<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 13, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
SAIGENE CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8731 91-1736814
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
1725 220TH STREET SE
BOTHELL, WA 98021
(206) 485-5377
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
ALLAN G. COCHRANE
PRESIDENT
1725 220TH STREET SE
BOTHELL, WA 98021
(206) 485-5377
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
ALLEN L. MORGAN, ESQ. ROBERT S. KANT, ESQ.
DONNA M. PETKANICS, ESQ. RICHARD B. STAGG, ESQ.
WILSON SONSINI GOODRICH & ROSATI O'CONNOR, CAVANAGH, ANDERSON,
PROFESSIONAL CORPORATION KILLINGSWORTH & BESHEARES,
650 PAGE MILL ROAD A PROFESSIONAL ASSOCIATION
PALO ALTO, CALIFORNIA 94304 ONE EAST CAMELBACK
PHOENIX, ARIZONA 85012
</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. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
PROPOSED
AMOUNT MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) OFFERING PRICE FEE(2)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, $0.001 par value................................................ 1,150,000 shares $6,900,000 $2,091
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock Purchase Warrants ("Warrants")................................... 1,150,000 shares 115,000 35
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of Warrants............................... 1,150,000 shares 7,475,000 2,265
- ------------------------------------------------------------------------------------------------------------------------------
Representative's Warrant...................................................... 100,000 shares 10,000 3
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of Representative's Warrant............... 100,000 shares 650,000 197
- ------------------------------------------------------------------------------------------------------------------------------
Underlying Warrants issuable upon exercise of Representative's Warrant........ 100,000 shares 10,000 3
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of Underlying Warrant..................... 100,000 shares 650,000 197
- ------------------------------------------------------------------------------------------------------------------------------
Totals............................................................... 3,700,000 shares $15,810,000 $4,791
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 150,000 shares of Common Stock and 150,000 Warrants which the
Underwriters have the option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a).
---------------------
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 SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 13, 1997
PROSPECTUS
SAIGENE CORPORATION
1,000,000 SHARES OF COMMON STOCK
AND
1,000,000 COMMON STOCK PURCHASE WARRANTS
PURCHASABLE TOGETHER ON THE BASIS OF ONE SHARE AND ONE WARRANT
Saigene Corporation (the "Company") is hereby offering 1,000,000 shares of
its common stock (the "Common Stock") and warrants to purchase an additional
1,000,000 shares of Common Stock (the "Warrants"). The Common Stock and the
Warrants offered hereby (sometimes collectively referred to herein as the
"Securities") may only be purchased together in this offering on the basis of
one share of Common Stock and one Warrant. The initial public offering price is
$6.00 per share of Common Stock and $0.10 per Warrant. The Common Stock and
Warrants will be immediately separable and will not be listed for trading as
units. Each Warrant is immediately exercisable and entitles the registered
holder to purchase one share of Common Stock at an exercise price of $6.50 and
expires five years following the date of this Prospectus. The outstanding
Warrants may be redeemed by the Company upon 30 days written notice at $0.10 per
Warrant, provided that the closing bid quotations of the Common Stock have
averaged at least $9.00 for a period of any 20 trading days ending on the third
day prior to the day on which the Company gives notice. See "Description of
Securities."
Prior to this offering, there has not been any public market for the
Securities, and there can be no assurance that any such market will develop or,
if developed, that it will be sustained. The initial public offering prices of
the Securities were determined by negotiations between the Company and Dickinson
& Co. as the representative (the "Representative") of the participating
underwriters (the "Underwriters"). See "Underwriting," Application has been made
for approval of the Common Stock and Warrants for quotation on the Nasdaq
SmallCap Market under the symbols "SGEN" and "SGENW," respectively, and for
listing on the Boston Stock Exchange under the symbols " " and
" ," respectively. The Securities will not be listed for trading as
units.
------------------------
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AS WELL
AS IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND "DILUTION,"
COMMENCING ON PAGES AND , RESPECTIVELY.
------------------------
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>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Proceeds
Price to Public Underwriting Discounts to Company(2)
and Commissions(1)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share(3).........................
- ---------------------------------------------------------------------------------------------------------
Per Warrant(3).......................
- ---------------------------------------------------------------------------------------------------------
Total(4).............................
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes a non-accountable expense allowance to the Representative equal to
3% of the offering proceeds and 100,000 warrants (the "Representative's
Warrants") to purchase up to 100,000 shares of Common Stock and 100,000
Warrants (the "Underlying Warrants"). The Underlying Warrants will be
substantially identical to the Warrants offered to the public except that
they will not be subject to redemption nor exercisable for a period of one
year following the effective date of the Registration Statement of which
this Prospectus forms a part. The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses of this offering payable by the Company estimated
at $400,000 consisting of the non-accountable expense allowance of $183,000
and other expenses in an aggregate amount of $217,000.
(3) The Common Stock and Warrants offered hereby may only be purchased together
in this offering on the basis of one share of Common Stock and one Warrant.
The Common Stock and Warrants will be immediately separable and will not be
listed for trading as units.
(4) The Company has granted to the Underwriters the right to purchase, within 45
days from the date of this Prospectus, up to 150,000 additional shares of
Common Stock and 150,000 additional Warrants on the terms set forth above
solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public will be , the total Underwriting
Discounts and Commissions will be , and the total Proceeds to Company,
before the expenses of this offering, will be . See "Underwriting."
------------------------
The Common Stock and Warrants are being sold by the Underwriters subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to the right to reject any order, in whole or in part, and subject to
certain other conditions. It is expected that delivery of the Common Stock and
Warrants will be made against payment therefor at the offices of Dickinson &
Co., Phoenix, Arizona or through the facilities of the Depository Trust Company
on or about , 1997.
------------------------
DICKINSON & CO.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
"Saigene" is a trademark of the Company. All other trademarks or service
marks appearing in this Prospectus are trademarks or registered trademarks of
the respective companies that utilize them.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial data appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information in this Prospectus assumes that the
Underwriter's over-allotment option and outstanding warrants, options and
convertible securities will not be converted or exercised. This Prospectus
contains forward-looking statements, which involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in the following Risk Factors and elsewhere in this Prospectus.
THE COMPANY
Saigene Corporation ("Saigene" or the "Company") is a biotechnology company
focused on the development of portable, cost-efficient, rapid and easy to use
molecular-based diagnostic tests for a variety of medical and non-medical
conditions. Saigene believes that the successful commercialization of its
technology will create numerous point-of-care, on-site, and in-the-field
opportunities to provide diagnostic information, often in less than an hour, at
lower costs than currently available alternatives.
The Company is currently developing a number of product applications,
including a sex-typing test for rare birds, a test for the detection of toxic
species of harmful sea algae and a genetic probe test to determine the
predisposition of humans to insulin diabetes mellitus. Saigene scientists have
begun research phase programs to develop a test for detecting mutations that are
specific to AZT drug-resistance in the treatment of human immune deficiency
virus ("HIV"), the causative agent for AIDS and a DNA probe procedure to provide
a specific test for malaria. In addition, the Company's scientists have
completed the development of a periodontal disease test system, which it
believes is the first rapid (approximately 30-minute) in-office test that
specifically identifies microorganisms that cause various forms of
periodontitis. Saigene's scientific team played a key role in developing the
test while working at a predecessor company, and the Company has a right of
first refusal to obtain a license from the current owner of the technology to
seek United States Food and Drug Administration ("FDA") approval of the test and
to commercialize and market the test with a corporate partner if such approval
is obtained.
Saigene's technology is based on the ability of DNA probes and the
Company's proprietary technology to identify the presence of certain nucleic
acid sequences with specificity. This identification of nucleic acid sequences
provides the basis for diagnostic testing, leading to the identification of
disease causing pathogens and the ability to predict disease and monitor
therapy. The Company's Universal Assay System, consisting of a small,
lightweight, portable analyzer and disposable cassettes, utilizes the Company's
proprietary technology to perform a portfolio of molecular probe tests quickly
and without extensive laboratory equipment or trained personnel. The analyzer
performs "real time" analysis and provides visible results in an average of 30
to 45 minutes. The Company has several pending patent applications that cover
various aspects of probe design and targeting, low temperature hybridization
capability, attachment technology and solution hybridization acceleration.
Saigene was formed in September 1996. The founders include the managers and
scientists of the diagnostics division of Epoch Pharmaceuticals, Inc. ("Epoch,"
formerly called MicroProbe Corporation), which was incorporated in 1985.
Following its formation, Saigene purchased certain assets from Epoch, including
intellectual property, government grants, research contracts and laboratory
equipment. All of the diagnostic tests currently in development at the Company
were acquired from Epoch. The Company's scientists have collectively spent 18
years developing these tests.
The Company's objective is to establish its Universal Assay System as the
market leader for DNA-based diagnostic tests. Key elements of the Company's
strategy to achieve this objective include (i) emphasizing the advantages of the
system in terms of test and manufacturing costs, speed, portability, ease of
use, sensitivity, accuracy, low required sample volume, variety of product
detection flexibility, low requirements for specialized detection equipment and
highly skilled personnel, and its capability to perform multiple tests; (ii)
concentrating on establishing the effectiveness of its technology in the
non-medical market where there is no requirement for governmental approvals and
then applying its technology to the development of diagnostic tests for larger
medical markets; (iii) collaborating with large pharmaceutical or medical
companies that will assist in the research and development, marketing and
distribution of the Company's products; (iv) rapidly developing new molecular
probe tests as a result of the Company's ability to develop new tests within a
relatively short period of time after identifying a target gene sequence; and
(v) generating recurring revenue through the sale of proprietary disposable test
cassettes.
The Company is incorporated in the state of Delaware. It maintains its
principal executive offices at 1725 220th Street, SE, Suite 104, Bothell,
Washington and its telephone number (206) 485-5377.
3
<PAGE> 5
THE OFFERING
Securities Offered............1,000,000 shares of Common Stock and 1,000,000
Warrants at a price of $6.00 per share and $0.10
per Warrant. The Securities may only be purchased
together on the basis of one share of Common Stock
and one Warrant. See "Description of Securities"
and "Underwriting."
Common Stock Outstanding
Before Offering(1)..........1,050,000 shares
After Offering(1)...........2,050,000 shares
Warrants Offered..............1,000,000 Warrants
Exercise Terms..............Each Warrant entitles the holder to purchase one
share of Common Stock for $6.50, subject to
adjustment in certain circumstances.
Expiration Date.............60 months from the date of this Prospectus.
Redemption..................Subject to redemption at a price of $0.10 per
Warrant on 30 days written notice provided that
the average closing price of the Common Stock
equals or exceeds $9.00 per share for 20 trading
days ending on the third day prior to the date on
which the Company gives notice of redemption. See
"Description of Securities -- Warrants."
Estimated Net Proceeds(2).....$4,907,000
Use of Proceeds...............Product development activities, repayment of asset
purchase obligation, repayment of debt, capital
equipment and general corporate purposes. See "Use
of Proceeds."
Risk Factors..................The Securities offered hereby involve a high
degree of risk and immediate substantial dilution.
See "Risk Factors."
Nasdaq SmallCap Market
Symbols.......................Common Stock -- SGEN
Warrants -- SGENW
Boston Stock Exchange
Symbols.......................Common Stock --
Warrants --
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM SEPTEMBER 19, 1996 (INCEPTION) THREE MONTHS ENDED
TO SEPTEMBER 30, 1996 DECEMBER 31, 1996
------------------------------------------ ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue........................................ $ -- $ 47,283
Loss from operations................................. (51,767) (195,968)
Net loss............................................. (51,767) (211,846)
Net loss per share(3)................................ $ (.04) $ (.15)
Shares used in per share computations(3)............. 1,457,083 1,457,083
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------
ACTUAL AS ADJUSTED(4)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................................... $ 198,302 $5,105,302
Total assets.................................................................. 1,401,465 6,308,465
Total long-term debt.......................................................... 220,000 220,000
Stockholders' equity (deficit)................................................ (253,113) 4,653,887
</TABLE>
- ---------------
(1) Excludes 350,000 shares of Common Stock issuable upon the conversion of
certain of the Company's outstanding convertible subordinated debentures
and 250,000 shares to be issued to third parties. Excludes shares of Common
Stock issuable upon the exercise of (i) the 1,000,000 Warrants offered
hereby; (ii) the Representative's Warrants; (iii) outstanding warrants to
purchase 250,000 shares of Common Stock; (iv) outstanding options to
purchase 65,000 shares of the Company's Common Stock and (v) the
Underwriter's over-allotment option.
(2) After deducting underwriting discounts and other expenses of this offering,
including the Representative's non-accountable expense allowance.
(3) See Note 1 of Notes to Financial Statements for an explanation of the
determination of shares used in calculating net loss per share.
(4) As adjusted to give effect to the sale of 1,000,000 shares of Common Stock
and 1,000,000 Warrants offered by the Company hereby at the assumed initial
public offering price of $6.00 per share and $0.10 per Warrant (and after
deducting estimated underwriting discounts and estimated offering
expenses).
4
<PAGE> 6
RISK FACTORS
An investment in the securities offered hereby is highly speculative and
subject to a high degree of risk, and only those who can bear the risk of the
entire loss of their investment should participate. In addition to the other
information in this Prospectus, prospective investors should carefully consider
the following risk factors in evaluating the Company and its business before
purchasing any Securities offered hereby.
VERY LIMITED OPERATING HISTORY; ANTICIPATED LOSSES AND UNCERTAINTY OF FUTURE
PROFITABILITY
The Company was incorporated in September 1996 and acquired the assets that
constitute the base of its business in November 1996 from Epoch. The Company has
a very limited operating history and has no significant source of revenues. The
Company has incurred an operating loss since its inception. No assurance can be
given that the Company will ever achieve profitability. Potential investors
should be aware of the problems, delays, expenses and difficulties encountered
by an enterprise in the Company's stage of development, many of which are beyond
the Company's control. These include unanticipated problems relating to the
competitive and regulatory environment in which the Company operates and
marketing problems and additional costs and expenses that may exceed current
estimates. Potential investors should be aware of the difficulties normally
encountered by new enterprises and the high rate of failure of such enterprises.
The likelihood of success must be considered in light of the problems, expenses,
difficulties, complications, delays and competition encountered in connection
with the development of a business in the biotechnology industry.
The Company will be required to conduct significant research, development,
testing and regulatory compliance activities that, together with projected
general and administrative expenses, will require significant capital funds. Any
revenues that the Company may generate in the next six months will be limited to
revenues under governmental grants that the Company has assumed from Epoch or
plans to establish, revenues under contracts with third parties for research
that the Company has assumed from Epoch or plans to establish, payments under
research or product development relationships that the Company may establish or
payments under license agreements that the Company may execute. The Company's
current government grants aggregate approximately $295,000, of which $101,000
was incurred by Epoch prior to the asset purchase. The Company currently
anticipates that it will begin to generate revenues from product sales in the
second half of 1997. However, there can be no assurance the Company will be
successful in generating product revenues or achieving other sources of revenues
through collaborative relationships or licensing agreements. There also can be
no assurance that the Company will be able to establish any collaborative
relationships or enter into any license agreements. The Company's ability to
achieve profitability depends upon its ability, either alone or with others, to
successfully complete the development of its potential diagnostic products,
conduct clinical trials as necessary, obtain required regulatory approvals, and
manufacture and market its products or enter into license agreements for the
manufacturing and marketing of its products on acceptable terms. If the Company
enters into any license agreements in the future, such license agreements may
adversely affect the Company's profit margins on its potential products. The
Company may never achieve significant revenue or profitable operations. If the
Company is not successful in achieving its operating plan in the time frame
anticipated, it will need additional financing. See "-- Future Capital Needs;
Uncertainty of Additional Funding" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
EARLY STAGE OF DEVELOPMENT; REGULATORY AND TECHNOLOGICAL UNCERTAINTIES
The Company has not generated any product revenue to date. The Company
currently anticipates that it will begin to generate revenues from sales of its
toxic algae and sex-typing tests in the second half of 1997. The Company is at
an early or mid-stage of development with regard to its potential medical
diagnostic products. A significant portion of the Company's resources have been
and for the foreseeable future will continue to be dedicated to the Company's
research programs and the development of potential diagnostic products. There
can be no assurance that the Company will be able to develop any commercial
products from these projects.
5
<PAGE> 7
The potential medical diagnostic products currently under development by
the Company may require significant additional research and development and
preclinical testing and, in some cases, will require extensive clinical testing
prior to submission of any regulatory application for commercial use. The
Company's potential medical diagnostic products are subject to the risks of
failure inherent in the development of medical diagnostic products based on new
technologies. These risks include the possibilities that the Company's novel
approach to diagnosis will not be successful; that any or all of the Company's
potential products will be found to be unsafe or ineffective or otherwise fail
to receive necessary regulatory clearances; that its products will be difficult
to manufacture on a large scale or uneconomical to market; that proprietary
rights of third parties will preclude the Company from marketing such products;
or that third parties will market equivalent or superior products. As a result,
there can be no assurance that the Company's research and development activities
will result in any commercially viable products.
The Company must negotiate a license agreement with Becton, Dickinson and
Company ("Becton-Dickinson") before it can market the periodontal diagnostic
test. Although the Company has a right of first refusal to negotiate a license
with Becton-Dickinson, there can be no assurance the Company will be able to
negotiate such a license on acceptable terms, or at all. If the Company is
unable to negotiate such license, it will not be able to market the periodontal
diagnostic test in its current form. The periodontal diagnostic test must be
submitted to the FDA for regulatory approval before it can be marketed. See
"Dependence on License for Periodontal Product."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company will require substantial funds in order to continue its
research and development programs and preclinical testing of its potential
diagnostic products, to conduct clinical trials of such products, and to market
any products that may be developed. The Company's capital requirements depend on
numerous factors, including the progress of its research and development
programs, the progress of preclinical and clinical testing, the time and costs
involved in obtaining regulatory approvals, the cost of filing, prosecuting,
defending and enforcing any patent claims and other intellectual property
rights, competing technological and market developments, changes in the
Company's license and supply relationships, the ability of the Company to
establish collaborative arrangements, the development of commercialization
activities and arrangements, and the purchase of additional capital equipment.
Other than the Company's revenues from government grants, contract research and
development for third parties and sales of its Universal Assay System (as
defined herein), the Company has no current source of revenues or commitment of
capital beyond the proceeds of this offering. The financial statements of the
Company contain an explanatory paragraph that states that the Company's losses
from operations and limited capital resources raise substantial doubt about its
ability to continue as a going concern. Based on its current operating plan,
which anticipates entering into collaborative agreements for research and
development and marketing of its products and generating revenues from product
sales beginning in the second half of 1997, the Company believes that the net
proceeds of this offering will be sufficient to meet the Company's operating
expenses and capital requirements for approximately 18 months. However, this
expectation is based on the Company's current operating plan, which could
change, and the Company could require additional funding sooner than
anticipated.
If the Company is unable to achieve its operating plan or its current and
projected needs change as a result of unanticipated events or otherwise, the
Company will be required to obtain additional capital. The Company intends to
seek any such additional funding through public or private financings or
collaborative or other arrangements with corporate partners. There can be no
assurance, however, that additional financing will be available from these or
other sources or, if available, will be available on acceptable terms. The
issuance of additional securities could be on terms more favorable to the new
investors than those provided by the Securities offered hereby. To the extent
additional capital is raised through the sale of equity or convertible debt
securities, the issuance of such securities could be dilutive to the Company's
stockholders. If adequate funds are not available, the Company may be required
to delay, scale back or eliminate one or more of its research and development
programs. Obtaining funds through arrangements with collaborative partners or
others may require the Company to relinquish rights to certain of its
technologies or potential products that
6
<PAGE> 8
the Company would not otherwise relinquish. The Company's inability to raise
capital when needed would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON COLLABORATORS
The Company's strategy for the research, development and commercialization
of its potential diagnostic products requires the Company to enter into various
arrangements with corporate and academic collaborators, licensors, licensees and
others. Therefore, the Company will depend upon the success of these third
parties in performing their responsibilities. There can be no assurance that the
Company will be able to establish collaborative arrangements that the Company
deems necessary or acceptable to develop and commercialize its potential
products or that such collaborative arrangements will be successful. Moreover,
certain of the collaborative arrangements that the Company may enter into in the
future may place responsibility for preclinical testing and human clinical
trials and for preparing and submitting applications for regulatory approval for
potential products on the collaborative partner. The failure of a collaborative
partner to develop or commercialize successfully a potential product to which it
has rights would materially and adversely affect the Company's business,
financial condition and results of operations. In addition, there can be no
assurance that the collaborative partner will not pursue alternative competing
technologies or develop competing products either on its own or in collaboration
with others, including the Company's competitors, as a means of developing
diagnostic processes for the diseases or disorders targeted by the Company's
collaborative programs.
GOVERNMENTAL REGULATION; NO ASSURANCE OF REGULATORY CLEARANCES OR APPROVALS
The design, manufacturing, labeling, distribution and marketing of the
Company's products for human diagnostics are subject to extensive and rigorous
government regulation in the United States and in other countries. In the United
States and certain other countries the process of obtaining and maintaining
required regulatory approvals is lengthy, expensive and uncertain. In the United
States, the FDA regulates, as medical devices, clinical diagnostic tests and
reagents, as well as instruments used in the diagnosis of health conditions. The
Federal Food, Drug, and Cosmetic Act governs the design, testing, manufacture,
safety, efficacy, labeling, storage, record keeping, approval, advertising and
promotion of many of the Company's products. In order for the Company to market
its products under development in the United States, the Company must obtain
clearance or approval from the FDA. There are two principal regulatory review
paths for medical devices: the 510(k) premarket notification ("510(k)") process
and the pre-market approval ("PMA") process. The PMA process typically requires
the submission of more extensive clinical data and is costlier and more time-
consuming to complete than the 510(k) process. For a detailed description of
this regulatory framework, see "Business -- Government Regulation."
The FDA regulates as medical devices, instruments, diagnostic tests and
reagents that are traditionally manufactured and commercially marketed as
finished test kits or equipment. Some clinical laboratories, however, choose to
purchase individual reagents intended for specific analysis and develop and
prepare their own finished diagnostic tests. Although neither the individual
reagents nor the finished tests prepared from them by the clinical laboratories
have traditionally been regulated by the FDA, the FDA has recently proposed a
rule that, if adopted, would regulate the reagents sold to clinical laboratories
as medical devices. This proposed rule would also restrict sales of these
reagents to clinical laboratories certified under the Clinical Laboratory
Improvement Amendments of 1988 ("CLIA") as high complexity testing laboratories.
The Company intends to market some diagnostic products as finished test kits or
equipment and others as individual reagents; consequently, some or all of these
products may be regulated as medical devices.
Medical devices generally require FDA approval or clearance prior to being
marketed in the United States. The process of obtaining FDA clearances or
approvals necessary to market medical devices can be time consuming, expensive
and uncertain, and there can be no assurance that any clearance or approval
sought by the Company will be granted or that FDA review will not involve delays
adversely affecting the marketing and sale of Company's products. Further,
clearances or approvals may place substantial restrictions on the indications
for which the product may be marketed or to whom it may be marketed.
Additionally, there can be
7
<PAGE> 9
no assurance that the FDA will not require additional data, require that the
Company conduct further clinical studies or obtain a PMA causing the Company to
incur further costs and delay.
The Company believes that there are no regulatory restrictions on the use
and marketing of its harmful algae identification product. In the future, the
Company plans to submit its harmful algae test to the Association of Analytical
Chemists ("AOAC") for validation as an "Official Method" for use in Health
Department and FDA food safety testing laboratories. The Company believes that
its sex-typing test will be subject to no regulatory restrictions and that
further developments of this test will not change the regulatory status.
The FDA may require the HLA-IDDM test and the periodontal disease product
test to be submitted as PMA applications, which would require the Company to
collect substantial additional research and clinical trial data, undergo a
pre-approval Good Manufacturing Practices ("GMP") inspection, and be subjected
to a substantially longer process of regulatory review. The Company believes
that the HIV resistance test presents a novel approach to medical diagnosis of
viral load and mutant strain characterization of the HIV virus and, therefore,
will be subjected to a PMA application. However, as a result of the FDA's
interest to provide aid in early detection and effective treatment of HIV, the
FDA has provided an expedited procedure for regulatory review of HIV related
product submission. There can be no assurance that any of the Company's products
will be accepted for expedited review, and if accepted for expedited review,
there can be no assurance that such status will accelerate the review process,
or that such status will not be rescinded by the FDA if products of other
Companies receive FDA approval prior to the Company receiving its approval, are
deemed by the FDA to perform substantially the same functions or provide
comparable benefits.
The Company has relied on scientific, technical, clinical, commercial and
other data supplied or disclosed by others, including its collaborators, and may
rely on such data in support of applications to enter field or human clinical
trials for its potential products. Although the Company has no reason to believe
that this information contains errors or omissions of fact, there can be no
assurance that errors or omissions of fact will not be discovered in the future
that would materially change the Company's view of the likelihood of FDA
clearance or approval or commercial viability of these potential products. There
can be no assurance that the field or clinical data from studies performed by
others will be available to the Company or be acceptable to the FDA or other
regulatory agencies in support of the Company's applications for regulatory
approval. The FDA may, among other things, require the Company to collect
additional data and conduct controlled clinical studies prior to acceptance of
any such applications.
The effect of government regulation may be to delay for a considerable
period of time or prevent the marketing of any diagnostic medical device that
the Company may develop. There can be no assurance that FDA or any other
regulatory approval for any of the products developed by the Company will be
granted on a timely basis or at all. Any such delay in obtaining or failure to
obtain such approvals would adversely affect the marketing of the Company's
proposed medical diagnostic products and its ability to earn product revenues or
royalties from these products. As with all investigational products, additional
government regulations may be promulgated requiring additional research and data
to be submitted that could delay approval of the Company's potential medical
diagnostic products. The Company cannot predict whether any adverse government
regulation might arise from future legislation or other government action.
Failure to comply with applicable regulatory requirements can, among other
consequences, result in fines, injunctions, civil penalties, suspensions or loss
of regulatory approvals, recalls or seizures of products, operating restrictions
and criminal prosecutions. In particular, the FDA enforces regulations
prohibiting the marketing of products for non-indicated uses. In addition,
governmental regulations may be established that could prevent or delay
regulatory approval of the Company's products. Delays in or failure to receive
approval of products the Company plans to introduce, the loss of or additional
restrictions or limitations relating to previous approvals, other regulatory
action against the Company or change in the applicable regulatory climate could
individually or in the aggregate have a material adverse effect on the Company's
business, financial condition and results of operations.
8
<PAGE> 10
The Company is also required to register as a medical device manufacturer
with the FDA and will be inspected on a routine basis by the FDA for compliance
with the FDA GMP regulations and similar regulations in other countries, which
include testing, control and documentation requirements. Ongoing compliance with
GMP and other applicable regulatory requirements will be strictly enforced in
the United States and in foreign jurisdictions by comparable agencies in other
countries. The Company's clinical laboratory customers are subject to CLIA,
which is intended to ensure the quality and reliability of medical diagnostic
testing.
In order for the Company to market its products under development in Europe
and certain other foreign jurisdictions, the Company and its distributors and
agents must obtain required regulatory registrations or approvals and otherwise
comply with extensive regulations regarding safety, efficacy and quality in
those jurisdictions. Specifically, certain foreign regulatory bodies have
adopted various regulations governing product standards, packaging requirements,
labeling requirements, import restrictions, tariff regulations, duties and tax
requirements. These regulations vary from country to country. In order to
commence sales in Europe, the Company will be required to obtain ISO 9001
certification and after mid-1998, the Company will be prohibited from selling
its products in Europe until such time as the Company receives CE Mark
certification, which is an international symbol of quality and compliance with
applicable European medical devices directives. There can be no assurance that
the Company will be successful in meeting such certification requirements.
Failure to receive CE Mark certification or other foreign regulatory approvals
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will obtain other required regulatory registrations or approvals in such
countries, that it will not be required to incur significant costs in obtaining
other required regulatory registrations or approvals in such countries or that
it will not be required to incur significant costs in obtaining or maintaining
such regulatory registrations or approvals. Delays in receipt of registrations
or approvals to market the Company's products under development, failure to
receive these registrations or approvals, or future loss of previously obtained
registrations or approvals could have a material adverse effect on the Company's
business, financial condition and results of operations.
In addition to these regulations, the Company is subject to numerous
federal, state and local laws and regulations relating to such matters as safe
working conditions and environmental matters. There can be no assurance that
such laws and regulations will not in the future have a material adverse effect
upon the Company's business, financial condition and results of operations.
UNCERTAINTIES RELATING TO TECHNOLOGICAL APPROACHES; NEED FOR ADDITIONAL RESEARCH
AND DEVELOPMENT
The Company intends to develop its products for diagnostic applications.
The Company's diagnostic products involve several new technologies, including a
complex chemical synthesis process necessary to create DNA probe assays. As the
Company's assay tests are used, it is possible that previously unrecognized
defects will emerge. In addition, DNA probe assays are tested only on a random
sample basis, and quality problems could develop with the untested assays.
Further, in order for the Company to address new applications for its medical
diagnostic products, the Company may be required to change the features of its
Universal Assay System. There can be no assurance that the Company will be able
to validate or achieve the improvements in the components of its medical
diagnostic products system necessary for successful commercialization. The
Company's medical diagnostic products technology will compete against
well-established techniques and enhancements to such techniques for analyzing
genes and for diagnostics. There can be no assurance that the Company's medical
diagnostic products will compete successfully against existing or new
techniques. Furthermore, there can be no assurance that the Company's medical
diagnostic products technology will be useful in providing information on the
function of genes or for the analysis of larger sequences of genes.
The development of diagnostic products will be subject to the risks of
failure inherent in the development of products based on new technologies. These
risks include possibilities that any products based on these technologies will
be found to be ineffective, unreliable or unsafe or otherwise fail to receive
necessary regulatory clearances; that such products will be difficult to
manufacture on a large scale or will be uneconomical to market; that proprietary
rights of third parties will preclude the Company or its collaborative partners
from marketing such products; or that third parties will market superior or
equivalent products.
9
<PAGE> 11
Furthermore, there can be no assurance that the Company's research and
development activities will result in any commercially viable products. See
"Business -- Technology."
UNCERTAINTY OF MARKET ACCEPTANCE
The commercial success of the Company's diagnostic products will depend
upon market acceptance by academic research centers, pharmaceutical and
biotechnology companies, and reference laboratories. Market acceptance will
depend on many factors, including convincing researchers that the Company's
diagnostic products are an attractive alternative to current technologies for
the acquisition, analysis and management of genetic information; the receipt of
regulatory clearances in the United States, Europe, Japan and elsewhere; the
need for laboratories to license other technologies, such as amplification
technologies that may be required to use the Company's diagnostic products for
certain applications; and the availability of new proprietary markers that may
be important to the diagnosis, monitoring and treatment of disease for
incorporation in the Company's probe assays. Market acceptance may be adversely
affected by ethical concerns that may limit the use of the Company's medical
diagnostic products for certain diagnostic applications or the analysis of
genetic information. Market acceptance of the Universal Assay System could also
be adversely affected by limited funding available for academic research centers
and other research organizations that are the potential customers for the
Company's diagnostic products. See "Business."
DEPENDENCE ON LICENSE FOR PERIODONTAL DISEASE TEST
A third party owns the patent rights to the technology necessary for the
Company to commercialize the periodontal disease test in its current form. The
Company has a right of first refusal to license the technology to obtain the
necessary regulatory approvals and to market, use and sell the periodontal
diagnostic product. The right of first refusal expires in June 1997. There can
be no assurance that the Company will be able to negotiate a license agreement
to commercialize the product on acceptable terms, or at all. If the Company is
unable to successfully negotiate a license, it would be required to design a new
periodontal disease test that does not utilize the technology owned by the third
party, which would require substantial additional capital and regulatory review.
See "Business -- Intellectual Property and Licensing."
UNCERTAINTY OF PROTECTION OF PATENTS AND INTELLECTUAL PROPERTY RIGHTS; RISK OF
PATENT INFRINGEMENT LIABILITY
The Company's success depends on its ability to protect trade secrets,
protect existing patents, licenses and intellectual property rights, obtain
future patents, operate without infringing upon the proprietary rights of others
and prevent others from infringing on the intellectual property rights of the
Company. In addition, the Company has pending United States patent applications.
The Company also intends to seek exclusive licenses to certain patents held by
third parties. Since a patent may be invalid or circumvented by alternative
technologies, there can be no assurance as to the breadth of protection that any
patents the Company may eventually obtain or license may afford the Company. In
the event the Company is held liable for patent infringement, insurance may not
cover any or all of the infringement damages and any such infringement liability
may adversely affect the business, financial condition and results of operations
of the Company.
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including the Company, are generally uncertain and involve complex
legal and factual questions. There can be no assurance that any patent
applications relating to the Company's potential products or processes will
result in the issuance of patents or that any resulting patents or existing
patents will provide protection against competitors that challenge the Company's
patents, obtain patents that have an adverse effect on the Company's ability to
conduct business, or are able to circumvent the Company's patent protection. It
is possible that other parties have conducted research or made discoveries of
processes that preceded the Company's discoveries, which could prevent the
Company from obtaining patent protection of these discoveries. A substantial
number of patents have been applied for by and issued to other pharmaceutical,
biotechnology and biopharmaceutical companies, and other companies may have
filed applications for, may have been issued patents or may obtain additional
patents and proprietary rights relating to, products or processes competitive
with those of the Company. In view of the time delay in patent approval and the
secrecy afforded patent applications, the Company does not know whether patent
applications submitted by others have priority over the Company's
10
<PAGE> 12
patent applications. There can be no assurance that others will not
independently develop products similar to or obsoleting those under development
by the Company, or, despite the Company's intellectual property protections,
duplicate any of the Company's products. The Company may determine there is no
economic benefit in commencing or continuing a patent infringement action.
Further, as stated above, there can be no assurance that the Company's current
or future licenses will not be challenged or that such license arrangements will
be honored by those granting such licenses. In such event, the Company may be
required to enforce its intellectual property rights at a time when it does not
have the resources to do so, which may have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Intellectual Property and Licensing."
RISK OF PRODUCT LIABILITY; PRODUCT LIABILITY INSURANCE MAY BE INSUFFICIENT OR
UNAVAILABLE
Sales of the Company's products entail the risk of product liability
claims. The Company faces financial exposure to product liability claims in the
event that use of its products results in personal injury. The Company also
faces the possibility that defects in the design or manufacture of its products
might necessitate a product recall. There can be no assurance that the Company
will not experience losses due to product liability claims or recalls in the
future. The Company plans to acquire product liability insurance, but there can
be no assurance that the coverage limits of any such insurance policies will be
adequate. Such insurance is expensive, difficult to obtain and may not be
available in the future on acceptable terms, or at all. No assurance can be
given that product liability insurance can be maintained in the future at a
reasonable cost or in sufficient amounts to protect the Company against losses
due to liability. Any inability to obtain or maintain insurance at an acceptable
cost or to otherwise protect against potential product liability could prevent
or inhibit the continued commercialization of the Company's products. In
addition, a product liability claim in excess of relevant insurance coverage or
product recall could have a material adverse effect on the Company's business,
financial condition and results of operations.
ETHICAL, LEGAL AND SOCIAL IMPLICATIONS OF GENETIC PREDISPOSITION TESTING
The Company's success will depend in part upon the Company's ability to
develop genetic tests for genes discovered by the Company and others. Genetic
tests, such as certain of the Company's diagnostic products, may be difficult to
perform and interpret and may result in misinformation or misdiagnosis. Further,
even when a genetic test identifies the existence of a mutation in an
individual, the interpretation of the result is often limited to the
identification of a statistical probability that the tested individual will
develop the disease or condition for which the test is performed. In addition,
once available, such tests may be subject to ethical concerns or reluctance to
administer or pay for tests for conditions that are not treatable. Further, it
is possible that gene-based diagnostic tests marketed by others could encounter
specific difficulties, resulting in societal and governmental concerns regarding
genetic testing.
The prospect of broadly available genetic predisposition testing has raised
issues regarding the appropriate utilization and the confidentiality of
information provided by such testing. It is possible that discrimination by
insurance companies could occur through the raising of premiums by insurers to
prohibitive levels, outright cancellation of insurance or unwillingness to
provide coverage to patients shown to have a genetic predisposition to a
particular disease. In addition, employers could discriminate against employees
with a positive genetic predisposition due to the increased risk for disease
resulting in possible cost increases for health insurance and the potential for
lost employment time. Finally, governmental authorities could, for social or
other reasons, limit the use of genetic testing or prohibit testing for genetic
predisposition to certain conditions, which could adversely affect the use of
the Company's potential medical diagnostic products. There can be no assurance
that ethical concerns about genetic testing will not materially and adversely
affect the Company's business, financial condition and results of operations.
See "Business -- Government Regulation."
RISKS INHERENT IN INTERNATIONAL TRANSACTIONS
The Company plans to market its products to customers both in the United
States and abroad. International sales and operations may be limited or
disrupted by the imposition of government controls, export license requirements,
economic and political instability, price controls, trade restrictions, and
changes
11
<PAGE> 13
in tariffs or difficulties with foreign distributors. Foreign regulatory
agencies often establish product standards different from those in the United
States, and any inability to obtain or maintain foreign regulatory approvals on
a timely basis could have a material adverse effect on the Company's
international operations. Additionally, the Company's business, financial
condition and results of operations may be materially and adversely affected by
fluctuations in currency exchange rates as well as increases in duty rates and
difficulties in obtaining required licenses and permits. There can be no
assurance that the Company will be able to commercialize its products
successfully in any foreign market. In addition, the laws of some countries do
not protect the Company's proprietary rights to the same extent as do the laws
of the United States.
Distribution of the Company's products outside the United States is subject
to extensive government regulations. These regulations, including the
requirements for approvals or clearance to market, the time required for
regulatory review and the sanctions imposed for violations, vary from country to
country. There can be no assurance that the Company will obtain regulatory
approvals in various countries or that it will not be required to incur
significant costs in obtaining or maintaining its foregoing regulatory
approvals. In addition, the export by the Company of certain of its products,
which have not yet been cleared for domestic commercial distribution, may be
subject to FDA export restrictions. Failure to obtain necessary regulatory
approvals, the restriction, suspension or revocation of existing approvals or
any other failure to comply with regulatory requirements would have a material
and adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Products" and "Government Regulation."
LIMITATIONS ON THIRD-PARTY REIMBURSEMENT
Third-party payers, including Medicare, Medicaid and private insurers, can
indirectly affect the pricing or the relative attractiveness of the Company's
products by regulating the maximum amount of reimbursement provided for
diagnostic services. Third-party payers may deny reimbursement for such products
or any other products the Company develops for which it receives such approval.
Furthermore, third-party payers are increasingly challenging the prices charged
for medical products and services. There can be no assurance that the Company's
products will be considered cost-effective by third-party payers, their
reimbursement will be available or, if available, that payers' reimbursement
policies will not adversely affect the Company's ability to sell its products on
a profitable basis. Failure by physicians and other users of the Company's
products to obtain reimbursement from third-party payers or changes in
government and private third-party payers' policies toward reimbursement for
procedures employing the Company's products, could have a material adverse
effect on the Company's ability to market its products.
MANUFACTURING LIMITATIONS
The Company is currently manufacturing its potential products in pilot
scale quantities for investigational and research use. The Company believes it
has the expertise and capability to manufacture solid phase and reagent products
under the current GMP regulations as required by the FDA. The Company's assay
processor and other electronic components of the assay system are manufactured
to the Company's specifications by a third party. The Company has established or
is in the process of establishing arrangements with contract manufacturers to
supply sufficient quantities of all raw materials and components required for
the manufacture, packaging, labeling, and distribution of products under
development. The Company does not anticipate manufacturing its potential medical
diagnostic products in commercial quantities for several years. If the Company's
arrangements with third parties are terminated and the Company is unable to
manufacture or contract for a sufficient supply of materials on acceptable terms
with others, the Company's field, preclinical and human clinical trial testing
of its potential medical diagnostic products may be delayed, resulting in the
delay of any required regulatory submission, contract supply, or new development
program, any of which may have an adverse effect on the Company. Contract
suppliers must comply with GMP when required by the FDA. Prior to approval of a
PMA application, the FDA would require that the Company and contract
manufacturing facility pass a GMP inspection. The Company's dependence on
third-party suppliers for the manufacture of some product components could
adversely affect the Company's profit margins or its ability to deliver products
on a timely and competitive basis. Loss of contract suppliers or failure to pass
a GMP
12
<PAGE> 14
inspection would have an adverse effect on the Company's business, financial
condition and results of operations.
The Company has established compliance programs to satisfy other federal
and state regulatory agency requirements for research and manufacturing
facilities, such as the Occupational Safety and Health Administration, the
Environmental Protection Agency, the Washington Departments of Health and
Environment. Failure to meet any of these regulations could adversely affect the
Company's ability to develop and manufacture products. See
"Business -- Manufacturing."
COMPETITION AND TECHNOLOGICAL CHANGE
There are many companies, both public and private, including well-known
pharmaceutical companies, chemical companies and specialized biotechnology
companies, engaged in developing diagnostic products for certain of the
applications being pursued by the Company. Many of these companies have
substantially greater capital, research and development, manufacturing,
marketing and human resources and experience than the Company. Such companies
may develop products more quickly or products that are more effective and less
costly than any that the Company may develop. The industry in which the Company
proposes to compete is characterized by extensive research efforts and rapid
technological changes. New developments are expected to continue, and there can
be no assurance that discoveries by others will not render the Company's
products or potential products noncompetitive. Competition may increase further
as a result of advances that may be made in the commercial applicability of
technologies and greater availability of capital for investment in these fields.
See "Business -- Competition."
UNCERTAINTY OF PRODUCT PRICING; HEALTH CARE REFORM AND RELATED MATTERS
The levels of revenues and profitability of pharmaceutical and
biotechnology companies may be affected by the continuing efforts of
governmental and third-party payers to contain or reduce the costs of health
care through various means. For example, market pricing or profitability of
prescription pharmaceuticals and medical diagnostic processes are subject to
government control in certain foreign markets. 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. It is
uncertain what legislative proposals will be adopted or what actions federal,
state or private payers for health care goods and services may take in response
to any health care reform proposals or legislation. The Company cannot predict
the effect that health care reforms may have on its business, and no assurance
can be given that any such reforms will not have a material adverse effect on
the Company. Further, to the extent that such proposals or reforms have a
material adverse effect upon the business, financial condition and profitability
of other companies that are prospective collaborators for certain of the
Company's potential products, the Company's ability to commercialize its
potential products may be adversely affected. In addition, in both the United
States and elsewhere, sales of medical products depend in part on the
availability of reimbursement to the consumer from third-party payers, such as
government and private insurance plans. If the Company succeeds in bringing one
or more products to market, there can be no assurance that third-party payers
will provide sufficient reimbursement to the consumer to allow the Company to
sell its products profitably. See "-- Limitations on Third-Party Reimbursement."
DEPENDENCE ON KEY MANAGERIAL AND SCIENTIFIC PERSONNEL
The Company's success depends upon the continued contribution of Allan G.
Cochrane, President, Ronald R. Helm, Chief Executive Officer, Jack U'Ren, Ph.D.,
Paul Haydock, Ph.D. and Judith Howard, M.S., and its ability to attract and
retain additional qualified personnel in the future. The loss of services of, or
a material reduction in the amount of time devoted to the Company by, any of
such persons could impair the development of the Company's programs and
adversely affect the business of the Company. See "Management." In addition,
recruiting and retaining qualified scientific personnel to perform future
research and development work will be critical to the Company's success. There
can be no assurance that the Company will be able to attract and retain such
personnel. Product development and commercialization will require additional
personnel in areas such as diagnostic testing, regulatory affairs, manufacturing
and marketing. The inability to acquire such services or to develop such
expertise could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management."
13
<PAGE> 15
EFFECTIVE CONTROL BY PRINCIPAL STOCKHOLDERS
The officers and directors of the Company currently beneficially own
approximately 100% of the Common Stock of the Company (approximately 51.2% after
this offering) and will have the ability to elect or significantly influence the
election of all of the directors of the Company and otherwise control or
significantly influence the affairs of the Company. See "Principal
Stockholders."
ARBITRARY DETERMINATION OF OFFERING PRICE
The offering price of the Securities offered hereby was arbitrarily
determined by negotiation between the Company and the Representative and bears
no relationship to the Company's assets, book value, results of operations or
other established criteria of value. The factors considered in determining the
public offering price, in addition to estimates of the business potential and
earnings prospects of the Company, were the present state of the Company's
development and an assessment of the Company's management, as well as the
consideration of the foregoing factors in relation to market valuations of
comparable companies, do not necessarily bear any relationship to the Company's
assets, operating results or the book value of the Company or other generally
accepted criteria of value. See "Underwriting."
NO DIVIDENDS AND NONE ANTICIPATED
The Company has never paid any dividends on its Common Stock and does not
anticipate paying any dividends on its Common Stock in the foreseeable future.
It is currently anticipated that any earnings will be used to finance the
development and expansion of the Company's business. See "Dividend Policy."
ISSUANCE OF PREFERRED STOCK COULD DELAY OR PREVENT CORPORATE TAKEOVER
The Board of Directors has the authority to issue up to 2,000,000 shares of
undesignated Preferred Stock and to determine the rights, preferences,
privileges and restrictions of such shares without any further vote or action by
the stockholders. The issuance of Preferred Stock under certain circumstances
could have the effect of delaying or preventing a change in control of the
Company or otherwise adversely affecting the rights of the holders of Common
Stock. See "Description of Securities."
SUBSTANTIAL DILUTION; PURCHASE OF COMMON STOCK AT PRICES BELOW THE OFFERING
PRICE
Purchasers of Common Stock will experience immediate and substantial
dilution in the net tangible book value of Common Stock of $4.22 per share, or
approximately 70%, from the initial public offering price of $6.00 per share. In
addition, up to 1,350,000 shares of Common Stock are issuable upon the exercise
of Warrants offered hereby at an exercise price of $6.50 per share. It is
probable that such Warrants would be exercised when the market price of the
Common Stock is greater than $6.50 per share, which would have a dilutive effect
on the then outstanding shares of Common Stock. Furthermore, the existence of
such a substantial number of Warrants exercisable at a fixed price of $6.50 per
share may have a depressive effect on the market price of the shares of Common
Stock even if the Warrants are not exercised. See "Dilution."
EFFECT OF REPRESENTATIVE'S WARRANTS
The Company has agreed to issue to the Representative or its designee
warrants (the "Representative's Warrants") to purchase up to 100,000 shares of
Common Stock and 100,000 Warrants (the "Underlying Warrants"). The terms and
conditions of the Underlying Warrants are substantially identical to those of
the Warrants offered hereby. The Representative's Warrants, however, will not be
redeemable by the Company and are not exercisable until one year after the date
of this Prospectus. The Representative's Warrants will be exercisable for a
period of four years commencing one year after the date of this Prospectus at an
exercise price of 125% of the initial public offering price. The Representative
and its designees will have the opportunity to profit from an increase in the
price of the Company's Common Stock during the term of the Representative's
Warrants and are likely to exercise them at a time when the Company, in all
likelihood, would be able to obtain additional capital by offering shares of its
Common Stock on terms more favorable to the Company than those provided by the
exercise of such warrants. In addition, the existence of such warrants
14
<PAGE> 16
may adversely affect the terms on which the Company can obtain additional
financing. See "Description of Securities" and "Underwriting."
NO PRIOR PUBLIC TRADING MARKET
Prior to this offering, there has been no public trading market for the
Common Stock or the Warrants. There can be no assurance that a regular trading
market will be established for the Common Stock or the Warrants at the
conclusion of this offering or, if established, that such market will be
sustained. Purchasers of the Securities offered hereby may, therefore, have
difficulties in selling such securities should they desire to do so. The market
price for the Company's securities following this offering may be highly
volatile. Factors such as the Company's financial results, introduction of new
products in the marketplace, and various factors affecting the health care
industry generally may have a significant impact on the market price of the
Company's securities, as well as price and volume volatility affecting small and
emerging growth companies, in general, and not necessarily related to the
operating performance of such companies. See "Underwriting."
POSSIBLE RESTRICTIONS ON MARKET MAKING ACTIVITIES IN THE COMPANY'S SECURITIES
The Representative has advised the Company that it intends to make a market
in the Company's securities following consummation of this offering. Rule 10b-6
promulgated under the Securities Exchange Act of 1934, as amended (the "1934
Act") may prohibit the Representative from engaging in any market making
activities with regard to the Company's securities for the period from two to
nine business days (or such other applicable period as Rule 10b-6 may provide)
prior to any solicitation by the Representative of the exercise of Warrants
until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right that the Representative may
have to receive a fee for the exercise of Warrants following such solicitation.
As a result, the Representative may be unable to provide a market for the
Company's securities during the period the Warrants are exercisable. Any
temporary cessation of such market-making activities could have an adverse
effect on the market price of the Company's securities. See "Underwriting."
FUTURE SALES OF COMMON STOCK UNDER RULE 144 OR OTHERWISE
All of the Company's currently issued and outstanding Common Stock are
"restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act of 1933, as amended (the "Securities Act"). None of the
Company's restricted shares will be eligible for sale under Rule 144 until
November 1998, unless they are registered under the Securities Act. Certain
holders of convertible subordinated debentures have the right to request
registration of the 350,000 shares of Common Stock into which the notes are
convertible beginning 12 months after the date of this Prospectus. In general,
under Rule 144, a person (or persons whose shares are aggregated) who has
satisfied a two-year holding period may sell "restricted securities" within any
three-month period limited to a number of shares that does not exceed the
greater of 1% of the then outstanding shares or the average weekly trading
volume during the four calendar weeks prior to such sale. Rule 144 also permits
the sale (without any quantity limitation) of "restricted securities" by a
person who is not an affiliate of the issuer and who has satisfied a three-year
holding period. See "Shares Eligible for Future Sale" and "Principal
Stockholders."
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS
Holders of Warrants will be able to exercise the Warrants only if a current
prospectus relating to the Common Stock underlying the Warrants is then in
effect and only if such Common Stock is qualified for sale or exempt from
qualification under the applicable securities laws of the states in which the
various holders of Warrants reside. Although the Company will use its best
efforts to maintain the effectiveness of a current prospectus covering the
securities underlying the Warrants, there can be no assurance that the Company
will be able to do so. The Company will be unable to issue Common Stock to those
persons desiring to exercise their Warrants if a current prospectus covering the
Common Stock issuable upon the exercise of the Warrants is not kept effective or
if such Common Stock is not qualified or exempt from qualification in the states
in which the holders of the Warrants reside.
15
<PAGE> 17
POSSIBLE DELISTING OF SECURITIES FROM NASDAQ SYSTEM; DISCLOSURE RELATING TO
LOW-PRICED STOCKS
The Common Stock and Warrants have been approved for quotation on the
Nasdaq SmallCap Market and for listing on the Boston Stock Exchange upon
completion of this offering. The Company's failure to meet Nasdaq's listing
maintenance criteria in the future for any reason may result in the
discontinuance of the inclusion of the Company's securities on Nasdaq. In order
to remain quoted on Nasdaq, under the current Nasdaq rules, a company must
maintain $2,000,000 in assets, a $200,000 market value of the public float and
$1,000,000 in total capital and surplus. In addition, continued inclusion
requires two market-makers and a minimum bid price of $1.00 per share except
that if a company falls below such minimum bid price, it will remain eligible
for inclusion in Nasdaq if the market value of the public float is at least
$1,000,000 and the Company has $2,000,000 in capital and surplus. In the event
of Nasdaq delisting, trading, if any, in the Company's securities may then
continue to be conducted on the OTC Electronic Bulletin Board or in the non-
Nasdaq over-the-counter market. As a result, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of the Company's securities. In addition, the Company would be subject to Rule
15g-9 (the "Rule") promulgated under the 1934 Act, which imposes various sales
practice requirements on broker-dealers that sell securities governed by the
Rule to persons other than established customers and accredited investors
(generally institutions with assets in excess of $5,000,000 or individuals with
a net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouse). For transactions covered by the Rule, the
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 have an adverse effect on the ability of
broker-dealers to sell the Company's securities and may affect the ability of
purchasers in this offering to sell the Company's securities in the secondary
market and otherwise affect the trading market in the Company's securities.
In November 1996, the Commission announced proposed revisions to the
listing and maintenance requirements, which would increase the requirements for
continued listing on the Nasdaq Market. Under the proposed rules, a listed
company will no longer be able to remain listed if its minimum bid price falls
below $1.00. In addition, the Company will have to maintain a $1,000,000 market
value or public float and either $2,000,000 net tangible assets, $35,000,000
market capitalization or net income in two of its last three years of $500,000.
The Commission has adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks." Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current price and volume information with respect to
transactions in that security is provided by the exchange or system). The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document that provides information about penny stocks and the nature and level
of risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. The bid and offer quotations, and the broker dealer and
salesperson compensation information must be given to the customer orally or in
writing prior to effecting the transaction and must be given to the customer in
writing before or with the customer's confirmation. These disclosure
requirements may have the effect of reducing the level of trading activity in
the secondary market for a stock that becomes subject to the penny stock rules.
If the Company's securities become subject to the penny stock rules, investors
in this offering may find it more difficult to sell their securities. However,
the Company's securities will, upon consummation of this offering, be outside
the definitional scope of a penny stock under the rules.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains forward-looking statements, including statements
regarding, among other items, the Company's business strategies, continued
growth in the Company's markets, and anticipated trends in the Company's
business and the industry in which it operates. The words "believe," "expect,"
"anticipate," "intends," "forecast," "project," and similar expressions identify
forward-looking statements. These forward-
16
<PAGE> 18
looking statements are based largely on the Company's expectations and are
subject to a number of risks and uncertainties, certain of which are beyond the
Company's control. Actual results could differ materially from these
forward-looking statements, as a result of the factors described under "Risk
Factors" and elsewhere herein, including among others, regulatory or economic
influences. In light of these risks and uncertainties, there can be no assurance
that the forward-looking information contained in this Prospectus will in fact
transpire or prove to be accurate. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by this section.
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock and 1,000,000 Warrants offered hereby at the assumed initial public
offering prices of $6.00 per share and $0.10 per Warrant, are estimated to be
$4,907,000, after deducting underwriting discounts and commissions of
approximately $793,000 and estimated offering expenses of approximately
$400,000. The Company anticipates that it will utilize the net proceeds of this
offering substantially as follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENT OF
ALLOCATION OF NET PROCEEDS DOLLAR AMOUNT NET PROCEEDS
------------------------------------------------------------ ------------- ------------
<S> <C> <C>
Product development activities.............................. $ 1,806,000 37%
Payment of asset purchase obligation(1)..................... 1,020,000 21%
Repayment of bridge loans(2)................................ 875,000 18%
Laboratory equipment........................................ 250,000 5%
Working capital............................................. 956,000 19%
---------- ---
Total............................................. $ 4,907,000 100%
========== ===
</TABLE>
- ---------------
(1) Pursuant to its Asset Purchase Agreement with Epoch, the Company issued a
promissory note in the principal amount of $1,050,000. The note bears
interest at 8% per annum. Principal and interest are payable in monthly
installments of $10,000 through March 15, 1997. All unpaid principal and
accrued interest are due and payable on the earlier of March 31, 1997 or the
closing of the Company's next round of financing.
(2) The Company intends to use approximately $875,000 of the net proceeds to
repay certain promissory notes, and accrued interest thereon, privately
issued by the Company prior to this offering (the "Bridge Notes"). Of the
Bridge Notes, certain Bridge Notes in the principal amount of $600,000 bear
interest at 8% per annum, payable quarterly, and are due on September 30,
2006. Certain Bridge Notes in the principal amount of $250,000 bear interest
at 14% and are payable at the earlier of the completion of this offering or
November 1997. The remaining Bridge Notes consist of $10,500 in principal,
bear interest at 8% per annum and are due September 30, 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes 3 and 4 to the Financial Statements.
Based on currently proposed plans and assumptions relating to its
operations, the Company anticipates that the proceeds of this offering will be
sufficient to satisfy its contemplated cash requirements for approximately 18
months following the consummation of this offering. In the event that the
Company's plans or assumptions change or prove to be inaccurate or if the
proceeds of this offering or projected cash flows prove to be insufficient to
fund operations (due to unanticipated expenses, technical problems, difficulties
or otherwise), the Company may find it necessary to seek additional financing.
There can be no assurance that any such additional financing will be available
to the Company on commercially reasonable terms, or at all.
The foregoing represents the Company's present intentions with respect to
the allocation of the proceeds of this offering based upon its present plans and
business conditions. However, the occurrence of certain unforeseen events or
changed business conditions could result in the application of the proceeds of
this offering in a manner other than as described in this Prospectus. In
addition, although the Company is not currently a party to any agreement or
understanding with respect to any prospective acquisition, the Company may use
portions of the net proceeds to finance acquisitions of complementary
businesses, products or technologies, or other assets, if attractive
opportunities arise.
Pending utilization of the proceeds of this offering, the Company may make
temporary investments in bank certificates of deposit, prime commercial paper,
United States Government obligations, investments in money-market funds or other
similar short-term low-risk investments.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying any cash dividends in the foreseeable future. The Company
currently anticipates that it will retain any future earnings for use in the
expansion and operation of its business.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth the total capitalization of the Company at
December 31, 1996 and as adjusted to reflect the sale of the Securities offered
hereby (at the assumed initial public offering price set forth on the cover page
of the Prospectus) and the application of the net proceeds from this offering:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
<S> <C> <C>
Long-term debt............................................ $ 220,000 $ --
Stockholders' equity (deficit):
Preferred stock, $0.001 par value; authorized 2,000,000
shares; none issued and outstanding.................. -- --
Common stock, $0.001 par value; authorized 20,000,000
shares; issued and outstanding 1,050,000 shares,
actual, 2,050,000 shares, as adjusted................ 1,050 2,050
Additional paid-in capital.............................. 9,450 4,915,450
Deficit accumulated during the development stage........ (263,613) (263,613)
--------- ----------
Total stockholders' equity (deficit)............ (253,113) 4,653,887
--------- ----------
Total capitalization............................ $ (33,113) $4,653,887
========= ==========
</TABLE>
- ---------------
(1) Excludes 350,000 shares of Common Stock issuable upon the conversion of
certain of the Company's outstanding convertible subordinated debentures
and 250,000 shares to be issued to third parties. Excludes shares of Common
Stock issuable upon the exercise of (i) the 1,000,000 Warrants offered
hereby; (ii) the Representative's Warrants; (iii) outstanding warrants to
purchase 250,000 shares of Common Stock; (iv) outstanding options to
purchase 65,000 shares of the Company's Common Stock and (v) the
Underwriter's over-allotment option.
19
<PAGE> 21
DILUTION
The net tangible book value (deficit) of the Company as of December 31,
1996 was (1,306,100) or ($1.24) per share of Common Stock. Net tangible book
value (deficit) per share is determined by dividing the tangible book value of
the Company (total tangible assets less total liabilities) by the number of
outstanding shares of Common Stock. After giving effect to the sale by the
Company of the 1,000,000 shares of Common Stock and 1,000,000 Warrants offered
hereby (based upon an assumed initial public offering price of $6.00 per share
and $.10 per Warrant and after deducting underwriting discounts and commissions
and estimated offering expenses), the Company's net tangible book value at
December 31, 1996 would have been 3,658,054 or $1.78 per share. This represents
an immediate increase in net tangible book value to existing stockholders of
$3.02 per share and an immediate dilution to new investors of $4.22 per share.
The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $6.00
Net tangible book value (deficit) per share before this
offering....................................................... $(1.24)
Increase attributable to new investors............................ 3.02
------
Net tangible book value per share after this offering............... 1.78
-----
Dilution per share to new investors................................. $4.22
=====
</TABLE>
The following table summarizes, as of December 31, 1996, the differences
between existing stockholders and new investors with respect to the number of
shares of Common Stock purchased from the Company, the total consideration paid
and the average price paid per share (assuming an initial public offering price
of $6.00 per share and before deducting the underwriting discount and estimated
offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 1,050,000 51% $ 10,500 0% $0.01
New investors.......................... 1,000,000 49% 6,000,000 100% $6.00
--------- --- ---------- ---
Total........................ 2,050,000 100% $6,010,500 100%
========= === ========== ===
</TABLE>
The foregoing tables assume no exercise of the Underwriters' over-allotment
option. See "Capitalization," "Management -- Employee Benefit Plans" and Notes
to Consolidated Financial Statements.
20
<PAGE> 22
SELECTED FINANCIAL DATA
The statement of operations data and the balance sheet data set forth below
were derived from the audited financial statements of the Company, which are
included elsewhere in this Prospectus. The data set forth below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations and the financial statements, related notes thereto,
and other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 19, 1996 THREE MONTHS
(INCEPTION) TO ENDED DECEMBER 31,
SEPTEMBER 30, 1996 1996
------------------ ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue............................................... $ -- $ 47,283
Loss from operations........................................ (51,767) (195,968)
Net loss.................................................... (51,767) (211,846)
Net loss per share(1)....................................... $ (.04) (.15)
Shares used in per share computations(1).................... 1,457,083 1,457,083
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................... $ 198,302
Total assets................................................................. 1,401,465
Total long-term debt......................................................... 220,000
Stockholders' equity (deficit)............................................... (253,113)
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
determination of shares used in calculating net loss per share.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion of Financial Condition and Results of
Operations and other parts of this Prospectus contain forward-looking statements
that involve risks and uncertainties. The Company's actual results may differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in "Risk
Factors" and "Business," as well as those discussed elsewhere in this
Prospectus.
OVERVIEW AND COMPANY BACKGROUND
The business and operations of Saigene commenced in September 1996 when the
management team who had previously led MicroProbe Corporation's ("MicroProbe")
diagnostic division agreed to purchase for $1.1 million certain assets from
MicroProbe's successor, Epoch. In November 1996, Saigene purchased certain
assets from Epoch, including primarily laboratory equipment, DNA probe
technologies, patent applications, government grants and certain contracts and
licenses.
MicroProbe was formed in 1985 as a research and development company focused
on the development of oligonucleotide chemistry. By using design, synthesis and
chemical modification of oligonucleotides, MicroProbe developed certain first
generation products using its proprietary technology. In 1991, MicroProbe
acquired the supplier of the processor and the software card used in
MicroProbe's diagnostic system. The addition of this capability repositioned
MicroProbe to be able to develop integrated systems for DNA probe diagnostics.
The first product MicroProbe produced from these development efforts was the
Affirm VP3. The Company believes this product was the first in a probe-based
system to simultaneously detect the primary pathogens associated with vaginitis.
In 1994, MicroProbe sold certain diagnostic assets to Becton-Dickinson and
changed its name to Epoch Pharmaceuticals, Inc. ("Epoch"). Epoch then redirected
its diagnostic efforts to the development of a new instrument and chemistry
which would enhance the performance of the previously developed diagnostic
system. The system was also reconfigured to reduce costs by incorporating
disposable components that were readily available as "off the shelf" products.
In addition, the total throughput of the system was increased substantially and
user friendly enhancements, such as color coding the reagents, were added.
With improvements to the diagnostic system and the addition of new
collaborations, such as the effort to develop a rapid DNA probe test for malaria
and research work to discover a unique marker to discriminate the sex type of
certain avian species, Saigene's founders decided to form Saigene and to
purchase from Epoch all of the technology rights and equipment to the diagnostic
programs that pertain to the technology used to identify nucleic acid sequences.
Saigene Corporation hired all of the scientists and managers from Epoch's
diagnostic division team. Saigene's senior management group averages 25.5 years
of industry experience. The team has worked together in a multifunctional
capacity for over three years and in some cases over five years. In other cases,
the scientific collaborators have also been involved with management and its
projects for five years or more.
The Company believes that between January 1992 and November 1996 MicroProbe
and Epoch invested an aggregate of approximately $6.7 million into the research
and development of the intellectual property now owned by Saigene and
Becton-Dickinson. The Company believes a substantial portion of the $6.7 million
in expenses was spent on research and development of the intellectual property
now owned by Saigene.
The Company has incurred an operating loss from inception through December
31, 1996 of approximately $264,000 which consists, and is expected to continue
to consist, primarily of operating expenses that are necessary to continue
research and development, technology transfer and pilot scale manufacturing for
products in development. If the Company is not successful in achieving its
operating plan, which calls for entering into collaborative agreements to fund
research, development and commercialization of its products, the Company is
likely to incur continued operating losses in future periods.
22
<PAGE> 24
The Company presently has three SBIR phase I grants for Oral Spirochetes,
Antibiotic Susceptibility Testing for Oral Bacteria, and Rapid Automated DNA
Probe Diagnostic Test for Malaria. In December 1996, the Company entered into a
collaborative research agreement with Monterey Bay Aquarium Research Institute,
which was the third in a series of agreements in which Saigene's scientists had
worked. The agreement requires the Company to supply its Universal Assay System
and manufacture reagents for the study of toxic algae. This new agreement
provides for funding in the amount of $24,000 and runs through March 1997. The
total amount awarded under the Monterey Bay Research Institute and SBIR grants
is approximately $295,000, of which $101,000 was expended prior to the asset
transfer from Epoch.
The Company's ability to achieve profitability depends upon its ability,
either alone or with others, to successfully complete the development of its
potential diagnostic products, conduct clinical trials as necessary, obtain
required regulatory approvals, and manufacture and market its products or enter
into any license agreements for the manufacturing and marketing of its products
on acceptable terms. If the Company enters into any license agreements in the
future, such license agreements may adversely affect the Company's profit
margins on its potential products. The Company may never achieve significant
revenue or profitable operations. If the Company is not successful in achieving
its operating plan in the time frame anticipated, it will need to obtain
additional funding.
RESULTS OF OPERATIONS
Period from September 19, 1996 (inception) to September 30, 1996
Research and development expense for the period ended September 30, 1996,
totaled $12,000, consisting primarily of salaries and benefits and, to a lesser
extent, facilities rental. Research and development during this period was
focused on developing the Company's DNA probe technology.
General and administrative expenses for the period ended September 30, 1996
were $39,000, consisting primarily of organizational expenses.
Three Months Ended December 31, 1996
The Company had research contract revenue for the three months ended
December 31, 1996 of $47,000 from government SBIR grants.
Research and development expense for the three months ended December 31,
1996, totaled $119,000, consisting primarily of salaries and benefits and, to a
lesser extent, facilities rental. Research and development during this period
was focused on developing the Company's DNA probe technology.
General and administrative expenses for the three month period ended
December 31, 1996 were $124,000, consisting primarily of salaries and benefits
and, to a lesser extent, fees for legal and professional services.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had cash of $198,000.
In October 1996, the Company completed a bridge financing agreement whereby
the Company committed to issue $600,000 in convertible debentures at 8%
interest, payable quarterly. As of December 31, 1996, $220,000 had been received
under this agreement. The Company received an additional $110,000 under this
agreement in January 1997 and expects to receive by February 28, 1997 the final
installment of $270,000 less repayment of $75,000 to satisfy a temporary
financing arrangement and less consulting fees totalling $60,000. The
convertible debentures are due September 2006 and can be converted into shares
of common stock at any time at the rate of $1.715 per share.
Under its bridge financing arrangements, the Company is further obligated
to issue warrants for the purchase of 315,000 shares of Common Stock exercisable
at $3.00 per share and expiring on October 2, 2006 and 250,000 shares of Common
Stock to be issued at $.01 per share. Both the conversion rate of the
convertible debentures and the exercise price of a warrant to purchase 250,000
shares of Common Stock at
23
<PAGE> 25
$3.00 per share are based on an assumed initial public offering price of $6.00
and will be adjusted in the event of an initial public offering at less than
$6.00 per share. The conversion shares and common stock purchase warrants have
been granted certain registration rights. In the event the Company does not
complete a financing by March 31, 1997, the Company is obligated to pay a
$15,000 monthly penalty until such financing is completed.
The Company is currently renegotiating the bridge financing agreement such
that upon the successful completion of a financing the Company would repay the
$600,000 convertible debenture, issue 200,000 shares of restricted common stock
and pay up to a $300,000 consulting fee. Under certain circumstances, additional
shares of restricted common stock would will be issued in lieu of certain
consulting fees at a rate of one share for every six dollars the consulting fee
is lowered. In exchange, the $15,000 monthly penalty and certain rights of the
bridge lenders will be waived and antidilution provisions will be limited.
In October 1996, the Company secured a loan from its founders for $10,500.
The loan bears interest at 8% and is due on September 30, 1997.
In November 1996, the Company entered into a financing agreement for
$250,000 bearing interest at 14%. The loan is to be repaid upon the sooner of
successful completion of an initial public offering or November 1997. Pursuant
to this agreement, the Company is further obligated to issue a warrant for the
purchase of 25,000 shares of Common Stock exercisable at $.01 per share and
expiring on October 2, 2006.
In November 1996, the Company acquired certain diagnostic assets from
Epoch. The purchase price for the assets was $1,100,000. The Company made an
initial payment of $50,000. The remaining balance of $1,050,000 bears interest
at 8% payable in monthly installments of $10,000 through the earlier of March
31, 1997 or the closing of the Company's next financing (including this
offering) at which time the remaining balance is due.
The Company will be required to conduct significant research, development,
testing and regulatory compliance activities that, together with projected
general and administrative expenses, will require significant capital funds. Any
revenues that the Company may generate in the next six months will be limited to
revenues under governmental grants that the Company has purchased from Epoch or
plans to establish, payments under research or product development relationships
that the Company may establish or payments under license agreements that the
Company may execute. The Company currently anticipates that it will begin to
generate revenues from product sales in the second half of 1997. However, there
can be no assurance the Company will be successful in generating product
revenues or achieving other sources of revenues through collaborative
relationships or licensing agreement. Based on its current operating plans, the
Company believes that the net proceeds of this offering will be sufficient to
meet the Company's operating expenses and capital requirements for approximately
18 months. However, this expectation is based on the Company's current operating
plan, which could change and the Company could require additional funding sooner
than anticipated.
The Company intends to seek additional funding through public or private
financings or collaborative or other arrangements with corporate partners. There
can be no assurance, however, that additional financing will be available from
any sources or, if available, will be available on acceptable terms. If adequate
funds are not available, the Company may be required to delay, scale back or
eliminate one or more of its research and development programs or to obtain
funds through entering into arrangements with collaborative partners or others
that may require the Company to relinquish rights to certain of its technologies
or potential products that the Company would not otherwise relinquish, or issue
securities more favorable to the new investors than those provided by the
securities offered hereby. To the extent additional capital is raised through
the sale of equity or convertible debt securities, the issuance of such
securities could be dilutive to the Company's stockholders. The Company's
inability to raise capital when needed would have a material adverse effect on
the Company's business, financial condition and results of operations.
This discussion contains certain forward-looking statements that are based
on current expectations. In light of the important factors that can materially
affect results, including those set forth below and elsewhere
24
<PAGE> 26
in this prospectus, the inclusion of forward-looking information herein should
not be regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved. The Company may encounter
competitive, technological, financial and business challenges making it more
difficult than expected to continue to develop and market diagnostic
technologies and products; the market may not accept the Company's products; the
Company may be unable to retain existing key management personnel; and there may
be other material adverse changes in the Company's operations or business.
Certain important factors affecting the forward-looking statements made herein
include, but are not limited to (i) the successful development of viable
technologies and products, (ii) accurately forecasting capital expenditures, and
(iii) obtaining external financing. Assumptions relating to budgeting,
marketing, product development and other management decisions are subjective in
many respects and thus susceptible to interpretations and periodic revisions
based on actual experience and business developments, the impact of which may
cause the Company to alter its marketing, capital expenditure or other budgets,
which may in turn affect the Company's financial position and results of
operations.
Future operating results may be impacted by a number of factors that could
cause actual results to differ materially from those stated herein, which
reflect management's current expectations.
25
<PAGE> 27
BUSINESS
OVERVIEW
Saigene is a biotechnology company focused on the development of portable,
cost-efficient, rapid and easy to use molecular-based diagnostic tests for a
variety of medical and non-medical conditions. Saigene believes that the
successful commercialization of its technology will create numerous
point-of-care, on-site, and in-the-field opportunities to provide diagnostic
information, often in less than an hour, at lower costs than currently available
alternatives.
The Company is currently developing a number of product applications,
including a sex-typing test for rare birds, a test for the detection of toxic
species of harmful sea algae and a genetic probe test to determine the
predisposition of humans to insulin diabetes mellitus. Saigene scientists have
begun research phase programs to develop a test for detecting mutations that are
specific to AZT drug-resistance in the treatment of HIV, the causative agent for
AIDS and a DNA probe procedure to provide a specific test for malaria. In
addition, the Company's scientists have completed the development of a
periodontal disease test system, which it believes is the first rapid
(approximately 30-minute) in-office test that specifically identifies
microorganisms that cause various forms of periodontitis. Saigene's scientific
team played a key role in developing the test while working at a predecessor
company, and the Company plans to obtain a license from the current owner of the
technology to seek United States Food and Drug Administration ("FDA") approval
of the test and to commercialize and market the test with a corporate partner if
such approval is obtained.
SCIENTIFIC BACKGROUND
Nucleic acids are found in all living organisms and direct the processes by
which organisms function and live. Nucleic acids are predominantly found in two
chemically related forms, DNA and RNA. DNA acts as a blueprint for the cell. It
is arranged in discrete units called genes, which code for specific proteins
needed for various biological activities. Proteins perform most of the normal
physiological functions of living organisms. Aberrant production or activity of
proteins may cause certain diseases.
Cells carry out their normal biological functions through the genetic
instructions encoded in their DNA. This process, known as gene expression,
involves several steps. In the first step, the nucleotides in a gene are copied
into a related nucleic acid molecule called messenger RNA. Messenger RNA
instructs the cell to produce proteins. Because the order of nucleotides in each
gene is different, each gene directs the production of a different protein.
Thus, each organism's characteristics are ultimately determined by proteins
encoded by its DNA. The determination of gene expression among cell types is an
important aspect of an individual's predisposition toward disease. Although most
cells contain an organism's full set of genes, only a small fraction of this set
is expressed in each cell. The expression of the wrong or defective genes, or
the expression of too much or too little of the genes normally expressed, may
indicate the presence of disease.
Changes in the sequences of normal genes are known as polymorphisms.
Polymorphisms can result in an altered function of the protein encoded by the
gene. In this case, such polymorphisms are called mutations, which can be passed
from generation to generation. Mutations have been associated with diseases such
as sickle-cell anemia, cystic fibrosis, cancer and cardiovascular disease.
Polymorphisms in the genome of HIV, for example, enable that virus to develop
resistance to antiviral drugs resulting in disease progression. The ability to
detect the presence or absence of mutations and to assess the overall viral load
in the case of HIV has become of paramount importance for the care of HIV
patients.
DNA probes are unique sequences of nucleic acid designed to specifically
hybridize to a complimentary sequence in the cell of interest. The process of
bringing together nucleic acid strands in a highly specific way is called
hybridization. Hybridization can occur between DNA strands or DNA and RNA
strands of any size as long as the segments hybridizing are complimentary. Once
it has been determined that a certain nucleic acid is of interest, a DNA probe
in the form of an oligodeoxynucleotide ("ODNs") is used to target the nucleic
acid. ODNs are small chemically synthesized segments of DNA. ODNs can be
designed to hybridize to complimentary sequences on the target nucleic acid for
diagnostic purposes.
26
<PAGE> 28
The increased knowledge of how DNA molecules encode the functions of living
organisms has generated a worldwide effort to identify and sequence genes of
many organisms, including the estimated 100,000 genes within the human genome.
Once the genes and their nucleotide sequences are identified, it is anticipated
that this genomics research can lead to new opportunities in both drug discovery
and diagnostics.
Opportunities and Diagnostics
Current diagnostic tests can monitor the physiological effects of disease,
detect infectious organisms by growing them in culture, or by identifying
specific markers, such as proteins, known to be associated with disease. Protein
markers are not available or are not useful for diagnosing many diseases.
Growing a culture from a sample may take several days and often requires highly
trained technicians to analyze the results. In addition, while detection of
antibodies to a virus can be made by using immunoassay tests, these tests
provide no information as to whether the virus is resistant to drug therapy or
if the infection is active or latent. Recent advances in gene based diagnostic
tests using DNA probes, DNA amplification techniques and sequencing technologies
have begun to address these shortcomings by directly examining the genes
associated with a given characteristic (i.e., disease, toxin production or sex
type) rather than relying on physiological parameters or antibodies.
The diagnostic marketplace is rapidly changing as a result of advances in
therapeutic treatments and fundamental shifts in the United States health care
system, which emphasize cost containment and efficiency. Increasingly specific
identification of disease causing pathogens, including their drug resistance
characteristics, enhances the medical profession's ability to prescribe
appropriate therapeutic treatments. Medical diagnostic testing evolves along
with new therapeutic treatments. Companies developing new drug therapies can
benefit from the availability of cost-efficient diagnostic tests that can
predict disease and monitor therapy, such as those being developed by Saigene.
SAIGENE'S STRATEGY
The Company's objective is to establish its Universal Assay System as the
market leader for DNA-based diagnostic tests. Key elements of the Company's
strategy include:
- Emphasizing the advantages of the Universal Assay System. The Company
believes the Universal Assay System has advantages over other currently
available DNA-based diagnostic tests in terms of costs of the test,
manufacturing costs, speed of obtaining test results, portability, ease of
use, sensitivity, accuracy, low required sample volume, variety of product
detection flexibility, low requirements for specialized equipment and
highly skilled personnel, and capability to perform multiple tests.
- Establishing the effectiveness of the Company's technology in
non-regulated markets. The Company seeks to establish a market leading
position for its molecular based diagnostic tests by being the first to
market products in selected fields. To gain market acceptance for its
DNA-probe based system, the Company intends to market its test products
initially in non-medical markets where there is no requirement for
government approvals. For example, the Company initially intends to market
products for the sex-typing of rare birds and the detection of toxic
species of harmful algae, while it continues to apply its technology to
the development of diagnostic tests for the medical market which will
require FDA approval prior to marketing. This strategy is designed to
allow the Company to establish the effectiveness of its DNA-probe based
tests and confirm their low cost, speed, portability, ease of use and
accuracy.
- Developing collaboration relationships with large corporate
partners. The Company intends to pursue pharmaceutical and other medical
companies to assist in the research funding, marketing and distribution of
the Company's DNA-probe based tests as a complementary product to such
companies' therapeutic products and services. The Company also intends to
develop customized tests for such pharmaceutical or medical companies, or
other corporate partners, seeking a test for the identification of
specific genetic sequences. The Company believes that such corporate
partners could provide the Company with increased research, marketing and
distribution opportunities not otherwise available to the Company.
27
<PAGE> 29
- Using proprietary technology to rapidly create new molecular probe
tests. The Company's proprietary technology enables the Company to
rapidly create a prototype of new molecular probe tests, in as little as
six to nine months after a gene is sequenced. The Company believes this
ability will provide it with a competitive advantage as new genes are
sequenced or new drug therapies are discovered.
- Generating recurring revenue through the sale of proprietary disposable
test cassettes. The assays required for each diagnostic test utilizing
the Universal Assay System are prepackaged in individual disposable
cassettes. Each cassette can be utilized for only one test. The Company
intends to generate recurring revenue through the sale of the test
cassettes.
SAIGENE'S TECHNOLOGY
Saigene's scientists have developed a novel diagnostic system that uses DNA
probes attached to a universal polystyrene "dipstick" to capture the target and
report its presence. The test system can also include another target specific
DNA probe, which specifically recognizes a binding protein attached to an enzyme
that converts colorless substrates into colored product, allowing for simple
colorimetric test results, readable by an untrained layman. Upon the capture of
the target, the color generating enzyme produces a blue color.
The intensity of the color produced, and therefore the sensitivity of the
assay, depends on the amount of the target present in a solution. The capture
probes developed by Saigene are freely accessible to the solution containing the
target. The high surface concentration and direct accessibility combine to
accelerate the hybridization process. Saigene has also developed lysis solutions
to rapidly liberate the nucleic acids in a test sample. Further, Saigene's
technology allows amplification of the signal. Saigene has the ability to
enhance the sensitivity of its assay further by using more sensitive detection
techniques, such as chemiluminescence or fluorescence detection.
Saigene's technology has led to the development of its Universal Assay
System, which allows automated and cost-efficient processing of multi-target
tests. The system uses standard microwell plates, which contain pre-dispensed
assay reagents, and are color-coded to aid the user in the procedure. The sealed
pre-dispensed assay reagents have a refrigerated shelf life of one year. The use
of pre-filled reagent cassettes eliminates the need for volumetric liquid
dispensing by the user or by an expensive sample processor. The standard assay
configuration allows the user to perform 24 tests at one time. The tests can be
a mixture of multiple samples, multiple targets, and multiple validation
controls. The use of microwells allows a commercially available microwell plate
reader to quantify the reaction.
The Universal Assay System is programmed to automatically move up to 24
dipsticks through the reagent cassettes in a timed and uniform manner. Each test
type requires a specific software card which controls the process and can be
easily updated to meet new assay variations.
The Company believes that the advantages of the Universal Assay System over
other molecular probe-based systems include (i) the high assay sensitivity due
to the small sample volume required and the Company's sensitivity enzyme
amplification detection method; (ii) the ease of assay interpretation based on
colorimetric changes in assay reagents; (iii) a wide variety of product
detection methods (such as visual or instrumented fluorescence or
chemiluminescence); (iv) the ability to use commercially available detection
equipment; (v) low manufacturing costs due to the usage of non-custom dipsticks
and microwell plates, and readily available chemical components; (vi) the
ability to use DNA probe and immuno assays on the same platform; (vii) the
ability to perform test assays at room temperature; and (viii) the comparably
brief hybridization time to identify target analytes.
The Company has several patent applications pending to cover the various
aspects of probe design sequences and targeting, low temperature hybridization
capability and solid phase attachment technology and solution hybridization
acceleration. See "-- Intellectual Property and Licensing."
PRODUCTS
The Company intends to pursue the development of its diagnostic tests for
two markets, medical and non-medical. There is no requirement in the non-medical
market for governmental approvals prior to marketing
28
<PAGE> 30
products, such as the Company's harmful algae detection test and sex-typing test
for rare birds, which should allow the Company the opportunity to achieve
product revenue in a shorter timeframe. The Company intends to seek
collaborative partners to commercialize medical applications of its proprietary
technology for larger medical markets, such as the periodontal disease market,
the diabetes market and the AZT drug-resistance market for HIV.
The Company intends to develop all of its diagnostic tests to utilize its
Universal Assay System. The Company's harmful algae, diabetes, malaria and drug
resistance test are currently being developed for use on the Universal Assay
System. The Company intends to develop a sex-typing test and a periodontal
disease test for use on the Universal Assay System.
The following table sets forth certain information regarding the Company's
products under development:
<TABLE>
<CAPTION>
PRODUCT
DEVELOPMENT DATE RESEARCH
PROGRAMS DEVELOPMENT STAGE INITIATED(1) FORMAT REGULATORY STATUS
- --------------------------------- --------------------- --------------- ----------------------- --------------------------
<S> <C> <C> <C> <C>
Harmful Algae.................... Expected completion August 1993 Universal Assay System No regulatory requirement
in May 1997
Sex-typing for Rare Birds........ Expected completion January 1996 DNA Blots(2) No regulatory requirement
in March 1997
HLA-IDDM (diabetes).............. Research feasibility September 1992 Universal Assay System PMA required for U.S.
complete
Periodontal...................... PMA protocol complete June 1987 Bead(2)(3) PMA required for U.S.(3)
Malaria.......................... Developmental September 1996 Universal Assay System 510(k) required for
research U.S.(4)
HIV.............................. Developmental December 1996 Universal Assay System PMA required for U.S.
research
</TABLE>
- ---------------
(1) Indicates the date the Company's scientists began research on these
potential products. All research prior to September 1996 was performed at
Epoch, the Company's predecessor.
(2) The Company intends to develop a Universal Assay System format for this
test.
(3) Becton-Dickinson currently owns the rights to this technology. The Company
has a right of first refusal to license this technology for development and
commercialization.
(4) This product may require a PMA.
Environmental Testing -- Harmful Algae
The Company is developing a DNA probe based test that utilizes the
Company's Universal Assay System to detect toxic members of a harmful algae
called Pseudo-nitzschia, which is linked to a neurological disorder known as
Amnesic Shellfish Poisoning. The use of these DNA probes is designed to allow
real time identification of potentially poisonous outbreaks of harmful algae. In
response, shellfish hatcheries may accelerate or quarantine their harvest.
The sample preparation procedure for the DNA probe assay developed by
Saigene involves concentrating water samples and then performing a simple lysis
procedure. The sample is then processed on-site through the Universal Assay
System which begins a timed series of reactions between a solid phase and liquid
reagents. This procedure takes a total test time of approximately 40 minutes.
The assay is semi-quantitative and can be used to determine the species of
harmful algae and the approximate number of organisms present. Test results can
be obtained with the Company's Universal Assay System by pushing a button and
waiting for a colorimetric reaction. The Company's scientists began
collaborating with the Monterey Bay Aquarium Research Institute, a private
nonprofit organization, in December 1993 for the development of this product.
The Company intends to develop additional test products to detect other harmful
algae, such as certain Alexandrium and Heterosigma species.
29
<PAGE> 31
Accurate methods for the real time detection and monitoring of harmful
algae species are not currently commercially available. Competitive toxin tests
typically take one to four days, require off-site analysis and cost
approximately $100 to $300. Other procedures utilize electron microscopy to
visualize fine cell wall differences, which is time consuming and requires
expertise in fluorescent microscopy to differentiate toxic from nontoxic
species.
Potential markets for the harmful algae detection system include
environmental research institutes, the shellfish and fin fish industry and
local, state, national and international agencies that monitor public health
threats. The Company intends to market the harmful algae detection product
initially to the research market. The Company believes there are numerous
private and public institutions conducting research in as many as 86 countries
worldwide. In addition, the Company believes that state coastal monitoring
programs, state fish hatcheries and native American tribes require a mechanism
to detect harmful algae accurately. To achieve broader market acceptance of its
diagnostic test for harmful algae, the Company intends to seek approval of the
test as a standard laboratory method by the American Organization of American
Chemists.
The Company believes that its technology for detecting Pseudo-nitzschia can
be applied to other environmental tests of sea water for potentially harmful
species. For example, the recently passed National Invasive Species Act (NISA)
prohibits ships entering a port from transporting non-native species in their
ballast water. However, there is currently no available portable, real time test
to detect the presence of prohibited organisms in ballast water. If the
organisms the federal agencies desire to prohibit in ballast waters have been
sequenced, the Company believes it can develop a diagnostic test which can
detect the organism within a relatively short time frame.
Sex-typing for Rare Birds
The Company is developing a test to determine the sex of avian species. To
access the test, the bird owner collects a blood sample and mails it to Saigene
for analysis. The analysis takes four days. The test utilizes a proprietary sex
specific probe in a DNA blot format. The Company intends to develop the
technology for this test to be utilized on the Universal Assay System, which
should allow for test results in less than one hour. This would provide much
more rapid test results than the test that is currently offered by a competitor.
The Company undertook this project at the request of a consortium of
ostrich growers who wanted to determine sex types rapidly and accurately. The
Company believes that sex typing as a reference lab service is of commercial
importance for enterprises involved in commercial breeding of rare and
commercially important birds. Ostrich farms currently use conventional
observation methods, which are only reliable approximately three months after
the birth of the chicks.
The Company intends to market its sex-typing test directly to ostrich
growers through the internet. The Company is considering entering into a joint
venture with a consortium of ostrich growers, which operate ostrich ranches
around the world.
Marketing this product will not require FDA clearance.
HLA -- IDDM / Diabetes Test
The Company has developed a DNA probe test for use with its Universal Assay
System that detects the presence of certain high-risk genes (alleles), which
either impart greater or lower risk for insulin-dependent diabetes. The Company
believes this test could help predict the future occurrence of insulin dependent
diabetes and identify patients who are candidates for experimental
immunosuppressive therapy protocols. The Company has prepared a patent
application for gene sequences. In addition, the Company has obtained an
exclusive license to other specific DNA sequences to detect the high-risk
alleles from Virginia Mason Research Institute. The test contains PCR primers,
allele specific detection reagents and internal controls to ensure a valid PCR
amplification and valid assay conditions. To utilize this test, a customer must
purchase reagents, which are licensed from Roche, and a thermal cycler, which
the Company believes is currently in use in most modern clinical research and
reference laboratories.
30
<PAGE> 32
The genes that confer susceptibility to insulin-dependent diabetes are
located in the HLA region of chromosome 6 and are involved in displaying foreign
or, in the case of autoimmune diseases, self antigens to stimulate the immune
system. Individuals who have these high-risk genes (alleles) have 100 times the
risk of developing insulin-dependent diabetes than those who do not.
Nevertheless, most individuals with these high-risk genes will not develop the
disease. Therefore, the Company's diabetes test utilizes other factors, such as
a family history of insulin-dependent diabetes and/or the presence of
autoantibodies against pancreatic antigens, such as glutamic acid decarboxylase
(GAD), to produce tests with a high predictive value.
The Company believes that its test may eventually be used to screen
patients under 15 years of age who have a family history of insulin-dependent
diabetes. The Company estimates that there are almost 400,000 potential patients
per year in the United States and over two million worldwide. The Company
believes the total market potential for diabetes screening is in excess of $55
million worldwide.
The Company believes that it will be necessary to obtain a PMA clearance
from the FDA before it can market the product.
Periodontal Disease Test
Saigene's scientific team played a key role in developing a periodontal
disease test system while working at Epoch. The Company believes the test is the
first rapid (approximately 30-minute) in-office test, which specifically
identifies microorganisms that cause various forms of periodontitis, a disease
of the gum tissue and underlying tooth support structures. This test, which was
purchased by Becton-Dickinson from MicroProbe in 1994, utilizes DNA probes on a
single matchbook-sized reagent card with reagent cassettes to identify bacteria
from infected sites that may be in the early stage of deterioration as well as
from sites that are advanced in the destructive cycle. The tests can
simultaneously detect and identify specific bacteroides species (such as P.
gingivalis and B. forsythus) and verify the test results with a positive and
negative control. The Company has a right of first refusal to license this test
from Becton-Dickinson for development and commercialization. The right of first
refusal expires in June 1997.
The Company believes that rapid, in-office testing offers a significant
advantage over the competitive options. The in-office test would be conducted
while the patient is still in the dentist's chair, where a treatment regimen can
be determined and commenced. The Company believes that the results from the
periodontal test, along with other clinical measurements, can assist the dentist
and periodontist to make a precise diagnosis of the site of infection, aid in
the determination of the appropriate therapeutic regime, and help monitor
effective disease treatment. The Company believes that the DNA probe format test
will provide greater accuracy at a lower cost than other available methods.
Current testing techniques for periodontal disease require that bacteria
samples be sent to a laboratory for anaerobic culturing, with approximately a
two-week turnaround time for test results. Anaerobic cultures for organisms,
such as P. gingivalis and B. forsythus, depend to a significant extent on the
method of sample collection and shipment to the culture facility. Poor samples
may lead to false negative results. Anaerobic culture also requires experienced
handling and, upon identification of a potential positive colony, further
testing by biochemical methods to confirm a positive result.
Periodontitis is a major health problem throughout the world. The Company
estimates that over 100 million patients worldwide suffer from periodontitis. As
many as 40 million adults in the United States suffer from periodontitis. At any
one time, 10% of the domestic population shows evidence of destructive
periodontal disease. Current spending on periodontal disease has been estimated
at $5.0 billion per year worldwide. The Company believes there is a worldwide
market potential of $2 billion in annual sales at $20 per test, with the
estimated United States market constituting annual sales of $600 million.
The Company believes that the periodontal disease test system can be
marketed to general dental practitioners, periodontists, prosthodontists and
oral surgeons. With tooth loss from cavities greatly reduced, many more teeth
are being kept into old age when the supporting gum tissues become more
susceptible to periodontitis. Periodontitis continues to be the major cause of
tooth loss of patients over 40 years of age. Crown and bridge work on patients
suspected of suffering from periodontitis is likely to include a periodontal
31
<PAGE> 33
disease test to document a bacteria-free site before expensive bridge work is
commenced. As a result, the Company believes that there is a strong and growing
market for a low cost, easy to use test to rapidly confirm the presence of
microorganisms associated with periodontitis.
The Company estimates that a minimum of a six-month multicenter study will
be required prior to submitting a PMA to the FDA. There can be no assurance that
the study, its cost or length of time will not be subject to substantial change
or that the Company will ever obtain FDA clearance or approval to market the
periodontal disease test.
The Company intends to develop a periodontal disease test for use on its
Universal Assay System, which would require completion of clinical trials and
additional regulatory review. The Company's strategy is to develop the market
need for the periodontal disease test using the reagent card format, while it
continues to develop the Universal Assay System format test, which should be
less costly than the card format. The Company estimates that it will be several
years before it can market a periodontal disease product using the Universal
Assay System. There can be no assurance the Company will successfully develop
such a test or that it will receive the necessary FDA regulatory clearance for
marketing such a test.
Malaria Test
In September 1996 the Company began the initial research for developing a
DNA probe-based hybridization test that can detect the presence of the four
strains of Plasmodium associated with malaria. The reliable diagnosis of
malaria, whether in a hospital, in a rural health clinic or at a patient's home,
is a prerequisite for selecting the correct treatment and, consequently, for
reducing malaria morbidity and mortality. The Company believes that the
information obtained from the test will allow the health-care provider to
prescribe appropriate malaria therapy. The Company's product will utilize a
disposable cassette, containing all of the reagents necessary for the detection
of these parasites. Saigene plans to develop both a manual format for this test
for field testing and an automated instrumented format for clinical settings. In
addition, the Company expects to supply the reagents prepackaged for long-term,
non-refrigerated storage. The Company has an SBIR grant from the National
Institutes of Health to develop this test product. The Company has a
collaborative arrangement with Dr. Lal, Chief of the Malaria Branch of the
Center for Disease Control, for field testing. Unlike current immunoassay
products, Saigene's product is being designed to detect all of the Plasmodium
forms associated with malaria (P. falciparum, P. vivax, P. malaria, and P.
ovale) simultaneously from one specimen. Since current immunologic tests measure
a patient's antibody level, the results can be misleading because patients who
have been infected can carry antibodies for prolonged periods of time.
The Company believes that its malaria test will be eligible for a 510(k) in
the United States. However, since the primary market for this test is outside
the United States and as a result of the early stage of the Company's research
on this product, the Company does not intend to submit a 510(k) application for
several years. There can be no assurance a 510(k) will be granted or that a PMA
will not be required. If a PMA is required, marketing of this potential product
will be further delayed. The Company intends to seek regulatory approval to
market this product in foreign countries as appropriate.
The Company expects to market both the manual and automated formats for
this product to third-world countries because of the higher incidence of malaria
in these countries. It is estimated that malaria infections affect one-third of
the world's population. Significant control of the disease was accomplished in
the 1930s and 1940s as a result of the advent of synthetic antimalarial drugs
and modern insecticides. However, the rise in the incidence of drug and
insecticide resistance in parasites and vectors has been responsible for a
resurgence in malarial cases. Nearly 100 million clinical cases of malaria are
reported yearly, with about two million deaths worldwide. The reliable diagnosis
of malaria is a prerequisite for selecting the correct treatment and,
consequently, for reducing malaria morbidity and mortality.
HIV Drug Resistance Test
The Company began research in December 1996 on the development of an HIV
drug resistance test using DNA probes, which can detect and quantify the viral
load of the native HIV and the six predominant
32
<PAGE> 34
AZT, ddl, ddC, and 3TC-resistant mutants using the same technology platform.
Building on its technology developed in the HLA IDDM project, the Company plans
to develop a kit containing PCR primers, internal standard RNA, specific mutant
viral detection microwell strips and instructions for use in conjunction with
the Company's Universal Assay System. The Company's reagent cassettes, used in
conjunction with an analyzer, are expected to be able to perform all of the
detection steps automatically in approximately 40 minutes. The entire procedure
will involve performing PCR in a thermocycler, then automated detection via the
Saigene Universal Assay System and, if quantification is desired, the use of a
microwell absorbance reader. This is generally standard equipment in modern
clinical research and reference laboratories.
Human immunodeficiency virus (HIV), the causative agent for AIDS, is
estimated to have infected over 500,000 people in the United States. Because the
disease remains incurable, drug therapy to prolong the clinical latent phase of
the disease, which on average lasts about 10 years, is the primary treatment.
Various drugs have been developed that inhibit the growth of the HIV virus,
but rapid mutation gives rise to drug resistance, usually within three weeks of
therapy. In addition, people are being infected with a drug resistant HIV-virus
in ever increasing numbers. Currently, about 10% of the patients are being
treated with expensive, noneffective, treatments due to pre-existing drug
resistance. Early detection of drug-resistance enables health care providers to
change drug therapy prior to deterioration in the patents' clinical or
immunological status. The knowledge of the presence of a specific mutation
indicates which drugs will show cross-resistance or will reduce the development
of resistance to other drugs, for example, the 3TC-resistance mutation greatly
reduces the development of AZT-resistance. Viral load levels provide valuable
information in assessing the effectiveness of the drug therapy and the patient's
overall prognosis. Viral load may increase during therapy due to reasons other
than drug resistance, such as, changes in the patient's immune status or
mutations in the virus which increase its virulence. Therefore, increases in
viral load during therapy is not necessarily an indication of drug resistance
and it is important to be able to make that distinction.
Currently, DNA sequencing, a labor intensive and costly procedure, is the
only method of obtaining precise drug resistance information. An automated DNA
sequencer typically ranges in price from $50,000-$100,000, requires a highly
skilled individual for its operation, and does not provide viral load
information.
The Company believes that with the significant costs of treating HIV
infected patients, costing an average ranging from $12,000 to $18,000 per year,
there is a strong market need for the development of a low cost diagnostic tool
to detect and monitor drug resistance and a patient's viral load. Following a
positive HIV blood test, patients are generally monitored for viral load twice a
year. Traditionally, drug therapy is begun when there is an indication of viral
increase. The viral level and the presence of any drug resistant mutations are
then typically measured every three to four months. However, physicians recently
have recommended drug therapy before any evidence of viral load increase. The
Company believes that with 500,000 patients being tested two to four times per
year, there is a total United States market potential for a DNA probe-based HIV
drug resistance test of one to two million tests per year, representing between
$100 to $200 million in sales in the United States. As of May 1996 at least 50
HIV antiviral compounds were in clinical trials in the United States, any of
which has the potential to be subject to drug resistance. The Company believes
that in the future its technology can be applied to develop custom reagent tests
to detect and monitor any resulting drug resistant strains.
The Company plans to evaluate its HIV drug resistance and viral load
detection product through the use of NIH sponsored clinical trials undertaken
through collaborations with clinical investigators. The Company believes that
its HIV drug resistance test will require a PMA. The Company has only recently
begun research on this product. The research and development, including
completion of the clinical trials necessary to obtain a PMA, will take a number
of years. There can be no assurance the research and development will be
successfully completed, that a PMA will be obtained or that the Company will
ever market an HIV drug resistance and viral load detection product.
33
<PAGE> 35
SALES AND MARKETING
An important aspect of the Company's strategy is to develop products its
customers need by integrating outside investigators into the development
process. By establishing these early stage collaborations, the Company builds
relevant scientific data based on the performance of its products while
evaluating the customer's comfort level with the procedure, instructions, and
mechanical operation of the test. During this early stage of marketing, the
investigators make critical evaluations of the product and may publish results
to their scientific peers.
The Company currently has no sales, marketing or distribution capacity. The
Company intends to market its harmful algae and sex-typing tests directly. The
Company intends to establish direct relationships with the environmental
research institutions and shellfish hatcheries that would utilize its harmful
algae diagnostic test. The Company intends to market its sex-typing test through
the Internet to ostrich growers, who typically reside in rural areas and have a
high percentage of internet users.
The Company intends to market its medical diagnostic products by entering
into marketing agreements with large multinational diagnostic or pharmaceutical
companies that have the sales and technical support infrastructure necessary to
sell the products commercially.
To establish its market position, the Company initially intends to provide
the analyzer and software card for its tests via low-cost rental agreements to
eliminate the capital purchase requirement of the Universal Assay System. The
Company expects to generate recurring revenue through the sale of the reagent
cassettes, which are specifically designed for each test.
The Company believes that the primary market for its DNA probe-based
technology will be academic research centers, pharmaceutical companies,
reference laboratories, and independent testing laboratories.
COMPETITION
The market for diagnostic products using DNA probe technology is currently
limited, but is expected to be highly competitive. There are many
pharmaceutical, diagnostics and biotechnology companies, public and private
universities and research organizations actively engaged in the research and
development of diagnostic products. Many of these organizations have financial,
manufacturing and human resources greater than those of the Company. In
particular, established diagnostic companies could provide significant
competition to Saigene through the development of new and competing products.
These companies have the strategic commitment to diagnostics, the financial and
other resources to invest in new technologies, experience in new product
development, and manufacturing and distribution capabilities to their customers.
In addition, these companies have an installed base of diagnostic systems which
makes it more difficult for the Company to attract new customers.
Competition in the field of molecular based diagnostic testing is intense
and is expected to increase. Further, the technologies for discovering genes
associated with significant diseases and for commercializing test platforms
utilizing these discoveries are new and rapidly evolving.
Currently, the Company's principal competition comes from existing
companies that have developed test methods used to perform many of the same
functions for which the Company plans to market its test systems. In the
diagnostic field, these technologies are provided by large established
companies, such as Abbott Laboratories, Boehringer Mannheim GmbH, Roche, Johnson
& Johnson and Smith Kline Beecham Corp. These technologies include a variety of
established assays, such as immunoassays, histochemistry, flow cytometry, along
with DNA probe diagnostics. Saigene believes many companies are conducting
research on new technologies for diagnostic tests based on advances in genetic
information. These companies have the strategic commitment to diagnostics,
financial and other resources to invest in new technologies and substantial
intellectual property portfolios. In addition many of these large diagnostic
companies are forming alliances with genomics companies in order to obtain
access to genetic information in an attempt to integrate them onto their
diagnostic test platforms.
34
<PAGE> 36
MANUFACTURING
The Company manufactures tests using its Universal Assay System for its
diabetes and toxic algae tests. The Company currently manufactures these tests
on a pilot program basis and can produce approximately 1,000 of each test per
week. The Company manufactures these tests at its headquarters in Bothell,
Washington. The Company expects to increase the number of and variety of tests
that it produces, but will continue to manufacture all of its tests at its
current facility. The Company expects to significantly increase the amount of
tests that it produces on a weekly and yearly basis in fiscal 1997. The Company
will be required to comply with the Good Manufacturing Practices requirements of
the FDA when it manufactures medical diagnostic products under the FDA's
regulation. See "Government Regulation."
INTELLECTUAL PROPERTY AND LICENSING
The Company's success will depend in part on its ability to obtain patent
protection for its products both in the United States and other countries. The
Company currently has three patent applications, one filed and two in process.
In addition, the Company is co-owner of a fourth patent application currently in
process. The Company also intends to seek exclusive licenses to certain patents
held by third parties. Since a patent may be invalid or circumvented by
alternative technologies, there can be no assurance as to the breadth of
protection that any patents the Company may eventually obtain or license may
afford the Company. In the event the Company is held liable for patent
infringement, insurance may not cover any or all of the infringement damages and
any such infringement liability may adversely affect the business, financial
condition and results of operations of the Company.
Saigene also relies upon copyright protection, trade secrets, know-how,
continuing technological innovation and licensing opportunities to develop and
maintain its intellectual property. The Company's success will depend in part on
its ability to obtain patent protection for its products and processes, to
preserve its copyright and trade secrets and to operate without infringing the
proprietary rights of third parties.
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including the Company, are generally uncertain and involve complex
legal and factual questions. There can be no assurance that any of the Company's
pending patent applications will result in issued patents, that the Company will
develop additional proprietary technologies that are patentable, that any
patents issued to the Company or its strategic partners will provide a basis for
commercially viable products or will provide the Company with any competitive
advantages or overcome challenges by third parties, or that the patents of
others will not have an adverse effect on the ability of the Company to do
business. In addition, patent law relating to the scope of claims in the
technology fields in which the Company operates is still evolving. The degree of
future protection for the Company's proprietary rights, therefore, is uncertain.
Furthermore, there can be no assurance that others will not independently
develop similar or alternative technologies, duplicate any of the Company's
technologies, or, if patents are issued to the Company, design around the
patented technologies developed by the Company. In addition, the Company could
incur substantial costs in litigation if it is required to defend itself in
patent suits brought by third parties or if it initiates such suits.
The commercial success of the Company also depends in part on the Company
avoiding infringing patents or proprietary rights of third parties or breaching
any licenses that may relate to the Company's technologies and products. For
example, the Company, its collaborators and customers may need to acquire a
license for an amplification technology. There is no assurance such a license
will be available on commercially reasonable terms. The Company is aware of
third-party patents that may relate to the Company's technology. There can be no
assurance that the Company will not infringe on these patents or other patents
or proprietary rights of third parties. In addition, the Company may in the
future receive a notice claiming infringement from third parties as well as
invitations to take licenses under third party patents. Any legal action against
the Company or its collaborative partners claiming damages and seeking to enjoin
commercial activities relating to the affected products and processes could
subject the Company to potential liability for damages and require the Company
or its collaborative partner to obtain a license in order to continue to
manufacture or market the affected products and processes. There can be no
assurance that the Company or its collaborative partners would prevail in such
action or that any license (including licenses proposed by third parties)
required
35
<PAGE> 37
under any such patent would be made available on commercially acceptable terms,
if at all. There are a significant number of United States and foreign patents
and patent applications in the Company's areas of interest, and the Company
believes that there may be significant litigation in the industry regarding
patent and other intellectual property rights. If the Company becomes involved
in such litigation, it could consume a substantial portion of the Company's
managerial and financial resources, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
Others may have filed and in the future are likely to file patent
applications that are similar or identical to those of the Company. To determine
the priority of inventions, the Company may have to participate in interference
proceedings declared by the United States Patent and Trademark Office that could
result in substantial cost to the Company. No assurance can be given that any
such patent application will not have priority over patent applications filed by
the Company.
The enactment of legislation implementing the General Agreement on Trade
and Tariffs that became effective on June 8, 1995 has resulted in certain
changes in United States patent laws. Most notably, the term of patent
protection for patent applications filed on or after June 8, 1995 is no longer a
period of 17 years from the date of grant. The new term of United States patents
will commence on the date of issuance and terminate 20 years after the earliest
effective filing date of the application. Because the time from filing to
issuance of biotechnology patent applications in the Company's are of interest
is often more than three years, a twenty-year term after the effective date of
filing may result in a substantially shortened term of the Company's patent
protection which may adversely affect the Company's patent position.
A third party owns the patent rights to the technology necessary for the
Company to commercialize the periodontal disease test in its current form. The
Company has a right of first refusal to license the technology to obtain the
necessary regulatory approvals and to market, use and sell the periodontal
diagnostic product. The right of first refusal expires in June 1997. There can
be no assurance that the Company will be able to negotiate a license agreement
to commercialize the product on acceptable terms, or at all. If the Company is
unable to successfully negotiate a license, it would be required to design a new
periodontal disease test that does not utilize the technology owned by the third
party, which would require substantial additional capital and regulatory review.
See "Business -- Intellectual Property and Licensing.
GOVERNMENT REGULATION
The Company anticipates that the manufacturing, labeling, distribution and
marketing of some or all of the Company's diagnostic products will be subject to
government regulation in the United States and in certain other countries.
The FDA and comparable state, local and foreign agencies impose substantial
regulatory requirements for the development, clinical testing, manufacture,
labeling, packaging and sale of medical devices and diagnostic products. This
process can include lengthy and well-defined laboratory and clinical studies,
process and performance validation activities, and highly documented research
and manufacturing operations. Noncompliance with applicable requirements can
result in fines, civil penalties, injunctions, suspensions or losses of
regulatory approvals on clearances, recall or seizure of products, operating
restrictions, refusal of the government to approve product export applications
or allow the Company to enter into government supply contracts and criminal
prosecution. Failure to obtain regulatory approvals, the restriction, suspension
or revocation of regulatory approvals or clearances, if obtained, or any other
failure to comply with regulatory requirements would have a material adverse
effect on the Company's business, financial condition and results of operations.
The FDA regulates, as medical devices, most diagnostic tests and in vitro
reagents that are marketed as finished test kits or equipment. Some clinical
laboratories, however, purchase individual reagents intended for specific
analytes and use those reagents to develop and prepare their own finished
diagnostic tests. Although the FDA has not generally exercised regulatory
authority over the individual reagents or the finished tests prepared from them
by the clinical laboratories, the FDA has recently proposed a rule that, if
adopted, would regulate reagents sold to clinical laboratories as medical
devices. The proposed rule would also restrict sales of these reagents to
clinical laboratories certified under CLIA as high complexity laboratories.
36
<PAGE> 38
The Company is developing two distinct categories of products: those which
will not fall under any FDA requirements for manufacture and distribution; and
diagnostic devices, which will need review by the FDA as either "Class II"
medical devices, requiring a 510(k) or "Class III," requiring a PMA.
The Company believes that there are no regulatory restrictions on the use
and marketing of its harmful algae identification product. In the future, the
Company plans to complete a methods validation under the guidance of the
Association of Analytical Chemists in order to have the test become an "Official
Method" for use in Health Department and FDA food safety testing laboratories.
The Company believes that the Avian Reference Test also will have no regulatory
restrictions and further developments of this test will not change the
regulatory status.
In the United States, the Company's clinical diagnostic systems are
regulated by the FDA under a three-tier classification system-Class I, II and
III, on the basis of the controls deemed necessary by FDA to reasonably assure
their safety and effectiveness. Under FDA regulations, Class I devices are
subject to general controls (for example, labeling, premarket notification and
adherence to GMP) and Class II devices are subject to general and specific
controls (for example, performance standards, postmarket surveilance, patient
regestries, and FDA guidelines). Generally, Class III devices are those which
must receive premarket approval from the FDA to ensure their safety and
effectiveness (for example, life-sustaining, life-supporting and implantable
devices, or new devices which have not been found substantially equivalent to
legally marketed Class I or II devices). Most diagnostic devices are regulated
as Class I or Class II devices, although certain diagnostic tests for particular
diseases may be classified as Class III devices.
A medical device manufacturer may seek clearance to market a medical device
by filing a 510(k) premarket notification with the FDA if a medical device
manufacturer establishes that a newly developed device is "substantially
equivalent" to either a device that was legally marketed prior to May 28, 1976,
the date upon which the medical device amendments of 1976 were enacted, or to a
device that is currently legally marketed and has received 510(k) premarket
clearance from the FDA. The 510(k) premarket notification must be supported by
appropriate information, including, where appropriate, data for clinical trials,
establishing the claim of substantial equivalence to the satisfaction of the
FDA. Commercial distribution of a device for which a 510(k) premarket
notification is required can begin only after the FDA issues an order finding
the device to be "substantially equivalent" to a predicate device. The FDA has
recently been requiring a more rigorous demonstration of substantial equivalence
than in the past. It generally takes from four to twelve months from the date of
submission to obtain clearance of a 510(k) submission, but it may take
substantially longer. The FDA may determine that a proposed device is not
substantially equivalent to a legally marketed device, or that additional
information is needed before a substantial equivalence determination can be
made.
A "not substantially equivalent" determination, or a request for additional
information, could delay the market introduction of new products that fall into
this category and could have a material adverse effect on the Company's
business, financial condition and results of operations. For any of the
Company's products that are cleared through the 510(k) process, modifications or
enhancements that could significantly affect the safety or efficacy of the
device or that constitute a major change to the intended use of the device will
require new 510(k) submissions or approval of a PMA. Any modified device for
which a new 510(k) premarket notification is required cannot be distributed
until 510(k) clearance is obtained for the modified device. There can be no
assurance that the Company will obtain 510(k) clearance in a timely manner, if
at all, for any devices or modifications to devices for which it may submit a
510(k) notification.
A PMA application must be submitted if a proposed device is not
substantially equivalent to a legally marketed Class I or Class II device or for
a Class III device for which FDA has called for PMA's.
The PMA application must contain valid scientific evidence to support the
safety and effectiveness of the device which includes the results of the
clinical trials, the results of all relevant bench tests, laboratory and animal
studies. The PMA must also contain a complete description of the device and its
components, and a detailed description of the methods, facilities and controls
used for its manufacture. In addition, the submission must include the proposed
labeling for the product and its intended uses. If human clinical trials of a
device are required in connection with a PMA application, and the device
represents a "significant risk" the sponsor of the trial is required to file an
investigational device exemption ("IDE") application prior to
37
<PAGE> 39
commencing human clinical trials. The IDE application must be supported by data,
typically including the results of animal and laboratory testing, as well as how
the device will be manufactured. If the IDE is reviewed and approved by the FDA
and one or more appropriate institutional review boards ("IRB's"), human
clinical trials may begin at a specific number of investigational sites with a
specific number of patients, as approved by the FDA. If the device presents a
"non-significant risk" to the patient, a sponsor may begin the clinical trial
after obtaining approval for the study by one or more appropriate IRBs but FDA
approval for the commencement of the study is not required. Sponsors of clinical
trials are permitted to sell those devices distributed in the course of the
study provided such compensation does not exceed recovery of manufacture,
research, development and handling. An IDE supplement must be submitted to and
approved by FDA before a sponsor or investigator may make a significant change
to the investigational plan that may affect its scientific soundness or the
rights, safety or welfare of human subjects.
Upon receipt of a PMA application, the FDA makes a threshold determination
as to whether the application is sufficiently complete to permit a substantive
review. If the FDA determines that the PMA application is sufficiently complete
to permit a substantive review, the FDA will accept the application for filing.
An incomplete application will be returned to the sponsor and must be
resubmitted and accepted for filing before the application will be reviewed.
Once the submission is accepted for filing, the FDA begins an in depth review of
the PMA. An FDA review of a PMA application generally takes one to two years
from the date the PMA application is accepted for filing, but may take
significantly longer. The review time is often significantly extended but the
FDA asking for more information or clarification of information already provided
in the submission. During the PMA review period, the submission may be sent to
an FDA selected scientific advisory panel composed of physicians and scientists
with expertise in the particular field. The FDA scientific advisory panel issues
a recommendation to the FDA that may include conditions for approval. The FDA is
not bound by the recommendations of the advisory panel. Toward the end of the
PMA review process, the FDA will conduct an inspection of the manufacturer's
facilities to ensure that the facilities are in compliance with applicable GMP
requirements.
If the FDA evaluations of both the PMA application and the manufacturing
facilities are favorable, the FDA will issue an approvable letter which usually
contains a number of conditions which must be met in order to secure final
approval of the PMA. When those conditions have been fulfilled to the
satisfaction of the FDA, the Agency will issue a PMA approval letter,
authorizing commercial marketing of the device for certain indications and
intended uses. The PMA review process can be expensive, uncertain and lengthy. A
number of devices for which a PMA has been sought have never been approved for
marketing. The FDA may also determine that additional clinical trials are
necessary, in which case the PMA may be significantly delayed while additional
clinical trials are conducted and data is submitted in an amendment to the PMA.
Modifications to the design of a device that is the subject of an approved PMA,
its labeling, or manufacturing process may require approval by the FDA of PMA
supplements or new PMAs. Supplements to a PMA often require the same type of
information required for initial PMA, except that the supplement is generally
limited to that information needed to support the proposed change from the
product covered by the original PMA. The FDA generally does not call for an
advisory review panel for PMA supplements. There can be no assurance that, if
required, the Company will be able to meet the FDA's PMA requirements or that
any necessary approvals will be received. Failure to comply with regulatory
requirements would have a material adverse effect on the Company's business,
financial condition and results of operations.
Regulatory approvals and clearances, if granted, may include significant
labeling limitations and limitations on the indicated uses for which the product
may be marketed. In addition, to obtain such approvals and clearances, the FDA
and certain foreign regulatory authorities impose numerous other requirements
with which medical device manufacturers must comply. FDA enforcement policy
strictly prohibits the marketing of approved medical devices for unapproved
uses. Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulations by
the FDA. Failure to comply with applicable regulatory requirements, can result
in, among other things, warning letters, fines, injunctions, civil penalties;
recall or seizure of products, total or partial suspension of production,
refusal of the government to grant premarket clearance or premarket approval for
devices, withdrawals of approvals and criminal prosecutions.
38
<PAGE> 40
The Company is required to register with the FDA as a device manufacturer
and list its products with the Agency. The Company also is subject to bi-annual
inspections for compliance with GMP, by the FDA and state agencies acting under
contract with the FDA. The GMP regulations require that the Company manufacture
its products and maintain its documents in a prescribed manner with respect to
manufacturing, testing and quality assurance and quality control activities. The
FDA also has promulgated final regulatory changes to the GMP regulations that
require, among other things, design controls and maintenance of service records,
which will increase the cost of complying with GMP requirements.
Labeling and promotion activities are also subject to scrutiny by the FDA.
The FDA actively enforces regulations prohibiting the marketing of products for
unapproved uses. The Company and its products are also subject to a variety of
state and local laws and regulations in those states and localities where its
products are or will be marketed. Any applicable state or local regulations may
hinder the Company's ability to market its products in those states or
localities. Manufacturers are also subject to numerous federal, state and local
laws relating to such matters as safe working conditions, manufacturing
practices, environmental protection, fire hazard control and disposal of
hazardous or potentially hazardous substances. There can be no assurance that
the Company will not be required to incur significant cost to comply with such
laws and regulations now or in the future or that such laws or regulations will
not have a material adverse effect upon the Company's ability to do business.
The Company's customers using its diagnostic devices for clinical use in
the United States may be regulated under the CLIA, which is intended to ensure
the quality and reliability of clinical laboratories in the United States by
mandating specific standards in the areas of personal qualifications,
administration participation and proficiency testing, patient test management,
quality control, quality assurance and inspections. The regulations promulgated
under CLIA establish three levels of diagnostics test ("waived", "moderately
complex" and "highly complex") and the standards applicable to a clinical
laboratory depend on the level of the tests it performs. CLIA requirements may
prevent some clinical laboratories from using certain of the Company's
diagnostic products. Therefore, there can be no assurance that the CLIA
regulations and further administrative interpretations of CLIA will not have a
material adverse impact on the Company by limiting the potential market for the
Company's products.
International sales of the Company's products are subject to the regulatory
requirements of each country. The regulatory review process varies from country
to country. The ISO 9000 series of standards for quality operations have been
developed to ensure that companies know the standards of quality to which they
must adhere to receive certification. The European Union has promulgated rules
which require that medical products receive by mid-1998 the right to affix the
CE Mark, an international symbol of adherence to quality assurance standards and
compliance with applicable European device directives. The ISO 9001
certification is one of the CE Mark certification requirements. Failure to
receive the right to affix the CE Mark will prohibit the Company from selling
its products in member countries of the European Union.
39
<PAGE> 41
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth certain information with respect to
executive officers, directors and key employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Allan G. Cochrane.................. 44 President, Chief Operating Officer, Chief Financial
Officer, Treasurer and Director
Ronald R. Helm, J.D................ 45 Chief Executive Officer, Secretary and Vice-Chairman
of the Board of Directors
Jack U'Ren, Ph.D................... 52 Director of Research
Paul Haydock, Ph.D................. 42 Manager, Product Development
Judith Howard, M.S................. 48 Director of Operations
Kenneth R. Waters, J.D.(1)(2)...... 45 Director
Edward E. Faber(1)(2).............. 63 Chairman of the Board of Directors
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
The following is a brief description of the professional experience and
background of the officers, directors and key employees of the Company.
Mr. Cochrane was a founder of the Company and has been President, Chief
Operating Officer, Chief Financial Officer and Treasurer since its inception in
1996. In May 1993, he joined Epoch Pharmaceuticals, Inc. as its Vice President
of Sales and Marketing and Diagnostics and was appointed President, Chief
Operating Officer and to the Board of Directors in June 1993. From 1975 to 1993,
Mr. Cochrane was employed by Difco Laboratories in marketing, strategic planning
and corporate development positions. From 1988 to 1991, Mr. Cochrane was
Director of Business Development, and from 1991 to 1993, Mr. Cochrane was Vice
President, Sales and Marketing in which capacity he started the Epoch's
instrumentation division and launched its first fully automated blood culture
system. Mr. Cochrane received his B.S. in Biology from Roberts Wesleyan College.
Mr. Helm was a founder of the Company and has been the Chief Executive
Officer and Secretary since its inception in 1996 and the Vice Chairman of the
Board of Directors since January 1997. He was Chairman of the Board and Chief
Executive Officer of Pacific Biometrics, Inc. in 1995. From 1992 to 1994, Mr.
Helm was a co-founder and principal investor in Merchant House Scientific, a
southern California-based medical device and product development company. From
1976 to 1985, he was the Associate Dean for Development and Professor of Law at
Pepperdine University School of Law. From 1983 to 1985, he was the Senior Vice-
President and General Counsel of ComputerLand Corporation (now Vanstar
Corporation) in Oakland, California. From 1985 to 1992, Mr. Helm was the
Managing Partner of the California law firm of Helm, Purcell & Wakeman. He
founded the firm in 1985. From May to October of 1996, Mr. Helm was also the
Managing Director of ComputerLand Europe, a 100-center computer retail business
with centers in 15 countries. Mr. Helm remains a Director of ComputerLand
Europe. Mr. Helm received his B.S. from Abilene Christian University and his
J.D. from Pepperdine University School of Law.
Dr. U'Ren was a founder of the Company and has been Director of Research
since its inception in 1996. From 1989 to 1996 he worked at Epoch
Pharmaceuticals, Inc. as its Director of Systems Integration. From 1974 to 1982,
Dr. U'Ren was an Assistant Scientist at Sydney Farber Cancer Institute and from
1982 to 1986, he was the Director of Protein Chemistry at Genex Corporation. Dr.
U'Ren was then employed as a Project Manger at Battelle from 1986 to 1989. Dr.
U'Ren received his Ph.D. in Biochemistry from the University of Washington and
completed his postdoctorate study in Pharmacology at Yale University.
Dr. Haydock was a founder of the Company and has been the Manager of
Product Development since its inception in 1996. Before joining the Company, he
worked at Epoch Pharmaceuticals, Inc. as a Research
40
<PAGE> 42
Scientist initially and then as a Group Leader of Product Development. Before
working at Epoch, Dr. Haydock was a Senior Scientist in the Molecular Biology
Department of Baxter Diagnostics, Inc., Bartels Division. Dr. Haydock received
his Ph.D. in Biochemistry from Purdue University.
Ms. Howard was a founder of the Company and has been the Director of
Operations since its inception in 1996. Since 1991, she was employed at Epoch
Pharmaceuticals, Inc. as Manager, Regulatory Compliance and Quality Assurance.
She was promoted to Director of Quality Systems in 1994 and was promoted to
Director of Operations in 1996. She has been developing and implementing GMP
compliance programs for biotechnology and medical device manufacturers for over
10 years and Quality Assurance programs for over 15 years. She has developed
Quality Control/Assurance compliance systems for several start-up companies,
including TechAmerica Diagnostics, Gen-Probe and Quidel. She developed
regulatory compliance policies, including FDA, OSHA and EPA for the University
of Maryland Technology Assistance Program, under which several small companies
such as Digene, Biotrax and Cytofluidics evolved. Ms. Howard received her M.S.
in Environmental Science from California State University-Fullerton.
Mr. Waters has been a member of the Board of Directors since the Company's
inception in 1996. From 1977 to 1988, Mr. Waters was employed by ComputerLand
Corporation (now Vanstar Corporation). In 1988, he retired from his position as
Chief Executive Officer, a position he held for 3 years. From 1991 to 1992, he
operated his own consulting company and worked with companies such as AT&T,
Williams Sonoma and Celluland. In 1992, he joined Power Up Software as its
President and Chief Executive Officer. After selling that company in 1993, he
joined MicroAge, Inc. as its president. Mr. Waters currently serves on the Board
of Directors of Michael Jordan Golf Inc., Access Micro Systems and Casablanca
Works.
Mr. Faber has served as Chairman of the Board of Directors of the Company
since January 1997. Mr. Faber currently consults with small, emerging companies
on a variety of corporate matters, including turnaround strategies. From 1991 to
1992, he served as President and Chief Executive Officer of SuperCuts, Inc.,
where he was responsible for organizing and executing an initial public
offering. From 1990 until the company was sold in 1991, Mr. Faber served as Vice
Chairman and Chief Executive Officer of Dataphaz. In 1976, Mr. Faber was the
founding President of ComputerLand Corporation. He retired from ComputerLand
Corporation in 1983, but rejoined that company in 1985 to serve as Chairman and
Chief Executive Officer until 1987 when the company was sold. He remained as
Vice Chairman until 1990. Mr. Faber currently serves on the Boards of Integrated
Circuits Engineering Corp. and Cotelligent Systems.
The Company's Board of Directors consists of such number as may be fixed
from time to time by resolution of the Board of Directors. The Company currently
has authorized up to four directors with four currently serving. Each Director
holds office until the next annual meeting of stockholders or until his
successor is duly elected and qualified.
COMMITTEES OF THE BOARD
The Compensation Committee consists of Messrs. Waters and Faber. The
Compensation Committee establishes salaries, incentives, and other forms of
compensation for officers and other employees, administers incentive
compensation and benefit plans, including the Company's 1997 Stock Plan, 1997
Employee Stock Purchase Plan and 1997 Director Stock Option Plan, and recommends
policies relating to such plans.
The Audit Committee consists of Messrs. Waters and Faber. The Audit
Committee will meet periodically with management and the Company's independent
auditors and will review the results and scope of the audit and other services
provided by the Company's independent auditors, the Company's internal auditing
procedures, and the adequacy of internal controls.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was formed in February 1997. The
Committee currently consists of Kenneth Waters and Edward Faber. No interlocking
relationship exists between the Company's Board of Directors Compensation
Committee and the Board of Directors or Compensation Committee of any other
Company, nor has such interlocking relationship existed in the past.
41
<PAGE> 43
COMPENSATION OF DIRECTORS
The Company's policy is not to pay cash compensation to directors who are
employees or consultants of the Company for their services as directors. The
Company's compensation policy for non-employee directors is to pay each
qualified director $1,000 per board meeting attended, up to a maximum of six
meetings per calendar year. The Chairman of the Board of Directors, in the event
such person is not an employee or consultant, will be paid $1,000 per month as
compensation for board duties in lieu of directors fees. The Company also
reimburses reasonable out-of-pocket expenses of directors for attendance at
meetings.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except liability for
(i) any breach of their duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) unlawful payments of dividends or unlawful
stock repurchases or redemptions, or (iv) any transaction from which the
director derived an improper personal benefit. Such limitation of liability does
not apply to liabilities arising under the federal securities laws and does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers and may indemnify its other officers and employees and
other agents to the fullest extent permitted by law. The Company believes that
indemnification under its Bylaws covers at least negligence and gross negligence
on the part of indemnified parties. The Company's Bylaws also permit it to
secure insurance on behalf of any officer, director, employee or other reagent
for any liability arising out of his or her actions in such capacity, regardless
of whether the Bylaws permit such indemnification.
The Company has entered into agreements to indemnify its directors and
officers, in addition to the indemnification provided for in the Company's
Bylaws. These agreements, among other things, indemnify the Company's directors
and executive officers for certain expenses (including attorneys' fees),
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of the Company,
arising out of such person's services as a director or executive officer of the
Company, any subsidiary of the Company or any other Company or enterprise to
which the person provides services at the request of the Company.
The Company is in the process of purchasing insurance on behalf of any
officer or director for any liability arising out of his or her actions in such
capacity. The Company believes that indemnification agreements and insurance are
necessary to attract and retain qualified directors and executive officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding that might result in a claim for such indemnification.
EXECUTIVE COMPENSATION
None of the Company's officers earned in excess of $100,000 for the year
ended September 30, 1996. Ronald R. Helm, the Chief Executive, and Allan G.
Cochrane, the President, Chief Operating Officer and Chief Financial Officer,
are each currently being compensated at an annual rate of $160,000 during fiscal
1997.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Ronald R.
Helm, Allan G. Cochrane, Paul Haydock, Judith Howard and Jack U'Ren providing an
annual base salary of $160,000, $160,008, $70,008, $70,008 and $89,472,
respectively, and certain other customary benefits, including disability
payments and participation in all Company stock, health and benefit plans
available to other executive officers and employees. Each of the employment
agreements terminate on September 30, 1999, unless earlier terminated by either
the employee or the Company. Under each of the employment agreements,
42
<PAGE> 44
either the employee or the Company may terminate the employee's employment with
or without cause, however, if the employee is terminated with cause, the
employee is entitled to receive monthly payment of employee's base salary for
one year after such termination date. In the event of a termination without
cause by the Company within six to twelve months following a change of control,
Mssrs. Cochraine and Helm are entitled to receive yearly payments equal to twice
their base salaries.
OPTION GRANTS DURING FISCAL 1996
The Company did not grant any stock options, to the Named Executive
Officers or otherwise, during the fiscal year ended September 30, 1996.
OPTION EXERCISES AND HOLDINGS
No options were exercised by the Named Executive Officers during fiscal
year ended September 30, 1996. No stock appreciation rights were granted during
such year.
EMPLOYEE BENEFIT PLANS
1997 Stock Plan. The Company's 1997 Stock Plan (the "1997 Plan") was
adopted by the Board of Directors in February 1997 and approved by the
stockholders in February, 1997. After the closing of this offering, the Company
will grant option and stock purchase rights to employees and consultants
pursuant to the 1997 Plan. A total of 375,000 shares of Common Stock has been
reserved for issuance pursuant to the 1997 Plan. As of February 12th, 1997 no
options had been granted and no shares had been issued under the 1997 Plan. The
1997 Plan is administered by the Board of Directors, except that with respect to
option grants to executive officers, it is administered by the Compensation
Committee of the Board of Directors. No employee may be granted options to
purchase more than 100,000 shares of Common Stock in any fiscal year of the
Company, provided, however, that in connection with an employee's initial
employment, an additional 100,000 shares may be granted which will not count
against the annual limitation. Only employees may receive incentive stock
options, which are intended to qualify for certain beneficial tax treatment;
nonemployees receive nonstatutory stock options, which do not provide for such
treatment. The exercise price of incentive stock options under the 1997 Plan
must be at least equal the fair market value of the Common Stock on the date of
grant, provided, however, that incentive stock options granted to an employee
who owns stock representing more than 10% of the voting power of all classes of
stock of the Company or any Parent or Subsidiary (a "10% Stockholder") must have
an exercise price equal to 110% of such fair market value. The exercise price of
nonstatutory stock options under the 1997 Plan will be determined by the Board
of Directors or the Compensation Committee. Options granted under the 1997 Plan
typically become exercisable at a rate of 25% of the shares subject to the
option at the end of the fiscal year following the date of grant and
approximately 2% of the shares subject to the option at the end of each calendar
month thereafter until fully vested at the end of four years. In addition,
incentive stock options granted to 10% Stockholders must be exercised within
five years after the grant date, and other incentive stock options must be
exercised within ten years after the grant date. In the case of stock purchase
rights, unless the Board of Directors or the Compensation Committee determines
otherwise, the restricted stock purchase agreement shall provide that the
Company has a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's employment with the Company for any reason
(including death or disability). The purchase price for shares repurchased
pursuant to the restricted stock purchase agreement shall be the original price
paid by the purchaser. The repurchase option shall lapse at a rate determined by
the Board of Directors or the Compensation Committee. In the event of a merger
of the Company with or into another corporation, or the sale of all or
substantially all of the assets of the Company, then all shares subject to
options granted under the 1997 Plan will become fully vested and exercisable if
the options are not assumed or equivalent options are not substituted by the
successor corporation. The Board of Directors may amend or modify the 1997 Plan
at any time. The 1997 Plan will terminate in January 2007, unless sooner
terminated by the Board of Directors.
1997 Director Stock Option Plan. The Company's 1997 Director Stock Option
Plan (the "Director Plan") was adopted in February 1997 and was approved by the
stockholders in February 1997. A total of 150,000 shares of Common Stock has
been authorized for issuance under the Director Plan. Each
43
<PAGE> 45
nonemployee director will automatically be granted a nonstatutory option to
purchase 10,000 shares of Common Stock on the date of this offering or, in the
future, on the date on which such person first becomes a director. On the date
of each annual meeting of stockholders of the Company after approval of the
Director Plan, each nonemployee director, who has served on the Board of
Directors for at least the preceding six months, will automatically receive an
additional nonstatutory option to purchase 2,500 shares of Common Stock. In the
event of a merger of the Company with or into another corporation or the sale of
substantially all of the Company's assets, outstanding options must be assumed
or an equivalent option substituted by any successor corporation, or they will
become fully vested and exercisable. The exercise price of all options granted
under the Director Plan after the date of this Prospectus will be equal to the
fair market value of the Common Stock on the date of grant. The initial option
to purchase 10,000 shares of Common Stock granted under the Director Plan will
vest in installments cumulatively as to 25% of the shares subject to the option
on each anniversary of the date of the grant. Each option to purchase 2,500
shares of Common Stock granted under the Director Plan on the date of each
annual meeting of stockholders of the Company will vest as to 100% of the shares
subject to such option on the anniversary of the date of the grant, provided
that the individual continues to serve as a director on such date. Each option
granted under the Director Plan shall be exercisable only while the nonemployee
director remains a director of the Company. All such options will expire ten
years from the date of grant unless terminated sooner pursuant to the provisions
of the Director Plan. The Board may amend the Director Plan at anytime. The
Director Plan will terminate in December 2006.
1997 Employee Stock Purchase Plan. The Company's 1997 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Company's Board of
Directors in February 1997 and was approved by the Company's stockholders in
February 1997. The Purchase Plan is intended to qualify under Section 423 of the
Code. The Company has reserved 100,000 shares of Common Stock for issuance under
the Purchase Plan. Under the Purchase Plan, an eligible employee may purchase
shares of Common Stock from the Company through payroll deductions of up to 15%
of his or her compensation, at a price per share equal to 85% of the lower of
(i) the fair market value of the Company's Common Stock on the first day of an
offering period under the Purchase Plan or (ii) the fair market value of the
Common Stock on the last day of an offering period (an "Exercise Date"). Unless
the Board of Directors or its committee determines otherwise, each offering
period will run for 24 months and will be divided into four consecutive purchase
periods of approximately six months. The first offering period and the first
purchase period will commence on the date of this prospectus. New 24-month
offering periods will commence approximately every six months thereafter.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically on termination of
employment with the Company. Any employee who is customarily employed for at
least 20 hours per week and more than five months per calendar year is eligible
to participate in the Purchase Plan. In the event of a merger of the Company
with or into another corporation or the proposed sale of all or substantially
all of the Company's assets, any purchase periods then in progress shall be
shortened by setting a new Exercise Date which shall be before the date of the
Company's proposed sale or merger, and any offer periods then in progress shall
end on the new Exercise Date.
CERTAIN TRANSACTIONS
Five members of the Company's management and key employee group have lent
the Company a total of $10,500 evidenced by 12-month notes bearing interest at a
rate of 8% per annum. The notes will become due in October 1997.
The Company has entered into a management consulting agreement with Kenneth
R. Waters, a director of the Company. The total compensation under the agreement
is $50,000, payable at $1,000 per month for 30 months beginning in November 1996
and $20,000 paid upon successful completion of this offering.
All future transactions, including any loans from the Company to its
officers, directors, principal stockholders of affiliates, will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested members of the Board of Directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.
44
<PAGE> 46
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of February 12, 1997 and as adjusted
to reflect the sale of Common Stock offered hereby for (i) each person who is
known by the Company to beneficially own more than 5% of the Common Stock, (ii)
each of the Company's directors, (iii) each of the Named Executive Officers, and
(iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(4)
SHARES ------------------------
BENEFICIALLY PRIOR TO AFTER
BENEFICIAL OWNER(1) OWNED(2) OFFERING OFFERING(3)
- ------------------------------------------------------------ ------------ -------- -----------
<S> <C> <C> <C>
Ronald R. Helm.............................................. 310,000 29.5% 15.1%
Allan G. Cochrone........................................... 425,500 40.5% 20.8%
Paul Haydock, Ph.D.......................................... 94,500 9% 4.6%
Judith Howard............................................... 94,500 9% 4.6%
Jack U'Ren, Ph.D............................................ 115,500 11% 5.6%
Kenneth R. Waters, J.D.(5).................................. 40,000 3.7% 1.9%
Edward E. Faber(6).......................................... 20,000 1.9% *
Grant S. Kesler(7).......................................... 141,000 11.8% 6.4%
3737 Birch Street, #300
Newport Beach, California 92660
Jallow International, Ltd.(8)............................... 600,000 36.4% 22.6%
2530 Park Oak Court
Los Angeles, California 90068-2536
R.W. Engh & Associates (9).................................. -- -- --
210 North Central Avenue, Suite 100
Glendale, California 91201
Elgin Williams(10).......................................... 65,000 5.8% 3.1%
- ---------------
All directors and executive officers as a group (7
persons)(11)........................................... 1,100,000 100% 52.4%
</TABLE>
- ---------------
* Represents benefical ownership of less than one percent of the Common Stock.
(1) Unless otherwise noted, the address for the stockholders listed above is
1725 220th Street SE, Bothell, Washington 98021.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options or warrants held by that person
that are currently exercisable or exercisable within 60 days of the date
set forth above are deemed outstanding. Except as indicated in the
footnotes to this table and as provided pursuant to applicable community
property laws, the stockholders named in the table have sole voting and
investment power with respect to the shares set forth opposite such
stockholder's name.
(3) Assumes no exercise of the Underwriters' over-allotment option.
(4) Percentage of beneficial ownership is based on 1,050,000 shares of Common
Stock Outstanding prior to the offering and 2,050,000 shares of Common
Stock outstanding after completion of this offering.
(5) Includes 40,000 shares issuable upon exercise of Warrants exercisable within
60 days of the date set forth above.
(6) Includes 10,000 shares issuable upon exercise of Warrants exercisable within
60 days of the date set forth above.
(7) Includes 107,000 shares issuable upon exercise of Warrants and 34,000 shares
issuable upon exercise of Options exercisable within 60 days of the date
set forth above.
(8) Includes 250,000 shares issuable upon exercise of Warrants and 350,000
shares issuable upon conversion of Debentures exercisable within 60 days of
the date set forth above.
45
<PAGE> 47
(9) Includes shares issuable upon exercise of Warrants and
shares issuable upon exercise of Options exercisable within 60
days of the date set forth above.
(10) Includes 34,000 shares issuable upon exercise of Warrants and 31,000 shares
issuable upon exercise of Options exercisable within 60 days of the date
set forth above.
(11) Includes 50,000 shares issuable upon exercise of Warrants exercisable
within 60 days of the date set forth above.
DESCRIPTION OF SECURITIES
The Company is a Delaware corporation and its affairs are governed by its
Amended and Restated Certificate of Incorporation ("Certificate of
Incorporation") and Bylaws and by the Delaware General Corporation Law. The
following description of the Company's capital stock is qualified in all
respects by reference to the Company's Certificate of Incorporation and Bylaws,
which have been filed as exhibits to the Registration Statement of which this
Prospectus forms a part.
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, $0.001 par value, and 2,000,000 shares of Preferred Stock
$0.001 par value. The Common Stock and Warrants offered hereby may only be
purchased together in this offering on the basis of one share of Common Stock
and one Warrant. The Common Stock and Warrants will be immediately separable and
will not be listed for trading as units.
COMMON STOCK
As of February 12, 1997, there were 1,050,000 shares of Common Stock
outstanding held of record by approximately five stockholders.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding shares of Preferred Stock,
the holders of Common Stock are entitled to receive ratably such dividends, if
any, as may be declared by the Board of Directors out of funds legally available
for the payment of dividends. See "Dividend Policy." In the event of
liquidation, dissolution or winding up of affairs of the Company, the holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and liquidation preferences of any outstanding shares of
Preferred Stock. Holders of Common Stock have no preemptive rights or rights to
convert their Common Stock into any other securities. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are fully paid and non-assessable, and the shares of Common
Stock to be issued upon completion of this offering will be fully paid and
non-assessable.
COMMON STOCK PURCHASE WARRANTS
In connection with this offering, the Company will issue 1,000,000
Warrants. The Warrants are subject to the terms and conditions of a Warrant
Agreement between the Company and American Stock Transfer & Trust Company, as
Warrant Agent. The following description of the Warrants is qualified in all
respects by the Warrant Agreement, which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. The shares of the
Company's Common Stock underlying the Warrants, when issued upon exercise
thereof and payment of the purchase price, will be fully paid and nonassessable.
Each Warrant entitles the holder to purchase one share of Common Stock at
any time during the five years following the date of this Prospectus for $6.50,
subject to adjustment in certain circumstances, unless earlier redeemed, at
which time the Warrants will expire. The Warrants are redeemable in whole and
not in part by the Company upon 30 days notice at a price of $.10 per Warrant,
provided that the closing prices of the Common Stock have averaged at least
$9.00 per share for a period of any 20 consecutive trading days ending on the
third day prior to the day on which the Company mails the notice of redemption
to the Warrant holders. In the event the Company gives notice of its intention
to redeem the Warrants, a holder would be forced to either exercise his Warrant
within 30 days of the notice of redemption or accept the redemption
46
<PAGE> 48
price. The holders of the Warrants will have exercise rights until the close of
business on the date fixed for the redemption thereof. The number and kind of
securities or other property for which the Warrants are exercisable are subject
to adjustment upon the occurrence of certain events, including mergers, stock
dividends, stock splits, and reclassifications. Holders of Warrants have no
voting, dividend, or other rights as stockholders of the Company with respect to
the shares underlying the Warrants, unless and until the Warrants are exercised.
The Warrants may be exercised by filling out and signing the appropriate
form on the Warrants and mailing or delivering the Warrants to the Warrant Agent
in time to reach the Warrant Agent by the expiration date, accompanied by
payment in full of the exercise price for the Warrants being exercised in United
States funds (in cash or by certified check or bank draft payable to the Warrant
Agent). Common Stock certificates will be issued as soon as practicable after
exercise and payment of the exercise price as described above.
REPRESENTATIVE'S WARRANTS
The Company has agreed, upon completion of this offering, to sell to the
Representative for $.001 per warrant, the Representative's Warrants to purchase
100,000 shares of Common Stock and 100,000 Underlying Warrants. The
Representative's Warrants will be exercisable for a period of four years
commencing one year after the date of this Prospectus at a price of $6.50 per
share. In addition, the Company will provide certain demand and piggyback
registration rights in connection with the Representative's Warrants. See
"Underwriting."
EXISTING WARRANTS
In connection with the issuance of the Debenture (defined below), the
Company issued warrants to purchase 315,000 shares of Common Stock exercisable
at $3.00 per share and expiring on October 2, 2006 Holders of the warrants do
not possess any rights as Stockholders of the Company prior to exercise.
PREFERRED STOCK
The Board of Directors has the authority, without action by the
stockholders, to designate and issue Preferred Stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the Common Stock. It is not possible
to state the actual effect of the issuance of any shares of Preferred Stock upon
the rights of holders of the Common Stock until the Board of Directors
determines the specific rights of the holders of such Preferred Stock. However,
the effects might include, among other things, restricting dividends on the
Common Stock, diluting the voting power of the Common Stock, impairing the
liquidation rights of the Common Stock and delaying or preventing a change in
control of the Company without further action by the stockholders. The Company
has no present plans to issue any shares of Preferred Stock.
CONVERTIBLE DEBT SECURITIES
The Company has outstanding a Convertible Subordinated Debenture in the
principal amount of $600,000 due on September 30, 2006, (the "Debenture"). The
Debenture bears interest at a rate of 8% per annum, payable quarterly, and is
convertible at any time into shares of Common Stock at the rate of $1.715 per
share (the "Conversion Rate"), subject to adjustment in the event the initial
public offering price is less than $6.00 per share. The Conversion Rate shall be
equal to 28.6% of the initial public offering price per share. Assuming an
initial public offering price of $6.00 per share, the Debenture is convertible
into 350,000 shares.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
47
<PAGE> 49
LISTING
The Company applied for quotation and trading of its Common Stock and
Warrants on the Nasdaq SmallCap Market under the symbols "SGEN" and "SGENW,"
respectively, and on the Boston Stock Exchange under the symbols and ,
respectively.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of
the Company. Therefore, future sales of substantial amounts of Common Stock in
the public market could adversely affect market prices prevailing from time to
time. Furthermore, since only a limited number of shares will be available for
sale shortly after this offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of this offering, the Company will have outstanding
approximately 2,050,000 shares of Common Stock. Of these outstanding shares of
Common Stock, the 1,000,000 shares sold in this offering will be freely
tradeable without restriction or further registration under the Securities Act,
unless purchased by "affiliates" of the Company as that term is defined in Rule
144 under the Securities Act. The remaining 1,050,000 shares of Common Stock
held by existing stockholders were issued and sold by the Company in September,
1996 in reliance on exemptions from the registration requirements of the
Securities Act, and are "restricted securities" as that term is defined in Rule
144 under the Securities Act ("Restricted Shares"). Restricted Shares may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rules 144, 144(k) or 701 promulgated under the
Securities Act, which are summarized below. None of the Restricted shares will
be eligible for sale pursuant to Rules 144, 144(k) or 701 prior to September,
1988. Sales of the Restricted Shares in the public market, or the availability
of such shares for sale, could adversely affect the market price of the Common
Stock.
Shortly after this offering, the Company intends to file a registration
statement under the Securities Act covering shares of Common Stock reserved for
issuance under the 1997 Stock Plan, 1997 Director Option Plan or 1997 Employee
Purchase Plan. Based upon the number of shares reserved for future issuance
under all such plans, such registration statement would cover approximately
625,000 shares. This registration statement will automatically become effective
upon filing. Accordingly, shares registered under such registration statement
will, subject to Rule 144 volume limitations applicable to affiliates of the
Company, be available for sale in the open market immediately following the
expiration of lockup agreements.
48
<PAGE> 50
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representative, Dickinson & Co., have
severally agreed to purchase from the Company the following respective numbers
of shares of Common Stock and Warrants at the public offering price, less the
underwriting discounts and commissions, set forth on the cover page of this
Prospectus.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF
OF COMMON STOCK WARRANTS
UNDERWRITER TO BE PURCHASED TO BE PURCHASED
- ---------------------------------------------------------------- ---------------- ---------------
<S> <C> <C>
Dickinson & Co..................................................
Total................................................. 1,000,000 1,000,000
========= =========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all Securities offered hereby if any are purchased.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the Securities to the public at the public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such price
less a concession not in excess of $ per share of Common Stock and
$ per Warrant. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share of Common Stock and
$ per Warrant. After the initial public offering, the public offering
price, concessions and other selling terms may be changed by the Representative.
The Company has agreed to pay underwriting discounts and commissions in the
aggregate of 10% of the initial public offering price of the Securities offered
hereby. The Company also has agreed to reimburse the Representative's expenses
on a non-accountable basis in the amount of 3% of the gross proceeds received
from the sale of the Securities, including any Securities sold to cover
over-allotments, if any. Any such expenses in excess of the expense allowance
will be borne by the Underwriters. To date, the Company has advanced the
Representative $ with respect to non-accountable expenses.
The Company has granted to the Underwriters an option, exercisable not
later than 15 days after the date of this Prospectus, to purchase up to 150,000
additional shares of Common Stock and 150,000 additional Warrants at the public
offering price, less the underwriting discounts and commissions set forth on the
cover page of this Prospectus. The Underwriters may exercise such option only to
cover over-allotments, if any.
The Company has agreed, upon completion of this offering, to sell to the
Representative or its designees, for $0.001 per Warrant, Representative's
Warrants to purchase 100,000 shares of Common Stock and 100,000 Underlying
Warrants. The terms and conditions of the Underlying Warrants are substantially
identical to those of the Warrants offered hereby. The Representative's Warrants
will be exercisable for a four-year term, commencing one year after the date of
this Prospectus, at an exercise price equal to 120% of the initial public
offering price of the Securities offered hereby. The Representative's Warrants
will be restricted from sale, transfer, assignment or hypothecation except to
the Underwriters, members of the selling group, and persons
49
<PAGE> 51
who are officers or partners of the Underwriters or members of the selling
group, and except in certain other limited circumstances.
The Representative's Warrants will give the holders an opportunity to
profit from a rise in the market price of the Company's Common Stock to the
extent that the market price exceeds the exercise price of the Representative's
Warrants. Any profit realized by the Underwriters upon the sale of the
Representative's Warrants or the securities issuable thereunder may be deemed to
be additional underwriting compensation. If the Representative's Warrants are
exercised, the interest of the Company's stockholders will be diluted. It may be
more difficult for the Company to raise additional capital while the
Representative's Warrants are outstanding, and the holders of the Underwriter's
Warrants may be expected to exercise them when the Company, in all likelihood,
would be able to obtain needed additional capital by a new offering of
securities on terms more favorable than those provided for by the
Representative's Warrants.
The Company has granted to the holders of the Representative's Warrants and
the underlying securities certain rights with respect to registration under the
Securities Act of the securities underlying the Representative's Warrants. For a
period of four years commencing one year following the date of this Prospectus,
either the Representative or the holders of not less than a majority of the
Common Stock issued or issuable upon exercise of the Representative's Warrants
and Underlying Warrants may require the Company to effect one registration under
the Securities Act with respect to the Common Stock underlying the
Representative's Warrants, the Underlying Warrants, and the Common Stock
underlying the Underlying Warrants, and the Company is required to use its
reasonable best efforts to effect such registration. In addition, subject to
certain limitations, in the event the Company proposes to register any of its
securities under the Securities Act during the four-year period commencing one
year after the date of this Prospectus, the holders of the Representative's
Warrants, the Underlying Warrants and the Common Stock underlying the
Representative's Warrants and the Underlying Warrants are entitled to notice of
such registration and may elect to include proposed dispositions of the Common
Stock underlying the Representative's Warrants, the Underlying Warrants and the
Common Stock underlying the Underlying Warrants in such registration. The
registration of securities pursuant to the registration rights applicable to the
Representative's Warrants may impede future financing.
Directors, officers and certain principal stockholders of the Company
owning a total of 1,050,000 shares of Common Stock will sign lock-up agreements
under which such holders will agree not to offer, sell or otherwise dispose of
any of their shares of Common Stock that might otherwise be eligible for sale
for a period of 12 months after the date of this Prospectus without the prior
written consent of the Representative. See "Description of Securities -- Shares
Eligible for Future Sale."
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company 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.
The Representative has advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
Prior to this offering, there has been no public market for the Company's
Common Stock or the Warrants. The initial public offering price for the
Securities has been determined by negotiations between the Company and the
Representative of the Underwriters. Among the factors considered in such
negotiations were prevailing market conditions, the history and prospects of the
Company, the present state of the Company's development, the industry in which
it competes, an assessment of the Company's management, the market price for
securities of comparable companies at the time of the offering, and other
factors deemed relevant.
50
<PAGE> 52
LEGAL OPINIONS
Certain legal matters with respect to the legality of the issuance of the
shares of Common Stock and Warrants offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters will be passed upon for the Underwriters
by O'Conner, Cavanagh, Anderson, Killingsworth & Beshares, a professional
corporation, Phoenix, Arizona.
EXPERTS
The financial statements of Saigene (a development stage company) as of
September 30, 1996 and December 31, 1996 and for the period from September 19,
1996 (inception) through December 31, 1996, September 19, 1996 (inception)
through September 30, 1996 and the three months ended December 31, 1996, have
been included herein and in the registration statement in reliance on the report
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of such firm as experts in accounting
and auditing.
The report of KPMG Peat Marwick LLP covering the September 30 and December
31, 1996 financial statements contains an explanatory paragraph that states that
the Company's losses from operations and limited capital resources raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of that uncertainty.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement on Form SB-2 under the Securities Act
with respect to the shares of Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. 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 filed therewith.
Statements contained in this Prospectus as to the contents of any contract or
any other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. A copy of the Registration Statement, and the
exhibits and schedules thereto, may be inspected without charge at the public
reference facilities maintained by the Securities and Exchange Commission in
Room 104, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of all or any part of the Registration Statement may be obtained from the
Public Reference Section of the Commission, Washington D.C. 20548 upon payment
of the fees prescribed by the Commission.
51
<PAGE> 53
SAIGENE CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of KPMG Peat Marwick LLP, Independent Auditors................................. F-2
Balance Sheets as of September 30, 1996 and December 31, 1996......................... F-3
Statements of Operations for the period from September 19, 1996 (inception) through
December 31, 1996, September 19, 1996 (inception) through September 30, 1996 and the
three months ended December 31, 1996................................................ F-4
Statements of Shareholders' Deficit for the period from September 19, 1996 (inception)
through September 30, 1996, and the three months ended December 31, 1996............ F-5
Statements of Cash Flows for the period from September 19, 1996 (inception) through
December 31, 1996, September 19, 1996 (inception) through September 30, 1996 and the
three months ended December 31, 1996................................................ F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 54
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Saigene Corporation:
We have audited the accompanying balance sheets of Saigene Corporation (a
development stage company) as of September 30, 1996 and December 31, 1996, and
the related statements of operations, stockholders' deficit and cash flows for
the periods from September 19, 1996 (inception) through December 31, 1996,
September 19, 1996 (inception) through September 30, 1996 and the three months
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Saigene Corporation (a
development stage company) as of September 30, 1996 and December 31, 1996, and
the results of its operations and its cash flows for the periods from September
19, 1996 (inception) through December 31, 1996, September 19, 1996 (inception)
through September 30, 1996 and the three months ended December 31, 1996, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 8 to the
financial statements, the Company's losses from operations and limited capital
resources raise substantial doubt about the Company's ability to continue as a
going concern. As more fully described in note 8 to the financial statements,
the Company intends to improve its cash position through an initial public
offering of its common stock. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Seattle, Washington
January 10, 1997, except as to note 9,
which is as of February 12, 1997
F-2
<PAGE> 55
SAIGENE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1996
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................ $ -- $ 198,302
Receivables..................................................... -- 47,283
Stockholder receivables......................................... 10,500 --
-------- ----------
Total current assets.................................... 10,500 245,585
Property and equipment, net of accumulated depreciation of $1,907
at December 31, 1996............................................ 4,800 102,893
Intangible assets, net of accumulated amortization of $4,167 at
December 31, 1996............................................... -- 995,833
Deferred offering costs........................................... -- 57,154
-------- ----------
Total assets............................................ $ 15,300 $1,401,465
-------- ----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term borrowings, including $10,500 from stockholders at
December 31, 1996............................................ -- 1,370,000
Accounts payable and accrued expenses........................... 56,567 64,578
-------- ----------
Total current liabilities............................... 56,567 1,434,578
Long-term debt.................................................... -- 220,000
-------- ----------
Total liabilities....................................... 56,567 1,654,578
-------- ----------
Stockholders' deficit:
Preferred stock, .001 par value. Authorized 2,000,000 shares; no
shares issued or outstanding................................. -- --
Common stock, .001 par value. Authorized 20,000,000 shares;
issued and outstanding 1,050,000 shares...................... 1,050 1,050
Additional paid-in capital...................................... 9,450 9,450
Deficit accumulated during the development stage................ (51,767) (263,613)
-------- ----------
Total stockholders' deficit............................. (41,267) (253,113)
Commitments, contingencies and subsequent events
-------- ----------
$ 15,300 $1,401,465
======== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 56
SAIGENE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
SEPTEMBER 19, SEPTEMBER 19,
1996 1996 THREE
(INCEPTION) (INCEPTION) MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996
------------- ------------- ------------
<S> <C> <C> <C>
Research contract revenue................................ $ 47,283 $ -- $ 47,283
Operating expenses:
Research and development............................... 131,370 12,283 119,087
General and administrative............................. 163,648 39,484 124,164
--------- --------- ---------
Total operating expenses....................... 295,018 51,767 243,251
--------- --------- ---------
Loss from operations........................... (247,735) (51,767) (195,968)
Interest expense......................................... (15,431) -- (15,431)
Other.................................................... (447) -- (447)
--------- --------- ---------
Net loss....................................... $(263,613) $ (51,767) $ (211,846)
========= ========= =========
Net loss per common share................................ $ (.04) $ (.15)
========= =========
Weighted average common shares outstanding............... 1,457,083 1,457,083
========= =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 57
SAIGENE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE TOTAL
------------------ PAID-IN DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL STAGE DEFICIT
--------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Sale of common stock at inception........... 1,050,000 $1,050 $9,450 $ -- $ 10,500
Net loss for the period September 19, 1996
(inception) through September 30, 1996.... -- -- -- (51,767) (51,767)
--------- ------ ------ --------- ---------
Balances at September 30, 1996.............. 1,050,000 1,050 9,450 (51,767) (41,267)
Net loss for the three months ended December
31, 1996.................................. -- -- -- (211,846) (211,846)
--------- ------ ------ --------- ---------
Balances at December 31, 1996............... 1,050,000.. $1,050 $9,450 $ (263,613) $(253,113)
========= ====== ====== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 58
SAIGENE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
SEPTEMBER 19, SEPTEMBER 19,
1996 1996
(INCEPTION) (INCEPTION) THREE MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996
------------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................... $ (263,613) $ (51,767) $ (211,846)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 6,074 -- 6,074
Changes in operating assets and liabilities:
Accounts payable and accrued expenses......... 59,778 51,767 8,011
Receivables................................... (36,783) -- (36,783)
---------- -------- ----------
Net cash used in operating activities...... (234,544) -- (234,544)
---------- -------- ----------
Cash used in investing activities -- acquisition of
property and equipment............................. (50,000) -- (50,000)
---------- -------- ----------
Cash flows from financing activities:
Proceeds from short-term borrowings................ 335,500 -- 335,500
Proceeds from long-term borrowings................. 220,000 -- 220,000
Repayment of borrowings............................ (15,500) -- (15,500)
Deferred offering costs............................ (57,154) -- (57,154)
---------- -------- ----------
Net cash provided by financing
activities............................... 482,846 -- 482,846
---------- -------- ----------
Net increase in cash....................... 198,302 -- 198,302
Cash at beginning of period.......................... -- -- --
---------- -------- ----------
Cash at end of period................................ $ 198,302 $ -- $ 198,302
========== ======== ==========
Supplemental disclosure of cash flow
information -- cash paid during the period for
interest........................................... $ 4,500 $ -- $ 4,500
========== ======== ==========
Supplemental disclosures of noncash investing and
financing activities:
Increase in receivable for purchase of common
stock........................................... $ -- $ 10,500 $ --
Liability incurred for purchased equipment......... 4,800 4,800 --
Acquisition of diagnostic assets for notes payable:
Property and equipment.......................... 50,000 -- 50,000
Intangible assets............................... $ 1,000,000 $ -- $1,000,000
========== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 59
SAIGENE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1996
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
Saigene Corporation (Company) is a biotechnology company focused on
producing molecular based diagnostic tests in a portable and simple to use
format. The Company was formed September 19, 1996 and has a fiscal year-end of
September 30. As of December 31, 1996, the Company is considered to be in the
development stage as the Company has not generated significant revenues and
operations have primarily been focused on research and development and financing
operations.
(B) PROPERTY AND EQUIPMENT
Property and equipment are stated at allocated fair value. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the assets which are five years.
(C) INTANGIBLE ASSETS
Intangible assets, primarily including existing probe technologies, patent
applications, government grants and certain contracts and licenses, are stated
at fair value and are amortized using the straight-line method over 15 to 20
years. The Company assesses the recoverability of intangible assets by
determining whether the remaining balance can be recovered through forecasted
future operations. The amount of impairment, if any, is measured based on
projected future results discounted at a rate reflecting the Company's average
cost of funds.
(D) DEFERRED OFFERING COSTS
Deferred offering costs include costs incurred in connection with the
proposed initial public offering. Such costs have been capitalized and will be
charged against additional paid-in capital upon completion of the proposed
offering or will be expensed in the event the offering is unsuccessful.
(E) INCOME TAXES
Deferred income taxes are provided based on the estimated future tax
effects of temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
that are expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation allowance is
recorded for deferred tax assets when it is more likely than not that such
deferred tax assets will not be realized.
(F) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has financial instruments consisting of cash, receivables,
accounts payable, short-term borrowings and long-term debt. The Company has
determined the fair value of its financial instruments using available market
information and appropriate valuation methodologies. The fair value of the
Company's financial instruments approximates their carrying amount.
F-7
<PAGE> 60
SAIGENE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(G) LOSS PER SHARE
Loss per share is calculated by dividing net loss by the weighted average
number of common shares and dilutive common share equivalents outstanding.
Common share equivalents include unexercised stock options and warrants. Common
share equivalents issued during the 12 months immediately preceding the
anticipated date of the Company's initial public offering have been included in
the calculation of common and common equivalent shares as if they were
outstanding for all periods presented, even though it was a loss period where
the impact of the incremental shares is antidilutive, using the treasury stock
method and an assumed initial public offering price of $6 per share.
(H) STOCK COMPENSATION PLANS
The Company has adopted Financial Accounting Standards Board Statement No.
123, Accounting for Stock-Based Compensation, and has elected to continue
accounting for these types of equity instruments under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees. No grants have
been made to employees as of December 31, 1996.
(I) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) ACQUISITION OF DIAGNOSTIC ASSETS FROM EPOCH PHARMACEUTICALS, INC. (EPOCH)
In November 1995, Epoch sold assets and technology associated with its
diagnostic division to Becton-Dickinson for $8,510,000. The assets sold related
to Epoch's development, marketing and sale of diagnostic products which involve
the use of nucleic acid probes to detect and identify microorganisms in
biological samples under the names "Affirm VP," "Affirm VPIII," "Affirm DP,"
"Hybriquick" and "Isoquick" and included tangible personal property, interests
in certain contracts and other instruments, rights in permits and licenses, raw
materials and inventory, rights in customer lists, records and data, computer
software programs, goodwill and causes of action held by Epoch against third
parties. Effective November 26, 1996, the Company purchased certain remaining
diagnostic assets (the Assets) from Epoch related to the Company's focus of
producing molecular-based diagnostic tests. The Assets primarily included
tangible personal property, existing DNA probe technologies, patent
applications, government grants and certain contracts and licenses. The purchase
price for the assets was $1,100,000. Intangible assets of $1,000,000 were
recorded with respect to the acquisition. The Company made an initial payment of
$50,000. The remaining balance of $1,050,000 bears interest at 8%, payable in
monthly installments of $10,000 to March 31, 1997 or the closing of the
Company's next financing (including either a private placement or initial public
offering), whichever occurs first, at which time the remaining balance is due.
Between the time of the purchase by Becton-Dickinson and the purchase by
the Company, costs of approximately $520,000 were incurred by Epoch related to
the diagnostic assets purchased by the Company. Additionally, the Company has a
right of first refusal with Becton-Dickinson, expiring in June 1997, to acquire
a license to certain patent rights for use only for development and submission
of information for consideration by the United States Food and Drug
Administration in its review of an application for PMA for a periodontal
diagnostic product, a supply agreement for Becton-Dickinson processors and
reagent kits for use in
F-8
<PAGE> 61
SAIGENE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the development and submission and a license to the patent rights for use in
marketing, using and selling a periodontal diagnostic product.
(3) SHORT-TERM BORROWINGS
Short-term borrowings consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1996
------------- ------------
<S> <C> <C>
Note payable, interest of 8%, payable in monthly installments
of $10,000 through March 31, 1997 with remaining balance
due upon the earlier of the closing of the Company's next
financing (including either a private placement or initial
public offering) or March 31, 1997......................... $ -- $1,034,500
Note payable, interest of 14%, unpaid principal and interest
due in full upon the earlier of the closing of an initial
public offering or November 3, 1997........................ -- 250,000
Note payable, interest of 8%, payable upon the final funding
of the convertible subordinated debenture financing........ -- 75,000
Note payables to stockholders, interest of 8%, unpaid
principal and interest due on September 30, 1997........... -- 10,500
--- ----------
$ -- $1,370,000
=== ==========
</TABLE>
In connection with the issuance of the 14% note payable, the Company
committed to issue 25,000 shares of common stock at $.01 per share, which have
not been issued at December 31, 1996.
(4) LONG-TERM DEBT
Long-term debt consists of a $600,000 commitment for convertible
subordinated debentures bearing interest at 8% which is payable quarterly. If an
initial public offering is not declared effective by March 31, 1997, the Company
must pay an additional $15,000 per month until the initial public offering is
declared effective. Unpaid principal and interest is due in full on September
30, 2006. On November 15, 1996 and December 15, 1996, the Company received
$100,000 and $120,000, respectively, of proceeds from the financing with
$380,000 to be funded on or before February 28, 1997.
The convertible subordinated debentures can be converted into shares of
common stock unconditionally at any time at the rate of $1.715 per share. In
association with this financing, the Company issued a warrant for 250,000 shares
of common stock and a warrant for 65,000 shares of common stock both exercisable
at $3.00 per share expiring October 2, 2006. Both the conversion rate of the
convertible subordinated debentures and the exercise price of the 250,000
warrants are based on an assumed initial public offering price of $6.00 and have
antidilution provisions in the event the price of common stock in an initial
public offering is less than $6.00 per share. Also, an additional 225,000 shares
of common stock are to be issued at $.01 per share none of which have been
issued as of December 31, 1996. The Company granted "piggyback" registration
rights at the expense of the Company for both converted shares and the stock
purchase warrants subsequent to an initial public offering.
(5) CONSULTING AND EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with five employees
through September 1999. Annual base salaries total approximately $550,000 under
these agreements.
F-9
<PAGE> 62
SAIGENE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has entered into a management consulting agreement with Kenneth
R. Waters, a director of the Company. Total compensation under the agreement is
$50,000, payable at $1,000 per month for 30 months beginning in November 1996
and $20,000 payable upon completion of an initial public offering.
The Company entered into a consulting agreement with one of the lenders
associated with the convertible subordinated debentures. Total compensation
under the agreement is $60,000. Payment of $30,000 will be made upon completion
of the next financing and $30,000 by March 31, 1997.
(6) RESEARCH CONTRACTS
The Company has a collaborative relationship with the Monterey Bay Aquarium
Research Institute. In addition, the Company presently has three SBIR phase I
grants for Oral Spirochetes, Antibiotic Susceptibility Testing for Oral
Bacteria, and Rapid Automated DNA Probe Diagnostic Test for Malaria. The total
amount remaining to be awarded under these grants and collaborative relationship
is approximately $147,000.
The Company entered into an additional collaborative research agreement
with Monterey Bay Aquarium Research Institute, commencing in December 1996. The
agreement calls for the Company to supply its Universal Assay System and
manufacture reagents for the study of toxic algae. This new agreement is in
effect until March 1997 and provides for funding in the amount of $24,500.
(7) INCOME TAXES
There was no income tax benefit attributable to the net loss for the period
from inception through September 30, 1996 or the three months ended December 31,
1996 because of a valuation allowance established for the deferred tax asset
relating to the loss carryforward generated.
The tax effects of net operating loss carryforwards that give rise to a
deferred tax asset at September 30, 1996 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1996
------------- ------------
<S> <C> <C>
Deferred tax asset -- net operating loss carryforwards....... $ 17,601 $ 87,644
Less valuation allowance................................... (17,601) (87,644)
-------- --------
Net deferred tax assets............................ $ -- $ --
======== ========
</TABLE>
The net increase in the total valuation allowance was $17,601 and $70,043
for the period September 19, 1996 through September 30, 1996 and the three
months ended December 31, 1996, respectively. The increases were due to the
uncertainty of the utilization of the net operating loss carryforwards.
At December 31, 1996, the Company had net operating loss carryforwards of
$257,775 available to offset future taxable income, if any, which expire
beginning in 2011.
Ownership changes from the issuance of common stock in connection with the
Company's planned initial public offering may limit the amount of net operating
loss carryforwards that can be utilized annually to offset future taxable income
or tax liability.
(8) OPERATIONS AND FINANCING
The Company's financial statements have been prepared on the basis that the
Company will continue as a going concern.
The Company incurred net losses of $263,613 from September 19, 1996
(inception) through December 31, 1996 and has negative working capital in the
amount of $1,188,993 at December 31, 1996. The Company will be unable to
continue operations without additional financing.
F-10
<PAGE> 63
SAIGENE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company intends to improve its cash position through an initial public
offering of its common stock. The Company intends to offer for sale, as part of
the initial public offering, 1,000,000 shares of common stock at a price of
$6.00 per share. Management believes that the net proceeds from the offering
will provide sufficient funds to allow the Company to operate for 18 months.
(9) SUBSEQUENT EVENTS
In February 1997, the Company adopted the 1997 Stock Plan, 1997 Director
Stock Option Plan and the 1997 Employee Stock Purchase Plan.
1997 Stock Plan (Stock Plan). The Company will grant stock options and
stock purchase rights to employees and consultants pursuant to the Stock Plan. A
total of 375,000 shares of common stock have been reserved for issuance pursuant
to the Stock Plan. No options have been granted and no shares have been issued
under the Stock Plan. No employee may be granted options to purchase more than
100,000 shares of common stock in any fiscal year, provided, however, that in
connection with an employee's initial employment, an additional 100,000 shares
may be granted which will not count against the annual limitation. The exercise
price of incentive stock options must be at least equal to the fair market value
of the common stock on the date of grant, provided, however, that incentive
stock options granted to an employee who owns stock representing more than 10%
of the voting power of all classes of stock of the Company must have an exercise
price equal to 110% of such fair market value. Options granted under the Stock
Plan will typically become exercisable at a rate of 25% of the shares subject to
the option at the end of the fiscal year following the date of grant and
approximately 2% of the shares subject to the option at the end of each calendar
month thereafter until fully vested at the end of four years. Incentive stock
options granted to 10% stockholders must be exercised within five years after
the grant date, and other incentive stock options must be exercised within ten
years after the grant date.
1997 Director Stock Option Plan (Director Plan). A total of 150,000 shares
of common stock have been authorized for issuance under the Director Plan. Each
nonemployee director will automatically be granted a nonstatutory option to
purchase 10,000 shares of common stock on the date on which such person first
becomes a director. On the date of each annual meeting of stockholders of the
Company after approval of the Director Plan, each nonemployee director will
automatically receive an additional nonstatutory option to purchase 2,500 shares
of common stock. The exercise price of all options granted under the Director
Plan will be equal to the fair market value of the common stock on the date of
grant. Each option granted under the Director Plan will vest in installments
cumulatively as to 25% of the shares subject to the option on each anniversary
of the date of the grant.
1997 Employee Stock Purchase Plan (Purchase Plan). The Company has
reserved 100,000 shares of common stock for issuance under the Purchase Plan.
Under the Purchase Plan, an eligible employee may purchase shares of common
stock from the Company through payroll deductions of up to 15% of his or her
compensation, at a price per share equal to 85% of the lower of (i) the fair
market value of the Company's common stock on the first day of an offering
period under the Purchase Plan or (ii) the fair market value of the common stock
on the last day of an offering period (an "Exercise Date"). Any employee who is
customarily employed for at least 20 hours per week and more than five months
per calendar year is eligible to participate in the Purchase Plan.
F-11
<PAGE> 64
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR
ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION 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............................... 5
Use of Proceeds............................ 18
Dividend Policy............................ 18
Capitalization............................. 19
Dilution................................... 20
Selected Financial Data.................... 21
Management's Discussion and Analysis
Financial of Condition and Results of
Operations............................... 22
Business................................... 26
Management................................. 40
Certain Transactions....................... 44
Principal Stockholders..................... 45
Description of Securities.................. 46
Shares Eligible for Future Sale............ 48
Underwriting............................... 49
Legal Opinions............................. 51
Experts.................................... 51
Additional Information..................... 51
Index to Financial Statements.............. F-1
</TABLE>
------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
SAIGENE CORPORATION
1,000,000 SHARES
OF
COMMON STOCK
AND
1,000,000 WARRANTS
---------------------------
PROSPECTUS
---------------------------
DICKINSON & CO.
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 65
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Amended and Restated Certificate of Incorporation provides
that directors of the Registrant shall not be personally liable to the
Registrant or its stockholders for monetary damages for breach of fiduciary duty
as a director, to the fullest extent permitted by the General Corporation Law of
the State of Delaware. The Registrant's Restated Bylaws provide for
indemnification of officers and directors to the full extent and in the manner
permitted by Delaware law. Section 145 of the Delaware General Corporation Law
makes provision for such indemnification in terms sufficiently broad to cover
officers and directors under certain circumstances for liabilities arising under
the Securities Act of 1933, as amended (the "Securities Act").
The Registrant has entered into indemnification agreements with each
officer and director which provide indemnification under certain circumstances
for acts and omissions which may not be covered by any directors' and officers'
liability insurance.
The form of Underwriting Agreement, to be filed as Exhibit 1.1 to the
Registration Statement, provides for indemnification of the Registrant and its
controlling persons against certain liabilities under the Securities Act.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered. All amounts are estimates except
the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE
PAID
--------
<S> <C>
Registration Fee.................................................................. $ 4,791
NASD Filing Fee................................................................... *
Nasdaq Listing Fee................................................................ *
Boston Stock Exchange Listing Fee................................................. *
Printing and Engraving............................................................ *
Legal Fees and Expenses........................................................... *
Accounting Fees and Expenses...................................................... *
Blue Sky Fees and Expenses........................................................ *
Transfer Agent and Registrar Fees................................................. *
Miscellaneous..................................................................... *
--------
Total................................................................... $400,000
========
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since Inception, the Registrant has sold and issued the following
unregistered securities.
(1) In September 1996, the Company sold and issued 315,000 shares of its
Common Stock to Ronald R. Helm for $0.01 per share for $3,150.
(2) In September 1996, the Company sold and issued 430,500 shares of its
Common Stock to Allan G. Cochrane for $0.01 per share for $4,305.
(3) In September 1996, the Company sold and issued 94,500 shares of its
Common Stock to Paul Hadock for $0.01 per share for $945.
(4) In September 1996, the Company sold and issued 94,500 shares of its
Common Stock to Judith Howard for $0.01 per share for $945.
II-1
<PAGE> 66
(5) In September 1996, the Company sold and issued 115,500 shares of its
Common Stock to Jack U'ren for $0.01 per share for $1,155.
(6) In , 1997, the Company sold and issued a debenture
convertible into 350,000 shares of its Common Stock and a warrant to purchase
250,000 shares of Common Stock to Jallow International, Ltd. for $600,250.
(7) In , 1997, the Company issued 250,000 shares of its Common
Stock and an option to purchase 65,000 shares of its Common Stock to various
individuals associated with Renaissance Management Partners Inc. for services
rendered by Renaissance Management Partners Inc.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act or Regulation D promulgated thereunder.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT EXHIBIT DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------- ------------
<C> <C> <S> <C>
1.1* -- Form of Underwriting Agreement (draft dated)
3.1 -- Amended and Restated Certificate of Incorporation of the Registrant, as
amended
3.2 -- Bylaws of the Registrant
4.1* -- Form of Registrant's Common Stock Certificate
5.1* -- Opinion of Wilson Sonsini Goodrich & Rosati regarding legality of the
securities being issued
10.1 -- Asset Purchase Agreement dated November 26, 1996 between Registrant and
Epoch Pharmaceuticals, Inc.
10.2* -- Agreement for Right of First Refusal dated December 17, 1997 between
Registrant and Becton, Dickinson and Company
10.3* -- License Agreement dated January 10, 1997 between Registrant and Virginia
Mason Research Center
10.4* -- Form of Warrant to be offered hereby
10.5* -- Form of Representative's warrant
10.6* -- Form of Bridge Note Warrant
10.7* -- Convertible Subordinated Debenture due September 30, 2006
10.8* -- Letter Agreement with Saigene 1000 dated October 2, 1996
10.9 -- Promissory Note dated November 4, 1996 with B. Andrighetto
10.10 -- Founder Promissory Notes
10.11 -- 1997 Stock Plan
10.12 -- 1997 Director Stock Option Plan
10.13 -- 1997 Employee Stock Purchase Plan
10.14 -- Facilities Lease and Administration Support Contract by and between
Registrant and Epoch Pharmaceuticals, Inc. dated October, 1996
10.15 -- Form of Indemnity Agreement
10.16 -- Employment Agreement with R. Helm
10.17 -- Employment Agreement with A. Cochrane
11.1 -- Statement of computation of earnings per share
</TABLE>
II-2
<PAGE> 67
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT EXHIBIT DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------- ------------
<C> <C> <S> <C>
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1)
24.1 -- Power of Attorney (see part II-5)
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* To be supplied by amendment.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions referenced in Item 14 of this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant 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 hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the 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 Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE> 68
SIGNATURES
In accordance with 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 authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palo Alto, State of California, on this 12th day of
February 1997.
SAIGENE CORPORATION
By: /s/ RONALD R. HELM
------------------------------------
Ronald R. Helm
Chief Executive Officer and
Vice-Chairman of
the Board of Directors
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints, jointly
and severally, Ronald R. Helm and Allan G. Cochrane, and each one of them, his
true and lawful attorney-in-fact and agents, each acting alone, with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to the Registration Statement on Form
SB-2 (including post-effective amendments or any abbreviated registration
statement, and any amendments thereto, filed pursuant to Rule 462(b) promulgated
under the Securities Act of 1933, increasing the amount of securities for which
registration is being sought), and to file the same, with all exhibits thereto
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents or any of them, or
his or their substitute or substitutes, may lawfully do or cause to be done or
by virtue hereof.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES STATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------------------------- ----------------------------- ------------------
<C> <S> <C>
/s/ ALLAN G. COCHRANE President, Director, Chief February 12, 1997
- --------------------------------------------- Operating Officer, Chief
Allan G. Cochrane Financial Officer and
Treasurer (Principal
Accounting Officer)
/s/ RONALD R. HELM, J.D. Chief Executive Officer, February 12, 1997
- --------------------------------------------- Vice-Chairman of the Board
Ronald R. Helm, J.D. of Directors and Secretary
/s/ KENNETH R. WATERS, J.D. Director February 12, 1997
- ---------------------------------------------
Kenneth R. Waters, J.D.
/s/ EDWARD E. FABER Chairman of the Board of February 12, 1997
- --------------------------------------------- Directors and Director
Edward E. Faber
</TABLE>
II-4
<PAGE> 69
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT EXHIBIT DESCRIPTION PAGE
- ------- ---------------------------------------------------------------------- ------------
<C> <C> <S> <C>
1.1* -- Form of Underwriting Agreement (draft dated)
3.1 -- Amended and Restated Certificate of Incorporation of the Registrant
3.2 -- Bylaws of the Registrant
4.1* -- Form of Registrant's Common Stock Certificate
5.1* -- Opinion of Wilson Sonsini Goodrich & Rosati regarding legality of the
securities being issued
10.1 -- Asset Purchase Agreement dated November 26, 1996 between Registrant
and Epoch Pharmaceuticals, Inc.
10.2* -- Agreement for Right of First Refusal dated December 17, 1996 between
Registrant and Becton, Dickinson and Company
10.3* -- License Agreement dated January 10, 1997 between Registrant and
Virginia Mason Research Center
10.4* -- Form of Warrant to be offered hereby
10.5* -- Form of Representative's warrant
10.6* -- Form of Bridge Note Warrant
10.7* -- Convertible Subordinated Debenture due September 30, 2006
10.8* -- Letter Agreement with Saigene 1000 dated October 2, 1996
10.9 -- Promissory Note dated November 4, 1996 with B. Andrighetto
10.10 -- Founder Promissory Notes
10.11 -- 1997 Stock Plan
10.12 -- 1997 Director Stock Option Plan
10.13 -- 1997 Employee Stock Purchase Plan
10.14 -- Facilities Lease and Administration Support Contract by and between
Registrant and Epoch Pharmaceuticals, Inc. dated October, 1996
10.15 -- Form of Indemnity Agreement
10.16 -- Employment Agreement with R. Helm
10.17 -- Employment Agreement with A. Cochrane
11.1 -- Statement of computation of earnings per share
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1)
24.1 -- Power of Attorney (see part II-5)
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* To be supplied by amendment.
<PAGE> 1
EXHIBIT 3.1
SAIGENE CORPORATION
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
Saigene Corporation, a Delaware corporation, hereby certifies as
follows:
The Certificate of Incorporation for Saigene Corporation (the
"CORPORATION") was filed in the office of the Secretary of State of the State of
Delaware on September 19, 1996 and is hereby amended and restated pursuant to
Section 242 and Section 245 of the Delaware General Corporation Law. All
amendments to the Certificate of Incorporation reflected herein have been duly
authorized and adopted by the Corporation's Board of Directors and stockholders
in accordance with the provisions of Sections 242 and 245.
This Restated Certificate of Incorporation restates and integrates and
further amends the Certificate of Incorporation of the Corporation. The text of
the Certificate of Incorporation is amended hereby to read as herein set forth
in full:
ARTICLE I
The name of the corporation (the "CORPORATION") is:
SAIGENE CORPORATION
ARTICLE II
The address of its registered office in the State of Delaware is 1013
Centre Road, City of Wilmington, County of New Castle. The name of its
registered agent at such address is Prentice-Hall Corporation System, Inc.
ARTICLE III
The nature of the business and purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
<PAGE> 2
ARTICLE IV
This Corporation is authorized to issue two classes of stock to be
designated, respectively, Common Stock and Preferred Stock. The total number of
shares of Common Stock this Corporation is authorized to issue is 30,000,000
shares, par value $0.001, and the total number of shares of Preferred Stock this
Corporation is authorized to issue is 2,000,000 shares, par value $0.01.
Preferred Stock may be issued from time to time in one or more series.
The Board of Directors of the Corporation is authorized to determine or
alter the powers, preferences, privileges and relative participating, optional
or special rights granted to and the qualifications, limitations or restrictions
imposed upon any wholly unissued series of Preferred Stock and, within the
limitations or restrictions stated in any resolution or resolutions of the Board
of Directors originally fixing the number of shares constituting any series, to
increase or decrease (but not below the number of shares of any series then
outstanding) the number of shares of any such series subsequent to the issuance
of shares of that series, to determine the designation of any series and to fix
the number of shares of any series. In case the number of shares of any series
shall be so decreased, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
ARTICLE V
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors, or any class of them, and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
Section 291 of Title 8 of the Delaware Code, or on the application of trustees
in dissolution or of any receiver or receivers appointed for this Corporation
under Section 279 of Title 8 of the Delaware Code, order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directors. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all of the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
ARTICLE VI
The Corporation is to have perpetual existence.
-2-
<PAGE> 3
ARTICLE VII
In furtherance and not in limitation of the powers conferred by
statute, the Bylaws of the Corporation may be made, altered, amended or repealed
by the stockholders or by the Board of Directors.
ARTICLE VIII
Elections of directors need not be by written ballot.
ARTICLE IX
A. To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as may hereafter be amended, a director of
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
B. The Corporation may indemnify to the fullest extent permitted
by law any person made or threatened to be made a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that he, his testator or intestate is or was a director, officer,
employee or agent of the Corporation or any predecessor of the Corporation or
serves or served at any other enterprise as a director, officer, employee or
agent at the request of the Corporation or any predecessor to the Corporation.
C. Neither any amendment nor repeal of this Article IX, nor the
adoption of any provision of this Corporation's Certificate of Incorporation
inconsistent with this Article IX, shall eliminate or reduce the effect of this
Article IX, in respect of any matter occurring, or any action or proceeding
accruing or arising or that, but for this Article IX, would accrue or arise,
prior to such amendment, repeal or adoption of an inconsistent provision.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
-3-
<PAGE> 4
ARTICLE XI
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in any manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
-4-
<PAGE> 5
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by Allan G. Cochrane, President of the Board of the Corporation, and
attested by Jay Jones, the Secretary of the Corporation. The signatures below
shall constitute the affirmation or acknowledgment, under penalties of perjury,
that the facts herein stated are true.
Dated: _______________, 1997
SAIGENE CORPORATION
_______________________________
Allan G. Cochrane
President
ATTEST:
__________________________
____________________
Secretary
-5-
<PAGE> 1
EXHIBIT 3.2
RESTATED BYLAWS
OF
SAIGENE CORPORATION
As adopted January__, 1997
<PAGE> 2
RESTATED BYLAWS
OF
SAIGENE CORPORATION
(A DELAWARE CORPORATION)
---------------
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting. An annual meeting of the stockholders, for
the election of Directors to succeed those whose terms expire and for the
transaction of such other business as may property come before the meeting,
shall be held at such place (either within or without the State of Delaware), on
such date, and at such time as the Board of Directors shall each year fix, which
date shall be within thirteen (13) months of the last annual meeting of
stockholders or, if no such meeting has been held, the date of incorporation.
Section 2. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes prescribed in the notice of the meeting, may be called
by the Chairman of the Board or a majority of the Board of Directors, and shall
be held at such place, on such date, and at such time as they or he or she shall
fix.
Section 3. Notice of Meetings. Written notice of the place, date and
time of all meetings of the stockholders shall be given, not less than ten (10)
nor more than sixty (60) days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting, except as otherwise
provided herein or required by law (meaning, here and hereinafter, as required
from time to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date and time of the adjourned meeting shall be given in conformity herewith. At
any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum. At any meeting of the stockholders, the holders of a
majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy, shall constitute
<PAGE> 3
a quorum for all purposes, unless or except to the extent that the presence of a
larger number may be required by law. Where a separate vote by a class or
classes is required, a majority of the shares of such class or classes present
in person or represented by proxy shall constitute a quorum entitled to take
action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date or time.
Section 5. Organization. Such person as the Board of Directors may have
designated as the Chairman of the Board or, in the absence of such a person, the
Chief Executive Officer of the Corporation or, in his or her absence, such
person as may be chosen by the holders of a majority of the shares entitled to
vote who are present, in person or by proxy, shall call to order any meeting of
the stockholders and act as Chairman of the meeting. In the absence of the
Secretary of the Corporation, the Secretary of the meeting shall be such person
as the Chairman appoints.
Section 6. Conduct of Business. The Chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seen to him or her in order. The date and time of the opening and
closing of the polls for each matter upon which the stockholders will vote at
the meeting shall be announced at the meeting.
Section 7. Proxies and Voting. At any meeting of the stockholders,
every stockholder entitled to vote shall be entitled to one vote for each share
of stock held by him which has voting power upon the matter in question. Each
stockholder entitled to vote at a meeting of stockholders shall be entitled to
vote in person or by proxy authorized by an instrument in writing or by a
transmission permitted by law filed in accordance with the procedure established
for the meeting. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this paragraph
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used, provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefore by a stockholder entitled to vote or by his or her proxy, a
stock vote shall be taken. Every stock vote shall be taken by ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
The Corporation may, and to the extent required by law, shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the person
presiding at the meeting may, and to the extent required by law, shall, appoint
one or more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with
-2-
<PAGE> 4
strict impartiality and according to the best of his or her ability. Every vote
taken by ballots shall be counted by an inspector or inspectors appointed by the
Chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by a
majority of the votes cast affirmatively or negatively.
Section 8. Stock List. A complete list of stockholders entitled to vote
at any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to 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 stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
Section 9. Consent of Stockholders in Lieu of Meeting. Any action
required to be taken at any annual or special meeting of stockholders of the
Corporation, or any action which may be taken at any annual or special meeting
of the stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted and shall be delivered to the Corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be made by hand or by certified or registered mail,
return receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the date of the earliest dated consent delivered to the Corporation, a written
consent or consents signed by a sufficient number of holders to take action are
delivered to the Corporation in the manner prescribed in the first paragraph of
this Section.
ARTICLE II
BOARD OF DIRECTORS
-3-
<PAGE> 5
Section 1. Number and Term of Office. The business, property and
affairs of the Corporation shall be managed by or under the direction of a Board
of four (4) Directors; provided, however, that the Board, by resolution adopted
by vote of a majority of the then authorized number of Directors, may increase
or decrease the number of Directors. Each Director shall be elected for a term
of one (1) year and until his or her successor is elected and qualified, except
as otherwise provided herein or required by law.
Whenever the authorized number of Directors is increased between annual
meetings of the stockholders, a majority of the Directors then in office shall
have the power to elect such new Directors for the balance of a term and until
their successors are elected and qualified. Any decrease in the authorized
number of Directors shall not become effective until the expiration of the term
of the Directors then in office unless at the time of such decrease, there shall
be vacancies on the Board which are being eliminated by the decrease.
Section 2. Vacancies. If the office of any Director becomes vacant by
reason of death, resignation, disqualification, removal or other cause, a
majority of the Directors remaining in office, although less than a quorum, may
elect a successor for the unexpired term and until his or her successor is
elected and qualified.
Section 3. Chairman of the Board. The Directors may elect one of their
members to be Chairman of the Board of Directors. The Chairman shall be subject
to the control of and may be removed by the Board of Directors. He shall perform
such duties as may from time to time be assigned to him by the Board.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such place or places, on such date or dates, and at such time
or times as shall have been established by the Board of Directors and publicized
among all Directors. A notice of each regular meeting shall not be required.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be called by one-third (1/3) of the Directors then in office (rounded up to
the nearest whole number) or by the Chief Executive Officer and shall be held at
such place, on such date and at such time as they or he or she shall fix. Notice
of the place, date and time of each such special meeting shall be given each
Director by whom it is not waived by mailing written not ice not less than five
(5) days before the meeting or by telegraphing or telexing or by facsimile
transmission of the same not less than twenty-four (24) hours before the
meeting. Unless otherwise indicated in the notice thereof, any and all business
may be transacted at a special meeting.
Section 6. Quorum. At any meeting of the Board of Directors, a majority
of the total number of the whole Board shall constitute a quorum for all
purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date or time, without further
notice or waiver thereof.
-4-
<PAGE> 6
Except as otherwise provided by law or in the Certificate of
Incorporation or these Bylaws, a majority of the Directors present at any
meeting at which a quorum is present may decide any question brought before such
meeting. Meetings shall be presided over by the Chairman of the Board, if any,
or in his or her absence by the President, or in the absence of both by such
other person as the Directors may select. The Secretary of the Corporation shall
act as Secretary of the meeting, but in his or her absence the Chairman of the
meeting may appoint any person to act as Secretary of the meeting.
Section 7. Participation in Meetings by Conference Telephone. Members
of the Board of Directors, or of any committee thereof, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communication equipment by means of which all persons participating in the
meeting can hear each other and such participation shall constitute presence in
person at such meeting.
Section 8. Conduct of Business. At any meeting of the Board of
Directors, business shall be transacted in such order and manner as the Board
may from time to time determine, and all matters shall be determined by the vote
of a majority of the Directors present, except as otherwise provided herein or
required by law. Action may be taken by the Board of Directors without a meeting
if all members thereof consent thereto in writing, and the writing or writings
are filed with the minutes of proceedings of the Board of Directors.
Section 9. Powers. The Board of Directors may, except as otherwise
required by law, exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it
may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any officer upon any
other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for Directors, officers, employees and agents
of the Corporation and its subsidiaries as it may determine;
-5-
<PAGE> 7
(7) To adopt from time to time such insurance, retirement and other
benefit plans for Directors, officers, employees and agents of the Corporation
and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent with
these Bylaws, for the management of the Corporation's business and affairs.
Section 10. Compensation of Directors. Directors, as such, may receive,
pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as Directors, including, without limitations
their services as members of committees of the Board of Directors.
ARTICLE III
COMMITTEES
Section 1. Committees of the Board of Directors. The Board of
Directors, by a vote of a majority of the whole Board, may from time to time
designate one or more committee of the Board, with such lawfully delegable
powers and duties as it thereby confers, to serve at the pleasure of the Board
and shall, for those committees and any others provided for herein, elect a
Director or Directors to serve as the member or members, designating, if it
desires, other Directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so designated
may exercise the power and authority of the Board of Directors to declare a
dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to Section 253 of the Delaware General Corporation
Law if the resolution of the Board of Directors shall so provide. In the absence
or disqualification of any member of any committee and any alternate member in
his or her place, the member or members of the committee present at the meeting
and not disqualified from voting, whether or not he or she or they constitute a
quorum, may by unanimous vote appoint another member of the Board of Directors
to act at the meeting in the place of the absent or disqualified member.
Section 2. Conduct of Business. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings;
one-third (1/3) of the members shall consist of one (1) or two (2) members, in
which event one (1) member shall constitute a quorum; and all matters shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
ARTICLE IV
OFFICERS
-6-
<PAGE> 8
Section 1. Generally. The officers of the Corporation shall consist of
a President, one or more Vice Presidents, a Secretary, a Treasurer and such
other officers as may from time to time be appointed by the Board of Directors.
Officers shall be elected by the Board of Directors, which shall consider that
subject at its first meeting after every annual meeting of stockholders. Each
officer shall hold office until his or her successor is elected and qualified or
until his or her earlier resignation or removal. Any number of offices may be
held by the same person.
Section 2. President. The President shall be the Chief Executive
Officer of the Corporation. Subject to the provisions of these Bylaws and to the
direction of the Board of Directors, he or she shall have the responsibility for
the general management and control of the business and affairs of the
Corporation and shall perform all duties and have all powers which are commonly
incident to the office of chief executive or which are delegated to him or her
by the Board of Directors. He or she shall have power to sign all stock
certificates, contracts and other instruments of the Corporation which are
authorized and shall have general supervision and direction of all of the other
officers, employees and agents of the Corporation.
Section 3. Vice President. Each Vice President shall have such powers
and duties as may be delegated to him or her by the Board of Directors. One (1)
Vice President shall be designated by the Board as the Chief Operations Officer
to perform the duties and exercise the powers of the President in the event of
the President's absence or disability and to supervise the day to day operations
of the Corporation's business.
Section 4. Treasurer. The Treasurer shall be the Chief Financial
Officer of the Corporation and have the responsibility for maintaining the
financial records of the Corporation. He or she shall make such disbursements of
the funds of the Corporation as are authorized and shall render from time to
time an account of all such transactions and of the financial condition of the
Corporation. The Treasurer shall also perform such other duties as the Board of
Directors may from time to time prescribe.
Section 5. Secretary. The Secretary authorized notices for, and shall
keep minutes of, all meetings of the stockholders and the Board of Directors. He
or she shall have charge of the corporate books and shall perform such other
duties as the Board of Directors may from time to time prescribe.
Section 6. Delegation of Authority. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
Section 7. Removal. Any officer of the Corporation may be removed at
any time with or without cause, by the Board of Directors.
Section 8. Resignation. Any officer of the Corporation may resign at
any time by giving written notice to the Board of Directors, the President or
the Secretary of the Corporation. Any such resignation shall take effect at the
time specified therein or, if the time be not specified therein, then upon
receipt thereof. The acceptance of such resignation shall not be necessary to
make it effective.
-7-
<PAGE> 9
Section 9. Action With Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V
STOCK
Section 1. Certificates of Stock. Each stockholder shall be entitled to
a certificate signed by, or in the name of the Corporation by, the President or
a Vice President, and by the Secretary or an Assistant Secretary, or the
Treasurer or an Assistant Treasurer, certifying the number of shares owned by
him or her. Any or all of the signatures on the certificate may be by facsimile.
The certificates for shares of stock of the Corporation shall be in such form as
shall be prescribed by law and approved, from time to time by the Board of
Directors.
Section 2. Transfer of Stock. Transfers of stock shall be made only
upon the transfer books of the Corporation kept at an office of the Corporation
or by transfer agents designated to transfer shares of the stock of the
Corporation. Except where a certificate is issued in accordance with Section 4
of Article V of these Bylaws, an outstanding certificate for the number of
shares involved shall be surrendered for cancellation before a new certificate
is issued therefor.
Section 3. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders, or
to receive payment of any dividend or other distribution or allotment of any
rights or to exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date on
which the resolution fixing the record date is adopted and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
any meeting of stockholders, nor more than sixty (60) days prior to the time for
such other action as hereinbefore described; provided, however, that if no
record date for determining stockholders shall be at the close of business on
the day next preceding the day on which notice is given or, if notice is waived,
at the close of business on the day next preceding the day on which the meeting
is held, and, for determining stockholders entitled to receive payment of any
dividend or other distribution or allotment of rights or to exercise any rights
of change, conversion or exchange of stock or for any other purpose, the record
date shall be at the close of business on the day on which the Board of
Directors adopts a resolution relating thereto.
-8-
<PAGE> 10
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.
In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall be not more than ten (10) days after the date upon which
the resolution fixing the record date is adopted. If no record date has been
fixed by the Board of Directors and no prior action by the Board of Directors is
required by the Delaware General Corporation Law, the record date shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation in the manner prescribed by
Article 1, Section 9 hereof. If no record date has been found by the Board of
Directors and prior action by the Board of Directors is required by the Delaware
General Corporation Law with respect to the proposed action by written consent
of the stockholders, the record date for determining stockholders entitled to
consent to corporate action in writing shall be at the close of business on the
day on which the Board of Directors adopts the resolution taking such prior
action.
Section 4. Lost Certificates. The Board of Directors or any transfer
agent of the Corporation may direct a new certificate or certificates
representing stock of the Corporation to be issued in place of any certificate
or certificates theretofore issued by the Corporation, alleged to have been
lost, stolen or destroyed upon the making of an affidavit of that fact by the
person claiming the certificate to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors (or any transfer agent of the Corporation authorized to do so by a
resolution of the board of Directors) may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his or her legal representative, to
give the Corporation a bond in such sum as the Board of Directors (or any
transfer agent so authorized) shall direct to indemnify the Corporation against
any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed or the issuance of
such new certificates, and such requirement may be general or confined to
specific instances. The Board of Directors shall have power and authority to
make all such rules and regulations as it may deem expedient concerning the
issue, transfer, registration, cancellation and replacement of certificates
representing stock of the Corporation.
Section 5. Regulations. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
ARTICLE VI
NOTICES
-9-
<PAGE> 11
Section 1. Notices. Except as otherwise specifically provided herein or
required by law, all notices required to be given to any stockholder, Director,
officer, employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing such
notice in the mails, postage paid, or by sending such notice by pre-paid
telegram or mailgram. Any such notice shall be addressed to such stockholder,
Director, officer, employee or agent at his or her last known address as the
same appears on the books of the Corporation. The time when such notice is
received, if hand delivered, or dispatched, if delivered through the mails or by
telegram or mailgram, shall be the time of the giving of the notice.
Section 2. Waivers. A written waiver of any notice, signed by a
stockholder, Director, officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, Director, officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
ARTICLE VII
MISCELLANEOUS
Section 1. Facsimile Signatures. In addition to the provisions for use
of facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
Section 2. Corporate Seal. The Board. of Directors may provide a
suitable seal, containing the name of the Corporation, the date of incorporation
and the state of incorporation, which seal shall be in the charge of the
Secretary. If and when so directed by the Board of Directors or a committee
thereof, duplicates of the seal may be kept and used by the Treasurer or by an
Assistant Secretary or Assistant Treasurer.
Section 3. Reliance Upon Books, Reports and Records. Each Director,
each member of any committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his or her duties, be
fully protected in relying in good faith upon the books of account or other
records of the Corporation and upon such information, opinions, reports or
statements presented to the Corporation by any of its officers or employees or
committees of the Board of Directors so designated, or by any other person as to
matters which such Director or committee member reasonably believes are within
such other person's professional or expert competence and who has been selected
with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year. The fiscal year of the Corporation shall be as
fixed by the Board of Directors.
-10-
<PAGE> 12
Section 5. Time Periods. In applying any provision of these Bylaws
which requires that an act be done or not be done a specified number of days
prior to an event or that an act be done during a period of a specified number
of days prior to an event, calendar days shall be used, the day of the doing of
the act shall be excluded, and the day of the event shall be included.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a Director or an officer of the Corporation or is or was serving at
the request of the Corporation as a Director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a Director, officer, employee or agent or in
any other capacity while serving as a Director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith; provided, however, that, except as provided in Section 3 of this
ARTICLE VIII with respect to proceedings to enforce rights to indemnification,
the Corporation shall indemnify any such indemnitee in connection with a
proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation.
Section 2. Right to Advancement of Expenses. The right to
indemnification conferred in Section I of this ARTICLE VIII shall include the
right to be paid by the Corporation the expenses (including attorneys' fees)
incurred in defending any such proceeding in advance of its final disposition
(hereinafter as "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee in his or her capacity as a Directory or officer (and not in
any other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter as
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is not further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Section 2 or otherwise. The rights to indemnification and to the
advancement of expenses conferred in Section 1 and 2 of this ARTICLE VIII
-11-
<PAGE> 13
shall be contract rights and such rights shall continue as to an indemnitee who
has ceased to be a Director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
Section 3. Right of Indemnitee to Bring Suit. If a claim under Section
1 or 2 of this ARTICLE VIII is not paid in full by the Corporation within sixty
(60) days after a written claim has been received by the Corporation, except in
the case of a claim for an advancement of expenses, in which case the applicable
period shall be twenty (20) days, the indemnitee may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
advancement of expenses pursuant to the terms of an undertaking, the indemnitee
shall be entitled to be paid also the expense of prosecuting or defending such
suit. In (i) any suit brought by the indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the indemnitee to
enforce a right to an advancement of expenses) and (ii) in any suit brought by
the Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking the Corporation shall be entitled to recover such expenses upon a
final adjudication that the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, by a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving that the
indemnities is not entitled to be indemnified, or to such advancement of
expenses, under this ARTICLE VIII or otherwise shall be on the Corporation.
Section 4. Non-Exclusivity of Rights. The right to indemnification and
to the advancement of expenses conferred in this ARTICLE VIII shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, the Corporation's Certificate of Incorporation, Bylaws,
agreement vote of stockholder or disinterested Directors or otherwise.
Section 5. Insurance. The Corporation may 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 against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
Section 6. Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses to
any employee or agent of the Corporation to the
-12-
<PAGE> 14
fullest extent of the provisions of this Article with respect to the
indemnification and advancement of expenses of Directors and officers of the
Corporation.
ARTICLE IX
AMENDMENTS
The holders of shares entitled at the time to vote for the election of
Directors shall have power to adopt, amend or repeal the Bylaws of the
Corporation by vote of not less than a majority of such shares, and except as
otherwise provided by law, the Board of Directors shall have power equal in all
respects to that of the stockholders to adopt, amend or repeal the Bylaws by
vote of not less than a majority of the entire Board. However, any Bylaw adopted
by the Board may be amended or repealed by vote of the holders of a majority of
the shares entitled at the time to vote for the election of Directors.
-13-
<PAGE> 15
SECRETARY'S CERTIFICATION
OF BYLAWS
THE UNDERSIGNED HEREBY CERTIFIES individually and on behalf of SAIGENE
CORPORATION, a Delaware corporation (the "Corporation"), that I am the duly
elected and qualified Secretary of the Corporation and that attached hereto is a
true and correct copy of the Bylaws of the Corporation as adopted by the Board
of Directors on September 27, 1996.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the
Corporation this day of January, 1997.
____________________________________
RONALD R. HELM, Secretary
[Corporate Seal]
-14-
<PAGE> 1
EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made as of November
26, 1996, by and between EPOCH PHARMACEUTICALS, INC., a Delaware corporation,
("Seller") and Saigene Corporation, a Delaware corporation ("Purchaser").
This Agreement is entered into with reference to the following facts:
A. Seller has been engaged in the business (the "Business") of
developing diagnostic products based on biotechnology principles (the
"Technology").
B. Seller and Purchaser have negotiated for the sale and purchase of
certain of the assets of Seller related to Technology pursuant to the terms and
conditions hereof.
C. Purchaser desires to acquire from Seller, and Seller desires to
sell to Purchaser, the Assets (as defined below) under the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Seller and Purchaser agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1 Sale of Assets. Subject to the provisions of this Agreement,
Seller agrees to sell to Purchaser, and Purchaser agrees to purchase from
Seller, at the Closing (as defined below), all right, title and interest of
Seller in and to the following, and only the following, assets, properties and
rights of Seller used in the Business (collectively, "Assets"):
(a) The machinery, equipment, tools, and other tangible personal
properties and assets of Seller used in the Business specifically listed on
Schedule 1.1(a) (the "Equipment");
<PAGE> 2
(b) The patents, patent applications, process specifications,
drawings, documentation relating to the Technology; all as specifically listed
on Schedule 1.1(b);
(c) All rights relating to the government grants described in
Schedule 1.1(c);
(d) All rights relating to the contracts described in Schedule
1.1(d); and
(e) All rights relating to licenses described in Schedule 1.1(e).
Except for the warranties set forth specifically herein, Seller makes
no representation or warranties as to the Technology or any of the Assets to be
transferred hereunder, and Purchaser acknowledges that the Assets will be
transferred hereunder on an "as-is" basis. SELLER DISCLAIMS ALL IMPLIED
WARRANTIES, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR USE.
1.2 Purchase Price and Manner of Payment; Allocation.
(a) Purchase Price. The total purchase price for the Assets shall
be $1,100,000, payable as follows:
(i) Purchaser shall deliver to Seller a cashiers check in
the amount of $50,000 (the "Initial Cash Portion").
(ii) Purchaser shall execute and deliver to Seller a Secured
Promissory Note in the principal amount of $1,050,000, in substantially the form
of Exhibit "A" hereto (the "Note").
(iii) Purchaser shall execute and deliver to Seller a
Security Agreement in substantially the form of Exhibit "C" hereto evidencing
Seller's first priority security interest in the Assets (the "Security
Agreement"), and a UCC-1 Financing Statement evidencing the security interest in
the Assets.
The Purchase Price shall be allocated among the Assets as set forth on
Schedule 1.2(a) attached hereto. Seller and Purchaser each agree that it will
not take a position on any income tax return, before any
-2-
<PAGE> 3
governmental agency, or in any judicial proceeding that is in any way
inconsistent with this Section 1.2. Purchaser shall be responsible for all sales
taxes, to the extent applicable.
2. CLOSING. The Closing of the purchase and sale provided for in this
Agreement (the "Closing") shall be held at the offices of Seller in Bothell,
Washington at 10:00 a.m. on November 26, 1996 (the "Closing Date"), or at such
location, time, or date as the parties shall mutually agree upon. In the event
the Closing Date is delayed notwithstanding the best efforts of the parties as a
result of any circumstance beyond the reasonable control of the parties or as a
result of legitimate business reasons, the Closing Date shall be reasonably
extended, but in no event beyond November 29, 1996.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER. Seller hereby represents
and warrants as follows:
3.1 Organization. Seller is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Delaware with full
power and authority to sell the Assets.
3.2 Authority. Seller has full power and authority to enter into this
Agreement and the documents and other agreements contemplated hereby and to
carry out the transactions contemplated hereby and thereby. All necessary
corporate action has been taken by Seller to authorize the execution, delivery,
performance of this Agreement and each of the documents and other agreements
contemplated hereby to be executed by Seller, and each of this Agreement and
such documents and other agreements is the valid and binding obligation of
Seller.
3.3 Title to Assets. Except as specifically disclosed in Schedule 3.3
attached hereto, Seller has good and marketable title, legal and equitable, to
the Assets. As of the Closing, none of the Assets shall be subject to any
mortgage, pledge, lien, litigation, conditional sales agreement, security
interest, encumbrance, tax liability or other charge.
-3-
<PAGE> 4
3.4 Consents. Except as set forth on Schedule 3.4, no consents of
third parties are required for the sale, conveyance, assignment, and transfer
from Seller to Purchaser of all Seller's right, title and interest in and to any
of the Assets.
4. ADDITIONAL AGREEMENTS.
4.1 Negative Covenants. Between the date hereof and the Closing Date,
Seller will not, without the prior written consent of Purchaser:
(a) sell, assign, lease or otherwise transfer or dispose of any
of the Assets;
(b) take any action which would cause any of the representations
and warranties set forth in Section 3 to be untrue in any material respect at
the Closing Date; or
(c) subject any of Assets to any lien, charge, or encumbrance.
4.2 Access to Operations. Between the date hereof and the Closing
Date, Seller will permit Purchaser and its authorized representatives to inspect
the Assets during normal business hours as Purchaser may reasonably request.
4.3 Facilities Lease. Purchaser and Seller shall enter into a
Facilities Lease and Administrative Support Contract (the "Facilities Lease") in
substantially the form attached hereto as Exhibit "D", whereby Seller shall
grant to Purchaser a non-exclusive right to enter and use portions of Seller's
premises, for a period of thirty (30) days following an IPO by Saigene or April
1, 1997, whichever comes first, commencing on October 1, 1996, for a monthly fee
of $6,000 for the first three months and $9,760 thereafter (the"Facility Fee").
Purchaser agrees to accrue for the first three months $3,760 per month payable
to the Seller thirty (30) days following an IPO by Saigene or April 1, 1997
which ever comes first. There shall be a proration of the Facility Fee for the
month of September in the amount of $2,000.
-4-
<PAGE> 5
4.4 Purchaser Operating Expenses. On or before December 15, 1996,
Purchaser shall reimburse Seller for operating expenses of Purchaser paid by
Seller as listed on Schedule 4.5, which, as of the date hereof, amount to
$40,088. To the extent that there are additional expenses authorized by
Purchaser beyond the amount stated herein, which have been incurred by Seller on
Purchaser's behalf, Purchaser agrees to reimburse Seller said additional amounts
on or before December 15, 1996.
4.5 Cooperation with Respect to Government Grants. Seller agrees to
reasonably cooperate with Purchaser in connection with the transfer of any and
all government grants relating to the Business and/or the Technology from Seller
to Purchaser, including the execution of such documents as may be reasonably
necessary, in the opinion of Purchaser, to effect the transfer of such grants.
4.6 Confidentiality of Information. Seller agrees to regard and
preserve as confidential all information relating or pertaining to the Business,
the Technology, all projects, products, customers, trade secrets, confidential
information (including business and financial information) or unpublished
know-how, whether patented or unpatented, and to all activities of Seller
relating to the Business and Technology, and not to publish or disclose any part
of such information to others or use the same for its own purposes or the
purposes of others. Any information of Seller relating to the Business and
Technology which is not readily available to the public shall be considered by
Seller to be confidential information and therefore within the scope of this
Agreement, unless Purchaser advises Seller otherwise in writing.
4.7 Non-Competition. Seller agrees that, for a period of three years
immediately following the Closing, Seller will not interfere with the activities
of Purchaser in connection with the Business and Technology in any manner.
Particularly, but without limitation, Seller agrees to refrain from the
following acts, commencing with the date of this agreement:
(a) initiating contact with any employee, consultant or other
independent contract of Purchaser for the purpose of hiring away such employee,
consultant or other independent contractor; and
-5-
<PAGE> 6
(b) soliciting customers of Purchaser.
4.8 Virginia Mason. Seller agrees that it will use its reasonable
efforts, in cooperation with Purchaser, to have the rights under the certain
Subcontract Research Agreement between Seller and Virginia Mason Research
Center, a copy of which is attached hereto as Exhibit "E" assigned to Purchaser.
The foregoing shall not be construed so as to require Purchaser to make any
payment or incur more than nominal expense to assign or transfer such rights, or
to otherwise suffer any more than a nominal detriment.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby
represents and warrants as follows:
5.1 Organization. Purchaser is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Delaware, with
full power and authority to own or lease its properties and to conduct its
business in a manner and in the places where such properties are owned or leased
or such business are presently conducted by it.
5.2 Authority. Purchaser has full power and authority to enter into
this Agreement and the documents and other agreements contemplated hereby and
assume the rights and obligations of Purchaser, and to carry out the transaction
contemplated hereby and thereby. All necessary action has been taken by
Purchaser to authorize the execution, delivery, and performance of this
Agreement and the documents and other agreements contemplated hereby to be
executed by the Purchaser, and each of the same shall be the valid and binding
obligation of the Purchaser.
5.3 Absence of Litigation. There are no claims, actions, proceedings
or investigations pending which seek to delay or prevent the consummation of the
transactions contemplated hereby or which would be reasonably likely to
adversely affect or restrict the Purchaser's ability to consummate the
transactions contemplated hereby.
-6-
<PAGE> 7
6. CONDITIONS.
6.1 Conditions Precedent to Obligations of Purchaser. The obligations
of Purchaser to consummate this Agreement are subject to the fulfillment (or the
written waiver thereof by Purchaser), prior to or at the Closing, of each of the
following conditions precedent:
(a) Representations; Warranties; Covenants. Each of the
representations and warranties of the Seller contained in Section 3 shall be
true and correct in all respects, and Seller shall, on or before the Closing
Date, have performed all of its covenants and obligations hereunder which by the
terms hereof are to be performed on or before the Closing Date.
(b) Approval of Documents. All actions, proceedings, instruments
and documents required to carry out this Agreement and documents and other
agreements contemplated hereby or any undertaking incidental thereto, and all
other related legal matters shall be reasonably satisfactory in form and
substance to Purchaser and its counsel.
(c) Consents and Approvals. The consents or approvals of the
lessors of any party to any contract or agreement to which Seller is a party or
subject, as disclosed on Schedule 3.4, necessary for the consummation of the
transactions contemplated hereby in the manner herein provided, shall have been
obtained.
6.2 Conditions Precedent to Obligations to Seller. The Seller's
obligation to consummate this Agreement is subject to the fulfillment prior to
or at the Closing of each of the following conditions precedent:
(a) Consents. All other approvals and consents of any
governmental authority and any other person which shall be necessary in order to
carry out the transactions contemplated hereby shall have been obtained.
-7-
<PAGE> 8
(b) Representations; Warranties; Covenants. Each of the
representations and warranties of Purchaser contained in Section 5 shall be true
and correct as though made on and as of the Closing Date; Purchaser shall, on or
before the Closing Date, have performed all of its obligations hereunder which
by the terms hereof are to be performed on or before the Closing Date.
(c) Approval of Documents. All actions, proceedings, instruments
and documents required to carry out this Agreement and the documents and other
agreements contemplated hereby or any undertaking incidental thereto, and all
other related legal matters shall be reasonably satisfactory in substance to
Seller and its counsel.
(d) Resignation of Employees. Seller's employees listed on
Schedule 6.2(d) attached hereto shall have resigned effective as of September
20, 1996, and Seller shall have received duly executed copies of the Severance
Agreements from such employees.
7. CLOSING PROCEDURE.
7.1 Items to be Delivered by Seller at Closing. At the Closing Seller
shall deliver to Purchaser the following:
(a) an executed instrument of transfer in the form of Exhibit B
hereto transferring to Purchaser all of Seller's right, title, and interest in
and to the Assets upon delivery to purchaser pursuant to Section 7.3 (the
"General Assignment and Bill of Sale"); and
7.2 Items to be Delivered by Purchaser at Closing. At the Closing
Purchaser shall deliver to Seller the following:
(a) the Initial Cash Portion;
(b) the Note;
(c) the Security Agreement;
-8-
<PAGE> 9
(d) the Financing Statement on Form UCC-1;
7.3 Actions Upon Closing. Upon the Closing, Seller shall take all
steps as may be required to put Purchaser in actual possession and control of
the Assets, at Seller's facility in Bothell, Washington. Purchaser shall pay all
moving costs, including costs of crating and loading of the Assets.
7.4 Further Assurances. Seller from time to time after the Closing, at
Purchaser's request, will execute, acknowledge and deliver to Purchaser such
other instruments and documents and will take such other actions and execute and
deliver such other documents, certifications and further assurances as Purchaser
may reasonably require in order to vest more effectively in Purchaser, or to put
Purchaser more fully in possession of, any of the Assets. Each of the parties
hereto will cooperate with the other and execute and deliver to the other such
other instruments and documents and take such further actions as may be
reasonably requested from time to time by the other party to carry out, evidence
and confirm the intended purposes of this Agreement.
8. TERMINATION OF AGREEMENT.
8.1 Termination. At any time prior to the Closing, this Agreement may
be terminated:
(a) by mutual consent of Seller and Purchaser;
(b) by Purchaser if there has been a material misrepresentation,
breach of warranty, or breach of covenant by Seller in its representations,
warranties, and covenants set forth herein;
(c) by Seller if there has been a material misrepresentation,
breach of warranty, or breach of covenant by Purchaser in its representation,
warranties, and covenants set forth herein;
(d) by Purchaser if any one or more of the conditions stated in
Sections 6.1 or 7.1 hereof has not been satisfied at or prior to the Closing;
-9-
<PAGE> 10
(e) by Seller if any one or more of the conditions stated in
Sections 6.2 or 7.2 hereof have not been satisfied at or prior to the Closing;
or
(f) by either party if the Closing has not occurred by November
29, 1996, provided however, that such party is not in breach hereof.
9. MISCELLANEOUS.
9.1 Brokers, Commissions. Seller and Purchaser each represent that in
connection with the sale and transfer contemplated by this Agreement, neither
has retained the services of a broker. Seller and Purchaser shall each hold the
other harmless, against any and all claims for brokerage commissions, finders
fees, or the like, arising from their respective actions.
9.2 Fees and Expenses. Each of the parties will bear its own expenses
in connection with the negotiation and the consummation of the transactions
contemplated by this Agreement. Each party shall be solely responsible for its
respective legal, accounting, and other out-of-pocket expenses in connection
with the negotiation and the consummation of the transactions contemplated by
this Agreement.
9.3 Governing Law. This Agreement shall be construed under and
governed by the laws of the state of Washington.
9.4 Assignment. The benefits and obligations of any party to this
Agreement may not be assigned, except upon the written consent of the other
party. This Agreement shall be binding upon, and shall be enforceable by and
enure to the benefit of, the parties named herein and their respective
successors and assigns.
9.5 Confidentiality. Purchaser agrees that unless and until the
Closing has been consummated, Purchaser will hold in strict confidence, and not
use to the detriment of Seller, all data and information obtained in connection
with this transaction or Agreement with respect to the business activities of
Seller,
-10-
<PAGE> 11
and that Purchaser will not disclose any of said information to any other party
whatsoever without written consent of Seller.
9.6 Entire Agreement. This Agreement and the documents and other
agreements referenced herein contain the entire Agreement between the parties
with respect to the subject matter hereof; all representations, promises, and
prior or contemporaneous understandings between the parties with respect to the
subject matter hereof, are merged into and expressed in this Agreement and such
documents and other agreements; and any and all prior agreements between the
parties with respect to the subject matter hereof are hereby canceled.
9.7 Amendment. This Agreement may be amended, modified, or
supplemented only by an instrument in writing signed by the parties to this
Agreement.
9.8 Publicity and Disclosure. No press releases or any public
disclosure, or disclosures to any employees of Seller or Purchaser, either
written or oral, of the transactions contemplated by this Agreement shall be
made without the prior knowledge and written consent of Seller. Seller shall
provide any public announcement of the execution of this Agreement or the sale
and purchase of the Assets as herein described to Purchaser for review prior to
release.
9.9 Notices. All notices, requests, demands, and other communications
hereunder shall be deemed to have been duly given on the date received if
delivered personally, telecopied, or mailed by commercial express mail service:
TO SELLER: EPOCH PHARMACEUTICALS, INC.
1725 220th Street, S.E., No. 104
Bothell, Washington 98021
Attn: Sanford S. Zweifach, President and CFO
-11-
<PAGE> 12
TO PURCHASER: SAIGENE CORPORATION
1725 220th Street, S.E., No. 104
Bothell, Washington 98021
Attn: Allan G. Cochrane, President and COO
or to such other address or telecopier number which either party may notify the
other party as provided above.
9.10 Headings. The headings of the Sections of this Agreement are for
the convenience of reference only, and do not form a part hereof, and in no way
modify, interpret or construe the meanings of the parties.
9.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which shall
constitute one Agreement.
9.12 Waiver; Severability. The failure of any of the parties to this
Agreement to require the performance of term or obligation under this Agreement
or the waiver by any of the parties to this Agreement of any breach hereunder
shall not prevent subsequent enforcement of such term or obligation or be deemed
a waiver of any subsequent breach hereunder. In case any one or more of the
provisions of this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement but this Agreement shall
be construed as if such invalid or illegal or unenforceable provision or part of
a provision had never been contained herein.
9.13 Sales, Transfer and Documentary Taxes, Etc. Purchaser shall pay
all state and local taxes, documentary and other transfer taxes, if any, due as
a result of the purchase, sale, or transfer of the Assets.
9.14 Arbitration. Any controversy, claim or dispute among the parties
hereto arising out of or related to this Agreement or the breach hereto, which
cannot be settled amicably by the parties, shall be submitted for binding
arbitration in accordance with the provisions contained herein and in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
("Rules") in King County,
-12-
<PAGE> 13
Washington. Judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction. The arbitrator shall determine all questions of
fact and law relating to any controversy, claim or dispute hereunder, including
but not limited to whether or not any such controversy, claim or dispute is
subject to the arbitration provisions contained herein. The award shall include
the award of attorneys' fees and expenses to the prevailing party.
-13-
<PAGE> 14
IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be executed by its duly authorized representative as of the date
set forth above.
"SELLER"
EPOCH PHARMACEUTICALS, INC.
By:___________________________________________
Sanford S. Zweifach
Its: President and Chief Financial Officer
"PURCHASER"
SAIGENE CORPORATION
By:___________________________________________
Allan G. Cochrane
Its: President and Chief Operating Officer
-14-
<PAGE> 15
EXHIBIT A
FORM OF NOTE
A-1
<PAGE> 16
EXHIBIT B
FORM OF SECURITY AGREEMENT
C-1
<PAGE> 17
EXHIBIT D
FORM OF FACILITIES LEASE AND ADMINISTRATIVE SUPPORT CONTRACT
This Facilities Lease and Administrative Support Contract (hereafter,
"Facilities Lease") is made and entered into on this 1st day of October, 1996,
by and between Epoch Pharmaceuticals, Inc., a Delaware corporation ("Epoch"),
and Saigene, a Delaware corporation ("Saigene").
RECITALS
A. Saigene desires to utilize certain Epoch facilities located at 1725
220th Street, S.E., Bothell, Washington 98021.
B. Epoch desires to provide the facilities to Saigene for a period of
thirty (30) days following an IPO by Saigene or April 1, 1997, whichever comes
first, to commence on October 1, 1996.
C. Saigene desires Epoch to supply administrative support services to
Saigene as a part of this agreement and as set out in Exhibit "C-1", for the
duration of this agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the recitals stated above and the
mutual covenants herein contained, and for other good and valuable consideration
the receipt and sufficiency of which hereby is acknowledged, Epoch and Saigene
hereby agree as follows:
9.15 Grant of Right to Use Epoch Facilities. Epoch hereby grants to
Saigene a non-exclusive right to enter and use a portion of Epoch's premises for
the period of this agreement, commencing on October 1, 1996 (the "Facilities").
D-1
<PAGE> 18
9.16 Restrictions on Use. Saigene shall use the Facilities only for the
purpose of molecular biology research. Saigene shall conduct its operations in
the Facilities in accordance with all applicable laws and regulations,
including, without limitation, any such laws and regulations governing the use
and disposal of hazardous substances. Saigene shall also comply with all
reasonable rules and regulations regarding the use of the Facilities that Epoch
may from time to time impose. Saigene acknowledges that employees and agents of
Epoch may, from time to time, inspect the Facilities being used for compliance
with these restrictions or for any other reason. Saigene acknowledges that the
right to use the Epoch Facilities granted hereunder is personal to it and it
shall not invite, except in the ordinary conduct of its business, any other
person into the Facilities without the prior written consent of Epoch. Saigene
also acknowledges that Epoch may restrict access to certain portions of its
premises.
9.17 Condition and Maintenance of Facilities. Saigene accepts the use
of the Facilities on an "as is" condition. Epoch expressly disclaims any
warranty or representation with regard to the condition, safety, security or
suitability of the Facilities for Saigene's intended use. Saigene shall maintain
the portion of the Facilities used hereunder in a neat, clean, orderly and safe
condition and shall be responsible for any damage done in or to these Facilities
caused by Saigene. Upon termination of its use of the Facilities, Saigene shall
peaceably surrender and quit the Facilities in good order, condition and repair,
reasonable wear and tear accepted, and shall remove all of its personal property
from the Facilities.
9.18 Indemnification. Saigene shall indemnify, hold harmless, and
defend Epoch and Epoch's subsidiaries, affiliates, directors, officers,
employees, agents and independent contractors from and against any loss, cost,
liability or expense (including but not limited to any award, any settlement
amount, court costs and reasonable fees of attorneys and other professionals)
arising out of or resulting from any use of the Facilities by Saigene.
D-2
<PAGE> 19
9.19 No Liability. Epoch shall not be responsible for any loss or theft
of any of Saigene's personal property in the Facilities or any injury to Saigene
or any of its employees or agents while in the Facility. Saigene waives all
claims it may have for any such loss, damage or injury. EPOCH SHALL NOT BE
LIABLE TO SAIGENE, ITS EMPLOYEES OR AFFILIATES, FOR ANY INDIRECT, SPECIAL,
CONSEQUENTIAL, INCIDENTAL OR OTHER DAMAGES ARISING OUT OF THIS FACILITIES
LICENSE, SAIGENE'S UTILIZATION OF THE FACILITIES, WHETHER SUCH CLAIM ARISES IN
TORT OR CONTRACT, EVEN IF EPOCH HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
9.20 Insurance. Prior to using the Facilities and at all times during
the term hereof, Saigene, at its sole expense, shall maintain comprehensive
liability insurance in an amount not less than One Million Dollars ($ 1,000,000)
in such form and with a reputable insurance company reasonably acceptable to
Epoch.
9.21 Termination. Either party hereto shall have the right to terminate
this Facilities License immediately upon the material breach of any of its terms
by the other party, or, for any reason on 120 days notice to the other party.
9.22 Assignment or Sublicense. Neither this Facilities License nor any
of the rights granted hereby, in whole or in part, shall be assignable or
transferable or sublicensed by Saigene without the prior written consent of
Epoch, which may be withheld for any reason, and any attempted assignment,
transfer or sublicense in violation hereof shall be void.
9.23 Relationship. Nothing in this Facilities License or to be done
pursuant to its terms and conditions is intended to, or shall, create a
partnership, joint venture or principal-agent relationship, between the parties
hereto. Neither party hereto shall have any right or authority to create any
obligation, warranty, representation or responsibility, express or implied, on
behalf of the other party, nor to bind the
D-3
<PAGE> 20
other party in any manner whatsoever, insofar as third parties are concerned.
Unless otherwise provided in a separate agreement, Epoch shall have no interest
in the result, of Saigene's activities in the Facilities.
9.24 Costs of Enforcement. If it is necessary for either party to
undertake legal action to enforce any of the provisions of this Facilities
License, the non-prevailing party agrees to pay all costs of such action
including, but not limited to, court costs and reasonable attorneys' fees.
9.25 Confidentiality. Saigene acknowledges that during the course of
its use of the Facilities, it may learn of certain information concerning
inventions, trade secrets, proprietary know-how and other proprietary and
confidential information of Epoch (the "Proprietary Information"). Saigene
agrees to hold all such Proprietary Information in confidence, not disclose it
to others and not use the Proprietary Information commercially, or for any other
purpose, except with the explicit written consent of Epoch. Epoch acknowledges
that it may learn of certain information.
9.26 Entire Agreement. This Facilities License constitutes the entire
agreement of the parties hereto and supersedes all prior written and all prior
and contemporaneous oral agreements, understandings and negotiations between the
parties with respect to the subject matter hereof. This Facilities License is
intended by the parties hereto to be the final expression of their agreement
with respect to the matters contained herein.
D-4
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
_______ day of September, 1996.
EPOCH PHARMACEUTICALS, INC.
By:___________________________________________
Sanford S. Zweifach
Its: President and Chief Financial Officer
SAIGENE CORPORATION
By:___________________________________________
Allan G. Cochrane
Its: President and Chief Operating Officer
D-5
<PAGE> 22
EXHIBIT D-1
SAIGENE RENT AND ADMINISTRATIVE SUPPORT CALCULATION
RENT:
Lab & Office Space 2,774 sq.ft.
ADMINISTRATIVE SUPPORT % OF FULL TIME EQUIVALENT:
Kathy Maurice 50%
Cathy Elkey 15%
Rita Heathman 13%
Larry Larson 15%
D-1
<PAGE> 23
EXHIBIT B
FORM OF GENERAL ASSIGNMENT AND BILL OF SALE
THIS GENERAL ASSIGNMENT AND BILL OF SALE made this 26th day of
November, 1996, by EPOCH PHARMACEUTICALS, INC., a Delaware corporation (the
"Seller"), in favor of Saigene, a Delaware corporation (the "Purchaser").
THIS GENERAL ASSIGNMENT AND BILL OF SALE is made with reference to the
following facts:
A. Seller and Purchaser have entered into an Asset Purchase Agreement
(the "Purchase Agreement") dated as of November 26, 1996, pursuant to which
Seller has agreed to transfer to Purchaser this day, and Purchaser has agreed to
acquire from Seller this date, certain of the assets and business of Seller
specified therein.
B. For good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged by Seller, Seller desires to execute and deliver
this General Assignment and Bill of Sale for the purpose of affecting such
transfer and sale pursuant to the terms and conditions of the Purchase
Agreement.
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound hereby, the Seller and Purchaser agree as follows:
1. Transfer of Subject Assets.
Seller does hereby assign, transfer, convey and deliver to
Purchaser, its successors and assigns, all rights, interests, and titles of
Seller in and to the Assets (as such term is defined in the Purchase Agreement).
Seller represents and warrants to Purchaser that it is the lawful
owner of the Assets transferred hereby, that the Assets are free and clear of
all liens, restrictions, and other encumbrances
B-1
<PAGE> 24
(except as may otherwise be disclosed in the Purchase Agreement), and that it
has good rights to transfer the same.
2. No Rights and Third Parties.
Nothing expressed or implied in this General Assignment and Bill
of Sale is intended to confer upon any person, other than Seller and Purchaser
and their respective successors and assigns, any rights, remedies, obligations,
or liabilities under or by reason of this Bill of Sale.
3. Successors and Assigns.
This General Assignment and Bill of Sale is executed pursuant to
the Purchase Agreement and shall be binding upon and inure to the benefit of
Seller and Purchaser, and their respective successors and assigns. All rights,
liabilities and obligations of Seller and Purchaser under the Purchase Agreement
shall survive the executive and delivery thereof in accordance with the terms of
the Purchase Agreement, and are not integrated hereby.
IN WITNESS WHEREOF, each of Seller and Purchaser has caused this
General Assignment and Bill of Sale to be executed by its duly authorized
representative on the date first above written.
EPOCH PHARMACEUTICALS, INC.
By:___________________________________________
Sanford S. Zweifach
Its: President and Chief Financial Officer
SAIGENE CORPORATION
By:___________________________________________
Allan G. Cochrane
Its: President and Chief Operating Officer
B-2
<PAGE> 25
EXHIBIT E
FORM OF SUBCONTRACT RESEARCH AGREEMENT WITH VIRGINIA MASON
E-1
<PAGE> 26
INDEX OF SCHEDULES AND EXHIBITS
Schedule 1.1(a) - Equipment
Schedule 1.1(b) - Information and Documentation
Schedule 1.1(c) - Government Grants
Schedule 1.1(d) - Contracts
Schedule 1.1(e) - Licenses
Schedule 1.2(a) - Allocation of Purchase Price
Schedule 3.3 - Title to Assets
Schedule 3.4 - Required Consents
Schedule 4.4 - Seller's Expenses
Schedule 6.2 - Severance Agreements
Exhibit A - Form of Secured Promissory Note
Exhibit B - Form of General Assignment and Bill of Sale
Exhibit C - Form of Security Agreement
Exhibit C-1 - Collateral of Grantor as Referenced in Exhibit C
Exhibit D - Form of Facilities Lease and Administrative Support
Contract
Exhibit D-1 - Saigene Rent and Administrative Support Calculation as
Reference in Exhibit D
Exhibit E - Form of Subcontract Research Agreement with Virginia
Mason
<PAGE> 1
EXHIBIT 10.9
THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT ONLY AND NOT WITH A VIEW TO, OR
FOR SALE IN CONNECTION WITH ANY DISTRIBUTION TR M OF WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933, AS AMENDED. IT MAY BE SOLD, TRANSFERRED OR HYPOTHECATED
ONLY IN ACCORDANCE WITH ACT AND RULES PROMULGATED THEREUNDER.
PROMISSORY NOTE
$250,000.00 Date: November 4, 1996
Interest Rate: 14% Due Date: November 3, 1997
FOR VALUE RECEIVED, Saigene Corporation ("Borrower") promises to pay to
the order of Bruno Andrighetto ("Lender"), at 510 Cabot Road, South San
Francisco, California 94080, or such other place as Lender may designate in
writing, in lawful money of the United States of America, the principal sum of
Two Hundred Fifty Thousand Dollars ($250,000.00), with interest thereon from the
date hereof at the rate hereafter set forth.
1. Interest Rate. Interest shall accrue on the principal amount
outstanding from time to time at fourteen percent (14%) per annum, compounded
annually. Interest shall be calculated using a 360 day year and 30 day months.
2. Due Date. All principal and accrued interest shall be due and
payable on the earlier of (a) the first business day following receipt by the
borrower of funds representing the net proceeds from an initial public offering,
or (b) November 3, 1997. Borrower may prepay any sums due hereunder, at any time
and in any amount, without penalty.
3. Events of Default. The occurrence of any of the following shall
constitute a default under this Note (an "Event of Default') and shall give
Lender the right, at his sole discretion, without notice or demand of any kind
to do any one or more of the +following: (1) make all sums of interest and
principal and any other sums owing under this Note immediately due and payable;
and (2) exercise any other right or remedy provided by contract or applicable
law:
(a) Borrower shall fail to make any payment of principal or interest
when due under this Note or to pay any fees or other charges within thirty (30)
days after the due date, or Borrower shall fail to provide Lender with, or to
perform any obligation under, any contract, instrument, addenda or document
executed in connection with this Note;
<PAGE> 2
(b) A petition or action for relief shall be f iled by or against
Borrower under the Bankruptcy Reform Act, Title 11 of the U.S. Code in effect
from time to time, or under any other law relating to bankruptcy, insolvency,
reorganization, moratorium, creditor composition, arrangement or other relief
for debtors; the appointment of a receiver, trustee, custodian or liquidator of
or for any part of the assets or property of Borrower; Borrower shall make a
general assignment for the benefit of creditors; Borrower shall fail to pay its
debts generally as they become due; or the death, incapacity, insolvency,
dissolution or termination of the business of Borrower;
(c) Any governmental or regulatory authority shall take any action, or
any other event shall occur any of which, in the good faith judgment of Lender,
might have a material adverse effect on the financial condition or business or
Borrower;
(d) Any judgments shall be entered against Borrower, or any
involuntary lien(s) of any kind or character shall attach to any assets or
property of Borrower, any of which, in the judgment of Lender, might have a
material adverse effect on the financial conditions or business of Borrower;
(e) Any material adverse change shall occur in the financial condition
or business of Borrower; or
4. Waiver. No f ailure or delay on the part of Lender in exercising
any power, right or privilege under this Note or under any Loan Document shall
operate as a waiver thereof, and no waiver shall preclude the exercise of any
other power, right or privilege. Borrower hereby waives presentment, demand,
protest, or notice of applicable statute of limitations.
5. Miscellaneous. Wherever used in this Note, the term "month" shall
mean a calendar month. This Note shall be governed by and construed in
accordance with the laws of the State of California. This Note shall be
assignable by Lender and any future holder hereof, in whole or in part. All sums
due hereunder shall be payable in lawful money of the United States of America.
In the event of any legal proceeding concerning the subject matter of this
promissory note, the prevailing party shall be entitled to an award of
reasonable attorneys, fees and costs.
6. Entire Agreement. This Promissory Note, together with the Option
Agreement and Investor Representation Letter of even date, constitutes the
entire agreement of the parties. Any and all representations, promises and prior
or contemporaneous understandings between the parties with respect to the
subject matter of this Agreement are merged into and expressed in this
Promissory Note, the Option Agreement and the Investor Representation Letter.
Any and all other agreements, representations or warranties with respect to the
subject matter of this Agreement are hereby canceled. This Agreement may be
amended, modified or supplemented only by an instrument in writing signed by the
parties.
-2-
<PAGE> 3
Executed this _______ day of November 1996, at Bothell, Washington.
BORROWER
SAIGENE CORPORATION,
a Delaware Corporation
By:_________________________________
Ronald R. Helm
Its: Chief Executive Officer
Acknowledgment of, and agreement to, terms and conditions:
LENDER
Dated: November ___, 1996 ____________________________________
Bruno Andrighetto
-3-
<PAGE> 1
EXHIBIT 10.10
PROMISSORY NOTE
MAKER: Saigene Corporation, a Delaware Corporation doing business in the State
of Washington
PAYEE: Jack U'Ren
PRINCIPAL AMOUNT: $1,155
FOR VALUE RECEIVED, the undersigned ("MAKER") promises to pay to the
order of Jack U'Ren, his/her heirs, or assigns ("PAYEE") the principal sum of
$1,155 (One Thousand One Hundred Fifty-Five Dollars) plus all interest due on
the unpaid note according to the terms and conditions as set out below.
MAKER agrees to pay interest on the unpaid balance due under this note
which will begin to accrue from October 1, 1996. The interest will be calculated
at an annual rate of 8% of the unpaid balance of principal due under this note.
MAKER shall pay said unpaid principal due under this note along with
all unpaid or accrued interest due under this note on or before September 30,
1997.
MAKER shall have the right to pay the entire balance remaining on this
note at any time, with interest to the time of payment, with no penalty.
If any amount due under this note is not paid when due, at the option
of PAYEE, and upon written notice to MAKER, the entire remaining principal
balance shall immediately become due and payable, together with interest
thereon, at the rate above provided, through the date of payment of the unpaid
principal.
If MAKER defaults on any payment due under this note, MAKER agrees to
pay all costs and expenses of collection, including reasonable attorney's fees.
This note shall be construed under the laws of the State of Washington.
PAYEE agrees not to assign this note without written permission of
MAKER, which permission will not unreasonably be withheld.
October 1, 1996
____________________________________
Saigene Corporation, MAKER
By: Allan G. Cochrane, President
<PAGE> 2
Accepted: _____________________________ Date: ______________________________
Jack U'Ren, PAYEE
Unless the other party is notified of a new address in writing ten days
in advance, written notices under this agreement shall be sent to:
MAKER: 1725 220th St SE, #104
Bothell, WA 98021
PAYEE: __________________________
__________________________
__________________________
-2-
<PAGE> 3
PROMISSORY NOTE
MAKER: Saigene Corporation, a Delaware Corporation doing business in the State
of Washington
PAYEE: Judith Howard
PRINCIPAL AMOUNT: $945
FOR VALUE RECEIVED, the undersigned ("MAKER') promises to pay to the
order of Judith Howard, his/her heirs, or assigns ("PAYEE") the principal sum of
$945 (Nine Hundred Forty-Five Dollars) plus all interest due on the unpaid note
according to the terms and conditions as set out below.
MAKER agrees to pay interest on the unpaid balance due under this note
which will begin to accrue from October 1, 1996. The interest will be calculated
at an annual rate of 8% of the unpaid balance of principal due under this note.
MAKER shall pay said unpaid principal due under this note along with
all unpaid or accrued interest due under this note on or before September 30,
1997.
MAKER shall have the right to pay the entire balance remaining on this
note at any time, with interest to the time of payment, with no penalty.
If any amount due under this note is not paid when due, at the option
of PAYEE, and upon written notice to MAKER, the entire remaining principal
balance shall immediately become due and payable, together with interest
thereon, at the rate above provided, through the date of payment of the unpaid
principal.
If MAKER defaults on any payment due under this note, MAKER agrees to
pay all costs and expenses of collection, including reasonable attorney's fees.
This note shall be construed under the laws of the State of Washington.
PAYEE agrees not to assign this note without written permission of
MAKER, which permission will not be unreasonably be withheld.
October 1, 1996
____________________________________
Saigene Corporation, MAKER
By: Allan G. Cochrane, President
<PAGE> 4
Accepted: _____________________________ Date: ______________________________
Judith Howard, PAYEE
Unless the other party is notified of a new address in writing ten days
in advance, written notices under this agreement shall be sent to:
MAKER: 1725 220th St SE, #104
Bothell, WA 98021
PAYEE: __________________________
__________________________
__________________________
-2-
<PAGE> 5
PROMISSORY NOTE
MAKER: Saigene Corporation, a Delaware Corporation doing business in the State
of Washington
PAYEE: Paul Haydock
PRINCIPAL AMOUNT: $945
FOR VALUE RECEIVED, the undersigned ("MAKER") promises to pay to the
order of Paul Haydock, his/her heirs, or assigns ("PAYEE") the principal sum of
$945 (Nine Hundred Forty-Five Dollars) plus all interest due on the unpaid note
according to the terms and conditions as set out below.
MAKER agrees to pay interest on the unpaid balance due under this note
which will begin to accrue from October 1, 1996. The interest will be calculated
at an annual rate of 8% of the unpaid balance of principal due under this note.
MAKER shall pay said unpaid principal due under this note along with
all unpaid or accrued interest due under this note on or before September 30,
1997.
MAKER shall have the right to pay the entire balance remaining on this
note at any time, with interest to the time of payment, with no penalty.
If any amount due under this note is not aid when due, at the option of
PAYEE, and upon written notice to MAKER, the entire remaining principal balance
shall immediately become due and payable, together with interest thereon, at the
rate above provided, through the date of payment of the unpaid principal.
If MAKER defaults on any payment due under this note, MAKER agrees to
pay all costs and expenses of collection, including reasonable attorney's fees.
This note shall be construed under the laws of the State of Washington.
PAYEE agrees not to assign this note without written permission of
MAKER, which permission will not unreasonably be withheld.
October 1, 1996
____________________________________
Saigene Corporation, MAKER
By: Allan G. Cochrane, President
<PAGE> 6
Accepted: _____________________________ Date: ______________________________
Paul Haydock, PAYEE
Unless the other party is notified of a new address in writing ten days
in advance, written notices under this agreement shall be sent to:
MAKER: 1725 220th St SE, #104
Bothell, WA 98021
PAYEE: __________________________
__________________________
__________________________
-2-
<PAGE> 7
PROMISSORY NOTE
MAKER: Saigene Corporation, a Delaware Corporation doing business in the State
of Washington
PAYEE: Ron Helm
PRINCIPAL AMOUNT: $3,150
FOR VALUE RECEIVED, the undersigned ("MAKER") promises to pay to the
order of Ron Helm, his/her heirs, or assigns ("PAYEE") the principal sum of
$3,150 (Three Thousand One Hundred Fifty Dollars) plus all interest due on the
unpaid note according to the terms and conditions as set out below.
MAKER agrees to pay interest on the unpaid balance due under this note
which will begin to accrue from October 1, 1996. The interest will be calculated
at an annual rate of 8% of the unpaid balance of principal due under this note.
MAKER shall pay said unpaid principal due under this note along with
all unpaid or accrued interest due under this note on or before September 30,
1997.
MAKER shall have the right to pay the entire balance remaining on this
note at any time, with interest to the time of payment, with no penalty.
If any amount due under this note is not paid when due, at the option
of PAYEE, and upon written notice to MAKER, the entire remaining principal
balance shall immediately become due and payable, together with interest
thereon, at the rate above provided, through the date of payment of the unpaid
principal.
If MAKER defaults on any payment due under this note, MAKER agrees to
pay all costs and expenses of collection, including reasonable attorney's fees.
This note shall be construed under the laws of the State of Washington.
PAYEE agrees not to assign this note without written permission of
MAKER, which permission will not unreasonably be withheld.
October 1, 1996
____________________________________
Saigene Corporation, MAKER
By: Allan G. Cochrane, President
<PAGE> 8
Accepted: _____________________________ Date: ______________________________
Ron Helm, PAYEE
Unless the other party is notified of a new address in writing ten days
in advance, written notices under this agreement shall be sent to:
MAKER: 1725 220th St SE, #104
Bothell, WA 98021
PAYEE: 16625 Redmond Way #117
Redmond, WA 98052
-2-
<PAGE> 9
PROMISSORY NOTE
MAKER: Saigene Corporation, a Delaware Corporation doing business in the State
of Washington
PAYEE: Allan Cochrane
PRINCIPAL AMOUNT: $4,305
FOR VALUE RECEIVED, the undersigned ("MAKER") promises to pay to the
order of Allan Cochrane, his/her heirs, or assigns ("PAYEE") the principal sum
of $4,305 (Four Thousand Three Hundred Five Dollars) plus all interest due on
the unpaid note according to the terms and conditions as set out below.
MAKER agrees to pay interest on the unpaid balance due under this note
which will begin to accrue from October 1, 1996. The interest will be calculated
at an annual rate of 8% of the unpaid balance of principal due under this note.
MAKER shall pay said unpaid principal due under this note along with
all unpaid or accrued interest due under this note on or before September 30,
1997.
MAKER shall have the right to pay the entire balance remaining on this
note at any time, with interest to the time of payment, with no penalty.
If any amount due under this note is not paid when due, at the option
of PAYEE, and upon written notice to MAKER, the entire remaining principal
balance shall immediately become due and payable, together with interest
thereon, at the rate above provided, through the date of payment of the unpaid
principal.
If MAKER defaults on any payment due under this note, MAKER agrees to
pay all costs and expenses of collection, including reasonable attorney's fees.
This note shall be construed under the laws of the State of Washington.
PAYEE agrees not to assign this note without written permission of
MAKER, which permission will not unreasonably be withheld.
October 1, 1996
____________________________________
Saigene Corporation, MAKER
By: Ron Helm, Chief Executive Officer
<PAGE> 10
Accepted: _____________________________ Date: ______________________________
Allan Cochrane, PAYEE
Unless the other party is notified of a new address in writing ten days
in advance, written notices under this agreement shall be sent to:
MAKER: 1725 220th St SE, #104
Bothell, WA 98021
PAYEE: P O Box 2721
Woodinville, WA 98072
-2-
<PAGE> 1
EXHIBIT 10.11
SAIGENE CORPORATION
1997 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
- to attract and retain the best available personnel for
positions of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means Saigene Corporation, a Delaware corporation.
(h) "Consultant" means any person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render services to such entity.
<PAGE> 2
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
-2-
<PAGE> 3
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option
or Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1997 Stock Plan.
(y) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.
-3-
<PAGE> 4
(cc) "Service Provider" means an Employee, Director or Consultant.
(dd) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 375,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated); provided, however, that Shares that have actually been issued
under the Plan, whether upon exercise of an Option or Right, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, such Shares shall become available for
future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above,
the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
-4-
<PAGE> 5
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right of the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld.
-5-
<PAGE> 6
The Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined. All elections by
an Optionee to have Shares withheld for this purpose shall be made in such form
and under such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights
may be granted to Service Providers. Incentive Stock Options may be granted only
to Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 100,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 100,000 Shares
which shall not count against the limit set forth in subsection (i) above.
-6-
<PAGE> 7
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
-7-
<PAGE> 8
(iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price of less than 100% of the Fair Market Value per Share on
the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
-8-
<PAGE> 9
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later
-9-
<PAGE> 10
than the expiration of the term of such Option as set forth in the Notice of
Grant), by the Optionee's estate or by a person who acquires the right to
exercise the Option by bequest or inheritance, but only to the extent that the
Option is vested on the date of death. In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If, at the time of death, the Optionee is
not vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall immediately revert to the Plan. The Option may be
exercised by the executor or administrator of the Optionee's estate or, if none,
by the person(s) entitled to exercise the Option under the Optionee's will or
the laws of descent or distribution. If the Option is not so exercised within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
-10-
<PAGE> 11
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with
or into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option and Stock Purchase Right shall be assumed
or an equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option or Stock
Purchase Right, the
-11-
<PAGE> 12
Optionee shall fully vest in and have the right to exercise the Option or Stock
Purchase Right as to all of the Optioned Stock, including Shares as to which it
would not otherwise be vested or exercisable. If an Option or Stock Purchase
Right becomes fully vested and exercisable in lieu of assumption or substitution
in the event of a merger or sale of assets, the Administrator shall notify the
Optionee in writing or electronically that the Option or Stock Purchase Right
shall be fully vested and exercisable for a period of fifteen (15) days from the
date of such notice, and the Option or Stock Purchase Right shall terminate upon
the expiration of such period. For the purposes of this paragraph, the Option or
Stock Purchase Right shall be considered assumed if, following the merger or
sale of assets, the option or right confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option or Stock Purchase Right
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
-12-
<PAGE> 13
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-13-
<PAGE> 14
EXHIBIT I
SAIGENE CORPORATION
1997 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the
Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $_________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with
the following schedule:
[25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter, subject to the Optionee continuing to be a
Service Provider on such dates].
<PAGE> 15
Termination Period:
This Option may be exercised for _____ [days/months] after Optionee
ceases to be a Service Provider. Upon the death or Disability of the Optionee,
this Option may be exercised for such longer period as provided in the Plan. In
no event shall this Option be exercised later than the Term/Expiration Date as
provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of
an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to [Title] of the Company. The Exercise Notice
shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
-2-
<PAGE> 16
3. Method of Payment. Payment of the aggregate Exercise Price shall be by
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash; or
(b) check; or
(c) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
(d) surrender of other Shares which (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, AND (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised Shares;
or
(e) with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as Exhibit C, in the
amount of the aggregate Exercise Price of the Exercised Shares together with the
execution and delivery by the Optionee of the Security Agreement attached hereto
as Exhibit B. The Note shall bear interest at the "applicable federal rate"
prescribed under the Code and its regulations at time of purchase, and shall be
secured by a pledge of the Shares purchased by the Note pursuant to the Security
Agreement.
4. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may incur regular
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If the
Optionee is
-3-
<PAGE> 17
an Employee or a former Employee, the Company will be required to withhold from
his or her compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(ii) Incentive Stock Option. If this Option qualifies as an ISO,
the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at least one year,
any gain realized on disposition of the Shares will be treated as long-term
capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one year
after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the Optionee
sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on
or before the later of (i) two years after the grant date, or (ii) one year
after the exercise date, the Optionee shall immediately notify the Company in
writing of such disposition. The Optionee agrees that he or she may be subject
to income tax withholding by the Company on the compensation income recognized
from such early disposition of ISO Shares by payment in cash or out of the
current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely
-4-
<PAGE> 18
to the Optionee's interest except by means of a writing signed by the Company
and Optionee. This agreement is governed by the internal substantive laws, but
not the choice of law rules, of Washington.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND
AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS
EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND
NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: Saigene Corporation
- ----------------------------------- ------------------------------------
Signature By
- ------------------------------------ ------------------------------------
Print Name Title
- ------------------------------------
Residence Address
- ------------------------------------
-5-
<PAGE> 19
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Option Agreement. In consideration of
the Company's granting his or her spouse the right to purchase Shares as set
forth in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
------------------------------------
Spouse of Optionee
-6-
<PAGE> 20
EXHIBIT A
1997 STOCK PLAN
EXERCISE NOTICE
Saigene Corporation
1725 220th Street SE
Bothell, WA 98021
Attention: [Title]
1. Exercise of Option. Effective as of today, ________________,
199__, the undersigned ("Purchaser") hereby elects to purchase ______________
shares (the "Shares") of the Common Stock of Saigene Corporation (the "Company")
under and pursuant to the 1997 Stock Plan (the "Plan") and the Stock Option
Agreement dated _________________, 19___ (the "Option Agreement"). The purchase
price for the Shares shall be $__________, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company
the full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that
Purchaser has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in [Section 13] of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing
<PAGE> 21
signed by the Company and Purchaser. This agreement is governed by the internal
substantive laws, but not the choice of law rules, of Washington.
Submitted by: Accepted by:
PURCHASER: Saigene Corporation
__________________________________ ____________________________________
Signature By
__________________________________ ____________________________________
Print Name Its
Address: Address:
_________________________________ Saigene Corporation
_________________________________ 1725 220th Street SE
Bothell, WA 98021
____________________________________
Date Received
-2-
<PAGE> 22
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement is made as of __________, 19___ between Saigene
Corporation, a [state] corporation ("Pledgee"), and _________________________
("Pledgor").
Recitals
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee under
Pledgee's 1997 Stock Plan, and Pledgor's election under the terms of the Option
to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased _________ shares of Pledgee's Common Stock (the "Shares") at a price
of $________ per share, for a total purchase price of $__________. The Note and
the obligations thereunder are as set forth in Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the Washington Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number ______, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"),
who shall hold said certificate subject to the terms and conditions of this
Security Agreement.
The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledge holder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to
enter into this Security Agreement, Pledgor represents and covenants to Pledgee,
its successors and assigns, as follows:
a. Payment of Indebtedness. Pledgor will pay the principal sum of
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
b. Encumbrances. The Shares are free of all other encumbrances,
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
c. Margin Regulations. In the event that Pledgee's Common Stock is
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the
<PAGE> 23
meaning of the regulations under Part 207 of Title 12 of the Code of Federal
Regulations ("Regulation G"), Pledgor agrees to cooperate with Pledgee in making
any amendments to the Note or providing any additional collateral as may be
necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and
of this Security Agreement in the event:
a. Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the Washington
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules
under Regulation G, there shall be released from this pledge a portion of the
pledged Shares held by Pledgeholder hereunder upon payments of the principal of
the Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
-2-
<PAGE> 24
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment
of all indebtedness secured hereby, at which time the remaining pledged stock
shall be promptly delivered to Pledgor, subject to the provisions for prior
release of a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree
that the enforceability or invalidity of any provision or provisions of this
Security Agreement shall not render any other provision or provisions herein
contained unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
governed under the internal substantive laws, but not the choice of law rules,
of Washington.
-3-
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"PLEDGOR" _________________________________
Signature
_________________________________
Print Name
Address: _________________________________
_________________________________
"PLEDGEE" Saigene Corporation,
a Delaware corporation
_________________________________
Signature
_________________________________
Print Name
_________________________________
Title
"PLEDGEHOLDER" ________________________________
Secretary of
Saigene Corporation
-4-
<PAGE> 26
EXHIBIT C
NOTE
$_______________ Bothell, Washington
______________, 19___
FOR VALUE RECEIVED, _______________ promises to pay to Saigene
Corporation, a Delaware corporation (the "Company"), or order, the principal sum
of _______________________ ($_____________), together with interest on the
unpaid principal hereof from the date hereof at the rate of _______________
percent (____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on __________, 19___.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
________________. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the
undersigned, and shall not be required to proceed against the collateral
securing this Note in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
____________________________________
____________________________________
<PAGE> 27
1997 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the
Company, subject to the Company's Repurchase Option and your ongoing status as a
Service Provider (as described in the Plan and the attached Restricted Stock
Purchase Agreement), as follows:
Grant Number _________________________
Date of Grant _________________________
Price Per Share $________________________
Total Number of Shares Subject _________________________
to This Stock Purchase Right
Expiration Date: _________________________
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE
OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES.
By your signature and the signature of the Company's representative below, you
and the Company agree that this Stock Purchase Right is granted under and
governed by the terms and conditions of the 1997 Stock Plan and the Restricted
Stock Purchase Agreement, attached hereto as Exhibit A-1, both of which are made
a part of this document. You further agree to execute the attached Restricted
Stock Purchase Agreement as a condition to purchasing any shares under this
Stock Purchase Right.
GRANTEE: SAIGENE CORPORATION
___________________________ ________________________________
Signature By
___________________________ ________________________________
Print Name Title
<PAGE> 28
EXHIBIT A-1
1997 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser")
is an Service Provider, and the Purchaser's continued participation is
considered by the Company to be important for the Company's continued growth;
and
WHEREAS in order to give the Purchaser an opportunity to acquire an
equity interest in the Company as an incentive for the Purchaser to participate
in the affairs of the Company, the Admin istrator has granted to the Purchaser a
Stock Purchase Right subject to the terms and conditions of the Plan and the
Notice of Grant, which are incorporated herein by reference, and pursuant to
this Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser
and the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may
be paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. Repurchase Option.
(a) In the event the Purchaser ceases to be a Service Provider
for any or no reason (including death or disability) before all of the Shares
are released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option") for
a period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at
the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
cancelling an amount of the Purchaser's indebtedness to the Company equal to the
aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that
the combined payment and cancellation of indebtedness equals the aggregate
Repurchase Price. Upon delivery of such notice and the payment of the aggregate
Repurchase Price, the Company shall become the legal and beneficial owner of the
Shares being repurchased and all
<PAGE> 29
rights and interests therein or relating thereto, and the Company shall have the
right to retain and transfer to its own name the number of Shares being
repurchased by the Company.
(b) Whenever the Company shall have the right to repurchase
Shares hereunder, the Company may designate and assign one or more employees,
officers, directors or shareholders of the Company or other persons or
organizations to exercise all or a part of the Company's purchase rights under
this Agreement and purchase all or a part of such Shares. If the Fair Market
Value of the Shares to be repurchased on the date of such designation or
assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of such
Shares, then each such designee or assignee shall pay the Company cash equal to
the difference between the Repurchase FMV and the aggregate Repurchase Price of
such Shares.
4. Release of Shares From Repurchase Option.
(a) _______________________ percent (______%) of the Shares shall
be released from the Company's Repurchase Option [one year] after the Date of
Grant and __________________ percent (______%) of the Shares [at the end of each
month thereafter], provided that the Purchaser does not cease to be a Service
Provider prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request (see Section 6).
5. Restriction on Transfer. Except for the escrow described in
Section 6 or the transfer of the Shares to the Company or its assignees
contemplated by this Agreement, none of the Shares or any beneficial interest
therein shall be transferred, encumbered or otherwise disposed of in any way
until such Shares are released from the Company's Repurchase Option in
accordance with the provi sions of this Agreement, other than by will or the
laws of descent and distribution.
6. Escrow of Shares.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's Repurchase Option
expires. As a further condition to the Company's obligations under this
Agreement, the
-2-
<PAGE> 30
Company may require the spouse of Purchaser, if any, to execute and deliver to
the Company the Consent of Spouse attached hereto as Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it may do
or omit to do with respect to holding the Unreleased Shares in escrow while
acting in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase
Option hereunder, the Escrow Holder, upon receipt of written notice of such
exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing the Shares, if any,
issued hereunder shall be endorsed with the following legend (in addition to any
legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's
own tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contem plated by this Agreement. The Purchaser
is relying solely on such advisors and not on any statements
-3-
<PAGE> 31
or representations of the Company or any of its agents. The Purchaser
understands that the Purchaser (and not the Company) shall be responsible for
the Purchaser's own tax liability that may arise as a result of the transactions
contemplated by this Agreement. The Purchaser understands that Section 83 of the
Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income
the difference between the purchase price for the Shares and the Fair Market
Value of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" includes the right of the Company to buy back the Shares
pursuant to the Repurchase Option. The Purchaser understands that the Purchaser
may elect to be taxed at the time the Shares are purchased rather than when and
as the Repurchase Option expires by filing an election under Section 83(b) of
the Code with the IRS within 30 days from the date of purchase. The form for
making this election is attached as Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
10. General Provisions.
(a) This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules of [state]. This Agreement, subject to the
terms and conditions of the Plan and the Notice of Grant, represents the entire
agreement between the parties with respect to the purchase of the Shares by the
Purchaser. Subject to Section 15(c) of the Plan, in the event of a conflict
between the terms and conditions of the Plan and the terms and conditions of
this Agreement, the terms and conditions of the Plan shall prevail. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be
given by either the Company or the Purchaser pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
nor prevent that party from thereafter enforcing
-4-
<PAGE> 32
any other provision of this Agreement. The rights granted both parties hereunder
are cumulative and shall not constitute a waiver of either party's right to
assert any other legal remedy available to it.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR
PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED: _____________________
PURCHASER: SAIGENE CORPORATION
______________________________ __________________________________
Signature By
______________________________ __________________________________
Print Name Title
-5-
<PAGE> 33
EXHIBIT A-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign
and transfer unto (__________) shares of the Common Stock of Saigene Corporation
standing in my name of the books of said corporation represented by Certificate
No. _____ herewith and do hereby irrevocably constitute and appoint
___________________ to transfer the said stock on the books of the within named
corporation with full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the
Restricted Stock Purchase Agreement (the "Agreement")
between________________________ and the undersigned dated ______________, 19__.
Dated: _______________, 19__
Signature:__________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
-6-
<PAGE> 34
EXHIBIT A-3
JOINT ESCROW INSTRUCTIONS
_________, 19__
Corporate Secretary
Saigene Corporation
1725 220th Street SE
Bothell, WA 98021
Dear ______________:
As Escrow Agent for both Saigene Corporation, a Delaware corporation
(the "Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement ("Agreement") between the Company and the undersigned, in accordance
with the following instructions:
1. In the event the Company and/or any assignee of the Company
(referred to collectively as the "Company") exercises the Company's Repurchase
Option set forth in the Agreement, the Company shall give to Purchaser and you a
written notice specifying the number of shares of stock to be purchased, the
purchase price, and the time for a closing hereunder at the principal office of
the Company. Purchaser and the Company hereby irrevocably authorize and direct
you to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
<PAGE> 35
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in
your possession any documents, securities, or other property belonging to
Purchaser, you shall deliver all of the same to Purchaser and shall be
discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree, you
shall not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
-2-
<PAGE> 36
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to each of the other parties thereunto
entitled at the following addresses or at such other addresses as a party may
designate by ten days' advance written notice to each of the other parties
hereto.
COMPANY: Saigene Corporation
1725 220th Street SE
Bothell, WA 98021
PURCHASER: _______________________________
_______________________________
_______________________________
ESCROW AGENT: Corporate Secretary
Saigene Corporation
1725 220th Street SE
Bothell, WA 98021
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
-3-
<PAGE> 37
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and
construed and enforced in accordance with, the internal substantive laws, but
not the choice of law rules, of Washington.
Very truly yours,
SAIGENE CORPORATION
_____________________________________
By
_____________________________________
Title
PURCHASER:
_____________________________________
Signature
_____________________________________
Print Name
ESCROW AGENT:
___________________________________
Corporate Secretary
-4-
<PAGE> 38
EXHIBIT A-4
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and
approve the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the right to purchase
shares of Saigene Corporation, as set forth in the Agreement, I hereby appoint
my spouse as my attorney-in-fact in respect to the exercise of any rights under
the Agreement and agree to be bound by the provisions of the Agreement insofar
as I may have any rights in said Agreement or any shares issued pursuant thereto
under the community property laws or similar laws relating to marital property
in effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: _______________, 19
_________________________________________
Signature of Spouse
<PAGE> 39
EXHIBIT A-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of
the undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: ______ shares (the "Shares") of the Common Stock of [Company
name] (the "Company").
3. The date on which the property was transferred is: __________, 19__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon
certain events. This right lapses with regard to a portion of the Shares
based on the continued performance of services by the taxpayer over
time.
5. The fair market value at the time of transfer, determined without regard
to any restriction other than a restriction which by its terms will
never lapse, of such property is:
$_______________.
6. The amount (if any) paid for such property is:
$_______________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: ________________, 19____ ______________________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ________________, 19____ ______________________________________________
Spouse of Taxpayer
<PAGE> 1
EXHIBIT 10.12
SAIGENE CORPORATION
1997 DIRECTOR STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this 1997 Director Option
Plan are to attract and retain the best available personnel for service as
Outside Directors (as defined herein) of the Company, to provide additional
incentive to the Outside Directors of the Company to serve as Directors, and to
encourage their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the Common Stock of the Company.
(d) "Company" means Saigene Corporation, a Delaware corporation.
(e) "Director" means a member of the Board.
(f) "Employee" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(h) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the date of determination, as reported in The
Wall Street Journal or such other source as the Board deems reliable, or;
<PAGE> 2
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(i) "Inside Director" means a Director who is an Employee.
(j) "Option" means a stock option granted pursuant to the Plan.
(k) "Optioned Stock" means the Common Stock subject to an Option.
(l) "Optionee" means a Director who holds an Option.
(m) "Outside Director" means a Director who is not an Employee.
(n) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1997 Director Option Plan.
(p) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 150,000 Shares of Common Stock (the "Pool"). The Shares
may be authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
(a) Procedure for Grants. All grants of Options to Outside
Directors under this Plan shall be automatic and nondiscretionary and shall be
made strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.
-2-
<PAGE> 3
(ii) Each Outside Director shall be automatically granted an
Option to purchase 10,000 Shares (the "First Option") on the date on which the
later of the following events occurs: (A) The closing date of the Company's
initial public offering, (B) the effective date of this Plan, as determined in
accordance with Section 6 hereof, or (C) the date on which such person first
becomes an Outside Director, whether through election by the shareholders of the
Company or appointment by the Board to fill a vacancy; provided, however, that
an Inside Director who ceases to be an Inside Director but who remains a
Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically granted an
Option to purchase 2,500 Shares (a "Subsequent Option") on the date of each
annual meeting of stockholders provided he or she is then an Outside Director
and if as of such date, he or she shall have served on the Board for at least
the preceding six (6) months.
(iv) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any exercise of an Option granted before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be
as follows:
(A) the term of the First Option shall be ten (10)
years.
(B) the First Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be the Fair
Market Value on the date of grant of the First Option. In the event that the
date of grant of the First Option is not a trading day, the exercise price per
Share shall be the Fair Market Value on the next trading day immediately
following the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option
shall become exercisable as to twenty five percent of the Shares subject to the
First Option on each anniversary of its date of grant, provided that the
Optionee continues to serve as a Director on such dates.
(vi) The terms of a Subsequent Option granted hereunder
shall be as follows:
(A) the term of the Subsequent Option shall be ten (10)
years.
(B) the Subsequent Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be the Fair
Market Value on the date of grant of the Subsequent Option. In the event that
the date of grant of the Subsequent
-3-
<PAGE> 4
Option is not a trading day, the exercise price per Share shall be the Fair
Market Value on the next trading day immediately following the date of grant of
the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent Option
shall become exercisable as to one hundred percent of the Shares subject to the
Subsequent Option on the anniversary of its date of grant, provided that the
Optionee continues to serve as a Director on such dates.
(vii) In the event that any Option granted under the Plan
would cause the number of Shares subject to outstanding Options plus the number
of Shares previously purchased under Options to exceed the Pool, then the
remaining Shares available for Option grant shall be granted under Options to
the Outside Directors on a pro rata basis. No further grants shall be made until
such time, if any, as additional Shares become available for grant under the
Plan through action of the Board or the shareholders to increase the number of
Shares which may be issued under the Plan or through cancellation or expiration
of Options previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect
to continuation of service as a Director or nomination to serve as a Director,
nor shall it interfere in any way with any rights which the Director or the
Company may have to terminate the Director's relationship with the Company at
any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares
to be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
-4-
<PAGE> 5
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within three (3) months following the date of such termination,
and only to the extent that the Optionee was entitled to exercise it on the date
of such termination (but in no event later than the expiration of its ten (10)
year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of such termination, and to the extent that the Optionee does
not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event Optionee's status as a
Director terminates as a result of total and permanent disability (as defined in
Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but
only within twelve (12) months following the date of such ter mination, and only
to the extent that the Optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option on
the date of termination, or if he or she does not exercise such Option (to the
extent otherwise so entitled) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to
-5-
<PAGE> 6
exercise such Option does not exercise such Option (to the extent otherwise so
entitled) within the time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for issuance
under the Plan but as to which no Options have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option, as well
as the price per Share covered by each such outstanding Option, and the number
of Shares issuable pursuant to the automatic grant provisions of Section 4
hereof shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the Option
or equivalent option shall continue to be exercisable as provided in Section 4
hereof for so long as the Optionee serves as a Director or a director of the
Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable. Thereafter, the Option
or option shall remain exercisable in accordance with Sections 8(b) through (d)
above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that
-6-
<PAGE> 7
the Option shall be fully exercisable for a period of thirty (30) days from the
date of such notice, and upon the expiration of such period the Option shall
terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall,
for all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated there
under, state securities laws, and the requirements of any stock exchange upon
which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such
-7-
<PAGE> 8
Shares, if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
Such shareholder approval shall be obtained in the degree and manner required
under applicable state and federal law and any stock exchange rules.
-8-
<PAGE> 1
EXHIBIT 10.13
SAIGENE CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1997 Employee Purchase
Plan of Saigene Corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Purchase Plan" under
Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of
the Plan, accordingly, shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Saigene Corporation and any Designated
Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
Period.
(i) "Exercise Date" shall mean the last day of each Purchase
Period.
<PAGE> 2
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board, or;
(4) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 or SB-2 filed with the Securities and
Exchange Commission for the initial public offering of the Company's Common
Stock (the "Registration Statement").
(k) "Offering Periods" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised. The first Offering Period shall commence on the first Trading Day
on or after the date on which the Securities and Exchange Commission declares
the Company's Registration Statement effective and shall terminate on the last
Trading Day in the period ending twenty-four months later. New 24-month offering
periods will commence approximately every six months after the commencement of
the first Offering Period. The duration and timing of Offering Periods may be
changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the approximately six month
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the next Exercise Date.
-2-
<PAGE> 3
(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing every six
months, or as the Board shall determine, and continuing thereafter until
terminated in accordance with Section 20 hereof; provided, however, that the
first Offering Period under the Plan shall commence with the first Trading Day
on or after the date on which the Securities and Exchange Commission declares
the Company's Registration Statement effective and ending on the last Trading
Day in the period ending twenty-four months later. The Board shall have the
power to change the duration of Offering Periods (including the commencement
dates thereof) with respect to future offerings without shareholder approval if
such change is announced at least five (5) days prior to the scheduled beginning
of the first Offering Period to be affected thereafter.
-3-
<PAGE> 4
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the
-4-
<PAGE> 5
Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than
100,000 shares of the Company's Common Stock (subject to any adjustment pursuant
to Section 19) on the Enrollment Date, and provided further that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 12 hereof.
Exercise of the option shall occur as provided in Section 8 hereof, unless the
participant has withdrawn pursuant to Section 10 hereof. The option shall expire
on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan
as provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier with drawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall
-5-
<PAGE> 6
not resume at the beginning of the succeeding Offering Period unless the
participant delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment.
Upon a participant's ceasing to be an Employee, for any reason, he
or she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be 100,000 shares,
subject to adjustment upon changes in capitalization of the Company as provided
in Section 19 hereof. If, on a given Exercise Date, the number of shares with
respect to which options are to be exercised exceeds the number of shares then
available under the Plan, the Company shall make a pro rata allocation of the
shares remaining available for purchase in as uniform a manner as shall be
practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclu sive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
-6-
<PAGE> 7
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such partici pant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each
-7-
<PAGE> 8
Purchase Period (pursuant to Section 7), as well as the price per share and the
number of shares of Common Stock covered by each option under the Plan which has
not yet been exercised shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration". Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Periods shall terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, any Purchase Periods then in progress shall be
shortened by setting a new Exercise Date (the "New Exercise Date") and any
Offering Periods then in progress shall end on the New Exercise Date. The New
Exercise Date shall be before the date of the Company's proposed sale or merger.
The Board shall notify each participant in writing, at least ten (10) business
days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in Section 19
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or any
other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
-8-
<PAGE> 9
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
-9-
<PAGE> 10
EXHIBIT A
SAIGENE CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ________________________ hereby elects to participate in the Saigene
Corporation 1997 Employee Purchase Plan (the "Employee Purchase Plan")
and subscribes to purchase shares of the Company's Common Stock in
accordance with this Subscription Agreement and the Employee Purchase
Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 1 to _____%) during
the Offering Period in accordance with the Employee Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise
my option.
4. I have received a copy of the complete Employee Purchase Plan. I
understand that my par ticipation in the Employee Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Purchase Plan.
5. Shares purchased for me under the Employee Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
____________________________________________.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at
the time such shares were purchased by me over the price which I paid
for the shares. I hereby agree to notify the Company in writing within
30 days after the date of any disposition of my shares and I will make
adequate
<PAGE> 11
provision for Federal, state or other tax withholding obligations, if
any, which arise upon the disposition of the Common Stock. The Company
may, but will not be obligated to, withhold from my compensation the
amount necessary to meet any applicable withholding obligation
including any withholding necessary to make available to the Company
any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any
time after the expiration of the 2-year and 1-year holding periods, I
understand that I will be treated for federal income tax purposes as
having received income only at the time of such disposition, and that
such income will be taxed as ordinary income only to the extent of an
amount equal to the lesser of (1) the excess of the fair market value
of the shares at the time of such disposition over the purchase price
which I paid for the shares, or (2) 15% of the fair market value of the
shares on the first day of the Offering Period. The remainder of the
gain, if any, recognized on such disposition will be taxed as capital
gain.
7. I hereby agree to be bound by the terms of the Employee Purchase Plan.
The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Purchase Plan:
NAME: (Please print)__________________________________________________
(First) (Middle) (Last)
____________________________ _____________________________________________
Relationship
_____________________________________________
(Address)
-2-
<PAGE> 12
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________ ________________________________________________
Signature of Employee
________________________________________________
Spouse's Signature (If beneficiary other than spouse)
-3-
<PAGE> 13
EXHIBIT B
SAIGENE CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Saigene
Corporation 1997 Employee Purchase Plan which began on ____________, 19____ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned under stands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:___________________________
<PAGE> 1
EXHIBIT 10.14
FACILITIES LEASE
This Facilities Lease is made and entered into on this ______ day of
October, 1996, by and between Epoch Pharmaceuticals, Inc., a Delaware
corporation ("Epoch"), and Saigene, a Delaware corporation ("Saigene").
RECITALS
A. Saigene desires to utilize certain Epoch facilities located at
1725 220th Street, S.E., Bothell, Washington 98021.
B. Epoch desires to provide the facilities to Saigene for a _____
month period, to commence on September 20, 1996.
AGREEMENT
NOW, THEREFORE, in consideration of the recitals stated above and the
mutual covenants herein contained, and for other good and valuable consideration
the receipt and sufficiency of which hereby is acknowledged, Epoch and Saigene
hereby agree as follows:
1. Grant of Right to Use Epoch Facilities. Epoch hereby grants to
Saigene a non-exclusive right to enter and use the following portions of Epoch's
premises during Epoch's normal working hours, for a period of ______ months,
commencing on September 20, 1996:
________________________________________________________________________________
________________________________________________________________________________
(the "Facilities").
2. Restrictions on Use. Saigene shall use the Facilities only for the
purpose of the design and development of _______________. Saigene shall conduct
its operations in the Facilities in accordance with all applicable laws and
regulations, including, without limitation, any such laws and regulations
governing the use and disposal of hazardous substances. Saigene shall also
comply with all reasonable rules and regulations regarding the use of the
Facilities that Epoch may from time to time impose. Saigene acknowledges that
employees and agents of Epoch may, from time to time, inspect the Facilities
being used for compliance with these restrictions or for any other reason.
Saigene acknowledges that the right to use the Epoch Facilities granted
hereunder is personal to it and it shall not invite any other person into the
Facilities without the prior written consent of Epoch. Saigene also acknowledges
that Epoch may restrict access to certain portions of its premises.
3. Condition and Maintenance of Facilities. Saigene accepts the use
of the Facilities on an "as is" condition. Epoch expressly disclaims any
warranty or representation with regard to the condition, safety, security or
suitability of the Facilities for Saigene's intended use. Saigene shall maintain
the portion of the Facilities used hereunder in a neat, clean, orderly and safe
condition and shall be responsible for any damage done in or to these Facilities
caused by Saigene. Upon
<PAGE> 2
termination of its use of the Facilities, Saigene shall peaceably surrender and
quit the Facilities in good order, condition and repair, reasonable wear and
tear accepted, and shall remove all of its personal property from the
Facilities.
4. Indemnification. Saigene shall indemnify, hold harmless, and
defend Epoch and Epoch's subsidiaries, affiliates, directors, officers,
employees, agents and independent contractors from and against any loss, cost,
liability or expense (including but not limited to any award, any settlement
amount, court costs and reasonable fees of attorneys and other professionals)
arising out of or resulting from any use of the Facilities by Saigene.
5. No Liability. Epoch shall not be responsible for any loss or theft
of any of Saigene's personal property in the Facilities or any injury to Saigene
or any of its employees or agents while in the Facility. Saigene waives all
claims it may have for any such loss, damage or injury. EPOCH SHALL NOT BE
LIABLE TO SAIGENE, ITS EMPLOYEES OR AFFILIATES, FOR ANY INDIRECT, SPECIAL,
CONSEQUENTIAL, INCIDENTAL OR OTHER DAMAGES ARISING OUT OF THIS FACILITIES
LICENSE, SAIGENE'S UTILIZATION OF THE FACILITIES, WHETHER SUCH CLAIM ARISES IN
TORT OR CONTRACT, EVEN IF EPOCH HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
6. Insurance. Prior to using the Facilities and at all times during
the term hereof, Saigene, at its sole expense, shall maintain comprehensive
liability insurance in an amount not less than __________ Dollars ($_________)
in such form and with a reputable insurance company reasonably acceptable to
Epoch.
7. Termination. Either party hereto shall have the right to terminate
this Facilities License immediately upon the material breach of any of its terms
by the other party, or, for any reason on ____________ (____) days notice to
the other party.
8. Assignment or Sublicense. Neither this Facilities License nor any
of the rights granted hereby, in whole or in part, shall be assignable or
transferable or sublicensed by Saigene without the prior written consent of
Epoch, which may be withheld for any reason, and any attempted assignment,
transfer or sublicense in violation hereof shall be void.
9. Relationship. Nothing in this Facilities License or to be done
pursuant to its terms and conditions is intended to, or shall, create a
partnership, joint venture or principal-agent relationship, between the parties
hereto. Neither party hereto shall have any right or authority to create any
obligation, warranty, representation or responsibility, express or implied, on
behalf of the other party, nor to bind the other party in any manner whatsoever,
insofar as third parties are concerned. Unless otherwise provided in a separate
agreement, Epoch shall have no interest in the result, of Saigene's activities
in the Facilities.
10. Costs of Enforcement. If it is necessary for either party to
undertake legal action to enforce any of the provisions of this Facilities
License, the non-prevailing party agrees to pay all costs of such action
including, but not limited to, court costs and reasonable attorneys' fees.
-2-
<PAGE> 3
11. Confidentiality. Saigene acknowledges that during the course of
its use of the Facilities, it may learn of certain information concerning
inventions, trade secrets, proprietary know-how and other proprietary and
confidential information of Epoch (the "Proprietary Information"). Saigene
agrees to hold all such Proprietary Information in confidence, not disclose it
to others and not use the Proprietary Information commercially, or for any other
purpose, except with the explicit written consent of Epoch.
12. Entire Agreement. This Facilities License constitutes the entire
agreement of the parties hereto and supersedes all prior written and all prior
and contemporaneous oral agreements, understandings and negotiations between the
parties with respect to the subject matter hereof. This Facilities License is
intended by the parties hereto to be the final expression of their agreement
with respect to the matters contained herein.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
day of September, 1996.
EPOCH PHARMACEUTICALS, INC.
By: _________________________________________
Sanford S. Zweifach
Its: President and Chief Financial Officer
SAIGENE
By: _________________________________________
Its: _________________________________________
-3-
<PAGE> 1
EXHIBIT 10.15
SAIGENE CORPORATION
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of ,
1997, by and between Saigene Corporation, a Delaware corporation (the
"Company"), and ("Indemnitee").
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and its
related entities;
WHEREAS, in order to induce Indemnitee to continue to provide services
to the Company, the Company wishes to provide for the indemnification of, and
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and the Indemnitee and other
directors, officers, employees, agents and fiduciaries of the Company may not be
willing to continue to serve in such capacities without additional protection;
WHEREAS, the Company and Indemnitee recognize the continued difficulty
in obtaining liability insurance for the Company's directors, officers,
employees, agents and fiduciaries, the sig nificant increases in the cost of
such insurance and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee shall be indemnified by the Company as set forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth
below.
1. Certain Definitions.
(a) "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportions
<PAGE> 2
as their ownership of stock of the Company, becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing more than 50% of the total voting power represented by
the Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 80% of the total voting
power represented by the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of related transactions) all or substantially all of the
Company's assets.
(b) "Claim" shall mean any threatened, pending or completed
action, suit, proceeding or alternative dispute resolution mechanism, or any
hearing, inquiry or investigation that Indemnitee in good faith believes might
lead to the institution of any such action, suit, proceeding or alternative
dispute resolution mechanism, whether civil, criminal, administrative,
investigative or other.
(c) References to the "Company" shall include, in addition to
IntelliQuest Information Group, Inc., any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger to which
IntelliQuest Information Group, Inc. (or any of its wholly owned subsidiaries)
is a party which, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers, employees, agents or
fiduciaries, so that if Indemnitee is or was a director, officer, employee,
agent or fiduciary of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee, agent
or fiduciary of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(d) "Expenses" shall mean any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, to be a witness in or to
participate in, any action, suit, proceeding, alternative dispute resolution
mechanism, hearing, inquiry or investigation), judgments, fines, penalties and
amounts paid in settlement (if such settlement is approved in advance by the
Company, which approval shall not be unreasonably withheld) of any Claim
regarding any Indemnifiable Event and any federal, state, local or foreign taxes
imposed on the Indemnitee as a result of the actual or deemed receipt of any
payments under this Agreement.
2
<PAGE> 3
(e) "Expense Advance" shall mean an advance payment of Expenses to
Indemnitee pursuant to Section 3(a).
(f) "Indemnifiable Event" shall mean any event or occurrence
related to the fact that Indemnitee is or was a director, officer, employee,
agent or fiduciary of the Company, or any subsidiary of the Company, or is or
was serving at the request of the Company as a director, officer, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action or inaction on the part of
Indemnitee while serving in such capacity.
(g) "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(c) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other indemnitees under similar
indemnification agreements).
(h) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
(i) "Reviewing Party" shall mean any appropriate person or body
consisting of a member or members of the Company's Board of Directors or any
other person or body appointed by the Board of Directors who is not a party to
the particular Claim for which Indemnitee is seeking indemnification, or
Independent Legal Counsel.
(j) "Voting Securities" shall mean any securities of the Company
that vote generally in the election of directors.
2. Indemnification.
(a) Indemnification of Expenses. The Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any Claim by reason of (or
arising in part out of) any Indemnifiable Event against Expenses, including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Expenses. Such payment of Expenses shall be made by the Company
as soon as practicable but in any event no later than five (5) business days
after written demand by Indemnitee therefor is presented to the Company.
3
<PAGE> 4
(b) Reviewing Party. Notwithstanding the foregoing, (i) 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 Independent Legal Counsel referred to in Section 2(c) hereof
is involved) that Indemnitee would not be permitted to be indemnified under
applicable law, and (ii) the obligation of the Company to make an Expense
Advance shall be subject to the condition that, if, when and to the extent that
the Reviewing Party determines that Indemnitee would not be permitted to be so
indemnified under applicable law, the Company shall be entitled to be reimbursed
by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts
theretofore paid; provided, however, that if Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee should be indemnified under applicable
law, any determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as to
which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expense Advance shall
be unsecured and no interest shall be charged thereon. If there has not been a
Change in Control, the Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a Change
in Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such Change in Control), the
Reviewing Party shall be the Independent Legal Counsel. If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
Indemnitee substantively would not be permitted to be indemnified in whole or in
part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Absent such litigation, any determination
by the Reviewing Party shall be conclusive and binding on the Company and
Indemnitee.
(c) Change in Control. The Company agrees that if there is a
Change in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), then with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel, if desired by Indemnitee, shall be selected by
Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld). Such counsel, among other things, shall render its written opinion to
the Company and Indemnitee as to whether and to what extent Indemnitee would be
permitted to be indemnified under applicable law and the Company agrees to abide
by such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify fully such counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto. Notwithstanding any other provision of this Agreement, the
Company shall not be required to pay Expenses of more than one Independent Legal
Counsel in connection with all matters concerning a single Indemnitee, and such
Independent Legal Counsel shall be the Independent Legal Counsel for
4
<PAGE> 5
any or all other Indemnitees unless (i) the Company otherwise determines or (ii)
any Indemnitee shall provide a written statement setting forth in detail a
reasonable objection to such Independent Legal Counsel representing other
Indemnitees.
(d) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim regarding any Indemnifiable Event, Indemnitee shall be indemnified against
all Expenses incurred by Indemnitee in connection therewith.
3. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all
Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid
by the Company to Indemnitee as soon as practicable but in any event no later
than five (5) business days after written demand by Indemnitee therefor to the
Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim 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 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. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. 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
Indemnitee is not so entitled.
5
<PAGE> 6
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 3(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim the Company, if
appropriate, shall be entitled to assume the defense of such Claim with counsel
approved by Indemnitee (not to be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election so to do. After delivery
of such notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided that, (i) Indemnitee shall have the right to
employ Indemnitee's separate counsel in any such Claim at Indemnitee's expense
and (ii) if (A) the employment of separate counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain such counsel to defend such Claim, then the fees and expenses
of Indemnitee's separate counsel shall be at the expense of the Company.
4. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify the Indemnitee
to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this
Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or
by statute. In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of a Delaware
corporation to indemnify a member of its board of directors or an officer,
employee, agent or fiduciary, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits afforded by such
change. In the event of any change in any applicable law, statute or rule which
narrows the right of a Delaware corporation to indemnify a member of its board
of directors or an officer, employee, agent or fiduciary, such change, to the
extent not otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder except as set forth in Section 9(a) hereof.
(b) Nonexclusivity. The indemnification provided by this
Agreement shall be in addition to any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any other
agreement, any vote of stockholders or disinterested directors, the General
Corporation Law of the State of Delaware, or otherwise. The indemnification
provided under this Agreement shall continue as to Indemnitee for any action
taken or not taken while serving in an indemnified capacity even though
Indemnitee may have ceased to serve in such capacity.
6
<PAGE> 7
5. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, bylaw or otherwise) of the amounts otherwise indemnifiable
hereunder.
6. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
7. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
8. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
9. Exceptions. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for
acts, omissions or transactions from which Indemnitee may not be relieved of
liability under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this
7
<PAGE> 8
Agreement, if a court of competent jurisdiction determines that each of the
material assertions made by the Indemnitee in such proceeding was not made in
good faith or was frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
10. Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. 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. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
a director, officer, employee, agent or fiduciary (as applicable) of the Company
or of any other enterprise at the Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless as a part of such action a court
of competent jurisdiction over such action determines that each of the material
assertions made by Indemnitee as a basis for such action were not made in good
faith or were frivolous. In the event of an action instituted by or in the name
of the Company under this Agreement to enforce or interpret any of the terms of
this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee in defense of such action (including costs and expenses incurred with
respect to Indemnitee's counterclaims and cross-claims made in such action), and
shall be entitled to the advancement of Expenses with respect to such action,
unless as a part of such action a court
8
<PAGE> 9
having jurisdiction over such action determines that each of Indemnitee's
material defenses to such action were made in bad faith or were frivolous.
14. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. 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.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
Delaware as applied to contracts between Delaware residents entered into and to
be performed entirely within the State of Delaware.
18. 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 Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
9
<PAGE> 10
20. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
SAIGENE CORPORATION
By: __________________________
Title: _______________________
Address:
AGREED TO AND ACCEPTED
INDEMNITEE:
_____________________
(signature)
_____________________
Indemnitee
_____________________
_____________________
(address)
10
<PAGE> 1
Exhibit 10.16
EMPLOYMENT AGREEMENT
(EXECUTIVE EMPLOYEE)
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of September 27, 1996, by and between SAIGENE CORPORATION, a
Delaware corporation (the "Company") and Ronald R. Helm ("Executive").
ARTICLE I
DUTIES AND TERM
1.1 EMPLOYMENT. In consideration of their mutual covenants and other
good and valuable consideration, the receipt, adequacy and sufficiency of which
is hereby acknowledged, the Company agrees to hire Executive, and Executive
agrees to remain in the employ of the Company, upon the terms and conditions
herein provided.
1.2 POSITION AND RESPONSIBILITIES.
(a) Executive shall serve as the Chief Executive Officer of
the Company (or in such other capacity and with such other title as the Company
may reasonably request) reporting directly to the Board of Directors of the
Company. Executive agrees to perform services not inconsistent with his position
as shall from time to time be assigned to him by the Board of Directors of the
Company. Executive further agrees to serve, if elected, as a director of the
Company and as an officer and/or director of any subsidiary or affiliate of the
Company. Executive shall devote all of his productive time, attention, knowledge
and skill to the discharge of his duties under this Agreement and shall devote
no less than five (5) business days a week (subject only to Company recognized
holidays and approved vacation days), eight (8) hours per day.
(b) During the period of his employment hereunder, Executive
shall devote substantially all of his business time, attention, skill and
efforts to the faithful performance of his duties hereunder. Executive may not,
without written notice to and express written permission of the Company, render
to others services of any kind for compensation, or engage in any other
research, scientific or business activity that would interfere with the
performance of Executive's duties under this Agreement, nor will Executive
accept competing employment, or make preparations to compete with Company.
1.3 TERM. The term of Executive's employment under this Agreement shall
commence on the date first above written and shall continue, unless sooner
terminated, until September 30, 1999.
1.4 LOCATION. During the period of his employment under this Agreement,
Executive's performance of this Agreement shall be rendered at the Company's
principal office, located at 1725
<PAGE> 2
220th Street, SE, #104, Bothell, Washington 98021, as well as such other place
or places as the Company shall in good faith require or as the interest, needs,
business and opportunities of the Company shall require or make advisable.
ARTICLE II
COMPENSATION
For all services rendered by Executive in any capacity during his
employment under this Agreement, including, without limitation, services as a
director, officer or member of any committee of the Board of the Company or of
the Board of Directors of any subsidiary or affiliate of the Company, the
Company shall compensate Executive as follows:
2.1 BASE SALARY. The Company shall pay to Executive an annual base
salary of One Hundred Sixty Thousand Eight Dollars ($160,008.00) (the "Base
Salary") during the term hereof; provided, however, that in the event the
Company institutes a salary reduction program which affects all exempt employees
(as defined by standard Company policies in compliance with the Fair Labor
Standards Act) by the same percentage, then Executive's Base Salary may be
reduced by such percentage (and the term "Base Salary" as used in this Agreement
shall refer to Base Salary as so adjusted). Executive's Base Salary shall be
paid in equal semi-monthly installments. The Base Salary may be reviewed
annually by the Board or a committee designated by the Board and the Board or
such committee may, in its discretion, increase the Base Salary.
2.2 BONUS COMPENSATION. During the period of Executive's employment
under this Agreement, the Company may, but shall not be required to, pay to
Executive such bonus or bonuses, in cash, stock, stock options or other
consideration, as the Board or a committee designated by the Board may determine
to be appropriate. The foregoing notwithstanding, the Company shall pay
Executive a one-time cash bonus equal to one (1) month's installment payment of
Executive's Base Salary upon successful completion of an Initial Public Offering
or Private Placement by the Company which raises more than Three Million Dollars
($3,000,000.00), if completed prior to October 1, 1997.
2.3 ADDITIONAL BENEFITS. Executive shall be entitled to participate in
all employee benefit and welfare programs, plans and arrangements (including,
without limitation, pension, profit-sharing, supplemental pension and other
retirement plans, insurance, hospitalization, medical and group disability
benefits, travel or accident insurance plans) and to receive fringe benefits,
such as dues and fees of professional organizations and associations, which are
from time to time available to the Company's Scientific or Technical personnel;
provided, however, there shall be no duplication of termination or severance
benefits, and to the extent that such benefits are specifically provided by the
Company to Executive under other provisions of this Agreement, the benefits
available under the foregoing plans and programs shall be reduced by any benefit
amounts paid under such other provisions. Executive shall during the period of
his employment hereunder continue to be provided with benefits at a level which
shall in no event be less in any material respect than the benefits made
available to Executive by the Company as of the date of this Agreement.
Notwithstanding the
-2-
<PAGE> 3
foregoing, the Company may terminate or reduce benefits under any benefit plans
and programs to the extent such reductions apply uniformly to all Executive
Employees entitled to participate therein, and Executive's benefits shall be
reduced or terminated accordingly. Specifically, without limitation, Executive
shall receive the following benefits:
(a) RELOCATION EXPENSES. In the event Executive's principal
place of employment is relocated outside King County, California, the Company
shall reimburse Executive for all usual relocation expenses incurred by
Executive and his household in moving to the new location, including, without
limitation, moving expenses and rental payments for temporary living quarters in
the area of relocation for a period not to exceed six (6) months.
(b) REIMBURSEMENT OF BUSINESS EXPENSES. The Company shall, in
accordance with standard Company policies, pay, or reimburse Executive for all
reasonable travel and other expenses incurred by Executive in performing his
obligations under this Agreement.
(c) VACATIONS. Executive shall be entitled to fifteen (15)
business days excluding Company holidays, of paid vacation during each year of
employment hereunder. Executive may accrue and carry forward no more than
twenty-five (25) unused vacation days from any particular year of his employment
under this Agreement to the next.
ARTICLE III
TERMINATION OF EMPLOYMENT
3.1 DEATH OR RETIREMENT OF EXECUTIVE. Executive's employment under this
Agreement shall automatically terminate upon the death or retirement (as defined
in Section 6.1) of Executive.
3.2 BY EXECUTIVE. Executive shall be entitled to terminate his
employment under this Agreement by giving Notice of Termination (as defined in
Section 6.1) to the Company:
(a) For good reason (as defined in Section 6.1);
(b) At any time commencing with the date six (6) months
following the date of a change in control (as defined in Section 6.1) and ending
with the date twelve (12) months after the date of such change in control (a
"Change in Control Resignation"); and
(c) At any time without good reason.
3.3 BY COMPANY. The Company shall be entitled to terminate Executive's
employment under this Agreement by giving notice of termination to Executive:
(a) In the event of Executive's Disability (as defined in
Section 6.1);
-3-
<PAGE> 4
(b) For Cause (as defined in Section 6.1); and
(c) At any time without cause.
ARTICLE IV
COMPENSATION UPON TERMINATION OF EMPLOYMENT
If Executive's employment hereunder is terminated in accordance with
the provisions of Article III hereof, except for any other rights or benefits
specifically provided for herein following his period of employment, the Company
shall be obligated to provide compensation and benefits to Executive only as
follows, subject to the provisions of Section 5.4 hereof:
4.1 UPON TERMINATION FOR DEATH OR DISABILITY. If Executive's employment
hereunder is terminated by reason of his death or disability, the Company shall:
(a) Pay Executive (or his estate) or beneficiaries any Base
Salary which has accrued but not been paid as of the termination date (the
"Accrued Base Salary");
(b) Pay Executive (or his estate) or beneficiaries for unused
vacation days accrued as of the termination date in an amount equal to his Base
Salary multiplied by a fraction the numerator of which is the number of accrued
unused vacation days and the denominator of which is 360 (the "Accrued Vacation
Payment");
(c) Reimburse Executive (or his estate) or beneficiaries for
expenses incurred by him prior to the date of termination which are subject to
reimbursement pursuant to this Agreement (the "Accrued Reimbursable Expenses");
(d) Provide to Executive (or his estate) or beneficiaries any
accrued and vested benefit required to be provided by the terms of any
Company-sponsored benefit plans or programs (the "Accrued Benefits"), together
with any benefits required to be paid or provided in the event of Executive's
death or disability under applicable law;
(e) Pay Executive (or his estate) or beneficiaries any Bonus
with respect to a prior fiscal year which has accrued but has not been paid; and
in addition,
(f) Executive (or his estate) or beneficiaries shall have the
right to exercise all vested unexercised stock options and warrants outstanding
at the termination date in accordance with terms of the plans and agreements
pursuant to which such options or warrants were issued.
4.2 UPON TERMINATION BY COMPANY FOR CAUSE OR BY EXECUTIVE WITHOUT GOOD
REASON. If Executive's employment is terminated by the Company for Cause, or if
Executive terminates his employment with the Company other than (x) upon
Executive's death or disability, (y)
-4-
<PAGE> 5
for good reason, or (z) pursuant to a Change in Control Resignation (as defined
in Section 3.2 (b)) the Company shall:
(a) Pay Executive the Accrued Base Salary;
(b) Pay Executive the Accrued Vacation Payment;
(c) Pay Executive the Accrued Reimbursable Expenses;
(d) Pay Executive the Accrued Benefits, together with any
benefits required to be paid or provided under applicable law; and in addition
(e) Executive shall have the right to exercise vested options
and warrants in accordance with Section 4.1(f).
4.3 UPON TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY EXECUTIVE FOR
GOOD REASON PRIOR TO A CHANGE IN CONTROL. If Executive's employment is
terminated by the Company Without Cause or by Executive for Good Reason, the
Company shall:
(a) Pay Executive the Accrued Base Salary;
(b) Pay Executive the Accrued Vacation Payment;
(c) Pay Executive the Accrued Reimbursable Expenses;
(d) Pay Executive the Accrued Benefits, together with any
benefits required to be paid or provided under applicable law;
(e) Pay Executive any accrued but unpaid Bonus Payments;
(f) Pay Executive commencing on the thirtieth (30th) day
following the termination date twelve (12) monthly payments equal to one-twelfth
(1/12th) of the sum of (1) Executive's Base Salary in effect immediately prior
to the time such termination occurs, plus (2) if Executive is employed with
Company for more than twelve (12) months prior to his termination by the Company
Without Cause or by Executive for Good Reason, the Bonus amount paid to
Executive for the fiscal year (or if more than one Bonus has been paid to
Executive, the average of the Bonuses paid to Executive per annum for the two
(2) fiscal years) immediately preceding the fiscal year in which the termination
occurs; provided, however, should Executive attain alternative employment during
the twelve (12) month payment period, the Company's obligations under this
Section 4.3(f) will be reduced by the amount of Executive's compensation from
his new employer. For example, if Executive were entitled to receive $12,000.00
per month for twelve (12) months under this Section 4.3(f), and three (3) months
following his termination date he finds alternative employment that pays him
$10,000.00 per month, the Company would be obligated to pay Executive three (3)
monthly payments of $12,000.00, and nine (9) monthly payments of $2,000.00 under
this Section 4.3(f);
-5-
<PAGE> 6
(g) Maintain in full force and effect, for Executive's and his
eligible beneficiaries' continued benefit, until the first to occur of (x) his
attainment of alternative employment or (y) twelve (12) months following the
termination date of his employment hereunder the employee benefits provided
pursuant to Company-sponsored benefit plans, programs or other arrangements in
which Executive was entitled to participate as a full-time employee immediately
prior to such termination in accordance with Section 2.4 hereof, subject to the
terms and conditions of such plans and programs (the "Continued Benefits"). If
Executive's continued participation is not permitted under the general terms and
provisions of such plans, programs and arrangements, the Company shall arrange
to provide Executive with Continued Benefits substantially similar to those
which Executive would have been entitled to receive under such plans, programs
and arrangements; and in addition
(h) Executive shall have the right to exercise all vested
unexercised stock options and warrants in accordance with Section 4.1(f).
4.4 UPON TERMINATION BY THE COMPANY WITHOUT CAUSE FOLLOWING A CHANGE IN
CONTROL OR BY EXECUTIVE FOR GOOD REASON FOLLOWING A CHANGE IN CONTROL OR
PURSUANT TO A CHANGE IN CONTROL RESIGNATION. If following a Change In Control,
Executive's employment is terminated by the Company Without Cause or by
Executive for Good Reason or pursuant to a Change In Control Resignation, the
Company shall:
(a) Make the payments and provide to Executive the benefits
under Section 4.3 other than under Section 4.3(f) hereof; and in addition
(b) Pay to Executive a lump sum payment on or prior to the
thirtieth (30th) day following the termination date of Executive's employment
hereunder in an amount equal to two hundred percent (200%) of Executive's
aggregate total compensation under Sections 2.1 and 2.2 hereof for the fiscal
year immediately prior to the fiscal year in which the Change In Control occurs;
provided, however, the total payments received by Executive under this Section
4.4(b) plus (i) any payments received by Executive under Section 4.4(a)which
would be classified as parachute payments and (ii) any payments or value
received by Executive from stock options which would be classified as parachute
payments determined in accordance with Prop. Reg. Section 1.280G-1A-24(e)
Examples (7) and (8) may not exceed two hundred ninety-nine percent (299%) of
Executive's "Base Amount" as such term is defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
promulgated thereunder (the "Regulations"). Company and Executive agree that for
purposes of making any present value calculation under this Agreement, the
Applicable Federal Rate in effect on the date this Agreement is executed shall
control as permitted by Q&A 32 of Treas. Reg. Section 1.280G-1.
-6-
<PAGE> 7
ARTICLE V
RESTRICTIVE COVENANTS
5.1 CONFIDENTIALITY AND OWNERSHIP.
(a) During the term of this Agreement, Executive will have
access to trade secrets, data, know-how, technical and scientific knowledge and
other information of value to the Company and its business. Executive covenants
and agrees to hold in strictest confidence, and not disclose to any person
without the express written consent of the Company, any and all of the Company's
confidential information, as defined in Subparagraph (i) below, except as such
disclosure may be required in connection with his employment hereunder. In
addition, Executive may during the term of this Agreement create, make, develop,
invent or conceive inventions, discoveries, concepts, ideas, designs, works or
authorship, developments, information, improvements, or trade secrets, whether
patentable or not, and whether solely or jointly with others, which may or may
not also constitute Confidential Information (collectively referred to as
"Inventions"). Executive agrees that all works of authorship to which Executive
contributes shall be considered "works made for hire" and shall be the sole
property of the Company.
(b) Executive agrees that he will neither utilize any
Confidential Information for his own benefit or for the benefit of anyone except
Company, nor disclose, disseminate, lecture upon or publish articles about any
Confidential Information to any one outside the Company, or to any officer or
employee of Company not also having access to Confidential Information, at any
time either during or after employment by Company.
(c) Executive agrees to disclose promptly, in writing to the
Company's Chief Executive Officer, any Inventions that Executive may make,
develop or conceive, solely or jointly, during the period of employment by
Company, or by its predecessors, successors in business subsidiaries, parents or
affiliates. All such Inventions shall be and remain the property of Company.
Executive hereby assigns to Company all Executive's rights, titles and interests
in and to any such Inventions, whether or not such Inventions may be reduced to
practice during the period of Executive's employment, and to execute all patent
or copyright applications, assignments and other documents, and to take all
other steps necessary, to vest in Company the entire right, title and interest
in and to those Inventions and in and to any patents or copyrights obtainable
therefor in the United States and in foreign countries, all at Company's
expense, but for no consideration to Executive in addition to Executive's salary
or wages. Executive agrees to keep adequate records of all Inventions and make
such records available to Company.
(d) If Company chooses to prosecute applications for patents
or copyrights for any such Inventions, Company shall assume the entire expense
of preparing, filing and prosecuting such applications, through counsel
appointed by Company; provided, however, that Company is under no obligation to
prosecute such applications. Executive agrees to cooperate with Company and do
whatever is necessary or appropriate to obtain patents, copyrights or other
legal protections for Inventions. If Executive is incapacitated or refuses to so
cooperate for any reason, Executive hereby
-7-
<PAGE> 8
authorizes Company to act as Executive's agent and to take whatever actions, or
execute whatever documents, may be needed to carry out this Agreement.
(e) All records and other material pertaining to Confidential
Information, whether developed by Executive or others, shall be and remain the
property of Company. Upon termination of Executive's employment with Company,
all documents, records, notebooks and other material of any kind pertaining to
or containing Confidential Information then in Executive's possession, or under
Executive's control, whether prepared by Executive or others, will be returned
to Company unconditionally.
(f) Executive shall not be obligated to assign any Invention
which relates to or would be useful in any business or activities in which
Company is engaged if such Invention was conceived and reduced to practice by
Executive prior to Executive's employment with Company, provided that all such
Inventions are listed at the time of employment on the attached Exhibit "B." If
no entry is made on Exhibit "B," then such entry shall be deemed to be "none,"
whether or not Exhibit "B" is signed by Executive. Except as listed on Exhibit
"B," Executive will not assert any rights to any Inventions, as having been made
or acquired by Executive prior to being employed by Company.
(g) Executive shall not be obligated to assign any Invention
which may be wholly conceived by Executive after Executive leaves the employ of
Company, except that Executive is so obligated if such Invention shall involve
the utilization of Confidential Information of Company.
(h) During and after Executive's employment with Company,
Executive will not solicit or induce any Executive or consultant of Company to
quit their employment or stop doing business with Company, unless Company is
specifically, in writing, authorized by Company to do so.
(i) Upon expiration or termination of this Agreement for any
reason, Executive shall immediately turnover to the Company any "Confidential
Information." Executive shall have no right to retain any copies of any material
qualifying as Confidential Information for any reason whatsoever after
expiration or termination of his employment hereunder without the express
written consent of the Company.
(j) For purposes of this Agreement, "Confidential Information"
means and includes the following: All scientific and/or technical information or
know-how possessed by the Company; all research, testing, or other
investigations conducted by the Company or for the Company's benefit; all
product ideas, including processes, applications and methods; the identity of
clients or customers or potential clients or customers of the Company or its
affiliates; any written, typed or printed lists, or other materials identifying
the clients or customers of the Company or its affiliates; any scientific,
technical or other information supplied by clients or customers of the Company
or its affiliates; any and all data or information involving the Company, its
affiliates, programs, methods or contacts employed by the Company or its
affiliates in the conduct of their business; any lists, documents, manuals,
records, forms or other materials used by the Company or its affiliates in the
conduct of their business; any descriptive materials describing the methods and
-8-
<PAGE> 9
procedures employed by the Company or its affiliates in the conduct of their
business; and an other secret or confidential information concerning the
Company's or its affiliates' business or affairs. The terms "list," "document"
or their equivalents, as used in this Subparagraph (i), are not limited to a
physical writing or compilation but also include any and all information
whatsoever regarding the subject matter of the "list" or "documents," whether or
not such compilation has been reduced to writing.
(k) Executive acknowledges that he is a key executive employee
of the Company and, as such, he has had and will continue to have access to
confidential information about the Company, its affiliates, and their clients
and that "Confidential Information" acquired by him at the expense of the
Company is for use in its business. Executive has substantial experience in the
industry and possesses special, unique, extraordinary skills and knowledge in
this field. Executive's managerial, marketing and technical services to the
Company are special, unique and extraordinary and the success or failure of the
Company is dependent upon his discharge of his duties and obligations.
Accordingly, by execution of this Agreement, and subject to Subparagraph (c)
hereof, Executive agrees that during his employment with the Company and for a
period of thirty-six (36) months following the date of expiration or termination
of his employment hereunder (the "Non-Competition Period") for any reason
(whether such termination shall be voluntary or involuntary), he shall not
violate the provisions of Section 5.2. Executive agrees that the thirty-six (36)
month period referred to in the preceding sentence shall be extended by the
number of days included in any period of time during which he is or was engaged
in activities constituting a breach of Section 5.2.
5.2 COMPETITION.
(a) During the Non-Competition Period specified in Section
5.1(k), Executive shall not:
(i) Except as a passive investor in publicly-held
companies, and except for investments held as of the date hereof, directly or
indirectly own, operate, mange, consult with, control, participate in the
management or control of, be employed by, maintain or continue any interest
whatsoever in any company that directly competes with the Company in the United
States; or
(ii) Directly or indirectly solicit any business of a
nature that is directly competitive with the business of the Company from any
individual or entity that obtained such products or services from the Company or
its affiliates at any time during his employment with the Company; or
(iii) Directly or indirectly solicit any business of
a nature that is directly competitive with the business of the Company from any
individual or entity solicited by him on behalf of the Company or its
affiliates; or
(iv) Employ, or directly or indirectly solicit, or
cause the solicitation of, any employees of the Company who are in the employ of
the Company on the termination date of his employment hereunder for employment
by others.
-9-
<PAGE> 10
(b) Executive expressly agrees and acknowledges that:
(i) It will require a substantial amount of time for
the Company to locate, hire and train an appropriate individual to perform the
functions and duties that Executive is performing hereunder;
(ii) The Company has protected business interests
throughout the United States of America and that competition with and against
such business interests would be harmful to the Company;
(iii) This covenant not to compete is reasonable as
to time and geographical area and does not place any unreasonable burden upon
him;
(iv) The general public will not be harmed as a
result of enforcement of this covenant not to compete;
(v) His personal legal counsel has reviewed this
covenant not to complete; and
(vi) He understands and hereby agrees to each and
every term and condition of to this covenant not to compete (including, without
limitation, the provisions of Section 5.2).
5.3 NON-DISPARAGEMENT. During the term of this Agreement and the
Non-Competition Period, neither Executive nor the Company shall disparage the
other, and neither shall disclose to any third party the conditions of
Executive's employment with the Company except as may be required (i) pursuant
to applicable law or regulations, including the rules and regulations of the
Securities and Exchange Commission, (ii) to effectuate the provisions of
employee plans or programs and insurance policies, or (iii) as may be otherwise
contemplated herein or unless such information becomes publicly available
without fault of the party making such disclosure.
5.4 REMEDIES. Executive expressly agrees and acknowledges that this
covenant not to compete is necessary for the protection of the Company and its
affiliates because of the nature and scope of their business and his position
with the Company. Further, Executive acknowledges that any breach of this
covenant not to compete would result in irreparable damage to the Company, and
in the event of his breach of this covenant not to compete, money damages will
not sufficiently compensate the Company for its injury caused thereby, and that
the remedy at law for any breach or threatened breach of Sections 5.1, 5.2 and
5.3 will be inadequate and, accordingly agrees, that the Company shall, in
addition to all other available remedies (including without limitation, seeking
such damages as it can show it has sustained by reason of such breach), be
entitled to injunctive relief or specific performance and that in addition to
such money damages he may be restrained and enjoined from any continuing breach
of this covenant not to compete without any bond or other security being
required of any court. Executive further acknowledges and agrees that if the
covenant not to compete herein
-10-
<PAGE> 11
is deemed to be unenforceable and/or the Executive fails to comply with this
Article V, the Company has no obligation to provide any compensation or other
benefits described in Article IV hereof.
ARTICLE VI
MISCELLANEOUS
6.1 DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following meanings:
(a) "Accrued Base Salary" - as defined in Section 4.1(a);
(b) "Accrued Benefits" - as defined in Section 4.1(d);
(c) "Accrued Reimbursable Expenses" - as defined in Section
4.1(c);
(d) "Accrued Vacation Payment" - as defined in Section 4.1(b);
(e) "Base Amount" - as defined in Section 4.4(b);
(f) "Base Salary" - as defined in Section 2.1;
(g) "Board" - shall mean the Board of Directors of the
Company;
(h) "Cause" - shall mean the occurrence of any of the
following:
(i) Executive's misconduct which is injurious to the
Company;
(ii) Executive's engaging in fraudulent conduct with
respect to the Company's business or in conduct of a criminal nature that may
have an adverse impact on the Company's standing and reputation;
(iii) The continued and unjustified failure or
refusal by Executive to perform the duties required of him by this Agreement
which failure or refusal shall not be cured within fifteen (15) days following
(a) receipt of Executive of written notice from the Board specifying the factors
or events constituting such failure or refusal, and (b) a reasonable opportunity
for Executive to correct such deficiencies;
(iv) Executive's use of drugs and/or alcohol in
violation of law or of then-current Company policy; or
(v) Executive's breach of his obligation under
Section 1.2(c) hereof which shall not be cured within fifteen (15) days after
written notice thereof to Executive.
-11-
<PAGE> 12
(i) "Change In Control" - shall mean and shall be deemed to
have occurred if:
(i) After the date of this Agreement, any "person"
(as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or any successor provision
thereto) shall become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act or any successor provision thereof) directly or
indirectly of securities of the Company representing fifteen percent (15%) or
more of the combined voting power of the Company's then outstanding securities
ordinarily having the right to vote at an election of directors; provided,
however, that, for purposes of this Subparagraph, "person" shall exclude the
Company, its subsidiaries, any person acquiring such securities directly from
the Company, any employee benefit plan sponsored by the Company or from
Executive or any stockholder owning fifteen percent (15%) or more of the
combined voting power of the Company's outstanding securities as of the date of
this Agreement; or
(ii) Any stockholder of the Company owning fifteen
percent or more of the combined voting power of the Company's outstanding
securities as of the date of this Agreement shall become the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) directly or indirectly
of securities of the Company (other than through the acquisition of securities
directly from the Company or from Executive) representing twenty-five percent
(25%) or more of the combined voting power of the Company's then outstanding
securities ordinarily having the right to vote at an election of directors; or
(iii) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") case for any reason to constitute
at least eighty percent (80%) of the Board; provided, however, that any person
becoming a member of the Board subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by a vote of
at least eighty percent (80%) of the members then comprising the Incumbent Board
(other than an election or nomination of an individual whose initial assumption
of office is in connection with an actual or threatened election contest
relating to the election of directors of the Company, as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or any
successor provision thereto) shall be, for purposes of this Agreement,
considered as though such person were a member of the Incumbent Board; or
(iv) Approval by the stockholders of the Company and
consummation of (a) a reorganization, merger, consolidation, or sale or other
disposition of all or substantially all of the assets of the Company, in each
case, with or to a corporation or other person or entity of which persons who
were the stockholders of the Company immediately prior to such transaction do
not, immediately thereafter, own more than sixty percent (60%) of the combined
voting power of the outstanding voting securities entitled to vote generally in
the election of directors of the reorganized, merged, consolidated or purchasing
corporation (or, in the case of a non-corporate person or entity) were not
members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger, consolidation or sale, or
(b) a liquidation or dissolution of the Company.
-12-
<PAGE> 13
(j) "Change In Control Resignation" -as defined in Section
3.2(b);
(k) "Code" - as defined in Section 4.4(b);
(l) "Common Stock" - shall mean shares of the common stock,
par value $.001 per share, of the Company;
(m) "Continued Benefits" - as defined in Section 4.3(g);
(n) "Expiration" shall mean the expiration of Executive's
employment hereunder in accordance with Section 1.3;
(o) "Good Reason" - shall mean the occurrence of any of the
following:
(i) The Company's failure to elect or reelect or to
appoint or reappoint Executive to offices, titles or positions carrying
comparable authority, responsibilities, dignity and importance to that of
Executive's offices and positions as of September 30, 1996, or in the case of a
Change In Control, involving duties of a scope comparable to those of
Executive's most significant offices or positions held at any time during the
90-day period immediately preceding the date such Change In Control occurs;
(ii) Material change by the Company in Executive's
function, duties or responsibilities (including reporting responsibilities)
which would cause Executive's position with the Company to become of less
dignity, responsibility and importance than those associated with his functions,
duties or responsibilities as of September 30, 1996, or in the case of a Change
In Control, involving duties of a scope less than that associated with
Executive's most significant position with the Company during the 90-day period
immediately preceding the date such Change In Control occurs;
(iii) Executive's Base Salary is reduced by the
Company (unless such reduction is pursuant to a salary reduction program as
described in Section 2.1 hereof) or there is a material reduction in the
benefits that are in effect for the Executive on September 30, 1996 in
accordance with Section 2.4 (unless such reduction is pursuant to a uniform
reduction in benefits for all Senior Executives);
(iv) The failure by the Company to obtain the
assumption by operation of law or otherwise of this Agreement by any entity
which is the surviving entity in any merger or other form of corporate
reorganization involving the Company or by any entity which acquires all or
substantially all of the Company's assets; or
(v) Other material breach of this Agreement by the
Company, which breach is not cured within fifteen (15) days after written notice
thereof is received by the Company.
(p) "Incumbent Board" - as defined in Section 6.1(i)(iii);
-13-
<PAGE> 14
(q) "Non-Competition Period" - as defined in Section 5.1(j);
(r) "Notice of Termination" - shall mean a notice which shall
indicate the specific termination provision of this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provisions
so indicated. Each Notice of Termination shall be delivered at least thirty (30)
days prior to the effective date of termination;
(s) "Confidential Information" - as defined in Section 5.1(i);
(t) "Retirement" - shall mean normal retirement at age 65;
(u) "Senior Executives" or "Executive Employees" - shall mean
the chief executive officer and the four (4) most highly compensated executive
officers of the Company determined in accordance with the rules and regulations
of the Securities and Exchange Commission under the Exchange Act;
(v) "Termination" - shall mean the termination of Executive's
employment hereunder other than upon expiration of the term of such employment
in accordance with Section 1.3;
(w) "Disability" - shall mean Executive's failure to perform
his duties hereunder on a full-time basis for a period exceeding one hundred
eighty (180) consecutive days or for periods aggregating more than 180 days
during any twelve-month period as a result of incapacity due to physical or
mental illness. If there is a dispute as to whether Executive is or was
physically or mentally unable to perform his duties under this Agreement, such
dispute shall be submitted for resolution to a licensed physician agreed upon by
the Board and Executive, or if an agreement cannot be promptly reached, the
Board and Executive shall promptly select a physician, and if these physicians
cannot agree, the physicians shall promptly select a third physician whose
decision shall be binding on all parties. If such a dispute arises, Executive
shall submit to such examinations and shall provide such information as such
physician(s) may request, and the determination of the physician(s) as to
Executive's physical or mental condition shall be binding and conclusive.
Notwithstanding the foregoing, if Executive participates in any group disability
plan provided by the Company which offers long-term disability benefits,
"Disability" shall mean total disability as defined therein.
6.2 KEY MAN INSURANCE. The Company shall have the right, in its sole
discretion, to purchase "key man" insurance on the life of Executive. The
Company shall be the owner and beneficiary of any such policy. If the Company
elects to purchase a policy, Executive shall take such physical examinations and
supply such information as may be reasonably requested by the insurer.
6.3 MITIGATION OF DAMAGES; NO SET-OFF DISPUTE RESOLUTION.
(a) Executive shall be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise.
The amount of any payment provided for in this Agreement, except as provided in
Sections 4.3(f) and (g) hereof, shall be reduced
-14-
<PAGE> 15
by any compensation earned by Executive as the result of employment by another
employer after the date of termination of his employment hereunder or otherwise.
(b) If there shall be any dispute between the Company and
Executive (i) in the event of any termination of Executive's employment by the
Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by Executive, whether Good Reason existed, or (iii)
otherwise, the dispute shall be resolved in accordance with the dispute
resolution procedures set forth in Exhibit "A" hereto, the provisions of which
are incorporated as a part hereof, and the parties hereto hereby agree that such
dispute resolution procedures shall be the exclusive method for resolution of
disputes under this Agreement. In the event of a dispute hereunder as to whether
a termination by the Company was for Cause or by the Executive for Good Reason,
until there is a resolution and award as provided in Exhibit "A," the Company
shall pay all amounts, and provide all benefits, to Executive and/or Executive's
family or other beneficiaries, as the case may be, that the Company would be
required to pay or provide hereunder as though such termination were by the
Company without Cause or by Executive for Good Reason and shall pay the
reasonable legal fees and expenses of counsel for Executive in connection with
such dispute resolution; provided, however, that the Company shall not be
required to pay any disputed amounts or any legal fees and expenses pursuant to
this Subparagraph (b) except upon receipt of a written undertaking by or on
behalf of Executive (and/or Executive's family or other beneficiaries, as the
case may be) to repay, without interest or penalty, as soon as practicable after
completion of the dispute resolution (A) all such amounts to which Executive (or
Executive's family or other beneficiaries, as the case may be) is ultimately
adjudged not to be entitled with respect to the payment of such disputed
amount(s) and (B) in addition, in the case of legal fees and expenses, a
proportionate amount of legal fees and expenses attributable to any of
Executive's claim(s) (or any of Executive's defenses or counter-claim(s), if
any, which shall have been found against Executive by the dispute resolver or
otherwise found to have been frivolous or without merit.
6.4 SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding upon
any successor to the Company and shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives, beneficiaries,
designees, executors, administrators, heirs, distributees, devisees and
legatees.
6.5 MODIFICATION; NO WAIVER. This Agreement may not be modified or
amended except by an instrument in writing signed by the parties hereto. No term
or condition of this Agreement shall be deemed to have been waived, nor shall
there be any estoppel against the enforcement of any provision of this
Agreement, except by written instrument by the party charged with such waiver or
estoppel. No such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate only as to the
specific term or condition waived and shall not constitute a waiver of such term
or condition for the future or as to any other term or condition.
6.6 SEVERABILITY. The covenants and agreements contained herein are
separate and severable and the invalidity or unenforceability of any one or more
of such covenants or agreements, if not material to the employment arrangement
that is the basis for this Agreement, shall not affect the validity or
enforceability of any other covenant or agreement contained herein. If, in any
judicial
-15-
<PAGE> 16
proceeding, a court shall refuse to enforce one or more of the covenants or
agreements contained herein because the duration thereof is too long, or the
scope thereof is too broad, it is deemed reduced to the extent necessary to
permit the enforcement of such covenants or agreements.
6.7 NOTICES. All the notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally or
sent by registered or certified mail, return receipt requested, to the parties
hereto at the following addresses:
If to the Company, to it at:
Saigene Corporation
1725 220th Street, SE, #104
Bothell, Washington 98021
If Executive, to him at:
Ronald R. Helm
16625 Redmond Way M-7
Bothell, Washington 98021
6.8 ASSIGNMENT. This Agreement and any rights hereunder shall not be
assignable by either party without the prior written consent of the other party
except as otherwise specifically provided for herein.
6.9 ENTIRE UNDERSTANDING. This Agreement (together with the Exhibit
incorporated as a part hereof) constitutes the entire understanding between the
parties hereto and no agreement, representation, warranty or covenant has been
made by either party except as expressly set forth herein.
6.10 EXECUTIVE'S REPRESENTATIONS. Executive represents and warrants
that neither the execution and delivery of this Agreement nor the performance of
his duties hereunder violates the provisions of any other agreement to which he
is a party or by which he is bound.
6.11 GOVERNING LAW. This Agreement shall be construed in accordance
with and governed for all purposes by the laws of the State of Washington
applicable to contracts executed and wholly performed within such state.
-16-
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
COMPANY
SAIGENE CORPORATION,
a Delaware corporation
By:
------------------------------------
Allan G. Cochrane
Its: Chief Operations Officer
EXECUTIVE
By:
------------------------------------
Ronald R. Helm
-17-
<PAGE> 18
EXHIBIT "A"
DISPUTE RESOLUTION PROCEDURES
A. If a controversy should arise which is covered by Section 6.3 of
Article VI, then not later than twelve (12) months from the date of the event
which is the subject of dispute either party may serve on the other a written
notice specifying the existence of such controversy and setting forth in
reasonably specific detail the grounds thereof ("Notice of Controversy");
provided that, in any event, the other party shall have at least thirty (30)
days from and after the date of the Notice of Controversy to serve a written
notice of any counterclaim ("Notice of Counterclaim"). The Notice of
Counterclaim shall specify the claim or claims in reasonably specific detail. If
the Notice of Controversy or the Notice of Counterclaim, as the case may be, is
not served within the applicable period, the claim set forth therein will be
deemed to have been waived, abandoned and rendered unenforceable.
B. Following receipt of the Notice of Controversy (or the Notice of
Counterclaim, as the case may be), there shall be a three (3) week period during
which the parties will make a good faith effort to resolve the dispute through
negotiation ("Period of Negotiation"). Neither party shall take any action
during the Period of Negotiation to initiate arbitration proceedings.
C. If the parties should agree during the Period of Negotiation to
mediate the dispute, then the Period of Negotiation shall be extended by an
amount of time to be agreed upon by the parties to permit such mediation. In no
event, however, may the Period of Negotiation be extended by more than five (5)
weeks or, stated differently, in no event may the Period of Negotiation be
extended to encompass more than a total of eight (8) weeks.
D. If the parties agree to mediate the dispute but are thereafter
unable to agree within one (1) week on the format and procedures for the
mediation, then the effort to mediate shall cease, and the Period of Negotiation
shall terminate four (4) weeks from the Notice of Controversy (or the Notice of
Counterclaim, as the case may be).
E. Following the termination of the Period of Negotiation, the dispute
(including the main claim and counterclaim, if any) shall be settled by
arbitration, and judgment upon the award may be entered in any court having
jurisdiction thereof. The format and procedures of the arbitration are set forth
below (referred to below as the "Arbitration Agreement").
F. A notice of intention to arbitrate ("Notice of Arbitration") shall
be served within forty-five (45) days of the termination of the Period of
Negotiation. If the Notice of Arbitration is not served within this period, the
claim set forth in the Notice of Controversy (or the Notice of Counterclaim, as
the case may be) will be deemed to have been waived, abandoned and rendered
unenforceable.
<PAGE> 19
G. The arbitration, including the Notice of Arbitration, will be
governed by the Commercial Rules of the American Arbitration Association except
that the terms of this Arbitration Agreement shall control in the event of any
difference or conflict between such Rules and the terms of this Arbitration
Agreement.
H. The dispute resolver shall reach a decision on the merits on the
basis of applicable legal principles as embodied in the law of the State of
Washington.
I. There shall be one dispute resolver, regardless of the amount in
controversy. The dispute resolver will be empowered to render an award and
interim decisions and shall be a member of the bar of any of the fifty States of
the United States or of the District of Columbia. The dispute resolver shall be
promptly appointed pursuant to Rule 13 of the Commercial Rules of the American
Arbitration Association ("AAA"). If the dispute resolver has not been appointed
within forty-five (45) days of the AAA's initial transmission of lists of
potential arbitrators, then the AAA shall unilaterally designate the dispute
resolver.
J. At the time of appointment and as a condition thereto, the dispute
resolver will be apprised of the time limitations and other provisions of this
Arbitration Agreement and shall indicate such dispute resolver's agreement to
the Tribunal Administrator to comply with such provisions and time limitations.
K. During the 30-day period following appointment of the dispute
resolver, either party may serve on the other a request for limited numbers of
documents directly related to the dispute. Such documents will be produced
within seven (7) days of the request.
L. Following the 30-day period of document production, there will be a
forty-five (45) day period during which limited depositions will be permissible.
Neither party will take more than five (5) depositions, and no deposition will
exceed three (3) hours of direct testimony.
M. Disputes as to discovery or prehearing matters of a procedural
nature shall be promptly submitted to the dispute resolver pursuant to telephone
conference call or otherwise. The dispute resolver shall make every effort to
render a ruling on such interim matters at the time of the hearing (or
conference call) or within five (5) business days thereafter.
N. Following the period of depositions, the arbitration hearing shall
promptly commence. The dispute resolver will make every effort to commence the
hearing within thirty (30) days of the conclusion of the deposition period and,
in addition, will make every effort to conduct the hearing on consecutive
business days to conclusion.
O. An award will be rendered, at the latest, within nine (9) months of
the date of the Notice of Arbitration and within thirty (30) days of the close
of the arbitration hearing. The award shall set forth the grounds for the
decision in reasonably specific detail and shall also specify whether any claim
(or defense or counterclaim) of Executive is found to be frivolous or without
merit and
-2-
<PAGE> 20
what proportion, if any, of his legal fees and expenses which have been paid by
the Company Executive shall be required to repay to the Company in accordance
with Section 6.3(b).
-3-
<PAGE> 21
EXHIBIT B
INVENTIONS LISTED BY EXECUTIVE AS NOT BEING ASSIGNABLE TO COMPANY
<PAGE> 1
Exhibit 10.17
EMPLOYMENT AGREEMENT
(EXECUTIVE EMPLOYEE)
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of September 27, 1996, by and between SAIGENE CORPORATION, a
Delaware corporation (the "Company") and Allan G. Cochrane ("Executive").
ARTICLE I
DUTIES AND TERM
1.1 EMPLOYMENT. In consideration of their mutual covenants and other good
and valuable consideration, the receipt, adequacy and sufficiency of which is
hereby acknowledged, the Company agrees to hire Executive, and Executive agrees
to remain in the employ of the Company, upon the terms and conditions herein
provided.
1.2 POSITION AND RESPONSIBILITIES.
(a) Executive shall serve as the President and Chief Operations
Officer of the Company (or in such other capacity and with such other title as
the Company may reasonably request) reporting directly to the Chairman of the
Board of Directors of the Company. Executive agrees to perform services not
inconsistent with his position as shall from time to time be assigned to him by
the Board of Directors of the Company. Executive further agrees to serve, if
elected, as a director of the Company and as an officer and/or director of any
subsidiary or affiliate of the Company. Executive shall devote all of his
productive time, attention, knowledge and skill to the discharge of his duties
under this Agreement and shall devote no less than five (5) business days a week
(subject only to Company recognized holidays and approved vacation days), eight
(8) hours per day.
(b) During the period of his employment hereunder, Executive shall
devote substantially all of his business time, attention, skill and efforts to
the faithful performance of his duties hereunder. Executive may not, without
written notice to and express written permission of the Company, render to
others services of any kind for compensation, or engage in any other research,
scientific or business activity that would interfere with the performance of
Executive's duties under this Agreement, nor will Executive accept competing
employment, or make preparations to compete with Company.
1.3 TERM. The term of Executive's employment under this Agreement shall
commence on the date first above written and shall continue, unless sooner
terminated, until September 30, 1999.
1.4 LOCATION. During the period of his employment under this Agreement,
Executive's performance of this Agreement shall be rendered at the Company's
principal office, located at 1725 220th
-1-
<PAGE> 2
Street, SE, #104, Bothell, Washington 98021, as well as such other place or
places as the Company shall in good faith require or as the interest, needs,
business and opportunities of the Company shall require or make advisable.
ARTICLE II
COMPENSATION
For all services rendered by Executive in any capacity during his
employment under this Agreement, including, without limitation, services as a
director, officer or member of any committee of the Board of the Company or of
the Board of Directors of any subsidiary or affiliate of the Company, the
Company shall compensate Executive as follows:
2.1 BASE SALARY. The Company shall pay to Executive an annual base salary
of One Hundred Sixty Thousand Eight Dollars ($160,008.00) (the "Base Salary")
during the term hereof; provided, however, that in the event the Company
institutes a salary reduction program which affects all exempt employees (as
defined by standard Company policies in compliance with the Fair Labor Standards
Act) by the same percentage, then Executive's Base Salary may be reduced by such
percentage (and the term "Base Salary" as used in this Agreement shall refer to
Base Salary as so adjusted). Executive's Base Salary shall be paid in equal
semi-monthly installments. The Base Salary may be reviewed annually by the Board
or a committee designated by the Board and the Board or such committee may, in
its discretion, increase the Base Salary.
2.2 BONUS COMPENSATION. During the period of Executive's employment under
this Agreement, the Company may, but shall not be required to, pay to Executive
such bonus or bonuses, in cash, stock, stock options or other consideration, as
the Board or a committee designated by the Board may determine to be
appropriate. The foregoing notwithstanding, the Company shall pay Executive a
one-time cash bonus equal to one (1) month's installment payment of Executive's
Base Salary upon successful completion of an Initial Public Offering or Private
Placement by the Company which raises more than Three Million Dollars
($3,000,000.00), if completed prior to October 1, 1997.
2.3 ADDITIONAL BENEFITS. Executive shall be entitled to participate in all
employee benefit and welfare programs, plans and arrangements (including,
without limitation, pension, profit-sharing, supplemental pension and other
retirement plans, insurance, hospitalization, medical and group disability
benefits, travel or accident insurance plans) and to receive fringe benefits,
such as dues and fees of professional organizations and associations, which are
from time to time available to the Company's Scientific or Technical personnel;
provided, however, there shall be no duplication of termination or severance
benefits, and to the extent that such benefits are specifically provided by the
Company to Executive under other provisions of this Agreement, the benefits
available under the foregoing plans and programs shall be reduced by any benefit
amounts paid under such other provisions. Executive shall during the period of
his employment hereunder continue to be provided with benefits at a level which
shall in no event be less in any material respect than the benefits made
available to Executive by the
-2-
<PAGE> 3
Company as of the date of this Agreement. Notwithstanding the foregoing, the
Company may terminate or reduce benefits under any benefit plans and programs to
the extent such reductions apply uniformly to all Executive Employees entitled
to participate therein, and Executive's benefits shall be reduced or terminated
accordingly. Specifically, without limitation, Executive shall receive the
following benefits:
(a) RELOCATION EXPENSES. In the event Executive's principal place of
employment is relocated outside King County, California, the Company shall
reimburse Executive for all usual relocation expenses incurred by Executive and
his household in moving to the new location, including, without limitation,
moving expenses and rental payments for temporary living quarters in the area of
relocation for a period not to exceed six (6) months.
(b) REIMBURSEMENT OF BUSINESS EXPENSES. The Company shall, in
accordance with standard Company policies, pay, or reimburse Executive for all
reasonable travel and other expenses incurred by Executive in performing his
obligations under this Agreement.
(c) VACATIONS. Executive shall be entitled to fifteen (15) business
days excluding Company holidays, of paid vacation during each year of employment
hereunder. Executive may accrue and carry forward no more than twenty-five (25)
unused vacation days from any particular year of his employment under this
Agreement to the next.
ARTICLE III
TERMINATION OF EMPLOYMENT
3.1 DEATH OR RETIREMENT OF EXECUTIVE. Executive's employment under this
Agreement shall automatically terminate upon the death or retirement (as defined
in Section 6.1) of Executive.
3.2 BY EXECUTIVE. Executive shall be entitled to terminate his employment
under this Agreement by giving Notice of Termination (as defined in Section 6.1)
to the Company:
(a) For good reason (as defined in Section 6.1);
(b) At any time commencing with the date six (6) months following
the date of a change in control (as defined in Section 6.1) and ending with the
date twelve (12) months after the date of such change in control (a "Change in
Control Resignation"); and
(c) At any time without good reason.
3.3 BY COMPANY. The Company shall be entitled to terminate Executive's
employment under this Agreement by giving notice of termination to Executive:
(a) In the event of Executive's Disability (as defined in Section
6.1);
-3-
<PAGE> 4
(b) For Cause (as defined in Section 6.1); and
(c) At any time without cause.
ARTICLE IV
COMPENSATION UPON TERMINATION OF EMPLOYMENT
If Executive's employment hereunder is terminated in accordance with
the provisions of Article III hereof, except for any other rights or benefits
specifically provided for herein following his period of employment, the Company
shall be obligated to provide compensation and benefits to Executive only as
follows, subject to the provisions of Section 5.4 hereof:
4.1 UPON TERMINATION FOR DEATH OR DISABILITY. If Executive's employment
hereunder is terminated by reason of his death or disability, the Company shall:
(a) Pay Executive (or his estate) or beneficiaries any Base Salary
which has accrued but not been paid as of the termination date (the "Accrued
Base Salary");
(b) Pay Executive (or his estate) or beneficiaries for unused
vacation days accrued as of the termination date in an amount equal to his Base
Salary multiplied by a fraction the numerator of which is the number of accrued
unused vacation days and the denominator of which is 360 (the "Accrued Vacation
Payment");
(c) Reimburse Executive (or his estate) or beneficiaries for
expenses incurred by him prior to the date of termination which are subject to
reimbursement pursuant to this Agreement (the "Accrued Reimbursable Expenses");
(d) Provide to Executive (or his estate) or beneficiaries any
accrued and vested benefit required to be provided by the terms of any
Company-sponsored benefit plans or programs (the "Accrued Benefits"), together
with any benefits required to be paid or provided in the event of Executive's
death or disability under applicable law;
(e) Pay Executive (or his estate) or beneficiaries any Bonus with
respect to a prior fiscal year which has accrued but has not been paid; and in
addition,
(f) Executive (or his estate) or beneficiaries shall have the right
to exercise all vested unexercised stock options and warrants outstanding at the
termination date in accordance with terms of the plans and agreements pursuant
to which such options or warrants were issued.
4.2 UPON TERMINATION BY COMPANY FOR CAUSE OR BY EXECUTIVE WITHOUT GOOD
REASON. If Executive's employment is terminated by the Company for Cause, or if
Executive terminates his
-4-
<PAGE> 5
employment with the Company other than (x) upon Executive's death or disability,
(y) for good reason, or (z) pursuant to a Change in Control Resignation (as
defined in Section 3.2(b)) the Company shall:
(a) Pay Executive the Accrued Base Salary;
(b) Pay Executive the Accrued Vacation Payment;
(c) Pay Executive the Accrued Reimbursable Expenses;
(d) Pay Executive the Accrued Benefits, together with any benefits
required to be paid or provided under applicable law; and in addition
(e) Executive shall have the right to exercise vested options and
warrants in accordance with Section 4.1(f).
4.3 UPON TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY EXECUTIVE FOR GOOD
REASON PRIOR TO A CHANGE IN CONTROL. If Executive's employment is terminated by
the Company Without Cause or by Executive for Good Reason, the Company shall:
(a) Pay Executive the Accrued Base Salary;
(b) Pay Executive the Accrued Vacation Payment;
(c) Pay Executive the Accrued Reimbursable Expenses;
(d) Pay Executive the Accrued Benefits, together with any benefits
required to be paid or provided under applicable law;
(e) Pay Executive any accrued but unpaid Bonus Payments;
(f) Pay Executive commencing on the thirtieth (30th) day following
the termination date twelve (12) monthly payments equal to one-twelfth (1/12th)
of the sum of (1) Executive's Base Salary in effect immediately prior to the
time such termination occurs, plus (2) if Executive is employed with Company for
more than twelve (12) months prior to his termination by the Company Without
Cause or by Executive for Good Reason, the Bonus amount paid to Executive for
the fiscal year (or if more than one Bonus has been paid to Executive, the
average of the Bonuses paid to Executive per annum for the two (2) fiscal years)
immediately preceding the fiscal year in which the termination occurs; provided,
however, should Executive attain alternative employment during the twelve (12)
month payment period, the Company's obligations under this Section 4.3(f) will
be reduced by the amount of Executive's compensation from his new employer. For
example, if Executive were entitled to receive $12,000.00 per month for twelve
(12) months under this Section 4.3(f), and three (3) months following his
termination date he finds alternative employment that pays him $10,000.00 per
month, the Company would be obligated to pay Executive three (3) monthly
payments of $12,000.00, and nine (9) monthly payments of $2,000.00 under this
Section 4.3(f);
-5-
<PAGE> 6
(g) Maintain in full force and effect, for Executive's and his
eligible beneficiaries' continued benefit, until the first to occur of (x) his
attainment of alternative employment or (y) twelve (12) months following the
termination date of his employment hereunder the employee benefits provided
pursuant to Company-sponsored benefit plans, programs or other arrangements in
which Executive was entitled to participate as a full-time employee immediately
prior to such termination in accordance with Section 2.4 hereof, subject to the
terms and conditions of such plans and programs (the "Continued Benefits"). If
Executive's continued participation is not permitted under the general terms and
provisions of such plans, programs and arrangements, the Company shall arrange
to provide Executive with Continued Benefits substantially similar to those
which Executive would have been entitled to receive under such plans, programs
and arrangements; and in addition
(h) Executive shall have the right to exercise all vested
unexercised stock options and warrants in accordance with Section 4.1(f).
4.4 UPON TERMINATION BY THE COMPANY WITHOUT CAUSE FOLLOWING A CHANGE IN
CONTROL OR BY EXECUTIVE FOR GOOD REASON FOLLOWING A CHANGE IN CONTROL OR
PURSUANT TO A CHANGE IN CONTROL RESIGNATION. If following a Change In Control,
Executive's employment is terminated by the Company Without Cause or by
Executive for Good Reason or pursuant to a Change In Control Resignation, the
Company shall:
(a) Make the payments and provide to Executive the benefits under
Section 4.3 other than under Section 4.3(f) hereof; and in addition
(b) Pay to Executive a lump sum payment on or prior to the thirtieth
(30th) day following the termination date of Executive's employment hereunder in
an amount equal to two hundred percent (200%) of Executive's aggregate total
compensation under Sections 2.1 and 2.2 hereof for the fiscal year immediately
prior to the fiscal year in which the Change In Control occurs; provided,
however, the total payments received by Executive under this Section 4.4(b) plus
(i) any payments received by Executive under Section 4.4(a)which would be
classified as parachute payments and (ii) any payments or value received by
Executive from stock options which would be classified as parachute payments
determined in accordance with Prop. Reg. Section 1.280G-1A-24(e) Examples (7)
and (8) may not exceed two hundred ninety-nine percent (299%) of Executive's
"Base Amount" as such term is defined in Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") and the regulations promulgated thereunder
(the "Regulations"). Company and Executive agree that for purposes of making any
present value calculation under this Agreement, the Applicable Federal Rate in
effect on the date this Agreement is executed shall control as permitted by Q&A
32 of Treas. Reg. Section 1.280G-1.
-6-
<PAGE> 7
ARTICLE V
RESTRICTIVE COVENANTS
5.1 CONFIDENTIALITY AND OWNERSHIP.
(a) During the term of this Agreement, Executive will have access to
trade secrets, data, know-how, technical and scientific knowledge and other
information of value to the Company and its business. Executive covenants and
agrees to hold in strictest confidence, and not disclose to any person without
the express written consent of the Company, any and all of the Company's
confidential information, as defined in Subparagraph (i) below, except as such
disclosure may be required in connection with his employment hereunder. In
addition, Executive may during the term of this Agreement create, make, develop,
invent or conceive inventions, discoveries, concepts, ideas, designs, works or
authorship, developments, information, improvements, or trade secrets, whether
patentable or not, and whether solely or jointly with others, which may or may
not also constitute Confidential Information (collectively referred to as
"Inventions"). Executive agrees that all works of authorship to which Executive
contributes shall be considered "works made for hire" and shall be the sole
property of the Company.
(b) Executive agrees that he will neither utilize any Confidential
Information for his own benefit or for the benefit of anyone except Company, nor
disclose, disseminate, lecture upon or publish articles about any Confidential
Information to any one outside the Company, or to any officer or employee of
Company not also having access to Confidential Information, at any time either
during or after employment by Company.
(c) Executive agrees to disclose promptly, in writing to the
Company's Chief Executive Officer, any Inventions that Executive may make,
develop or conceive, solely or jointly, during the period of employment by
Company, or by its predecessors, successors in business subsidiaries, parents or
affiliates. All such Inventions shall be and remain the property of Company.
Executive hereby assigns to Company all Executive's rights, titles and interests
in and to any such Inventions, whether or not such Inventions may be reduced to
practice during the period of Executive's employment, and to execute all patent
or copyright applications, assignments and other documents, and to take all
other steps necessary, to vest in Company the entire right, title and interest
in and to those Inventions and in and to any patents or copyrights obtainable
therefor in the United States and in foreign countries, all at Company's
expense, but for no consideration to Executive in addition to Executive's salary
or wages. Executive agrees to keep adequate records of all Inventions and make
such records available to Company.
(d) If Company chooses to prosecute applications for patents or
copyrights for any such Inventions, Company shall assume the entire expense of
preparing, filing and prosecuting such applications, through counsel appointed
by Company; provided, however, that Company is under no obligation to prosecute
such applications. Executive agrees to cooperate with Company and do whatever is
necessary or appropriate to obtain patents, copyrights or other legal
protections for Inventions. If Executive is incapacitated or refuses to so
cooperate for any reason, Executive hereby authorizes
-7-
<PAGE> 8
Company to act as Executive's agent and to take whatever actions, or execute
whatever documents, may be needed to carry out this Agreement.
(e) All records and other material pertaining to Confidential
Information, whether developed by Executive or others, shall be and remain the
property of Company. Upon termination of Executive's employment with Company,
all documents, records, notebooks and other material of any kind pertaining to
or containing Confidential Information then in Executive's possession, or under
Executive's control, whether prepared by Executive or others, will be returned
to Company unconditionally.
(f) Executive shall not be obligated to assign any Invention which
relates to or would be useful in any business or activities in which Company is
engaged if such Invention was conceived and reduced to practice by Executive
prior to Executive's employment with Company, provided that all such Inventions
are listed at the time of employment on the attached Exhibit "B." If no entry is
made on Exhibit "B," then such entry shall be deemed to be "none," whether or
not Exhibit "B" is signed by Executive. Except as listed on Exhibit "B,"
Executive will not assert any rights to any Inventions, as having been made or
acquired by Executive prior to being employed by Company.
(g) Executive shall not be obligated to assign any Invention which
may be wholly conceived by Executive after Executive leaves the employ of
Company, except that Executive is so obligated if such Invention shall involve
the utilization of Confidential Information of Company.
(h) During and after Executive's employment with Company, Executive
will not solicit or induce any Executive or consultant of Company to quit their
employment or stop doing business with Company, unless Company is specifically,
in writing, authorized by Company to do so.
(i) Upon expiration or termination of this Agreement for any reason,
Executive shall immediately turnover to the Company any "Confidential
Information." Executive shall have no right to retain any copies of any material
qualifying as Confidential Information for any reason whatsoever after
expiration or termination of his employment hereunder without the express
written consent of the Company.
(j) For purposes of this Agreement, "Confidential Information" means
and includes the following: All scientific and/or technical information or
know-how possessed by the Company; all research, testing, or other
investigations conducted by the Company or for the Company's benefit; all
product ideas, including processes, applications and methods; the identity of
clients or customers or potential clients or customers of the Company or its
affiliates; any written, typed or printed lists, or other materials identifying
the clients or customers of the Company or its affiliates; any scientific,
technical or other information supplied by clients or customers of the Company
or its affiliates; any and all data or information involving the Company, its
affiliates, programs, methods or contacts employed by the Company or its
affiliates in the conduct of their business; any lists, documents, manuals,
records, forms or other materials used by the Company or its affiliates in the
conduct of their business; any descriptive materials describing the methods and
procedures employed by the Company or its affiliates in the conduct of their
business; and an other secret or confidential information concerning the
Company's or its
-8-
<PAGE> 9
affiliates' business or affairs. The terms "list," "document" or their
equivalents, as used in this Subparagraph (i), are not limited to a physical
writing or compilation but also include any and all information whatsoever
regarding the subject matter of the "list" or "documents," whether or not such
compilation has been reduced to writing.
(k) Executive acknowledges that he is a key executive employee of
the Company and, as such, he has had and will continue to have access to
confidential information about the Company, its affiliates, and their clients
and that "Confidential Information" acquired by him at the expense of the
Company is for use in its business. Executive has substantial experience in the
industry and possesses special, unique, extraordinary skills and knowledge in
this field. Executive's managerial, marketing and technical services to the
Company are special, unique and extraordinary and the success or failure of the
Company is dependent upon his discharge of his duties and obligations.
Accordingly, by execution of this Agreement, and subject to Subparagraph (c)
hereof, Executive agrees that during his employment with the Company and for a
period of thirty-six (36) months following the date of expiration or termination
of his employment hereunder (the "Non-Competition Period") for any reason
(whether such termination shall be voluntary or involuntary), he shall not
violate the provisions of Section 5.2. Executive agrees that the thirty-six (36)
month period referred to in the preceding sentence shall be extended by the
number of days included in any period of time during which he is or was engaged
in activities constituting a breach of Section 5.2.
5.2 COMPETITION.
(a) During the Non-Competition Period specified in Section 5.1(k),
Executive shall not:
(i) Except as a passive investor in publicly-held companies,
and except for investments held as of the date hereof, directly or indirectly
own, operate, mange, consult with, control, participate in the management or
control of, be employed by, maintain or continue any interest whatsoever in any
company that directly competes with the Company in the United States; or
(ii) Directly or indirectly solicit any business of a nature
that is directly competitive with the business of the Company from any
individual or entity that obtained such products or services from the Company or
its affiliates at any time during his employment with the Company; or
(iii) Directly or indirectly solicit any business of a nature
that is directly competitive with the business of the Company from any
individual or entity solicited by him on behalf of the Company or its
affiliates; or
(iv) Employ, or directly or indirectly solicit, or cause the
solicitation of, any employees of the Company who are in the employ of the
Company on the termination date of his employment hereunder for employment by
others.
(b) Executive expressly agrees and acknowledges that:
-9-
<PAGE> 10
(i) It will require a substantial amount of time for the
Company to locate, hire and train an appropriate individual to perform the
functions and duties that Executive is performing hereunder;
(ii) The Company has protected business interests throughout
the United States of America and that competition with and against such business
interests would be harmful to the Company;
(iii) This covenant not to compete is reasonable as to time
and geographical area and does not place any unreasonable burden upon him;
(iv) The general public will not be harmed as a result of
enforcement of this covenant not to compete;
(v) His personal legal counsel has reviewed this covenant not
to complete; and
(vi) He understands and hereby agrees to each and every term
and condition of to this covenant not to compete (including, without limitation,
the provisions of Section 5.2).
5.3 NON-DISPARAGEMENT. During the term of this Agreement and the
Non-Competition Period, neither Executive nor the Company shall disparage the
other, and neither shall disclose to any third party the conditions of
Executive's employment with the Company except as may be required (i) pursuant
to applicable law or regulations, including the rules and regulations of the
Securities and Exchange Commission, (ii) to effectuate the provisions of
employee plans or programs and insurance policies, or (iii) as may be otherwise
contemplated herein or unless such information becomes publicly available
without fault of the party making such disclosure.
5.4 REMEDIES. Executive expressly agrees and acknowledges that this
covenant not to compete is necessary for the protection of the Company and its
affiliates because of the nature and scope of their business and his position
with the Company. Further, Executive acknowledges that any breach of this
covenant not to compete would result in irreparable damage to the Company, and
in the event of his breach of this covenant not to compete, money damages will
not sufficiently compensate the Company for its injury caused thereby, and that
the remedy at law for any breach or threatened breach of Sections 5.1, 5.2 and
5.3 will be inadequate and, accordingly agrees, that the Company shall, in
addition to all other available remedies (including without limitation, seeking
such damages as it can show it has sustained by reason of such breach), be
entitled to injunctive relief or specific performance and that in addition to
such money damages he may be restrained and enjoined from any continuing breach
of this covenant not to compete without any bond or other security being
required of any court. Executive further acknowledges and agrees that if the
covenant not to compete herein is deemed to be unenforceable and/or the
Executive fails to comply with this Article V, the Company has no obligation to
provide any compensation or other benefits described in Article IV hereof.
-10-
<PAGE> 11
ARTICLE VI
MISCELLANEOUS
6.1 DEFINITIONS. For purposes of this Agreement, the following terms shall
have the following meanings:
(a) "Accrued Base Salary" - as defined in Section 4.1(a);
(b) "Accrued Benefits" - as defined in Section 4.1(d);
(c) "Accrued Reimbursable Expenses" - as defined in Section 4.1(c);
(d) "Accrued Vacation Payment" - as defined in Section 4.1(b);
(e) "Base Amount" - as defined in Section 4.4(b);
(f) "Base Salary" - as defined in Section 2.1;
(g) "Board" - shall mean the Board of Directors of the Company;
(h) "Cause" - shall mean the occurrence of any of the following:
(i) Executive's misconduct which is injurious to the Company;
(ii) Executive's engaging in fraudulent conduct with respect
to the Company's business or in conduct of a criminal nature that may have an
adverse impact on the Company's standing and reputation;
(iii) The continued and unjustified failure or refusal by
Executive to perform the duties required of him by this Agreement which failure
or refusal shall not be cured within fifteen (15) days following (a) receipt of
Executive of written notice from the Board specifying the factors or events
constituting such failure or refusal, and (b) a reasonable opportunity for
Executive to correct such deficiencies;
(iv) Executive's use of drugs and/or alcohol in violation of
law or of then- current Company policy; or
(v) Executive's breach of his obligation under Section 1.2(c)
hereof which shall not be cured within fifteen (15) days after written notice
thereof to Executive.
(i) "Change In Control" - shall mean and shall be deemed to have
occurred if:
-11-
<PAGE> 12
(i) After the date of this Agreement, any "person" (as such
term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any successor provision thereto) shall
become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange
Act or any successor provision thereof) directly or indirectly of securities of
the Company representing fifteen percent (15%) or more of the combined voting
power of the Company's then outstanding securities ordinarily having the right
to vote at an election of directors; provided, however, that, for purposes of
this Subparagraph, "person" shall exclude the Company, its subsidiaries, any
person acquiring such securities directly from the Company, any employee benefit
plan sponsored by the Company or from Executive or any stockholder owning
fifteen percent (15%) or more of the combined voting power of the Company's
outstanding securities as of the date of this Agreement; or
(ii) Any stockholder of the Company owning fifteen percent or
more of the combined voting power of the Company's outstanding securities as of
the date of this Agreement shall become the beneficial owner (within the meaning
of Rule 13d-3 under the Exchange Act) directly or indirectly of securities of
the Company (other than through the acquisition of securities directly from the
Company or from Executive) representing twenty-five percent (25%) or more of the
combined voting power of the Company's then outstanding securities ordinarily
having the right to vote at an election of directors; or
(iii) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") case for any reason to constitute at least eighty
percent (80%) of the Board; provided, however, that any person becoming a member
of the Board subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
eighty percent (80%) of the members then comprising the Incumbent Board (other
than an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act or any successor
provision thereto) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or
(iv) Approval by the stockholders of the Company and
consummation of (a) a reorganization, merger, consolidation, or sale or other
disposition of all or substantially all of the assets of the Company, in each
case, with or to a corporation or other person or entity of which persons who
were the stockholders of the Company immediately prior to such transaction do
not, immediately thereafter, own more than sixty percent (60%) of the combined
voting power of the outstanding voting securities entitled to vote generally in
the election of directors of the reorganized, merged, consolidated or purchasing
corporation (or, in the case of a non-corporate person or entity) were not
members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger, consolidation or sale, or
(b) a liquidation or dissolution of the Company.
(j) "Change In Control Resignation" -as defined in Section 3.2(b);
(k) "Code" - as defined in Section 4.4(b);
-12-
<PAGE> 13
(l) "Common Stock" - shall mean shares of the common stock, par
value $.001 per share, of the Company;
(m) "Continued Benefits" - as defined in Section 4.3(g);
(n) "Expiration" shall mean the expiration of Executive's employment
hereunder in accordance with Section 1.3;
(o) "Good Reason" - shall mean the occurrence of any of the
following:
(i) The Company's failure to elect or reelect or to appoint or
reappoint Executive to offices, titles or positions carrying comparable
authority, responsibilities, dignity and importance to that of Executive's
offices and positions as of September 30, 1996, or in the case of a Change In
Control, involving duties of a scope comparable to those of Executive's most
significant offices or positions held at any time during the 90-day period
immediately preceding the date such Change In Control occurs;
(ii) Material change by the Company in Executive's function,
duties or responsibilities (including reporting responsibilities) which would
cause Executive's position with the Company to become of less dignity,
responsibility and importance than those associated with his functions, duties
or responsibilities as of September 30, 1996, or in the case of a Change In
Control, involving duties of a scope less than that associated with Executive's
most significant position with the Company during the 90-day period immediately
preceding the date such Change In Control occurs;
(iii) Executive's Base Salary is reduced by the Company
(unless such reduction is pursuant to a salary reduction program as described in
Section 2.1 hereof) or there is a material reduction in the benefits that are in
effect for the Executive on September 30, 1996 in accordance with Section 2.4
(unless such reduction is pursuant to a uniform reduction in benefits for all
Senior Executives);
(iv) The failure by the Company to obtain the assumption by
operation of law or otherwise of this Agreement by any entity which is the
surviving entity in any merger or other form of corporate reorganization
involving the Company or by any entity which acquires all or substantially all
of the Company's assets; or
(v) Other material breach of this Agreement by the Company,
which breach is not cured within fifteen (15) days after written notice thereof
is received by the Company.
(p) "Incumbent Board" - as defined in Section 6.1(i)(iii);
(q) "Non-Competition Period" - as defined in Section 5.1(j);
(r) "Notice of Termination" - shall mean a notice which shall
indicate the specific termination provision of this Agreement relied upon and
shall set forth in reasonable detail the facts and
-13-
<PAGE> 14
circumstances claimed to provide a basis for termination of Executive's
employment under the provisions so indicated. Each Notice of Termination shall
be delivered at least thirty (30) days prior to the effective date of
termination;
(s) "Confidential Information" - as defined in Section 5.1(i);
(t) "Retirement" - shall mean normal retirement at age 65;
(u) "Senior Executives" or "Executive Employees" - shall mean the
chief executive officer and the four (4) most highly compensated executive
officers of the Company determined in accordance with the rules and regulations
of the Securities and Exchange Commission under the Exchange Act;
(v) "Termination" - shall mean the termination of Executive's
employment hereunder other than upon expiration of the term of such employment
in accordance with Section 1.3;
(w) "Disability" - shall mean Executive's failure to perform his
duties hereunder on a full-time basis for a period exceeding one hundred eighty
(180) consecutive days or for periods aggregating more than 180 days during any
twelve-month period as a result of incapacity due to physical or mental illness.
If there is a dispute as to whether Executive is or was physically or mentally
unable to perform his duties under this Agreement, such dispute shall be
submitted for resolution to a licensed physician agreed upon by the Board and
Executive, or if an agreement cannot be promptly reached, the Board and
Executive shall promptly select a physician, and if these physicians cannot
agree, the physicians shall promptly select a third physician whose decision
shall be binding on all parties. If such a dispute arises, Executive shall
submit to such examinations and shall provide such information as such
physician(s) may request, and the determination of the physician(s) as to
Executive's physical or mental condition shall be binding and conclusive.
Notwithstanding the foregoing, if Executive participates in any group disability
plan provided by the Company which offers long-term disability benefits,
"Disability" shall mean total disability as defined therein.
6.2 KEY MAN INSURANCE. The Company shall have the right, in its sole
discretion, to purchase "key man" insurance on the life of Executive. The
Company shall be the owner and beneficiary of any such policy. If the Company
elects to purchase a policy, Executive shall take such physical examinations and
supply such information as may be reasonably requested by the insurer.
6.3 MITIGATION OF DAMAGES; NO SET-OFF DISPUTE RESOLUTION.
(a) Executive shall be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise.
The amount of any payment provided for in this Agreement, except as provided in
Sections 4.3(f) and (g) hereof, shall be reduced by any compensation earned by
Executive as the result of employment by another employer after the date of
termination of his employment hereunder or otherwise.
-14-
<PAGE> 15
(b) If there shall be any dispute between the Company and Executive
(i) in the event of any termination of Executive's employment by the Company,
whether such termination was for Cause, or (ii) in the event of any termination
of employment by Executive, whether Good Reason existed, or (iii) otherwise, the
dispute shall be resolved in accordance with the dispute resolution procedures
set forth in Exhibit "A" hereto, the provisions of which are incorporated as a
part hereof, and the parties hereto hereby agree that such dispute resolution
procedures shall be the exclusive method for resolution of disputes under this
Agreement. In the event of a dispute hereunder as to whether a termination by
the Company was for Cause or by the Executive for Good Reason, until there is a
resolution and award as provided in Exhibit "A," the Company shall pay all
amounts, and provide all benefits, to Executive and/or Executive's family or
other beneficiaries, as the case may be, that the Company would be required to
pay or provide hereunder as though such termination were by the Company without
Cause or by Executive for Good Reason and shall pay the reasonable legal fees
and expenses of counsel for Executive in connection with such dispute
resolution; provided, however, that the Company shall not be required to pay any
disputed amounts or any legal fees and expenses pursuant to this Subparagraph
(b) except upon receipt of a written undertaking by or on behalf of Executive
(and/or Executive's family or other beneficiaries, as the case may be) to repay,
without interest or penalty, as soon as practicable after completion of the
dispute resolution (A) all such amounts to which Executive (or Executive's
family or other beneficiaries, as the case may be) is ultimately adjudged not to
be entitled with respect to the payment of such disputed amount(s) and (B) in
addition, in the case of legal fees and expenses, a proportionate amount of
legal fees and expenses attributable to any of Executive's claim(s) (or any of
Executive's defenses or counter-claim(s), if any, which shall have been found
against Executive by the dispute resolver or otherwise found to have been
frivolous or without merit.
6.4 SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding upon
any successor to the Company and shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives, beneficiaries,
designees, executors, administrators, heirs, distributees, devisees and
legatees.
6.5 MODIFICATION; NO WAIVER. This Agreement may not be modified or amended
except by an instrument in writing signed by the parties hereto. No term or
condition of this Agreement shall be deemed to have been waived, nor shall there
be any estoppel against the enforcement of any provision of this Agreement,
except by written instrument by the party charged with such waiver or estoppel.
No such written waiver shall be deemed a continuing waiver unless specifically
stated therein, and each such waiver shall operate only as to the specific term
or condition waived and shall not constitute a waiver of such term or condition
for the future or as to any other term or condition.
6.6 SEVERABILITY. The covenants and agreements contained herein are
separate and severable and the invalidity or unenforceability of any one or more
of such covenants or agreements, if not material to the employment arrangement
that is the basis for this Agreement, shall not affect the validity or
enforceability of any other covenant or agreement contained herein. If, in any
judicial proceeding, a court shall refuse to enforce one or more of the
covenants or agreements contained herein because the duration thereof is too
long, or the scope thereof is too broad, it is deemed reduced to the extent
necessary to permit the enforcement of such covenants or agreements.
-15-
<PAGE> 16
6.7 NOTICES. All the notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally or
sent by registered or certified mail, return receipt requested, to the parties
hereto at the following addresses:
If to the Company, to it at:
Saigene Corporation
1725 220th Street, SE, #104
Bothell, Washington 98021
If Executive, to him at:
Allan G. Cochrane
P.O. Box 2721
Woodinville, WA 98072
6.8 ASSIGNMENT. This Agreement and any rights hereunder shall not be
assignable by either party without the prior written consent of the other party
except as otherwise specifically provided for herein.
6.9 ENTIRE UNDERSTANDING. This Agreement (together with the Exhibit
incorporated as a part hereof) constitutes the entire understanding between the
parties hereto and no agreement, representation, warranty or covenant has been
made by either party except as expressly set forth herein.
6.10 EXECUTIVE'S REPRESENTATIONS. Executive represents and warrants that
neither the execution and delivery of this Agreement nor the performance of his
duties hereunder violates the provisions of any other agreement to which he is a
party or by which he is bound.
6.11 GOVERNING LAW. This Agreement shall be construed in accordance with
and governed for all purposes by the laws of the State of Washington applicable
to contracts executed and wholly performed within such state.
-16-
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
COMPANY
SAIGENE CORPORATION, a Delaware corporation
By:
----------------------------------
Ronald R. Helm
Its: Chief Executive Officer
EXECUTIVE
By:
----------------------------------
Allan G. Cochrane
-17-
<PAGE> 18
EXHIBIT "A"
DISPUTE RESOLUTION PROCEDURES
A. If a controversy should arise which is covered by Section 6.3 of
Article VI, then not later than twelve (12) months from the date of the event
which is the subject of dispute either party may serve on the other a written
notice specifying the existence of such controversy and setting forth in
reasonably specific detail the grounds thereof ("Notice of Controversy");
provided that, in any event, the other party shall have at least thirty (30)
days from and after the date of the Notice of Controversy to serve a written
notice of any counterclaim ("Notice of Counterclaim"). The Notice of
Counterclaim shall specify the claim or claims in reasonably specific detail. If
the Notice of Controversy or the Notice of Counterclaim, as the case may be, is
not served within the applicable period, the claim set forth therein will be
deemed to have been waived, abandoned and rendered unenforceable.
B. Following receipt of the Notice of Controversy (or the Notice of
Counterclaim, as the case may be), there shall be a three (3) week period during
which the parties will make a good faith effort to resolve the dispute through
negotiation ("Period of Negotiation"). Neither party shall take any action
during the Period of Negotiation to initiate arbitration proceedings.
C. If the parties should agree during the Period of Negotiation to mediate
the dispute, then the Period of Negotiation shall be extended by an amount of
time to be agreed upon by the parties to permit such mediation. In no event,
however, may the Period of Negotiation be extended by more than five (5) weeks
or, stated differently, in no event may the Period of Negotiation be extended to
encompass more than a total of eight (8) weeks.
D. If the parties agree to mediate the dispute but are thereafter unable
to agree within one (1) week on the format and procedures for the mediation,
then the effort to mediate shall cease, and the Period of Negotiation shall
terminate four (4) weeks from the Notice of Controversy (or the Notice of
Counterclaim, as the case may be).
E. Following the termination of the Period of Negotiation, the dispute
(including the main claim and counterclaim, if any) shall be settled by
arbitration, and judgment upon the award may be entered in any court having
jurisdiction thereof. The format and procedures of the arbitration are set forth
below (referred to below as the "Arbitration Agreement").
F. A notice of intention to arbitrate ("Notice of Arbitration") shall be
served within forty-five (45) days of the termination of the Period of
Negotiation. If the Notice of Arbitration is not served within this period, the
claim set forth in the Notice of Controversy (or the Notice of Counterclaim, as
the case may be) will be deemed to have been waived, abandoned and rendered
unenforceable.
G. The arbitration, including the Notice of Arbitration, will be governed
by the Commercial Rules of the American Arbitration Association except that the
terms of this Arbitration Agreement shall
-18-
<PAGE> 19
control in the event of any difference or conflict between such Rules and the
terms of this Arbitration Agreement.
H. The dispute resolver shall reach a decision on the merits on the basis
of applicable legal principles as embodied in the law of the State of
Washington.
I. There shall be one dispute resolver, regardless of the amount in
controversy. The dispute resolver will be empowered to render an award and
interim decisions and shall be a member of the bar of any of the fifty States of
the United States or of the District of Columbia. The dispute resolver shall be
promptly appointed pursuant to Rule 13 of the Commercial Rules of the American
Arbitration Association ("AAA"). If the dispute resolver has not been appointed
within forty-five (45) days of the AAA's initial transmission of lists of
potential arbitrators, then the AAA shall unilaterally designate the dispute
resolver.
J. At the time of appointment and as a condition thereto, the dispute
resolver will be apprised of the time limitations and other provisions of this
Arbitration Agreement and shall indicate such dispute resolver's agreement to
the Tribunal Administrator to comply with such provisions and time limitations.
K. During the 30-day period following appointment of the dispute resolver,
either party may serve on the other a request for limited numbers of documents
directly related to the dispute. Such documents will be produced within seven
(7) days of the request.
L. Following the 30-day period of document production, there will be a
forty-five (45) day period during which limited depositions will be permissible.
Neither party will take more than five (5) depositions, and no deposition will
exceed three (3) hours of direct testimony.
M. Disputes as to discovery or prehearing matters of a procedural nature
shall be promptly submitted to the dispute resolver pursuant to telephone
conference call or otherwise. The dispute resolver shall make every effort to
render a ruling on such interim matters at the time of the hearing (or
conference call) or within five (5) business days thereafter.
N. Following the period of depositions, the arbitration hearing shall
promptly commence. The dispute resolver will make every effort to commence the
hearing within thirty (30) days of the conclusion of the deposition period and,
in addition, will make every effort to conduct the hearing on consecutive
business days to conclusion.
O. An award will be rendered, at the latest, within nine (9) months of the
date of the Notice of Arbitration and within thirty (30) days of the close of
the arbitration hearing. The award shall set forth the grounds for the decision
in reasonably specific detail and shall also specify whether any claim (or
defense or counterclaim) of Executive is found to be frivolous or without merit
and what proportion, if any, of his legal fees and expenses which have been paid
by the Company Executive shall be required to repay to the Company in accordance
with Section 6.3(b).
-19-
<PAGE> 20
EXHIBIT B
INVENTIONS LISTED BY EXECUTIVE AS NOT
BEING ASSIGNABLE TO COMPANY
-20-
<PAGE> 1
EXHIBIT 11.1
SAIGENE CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Period from September 19, 1996 Three Months
(Inception) through September 30, 1996 Ended December 31, 1996
-------------------------------------- -----------------------
<S> <C> <C>
Net loss................................................ $ (51,767) $ (211,846)
========== ==========
Weighted average common shares outstanding.............. 1,050,000 1,050,000
Common shares issuable on exercise of options
and warrants(1)....................................... 407,083 407,083
---------- ----------
Weighted average common and common equivalent
shares outstanding.................................... 1,457,083 1,457,083
========== ==========
Net loss per common share............................... $ (0.04) $ (0.15)
========== ==========
</TABLE>
(1) Common shares issuable on exercise of options and warrants include all
common share equivalents issued during the 12 months immediately preceding
the anticipated date of the Company's initial public offering as if they
were outstanding for all periods presented, even though it was a loss period
where the impact of the incremental shares is antidilutive, using the
treasury stock method and an assumed initial public offering price of $6 per
share.
1
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
Our report dated January 10, 1997, except as to Note 9, which is as of February
12, 1997, contains an explanatory paragraph that states that the Company's
losses from operations and limited capital resources raise substantial doubt
about its ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of that
uncertainty.
KPMG PEAT MARWICK LLP
Seattle, Washington
February 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 198,302
<SECURITIES> 0
<RECEIVABLES> 47,283
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 245,585
<PP&E> 104,800
<DEPRECIATION> 1,907
<TOTAL-ASSETS> 1,401,465
<CURRENT-LIABILITIES> 1,434,578
<BONDS> 220,000
0
0
<COMMON> 1,050
<OTHER-SE> (254,163)
<TOTAL-LIABILITY-AND-EQUITY> 1,401,465
<SALES> 0
<TOTAL-REVENUES> 47,283
<CGS> 0
<TOTAL-COSTS> 243,251
<OTHER-EXPENSES> 447
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,431
<INCOME-PRETAX> (211,846)
<INCOME-TAX> 0
<INCOME-CONTINUING> (211,846)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (211,846)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> 0
</TABLE>
