activity, which could assist the Company in the design of
additional compounds and new product candidates. The Company and the University
of Florida School of Medicine have two patents pending in this area.
HORMONE RESPONSIVENESS DIAGNOSTIC
Estrogen replacement therapy is currently being used by millions of
women worldwide for the treatment of menopausal symptoms, including hot flashes,
and to protect against osteoporosis and cardiovascular disease. Despite its
widespread use, estrogen replacement therapy is currently prescribed without
information as to whether the treatment will be effective and as to the optimal
dosages for individual patients. There is a need for tools which can better
determine appropriate treatment guidelines.
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The Company is developing a Hormone Responsiveness Diagnostic test, a
proprietary diagnostic blood test that predicts how well patients will respond
to hormone therapy. To date, clinical evaluation of the test has been conducted
with approximately thirty people of both sexes and of various ages. The Company
plans to expand this testing significantly. A United States patent has recently
been issued on this diagnostic test and has been licensed to the Company on an
exclusive basis. Management expects that information derived from this
diagnostic test will aid clinicians in designing rational long-term hormonal
treatment protocols.
STRATEGIC ALLIANCES AND LICENSES
ATHENA NEUROSCIENCES, INC.
In April 1996, the Company entered into a License and Collaboration
Agreement with Athena (the "Athena Agreement") in which the Company granted to
Athena an exclusive, worldwide license (with the right to sublicense), under
certain of the Company's patent rights, to develop and commercialize certain
estrogen compounds for the treatment of chronic neurodegenerative diseases
(i.e., those with a treatment duration of six months or more), including
Alzheimer's disease. Athena also has the first right to fund any proposal of the
Company for acute indications in exchange for an exclusive license. These rights
are exercisable on a case-by-case basis. Under the Athena Agreement, research
and product development is managed by a joint committee with two representatives
from each company.
The Athena Agreement provides for the payment by Athena of an annual
maintenance fee until an NDA is approved for a product incorporating a licensed
compound, after which Athena will pay a royalty based on Athena's direct net
sales. The Company would also receive a portion of any income Athena receives
from fees and sales of licensed products by Athena's sublicensees. Athena has
the responsibility to fund all research and clinical expenses approved by the
joint committee and to undertake reasonable efforts to develop estrogen products
under its license, and will receive a credit against royalties for its research
and development expenses. Athena may terminate the agreement at any time, in its
sole discretion, upon 90 days' written notice.
Athena has previously granted to Eli Lilly and Company ("Lilly") an
option to acquire exclusive, worldwide licenses from Athena to certain compounds
which are the subject of their research collaboration. Certain of the compounds
licensed to Athena under the Athena Agreement may fall within this definition.
The Athena-Lilly collaboration is presently scheduled to expire as of December
31, 1996. The Company does not know whether and on what terms the Athena-Lilly
collaboration may be renewed, or whether any such renewal will alter the basis
upon which Lilly may participate in Athena's rights under the Athena Agreement.
ENDOCON, INC.
In June 1994, the Company entered into an agreement with Endocon to
co-develop certain estrogens within subcutaneous drug delivery vehicles. As
currently in effect, the Endocon agreement focuses on the development of
17b-estradiol within a subcutaneous drug delivery vehicle for the treatment of
Alzheimer's disease (NEURESTROL). Neither the Company nor Endocon is obligated
to pay the other for any rights to intellectual property underlying their
agreement or for development of the product. The parties intend to seek a
strategic partner for the commercialization and development of NEURESTROL. All
proceeds to the parties relating to NEURESTROL will be allocated 60% to the
Company and 40% to Endocon.
The Company and Endocon each have the right to terminate the agreement
upon 60 days' notice to the other party, provided that the terminating party
will grant an exclusive, fully-paid license to the non-terminating party to
continue to develop and market NEURESTROL independently.
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<PAGE>
CEPHALON, INC.
In November 1996, the Company entered into a Nonexclusive Sublicense
Agreement with Cephalon (the "Cephalon Agreement") in which certain rights to
its intellectual property in the vitamin-D area (see "--Calcitriol-Related
Products") for neuroprotection were licensed on a non-exclusive basis to
Cephalon. Under the Cephalon Agreement, the Company will receive annual
maintenance payments, which escalate upon the achievement of certain milestones,
and a royalty based on product sales including a minimum royalty.
THERAPEUTIC TARGET MARKETS
THE AGING POPULATION AND DISEASE MANAGEMENT
During the national debate on the reform of the health care system in
the United States, major pharmaceutical companies studied outcomes data on
non-pharmaceutical interventions, i.e. hospitalization, earliest possible
release dates, readmittances and long-term care (nursing homes and
rehabilitation facilities). These studies showed that an integrated approach to
broad areas of disease management would result in both superior outcomes as well
as greater profitability than earlier industry paradigms. Accordingly,
pharmaceutical companies have sought to develop and license a range of
diagnostic and pharmaceutical interventions that could result in shorter
hospital stays and reduced reliance on long-term in-patient care of the aging
population. Cognitive problems and the incidence of Alzheimer's disease increase
with age and thereby put the patient at considerable risk of mismedication,
falls and generally poor attention to personal health matters--all resulting in
increased hospital admittances and protracted long-term in-patient care.
Management believes that the Company's therapeutic and diagnostic
product candidates could become significant tools in neurodegenerative disease
management and address significant market opportunities. As the population ages
and baby boomers reach retirement age the number of people with one or more
neurodegenerative disease is expected to increase exponentially.
ALZHEIMER'S DISEASE
Alzheimer's disease is a complex neurodegenerative disease characterized
by brain atrophy. The progression of the disease always leads to memory loss and
dementia. The course of Alzheimer's disease typically runs eight or more years
and results in death. The earliest sign of the disease is an impairment in
short-term memory and intellectual ability. Over the course of the disease,
memory loss becomes severe, ability to reason deteriorates, and patients become
depressed, agitated, irritable and restless. In the final stages of the disease,
patients become unable to care for themselves and frequently require long-term
care in nursing homes.
Alzheimer's disease is directly correlated to aging. Less than 5% of
persons between the ages of 60 and 65 have the disease, while approximately 50%
of persons over the age of 85 have the disease. According to the National
Alzheimer's Association, over four million Americans currently suffer from
Alzheimer's disease and the direct costs associated with their diagnosis,
treatment and care is approximately $100 billion per year. The prevalence of
this disease is expected to increase to 14 million persons in the United States
by the year 2050. There is no treatment currently available to slow the
progression of the disease.
PARKINSON'S DISEASE
Parkinson's disease is associated with trembling of the arms and legs,
stiffness and rigidity of muscles and slowness of movement. These symptoms are
caused by a chemical imbalance in the brain caused by the loss of key brain
cells. Parkinson's disease is characterized by neuron loss in the substantia
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nigra and the locus coeruleus regions of the brain. Parkinson's disease can
cause depletion of 70% or more of the cells in these regions.
Approximately 10% of patients with Parkinson's disease also experience
dementia. The American Academy of Neurology estimates that there are
approximately 1,000,000 persons afflicted with Parkinson's disease in the United
States. The total direct health care costs in the United States have been
estimated to be $340 million annually. Although there are a number of
pharmaceuticals in use today to treat Parkinson's disease, their effects are
only temporary and none can treat the underlying neurodegeneration associated
with the disease.
STROKE
Most strokes are caused by blockage of critical blood vessels leading to
the brain. This causes a reduction in blood flow to the brain and results in
deprivation of oxygen in the affected regions ("ischemia"). Ischemia, in turn,
leads to the death of brain cells. Brain cell death following stroke is the
major cause of stroke-related disability, including paralysis, impaired
cognition and loss of sensation.
Stroke is a leading cause of morbidity and mortality in the United
States. According to the American Heart Association (the "AHA"), approximately
500,000 persons in the United States have new or recurrent strokes each year.
While 30% of stroke victims die within a year, the AHA estimates that there are
3,820,000 stroke survivors in the United States today. Many stroke survivors
suffer stroke-related crippling disabilities and require long-term care at
enormous cost. The American Academy of Neurology estimates that $30 billion is
spent annually in the United States on stroke-related hospital, physician and
rehabilitation expenses. Currently, there are no products available that
minimize stroke-related brain damage.
ACUTE NEUROLOGICAL INJURY
Acute neurological injury can result from decreased blood flow to the
brain during cardiac surgery as well as from hypoglycemia (brain glucose
deficiency) and trauma (injury). In each case, the injury can lead to damage or
to the death of brain cells. The death of brain cells is largely due to the
deprivation of oxygen, as in stroke.
Between 400,000 and 500,000 people in the United States undergo coronary
bypass operations each year. Approximately 10% of coronary by-pass patients
suffer neurological side effects due to occlusion (blockage) of small blood
vessels leading to the brain and brain damage ranging from minor cognitive
deficits to debilitation. Trauma due to brain or spinal injury is also a major
cause of morbidity in the United States, afflicting over 500,000 persons
annually. Brain cell death and brain damage caused by recurrent and untreated
hypoglycemia is less well characterized but is estimated to occur in about
100,000 persons annually in the United States. Currently, there are no
therapeutic products on the market to prevent, treat or limit damage in acute
neurological injury.
AGE-ASSOCIATED MEMORY IMPAIRMENT
Age-Associated Memory Impairment (AAMI) is an age-associated disorder
that is characterized by memory loss in otherwise healthy, elderly individuals.
Persons with AAMI experience a gradual decline in the ability to perform the
tasks of daily life dependent on memory, as compared to the overall population
of same-aged individuals. Age-related memory loss is frequently described as
"normal." Presently the causes of AAMI are not well understood. However, brain
cell death with aging has been reported to occur in certain regions of the brain
implicated in memory. Currently, there is no pharmacological treatment for AAMI.
Although several classes of experimental drugs have been proposed in the
scientific literature to treat AAMI, none has proved efficacious to date in
humans.
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INTELLECTUAL PROPERTY RIGHTS
The Company is the exclusive licensee of two patents issued in the
United States, as well as a number of patent applications that are currently
pending in various countries. The Company is also the co-owner of two patent
applications which are pending. In addition, the Endocon drug delivery
technology used in NEURESTROL and licensed to the Company is the subject of 12
patents and one pending application. The Company also has exclusive options to
acquire additional licenses from the University of Florida School of Medicine
and the University of Kentucky School of Medicine related to research programs
which have been sponsored by the Company. The Company has filed and will
continue to file patent applications in the United States and in foreign
countries throughout the world in order to protect intellectual property of its
own and intellectual property which it has licensed. The Company intends to
maintain an aggressive strategy for filing, maintaining and prosecuting its
intellectual property. The Company's success in large part will depend on its
ability to obtain patent protection in various jurisdictions relating to the
technologies, processes and products it is developing and may develop in the
future. The Company also intends to rely on trade secrets to protect certain
other technologies (e.g., animal models for aging) which may be used in
discovering and evaluating new drugs which could become marketable products. To
protect its inventions, trade secrets and other proprietary information, the
Company has confidentiality agreements in place with its staff, consultants and
scientific and clinical advisors. See "Risk Factors."
ESTROGEN COMPOUNDS
In December 1993, the Company was granted an exclusive worldwide license
from the University of Florida Research Foundation, Inc. (the "UFRFI") to
certain technology developed at the University of Florida School of Medicine
related to a method of protection against brain-cell loss using estrogen
compounds. The agreement was amended in October 1996. In consideration of the
grant of the license, the Company has funded certain research programs at the
University of Florida School of Medicine and agreed to pay a royalty based on
product sales. The Company extended its research contract through the end of
1997. A U.S. patent on this technology that has been licensed to the Company was
issued in September of 1996 and covers the use of estrogen compounds for the
treatment of neuron loss in a subject, including a subject with Alzheimer's
disease. Corresponding patent applications are pending in the United States and
several other countries throughout the world. The Company entered into an
agreement with Athena in April 1996 for the clinical development and marketing
of estrogen products for chronic neurodegenerative diseases. See "--Strategic
Alliances and Licenses."
CALCITRIOL-RELATED COMPOUNDS
In April 1993, the Company was granted an exclusive worldwide license
from the University of Kentucky Research Foundation to certain technology
developed at the University of Kentucky School of Medicine related to a method
of protection against brain-cell loss using vitamin-D derivatives and compounds
which bind the vitamin-D receptor. In consideration of the grant of the license,
the Company funded certain research programs at the University of Kentucky
School of Medicine and agreed to pay a royalty based on product sales. Patent
applications in the U.S. and foreign jurisdictions are currently pending. The
Company entered into a non-exclusive license agreement with Cephalon in November
1996 covering certain of the Company's rights in the vitamin-D area for
neuroprotection. See "--Strategic Alliances and Licenses."
HORMONE RESPONSIVENESS DIAGNOSTIC
In September 1994, the Company was granted an exclusive worldwide
license from the UFRFI to certain technology developed at the University of
Florida School of Medicine related to a method of diagnosing hormonal
responsiveness using an IN VITRO sample. In consideration of the grant of the
license, the Company has committed to pay a royalty based on product sales. A
U.S. patent was issued on this
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technology in August 1996 and claims a method of diagnosis as well as the
diagnostic kit itself. Corresponding patent applications are pending in the
United States and several other countries throughout the world.
COMPETITION
Competition in the area of pharmaceutical products is intense. There are
many companies, both public and private, including well-known pharmaceutical
companies, that are engaged in the development of products for certain of the
applications being pursued by the Company. The Company's larger competitors
include Amgen, Inc., Warner-Lambert Co., Bristol-Meyers Squibb Company, Glaxo
Wellcome plc, Regeneron Pharmaceuticals, Inc., Hoechst Marion Roussel Ltd. and
Pfizer, Inc., as well as Athena. There are other public and private companies
that are also developing products to treat neurodegenerative diseases. There may
be other companies of which the Company is not aware with product development
programs similar to those of the Company. Many of the Company's competitors have
substantially greater financial, research and development, manufacturing and
marketing experience and resources than the Company and represent substantial
long-term competition for the Company. These companies may succeed in developing
pharmaceutical products that are more effective and/or less costly than any
products that may be developed by the Company or its strategic partners. The
Company is aware of two products currently being marketed for the treatment of
cognitive deficits in Alzheimer's disease, COGNEX and ARICEPT, neither of which
slows the progression of the disease or protects brain cells. Both products are
acetylcholinesterase inhibitors and act by increasing levels of a deficient
neurotransmitter.
Factors affecting competition in the pharmaceutical industry vary,
depending on the extent to which a competitor is able to achieve a competitive
advantage based on its proprietary technology. If the Company is able to
establish and maintain a significant proprietary position with respect to its
products, competition will likely depend primarily on the effectiveness of the
product and the number and severity of its unwanted side effects as compared to
alternative products.
The industry in which the Company competes is characterized by extensive
research and development efforts and rapid technological progress. Although the
Company believes that its proprietary position may give it a competitive
advantage with respect to its proposed drugs, new developments are expected to
continue and there can be no assurance that discoveries by others will not
render the Company's potential products noncompetitive. The Company's
competitive position also depends on its ability to attract and retain qualified
scientific and other personnel, develop effective proprietary products,
implement development and marketing plans, obtain patent protection and secure
adequate capital resources. There can be no assurance that the Company will be
able to successfully achieve all of the foregoing objectives. See "Risk
Factors--Competition" and "--Development of New Technologies and Products."
MANUFACTURING PLANS
The Company has no experience in manufacturing products for commercial
purposes and has no manufacturing facilities of its own for production of either
the bulk biological compounds or the final dosage form of its product
candidates. The Company relies, and intends to continue to rely, upon its
corporate partners and third party subcontractors for the production of
products, for research, preclinical and clinical studies. The Company may be
unable to contract with suitable third-party manufacturers at commercially
feasible prices which would have the impact of adversely affecting the Company's
ability to commercialize its products.
At this time, the Company does not intend to build a fully-integrated
manufacturing operation to support production of the Company's products. In
manufacturing pharmaceutical products a company must comply with cGMPs that are
promulgated and enforced by the U.S. Food and Drug Administration as set forth
under Title 25 of the Code of Federal Regulations. The investment that would be
required to develop and validate a commercial manufacturing operation for a new
drug would be significant. The
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Company may consider, however, retaining the rights to certain key proprietary
processes used in the production of precursor molecules which would be
indispensable to the manufacturing of the final formulation. In that case, a
manufacturing revenue stream may be achievable without requiring the magnitude
of capital investment described above. There can be no assurance that the
Company will be able to develop necessary key processes or that the practice of
key processes would be cost effective.
MARKETING AND SALES STRATEGY
The Company has no experience in marketing or selling products and does
not intend to build up a marketing operation that would compete with those of
existing multinational pharmaceutical companies, but rather intends to work with
other organizations for the marketing of the Company's products. The Company has
entered into strategic alliances, and will continue to attempt to do so, with
larger pharmaceutical companies which have their own marketing, sales and
distribution staffs and expertise. There can be no assurance that the Company
will establish productive strategic alliances or that any of its strategic
alliances will be in place long enough so that the Company recognizes any
significant profits.
GOVERNMENT REGULATIONS
The manufacturing and marketing of the Company's potential products are
subject to comprehensive regulation by numerous governmental authorities in the
United States and other countries. In the United States, products that the
Company anticipates developing are subject to rigorous regulation under the
Federal Food, Drug and Cosmetic Act, the Public Health Service Act and other
federal and state statutes and regulations which govern, among other things, the
testing, approval, manufacture, labelling, storage, record keeping, advertising
and promotion of these products. Human therapeutic products require rigorous
testing, both preclinical and clinical, and approval by the FDA or other
appropriate foreign regulatory agencies for marketing in foreign countries.
Other statutory provisions and regulations govern testing, manufacturing,
labeling, storage and record keeping related to product development and
marketing of products. The process of applying for and obtaining regulatory
approval in compliance with the relevant statutes and regulations requires the
expenditure of substantial time and financial resources. Failure by the Company
or its licensees to comply with relevant statutes could result in, among other
things, fines, suspension of approvals, seizures, recalls of products, or
criminal prosecutions, and could delay regulatory approval, which in turn could
adversely impact the Company's plans for product introduction.
The Company believes that certain of its planned products may be
classified, for purposes of FDA regulation, as biological products, while others
may be classified as drugs. New drugs or biological products require several
steps in order to receive regulatory approval, including: (i) preclinical
laboratory and animal tests; (ii) submission to the FDA of an Investigational
New Drug Application ("IND"), which must become effective before human clinical
trials may start; (iii) the performance of well-controlled clinical trials; and
(iv) submission to the FDA of a New Drug Application ("NDA") for a new drug or a
Product License Application ("PLA") for a biologic. The NDA or PLA contains the
results of preclinical tests and clinical trials as well as required information
on product composition and manufacturing processes. In addition, for a
biological product, an Establishment License Application ("ELA") covering the
manufacturing facilities for the product must be submitted to the FDA. If the
Company does not manufacture the product that is the subject of the PLA,
contractual issues may complicate the ELA/PLA application and approval process
as a result of the FDA's rules pertaining to manufacturing of biological
products. The NDA or PLA/ELA must be approved by the FDA before commercial
marketing of the product may begin.
Prior to testing products in humans, a rigorous series of preclinical
studies must be performed on animals in order to assess the safety of potential
products. After testing on animals, an IND must be filed with the FDA to obtain
authorization for human testing. Unless the FDA objects, the IND becomes
effective 30 days after submission. Extensive clinical testing must then be
undertaken to demonstrate
38
<PAGE>
optimal use, safety and efficacy of each product in humans. Human clinical
trials are typically conducted in a three-step process. In Phase I clinical
trials, the potential product is tested on a small number of healthy human
subjects to determine the safety, dosage tolerance, pattern of drug
distribution, pharmacokinetic properties and metabolism. In Phase II, clinical
trials are conducted with groups of patients afflicted with a specific disease
or condition in order to determine preliminary efficacy and optimal dosages and
to identify potential adverse effects. In Phase III, large-scale, multi-center,
comparative trials are conducted in order to provide controlled and adequate
demonstration of safety and efficacy. The FDA reviews the clinical plans and the
results of trials, and can discontinue the trials at any time for any of a
number of reasons. Each clinical trial is conducted under the auspices of an
Institutional Review Board ("IRB"). The IRB considers, among other things,
ethical factors, the safety and welfare of human subjects, and the adequacy of
the informed consent form. When completed, results from the preclinical and
clinical trials are submitted to the FDA as a NDA for approval to commence
commercial sales. The approval process is affected by several factors, including
the severity of the disease, the availability of alternative treatments, and the
risks and benefits demonstrated in clinical trials. Following an extensive
review, the FDA may grant product marketing approval, request additional
information (including additional studies) or deny the application if the FDA
deems that it does not satisfy the regulatory approval criteria. There can be no
assurance that approvals will be granted on a timely basis, if at all. Similar
procedures are in place in countries outside the United States for product
approvals in those countries. Even if new drugs are approved in a foreign
country, they may not be exported for commercial sale until either FDA approval
for sale in the United States or FDA approval of an export application has been
obtained.
The Company is also subject to regulations and recommendations related
to work place conditions, use and disposal of radioactive compounds and other
potentially hazardous materials, use of recombinant genetically engineered
organisms and potentially pathogenic organisms. Specifically, the Company will
be subject to government regulation under the Occupational Safety and Health
Act, the Environmental Protection Act, the Atomic Energy Act, the Clean Air Act,
the Clean Water Act, the National Environmental Policy Act, the Toxic Substance
Control Act, and the Resource Conservation and Recovery Act, and other national,
state, or local regulations. This list of regulations and recommendations is not
an exclusive list nor is it static. The extent of regulations from future
legislation or mandates cannot be predicted with certainty.
FACILITIES
The Company's executive offices are located at One Kendall Square,
Building 200, Suite 2200, Cambridge, Massachusetts. Its offices include office
space and conference rooms which are shared with other companies. The Company
believes its facilities are adequate for its current operations. In the future,
the Company plans to establish a small laboratory.
EMPLOYEES
As of December 19, 1996, the Company had three employees. Dr. Katherine
Gordon is employed by the Company as President and Chief Executive Officer.
Robert J. Leonard is employed by the Company as Vice President of Business
Development. John J. Curry is Vice President of Finance and Chief Financial
Officer. Each of the Company's employees has entered into confidentiality
agreements with the Company. See "Risk Factors--Uncertain Ability to Protect
Proprietary Technology."
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
39
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names and ages of the directors and executive officers of the Company
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- --------------------------------------------------------------------
<S> <C> <C>
Katherine Gordon, Ph.D. .............. 42 President and Chief Executive Officer; Director
Robert J. Leonard..................... 45 Vice President of Business Development; Secretary; Director
John J. Curry......................... 42 Vice President of Finance, Chief Financial Officer and Treasurer
Theodore J. Gordon.................... 65 Director
Donald L. Weise....................... 62 Director
George W. Masters..................... 56 Director
</TABLE>
Messrs. Gordon and Weise have been designated Class I directors, to
serve until the Company's 1997 Annual Meeting of Stockholders; Dr. Gordon and
Mr. Masters have been designated Class II directors, to serve until the
Company's 1998 Annual Meeting of Stockholders; and Mr. Leonard has been
designated a Class III director, to serve until the Company's 1999 Annual
Meeting of Stockholders.
KATHERINE GORDON, PH.D. has served as the President, Chief Executive
Officer and a director of the Company since its inception. Prior to founding the
Company in 1992, Dr. Gordon was an Associate Director at Genzyme Corporation. At
Genzyme, Dr. Gordon launched a business unit that utilized transgenic expression
technology to produce pharmaceuticals. In 1993, this department was spun off
from Genzyme as a free-standing company known as Genzyme Transgenics Corporation
(listed on the Nasdaq National Market as GZTC). Dr. Gordon was at Integrated
Genetics (acquired by Genzyme) and Genzyme from 1984 to 1991. She has over 15
years of research experience in mammalian genetics/molecular biology and has had
numerous publications, patent applications and speaking engagements. Dr. Gordon
is the daughter of Theodore Gordon, a director of the Company.
ROBERT J. LEONARD has served as Vice President of Business Development
since June 1996 and as Secretary and a director of the Company since 1995. Mr.
Leonard is also the acting CEO of Endocon, Inc., a company that he founded in
1981 for the commercialization of controlled release drug delivery systems for
therapeutic use in humans and animals and has been President and CEO of Endocon
since that time. From 1975 through 1979 Mr. Leonard was founder and President of
Robert J. Leonard & Company, Inc., a small, privately-held corporation
specializing in medical and health care marketing services.
JOHN J. CURRY has served as the Vice President of Finance, Chief
Financial Officer and Treasurer of the Company since November, 1996. Prior to
joining the Company, Mr. Curry was self-employed as a consultant from 1994 until
1996. From 1986 until 1994, Mr. Curry held various positions at Seragen, Inc.,
including Director of Finance and Administration. Seragen is a publicly-traded
biotechnology company focused on the development of therapeutic biological
products for cancer and autoimmune diseases. Mr. Curry held various financial
positions with W.R. Grace & Co. and The B.F. Goodrich Company from 1980 until
1984 and 1979 to 1980, respectively.
THEODORE J. GORDON, a director of the Company, is Director and Senior
Advisor for The Futures Group, Glastonbury, Connecticut, a company which he
founded in 1971. The Futures Group performs contract research studies for
private corporations and government agencies on future-oriented topics which
range from the frontiers of technology to specific changes in consumer markets.
Mr. Gordon also consults for several corporations, providing strategic planning
services to management. He is also a member of the Board of Directors of the
Institute for Global Ethics and Registry Magic, Inc. He was previously Chief
Engineer of McDonnell Douglas's Saturn space vehicle and Director of Advanced
Space
40
<PAGE>
Stations and Planetary Systems. Mr. Gordon is the father of Katherine Gordon,
the President, Chief Executive Officer and a director of the Company.
DONALD L. WEISE is a Director of the Company. Mr. Weise is an
Independent Business Consultant with international expertise in licensing,
acquisitions, strategic alliances and marketing in the fields of
pharmaceuticals, biotechnology, drug delivery and medical devices. He has 37
years of management experience in the health care industry. Mr. Weise recently
retired as Director of Licensing and Acquisition of the Ortho-McNeil
Pharmaceutical Division of Johnson & Johnson.
GEORGE W. MASTERS, a current director of the Company, recently retired
as Vice Chairman, President and Chief Executive Officer of Seragen, Inc. He
presently serves as Chairman of the Board of Directors of ImmuCell Corporation
and Vice-Chairman of Hemosol, Inc. and CME Telemetrix. Mr. Masters has spent his
entire business career in the healthcare industry, including 20 years with
Warner-Lambert. He left Warner-Lambert in 1983 as a Group President and, for the
past 13 years, has held senior management positions with a number of
biotechnology companies. Mr. Masters has been a board member of approximately 15
medically oriented companies and currently serves as a member of the Board of
Directors of CME Telemetrix, Hemosol, Inc., ImmuCell Corporation, PharmX Inc.,
ProScript Inc., CompuCyte, Inc., the Marshalton Group and Intelligent Medical
Imaging.
SCIENTIFIC AND CLINICAL ADVISORS
DR. JEFFREY FREED is currently a surgeon and an Associate Clinical
Professor at Mt. Sinai Medical Center. Dr. Freed also has a joint appointment as
Section Chief of Surgery at the Bronx Veterans Hospital. Dr. Freed specializes
in colo-rectal surgery. Dr. Freed is active in the home health care field and is
currently the Chairman of BioTime, Inc.'s scientific advisory board. Dr. Freed
received his M.D. degree Cum Laude from the State University of New York,
Brooklyn in 1970. Dr. Freed has recently been appointed Vice
President--Strategic Planning for NuGene Technologies, Inc., a company doing
research in gene therapy delivery systems.
DR. PHILIP LANDFIELD is Professor and Chair of Pharmacology at the
University of Kentucky School of Medicine. Dr. Landfield's research programs are
in the areas of brain aging and memory and the pharmacological/biological
mechanisms of neuropathology. His research group is investigating hippocampal
synaptic structure and physiology during aging, biomarkers of brain aging and
the mechanism(s) of glucocorticoid interaction in brain aging. Dr. Landfield
received a Ph.D. degree in Psychobiology from the University of California at
Irvine in 1971, had a post-doctoral appointment at the University of North
Carolina from 1972-1974, was Assistant Professor at the University of California
until 1978, Assistant/ Associate Professor at Wake Forest University,
Winston-Salem, North Carolina, from 1979-1991 and has been at the University of
Kentucky School of Medicine since that time.
DR. JAMES SIMPKINS is Professor of Pharmacodynamics and Co-Director of
the Center for the Neurobiology of Aging at the University of Florida Health
Science Center. In 1996, he was named the Frank A. Duckworth Professor of Drug
Discovery in the College of Pharmacy, University of Florida. Dr. Simpkins' major
research interests relate to the regulation of pituitary hormone secretion
during aging, the neuroprotective effect of steroid-like compounds, and the
pharmacology of brain-specific drug delivery systems. His group has recently
initiated a major extramurally-funded program, sponsored by the National
Institutes of Health, for the discovery of novel drugs for Alzheimer's disease.
Dr. Simpkins received a Ph.D. degree in physiology from Michigan State
University in 1977 and has been at the University of Florida since that time. He
is also a professor of pharmacology and therapeutics in the College of Medicine,
University of Florida.
Each of the Company's scientific and clinical advisors is employed by
another entity. Certain advisors also have consulting agreements with businesses
other than the Company. These advisors are expected to devote only a limited
portion of their time to the Company and are not expected to participate
actively in the day-to-day affairs of the Company.
41
<PAGE>
EMPLOYMENT AGREEMENTS, EXECUTIVE COMPENSATION AND AGREEMENTS WITH DIRECTORS
The Company has entered into an employment agreement with Dr. Katherine
Gordon under which the Company has agreed to employ Dr. Gordon as the Company's
President and Chief Executive Officer through a term ending in November 1998.
The agreement provides for automatic renewal for additional two-year periods
thereafter until unless party gives 90 days' notice of its intent not to renew.
The Board of Directors determines Dr. Gordon's annual salary, currently
$115,000, and Dr. Gordon is also eligible for an annual bonus at the Board's
discretion, based upon achievement of established performance criteria. If Dr.
Gordon is terminated by the Company without cause, she will be entitled to
continue to receive her salary and health and other insurance benefits for a
period of 12 additional months.
During 1993, 1994 and 1995, Dr. Katherine Gordon agreed to defer a
portion of her accrued salary and bonus. In December 1996, the Company and Dr.
Gordon entered into an agreement whereby the Company agreed to pay Dr. Gordon an
aggregate of $80,000 in deferred salary and bonus, together with interest
calculated at a rate of 9% per annum, in equal installments over the 24 months
beginning January 1997.
The Company has a group medical plan and management plans to offer,
disability and life insurance coverage to all full-time employees. Health, group
disability and life insurance benefits are currently provided only to Dr.
Gordon.
The Company pays each of its independent directors annual fees of $5,000
for service on the full board and annual fees of $500 for service on each of its
Audit and Compensation Committees.
BOARD COMMITTEES
The Company has standing Audit and Compensation Committees of the Board
of Directors, but does not have a Nominating Committee. The Audit Committee,
currently consisting of Messrs. Masters and Weise, was created in November 1996.
The primary function of the Audit Committee is to assist the Board of Directors
in the discharge of its duties by providing the Board with an independent review
of the financial health of the Company and of the reliability of the Company's
financial controls and financial reporting systems. The Audit Committee will
review the scope of the Company's annual audit, the fees charged by the
Company's independent accountants and other matters relating to internal control
systems.
The Compensation Committee of the Board of Directors determines the
compensation to be paid to all executive officers of the Company, including the
Chief Executive Officer. The Compensation Committee also administers the
Company's 1993 Incentive and Non-Qualified Stock Option Plan, including the
grant of stock options under the Plan. The Compensation Committee is currently
composed of Messrs. Masters and Weise.
1993 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
In June 1994, the Company's stockholders approved the Company's 1993
Incentive and Non-Qualified Stock Option Plan (the "1993 Option Plan"). The 1993
Option Plan currently permits the granting of options to purchase an aggregate
of 600,000 shares of the Company's Common Stock to key employees, consultants
and directors of the Company or any parent or subsidiary of the Company. Options
granted under the 1993 Option Plan may be either incentive stock options
("ISOs") or non-qualified stock options ("NSOs"). ISOs may only be granted to
management and key employees.
The 1993 Option Plan is administered by the Compensation Committee.
Subject to the provisions of the 1993 Option Plan, the Committee has the
authority to determine the individuals to whom stock options will be granted,
the number of shares to be covered by each option, the option price, the type of
option, the option period, the vesting restrictions, if any, with respect to the
exercise of the option, the terms for the payment of the option price and other
terms and conditions. Payment for shares acquired upon exercise of an option may
be made in cash or shares of Common Stock.
42
<PAGE>
The exercise price for shares covered by an ISO may not be less than
100% of the fair market value of the Common Stock on the date of grant (110% in
the case of a grant to an employee who owns more than 10% of the combined total
voting power of all classes of stock of the Company or any subsidiary (a "10%
Stockholder") and not less than the par value thereof. The exercise price for
shares covered by NSOs may not be less than the greater of 50% of the fair
market value and the par value of the Common Stock at the date of grant. Options
may be exercised as determined by the Committee, provided that all options
expire no later than ten years (five years in the case of an ISO granted to a
10% Stockholder) from the date of grant. If the employment of an optionee
terminates other than for reasons of death or retirement, any options held by
that optionee will expire three months after the termination of the optionee's
service with the Company and any of its subsidiaries. No individual may be
granted ISOs that become exercisable for the first time in any calendar year for
Common Stock having a fair market value at the time of grant in excess of
$100,000.
Options granted under the 1993 Option Plan are generally exercisable
during the lifetime of the optionee only by the optionee. Options may not be
transferred except as provided by the Committee or by will or the laws of
descent and distribution. Subject to certain limitations set forth in the 1993
Option Plan and applicable law, the Board of Directors may amend or terminate
the 1993 Option Plan. By its own terms, the 1993 Option Plan will terminate on
December 17, 2003.
In the case of certain events, including certain dividends,
recapitalizations and reorganizations, the Committee will equitably adjust (1)
the number of shares available under the 1993 Option Plan, (2) the number of
shares subject to outstanding options, or (3) the exercise price of outstanding
options. The 1993 Option Plan also empowers the Board of Directors and the
Committee to take other actions to protect outstanding options if the Company
is, among other things, merged or consolidated with another company or
liquidated.
1996 DIRECTOR STOCK OPTION PLAN
All of the directors who are not employees of the Company (the "Eligible
Directors") are currently eligible to participate in the Company's 1996 Director
Stock Option Plan (the "Director Plan"). The Director Plan currently permits the
granting of options to purchase an aggregate of 90,000 shares of the Company's
Common Stock. Under the Director Plan, options to purchase 9,000 shares of
Common Stock are automatically granted to each Eligible Director on the date of
the annual meeting of the stockholders of the Company in every third year (a
"Grant Year"). In addition, Eligible Directors that are initially elected to the
Board other than at an annual meeting in a Grant Year are automatically granted
options to purchase 3,000 shares of Common Stock for each year, or portion
thereof, between the date of the Eligible Director's election and the date of
the next annual meeting in a Grant Year. Options become exercisable with respect
to 3,000 shares on the date of grant and on the date of each annual meeting of
stockholders thereafter, so long as the optionee is then a director of the
Company. The options have a term of ten years and currently have an exercise
price, payable in cash or shares of Common Stock, equal to the fair market value
of the Common Stock as determined by the Board of Directors. After completion of
the offering, the last sale price for the Common Stock on the business day
immediately preceding the date of grant, as reported by Nasdaq, shall be the
exercise price.
43
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table shows, for the fiscal year ended December 31, 1995,
certain compensation paid by the Company, including salary, bonuses, stock
options, and certain other compensation, to the Chief Executive Officer.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SHARES
--------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
- ------------------------------------------------------ ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Katherine Gordon, Ph.D. ............................. $ 115,000(1) $ 25,000(2) 135,000 --
President and Chief Executive Officer
</TABLE>
- ------------------------
(1) A portion of Dr. Gordon's salary in the amount of $65,000 was accrued and
not paid in 1995, with the agreement of Dr. Gordon.
(2) The entire portion of Dr. Gordon's bonus was paid to Dr. Gordon in the form
of shares of the Company's Common Stock at $.83 per share.
OPTION GRANTS
The following table sets forth certain information regarding options
granted during the twelve months ended December 31, 1995 by the Company to the
Chief Executive Officer:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
SHARES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED OPTION TERM(3)
OPTIONS TO EMPLOYEES IN EXERCISE OR EXPIRATION --------------------
NAME GRANTED FISCAL 1995 BASE PRICE DATE 5% 10%
- ------------------------------------------- ----------- --------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Katherine Gordon, Ph.D. ................... 75,000 45.5% $ 0.83 11/29/05 $ 39,149 $ 99,210
</TABLE>
- ------------------------
(3) Potential realizable value is based on the assumption that the Common Stock
of the Company appreciates at the annual rate shown (compounded annually)
from the date of the grant until the expiration of the ten-year option term.
These numbers are calculated based on the requirements promulgated by the
Commission and do not reflect the Company's estimate of future stock price
growth.
OPTION EXERCISES AND FISCAL YEAR-END VALUES.
There were no option exercises during the fiscal year ended December 31,
1995.
44
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTION WITH NPLP
In December 1996, Neuroscience Partners Limited Partnership ("NPLP"), a
limited partnership of which MDS Associes--Neuroscience Inc. ("MDS") is the
general partner, invested $500,000 in the Company in exchange for 214,287 shares
of Common Stock on the same terms as the other purchasers of Common Stock in the
Company's most recent private placement financing.
Also in December 1996, the Company entered into a Royalty Purchase
Agreement with NPLP, pursuant to which NPLP agreed to provide an additional
$500,000 (the "NPLP Development Financing") to the Company. In exchange for the
NPLP Development Financing, the Company is obligated to pay NPLP royalties on
sales of, and license fees and other revenues received by the Company in
connection with, any products developed that relate to the use of estrogen in
the treatment of chronic, neurodegenerative diseases, subject to the Company's
right to terminate these obligations upon its payment to NPLP of a cash payment
buyout. In connection with the NPLP Development Financing, NPLP received (i)
warrants to purchase 105,000 shares of Common Stock at an exercise price of
$2.33 per share and (ii) warrants to purchase 45,000 shares of Common Stock at
an exercise price of $2.92 per share. All or any portion (not less than
$150,000) of the aggregate amount of the NPLP Development Financing may be
converted at any time at the option of MDS into shares of Common Stock at a
conversion price equal to (i) with respect to 50% of the amount of the NPLP
Development Financing, the lesser of (a) $2.92 and (b) the price per share of
the Common Stock reflected in the Company's most recent financing prior to any
conversion and (ii) with respect to the remaining 50% of the amount of the NPLP
Development Financing, the lesser of (a) $3.50 and (b) the price per share of
the Common Stock reflected in the Company's most recent financing prior to any
conversion. In the event that NPLP exercises its right to convert the amount of
the NPLP Development Financing, the amount of royalties payable under the
agreement will be reduced on a pro rata basis.
AGREEMENT WITH ENDOCON
In June 1994, the Company entered into an agreement with Endocon to
co-develop certain estrogens within subcutaneous drug delivery vehicles. As
currently in effect, the Endocon agreement focuses on the development of
17b-estradiol within a subcutaneous drug delivery vehicle for the treatment of
Alzheimer's disease (NEURESTROL). Neither the Company nor Endocon is obligated
to pay the other for any rights to intellectual property underlying their
agreement or for development of the product. The parties intend to seek a
strategic partner for the commercialization and development of NEURESTROL. All
proceeds to the parties relating to NEURESTROL will be allocated 60% to the
Company and 40% to Endocon.
In June 1996, Robert J. Leonard, the acting CEO and a member of the
board of directors of Endocon, became the Secretary and a Director of the
Company in 1995 and its Vice President of Business Development in June 1996.
The Company believes that the foregoing transactions were in its best
interests. It is the Company's current policy that all transactions by the
Company with officers, directors, 5% stockholders and their affiliates will be
entered into only if those transactions are approved by a majority of the
disinterested independent directors, are on terms no less favorable to the
Company than could be obtained from unaffiliated parties and are reasonably
expected to benefit the Company.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
ownership of the Common Stock as of December 19, 1996 (i) by each person known
by the Company to own beneficially five percent or more of its Common Stock,
(ii) by each director of the Company, (iii) by the Chief Executive Officer of
the Company and (iv) by all directors and executive officers of the Company as a
group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING OWNED AFTER OFFERING
---------------------- ----------------------
BENEFICIAL OWNER(2) NUMBER(1) PERCENT NUMBER(1) PERCENT
- ------------------------------------------------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Neuroscience Partners
Limited Partnership(3) ............................................ 528,751 12.5% 528,751 9.8%
c/o MDS Associes--Neuroscience Inc.
100 International Boulevard
Etobicoke, Ontario
Alan Gelband(4) ................................................... 525,000 13.3 525,000 10.2
c/o Gelband Capital
575 Madison Avenue--8th Floor
New York, New York
Katherine Gordon, Ph.D.(5) ........................................ 465,675 11.6 465,675 8.9
Donna B. Cohen .................................................... 359,400 9.2 359,400 7.0
3050 48th Court, N.E.
Lighthouse Point, Florida
Theodore J. Gordon(6).............................................. 168,000 4.3 168,000 3.3
Robert J. Leonard(7)............................................... 90,000 2.3 90,000 1.7
George W. Masters(8)............................................... 3,000 * 3,000 *
Donald L. Weise(8)................................................. 3,000 * 3,000 *
All directors and executive officers as a group (6 persons)(9)..... 735,500 17.7% 735,300 13.8%
</TABLE>
- ------------------------
* Indicates less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Shares of Common Stock subject to stock options and warrants
currently exercisable or exercisable within 60 days are deemed to be
outstanding for computing the percentage ownership of the person holding the
options and the percentage ownership of any group of which the holder is a
member, but are not deemed outstanding for computing the percentage of any
other person. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock shown
beneficially owned by them.
(2) Except as otherwise indicated the address of each stockholder identified is
c/o the Company, One Kendall Square, Building 200, Suite 2200, Cambridge,
Massachusetts 02139.
(3) Includes (i) 150,000 shares subject to warrants currently exercisable or
exercisable within the 60-day period following December 19, 1996, and (ii)
164,464 shares issuable upon conversion of a right to receive future royalty
payments.
(4) Includes (i) 15,000 shares issuable upon conversion of a convertible note of
the Company and 15,000 additional shares subject to warrants currently
exercisable or exercisable within the 60-day period
46
<PAGE>
following December 19, 1996, each held of record by the Alden Foundation,
and (ii) 45,000 shares of Common Stock owned by the Alan Gelband Company
Defined Contribution Pension Plan & Trust.
(5) Includes 106,875 shares subject to stock options currently exercisable or
exercisable within the 60-day period following December 19, 1996. Dr. Gordon
disclaims beneficial ownership of shares beneficially owned by her father,
Mr. Theodore J. Gordon.
(6) Includes 3,000 shares subject to stock options and 15,000 shares subject to
warrants, each currently exercisable or exercisable within the 60-day period
following December 19, 1996. Mr. Gordon disclaims beneficial ownership of
shares beneficially owned by his daughter, Dr. Katherine Gordon.
(7) Consists of 90,000 shares subject to stock options currently exercisable or
exercisable within the 60-day period following December 19, 1996.
(8) Consists of 3,000 shares subject to stock options currently exercisable or
exercisable within the 60-day period following December 19, 1996.
(9) Includes (i) 211,500 shares subject to stock options currently exercisable
or exercisable within the 60-day period following December 19, 1996, (ii)
30,000 shares subject to warrants currently exercisable or exercisable
within 60-day period following December 19, 1996, and (iii) 15,000 shares
subject to a currently exercisable debt conversion right.
47
<PAGE>
DESCRIPTION OF SECURITIES
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 20,000,000 shares of Common Stock, $0.02 par value per
share, and 1,000,000 shares of Preferred Stock, $0.01 par value per share. As of
the date of this Prospectus, the Company had 67 stockholders. Upon the closing
of this offering, the Company will have 5,105,348 shares of Common Stock
outstanding.
The following summary of certain provisions of the Warrants, Common
Stock and Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Amended and
Restated Certificate of Incorporation, the form of which is included as an
exhibit to the Registration Statement, and by the provisions of applicable law.
UNITS
Each Unit offered hereby consists of one share of Common Stock and one
Warrant. Each Warrant entitles the holder thereof to purchase one share of
Common Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on matters to
be voted upon by the stockholders. There are no cumulative voting rights.
Holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of funds legally available therefor. Upon
the liquidation, dissolution or winding up of the Company, holders of Common
Stock would share ratably in the assets of the Company available for
distribution to its stockholders, subject to the preferential rights of any then
outstanding shares of Preferred Stock. The Common Stock outstanding upon the
effective date of the Registration Statement, and the Units offered by the
Company hereby, upon issuance and sale, will be fully paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors has the authority to issue up to
1,000,000 shares of Preferred Stock, in one or more series, and to fix the
relative rights, preferences, privileges, qualifications, limitations and
restrictions thereof, including dividends rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of any series, without further vote or action by the stockholders. The Board of
Directors could, without the approval of the stockholders, issue Preferred Stock
having voting or conversion rights that could adversely effect the voting power
of the holders of Common Stock and the issuance of Preferred Stock could be
used, under certain circumstances, to render more difficult or discourage a
hostile takeover of the Company. No shares of Preferred Stock will be
outstanding immediately following the closing of the offering and the Company
has no present plans to issue any shares of Preferred Stock.
THE WARRANTS OFFERED
The following discussion of the terms and provisions of the Warrants is
qualified in its entirety by reference to that certain warrant agreement (the
"Warrant Agreement") among the Company, the Managing Underwriter and American
Stock Transfer and Trust Company as the warrant agent (the "Warrant Agent"). The
Warrants will be evidenced by warrant certificates in registered form.
As of the close of this offering, the Company will have 1,200,000
Warrants outstanding, assuming that the Underwriters' over-allotment option is
not exercised and assuming that none of the Warrants is exercised.
The holder of each Warrant is entitled to purchase one share of Common
Stock at an exercise price of $ . The Warrants are exercisable at any time
after issuance until the fifth anniversary of the date of this Prospectus,
provided that at that time, a current prospectus under the Securities Act
relating to
48
<PAGE>
the Common Stock is then in effect and the Common Stock is qualified for sale or
exempt from qualification under applicable state securities laws. The Warrants
included in the Units offered hereby are immediately transferable separately
from the Common Stock. The Warrants are subject to redemption, as described
below.
Commencing one year from the date of this Prospectus, the Warrants are
subject to redemption by the Company, on not less than 30 days' prior written
notice, at a price of $0.25 per Warrant, if the average of the closing bid
prices of the Common Stock for any period of 20 consecutive business days ending
within 10 business days of the date on which the notice of redemption is given
shall have exceeded $ per share (subject to adjustment). For these purposes,
the closing bid price of the Common Stock shall be determined by the closing bid
price, as reported by Nasdaq, so long as the Common Stock is quoted on the
Nasdaq SmallCap-SM- Market or if the Common Stock is a Nasdaq National Market
("NNM") security or listed on a securities exchange, shall be determined by the
last reported sales price. The Company's redemption rights will be in effect
only if the Common Stock is either quoted on Nasdaq or listed on a securities
exchange. Holders of Warrants will automatically forfeit their rights to
purchase the shares of Common Stock issuable upon exercise of their Warrants
unless the Warrants are exercised before they are redeemed. A notice of
redemption will be mailed to each of the registered holders of the Warrants no
later than 30 days before the date fixed for redemption. The notice of
redemption shall specify the redemption price, the date fixed for redemption,
the place where the Warrant certificates shall be delivered and the date of
expiration of the right to exercise the Warrants.
The Warrants may be exercised upon surrender of the certificate therefor
on or prior to the expiration or redemption date (as explained above) at the
offices of the Company's Warrant Agent with the form of "Election to Purchase"
on the reverse side of the certificate filled out and executed as indicated,
accompanied by payment (in the form of a certified or cashier's check payable to
the order of the Company) of the full exercise price for the number of Warrants
being exercised. The Company, in its discretion, has the right to reduce the
exercise price of either or both classes of Warrants subject to compliance with
Rule 13e-4 promulgated under the Exchange Act, if applicable.
The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price and rate in certain events, like
stock dividends, stock splits or combinations, mergers, sales of all or
substantially all of the Company's assets at less than market value, sales of
stock at below market price and other unusual events.
The Company is not required to issue fractional shares and, in lieu
thereof, will make a cash payment based upon the current market value of any
fractional shares (determined as the mean between the last reported bid and
asked prices reported or, if the Common Stock is an NNM security or traded on a
securities exchange, the last reported sales price, in each case as of the last
business day prior to the date of exercise). The holder of a Warrant will not
have any rights as a stockholder of the Company unless and until the Warrant is
exercised.
OTHER WARRANTS AND CONVERSION RIGHTS
In order to fund its continuing operations, the Company completed two
bridge financings, one in September 1994 (the "1994 Bridge Financing") and one
in April 1995 (the "1995 Bridge Financing"). In connection with the 1994 Bridge
Financing, the Company issued (i) an aggregate of $135,000 in principal amount
of Convertible Promissory Notes (the "1994 Notes") which were due on the earlier
of September 19, 1996 or the closing by the Company of a private placement
financing yielding gross proceeds of not less than $1,000,000 and (ii) warrants
to purchase an aggregate of 135,000 shares of the Company's Common Stock
exercisable at $1.00 per share. In connection with the 1995 Bridge Financing,
the Company issued (i) an aggregate of $75,000 in principal amount of
Convertible Promissory Notes (the "1995 Notes") which are due on the earlier of
April 30, 1997 or the closing by the Company of a private placement financing
yielding gross proceeds of not less than $1,000,000 and (ii) warrants to
purchase an aggregate of
49
<PAGE>
75,000 shares of the Company's Common Stock exercisable at $1.00 per share. In
September 1996, the 1994 Notes were converted into 135,000 shares of Common
Stock. All of the 1995 Notes remained outstanding as of December 17, 1996.
In December 1996, the Company consummated the NPLP Development
Financing. In exchange for the NPLP Development Financing, the Company is
obligated to pay NPLP royalties on sales of, and license fees and other revenues
received by the Company in connection with, any products developed that relate
to the use of estrogen in the treatment of chronic, neurodegenerative diseases,
subject to the Company's right to terminate these obligations upon its payment
to NPLP of a cash payment buyout. In connection with the NPLP Development
Financing, NPLP received (i) warrants to purchase 105,000 shares of Common Stock
at an exercise price of $2.33 per share and (ii) warrants to purchase 45,000
shares of Common Stock at an exercise price of $2.92 per share. All or any
portion (not less than $150,000) of the aggregate amount of the NPLP Development
Financing may be converted at any time at the option of MDS into shares of
Common Stock at a conversion price equal to (i) with respect to 50% of the
amount of the NPLP Development Financing, the lesser of (a) $2.92 and (b) the
price per share of the Common Stock reflected in the Company's most recent
financing prior to any conversion and (ii) with respect to the remaining 50% of
the amount of the NPLP Development Financing, the lesser of (a) $3.50 and (b)
the price per share of the Common Stock reflected in the Company's most recent
equity financing prior to any conversion. In the event that NPLP exercises its
right to convert the amount of the NPLP Development Financing, the amount of
royalties payable under the agreement will be reduced on a pro rata basis.
STOCK OPTIONS
The Company has reserved 600,000 shares of Common Stock for issuance
under the 1993 Option Plan, of which 345,000 shares are subject to outstanding
options, and 90,000 shares of Common Stock for issuance under the Director Plan,
of which 27,000 shares are subject to outstanding options. To date, no options
granted under the Company's stock option plans have been exercised.
ANTI-TAKEOVER MEASURES
In addition to the Board of Directors' ability to issue shares of
Preferred Stock, the charter and the By-laws of the Company contain several
other provisions that are commonly considered to discourage unsolicited takeover
bids. The charter includes provisions classifying the Board of Directors into
three classes and staggered three-year terms and prohibiting stockholder action
by written consent. The Board of Directors may also enlarge the size of the
Board and fill any vacancies on the Board. The By-laws provide that nominations
for directors may not be made by stockholders at any annual or special meeting
unless the stockholder intending to make a nomination notifies the Company of
its intention a specified period in advance and furnishes certain information.
The By-laws also provide that special meetings of the Company' stockholders may
be called only by the President or the Board of Directors and require advance
notice of business to be brought by a stockholder before the annual meeting.
In February 1988, a law regulating corporate takeovers (the
"Anti-Takeover Law") took effect in Delaware. In certain circumstances, the
Anti-Takeover Law prevents certain Delaware corporations, including those whose
securities are listed on the Nasdaq SmallCap-SM- Market, from engaging in a
"business combination" (which includes a merger or sale of more than 10% of the
corporation's assets) with an "interested stockholder" (a stockholder who owns
15% or more of the corporation's outstanding voting stock) for three years
following the date on which that stockholder became an "interested stockholder"
subject to certain exceptions, unless the transaction is approved by the board
of directors and the holders of at least 66 2/3% of the outstanding voting stock
of the corporation (excluding shares held by the interested stockholder). The
statutory ban does not apply if, upon consummation of the transaction in which
any person becomes an interested stockholder, the interested stockholder owns at
least 85% of the outstanding voting stock of the corporation (excluding shares
held by persons who are both directors and officers or by certain employee stock
plans). A Delaware corporation subject to the Anti-Takeover Law may "opt out" of
50
<PAGE>
the Anti-Takeover Law with an express provision either in its certificate of
incorporation or by-laws resulting from a stockholders' amendment approved by at
least a majority of the outstanding voting shares. This type of amendment is
effective following expiration of twelve months from adoption. The Company is a
Delaware corporation that is subject to the Anti-Takeover Law and has not "opted
out" of its provisions.
The foregoing provisions of Delaware law and the Restated Certificate
and By-laws could have the effect of discouraging others from attempting a
hostile takeover of the Company and, as a consequence, they may also inhibit
temporary fluctuations in the market price of the Common Stock that might result
from actual or rumored hostile takeover attempts. These provisions may also have
the effect of preventing changes in the management of the Company. It is
possible that these provisions could make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests.
REGISTRATION RIGHTS
NPLP, which is the holder of 214,287 shares of Common Stock, warrants to
purchase 150,000 shares of Common Stock and rights to convert the NPLP
Development Financing into shares of Common Stock (collectively, the
"Registrable Shares"), is entitled to certain rights with respect to
registration under the Securities Act of the Registrable Shares. If the Company
proposes to register any of its securities under the Securities Act at any time
after the consummation of this offering, either for its own account or for the
account of other security holders, NPLP is entitled to notice of any such
registration and is entitled to include Registrable Shares in the registration.
The rights are subject to certain conditions and limitations, among them, the
right of the underwriters of a registered offering to limit the number of shares
included in the registration. NPLP may also require the Company to file at its
expense a registration statement under the Securities Act with respect to
214,287 of the Registrable Shares at any time commencing 13 months from the
consummation of this offering and with respect to all Registrable Shares at any
time commencing 25 months from the consummation of this offering and, subject to
certain conditions and limitations, the Company is required to effect a
registration. Furthermore, NPLP may, subject to certain conditions and
limitations, require the Company to file additional registration statements on
Form S-3 with respect to the Registrable Shares.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 5,105,348 shares
of Common Stock outstanding. Of these shares, the 1,200,000 shares sold in this
offering, assuming no exercise of the Underwriters' over-allotment option, will
be freely tradeable 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 regulations promulgated thereunder.
The remaining 3,905,348 shares held by officers, directors, employees,
consultants and other stockholders of the Company were sold by the Company in
reliance on exemptions from the registration requirements of the Securities Act
and are "restricted" securities within the meaning of Rule 144 under the
Securities Act (the "Restricted Shares"). The Company and [all] holders of
Common Stock have agreed not to offer, sell, pledge, hypothecate or otherwise
dispose of any shares of the Company's Common Stock for a period of 13 months
after the effective date of the Registration Statement of which this prospectus
is a part (the "Effective Date") without the prior written consent of the
Managing Underwriter. As a result of these contractual restrictions (the
"Lock-Up Agreements"), notwithstanding possible earlier eligibility for sale
under the provisions of Rules 144 and 701, shares subject to Lock-Up Agreements
will not be saleable until the agreements expire. Beginning 180 days after the
Effective Date, of the Restricted Shares will become eligible for
sale in reliance on Rule 144 or Rule 701 and Rule 144 upon the expiration of the
Lock-Up Agreements, subject, in some cases, to certain volume and other
limitations. The approximately remaining Restricted Shares will become
eligible from time to time upon the lapse of the two-year holding period
pursuant to Rule 144. In addition, beginning 90 days after the Effective Date,
holders of then vested options to purchase shares will be entitled to
exercise their options and sell the underlying shares, and beginning 13 months
after the Effective Date, an additional shares subject to vested
options will be available for sale upon the expiration of the Lock-Up
Agreements, and subject, in the case of directors and officers of the Company,
to the provisions of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least two years is entitled to sell, within any three-month period
commencing 90 days after the Effective Date, a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock
( shares immediately after this offering) or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding the
sale, subject to the filing of a Form 144 with respect to the sale and certain
other limitations and restrictions. In addition, a person, other than an
affiliate or an individual who was an affiliate within 90 days of the proposed
sale, who has beneficially owned the shares proposed to be sold for at least
three years, would be entitled to sell those shares under Rule 144(k) without
regard to the requirements described above.
Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701, which permits
non-affiliates to sell their Rule 701 shares without having to comply with the
public-information, holding-period, volume-limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding period restrictions, in each case commencing 90
days after the Effective Date. However, all officers and directors and certain
other stockholders have agreed, in the Lock-Up Agreements, not to sell or
otherwise dispose of Common Stock or the Company for the 13-month period after
the Effective Date without the prior written consent of the Managing
Underwriter. See "Underwriting."
The Company intends to file S-8 registration statements under the
Securities Act to register all shares of Common Stock issuable under the 1993
Option Plan and the Director Plan. Shares covered by this kind of registration
statement will be eligible for sale in the public market immediately upon filing
of
52
<PAGE>
the registration statement, subject to Rule 144 limitations applicable to
affiliates and the expiration of the Lock-Up Agreements, if applicable.
Prior to this offering, there has been no public market for the Common
Stock and no prediction can be made as to the effect, if any, that market sales
of shares or the availability of shares for sale will have on the market price
of the Common Stock. Nevertheless, sales of substantial amounts of Common Stock
in the public market may have an adverse impact on the market price of the
Common Stock and could impair the Company's ability to raise capital through the
sale of its equity securities.
53
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the underwriters named below (the
"Underwriters"), and each of the Underwriters, for whom the Managing Underwriter
is acting as representative, has agreed severally to purchase from the Company,
the respective number of Units set forth opposite its name below. The
Underwriters are committed to purchase and pay for all Units if any Units are
purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF UNITS
- --------------------------------------------------------------------------------------- ---------------
<S> <C>
First United Equities Corporation......................................................
---------------
Total............................................................................ 1,200,000
---------------
---------------
</TABLE>
The Managing Underwriter has advised the Company that the Underwriters
propose to offer the Units to the public at the initial public offering price
set forth on the cover page of this Prospectus and to certain dealers at the
same price, less a concession of not in excess of $ per share, of which $
may be reallocated to other dealers. After the initial public offering, the
public offering price, concession and reallowance to dealers may be reduced by
the Managing Underwriter. No reduction of this sort shall change the amount of
proceeds to be received by the Company as set forth on the cover page of this
Prospectus.
The Company has granted the Underwriters an option for 45 days after the
date of this Prospectus to purchase, at the initial public offering price, less
the underwriting discounts and commissions as set forth on the cover page of
this Prospectus, up to 180,000 additional Units at the same price per share as
the Company received for the 1,200,000 Units offered hereby, solely to cover
over-allotments, if any. If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of Units
to be purchased by each of them, as shown in the foregoing table, bears to the
1,200,000 Units offered hereby. The Underwriters may exercise their option only
to cover the over-allotments in connection with the sale of the 1,200,000 Units.
The Company has also agreed to pay the Managing Underwriter a
nonaccountable expense allowance of 3% of the offering proceeds, including
proceeds from the over-allotment option, if exercised, of which $ has
been paid to the Managing Underwriter to date. The Managing Underwriter's
expenses in excess of the nonaccountable expense allowance, including its legal
expenses, will be borne by the Managing Underwriter. To the extent that the
expenses of the Managing Underwriter are less than the nonaccountable expense
allowance, the excess will be deemed to be compensation to the Managing
Underwriter.
The Underwriting Agreement provides that, for a period of three years
after the completion of this offering, the Managing Underwriter shall have the
right, subject to reasonable approval by the Company, to nominate one person to
attend the Company's Board of Directors meetings. The Managing Underwriter has
not yet designated its nominee.
The Managing Underwriter has agreed to provide investment banking
services to the Company upon completion of this offering for a period of three
years for an aggregate fee of $108,000, payable at the closing (the "Closing")
of this offering. The consulting arrangement will not require the Managing
Underwriter to devote a specific amount of time to the performance of its duties
thereunder.
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<PAGE>
The Company has also agreed that, for a period of five years from the
date of the Underwriting Agreement, it will (i) not negotiate with or enter into
an agreement with respect to the public offering or private placement of equity
securities or securities convertible into equity securities of the Company
without first attempting to negotiate the transaction with the Managing
Underwriter, and (ii) use its best efforts to induce any other underwriter to
include the Managing Underwriter in the underwriting syndicate, with respect to
any public offerings by the Company during the five-year period following the
Closing.
The Company has agreed to sell to the Managing Underwriter, for nominal
consideration, the Managing Underwriter's Warrant to purchase up to 120,000
shares of Common Stock at an exercise price equal to $ per share. The
Managing Underwriter's Warrant will be exercisable during the six-year period
commencing the date of the closing of the offering and are not transferable for
a period of one year from the date of this Prospectus, except to officers of the
Managing Underwriter or to members of the Managing Underwriter's selling group.
Each of the Company's directors and officers and certain other employees
and securityholders of the Company has agreed not to offer, sell, contract to
sell or otherwise dispose of Common Stock or securities convertible into or
exchangeable for, or any rights to purchase or acquire, Common Stock for a
period of 13 months following the Effective Date, without the prior written
consent of the Managing Underwriter. The Company has also agreed not to offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable for, or any rights to purchase or
acquire, Common Stock for a period of 13 months following the date of this
Prospectus without the prior written consent of the Managing Underwriter, except
for the granting of options or the sale of stock pursuant to the Company's
existing option plans. The Managing Underwriter, in its discretion, may waive
the foregoing restrictions, in whole or in part, with or without a public
announcement to that effect.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price of the Units will be determined by
negotiations among the Company and the Managing Underwriter. Among the factors
considered in determining the initial public offering price of the Units, in
addition to prevailing market conditions, will be the Company's historical
performance, estimates of the business potential and earnings prospects of the
Company, an assessment of the Company's management and the consideration of the
above factors in relation to market valuations of companies in related
businesses.
The Company has agreed to indemnify the Underwriters against certain
liabilities that may be incurred in connection with this offering, including
liabilities under the Securities Act, or to contribute payments that the
Underwriters may be required to make in respect thereof.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Palmer & Dodge LLP, Boston, Massachusetts. Certain legal matters
relating to the offering will be passed upon for the Underwriters by Rubin Baum
Levin Constant Friedman & Bilzin, Miami, Florida.
EXPERTS
The financial statements of the Company at December 31, 1995 and for
each of the years in the two-year period then ended, appearing in this
Prospectus and the Registration Statement have been audited by Richard A. Eisner
& Company, LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and are included
herein in reliance upon that report given upon the authority of that firm as
experts in accounting and auditing.
55
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form SB-2 (together with all
amendments and exhibits thereto, the "Registration Statement") under the
Securities Act relating to the Units offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations of
the Commission. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement,
and the exhibits and schedules thereto, which may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and the Commission's
regional offices located at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and at Seven World Trade Center, 13th Floor,
New York, New York 10048. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete and, in
each instance, reference is made to the copy of the contract or other document
filed as an Exhibit to the Registration Statement, each statement being
qualified in all respects by that reference. Copies of these materials may be
obtained upon written request from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent auditors and will
make available copies of quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.
56
<PAGE>
GLOSSARY OF TECHNICAL TERMS
<TABLE>
<S> <C>
Acetylcholine A neurotransmitter.
Alzheimer's disease A disease of presenile dementia which is characterized by
loss of memory and cortical atrophy in frontal and temporal
lobes of the brain.
Amyloid plaques Degenerating neuron components surrounding a core of
("Plaques") B-amyloid.
Animal model An animal which can be used to study a human disease or
condition due to resemblance to disease or condition.
Cholinergic neurons Neurons that use acetylcholine as a neurotransmitter.
Dehydroepiandrosterone A steroid hormone which is a product of cholesterol and is a
(DHEA) precursor to androgens and estrogen.
Dehydroepiandrosterone A sulfated form of DHEA.
sulfate (DHEAS)
Dementia Deterioration or loss of intellectual faculties, reasoning
power and memory due to organic brain disease.
Dopamine A neurotransmitter.
Dopaminergic neurons Neurons that use dopamine as a neurotransmitter.
Endocrine A gland or system responsible for secretion of hormones
directly into the bloodstream.
Estrogen A hormone, produced principally by the ovaries, which
stimulates the accessory sex structures.
Growth factor A substance, either genetic or extrinsic, which affects
growth.
Growth hormone A hormone that promotes growth and also has direct influence
on metabolism of carbohydrates, fats and proteins.
Hippocampus A region of the brain involved in cognitive function and
memory.
Hormone A chemical product of an organ which has a specific
regulatory effect on cells remote from its origin.
Hormone replacement therapy Replacement or supplementation of hormones which are
deficient in the body.
IN VITRO Refers to studies and/or phenomena that take place outside
the body (e.g., in test tubes).
IN VIVO Refers to studies and/or phenomena that take place inside
the body of animals or humans.
IND Investigational New Drug application. A formal notice
submitted to the FDA for review and approval prior to
beginning clinical trials to evaluate a new drug.
Lewy bodies Characteristic masses found within cells of degenerating
neurons in certain brain regions.
</TABLE>
57
<PAGE>
<TABLE>
<S> <C>
NEURESTOL A registered trademark of Endocon representing 17b-estradial
within a subcutaneous delivery system for use in the
prevention of neurodegeneration.
NEUROCALC A trademark of the Company representing calcitriol for use
in the prevention of neurodegeneration.
Neurodegeneration Refers to degeneration or death of cells in the nervous
system.
Neuroendocrine Pertaining to the nervous and endocrine systems in anatomic
or functional relationship.
Neuroendocrine aging Refers to age-related changes in the neuroendocrine system.
Neurofibrillary tangles Refers to thick, twisted bands of fibrous material which
("Tangles") deposits irregularly in the cytoplasm in degenerating
neurons.
NEUROMIDOL A trademark of the Company representing certain novel
estrogens for use in the prevention of neurodegeneration.
Neurotransmitter A chemical messenger responsible for transmitting signals
from sending to receiving neurons.
Osteoporosis A condition in which bone tissue is decreased, resulting in
enlargement of marrow and decreased thickness of bone
cortex.
Parkinson's disease A disease characterized by tremor and rigidity caused by
damage to pigmented brainstem nuclei.
Progesterone A steroid hormone secreted by the ovary which is essential
for maintenance of pregnancy.
Prophylaxis A method of maintaining health or preventing disease.
Receptor A specific structure on a cell's surface to which a hormone
or other interactive molecule binds to affect cellular
function in a specific way.
</TABLE>
58
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
- I N D E X -
<TABLE>
<CAPTION>
PAGE
NUMBER
-----------
<S> <C>
REPORT OF INDEPENDENT AUDITORS.......................................................................... F-2
BALANCE SHEETS.......................................................................................... F-3
STATEMENTS OF OPERATIONS................................................................................ F-4
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)................................................. F-5
STATEMENTS OF CASH FLOWS................................................................................ F-6
NOTES TO FINANCIAL STATEMENTS........................................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Apollo BioPharmaceutics, Inc.
Cambridge, Massachusetts
We have audited the accompanying balance sheet of Apollo
BioPharmaceutics, Inc. (a development stage company) as at December 31, 1995,
and the related statements of operations, changes in stockholders' equity
(deficit) and cash flows for each of the years in the two-year period then
ended, and for the period from July 9, 1992 (inception) through December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 enumerated above present
fairly, in all material respects, the financial position of Apollo
BioPharmaceutics, Inc. at December 31, 1995, and the results of its operations
and its cash flows for each of the years in the two-year period then ended, and
for the period from July 9, 1992 (inception) through December 31, 1995 in
conformity with generally accepted accounting principles.
/s/ Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
July 15, 1996
With respect to Note A
December 20, 1996
F-2
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------- SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 246,721 $ 373,645
Stock subscriptions receivable (Note C)........................................... 112,500
------------- -------------
Total current assets.......................................................... 246,721 486,145
Organization costs, net of accumulated amortization of $3,584 at December 31, 1995
and $4,371 at September 30, 1996 (Note B)......................................... 1,661 874
Deferred public offering costs...................................................... 5,000
------------- -------------
TOTAL......................................................................... $ 248,382 $ 492,019
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses............................................. $ 161,923 $ 102,981
Notes payable (Note D)............................................................ 73,425
------------- -------------
Total current liabilities..................................................... 161,923 176,406
------------- -------------
Notes payable (Note D).............................................................. 204,400
-------------
Commitments (Note F)
Stockholders' equity (deficit) (Note E):
Preferred stock--$.01 par value; 1,000,000 shares authorized, none issued
Common stock--$.02 par value; 20,000,000 shares authorized, 3,531,000 shares
issued at December 31, 1995 and 3,905,348 shares issued at September 30, 1996... 70,620 78,107
Additional paid-in capital........................................................ 1,158,900 1,807,879
Deficit accumulated during the development stage.................................. (1,347,461) (1,570,373)
------------- -------------
Total stockholders' equity (deficit).......................................... (117,941) 315,613
------------- -------------
TOTAL......................................................................... $ 248,382 $ 492,019
------------- -------------
------------- -------------
</TABLE>
Attention is directed to the foregoing auditors' report and
to the accompanying notes to financial statements.
F-3
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JULY 9, 1992 JULY 9, 1992
YEAR ENDED (INCEPTION) NINE MONTHS ENDED (INCEPTION)
DECEMBER 31, THROUGH SEPTEMBER 30, THROUGH
------------------------ DECEMBER 31, ------------------------ SEPTEMBER 30,
1995 1994 1995 1996 1995 1996
----------- ----------- ------------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Licensing and option revenue
(Note B[1])............... $ 170,000 $ 170,000
Interest income............. $ 2,535 $ 3,954 $ 12,071 7,301 19,372
----------- ----------- ------------- ----------- -------------
Total revenue........... 2,535 3,954 12,071 177,301 189,372
----------- ----------- ------------- ----------- -------------
Expenses:
Research and development.... 131,842 199,654 466,838 100,716 $ 94,966 567,554
General and
administrative............ 230,592 323,613 857,909 268,819 187,462 1,126,728
Amortization expense........ 1,049 1,049 3,584 787 787 4,371
Interest expense............ 31,201 2,645 31,201 29,891 22,691 61,092
----------- ----------- ------------- ----------- ----------- -------------
Total expenses.......... 394,684 526,961 1,359,532 400,213 305,906 1,759,745
----------- ----------- ------------- ----------- ----------- -------------
NET LOSS...................... $ (392,149) $ (523,007) $ (1,347,461) $(222,912) $ (305,906) $(1,570,373)
----------- ----------- ------------- ----------- ----------- -------------
----------- ----------- ------------- ----------- ----------- -------------
Net loss per share............ $ (.10) $ (.14) $ (.05) $ (.08)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of
shares outstanding.......... 3,784,623 3,660,514 4,185,555 3,649,496
</TABLE>
Attention is directed to the foregoing auditors' report and
to the accompanying notes to financial statements.
F-4
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED
$.02 PAR VALUE ADDITIONAL DURING
--------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
---------- --------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Sale of common stock at $.07 per share from inception
through December 31, 1992............................. 615,000 $ 12,300 $ 28,700 $ 41,000
Issuance of common stock for services at $.07 per share
from inception through December 31, 1992.............. 60,000 1,200 2,800 4,000
Net loss for the year ended December 31, 1992........... $ (77,972) (77,972)
---------- --------- ------------ ------------- -----------
Balance--December 31, 1992.............................. 675,000 13,500 31,500 (77,972) (32,972)
Additional shares sold at $.07 per share................ 1,200,000 24,000 56,000 80,000
Shares issued for services at $.07
per share............................................. 162,000 3,240 7,560 10,800
Sale of common stock in connection with private
placement of stock at $.67 per share.................. 960,000 19,200 620,800 640,000
Costs related to private placement...................... (36,530) (36,530)
Shares issued for services at $.67 per share............ 9,000 180 5,820 6,000
Net loss for the year ended
December 31, 1993..................................... (354,333) (354,333)
---------- --------- ------------ ------------- -----------
Balance--December 31, 1993.............................. 3,006,000 60,120 685,150 (432,305) 312,965
Repurchase of common stock by the Company and
cancellation of shares................................ (15,000) (300) (700) (1,000)
Common stock warrants issued in connection with notes
payable............................................... 6,750 6,750
Net loss for the year ended December 31, 1994........... (523,007) (523,007)
---------- --------- ------------ ------------- -----------
Balance--December 31, 1994.............................. 2,991,000 59,820 691,200 (955,312) (204,292)
Sale of common stock at $.83 per share.................. 540,000 10,800 439,200 450,000
Costs of raising capital................................ (12,250) (12,250)
Purchase (for $8,000) and resale
(for $20,000) of 60,000 shares of common stock........ 12,000 12,000
Capital contributed by stockholder...................... 25,000 25,000
Common stock warrants issued in connection with notes
payable............................................... 3,750 3,750
Net loss for the year ended December 31, 1995........... (392,149) (392,149)
---------- --------- ------------ ------------- -----------
Balance--December 31, 1995.............................. 3,531,000 70,620 1,158,900 (1,347,461) (117,941)
Shares issued for services at $1.00 per share........... 25,066 501 24,565 25,066
Conversion of debt into common stock.................... 135,000 2,700 128,700 131,400
Sale of common stock in connection with private
placement of stock at $2.33 per share................. 214,282 4,286 495,714 500,000
Net loss for the nine months ended September 30, 1996... (222,912) (222,912)
---------- --------- ------------ ------------- -----------
BALANCE--SEPTEMBER 30, 1996 (UNAUDITED)................. 3,905,348 $ 78,107 $ 1,807,879 $ (1,570,373) $ 315,613
---------- --------- ------------ ------------- -----------
---------- --------- ------------ ------------- -----------
</TABLE>
Attention is directed to the foregoing auditors' report and
to the accompanying notes to financial statements.
F-5
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JULY 9, 1992 JULY 9, 1992
YEAR ENDED (INCEPTION) NINE MONTHS ENDED (INCEPTION)
DECEMBER 31, THROUGH SEPTEMBER 30, THROUGH
------------------------ DECEMBER 31, ------------------------ SEPTEMBER 30,
1995 1994 1995 1996 1995 1996
----------- ----------- ------------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................... $ (392,149) $ (523,007) $ (1,347,461) $(222,912) $ (305,906) $(1,570,373)
Adjustments to reconcile net loss to
net cash (used in) operating
activities:
Amortization......................... 1,049 1,399 3,934 1,212 786 5,146
Common stock issued for services
rendered........................... 20,800 25,066 45,866
Organization costs................... (5,245) (5,245)
Increase (decrease) in accounts
payable and accrued expenses....... 138,071 56,643 216,473 (58,942) 130,697 157,531
----------- ----------- ------------- ----------- ----------- -------------
Net cash (used in) operating
activities....................... (253,029) (464,965) (1,111,499) (255,576) (174,423) (1,367,075)
----------- ----------- ------------- ----------- ----------- -------------
Cash flows from financing activities:
Sale of common stock................... 445,000 1,206,000 387,500 121,000 1,593,500
Stock offering costs................... (12,250) (48,780) (48,780)
Repurchase of common stock............. (8,000) (1,000) (9,000) (9,000)
Proceeds from notes payable (Note C)... 75,000 135,000 210,000 75,000 210,000
Deferred public offering costs......... (5,000) (5,000)
----------- ----------- ------------- ----------- ----------- -------------
Net cash provided by financing
activities....................... 499,750 134,000 1,358,220 382,500 196,000 1,740,720
----------- ----------- ------------- ----------- ----------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ 246,721 (330,965) 246,721 126,924 21,577 373,645
Cash and cash equivalents at beginning of
period................................. -0- 330,965 -0- 246,721 -0- -0-
----------- ----------- ------------- ----------- ----------- -------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................. $ 246,721 $ -0- $ 246,721 $ 373,645 $ 21,577 $ 373,645
----------- ----------- ------------- ----------- ----------- -------------
----------- ----------- ------------- ----------- ----------- -------------
Supplemental disclosures of cash flow
information:
Interest paid.......................... $ 15,000 $ 15,000 $ 25,000 $ 32,000
Accounts payable converted into
stock................................ 25,000 25,000 25,000
Capital contributed by forgiveness of
debt................................. 25,000 25,000 25,000
Notes payable converted to common
stock................................ 135,000 135,000
</TABLE>
Attention is directed to the foregoing auditors' report and
to the accompanying notes to financial statements.
F-6
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
(NOTE A)--THE COMPANY:
Apollo Biopharmaceutics, Inc. (formerly Apollo Genetics, Inc.) (the
"Company"), was incorporated on July 9, 1992. The Company's objective is to
develop biopharmaceutical products for deterring aspects of human aging.
The Company is in the development stage and its efforts through December
31, 1995 have been principally devoted to organizational activities, raising
capital and initial research and development activities. It does not expect
commercial operations in the foreseeable future. The Company anticipates that it
will need substantial additional financing to complete its research and to
develop commercial products. The Company is endeavoring to obtain additional
financing for the next phase of its research activities; however, there is no
assurance that such financing can be obtained or that the Company's research
will be successful.
On November 6, 1996 the Board of Directors of the Company authorized the
filing of a registration statement with the Securities and Exchange Commission
for the initial public offering of shares of the Company's common stock.
In December 1996, Neuroscience Partners Limited Partnership ("NPLP"), a
limited partnership of which MDS Associes-Neuroscience Inc. ("MDS") is the
general partner, invested $500,000 in the Company in exchange for 214,285 shares
of Common Stock on the same terms as the other purchasers of Common Stock in the
Company's most recent private placement financing.
Also in December 1996, the Company entered into a Royalty Purchase
Agreement with NPLP, pursuant to which NPLP agreed to provide an additional
$500,000 (the "NPLP Development Financing") to the Company. In exchange for the
NPLP Development Financing, the Company is obligated to pay NPLP royalties on
sales of, and license fees and other revenues received by the Company in
connection with, any products developed that relate to the use of estrogen in
the treatment of chronic, neurodegenerative disease, subject to the Company's
right to terminate these obligations upon its payment to NPLP of a cash payment
buyout. In connection with the NPLP Development Financing, NPLP received (i)
warrants to purchase 105,000 shares of Common Stock at an exercise price of
$2.33 per share and (ii) warrants to purchase 145,000 shares of Common Stock at
an exercise price of $2.92 per share. All or any portion (not less than
$150,000) of the aggregate amount of the NPLP Development Financing may be
converted at any time at the option of MDS into shares of Common Stock at a
conversion price equal to (i) with respect to 50% of the amount of the NPLP
Development Financing, the lesser of (a) $2.92 and (b) the price per share of
Common Stock reflected in the Company's most recent financing prior to any
conversion and (ii) with respect to the remaining 50% of the amount of the NPLP
Development Financing, the lesser of (a) $3.50 and (b) the price per share of
the Common Stock reflected in the Company's most recent equity financing prior
to any conversion. In the event that NPLP exercises its right to convert the
amount of the NPLP Development Financing, the amount of royalties payable under
the agreement will be reduced on a pro rata basis.
In December, 1996 the Company amended its Certificate of Incorporation
whereby, among other things, the following changes were effected:
[1] The name of the Company was changed from Apollo Genetics, Inc. to Apollo
BioPharmaceutics, Inc.
F-7
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
(NOTE A)--THE COMPANY: (CONTINUED)
[2] A reverse stock split of 1 for 3 1/3 shares of common stock and all
securities of the Company convertible into common stock was made.
[3] The number of authorized shares of the Company's preferred stock was
reduced from 4,000,000 to 1,000,000 shares.
All references to preferred stock, common stock, options, warrants and
per share data have been restated to give effect to the above amendments to the
Certificate of Incorporation.
(NOTE B)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
[1] REVENUE RECOGNITION:
Licensing and option fees are recognized when they are earned in
accordance with the performance requirements and contractual terms of the
underlying agreements. Licensing revenue represents amounts paid by companies
for the use of or access to the Company's proprietary technology. Option revenue
represents payments for the right to negotiate with the Company which may or may
not result in a licensing or collaborative development agreement.
[2] ORGANIZATION COSTS:
The Company has capitalized certain costs, primarily legal expenses,
related to its organization. These costs are being amortized by the
straight-line method over five years.
[3] PATENT AND LICENSING COSTS:
As a result of research and development effors conducted by the Company,
it has received and applied for, and is in the process of applying for, a number
of patents to protect proprietary inventions and licenses to use certain
intellectual property. Costs incurred in connection with patent applications and
licenses have been expensed as incurred and are reflected as general and
administrative expenses.
[4] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
[5] CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with a maturity of
three months or less, when acquired, to be cash equivalents.
[6] LOSS PER SHARE:
Loss per share is calculated based on the weighted average number of
shares of common stock outstanding during the period. Pursuant to the
requirements of the Securities and Exchange Commission, common shares, or other
potentially dilutive instruments issued by the Company during the twelve months
F-8
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
(NOTE B)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
immediately preceding the expected initial filing of the registration statement
for the Company's proposed initial public offering at prices below the expected
public offering price have been included in the calculation as if they were
outstanding for all periods presented.
Assuming the conversion of the notes discussed in the last sentence of
Note D as of January 1, 1995, there would have been no effect on the
supplementary loss per share for any period presented.
[7] INTERIM CONDENSED FINANCIAL STATEMENTS:
The condensed financial statements as of September 30, 1996 and for the
nine months ended September 30, 1996 and September 30, 1995 are unaudited. In
management's opinion, the unaudited financial statements as of September 30,
1996 and for the nine months ended September 30, 1996 and September 30, 1995,
include all adjustments necessary for a fair presentation. Such adjustments were
of a recurring nature.
(NOTE C)--STOCK SUBSCRIPTIONS RECEIVABLE:
All stock subscriptions receivable were paid in full in October 1996.
(NOTE D)--NOTES PAYABLE:
During 1995 and 1994, the Company issued $210,000 of 10% convertible notes
payable. The notes are due in full at the earlier of September 19, 1997 or the
closing of the next offering of common stock of the Company with aggregate gross
proceeds to the Company of not less than $1,000,000. Interest is payable
annually on September 19. The notes may be redeemed at the option of the Company
at a price equal to 110% of the principal amount plus any accrued and unpaid
interest. The notes may be converted into common stock of the Company at any
time prior to the redemption or maturity date. The conversion price is subject
to adjustment as defined in the agreement. The principal amount of the notes
outstanding is $75,000 and $210,000 at September 30, 1996 and December 31, 1995,
respectively. In conjunction with these notes, the Company issued warrants for
the purchase of 210,000 shares of its common stock. The value assigned to the
warrants, amounting to $10,500, has been accounted for as debt discount and is
being amortized over the period of time the notes are expected to be
outstanding. The effective interest rate on the notes, including the debt
discount, is approximately 12%. The warrants are more fully discussed in Note
E[3]. Through September 30, 1996 a total of $135,000 of the notes, all of which
were issued in 1994, were converted into 135,000 shares of common stock.
(NOTE E)--COMMON STOCK, OPTIONS AND WARRANTS:
[1] COMMON STOCK:
Through December 31, 1995, the Company has been financed primarily
through the sale of common stock. Through December 31, 1995, of the 3,531,000
shares issued since inception, 3,300,000 were sold for cash and the remaining
231,000 shares were issued for payment of services rendered to the Company.
Through September 30, 1996, of the 3,905,348 shares issued since inception,
3,649,282 were sold for cash and the remaining 256,066 shares were issued for
payment of services rendered to the Company.
F-9
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
(NOTE E)--COMMON STOCK, OPTIONS AND WARRANTS: (CONTINUED)
[2] OPTION PLAN:
The Company has a stock option plan that provides for the issuance of
both incentive and nonqualified stock options. This plan provides for the
granting of options to purchase not more than 600,000 shares of common stock.
The exercise price of the incentive options cannot be less than the fair market
value on the date of the grant, while the exercise price for the nonqualified
options is determined by the option committee.
Option activity through September 30, 1996 has been as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
----------- -------------
<S> <C> <C>
Balance--December 31, 1992......................................... -0- $-0-
Granted............................................................ 60,000 $.67
-----------
Balance--December 31, 1993......................................... 60,000 $.67
Granted............................................................ 150,000 $.67 - $1.00
-----------
Balance--December 31, 1994......................................... 210,000 $.67 - $1.00
Cancelled.......................................................... (90,000) $.67 - $1.00
Granted............................................................ 180,000 $.83
-----------
Balance--December 31, 1995 and September 30, 1996.................. 300,000 $.67 - $1.00
-----------
-----------
</TABLE>
At September 30, 1996, options to purchase 195,000 shares were
exercisable at an average exercise price of $.87 per share.
In November of 1996, the Company's Board of Directors authorized an
increase of the number of shares of the Company's common stock issuable under
the plan by 300,000 shares.
Also in November of 1996, the Company's Board of Directors authorized
the establishment of the 1996 Directors Stock Option Plan, and reserved 90,000
shares of the Company's common stock for issuance under the Plan.
[3] WARRANTS:
In conjunction with the notes described in Note D, the Company issued
warrants for the purchase of 210,000 shares of the Company's common stock. The
warrants are exercisable until September 17, 1999 at the lower of $1.00 per
share or the price per share of the common stock at the closing of the next
offering of common stock with aggregate gross proceeds of at least $1,000,000.
The number and character of shares which may be purchased upon the exercise of
these warrants are subject to adjustment as provided in the warrant agreement.
F-10
<PAGE>
APOLLO BIOPHARMACEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
(NOTE F)--COMMITMENTS:
[1] LEASE:
Through December 31, 1995, the Company was subleasing its facilities
under a tenant-at-will agreement. Rent expense for the year ended December 31,
1995 amounted to $5,850 and the rent paid since inception is $21,100.
[2] RESEARCH, LICENSE AND CONSULTING AGREEMENTS:
The Company has entered into various research, license and consulting
agreements to support its research and development activities. These agreements
generally expire over several future years. Amounts charged to operations in
connection with these agreements for the year ended December 31, 1995 amounted
to approximately $55,000. The Company expects to increase its research and
development expenses in future years.
Some of the above agreements contain provisions for future royalties to
be paid by and/or to the Company on the sale of products developed under the
agreements.
[3] EMPLOYMENT AGREEMENT:
The Company has entered into an employment agreement, which expires in
November 1998, with its president which provides for an annual salary of
$115,000 and twelve months of severance pay. The agreement will automatically
extend for additional two-year periods unless terminated by either party to the
agreement.
(NOTE G)--INCOME TAXES:
Pursuant to provisions of the Internal Revenue Code, for tax purposes the
Company is deferring all start-up costs until operations, as defined by the
Internal Revenue Code, commence and is deferring research and development costs
until revenue is generated. Accordingly, through December 31, 1995 only interest
income and expense have entered into the determination of taxable income.
At December 31, 1995, the Company had no current tax liability or
deferred tax liability. It had deferred tax assets due to temporary differences
and research and development tax credits of approximately $480,000, all of which
has been fully reserved since the likelihood of the realization of the benefits
cannot be established. The temporary differences relate primarily to the
deferral of start-up costs and research and development costs noted above.
The Internal Revenue Code contains provisions which may limit the net
operating loss carryovers available for use in any given year if significant
changes in ownership interest of the Company occur.
F-11
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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........................................................... 18
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 20
Selected Financial Data................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 22
Business.................................................................. 24
Management................................................................ 40
Certain Transactions...................................................... 45
Principal Stockholders.................................................... 46
Description of Securities................................................. 48
Shares Eligible for Future Sale........................................... 52
Underwriting.............................................................. 54
Legal Matters............................................................. 55
Experts................................................................... 55
Additional Information.................................................... 56
Glossary of Technical Terms............................................... 57
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF 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.
1,200,000 UNITS
[APOLLO LOGO]
---------------------
PROSPECTUS
, 1997
---------------------
FIRST UNITED EQUITIES CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law grants the Company the
power to indemnify each person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that he is or was a director, officer, employee or agent of the Company, or is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgements, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding, if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Company, and with respect to any criminal action or proceeding,
had no reasonable cause to believe his or her conduct was unlawful, provided,
however, no indemnification shall be made in connection with any proceeding
brought by or in the right of the Company where the person involved is adjudged
to be liable to the Company, except to the extent approved by a court. Article V
of the Company's By-laws provides that the Company shall, to extent legally
permitted, indemnify each person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
by reason of the fact that he or she is or was, or has agreed to become, a
director or officer of the Company, or is or was serving, or has agreed to
serve, at the request of the Company, as a director, officer or trustee of, or
in a similar capacity with, another corporation, partnership, joint venture,
trust or other enterprise. The indemnification provided for in Article V is
expressly not exclusive of any other rights to which those seeking
indemnification may be entitled under any law, agreement or vote of stockholders
or disinterested directors or otherwise, and shall inure to the benefit of the
heirs, executors and administrators of such persons. Article V also provides
that the Company shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company, as a director,
officer or trustee of, or in a similar capacity with, another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against and incurred by such person in any such capacity.
Pursuant to Section 102(b)(7) of the Delaware General Corporation Laws,
Articles SEVENTH and NINTH of the Company's Amended and Restated Certificate of
Incorporation eliminates a director's personal liability for monetary damages to
the Company and its stockholders for breaches of fiduciary duty as a director,
except in circumstances involving a breach of a director's duty of loyalty to
the Company or its stockholders, acts or omissions not in good faith,
intentional misconduct, knowing violations of the law, self-dealing or the
unlawful payment of dividends or repurchase of stock.
The Company has also entered into Indemnification Agreements with each
of its directors whereby the Company has agreed to indemnify them against
certain liabilities that they may incur as a result of their services to the
Company.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be borne by the Company in connection with this offering
are as follows:
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 5,655
Nasdaq listing fee................................................ $ 7,880
NASD filing fee................................................... $ 2,366
Blue Sky fees and expenses........................................ $ 15,000
Printing and engraving expenses................................... $ 112,000
Accounting fees and expenses...................................... $ 40,000
Legal fees and expenses........................................... $ 200,000
Transfer agent and registrar fees................................. $ 10,000
Managing Underwriter's expenses................................... $ 189,000
Miscellaneous expenses............................................ $ 8,099
---------
Total......................................................... $ 590,000
</TABLE>
All of the above figures, except the SEC registration fee and NASD
filing fee, are estimates.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since July 1992, the Company has issued and sold the following
securities, in each case in reliance on an exemption from required registration
pursuant to Section 4(2) of the Securities Act:
In September 1992, the Company sold an aggregate of 615,000 shares of
Common Stock to 14 accredited investors for an aggregate purchase price of
$41,000.
In order to fund its continuing operations, the Company completed two
bridge financings, one in September 1994 (the "1994 Bridge Financing") and one
in April 1995 (the "1995 Bridge Financing"). In connection with the 1994 Bridge
Financing, the Company issued (i) an aggregate of $135,000 in principal amount
of Convertible Promissory Notes (the "1994 Notes") which were due on the earlier
of September 19, 1996 or the closing by the Company of a private placement
financing yielding gross proceeds of not less than $1,000,000 and (ii) warrants
to purchase an aggregate of 135,000 shares of the Company's Common Stock
exercisable at $1.00 per share. In connection with the 1995 Bridge Financing,
the Company issued (i) an aggregate of $75,000 in principal amount of
Convertible Promissory Notes (the "1995 Notes") which were due on the earlier of
April 30, 1997 or the closing by the Company of a private placement financing
yielding gross proceeds of not less than $1,000,000 and (ii) warrants to
purchase an aggregate of 75,000 shares of the Company's Common Stock exercisable
at $1.00 per share. In September 1996, the 1994 Notes were converted into
135,000 shares of Common Stock.
In May 1995, the Company sold an aggregate of 540,000 shares of Common
Stock to 8 accredited investors for an aggregate purchase price of $475,000.
In June 1996, the Company sold an aggregate of 214,282 shares of Common
Stock to 9 accredited investors for an aggregate purchase price of $500,000. The
Managing Underwriter acted as placement agent for this 1996 financing and in
consideration thereof received a fee of $25,000.
In December 1996, Neuroscience Partners Limited Partnership ("NPLP"), a
limited partnership of which MDS Associes--Neuroscience Inc. ("MDS") is the
general partner, invested $500,000 in the Company in exchange for 214,287 shares
of Common Stock on the same terms as the other purchasers of Common Stock in the
Company's most recent private placement financing.
Also in December 1996, the Company entered into a Royalty Purchase
Agreement with NPLP, pursuant to which NPLP agreed to provide an additional
$500,000 (the "NPLP Development Financing") in the Company to fund the continued
research and development of the Company's programs related to the use of
estrogen in the treatment of certain chronic neurodegenerative diseases,
including Alzheimer's disease. In exchange for the NPLP Development Financing,
the Company is obligated to pay NPLP
II-2
<PAGE>
royalties on sales of, and license fees and other revenues received by the
Company in connection with, any products developed in these programs, subject to
the Company's right to terminate these obligations upon its payment to NPLP of a
cash payment buyout. In connection with the NPLP Development Financing, NPLP
received (i) warrants to purchase 105,000 shares of Common Stock at an exercise
price of $2.33 per share and (ii) warrants to purchase 45,000 shares of Common
Stock at an exercise price of $2.92 per share. All or any portion (not less than
$150,000) of the aggregate amount of the NPLP Development Financing may be
converted at any time at the option of MDS into shares of Common Stock at a
conversion price equal to (i) with respect to 50% of the amount of the NPLP
Development Financing, the lesser of (a) $2.92 and (b) the price per share of
the Common Stock reflected in the Company's most recent financing prior to any
conversion and (ii) with respect to the remaining 50% of the amount of the NPLP
Development Financing, the lesser of (a) $3.50 and (b) the price per share of
the Common Stock reflected in the Company's most recent equity financing prior
to any conversion. In the event that NPLP exercises its right to convert the
amount of the NPLP Development Financing, the amount of royalties payable under
the agreement will be reduced on a pro rata basis.
II-3
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement. To be filed by amendment.
3.1 Amended and Restated Certificate of Incorporation. Filed herewith.
3.2 By-laws of the Company. Filed herewith.
3.3 Registration Rights Agreement, dated December 18, 1996, between the Company and Neuroscience Partners
Limited Partnership. Filed herewith.
3.4 Warrant to purchase Common Stock of the Company granted to Neuroscience Partners Limited Partnership
dated December 18, 1996. Filed herewith.
4.1 Specimen Common Stock Certificate. To be filed by amendment.
4.2 Specimen Common Stock Purchase Warrant. To be filed by amendment.
5 Opinion of Palmer & Dodge LLP as to the legality of the shares being registered. Filed herewith.
10.1* Amended and Restated 1993 Incentive and Non-Qualified Stock Option Plan. Filed herewith.
10.2* 1996 Director Stock Option Plan. Filed herewith.
10.3 Form of Indemnification Agreement between the Company and its directors. Filed herewith. Such
agreements are materially different only as to the signing directors and the dates of execution.
10.4+ Royalty Purchase Agreement dated December 18, 1996 between the Company and Neuroscience Partners
Limited Partnership. Filed herewith.
10.5+ Research and Collaboration Agreement, dated as of December 6, 1994, between the Company and Endocon,
Inc. To be filed by amendment.
10.6+ Nonexclusive Sublicense Agreement, dated as of November 5, 1996, between the Company and Cephalon,
Inc. Filed herewith.
10.7+ License and Collaboration Agreement, dated as of April 16, 1996, between the Company and Athena
Neurosciences, Inc. Filed herewith.
10.8+ Neuron Loss Protection Technology License Agreement, dated April 13, 1993, between the Company and
the University of Kentucky Research Foundation. Filed herewith.
10.9+ Patent License Agreement with Research Component, dated December 15, 1993, restated October 15, 1996,
between the Company and the University of Florida Research Foundation, Inc. Filed herewith.
10.10+ Corporate Research Agreement to Accompany License Agreement, dated December 15, 1993, between the
Company and the University of Florida. Filed herewith.
10.11+ Patent License Agreement, dated September 8, 1994, between the Company and the University of Florida
Research Foundation, Inc. Filed herewith.
10.12* Employment Agreement effective as of November 1, 1993, between the Company and Dr. Katherine
Gordon. Filed herewith.
11 Statement re: Computation of loss per share. Filed herewith.
23.1 Consent of Richard A. Eisner & Company, LLP. Filed herewith.
23.2 Consent of Palmer & Dodge LLP. Included in the opinion filed as Exhibit 5 herewith.
24 Power of attorney. Included on the signature page hereto.
27 Financial Data Schedule. Filed herewith.
</TABLE>
- ------------------------
* Indicates a management contract or compensatory plan.
+ Certain confidential material contained in the document has been omitted and
filed separately, with the Securities and Exchange Commission pursuant to
Rule 406 of the Securities Act.
II-4
<PAGE>
ITEM 28. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions described under "Item 24
- --Indemnification of Directors and Officers" above, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) 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-5
<PAGE>
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 SB-2 and it has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cambridge, Commonwealth of Massachusetts, on
December 19, 1996.
APOLLO BIOPHARMACEUTICS, INC.
BY: /S/ KATHERINE GORDON
-----------------------------------------
Katherine Gordon
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
We, the undersigned officers and directors of Apollo BioPharmaceutics,
Inc., hereby severally constitute and appoint Katherine Gordon, Michael Lytton
and Stanley Keller, and each of them singly, our true and lawful
attorneys-in-fact, with full power to them in any and all capacities, to sign
any amendments to this Registration Statement, and any related Rule 462(b)
registration statement or amendment thereto, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
President, Chief Executive
/s/ KATHERINE GORDON Officer and Director
- ------------------------------ (Principal Executive December 19, 1996
Katherine Gordon Officer)
Vice President--Finance,
Chief Financial Officer
/s/ JOHN J. CURRY and Treasurer (Principal
- ------------------------------ Financial Officer and December 19, 1996
John J. Curry Principal Accounting
Officer)
/s/ ROBERT J. LEONARD Vice President--Business
- ------------------------------ Development, Director December 19, 1996
Robert J. Leonard
/s/ THEODORE GORDON Director
- ------------------------------ December 19, 1996
Theodore Gordon
/s/ DONALD WEISE Director
- ------------------------------ December 19, 1996
Donald Weise
/s/ GEORGE MASTERS Director
- ------------------------------ December 19, 1996
George Masters
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- ---------
<C> <S> <C>
1 Form of Underwriting Agreement. To be filed by amendment.......................................
3.1 Amended and Restated Certificate of Incorporation. Filed herewith..............................
3.2 By-laws of the Company. Filed herewith.........................................................
3.3 Registration Rights Agreement, dated December 18, 1996, between the Company
and Neuroscience Partners Limited Partnership. Filed herewith................................
3.4 Warrant to purchase Common Stock of the Company granted to Neuroscience Partners Limited
Partnership dated December 18, 1996. Filed herewith..........................................
4.1 Specimen Common Stock Certificate. To be filed by amendment....................................
4.2 Specimen Common Stock Purchase Warrant. To be filed by amendment...............................
5 Opinion of Palmer & Dodge LLP as to the legality of the shares being registered. Filed
herewith......................................................................................
10.1* Amended and Restated 1993 Incentive and Non-Qualified Stock Option Plan.
Filed herewith................................................................................
10.2* 1996 Director Stock Option Plan. Filed herewith................................................
10.3 Form of Indemnification Agreement between the Company and its directors.
Filed herewith. Such agreements are materially different only as to the signing
directors and the dates of execution..........................................................
10.4+ Royalty Purchase Agreement dated December 18, 1996 between the Company and Neuroscience Partners
Limited Partnership. Filed herewith..........................................................
10.5+ Research and Collaboration Agreement, dated as of December 6, 1994, between the Company and
Endocon, Inc. To be filed by amendment.......................................................
10.6+ Nonexclusive Sublicense Agreement, dated as of November 5, 1996, between the Company and
Cephalon, Inc. Filed herewith................................................................
10.7+ License and Collaboration Agreement, dated as of April 16, 1996, between the Company and Athena
Neurosciences, Inc. Filed herewith...........................................................
10.8+ Neuron Loss Protection Technology License Agreement, dated April 13, 1993, between the Company
and the University of Kentucky Research Foundation.
Filed herewith................................................................................
10.9+ Patent License Agreement with Research Component, dated December 15, 1993, restated October 15,
1996, between the Company and the University of Florida Research Foundation, Inc. Filed
herewith......................................................................................
10.10+ Corporate Research Agreement to Accompany License Agreement, dated December 15, 1993, between
the Company and the University of Florida. Filed herewith....................................
10.11+ Patent License Agreement, dated September 8, 1994, between the Company
and the University of Florida Research Foundation, Inc. Filed herewith.......................
10.12* Employment Agreement effective as of November 1, 1993, between the Company
and Dr. Katherine Gordon. Filed herewith.....................................................
11 Statement re: Computation of loss per share. Filed herewith....................................
23.1 Consent of Richard A. Eisner & Company, LLP. Filed herewith....................................
23.2 Consent of Palmer & Dodge LLP. Included in the opinion filed as
Exhibit 5 herewith............................................................................
24 Power of attorney. Included on the signature page hereto........................................
27 Financial Data Schedule. Filed herewith........................................................
</TABLE>
- ------------------------
* Indicates a management contract or compensatory plan.
+ Certain confidential material contained in the document has been omitted and
filed separately, with the Securities and Exchange Commission pursuant to
Rule 406 of the Securities Act.
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
APOLLO GENETICS, INC.
INCORPORATED PURSUANT TO AN ORIGINAL
CERTIFICATE OF INCORPORATION
FILED WITH THE SECRETARY OF STATE
OF DELAWARE ON JULY 20, 1992
We, the undersigned, for the purpose of amending and restating the
Certificate of Incorporation of Apollo Genetics, Inc. (the "Corporation")
under the laws of the State of Delaware hereby certify as follows:
FIRST. The name of the Corporation is:
Apollo BioPharmaceutics, Inc.
SECOND. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is
The Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is (i) 20,000,000 shares of Common
Stock, $0.02 par value per share ("Common Stock") and (ii) 1,000,000 shares
of Preferred Stock, $0.01 par value per share ("Preferred Stock").
Upon the effectiveness of this Restated Certificate of Incorporation,
each three and one-third (3 1/3) issued and outstanding shares of Common
Stock of the Corporation shall thereby be combined into one (1) validly
issued, fully paid, and nonassessable shares of Common Stock of the
Corporation. No scrip or fractional shares will be issued, and each
fractional share resulting from such combination shall be redeemed by the
Corporation for cash at a price per share equal to the price to the public in
the initial public offering of the Corporation's Common Stock. There shall
not be any change in the number of shares authorized by reason of such
combination.
<PAGE>
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to and qualified by the rights of the
holders of the Preferred Stock of any series as may be designated by the
Board of Directors upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the common stock are entitled to one
vote for each share held at all meetings of stockholders (and written actions
in lieu of meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by
the affirmative vote of the holders of a majority of the stock of the
Corporation entitled to vote, irrespective of the provisions of Section
242(b)(2) of the General Corporation Law of Delaware.
3. DIVIDENDS. Dividends may be declared and paid on the Common
Stock from funds lawfully available therefor as and when determined by the
Board of Directors and subject to any preferential dividend rights of any
then outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will
be entitled to receive all assets of the Corporation available for
distribution to its stockholders, subject to any equivalent or preferential
rights of any then outstanding Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in
the resolution or resolutions providing for the issue of such series adopted
by the Board of Directors of the Corporation as hereinafter provided. Any
shares of Preferred Stock which may be redeemed, purchased or otherwise
acquired by the Corporation may be reissued except as otherwise provided by
law. Different series of Preferred Stock shall not be construed to
constitute different classes of shares for the purposes of voting by classes
unless expressly provided.
Authority is hereby expressly granted to the Board of Directors, from
time to time, to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such
voting powers, full or limited, or no voting powers, and such designations,
preferences and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including, without
limitation thereof, dividend rights, special voting rights, conversion
rights, redemption privileges and liquidation preferences, as shall be stated
and expressed in such resolutions, all to the full extent now or
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<PAGE>
hereafter permitted by the General Corporation Law of Delaware. Without
limiting the generality of the foregoing, the resolutions providing for
issuance of any series of Preferred Stock may provide that such series shall
be superior or rank equally or be junior to the Preferred Stock of any other
series to the extent permitted by law. Except as otherwise specifically
provided in this Amended and Restated Certificate of Incorporation, no vote
of the holders of the Preferred Stock or Common Stock shall be a prerequisite
to the issuance of any shares of any series of the Preferred Stock authorized
by and complying with the conditions of this Amended and Restated Certificate
of Incorporation, the right to have such voting being expressly waived by all
present and future holders of the capital stock of the Corporation.
FIFTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot; and
2. The directors shall be divided into three classes, as nearly
equal in number as the then total number of directors constituting the entire
Board permits, with the term of office of one class expiring each year. The
initial Class I directors elected by the stockholders of the Corporation
shall hold office for a term expiring at the 1997 annual meeting of
stockholders; the initial Class II directors elected by the stockholders of
the Corporation shall hold office for a term expiring at the 1998 annual
meeting of stockholders; and the initial Class III directors elected by the
stockholders of the Corporation shall hold office for a term expiring at the
1999 annual meeting of stockholders. At each such annual meeting of
stockholders and at each annual meeting thereafter, successors to the class
of directors whose term expires at that meeting shall be elected for a term
expiring at the third annual meeting following their election and until their
successors shall be elected and qualified, subject to prior death,
resignation, retirement or removal. If the number of directors is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible,
but in no event will a decrease in the number of directors shorten the term
of any incumbent director. Notwithstanding the foregoing, and except as
otherwise required by law, whenever the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a class, to elect
one or more directors of the Corporation, the election, terms of office and
other features of such directorships shall be governed by the terms of the
vote establishing such series, and such directors so elected shall not be
divided into classes pursuant to this Article unless expressly provided by
such terms. This Section 2 of Article may not be amended, revised or
revoked, in whole or in part, except by the affirmative vote of the holders
of 80% of the voting power of the shares of all classes of stock of the
Corporation entitled to vote for the election of directors, considered for
the purposes of this Article as one class of stock.
3. Each director chosen to fill a vacancy in the Board of Directors
shall be elected to complete the term of office of the director who is being
succeeded. In the case of any election of a new director to fill a directorship
created by an enlargement of the Board, the Board shall in such election assign
the class of directors to which such additional director
-3-
<PAGE>
is being elected, and each director so elected shall hold office for the same
term as the other members of the class to which the director is assigned.
4. Except as otherwise determined by the Board of Directors in
establishing a series of Preferred Stock as to directors elected by holders
of such series, at any special meeting of the stockholders called at least in
part for the purpose, any director or directors may, by the affirmative vote
of the holders of at least a majority of the stock entitled to vote for the
election of directors, by removed from office for cause. The provisions of
this subsection shall be the exclusive method for the removal of directors.
This Section 4 of Article may not be amended, revised or revoked, in whole or
in part, except by the affirmative vote of the holders of 80% of the voting
power of the shares of all classes of stock of the Corporation entitled to
vote for the election of directors, considered for the purposes of this
Article as one class of stock.
5. The Board of Directors is expressly authorized to adopt, amend
or repeal the By-Laws of the Corporation.
SIXTH. Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a
summary way of the Corporation or of any creditor or stockholder thereof, or
on the application of any receiver or receivers appointed for the Corporation
under the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provisions of section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as
the case may be, to be summoned in such manner as the said court directs. If
a majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholder or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and
to any reorganization of the Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been
made, be binding on all the creditors or class of creditors, and/or on all
the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
SEVENTH. Except to the extent that the General Corporation Law of
Delaware prohibits the elimination or limitation of liability of directors
for breaches of fiduciary duty, no director of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty as a director, notwithstanding any provision
of law imposing such liability. No amendment to or repeal of this provision
shall apply to or have any effect on the liability or alleged liability of
any director of the Corporation for or with respect to any acts or omissions
of such director occurring prior to such amendment.
-4-
<PAGE>
EIGHTH: No action required to be taken or that may be taken at any
annual or special meeting of stockholders of the Corporation may be taken by
written consent without a meeting, and the power of stockholders to consent
in writing, without a meeting, to the taking of any action is specifically
denied.
This Article may not be amended, revised or revoked, in whole or in
part, except by the affirmative vote of the holders of 80% of the voting
power of the shares of all classes of stock of the Corporation entitled to
vote for the election of directors, considered for the purposes of this
Article as one class of stock.
NINTH. 1. ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE
RIGHT OF THE CORPORATION. The Corporation shall indemnify each person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the Corporation), by reason of the fact that he is or was, or has agreed to
become, a director or officer of the Corporation, or is or was serving, or
has agreed to serve, at the request of the Corporation, as a director,
officer or trustee of, or in a similar capacity with, another corporation,
partnership, joint venture, trust or other enterprise (including any employee
benefit plan) (each such person being referred to hereinafter as an
"Indemnitee"), or by reason of any action alleged to have been taken or
omitted in such capacity, against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and may appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests
of the Corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction
or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Notwithstanding anything to the contrary in this Article, except as set forth
in Section 6 below, the Corporation shall not indemnify an Indemnitee seeking
indemnification in connection with a proceeding (or part thereof) initiated
by the Indemnitee unless the initiation thereof was approved by the Board of
Directors of the Corporation.
2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that he is or was, or has agreed to become, a
director or officer of the Corporation, or is or was serving, or has agreed
to serve, at the request of the Corporation, as a director, officer or
trustee of, or in a similar capacity with, another corporation, partnership,
joint venture, trust or other enterprise (including any employee benefit
plan), or by reason of any action alleged to have been taken or omitted in
such capacity, against all expenses (including attorneys' fees) and amounts
paid in settlement actually and reasonably incurred by him or on his behalf
in connection with such action, suit or proceeding and any appeal therefrom,
if he acted in good faith and in a
-5-
<PAGE>
manner he reasonably believed to be in, or not opposed to, the best interests
of the Corporation, except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery of Delaware or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication
of such liability and in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses
(including attorneys' fees) which the Court of Chancery of Delaware or such
other court shall deem proper.
3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding
the other provisions of this Article, to the extent that an Indemnitee has
been successful, on the merits or otherwise, in defense of any action, suit
or proceeding referred to in Sections 1 and 2 of this Article, or in defense
of any claim, issue or matter therein, or on appeal from any such action,
suit or proceeding, he shall be indemnified against all expenses (including
attorneys' fees) actually and reasonably incurred by him or on his behalf in
connection therewith. Without limiting the foregoing, if any action, suit or
proceeding is disposed of, on the merits or otherwise (including a
disposition without prejudice), without (i) the disposition being adverse to
the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the
Corporation, (iii) a plea of guilty or NOLO CONTENDERE by the Indemnitee,
(iv) an adjudication that the Indemnitee did not act in good faith and in a
manner he reasonably believed to be in or not opposed to the best interest of
the Corporation, and (v) with respect to any criminal proceeding, an
adjudication that the Indemnitee had reasonable cause to believe his conduct
was unlawful, the Indemnitee shall be considered for the purposes hereof to
have been wholly successful with respect thereto.
4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in
writing as soon as practicable of any action, suit, proceeding or
investigation involving him for which indemnity will or could be sought.
With respect to any action, suit, proceeding or investigation of which the
Corporation is so notified, the Corporation will be entitled to participate
therein at his own expense and/or to assume the defense thereof at its own
expense, with legal counsel reasonably acceptable to the Indemnitee. After
notice from the Corporation to the Indemnitee of its election so to assume
such defense, the Corporation shall not be liable to the Indemnitee for any
legal or other expenses subsequently incurred by the Indemnitee in connection
with such claim, other than as provided below in this Section 4. The
Indemnitee shall have the right to employ his own counsel in connection with
such claim, but the fees and expenses of such counsel incurred after notice
from the Corporation of its assumption of the defense thereof shall be at the
expense of the Indemnitee unless (i) the employment of counsel by the
Indemnitee has been authorized by the Corporation, (ii) counsel to the
Indemnitee shall have reasonably concluded that there may be a conflict of
interest or position on any significant issue between the Corporation and the
Indemnitee in the conduct of the defense of such action or (iii) the
Corporation shall not in fact have employed counsel to assume the defense of
such action, in each of which cases the fees and expenses of counsel for the
Indemnitee shall be at the expense of the Corporation, except as otherwise
expressly provided by this Article. The Corporation shall not be entitled,
without the consent of the
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Indemnitee, to assume the defense of any claim brought by or in the right of
the Corporation or as to which counsel for the Indemnitee shall have
reasonably made the conclusion provided for in clause (ii) above.
5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 below,
in the event that the Corporation does not assume the defense pursuant to
Section 4 of this Article of any action, suit, proceeding or investigation of
which the Corporation receives notice under this Article, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom
shall be paid by the Corporation in advance of the final disposition of such
matter, PROVIDED, HOWEVER, that the payment of such expenses incurred by an
Indemnitee in advance of the final disposition of such matter shall be made
only upon receipt of an undertaking by or on behalf of the Indemnitee to
repay all mounts so advanced in the event that it shall ultimately be
determined that the Indemnitee is not entitled to be indemnified by the
Corporation as authorized in this Article. Such undertaking may be accepted
without reference to the financial ability of such person to make such
repayment.
6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification
or advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article,
the Indemnitee shall submit to the Corporation a written request, including
in such request such documentation and information as is reasonably available
to the Indemnitee and is reasonably necessary to determine whether and to
what extent the Indemnitee is entitled to indemnification or advancement of
expenses. Any such indemnification or advancement of expenses shall be made
promptly, and in any event within 60 days after receipt by the Corporation or
the written request of the Indemnitee, unless with respect to requests under
Section 1, 2 or 5 the Corporation determines, by clear and convincing
evidence, within such 60-day period that the Indemnitee did not meet the
applicable standard of conduct set forth in Section 1 or 2, as the case may
be. Such determination shall be made in each instance by (a) a majority vote
of a quorum of the directors of the Corporation consisting of persons who are
not at that time parties to the action, suit or proceeding in question
("disinterested directors"), (b) if not such quorum is obtainable, a majority
vote of a committee of two or more disinterested directors, (c) a majority
vote of a quorum of the outstanding shares of stock of all classes entitled
to vote for directors, voting as a single class, which quorum shall consist
of stockholders who are not at that time parties to the action, suit or
proceeding in question, (d) independent legal counsel (who may be regular
legal counsel to the Corporation), or (e) a court of competent jurisdiction.
7. REMEDIES. The right to indemnification or advances as granted by
this Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or
if no disposition thereof is made within the 60-day period referred to above
in Section 6. Unless otherwise provided by law, the burden of proving that
the Indemnitee is not entitled to indemnification or advancement of expenses
under this Article shall be on the Corporation. Neither the failure of the
Corporation to have made a determination prior to the commencement of such
action that indemnification is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Corporation pursuant to Section 6 that the Indemnitee
has not met such applicable standard of conduct, shall be a defense to the
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action or create a presumption that the Indemnitee has not met the applicable
standard of conduct. The Indemnitee's expenses (including attorneys' fees)
incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the Corporation.
8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of
Delaware or any other applicable laws shall affect or diminish in any way the
rights of any Indemnitee to indemnification under the provisions hereof with
respect to any action, suit, proceeding or investigation arising out of or
relating to any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.
9. OTHER RIGHTS. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of
stockholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in any other capacity while holding
office for the Corporation, and shall continue as to an Indemnitee who has
ceased to be a director or officer, and shall inure to the benefit of the
estate, heirs, executors and administrators of the Indemnitee. Nothing
contained in this Article shall be deemed to prohibit or limit, and the
Corporation is specifically authorized to enter into, agreements with
officers and procedures different from those set forth in this Article. In
addition, the Corporation may, to the extent authorized from time to time by
its Board of Directors, grant indemnification rights to other employees or
agents of the Corporation or other persons serving the Corporation and such
rights may be equivalent to, or greater or less than, those set forth in this
Article.
10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with any action, suit, proceeding or investigation and
any appeal therefrom but not, however, for the total amount thereof, the
Corporation shall nevertheless indemnify the Indemnitee for the portion of
such expenses (including attorneys' fees), judgments, fines or amounts paid
in settlement to which the Indemnitee is entitled.
11. INSURANCE. The Corporation may purchase and maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent
of the Corporation or another corporation, partnership, joint venture, trust
or other enterprise (including any employee benefit plan) against any
expense, liability or loss incurred by him in any such capacity,or arising
out of his status as such, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under
the General Corporation Law of Delaware.
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12. MERGER OR CONSOLIDATION. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the
surviving corporation, the surviving corporation shall assume the obligations
of the Corporation under this Article with respect to any action, suit,
proceeding or investigation arising out of or relating to any actions,
transactions or facts occurring prior to the date of such merger or
consolidation.
13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
in connection with any action, suit, proceeding or investigation, whether
civil, criminal or administrative, including an action by or in the right of
the Corporation, to the fullest extent permitted by any applicable portion of
this Article that shall not have been invalidated and to the fullest extent
permitted by applicable law.
14. DEFINITIONS. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. SUBSEQUENT LEGISLATION. If the General Corporation Law of Delaware
is amended after adoption of this Article to expand further the
indemnification permitted to Indemnities, then the Corporation shall
indemnify such persons to the fullest extent permitted by the General
Corporation Law of Delaware, as so amended.
TENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
ELEVENTH. Section 203 of the General Corporation of Law of Delaware, as
it may be amended from time to time, shall apply to the Corporation.
EXECUTED in the city of Cambridge, Massachusetts, on the 9th day of
December, 1996.
/s/ Katherine Gordon
---------------------------
Katherine Gordon
President
ATTESTED:
/s/ Michael Lytton
- ----------------------------
Secretary
<PAGE>
BY-LAWS OF
APOLLO GENETICS, INC.
Adopted by the Board of Directors on November 6, 1996
ARTICLE I
STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of stockholders shall be
held at the principal office of the corporation or at such other place as may
be named in the notice.
SECTION 2. ANNUAL MEETING. The annual meeting of stockholders for the
election of directors and the transaction of such other business as may
properly come before the meeting shall be held on such date and at such hour
and place as the directors or an officer designated by the directors may
determine. If the annual meeting is not held on the date designated
therefor, the directors shall cause the meeting to be held as soon thereafter
as convenient.
SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders may
be called at any time by the President or a majority of the Board of
Directors.
SECTION 4. NOTICE OF MEETINGS. Except where some other notice is
required by law, written notice of each meeting of stockholders, stating the
place, date and hour thereof and the purposes for which the meeting is
called, shall be given by the Secretary under the direction of the Board of
Directors or the President, not less than ten nor more than sixty days before
the date fixed for such meeting, to each stockholder of record entitled to
vote at such meeting. Notice shall be given personally to each stockholder or
left at his or her residence or usual place of business or mailed, postage
prepaid, and addressed to the stockholder at his or her address as it appears
upon the records of the corporation. In case of the death, absence,
incapacity or refusal of the Secretary, such notice may be given by a person
designated either by the Secretary or by the person or persons calling the
meeting or by the Board of Directors. A waiver of such notice in writing,
signed by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent to such notice.
Attendance of a person at a meeting of stockholders shall constitute a waiver
of notice of such meeting, except when the stockholder attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any
written waiver of notice. Except as required by statute, notice of any
adjourned meeting of the stockholders shall not be required.
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SECTION 5. RECORD DATE. The Board of Directors may fix in advance a
record date for the determination of the stockholders entitled to notice of
or to vote at any meeting of stockholders, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action. Such record date shall
not be more than 60 nor less than 10 days before the date of such meeting,
nor more than 60 days before any other action to which such record date
relates. If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day before the day on which notice
is given, or, if notice is waived, at the close of business on the day before
the day on which the meeting is held, and the record date for determining
stockholders for any other purpose shall be at the close of business on the
day on which the Board of Directors adopts the resolution relating to such
purpose. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 6. NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors at any annual or special meeting of stockholders. Nominations of
persons for election as directors may be made only by or at the direction of
the Board of Directors, or by any stockholder entitled to vote for the
election of directors at the meeting in compliance with the notice procedures
set forth in this Section 6. Such nominations, other than those made by or
at the direction of the Board of Directors, shall be made pursuant to timely
notice in writing to the President or the Secretary. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation not less than 45 days before
the meeting; PROVIDED, HOWEVER, that if less than 60 days' notice or prior
public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 15th day following the day on which
such notice of the date of the meeting was mailed or such public disclosure
was made. Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or re-election as a
director, (i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the person, (iii) the
class and number of shares of capital stock of the corporation that are
beneficially owned by the person and (iv) any other information relating to
the person that is required to be disclosed in solicitations for proxies for
election of directors pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended, or any successor provision thereto; and (b)
as to the stockholder giving the notice, (i) the name and record address of
such stockholder and (ii) the class and number of shares of capital stock of
the corporation that are beneficially owned by such stockholder.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if the chairman should so determine, he or she shall
so declare to the meeting and the defective nomination shall be disregarded.
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SECTION 7. ADVANCE NOTICE OF BUSINESS AT ANNUAL MEETINGS. At any annual
meeting of the stockholders, only such business shall be conducted as shall
have been properly brought before the meeting. To be brought properly before
an annual meeting, business must be either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the
President or the Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (c) properly
brought before the meeting by a stockholder. In addition to any other
applicable requirements, for business to be brought properly before an annual
meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the President or the Secretary. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than 45 days before
the meeting; PROVIDED, HOWEVER, that if less than 60 days' notice or prior
public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 15th day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(ii) the name and record address of the stockholder proposing such business,
(iii) the class and number of shares of the corporation that are beneficially
owned by the stockholder and (iv) any material interest of the stockholder in
such business.
Notwithstanding anything in these by-laws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 7, PROVIDED, HOWEVER, that nothing in
this Section 7 shall be deemed to preclude discussion by any stockholder of
any business properly brought before the annual meeting in accordance with
said procedure.
The chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the foregoing procedure, and if the chairman
should so determine, he or she shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
SECTION 8. VOTING LIST. The officer who has charge of the stock ledger
of the corporation shall make or have made, at least 10 days before every
meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder for any purpose germane to the
meeting, during ordinary business hours, for a period of at least 10 days
before the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or if
not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
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SECTION 9. QUORUM OF STOCKHOLDERS. At any meeting of the stockholders,
the holders of a majority in interest of all stock issued and outstanding and
entitled to vote upon a question to be considered at the meeting, present in
person or represented by proxy, shall constitute a quorum for the
consideration of such question; but, in the absence of a quorum, a smaller
group may adjourn any meeting from time to time. When a quorum is present at
any meeting, a majority of the votes properly cast shall, except where a
different vote is required by law, by the Certificate of Incorporation or by
these by-laws, decide any question brought before such meeting. Any election
by stockholders shall be determined by a plurality of the vote cast by the
stockholders entitled to vote at the election.
SECTION 10. PROXIES AND VOTING. Unless otherwise provided in the
Certificate of Incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
the capital stock held of record by such stockholder, but no proxy shall be
voted or acted upon after three years from its date, unless said proxy
provides for a longer period. Persons holding stock in a fiduciary capacity
shall be entitled to vote the shares so held, and persons whose stock is
pledged shall be entitled to vote unless in the transfer by the pledgor on
the books of the corporation the pledgee shall have been expressly empowered
to vote thereon, in which case only the pledgee or the pledgee's proxy may
represent said stock and vote thereon. Shares of the capital stock of the
corporation belonging to the corporation or to another corporation, a
majority of whose shares entitled to vote in the election of directors is
owned by the corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 11. CONDUCT OF MEETING. Meetings of the stockholders shall be
presided over by one of the following officers in the order specified and if
present and acting: the President, a Vice-President (and, in the event there
be more than one person in any such office, in the order of their seniority),
or, if none of the foregoing is in office and present and acting, a chairman
designated by the Board of Directors or, in the absence of such designation,
a chairman chosen by the stockholders at the meeting. The Secretary of the
corporation, if present, or an Assistant Secretary, shall act as secretary of
every meeting, but if neither the Secretary nor an Assistant Secretary is
present the chairman of the meeting shall appoint a secretary of the meeting.
The Board of Directors may adopt such rules, regulations and procedures
for the conduct of the meeting of stockholders as it shall deem appropriate.
Except to the extent inconsistent with such rules and regulations as adopted
by the Board of Directors, the chairman of the meeting shall have the right
and authority to prescribe such rules, regulations and procedures and to do
all such acts as, in the judgement of such chairman, are appropriate for the
proper conduct of the meeting. Such rules, regulations or procedures,
whether adopted by the Board of Directors or prescribed by the chairman of
the meeting, may include, without limitation, (i) the establishment of an
agenda or order of business for the meeting, (ii) rules and procedures for
maintaining order at the meeting and the safety of those present, (iii)
limitations on attendance at or participation in the meeting to stockholders
of record of the corporation, their duly authorized and constituted proxies
or such other persons as the chairman of the meeting
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shall determine, (iv) restrictions on entry to the meeting after the time
fixed for the commencement thereof, and (v) limitations on the time allotted
to questions or comments by participants. Unless and to the extent
determined by the Board of Directors or the chairman of the meeting, meetings
of stockholders shall not be required to be held in accordance with the rules
of parliamentary procedure.
ARTICLE II
DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the corporation
shall be managed by or under the direction of a Board of Directors, who may
exercise all of the powers of the corporation that are not by law required to
be exercised by the stockholders. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
SECTION 2. NUMBER; ELECTION; TENURE AND QUALIFICATION. Subject to any
restrictions contained in the Certificate of Incorporation, the number of
directors that shall constitute the whole Board shall be fixed by resolution
of the Board of Directors but in no event shall be less than one. The
directors shall be elected in the manner provided in the Certificate of
Incorporation, by such stockholders as have the right to vote thereon. The
number of directors may be increased or decreased by action of the Board of
Directors. Directors need not be stockholders of the corporation.
SECTION 3. ENLARGEMENT OF THE BOARD. Subject to any restrictions
contained in the Certificate of Incorporation, the number of the Board of
Directors may be increased at any time, such increase to be effective
immediately unless otherwise specified in the resolution, by vote of a
majority of the directors then in office.
SECTION 4. VACANCIES. Unless and until filled by the stockholders and
except as otherwise determined by the Board of Directors in establishing a
series of Preferred Stock as to directors elected by the holders of such
series, any vacancy in the Board of Directors, however occurring, including a
vacancy resulting from an enlargement of the Board and an unfilled vacancy
resulting from the removal of any director, may be filled by vote of a
majority of the directors then in office although less than a quorum or the
full Board, or by the sole remaining director. Each director so chosen to
fill a vacancy shall serve for a term determined in the manner provided in
the Certificate of Incorporation. When one or more directors shall resign
from the Board, effective at a future date, a majority of the directors then
in office, including those who have so resigned, shall have the power to fill
such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective. If at any time there are
no directors in office, then an election of directors may be held in
accordance with the General Corporation Law of the State of Delaware.
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SECTION 5. RESIGNATION. Any director may resign at any time upon
written notice to the corporation. Such resignation shall take effect at the
time specified therein, or if no time is specified, at the time of its
receipt by the President or the Secretary.
SECTION 6. REMOVAL. Directors may be removed from office only as
provided in the Certificate of Incorporation. The vacancy or vacancies
created by the removal of a director may be filled by the stockholders at the
meeting held for the purpose of removal or, if not so filled, by the
directors in the manner provided in Section 4 of this Article II.
SECTION 7. COMMITTEES. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board of Directors, designate
one or more committees, each committee to consist of one or more directors of
the corporation. The Board of Directors may designate one or more directors
as alternate members of any committee to replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification
of any member of any such committee, the member or members thereof present at
any meeting and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of such absent or
disqualified member. The Board of Directors shall have the power to change
the members of any such committee at any time, to fill vacancies therein and
to discharge any such committee, either with or without cause, at any time.
Any such committee, to the extent permitted by law and to the extent
provided in a resolution of the Board of Directors or in these by-laws, shall
have and may exercise all the powers and authority of the Board of Directors
in the management of the business and affairs of the corporation, and may
authorize the seal of the corporation to be affixed to all papers that may
require it.
A majority of all the members of any such committee may fix its rules of
procedure, determine its action and fix the time and place, whether within or
without the State of Delaware, of its meetings and specify what notice
thereof, if any, shall be given, unless the Board of Directors shall
otherwise by resolution provide. Each committee shall keep regular minutes
of its meetings and make such reports as the Board of Directors may from time
to time request.
SECTION 8. MEETINGS OF THE BOARD OF DIRECTORS. Regular meetings of the
Board of Directors may be held without call or formal notice at such places
either within or without the State of Delaware and at such times as the Board
may by vote from time to time determine. A regular meeting of the Board of
Directors may be held without call or formal notice immediately after and at
the same place as the annual meeting of the stockholders, or any special
meeting of the stockholders at which a Board of Directors is elected.
Special meetings of the Board of Directors may be held at any place
either within or without the State of Delaware at any time when called by the
President, the Secretary or two or more directors. Reasonable notice of the
time and place of a special meeting shall be given to each director unless
such notice is waived by attendance or by written waiver in the manner
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provided in these by-laws for waiver of notice by stockholders. Notice may
be given by, or by a person designated by, the Secretary, the person or
persons calling the meeting, or the Board of Directors. No notice of any
adjourned meeting of the Board of Directors shall be required. In any case
it shall be deemed sufficient notice to a director to send notice by mail at
least seventy-two hours, or by telegram or fax at least forty-eight hours,
before the meeting, addressed to such director at his or her usual or last
known business or home address.
Directors or members of any committee may participate in a meeting of the
Board of Directors or of such committee by means of conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation by such means shall
constitute presence in person at such meeting.
SECTION 9. QUORUM AND VOTING. A majority of the total number of
directors shall constitute a quorum, except that when a vacancy or vacancies
exist in the Board, a majority of the directors then in office (but not less
than one-third of the total number of the directors) shall constitute a
quorum. A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting from time to time. The vote of a majority
of the directors present at any meeting at which a quorum is present shall be
the act of the Board of Directors, except where a different vote is required
by law, by the Certificate of Incorporation or by these by-laws.
SECTION 10. COMPENSATION. The Board of Directors may fix fees for
their services and for their membership on committees, and expenses of
attendance may be allowed for attendance at each meeting. Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity, as an officer, agent or otherwise, and
receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting and without notice if a
written consent thereto is signed by all members of the Board of Directors or
of such committee, as the case may be, and such written consent is filed with
the minutes of proceedings of the Board of Directors or of such committee.
ARTICLE III
OFFICERS
SECTION 1. TITLES. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, who may include without
limitation a Chairman of the Board, a Vice-Chairman of the Board and one or
more Vice-Presidents, Assistant Treasurers or Assistant Secretaries.
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<PAGE>
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation
shall be elected annually by the Board of Directors at its first meeting
following the annual meeting of the stockholders. Each officer shall hold
office until his or her successor is elected and qualified, unless a
different term is specified in the vote electing such officer, or until his
or her earlier death, resignation or removal.
SECTION 3. QUALIFICATION. Unless otherwise provided by resolution of
the Board of Directors, no officer, other than the Chairman or Vice-Chairman
of the Board, need be a director. No officer need be a stockholder. Any
number of offices may be held by the same person, as the directors shall
determine.
SECTION 4. REMOVAL. Any officer may be removed, with or without cause,
at any time, by resolution adopted by the Board of Directors.
SECTION 5. RESIGNATION. Any officer may resign by delivering a written
resignation to the corporation at its principal office or to the the
President or the Secretary. Such resignation shall be effective upon receipt
or at such later time as may be specified therein.
SECTION 6. VACANCIES. The Board of Directors may at any time fill any
vacancy occurring in any office for the unexpired portion of the term and may
leave unfilled for such period as it may determine any office other than
those of President, Treasurer and Secretary.
SECTION 7. POWERS AND DUTIES. The officers of the corporation shall
have such powers and perform such duties as are specified herein and as may
be conferred upon or assigned to them by the Board of Directors and shall
have such additional powers and duties as are incident to their office except
to the extent that resolutions of the Board of Directors are inconsistent
therewith.
SECTION 8. PRESIDENT AND VICE-PRESIDENTS. Except to the extent that
such duties are assigned by the Board of Directors to the Chairman of the
Board, or in the absence of the Chairman or in the event of his or her
inability or refusal to act, the President shall be the chief executive
officer of the corporation and shall have general and active management of
the business of the corporation and general supervision of its officers,
agents and employees, and shall see that all orders and resolutions of the
Board of Directors are carried into effect. The President shall preside at
each meeting of the stockholders and the Board of Directors unless a Chairman
or Vice-Chairman of the Board is elected by the Board and is assigned the
duty of presiding at such meeting.
The Board of Directors may assign to any Vice-President the title of
Executive Vice-President, Senior Vice-President or any other title selected
by the Board of Directors. In the absence of the President or in the event
of his or her inability or refusal to act, the duties of the President shall
be performed by the Executive Vice-President, if any, Senior Vice President,
if any, or Vice President, if any, in that order (and, in the event there be
more than
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one person in any such office, in the order of their seniority), and when so
acting, such officer shall have all the powers of and be subject to all the
restrictions upon the President.
SECTION 9. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
attend all meetings of the Board of Directors and of the stockholders and
record all the proceedings of such meetings in a book to be kept for that
purpose, shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, shall maintain a
stock ledger and prepare lists of stockholders and their addresses as
required and shall have custody of the corporate seal, which the Secretary or
any Assistant Secretary shall have authority to affix to any instrument
requiring it and attest by any of their signatures. The Board of Directors
may give general authority to any other officer to affix and attest the seal
of the corporation.
Any Assistant Secretary may, in the absence of the Secretary or in the
event of the Secretary's inability or refusal to act, perform the duties and
exercise the powers of the Secretary.
SECTION 10. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall
have the custody of the corporate funds and securities, shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects in the
name and to the credit of the corporation in such depositories as may be
designated by or pursuant to resolution of the Board of Directors. The
Treasurer shall disburse the funds of the corporation as may be ordered by
the Board of Directors or the President, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors,
at its regular meetings or whenever they may require it, an account of all
transactions and of the financial condition of the corporation.
Any Assistant Treasurer may, in the absence of the Treasurer or in the
event of his or her inability or refusal to act, perform the duties and
exercise the powers of the Treasurer.
SECTION 11. BONDED OFFICERS. The Board of Directors may require any
officer to give the corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors upon such terms
and conditions as the Board of Directors may specify, including without
limitation a bond for the faithful performance of the duties of such officer
and for the restoration to the corporation of all property in his or her
possession or control belonging to the corporation.
SECTION 12. SALARIES. Officers of the corporation shall be entitled to
such salaries, compensation or reimbursement as shall be fixed or allowed
from time to time by the Board of Directors or any committee thereof
appointed for the purpose.
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ARTICLE IV
STOCK
SECTION 1. CERTIFICATES OF STOCK. One or more stock certificates,
signed by the Chairman or Vice-Chairman of the Board of Directors or by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary, shall be issued to each
stockholder certifying the number of shares of the corporation's capital
stock owned by the stockholder. Any or all signatures on any such
certificate may be facsimiles. In case any officer, transfer agent or
registrar who shall have signed or whose facsimile signature shall have been
placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue.
Each certificate for shares of stock that are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the by-laws,
applicable securities laws, or any agreement among any number of stockholders
or among such holders and the corporation shall have conspicuously noted on
the face or back of the certificate either the full text of the restriction
or a statement of the existence of such restriction.
SECTION 2. TRANSFERS OF SHARES OF STOCK. Subject to the restrictions,
if any, stated or noted on the stock certificates, shares of stock may be
transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
The corporation shall be entitled to treat the record holder of stock as
shown on its books as the owner of such stock for all purposes, including the
payment of dividends and the right to vote with respect to that stock,
regardless of any transfer, pledge or other disposition of that stock, until
the shares have been transferred on the books of the corporation in
accordance with the requirements of these by-laws.
SECTION 3. LOST CERTIFICATES. A new stock certificate may be issued in
the place of any certificate theretofore issued by the corporation and
alleged to have been lost, stolen, destroyed or mutilated, upon such terms in
conformity with law as the Board of Directors shall prescribe. The directors
may, in their discretion, require the owner of the lost, stolen, destroyed or
mutilated certificate, or the owner's legal representatives, to give the
corporation a bond, in such sum as they may direct, to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, destruction or mutilation of any such certificate, or
the issuance of any such new certificate.
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SECTION 4. FRACTIONAL SHARE INTERESTS. The corporation may, but shall
not be required to, issue fractions of a share. If the corporation does not
issue fractions of a share, it shall (i) arrange for the disposition of
fractional interests by those entitled thereto, (ii) pay in cash the fair
value of fractions of a share as of the time when those entitled to receive
such fractions are determined, or (iii) issue scrip or warrants in registered
or bearer form, which shall entitle the holder to receive a certificate for a
full share upon the surrender of such scrip or warrants aggregating a full
share. A certificate for a fractional share shall, but scrip or warrants
shall not unless otherwise provided therein, entitle the holder to exercise
voting rights, to receive dividends thereon, and to participate in any of the
assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing
full shares before a specified date, or subject to the conditions that the
shares for which scrip or warrants are exchangeable may be sold by the
corporation and the proceeds thereof distributed to the holders of scrip or
warrants, or subject to any other conditions that the Board of Directors may
impose.
SECTION 5. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor, at any regular or special meeting, declare dividends upon the
capital stock of the corporation as and when they deem expedient.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the extent legally permissible, indemnify each
person who may serve or who has served at any time as a director or officer
of the corporation or of any of its subsidiaries, or who at the request of
the corporation may serve or at any time has served as a director, officer or
trustee of, or in a similar capacity with, another organization or an
employee benefit plan, against all expenses and liabilities (including
counsel fees, judgments, fines, excise taxes, penalties and amounts payable
in settlements) reasonably incurred by or imposed upon such person in
connection with any threatened, pending or completed action, suit or other
proceeding, whether civil, criminal, administrative or investigative, in
which he may become involved by reason of his serving or having served in
such capacity (other than a proceeding voluntarily initiated by such person
unless he is successful on the merits, the proceeding was authorized by the
corporation or the proceeding seeks a declaratory judgment regarding his own
conduct); provided that no indemnification shall be provided for any such
person with respect to any matter as to which he shall have been finally
adjudicated in any proceeding not to have acted in good faith in the
reasonable belief that his action was in the best interests of the
corporation or, to the extent such matter relates to service with respect to
any employee benefit plan, in the best interests of the participants or
beneficiaries of such employee benefit plan; and provided, further, that as
to any matter disposed of by a compromise payment by such person, pursuant to
a consent
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<PAGE>
decree or otherwise, the payment and indemnification thereof have been
approved by the corporation, which approval shall not unreasonably be
withheld, or by a court of competent jurisdiction. Such indemnification shall
include payment by the corporation of expenses incurred in defending a civil
or criminal action or proceeding in advance of the final disposition of such
action or proceeding, upon receipt of an undertaking by the person
indemnified to repay such payment if he shall be adjudicated to be not
entitled to indemnification under this article, which undertaking may be
accepted without regard to the financial ability of such person to make
repayment.
A person entitled to indemnification hereunder whose duties include
service or responsibilities as a fiduciary with respect to a subsidiary or
other organization shall be deemed to have acted in good faith in the
reasonable belief that his action was in the best interests of the
corporation if he acted in good faith in the reasonable belief that his
action was in the best interests of such subsidiary or organization or of the
participants or beneficiaries of, or other persons with interests in, such
subsidiary or organization to whom he had a fiduciary duty.
Where indemnification hereunder requires authorization or approval by
the corporation, such authorization or approval shall be conclusively deemed
to have been obtained, and in any case where a director of the corporation
approves the payment of indemnification, such director shall be wholly
protected, if:
1. the payment has been approved or ratified (l) by a majority
vote of a quorum of the directors consisting of persons who are not at that
time parties to the proceeding, (2) by a majority vote of a committee of two
or more directors who are not at that time parties to the proceeding and are
selected for this purpose by the full board (in which selection directors who
are parties may participate), or (3) by a majority vote of a quorum of the
outstanding shares of stock of all classes entitled to vote for directors,
voting as a single class, which quorum shall consist of stockholders who are
not at that time parties to the proceeding; or
2. the action is taken in reliance upon the opinion of independent
legal counsel (who may be counsel to the corporation) appointed for the
purpose by vote of the directors or in the manner specified in clauses (l),
(2) or (3) of subparagraph (i); or
3. the payment is approved by a court of competent jurisdiction; or
4. the directors have otherwise acted in accordance with the
standard of conduct set forth in the Delaware General Corporation Law.
Any indemnification or advance of expenses under this article shall be
paid promptly, and in any event within 30 days, after the receipt by the
corporation of a written request therefor from the person to be indemnified,
unless with respect to a claim for indemnification the corporation shall have
determined that the person is not entitled to indemnification. If
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<PAGE>
the corporation denies the request or if payment is not made within such 30
day period, the person seeking to be indemnified may at any time thereafter
seek to enforce his rights hereunder in a court of competent jurisdiction
and, if successful in whole or in part, he shall be entitled also to
indemnification for the expenses of prosecuting such action. Unless
otherwise provided by law, the burden of proving that the person is not
entitled to indemnification shall be on the corporation.
The right of indemnification under this article shall be a contract
right inuring to the benefit of the directors, officers and other persons
entitled to be indemnified hereunder and no amendment or repeal of this
article shall adversely affect any right of such director, officer or other
person existing at the time of such amendment or repeal.
The indemnification provided hereunder shall inure to the benefit of the
heirs, executors and administrators of a director, officer or other person
entitled to indemnification hereunder. The indemnification provided
hereunder may, to the extent authorized by the corporation, apply to the
directors, officers and other persons associated with constituent
corporations that have been merged into or consolidated with the corporation
who would have been entitled to indemnification hereunder had they served in
such capacity with or at the request of the corporation.
The right of indemnification under this article shall be in addition to
and not exclusive of all other rights to which such director or officer or
other persons may be entitled. Nothing contained in this article shall
affect any rights to indemnification to which corporation employees or agents
other than directors and officers and other persons entitled to
indemnification hereunder may be entitled by contract or otherwise under law.
The corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, trustee, employee or agent of another corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan
against any liability asserted against such person and incurred by such
person in any such capacity or arising out of such person's status as such,
whether or not the corporation would have the power to indemnify such person
against such liability under the provisions of the General Corporation Law of
the State of Delaware.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. FISCAL YEAR. Except as otherwise designated from time to
time by the Board of Directors, the fiscal year of the corporation shall
begin on the first day of January and end on the last day of December.
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SECTION 2. CORPORATE SEAL. The corporate seal shall be in such form as
shall be approved by the Board of Directors. The Secretary shall be the
custodian of the seal, and a duplicate seal may be kept and used by each
Assistant Secretary and by any other officer the Board of Directors may
authorize.
SECTION 3. CERTIFICATE OF INCORPORATION. All references in these
by-laws to the Certificate of Incorporation shall be deemed to refer to the
Certificate of Incorporation of the corporation, as in effect from time to
time.
SECTION 4. EXECUTION OF INSTRUMENTS. The President, the Treasurer and
the Secretary shall have power to execute and deliver on behalf and in the
name of the corporation any instrument requiring the signature of an officer
of the corporation, including deeds, contracts, mortgages, bonds, notes,
debentures, checks, drafts and other orders for the payment of money. In
addition, the Board of Directors, the President, the Treasurer and the
Secretary may expressly delegate such powers to any other officer or agent of
the corporation.
SECTION 5. VOTING OF SECURITIES. The President, the Treasurer and the
Secretary, and each other person authorized by the Board of Directors, each
acting singly, may waive notice of, and act as, or appoint any person or
persons to act as, proxy or attorney-in-fact for this corporation (with or
without power of substitution) at any meeting of stockholders or owners of
other interests of any other corporation or organization the securities of
which may be held by this corporation. In addition, the Board of Directors,
the President and the Treasurer may expressly delegate such powers to any
other officer or agent of the corporation.
SECTION 6. EVIDENCE OF AUTHORITY. A certificate by the Secretary, an
Assistant Secretary or a temporary secretary as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall, as to all persons who rely on the certificate in good
faith, be conclusive evidence of that action.
SECTION 7. TRANSACTIONS WITH INTERESTED PARTIES. No contract or
transaction between the corporation and one or more of the directors or
officers, or between the corporation and any other corporation, partnership,
association or other organization in which one or more of the directors or
officers are directors or officers or have a financial interest, shall be
void or voidable solely for that reason or solely because the director or
officer is present at or participates in the meeting of the Board of
Directors or a committee of the Board of Directors that authorizes the
contract or transaction or solely because the vote of any such director is
counted for such purpose, if:
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(1) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors
or such committee, and the Board or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than
a quorum; or
(2) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair to the corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee of the Board of Directors or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
that authorizes the contract or transaction.
SECTION 8. BOOKS AND RECORDS. The books and records of the corporation
shall be kept at such places within or without the State of Delaware as the
Board of Directors may from time to time determine.
ARTICLE VII
AMENDMENTS
SECTION 1. BY THE BOARD OF DIRECTORS. These by-laws may be altered,
amended or repealed or new by-laws may be adopted by the affirmative vote of
a majority of the directors present at any regular or special meeting of the
Board of Directors at which a quorum is present.
SECTION 2. BY THE STOCKHOLDERS. These by-laws may be altered, amended
or repealed or new by-laws may be adopted by the affirmative vote of the
holders of a majority of votes properly cast at any regular meeting of
stockholders, or at any special meeting of stockholders, provided notice of
such alteration, amendment, repeal or adoption of new by-laws shall have been
stated in the notice of such special meeting.
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<PAGE>
EXHIBIT 3.3
REGISTRATION RIGHTS AGREEMENT
This Agreement is made as of the 18th day of December, 1996.
B E T W E E N:
NEUROSCIENCE PARTNERS LIMITED PARTNERSHIP,
a limited partnership constituted under the laws of the Province of
Ontario
- and -
APOLLO GENETICS, INC.,
a corporation subsisting under the laws of Delaware
RECITALS:
1. Apollo and the Fund have entered into a Royalty Purchase Agreement (the
"Royalty Agreement") of even date herewith.
2. Pursuant to the Royalty Agreement, the Fund will purchase Apollo Common
Shares, warrants to purchase Apollo Common Shares and a right to convert
future Royalties into Apollo Common Shares.
3. Pursuant to the Royalty Agreement, Apollo has agreed to enter into this
Registration Rights Agreement.
IN CONSIDERATION of the premises, the mutual covenants in this agreement and of
other good and valuable consideration (the receipt and sufficiency of which are
acknowledged by each Party), the Parties agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, terms defined in the
Royalty Agreement not otherwise defined herein shall have the respective
meanings assigned thereto in the Royalty Agreement. In addition, the following
terms shall have the following respective meanings:
<PAGE>
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"ACT" shall mean the SECURITIES ACT of 1933, as amended;
"AGREEMENT" means this agreement, the recitals, all attached schedules and
any agreement, exhibit or schedule supplementing or amending this
agreement. All uses of the words "hereto", "herein," "hereof," "hereby"
and "hereunder" and similar expressions refer to this Agreement and not to
any particular section or portion of it. References to an Article,
Section, Subsection, Exhibit or Schedule refer to the applicable article,
section, subsection, exhibit or schedule of this Agreement;
"COMMISSION" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Act;
"COMPANY" shall mean Apollo;
"HOLDER" shall mean the Fund holding Registrable Securities and any other
Person holding Registrable Securities to whom the rights under this
Agreement have been transferred in accordance with Section 10 hereof;
"INITIAL PUBLIC OFFERING" shall mean the initial public offering of the
Company, a reverse take-over or any other event pursuant to which
securities of the Company become listed and posted for trading on any stock
exchange or qualified for unlisted trading privileges on any trade
reporting and quotation system for over-the-counter trading;
"INITIATING HOLDER" shall mean any Holder or Holders who, in the aggregate,
hold not less than twenty-five percent (25%) of the outstanding Registrable
Securities;
"REGISTER", "REGISTERED" and "REGISTRATION" shall refer to a registration
statement in compliance with the Act, and the declaration or ordering of
the effectiveness of such registration statement;
"REGISTRABLE SECURITIES" shall mean the Shares and any Apollo Common Shares
or other securities issued or issuable with respect to the Shares upon any
stock split, stock dividend, recapitalization, or similar event, or any
Apollo Common Shares otherwise issued or issuable with respect to the
Shares, provided, however, that Apollo Common Shares or other securities
shall only be treated as Registrable securities if and so long as they have
not been sold to or through a broker or dealer or underwriter' in a public
distribution or a public securities transaction;
<PAGE>
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"REGISTRATION EXPENSES" shall mean all expenses, except Selling Expenses,
incurred by the Company in complying with paragraphs 2, 3 and 4 hereof,
including, without limitation, all registration, qualification and filing
fees, printing expenses, escrow fees, fees and disbursements of counsel for
the Company, blue sky fees and expenses, the expense of any special audits
incidental to or required by any such registration (but excluding the
compensation of regular employees of the Company which shall be paid in any
event by the Company and the fees and expenses of counsel for the Holders);
"RESTRICTED SECURITIES" shall mean the securities of Apollo that are
restricted securities under the SECURITIES ACT and applicable state
securities laws;
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities
registered by the Holder and fees and expenses of counsel for the Holder;
"SHARES" shall mean: (i) the Apollo Common Shares issued to the Fund
pursuant to the Subscription Agreement; (ii) the Apollo Common Shares
issuable upon exercise of the Warrants; and (iii) the Apollo Common Shares
issuable upon exercise of the Conversion Right;
"SUBSCRIPTION AGREEMENT" shall mean the Subscription Agreement between
Apollo and the Fund dated of even date herewith; and
"WARRANTS" shall mean the $.70 warrants and the $.875 Warrants,
collectively.
2. COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time or from time to time after the
completion date of the Company's Initial Public Offering, the Company shall
determine to register any of its securities, either for its own account or
the account of a securityholder or holders (other than pursuant to Section
3 of this Agreement), other than (i) a registration relating solely to
employee benefit plans, or (ii) a registration relating solely to a
Commission Rule 145 transaction, the Company will:
(i) promptly give to any Holder written notice thereof; and
<PAGE>
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(ii) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request
or requests, made within 20 days after receipt of such written notice
from the Company, by any Holder.
(b) UNDERWRITING. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company
shall so advise any Holder as a part of the written notice given pursuant
to Section 2(a)(i). In such event the right of any Holder to registration
pursuant to this paragraph 2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable
Securities in the underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their
securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such
underwriting by the Company.
Notwithstanding any other provision of this Section 2, if the managing
underwriter determines that marketing factors require a limitation of the
number of shares to be underwritten, the managing underwriter may limit the
number of Registrable Securities and other securities to be included in
such registration or exclude them entirely. The Company shall advise any
Holder distributing its securities through such underwriting of the
managing underwriter's limitation and the number of Shares of Registrable
Securities and other securities that may be included in the underwriting
(the "Other Shares"). The Other Shares shall be allocated among the
Holders of Registrable Securities and the holders of other securities, if
more than one, in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities and other securities held by such Holders
and holders at the time of filing the registration statement. To
facilitate the allocation of securities in accordance with the above
provisions, the Company may round the number of securities allocated to any
Holder or holder to the nearest 100 shares.
If any Holder disapproves of the terms of any such underwriting, he may
elect to withdraw therefrom by written notice to the Company and the
managing underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to 90 days after the effective
date of the registration statement relating to the
<PAGE>
-5-
underwriting, or such other shorter period of time as the underwriters may
require.
(c) RIGHT TO TERMINATE REGISTRATION. The Company shall have the right to
terminate or withdraw any registration initiated by it under this Section 2
prior to the effectiveness of such registration whether or not any Holder
has elected to include Registrable Securities in such registration.
3. REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. In case the Company shall receive from any
Initiating Holders a written request that the Company effect a
registration: (i) at any time 13 months after the completion date of the
Company's Initial Public Offering, with respect to a maximum of 714,429
Registrable Securities; and (ii) at any time 25 months after the completion
of the Company's Initial Public Offering, with respect to all of the
Registrable Securities, the Company will as soon as practicable, use its
best efforts to effect such registration (including, without limitation,
appropriate qualification under applicable blue sky or other state or
provincial securities laws and appropriate compliance with applicable
regulations issued under the Act and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate the
sale and distribution of all or such portion of such Registrable Securities
as are specified in such request.
The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 3:
(i) in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in
effecting such registration, qualification, or compliance, unless the
Company is already subject to service in such jurisdiction and except
as may be required by the Securities Act, it being acknowledged and
agreed that the Company is not restricted from effecting a
registration in California, Illinois, Massachusetts, Minnesota and New
York by virtue of this Section 3(a)(ii);
(ii) after the Company has initiated two such registrations pursuant
to this Section 3 (counting for these purposes only registrations
which have been declared or ordered effective and pursuant to which
securities have been sold and registrations which have been withdrawn
by the Holders as to which the
<PAGE>
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Holders have not elected to bear the Registration Expenses pursuant to
Section 5 hereof and would, absent such election, have been required
to bear such expenses);
(iii) during the period starting with the date sixty (60) days
prior to the Company's good faith estimate of the date of filing of,
and ending on a date one hundred eighty (180) days after the effective
date of, a Company-initiated registration; provided that the Company
is actively employing in good faith all reasonable efforts to cause
such registration statement to become effective; and
(iv) if the Initiating Holders propose to dispose of shares of
Registrable Securities which may be immediately registered on Form S-3
pursuant to a request made under Section 4 hereof.
Subject to the foregoing clauses (i) to (iv), the Company shall file a
registration statement covering the Registrable Securities so requested to
be registered as soon as practicable after receipt of the request of any
Holder and in any event within one hundred twenty (120) days after receipt
of such request; provided, however, that if (i) in the good faith judgment
of the Board of Directors of the Company, such registration would be
seriously detrimental to the Company and the Board of Directors of the
Company concludes, as a result, that it is essential to defer the filing of
such registration statement at such time, and (ii) the Company shall
furnish to Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company for such
registration statement to be filed in the near future and it is, therefore,
essential to defer the filing of such registration statement, then the
Company shall have the right to defer such filing for a period of not more
than ninety (90) days after receipt of the request of the Initiating
Holders, and, provided further, that the Company shall not defer its
obligation in this manner more than once in any twelve-month period.
(b) UNDERWRITING. In the event that a registration pursuant to this
Section 3 is for a registered public offering involving an underwriting,
the Company shall so advise the Holder. In such event, the right of any
Holder to such registration shall be conditioned upon such Holder's
participation in the underwriting arrangements required by this Section 3,
and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent requested shall be limited to the extent
provided herein.
<PAGE>
-7-
The Company shall (together with any Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such
underwriting by the Initiating Holders, but subject to the Company's
reasonable approval. Notwithstanding any other provision of this Section
3, if the managing underwriter advises the Holder in writing that marketing
factors require a limitation of the number of shares to be underwritten,
then the number of Registrable Securities that may be included in the
registration and underwriting shall be equal to the number specified by the
underwriter, provided, however, that the number of shares of Registrable
Securities to be included in such underwriting shall not be reduced unless
all other securities are first entirely excluded from the underwriting. No
Registrable Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration.
If the Holder of Registrable Securities disapproves of the terms of the
underwriting, the Holder may elect to withdraw therefrom by written notice
to the Company and the managing underwriter. The Registrable Securities
and/or other securities so withdrawn shall also be withdrawn from
registration, and such Registrable Securities shall not be transferred in a
public distribution prior to 90 days after the effective date of such
registration, or such other shorter period of time as the underwriters may
require.
4. REGISTRATION ON FORM S-3. If any Holder requests that the Company file
a registration statement on Form S-3 (or any successor form to Form S-3) for
a public offering of shares of the Registrable Securities the reasonably
anticipated aggregate price to the public of which, net of underwriting
discounts and commissions, would exceed $500,000, and the Company is a
registrant entitled to use Form S-3 to register the Registrable Securities
for such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form and to
cause such Registrable Securities to be qualified in such jurisdictions as
any Holder may reasonably request. Provided, however, that the Company shall
not be required to effect more than one registration pursuant to this Section
4 in any calendar year. The substantive provisions of Section 3(b) shall be
applicable to each registration under this Section 4.
5. EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection
with all registrations pursuant to this Agreement shall be borne by the Company;
provided, however, that if the Holders bear the Registration
<PAGE>
-8-
Expenses for any registration proceeding begun pursuant to Section 3 and
subsequently withdrawn by the Holders registering shares therein, such
registration proceeding shall not be counted as a requested registration
pursuant to Section 3 hereof; and provided further, however, that: (i) if at
the time of such withdrawal, the Holders have learned of a material adverse
event with respect to the condition, business or prospects of the Company not
known to the Holders at the time of their request; or (ii) such withdrawal is
made after a deferral of such registration by the Company pursuant to Section
3(a), then the Holders shall not be required to pay any of such expenses and
such registration proceeding shall not be counted as a requested registration
pursuant to Section 3 hereof. All Selling Expenses relating to securities so
registered shall be borne by the Holders of such securities pro rata on the
basis of the number of shares of securities so registered on their behalf, as
shall any other expenses in connection with the registration required to be
borne by the Holders of such securities.
6. REGISTRATION PROCEDURES. In the case of each registration, qualification
or compliance effected by the Company pursuant to this Agreement, the Company
will keep any Holder advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof. At
its expense, the Company will:
(a) Prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least sixty
(60) days or until the distribution described in the Registration Statement
has been completed.
(b) Prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection with
such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to any Holder such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by him.
(d) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by any Holder.
<PAGE>
-9-
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Any Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify any Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a
result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
then existing.
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Agreement, on the date that such
Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Agreement: (i) an opinion,
dated such date, of the counsel representing the Company for the purposes
of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to any Holder requesting registration of
Registrable Securities; and (ii) a letter, dated such date, from the
independent accountants of the Company, in form and substance as is
customarily given by independent accountants to underwriters in an
underwritten public offering, addressed to the underwriters, if any, and to
any Holder requesting registration of Registrable Securities.
7. INDEMNIFICATION.
(a) The Company will indemnify any Holder, each of its respective officers
and directors and partners, and each person controlling such Holder within
the meaning of Section 15 of the Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement,
and each underwriter, if any, and each person who controls any underwriter
within the meaning of Section 15 of the Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including
any of the foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any registration
statement, prospectus,
<PAGE>
-10-
offering circular or other document, or any amendment or supplement
thereto, incidental to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they
were made, not misleading, or any violation by the Company of any
federal, state, provincial or common law rule or regulation applicable
to the Company in connection with any such registration, qualification
or compliance, and the company will reimburse each such Holder, each of
their respective officers and directors, and each person controlling
such Holder, each such underwriter and each person who controls each
such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any
such claim, loss, damage, liability or action, provided that the Company
will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expanse arises out of or is based on any
untrue statement or omission or alleged untrue statement or omission,
made in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder,
controlling person or underwriter and stated to be specifically for use
therein.
(b) Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors
and officers, each underwriter, if any, of the Company's securities covered
by such a registration statement, each person who controls the Company or
such underwriter within the meaning of Section 15 of the Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
will reimburse the Company, such Holders, such directors, officers,
persons, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document
<PAGE>
-11-
in reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder and stated to be
specifically for use therein. Notwithstanding the foregoing, the liability
of each Holder under this subsection (b) shall be limited in an amount
equal to the public offering price of the shares sold by such Holder,
unless such liability arises out of or is based on willful misconduct by
such Holder.
(c) Each party entitled to indemnification under this Section 7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such party's expense, provided, however,
that the Indemnifying Party shall bear the expense of independent counsel
for the Indemnified Party if the Indemnified Party reasonably determines
that representation of both parties by the same counsel would be
inappropriate due to actual or potential conflicts of interest, and
provided further that the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such
action and provided further, that the Indemnifying Party shall not assume
the defense for matters as to which there is a conflict of interest or
separate and different defenses. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation.
8. INFORMATION BY HOLDER. Any Holder of Registrable Securities included in
any registration shall furnish to the Company such information regarding such
Holder, the Registrable Securities held by him and the distribution proposed
by such Holder as the Company may request in writing and as shall be required
in connection with any registration, qualification or compliance referred to
in this Agreement.
<PAGE>
-12-
9. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration,
after such time as a public market exists for the Common Stock of the
Company, the Company agrees to Use its best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Act, at all times after the
effective date that the Company becomes subject to the reporting
requirements of the Act or the SECURITIES EXCHANGE ACT of 1934, as amended.
(b) use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Act and
the SECURITIES EXCHANGE ACT of 1934, as amended (at any time after it has
become subject to such reporting requirements);
(c) so long as any Holder owns any Restricted Securities, to furnish to
any Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the
general public), and of the Act and the SECURITIES EXCHANGE ACT of 1934 (at
any time after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents of the Company and other information in the
possession of or reasonably obtainable by the Company as any Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing a Holder to sell any such securities without
registration.
10. TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to
register securities granted under Sections 2, 3 and 4 may be assigned to a
transferee or assignee in connection with any transfer or assignment of the
Warrants, the Conversion Right or Registrable Securities by a Holder, provided
that such transfer may otherwise be effected in accordance with applicable
securities laws and such transferee or assignee assumes in writing the
obligations of such Holder under this Agreement.
11. STANDOFF AGREEMENT. Each Holder agrees, so long as such Holder holds
Registrable Securities that, upon request of the Company or the underwriters
managing any underwritten offering of the Company's securities, not to sell,
make any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any Apollo Common Shares (other than those included
<PAGE>
-13-
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed one
hundred eighty (180) days) from the effective date of such registration as
may be requested by the underwriters, provided that the officers and
directors of the Company enter into similar agreements.
12. TERMINATION OF REGISTRATION RIGHTS. All rights of the Holders under this
Agreement shall terminate 5 years from the completion date of the Company's
Initial Public Offering.
13. AMENDMENT OF REGISTRATION RIGHTS. Any provision of the Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and any Holders. Any amendment or waiver
effected in accordance with this Section shall be binding upon each Holder of
any Registrable Securities then outstanding, each future holder of such
Registrable Securities, and the Company.
14. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. The Company shall not,
without the prior written consent of any Holder, enter into any agreement with
any holder or prospective holder of any securities of the Company which would
allow such holder or prospective holder to include such securities in any
registration filed under this Agreement, unless under the terms of such
agreement, such holder or prospective holder may include such securities in any
such registration only to the extent that the inclusion of his securities will
not reduce the amount of the Registrable Securities of any Holders which is
included
15. ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement among the Parties with regard to the subject matter
hereof. Nothing in this Agreement, express or implied, is intended to confer
upon any person or entity, other than the parties hereto and their respective
successors and assigns, any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided herein.
16. GOVERNING LAW. This Agreement shall be governed by and interpreted and
enforced in accordance with the laws in force in the Commonwealth of
Massachusetts. The Parties irrevocably submit to the non-exclusive jurisdiction
of the courts of the Commonwealth of Massachusetts with respect to any matter
arising hereunder or related thereto.
<PAGE>
-14-
17. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
18. NOTICES, ETC. All notices and other communications required or permitted
hereunder shall be given or made in accordance with the provisions for notice
set out in Section 10.13 of the Royalty Agreement.
19. SEVERABILITY. Any invalidity, illegality or limitation in the
enforceability of the Agreement or any part thereof, by any Holder whether
arising by reason of the law of the respective Holder's domicile or otherwise,
shall in no way affect or impair the validity, legality or enforceability of
this Agreement with respect to any other Holder. If any provision of this
Agreement shall be judicially determined to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
20. TITLES AND SUBTITLES. The titles of the sections and subsections of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.
21 NUMBER AND GENDER. In this Agreement, words in the singular include the
plural and vice versa and words in one gender include all genders.
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
23. DELAYS OR OMISSIONS. It is agreed that no delay or omission to exercise
any right, power or remedy accruing to the Holders, upon any breach or default
of the Company under this Agreement, shall impair any such right, power or
remedy, nor shall be construed to be a waiver of any such breach or default, or
any acquiescence therein, or of any similar breach or default hereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. It
is further agreed that any Holder, permit, consent or approval of any kind or
character by a Holder of any breach or default under this Agreement, or any
waiver a Holder of any provisions or conditions of this Agreement must be in
writing and shall. be effective only to the extent specifically set forth in
writing and that all remedies, either under this agreement, or by law or
otherwise afforded to a Holder, shall be cumulative and not alternative.
<PAGE>
-15-
24. ATTORNEY FEES. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be entitled
to its reasonable attorney's fees, costs and necessary disbursements in addition
to any other relief to which such party may be entitled.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed
and delivered by their proper and duly authorized officers as of the day and
year first written above.
NEUROSCIENCE PARTNERS LIMITED
PARTNERSHIP by its General Partner
MDS ASSOCIES-NEUROSCIENCE INC.
Per: /s/ Michael J. Callaghan, Vice-President
_____________________________________
Michael J. Callaghan, Vice-President
Per: /s/ Keith Dorrington, Vice-President
_____________________________________
Keith Dorrington, Vice-President
APOLLO GENETICS, INC.
Per: ______________________________________
<PAGE>
EXHIBIT 3.4
WARRANT TO PURCHASE COMMON STOCK
OF APOLLO GENETICS, INC.
For valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, APOLLO GENETICS, INC. (the "Company") hereby grants unto
NEUROSCIENCE PARTNERS LIMITED PARTNERSHIP (the "holder"), subject to the
terms and conditions set forth herein, warrants (the "Warrants") to subscribe
for and to have issued to it, subject to adjustment as provided for herein,
150,000 shares of $.02 par value common stock ("Common Shares") in the
capital of the Company, as the same may be reorganized or reclassified
pursuant to any of the events set out herein, as fully paid and
non-assessable, for an exercise price of $131,250 or $.875 per Common Share,
(the "Exercise Price"). The Warrants may be exercised at any time in whole or
from time to time in part, in accordance with and subject to the provisions
hereof up to 5:00 p.m. (Boston time) on December 17, 2003 (the "Time of
Expiry"). If any of the Warrants have not been exercised by the Time of
Expiry all rights under any unexercised Warrants shall wholly cease and
terminate and such Warrants shall be void and of no value or effect.
The Warrants are being granted pursuant to a Royalty Purchase Agreement
between the Company and the holder dated the date hereof (the "Purchase
Agreement"). In the event of any conflict or inconsistency between the
provisions of the Warrants and the provisions of the Purchase Agreement, the
Purchase Agreement shall govern.
1. EXERCISE OF WARRANTS
(a) EXERCISE The Warrants may be exercised by the holder in
accordance with the provisions hereof by surrendering to the Company
at its principal office, in the City of Cambridge, Massachusetts,
or at such other address in the United States as the holder may be
notified in writing by the Company, at any time after the date
hereof up to the Time of Expiry this certificate, together with a
Subscription Form, substantially in the form attached hereto as
Schedule 1, duly completed and executed, and cash or a certified
cheque, money order or bank draft payable to or to the order of
the Company for the amount equal to the Exercise Price per Common
Share multiplied by the number of Common Shares subscribed for.
(b) PARTIAL EXERCISE The holder may subscribe for and have issued to
it a number of Common Shares less than the total number the
holder is entitled to pursuant to this warrant certificate. In the
event of any such subscription prior to the Expiry Time, the
holder shall be entitled to receive, without charge, a new warrant
certificate (containing the same terms and conditions as this
certificate) in respect of the balance of the Common Shares for
which holder was entitled to subscribe pursuant to this warrant
certificate and which were then not subscribed for.
<PAGE>
(c) NET EXERCISE Provided that the Common Shares are: (i) listed and
posted for trading on a national securities exchange; or (ii)
qualified for unlisted trading privileges on a trade reporting and
quotation system for over-the-counter trading, the holder shall
have the right to require the Company to exchange the Warrants
(the "Exchange Option"), in whole or in part at any time or from
time to time prior to the Expiry Time, for Common Shares as
provided for in this Section. Upon exercise of the Exchange
Option, the Company shall deliver to the holder (without payment
by the holder of any kind) the number of Common Shares calculated
as follows:
Y(A-B)
X = --------
A
where: X = the number of Common Shares to be issued to the
holder upon the exercise of the Exchange Option.
Y = the maximum number of Common Shares issuable
pursuant to the Warrants immediately prior to
the exercise of the Exchange Option, provided
that if the holder requests exchange with
respect only to part of the Warrants, this
number shall be that number of Warrants for
which exchange has been requested.
A = the Current Market Price on the day immediately
preceding the receipt of the Warrant Certificate
and Subscription Form specifying that the holder
is exercising the Exchange Option.
B = the Exercise Price in effect immediately prior
to the exercise of the Exchange Option.
For the purposes of the Exchange Option, "Current Market Price" at any
date, means the weighted average of the closing prices per Common Share
for the 30 trading days immediately prior to such date at which the
Common Shares have traded on: (i) the principal national securities
exchange on which the Common Shares are listed and posted for trading;
or (ii) if the Common Shares are not listed and posted for trading on a
national securities exchange, on the trade reporting and quotation
system for over-the-counter trading on which the Common Shares
are qualified for unlisted trading privileges.
The Exchange Option may be exercised by the holder, in whole or in
part at any time or from time to time, by surrending or delivering
to the Company prior to the Expiry Time at the address specified in
Section 1(a) hereof with the Subscription Form, duly completed and
executed, specifying that the holder is exercising the Exchange Option
to acquire the number of Common Shares then issuable upon such
exchange pursuant to this Section.
2
<PAGE>
(d) SHARE CERTIFICATES Within 15 days after the date on which the Company
receives a duly completed and executed Subscription Form (the "Exercise
Date"), the Company shall (without payment by the holder of any kind,
other than as provided in Section 1(a) above) issue and deliver to the
address specified by the holder, registered in such name or names as
the holder may direct or if no such direction has been given, in the
name of the holder, a certificate or certificates for the number of
Common Shares issuable hereunder as a result of the delivery of the
Subscription Form. Such exercise shall be deemed to have been effected
as of the close of business on the Exercise Date and at such time the
rights of the holder with respect to the Warrants which have been
exercised as such shall cease, and the person or persons in whose name
or names any certificate or certificates for Common Shares shall then
be issuable upon such exercise or deemed exercise shall be deemed to
have become the holder or holders of record of the Common Shares
represented thereby.
(e) FRACTIONAL SHARES No fractional shares shall be issued upon exercise of
the Warrants.
(f) CORPORATE CHANGES If the Company shall be a party to any reorganization,
merger, amalgamation, dissolution or sale of all or substantially all
of its assets (an "Event"), whether or not the Company is the surviving
entity, the number of Warrants shall be adjusted so as to apply to the
number of securities to which the holder of that number of Common Shares
subject to the unexercised Warrants immediately prior
to the Event would have been entitled by reason of such Event. If the
number of securities to which the holder is entitled following an Event
is greater than the number of unexercised Warrants immediately prior to
the Event, then the Exercise Price per share in effect immediately prior
to such Event shall be reduced by the reciprocal of the multiple required
to be used to arrive at the new number of securities. If the number of
securities to which the holder is entitled following an Event is
less than the number of unexercied Warrants immediately prior to the
Event, then the Exercise Price per share in effect immediately prior to
such Event shall be increased by the reciprocal of the fraction required
to be used to arrive at the new number of securities.
(g) SUBDIVISION OR CONSOLIDATION OF SHARES In the event the Company shall
subdivide its outstanding Common Shares into a greater number of Common
Shares, the number of Common Shares that the holder shall thereafter be
entitled to subscribe for and have issued to it hereunder shall be
proportionately increased and the Exercise Price per share in effect
immediately prior to such subdivision shall be reduced by the reciprocal
of the multiple used to arrive at the new number of Common Shares.
Conversely, in the event the Company shall consolidate its outstanding
Common Shares into a lesser number of Common Shares, the number of Common
Shares that the holder shall thereafter be entitled to subscribe for and
have issued to it hereunder shall be
3
<PAGE>
proportionately decreased and the Exercise Price per share in effect
immediately prior to such consolidation shall be increased by the
reciprocal of the fraction used to arrive at the new number of Common
Shares.
(h) STOCK DIVIDENDS OR DISTRIBUTIONS In the event the Company: (i) issues
Common Shares or securities exchangeable for or convertible into Common
Shares to all or substantially all the holders of the Common Shares as a
stock dividend; or (ii) makes a distribution on its outstanding Common
Shares payable in Common Shares or securities exchangeable for or
convertible into Common Shares, the number of Common Shares that the holder
shall thereafter be entitled to subscribe for and have issued to it
hereunder shall be increased in proportion to the increase in the number of
outstanding Common Shares (on a fully diluted basis) as a result of the
stock dividend or distribution and the Exercise Price per share in effect
immediately prior to such stock dividend or distribution shall be reduced
by the reciprocal of the multiple used to arrive at the new number of
Common Shares.
(i) OTHER DISTRIBUTIONS In the event the Company makes a distribution (a
"Distribution") on its outstanding Common Shares payable in: (i) shares
of the Company of any class other than Common Shares; (ii) rights,
options or warrants to acquire shares or securities exchangeable for or
convertible into shares or property or other assets of the Company;
(iii) evidence of indebtedness; or (iv) any property or other assets of
the Company, the Exercise Price per share in effect immediately prior
to such Distribution shall be reduced by a fraction that is equal to
the ratio of the aggregate fair market value of the Company immediately
following the Distribution to the fair market value immediately prior
to the Distribution.
(j) CHANGE OR RECLASSIFICATION OF SHARES In the event the Company shall
change or reclassify its outstanding Common Shares into a different
class of securities, the Warrants shall be adjusted so as to apply to
the number of the successor class of securities to which the holder of
that number of Common Shares subject to the unexercised Warrants
immediately prior to the change or reclassification would have been
entitled to by reason of such change or reclassification. If the number
of securities to which the holder is entitled to subscribe for and have
issued to it hereunder following a change or reclassification is
greater than the number of unexercised Warrants immediately prior to
the change or reclassification, then the Exercise Price per share in
effect immediately prior to such change or reclassification shall be
reduced by the reciprocal of the multiple required to be used to arrive
at the new number of securities. If the number of securities to which
the holder is entitled to subscribe for and have issued to it hereunder
following a change or reclassification is less than the number of
unexercised Warrants immediately prior to the change or
reclassification, then the Exercise Price per share in effect
immediately prior to such change or reclassification shall be increased
by the reciprocal of the fraction required to be used to arrive at the
new number of securities.
4
<PAGE>
(k) ADDITIONAL SUBSCRIPTIONS If at any time the Company grants to its
shareholders the right to subscribe for and purchase pro rata
additional securities of the Company or of any other corporation or
entity, the Company shall grant to the holder the right to subscribe
for and purchase the same securities on the same terms and conditions
as being granted to its shareholders pro rata as if the holder was the
shareholder of that number of Common Shares subject to the unexercised
Warrants.
(l) NOTICE OF ADJUSTMENT Upon any adjustment of the number of Common
Shares and the Exercise Price per share subject to these Warrants then
and in each case the Company shall give written notice thereof to the
holder, which notice shall state the number of Common Shares or other
securities subject to the unexercised Warrants and the Exercise Price
per share resulting from such adjustment, and shall upon receipt of the
written request of the holder set forth in reasonable detail the method
of calculation and the facts upon which such calculation is based.
(m) ADJUSTMENTS CUMULATIVE The adjustments provided for herein are
cumulative and will: (i) in the case of adjustments to the Exercise
Price, be computed to the nearest one-tenth of one percent; (ii) in the
case of adjustments to the number of Common Shares which may be
subscribed for and purchased hereunder, be computed to two decimal
places and rounded up or down, as appropriate, to the nearest whole
number; and (iii) be made successively whenever an event referred to
herein occurs. For certainty, no adjustment in the Exercise Price is
required to be made unless such adjustment would result in a change of
at least one percent (1%) in the prevailing Exercise Price; provided,
however, that any adjustments which, except for the provisions of this
Subsection, would otherwise have been required to be made, will be carried
forward and taken into account in any subsequent adjustments.
(n) SHARES TO BE RESERVED The Company will at all times keep available,
and reserve out of its authorized Common Shares, solely for the purpose
of issue upon the exercise of the Warrants, such number of Common
Shares as shall then be issuable upon the exercise or deemed exercise
of the Warrants. The Company covenants and agrees that all Common
Shares which shall be so issuable will, upon issuance, be duly authorized
and issued as fully paid and non-assessable. The Company will take all
such actions as may be possible to ensure that all such Common Shares
may be so issued without violation of any applicable requirements of
any stock exchange upon which the Common Shares may be listed or in
respect of which the Common Shares are qualified for unlisted trading
privileges and without violation of any applicable law. The Company
acknowledges that the Common Shares issuable upon due exercise of the
warrants are subject to the Registration Rights Agreement between the
parties of even date herewith.
5
<PAGE>
2. REPLACEMENT
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this warrant certificate, the Company will issue
to the holder a replacement certificate (containing the same terms and
conditions as this certificate).
3. EXPIRY DATE
The Warrants shall expire and all rights to subscribe for Common Shares
hereunder shall cease and become null and void at the Time of Expiry.
4. SATURDAYS, SUNDAYS AND HOLIDAYS
If any action is required to be taken pursuant hereto on or by a specified
date which is a Saturday, Sunday or a civic or statutory holiday in Boston,
Massachusetts or Toronto, Ontario, then such action shall be valid if taken
on or by the next succeeding day that is not a Saturday, Sunday or a civic or
statutory holiday in Boston, Massachusetts or Toronto, Ontario.
5. GOVERNING LAW
This Agreement shall be governed by, and interpreted and enforced in
accordance with, the laws in force in the Commonwealth of Massachusetts. The
Parties irrevocably submit to the non-exclusive jurisdiction of the courts of
the Commonwealth of Massachusetts with respect to any matter arising
hereunder or related hereto.
6. AMENDMENT
These Warrants and the terms hereof may be amended or supplemented only by a
written agreement signed by the Company and the holder.
7. SUCCESSORS
Subject to the terms hereof, these Warrants and the terms hereof shall enure
to the benefit of and be binding upon the holder and the Company and their
respective successors and assigns.
6
<PAGE>
IN WITNESS WHEREOF the Company has caused this certificate to be signed by
its duly authorized officers.
DATED December 18, 1996.
APOLLO GENETICS, INC.
/s/ Katherine Gordon
---------------------------------------
Name: Katherine Gordon
Title: President
7
<PAGE>
SCHEDULE 1
Subscription Form
TO: APOLLO GENETICS, INC. (the "Company")
RE: Warrants to purchase 150,000 shares of $.02 par value common stock in the
capital of the Company dated December 17, 1996 (the "Warrants").
The undersigned holder hereby irrevocably elects to exercise ____ of the
Warrants and hereby subscribes for ____ shares (or other property or
securities contemplated in the Warrants) and herewith:
X / / encloses cash or a certified cheque, money order or bank draft payable
to the order of the Company in payment of the Exercise Price therefor on
the terms and conditions set out in the certificate representing the
Warrants (the "Warrant Certificate"); or
X / / elects, pursuant to Section 1(c) of the Warrant Certificate, to exchange
the Warrants for the Common Shares and, subject to the issuance to the
holder of a certificate for the warrants not being exchanged pursuant
hereto, surrenders the Warrant Certificate to the Company and all right,
title and interest to the Warrants being exchanged hereby.
If any Warrants represented by this certificate are not being exercised or
exchanged, a new warrant certificate is to be issued and delivered to the
holder.
Terms not otherwise defined herein shall have the meanings assigned thereto
in the Warrant Certificate.
DATED this ____ day of _______________, _____.
[THE HOLDER]
By: ____________________________________
Name:
Title:
DIRECTION AS TO REGISTRATION
Name of Registered Holder: _______________________________________________
Address of Registered Holder: _______________________________________________
_______________________________________________
DIRECTIONS AS TO DELIVERY
Address of Delivery _______________________________________________
_______________________________________________
Attention: _______________________________________________
<PAGE>
Exhibit 5
[LETTERHEAD]
December 23, 1996
Apollo BioPharmeceutics, Inc.
One Kendall Square
Building 200, Suite 2200
Cambridge, Massachusetts 02139
We are rendering this opinion in connection with the Registration
Statement on Form SB-2 (the "Registration Statement") filed by Apollo
BioPharmeceutics, Inc. (the "Company") with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, on or about the date
hereof. The Registration Statement relates to up to 1,380,000 units (each
"Unit" and collectively, the "Units"), each Unit consisting of one share of
the Company's Common Stock, $0.02 par value (the "Common Stock"), and a
warrant to purchase one share of Common Stock (each, a "Warrant"). We
understand that the Units are to be offered and sold in the manner described
in the Registration Statement.
We have acted as your counsel in connection with the preparation of the
Registration Statement. We are familiar with the proceedings of the Board of
Directors on November 6, 1996 in connection with the authorization, issuance
and sale of the Units (the "Resolutions"). We have examined such other
documents as we consider necessary to render this opinion.
Based upon the foregoing, we are of the opinion that the shares of Common
Stock (the "Shares") and the warrants which comprise the units and the shares
of Common Stock issuable upon exercise of the warrants (the "Warrant Shares")
have been duly authorized and, the Shares, when issued and delivered by the
Company against payment therefor at the price to be determined pursuant to
the Resolutions and the Warrant Shares, when issued and delivered by the
Company upon exercise of the warrants and the payment of the exercise price
thereafter, will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as a part of the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus filed as part thereof.
Very truly yours,
/s/ Palmer & Dodge LLP
<PAGE>
[SUBJECT TO STOCKHOLDER APPROVAL]
APOLLO GENETICS, INC.
AMENDED AND RESTATED
1993 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
1. PURPOSE
The purpose of this Amended and Restated 1993 Incentive and Non-Qualified
Option Plan (the "Plan") is to encourage and enable selected management,
other key employees, directors (whether or not employees), and consultants of
Apollo Genetics, Inc. (the "Company") or a parent or subsidiary of the
Company to acquire a proprietary interest in the Company through the
ownership of common stock, par value $.02 per share (the "Common Stock"), of
the Company. Such ownership will provide such employees, directors, and
consultants with a more direct stake in the future welfare of the Company,
and encourage them to remain with the Company or a parent or subsidiary of
the Company. It is also expected that the Plan will encourage qualified
persons to seek and accept employment with, or become associated with, the
Company or a parent or subsidiary of the Company. Pursuant to the Plan, such
persons may be offered the opportunity to acquire Common Stock through the
grant of incentive stock options and "non-qualified" stock options.
As used herein, the term "parent" or "subsidiary" shall mean any present
or future corporation which is or would be a "parent corporation" or
"subsidiary corporation" of the Company as the term is defined in Section 425
of the Internal Revenue Code of 1986, as amended (the "Code") (determined as
if the Company were the employer corporation).
2. ADMINISTRATION OF PLAN
The Plan shall be administered by a Compensation Committee (the
"Committee") as appointed from time to time by the Board of Directors of the
Company, which committee shall consist of not less than two members of the
Board of Directors and each member of which shall be a "Non-Employee
Director," within the meaning of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any successor rule
or regulation ("Rule 16b-3"). Except as otherwise specifically provided
herein, no person, other than members of the Committee, shall have any
discretion as to decisions regarding the Plan.
In administering the Plan, the Committee may adopt rules and regulations
for carrying out the Plan. The interpretation and decision made by the
Committee with regard to any question arising under the Plan shall be final
and conclusive on all persons participating or eligible to participate in the
Plan. Subject to the provisions of the Plan, the Committee shall determine
the terms of all options granted pursuant to the Plan, including, but not
limited to, the persons to whom, and the time or times at which, grants shall
be made, the number of options to be included in the grants, the number of
options which shall be treated as incentive stock options, and the exercise
price.
<PAGE>
3. SHARES OF STOCK SUBJECT TO THE PLAN
Except as provided in subparagraphs 6(h) and 6(i) and paragraph 7, the
number of shares that may be issued or transferred pursuant to the exercise
of options granted under the Plan shall not exceed 600,000 shares of Common
Stock. Such shares may be authorized and unissued shares or previously issued
shares acquired or to be acquired by the Company and held in treasury. Any
shares subject to an option which for any reason expires or is terminated
unexercised as to such shares may again be subject to an option right under
the Plan. The aggregate Fair Market Value (determined at the time the option
is granted) of the stock with respect to which incentive stock options are
exercisable for the first time by an optionee during any calendar year (under
the Plan and all plans of the Company and any parent and subsidiary of the
Company) shall not exceed $100,000.
4. ELIGIBILITY
Incentive stock options may be granted only to management and other key
employees who are employed by the Company or a parent or subsidiary of the
Company. An incentive stock option may be granted to a director of the
Company or a parent or subsidiary of the Company, provided that the director
is also an officer or key employee. Directors who are not officers or key
employees, and consultants, may only be granted non-qualified stock options.
5. GRANTING OF OPTIONS
No options pursuant to this Plan may be granted after the expiration of
business on the tenth anniversary of the effective date of the Plan. The date
of the grant of any option shall be the date on which the Committee
authorizes the grant of such option.
6. OPTIONS
Options shall be evidenced by stock option certificates or agreements in
such form, not inconsistent with this Plan, as the Committee shall approve
from time to time, which agreements need not be identical, and shall be
subject to the following terms and conditions:
(a) EXERCISE PRICE. The exercise price under each incentive stock
option shall be not less than 100% of the Fair Market Value of the Common
Stock at the time the option is granted and not less than par value of such
Common Stock. In the case of an incentive stock option granted to an employee
owning more than 10% of the total combined voting power of all classes of
stock of the Company or of any parent or subsidiary of the Company (a "10%
Stockholder") actually or constructively under Section 425(d) of the Code,
the exercise price shall not be less than 110% of the Fair Market Value of
the Common Stock subject to the option at the time of its grant. The purchase
price under each non-qualified stock option shall be specified by the
Committee, but shall in no case be less than the greater of 50% of the Fair
Market Value of the Common Stock at the time the option is granted and the
par value of such Common Stock.
<PAGE>
(b) MEDIUM AND TIME OF PAYMENT. Stock purchased pursuant to the
exercise of an option shall at the time of purchase be paid for in full in
cash, or, upon conditions established by the Committee, by delivery of shares
of Common Stock owned by the recipient. If payment is made by the delivery of
shares, the value of the shares delivered shall be the Fair Market Value of
such shares on the date of exercise of the respective option. Upon receipt of
payment and such documentation as the Company may deem necessary to establish
compliance with the Securities Act of 1933, as amended (the "Securities
Act"), the Company shall, without stock transfer tax to the optionee or other
person entitled to exercise the option, deliver to the person exercising the
option a certificate or certificates for such shares. It shall be a condition
to the performance of the Company's obligation to issue or transfer Common
Stock upon exercise of an option or options that the optionee pay, or make
provision satisfactory to the Company for the payment of, any taxes (other
than stock transfer taxes) which the Company is obligated to collect with
respect to the issue or transfer of Common Stock upon such exercise,
including any federal, state, or local withholding taxes.
(c) WAITING PERIOD. The waiting period and time for exercising an
option shall be prescribed by the Committee in each particular case;
provided, however, that no option may be exercised after ten years from the
date it is granted. In the case of an incentive stock option granted to a 10%
Stockholder, such option, by its terms, shall be exercisable only within five
years from the date of grant.
(d) RIGHTS AS A STOCKHOLDER. A recipient of options shall have no
rights as a stockholder with respect to any shares issuable or transferable
upon exercise thereof until the date a stock certificate is issued to him for
such shares. Except as otherwise expressly provided in the Plan, no
adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
(e) NON-ASSIGNABILITY OF OPTIONS. No option shall be assignable or
transferable by 4$ s the recipient except by will or by the laws of descent and
distribution. During the lifetime of a recipient, options shall be exercisable
only by him.
(f) EFFECT OF TERMINATION OF EMPLOYMENT. If a recipient's employment
(or service as an officer, director or consultant) shall terminate for any
reason, other than death or Retirement, the right of the recipient to
exercise any option otherwise exercisable on the date of such termination
shall expire unless such right is exercised within a period of three months
after the date of such termination. The term "Retirement" shall mean the
voluntary termination of employment (or service as an officer, director or
consultant) by a recipient who has attained the age of 55 and who has at
least five years service with the Company. If a recipient's employment (or
service as an officer, director or consultant) shall terminate because of
death or Retirement, the right of the recipient to exercise any option
otherwise exercisable on the date of such termination shall be unaffected by
such termination and shall continue until the normal expiration of such
option. Notwithstanding the foregoing, the tax treatment available pursuant
to Section 422 of the Code upon the exercise of an incentive stock option
will not be available to a recipient who exercises any incentive stock option
more than (i) 12 months after the date of termination of employment due to
death or (ii) three months after the date of termination of employment due to
Retirement. Option rights shall not be affected by any change of
<PAGE>
employment as long as the recipient continues to be employed by either the
Company or a parent or subsidiary of the Company. In no event, however, shall
an option be exercisable after the expiration of its original term as
determined by the Committee pursuant to subparagraph 6(c) above. The
Committee may, if it determines that to do so would be in the Company's best
interests, provide in a specific case or cases for the exercise of options
which would otherwise terminate upon termination of employment with the
Company for any reason, upon such terms and conditions as the Committee
determines to be appropriate, nothing in the Plan or in any option agreement
shall confer any right to continue in the employ of the Company or any parent
or subsidiary of the Company or interfere in any way with the right of the
Company or any parent or subsidiary of the Company to terminate the
employment of a recipient at any time.
(g) LEAVE OF ABSENCE. In the case of a recipient on an approved leave of
absence, the Committee may, if it determines that to do so would be in the
best interests of the Company, provide in a specific case for continuation of
options during such leave of absence, such continuation to be on such terms
and conditions as the Committee determines to be appropriate, except that in
no event shall an option be exercisable after 10 years from the date it is
granted.
(h) RECAPITALIZATION. In the event the Committee in its discretion
determines that any stock dividends, extraordinary cash dividends, creation
of a class of equity securities, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of shares, warrants
or rights offering to purchase Common Stock at a price substantially below
fair market value, or other similar transaction affects the Common Stock such
that an adjustment is required in order to preserve the benefits or potential
benefits intended to be made available under the Plan, then the Committee
(subject, in the case of Incentive Stock Options, to any limitation required
under the Code) shall equitably adjust any or all of (i) the number of shares
available under the Plan, (ii) the number of shares deliverable upon the
exercise of any outstanding options granted under the Plan and (ii) the net
exercise price with respect to any outstanding options.
(i) SALE OR REORGANIZATION. In case the Company is merged or
consolidated with another corporation, or in case the property of stock of
the Company is acquired by another corporation, or in case of a separation,
reorganization, or liquidation of the Company, the Board of Directors of the
Company, or the board of directors of any corporation assuming the
obligations of the Company hereunder, shall either (i) make appropriate
provisions for the Protection of any outstanding options by the-substitution
on an equitable basis of appropriate stock of the Company, or appropriate
stock of the merged, consolidated, or otherwise reorganized corporation,
provided only that such substitution of options shall, with respect to
incentive stock options, comply with the requirements of Section 425 of the
Code, or (ii) give written notice to optionees that their options must be
exercised within 30 days of the date of such notice or they will be
terminated, and in connection with such notice, the Committee may in its
discretion accelerate or waive any waiting period.
(j) GENERAL RESTRICTIONS. Each option granted under the Plan shall be
subject to the requirement that, if at any time the Board of Directors shall
determine, in its discretion, that the listing, registration, or
qualification of the shares issuable or transferable upon exercise thereof
upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection
<PAGE>
with, the granting of such option or the issue, transfer, or purchase of
shares thereunder, such option may not be exercised in whole or in part
unless such listing, registration, qualification, consent, or approval shall
have been effected or obtained free of any conditions not acceptable to the
Board of Directors.
The Company shall not be obligated to sell or issue any shares of Common
Stock in any -manner in contravention of the Securities Act or any state
securities law. The Board of Directors may, in connection with the granting
of each option, require the individual to whom the option is to be granted to
enter into an agreement with the Company stating that as a condition
precedent to each exercise of the option, in whole or in part, he shall, if
then required by the Company, represent to the Company in writing that such
exercise is for investment only and not with a view to distribution, and also
setting forth such other terms and conditions as the Committee may prescribe.
Such agreements may also, in the discretion of the Committee, contain
provisions requiring the forfeiture of any options granted and/or Common
Stock held, in the event of the termination of employment or association, as
the case may be, of the optionee with the Company. Upon any forfeiture of
Common Stock pursuant to any agreement authorized by the preceding sentence,
the Company shall pay consideration for such Common Stock to the optionee,
pursuant to any such agreement, without interest thereon.
"The Fair Market Value" for all purposes under the Plan shall mean the
closing price of shares of Common Stock, as reported in the Wall Street
Journal, by the Nasdaq Stock Market or similar successor consolidated
transactions reports (or a similar consolidated transactions report for the
exchange on which the shares of Common Stock are then trading) for the
relevant date, or if no sales of shares of Common Stock were made on such
date, the average of the high and low prices of shares as reported in such
composite transaction report for the preceding day on which sales of shares
were made. If the shares are not listed on a national securities exchange or
by the Nasdaq Stock Market at the time Fair Market Value is to be determined,
then Fair Market Value shall be determined by the Committee in good faith
pursuant to such method as the Committee deems appropriate and equitable.
Under no circumstances shall the Fair Market Value of a share of Common Stock
be less than its par value.
7. TERMINATION AND AMENDMENT OF THE PLAN
The Board of Directors shall have the right to amend, suspend, or
terminate the Plan at any time: provided, however, that no such action shall
affect or in any way impair the rights of a recipient under any option right
theretofore granted under the Plan; and, provided, further, that unless first
duly approved by the stockholders of the Company entitled to vote thereon at
a meeting (which may be the annual meeting) duly called and held for such
purpose, except as provided in subparagraphs 6(h) and 6(i), no amendment or
change shall be made in the Plan: (a) increasing the total number of shares
which may be issued or transferred under the Plan; (b) extending the period
during which options may be granted or exercised under the Plan; or (c)
changing the designation of persons eligible to receive options under the
Plan.
<PAGE>
8. NOTICE OF SALE OF SHARES REQUIRED
The optionee agrees to notify the Company in writing within thirty (30)
days of the disposition of one or more shares of stock which were transferred
to such optionee pursuant to the exercise of an incentive stock option
granted under this Plan if such disposition occurs within two years of the
date of grant of the option or within one year after the exercise of the
option.
9. EFFECTIVE DATE OF THE PLAN
This Plan shall become effective December 17, 1993, subject, however, to
approval by the stockholders of the Company within 12 months next following
adoption by the Board of Directors; and if such approval is not obtained, the
Plan shall terminate and any and all options granted during such interim
period shall also terminate and be of no further force or effect. The Plan
shall, in all events, terminate on the tenth anniversary of the effective
date of the Plan, or on such earlier date as the Board of Directors of the
Company may determine. Any option outstanding at the termination date shall
remain outstanding until it has either expired or has been exercised.
10. COMPLIANCE WITH RULE 16b-3
With respect to persons subject to Section 16 of the Exchange Act,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors. To the extent any provision of
the Plan or action by the Committee (or any other person on behalf of the
Committee or the Company) fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
<PAGE>
[SUBJECT TO STOCKHOLDER APPROVAL]
APOLLO GENETICS, INC.
1996 DIRECTOR STOCK OPTION PLAN
The purpose of this 1996 Director Stock Option Plan (the "Plan") of
Apollo Genetics, Inc. (the "Company") is to attract and retain highly
qualified non-employee directors of the Company and to encourage ownership of
stock of the Company by such Directors so as to provide additional incentives
to promote the success of the Company.
1. ADMINISTRATION OF THE PLAN.
Grants of stock options under the Plan shall be automatic as provided in
Section 6. However, all questions of interpretation with respect to the Plan
and options granted under it shall be determined by the Board of Directors of
the Company (the "Board") or by a committee consisting of one or more
directors appointed by the Board and such determination shall be final and
binding upon all persons having an interest in the Plan.
2. PERSONS ELIGIBLE TO PARTICIPATE IN THE PLAN.
All directors of the Company who are not employees of the Company or of
any subsidiary of the Company shall be eligible to participate in the Plan,
unless such director irrevocably elects not to participate.
3. SHARES SUBJECT TO THE PLAN.
(a) The aggregate number of shares of the Company's Common Stock which
may be subject to options under this Plan is 90,000 shares. Shares issued
under the Plan may consist in whole or in part of authorized but unissued
shares or treasury shares.
(b) In the event of a stock dividend, split-up, combination or
reclassification of shares, recapitalization or other similar capital change
relating to the Company's Common Stock, the maximum aggregate number and kind
of shares or securities of the Company as to which options may be granted
under this Plan and as to which options then outstanding shall be
exercisable, and the exercise price of such options shall be appropriately
adjusted so that the proportionate number of shares or other securities as to
which options may be granted and the proportionate interest of holders of
outstanding options shall be maintained as before the occurrence of such
event.
(c) In the event of a consolidation or merger of the Company with
another corporation where the Company's stockholders do not own a majority in
interest of the surviving or resulting corporation, or the sale or exchange
of all or substantially all of the assets of the Company, or a reorganization
or liquidation of the Company, any deferred exercise period shall be
automatically accelerated and each holder of an outstanding option
<PAGE>
shall be entitled to receive, upon exercise and payment in accordance with
the terms of the option, the same shares, securities or property as he would
have been entitled to receive upon the occurrence of such event if he had
been, immediately prior to such event, the holder of the number of shares of
Common Stock purchasable under his or her option; provided, however, that in
lieu of the foregoing the Board may, upon written notice to each holder of an
outstanding option or right under the Plan, provide that such option or right
shall terminate on a date not less than 20 days after the date of such notice
unless theretofore exercised.
(d) Whenever options under this Plan lapse or terminate or otherwise
become unexercisable, the shares of Common Stock which were subject to such
options may again be subject to options under this Plan. The Company shall,
at all times while this Plan is in force, reserve such number of shares of
Common Stock as will be sufficient to satisfy the requirements of this Plan.
4. NON-STATUTORY STOCK OPTIONS.
All options granted under this Plan shall be non-statutory options, not
entitled to special tax treatment under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code").
5. FORM OF OPTIONS.
Options granted hereunder shall be evidenced by certificates in
substantially the form of the attached EXHIBIT A, or in such other form as
the Board or any committee appointed pursuant to Section 1 above may from
time to time determine.
6. GRANT OF OPTIONS AND OPTION TERMS.
(a) AUTOMATIC GRANT OF OPTIONS.
(i) On the date of the annual meeting of the stockholders in every
third year (a "Grant Year"), beginning with the 1996 annual meeting, each
eligible director continuing in office after such meeting shall automatically
be granted options under the Plan to purchase 9,000 shares of Common Stock.
(ii) Upon the initial election of an eligible director other than at
an annual meeting of the stockholders in a Grant Year (whether by the Board
or the stockholders and whether to fill a vacancy or otherwise), such
director shall automatically be granted options to purchase 3,000 shares of
Common Stock under the Plan for each year, or portion thereof, between the
date of such election and the date of the next annual meeting in a Grant Year.
(iii) No options shall be granted hereunder after ten years from the
date on which this Plan was initially approved and adopted by the Board.
<PAGE>
(b) DATE OF GRANT. The "Date of Grant" for options granted under this
Plan shall be the date of the annual meeting of stockholders in a Grant Year,
the date of the annual meeting of stockholders (if not in a Grant Year) at
which the option holder is first elected, or the date on which the option
holder is elected by the Board to fill a vacancy, as the case may be.
(c) EXERCISE PRICE. The per share exercise price for each option granted
under this Plan shall be the current fair market value of a share of Common
Stock of the Company as determined (i) prior to date on which the Company
becomes subject to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), by the Board in good faith or in the manner established by
the Board from time to time, and (ii) on or after the date on which the
Company is subject to the Exchange Act, by the last sale price for the
Company's Common Stock as reported by the Nasdaq Stock Market for the
business day immediately preceding the Date of Grant.
(d) TERM OF OPTION. The term of each option granted under this Plan
shall be ten years from the Date of Grant.
(e) EXERCISABILITY OF OPTIONS. Options granted under this Plan shall
become exercisable with respect to 3,000 shares on the Date of Grant and on
each annual meeting of stockholders of the Company following the Date of
Grant, if and only if the option holder is a member of the Board at the
opening of business on that date (e.g., options to purchase 9,000 shares of
Common Stock granted at the 1996 annual meeting will become exercisable with
respect to 3,000 shares at each of the 1996, 1997 and 1998 annual meetings).
(f) GENERAL EXERCISE TERMS. Directors holding exercisable options under
this Plan who cease to serve as members of the Board may, during their
lifetime, exercise the rights they had under such options at the time they
ceased being a director for the full unexpired term of such option. Any
rights that have not yet become exercisable shall terminate upon cessation of
membership on the Board. Upon the death of a director, those entitled to do
so shall have the right, at any time within twelve months after the date of
death, to exercise, in whole or in part, any rights which were available to
the director at the time of his or her death. The rights of the option
holder may be exercised by the holder's guardian or legal representative in
the case of disability and by the beneficiary designated by the holder in
writing delivered to the Company or, if none has been designated, by the
holder's estate or his or her transferee on death in accordance with this
Plan, in the case of death. Options granted under the Plan shall terminate,
and no rights thereunder may be exercised, after the expiration of the
applicable exercise period. Notwithstanding the foregoing provisions of this
section, no rights under any options may be exercised after the expiration of
ten years from their Date of Grant.
(g) METHOD OF EXERCISE AND PAYMENT. Options may be exercised only by
written notice to the Company at its head office accompanied by payment of
the full exercise price for the shares of Common Stock as to which they are
exercised. The exercise price shall be paid in cash or by check or in shares
of Common Stock of the Company, or in any combination thereof. Shares of
Common Stock surrendered in payment of the exercise price shall have been
held by the person exercising the option for at least six months, unless
<PAGE>
otherwise permitted by the Board or any committee appointed pursuant to
Section 1 above. The value of shares delivered in payment of the exercise
price shall be their fair market value, as determined in accordance with
Section 6(c) above, as of the date of exercise. Upon receipt of such notice
and payment, the Company shall promptly issue and deliver to the optionee (or
other person entitled to exercise the option) a certificate or certificates
for the number of shares as to which the exercise is made.
(h) NON-TRANSFERABILITY. Options granted under this Plan shall not be
transferable by the holder thereof otherwise than by will or the laws of
descent and distribution or as permitted by the Board or any committee
appointed pursuant to Section 1 above.
7. LIMITATION OF RIGHTS.
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the
granting of an option or any other action taken pursuant to the Plan, shall
constitute an agreement or understanding, express or implied, that the
Company will retain an option holder as a director for any period of time or
at any particular rate of compensation.
(b) NO STOCKHOLDERS' RIGHTS FOR OPTIONS. A director shall have no rights
as a stockholder with respect to the shares covered by options until the date
the director exercises such options and pays the exercise price to the
Company, and no adjustment will be made for dividends or other rights for
which the record date is prior to the date such option is exercised and paid
for.
8. AMENDMENT OR TERMINATION.
The Board may amend or terminate this Plan at any time, provided that, to
the extent necessary to comply with Rule 16b-3 under the Securities Exchange
Act of 1934, this Plan shall not be amended more than once every six months,
other than to comport with changes in the Code, ERISA or the rules thereunder.
9. STOCKHOLDER APPROVAL.
This Plan is subject to approval by the stockholders of the Company by
the affirmative vote of the holders of a majority of the shares of Common
Stock of the Company present, or represented and entitled to vote, at a
meeting duly held in accordance with the laws of the State of Delaware. In
the event such approval is not obtained, all options granted under this Plan
shall be void and without effect.
10. GOVERNING LAW.
This Plan shall be governed by and interpreted in accordance with the
laws of the State of Delaware.
<PAGE>
INDEMNIFICATION AGREEMENT
[NAME OF DIRECTOR]
This Agreement dated _______________ is between Apollo Genetics, Inc.
(the "Company"), a Delaware corporation, and [NAME OF DIRECTOR] (the
"Director"), who is a director of the Company. Its purpose is to provide the
maximum protection for the Indemnitee (as defined below) against personal
liability arising out of Director's service to the Company so as to encourage
the continuation of such service and the effective exercise of the director's
business judgment.
The parties hereto agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the meanings hereafter assigned to them:
(a) "Change in Control" shall mean that the following has occurred:
(i) there has been a change in control of the Company, not approved by a
resolution of the Company's Board of Directors, of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or any successor provision thereof, including
in any event the acquisition by any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act) of beneficial ownership,
directly or indirectly, of securities of the Company representing 25% or
more of the combined voting power of the Company's then outstanding
securities, (ii) followed within a period of not more than two years by a
change in the identity of a majority of the members of the Company's Board
of Directors otherwise than through death, disability or retirement in
accordance with the Company's normal retirement policies.
(b) "Claim" shall mean any threatened, pending or completed action,
suit or proceeding, or any inquiry or investigation, whether conducted by
the Company or any other party, that the Indemnitee in good faith believes
might lead to the institution of any such action, suit or proceeding,
whether civil, criminal, administrative, investigative or other.
(c) "Expenses" shall include attorneys' fees and all other costs,
expenses and obligations paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in, any Claim relating
to any Indemnifiable Event.
(d) "Indemnifiable Event" shall mean any event or occurrence related
to the fact that the Director is or was a director, officer, employee,
agent or fiduciary of the Company, or is or was serving at the request of
the Company as a director, officer, employee, trustee, agent or fiduciary
of another corporation, partnership,
<PAGE>
joint venture, employee benefit plan, trust or other enterprise, or by
reason of anything done or not done by the Director in any such capacity.
(e) "Indemnitee" shall mean Director and any partnership,
corporation, trust or other entity of which Director is or was a partner, a
partner of the general partner of, shareholder, trustee, director, officer,
member, employee or agent and any other entity or person that may be
subject to a Claim by reason of (or arising in part out of) an
Indemnifiable Event, and the references to Indemnitee in this
Indemnification Agreement shall be understood to refer severally to each
Indemnitee.
(f) "Potential Change in Control" shall mean that any of the
following have occurred: (i) any person publicly announces an intention to
take or to consider taking actions which if consummated might result in a
Change in Control, (ii) any "person" (as such term is used in Section 13(d)
and 14(d)(2) of the Exchange Act) acquires beneficial ownership, directly
or indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities, or
(iii) the Company's Board of Directors adopts a resolution to the effect
that, for purposes of this Agreement, a Potential Change in Control has
occurred.
(g) "Reviewing Party" shall mean the person or body appointed by the
Company's Board of Directors pursuant to Section 2(b) hereof, which shall
not be or include a person who is a party to the particular Claim for which
the Indemnitee is seeking indemnification.
2. BASIC INDEMNIFICATION ARRANGEMENT.
(a) In the event that the Indemnitee was or is a party to or witness
or other participant in, or is threatened to be made a party to or witness
or other participant in, a Claim by reason of (or arising in part out of)
an Indemnifiable Event, the Company shall indemnify the Indemnitee to the
fullest extent permitted by law as soon as practicable but in any event no
later than thirty days after written demand is presented to the Company,
against all Expenses, judgments, fines, penalties and amounts paid in
settlement (including all interest, assessments and other charges paid or
payable in respect of such Expenses, judgments, fines, penalties or amounts
paid in settlement) of such Claim. If so requested by the Indemnitee, the
Company shall advance (within two business days of such request) all
Expenses to the Indemnitee (an "Expense Advance"). Notwithstanding
anything in this Agreement to the contrary, prior to a Change in Control,
the Indemnitee shall not be entitled to indemnification pursuant to this
Agreement in connection with any Claim initiated by the Indemnitee against
the Company or any director or officer of the Company (otherwise than to
enforce his rights under this Agreement) unless the Company has consented
to the initiation of such Claim.
-2-
<PAGE>
(b) In the event of any demand by the Indemnitee for indemnification
hereunder or under the Company's Amended and Restated Certificate of
Incorporation or By-laws, the Board of Directors of the Company shall
designate a Reviewing Party, who shall, if there has been a Change of
Control of the Company, be the special independent counsel referred to in
Section 3 hereof. The obligations of the Company under Section 2(a) shall
be subject to the condition that the Reviewing Party shall not have
determined (in a written opinion, in any case in which the special
independent counsel referred to in Section 3 hereof is involved) that the
Indemnitee is not permitted to be indemnified under applicable law, and the
obligation of the Company to make an Expense Advance pursuant to Section
2(a) shall be subject to the condition that, if, when and to the extent
that the Reviewing Party determines that the Indemnitee is not permitted to
be so indemnified under applicable law, the Company shall be entitled to be
reimbursed by the Indemnitee (who hereby agrees to reimburse the Company)
for all such amounts theretofore paid. If the Indemnitee has commenced
legal proceedings in a court of competent jurisdiction to secure a
determination that the Indemnitee may be indemnified under applicable law,
any determination made by the Reviewing Party that the Indemnitee is not
permitted to be indemnified under applicable law shall not be binding, and
the Indemnitee shall not be required to reimburse the Company for any
Expense Advance until a final judicial determination is made with respect
hereto (as to which all rights of appeal therefrom have been exhausted or
lapsed). If there has been no determination by the Reviewing Party or if
the Reviewing Party determines that the Indemnitee is not permitted to be
indemnified in whole or in part under applicable law, the Indemnitee shall
have the right to commence litigation in any court in the State of Delaware
having subject matter jurisdiction thereof and in which venue is proper
seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, and the Company
hereby consents to service of process and to appear in any such proceeding.
Any determination by the Reviewing Party otherwise shall be conclusive and
binding on the Company and the Indemnitee.
3. CHANGE IN CONTROL. The Company agrees that if there is a Change in
Control of the Company, then with respect to all matters thereafter arising
concerning the rights of the Indemnitee to indemnity payments and Expense
Advances under this Agreement or any other agreement or under the Company's
Amended and Restated Certificate of Incorporation or By-laws now or hereafter in
effect relating to Claims for Indemnifiable Events, the Company shall seek legal
advice only from special independent counsel selected by the Indemnitee and
approved by the Company (which approval shall not be unreasonably withheld) who
has not otherwise performed services for the Company within the last ten years
(other than in connection with such matters) or for the Indemnitee. Such
counsel among other things, shall render its written opinion to the Company and
the Indemnitee as to whether and to what extent the Indemnitee is permitted to
be indemnified under applicable law. The Company agrees to pay the reasonable
fees of the special independent counsel and to indemnify such counsel against
any and all expenses (including attorneys' fees), claims, liabilities and
damages relating to this Agreement or its engagement pursuant hereto.
-3-
<PAGE>
4. ESTABLISHMENT OF TRUST. In the event of a Potential Change in
Control, the Company may create a Trust for the benefit of the Indemnitee
(either alone or together with one or more other indemnitees) and from time to
time fund such Trust in such amounts as the Company's Board of Directors may
determine to satisfy Expenses reasonably anticipated to be incurred in
connection with investigating, preparing for and defending any Claim relating to
an Indemnifiable Event, and all judgments, fines, penalties and settlement
amounts of all Claims relating to an Indemnifiable Event from time to time paid
or claimed, reasonably anticipated or proposed to be paid. The terms of any
Trust established pursuant hereto shall provide that upon a Change in Control
(i) the Trust shall not be revoked or the principal thereof invaded, without the
written consent of the Indemnitee, (ii) the Trustee shall advance, within two
business days of a request by the Indemnitee, all Expenses to the Indemnitee
(and the Indemnitee hereby agrees to reimburse the Trust under the circumstances
under which the Indemnitee would be required to reimburse the Company under
Section 2(b) of this Agreement), (iii) the Trustee shall promptly pay to the
Indemnitee all amounts for which the Indemnitee shall be entitled to
indemnification pursuant to this Agreement or otherwise, and (iv) all unexpended
funds in such Trust shall revert to the Company upon a final determination by
the Reviewing Party or a court of competent jurisdiction, as the case may be,
that the Indemnitee has been fully indemnified under the terms of this
Agreement. The Trustee shall be a person or entity satisfactory to the
Indemnitee. Nothing in this Section 4 shall relieve the Company of any of its
obligations under this Agreement.
5. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify
the Indemnitee against all expenses (including attorneys' fees) and, if
requested by the Indemnitee, shall (within two business days of such request)
advance such expenses to the Indemnitee, which are incurred by the Indemnitee in
connection with any claim asserted against or action brought by the Indemnitee
for (i) indemnification or advance payment of Expenses by the Company under this
Agreement or any other agreement or Company By-law or provision of the Company's
Amended and Restated Certificate of Incorporation now or hereafter in effect
relating to Claims for Indemnifiable Events or (ii) recovery under any
directors' and officers' liability insurance policies maintained by the Company,
regardless of whether the Indemnitee ultimately is determined to be entitled to
such indemnification, advance expense payment or insurance recovery, as the case
may be.
6. PARTIAL INDEMNITY, ETC. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for a portion of
the Expenses, judgments, fines, penalties and amounts paid in settlement of a
Claim but not for the total amount thereof, the Company shall indemnify the
Indemnitee for the portion thereof to which the Indemnitee is entitled.
Notwithstanding any other provision of this Agreement, to the extent that the
Indemnitee has been successful on the merits or otherwise in defense of Claims
relating to an Indemnifiable Event or in defense of any issue or matter therein,
including dismissal without prejudice, the Indemnitee shall be indemnified
against all Expenses incurred in connection therewith. In connection with any
determination by the Reviewing Party or otherwise as to whether the Indemnitee
is entitled to be indemnified hereunder, the burden of proof shall be on the
Company to establish that the Indemnitee is not so entitled.
-4-
<PAGE>
7. NO PRESUMPTION. For purposes of this Agreement, the termination of
any claim, action, suit or proceeding by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that the
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law.
8. NON-EXCLUSIVITY, ETC. The rights of the Indemnitee hereunder shall be
in addition to any other rights the Indemnitee may have under the Company's
Amended and Restated Certificate of Incorporation and By-laws or the Delaware
General Corporation Law or otherwise. To the extent that a change in the
Delaware General Corporation Law (whether by statute or judicial decision)
permits greater indemnification by agreement than would be afforded currently
under the Company's Amended and Restated Certificate of Incorporation and By-
laws and this Agreement, it is the intent of the parties hereto that the
Indemnitee shall enjoy by this Agreement the greater benefits afforded by such
change.
9. LIABILITY INSURANCE. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance, the
Director shall be covered by such policy or policies, in accordance with its or
their terms, to the maximum extent to the coverage available for any Company
director or officer.
10. AMENDMENTS, ETC. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
11. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all such papers and do all such
things as may be necessary or desirable to secure such rights.
12. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any claim made against the
Indemnitee to the extent the Indemnitee has otherwise received payment (under
any insurance policy, the Company's Amended and Restated Certificate of
Incorporation, or the Company's By-laws or otherwise) of the amounts otherwise
indemnifiable hereunder.
13. BINDING EFFECT, ETC. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
or assets of the Company, spouses, heirs, and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
the Director continues to serve as an officer or director of the Company or of
any other enterprise at the Company's request.
-5-
<PAGE>
14. SEVERABILITY. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
15. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Massachusetts
applicable to contracts made and to be performed in such state without giving
effect to the principles of conflicts of law.
IN WITNESS WHEREOF, the undersigned have executed this Indemnification
Agreement as of the date first above written.
APOLLO GENETICS, INC.
By:_________________________________
Title:
_________________________________
[NAME OF DIRECTOR]
-6-
<PAGE>
EXECUTION COPY
ROYALTY PURCHASE AGREEMENT
BETWEEN
NEUROSCIENCE PARTNERS
LIMITED PARTNERSHIP
BY ITS GENERAL PARTNER,
MDS ASSOCIES-NEUROSCIENCE INC.
- AND -
APOLLO GENETICS, INC.
DECEMBER 18, 1996
<PAGE>
TABLE OF CONTENTS
PAGE NO.
ARTICLE 1 DEFINITIONS AND SCHEDULES....................................1
1.1 Definitions..................................................1
1.2 Schedules....................................................9
ARTICLE 2 PURCHASED RIGHTS.............................................9
2.1 Sale of Purchased Rights to the Fund.........................9
2.2 Payment of Royalties.........................................9
2.3 Maximum Royalties............................................9
2.4 Cash Payment Buyout..........................................10
2.5 Liabilities Not Assumed......................................11
ARTICLE 3 REPRESENTATIONS AND WARRANTIES...............................11
3.1 Representations and Warranties of Apollo.....................11
3.1.1 Corporate Matters..................................11
3.1.2 The Financial Statements...........................12
3.1.3 Undisclosed Liabilities............................12
3.1.4 Absence of Changes.................................12
3.1.5 Material Contracts.................................13
3.1.6 Absence of Conflicting Agreements..................14
3.1.7 Consents, Approvals, Etc...........................14
3.1.8 Compliance with Applicable Law.....................15
3.1.9 Litigation.........................................15
3.1.10 Purchased Rights...................................15
3.1.11 No Options.........................................15
3.1.12 Product Rights.....................................15
3.1.13 Non-Arm's Length Transactions......................17
3.1.14 Tax Returns........................................17
3.1.15 Authorized and Issued Share Capital................17
3.1.16 Disclosure.........................................18
3.2 Representations and Warranties of the Fund...................18
3.2.1 Corporate Matters..................................19
3.2.2 Absence of Conflicting Agreements..................19
3.2.3 Consents, Approvals, Etc...........................20
3.2.4 Investment.........................................20
3.2.5 Agreement For Sale.................................20
3.2.6 Investment Experience..............................20
3.2.7 Restricted Securities..............................20
3.2.8 Further Limitations on Disposition.................21
3.2.9 Legends............................................21
3.2.10 Laws of Funds Jurisdiction.........................22
3.3 Commission...................................................22
3.4 Non-Waiver...................................................22
<PAGE>
ii
3.5 Survival of Representations and Warranties...................22
ARTICLE 4 COVENANTS....................................................22
4.1 Covenants....................................................22
4.2 Non-Waiver and Audit.........................................28
ARTICLE 5 CONVERSION RIGHT.............................................29
5.1 Conversion Right.............................................29
5.2 Terms and Conditions Governing the Conversion Right..........29
5.3 Pro rata Reduction of Royalties..............................29
5.4 Paramountcy..................................................30
ARTICLE 6 DEFAULT......................................................30
6.1 Events of Default............................................30
6.2 Remedies.....................................................31
ARTICLE 7 INDEMNIFICATION..............................................32
7.1 Mutual Indemnifications for Breaches of Warranty, etc........32
7.2 Third Party Claims...........................................32
ARTICLE 8 CONFIDENTIALITY..............................................33
8.1 Confidential Information.....................................33
8.2 Non-Disclosure...............................................33
ARTICLE 9 DELIVERIES.ON.EXECUTION......................................34
9.1 Deliveries upon Execution of this Agreement..................34
ARTICLE 10 GENERAL......................................................35
10.1 Headings.....................................................35
10.2 Number and Gender............................................35
10.3 Entire Agreement.............................................35
10.4 Amendment....................................................35
10.5 Waiver of Rights.............................................35
10.6 Applicable Law...............................................36
10.7 Currency.....................................................36
10.8 Tender ......................................................36
10.9 Performance on Holidays......................................36
10.10 Financial Reporting Standards................................36
10.11 Expenses.....................................................36
10.12 Time.........................................................37
10.13 Notices......................................................37
10.14 Assignment...................................................38
10.15 Further Assurances...........................................39
10.16 Independent Parties..........................................39
10.17 Public Announcements.........................................39
<PAGE>
iii
10.18 Severability.................................................39
10.19 Counterparts.................................................40
10.20 Facsimile Execution..........................................40
SCHEDULE A FORM OF WARRANTS
SCHEDULE B PATENT RIGHTS
SCHEDULE C INSTRUMENTS, CONTRACTS, LEASES, LICENCES, RIGHTS OR OTHER
AGREEMENTS RELATING TO THE TECHNOLOGY, THE PRODUCT RIGHTS,
THE PRODUCTS OR THE PURCHASED RIGHTS
SCHEDULE D TERMS AND CONDITIONS GOVERNING THE CONVERSION RIGHT
SCHEDULE E FORM OF SUBSCRIPTION AGREEMENT
SCHEDULE F FORM OF REGISTRATION RIGHTS AGREEMENT
SCHEDULE G FINANCIAL STATEMENTS
SCHEDULE H GRANTS AND OPTIONS
<PAGE>
THIS AGREEMENT IS MADE AS OF THE 18TH DAY OF DECEMBER, 1996
B E T W E E N:
NEUROSCIENCE PARTNERS LIMITED PARTNERSHIP,
a limited partnership constituted under the laws of the
Province of Ontario
- and -
APOLLO GENETICS, INC.,
a corporation subsisting under the laws of Delaware
RECITALS:
1. Apollo is the licensee or proprietor of know-how, intellectual property
rights and materials relating to the use of estrogen in the treatment of
Chronic Neurodegenerative Diseases.
2. Apollo has agreed to sell and the Fund has agreed to purchase a portion of
the revenues generated from such know-how, intellectual property rights and
materials, on the terms provided in this Agreement.
IN CONSIDERATION of the premises, the mutual covenants in this Agreement and of
other good and valuable consideration (the receipt and sufficiency of which are
acknowledged by each Party), the Parties agree as follows:
ARTICLE 1
DEFINITIONS AND SCHEDULES
1.1 DEFINITIONS
In this Agreement:
"$.70 WARRANTS" means warrants to acquire 350,000 Apollo Common Shares for
a price of US$ .70 per Apollo Common Share for a period of 7 years from the
date of execution of this Agreement in the form and on the terms and
conditions attached hereto as Schedule A to be issued and delivered by
Apollo to the Fund on execution of this Agreement;
<PAGE>
2
"$.875 WARRANTS" means warrants to acquire 150,000 Apollo Common Shares for
a price of US$ .875 per common share for a period of 7 years from the date
of execution of this Agreement in the form and on the terms and conditions
attached hereto as Schedule A to be issued and delivered by Apollo to the
Fund on execution of this Agreement;
"AFFILIATE" means a Person which, directly or indirectly, controls, is
controlled by or is under common control with another, it being understood
and agreed that Athena Neurosciences, Inc. and Endocon, Inc. (including its
successor pursuant to the merger transaction referred to at page 33 of the
Private Placement Memorandum) are not Affiliates of Apollo hereunder;
"AGGREGATE ROYALTIES" means, at any time, the aggregate dollar amounts paid
by Apollo to the Fund pursuant to item (i) and (ii) of the Purchased
Rights;
"AGREEMENT" means this agreement, the recitals, all attached schedules and
any agreement, exhibit or schedule supplementing or amending this
agreement. All uses of the words "hereto", "herein," "hereof," "hereby"
and "hereunder" and similar expressions refer to this Agreement and not to
any particular section or portion of it. References to an Article,
Section, Subsection, Exhibit or Schedule refer to the applicable article,
section, subsection, exhibit or schedule of this Agreement;
"APOLLO COMMON SHARES" means the shares of common stock, $.02 par value per
share, of Apollo as such shares are constituted on the date hereof, as the
same may be reorganized, reclassified or changed pursuant to a capital
reorganization or otherwise;
"APOLLO" means Apollo Genetics, Inc., its existing and future Affiliates,
and any successors of Apollo Genetics Inc. or such Affiliates (including
any successor by reason of amalgamation, merger or statutory arrangement of
Apollo Genetics Inc. and/or such Affiliates);
"APPLICABLE LAW" means, in respect of any Person, property, transaction or
event, any statute, law, ordinance, rule, regulation, regulatory policy,
by-law, order, judgment, decree or restriction of any kind whatever
applicable to that Person, property, transaction or event;
"ATHENA AGREEMENT" means the Licence and Collaboration Agreement dated
April 16, 1996 between Apollo and Athena Neurosciences, Inc.;
"BOARD" means the board of directors of Apollo;
<PAGE>
3
"BUSINESS DAY" means any day of the week other than a Saturday, Sunday or
statutory or civic holiday observed in Toronto, Ontario or Cambridge,
Massachusetts;
"BUSINESS" means the business of Apollo relating to the Technology as has
been carried on by it prior to the date hereof and as may be carried on by
it hereafter;
"CHRONIC NEURODEGENERATIVE DISEASE" means any chronic neurodegenerative
disease or condition in which the anticipated treatment regimen is at least
six months; e.g., Alzheimer's disease;
"CLAIMS" has the meaning assigned thereto in Article 7;
"CLOSING DOCUMENT" means any document, instrument, undertaking or agreement
made pursuant to or in connection with this Agreement;
"CONFIDENTIAL INFORMATION" means any information that is so designated by
the Parties, or deemed to be such under this Agreement and any information
that is disclosed by or on behalf of Apollo on the one hand or by or on
behalf of the Fund on the other hand (the "disclosing party") to,
respectively, the Fund or Apollo (the "receiving party") including all
Know-How, except information which, as established by reasonable proof by
the receiving party:
(i) is already known to the receiving party;
(ii) is or becomes part of the public domain by publication or
otherwise without any breach of this Agreement;
(iii) has been published or is otherwise in the public knowledge
or is generally known to the public at the time of its
disclosure to the receiving party or that is thereafter
obtained from another source acting in good faith without
any breach of this Agreement; or
(iv) was not obtained from another source and can be demonstrated by
the receiving party to have been known or available to or
independently developed by the receiving party before disclosure
to the receiving party;
"CONTROL" (including, with correlative meanings, the terms "CONTROLLED BY"
and "UNDER COMMON CONTROL WITH") when used to indicate a relationship with
any Person means the possession of the power, in
<PAGE>
4
law or in fact, to direct or cause the direction of the management and
policies of a Person, whether through legal and beneficial ownership of a
majority of voting securities or other equity interests, by agreement or
otherwise;
"CONVERSION RIGHT" means the right of the Fund to convert all or part of
the Royalties into Apollo Common Shares as set out in Article 5 and
Schedule D hereof;
"DIRECT SALES REVENUE" means the gross amount actually received by Apollo
during the Term, determined in accordance with GAAP, from or in respect of
the sale by Apollo of Products before any expenses or costs less Sales
Taxes and normal returns and allowances for damaged and outdated product
but excluding all Fees and Income;
"DISTRIBUTION" means the development, marketing, sale, distribution,
licensing, sub-licensing or other method of exploiting the Technology
including the provision of services in relation thereto and "DISTRIBUTING"
and "DISTRIBUTE" shall have corresponding meanings;
"ENCUMBRANCE" means any encumbrance of any kind whatsoever, actual or
contingent, fixed or floating, including any security interest, mortgage,
lien, hypothec, pledge, hypothecation, assignment, charge, trust or deemed
trust (whether contractual, statutory or otherwise arising) or any other
right or claim of others of any kind whatsoever;
"ENDOCON AGREEMENT" means the Research and Collaboration Agreement between
Apollo and Endocon, Inc. made as of the 1st day of June, 1994, as amended
by a letter agreements dated February 1, 1996 and December 16, 1996;
"EVENT OF DEFAULT" has the meaning assigned thereto in Article 6;
"FEES AND INCOME" means the gross amount received by Apollo during the
Term, determined in accordance with GAAP, derived from or in respect of the
Technology other than Direct Sales Revenue including: [*]
* Confidential treatment has been requested for marked portion.
<PAGE>
5
[*]
"FINANCIAL STATEMENTS" means the audited financial statements of Apollo
dated December 31, 1995 and the unaudited financial statements for the 9
month period ending September 30, 1996, all as attached hereto as Schedule
G;
"FINANCING" means the raising of funds by Apollo by issuance of additional
Apollo Common Shares or securities convertible into or exchangeable for
Apollo Common Shares;
"FUND" means Neuroscience Partners Limited Partnership, its existing and
future Affiliates, and any successors of Neuroscience Partners Limited
Partnership or such Affiliates (including any successors by reason of
amalgamation, merger or statutory arrangement of Neuroscience Partners
Limited Partnership and/or such Affiliates);
"GAAP" means generally accepted accounting principles from time to time
approved by the American Institute of Public Chartered Accountants, or any
successor institute, applicable as at the date on which any calculation or
determination is required to be made in accordance with generally accepted
accounting principles, and where the American Institute of Public Chartered
Accountants includes a recommendation in its Handbook concerning the
treatment of any accounting matter, such recommendation shall be regarded
as the only generally accepted accounting principle applicable to the
circumstances that it covers;
"GOVERNMENTAL AGENCY" means any domestic or foreign government whether
federal, provincial or municipal and any governmental agency, governmental
authority, governmental tribunal or governmental commission of any kind
whatever;
"INCLUDING", when used herein or in any Closing Document, means "including
without limitation" and shall not be construed to limit any general
statement which it follows to the specific or similar items or matters
immediately following it;
"INDEMNIFIED PARTY" has the meaning assigned thereto in Article 6;
* Confidential treatment has been requested for marked portion.
<PAGE>
6
"INDEMNIFYING PARTY" has the meaning assigned thereto in Article 6;
"INDEMNITY NOTICE" has the meaning assigned thereto in Article 6;
"INITIAL PUBLIC OFFERING" shall mean the initial public offering of Apollo,
a reverse take-over or any other event pursuant to which securities of
Apollo become listed and posted for trading on any stock exchange or
qualified for unlisted trading privileges on any trade reporting and
quotation system for over-the-counter trading;
"KNOW-HOW" means all technical, scientific, medical or other information,
trade secrets, know-how, pre-clinical, clinical, pharmacological,
Distribution, manufacturing or other data, concepts, ideas, experimental,
medical or manufacturing methods and procedures, testing results, assays,
formulations, depictions, descriptions, business or scientific plans,
marketing studies and plans, customer lists and any other written, printed
or electronically stored materials, pharmaceutical compounds and any other
natural or man-made pharmaceutical materials and any other intellectual
property including the Patent Rights invented, developed, controlled or
acquired prior to or during the Term by or on behalf of Apollo related to
the Technology;
"NOTICE" has the meaning assigned thereto in Section 9.13;
"PARTIES" means Apollo and the Fund, collectively, and "PARTY" means any
one of them;
"PATENT RIGHTS" means all patents and patent applications set forth in
Schedule B and all other patents and patent applications applied for, filed
by or issued, licensed or assigned to or under the control of, Apollo in
which an estrogen issued for the treatment of Chronic Neurodegenerative
Diseases and all improvements thereto made by Apollo during the Term or in
respect of which Apollo, during the Term, has any right, licence, title or
interest including all divisions, continuations, partial continuations,
extensions, substitutions, confirmations, registrations, revalidations,
additions or reissues of or to any of such patents or patent applications;
"PERSON" includes an individual, body corporate, partnership, joint
venture, cooperative, trust or unincorporated organization, the Crown or
any agency or instrumentality thereof, or any other entity recognized by
law;
<PAGE>
7
"PRIME RATE" for any day means the rate of interest expressed as a rate per
annum that Royal Bank of Canada establishes at its head office in Toronto,
Ontario as a reference rate of interest that it will charge on that day for
Canadian Dollar demand loans to its corporate customers in Canada and which
it at present refers to as its prime rate;
"PRIVATE PLACEMENT MEMORANDUM" means the confidential Private Placement
Memorandum of Apollo dated June 19, 1996;
"PRODUCT RIGHTS" means the Know-How, Patent Rights and Trade Marks;
"PRODUCTS" means all forms and dosages of any product, system or service
and any enhancements, substitutions or improvements thereof derived from or
relating to the Technology and Distributed during the Term and "PRODUCT"
means any one of them;
"PURCHASED RIGHTS" means:
(i) the right to receive [*]% of all Direct Sales Revenue;
(ii) the right to receive [*]% of all Fees and Income;
(iii) the granting and issuance to the Fund of the $.70 Warrants and
the $.875 Warrants;
(iv) the Conversion Right; and
(v) the registration rights to be granted to the Fund by Apollo pursuant
to the Registration Rights Agreement to be entered into pursuant to
Section 9.1(e).
"PURCHASE PRICE" has the meaning set forth in Section 2.1;
"REGISTRATION" with respect to any Product means the obtaining of all
approvals and authorizations under Applicable Law to legally manufacture,
package, and Distribute the relevant Product to end users for therapeutic
purposes and "REGISTERED" shall have a corresponding meaning;
"ROYALTIES" means the dollar amounts payable by Apollo to the Fund pursuant
to item (i) and (ii) of the Purchased Rights;
* Confidential treatment has been requested for marked portion.
<PAGE>
8
"SALES TAXES" means all goods and services taxes, sales taxes, excise and
value added taxes assessed on sales of the Products under Applicable Law;
"TAX RETURNS" means all reports, returns and other documents filed or
required to be filed by Apollo in respect of Taxes or in respect of or
pursuant to any Applicable Law;
"TAXES" means all federal, provincial, state, municipal, foreign,
withholding or other taxes, imposts, levies, assessments and government
fees, charges or dues, lawfully levied, assessed or imposed under
Applicable Law;
"TECHNOLOGY" means Patent Rights and Know-How related to the use of
estrogen in the treatment and cure of Chronic Neurodegenerative Diseases,
including the Patent Rights and Know-How related to the Neurestrol,
Neuromidol and estrogen Novel Neurosteroids programs described in the
Private Placement Memorandum under the heading, "Research and Development
Programs";
"TERM" in respect of each Product and each country in the world, means the
period commencing on the date hereof and ending on the day that is the
later of: (i) ten (10) years after the day of first commercial sale of the
last form/dosage combination of the relevant Product to be Registered in
the relevant country by Apollo or by one of its licensees to a Third Party
customer in a bona fide arm's length transaction in the country; and (ii)
the expiry date of the last relevant Patent Right to expire in the relevant
country;
"THIRD PARTY" means any Person other than Apollo or the Fund;
"TRADE MARKS" means any and all trade marks, service marks or symbols,
trade devices, certification marks, trade or business names and
applications therefor in respect of or relating to the any Products, the
Product Rights or the Technology filed by or issued, licensed or assigned
to or under the control of, Apollo including Neurestrol and Neuromidol; and
"TRANSMISSION" means any electronic means of sending messages, including
facsimile transmission, which produces a paper record.
<PAGE>
9
1.2 SCHEDULES
The following Schedules form part of this Agreement:
SCHEDULE DESCRIPTION OF SCHEDULE
A Form of Warrants
B Patent Rights
C Agreements
D Terms and Conditions Governing Conversion Right
E Form of Subscription Agreement
F Form of Registration Rights Agreement
G Financial Statements
H Grants and Options
ARTICLE 2
PURCHASED RIGHTS
2.1 SALE OF PURCHASED RIGHTS TO THE FUND
In consideration of the payment of five hundred thousand United States Dollars
by the Fund to Apollo (the "PURCHASE PRICE"), payable without increase or
deduction for or on account of any Taxes on execution of this Agreement, Apollo
hereby sells, assigns, issues, grants and transfers free and clear of all
Encumbrances throughout the Term, the Purchased Rights and agrees to pay to the
Fund the Royalties free and clear of all Encumbrances throughout the Term.
2.2 PAYMENT OF ROYALTIES
Apollo shall pay the Royalties to the Fund without increase or deduction for or
on account of any Taxes thirty (30) days after each March 31, June 30, September
30 and December 31 during the Term based on the Direct Sales Revenue, and Fees
and Income in respect of each such immediately preceding quarterly period.
2.3 MAXIMUM ROYALTIES
Apollo's obligation to pay Royalties shall terminate effective on the 1st day of
the then following calendar year in the event that Aggregate Royalties in
respect of the period ending on the last day of any of the calendar years set
out below are equal to or greater than the respective amounts set out below.
With respect to the years ending after December 31, 2007, the Parties agree to
<PAGE>
10
negotiate in good faith appropriate Aggregate Royalties, consistent with this
Agreement, which shall set the maximum Royalties due. Notwithstanding any
automatic termination pursuant to this Section 2.3, Royalties shall accrue as
contemplated hereby until the date that Royalties up to and including the
last day of the relevant calendar year have been paid and become Aggregate
Royalties. Upon receipt of such Royalties, the obligation of Apollo to pay
Royalties shall terminate effective as of the 1st day of the relevant
calendar year.
[*]
2.4 CASH PAYMENT BUYOUT
Subject to Section 5.4, Apollo may terminate its obligation to pay Royalties by
notifying the Fund in writing on the first Business Day on or before November 30
in any of the calendar years set out in Section 2.3 above of its intention to do
so and paying, on the first date for payment of Royalties in the following
calendar year, by cash, certified cheque or bank draft payable to the Fund an
amount equal to the difference between the amount set out in Section 2.3 for the
relevant calendar year or agreed to for years subsequent to 2007 and the
Aggregate Royalties in respect of the period ending on the last day of the
relevant calendar year. Notwithstanding any notice of intention to terminate
the obligation to pay Royalties pursuant to this Section, Royalties shall accrue
as contemplated hereby until the date that the buyout cash payment is made to
the Fund in accordance herewith. Upon receipt of such payment, the obligation
of Apollo to pay Royalties shall terminate effective as of the 1st day of the
relevant calendar year.
* Confidential treatment has been requested for marked portion.
<PAGE>
11
2.5 LIABILITIES NOT ASSUMED
By entering into this Agreement or any Closing Document, the Fund is not
assuming and shall not be responsible for any of the liabilities, debts or
obligations of Apollo whatsoever, whether present, future, contingent or
absolute and whether or not relating to the Technology, the Product Rights, the
Products or the Purchased Rights or to any other thing, including any and all
product liability and patent infringement claims relating to the Products or
Product Rights.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF APOLLO
Apollo represents and warrants to the Fund as follows and acknowledges that the
Fund is relying on such representations and warranties in entering into this
Agreement:
3.1.1 CORPORATE MATTERS
(a) Apollo is a corporation duly incorporated, organized and validly
existing under the laws of its jurisdiction of incorporation. No
proceedings have been taken or authorized by Apollo or, to the best of
Apollo's knowledge, by any other Person, with respect to the
bankruptcy, insolvency, liquidation, dissolution or winding up of
Apollo.
(b) Apollo has all necessary power and capacity to execute and deliver,
and to observe and perform its covenants and obligations under, this
Agreement and the Closing Documents to which it is a party. Apollo
has taken all corporate action necessary to authorize the execution
and delivery of, and the observance and performance of its covenants
and obligations under, this Agreement and the Closing Documents to
which it is a party.
(c) This Agreement and each Closing Document to which Apollo is a party
has been duly executed and delivered by Apollo, and this Agreement and
each Closing Document to which Apollo is a party, constitutes a valid
and binding obligation of Apollo enforceable against it in accordance
with its terms, provided that enforcement may be limited by
bankruptcy, insolvency, liquidation, reorganization, reconstruction
and other similar
<PAGE>
12
laws generally affecting enforceability of
creditors' rights and that equitable remedies such as specific
performance and injunction are in the discretion of the court from
which they are sought.
3.1.2 THE FINANCIAL STATEMENTS
The Financial Statements:
(a) have been prepared in accordance with GAAP, applied on a basis
consistent with that of the preceding periods, except that, in the
case of unaudited financial statements, they may not contain all of
the footnotes required by GAAP;
(b) are complete and accurate in all material respects;
(c) accurately disclose the assets, liabilities and financial position of
Apollo and the results of the operations of Apollo as at the dates
thereof and for the periods covered thereby; and
(d) contain or reflect adequate reserves for all liabilities and
obligations of Apollo, as at the date thereof.
No information has become available to Apollo that would render the Financial
Statements incomplete or inaccurate.
3.1.3 UNDISCLOSED LIABILITIES
Apollo has no liabilities of any kind except:
(a) liabilities disclosed or provided for in the Financial Statements or
the Private Placement Memorandum; and
(b) liabilities incurred in the ordinary course of business since
September 30, 1996 which are consistent with past practice and are
not, in the aggregate, material and adverse to the financial condition
or results of operations of Apollo.
3.1.4 ABSENCE OF CHANGES
Since September 30, 1996:
(a) Apollo has conducted its business in the ordinary course and has not
incurred any debt, obligation or liability out of the ordinary course
of business;
<PAGE>
13
(b) there has not been any change in the financial condition or results of
operations of Apollo, other than changes in the ordinary course of
business, and such changes: (i) have not, either individually or in
the aggregate, been materially adverse; and (ii) have not had or are
not reasonably expected to have, either before or after the date
hereof, a material adverse effect on the financial condition of Apollo
or its future prospects; and
(c) there has not been any change in, creation of, termination, amendment
or revocation of any contract, lease, licence, patent or other
agreement or any damage, destruction, loss, labour dispute or other
event, development or condition of any character (whether or not
covered by insurance) which has had, or could have, a material adverse
affect on Apollo or its future prospects.
3.1.5 MATERIAL CONTRACTS
(a) Except for the patents and patent applications disclosed in
Schedule B and the instruments, contracts, leases, licences,
rights and other agreements disclosed in Schedule C, Apollo is
not a party to or bound by any instrument, contract, lease,
licence, right, patent or other agreement whatsoever, whether
oral or written, which relates to the Technology, the Product
Rights, the Products or the Purchased Rights. True, correct
and complete copies of all such instruments, contracts, leases,
licences, rights patents and other agreements have been
delivered to the Fund or its solicitors prior to the date hereof.
(b) The instruments, contracts, leases, licenses, rights and other
agreements disclosed in Schedule C are all in good standing
and in full force and effect with no amendments except as
disclosed in Schedule C and are valid and binding obligations
of the parties thereto enforceable in accordance with their
respective terms provided
that enforcement may be limited by bankruptcy, insolvency,
liquidation, reorganization, restructuring and other similar laws
affecting enforceability of creditors' rights and that equitable
remedies such as specific performance and injunction are in the
discretion of the court from which they are sought. Each of the
parties thereto has complied with all material terms thereof,
has paid all amounts due thereunder, has not waived any rights
or defaults thereunder and no default or breach exists in respect
thereof on the part of any of the parties thereto and no event has
occurred which, after the giving of notice or the lapse of time or
both, would constitute such a default or breach.
<PAGE>
14
3.1.6 ABSENCE OF CONFLICTING AGREEMENTS
None of the execution and delivery of, or the observance and performance by
Apollo of, any covenant or obligation under this Agreement or any Closing
Document to which it is a party, or the consummation of any of the transactions
contemplated hereby or thereby:
(a) contravenes or results in, or will contravene or result in, a
violation of or a default under (with or without the giving of notice
or lapse of time, or both) or in the acceleration of any obligation
under:
(i) any Applicable Law;
(ii) the certificate of incorporation, memorandum of association,
articles of association, by-laws, directors' or shareholders'
resolutions of Apollo; or
(iii) any instrument, contract, lease, license, right or other
agreement to which Apollo is a party, or by which it is bound or
affected; or
(b) result in the creation or imposition of any Encumbrance on Apollo or
on the Purchased Rights.
3.1.7 CONSENTS, APPROVALS, ETC.
No consent, approval, licence, order or authorization, registration,
declaration or filing with or of any Governmental Agency or other Person is
required by Apollo, in connection with:
(a) the execution and delivery by Apollo of this Agreement and the Closing
Documents to which it is a party;
(b) the observance and performance by it of its obligations under this
Agreement and the Closing Documents to which it is a party; or
(c) the consummation of any of the transactions contemplated hereby or
thereby.
<PAGE>
15
3.1.8 COMPLIANCE WITH APPLICABLE LAW
Apollo has conducted and is conducting Business in compliance with all
Applicable Law in all material respects, and not in breach of any Applicable
Law, except for breaches which in the aggregate are not material.
3.1.9 LITIGATION
There is no claim, demand, suit, action, cause of action, dispute,
proceeding, litigation, investigation, grievance, arbitration, governmental
proceeding or other proceeding including appeals and applications for review,
in progress against, by or relating to Apollo, nor, to the best of Apollo's
knowledge, are any of the same pending or threatened. There is not presently
outstanding against Apollo any judgment, decree, injunction, rule, order or
award of any court, Governmental Agency or arbitrator that may adversely
affect the Technology, the Product Rights, the Products, the Purchased Rights
or Apollo in any way.
3.1.10 PURCHASED RIGHTS
Apollo is entitled to sell, assign, issue, grant and transfer the Purchased
Rights and pay the Royalties to the Fund as herein contemplated. Except as
contemplated by this Agreement or as disclosed in Schedule H, there has been
no sale, conveyance, assignment or granting of any licences, royalties,
options or similar rights to or the creation of any Encumbrance on or in
respect of any of the Purchased Rights in favour of any other Person.
3.1.11 NO OPTIONS
No Person other than the Fund has any agreement, option, warrant or right, or
any right capable of becoming any of the foregoing, for the purchase of all
or any of Apollo's right, title or interest in the Technology, the Product
Rights, any of the Products or any of the Purchased Rights, except as
disclosed in Schedule H.
3.1.12 PRODUCT RIGHTS
(a) Schedule B sets forth a true and complete list of all Patent
Rights indicating which are owned by, are licensed to or under the
control of Apollo. The Product Rights are sufficient to
conduct the Business as it is being conducted. To the best of
Apollo's knowledge, the conduct of the Business does not
infringe upon or otherwise interfere with any patent, trade
mark, trade name, industrial design or copyright of any other
Person. Apollo is not aware of any infringement of, passing-off
related to, or other
<PAGE>
16
interference with the Product Rights by any Person or any claim
by any Person that any of the Trade Marks are, or may be, invalid
or unenforceable or non-distinctive of Apollo.
(b) To the best of Apollo's knowledge:
(i) all patent applications of Apollo included as part of the Patent
Rights are currently pending before the applicable administrative
agencies and are being prosecuted by Apollo with reasonable
diligence;
(ii) each of the issued patents included as part of the Patent Rights
and each claim therein is valid and enforceable according to its
terms;
(iii) the Patent Rights are the only patents issued or pending in
any country in respect of the subject matter claimed in the
Patent Rights;
(iv) there have been no claims by any Third Party of infringing any
patent or other right of any kind;
(v) the inventions claimed in the Patent Rights are new, useful and
not obvious;
(vi) there has been no inequitable conduct or abuse of the Patent
Rights by or on behalf of Apollo or its predecessors in title, if
any, in respect of the Patent Rights;
(vii) neither Apollo nor any Third Party has filed any disclaimer
or made or permitted any other voluntary reduction in the scope
of the Patent Rights;
(viii) the inventions claimed in the Patent Rights may be practised
without infringing any patent or other right of any kind of any
Third Party; and
(ix) the Patent Rights and the inventions claimed in them have not
been dedicated to the public
<PAGE>
17
3.1.13 NON-ARM'S LENGTH TRANSACTIONS
With respect to the Business:
(a) Apollo has not acquired or had the use of any property from any
employee, officer, director or shareholder of Apollo or any of their
respective associates (each, an "Insider"); and
(b) Apollo has not disposed of any such property to any Insider for
proceeds less than the fair market value.
3.1.14 TAX RETURNS
(a) Apollo has filed all Tax Returns on time and with the appropriate
Governmental Agencies for all fiscal periods ending prior to the date
hereof. Each such Tax Return was materially correct and complete.
(b) Apollo has paid all Taxes due and payable as reflected on its Tax
Returns and has paid all assessments and reassessments it has received
in respect of Taxes. The provisions for Taxes reflected in the
Financial Statements are sufficient to cover all liabilities for Taxes
that have been assessed against Apollo, whether or not disputed, or
are accruing and due in respect of the Business, its operations or
property during the periods covered by the Financial Statements and
all prior periods. Except to the extent provided for in the financial
statements, Apollo is not liable for any Taxes at the date hereof or
for the payment of any instalment in respect of Taxes due in respect
of its current taxation year.
(c) No reassessments of Taxes have been issued and are outstanding.
To the best of Apollo's knowledge, no Governmental Agency has
challenged, disputed or questioned Apollo in respect of Taxes
or of any Tax Returns. Apollo is not negotiating any draft
assessment or reassessment with any Governmental Agency.
3.1.15 AUTHORIZED AND ISSUED SHARE CAPITAL
(a) The authorized capital of Apollo consists of 20,000,000 shares
shares of common stock, $.02 par value per share (the "Common
Shares") and 4,000,000 shares of preferred stock, $.01 par value
per share (the "Preferred Shares") of which 13,267,843 Common
Shares (not including the Common Shares to be issued to the
<PAGE>
18
Fund pursuant hereto) and no Preferred Shares have been validly
issued and are outstanding.
(b) Apollo has allotted and reserved, and there shall remain
unissued, out of its authorized capital a sufficient number of
common shares to satisfy the rights of purchase and issue granted
pursuant to the $.70 Warrants, the $.875 Warrants and the
Conversion Right.
(c) Upon due exercise of the $.70 Warrants, the $.875 Warrants and
upon receipt by Apollo of payment in respect of the exercise
thereof as provided for therein, and upon due exercise of the
Conversion Right, the Apollo Common Shares issued in respect
thereof will be duly and validly issued as fully paid and
non-assessable shares and will be issued in compliance with all
Applicable Laws including any securities law, rule, regulation
or regulatory policy applicable thereto.
3.1.16 DISCLOSURE
Except as otherwise disclosed herein and that Apollo has been advised that
the Endocon, Inc. transaction described at Page 33 of the Private Placement
Memorandum will not be completed, no representation or warranty made by
Apollo in this Agreement or in any Closing Document and no statement in the
Private Placement Memorandum contains any untrue statement of a material fact
or omits to state any material fact necessary to make any such
representation, warranty or statement not misleading, in light of the
circumstances under which it was made. Without limiting the scope of the
foregoing, Apollo is not aware of any change, event or occurrence that has
taken place or is pending that has, or in the future could have, a material
adverse effect on the value or ownership of the Purchased Rights or the
Business, including any pending or present change in any Applicable Law or
other requirement, including the obtaining or maintenance of permits,
licences or approvals, which has not been disclosed in this Agreement or the
Private Placement Memorandum.
3.2 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to Apollo as follows and acknowledges that
Apollo is relying on such representations and warranties in entering into
this Agreement:
<PAGE>
19
3.2.1 CORPORATE MATTERS
(a) The Fund is a limited partnership duly formed under the laws of
the Province of Ontario. No proceedings have been taken or
authorized by the Fund or, to the best of the Fund's knowledge,
by any other Person, with respect to the bankruptcy, insolvency,
liquidation, dissolution or winding up of the Fund.
(b) The Fund has all necessary power and capacity to execute and
deliver, and to observe and perform its covenants and obligations
under, this Agreement and the Closing Documents to which it is a
party. The Fund has taken all action necessary to authorize the
execution and delivery of, and the observance and performance of
its covenants and obligations under, this Agreement and the
Closing Documents to which it is a party.
(c) This Agreement and each Closing Document to which the Fund is a
party has been duly executed and delivered by the Fund, and this
Agreement and each Closing Document to which the Fund is a party
constitutes, a valid and binding obligation enforceable against
it, in accordance with its terms; provided that enforcement may
be limited by bankruptcy, insolvency, liquidation,
reorganization, reconstruction and other similar laws generally
affecting enforceability of creditors' rights and that equitable
remedies such as specific performance and injunction are in the
discretion of the Court from which they are sought.
3.2.2 ABSENCE OF CONFLICTING AGREEMENTS
None of the execution and delivery of, or the observance and performance by
the Fund of, any covenant or obligation under this Agreement or any Closing
Document to which the Fund is a party, or the consummation of the
transactions contemplated thereby, contravenes or results in, or will
contravene or result in, a violation of or a default under (with or without
the giving of notice or lapse of time, or both) or in the acceleration of any
obligation under:
(a) any Applicable Law;
(b) the limited partnership agreement of the Fund; or
(c) any instrument, contract, lease, license, right, patent or other
agreement to which the Fund is a party, or by which it is bound or
affected.
<PAGE>
20
3.2.3 CONSENTS, APPROVALS, ETC.
No consent, approval, licence, order or authorization, registration, declaration
or filing with or of any Governmental Agency or other Person is required by the
Fund, in connection with:
(a) the execution and delivery by the Fund of this Agreement and the
Closing Documents to which it is a party;
(b) the observance and performance by the Fund of its obligations
under this Agreement and the Closing Documents to which it is
a party; or
(c) the consummation of any of the transactions contemplated thereby.
3.2.4 INVESTMENT
The Fund is acquiring the $0.70 Warrants, the $.875 Warrants and the Apollo
Common Shares to be issued to the Fund upon exercise of the $.70 Warrants, the
$.875 Warrants and/or exercise of the Conversion Right (collectively, the
"Securities") for investment for the Fund's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and the Fund has no present intention of selling, granting any participation in,
or otherwise distributing the same.
3.2.5 AGREEMENT FOR SALE
The Fund does not have any contract, undertaking, agreement or arrangement with
any Person to sell, transfer or grant a participation to such Person or to any
other Person, with respect to any of the Securities.
3.2.6 INVESTMENT EXPERIENCE
The Fund acknowledges that it can bear the economic risk of its investment in
Apollo and has such knowledge and experience in financial or business matters
that it is capable of evaluating the merits and risks of the investment in the
Securities.
3.2.7 RESTRICTED SECURITIES
The Fund understands that the Securities it is purchasing are characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from Apollo in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be
<PAGE>
21
resold without registration under the SECURITIES ACT of 1933, as amended (the
"Act"), only in certain limited circumstances. In this connection, the Fund
represents that it is familiar with Rule 144, as presently in effect
thereunder, and understands the resale limitations imposed thereby and by the
Act.
3.2.8 FURTHER LIMITATIONS ON DISPOSITION
The Fund further agrees not to make any disposition of all or any portion of the
Securities unless:
(a) there is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) the Fund shall have notified Apollo of the proposed disposition and,
if reasonably requested by Apollo within 2 Business Days of delivery
of such notice, the Fund shall have furnished Apollo with an opinion
of counsel that such disposition will not require registration of such
shares under the Act. It is agreed that Apollo will not require
opinions of counsel for transactions made pursuant to Rule 144 or Rule
144A, except in unusual circumstances.
3.2.9 LEGENDS
It is understood that the certificates evidencing the Apollo Common Shares to be
issued to the Fund may bear one or all of the following legends:
(a) "The shares represented by this certificate have not been registered
under the Act, or any state securities law and may not be transferred
except (i) pursuant to an effective registration statement under the
Act or (ii) upon first furnishing to the Company an opinion of counsel
that such transfer is not in violation of the registration
requirements of the Act or any state securities law."
(b) Any legend required by the securities laws of the Commonwealth of
Massachusetts or by any other securities laws of other states with
which the Company and the Fund must comply in order to distribute the
Apollo Common Shares pursuant to this Agreement.
<PAGE>
22
3.2.10 LAWS OF FUNDS JURISDICTION
The Fund has satisfied itself as to the full observance of the laws of such
its jurisdiction in connection with any invitation to subscribe for the
Securities or any use of this Agreement, including: (i) the legal
requirements of such jurisdiction for the purchase of the Securities; (ii)
any foreign exchange restrictions applicable to such purchase; (iii) any
governmental or other consents that may need to be obtained; and (iv) the
income tax and other tax consequences, if any, which may be relevant to the
purchase, holding, redemption, sale, or transfer of the Securities.
3.3 COMMISSION
Each Party represents and warrants to the other that the other Party will not
be liable for any brokerage commission, finder's fee or other like payment in
connection with the transactions contemplated hereby because of any action
taken by, or agreement or understanding reached by, that Party.
3.4 NON-WAIVER
No investigations made by or on behalf of the Fund at any time shall waive,
diminish the scope of or otherwise affect any representation or warranty made by
Apollo herein or pursuant hereto.
3.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties made in Sections 3.1.1 to 3.1.9, inclusive,
Sections 3.1.13 to 3.1.16, inclusive and Sections 3.2.1 to 3.2.3, inclusive of
this Agreement or in any Closing Document shall survive for three years after
the date of execution of this Agreement. The representations and warranties
made by Apollo in Sections 3.1.10 to 3.1.12, inclusive, shall survive until one
year after the expiration of the Term. After such period, neither Party shall
have any further liability hereunder with respect to such representations and
warranties except with respect to claims properly made within such period.
ARTICLE 4
COVENANTS
4.1 COVENANTS
During the Term, Apollo shall, at its own expense, act as follows:
(a) NON-ARM'S LENGTH TRANSACTIONS - In the event that any Affiliate
becomes entitled to receive any revenue or payments of
<PAGE>
23
the type defined by Direct Sales Revenue or Fees and Income (as
such definitions are modified to be applicable to such
Affiliate), then Apollo shall cause such Affiliate to execute an
agreement in form and substance reasonably satisfactory to the
Fund obligating such Affiliate to be bound by all obligations of
this Agreement and, without any payment by the Fund to Apollo or
the Affiliate, Apollo shall cause such Affiliate to perform such
obligations and Apollo shall indemnify the Fund in respect
thereof (including the obligation to pay the Fund the Royalties)
whether or not any such agreement is entered into;
(b) REPORTING - Apollo shall:
(i) provide the Fund, concurrent with the delivery of each quarterly
payment of Royalties referred to in Section 2.2, with a report
detailing: (1) the Direct Sales Revenue and Fees and Income for
the relevant quarterly period; and (2) each agreement and licence
relating to the Technology, the Product Rights or the Products
entered into, amended, modified or terminated in such quarterly
period by Apollo, with the names of the parties thereto and a
summary of the financial terms thereof together with a
certificate of a senior officer of Apollo certifying the accuracy
of such information. The Fund agrees to enter into any
non-disclosure agreements that Apollo may reasonably request
to carry out its obligations under this clause 4.1(b)(i)(2);
(ii) provide the Fund with (1) quarterly unaudited financial
statements no later than forty-five (45) days after the end
of each fiscal quarter; and (2) the annual audited
financial statements and such other financial information
and management reports, including budgets, business
development, marketing and strategic plans relating to
the Technology, the Products or the Product Rights as are
provided to the Board, at the same time that such
information is provided to the Board. It is agreed by the
Parties that Apollo's obligations under this Section
4.1(b)(ii) following the Initial Public Offering shall be
fulfilled by the delivery to the Fund of all documents
required by Applicable Law to be sent to shareholders at
the same time that those documents are sent to shareholders;
and
<PAGE>
24
(iii) prepare all such financial statements in accordance with
GAAP.
The information contained in the above reports shall be deemed to
be Confidential Information hereunder.
(c) MANAGEMENT MEETINGS - If so requested by the Fund and
provided that no nominee of the Fund is a member of the Board,
senior officers of Apollo shall, up to four times annually, meet
with representatives of the Fund at a mutually convenient time
and place to discuss the clinical development plans, business
plans, budgets, expansion activities, financial results and
projections, sales and marketing results, projections, activities
and prospects in an open and frank manner as they relate to the
Technology, the Product Rights and the Products and shall, at
such meetings, provide the Fund with the information conveyed by
any licensees of Apollo as part of their reporting obligations to
Apollo, provided disclosure of such information is not precluded
by confidentiality obligations contained in the Agreements with
such other licensees. Information disclosed pursuant to this
Subsection shall be deemed to be Confidential Information
hereunder.
(d) NO SALE - Apollo shall not sell, assign, transfer or
otherwise dispose of or create any Encumbrance on any of its
right, title or interest in any of the Technology, the Product
Rights or the Products or amend any existing instrument,
contract, lease, licence, sub-licence, right or other agreement
pertaining thereto without: (i) giving the Fund at least 2
Business Days written notice of the commencement of serious
discussions setting forth the proposed terms and proposed
purchaser; (ii) giving the Fund at least 10 Business Days
detailed written notice of the proposed terms and proposed
purchaser; and (iii) obtaining the Fund's prior written consent
which will not be unreasonably withheld or delayed, provided the
Fund is satisfied with the credit worthiness of the purchaser,
the consideration is payable in cash only prior to the end of the
Term, it being acknowledged and agreed that the Fund has
consented to the Athena Agreement and the Endocon Agreement.
(e) TRANSACTIONS WITH AFFILIATES - In the event that any Affiliate
of Apollo becomes entitled to Distribute the Product Rights or
Products, then Apollo shall cause such Affiliate to execute and
deliver an agreement in form and substance satisfactory to the
Fund obligating such Affiliate to be bound by all of the
<PAGE>
25
obligations of Apollo pursuant to this Agreement, with respect
to the relevant Product Right or Product. Apollo unconditionally
guarantees to the Fund the due and timely payment and performance
of all such obligations, including the obligation to pay the Fund
the Royalties, whether or not any such agreement is entered into.
(f) INSURANCE - During the term of this Agreement and for thirty (36)
months thereafter, Apollo shall:
(i) maintain at its expense all insurance types that are
common and applicable to its business, including but not
limited to general liability, workers compensation and
Directors and Officers insurance as well as keyman life
insurance for its chief executive officer. In addition,
Apollo shall use its best efforts to purchase product
liability insurance during the period covering any
clinical trials on reasonably commercial terms and shall
purchase or obtain product liability insurance coverage
during the period covering any Distribution of Products or
Product Rights and any manufacture by Apollo of Products
directly or through contractors or subcontractors. Apollo
shall cause the Fund to be named as an additional insured
on all such product liability insurance and shall supply to
the Fund all documents related to insurance reasonably
requested from time to time by the Fund, including evidence
of Apollo's compliance with the foregoing, copies of
policies, suitable certificates from Apollo's insurers to
the effect that such insurance coverage designates the Fund
as an additional insured and proof of premium payments.
Furthermore, Apollo shall, on a periodic basis update the
Fund as to the status of all insurance as described above;
(ii) obtain an undertaking from its product liability insurers to
the effect that all insurance coverage herein above
described shall not be permitted to lapse by default to pay
premiums without having first given a minimum of sixty (60)
days written notice to the Fund of such default. The Fund
reserves the right to pay
such premiums to keep such insurance coverage in full force and
effect and, in the event of so doing, Apollo shall reimburse the
Fund for all such premium payments and interest thereon at the
Prime Rate plus one percent (1%) annually, payable monthly and
calculated from (and including) the date
<PAGE>
26
payment is due to the date of payment by Apollo and both
before and after judgment.
If:
(i) Apollo fails to furnish proof of such insurance as required
above; or
(ii) at any time during the term of this Agreement and for
thirty-six (36) months thereafter, the Fund is notified of
the change, cancellation or lapse of such insurance, which
change, cancellation or lapse is not rectified by Apollo
within ten (10) days of the insurance status change,
then the Fund, in addition to all other remedies available to it
hereunder, may at its option obtain such insurance coverage and
Apollo shall reimburse the Fund for the premium cost therefor.
Apollo shall remit such premium cost to the Fund within ten (10)
days of receipt of notice from the Fund of the amount of such
premium cost. Notwithstanding the provision of insurance hereunder
by Apollo, Apollo agrees to indemnify and save harmless the Fund
from and against any Claims arising out of the death of or injury to
any Person or out of any damage to property resulting from the
Distribution, use, consumption or advertisement of the Technology,
Product Rights or Products.
(g) COMPLIANCE WITH LAWS - Apollo shall comply with all
Applicable Laws with respect to the Technology, the Product
Rights, the Products, the issuance of any Apollo Common Shares
to the Fund pursuant to the $.70 Warrants, $.875 Warrants or
the Conversion Right and the operation of the Business and its
business generally.
(h) MAXIMIZE RETURNS - Apollo shall use its best business judgement,
consistent with reasonable business practices, to maximize the
Royalties by diligently seeking to obtain Registration for the
Products and by diligently Distributing the Products.
(i) BOOKS AND RECORDS - Apollo shall maintain at its usual place of
business up-to-date records, reports, accounts, books and files
which shall accurately reflect all particulars pertaining to the
Product Rights, the Products and the calculation of Royalties.
<PAGE>
27
(j) BOARD OBSERVER STATUS - Unless the Fund has a duly elected
representative as a member of the Board, the Fund shall be
entitled, and Apollo shall permit the Fund, to have a nominee
participate in all Board meetings as an observer. The Fund may,
from time to time by written notice given to Apollo, designate a
nominee to be an observer at Board meetings. Until otherwise
notified in writing, the Fund's nominee shall be Michael
Callaghan. Apollo shall:
(i) notify the Fund of all Apollo Board meetings at the same
time and in the same manner that the directors of Apollo are
so notified. The Board shall meet a minimum of 4 times
annually; and
(ii) provide the Fund with a copy of all material and other
communication (including Board minutes and resolutions) given to
the directors of Apollo at the same time and in the same manner
that the directors are given such material or other
communication.
(k) ADDITIONAL FINANCINGS - Apollo shall provide the Fund with at least
30 days prior notice of any proposed new Financing. Except for the
Initial Public Offering, the Fund will be entitled at its sole option
to participate in any Financing on the most favorable terms and
conditions offered to any other potential investor, pro rata, in the
proportion that the number of Apollo Common Shares it holds or may
acquire pursuant to the $.70 Warrants, the $.875 Warrants and the
Conversion Right is to the number of issued Apollo Common Shares. The
Fund shall advise Apollo within 10 Business Days of the receipt of
notice of a new Financing from Apollo of its intention with respect to
participating in the relevant Financing, failing which it will be
deemed to have elected not to have participated in the relevant
Financing.
(l) NO NON-MONETARY CONSIDERATION - Apollo shall not, without the
prior written consent of the Fund not to be unreasonably
withheld, accept or solicit any non-monetary consideration in
respect of the sale, licensing or Distribution of any of the
Technology, the Product Rights or the Products.
(m) NOTIFICATION - Apollo shall promptly notify the Fund in writing
of any material adverse change in the business or affairs of
Apollo, any event or act or omission of Apollo which constitutes
an Event of Default, any transaction which will result in an
<PAGE>
28
acquisition of control of Apollo, the commencement of any
litigation against it in an amount in excess of $50,000 or
relating to the Technology, the Product Rights or the Products or
other occurrence out of the ordinary course of business, and each
such notification shall contain full particulars of the event or
events described therein.
(n) INTEREST - Apollo shall pay interest on all overdue amounts at
the Prime Rate plus 2% from the date that payment should have
been made pursuant to this Agreement to the date that the payment
is actually made.
4.2 NON-WAIVER AND AUDIT
The acceptance by the Fund of any payment in respect of the Purchased Rights
shall be deemed not to be a waiver of any of its rights hereunder. The
Fund's authorized agents, employees and representatives shall have the right
to inspect and audit at all reasonable times during business hours, but in
any event not more than once each calendar year of the Term, the books,
records, documentation, sales reports, statements of profit and loss and Tax
Returns and other documents of Apollo relating to the Business, the
Technology, the Product Rights, the Products, the Direct Sales Revenue and
Fees and Income. The information contained in the documents, etc. which are
inspected shall be deemed to be Confidential Information hereunder. In the
event that any such audit shall disclose an understatement of such Direct
Sales Revenue, Fees and Income or Royalties as reported to the Fund by
Apollo, then Apollo shall pay the Fund within 15 days after receipt of notice
from the Fund an amount equal to the amount the Royalties have been underpaid
in any such year of the Term, together with interest thereon at the Prime
Rate plus 5% calculated from the date such amount should have been paid to
the date of actual payment. Further, in the event that the underpayment
shall be 5% or more for any calendar year, Apollo shall reimburse the Fund
for the cost of such inspection and/or audit.
<PAGE>
29
ARTICLE 5
CONVERSION RIGHT
5.1 CONVERSION RIGHT
The Fund may at any time and from time to time up to 3 times during the Term
convert all or part of Apollo's future obligation to pay Royalties hereunder as
follows:
(a) Up to 50% of the Purchase Price in the aggregate may be converted
into Apollo Common Shares at a conversion rate per share equal to
the lower of: (i) US$ .875; and (ii) the price per share at which
Apollo Common Shares were issued pursuant to the Financing
immediately preceding the date on which the Fund exercises the
Conversion Right; and
(b) Up to 50% of the Purchase Price in the aggregate may be
converted into Apollo Common Shares at a conversion rate per
share equal to the lower of: (i) US$ 1.05; and (ii) the price per
share at which Apollo Common Shares were issued pursuant to the
Financing immediately preceding the date on which the Fund
exercises the Conversion Right.
5.2 TERMS AND CONDITIONS GOVERNING THE CONVERSION RIGHT
Any conversion of all or part of the Purchased Rights by the Fund into Apollo
Common Shares pursuant to the Conversion Right shall take place and be
completed on the terms and conditions set out in Schedule D.
5.3 PRO RATA REDUCTION OF ROYALTIES
Effective upon receipt of a certificate representing the relevant Apollo
Common Shares pursuant to any conversion of all or part of the future
Royalties by the Fund into Apollo Common Shares, but without any waiver by
the Fund of the payment of any Royalties accruing prior to the date thereof,
the percentage rates set out in items (i) and (ii) of the Purchased Rights
and the amounts set out in Sections 2.3 and 2.4 shall be reduced by the same
proportion that the portion of the Purchase Price converted bears to the
total Purchase Price so that, on an aggregate basis, if, for instance, half
of the Purchase Price has been converted pursuant to one or more conversions
by the Fund, the amount set out in item (i) of the Purchased Rights would be
equal to [*]%, the amount set out in (ii) of the Purchased Rights would be
equal to [*]% and the amounts set out in sections 2.3 and 2.4 would be equal
to:
* Confidential treatment has been requested for marked portion
<PAGE>
30
[*]
5.4 PARAMOUNTCY
If the Fund gives written notice to Apollo of its intention to exercise the
Conversion Right in accordance with this Agreement and Schedule D after
receipt from Apollo of written notice under Section 2.4 but prior to receipt
by the Fund of any payment pursuant to Section 2.4, the Fund's Conversion
Right shall be paramount and shall govern.
ARTICLE 6
DEFAULT
6.1 EVENTS OF DEFAULT
Each of the following events shall constitute an event of default (an "EVENT
OF DEFAULT") under this Agreement:
(a) if Apollo fails to make any payment of Royalties when due and
does not remedy such failure within thirty (30) days after
receiving notice from the Fund specifying the failure and
requiring that it be remedied;
(b) if Apollo commits a breach of or fails to observe or perform any
other agreement, covenant or provision in this Agreement or in any
Closing Document and does not remedy such breach or failure within
thirty (30) days after receiving notice from the Fund specifying
the breach or failure and requiring that it be remedied (or, if
incapable of remedy within thirty (30) days, then such longer
period, not to exceed ninety (90) days, as may be reasonable to
remedy such breach or failure provided Apollo uses its best
efforts throughout such period to remedy the same) or if any
representation or warranty contained herein or in any Closing
Document shall prove to be false or incorrect in any material
respect;
* Confidential treatment has been requested for marked portion
<PAGE>
31
(c) if Apollo does not pay its debts as they become due, admits in
writing its inability to pay its debts generally, makes an
assignment for the benefit of creditors or commits an act of
bankruptcy within the meaning of Applicable Law;
(d) any proceeding, voluntary or involuntary, is commenced respecting
Apollo pursuant to any statute relating to bankruptcy, insolvency,
reorganization of debts, liquidation, winding up or dissolution;
(e) any receiver, manager, receiver manager, trustee, sequestor,
custodian or liquidator or Person with similar powers is appointed
udicially or extra judicially for Apollo or for any of its property;
(f) Apollo defaults under any agreement with respect to any indebtedness
or other obligation to any Person exceeding [*], if such default has
resulted in, or may result, with notice or lapse of time or both, in,
the acceleration of any such indebtedness or obligation or the right
of such Person to realize upon any security; and
(g) Apollo passes any resolution for its liquidation, winding up or
dissolution.
6.2 REMEDIES
Upon the occurrence of any one or more Events of Default which are continuing
and not waived by the Fund in writing, then, in the case of an Event of Default
under subsections 6.1 (a) or (b), on the expiration of the notice period therein
specified; and in the case of an Event of Default under subsection 6.1(c) to
(g), inclusive, immediately upon such Event of Default occurring, or immediately
upon the occurrence of an acquisition of control of Apollo, the Fund may, in
addition to any other rights and remedies available hereunder at law or in
equity, terminate this Agreement or, in the case of an Event of Default under
Section 6.1(a) or (b) with respect to less than all of the Products, terminate
this Agreement with respect to the relevant Products only.
* Confidential treatment has been requested for marked portion
<PAGE>
32
ARTICLE 7
INDEMNIFICATION
7.1 MUTUAL INDEMNIFICATIONS FOR BREACHES OF WARRANTY, ETC.
Apollo agrees with the Fund and the Fund agrees with Apollo (the Party
agreeing to indemnify another Party being called the "INDEMNIFYING PARTY" and
the Party to be indemnified being called the "INDEMNIFIED PARTY") to
indemnify and save harmless the Indemnified Party, effective as and from the
date hereof, from and against any claims, demands, actions, causes of action,
damage, loss, cost, liability or expense ("CLAIMS") which may be made or
brought against the Indemnified Party or which it may suffer or incur as a
result of, in respect of, or arising out of any non-fulfillment of any
covenant or agreement on the part of the Indemnifying Party under this
Agreement or any Closing Document or any incorrectness in or breach of any
representation or warranty of the Indemnifying Party contained herein or in
any Closing Document. Any amount which an Indemnifying Party is liable to
pay to an Indemnified Party pursuant to this Section shall bear interest at a
rate per annum equal to the Prime Rate, calculated and payable monthly, both
before and after judgment, with interest on overdue interest at the same
rate, from the date the Indemnified Party disbursed funds, suffered damages
or losses or incurred a loss, liability or expense in respect of a Claim, to
the date of payment by the Indemnifying Party to the Indemnified Party. Any
amount which an Indemnifying Party is required to pay to an Indemnified Party
pursuant to this Section or pursuant to Section 7.2 (including interest
thereon) is called an "Indemnified Loss". The foregoing obligation of
indemnification in respect of such Claims shall be subject to the limitation
set forth in Section 3.5 hereof respecting the survival of the
representations and warranties of the Parties.
7.2 THIRD PARTY CLAIMS
If a Claim is made against an Indemnified Party by a Third Party for which
the Indemnified Party may be entitled to indemnification under Section 7.1,
the Indemnified Party shall give notice (the "INDEMNITY NOTICE") to the
Indemnifying Party specifying the particulars of such claim within 30 days
after it receives notification of the Claim. Failure to give such notice
within such time period shall not prejudice the rights of an Indemnified
Party except to the extent that the failure to give such notice materially
adversely affects the ability of the Indemnifying Party to defend the Claim
or to cure the breach or incorrectness of the representation, warranty,
covenant or agreement giving rise to the Claim. The Indemnifying Party shall
have the right to participate in any negotiations or proceedings with respect
to such Claim at its own expense. The Indemnified Party shall not settle or
compromise any such Claim without the prior written consent of the
Indemnifying Party, unless
<PAGE>
33
the Indemnifying Party has not, within 7 Business Days after the giving of
the Indemnity Notice, given notice to the Indemnified Party that it wishes to
dispute such Claim. If the Indemnifying Party does give such a notice, it
shall have the right at its own cost and expense to assume the defence of
such Claim and to defend such Claim in the name of the Indemnified Party.
The Indemnified Party shall provide to the Indemnifying Party all files,
books, records and other information in its possession or control which may
be relevant to the defence of such Claim. The Indemnified Party shall
co-operate in all reasonable respects in the defence of such Claim but at the
expense of the Indemnifying Party. If the Indemnifying Party fails, after
the giving of such notice, diligently and reasonably to defend such Claim
throughout the period that such Claim exists, its right to defend the Claim
shall terminate and the Indemnified Party may assume the defence of such
Claim at the sole expense of the Indemnifying Party. In such event, the
Indemnified Party may compromise or settle such Claim, without the consent of
the Indemnifying Party.
ARTICLE 8
CONFIDENTIALITY
8.1 CONFIDENTIAL INFORMATION
Confidential Information and all copies thereof made by the receiving party
including translations, compilations and partial copies shall remain the
property of the disclosing party and shall be returned to the disclosing party
upon request or termination of this Agreement, provided that each Party shall be
entitled to keep one (1) copy of such information with its legal counsel, for
the purposes of determining its rights and obligations hereunder. The receiving
party shall use the Confidential Information solely for the purposes described
in this Agreement.
8.2 NON-DISCLOSURE.
The receiving party shall hold in confidence, during and after the termination
or expiration of this Agreement, and not disclose, provide, or otherwise make
available, in whole or in part the Confidential Information to any Third Party
without the prior written consent of the disclosing party. The receiving party
shall ensure that only its employees and agents with a need to know the
Confidential Information shall have access to it. The receiving party shall
exercise a standard of care under this Section that is not less than the
standard of care it exercises under its own corporate policy for confidentiality
and use restrictions for its own Confidential Information. If and when the
receiving party is required at any time to disclose Confidential Information by
Applicable Law or by any Governmental Agency having
<PAGE>
34
jurisdiction, the receiving party must notify the disclosing party and use
reasonable efforts to have the Governmental Agency retain the Confidential
Information in confidence. Upon making such reasonable efforts, the
receiving party shall not be in breach of this Section.
ARTICLE 9
DELIVERIES ON EXECUTION
9.1 DELIVERIES UPON EXECUTION OF THIS AGREEMENT.
Upon execution of this Agreement:
(a) Apollo shall deliver to the Fund and the Fund shall deliver to Apollo
proof satisfactory to the Party receiving the same, acting reasonably,
that each of them has taken all necessary corporate and other steps
necessary to authorize and effect the completion of the matters herein
contemplated;
(b) the Fund shall pay the Purchase Price to Apollo by certified cheque,
bank draft or in such other manner as Apollo may reasonably direct in
writing;
(c) Apollo shall issue and deliver to the Fund certificates in favour of
the Fund representing the $.70 Warrants and the $.875 Warrants duly
executed under seal;
(d) the Fund and Apollo shall enter into a Subscription Agreement in the
form attached hereto as Schedule E, the Fund shall pay the
subscription price to Apollo by certified cheque, bank draft or in
such other manner as Apollo may reasonably direct in writing and
Apollo shall issue and deliver to the Fund a share certificate
representing the Apollo Common Shares purchased pursuant to the
Subscription Agreement registered in the name of the Fund or as the
Fund may in writing direct;
(e) the Fund and Apollo shall enter into a Registration Rights Agreement
in the form attached hereto as Schedule F;
(f) Evidence that Michael Callaghan has been duly and effectively
appointed as a director of Apollo satisfactory to the Fund shall be
delivered by Apollo; and
<PAGE>
35
(g) the Fund shall receive an opinion from Messrs. Palmer & Dodge LLP
dated the date hereof in form and substance satisfactory to the Fund
and its counsel, acting reasonably.
ARTICLE 10
GENERAL
10.1 HEADINGS
The division of this Agreement into Articles, Sections, Subsections, Exhibits
and Schedules and the insertion of headings are for convenience of reference
only and shall not affect the construction or interpretation of this
Agreement. The Article, Section, Subsection, Exhibit and Schedule headings in
this Agreement are not intended to be full or precise descriptions of the
text to which they refer and are not to be considered part of this Agreement.
10.2 NUMBER AND GENDER
In this Agreement, words in the singular include the plural and vice-versa
and words in one gender include all genders.
10.3 ENTIRE AGREEMENT
This Agreement, together with the Closing Documents, constitutes the entire
agreement between the Parties pertaining to the subject matter hereof and
supersedes all prior agreements, negotiations, discussions and
understandings, written or oral. There are no representations, warranties,
conditions, other agreements or acknowledgements, whether direct or
collateral, or express or implied, that form part of or affect this
Agreement, or which induced any Party to enter into this Agreement or on
which reliance is placed by any Party, except as specifically set forth in
this Agreement or in the Closing Documents.
10.4 AMENDMENT
This Agreement may be amended or supplemented only by a written agreement signed
by each Party.
10.5 WAIVER OF RIGHTS
Any waiver of, or consent to depart from, the requirements of any provision
of this Agreement shall be effective only if it is in writing and signed by
the Party giving it, and only in the specific instance and for the specific
purpose for which it has been given. No failure on the part of any Party to
exercise,
<PAGE>
36
and no delay in exercising, any right under this Agreement shall operate as a
waiver of such right. No single or partial exercise of any such right shall
preclude any other or further exercise of such right or the exercise of any
other right.
10.6 APPLICABLE LAW
This Agreement shall be governed by, and interpreted and enforced in
accordance with, the laws in force in the Commonwealth of Massachusetts. The
Parties irrevocably submit to the non-exclusive jurisdiction of the courts of
Commonwealth of Massachusetts with respect to any matter arising hereunder or
related hereto.
10.7 CURRENCY
Unless specified otherwise, all statements of or references to monetary
amounts in this Agreement are to United States Dollars.
10.8 TENDER
Any tender of documents or money hereunder may be made upon the Parties or
their respective counsel and money shall be tendered by certified cheque or
bank draft.
10.9 PERFORMANCE ON HOLIDAYS
If any action is required to be taken pursuant to this Agreement on or by a
specified date which is not a Business Day, then such action shall be valid
if taken on or by the next succeeding Business Day.
10.10 FINANCIAL REPORTING STANDARDS
All accounting and financial terms used herein and the treatment of any
accounting matter contemplated herein, unless specifically provided to the
contrary, shall be interpreted and applied in accordance with GAAP.
10.11 EXPENSES
Except that Apollo shall reimburse the Fund an amount up to US$ 15,000 in
respect of the legal fees which it incurs in preparing this Agreement and
completing the transaction contemplated therein, each Party shall pay all
expenses it incurs in authorizing, preparing, executing and performing this
Agreement and the transactions contemplated hereunder, whether or not the
Closing occurs, including all fees and expenses of its legal counsel, bankers,
<PAGE>
37
investment bankers, brokers, accountants or other representatives or
consultants.
10.12 TIME
Time is of the essence of this Agreement and each of its provisions.
10.13 NOTICES
Any notice, demand or other communication (in this Section, a "NOTICE")
required or permitted to be given or made hereunder shall be in writing and
shall be sufficiently given or made if:
(a) delivered in person during normal business hours of the recipient on a
Business Day and left with a receptionist or other responsible
employee of the recipient at the relevant address set forth below;
(b) except during any period of actual or imminent interruption of postal
services due to strike, lockout or other cause, sent by registered
mail; or
(c) sent by Transmission, charges prepaid and confirmed by registered mail
as provided in Subsection (b);
in the case of a notice to Apollo at:
1 Kendall Square, Suite 2200
Cambridge, Massachusetts
02139
Attention: President and CEO
Fax No.: (617) 621-7156
with a copy to Palmer & Dodge LLP at:
One Beacon Street
Boston, Massachusetts
02108-3190
Attention: Michael Lytton
Fax No.: (617) 227-4420
<PAGE>
38
and in the case of a notice to the Fund to its general partner at:
Neuroscience Partners Limited Partnership
c/o MDS Associ[caad 177]es-Neuroscience Inc.
100 International Boulevard
Etobicoke, Ontario
M9W 6J6
Attention: Senior Vice-President
Fax No.: (416) 213-4232
with a copy to Fasken Campbell Godfrey at:
Suite 4200
Toronto Dominion Bank Tower
Toronto Dominion Centre
Toronto, Ontario
M5K 1N6
Attention: Scott D. Conover
Fax No. (416) 364-7813
Any notice so given shall be deemed to have been given and to have been
received on the day of delivery, if so delivered, on the fifth Business Day
(excluding each day during which there exists any interruption of postal
services due to strike, lockout or other cause) following the mailing
thereof, if so mailed, and on the day following the day notice was sent by
Transmission, provided such day is a Business Day and if not, on the first
Business Day thereafter. Addresses for notice may be changed by giving
notice in accordance with this Section.
10.14 ASSIGNMENT
This Agreement and any or all of the rights and obligations hereunder may be
assigned by the Fund upon written notice to Apollo. Neither this Agreement,
any rights or obligations hereunder the Technology shall be assignable by
Apollo without the prior written consent of the Fund not to be unreasonably
withheld. Subject thereto, this Agreement shall enure to the benefit of and
be binding upon the Parties and their respective successors (including any
successor by reason of amalgamation or statutory arrangement of any Party)
and permitted assigns.
<PAGE>
39
10.15 FURTHER ASSURANCES
Each Party shall do such acts and shall execute such further documents,
conveyances, deeds, assignments, transfers and the like, and will cause the
doing of such acts and will cause the execution of such further documents as
are within its power as any other Party may in writing at any time and from
time to time reasonably request be done and/or executed, in order to give
full effect to the provisions of this Agreement and the Closing Documents.
10.16 INDEPENDENT PARTIES
Nothing contained in this Agreement shall in any way or for any purpose
constitute any Party a partner or agent or legal representative of any other
Party in the conduct of any business or otherwise or a member of a joint
venture or joint enterprise or create any fiduciary relationship among them.
No Party shall have any authority to act for or to assume any obligation or
responsibility on behalf of any other and no Party shall have any authority
to bind any other Party to act or to undertake any obligation or
responsibility whatsoever. Apollo agrees that it will only have recourse
against the assets of the Fund and it shall not have any recourse against the
limited partners of the Fund under any circumstances.
10.17 PUBLIC ANNOUNCEMENTS
The Parties agree to discuss and coordinate all public announcements
concerning the transactions contemplated herein except as may be necessary,
in the opinion of counsel to the Party making such disclosure, to comply with
the requirements of any Applicable Law. If any such public statement or
release is so required, the Party making such disclosure shall consult with
the other Party prior to making such statement or release, and the Parties
shall use reasonable efforts, acting in good faith, to agree upon a text for
such statement or release which is satisfactory to all Parties.
10.18 SEVERABILITY
If any covenant, obligation or provision of this Agreement or the application
thereof to any Person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Agreement or the application of such
covenant, obligation or agreement to Persons or circumstances other than
those as to which it is held invalid or unenforceable shall not be affected
thereby and each covenant, obligation and provision of this Agreement shall
be separately valid and enforceable to the fullest extent permitted by law.
<PAGE>
40
10.19 COUNTERPARTS
This Agreement may be executed in any number of counterparts and by facsimile
transmission. Each executed counterpart shall be deemed to be an original.
All executed counterparts taken together shall constitute one agreement.
10.20 FACSIMILE EXECUTION
To evidence the fact that it has executed this Agreement, a Party may send a
copy of its executed counterpart to the other Party by facsimile
transmission. That Party shall be deemed to have executed this Agreement on
the date it sent such facsimile transmission. In such event, such Party
shall forthwith deliver to the other Party the counterpart of this Agreement
executed by such Party.
TO WITNESS THEIR AGREEMENT, the Parties have duly executed this Agreement on
the date first set forth above.
NEUROSCIENCE PARTNERS LIMITED
PARTNERSHIP by its General Partner
MDS ASSOCIES-NEUROSCIENCE INC.
Per: /s/ Michael J. Callaghan, Vice President
----------------------------------------
Michael J. Callaghan, Vice President
Per: /s/ Keith Dorrington, Vice-President
----------------------------------------
Keith Dorrington, Vice-President
APOLLO GENETICS, INC.
Per: _________________________________________
<PAGE>
SCHEDULE A
WARRANT TO PURCHASE COMMON STOCK
OF APOLLO GENETICS, INC.
See Exhibit 3.4 to this Registration Statement
<PAGE>
SCHEDULE B
PATENT RIGHTS
[*]
_________________
[*]
* Confidential treatment has been requested for marked portion
<PAGE>
- 2 -
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ENDOCON, INC.'S PATENTS RELEVANT TO NEURESTROLs ALL ASSIGNED TO
ENDOCON, INC. BY THE INVENTOR, BOB LEONARD, AND NOW OWNED BY ENDOCON, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[*]
* Confidential treatment has been requested for marked portion
<PAGE>
SCHEDULE C
INSTRUMENTS, CONTRACTS, LEASES, LICENCES,
RIGHTS OR OTHER AGREEMENTS RELATING TO THE
TECHNOLOGY, THE PRODUCT RIGHTS, THE PRODUCTS
OR THE PURCHASED RIGHTS
1. The Athena Agreement.
2. The Endocon Agreement.
3. Patent License Agreement with Research Component made the 15th day of
December, 1993 and revised and restated on the 15th day of October, 1996
between the University of Florida Research Foundation, Inc. and Apollo.
4. Corporate Research Agreement to Accompany License Agreement entered into the
15th day of December, 1993 between Apollo and the University of Florida and
Participation Agreements of various dates made pursuant thereto and executed
by James W. Simpkins, Marzahan Singh, Jean Bishop and each participant in
the Sponsored Activity (as defined therein).
<PAGE>
SCHEDULE D
TERMS AND CONDITIONS GOVERNING THE CONVERSION RIGHT
(a) EXERCISE The Conversion Right may be exercised by the Fund at any time in
whole or from time to time in part, in accordance with and subject to the
provisions hereof up to 5:00 p.m. (Massachusetts time) on the final day of
the Term (the "Time of Expiry"). If the Conversion Right has not been
exercised by the Time of Expiry, all rights thereunder shall wholly cease
and terminate and shall be void and of no value or effect. The Conversion
Right may be exercised by surrendering to Apollo at its address for notice,
at any time after the date hereof up to the Time of Expiry, a Subscription
Form, substantially in the form attached hereto as Schedule 1, duly
completed and executed.
(b) PARTIAL EXERCISE The Fund may subscribe for and have issued to it a number
of Apollo Common Shares less than the total number it is entitled to
pursuant to the Conversion Right provided that it subscribes for a minimum
of US$ 150,000 of Apollo Common Shares each time. Partial exercises of the
Conversion Right shall be recorded by the Fund on the grid attached to the
Subscription Form as Appendix 1. the grid shall be initialed by the
Parties and form part of the Subscription Form. The grid, as so initialed,
shall, in the absence of manifest error, constitute conclusive proof of the
dates, amounts, numbers, information and factors set out therein.
(c) SHARE CERTIFICATES Within ten (10) Business Days after the delivery of a
duly completed and executed Subscription Form by the Fund (the "Exercise
Date"), Apollo shall issue and deliver to the Fund's address for notice,
registered in such name or names as the Fund may direct or if no such
direction has been given, in the name of the Fund, a certificate or
certificates representing the number of Apollo Common Shares issuable under
the Conversion Right as a result of the delivery of the Subscription Form.
Such exercise shall be deemed to have been effected as of the close of
business on the Exercise Date and at such time the rights of the Fund with
respect to the portion of the Conversion Right which has been exercised as
such shall cease, and the person or persons in whose name or names any
certificate or certificates for Apollo Common Shares shall then be issuable
upon such exercise or deemed exercise shall be deemed to have become the
holder or holders of record of the Apollo Common Shares represented
thereby.
(d) CONVERSION RATE Subject to the aggregate limits set out in Article 5, the
Fund may convert any portion of the Purchase Price from time to time. The
Fund shall not be bound to first convert all of the portion of the
<PAGE>
-2-
Purchase Price at the conversion rate set out in Section 5.1(a)
before it shall be entitled to convert any of the portion at the
conversion rate set out in Section 5.1(b), and vice versa.
(e) FRACTIONAL SHARES No fractional shares shall be issued upon any whole or
partial exercise of the Conversion Right.
(f) CORPORATE CHANGES If Apollo shall be a party to any reorganization,
merger, amalgamation, dissolution, sale of all or substantially all of its
assets, change or reclassification of its outstanding shares (an "Event"),
whether or not Apollo is the surviving entity, the Conversion Right shall
apply to the securities to which a holder of Apollo Common Shares
immediately prior to the Event would have been entitled by reason of such
Event. If the number of securities outstanding following an Event is
greater than the number of Apollo Common Shares immediately prior to the
Event, then the conversion rates per share expressed in United States
dollars in Sections 5.1(a)(i) and (b)(i) of the Agreement in effect
immediately prior to such Event shall be reduced by the reciprocal of the
multiple required to be used to arrive at the new number of securities. If
the number of securities outstanding following an Event is less than the
number of Apollo Common Shares immediately prior to the Event, then the
conversion rate per share expressed in United States dollars in Sections
5.1(a)(i) and (b)(i) of the Agreement in effect immediately prior to such
Event shall be increased by the reciprocal of the fraction required to be
used to arrive at the new number of securities.
(g) SUBDIVISION OR CONSOLIDATION OF SHARES In the event Apollo shall subdivide
its outstanding Apollo Common Shares into a greater number of Apollo Common
Shares, the conversion rate per share expressed in United States Dollars in
Sections 5.1(a)(i) and (b)(i) of the Agreement in effect immediately prior
to such subdivision shall be reduced by the reciprocal of the multiple used
to arrive at the new number of Apollo Common Shares. Conversely, in the
event Apollo shall consolidate its outstanding Apollo Common Shares into a
lesser number of Apollo Common Shares, the conversion rate per share
expressed in United States dollars in Sections 5.1(a)(i) and (b)(i) of the
Agreement in effect immediately prior to such consolidation shall be
increased by the reciprocal of the fraction used to arrive at the new
number of Apollo Common Shares.
(h) STOCK DIVIDENDS OR DISTRIBUTIONS In the event Apollo: (i) issues Apollo
Common Shares or securities exchangeable for or convertible into Common
Shares to all or substantial of the holders of the Apollo Common Shares as
a stock dividend; or (ii) makes a distribution on its outstanding Apollo
Common Shares payable in Apollo Common
<PAGE>
-3-
Shares or securities exchangeable for or convertible into Apollo Common
Shares, the conversion rate per share expressed in United States dollars
in Sections 5.1(a)(i) and (b)(i) of the Agreement in effect immediately
prior to such stock dividend or distribution shall be reduced by the
reciprocal of the multiple used to arrive at the new number of Apollo
Common Shares (on a fully diluted basis).
(i) OTHER DISTRIBUTIONS In the event Apollo makes a distribution (a
"Distribution") on its outstanding Apollo Common Shares payable in (i) the
shares of Apollo of any class other than Apollo Common Shares; (ii) rights,
options or warrants to acquire shares or securities exchangeable for or
convertible into shares or property or other assets of Apollo; (iii)
evidence of indebtedness; or (iv) any property or other assets of Apollo,
the conversion rate expressed in United States dollars in Sections
5.1(a)(i) and (b)(i) of the Agreement in effect immediately prior to such
Distribution shall be reduced by a fraction that is equal to the ratio of
the aggregate fair market value of Apollo immediately following the
Distribution to the fair market value immediately prior to the
Distribution;
(j) NOTICE OF ADJUSTMENT Upon any adjustment of the conversion rate expressed
in United States dollars in Section 5.1(a)(i) and (b)(i) of the Agreement
then and in each case Apollo shall give written notice thereof to the Fund,
which notice shall state the conversion rates resulting from such
adjustment, and shall upon receipt of the written request of the Fund set
forth in reasonable detail the method of calculation and the facts upon
which such calculation in based.
(k) ADJUSTMENTS CUMULATIVE The adjustments provided for herein are cumulative
and will: (i) be computed to the nearest one-tenth of one cent; and (ii) be
made successively whenever an event referred to herein occurs.
(l) FINANCINGS In the event Apollo completes a Financing as a result of which
Apollo issues securities convertible into or exchangeable for Apollo Common
Shares, the price per share at which Apollo Common Shares were issued shall
be, for the purposes of Sections 5.1(a)(ii) and (b)(ii) of the Agreement,
the lowest of: (i) the imputed price per share on a fully diluted basis;
(ii) the unit price less an amount equal to the price per option or warrant
of any options or warrants which, together with Apollo Common Shares, form
part of the Unit determined by applying the Black Scholes pricing model;
and (iii) the lowest exercise price or conversion or exchange rate at which
any securities issued by Apollo pursuant to the relevant Financing may be
convertible into or exchangeable for Apollo Common Shares.
<PAGE>
SCHEDULE 1
Subscription Form
TO: APOLLO GENETICS, INC. (the "Company")
RE: Exercise of Conversion Right pursuant to a Royalty Purchase Agreement dated
December 18, 1996 between Neuroscience Partners Limited Partnership and the
Company (the "Agreement").
The undersigned hereby irrevocably elects to exercise its Conversion Right with
respect to U.S.$_____________________ of the // $.875 // $1.05 [CHECK ONE]
Purchase Price portion and hereby subscribes for ______________ Apollo Common
Shares (or other property or securities contemplated by the Conversion Right).
DATED this day of , .
NEUROSCIENCE PARTNERS LIMITED PARTNERSHIP
BY ITS GENERAL PARTNER,
MDS ASSOCIES-NEUROSCIENCE INC.
By:______________________________________
Name:
Title:
Effective upon receipt of a certificate or certificates representing the
number of Apollo Common Shares set out herein in accordance with the
registration and delivery instructions set out below (the "Effective Date"),
the undersigned hereby automatically waives its right to receive the portion
of the future Royalties which accrue from and after the Effective Date set
out in the column titled "Portion of Royalties Waived", and acknowledges and
agrees that the rates set out in items (i) and (ii) of the Purchased Rights
shall, from the Effective Date, be the rates set out in the columns "Future
Direct Sales Royalty Rate" and "Future Fees and Income Royalty Rate",
respectively. The undersigned further acknowledges and agrees that the
amounts set out in Section 2.3 of the Agreement shall, from the Effective
Date, be equal to the amount actually set out in the Agreement multiplied by
the percentage set out in the column, "Termination Buy-out Amount Factor".
Defined terms not otherwise defined herein shall have the meaning assigned
thereto in the Agreement.
DIRECTION AS TO REGISTRATION (if different from the Fund at its address for
notice in the Agreement)
Name of Registered Holder: ______________________________________
Address of Registered Holder: ______________________________________
______________________________________
DIRECTIONS AS TO DELIVERY (if different from the Fund at its address for notice
in the Agreement)
Address of Delivery ______________________________________
______________________________________
Attention: __________________________
<PAGE>
APPENDIX 1
GRID
CUMULATIVE RECORD OF CONVERSIONS UNDER THE CONVERSION RIGHT
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________________
DATE OF PORTION OF BALANCE OF PORTION OF BALANCE OF BASIS OF NO. OF PORTION OF FUTURE FUTURE TERMINATION/
EXERCISE $.875 $.875 $1.05 $1.05 CONVER- APOLLO ROYALTIES DIRECT FEES AND BUY-OUT
OF CON- PURCHASE PURCHASE PURCHASE PURCHASE SION COMMON WAIVED(1) SALES INCOME AMOUNT
VERSION PRICE PRICE TO BE PRICE PRICE TO BE SHARES TO ROYALTY ROYALTY FACTOR(4)
RIGHT CONVERTED CONVERTED CONVERSION CONVERTED BE ISSUED RATE(2) RATE(3)
____________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
____________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________
</TABLE>
_____________________
1 The Portion of Royalties waived is equal to the cumulative percent of the
total Purchase Price which has been converted.
2 Future Direct Sales Royalty Rate is equal to the Portion of Royalties
Waived multiplied by 2%.
3 Future Fees and Income Royalty Rate is equal to the Portion of Royalties
Waived multiplied by 5%.
4 The revised amounts set out in Sections 2.3 and 2.4 for each year are equal
to the amount actually set out in the Agreement multiplied by the
percentage set out in this column.
<PAGE>
SCHEDULE E
SUBSCRIPTION AGREEMENT
TO: APOLLO GENETICS, INC. (the "Corporation")
Neuroscience Partners Limited Partnership (the "Subscriber") hereby subscribes
for and offers to purchase, subject to the terms and conditions set out herein,
714,290 shares of common stock, US$.02 par value per share (each, a "Common
Share", collectively, the "Purchased Shares").
The Purchased Shares are being purchased pursuant to a Royalty Purchase
Agreement between the Subscriber and the Corporation dated the date hereof (the
"Purchase Agreement"). In the event of any conflict or inconsistency between
the provisions of this Agreement and the provisions of the Purchase Agreement,
the Purchase Agreement shall govern.
1. SUBSCRIPTION PRICE
The aggregate subscription price (the "Subscription Price") for the Purchased
Shares is US$500,000 or approximately US$.7 per Common Share.
2. CLOSING
The delivery of and payment for the Purchased Shares will be completed (the
"Closing") on December 17, 1996, or at such other time or on such other date as
the Corporation and the Subscriber may agree (such time and date being herein
referred to respectively as the "Time of Closing" and the "Closing Date").
The Subscriber hereby agrees to deliver to the Corporation at the Closing the
following documents:
(i) a certified cheque, bank draft or wire transfer made payable to
"Apollo Genetics, Inc." or such other person as the Corporation may
direct representing the Subscription Price;
(ii) an executed copy of this subscription agreement; and
(iii) such other documents and instruments as the Corporation may
reasonably require to give effect to and carry out the transactions
contemplated herein.
<PAGE>
- 2 -
The Corporation hereby agrees to deliver to the Subscriber at the Closing the
following documents:
(i) a single certificate representing the Purchased Shares registered in
accordance with the registration instructions set out in section 10;
(ii) an executed copy of this subscription agreement;
(iii) an opinion of its counsel in a form reasonably satisfactory to the
Subscriber; and
(iv) such other documents and instruments as the Corporation may
reasonably require to give effect to and carry out the transactions
contemplated herein.
3. REPRESENTATIONS, WARRANTIES, ETC. OF THE SUBSCRIBER
The Subscriber hereby represents and warrants to the Corporation (which
representations and warranties shall survive closing and continue in full force
and effect for a period of three years from the date hereof) and acknowledges
that the representations of the Subscriber made in Section 3.2 of the Purchase
Agreement are true and correct as if made pursuant hereto. The Subscriber
acknowledges that the Corporation is relying on those representations and
warranties in entering into this Subscription Agreement:
4. REPRESENTATIONS, WARRANTIES, ETC. OF THE CORPORATION
By its acceptance of this subscription agreement, the Corporation represents and
warrants to the Subscriber (which representations and warranties shall survive
closing and continue in full force and effect for a period of three years from
the date hereof) and acknowledges that the representations of the Corporation
made in Section 3.1 of the Purchase Agreement are true and correct as if made
pursuant hereto. The Corporation acknowledges that the Subscriber is relying on
those representations and warranties in entering into this subscription
agreement:
5. GOVERNING LAW
This subscription agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts. The Corporation and the
Subscriber hereby irrevocably attorn to the non-exclusive jurisdiction of the
courts of the Commonwealth of Massachusetts with respect to any matters arising
out of this subscription agreement.
6. ASSIGNMENT
This subscription agreement is not transferable or assignable by the parties
hereto.
<PAGE>
- 3 -
7. ENTIRE AGREEMENT
This subscription agreement contains the entire agreement of the parties hereto
relating to the subject matter hereof and there are no representations,
covenants or other agreements relating to the subject matter hereof except as
stated or referred to herein.
8. TIME OF ESSENCE
Time shall be of the essence of this subscription agreement.
9. HEADINGS
The headings contained herein are for convenience only and shall not affect the
meaning or interpretation of this subscription agreement.
10. DETAILS OF REGISTRATION AND DELIVERY
A. Name of Subscriber: Neuroscience Partners Limited Partnership
Street Address: 100 International Blvd.
City and Province: Etobicoke, Ontario
Postal Code: M9W 6J6
Contact: Michael Callaghan
Phone No.: 416-213-4228
Fax No.: 416-213-4232
B. Registration of the certificate representing the Common Shares, each of the
Warrants and the Common Shares issuable on exercise of the Warrants should
be made as follows:
Name: Neuroscience Partners Limited Partnership
Registration Address: 100 International Boulevard
City and Province: Etobicoke, Ontario
Postal Code: M9W 6J6
<PAGE>
- 4 -
11. SIGNATURE OF SUBSCRIBER
DATED as of the 18th day of December, 1996.
NEUROSCIENCE PARTNERS LIMITED PARTNERSHIP
by its General Partner
MDS ASSOCIES-NEUROSCIENCE INC.
Per: /s/ Michael J. Callaghan, Vice-President
-----------------------------------------
Michael J. Callaghan, Vice-President
Per: /s/ Keith Dorrington, Vice-President
----------------------------------------
Keith Dorrington, Vice-President
12. CONFIRMATION AND ACCEPTANCE
This subscription agreement is confirmed and accepted by the Corporation.
DATED as of the 18th day of December, 1996.
APOLLO GENETICS, INC.
Per:
-----------------------------------------
<PAGE>
SCHEDULE F
REGISTRATION RIGHTS AGREEMENT
See Exhibit 3.3 to this Registration Statement
<PAGE>
Schedule G
FINANCIAL STATEMENTS
APOLLO GENETICS, INC.
(a development stage company)
FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE>
APOLLO GENETICS, INC.
(a development stage company)
- I N D E X -
-------------
PAGE
NUMBER
------
REPORT OF INDEPENDENT AUDITORS 1
BALANCE SHEETS 2
STATEMENTS OF OPERATIONS 3
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Apollo Genetics, Inc.
Cambridge, Massachusetts
We have audited the accompanying balance sheet of Apollo Genetics, Inc.
(a development stage company) as at December 31, 1995, and the related
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the two-year period then ended, and for the period from
July 9, 1992 (inception) through December 31, 1995. These financial
statements are the 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 enumerated above present
fairly, in all material respects, the financial position of Apollo Genetics,
Inc. at December 31 1995, and the results of its operations and its cash
flows for the each of the years in the two-year period then ended, and for
the period from July 9, 1992 (inception) through December 31, 1995 in
conformity with generally accepted accounting principles.
The accompanying condensed balance sheet of Apollo Genetics, Inc. as at
September 30, 1996 and the related condensed statements of operations and cash
flows for the nine-month periods ended September 30, 1996 and 1995 and the
period from July 9, 1992 (inception) through September 30, 1996 were not
audited by us and, accordingly, we do not express an opinion on them.
/s/ Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
July 15, 1996
With respect to Notes A and E
November 6, 1996
<PAGE>
APOLLO GENETICS, INC.
(a development stage company)
BALANCE SHEETS
December 31, September 30,
A S S E T S 1995 1996
----------- ------------ -------------
(Unaudited)
Current assets:
Cash and cash equivalents . . . . . . . . . $ 246,721 $ 373,645
Stock subscriptions receivable (Note C) . . 112,500
------------ -------------
Total current assets . . . . . . . . 246,721 486,145
Organization costs, net of accumulated
amortization of $3,584 at December 31,
1995 and $4,371 at September 30, 1996
(Note B). . . . . . . . . . . . . . . . . . 1,661 874
Deferred public offering costs . . . . . . . . 5,000
------------ -------------
T O T A L. . . . . . . . . . . . . . $ 248,382 $ 492,019
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
-----------------------------
Current liabilities:
Accounts payable and accrued expenses . . . $ 161,923 $ 102,981
Notes payable (Note D). . . . . . . . . . . 73,425
------------ -------------
Total current liabilities. . . . . . 161,923 176,406
------------ -------------
Notes payable (Note D) . . . . . . . . . . . . 204,400
------------
Commitments (Note F)
Stockholders' equity (deficit) (Note E):
Preferred stock - $.01 par value;
4,000,000 shares authorized, none
issued
Common stock - $.02 par value; 20,000,000
shares authorized, 11,770,000 shares
issued at December 31, 1995 and
13,017,843 shares issued at
September 30, 1996. . . . . . . . . . . . 235,400 260,357
Additional paid-in capital. . . . . . . . . 994,120 1,625,629
Deficit accumulated during the
development stage . . . . . . . . . . . . (1,347,461) (1,570,373)
------------ -------------
Total stockholders' equity
(deficit) . . . . . . . . . . . . . (117,941) 315,613
------------ -------------
T O T A L. . . . . . . . . . . . . . $ 248,382 $ 492,019
------------ -------------
------------ -------------
Attention is directed to the foregoing auditor's report and to the
accompanying notes to financial statements.
- 2 -
<PAGE>
<TABLE>
<CAPTION>
APOLLO GENETICS, INC.
(a development stage company)
STATEMENTS OF OPERATIONS
July 9, 1992 July 9, 1992
Year Ended (Inception) Nine Months Ended (Inception)
December 31, Through September 30, Through
---------------------- December 31, --------------------- September 30,
1995 1994 1995 1996 1995 1996
---------- ---------- ------------- ---------- ---------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Licensing and option revenue
(Note B(2)) . . . . . . . . . . . . $ 170,000 $ 170,000
Interest income . . . . . . . . . . . $ 2,535 $ 3,954 $ 12,071 7,301 19,372
---------- ---------- ------------- ---------- -------------
$ 2,535 $ 3,954 $ 12,071 177,301 189,372
---------- ---------- ------------- ---------- -------- -------------
Expenses:
Research and development. . . . . . . 131,842 199,654 466,838 100,716 $ 94,966 567,554
General and administrative. . . . . . 230,592 323,613 857,909 268,819 187,462 1,126,728
Amortization expense. . . . . . . . . 1,049 1,049 3,584 787 787 4,371
Interest expense. . . . . . . . . . . 31,201 2,645 31,201 29,891 22,691 61,092
---------- ---------- ------------- ---------- ---------- -------------
Total expenses . . . . . . . . 394,684 526,961 1,359,532 400,213 305,906 1,759,745
---------- ---------- ------------- ---------- ---------- -------------
NET LOSS . . . . . . . . . . . . . . . . $(392,149) $(523,007) $ (1,347,461) $(222,912) $(305,906) $(1,570,373)
---------- ---------- ------------- ---------- ---------- -------------
---------- ---------- ------------- ---------- ---------- -------------
Attention is directed to the foregoing auditors' report and to the accompanying notes to financial statements.
</TABLE>
- 3 -
<PAGE>
APOLLO GENETICS, INC.
(a development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
Common Stock
$ .92 Per Value Additional
------------------------ Paid-in
Shares Amount Capital
-------- -------- ----------
<S> <C> <C> <C>
Issuance of common stock at $.02 per share from inception
through December 31, 1992. . . . . . . . . . . . . . . . . . . . 2,050,000 $ 41,000
Issuance of common stock for services at $.02 per share
from inception through December 31, 1992 . . . . . . . . . . . . 200,000 4,000
Net loss for the year ended December 31, 1992. . . . . . . . . . .
--------- --------
Balance - December 31, 1992 . . . . . . . . . . . . . . . . . . . 2,250,000 45,000
Additional shares sold at $ .02 per share . . . . . . . . . . . . 4,000,000 80,000
Shares issued for services at $ .02 per share. . . . . . . . . . . 540,000 10,800
State of common stock in connection with private placement
of stock at $ .20 per share . . . . . . . . . . . . . . . . . . 3,200,000 64,000 $ 576,000
Costs related to private placement . . . . . . . . . . . . . . . . (36,530)
Shares issued for services at $ .20 per share . . . . . . . . . . 30,000 600 5,400
Net loss for the year ended December 31, 1993. . . . . . . . . . .
--------- -------- ----------
Balance - December 31, 1993 . . . . . . . . . . . . . . . . . . . 10,020,000 200,400 544,870
Repurchase of common stock by the Company and cancellation
of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . (50,300) (1,000)
Common stock warrants issued in connection with notes payable . . 6,750
Net loss for the year ended December 31, 1994 . . . . . . . . . .
---------- -------- ----------
Balance - December 31, 1994 . . . . . . . . . . . . . . . . . . . 9,970,000 199,400 551,620
Sale of common stock at $ .25 per share. . . . . . . . . . . . . . 1,800,000 36,000 414,000
Costs of raising capital . . . . . . . . . . . . . . . . . . . . (12,250)
Purchase (for $8,000) and resale (for $20,000) of 200,000
shares of common stock . . . . . . . . . . . . . . . . . . . . . 12,000
Capital contributed by stockholder . . . . . . . . . . . . . . . . 25,000
Common stock warrants issued in connection with notes payable. . . 3,750
Net loss for the year ended December 31, 1995. . . . . . . . . . .
---------- -------- ----------
Balance - December 31, 1995. . . . . . . . . . . . . . . . . . . . 11,770,000 235,400 994,120
Shares issued for services at $ .30 per share. . . . . . . . . . . 83,552 1,471 23,395
Conversion of debt into common stock . . . . . . . . . . . . . . . 450,003 9,000 122,400
Sale of common stock in connection with private placement
of stock at $ .70 per share . . . . . . . . . . . . . . . . . . 714,291 14,286 485,714
Net loss for the nine months ended September 30, 1994. . . . . . .
---------- -------- ----------
BALANCE - SEPTEMBER 30, 1996 (unaudited) . . . . . . . . . . . . . 13,017,843 $ 260,357 $ 1,625,629
---------- --------- -----------
---------- --------- -----------
Deficit
Accumlated
During
Developememt
Stage Total
------------ ---------
Issuance of common stock at $.02 per share from inception
through December 31, 1992. . . . . . . . . . . . . . . . . . . . $ 41,000
Issuance of common stock for services at $.02 per share
from inception through December 31, 1992 . . . . . . . . . . . . 4,000
Net loss for the year ended December 31, 1992. . . . . . . . . . . $ (77,972) (77,972)
----------- --------
Balance - December 31, 1992 . . . . . . . . . . . . . . . . . . . (77,972) (32,972)
Additional shares sold at $ .02 per share . . . . . . . . . . . . 80,000
Shares issued for services at $ .02 per share. . . . . . . . . . . 10,800
State of common stock in connection with private placement
of stock at $ .20 per share . . . . . . . . . . . . . . . . . . 640,000
Costs related to private placement . . . . . . . . . . . . . . . . (36,530)
Shares issued for services at $ .20 per share . . . . . . . . . . 6,000
Net loss for the year ended December 31, 1993. . . . . . . . . . . (354,333) (354,333)
----------- --------
Balance - December 31, 1993 . . . . . . . . . . . . . . . . . . . (432,305) 312,965
Repurchase of common stock by the Company and cancellation
of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,000)
Common stock warrants issued in connection with notes payable . . 4,750
Net loss for the year ended December 31, 1994 . . . . . . . . . . (523,007) (523,007)
----------- --------
Balance - December 31, 1994 . . . . . . . . . . . . . . . . . . . (955,312) (204,292)
Sale of common stock at $ .25 per share. . . . . . . . . . . . . . 450,000
Costs of raising capital . . . . . . . . . . . . . . . . . . . . . (12,250)
Purchase (for $8,000) and resale (for $20,000) of 200,000
shares of common stock . . . . . . . . . . . . . . . . . . . . . 12,000
Capital contributed by stockholder . . . . . . . . . . . . . . . . 25,000
Common stock warrants issued in connection with notes payable. . . 3,750
Net loss for the year ended December 31, 1995. . . . . . . . . . . (392,141) (392,149)
----------- --------
Balance - December 31, 1995. . . . . . . . . . . . . . . . . . . . (1,347,461) (117,941)
Shares issued for services at $ .30 per share. . . . . . . . . . . 25,066
Conversion of debt into common stock . . . . . . . . . . . . . . . 131,400
Sale of common stock in connection with private placement
of stock at $ .70 per share . . . . . . . . . . . . . . . . . . 500,000
Net loss for the nine months ended September 30, 1994. . . . . . . (222,912) (222,912)
----------- --------
BALANCE - SEPTEMBER 30, 1996 (unaudited) . . . . . . . . . . . . . $(1,570,373) $ 315,613
----------- --------
----------- --------
</TABLE>
Attention is directed to the foregoing auditors' report and
to the accompanying notes to financial statements.
-4-
<PAGE>
APOLLO GENETICS, INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
July 9, 1992 July 9, 1992
Year Ended (Inception) Nine Months Ended (Inception)
December 31, Through September 30, Through
-------------------- December 31, -------------------- September 30,
1995 1994 1995 1996 1995 1996
--------- --------- --------------- --------- --------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $(392,149) $(523,007) $ (1,347,467) $(222,912) $(305,906) $ (1,570,373)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization.................................. 1,049 1,399 3,934 1,212 786 5,146
Common stock issued for services rendered..... 20,800 25,066 45,866
Organization costs............................ (5,245) (5,245)
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable and
accrued expenses........................... 138,971 56,643 216,473 (58,942) 130,697 157,531
--------- --------- --------------- --------- --------- ---------------
Net cash (used in) operating activities... (253,029) (484,965) (1,111,499) (255,576) (174,423) (1,367,075)
--------- --------- --------------- --------- --------- ---------------
Cash liens from financing activities:
Sale of common stock............................ 445,000 1,206,000 387,00 121,000 1,593,500
Stock offering costs............................ (12,250) (48,780) (48,780)
Repurchase of common stock...................... (8,000) (1,000) (9,000) (9,000)
Proceeds from notes payable (Note C)............ 75,000 135,000 210,000 75,000 210,000
Deferred public offering costs.................. (5,000) (5,000)
--------- --------- --------------- --------- --------- ---------------
Net cash provided by financing
activities............................... 499,750 134,000 1,358,220 382,500 196,000 1,740,729
--------- --------- --------------- --------- --------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 246,721 (330,965) 246,721 126,926 21,577 373,645
Cash and cash equivalents at beginning of
period........................................... -0- 330,965 -0- 246,721 -0- -0-
--------- --------- --------------- --------- --------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........ $ 246,721 $ -0- $ 246,721 $ 373,845 $ 21,577 $ 373,645
--------- --------- --------------- --------- --------- ---------------
--------- --------- --------------- --------- --------- ---------------
Supplemental disclosures of cash flow information:
Interest paid................................... $ 15,000 $ 15,000 $ 25,00 $ 32,000
Accounts payable converted into stock........... 25,000 25,000 25,000
Capital contributed by forgiveness of debt...... 25,000 25,000 25,000
Notes payable converted to common stock......... 135,000 135,000
</TABLE>
Attention is directed to the foregoing auditors' report and
as the accompanying notes to financial statements.
-5-
<PAGE>
APOLLO GENETICS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1996 and for
the nine months ended September 30, 1996
and 1995 is unaudited)
(NOTE A) - THE COMPANY:
Apollo Genetics, Inc. (the "Company"), was incorporated on July 9, 1992.
The Company's objective is to develop biopharmaceutical products for
deterring aspects of human aging.
The Company is in the development stage and its efforts through December
31, 1995 have been principally devoted to organizational activities, raising
capital and initial research and development activities. It does not expect
commercial operations in the foreseeable future. The Company anticipates that
it will need substantial additional financing to complete its research and to
develop commercial products. The Company is endeavoring to obtain additional
financing for the next phase of its research activities; however, there is no
assurance that such financing can be obtained or that the Company's research
will be successful.
On November 6, 1996 the Board of Directors of the Company authorized the
filing of a registration statement with the Securities and Exchange Commission
for the initial public offering of shares of the Company's common stock.
(NOTE B) - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(1) ORGANIZATION COSTS:
The Company has capitalized certain costs, primarily legal expenses,
related to its organization. These costs are being amortized by the
straight-line method over five years.
(2) PATENT COSTS:
Patent costs will be amortized over the estimated useful lives of
the underlying patents commencing with the date when revenue is earned
related to the patents.
(3) 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 amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
(continued)
- 6 -
<PAGE>
APOLLO GENETICS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1996 and for
the nine months ended September 30, 1996
and 1995 is unaudited)
(NOTE B) - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
(4) CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with a maturity
of three months or less, when acquired, to be cash equivalents.
(5) INTERIM CONDENSED FINANCIAL STATEMENTS:
The condensed financial statements as of September 30, 1996 and for
the nine months ended September 30, 1996 and September 30, 1995 are
unaudited. In management's opinion, the unaudited financial statements as of
September 30, 1996 and for the nine months ended September 30, 1996 and
September 30, 1995, include all adjustments necessary for a fair
presentation. Such adjustments were of a recurring nature.
(NOTE C) - STOCK SUBSCRIPTIONS RECEIVABLE:
All stock subscriptions receivable were paid in full in October 1996.
(NOTE D) - NOTES PAYABLE:
During the 1995 and 1994, the Company issued $210,000 of 10% convertible
notes payable. The notes are due in full at the earlier of September 19, 1997
or the closing of the next offering of common stock of the Company with
aggregate gross proceeds to the Company of not less than $1,000,000. Interest
is payable annually on September 19. The notes may be redeemed at the option
of the Company at a price equal to 110% of the principal amount plus any
accrued and unpaid interest. The notes may be converted into common stock of
the Company at any time prior to the redemption or maturity date. The
conversion price is subject to adjustment as defined in the agreement. The
principal amount of the notes outstanding is $75,000 and $210,000 at
September 30, 1996 and December 31, 1995, respectively. In
- 7 -
<PAGE>
APOLLO GENETICS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1996 and for
the nine months ended September 30, 1996
and 1995 is unaudited)
(NOTE D) - NOTES PAYABLE: (continued)
conjunction with these notes, the Company issued warrants for the purchase of
700,000 shares of its common stock. The value assigned to the warrants,
amounting to $10,500, has been accounted for as debt discount and is being
amortized over the period of time the notes are expected to be outstanding.
The effective interest rate on the notes, including the debt discount, is
approximately 12%. The warrants are more fully discussed in Note E(3).
Through September 30, 1996 a total of $135,000 of the notes were converted
into 450,000 shares of common stock.
(NOTE E) - COMMON STOCK, OPTIONS AND WARRANTS:
[1] COMMON STOCK:
Through December 31, 1995, the Company has been financed primarily
through the sale of common stock. Through December 31, 1995, of the
11,770,000 shares issued, 11,000,000 were sold for cash and the remaining
770,000 shares were issued for payment of services rendered to the Company.
Through September 30, 1996, of the 13,017,843 shares issued, 12,164,291 were
sold for cash and the remaining 853,552 shares were issued for payment of
services rendered to the Company.
[2] OPTION PLAN:
The Company has a stock option plan that provides for the issuance
of both incentive and nonqualified stock options. This plan provides for the
granting of options to purchase not more than 1,000,000 shares of common
stock. The exercise price of the incentive options cannot be less than the
fair market value on the date of the grant, while the exercise price for the
nonqualified options is determined by the option committee.
(continued)
- 8 -
<PAGE>
APOLLO GENETICS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1996 and for
the nine months ended September 30, 1996
and 1995 is unaudited)
(NOTE E) - COMMON STOCK, OPTIONS AND WARRANTS: (continued)
[2] OPTION PLAN: (continued)
Option activity through September 30, 1996 has been as follows:
Number of Option Price
Shares Per Share
--------- ------------
Balance - December 31, 1992 -0- $-0-
Granted 200,000 $.20
-------
Balance - December 31, 1993 200,000 $.20
Granted 500,000 $.20 - $.30
-------
Balance - December 31, 1994 700,000 $.20 - $.30
Cancelled (300,000) $.20 - $.30
Granted 600,000 $.10 - $.25
-------
Balance - December 31, 1995 and
September 30, 1996 1,000,000 $.10 - $.30
At September 30, 1996, options to purchase 650,000 shares were
exercisable at an average exercise price of $.26 per share. At September 30,
1996, no options to purchase shares were available for grant under the plan.
In November of 1996, the Company's Board of Directors authorized an
increase of the number of shares of the Company's common stock issuable under
the plan by 1,000,000 shares.
Also in November of 1996, the Company's Board of Directors
authorized the establishment of the 1996 Directors Stock Option Plan, and
reserved 300,000 shares of the Company's common stock for issuance under the
Plan
(continued)
9
<PAGE>
APOLLO GENETICS, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information as of September 30, 1996 and for
the nine months ended September 30, 1996
and 1995 is unaudited)
(NOTE E) - COMMON STOCK, OPTIONS AND WARRANTS: (continued)
[3] WARRANTS:
In conjunction with the notes described in Note C, the Company issued
warrants for the purchase of 700,000 shares of the Company's common stock.
The warrants are exercisable until September 17, 1999 at the lower of $.30
per share or the price per share of the common stock at the closing of the
next offering of common stock with aggregate gross proceeds of at least
$1,000,000. The number and character of shares which may be purchased upon
the exercise of these warrants are subject to adjustment as provided in the
warrant agreement.
(NOTE F) - COMMITMENTS:
[1] LEASE:
The Company is currently subleasing its facilities under a
tenant-at-will agreement. Rent expense for the year ended December 31, 1995
amounted to $5,850 and the rent paid since inception is $21,100.
[2] RESEARCH, LICENSE AND CONSULTING AGREEMENTS:
The Company has entered into various research, license and
consulting agreements to support its research and development activities.
These agreements generally expire over several future years. Amounts charged
to operations in connection with these agreements for the year ended December
31, 1995 amounted to approximately $55,000. The Company expects to increase
its research and development expenses in future years.
Some of the above agreements contain provisions for future royalties
to be paid by the Company on the sale of products developed under the
agreements.
[3] EMPLOYMENT AGREEMENT:
The Company has entered into an employment agreement, which expires
on October 31, 1997, with its president which provides for a minimum annual
salary of $100,000 and twelve months of severance pay. The agreement will
automatically extend for a one-year period through October 31, 1998 unless
terminated by either party to the agreement.
(continued)
10
<PAGE>
SCHEDULE H
GRANTS AND OPTIONS
1. The Neurestrol License Option granted pursuant to Section 3.3 of the
Athena Agreement.
<PAGE>
NONEXCLUSIVE SUBLICENSE AGREEMENT
This Nonexclusive Sublicense Agreement (this "Agreement") is made as of
November 5, 1996, by and between Apollo Genetics, Inc., a corporation
organized and existing under the laws of Delaware ("Apollo"), and Cephalon,
Inc., a corporation organized and existing under the laws of Delaware
("Cephalon").
WHEREAS, pursuant to a certain Neuron Loss Protection Technology License
Agreement (the "University Agreement"), dated as of April 13, 1993, between
University of Kentucky Research Foundation (the "University") and Apollo, the
University granted Apollo the exclusive right and license to make, have made,
use, lease, and sell throughout the world (including the right to sublicense
worldwide any of the rights, privileges and licenses granted thereunder)
certain products, including inter alia, any Products (as defined below); and
WHEREAS, Cephalon desires to obtain a nonexclusive, worldwide, royalty
bearing sublicense to make, have made, use, sell, offer to sell and import
Products (as defined below);
NOW, THEREFORE, in consideration of the foregoing and of the mutual
undertakings hereinafter set forth, the parties hereto agree as follows:
1. DEFINITIONS.
1.1. "Apollo Patents" shall mean any of the patent applications listed
on EXHIBIT A hereto and all-patents issued in connection therewith, and all
divisionals, continuations, continuations-in-part, reissues and extensions
derived therefrom, as well as any additional foreign counterparts and foreign
patents issuing therefrom.
1.2. "Gross Sales" shall mean, during any applicable calculation period,
with respect to any Products during any applicable calculation period, the
aggregate invoiced amounts for Products shipped by Cephalon or any of its
affiliates to nonaffiliated third parties during such period.
1.3. "Net Sales" shall mean, during any applicable calculation period,
Gross Sales of all Products during such period, less [ * ]
1.4. "Products" shall mean any and all products made, developed, sold or
otherwise distributed by or on behalf of Cephalon or any of its affiliates
that are covered by one or more Valid Claims under this Agreement.
* Confidential treatment has been requested for marked portion
<PAGE>
-2-
1.5. "Valid Claims" shall mean the claims included in any of the issued
Apollo Patents that have not been challenged with any reasonable evidence of
invalidity and are, therefore, presumed valid solely for the purpose of
determining royalty obligations hereunder.
2. SUBLICENSE GRANT.
2.1. Subject to the provisions of this Sublicense Agreement, Apollo
hereby grants to Cephalon and Cephalon hereby accepts, during the term of
this agreement only, the nonexclusive, worldwide right and license to
practice under the Valid Claims.
2.2. Cephalon shall have the right to request that Apollo sublicense, on
a non-exclusive basis, its rights under Apollo Patents to one or more of
Cephalon's then current corporate collaborators. Apollo shall not
unreasonably withhold the grant of such sublicenses. Cephalon itself may not
grant any sublicenses under this Agreement.
3. ROYALTIES.
3.1. In consideration of the sublicense granted to Cephalon in Section
2, Cephalon agrees to pay royalties to Apollo as follows:
(a) on the date hereof and on each six-month anniversary of the
date hereof, Cephalon shall pay to Apollo $ [ * ], until such time
as an Apollo Patent is issued .
(b) Thereafter, on each six month anniversary of the date hereof,
beginning with the payment date next following the first issuance of
an Apollo Patent, Cephalon shall pay to Apollo $[ * ], until such
time as a New Drug Application is filed with the U.S. Federal Drug
Administration (the "FDA") or a foreign equivalent thereof is filed
with the appropriate authority for any Product (each such filing
being referred to herein as an "NDA");
(c) Thereafter, on each six month anniversary of the date hereof,
beginning with the payment date next following the first such
filing of an NDA, Cephalon shall pay to Apollo $[ * ], until
such time as an NDA for any Product is approved by the FDA or the
appropriate foreign authority therefor;
(d) Thereafter, Cephalon shall pay to Apollo royalties in an amount
equal to [ * ] percent ([ * ]%) of any and all Net Sales of Products
by Cephalon, any of its affiliates and any third parties acting on
behalf of any of the foregoing, subject to the provisions of
Section 3.4; and, FURTHER, PROVIDED that in any calendar year
* Confidential treatment has been requested for marked portion
<PAGE>
-3-
in which Cephalon must make payments to Apollo pursuant to this
Section 3.1(d), Cephalon must pay to Apollo no less than $[ * ]
in each such calendar year.
(e) All royalty payments owed by Cephalon to Apollo may be offset
by any payments made by Cephalon to Apollo pursuant to
Sections 3.1(a)-(c); provided; however, that in any calendar year
Cephalon's right to offset shall be limited to [ * ]% of the amount
of Cephalon's royalty obligation to Apollo pursuant to
Section 3.1(d) in the [ * ] year that such payments are owed,
[ * ]% in the second year and [ * ]% in all subsequent years.
(f) All royalty payments owed by Cephalon to Apollo pursuant to
subsections (a) through (d) of Section 3.1 shall be deemed timely if
paid within thirty (30) days of the date due therefor.
(g) If an additional sublicense is granted by Apollo to a third
party (including a Cephalon corporate collaborator) and such
sublicense provides for payment to Apollo by such third party of
a royalty based on net sales by such third party in an amount less
than [*]%, then Apollo hereby agrees to offer Cephalon the right to
convert the terms of its sublicense to match those of the
subsequently granted sublicense within one calendar quarter of
executing such sublicense agreement with such third party.
3.2 If Apollo is properly served with a legal complaint filed with a
court of competent jurisdiction, which complaint challenges with reasonable
evidence the validity of a claim within an Apollo Patents Cephalon's
obligation to pay to Apollo any subsequent royalty payments under Section
3.1(d) that are based on such claim shall be suspended until such time as
such complaint is finally adjudicated by a court of competent jurisdiction.
Upon such adjudication, all amounts owed by Cephalon to Apollo (plus interest
thereon accruing at an annual rate designated by Citibank, N. A. as its base
rate on the date that such royalty payments were first suspended) shall be
paid by Cephalon to Apollo within thirty (30) days thereof.
3.3. (a) The amount of royalties due under Section 3.1(d) shall be
computed quarterly. Within forty-five (45) days after the close
of each calendar quarter, Cephalon shall submit to Apollo
documentation of the Gross Sales and Net Sales of Products by
Cephalon, any of its affiliates and any third parties acting on
behalf of any of the foregoing. At such time, Cephalon shall pay
to Apollo in cash the royalties owed hereunder with respect to
such quarter. Each such payment shall be accompanied by a
certificate by an appropriate officer of Cephalon describing in
reasonable detail the calculation of the amount of the accompanying
royalty payment.
(b) Cephalon shall be responsible for monitoring Net Sales of
Products by
* Confidential treatment has been requested for marked portion
<PAGE>
-4-
itself or by any of its affiliates and any third parties
acting on behalf of any of the foregoing.
3.4. If Cephalon is required to enter into any royalty-bearing licensing
agreements with any third parties in order to make, use, sell, or import any
Product, any royalty payments owed to Apollo by Cephalon, pursuant to Section
3.1(d), with respect to such Product during any applicable period [ * ].
3.5. All royalty payments owed by Cephalon to Apollo under Section
3.1(d) shall be paid in full in the United States in United States dollars.
The amount, if any, of Net Sales invoiced in another currency shall be
converted, prior to computing the royalties due with respect to such sales,
from the invoice currency into United States dollars at the conversion rate
actually received by Cephalon or, in the absence of any actual conversion, at
a conversion rate which shall be the mean between Citibank, N.A.'s buying and
selling rate for the invoice currency at its principal offices in New York,
New York, on the last day of the quarter for which the royalties are being
determined.
4. DUE DILIGENCE. Cephalon agrees to use its best efforts to develop
and commercialize one or more Products under this Agreement consistent with
the prudent exercise of its business judgment.
5. PROSECUTION OF PATENTS. Apollo shall be solely responsible for the
preparation, filing, prosecution, issuance and maintenance of all Apollo
Patents, and shall bear all of the costs associated therewith. Apollo shall
provide Cephalon the right to review and comment on all documents in
connection with the prosecution of each Apollo Patent; provided, however,
that Cephalon shall have no obligation to review or comment on such documents
and, in the event that Cephalon does so comment, Apollo shall have no
obligation to incorporate the substance of any such comments into any such
documents.
6. INFRINGEMENT ACTIONS. Apollo shall have the sole right (but not
the obligation) to bring infringement, unfair competition or other
proceedings involving or relating to each Apollo Patent and to defend any
governmental action involving or relating to each Apollo Patent. At Apollo's
request and expense, Cephalon shall cooperate with Apollo in any such
proceedings or actions. Cephalon shall not itself take any action against
third parties relating to infringement, unfair competition or other matters
involving any Apollo Patent without
* Confidential treatment has been requested for marked portion
<PAGE>
-5-
Apollo's prior written approval and shall notify Apollo in writing of any
unauthorized use of any Apollo Patent promptly after becoming aware of any
such use or action.
Should Apollo receive from Cephalon formal written notice (the
"Formal Notice"), together with a professional, scientific explanation as to
the mechanism(s) of action, regarding an alleging infringement of any Apollo
Patent, in lieu of making full payment of any royalty payments owed under
Section 3.1(d) with respect to any Apollo Patents to which such alleged
infringement relates, Cephalon's obligation to pay Apollo any subsequent
royalty payments under Section 3.1(d) shall be reduced to [ * ]%, the
remaining [ * ]% owing under Section 3.1(d) to be withheld by Cephalon
pending resolution of such alleged infringement.. Cephalon shall place the
remaining [ * ]% royalty in an interest-bearing escrow account. If, at the
expiration of forty-eight (48) months from the receipt by Apollo of the
Formal Notice (the "Expiration Period"), Apollo has not resolved the issue of
such alleged infringement either by (1) obtaining a permanent injunction
prohibiting the alleged infringing party from continuing such alleged
infringement (an "Injunction") and/or (2) by final adjudication from which no
further appeal may be taken (including the settling of such alleged
infringement by agreement) resulting in (a) cessation of such alleged
infringement and/or (b) a determination of non-infringement (other than for
reasons of invalidity and/or unenforceability of any of the Apollo Patents)
(a "Final Adjudication"), Cephalon shall be entitled to retain the entire
amount of the withheld [ * ]%, including any interest thereon, within such
escrow account for its use and Apollo shall not be entitled to any monies
from such account. If, however, Apollo does resolve such issue by obtaining
an Injunction or a Final Injunction prior to the end of the Expiration
Period, then Cephalon shall promptly pay to Apollo the entire amount of the
withheld [ * ]%, including any interest thereon, within such escrow account
and any subsequent payments finder Section 3 1(d) shall resume to [ * ]% at
such time. Following the Expiration Period, any subsequent payments under
Section 3.1(d) shall continue to be reduced to [ * ]%, but shall resume to
[ * ]% at such time as Apollo thereafter obtains an Injunction and/or a Final
Adjudication. Notwithstanding anything in this paragraph to the contrary, in
the event that Apollo grants a license under Apollo Patents to any such
alleged infringer at any time after 180 days of receipt of the Formal Notice
(whether or not in connection with a Final Adjudication), Apollo shall not be
entitled to any portion of the withheld [ * ]%, including any interest
thereon.
7. CONFIDENTIAL INFORMATION; PUBLIC ANNOUNCEMENTS.
7.1. It is contemplated that, during the term of this Agreement, each
party (as such, a "Disclosing Party") will disclose to the other party (as
such, a "Receiving Party") proprietary or confidential information of the
Disclosing Party that is marked or otherwise reasonably identified as such
or, if disclosed orally, is followed by written notice within thirty (30)
days reasonably identifying it as such (collectively, "Confidential
Information"). A Receiving Party shall hold in confidence and shall not,
directly or indirectly, at any time during or subsequent to the term of this
Agreement, unless otherwise agreed to in writing by the Disclosing Party,
* Confidential treatment has been requested for marked portion
<PAGE>
-6-
disclose, publish, transfer or use (other than in accordance with the terms
of this Agreement) any Confidential Information of the Disclosing Party;
Provided, however, that the foregoing restrictions shall not apply to any
Confidential Information that:
(a) becomes part of the public domain through no wrongful act of the
Receiving Party;
(b) is lawfully received by the Receiving Party from a third party
without contravention of this Agreement or any similar nondisclosure
agreement (whether or not with the Receiving Party);
(c) prior to the time of receiving such Confidential Information from
the Disclosing Party, is known by the Receiving Party and may
lawfully be used by it without restriction; or
(d) is independently developed by the Receiving Party, provided that
the person or persons developing the same have not had any access to
the Confidential Information.
Confidential Information specific to the use of certain compounds,
methods, conditions or features shall not be deemed to be within the
foregoing exceptions merely because such Confidential Information is embraced
by general disclosures in the public domain or in the possession of the
Receiving Party; in addition, a combination of Confidential Information will
not be deemed to fall within the foregoing exceptions, even if all of the
components fall within an exception, unless the combination itself and its
significance are in the public domain or in the possession of the Receiving
Party prior to the disclosure thereof by the Disclosing Party.
All Confidential Information received hereunder shall be
immediately returned to tile Disclosing Party upon termination of this
Agreement, along with any copies, reproductions, digests, abstracts or the
like of all or any part thereof in the Receiving Party's possession or under
the Receiving Party's control, and upon such return any computer entries or
the like relating thereto shall, to the extent legally permissible, be
destroyed, and such return and/or destruction shall be certified in writing
by an appropriate officer of the Receiving Party. Such return (and
destruction) will not affect the Receiving Party's obligations hereunder
which shall survive indefinitely. Notwithstanding the foregoing, each party
may retain one copy of the Confidential Information received hereunder,
solely for archival purposes.
7.2. Except as shall be necessary to comply with applicable laws and
regulations, and except as otherwise agreed to by the parties hereto in
writing, the parties agree to keep the existence of this Agreement, and the
transactions contemplated hereby, strictly confidential. Any public
announcements regarding this Agreement or the transactions contemplated
herein shall
<PAGE>
-7-
be agreed upon in writing between the parties prior to any release thereof
8. REPRESENTATIONS OF APOLLO. Apollo represents, warrants and
covenants as follows:
8.1 It is a corporation duly organized and validly existing under the
laws of Delaware with the full power to conduct its affairs as currently
conducted and contemplated hereunder. All necessary action has been taken to
enable it to execute and deliver this Agreement and perform its obligations
hereunder.
8.2. This Agreement is a valid and binding obligation of Apollo
enforceable in accordance with its terms. Apollo has the right to enter into
this Agreement and to fulfill its duties hereunder. Apollo is not and will
not become a party to any agreement in conflict herewith. Accordingly, Apollo
has the right to grant the license set forth in Section 2 in accordance with
the terms of this Agreement and such grant will not constitute a breach of
any existing contractual or other arrangements between Apollo and any
affiliated or non-affiliated third party, nor shall it infringe the rights of
any affiliated or non-affiliated third party.
8.3 No approval, consent, order, authorization or license by, giving
notice to or taking any other action with respect to, any governmental or
regulatory authority is required in connection with the execution and
delivery of this Agreement by Apollo and the performance by Apollo of its
obligations hereunder.
9. REPRESENTATIONS OF CEPHALON. Cephalon represents, warrants and
covenants as follows:
9.1. It is a corporation duly organized and validly existing under the
laws of Delaware with full power to conduct its affairs as currently
conducted and contemplated hereunder. All necessary action has been taken to
enable it to execute and deliver this Agreement and perform its obligations
hereunder.
9.2. This Agreement is a valid and binding obligation of Cephalon
enforceable in accordance with its terms. Cephalon has the right to enter
into this Agreement and to fulfill its obligations hereunder.
9.3. No approval, consent, order, authorization or license by, giving
notice, to or taking any other action with respect to any governmental or
regulatory authority is required in connection with the execution and
delivery of this Agreement by Cephalon and the performance by Cephalon of its
obligations hereunder.
<PAGE>
-8-
10. INDEMNIFICATION AND INSURANCE.
10.1 Cephalon shall indemnify, defend and hold harmless Apollo and its
directors, officers, employees and affiliates (the "Indemnitees"), against
any liability, damage, loss or expense (including reasonable attorneys' fees
and expenses of litigation) incurred by or imposed upon the Indemnitees, or
any one of them, in connection with any claims, suits, actions, demands or
judgments arising out of the production, manufacture, sale, use in commerce,
or promotion by Cephalon or by an affiliate or agent of Cephalon, of any
product, process or service relating to, or developed pursuant to, this
Agreement.
10.2 Cephalon's indemnification under Section 10.1(a) shall apply to
any liability, damage, loss or expense whether or not it is attributable to
the negligent activities of the Indemnitees.
10.3 At such time as any Product is being used for obtaining regulatory
approvals or is being commercially distributed or sold by Cephalon or an
affiliate or agent of Cephalon, Cephalon shall, at its sole cost and expense,
procure and maintain policies of comprehensive general liability insurance in
amounts not less than One Million Dollars ($1,000,000) per person per
occurrence. At all times that any Product is being sold commercially,
Cephalon shall cause the Indemnitees to be named as additional insureds under
such policies. Such comprehensive general liability insurance shall provide
(a) product liability coverage; (b) broad form contractual liability coverage
for Licensee's indemnification under Sections 10.1 and 10.2 of this Agreement.
10.4 In thee event any such action is commenced or claim made or
threatened against Apollo or other Indemnitees as to which Cephalon is
obligated to indemnify it (them) or hold it (them) harmless, Apollo or the
other Indemnitees shall promptly notify Cephalon of such event and Cephalon
shall assume the defense of, and may settle, that part of any such claim or
action commenced or made against Apollo (or other Indemnitees) which relates
to Cephalon's indemnification and Cephalon may take such other steps as may
be necessary to protect itself. Cephalon shall not be liable to Apollo or
other Indemnitees on account of any settlement of any such claim or
litigation effected without Cephalon's consent. The right of Cephalon to
assume the defense of any action shall be limited to that part of the action
commenced against Apollo and/or Indemnitees which relates to Cephalon's
obligation of indemnification and holding harmless.
11. DISCLAIMER OF WARRANTIES.
11.1 APOLLO MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING,
<PAGE>
-9-
WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS
FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY TECHNICAL INFORMATION LICENSED
OR OTHERWISE PROVIDED TO CEPHALON OR ITS AFFILIATES HEREUNDER AND HEREBY
DISCLAIMS THE SAME.
11.2 APOLLO DOES NOT WARRANT THE VALIDITY OF THE TECHNOLOGY LICENSED
HEREUNDER AND MAKES NO REPRESENTATION WHATSOEVER WITH REGARD TO THE SCOPE OF
SUCH TECHNOLOGY OR THAT SUCH TECHNOLOGY MAY BE EXPLOITED BY CEPHALON OR ITS
AFFILIATES WITHOUT INFRINGING ANY PATENTS OF ANY THIRD PARTY.
12. TERMINATION OF THE UNIVERSITY AGREEMENT. Apollo shall not
knowingly take any action or omit to take any action that would constitute
grounds for termination by the University of the University Agreement.
13. ACCOUNTS. Cephalon shall maintain accurate books of account with
respect to its Gross Sales and Net Sales of Products. Apollo or its duly
authorized representative shall be entitled to inspect such books of account
at its own cost and at such times and intervals (but not more than once per
calendar year) as Apollo may reasonably request, solely for the purpose of
verifying the correctness of Cephalon's payments under Section 3. Within one
hundred twenty (120) days after the close of each fiscal year of Cephalon
during the term of this Agreement, Cephalon shall furnish to Apollo a copy of
Cephalon's Annual Report on Form 10-K.
14. TERM AND TERMINATION. Unless earlier terminated pursuant to this
Section 14, this Agreement shall be effective until the last to expire of any
issued claims under any Apollo Patent. Notwithstanding the foregoing, this
Agreement may be terminated as follows:
(a) By Apollo or Cephalon, upon termination of the University
Agreement;
(b) By Cephalon, for any reason, after providing Apollo written
notice to such effect, such termination to occur at least six (6)
months after receipt by Apollo of such notice;
(c) By either party, after providing written notice to the other
party, upon the occurrence of any of the following with respect to
the other party:
(i) breach of any duty or obligation hereunder not cured
within thirty (30) days after receipt of written notice thereof;
<PAGE>
-10-
(ii) institution by of bankruptcy, insolvency, liquidation or
receivership proceedings, or proceedings for reorganization
under bankruptcy or comparable laws, the effectiveness of which
is not stayed or dismissed within sixty (60) days after such
institution; and
(iii) the making of a general assignment for the benefit of
creditors.
15. EFFECTS OF TERMINATION. Cephalon shall not have any claim for lost
profits or goodwill relating to the termination of this Agreement in
accordance with its terms. Upon the expiration or termination of this
Agreement, Cephalon's rights hereunder shall expire immediately. The
expiration or termination of this Agreement shall not affect any obligation
accruing prior to such expiration or termination.
16. SURVIVAL. The provisions of Sections 6, 7, 10, 11, 13 (for the
longer of (i) one year from the expiration or termination of the Agreement
and (ii) delivery by Cephalon to Apollo of Cephalon's Annual Report on Form
10-K containing audited financial statements for the latest year in which
there are Net Sales of Products) and 15 shall survive the expiration or
termination of this Agreement.
17. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. The rights, interests and obligations of Cephalon under this
Agreement may slot be transferred assigned or encumbered, in whole or in
part, without Apollo's express prior written consent. The rights and
obligations of Apollo under this Agreement malt be transferred or assigned,
in whole or in part, at Apollo's sole discretion.
18. SPECIFIC PERFORMANCE. Because a breach by either party of any of
its obligations hereunder may irreparably harm the other party, each party
agrees that if it breaches or threatens to breach any of its obligations
hereunder the other party stall, without limitation of its other rights and
remedies, be entitled to seek equitable relief to enforce the breaching
party's obligations hereunder.
19. NOTICES. All notices and other communications hereunder shall be
in writing or by confirmed facsimile transmission, and shall be deemed to
have been given on actual receipt or, if earlier, (a) one (1) day after
delivery to a nationally recognized overnight courier-or (b) four (4) days
after mailing by registered or certified mail, postage prepaid, addressed in
each case, as follows:
<PAGE>
-11-
If to Apollo:
Apollo Genetics, Inc.
222 Third Street, Suite 2110
Cambridge, MA 02142
(Fax: 617-492-0084)
Attn.: Katherine Gordon, Ph.D., President
with a copy to:
Roger D. Feldman, Esq.
Bingham, Dana & Gould LLP
150 Federal Street Boston, MA 02110
(Fax: 617-951-8736)
If to Cephalon:
Cephalon, Inc.
145 Brandywine Parkway
West Chester, PA 19380
(Fax: 610-344-0065)
Attn.: Senior Vice President, Business Development
with a copy to:
Cephalon, Inc.
145 Brandywine Parkway
West Chester, PA 19380
(Fax: 610-344-0065)
Attn.: General Counsel
Each of the parties shall be entitled to specify a different address by
giving notice as provided herein.
20. RELATIONSHIP OF PARTIES. Nothing contained herein shall be deemed
to create a joint venture, partnership, agency or similar endeavor between
the parties. Each party shall act solely as an independent contractor and
neither shall have any power or authority to directly or indirectly bind the
other.
<PAGE>
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21. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the Commonwealth of Massachusetts.
22. MISCELLANEOUS. This Agreement supersedes any and all prior oral or
written understandings of the parties relating to the subject matter hereof,
and constitutes the entire agreement of the parties relating to the subject
matter hereof. Apollo and Cephalon may amend or modify this Agreement only by
a written document executed by each of them. This Agreement may be executed
in multiple counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same document. No waiver of
any of the provisions of this Agreement shall be deemed a waiver of any other
provision hereof, nor shall any such waiver constitute a continuing waiver
unless otherwise expressly provided. The headings contained herein are for
the convenience of the parties and shall not be deemed a part hereof
[Signature page to follow.]
<PAGE>
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
APOLLO GENETICS, INC. CEPHALON, INC.
By: /s/ Katherine Gordon By: /s/ Joseph J. Day, Jr.
-------------------- -----------------------
Title: President & CEO Title: Senior Vice President
-------------------- -----------------------
Date: November 11, 1996 Date: November 6, 1996
--------------------- -----------------------
<PAGE>
EXHIBIT A
PATENT APPLICATIONS
Application/
Country/Region Serial Number Filings Date Title
- -------------- ------------- ------------ -----
[ * ]
* Confidential treatment has been requested for marked portion
<PAGE>
LICENSE AND COLLABORATION AGREEMENT
between
APOLLO GENETICS, INC.
and
ATHENA NEUROSCIENCES, INC.
Dated as of
April 16, 1996
<PAGE>
TABLE OF CONTENTS
License and Collaboration Agreement
TOPIC PAGE NO.
- ----- --------
ARTICLE 1. DEFINITIONS
1.1 Acute Formulation 1
1.2 Affiliate 1
1.3 Committee 1
1.4 Compound(s) 2
1.5 Development Funding 2
1.6 Field 2
1.7 First Commercial Sale 2
1.8 Improvements 2
1.9 Licensed Know-How 2
1.10 Licensed Patent Rights 2
1.11 Licensed Technology 2
1.12 Lilly and Lilly Collaboration 3
1.13 Net Products Revenue 3
1.14 Neurestrol-Registered Trademark- 3
1.15 Person 3
1.16 Plan 3
1 17 Product 3
1.18 Royalty Term 3
1.19 Territory 3
1.20 Valid Patent Claim 3
ARTICLE 2. REPRESENTATIONS, WARRANTIES AND DISCLAIMERS 3
2.1 Apollo Representations and Warranties 3
2.2 Athena Representations and Warranties 5
2.3 Disclaimers of Warranties 5
ARTICLE 3. LICENSE GRANT 6
3.1 Licensed Technology 6
3.2 Acute Formulation 6
3.3 Neurestrol-Registered Trademark- License Option 6
ARTICLE 4. CONTROL OF DATA 7
<PAGE>
TOPIC PAGE NO.
- ----- --------
ARTICLE 5. LICENSE FEES AND ROYALTY PAYMENTS 7
5.1 License Fees 7
5.2 Royalty Rate 7
5.3 Royalty Credits 8
ARTICLE 6. ROYALTY REPORTS AND ACCOUNTING 8
6.1 Reports, Exchange Rates 8
6.2 Access 8
6.3 Sublicenses 8
6.4 Confidential Financial Information 9
ARTICLE 7. PAYMENTS 9
7.1 Payment Terms 9
7.2 Exchange Control 9
7.3 Withholding Taxes 9
ARTICLE 8. RESEARCH AND DEVELOPMENT OBLIGATIONS 9
8.1 Development 9
8.2 Funding and Resources 9
8.3 Committee 9
ARTICLE 9. PATENTS AND INFRINGEMENT ACTIONS 10
9.1 Patent Prosecution and Maintenance 10
9.2 Notification of Infringement 11
9.3 Enforcement of the Licensed Patent Rights 11
9.4 Improvements 11
9.5 Infringement Action by Third Parties 11
ARTICLE 10. CONFIDENTIALITY 12
ARTICLE 11. TERMINATION 12
11.1 Expiration 12
11.2 Termination by Athena 12
11.3 Termination for Cause 13
11.4 Effect of Expiration or Termination 13
<PAGE>
TOPIC PAGE NO.
- ----- --------
ARTICLE 12. INDEMNIFICATION AND INSURANCE 13
12.1 Indemnification 13
12.2 Procedure 13
12.3 Insurance 13
ARTICLE 13. FORCE MAJEURE 14
ARTICLE 14. MISCELLANEOUS 14
14.1 Notices 14
14.2 Arbitration 14
14.3 Assignment 14
14.4 Amendments 15
14.5 Entire Agreement 15
14.6 Severability 15
14.7 Waiver 15
14.8 Counterparts 15
14.9 No Announcement 15
<PAGE>
LICENSE AND COLLABORATION AGREEMENT
THIS LICENSE AND COLLABORATION AGREEMENT (the "Agreement"), dated as of
April 16, 1996, is entered into between APOLLO GENETICS, INC., a Delaware
corporation ("Apollo"), having its principal place of business at 222 Third
Street, Suite 2110, Cambridge, Massachusetts 02142, and ATHENA NEUROSCIENCES,
INC., a Delaware corporation ("Athena"), having its principal place of
business at 800 Gateway Boulevard, South San Francisco, California 94080.
RECITALS
A. Apollo is the owner or exclusive licensee of certain Licensed
Patent Rights (as defined below) and know-how relating to certain estrogen
compounds that may have utility in the field of neurodegenerative diseases.
B. On April 16, 1996, Athena has exercised its exclusive option to
acquire from Apollo a worldwide license to such Licensed Patent Rights and
Licensed Know-How (as defined below), upon the terms and conditions
hereinafter set forth.
C. Apollo and Athena wish to enter into this License and Collaboration
Agreement for the development of such compounds; and to establish a steering
committee for the management of such development, all on the terms and
conditions of this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises herein contained, the parties hereby agree as follows:
ARTICLE 1. DEFINITIONS:
1.1 "ACUTE FORMULATION" means any therapeutic product incorporating a
Compound for the purpose in whole or in part of treating acute (i.e.,
anticipated treatment regimen of less than six months) neurodegenerative
diseases or conditions, such as stroke or head trauma, in an intramuscular or
intravenous formulation.
1.2 "AFFILIATE" shall mean, with respect to any Person, any other
Person which directly or indirectly controls, is controlled by, or is under
common control with, such Person (including without limitation, as it
pertains to Athena, Elan Corporation plc ("Elan") and its Affiliates).
1.3 "COMMITTEE" shall have the meaning given in Section 8.3 below.
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<PAGE>
1.4 "COMPOUND(S)" shall mean the estrogen compound(s) which are the
subject of the Licensed Patent Rights, with the exception of
Neurestrol-Registered Trademark-, which is the subject of the option set out
in Section 3.3 below.
1.5 "DEVELOPMENT FUNDING" shall mean all funds and resources (including
all out-of-pocket costs, plus reasonable amounts for internal resources)
expended by either party in the development efforts described herein, net of
any amounts received from third parties (such as Eli Lilly and Company) which
are used for such expenditures. Such amounts shall include out-of-pocket
expenses paid after the date of this Agreement under Sections 9.1 and 9.3
below. "Apollo Development Funding" shall mean Development Funding expended
by Apollo. "Athena Development Funding" shall mean Development Funding
expended by Athena.
1.6 "FIELD" shall mean the field of chronic neurodegenerative
conditions or diseases (i.e., an anticipated treatment regimen of six months
or more).
1.7 "FIRST COMMERCIAL SALE" shall mean, with respect to any country in
the Territory, the first sale of Products after any required marketing,
pricing or other approval has been granted by the governing health authority
of such country.
1.8 "IMPROVEMENTS" shall have the meaning given in Section 9.4 below.
1.9 "LICENSED KNOW-HOW" shall mean, with respect to the Field, all
information and data which is not generally known including, but not limited
to, formulas, procedures for experiments, assay protocols, results of
experimentation and testing, data, and specifications which are reasonably
necessary or useful for Athena to make, have made, use or sell the Compounds,
or to practice the processes and methods, claimed or otherwise disclosed in
the Licensed Patent Rights, in which Apollo now or hereafter-has an-ownership
or licensable interest, and which is in the possession or control of Apollo
during the term of the Agreement.
1.10 "LICENSED PATENT RIGHTS" shall mean (a) all patent applications
heretofore or hereafter filed or having legal force in any country within the
Territory, now or hereafter owned by or licensed to Apollo or to which Apollo
otherwise acquires rights, [ * ] and incorporated by reference,
together with any and all patents that have issued or in the future issue
therefrom, including without limitation utility, model and design patents and
certificates of invention, and (b) all divisionals, continuations,
continuations-in-part, reissues, renewals, supplementary protection
certificates, extensions or additions to any such patents and patent
applications; all to the extent and only to the extent that Apollo has the
right to grant licenses, immunities or other rights thereunder as of the date
or during the term of the Agreement.
1.11 "LICENSED TECHNOLOGY" shall mean, collectively, the Licensed Patent
Rights and the Licensed Know-How.
* Confidential treatment has been requested for marked portion
-2-
<PAGE>
1.12 "LILLY" AND "LILLY COLLABORATION" shall have the meanings given in
Section 2.1 (f) below.
1.13 "NET PRODUCTS REVENUE" shall mean, with respect to any Products,
actual cash receipts by Athena or its Affiliates from payment of invoices
issued to independent customers who are not Affiliates for the sale of such
Products in the Territory by Athena or its Affiliates, less [ * ]
1.14 "NEURESTROL-Registered Trademark-" shall mean 17-estradiol within a
pellet implant subcutaneous drug delivery vehicle.
1.15 "PERSON" shall mean an individual, corporation, partnership,
association, joint venture, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
1.16 "PLAN" shall have the meaning given in Section 8.3 below.
1.17 "PRODUCT" shall mean any product sold commercially by Athena, its
Affiliates or any sublicensee which incorporates a Compound.
1.18 "ROYALTY TERM" shall mean, with respect to each country in the
Territory, the period commencing on the First Commercial Sale in such country
and ending on the later of (a) ten (10) years from the date of the First
Commercial Sale in such country, or (b) the last expiration of any patent
issued in such country based upon a Valid Patent Claim.
1.19 "TERRITORY" shall mean the entire world.
1.20 "VALID PATENT CLAIM" shall mean either (a) a claim of an issued and
unexpired patent included within the Licensed Patent Rights, which has not
been held permanently revoked, unenforceable or invalid by a decision of a
court or other governmental agency of competent jurisdiction, unappealable or
unappeased within the time allowed for appeal, and which has not been
admitted to be invalid or unenforceable through reissue or disclaimer or
otherwise, or (b) a claim of a pending patent application included within the
Licensed Patent Rights, which claim was filed in good faith and has not been
abandoned or finally disallowed without the possibility of appeal or refiling
of such application.
ARTICLE 2. REPRESENTATIONS, WARRANTIES AND DISCLAIMERS:
2.1 APOLLO REPRESENTATIONS AND WARRANTIES. Apollo hereby represents and
warrants to Athena as follows:
* Confidential treatment has been requested for marked portion
-3-
<PAGE>
(a) Apollo has the full legal right to enter into the Agreement and
to perform its obligations hereunder. The Agreement has been duly executed
and delivered by Apollo, and constitutes a legal, valid and binding
obligation, enforceable against Apollo in accordance with its terms.
(b) All necessary notices, consents, approvals and authorizations
of all governmental authorities and other Persons required to be obtained by
Apollo in connection with the Agreement (including without limitation The
University of Florida Research Foundation, Inc.) have been timely given or
obtained by Apollo. Apollo will take all actions reasonably necessary to
maintain any licenses of Licensed Technology to Apollo in full force and
effect as they may affect or relate to Athena's rights hereunder. Apollo will
not modify, amend or terminate in any material respect any such licenses
without Athena's prior written consent, not to be unreasonably withheld.
Apollo will promptly notify Athena in writing in the event of any alleged
breach, default, expiration or termination under any such license by any
party thereto.
(c) The execution and delivery of the Agreement and the performance
of Apollo's obligations hereunder do not conflict with, or constitute a
default under, any contractual or other obligation of Apollo and, to Apollo's
best knowledge, do not conflict with or violate any requirement of applicable
laws or regulations.
(d) Apollo is the sole owner or exclusive licensee of the Licensed
Technology, and has not granted to any third party any license, sublicense or
other interest of any kind (including any charge, lien or encumbrance) in the
Licensed Technology with the exception of Neurestrol-Registered Trademark-.
Exhibit A represents a correct and complete list of pending patents, patent
applications, continuations-in-part, et al., comprising the Licensed Patent
Rights as of the date of this Agreement.
(e) Except (a) as to Neurestrol-Registered Trademark-, upon the
expiration without exercise of the Neurestrol-Registered Trademark- option in
Section 3.3 below, and (b) as to an Acute Formulation, after compliance with
Section 3.2 below, during the term of this Agreement, Apollo shall not enter
into any agreement with any third party with respect to the development,
license, sale, transfer, encumbrance, marketing or distribution of the
Licensed Technology.
(f) Apollo acknowledges that Athena has a preexisting collaboration
with Eli Lilly and Company ("Lilly"), dated May 31, 1995, as amended, in the
field of therapeutics for Alzheimer's disease (the "Lilly Collaboration").
The Lilly Collaboration provides that Lilly has an exclusive option to
exclusively license worldwide any compound Athena evaluates using technology
developed by Lilly and/or Athena which is subject to the Lilly Collaboration.
Apollo further acknowledges that Athena will evaluate one or more Compounds
using technology developed under the Lilly Collaboration and that Athena will
be obligated to offer Lilly an option to license such Compounds under the
terms of the Lilly Collaboration. Apollo further acknowledges and agrees that
Lilly may, by sublicense, assignment or otherwise, participate in Athena's
rights under this Agreement (as defined below). Athena will provide Apollo
with copies of any amendments to the Lilly Collaboration which could
reasonably be material to Apollo's rights hereunder.
-4-
<PAGE>
(g) To Apollo's best knowledge, the exploitation by Athena of the
Licensed Technology will not infringe upon the patent rights of any third
party as of the date of this Agreement.
2.2 ATHENA REPRESENTATIONS AND WARRANTIES. Athena hereby represents and
warrants to Apollo as follows:
(a) Athena has the full legal right to enter into this Agreement
and to perform its obligations hereunder. The Agreement has been duly
executed and delivered by Athena, and constitutes a legal, valid and binding
obligation, enforceable against Athena in accordance with its terms.
(b) All necessary notices, consents, approvals and authorizations
of all governmental authorities and other persons required to be obtained by
Athena in connection with the Agreement (including without limitation Lilly
and Elan) have been timely given or obtained by Athena.
(c) To Athena's best knowledge, the execution and delivery of the
Agreement and the performance of Athena's obligations hereunder do not
conflict with or violate any requirement of applicable laws or regulations,
and do not conflict, or constitute a default under any contractual or other
obligation of Athena.
(d) Athena acknowledges that Apollo has a pre-existing relationship
with Endocon, Inc. ("Endocon") regarding Neurestrol-Registered Trademark-.
Athena further acknowledges that Endocon and, subject to the option granted
in Section 3.3 below, Apollo, may sublicense, sell or transfer its rights in
Neurestrol-Registered Trademark- to one or more third parties.
2.3 DISCLAIMERS OF WARRANTIES.
(a) APOLLO MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A
PARTICULAR PURPOSE, WITH RESPECT TO ANY TECHNICAL INFORMATION LICENSED OR
OTHERWISE PROVIDED TO ATHENA OR ITS AFFILIATES OR SUBLICENSEES HEREUNDER, AND
HEREBY DISCLAIMS THE SAME.
(b) APOLLO DOES NOT WARRANT THE SAFETY OR EFFICACY OF THE LICENSED
TECHNOLOGY.
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ARTICLE 3. LICENSE GRANT:
3.1 LICENSED TECHNOLOGY. Apollo hereby grants to Athena an exclusive
license under the Licensed Technology, for use only in the Field, to make,
have made, use and sell Compounds and Products and to practice processes and
methods using the Compounds and Products in the Territory. This license does
not include Neurestrol-Registered Trademark-, which is the subject of the
Neurestrol-Registered Trademark- license option pursuant to Section 3.3.
Athena shall have the right to grant sublicenses with the prior consent of
Apollo, which consent shall not be unreasonably withheld.
3.2 ACUTE FORMULATION. Apollo shall have the right to develop one or
more Acute Formulations, subject to this Section. Prior to undertaking or
agreeing to undertake the development of any Acute Formulation, Apollo shall
first submit a written proposal to Athena, which shall specifically identify
the Acute Formulation to be developed, and shall include a reasonably
detailed three-year scientific and business plan and budget (the "Proposal").
Athena shall have the opportunity to review the Proposal. Within ninety days
of receipt of the full Proposal, Athena may decide in its sole discretion
whether to fund the Proposal.
(a) If Athena declines to fund the Proposal, Apollo shall be free
to develop the Acute Formulation identified in the Proposal independently, or
with a third party upon terms substantially identical to or materially more
favorable to Apollo, with no payment or royalty to Athena.
(b) If Athena agrees to fund the Proposal, Apollo shall grant to
Athena a license. contingent upon further development requirements as
contained in the Proposal, for the Acute Formulation which is the subject of
the Proposal. The license shall provide that Apollo shall be entitled to a
[ * ] percent ([ * ]) royalty in all Net Products Revenue from that Acute
Formulation, and shall contain other terms and conditions substantially
similar to this Agreement. The Committee shall administer that Acute
Formulation in the same way provided for under Section 8.3, below, for
Compounds in the Field. If Athena later determines in its sole discretion not
to pursue development and/or funding under the Proposal and the resulting
license for the Acute Formulation, Apollo shall be free to develop the Acute
Formulation identified in the Proposal independently, or with a third party
on terms substantially identical to or materially more favorable to Apollo.
Athena shall terminate or sublicense its rights under the Acute Formulation
license, as Apollo reasonably requests, and the parties shall negotiate in
good faith a royalty to Athena commensurate with its economic and other
contributions to the date of termination or sublicense of Athena's rights
under that license. Any such license, and any termination or sublicense
thereof, shall have no effect on either party's rights under this Agreement.
3.3 NEURESTROL-Registered Trademark- LICENSE OPTION. In return
for the consideration described herein, Apollo also hereby grants to Athena
an exclusive option, to be exercised in writing no later than January 16,
1997, to obtain an exclusive, worldwide license. under the Licensed
Technology, to Apollo's interest in the Neurestrol-Registered Trademark- drug
delivery technology and to practice processes and methods using
Neurestrol-Registered Trademark- for use in the Field. Prior to that date,
Apollo shall provide, at Athena's request, all information within Apollo's
possession regarding Neurestrol-Registered Trademark-. The fee for
* Confidential treatment has been requested for marked portion
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exercise of such option shall be $[ * ], payable upon exercise of that
option. If that option is exercised, the parties shall then negotiate in good
faith and use commercially reasonable efforts to enter into a license
agreement upon reasonable economic terms and conditions to be negotiated, and
other terms which are reasonably similar to this Agreement, taking into
account the nature of the transaction and the parties.
ARTICLE 4. CONTROL OF DATA:
4.1 CONTROL OF DATA. Upon termination of this Agreement for any
reason, the following principles shall determine control of and ongoing
access to data generated as a result of efforts to develop one or more
Products under this Agreement:
(a) Any data related to [ * ], will remain proprietary
to Athena and shall not be released, disclosed or communicated by Apollo
either orally or in writing to any other party for any reason, without
Athena's prior written consent in its sole discretion. In the event of
disclosure which Apollo believes to be legally required, Apollo will give as
much advance written notice to Athena as possible of the proposed disclosure,
and will cooperate reasonably in any effort by Athena to prevent or limit the
necessary disclosure.
(b) Any data generated under this Agreement which is not related to
[ * ] may be freely published, disclosed or released by Apollo,
provided that Apollo (i) gives at least sixty (60) days' advance written
notice of each such proposed disclosure, to allow Athena to protect its
intellectual property position, and (ii) retracts any information which
Athena reasonably requests, as being confidential or proprietary to Athena.
(c) Section 9.4 shall continue to apply to Improvements.
ARTICLE 5. LICENSE FEES AND ROYALTY PAYMENTS:
5.1 LICENSE FEES. Unless notice of termination has been given by
Athena under Article 11 below, Athena shall pay Apollo license fees upon the
occurrence of each event described below, in the amounts shown:
(a) $ [ * ] and
(b) $ [ * ]
5.2 ROYALTY RATE . During the Royalty Term, Athena shall pay to Apollo
royalties of [ * ] percent ([ * ]) of the following: (a) all sublicense fees
and milestone, royalty or other payments (other than research or development
funding) actually received by Athena or any Affiliates from each sublicensee,
in consideration for the sublicense of the Licensed Technology
* Confidential treatment has been requested for marked portion
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to commercially develop a Compound; and (b) Net Products Revenue actually
received by Athena or any Affiliates from sales of any Product.
5.3 ROYALTY CREDITS. The royalties payable by Athena under Section 5.2
above shall be reduced by the following: (a) a credit for Athena Development
Funding through the period covered by the applicable royalty report, less
Apollo Development Funding for the same period, up to a maximum net
Development Funding credit in that period of [ * ] percent ([ * ]%) of the
gross royalty payable by Athena for the period, with any unused amounts
carrying forward to subsequent periods; and (b) a credit, during the [ * ],
for the license fees paid by Athena under Section 5. I(a) and (b) above, up
to a maximum aggregate license fee credit of [ * ] percent ([ * ]%) of such
amounts, with any unused amounts carrying forward to subsequent periods.
ARTICLE 6. ROYALTY REPORTS AND ACCOUNTING:
6.1 REPORTS, EXCHANGE RATES. Following the First Commercial Sale,
Athena shall furnish to Apollo a quarterly written report showing in
reasonably specific detail, on a country-by-country basis, (a) the number of
Products sold which generated Net Products Revenue to Athena, its Affiliates
and its sublicensees in the Territory during the reporting period; (b) the
royalties payable in United States dollars, if any, which shall have accrued
hereunder for such reporting period; (c) the withholding taxes, if any,
required by law to be deducted in respect of such sales; (d) the date of the
First Commercial Sale in each country in the Territory during the reporting
period; and (e) a calculation of the credits, if any, to which Athena is
entitled under Section 5.3 above. Reports shall be due no later than the
sixtieth (60th) day following the close of each calendar quarter. Athena
shall keep complete and accurate records in sufficient detail to properly
reflect all Products sold which generated Net Products Revenue and to enable
the royalties payable hereunder to be determined.
6.2 ACCESS. Upon the written request of Apollo and not more than twice
in each calendar year, Athena and its Affiliates shall permit Apollo or its
representative (which shall not include Athena's independent accountants) to
have access during normal business hours to such of their respective records
as may be reasonably necessary to verify the accuracy of the royalty reports
hereunder for any year ending not more than thirty-six (36) months prior to
the date of such request.
6.3 SUBLICENSES. Athena shall use commercially reasonable efforts to
include in each permitted sublicense granted by it pursuant to this Agreement
a provision requiring the sublicensee to make reports to Athena, to keep and
maintain records of sales made pursuant to such sublicense and to grant
access to such records by Athena and Apollo to the same extent required of
Athena under this Agreement. Upon the expiration of three (3) years following
the end of any calendar year, the calculation of royalties payable with
respect to such year shall be binding and conclusive upon Apollo and Athena,
its Affiliates and sublicensees.
* Confidential treatment has been requested for marked portion
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6.4 CONFIDENTIAL FINANCIAL INFORMATION. Apollo and its representatives
shall treat all information subject to review under this Article 6 or under
any sublicense agreement as strictly confidential, and shall not disclose it
to any other party for any purpose.
ARTICLE 7. PAYMENTS:
7.1 PAYMENT TERMS. Royalties shown to have accrued by each royalty
report provided for under Article 6 above shall be due and payable by Athena
on the date such royalty report is due. All payments by Athena to Apollo
under the Agreement shall be paid in United States dollars calculated at the
applicable exchange rate as of the date the payment is made, and shall be
made, at Athena's option, either by bank wire transfer or by check to such
address or account as Apollo shall designate in writing before such payment
is due.
7.2 EXCHANGE CONTROL. If at any time legal restrictions prevent the
prompt remittance of part or all royalties with respect to any country in the
Territory where the Products are sold, Athena shall have the right, in its
sole discretion, to make such payments by depositing the amount thereof in
local currency to Apollo's account in a bank or other depository institution
in such country. If the royalty rate specified in the Agreement should exceed
the permissible rate established in any country, the royalty rate for sales
in such country shall be adjusted to the highest legally permissible or
government-approved rate.
7.3 WITHHOLDING TAXES. Athena shall be entitled to deduct the amount
of any withholding taxes, value-added taxes or other taxes, levies or charges
with respect to such amounts, other than United States, state or local income
taxes, required to be paid or withheld by Athena, its Affiliates or
sublicenses Athena shall promptly deliver to Apollo, upon request, proof of
payment or withholding of all such taxes, levies and other charges.
ARTICLE 8. RESEARCH AND DEVELOPMENT OBLIGATIONS:
8.1 DEVELOPMENT. Athena shall undertake reasonable efforts to develop,
obtain regulatory approvals for and sell a Product (or more than one Product,
if Athena so determines in its discretion) for use in the Field in accordance
with the Plan, and will provide such information as the Committee may
reasonably require in order to plan, monitor and approve such development.
8.2 FUNDING AND RESOURCES. Athena shall provide (either alone, or with
partners, sublicensees or other collaborators approved by the Committee) the
funding and resources necessary to carry out the development approved by the
Committee under the Plan for the Field. Apollo may but is not required to
provide any part of such funding.
8.3 COMMITTEE. Subject to the rights of Lilly under the Lilly
Collaboration, the progress of the collaboration in the Field shall be
monitored by a steering committee (the "Committee"). The Committee shall
consist of four individuals, two of whom shall be appointed (and replaced, as
necessary) by each party. Meetings of the Committee shall be held
periodically
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(but no less than every six (6) months) at a mutually acceptable location.
Each party shall pay the expenses of its Committee members. Reasonably in
advance of each meeting of the Committee, each party to this Agreement shall
provide to the Committee a confidential written report summarizing its best
current estimates of its expenditures and work performed in connection with
the collaboration during the period. The Committee shall exercise reasonable
business judgment in the pursuit of its activities, and may take action only
upon the affirmative vote of at least three of its members. The Committee
shall dissolve as of the termination of this Agreement. The duties of the
Committee shall include the following:
(a) approving and amending, as needed, a development plan and
budget for activities in the Field under this Agreement (the "Plan"). The
Plan shall include both scientific and business milestones, an internal and
external budget and other resources to be devoted to the collaboration;
(b) determining how best to obtain the expertise needed to carry
out the Plan in the best interests of the parties, with preference being
given to Apollo for research efforts in its areas of expertise; and
(c) approving and amending, as needed, a Plan for development of an
Acute Formulation, if the parties have agreed to pursue such development
under the Agreement as provided in Section 3.2(b) above.
ARTICLE 9. PATENTS AND INFRINGEMENT ACTIONS:
9.1 PATENT PROSECUTION AND MAINTENANCE. Apollo shall be responsible
for and shall control the preparation, filing, prosecution and maintenance of
all patents and patent applications in the Territory related to the Licensed
Patent Rights and will consult with and consider the reasonable requests of
Athena in all such matters. Apollo shall use its best efforts to provide
Athena with an opportunity to review and comment on all prosecution documents
for each Patent application subject to this Section before the filing of such
prosecution document. Apollo shall supply Athena with a copy of each patent
application as filed which constitutes a portion of the Licensed Patent
Rights, together with notice of its filing date and serial number. Athena
shall reasonably assist and cooperate with Apollo, execute all lawful papers
and instruments and make all oaths and declarations as may be reasonably
necessary in the preparation, prosecution and maintenance of all patents and
other filings referred to in this Section. As a part of its Development
Funding, Athena shall bear all reasonable legal fees and costs of such patent
prosecution and maintenance for the Licensed Patent Rights in the Field while
this Agreement remains in effect. Prior to any period during the term of this
Agreement in which Apollo intends to pursue independent development of an
Acute Formulation under Section 3.2 above, or sublicenses or otherwise
exploits the Licensed Patent Rights outside the Field, Apollo and Athena
shall discuss in good faith and agree on a reasonable allocation of patent
costs for the Licensed Patent Rights within the Field and outside the Field.
Such costs within the Field shall continue to be Athena's responsibility as a
part of its Development Funding. Apollo shall pay or cause to be paid such
costs outside the Field, and such payment is not to be included in Apollo's
Development Funding.
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9.2 NOTIFICATION OF INFRINGEMENT. Each party shall notify the other
party of any infringement of the Licensed Patent Rights in the Territory
known to such party and shall provide the other party with the available
evidence, if any, of such infringement.
9.3 ENFORCEMENT OF THE LICENSED PATENT RIGHTS. Apollo shall have the
right to determine the appropriate course of action to enforce Licensed
Patent Rights in the Territory or otherwise abate the infringement thereof,
to take (or refrain from taking) appropriate action to enforce Licensed
Patent Rights, to control any litigation or other enforcement action (in its
own name or, if required by applicable law, jointly with Athena) and to enter
into, or permit, the settlement of any such litigation or other enforcement
action with respect to Licensed Patent Rights, and shall consider, in good
faith, the interests of Athena in so doing. If Apollo does not, within ninety
(90) days of receipt of written notice regarding a potential infringement,
abate the infringement or file suit to enforce the Licensed Patent Rights
against at least one infringing party in the Territory, or otherwise dispose
of the matter, Athena shall have the right to take whatever action it deems
appropriate to enforce the Licensed Patent Rights; provided, however, that,
within thirty (30) days after receipt of notice of Athena's intent to file
such suit, Apollo shall have the right to jointly prosecute such suit and in
so doing, to fund fifty percent (50%) of the costs of such suit. The party
controlling any such enforcement action shall not settle the action or
otherwise consent to an adverse judgment in such action that diminishes the
rights or interests of the non-controlling party without the prior written
consent of that party. All monies recovered upon the final judgment or
settlement of any such suit to enforce the Licensed Patent Rights shall be
shared, after reimbursement of expenses, by Apollo and Athena PRO RATA
according to the respective percentages of costs borne by each in such suit.
Notwithstanding the foregoing, Apollo and Athena shall fully cooperate with
each other in the planning and execution of any action to enforce the
Licensed Patent Rights and execute all such documents as reasonably necessary
in connection therewith. If Apollo or Athena is a necessary party to any such
litigation or other enforcement action, at the other party's request and
expense. such party shall join such litigation or other enforcement action.
9.4 IMPROVEMENTS. If either party's tests, experiments and evaluation
under this Agreement result in an invention, discovery, improvement or other
technology, whether patentable or not (an "Improvement"), ownership of such
Improvement shall be determined according to U.S. patent law. Either party
which owns any rights in an Improvement shall cross-license its interest to
the other party, without additional cost or royalty, to the extent necessary
for the other to practice and use its rights in the Licensed Technology as so
improved. Each party shall promptly disclose to the other all such
Improvements.
9.5 INFRINGEMENT ACTIONS BY THIRD PARTIES. (a) If either party or any
of its Affiliates, sublicensees or customers shall be sued (or suit
threatened in writing) by a third party for infringement of a third party's
patent in the Territory because of the use of Licensed Technology or sale of
Products, such party shall promptly notify the other in writing of the
institution of such suit or threat. (b) Before actual suit is brought, and
after consulting with and considering in good faith the interests of Apollo,
Athena may determine, in its sole discretion, to pay any amount it deems
reasonable or necessary to make, use or sell a Product, to obtain a license
to do so or to compromise or settle a claim of infringement. (c) If such
threat or claim is not
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settled and suit is brought, and the alleged infringing process, method or
composition is claimed under the Licensed Patent Rights, Athena shall have
the right, in its sole discretion, to control the defense of such suit at its
own expense, in which event Apollo shall have the right to be represented by
advisory counsel of its own selection, at its own expense, and shall
cooperate fully in the defense of such suit and furnish to Athena all
evidence and assistance in its control. If Athena does not elect within sixty
(60) days after such notice to so control the defense of such suit, Apollo
may undertake such control at its own expense, and Athena shall then have the
right to be represented by advisory counsel of its own selection, at its own
expense, and Athena shall cooperate fully in the defense of such suit and
furnish to Apollo all evidence and assistance in Athena's control. The party
controlling the suit shall regularly consult with and consider the interests
of the other, and may not settle any part of the suit or otherwise consent to
an adverse judgment in such suit that diminishes the rights or interests of
the non-controlling party without the express written consent (not to be
unreasonably withheld) of the non-controlling party. (d) Any amounts paid by
Athena under the provisions of paragraphs (b) or (c) above, or by Apollo
under paragraph (c) above, shall be included in such party's Development
Funding for the period when actually paid.
ARTICLE 10. CONFIDENTIALITY:
10.1 CONFIDENTIAL INFORMATION. Except as necessary to carry out Section
9.4 above, this Agreement and its performance by the parties shall be subject
to the confidentiality agreement between Apollo and Athena dated as of
February 5, 1995 and a confidentiality agreement between Apollo, Athena and
Eli Lilly and Company dated as of February 14, 1996, which both remain in
full force and effect and are incorporated by this reference, except that
Apollo and Athena hereby agree that any Information other than that which is
covered by Section 4.1(a) above, (including without limitation Information
exchanged or obtained in the performance of this Agreement) shall be
maintained by each of them as confidential for a period of five (5) years
from the date of expiration or termination of this Agreement, on the terms
described in that February 14, 1996 agreement.
ARTICLE 11. TERMINATION:
11.1 EXPIRATION. Unless terminated earlier pursuant to this Article,
the Agreement shall expire, with respect to each country within the
Territory, on the date which is ten (10) years from the date of this
Agreement, unless a patent based on a Valid Patent Claim has been issued
having effect in such country, in which case this Agreement shall expire in
such country upon the expiration of such patent. Upon expiration of the
Agreement with respect to such country pursuant to this Section, Athena shall
have a fully-paid, irrevocable license under the Licensed Know-How, with
right of sublicense, to make, have made, use and sell Products in such
country for use in the Field.
11.2 TERMINATION BY ATHENA. Athena may terminate the Agreement at any
time, in its sole discretion, upon ninety (90) days' prior written notice to
Apollo. Any such termination will not affect Athena's obligations to pay
royalties accrued to the effective date of such termination under Section 5.2
above.
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11.3 TERMINATION FOR CAUSE. (a) Apollo may terminate this Agreement
after the breach of any material provision by Athena if Athena has not cured
such breach within ninety (90) days after written notice thereof by Apollo.
(b) Athena may terminate the Agreement after the breach of any material
provision by Apollo if Apollo has not either (i) cured such breach within
ninety (90) days after written notice thereof by Athena, or (ii) begun good
faith remedial action within such ninety (90) day period and accomplished
such cure no later than six (6) months after Athena's written notice of
breach. Any such termination will not affect Athena's obligations to pay
royalties accrued to the effective date of such termination under Section 5.2
above. Athena retains all rights of setoff in such event.
11.4 EFFECT OF EXPIRATION OR TERMINATION. In the event of termination
under 11.2 or 11.3(a) above, all rights in the Licensed Technology shall
revert to and be owned exclusively by Apollo. In the event of termination by
Athena under Section 11.3(b) above, Athena may at its option elect to retain
a perpetual, fully-paid license to the Licensed Technology for the Field in
the Territory, upon the other terms contained in this Agreement. Expiration
or termination of the Agreement shall not relieve either party of any
obligation accruing prior to such expiration or termination, and the
provisions of Articles 4, 9.4, l0, 11, and 12 shall survive the expiration or
termination of the Agreement.
ARTICLE 12. INDEMNIFICATION AND INSURANCE:
12.1 INDEMNIFICATION. Each party shall indemnify and hold the other
harmless from all losses, liabilities, damages and expenses, including
reasonable attorneys' fees and costs (collectively, "Liabilities"), that the
other party may suffer as a result of any claims, demands, actions or other
proceedings made or instituted by any third party arising out of or relating
to the gross negligence or willful misconduct of the indemnifying party, its
Affiliates or sublicensees.
12.2 PROCEDURE. A party which intends to claim indemnification under
this Article shall promptly notify the other party of any Liability or action
in respect of which such party intends to claim such indemnification, and the
indemnifying party shall have the right to participate in, and, to the extent
so desired, assume the defense thereof; provided, however, that the claiming
party shall have the right to retain its own counsel, if representation of
the claiming party by the counsel retained by the.indemnifying party would be
inappropriate due to actual or potential conflicts of interest. Without the
prior written consent of the claiming party, the indemnifying party may not
settle or otherwise consent to an adverse judgment in respect to a Liability
if doing so would diminish the rights or interests of the claiming party.
Each party shall cooperate fully with the other in the investigation of any
action, claim or Liability covered by this Article.
12.3 INSURANCE. Athena shall, at its expense (provided such expense is
reasonable for additional coverage of this type), cause Apollo to be named as
an additional named insured under any policy of products liability insurance
which Athena may carry from time to time, and will cause certificates of
insurance to be provided to Apollo upon reasonable request.
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ARTICLE 13. FORCE MAJEURE:
13.1 EXCUSED PERFORMANCE. Neither party shall be held liable or
responsible to the other party nor be deemed to have defaulted under or
breached this Agreement for failure or delay in fulfilling or performing any
term of the Agreement to the extent, and for so long as, such failure or
delay is caused by or results from causes beyond the reasonable control of
the affected party, including but not limited to fire, floods, embargoes,
war, acts of war (whether war be declared or not), insurrections, riots,
civil commotions, strikes, lockouts or other labor disturbances, acts of God
or acts, omissions or delays in acting by any governmental authority.
ARTICLE 14. MISCELLANEOUS:
14.1 NOTICES. Any consent, notice or report required or permitted to be
given or made under this Agreement shall be in writing, delivered personally,
by air mail or courier, or by facsimile promptly confirmed by personal
delivery, air mail or courier, postage prepaid, addressed to such other party
at its address indicated below, or to such other address as the addressee
shall have last furnished in writing to the addressor and (unless otherwise
provided in the Agreement) shall be effective upon receipt by the addressee.
If to Apollo: Apollo Genetics, Inc.
222 Third Street, Suite 2110
Cambridge, Massachusetts 02142
Attention: President
If to Athena: Athena Neurosciences, Inc.
800 Gateway Boulevard
South San Francisco, California 94080
Attention: General Counsel
14.2 ARBITRATION. All disputes arising under the Agreement shall be
referred to senior management of the parties for good faith discussion, and
if not so resolved, finally settled by arbitration in Boston, Massachusetts,
under the applicable rules of the American Arbitration Association. The
parties shall agree in their discretion on a single arbitrator or, if no
agreement can be reached within fourteen (14) days of the request by one
party, each party shall appoint an arbitrator and the two so chosen shall
appoint a third. Each party shall pay the expenses of its own counsel and, if
applicable, its chosen arbitrator, and shall share equally the expenses of
the single or third arbitrator. The arbitration award or judgment shall be
final, binding and enforceable, and may include an award of fees and expenses
(including reasonable attorneys' fees). The arbitrator(s) shall not have the
authority to modify, change or refuse to enforce the terms of this Agreement.
14.3 ASSIGNMENT. Neither party may assign its rights or obligations
under the Agreement, in whole or in part, by operation of law or otherwise,
without the prior written . consent of the other; provided, however, that
either may, without such consent, assign the Agreement and its rights and
obligations hereunder to an Affiliate (without diminishing the
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continuing obligations of the assignor hereunder), 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. Any purported assignment in violation of this
Section 14.3 shall be void.
14.4 AMENDMENTS. No change, modification, extension, termination or
waiver of any of the provisions of this Agreement shall be valid unless made
in writing and signed by duly authorized representatives of the party or
parties to be bound.
14.5 ENTIRE AGREEMENT. The Agreement embodies the entire understanding
between the parties respecting the subject matter hereof and supersedes any
prior understanding and agreements between them respecting the subject matter
hereof. Except for the Confidentiality Agreements described in Section 10.1
above, there are no representations, agreements, arrangements or
understandings, oral or written, between the parties hereto relating to the
subject matter of the Agreement which are not fully expressed herein.
14.6 SEVERABILITY. Any of the provisions of the Agreement which are
determined to be invalid or unenforceable in any jurisdiction shall be
ineffective to that extent in such jurisdiction, without rendering invalid or
unenforceable the remaining provisions hereof and without affecting the
validity or enforceability of any of the terms of the Agreement in any other
jurisdiction.
14.7 WAIVER. The waiver by either party of any right hereunder, or the
failure to perform or of a breach by the other party, shall not be deemed a
waiver of any other right hereunder or of any other breach or failure by said
party, whether of a similar nature or otherwise.
14.8 COUNTERPARTS. The 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.
14.9 NO ANNOUNCEMENT. Neither party shall make any oral or written
statement, press release, publication, publicity or other public
communication using the name of the other party or any of its Affiliates, or
regarding the fact of or terms of this Agreement, without the prior written
consent of the other party in its sole discretion; except for legally
required disclosures, as to which consent may not be unreasonably withheld.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of April
16, 1996.
ATHENA NEUROSCIENCES, INC.
Date: 10/14/96 By: /s/ Donald R. Joseph
-------- ---------------------------------------
Name: Donald R. Joseph
-------------------------------------
Title: Vice President & General Counsel
------------------------------------
APOLLO GENETICS, INC.
Date: 10/10/96 By: /s/ Katherine Gordon
-------- ---------------------------------------
Name: Katherine Gordon
-------------------------------------
Title: President
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License and Collaboration Agreement CONFIDENTIAL
April 6, 1996
EXHIBIT A
United States and Foreign Patents and/or Applications
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Country/Region Patent/Serial Number Filing Date Title Status
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[ * ]
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[ * ]
* Confidential treatment has been requested for marked portion
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NEURON LOSS PROTECTION TECHNOLOGY
LICENSE AGREEMENT
Effective as of the 13th day of April, 1993 (the "Effective Date")
between the University of Kentucky Research Foundation, a corporation duly
organized and existing under the laws of the Commonwealth of Kentucky, and
having its principal place of business at 207 Administration Building,
Lexington, Kentucky, 40506 ("UKRF") and Apollo Genetics, Inc., a corporation
duly organized and existing under the laws of the State of Delaware, and
having its principal place of business at 222 Third Street, Suite 3121,
Cambridge, Massachusetts 02142 ("Licensee"), hereby agree as follows:
1. BASIS OF AGREEMENT. UKRF is the owner of Neuron Loss Protection
Technology as later defined herein and desires to have such technology
utilized to promote the public interest by granting a license thereunder.
Licensee has a commitment to facilitate the development of such technology
for the public interest. It is the desire and interest of the parties that
Licensee obtain a license from UKRF to utilize such technology. The purpose
of this Agreement is to set forth the terms and conditions under which UKRF
will grant and Licensee will accept said license.
2. DEFINITIONS.
2.1. "NEURON LOSS PROTECTION TECHNOLOGY" shall mean [*]
2.2. "PATENT RIGHTS" shall mean any United States or foreign patent
applications or any patents issuing thereon directed to the invention or
inventions set forth in University of Kentucky I.P.C. Case [*]
owned by, or assignable to, UKRF, together with any division,
reissue, continuation, continuation in part, extension, or addition thereof.
2.3. "LICENSED PRODUCT" shall mean any product which is covered in whole
or in part by (i) a pending claim contained in a Patent Rights application in
the country in which the Licensed Product is made, used, or sold, or (ii) a
valid and unexpired claim contained in a Patent Rights patent in the country
in which the Licensed Product is made, used or sold. A valid claim is any
* Confidential treatment has been requested for marked portion
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claim that has not been held invalid or unenforceable by a court of competent
jurisdiction.
2.4. "LICENSED PROCESS" shall mean any process which is covered in whole
or in part by (i) a pending claim contained in a Patent Rights application in
the country in which the Licensed Process is, used, or sold, or (ii) a valid
and unexpired claim contained in a Patent Rights patent in the country in
which the Licensed Process is used or sold. A valid claim is any claim that
has not been held invalid or unenforceable by a court of competent
jurisdiction.
2.5. "NET SALES" shall mean the gross amount invoiced by Licensee and
its Affiliates from the sales of Licensed Products or Licensed Processes to
independent third parties less:
[ * ]
Licensed Products and Licensed Processes shall be considered "sold" when
invoiced.
2.6. "SUBLICENSE INCOME" shall mean the net royalties (including
advanced royalties or "lump-sum" payments) actually received by Licensee from
non-affiliated third party sublicensees under the license herein granted,
after the deduction of all reasonable legal costs actually incurred by
Licensee in connection with the negotiation and procurement of the pertinent
sublicenses.
2.7. "AFFILIATE" shall mean any corporation or other business entity
controlled by, controlling, or under common control with Licensee. For this
purpose "control" means direct or indirect beneficial ownership of at least
fifty percent (50%) interest in the income or stock of such corporation or
other business.
3. GRANT.
3.1. UKRF hereby grants to Licensee, subject to all the terms and
conditions of this Agreement, the exclusive right and license to make, have
made, use, lease and sell the Licensed Products throughout the world.
* Confidential treatment has been requested for marked portion
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3.2. Licensee shall have the right to sublicense worldwide any of the
rights, privileges and licenses granted hereunder.
4. DUE DILIGENCE.
4.1. Licensee agrees to work diligently to bring one or more Licensed
Products or Licensed Processes to the marketplace through a program of
development, production and distribution, including sponsoring of research at
UKRF pursuant to the Sponsored Research Agreement between UKRF and Licensee,
providing UKRF with a minimum of $[ * ] per year for [ * ], in
substantially the form of Exhibit 1 attached hereto.
4.2. Licensee shall provide an annual report on its development efforts
to UKRF, which report shall cite specific goals and objectives in
commercializing the licensed technology and progress in meeting these goals
and objectives.
5. ROYALTIES.
5.1. In consideration of the license granted hereunder by UKRF to
Licensee, Licensee shall pay an earned royalty of [ * ] percent ([ * ]%) of
Net Sales of Licensed Products and Licensed Processes by Licensee and its
sublicensed Affiliates.
5.2. In the event Licensee grants any sublicenses to nonaffiliated third
parties during the term of this Agreement, then for each such sublicense,
Licensee shall pay UKRF an additional royalty at the rate of [ * ]
percent ([ * ]%) of the Sublicense Income collected by Licensee under such
sublicense.
6. REPORTS, RECORDS AND ROYALTY PAYMENTS.
6.1. RECORDS. Licensee shall keep adequate and complete records showing
all Licensed Products and Licensed Processes sold and Net Royalties received,
with respect to which earned royalties and additional royalties are due under
this Agreement. Such records shall include all information necessary to
verify the total amount and computation of earned royalties and additional
royalties due hereunder, and shall be open to inspection on behalf of UKRF
upon reasonable notice during reasonable business hours to the extent
necessary to verify the amount thereof. Such inspection shall be made not
more often than once each calendar year at the expense of UKRF by a Certified
Public Account appointed by UKRF and to whom Licensee has no reasonable
objection. Licensee shall not be required to retain such records for more
than five (5) years after the close of any calendar half year.
6.2. REPORTS. The last day of each February and November throughout the
term of this Agreement and upon a final accounting, Licensee shall furnish
UKRF with a written report, signed by an authorized representative of
Licensee, showing (a)
* Confidential treatment has been requested for marked portion
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the total Net Sales of all Licensed Products and the total Net Sales of all
Licensed Processes sold by Licensee and its sublicensed Affiliates in each
country during the preceding calendar half-year; (b) the total amount of
Sublicense Income received by Licensee and its Affiliates from non-affiliated
sublicensees under this license during the preceding calendar half year; (c)
the amount of royalties due on Licensed Products and Licensed Processes sold
by Licensee and its sublicensed Affiliates during the preceding calendar half
year, computed pursuant to the provisions of Section 5.1 hereof; and (d) the
amount of UKRF's pro data share of such Sublicense Income received by
Licensee and its Affiliates during the preceding calendar half year, computed
pursuant to the provisions of Section 5.2 hereof.
6.3. ROYALTY PAYMENTS. With each such half-yearly report, Licensee
shall remit to UKRF the total amount of royalties shown thereby to be due,
subject to any credits which may be taken by Licensee hereunder. Subject to
the provisions of Section 6.4 hereof, payment shall be made in lawful money
of the United States.
6.4. CURRENCY CONVERSION. All payments due hereunder from foreign sales
of Licensed Products and Licensed Processes from time to time shall be paid
in United States funds collectible at par in Boston, Massachusetts. For
purposes of computing such payments, the Net Sales shall first be determined
in the foreign funds for which such Licensed Products or Licensed Processes
are sold (herein called "selling funds") and then converted into its
equivalent in United States funds at either:
(a) the rate applicable to the transfer of funds arising from royalty
payments as established by the exchange control authorities of the country of
which selling funds are the national currency, for the last business day of
the accounting period for which payment is thus made; or
(b) if there is no applicable rate so established, then the selling rate
in United States funds as published by leading commercial banks in the major
city of the country of which selling funds are the national currency, for the
last business day of such accounting period; or
(c) if there is no rate so published, then the buying rate for selling
funds as published by First National Bank of Boston, N.A., for the last
business day of such accounting period.
7. PATENT PROSECUTION AND INFRINGEMENT.
7.1. Licensee shall, in the name of UKRF, apply for, seek prompt
issuance of, and maintain during the term of this Agreement any Patent Rights
in the United States and in foreign countries. The prosecution, filing and
maintenance of all patents shall be the primary responsibility of Licensee,
who
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shall consult with UKRF concerning the foregoing and provide copies of
pertinent filings to UKRF.
7.2. Payment of all fees and costs relating to the filing, prosecution
and maintenance of all patents shall be the responsibility of Licensee.
7.3.1. If at any time during the term of this Agreement, Licensee
furnishes to UKRF reasonably convincing written evidence of an infringement
of a patent included in the Patent Rights which adversely and substantially
affects the commercial operations of Licensee under the license granted
hereunder,and UKRF shall within three (3) months after receipt of such
evidence fail to cause such infringement to terminate or to bring a suit or
action to compel termination, then payment of royalties under Section 5
hereof shall be waived so long as such infringement continues; provided,
however, that such royalties shall not be so waived so long as at least one
suit or action is being prosecuted by UKRF for infringement of such patent.
7.3.2. If after said three (3) months, UKRF fails to cause such
infringement to terminate or to bring a suit or action to compel termination,
Licensee shall have the right, but not the obligation, to bring such suit or
action to compel termination and shall have the right for such purpose to
join UKRF as a party plaintiff at Licensee's expense. UKRF independently
shall have the right to join any such suit or action brought by Licensee and,
in such event, shall pay one-half of the cost of such suit or action from the
date of joining. No settlement, consent judgment or other voluntary final
disposition of the suit may be entered into without the consent of UKRF,
which consent shall not unreasonably be withheld. Any damages recovered by
such suit or action shall be first used to reimburse each party hereto for
the cost of such suit or action (including attorney's fees) actually paid by
each party hereto as the case may be, then to reimburse UKRF for any
royalties waived under this Section 7.3 and the residue, if any, shall be
divided equally between the parties hereto.
7.4. In the event that a declaratory judgment action alleging invalidity
or noninfringement of any of the Patent Rights shall be brought against
Licensee, UKRF, at its sole option, shall have the right, within thirty (30)
days after commencement of such action, to intervene and take over the sole
defense of the action at its own expense.
7.5. In any infringement suit as either party may institute to enforce
the Patent Rights pursuant to this Agreement, the other party hereto shall,
at the request and expense of the party initiating such suit, cooperate in
all respects and, to the extent possible, have its employees testify when
requested and make available relevant records, papers, information, samples
and the like.
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8. TERM AND TERMINATION.
8.1. Unless earlier terminated as hereinafter provided, this Agreement
shall remain in full force and effect until the last to expire of any patent
included in the Licensed Products.
8.2. If Licensee shall cease to carry on its business, this Agreement
shall terminate upon notice by UKRF.
8.3. Should Licensee fail to pay UKRF such royalties as are due and
payable hereunder, UKRF shall have the right to terminate this Agreement on
forty-five (45) days written notice, unless Licensee shall pay UKRF within
the forty-five day (45) notice period, all such royalties and interest that
are due and payable. Upon the expiration of the forty-five (45) day period,
if Licensee shall not have paid all such royalties and interest due and
payable, UKRF, at its sole option, may immediately terminate this Agreement
and all rights, privileges and license hereunder granted.
8.4. Licensee shall have the right to terminate this Agreement at any
time upon six (6) months written notice to UKRF, and upon payment of all
amounts due UKRF through the effective date of termination.
8.5. Upon any material breach or default of this Agreement by Licensee,
other than those delineated in Sections 8.2 and 8.3 which shall always take
precedence in that order over any material breach or default referred to in
this Section 8.5, UKRF shall have the right to terminate this Agreement and
the rights, privileges and license hereunder granted upon ninety (90) days
written notice to Licensee. Such termination shall become effective
immediately at the conclusion of such notice period unless Licensee shall
have cured any such breach or default prior to the expiration of the ninety
(90) day period.
8.6. Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that matured
prior to the effective date of such termination. Licensee and its
sublicensed Affiliates and any non-affiliated third party sublicensees
thereof may, after the effective date of such termination, sell all Licensed
Products which are in inventory at the time of termination and Licensed
Processes for which inventory was received at the time of termination, and
complete and sell Licensed Products which Licensee can clearly demonstrate
were in the process of manufacture at the time of such termination, provided
that Licensee shall pay to UKRF the royalties thereon as required by Section
5 of this Agreement and shall submit the reports required by Section 5 hereof
on the sales of Licensed Products and Licensed Processes.
9. INDEMNIFICATION AND INSURANCE.
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9.1. Licensee shall indemnify, defend and hold harmless UKRF and its
trustees, officers, employees, and affiliates (the "Indemnitees"), against
any liability, damage, loss or expense (including reasonable attorneys' fees
and expenses of litigation) incurred by or imposed upon the Indemnitees, or
any one of them, in connection with any claims, suits, actions, demands or
judgments (a) arising out of the production, manufacture, sale, use in
commerce, or promotion by Licensee or by a licensee, affiliate or agent of
Licensee, or any product, process or service relating to, or developed
pursuant to, this Agreement or (b) arising out of any other activities to be
carried out pursuant to this Agreement.
9.2. Licensee's indemnification under Section 9.1(a) shall apply to any
liability, damage, loss or expense whether or not it is attributable to the
negligent activities of the Indemnitees. Licensee's indemnification under
Section 9.1(b) shall not apply to any liability, damage, loss or expense to
the extent that it is attributable to (i) the negligent activities of the
Indemnitees, or (ii) the intentional wrongdoing or intentional misconduct of
the Indemnitees.
9.3. At such time as any product, process or service relating to, or
developed pursuant to, this Agreement is being commercially distributed or
sold (other than for the purpose of obtaining regulatory approvals) by
Licensee or by a licensee, affiliate or agent of Licensee, Licensee shall, at
its sole cost and expense, procure and maintain policies of comprehensive
general liability insurance in amounts not less than One Million Dollars per
person per occurrence and naming the Indemnitees as additional insureds.
Such comprehensive general liability insurance shall provide (a) product
liability coverage; (b) broad form contractual liability coverage for
Licensee's indemnification under Sections 9.1 and 9.2 of this Agreement; and,
(c) a provision of non-cancellation except upon sixty (60) days written
notification to UKRF.
9.4. In the event any such action is commenced or claim made or
threatened against UKRF or other Indemnitees as to which Licensee is
obligated to indemnify it (them) or hold it (them) harmless, UKRF or the
other Indemnitees shall promptly notify Licensee of such event and Licensee
shall assume the defense of, and may settle, that part of any such claim or
action commenced or made against UKRF (or other Indemnitees) which relates to
Licensee's indemnification and Licensee may take such other steps as may he
necessary to protect itself. Licensee shall not be liable to UKRF or other
Indemnitees on account of any settlement of any such claim or litigation
affected without Licensee's consent. The right of Licensee to assume the
defense of any action shall be limited to that part of the action commenced
against UKRF and/or Indemnitees which relates to Licensee's obligations of
indemnification and holding harmless.
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9.5. This Section 9 shall survive expiration or termination of this
Agreement.
10. DISCLAIMER OF WARRANTIES.
10.1. UKRF MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, ANY IMPLED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO ANY TECHNICAL INFORMATION LICENSED OR
OTHERWISE PROVIDED TO LICENSEE HEREUNDER AND HEREBY DISCLAIMS THE SAME.
10.2. UKRF DOES NOT WARRANT THE VALIDITY OF THE TECHNOLOGY LICENSED
HEREUNDER AND MAKES NO REPRESENTATION WHATSOEVER WITH REGARD TO THE SCOPE OF
SUCH TECHNOLOGY OR THAT SUCH TECHNOLOGY MAY BE EXPLOITED BY LICENSEE,
AFFILIATES OR SUBLICENSEES WITHOUT INFRINGING ANY PATENTS. IF BIOLOGICAL
MATERIALS ARE LICENSED HEREUNDER, UKRF MAKES NO REPRESENTATION THAT SUCH
MATERIALS OR THE METHODS USED IN MAKING OR USING SUCH MATERIALS ARE FREE FROM
LIABILITY FOR PATENT INFRINGEMENT.
11. NOTICES.
11.1. All reports, notices and other communications from Licensee to
UKRF as provided hereunder shall be in writing and mailed or delivered to:
University of Kentucky Research Foundation
207 Administration Building
Lexington, Kentucky 40506
or other individuals or addresses as shall hereafter be furnished by written
notice to Licensee.
11.2. All reports, notices and other communications from UKRF to
Licensee as provided hereunder shall be in writing and mailed or delivered to:
Apollo Genetics, Inc.
222 Third Street, Suite 3121
Cambridge, Massachusetts 02142
with a copy to: Bromberg & Sunstein
10 West Street - 7th Floor
Boston, Massachusetts 02111
Attn: Bruce D. Sunstein
or other individuals or addresses as shall hereafter be furnished by written
notice to UKRF.
12. RESTRICTIONS ON USE OF NAMES. Licensee shall not use the names of
UKRF, its related entities and its employees, or any adaptations thereof, in
any advertising, promotional or sales literature or in any securities reports
required by the Securities and Exchange Commission, without the prior written
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consent of UKRF in each case; provided, however, that Licensee (a) may offer
to publications by employees of UKRF in the scientific literature or (b) may
state that a license from UKRF has been granted as herein provided.
13. MISCELLANEOUS.
13.1. For the purpose of this Agreement and all services to be provided
hereunder, both parties shall be, and shall be deemed to be, independent
contractors and not agents or employees of the other. neither party shall
have authority to make any statements representations or commitments of any
kind, or to take any action, that will be binding on the other party.
13.2. If any one or more of the provisions of this Agreement shall be
held to be invalid, illegal or unenforceable, the validity, legality or
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby.
13.3. This Agreement shall be binding upon the parties, and their
successors and assigns.
13.4. This instrument contains the entire Agreement between the parties
hereto. No verbal agreement, conversation or representation between any
officers, agents, or employees of the parties hereto either before or after
the execution of this Agreement shall affect or modify any of the terms or
obligations herein contained.
13.5. No change, modification, extension, termination or waiver of this
Agreement, or any of the provisions herein contained, shall be valid unless
made in writing and signed by a duly authorized representative of each party.
13.6. The captions are provided for convenience and are not to be used
in construing this Agreement.
13.7. She parties agree that they have participated equally in the
formation of this Agreement and that the language herein should not he
presumptively construed against either of them.
13.8. This Agreement may be signed in counterparts which collectively
shall constitute a single agreement.
13.9. Neither party shall be in breach hereof by reason of its delay z
the performance of or failure to perform any of its obligations hereunder, if
that delay or failure is caused by strikes, acts of God or the public enemy,
riots, incendiaries, interference by civil or military authorities,
compliance with governmental priorities for materials, or any fault beyond
its control or without its fault or negligence.
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13.10. The parties each, at any time or from time to time, shall execute
and deliver or cause to be delivered such further assurances, instruments or
documents as may be reasonably necessary to fulfill the terms and conditions
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
UNIVERSITY OF KENTUCKY RESEARCH FOUNDATION
By: /s/ Lee J. Magid
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Name: Lee J. Magid
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Title: Executive Director, U.K.R.F.
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APOLLO GENETICS, INC.
/s/ Katherine Gordon
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Katherine Gordon, Ph.D
President
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Exhibit 1
UNIVERSITY OF KENTUCKY RESEARCH FOUNDATION
SPONSORED RESEARCH AGREEMENT
This Agreement has Expired
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PATENT LICENSE AGREEMENT
WITH RESEARCH COMPONENT
TABLE OF CONTENTS
PREAMBLE
ARTICLES:
I DEFINITIONS
II GRANT
III DUE DILIGENCE
IV ROYALTIES
V REPORTS AND RECORDS
VI PATENT PROSECUTION
VII INFRINGEMENT
VIII PRODUCT LIABILITY
IX EXPORT CONTROLS
X NON-USE OF NAMES
XI ASSIGNMENT
XII TERM AND TERMINATION
XIII PAYMENTS, NOTICES AND OTHER COMMUNICATIONS
XIV ARBITRATION
XV MISCELLANEOUS PROVISIONS
This Agreement is made and entered into this 15th day of December 1993
(the Effective Date), and revised and restated on 15th day of October 1996, by
and between THE UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC., a
not-for-profit corporation duly organized and existing under the laws of the
State of Florida and having its principal office at 223 Grinter Hall,
Gainesville, Florida, 32611-2037, U.S.A. (hereinafter referred to UFRFI), and
APOLLO GENETICS, INC., a corporation duly organized under the laws of the State
of Delaware and having its principal office at 222 Third Street, Suite 2110,
Cambridge, Massachusetts 02142 (hereinafter referred to as LICENSEE).
WITNESSETH
WHEREAS, UFRFI is the owner of certain "Patent Rights" (as later
defined herein) by assignment from the University of Florida (hereinafter
referred to as University) relating to UFRFI Case No. [ * ], and has the
right to grant licenses under said Patent Rights;
* Confidential treatment has been requested for marked portion
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WHEREAS, UFRFI desires to have the Patent Rights utilized in the public
interest and is willing to grant a license thereunder, subject only to a
royalty-free, non-exclusive license to be granted to the United States
government, as required by law;
WHEREAS, LICENSEE has represented to UFRFI to induce UFRFI to enter into
this Agreement, that LICENSEE is familiar with the development, production,
manufacture, marketing and sale of products similar to the "Licensed Product(s)"
(as later defined herein) and/or the use of the "Licensed Process(es)" (as later
defined herein) and that it shall commit itself to a thorough, vigorous and
diligent program of exploiting the Patent Rights commercially so that public
utilization and royalty income to UFRFI shall result therefrom;
WHEREAS, LICENSEE desires to obtain a license from UFRFI under the
Patent Rights upon the terms and conditions hereinafter set forth; and
WHEREAS, LICENSEE has certain additional research it desires which the
parties agree should be conducted by the University of Florida;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
For the purposes of this Agreement, the following words and phrases
shall have the following meaning:
1.1. "LICENSEE" shall mean all of the following:
(a) a related company of LICENSEE, the voting stock of which is
directly or indirectly at least fifty percent (50%) owned or
controlled by LICENSEE;
(b) an organization which directly or indirectly controls more
than fifty percent (50%) of the voting stock of LICENSEE;
(c) an organization, the majority ownership of which is directly
or indirectly common to the ownership of LICENSEE.
1.2. "Patent Rights" shall mean all of the following UFRFI intellectual
property:
(a) the United States and foreign patents and/or patent
applications listed in Exhibit A;
(b) United States and foreign patents issued from the
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applications listed in Exhibit A and from divisionals and
continuations of these applications;
(c) claims of U.S. continuation-in-part applications and foreign
continuation-in-part applications, and of the resulting
patents, which are directed to subject matter specifically
described in the U.S. and foreign applications listed in
Exhibit A;
(d) claims of all foreign patent applications, and of the
resulting patents, which are directed to subject matter
specifically described in the United States patents and/or
patent applications described in (a), (b), or (c) above;
(e) any reissues of United States patents described in (a), (b),
(c), or (d) above.
1.3. A "Licensed Product" shall mean any product or part thereof which:
(a) is covered or its use is covered in whole or in part by an
issued, unexpired claim or a pending claim contained in the
Patent Rights in the country in which any Licensed Product is
made, used or sold;
(b) is derived from Patent Rights, Know-How (as later defined
herein), and/or trade secrets related to or described in
Patent Rights;
(c) is sold, manufactured or used in any country under this
Agreement.
1.4. A "Licensed Process" shall mean any process or part thereof which:
(a) is covered in whole or in part by an issued, unexpired claim
or a pending claim contained in the Patent Rights in the
country in which any Licensed-Process is made, used or sold,
(b) is derived from Patent Rights, Know-How, and/or trade secrets
related to or described in Patent Rights;
(c) is sold, manufactured or used in any country under this
Agreement.
1.5. "Net Sales" shall mean LICENSEE's billings, for Licensed Products and
Licensed Processes produced hereunder invoiced to independent third
parties less the sum of the following:
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[ * ]
[ * ]
1.6. "Know-How" shall mean any and all technical data, information, or
knowledge which is developed by Dr. Simpkins and.coworkers as a result
of Project Work.
1.7. "Research Agreement" shall mean that agreement attached hereto as
Exhibit B with its associated terms and conditions.
1.8. "University Inventions" shall mean individually and collectively all
inventions, improvements and/or discoveries patentable or unpatentable,
which are conceived and/or made solely by one or more employees of
University in performance of the Project Work (as defined in the
Research Agreement). For the purposes of this Paragraph, the "making" of
inventions shall be governed by U.S. laws of inventorship.
1.9. "Joint Inventions" shall mean individually and collectively all
inventions, improvements and/or discoveries patentable or unpatentable,
which are conceived and/or made jointly by personnel of University
(including faculty and employees) and of LICENSEE in performance of the
Project Work (as defined in the Research Agreement). For the purposes of
this Paragraph, the "making" of inventions shall be governed by U.S.
laws of inventorship.
1.10. "University Patents" shall mean collectively and individually any and
all United States and foreign patent applications and any and all issued
United States Letters Patent and foreign patents owned by University
which pertain to University Inventions derived during Project Work (as
defined in the Research Agreement) under this Agreement.
1.11. "Joint Patents" shall mean collectively and individually any and all
United States and foreign patent applications and any and all issued
United States Letter Patents and
* Confidential treatment has been requested for marked portion
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foreign patents jointly owned by LICENSEE and University which pertain
to Joint Inventions derived during Project Work (as defined in the
Research Agreement) under this Agreement.
1.12. "Participating Sublicense" shall mean any sublicense whereby LICENSEE
and its sublicensee cooperate, through a strategic alliance, in the
development, manufacturing and/or commercialization of Licensed Product
or Licensed Process; and wherein there is a division or sharing of
responsibilities and/or expenses.
1.13. "Non-Participating Sublicense' shall mean any sublicense whereby
LICENSEE does not participate in development, manufacturing and/or
commercialization of Licensed Product or Licensed Process; and wherein
all expenses and responsibilities attendant thereto are borne
exclusively by sublicensee.
1.14. "Participating Sublicense Income" shall mean the net proceeds (including
advanced royalties or "lump-sum" payments) actually received by LICENSEE
for the grant of rights under Participating Sublicenses under the
license herein granted.
1.15. "Non-Participating Sublicense Income" shall mean the net proceeds
(including advanced royalties or "lump-sum" payments) actually received
by LICENSEE for the grant of rights under Non-Participating Sublicenses
under the license herein granted, after the deduction of all reasonable
legal costs, documented by credible written evidence provided to UFRFI,
actually incurred by LICENSEE in connection with the negotiation and
procurement of the pertinent sublicenses.
ARTICLE II - GRANT
2.1. UFRFI hereby grants to LICENSEE the right and license to make, have
made, use, lease and sell the Licensed Products and Licensed Processes
and Know-How throughout the world in any and all fields of use to the
end of the term for which the Patent Rights are granted unless sooner
terminated according to the terms hereof, subject to the non-exclusive
licensed granted to the United States Government.
2.2. In order to establish exclusivity for LICENSEE, UFRFI hereby agrees that
it shall not grant any other license to make, have made, use, lease and
sell Licensed Products or to utilize Licensed Processes throughout the
world in any and all fields of use during the period of time commencing
with the Effective Date of this Agreement and terminating with the
expiration of this Agreement.
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2.3. UFRFI reserves the right to practice under the Patent Rights for its own
noncommercial research purposes.
2.4. LICENSEE shall have the right to enter into sublicensing agreements for
the rights, privileges and licenses granted hereunder. However, Licensee
shall notify UFRFI in writing of the initiation of license negotiations
with all potential sublicenSees.
2.5. LICENSEE hereby agrees that every Non-Participating Sublicense
agreement to which it shall be a party and which shall relate to the
rights, privileges and license granted hereunder shall contain a
statement setting forth the date upon which LICENSEE's exclusive rights,
privileges and license hereunder shall terminate. LICENSEE agrees that
any sublicense granted hereunder shall provide that the obligations to
UFRFI under Article I (Definitions), II (Grants), V (Reports and
Records), VII (Infringement), VIII (Product Liability), IX (Export
Controls), X (Non-Use of Names), XII (Term and Termination), XIV
(Arbitration), and XV (Miscellaneous Provisions) of this Agreement shall
be binding on upon the sublicensee as if it were a party to this
Agreement. LICENSEE further agrees to attach copies of such Articles to
each sublicense agreement.
2.6. LICENSEE hereby agrees that every Participating Sublicense agreement to
which it shall be a party and which shall relate to the rights,
privileges and license granted hereunder shall not breach any terms of
this Agreement.
2.7. LICENSEE agrees to forward to UFRFI a copy of any and all
Non-Participating Sublicense agreements within thirty (30) days of the
execution of such sublicense agreements and further agrees to forward to
UFRFI annually a copy of such reports received by LICENSEE from its
sublicensees during the preceding twelve (12) month period under the
sublicenses as shall be pertinent to a royalty accounting under said
sublicense agreements.
2.8. Should LICENSEE receive from sublicensees anything of value in lieu of
cash payments in consideration for any sublicense under this Agreement,
LICENSEE and UFRFI shall negotiate in good faith to determine the
corresponding monetary value of the non-cash payments, and to arrive at
an equitable disposition.
2.9. The license granted hereunder shall not be construed to confer any
rights upon LICENSEE by implication, estopped or otherwise as to any
technology not specifically set forth herein.
2.10. UFRFI hereby grants to LICENSEE an exclusive option to negotiate for an
exclusive license to sublicense, manufacture, use and sell products and
processes based on
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or a under University Inventions, University Patents and the
University's component of Joint Inventions arising under Project Work as
described and defined in Exhibit B. and UFRFI shall use its best efforts
to obtain assignment of any inventions or portions thereof conceived
and/or made by students of the University in their performance of the
Project Work. This option shall extend for a period of six (6) months
after the date of conception and disclosure to LICENSEE of any
University Inventions in the area of [ * ] During such option period,
University shall not offer these rights to any third party. LICENSEE
shall exercise its option to negotiate for an exclusive license by
providing to UFRFI written notice of such exercise and the parties
hereto shall commence the negotiation, in good faith, of the said terms
including, but not limited to royalty, license fee, and due diligence to
commercialize products within thirty (30) days of LICENSEE's notice to
UFRFI. The parties hereto shall use all reasonable effort to reach
agreement relative to said terms within six (6) months of commencement
of said negotiation. The following factors shall be considered by the
parties: Should LICENSEE request a license to any University Invention
or University Patent which is subject to this Agreement after the
expiration or the option period granted herein, University, if it has
not exclusively licensed such University Invention or University Patent
and is not in active negotiations therefore prior to LICENSEE's request,
shall negotiate with LICENSEE for a license as provided hereunder. If
University has non-exclusively licensed those University Inventions or
University Patents prior to LICENSEE's request, University shall grant
to LICENSEE, as above, a non-exclusive license under terms and
conditions at least as favorable as the previous non-exclusive license.
2.11. Any patent applications made or patents issued from Joint Inventions
shall be filed in University's and LICENSEE's names, and the portion
and/or claims thereof not made by University personnel shall belong to
LICENSEE and shall not be subject to the provisions of this Agreement.
In determining royalty rates in licenses to such patent applications or
patents resulting from the joint effort of LICENSEE and University,
there shall be taken into consideration the relative contributions of
the respective joint inventors of the invention.
2.12. Any controversy, dispute or claim arising out of, or relating to, any
provisions of this Paragraph 2 which cannot otherwise be resolved by
good faith negotiations between the parties shall be resolved by
arbitration in accordance with the provisions of Article XIV of this
Agreement.
2.13. LICENSEE agrees that for Licensed Products covered by
* Confidential treatment has been requested for marked portion
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Patent Rights that are subject to the non-exclusive royalty-free a
license-to the United States government, such Licensed Products will be
manufactured substantially in the United States, in accordance with
applicable federal law.
2.14. LICENSEE further agrees that it shall abide by all rights and
limitations of U.S. Code Title 35, Chapter 38, and implementing
regulations thereof, for all patent applications and patents invented in
whole or in part with federal money.
ARTICLE III - DUE DILIGENCE
3.1. LICENSEE shall use diligent efforts to bring one or more Licensed
Products or Licensed Processes to market through a thorough, vigorous
and diligent program for exploitation of the Patent Rights to attain
maximum commercialization of Licensed Products and Licensed Processes,
including sponsoring of research at UFRFI pursuant to the Research
Agreement, providing UFRFI with a minimum total of [ * ] Dollars
($[ * ]) over [ * ].
3.2. LICENSEE's failure to perform in accordance with Paragraph 3.1 above
shall be grounds for UFRFI to terminate this Agreement pursuant to
Paragraph 12.4 hereof.
ARTICLE IV - ROYALTIES
4.1. For the rights, privileges and license granted hereunder, LICENSEE shall
pay royalties to UFRFI in the manner hereinafter provided to the end of
the term of the Patent Rights or until this Agreement shall be
terminated as hereinafter provided:
(a) An annual license maintenance fee payable commencing on
January 1, 1999 and on January 1 of each year thereafter;
provided, however, that such fee shall be waived: (i) for each
year that the Research Agreement continues in effect beyond
its initial term of three (3) years; or (ii) for each year in
which LICENSEE milestones for such year have been achieved.
The LICENSEE milestones shall be the subject of mutual
agreement and are attached hereto and incorporated herein by
reference as Exhibit C. The first License Maintenance Fee
shall be the sum of [ * ] Dollars ($[ * ]), and
each successive License Maintenance Fee payable hereunder
shall be increased by [ * ] Dollars ($[ * ]) until
the license maintenance fee is [ * ] Dollars
($[ * ]). Thereafter, the License Maintenance Fee shall be
[ * ] Dollars ($[ * ]) per year during the
remainder
* Confidential treatment has been requested for marked portion
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of the term of this Agreement. The License Maintenance Fee for
a given year shall be creditable against any running royalties
subsequently due during said year-under subparagraph 4.1(b)
below.
(b) Running royalty in an amount equal to [ * ] Percent
([ * ]%) of the Net Sales actually received by LICENSEE
of the Licensed Products and Licensed Processes sold by or for
LICENSEE [ * ].
4.2. In the event LICENSEE grants any Non-Participating Sublicenses during
the term of this Agreement, then for each such Sublicense, LICENSEE
shall pay UFRFI a royalty at the rate of [ * ] percent ([ * ]%) of
the Non-Participating Sublicense Income collected by LICENSEE under such
sublicense.
4.3. No multiple royalties shall be payable in the event that any Licensed
Product or Licensed Process is covered by more than one patent or claim
under Patent Rights as herein defined.
4.4. Royalty payments shall be paid in United States dollars in Gainesville,
Florida or at such other place as UFRFI may reasonably designate
consistent with the laws and regulations of any foreign country. If any
currency conversion shall be required in connection with the payment of
royalties hereunder, such conversion shall be made by using the exchange
rate prevailing at the Chase Manhattan Bank (N.A.) on the last business
day of the calendar quarterly reporting period to which such royalty
payments relate.
4.5. In the event that any taxes, withholding or otherwise, are levied by any
taxing authority in connection with accrual or payment of any royalties
payable by LICENSEE under this Agreement, and LICENSEE determines in
good faith that it must pay such taxes, LICENSEE shall have the right to
pay such taxes to the local tax authorities on behalf of UFRFI and
payment of the net amount due after reduction by the amount of such
taxes, shall fully satisfy LICENSEE's royalty obligations under this
Agreement. LICENSEE shall provide UFRFI with appropriate receipts or
other documentation supporting such payment. LICENSEE shall inform UFRFI
in writing, within thirty (30) days of notification that taxes will or
have been levied by a taxing authority.
ARTICLE V - REPORTS AND RECORDS
5.1. LICENSEE shall keep full, true and accurate books of account containing
all particulars that may be necessary for the purpose of showing the
amounts payable to UFRFI
* Confidential treatment has been requested for marked portion
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hereunder. Said books of account shall be kept at LICENSEE's principal
place of business or the principal place of business of the appropriate
division of LICENSEE to which this Agreement relates. Said books and the
supporting data shall be open to inspection on behalf of UFRFI, after
sales of Licensed Product commence, upon reasonable notice during
reasonable business hours to the extent necessary for the purpose of 5
verifying LICENSEE's royalty statement. Such inspection shall be made
not more than often than once each calendar year at the expense of UFRFI
by a Certified Public Accountant appointed by UFRFI and to whom LICENSEE
has no reasonable objection. LICENSEE shall not be required to retain
such records for more than five (5) years after the close of any
calendar half-year.
5.2. Licensee, within forty-five (45) days after June 30 and December 31, of
each year, shall deliver to UFRFI true and accurate reports, giving such
particulars of the business conducted by LICENSEE and its sublicensees
during the preceding six-month period under this Agreement as shall be
pertinent to a royalty accounting hereunder. These shall include at
least the following;
(a) number of Licensed Products manufactured and sold.
(b) total billings for Licensed Products sold.
(c) accounting for all Licensed Processes used or sold.
(d) deductions applicable as provided in Paragraphs 1.5 and 1.15.
(e) total royalty due.
(f) names and addresses of all sublicensees of LICENSEE and copies
of reports submitted by sublicensees.
(g) A progress report on patent filings in each country, including
the serial number, name of patent application, name of
inventors and status of each patent application covering
Licensed Products or Licensed Processes.
5.3. With each such report submitted, LICENSEE shall pay to UFRFI the
royalties due and payable under this Agreement. If no royalties shall be
due, LICENSEE shall so report.
5.4. The royalty payments and license maintenance fees set forth in this
Agreement shall, if overdue, bear interest until payment at the monthly
rate of one percent (1%). The payment of such interest shall not
preclude UFRFI from exercising any other rights it may have as a
consequence of the lateness of any payment.
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5.5. On or before the sixtieth (60th) day following the close of LICENSEE's
fiscal year, LICENSEE shall provide UFRFI with a financial statement for
the preceding fiscal year. Such financial statements shall be unaudited
until and unless LICENSEE'S stock becomes publicly traded.
ARTICLE VI - PATENT PROSECUTION
6.1. LICENSEE shall, in the name of the University of Florida, apply for,
seek issuance of, and maintain during the term of this Agreement the
Patent Rights in the United States and in foreign countries. The
prosecution, filing and maintenance of all Patent Rights patents and
applications shall be the primary responsibility of LICENSEE. LICENSEE
shall seek patent extension for patents licensed under the Patent Rights
in the United States and in such foreign countries as may be designated
by LICENSEE, under such applicable laws and regulations throughout such
countries, where such patent extension rights are available currently or
are available in the future. LICENSEE shall keep University advised as
to all developments with respect to the Patent Rights and shall supply
to University copies of all correspondence and papers received in
connection therewith within ten (10) business days of receipt or filing
thereof. As required by law, LICENSEE must provide all correspondence to
and advise UFRFI in a timely manner in order to permit UFRFI to comment
on all actions before they are taken by LICENSEE's patent counsel. All
final decisions with respect to prosecution of the Patent Rights are
reserved to UFRFI, as required by law.
6.2. Payment of all fees and costs relating to the filing, prosecution, and
maintenance of the Patent Rights shall be the responsibility of
LICENSEE.
6.3. If LICENSEE desires that a patent application be filed on University
Inventions, LICENSEE shall promptly prepare, file and prosecute a patent
application or applications in the University's name, and/or any
pertinent continuation, continuation-in-part and/or reissue
application(s) thereof in the United States directed to such University
Inventions. University shall thereafter assign all such University
Inventions to UFRFI. LICENSEE shall bear all expenses incurred in
connection with such preparation, filing and prosecution of U.S. and
foreign patent application(s) and patents directed to University
Inventions. UFRFI shall cooperate with LICENSEE to assure that such
application or applications, and any such continuation, continuation-in
part and/or reissue application(s) thereof will cover, to the best of
LICENSEE's knowledge, all items of commercial interest and importance.
UFRFI shall have the right to advise and cooperate with LICENSEE in such
prosecution, and such advice shall not be rejected unreasonably.
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6.4. If LICENSEE elects not to exercise its option(s) pursuant to this
Agreement, or decides to discontinue the financial support of the
prosecution or maintenance of the protection of the Patent Rights in the
United States and in foreign countries, or is grossly negligent in its
prosecution or maintenance of the protection thereof, UFRFI shall be
free a to file or continue prosecution or maintain any such
application(s), and to maintain any protection issuing thereon in the
U.S. and in any foreign country at UFRFI's sole expense.
ARTICLE VII - INFRINGEMENT
7.1. LICENSEE shall inform UFRFI promptly in writing of any alleged
infringement of the Patent Rights by a third party and of any available
evidence thereof.
7.2. During the term of this Agreement, LICENSEE and/or sublicensees shall
have the primary responsibility to prosecute any alleged infringement of
Patent Rights. UFRFI shall have the right, but not the obligation, to
share up to [ * ]% of the costs, or [ * ]% if LICENSEE and/or
sublicensees choose not to prosecute. Either party may claim the other
as co-plaintiff. The total cost of any such infringement action shall be
shared appropriately with respect to expenses incurred. No settlement,
consent judgment or other voluntary final disposition of the suit may be
entered into without the consent of UFRFI, which consent shall not
unreasonably be withheld; provided, however, that LICENSEE shall
indemnify UFRFI against any order for costs that may be made against
UFRFI in such proceedings, in accordance with this Paragraph.
7.3. In the event that LICENSEE shall undertake the enforcement and/or
defense of the Patent Rights by litigation, LICENSEE may withhold up to
[ * ] percent ([ * ]%) of the royalties otherwise thereafter due UFRFI
hereunder and apply the same toward reimbursement of its expenses,
including reasonable attorneys' fees, in connection therewith. Said
withholding of royalties shall begin no earlier than the date LICENSEE
first receives a bill for professional services or expenses associated
with the enforcement and/or defense of the Patent Rights. Any recovery
of damages by LICENSEE for any such suit shall be applied first in
satisfaction of any unreimbursed expenses and legal fees of LICENSEE
relating to the suit, and next toward reimbursement of UFRFI for any
royalties past due or withheld with interest and applied pursuant to
this Article VII. Any additional monies recovered from the settlement of
any such suit shall be shared on a pro rata basis between LICENSEE
and/or sublicensees and UFRFI according to the respective percentages of
costs borne by each in such suit.
7.4. In any infringement suit as either party may institute to
* Confidential treatment has been requested for marked portion
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<PAGE>
enforce the Patent Rights pursuant to this Agreement, the other party
hereto shall, at the request and expense of the party initiating such
suit, cooperate in all respects and, to the extent possible, have its
employees testify when requested and make available relevant records,
papers, information, samples, specimens, and the like.
7.5. In the event that LICENSEE or any of its sublicensees are sued (or such
suit is threatened in writing) for infringement of a third party's
patent because of the use of a Licensed Product or Licensed Process,
LICENSEE shall promptly notify UFRFI and LICENSEE and/or its
sublicensees shall have the sole right, in its discretion, to control
the defense of such suit at its own expense. UFRFI shall have the right
to be represented by its own counsel at its own expense. If LICENSEE
and/or its sublicensees do not elect within sixty (60) days of receiving
notice to control the defense of such suit, UFRFI may undertake such
control at its own expense and LICENSEE and/or its sublicensees shall
have the right to be represented by its own counsel at its own expense.
The parties shall cooperate fully in the defense of such suit. The party
financing the suit shall consult with and consider the interests of the
other, and may not settle any part of the suit or otherwise consent to
an adverse judgment in such suit that diminishes the rights or interests
of the non-financing party, including any interpretation of Patent
Rights, without the express written consent of the non-financing party.
ARTICLE VIII - PRODUCT LIABILITY
8.1. LICENSEE shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold UFRFI and the University, their
trustees, officers, employees and affiliates, harmless against all
claims and expenses, including legal expenses and reasonable attorneys'
fees whether arising from a third party claim or resulting from UFRFI's
enforcing this indemnification clause against LICENSEE, or arising out
of the death of or injury to any person or persons or out of any damage
to property and against any other claim, proceeding, demand, expense and
liability of any kind whatsoever resulting from the production,
manufacture, sale, use, lease, consumption or advertisement of the
Licensed Product(s) or Licensed Process(es) or arising from any
obligation of LICENSEE hereunder. LICENSEE's indemnification under this
Paragraph 8.1 shall not apply to any liability, damage, loss or expense
to the extent that it is attributable to the intentional wrongdoing or
intentional misconduct of UFRFI and the University, their trustees,
officers, employees and affiliates.
8.2. In the event any such action is commenced or claim made or threatened
against UFRFI or other indemnitees whom
13
<PAGE>
LICENSEE is obligated to indemnify or hold harmless, UFRFI or the other
indemnitees shall promptly notify LICENSEE of such event. LICENSEE shall
have the right to participate in the defense of that part of any such
claim or action commenced or made against UFRFI (or other indemnitees)
which relates to LICENSEE's indemnification, and LICENSEE shall not be
liable to UFRFI or other indemnitees in account of any settlement of any
such claim or litigation affected without a LICENSEE's consent, which
consent shall not be unreasonably withheld or delayed.
8.3. As of the first commercial sale of a Licensed Product or first
commercial use of a Licensed Product, LICENSEE and/or sublicensees shall
obtain, and carry in full force and effect, liability insurance which
shall protect LICENSEE and UFRFI in regard to events covered by
Paragraph 8.1 above.
8.4. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, UFRFI MAKES
NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS
OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF PATENT RIGHTS CLAIMS,
ISSUED OR PENDING.
ARTICLE IX - EXPORT CONTROLS
LICENSEE hereby agrees that it shall not sell, transfer, export or
re-export any Licensed Products or Licensed Processes 13 or related information
in any form, or any direct products of such information, except in compliance
with all applicable laws, including the export laws of any U.S. government
agency and any regulations thereunder, and will not sell, transfer, export or
re-export any such Licensed Products or Licensed Processes or information to any
persons or any entities with regard to which there exist grounds to suspect or
believe that they are violating such laws. LICENSEE shall be solely responsible
for obtaining all licenses, permits or authorizations required from the U.S. and
any other government for any such export or re-export. To the extent not
inconsistent with this Agreement, UFRFI agrees to provide LICENSEE with such
assistance as it may reasonably request in obtaining such licenses, permits or
authorization.
ARTICLE X - NON-USE OF NAMES
LICENSEE and UFRFI shall not use each others names nor the names of any
of either institution's employees, nor any adaptation thereof, in any
advertising, promotional or sales literature without prior written consent
obtained from the other party in each case, except that LICENSEE and UFRFI may
state that such license is in effect.
ARTICLE XI - ASSIGNMENT
This Agreement is not assignable and any attempt to do so
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<PAGE>
shall be void except in the case of a transfer of substantially all of the
assets of one of the parties hereto. This Agreement shall bind the parties,
their successors resulting from merger, and their permitted assigns.
ARTICLE XII - TERM AND TERMINATION
12.1. Unless earlier terminated as hereinafter provided, this Agreement shales
remain-in full force and effect until the last to expire of any patent
claim included in the Licensed Products.
12.2. If LICENSEE shall cease to carry on its business, this Agreement shall
terminate upon notice by UFRFI.
12.3. Should LICENSEE fail to pay UFRFI royalties due and payable hereunder,
UFRFI shall have the right to terminate this Agreement on thirty (30)
days' notice, unless LICENSEE shall pay UFRFI within the thirty (30) day
period, all such royalties and interest due and payable. Upon the
expiration of the thirty (30) day period, if LICENSEE shall not have
paid all such royalties and interest due and payable, the rights,
privileges and license granted hereunder shall terminate.
12.4. Upon any material breach or default of this Agreement by LICENSEE, other
than those occurrences set out in Paragraphs 12.2 and 12.3 above, which
shall always take precedence in that order over any material breach or
default referred to 14 in this Paragraph 12.4, UFRFI shall have the
right to terminate this Agreement and the rights, privileges and license
granted hereunder by ninety (90) days notice to LICENSEE. Such
termination shall become effective unless LICENSEE shall have cured or
commenced good faith remedial action acceptable to UFRFI any such breach
or default prior to the expiration of the ninety (90) day period. If
UFRFI terminates this Agreement pursuant to the terms hereof, the
Research Agreement shall concurrently terminate on the effective date of
termination of this Agreement, and the Research Agreement shall be
terminated in accordance with Paragraph 4.2 and Article X of the
Research Agreement.
12.5. LICENSEE shall have the right to terminate this Agreement at any time on
six (6) months' written notice to UFRFI, and upon payment of all amounts
due UFRFI through the effective date of the termination.
12.6. UFRFI may terminate this Agreement upon the occurrence of the third
separate default by LICENSEE within any consecutive three (3) year
period for failure to pay royalties when due.
12.7. Upon termination of this Agreement for any reason, nothing herein shall
be construed to release either party from any
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obligation that matured prior to the effective date of such termination.
LICENSEE and any sublicensee thereof may, however, after the effective
date of such termination, sell all Licensed Products, and complete
Licensed Products in the process of manufacture at the time of such
termination and sell the same, provided that LICENSEE shall pay to UFRFI
the royalties thereon as required by Article IV of this Agreement and
shall submit the reports required by Article V hereof on the sales of
Licensed Products.
12.8. Upon termination of this Agreement, any sublicensee not then in default
or in threat of default as documented by reports as per Section 5.2
shall have the right to seek a license from UFRFI.
12.9. BANKRUPTCY.
(a) Notice of Assumption of Rejection.
(i) In the event that either party files or has filed against
it a petition under the Federal Bankruptcy Code (11 U.S.C. Sections 1,
ET SEQ.) (the "Bankruptcy Code"), is adjudged bankrupt, or files or has
filed against it a petition for reorganization or arrangement under any
law relating to bankruptcy or similar laws for the protection of
debtors, whether under the laws of the United States and its political
subdivisions or otherwise, such party shall (1) notify the other party
thereof within ten (10) days after the filing of such petition or such
adjudication, and (2), within thirty (30) days after the filing of such
petition, shall notify the other party of the party's assumption or
rejection of this Agreement, and shall file a petition with the
appropriate court for approval of all other action as may be necessary
to obtain the approval of such petition and of such assumption of
rejection.
(ii) If such party does not: (1) within thirty (30) days
after the occurrence of any of the foregoing events, notify the other
party of its assumption or rejection of this Agreement or file the
petition, or (2) thereafter diligently take all other action necessary
for the approval of the foregoing petition or of such assumption or
rejection, such party shall be deemed to have rejected this Agreement.
Each party acknowledges that, for purposes of Section 365 of the
Bankruptcy Code and similar provisions of any other or future similar
laws relating to any party's assumption or rejection of any executory
contract, a period of thirty (30) days after the date of any filing or
adjudication described above shall constitute a reasonable time in which
such party shall assume or reject this Agreement and a party shall be
deemed to have not diligently taken all action necessary for the
approval of the foregoing petition or of such
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<PAGE>
assumption or rejection if such petition, assumption or rejection is not
approved by the-appropriate court within sixty (60) days after the
filing of the petition for such assumption or rejection.
(b) Conditions to Assumption.
No election by any party, or any successor-in-interest to such
party, to assume this Agreement as contemplated by paragraph
(a) above shall be effective unless each of the following
conditions, each of which each party acknowledges is
commercially reasonable in the context of a bankruptcy or
similar proceeding, has been satisfied by such party and each
of the other parties has acknowledged such satisfaction in
writing:
(1) CURE. Such party has cured, or has provided the other
party adequate assurances that:
(A) Monetary Defaults. Within ten (10) days from
the date of such assumption such party will
cure all monetary defaults under this
Agreement; and
(B) Non-Monetary Defaults. Within thirty (30)
days from the date of such assumption such
party will cure all non-monetary defaults
under this Agreement.
(2) PECUNIARY LOSS. Such party has compensated or has
provided to the other party adequate assurances that
within ten (10) days from the date of assumption the
other party will be compensated for any pecuniary loss
incurred by the party arising from any default of such
party under this Agreement prior to the assumption.
(3) FUTURE PERFORMANCE. Such party has provided the other
party with adequate assurances of the future
performance of such party's obligations under this
Agreement.
(c) Termination.
This Agreement shall terminate upon the rejection of this
Agreement as contemplated by this Paragraph by any party or
successor-in-interest thereto.
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(d) No Transfer.
Neither any party's interest in this Agreement nor any portion
thereof shall pass to any trustee, receiver, or assignee for
the benefit of creditors, or any other person or entity or
otherwise by operation of law under the Bankruptcy Code or the
insolvency laws of any state having jurisdiction of the person
or property of such party unless the other party shall consent
to such transfer in writing.
ARTICLE XIII - PAYMENTS, NOTICES AND OTHER COMMUNICATIONS
Any payment, notice or other communication pursuant to this Agreement
shall be sufficiently made or given on the date of mailing if sent to such party
by certified first class mail, postage prepaid, or facsimile with confirmation,
addressed to it at its address below or as it shall designate by written notice
given to the other party:
In the case of UFRFI:
President
University of Florida Research Foundation, Inc.
223 Grinter Hall
Gainesville, Florida 32611
Facsimile: (352) 392-9605
With a copy to:
Director
Office of Technology Licensing
186 Grinter Hall
Gainesville, Florida 32611
Facsimile: (352) 392-6600
All payments to:
Business Office
University of Florida Research Foundation, Inc.
109 Grinter Hall
Gainesville, Florida 32611
PLEASE MAKE ALL CHECKS PAYABLE TO:
UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC.
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In the case of LICENSEE:
President
Apollo Genetics, Inc.
222 Third Street
Cambridge, Massachusetts 02142
Facsimile: (617) 492-0084
With a copy to:
Bromberg & Sunstein
125 Summer Street
Boston, MA 02110-1618
Facsimile: (617) 433-0004
ARTICLE XIV - ARBITRATION
14.1. Any controversy or claim arising out of, or relating to, any provisions
of this Agreement or the breach thereof which cannot otherwise be
resolved by good faith negotiations between the parties shall be
resolved by final and binding arbitration under the rules of the
American Arbitration Association, or the Patent Arbitration Rules if
applicable, then obtaining.
14.2. Notwithstanding the foregoing, nothing in this Article XIV shall be
construed to waive any rights or timely performance of any obligations
existing under this Agreement.
ARTICLE XV - MISCELLANEOUS PROVISIONS
15.1. The parties hereto acknowledge that this Agreement sets forth the entire
Agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change of modification
except by the execution of a written instrument subscribed to by the
parties hereto.
15.2. The provisions of this Agreement are severable, and in the event that
any provisions of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of the law, such invalidity or
unenforceability shall not in any way affect the validity or
enforceability of the remaining provisions hereof.
15.3. LICENSEE agrees to mark the Licensed Products sold in the United States
with all applicable United States patent numbers. All Licensed Products
shipped to or sold in other countries shall be marked in such a manner
as to conform with the patent laws and practice of the country of
manufacture or sale.
15.4. The failure of either party to assert a right hereunder or
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<PAGE>
to insist upon compliance with any term or condition of this Agreement
shall not constitute a waiver of that right or excuse a similar
subsequent failure to perform any such term or condition by the other
party.
15.5. The parties adopt and incorporate Article VII, the confidentiality
section of the attached Research Agreement, as though incorporated
herein.
15.6. For the purpose of this Agreement and all services to be provided
hereunder, both parties shall be, and shall be deemed to be, independent
contractors and not agents or employees of the other. Neither party
shall have authority to make any statements, representations or
commitments of any kind, or to take any action, that will be binding on
the other party.
15.7. This Agreement may be signed in counterparts which collectively shall
constitute a single agreement.
15.8. Neither party shall be in breach hereof by reason of its delay in the
performance of or failure to perform any of its obligations hereunder,
if that delay or failure is caused by strikes, acts of God or the public
enemy, riots, incendiaries, interference by civil or military
authorities, compliance with governmental priorities for materials, or
any fault beyond its control or without its fault or negligence.
15.9. The parties each, at any time or from time to time, shall execute and
deliver or cause to be delivered such further assurances, instruments or
documents as may be reasonably necessary to fulfill the terms and
conditions of this Agreement.
20
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
and duly executed this Agreement the day and year set forth below.
UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC.
By /s/ Ronald M. Kudla
--------------------------------
Name: Ronald M. Kudla
Title: Director of Licensing
Date: 10/15/96
APOLLO GENETICS, INC.
By /s/ Katherine Gordon
--------------------------------
Name Katherine Gordon, PhD
Title President
Date 10/15/96
21
<PAGE>
Exhibit A
UNITED STATES AND FOREIGN PATENTS AND/OR APPLICATIONS
<TABLE>
<CAPTION>
Application/
Country/region Serial Number Filing Date Title Status
- -------------- ------------- ----------- ----- ------
<C> <C> <C> <C> <C>
[ * ]
</TABLE>
[ * ]
* Confidential treatment has been requested for marked portion
<PAGE>
EXHIBIT B
CORPORATE
RESEARCH AGREEMENT
TO ACCOMPANY LICENSE AGREEMENT
See Exhibit 10.10 to the Registration Statement
<PAGE>
CORPORATE
RESEARCH AGREEMENT
TO ACCOMPANY LICENSE AGREEMENT
This AGREEMENT entered into this 15th day of December, 1993 (the "Effective
Date"), by and between APOLLO GENETICS, INC., a corporation duly organized under
the laws of the State of Delaware and having its principal office at 222 Third
Street, Suite 3121, Cambridge, Massachusetts 02142 (hereinafter referred to as
"Sponsor") and the UNIVERSITY OF FLORIDA, a non-profit educational institution
of the State of Florida located in Gainesville, Florida (hereinafter referred to
as the "University").
W I T N E S S E T H:
WHEREAS, Sponsor desires the research assistance of certain technically
qualified persons having access to certain facilities and equipment;
WHEREAS, Sponsor desires to fund said research entitled [ * ] attached
hereto as Appendix 1;
WHEREAS, Sponsor has entered into a License Agreement with the University
of Florida Research Foundation, Inc. ("UFRFI") dated December 15, 1993 for all
fields of use. UFRFI and University have agreed that the research described
herein shall be funded through and conducted by University;
WHEREAS, University is willing to cooperate with and assist Sponsor by
furnishing such personnel, and facilities as may be required;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agrees as follows:
I. DEFINITIONS:
As used herein, the following terms shall have the following meanings:
1.1 "Project Description" shall mean the description of the project as
described in Appendix 1 hereof.
1.2 "Project Work" shall mean the research work as described in
Appendix 1 hereof to be performed by University and its Principal
Investigator, [ * ], under this Agreement.
* Confidential treatment has been requested for marked portion
1
<PAGE>
1.3 "Contract Period" is for a period of three (3) years, commencing from
the Effective Date, during which the University shall perform the Project Work.
1.4 "Principal Investigator" shall mean the individual designated by
University to implement and oversee all aspects and components of the Project
Work and to serve as University's liaison with Sponsor's designated
representative.
1.5 "Researcher(s)" shall mean individually and collectively the Principal
Investigator, graduate students, other professional personnel and/or other
employees of University participating in the actual performance of the Project
Work.
1.6 "Sponsor" shall mean the LICENSEE defined and described in the License
Agreement between LICENSEE and UFRFI.
1.7 "License Agreement" shall mean that certain License Agreement dated
December 15, 1993 to which this Research Agreement is attached.
II. RESEARCH WORK
2.1 University shall commence the performance of the Project Work promptly
after the Effective Date of this Agreement, and shall use its diligent efforts
to complete such Project Work substantially in accordance with the terms and
conditions of this Agreement. Anything in this Agreement to the contrary
notwithstanding, Sponsor and University may at any time enter into written
agreements to make changes to and amend the Project Description provided,
however, that such changes or amendments do not change the nature of the
project; are approved by UFRFI; and, further provided that budgetary allocations
set forth in Appendix 1 hereof covering the Project Work to be performed
hereunder shall be augmented as necessary to cover any additional costs to
University resulting from such changes or amendments.
2.2 Sponsor's designated representative shall be Katherine Gordon, Ph.D.
or such other representative as Sponsor may from time to time designate.
University's Principal Investigator shall be [ * ] Ph.D. or such
other representative as University may designate with the prior written approval
of Sponsor.
III. REPORTS AND CONFERENCES
3.1 University's Principal Investigator shall make up to four (4) oral
reports each year as requested by Sponsor and shall submit written
progress/program reports on a yearly basis and as specific phases of work are
completed. A final report shall be submitted by University within forty five
(45) days of the conclusion of the Contract Period, or early termination of this
Agreement.
3.2 If necessary, during the term of this Agreement, representatives of
the University will meet the representatives of Sponsor at times and places
mutually agreed upon to discuss the
* Confidential treatment has been requested for marked portion
2
<PAGE>
progress and results, as well as ongoing plans, or changes therein, of the
Project Work to be performed hereunder.
IV. COSTS, BILLINGS AND OTHER SUPPORT
4.1 It is agreed to and understood by the parties hereto that, subject
to Section 2, total costs to Sponsor hereunder shall not exceed the sum of
[ * ] Dollars ($[ * ]). These costs shall be allocated as set forth in
Appendix 1 attached hereto for use in the Project Work.
4.2 Anything herein to the contrary notwithstanding, should this Agreement
be subject to early termination pursuant to Section 10 hereof, Sponsor shall pay
all costs accrued by University as of the date of termination, provided,
however, that Sponsor shall reimburse University for non-cancelable obligations,
which shall include all non-cancelable contracts and postdoctoral associate
appointments called for in the Project Description, Appendix 1 incurred prior to
the effective date of termination. After termination, any obligation of Sponsor
for postdoctoral associates shall end no later that the end of the University's
fiscal year following termination.
V. PUBLICITY
5.1 Sponsor will not use the name of the University, nor of any member of
the University's technical staff, in any publicity, advertising or news release
without the prior written approval of an authorized representative of the
University; provided, however, that Sponsor may (a) refer to publications by
employees of University in scientific literature, or (b) state that Sponsor is
sponsoring research at University. The University will not use the name of
Sponsor, nor any employee of Sponsor, in any publicity without the prior written
approval of Sponsor.
VI. PUBLICATIONS
6.1 Sponsor recognizes that under University academic policy, the results
of a University research project must be publishable and agrees that Researchers
engaged in the Project Work shall be permitted to prevent at symposia, national
or regional professional meetings and to publish in journals, theses or
dissertations, or otherwise of their own choosing, methods and results of
Project Work, provided, however, that Sponsor shall have been furnished copies
of any proposed publication or presentation at least sixty (60) days in advance
of the submission of such proposed publication or presentation to a journal,
editor or other third party. Sponsor shall have thirty (30) days, after receipt
of said copies, to object to such proposed presentation or proposed publication
either because there is patentable subject matter which needs protection and/or
there is Confidential Information (as later defined herein) of Sponsor contained
in the proposed publication or presentation. In the event that Sponsor makes
such objection, the said Researcher(s) shall refrain from making such
publication or presentation for a maximum of three (3) months in order for
Sponsor
3
* Confidential treatment has been requested for marked portion
<PAGE>
to file patent application(s) with the United States Patent and Trademark Office
and/or foreign patent office(s) directed to the patentable subject matter
contained in the proposed publication or presentation.
VII. CONFIDENTIALITY
7.1 Anything in this Agreement to the contrary notwithstanding, any and
all knowledge, know-how, practices, process or other information of any kind and
in any form (hereinafter referred to as "Confidential Information") disclosed or
submitted, either orally, in writing or in other tangible or intangible form
which is designated as Confidential Information, to either party by the other
shall be received and maintained by the receiving party in strict confidence and
shall not be disclosed to any third party. Furthermore, neither party shall use
the said Confidential Information for any purpose other than those purposes
specified in this Agreement. The parties may disclose Confidential Information
to the minimum number of its employees reasonably requiring access thereto for
the purposes of this Agreement provided, however, that prior to making any such
disclosures each such employee shall be apprised of the duty and obligation to
maintain Confidential Information in confidence and not to use such information
for any purpose other than in accordance with the terms and conditions of this
Agreement. The University warrants that any and all Researchers conducting
research under and supported by this Agreement shall sign a participation
agreement substantially similar in content to the form attached hereto and
incorporated herein by reference as Appendix 2.
7.2 Nothing contained herein will in any way restrict or impair either
parties right to use, disclose, or otherwise deal with any Confidential
Information which at the time of its receipt:
7.2.1 Is generally available in the public domain, or thereafter
becomes available to the public through no act of the receiving party; or
7.2.2 Was independently known prior to receipt thereof, or made
available to such receiving party as a matter of lawful right by a third party.
VIII. INVENTIONS, IMPROVEMENTS AND DISCOVERIES
8.1 University will promptly notify Sponsor of any University Inventions
conceived and/or made during the Contract Period under Project Work funded by
Sponsor or such shorter time if there is an early termination.
8.2 All rights and title to University Inventions arising under the
Project Work shall belong to University and shall be subject to the terms and
conditions of this Agreement and the License Agreement.
4
<PAGE>
8.3 All rights and title to Joint Inventions arising under the Project
Work shall belong jointly to Sponsor and University and shall be subject to the
terms and conditions of this Agreement and the License Agreement.
8.4 Rights to inventions, improvements and/or discoveries, whether
patentable or not, relating to Project Work made solely by employees of Sponsor
shall belong to Sponsor, and such invention, improvements and/or discoveries
shall not be subject to the terms and conditions of this Agreement, but shall be
subject to the terms and conditions of the License Agreement.
IX. PATENTS AND PATENT APPLICATIONS
9.1 All rights to University Inventions will be assigned by University to
UFRFI.
X. TERM AND TERMINATION
10.1 This Agreement shall become effective upon the date first hereinabove
written and shall continue in effect for the full duration of the Contract
Period unless sooner terminated in accordance with the provisions of this
Section 10. The parties hereto may, however, pursuant to Section 2.1, extend
the term of this Agreement for additional periods as desired under mutually
agreeable terms and conditions which the parties reduce to writing and sign.
10.2 In the event that either party hereto shall commit any breach of or
default in any of the terms or conditions of this Agreement, and also shall fail
to remedy such default or breach within sixty (60) days after receipt of written
notice thereof from the other party hereto, the party giving notice may, at its
option and in addition to any other remedies which it may have at law or in
equity, terminate this Agreement by sending notice of termination in writing to
the other party to such effect, and such termination shall be effective as of
the date of the receipt of such notice.
10.3 Termination of this Agreement by either party for any reason shall not
affect the rights and obligations of the parties accrued prior to the effective
date of termination of this Agreement including, but not limited to, any license
or sublicense rights under the License Agreement. No termination of this
Agreement, however effectuated, shall release the parties hereto from their
rights and obligations under Section III, IV, V, VI, VII and VIII.
XI. MISCELLANEOUS
11.1 The parties recognize that inventions, copyrightable works and other
proprietary information may arise from research sponsored in whole or in part by
agencies of the federal government. The parties hereto agree that any such
developments
5
<PAGE>
shall be governed by the provisions of Public Law 96-517, or as amended, during
the term of this Agreement.
11.2 In the performance of all services hereunder:
11.2.1 University shall be deemed to be and shall be an independent
contractor and as such University shall not be entitled to any benefits
applicable to employees of Sponsor;
11.2.2 University shall comply with all governmental laws and
regulations, such as EPA, OSHA and like regulations, which are applicable to the
University and its performance of the Project Work hereunder;
11.2.3 Neither party is authorized or empowered to act as agent or
the other for any purpose and shall not on behalf of the other enter into any
contract, warranty or representation as to any matter. Neither shall be bound
by the acts or conduct of the other.
XII. INDEMNITY/INSURANCE
12.1 University warrants and represents that, as part of the State of
Florida, University is self-funded for liability insurance under Chapter 284,
FLORIDA STATUTES, such protection being applicable to officers, employees and
agents while acting within the scope of their employment by University and
University has no liability insurance policy as such that can extend protection
to any other person.
12.2 Each party hereby assumes any and all risks of personal injury and
property damage attributable to the negligent acts or omissions of that party
and the officers, employees and agents thereof.
12.3 The parties further agree that nothing contained herein shall be
construed or interpreted as denying to either party any remedy or defense
available to such party under the laws of the State of Florida; the consent of
the State of Florida or its agents and agencies to be sued by reason hereon; or
as a waiver of sovereign immunity of the State of Florida beyond the waiver
provided in Section 768.28, FLORIDA STATUTES (1991).
XIII. GOVERNING LAW
This agreement shall be governed and interpreted in accordance with the
internal law of the State of Florida without regard to its conflict of laws.
XIV. ASSIGNMENT
This Agreement is not assignable and any attempt to do so shall be void
except in the case of a transfer of substantially all of the assets of one of
the parties hereto. This Agreement shall
6
<PAGE>
bind the parties, their successors resulting from merger, and their permitted
assigns.
XV. AGREEMENT MODIFICATION
Any agreement changing the terms of this Agreement in any way shall be void
only if the change is made in writing and approved by authorized representatives
of the parties hereto.
XVI. NOTICES
Notices, invoices, communications and payments hereunder shall be deemed
made if given by registered or certified mail, postage prepaid, and addressed to
the party to receive such notice, invoice or communication at the address given
below, or such other address as may hereafter be designated by notice in
writing:
If to Sponsor:
Katherine Gordon, Ph.D.
President
Apollo Genetics, Inc.
222 Third Street
Cambridge, MA 02142
If to University:
Karen A. Holbrook, Ph.D.
Vice President for Research
Dean, Graduate School
University of Florida
Office of Research and Graduate Education
223 Grinter Hall
Gainesville, FL 32611-2037
Technical Matter:
[*]
Payments shall be made in United States dollars to the University of
Florida at the address first indicated hereinabove. The date of giving any
notice, invoice or other communication, and the date of making any such payment,
provided that such payment is received, shall be the date on which such envelope
is deposited with the appropriate U.S. Post Office. The postal service receipt
showing the date of such deposit shall be PRIMA FACIE evidence of these facts.
* Confidential treatment has been requested for marked portion
7
<PAGE>
XVII. INDEPENDENT CONTRACTORS
For the purpose of this Agreement and all services to be provided
hereunder, both parties shall be, and shall be deemed to be, independent
contractors and not agents or employees of the other. Neither party shall have
authority to make any statements, representations or commitments of any kind, or
to take any action, that will be binding on the other party.
XVIII. FORCE MAJEURE
Neither party shall be in breach hereof by reason of its delay in the
performance of or failure to perform any of its obligations hereunder, if that
delay or failure is caused by strikes, acts of God or the public enemy, riots,
incendiaries, interference by civil or military authorities, compliance with
governmental priorities for materials, or any fault beyond its control or
without its fault or negligence.
XIX. ENTIRE AGREEMENT
This Agreement represents the entire understanding between the parties, and
supersedes and merges all understanding between the parties, and supersedes and
merges all other agreements, express or implied, discussions or understandings
between the parties with respect to the subject matter hereof. It shall be
interpreted in conjunction and consistent with the License Agreement to which
this is an Exhibit.
8
<PAGE>
IN WITNESS WHEREOF, the parties have caused these presents to be executed
in duplicate as of the day and year first above written.
APOLLO GENETICS, INC. UNIVERSITY OF FLORIDA
/s/ Katherine Gordon /s/ Karen A. Holbrook
- -------------------------- -----------------------
By: Katherine Gordon, Ph.D By:
Title: President Title:
/s/ Niles Sutphin /s/ Marilyn A. Ritter
- -------------------------- -----------------------
Witness Witness
9
<PAGE>
Appendix 1
PROJECT WORK AND BUDGET
SPONSORED PROJECT TITLE: [ * ]
OVERALL PROGRAM OBJECTIVE: [ * ]
SPECIFIC AIMS:
[ * ]
PROGRAM DESCRIPTION: [ * ]
* Confidential treatment has been requested for marked portion
<PAGE>
Appendix 1
PROJECT WORK AND BUDGET (con't)
Year 1
[ * ]FTE Technician. . . . . . . . . . . . . . . . . . . . $[ * ]
Supplies for the evaluation of 6 steroids
(culture media, plastic ware, stains, cells,
antibiotics, disinfectants, etc.. . . . . . . . . . . . $ [ * ]
-------
Total Year 1 budget (direct). . . . . . . . . . . . . . . $ [ * ]
Overhead. . . . . . . . . . . . . . . . . . . . . . . . . $ [ * ]
TOTAL (Direct and indirect) . . . . . . . . . . . . . . . $ [ * ]
Year 2
[ * ]FTE Technician . . . . . . . . . . . . . . . . . . . $ [ * ]
Supplies. . . . . . . . . . . . . . . . . . . . . . . . . $ [ * ]
-------
Total Year 2 budge (direct) . . . . . . . . . . . . . . . $ [ * ]
Overhead. . . . . . . . . . . . . . . . . . . . . . . . . $ [ * ]
TOTAL (Direct and indirect) . . . . . . . . . . . . . . . $ [ * ]
Year 3
[ * ]FTE Technician . . . . . . . . . . . . . . . . . . . $ [ * ]
Supplies. . . . . . . . . . . . . . . . . . . . . . . . . $ [ * ]
Animal purchase and maintenance . . . . . . . . . . . . . $ [ * ]
-------
Total Year 3 budget (direct). . . . . . . . . . . . . . . $ [ * ]
Overhead. . . . . . . . . . . . . . . . . . . . . . . . . $ [ * ]
TOTAL (Direct and indirect) . . . . . . . . . . . . . . . $ [ * ]
* Confidential treatment has been requested for marked portion
<PAGE>
Appendix 2
PARTICIPATION AGREEMENT
The University of Florida ("University") and Apollo Genetics, Inc.
("Sponsor") have entered into a corporate research agreement ("Research
Agreement") in which Sponsor granted to University and University accepted, a
research grant to support certain investigations (the "Sponsored Activity").
University agrees to certain obligations to Sponsor with respect to rights in
inventions, copyrightable subject-matter and other developments of a proprietary
nature that arise in connection with the Sponsored Activity. As a condition of
my participating in the Sponsored Activity and in consideration therewith, and
to enable University to fulfill its obligations to the Sponsor, I hereby agree
as follows:
1. The Sponsor shall have all rights with respect to any and all
[DEVELOPMENTS] of a proprietary nature which may accrue to me by virtue of my
participation in the Sponsored Activity and income derived therefrom to which it
is entitled under the terms of the Research Agreement, including such rights in
any invention, improvements, discovery or innovation, whether or not patentable,
conceived or first actually reduced to practice by me, solely or jointly with
others, in the course of, in connection with or as a result of the Sponsored
Activity. I will execute all documents and do all acts, but without expense to
me, necessary or proper to effectuate such rights or determinations of the
Sponsor, and I will not claim or assert rights inconsistent with Sponsor's
rights.
2. Any and all knowledge, know-how, practices, process or other
information of any kind and in any form (hereinafter referred to as
"Confidential Information") disclosed or submitted, either orally, in writing or
in other tangible or intangible form which is designated as Confidential
Information, to me by the Sponsor shall be received and maintained by me in
strict confidence and shall not be disclosed to any third party. Furthermore, I
shall not use the Confidential Information for any purpose other than those
purposes specified in the Sponsored Activity.
3. The principal investigator of the Sponsored Activity shall insure that
each participant signs a participation agreement in the form of this one.
Signed: [ * ]
* Confidential treatment has been requested for marked portion
<PAGE>
Appendix 2
PARTICIPATION AGREEMENT
The University of Florida ("University") and Apollo Genetics, Inc.
("Sponsor") have entered into a corporate research agreement ("Research
Agreement") in which Sponsor granted to University and University accepted, a
research grant to support certain investigations (the "Sponsored Activity").
University agrees to certain obligations to Sponsor with respect to rights in
inventions, copyrightable subject-matter and other developments of a proprietary
nature that arise in connection with the Sponsored Activity. As a condition of
my participating in the Sponsored Activity and in consideration therewith, and
to enable University to fulfill its obligations to the Sponsor, I hereby agree
as follows:
1. The Sponsor shall have all rights with respect to any and all
[DEVELOPMENTS] of a proprietary nature which may accrue to me by virtue of my
participation in the Sponsored Activity and income derived therefrom to which it
is entitled under the terms of the Research Agreement, including such rights in
any invention, improvements, discovery or innovation, whether or not patentable,
conceived or first actually reduced to practice by me, solely or jointly with
others, in the course of, in connection with or as a result of the Sponsored
Activity. I will execute all documents and do all acts, but without expense to
me, necessary or proper to effectuate such rights or determinations of the
Sponsor, and I will not claim or assert rights inconsistent with Sponsor's
rights.
2. Any and all knowledge, know-how, practices, process or other
information of any kind and in any form (hereinafter referred to as
"Confidential Information") disclosed or submitted, either orally, in writing or
in other tangible or intangible form which is designated as Confidential
Information, to me by the Sponsor shall be received and maintained by me in
strict confidence and shall not be disclosed to any third party. Furthermore, I
shall not use the Confidential Information for any purpose other than those
purposes specified in the Sponsored Activity.
3. The principal investigator of the Sponsored Activity shall insure that
each participant signs a participation agreement in the form of this one.
Signed: [ * ]
* Confidential treatment has been requested for marked portion
<PAGE>
PATENT LICENSE AGREEMENT
TABLE OF CONTENTS
PREAMBLE
ARTICLES:
I DEFINITION
I GRANT
III DUE DILIGENCE
IV ROYALTIES
V REPORTS AND RECORDS
VI PATENT PROSECUTION
VII INFRINGEMENT
VIII PRODUCT LIABILITY
IX EXPORT CONTROLS
X NON-USE OF NAMES
XI ASSIGNMENT
XII TERM AND TERMINATION
XIII PAYMENTS, NOTICES AND OTHER COMMUNICATIONS
XIV ARBITRATION
XV MISCELLANEOUS PROVISIONS
This Agreement is made and entered into this 8th day of September, 1994,
(the Effective Date) by and between THE UNIVERSITY OF FLORIDA RESEARCH
FOUNDATION, INC., a not-for-profit corporation duly organized and existing under
the laws off the State of Florida; and having its principal of five at 223
Grinter Hall, Gainesville, Florida, 32611-2037, U.S.A. (hereinafter referred to
UFRFI), and APOLLO GENETICS, INC., a corporation duly organized under the laws
of the State of Delaware and having its principal office at 222 Third Street,
Suite 3121, Cambridge, Massachusetts 02142 (hereinafter referred to as
LICENSEE).
WITNESSETH
WHEREAS, UFRFI is the owner of certain "Patent Rights" (as later defined
herein) by assignment from the University of Florida (hereinafter referred to
as University) relating to UFRFI Case No. 1229 entitled "ESTROGEN
RESPONSIVENESS DIAGNOSTIC," invented by [ * ] filed in the United States
Patent and Trademark Office on September 8, 1994, and has the right to grant
licenses under said Patent Rights;
* Confidential treatment has been requested for marked portion
<PAGE>
WHEREAS, UFRFI desires to have the Patent Rights utilized in the public
interest and is willing to grant a license thereunder, subject only to a
royalty-free, non-exclusive license to be granted to the United States
government, as required by law;
WHEREAS, LICENSEE has represented to UFRFI to induce UFRFI to enter into
this Agreement, that LICENSEE is familiar with the development, production,
manufacture, marketing and sale of products similar to the "Licensed Product(s)"
(as later defined herein) and/or the use of the "Licensed Process(es)" (as later
defined herein) and that it shall commit itself to a thorough, vigorous and
diligent program of exploiting the Patent Rights commercially so that public
utilization and royalty income to UFRFI shall result therefrom;
WHEREAS, LICENSEE desires to obtain a license from UFRFI under the Patent
Rights upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
For the purposes of this Agreement, the following words and phrases shall
have the following meaning:
1.1 "LICENSEE" shall mean all of the following:
(a) a related company of LICENSEE, the voting stock of which is
directly or indirectly at least fifty percent (50%) owned or
controlled by LICENSEE;
(b) an organization which directly or indirectly controls more than
fifty percent (50%) of the voting stock of LICENSEE;
(c) an organization, the majority ownership of which is directly or
indirectly common to the ownership of LICENSEE.
1.2 "Patent Rights" shall mean all of the following UFRFI intellectual
property:
(a) the United States and foreign patents and/or patent applications
listed in Exhibit A;
(b) United States and foreign patents issued from the applications
listed in Exhibit A and from divisionals and continuations of
these applications;
(c) U.S. continuation-in-part applications and foreign
continuation-in-part applications, and the resulting patents,
based on the U.S. and foreign applications listed in Exhibit A;
(d) claims of all foreign patent applications, and of the resulting
patents, which are directed to subject matter specifically
described in the United
2
<PAGE>
States patents and/or patent applications described in (a), (b),
or (c) above;
(e) any reissues of United States patents described in (a), (b), (c),
or (d) above.
1.3 A "Licensed Product" shall mean any product or part thereof which:
(a) is covered in whole or in part by an issued, unexpired claim or a
pending claim contained in the Patent Rights in the country in
which any Licensed Products is made, used or sold;
(b) is manufactured by using a process which is covered in whole or
in part by an issued, unexpired claim or a pending claim
contained in the Patent Rights in the country in which any
Licensed Process is used in which such product or part thereof is
used or sold;
(c) is derived from Patent Rights, Know-How (as later defined
herein), and/or trade secrets related to or described in Patent
Rights;
(d) is sold, manufactured or used in any country under this
Agreement.
1.4 A "Licensed Process" shall mean:
(a) any process which is covered in whole or in part by an issued,
unexpired claim or a pending claim contained in the Patent
Rights;
(b) is derived from Patent Rights, Know-How, and/or trade secrets
related to or described in Patent Rights;
(c) is sold, manufactured or used in any country under this
Agreement.
1.5 "Net Sales" shall mean LICENSEE's billings, for Licensed Products and
Licensed Processes produced hereunder invoiced to independent third
parties less the sum of the following:
[ * ]
Licensed Products shall be considered "sold" when payment is received by
LICENSEE. [ * ]
* Confidential treatment has been requested for marked portion
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1.6 "Know-How" shall mean any and all technical data, information, or
knowledge which relate to the Licensed Product, the Licensed Process
or the manufacture, marketing, registration, purity, quality, potency,
safety, and efficacy of the Licensed Product or Licensed Process.
1.7 "University Inventions" shall mean individually and collectively all
inventions, improvements and/or discoveries patentable or
unpatentable, which are conceived and/or made by one or more employees
of University. For the purposes of this Paragraph, the "making" of
inventions shall be governed by U.S. laws of inventorship.
1.8 "Joint Inventions" shall mean individually and collectively all
inventions, improvements and/or discoveries patentable or
unpatentable, which are conceived and/or made jointly by personnel of
University (including faculty and employees) and of LICENSEE. For the
purposes of this Paragraph, the "making" of inventions shall be
governed by U.S. laws of inventorship.
1.9 "University Patents" shall mean collectively and individually any and
all United States and foreign patent applications and any and all
issued United States Letters Patents and foreign patents owned by
University which pertain to University Inventions under this
Agreement.
1.10 "Joint Patents" shall mean collectively and individually any and all
United States and foreign patent applications and any and all issued
United States Letter Patents and foreign patents jointly owned by
LICENSEE and University under this Agreement.
1.11 "Non-Affiliated Third Party Sublicensee" shall mean any sublicensee
company or organization not related to or controlled by LICENSEE.
1.12 "Sublicense Income" shall mean the net royalties (including advanced
royalties or "lump-sum" payments) actually received by LICENSEE from
Non Affiliated Third Party Sublicensee under the license herein
granted, after the deduction of all reasonable legal costs, documented
by credible written evidence provided to UFRFI, actually incurred by
LICENSEE in connection with the negotiation and procurement of the
pertinent sublicenses.
ARTICLE II- GRANT
2.1 UFRFI hereby grants to LICENSEE the right and license to make, have
made, use, lease and sell the Licensed Products, and to practice the
Licensed Processes throughout the world in any and all fields of use
to the end of the term for which the Patent Rights are granted unless
sooner terminated according to the terms
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hereof, subject to the non-exclusive licensed granted to the United
States Government.
2.2 In order to establish exclusivity for LICENSEE, UFRFI hereby agrees
that it shall not grant any other license to make, have made, use,
lease and sell Licensed Products or to utilize Licensed Processes
throughout the world in any and all fields of use during the period of
time commencing with the Effective Date of this Agreement and
terminating with the expiration of this Agreement.
2.3 UFRFI reserves the right to practice under the Patent Rights for its
own noncommercial research purposes.
2.4 LICENSEE shall have the right to enter into sublicensing agreements
for the rights, privileges and licenses granted hereunder. However,
Licensee shall notify UFRFI in writing of the initiation of license
negotiations with all potential Non-Affiliated Third Party
Sublicensees.
2.5 LICENSEE hereby agrees that every Non-Affiliated Third Party
Sublicensee agreement to which it shall be a party and which shall
relate to the rights, privileges and license granted hereunder shall
contain a statement setting forth the date upon which LICENSEE's
exclusive rights, privileges and license hereunder shall terminate.
LICENSEE agrees that any sublicense granted hereunder shall provide
that the obligations to UFRFI under Article I (Definitions), II
(Grants), V (Reports and Records), VII (Infringement), VIII (Product
Liability), IX (Export Controls), X (Non-Use of Names), XII (Term and
Termination), XIV (Arbitration), and XV (Miscellaneous Provisions) of
this Agreement shall be binding on upon the sublicensee as if it were
a party to this Agreement. LICENSEE further agrees to attach copies of
such Articles to each sublicense agreement.
2.6 LICENSEE agrees to forward to UFRFI a copy of any and all
Non-Affiliated Third Party Sublicensee agreements within thirty (30)
days of the execution of such sublicensee agreements and further
agrees to forward to UFRFI annually a copy of such reports received by
LICENSEE from its sublicensees during the preceding twelve (12) month
period under the sublicenses as shall be pertinent to a royalty
accounting under said sublicense agreements.
2.7 LICENSEE shall not receive from sublicensees anything of value in lieu
of cash payments in consideration for any sublicense under this
Agreement, without the express prior written permission of UFRFI.
2.8 The license granted hereunder shall not be construed to confer any
rights upon LICENSEE by implication, estoppel or otherwise as to any
technology not specifically set forth herein; provided, however, that
LICENSEE shall have the exclusive right to negotiate with any
Non-Affiliated Third Party Sublicensee in connection with Know-How
resulting from any Licensed Product sublicensed by LICENSEE hereunder.
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2.10 Any patent applications made or patents issued from Joint Inventions
shall be filed in University's and LICENSEE's names, and the portion
thereof not made by University personnel shall belong to LICENSEE and
shall not be subject to the provisions of this Agreement. In
determining royalty rates in licenses to such patent applications or
patents resulting from the joint effort of LICENSEE and University,
there shall be taken into consideration the relative contributions of
the respective joint inventors of the invention.
2.11 Any controversy, dispute or claim arising out of, or relating to, any
provisions of this Paragraph 2 which cannot otherwise be resolved by
good faith negotiations between the parties shall be resolved by
arbitration in accordance with the provisions of Article XIV of this
Agreement.
2.12 LICENSEE agrees that for Licensed Products covered by Patent Rights
that are subject to the non-exclusive royalty-free license to the
United States government, such Licensed Products will be manufactured
substantially in the United States, in accordance with applicable
federal law.
2.13 LICENSEE further agrees that it shall abide by all rights and
limitations of U.S. Code Title 35, Chapter 38, and implementing
regulations thereof, for all patent applications and patents invented
in whole or in part with federal money.
ARTICLE III - DUE DILIGENCE
3.1 LICENSEE shall use diligent efforts to bring one or more Licensed
Products or Licensed Processes to market through a thorough, vigorous
and diligent program for exploitation of the Patent Rights to attain
maximum commercialization of Licensed Products and Licensed Processes.
3.2 LICENSEE's failure to perform in accordance with Paragraph 3.1 above
shall be grounds for UFRFI to terminate this Agreement pursuant to
Paragraph 12.4 hereof.
ARTICLE IV - ROYALTIES
4.1 For the rights, privileges and license granted hereunder, LICENSEE
shall pay royalties to UFRFI in the manner hereinafter provided to the
end of the term of the Patent Rights or until this Agreement shall be
terminated as hereinafter provided:
(a) An annual License Maintenance Fee payable commencing on January
1, 1999 and on January 1 of each year thereafter; provided,
however, that such fee shall be waived for each year in which
LICENSEE milestones for such year have been achieved. The
LICENSEE milestones shall be the subject of mutual agreement and
are attached hereto and incorporated herein by reference as
Exhibit B. The first License Maintenance Fee shall be the sum of
[ * ] Dollars ($[ * ]), and each successive License
Maintenance Fee payable hereunder shall be increased by [ *
* Confidential treatment has been requested for marked portion
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* ] Dollars ($[ * ]) until the License Maintenance Fee is
[ * ] Dollars ($[ * ]). Thereafter, the License
Maintenance Fee shall be [ * ] Dollars ($[ * ]) per
year during the remainder of the term of this Agreement. The
License Maintenance Fee for a given year shall be creditable
against any Running Royalties subsequently due during said year
under subparagraph 4.1(b) below.
(b) Running Royalty in an amount equal to [ * ] ([ * ]%) of the Net
Sales of the Licensed Products of Licensed Processes used,
leased or sold by or for LICENSEE.
4.2 In the event LICENSEE grants any sublicenses to Non-Affiliated Third
Party Sublicensees during the term of this Agreement, then for each
such sublicense, LICENSEE shall pay UFRFI an additional royalty at the
rate of [ * ] percent ([ * ]%) of the Sublicense Income collected
by LICENSEE under such sublicense.
4.3 No multiple royalties shall be payable because any Licensed Product,
its manufacture, use, lease or sale are or shall be covered by more
than one Patent Rights patent application or Patent Rights patent
licensed under this Agreement.
4.4 Royalty payments shall be paid in United States dollars in
Gainesville, Florida or at such other place as UFRFI may reasonably
designate consistent with the laws and regulations controlling in any
foreign country. If any currency conversion shall be required in
connection with the payment of royalties hereunder, such conversion
shall be made by using the exchange rate prevailing at the Chase
Manhattan Bank (N.A.) on the last business day of the calendar
quarterly reporting period to which such royalty payments relate.
4.5 In the event the royalties set forth herein are higher than the
maximum royalties permitted by the law or regulations of a particular
country, the royalty payable for sales in such country shall equal to
the maximum permitted royalty under such law or regulations. Notice of
said event shall be provided to UFRFI. An authorized representative of
LICENSEE shall notify UFRFI, in writing, within thirty (30) days of
discovering that such royalties are approaching or have reached the
maximum amount, and shall provide UFRFI with written documentation
regarding the laws or regulations establishing such maximum.
4.6 In the event that any taxes, withholding or otherwise, are levied by
any taxing authority in connection with accrual or payment of any
royalties payable by LICENSEE under this Agreement, and LICENSEE
determines in good faith that it must pay such taxes, LICENSEE shall
have the right to pay such taxes to the local tax authorities on
behalf of UFRFI and payment of the net amount due after reduction by
the amount of such taxes, shall fully satisfy LICENSEE's royalty
obligations under this Agreement. LICENSEE shall provide UFRFI with
appropriate receipts or other documentation supporting such payment.
LICENSEE
* Confidential treatment has been requested for marked portion
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shall inform UFRFI in writing, within thirty (30) days of notification
that taxes will or have been levied by a taxing authority.
ARTICLE V - REPORTS AND RECORDS
5.1 LICENSEE shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purpose of
showing the amounts payable to UFRFI hereunder. Said books of account
shall be kept at LICENSEE's principal place of business or the
principal place of business of the appropriate division of LICENSEE to
which this Agreement relates. Said books and the supporting data shall
be open to inspection on behalf of UFRFI upon reasonable notice during
reasonable business hours to the extent necessary for the purpose of
verifying LICENSEE's royalty statement or compliance in other respects
with this Agreement. Such inspection shall be made not more than often
than once each calendar year at the expense of UFRFI by a Certified
Public Accountant appointed by UFRFI and to whom LICENSEE has no
reasonable objection. LICENSEE shall not be required to retain such
records for more than five (5) years after the close of any calendar
half-year.
5.2 LICENSEE, within forty-five (45) days after June 30 and December 31,
of each year, shall deliver to UFRFI true and accurate reports, giving
such particulars of the business conducted by LICENSEE and its
sublicensees during the preceding six-month period under this
Agreement as shall be pertinent to a royalty accounting hereunder.
These shall include at least the following;
(a) number of Licensed Products manufactured and sold.
(b) total billings for Licensed Products sold.
(c) accounting for all Licensed Processes used or sold.
(d) deductions applicable as provided in Paragraphs 1.5 and 1.13.
(e) total royalty due.
(f) names and addresses of all sublicensees of LICENSEE.
(g) A progress report on patent filings in each country, including
the serial number, name of patent application, name of inventors
and status of each patent application covering Licensed Products
or Licensed Processes.
5.3 With each such report submitted, LICENSEE shall pay to UFRFI the
royalties due and payable under this Agreement. If no royalties shall
be due, LICENSEE shall so report.
5.4 The royalty payments, license fees, and reimbursement for
patent-related expenses set forth in this Agreement shall, if overdue,
bear interest until payment at the
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monthly rate of one percent (1%). The payment of such interest shall
not foreclose UFRFI from exercising any other rights it may have as a
consequence of the lateness of any payment.
5.5 On or before the sixtieth (60th) day following the close of LICENSEE's
fiscal year, LICENSEE shall provide UFRFI with an audited financial
statement for the preceding fiscal year.
ARTICLE VI - PATENT PROSECUTION
6.1 LICENSEE shall, in the name of the University of Florida, apply for,
seek issuance of, and maintain during the term of this Agreement the
Patent Rights in the United States and in foreign countries. The
prosecution, filing and maintenance of all Patent Rights patents and
applications shall be the primary responsibility of LICENSEE. LICENSEE
shall seek patent extension for patents licensed under the Patent
Rights in the United States and in such foreign countries as may be
designated by LICENSEE, under such applicable laws and regulations
throughout such countries, where such patent extension rights are
available currently or are available in the future. LICENSEE shall
keep University advised as to all developments with respect to the
Patent Rights and shall supply to University copies of all
correspondence and papers received in connection therewith within ten
(10) business days of receipt or filing thereof. As required by law,
LICENSEE must provide all correspondence to and advise UFRFI in a
timely manner in order to permit UFRFI to comment on all actions
before they are taken by LICENSEE's patent counsel. All final
decisions with respect to prosecution of the Patent Rights are
reserved to UFRFI, as required by law.
6.2 Payment of all fees and costs relating to the filing, prosecution, and
maintenance of the Patent Rights shall be the responsibility of
LICENSEE.
6.3 If LICENSEE directs that a patent application be filed on University
Inventions, LICENSEE shall promptly prepare, file and prosecute a
patent application or applications in the University's name, and/or
any pertinent continuation, continuation-in-part and/or reissue
application(s) thereof in the United States directed to such
University Inventions. University shall thereafter assign all such
University Inventions to UFRFI. LICENSEE shall bear all expenses
incurred in connection with such preparation, filing and prosecution
of U.S. and foreign patent application(s) and patents directed to
University Inventions. UFRFI shall cooperate with LICENSEE to assure
that such application or applications, and any such continuation,
continuation-in-part and/or reissue application(s) thereof will cover,
to the best of UFRFI's knowledge, all items of commercial interest and
importance. LICENSEE shall keep UFRFI advised as to all developments
with respect to such application or applications, and/or continuation,
continuation-in-part and reissue application(s) and shall supply to
UFRFI copies of all papers received within ten (10) business days of
receipt and in sufficient time for UFRFI to comment thereon. UFRFI
shall have the right to advise and
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cooperate with LICENSEE in such prosecution, and such advice shall not
be rejected unreasonably. All final decisions with respect to
prosecution of said application(s), and said continuation,
continuation-in-part and reissue applications, and selection of patent
counsel are reserved to UFRFI.
6.4 If LICENSEE elects not to exercise its option(s) pursuant to this
Agreement, or decides to discontinue the financial support of the
prosecution or maintenance of the protection of the Patent Rights in
the United States and in foreign countries, or is grossly negligent in
its prosecution or maintenance of the protection thereof, UFRFI shall
be free to file or continue prosecution or maintain any such
application(s), and to maintain any protection issuing thereon in the
U.S. and in any foreign country at UFRFI's sole expense.
ARTICLE VII - INFRINGEMENT
7.1 LICENSEE shall inform UFRFI promptly in writing of any alleged
infringement of the Patent Rights by a third party and of any
available evidence thereof.
7.2 During the term of this Agreement, UFRFI shall have the right, but
shall not be obligated, to prosecute at its own expense any such
infringements of Patent Rights. If UFRFI prosecutes any such
infringement, LICENSEE agrees that UFRFI may include LICENSEE as a
co-plaintiff in any such suit, without expense to LICENSEE. The total
cost of any such infringement action commenced or defended solely by
UFRFI shall be borne by UFRFI and UFRFI shall keep any recovery or
damages for past infringement derived therefrom.
7.3 If within three (3) months after having been notified of any alleged
infringement or such shorter time proscribed by law, UFRFI shall have
been unsuccessful in persuading the alleged infringer to desist and
shall not have brought and shall not be diligently prosecuting an
infringement action, or if UFRFI shall notify LICENSEE at any time
prior thereto of its intention not to bring suit against any alleged
infringer, then, and in those events only, LICENSEE shall have the
right, but shall not be obligated, to prosecute at its own expense any
infringement of the Patent Rights, and LICENSEE may, for such
purposes, use the name of UFRFI as party plaintiff; provided, however,
that such right to bring an infringement action shall remain in effect
only for so long as the license granted herein remains exclusive. No
settlement, consent judgment or other voluntary final disposition of
the suit may be entered into without the consent of UFRFI, which
consent shall not unreasonably be withheld; provided, however, that
LICENSEE shall indemnify UFRFI against any order for costs that may be
made against UFRFI in such proceedings, in accordance with this
Paragraph.
7.4 In the event that LICENSEE shall undertake the enforcement and/or
defense of the Patent Rights by litigation, LICENSEE may withhold up
to fifty percent (50%) of the royalties otherwise thereafter due UFRFI
hereunder and apply the same toward reimbursement of its expenses,
including reasonable attorneys' fees, in connection therewith. Said
withholding of royalties shall begin no earlier than
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the date LICENSEE first receives a bill for professional services or
expenses associated with the enforcement and/or defense of the Patent
Rights. Any recovery of damages by LICENSEE for any such suit shall be
applied first in satisfaction of any unreimbursed expenses and legal
fees of LICENSEE relating to the suit, and next toward reimbursement
of UFRFI for any royalties past due or withheld with interest and
applied pursuant to this Article VII.
7.5 In the event that a declaratory judgment action alleging invalidity or
noninfringement of any of the Patent Rights shall be brought against
LICENSEE, UFRFI, at its option, shall have the right, within thirty
(30) days after commencement of such action, to intervene and take
over the sole defense of the action at its own expense.
7.6 In any infringement suit as either party may institute to enforce the
Patent Rights pursuant to this Agreement, the other party hereto
shall, at the request and expense of the party initiating such suit,
cooperate in all respects and, to the extent possible, have its
employees testify when requested and make available relevant records,
papers, information, samples, specimens, and the like.
ARTICLE VIII - PRODUCT LIABILITY
8.1 LICENSEE shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold UFRFI and the University, their
trustees, officers, employees and affiliates, harmless against all
claims and expenses, including legal expenses and reasonable
attorneys' fees whether arising from a third party claim or resulting
from UFRFI's enforcing this indemnification clause against LICENSEE,
or arising out of the death of or injury to any person or persons or
out of any damage to property and against any other claim, proceeding,
demand, expense and liability of any kind whatsoever resulting from
the production, manufacture, sale, use, lease, consumption or
advertisement of the Licensed Product(s) and/or Licensed Process(es)
or arising from any obligation of LICENSEE hereunder. LICENSEE's
indemnification under this Paragraph 8.2 shall not apply to any
liability, damage, loss or expense to the extent that it is
attributable to the intentional wrongdoing or intentional misconduct
of UFRFI and the University, their trustees, officers, employees and
affiliates.
8.2 In the event any such action is commenced or claim made or threatened
against UFRFI or other indemnitees whom LICENSEE is obligated to
indemnify or hold harmless, UFRFI or the other indemnitees shall
promptly notify LICENSEE of such event. LICENSEE shall have the right
to participate in the defense of that part of any such claim or action
commenced or made against UFRFI (or other indemnitees) which relates
to LICENSEE's indemnification, and LICENSEE shall not be liable to
UFRFI or other indemnitees in account of any settlement of any such
claim or litigation affected without LICENSEE's consent, which consent
shall not be unreasonably withheld or delayed.
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8.3 LICENSEE shall obtain and carry in full force and effect liability
insurance which shall protect LICENSEE and UFRFI in regard to events
covered by Paragraph 8.1 above.
8.4 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, UFRFI MAKES
NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF
PATENT RIGHTS CLAIMS, ISSUED OR PENDING.
ARTICLE IX - EXPORT CONTROLS
LICENSEE hereby agrees that it shall not sell, transfer, export or reexport
any Licensed Products or Licensed Processes or related information in any form,
or any direct products of such information, except in compliance with all
applicable laws, including the export laws of any U.S. government agency and any
regulations thereunder, and will not sell, transfer, export or reexport any such
Licensed Products or Licensed Processes or information to any persons or any
entities with regard to which there exist grounds to suspect or believe that
they are violating such laws. LICENSEE shall be solely responsible for obtaining
all licenses, permits or authorizations required from the U.S. and any other
government for any such export or reexport. To the extent not inconsistent with
this Agreement, UFRFI agrees to provide LICENSEE with such assistance as it may
reasonably request in obtaining such licenses, permits or authorization.
ARTICLE X - NON-USE OF NAMES
LICENSEE shall not use the names of the University of Florida or University
of Florida Research Foundation, Inc. nor of any of either institution's
employees, nor any q M adaptation thereof, in any advertising, promotional or
sales literature without prior written consent obtained from UFRFI in each case,
except that LICENSEE may state that it is licensed by UFRFI under one or more of
the patents and/or applications comprising the Patent Rights.
ARTICLE XI- ASSIGNMENT
This Agreement is not assignable and any attempt to do so shall be void
except in the case of a transfer of substantially all of the assets of one of
the parties hereto. This Agreement shall bind the parties, their successors
resulting from merger, and their permitted assigns.
ARTICLE XII - TERM AND TERMINATION
12.1 Unless earlier terminated as hereinafter provided, this Agreement
shall remain in full force and effect until the last to expire of any
patent claim included in the Licensed Products.
12.2 If LICENSEE shall cease to carry on its business, this Agreement shall
terminate upon notice by UFRFI.
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12.3 Should LICENSEE fail to pay UFRFI royalties due and payable hereunder,
UFRFI shall have the right to terminate this Agreement on thirty (30)
days' notice, unless LICENSEE shall pay UFRFI within the thirty (30)
day period, all such royalties and interest due and payable. Upon the
expiration of the thirty (30) days period, if LICENSEE shall not have
paid all such royalties and interest due and payable, the rights,
privileges and license granted hereunder shall terminate.
12.4 Upon any material breach or default of this Agreement by LICENSEE,
other than those occurrences set out in Paragraphs 12.2 and 12.3
hereinabove, which shall always take precedence in that order over any
material breach or default referred to in this Paragraph 12.4, UFRFI
shall have the right to terminate this Agreement and the rights,
privileges and license granted hereunder by ninety (90) days' notice
to LICENSEE. Such termination shall become effective unless LICENSEE
shall have cured any such breach or default prior to the expiration of
the ninety (90) day period. If UFRFI terminates this Agreement
pursuant to the terms hereof, the Research Agreement shall
concurrently terminate on the effective date of termination of this
Agreement, and the Research Agreement shall be terminated in
accordance with Paragraph 4.2 and Article X of the Research-Agreement.
12.5 LICENSEE shall have the right to terminate this Agreement at any time
on six (6) months' written notice to UFRFI, and upon payment of all
amounts due UFRFI through the effective date of the termination.
12.6 UFRFI may terminate this Agreement upon the occurrence of the third
separate default by LICENSEE within any consecutive three (3) year
period for failure to pay royalties when due.
12.7 Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that
matured prior to the effective date of such termination. LICENSEE and
any sublicensee thereof may, however, after the effective date of such
termination, sell all Licensed Products, and complete Licensed
Products in the process of manufacture at the time of such termination
and sell the same, provided that LICENSEE shall pay to UFRFI the
royalties thereon as required by Article IV of this Agreement and
shall submit the reports required by Article V hereof on the sales of
Licensed Products.
12.8 Upon termination of this Agreement for any reason, any sublicensee not
then in default shall have the right to seek a license from UFRFI.
12.9 BANKRUPTCY.
(a) Notice of Assumption of Rejection.
(i) In the event that either party files or has filed against it
a petition under the Federal Bankruptcy Code (11 U.S.C.
Sections 1, et seq.) (the "Bankruptcy Code"), is adjudged
bankrupt, or files or has filed
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against it a petition for reorganization or arrangement
under any law relating to bankruptcy or similar laws for the
protection of debtors, whether under the laws of the United
States and its political subdivisions or otherwise, such
party shall (1) notify the other party thereof within ten
(10) days after the filing of such petition or such
adjudication, and (2), within thirty (30) days after the
filing of such petition, shall notify the other party of the
party's assumption or rejection of this Agreement, and shall
file a petition with the appropriate court for approval of
all other action as may be necessary to obtain the approval
of such petition and of such assumption of rejection.
(ii) If such party does not: (1) within thirty (30) days after
the occurrence of any of the foregoing events, notify the
other party of its assumption or rejection of this Agreement
or file the petition, or (2) thereafter diligently take all
other action necessary for the approval of the foregoing
petition or of such assumption or rejection, such party
shall be deemed to have rejected this Agreement. Each party
acknowledges that, for purposes of Section 365 of the
Bankruptcy Code and similar provisions of any other or
future similar laws relating to any party's assumption or
rejection of any executory contract, a period of thirty (30)
days after the date of any filing or adjudication described
above shall constitute a reasonable time in which such party
shall assume or reject this Agreement and a party shall be
deemed to have not diligently taken all action necessary for
the approval of the foregoing petition or of such assumption
or rejection if such petition, assumption or rejection is
not approved by the appropriate court within sixty (60) days
after the filing of the petition for such assumption or
rejection.
(b) Conditions to Assumption.
No election by any party, or any successor-in-interest to such
party, to assume this Agreement as contemplated by paragraph (a)
above shall be effective unless each of the following conditions,
each of which each party acknowledges is commercially reasonable
in the context of a bankruptcy or similar proceeding, has been
satisfied by such party and each of the other parties has
acknowledged such satisfaction in writing:
(1) CURE. Such party has cured, or has provided the other party
adequate assurances that:
(A) Monetary Defaults. Within ten (10) days from the date
of such assumption such party will cure all monetary
defaults under this Agreement; and
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(B) Non-Monetary Defaults. Within thirty (30) days from the
date of such assumption such party will cure all
non-monetary defaults under this Agreement.
(2) PECUNIARY LOSS. Such party has compensated or has provided
to the other party adequate assurances that within ten (10)
days from the date of assumption the other party will be
compensated for any pecuniary loss incurred by the party
arising from any default of such party under this Agreement
prior to the assumption.
(3) FUTURE PERFORMANCE. Such party has provided the other party
with adequate assurances of the future performance of such
party's obligations under this Agreement.
(c) Termination.
This Agreement shall terminate upon the rejection of this
Agreement as contemplated by this Paragraph by any party or
successor-in-interest thereto.
(d) No Transfer.
Neither any party's interest in this Agreement nor any portion
thereof shall pass to any trustee, receiver, or assignee for the
benefit of creditors, or any other person or entity or otherwise
by operation of law under the Bankruptcy Code or the insolvency
laws of any state having jurisdiction of the person or property
of such party unless the other party shall consent to such
transfer in writing.
ARTICLE XIII - PAYMENTS, NOTICES AND OTHER COMMUNICATIONS
Any payment, notice or other communication pursuant to this Agreement shall
be sufficiently made or given on the date of mailing if sent to such party by
certified first class mail, postage prepaid, addressed to it at its address
below or as it shall designate by written notice given to the other party:
In the case of UFRFI:
President
University of Florida Research Foundation, Inc.
223 Grinter Hall
Gainesville, Florida 32611
With copy to:
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Director
Office of Patent, Copyright and Technology
Licensing
186 Grinter Hall
Gainesville, Florida 32611
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All payments to:
Director
Office of Patent, Copyright and Technology
Licensing
186 Grinter Hall
Gainesville, Florida 32611
PLEASE MAKE ALL CHECKS PAYABLE TO:
UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC.
In the case of LICENSEE:
President
Apollo Genetics, Inc.
222 Third Street
Cambridge, Massachusetts 02142
With copy to:
Bromberg & Sunstein
10 West Street
Boston, Massachusetts 02111
ARTICLE XIV - ARBITRATION
14.1 Any controversy or claim arising out of, or relating to, any
provisions of this Agreement or the breach thereof which cannot
otherwise be resolved by good faith negotiations between the parties
shall be resolved by final and binding arbitration under the rules of
the American Arbitration Association, or the Patent Arbitration Rules
if applicable, then obtaining.
14.2 Notwithstanding the foregoing, nothing in this Article XIV shall be
construed to waive any rights or timely performance of any obligations
existing under this Agreement.
ARTICLE XV - MISCELLANEOUS PROVISIONS
15.1 The parties hereto acknowledge that this Agreement sets forth the
entire Agreement and understanding of the parties hereto as to the
subject matter hereof, and shall not be subject to any change of
modification except by the execution of a written instrument
subscribed to by the parties hereto.
15.2 The provisions of this Agreement are severable, and in the event that
any provisions of this Agreement shall be determined to be invalid or
unenforceable
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under any controlling body of the law, such invalidity or
unenforceability shall not in any way affect the validity or
enforceability of the remaining provisions hereof.
15.3 LICENSEE agrees to mark the Licensed Products sold in the United
States with all applicable United States patent numbers. All Licensed
Products shipped to or sold in other countries shall be marked in such
a manner as to conform with the patent laws and practice of the
country of manufacture or sale.
15.4 The failure of either party to assert a right hereunder or to insist
upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent
failure to perform any such term or condition by the other party.
15.5 The parties adopt and incorporate Article VII, the confidentiality
section of the attached Research Agreement, as though incorporated
herein.
15.6 For the purpose of this Agreement and all services to be provided
hereunder, both parties shall be, and shall be deemed to be,
independent contractors and not agents or employees of the other.
Neither party shall have authority to make any statements,
representations or commitments of any kind, or to take any action,
that will be binding on the other party.
15.7 This Agreement may be signed in counterparts which collectively shall
constitute a single agreement.
15.8 Neither party shall be in breach hereof by reason of its delay in the
performance of or failure to perform any of its obligations hereunder,
if that delay or failure is caused by strikes, acts of God or the
public enemy, riots, incendiaries, interference by civil or military
authorities, compliance with governmental priorities for materials, or
any fault beyond its control or without its fault or negligence.
15.9 The parties each, at any time or from time to time, shall execute and
deliver or cause to be delivered such further assurances, instruments
or documents as may be reasonably necessary to fulfill the terms and
conditions of this Agreement.
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IN WITNESS WHEREOF, the parties have hereunto set their hands and seals and
duly executed this Agreement the day and year set forth below.
UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC.
By /s/ Karen A. Holbrook
---------------------------
Name Karen A. Holbrook, Ph.D
-------------------------
Title President
------------------------
Date 9/14/94
------------------------
APOLLO GENETICS, INC.
By /s/ Katherine Gordon
---------------------------
Name Katherine Gordon. PhD
-------------------------
Title President
------------------------
Date 9/8/94
-------------------------
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Exhibit A
UNITED STATES AND FOREIGN PATENTS AND/OR APPLICATIONS
[ * ]
* Confidential treatment has been requested for marked portion
20
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Exhibit B
LICENSEE MILESTONES
Year
[ * ]
* Confidential treatment has been requested for marked portion
21
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") made and entered into by and between
Apollo Genetics, Incorporated (the "Company"), a Delaware corporation with
its principal place of business at 222 Third Street, Suite 3121, Cambridge,
Massachusetts, and Katherine Gordon (the "Executive"), who resides at 395
Broadway Street, Cambridge, Massachusetts, effective as of the 1st day of
November, 1993 (the "Effective Date").
WHEREAS, the operations of the Company and its Affiliates are a complex
matter requiring direction and leadership in a variety of arenas, including
financial, strategic planning, regulatory, community relations and others;
WHEREAS, the Executive is possessed of certain experience and expertise
that qualify her to provide the direction and leadership required by the
Company and its Affiliates; and
WHEREAS, subject to the terms and conditions hereinafter set forth, the
Company therefore wishes to employ the Executive as its President and Chief
Executive Officer and the Executive wishes to accept such employment;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, terms, provisions and conditions set forth in this Agreement, the
parties hereby agree:
1. EMPLOYMENT. Subject to the terms and conditions set forth in this
Agreement, the Company hereby offers and the Executive hereby accepts
employment.
2. TERM. Subject to earlier termination as hereafter provided, this
Agreement shall have an original term of three (3) years commencing on the
effective date hereof and shall be automatically extended thereafter for
successive terms of two (2) years each, unless either party provides notice
to the other at least ninety (90) days prior to the expiration of the
original or any extension term that the Agreement is not to be extended. The
term of this Agreement, as from time to time extended or renewed, is
hereafter referred to as "the term of this Agreement" or "the term hereof".
3. CAPACITY AND PERFORMANCE.
a. During the term hereof, the Executive shall serve the Company as its
President, Chief Executive Officer and a Director
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of the corporation.
b. During the term hereof, the Executive shall be employed by the Company
on a full-time basis and shall have all powers and duties consistent with
such positions, subject to the direction of the Board.
c. During the term hereof, the Executive shall devote her full business
time and her best efforts, business judgment, skill and knowledge exclusively
to the advancement of the business and interests of the Company and its
Affiliates and to the discharge of her duties and responsibilities hereunder.
4. COMPENSATION AND BENEFITS.
a. BASE SALARY. During the term hereof, the Company shall pay the
Executive a base salary at the annual rate of $100,000 plus such other
amounts, if any, as the Board of Directors of the Company, in its sole
discretion, may from time to time determine. The Executive's base salary
shall be reviewed annually; provided, however, that in no event shall
Executive's base salary be reduced below an annual rate of $100,000.
Executive's salary shall be payable in bi-weekly installments or at such
other frequency as the Company may from time to time determine for its senior
executive officers as a group.
b. BONUS COMPENSATION. In addition to her base salary, the Executive
shall receive a cash bonus to be awarded at the discretion of the Board of
Directors. Issuance of the bonus shall be evaluated by the Board of Directors
at least on an annual basis. c. STOCK OPTIONS. Executive shall be
eligible to receive stock options as the Board of Directors shall determine
at its sole discretion.
d. BUSINESS EXPENSES. The Company shall pay or reimburse the Executive
for all reasonable business expenses incurred or paid by the Executive in the
performance of her duties and responsibilities hereunder, subject to any
maximum annual limit and other restrictions on such expenses set by the Board
and to such reasonable substantiation and documentation as may be specified
by the Company from time to time.
e. INSURANCE. The Company shall provide the Executive with, and pay the
cost of, health, dental, life, and disability insurance as is generally made
available to employees at levels similar to Executive's.
f. VACATIONS. During the term hereof, the Executive shall be entitled to
four (4) weeks of vacation per annum, to be taken at such times and intervals
as shall be determined by the Executive, subject to the reasonable business
needs of the Company. One week of non-utilized vacation time may be carried
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over into the next year. The Executive shall be entitled to cash
compensation for one week of vacation time not taken during a given year.
g. OTHER BENEFITS. All other benefits offered to employees of the
Company, including but not excluded to, paid vacations at designated
holidays, shall be provided to the Executive.
5. TERMINATION. Notwithstanding the provisions of Section 2 hereof, the
Executive's employment hereunder shall terminate prior to the expiration of
the term under the following circumstances:
a. DEATH. In the event of the Executive's death during the term hereof,
the Executive's employment hereunder shall immediately and automatically
terminate. In the event of the Executive's death during the term hereof, the
Company shall pay to the Executive's designated beneficiary any earned and
unpaid Base Salary, pro-rated through the date of her death.
b. DISABILITY.
i. The Company may terminate the Executive's employment hereunder
through any illness, injury, accident or condition of either a physical or
psychological nature and, as a result, is unable to perform substantially all
of her duties and responsibilities hereunder for ninety (90) consecutive days
during any period of three hundred and sixty-five (365) calendar days.
Severance provisions of Section 5.d shall apply.
ii. The Board may designate another employee to act in the
Executive's place during any period of the Executive's disability.
Notwithstanding any such designation, the Executive shall continue to receive
the Base Salary in accordance with Section 4.a and benefits in accordance
with Section 4.b - 4.g, to the extent permitted by the then-current terms of
the applicable benefit plans, until the Executive becomes eligible for
disability income benefits under the Company's disability income plan or
until the termination of her employment, whichever shall first occur.
iii. While receiving disability income payments under the Company's
disability income plan, the Executive shall not be entitled to receive any
Base Salary under Section 4.a hereof, but shall continue to participate in
Company benefit plans in accordance with Section 4.b - 4.g and the terms of
such plans, until the termination of her employment.
iv. While receiving disability income payments under the Company's
disability income plan and for as long as the Executive remains employed by
the Company, the Company shall pay to the Executive the difference between
60% of her Base Salary at the time the disability is incurred and the
disability income
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benefits. This shall continue for the duration of the disability payments or
until such time as employment is terminated.
c. BY THE COMPANY FOR CAUSE. The Company may terminate the Executive's
employment hereunder for Cause at any time upon notice to the Executive
setting forth in reasonable detail the nature of such Cause. The following,
as determined by the Board in its reasonable judgment, shall constitute Cause
for termination:
i. Willful failure to perform, or gross negligence in the
performance of, the Executive's duties and responsibilities to the Company
and its Affiliates;
ii. Fraud, embezzlement or other material dishonesty with respect to
the Company or any of its Affiliates;
iii. Conviction of, or plea or nolo contendere to, a felony or other
crime involving moral turpitude.
Upon the giving of notice of termination of the Executive's employment
hereunder for Cause, the Company shall have no further obligation of
liability to the Executive, other than for Based Salary and other benefits
under this Agreement earned and unpaid at the date of termination.
d. BY THE COMPANY OTHER THAN FOR CAUSE. The Company may terminate the
Executive's employment hereunder other than for Cause at any time upon notice
to the Executive. In the event of such termination, the Company shall
continue to pay the Executive the Base Salary at the rate in effect on the
date of termination for a period of one year and shall continue to contribute
to the cost of the Executive's participation in the Company's health, dental,
life and disability insurance plans, provided that the Executive is entitled
to continue such participation under applicable law and plan terms. Notice
by the Company that the Agreement is not to be extended as per Section 2
shall constitute termination by the Company other than for cause.
e. BY THE EXECUTIVE FOR GOOD REASON. The Executive may terminate her
employment hereunder for Good Reason, upon notice to the Company setting
forth in reasonable detail the nature of such Good Reason. The following
shall constitute Good Reason for termination by the Executive:
i. Failure of the Company to continue the Executive in the position
of President and Chief Executive Officer;
ii. Material diminution in the nature or scope of the Executive's
responsibilities, duties or authority;
iii. Material failure of the Company to provide the Executive the
Based Salary and benefits in accordance with the terms of Section 4 hereof.
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In the event of termination in accordance with this Section 5.e, the Company
shall continue to pay the Executive the Base Salary at the rate in effect of
the date of termination for a period of one year and shall continue to
contribute to the cost of the Executive's participation in the Company's
health, dental, life and disability insurance plans, provided that the
Executive is entitled to continue such participation under applicable law and
plan terms.
g. UPON CHANGE OF CONTROL.
iv. If a Change of Control occurs (as defined in Section 5.g.ii)
and, within two years following such Change of Control, the Company
terminates the Executive's employment other than for Cause, or the Executive
terminates her employment for Good Reason, then, in lieu of any payments to
or on behalf of the Executive under Section 5.d or 5.e hereof, the Company
(A) shall pay the Executive, within ten business days of such termination, a
lump sum payment equal to two and a half (2.5) times the sum of the Base
Salary in effect at the date of such termination; and (B) shall pay the full
cost of the Executive's continued participation in the Company's health,
dental, life, and disability insurance plans for two and a half (2.5) years
so long as the Executive remains entitled to continue such participation
under applicable law.
v. A change of control ("Change of Control") shall be deemed to take
place if hereafter (A) any Person or "group", other than the Company or any
of its Affiliates, becomes a beneficial owner, directly or indirectly, of
securities representing fifty percent (50%) or more of the total number of
votes that may be cast for the election of directors of the Company; or (B)
any merger or consolidation takes place involving the Company or any sale of
all or substantially all of the assets of the Company or any combination of
the foregoing in which the Company is not the surviving entity.
vi. The Company shall promptly reimburse the Executive for the
amount of all reasonable attorneys' fees and expenses incurred by the
Executive in seeking to obtain or enforce any right or benefit provided the
Executive under this Section 5.g.
6. CONFIDENTIALITY .
a. Beginning on the Effective Date, and at any time hereafter, the
Executive shall treat as confidential any proprietary, confidential or secret
information relating to the business or interests of the Company or any
Affiliate of the Company, including, without limitation, the organizational
structure, operations, business plans or technical projects of the Company or
any subsidiary or Affiliate of the Company, and any research data or result,
invention, trade secret, customer list, process or other work product
developed by or for the
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Company or any subsidiary or Affiliate of the Company, whether on the
premises of the Company or elsewhere ("Confidential Information"). Beginning
on the Effective Date, and at any time hereafter, the Executive shall not
disclose, utilize or make accessible in any manner or in any form any
Confidential Information other than in connection with performing the
services required of her under this Agreement, without the prior written
consent of the Company. Notwithstanding the foregoing, the provisions of
this Section 6.a shall not apply to any proprietary, confidential or secret
information or other research data or result, invention, trade secret,
customer list or work product which is, at the commencement of this Agreement
or at some later date, publically known under circumstances involving no
breach of this Agreement or is lawfully and in good faith made available to
Executive by a third party under no obligation of confidentiality with
respect thereto.
b. All documents, records, apparatus, equipment and other physical
property furnished to Executive by the Company or produced by Executive or
others in connection with her employment shall be and remain the sole
property of the Company. Executive shall return and deliver such property to
the Company as and when requested by the Company.
c. Executive agrees that the provisions of this Section 6 shall survive
the termination of this employment and of this Agreement.
7. ASSIGNMENT OF RIGHTS TO INTELLECTUAL PROPERTY. Executive hereby
agrees that any and all information, inventions and discoveries, whether or
not patentable, that she conceives and/or creates using the term hereof and
any extensions thereof, and which are a direct or indirect result of work
performed hereunder, shall be the sole and exclusive property of the Company.
Executive hereby assigns to the Company any and all right, title and
interest which she has or may acquire in the same. Executive further agrees
that she will promptly execute any and all applications, assignments or other
instruments which any officer of the Company or the Board of Directors of the
Company shall deem necessary or useful in order to apply for and obtain
Letters Patent in the United States and all foreign countries for said
information, inventions and discoveries and in order to assign and convey to
the Company the sole and exclusive right, title, and interest in and to said
information, inventions, discoveries, patent applications and patents
thereon. The Company shall bear the cost of preparation of all such patent
applications and assignments, and the cost of prosecution of all such patent
applications in the United States patent office and in the patent offices of
foreign countries.
8. NON-COMPETITION.
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a. Executive agrees that, during the period she is employed by the
Company or any Affiliate of the Company, under this Agreement or otherwise,
she will not engage in, or otherwise directly or indirectly be employed by,
or act as a consultant, advisor or lender to, or be a director, officer,
employee, stockholder, owner or partner of, any other business or
organization, whether or not such business or organization now is or shall
then be competing with the Company or Affiliate of the Company; provided,
however, that Executive shall not be prohibited either from managing her own
personal investments on her own personal time or from serving on up to two
(2) outside boards of directors or advisory boards, so long as such
activities do not (i) involve a business or organization which competes with
the Company or any Affiliate of the Company, (ii) interfere or conflict with
the performance of her duties as an employee of the Company or any subsidiary
or Affiliate of the Company, (iii) otherwise result in a breach of any of the
provisions of this Agreement, or (iv) in the case of serving as a director or
advisory board member of other-companies, such activities for all such
companies do not require, in the aggregate, more than ten (10) days per year,
including travel time.
Executive further agrees that if her employment with the Company is
terminated by the Company pursuant to Section 5 hereof, or resigns or
otherwise fails or refuses to perform the services required of her under this
Agreement other than as a result of a breach of this Agreement by the Company
(which breach is not cured within thirty (30) days after receiving notice
thereof), then during the two-year period commencing on the date she ceases
to be employed by the Company or any Affiliate of the Company, under this
Agreement or otherwise, Executive shall not directly or indirectly compete
with or be engaged in the same business as the Company its Affiliates, or be
employed by, or act as consultant, advisor or lender to, or be a director,
officer, employee, stockholder, owner or partner of, any business or
organization which, at the time of such cessation, directly or indirectly
competes with or is engaged in the same business as the Company or any
subsidiary or Affiliate of the Company; PROVIDED, HOWEVER, that if
Executive's employment with the Company is terminated pursuant to Section 5
hereof, Executive's obligations pursuant to this sentence shall continue only
so long as the Company pays Executive compensation at the same rate
compensation was being paid to her pursuant to Section 4.a of this Agreement
at the time of such termination.
b. Executive agrees that for a period of three years from the termination
of this Agreement she will not, directly or indirectly, employ or solicit the
employment or engagement by others of any employees of, or consultants hired
by, the Company, or any subsidiary or Affiliate of the Company, without the
prior written consent of the Company, unless such person ceased to be
employed or engaged by the Company or its subsidiary or Affiliate at least
four (4) months prior to the solicitation.
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9. REPRESENTATIONS AND WARRANTIES. Executive represents and warrants to
the Company that (i) Executive is under no contractual or other restriction
or obligation which is inconsistent with the execution of this Agreement, the
performance of her duties hereunder or the other rights of the Company and
any subsidiary or Affiliate of the Company hereunder, and (ii) Executive is
under no physical or mental disability that would hinder the performance by
her of her duties under this Agreement.
10. ASSIGNMENT. Neither the Company nor the Executive may make any
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other; provided, however,
that the Company may assign its rights and obligations under this Agreement
without the consent of the Executive Clothe event that the Company shall
hereafter affect a reorganization, consolidate with, or merge into, any other
Person or transfer all or substantially all of its properties or assets to
any other Person. This Agreement shall inure to the benefit of and be binding
upon the Company and the administrators, heirs and permitted assigns.
11. SEVERABILITY. If any portion or provision of this Agreement shall to
any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of
such portion or provision in circumstances other than those as to which it is
so declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
12. WAIVER. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of either party
to require the performance of any term or obligation of this Agreement, or
the waiver by either party of any breach of this Agreement, shall not prevent
any subsequent enforcement of such term or obligation or be deemed a waiver
of any subsequent breach.
13. NOTICES. Any and all notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall
be effective when delivered in person or deposited in the United States mail,
postage prepaid, registered or certified, and addressed to the Executive at
her last known address on the books of the Company or, in the case of the s
Company, at its principal place of business, or to such other address as
either party may specify by notice to the other.
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14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior communications, agreements and
understandings, written or oral, with respect to the terms and conditions of
the Executive's employment.
15. AMENDMENT. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by a expressly authorized
representative of the Company.
16. HEADINGS. The headings and captions in-this Agreement are for
convenience only and in no way define or describe the scope or content of any
provision of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which together
shall constitute one and the same instrument.
18. GOVERNING LAW. This is a Massachusetts contract and shall be
construed and enforced under and be governed in all respects by the laws of
the Commonwealth of Massachusetts, without regard to the conflict of laws
principles thereof.
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IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, by its duly authorized representative, and by the
Executive, as of the date first above written.
THE EXECUTIVE: THE COMPANY:
/s/ Katherine Gordon By: /S/ Alan Gelband
- -------------------------- --------------------------------
Title: Chief Financial Officer
--------------------------------
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EXHIBIT 11
APOLLO BIOPHARMACEUTICS, INC.
STATEMENT RE: COMPUTATION OF LOSS PER SHARE
Year ended Nine months ended
December 31, September 30,
---------------- -----------------
1995 1994 1996 1995
---- ---- ---- ----
(unaudited)
Net loss ................... $(392,149) $(523,007) $(222,912) $(305,906)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common
shares outstanding......... 3,130,068 3,005,959 3,531,000 2,994,941
"Cheap" stock issued
November 30, 1995 to
December 20, 1996.......... 654,555 654,555 654,555 654,555
--------- --------- --------- ---------
3,784,623 3,660,514 4,185,555 3,649,496
--------- --------- --------- ---------
--------- --------- --------- ---------
Net loss per share.......... $(.10) $(.14) $(.05) $(.08)
------ ------ ------ -----
------ ------ ------ -----
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to inclusion in this Registration Statement on Form SB-2 of
our report dated July 15, 1996 (with respect to Note A December 20, 1996). We
also consent to the reference to our firm under the caption "Experts" in the
Prospectus.
RICHARD A. EISNER & COMPANY, LLP
Cambridge, Massachusetts
December 20, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS AND NOTES THERETO, DATED DECEMBER 20,
1996 WITH RESPECT TO NOTE A, AND DATED JULY 15, 1996 OTHERWISE, FOR THE FISCAL
YEAR ENDING DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996
<CASH> 247 374
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 247 486
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 248 492
<CURRENT-LIABILITIES> 162 176
<BONDS> 204 0
0 0
0 0
<COMMON> 1,229 1,886
<OTHER-SE> (1,347) (1,570)
<TOTAL-LIABILITY-AND-EQUITY> 248 492
<SALES> 0 0
<TOTAL-REVENUES> 3 0
<CGS> 0 0
<TOTAL-COSTS> 364 370
<OTHER-EXPENSES> 1 1
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 31 30
<INCOME-PRETAX> (392) (223)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (392) (223)
<EPS-PRIMARY> (.10) (.05)
<EPS-DILUTED> (.10) (.05)
</TABLE>