UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended: SEPTEMBER 30, 1999
Commission File Number: 333-37441
INTERLEUKIN GENETICS, INC.
(Name of Small Business Issuer in its Charter)
TEXAS 94-3123681
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 N.E. LOOP 410, SUITE 820
SAN ANTONIO, TX 78216
(Address of principal executive offices)(Zip Code)
Issuer's Telephone Number: (210) 349-6400
Medical Science Systems, Inc.
(Former Name)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Title of Each Class Outstanding at Nov 10, 1999
Common stock, no par value 16,576,175
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
INTERLEUKIN GENETICS, INC.
Form 10-QSB
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets at
September 30,1999 (Unaudited) and December 31, 1998.............1
Condensed Consolidated Statements of Operations (Unaudited)
for the three and nine months ended September 30, 1999 and
September 30, 1998..............................................2
Condensed Consolidated Statements of Cash Flows (Unaudited) for
the nine months ended September 30, 1999 and September 30,
1998..3
Notes to Condensed Consolidated (Unaudited) Financial
Statements......................................................4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................14
Item 2. Changes in Securities and use of Proceeds......................14
Item 3. Default Upon Senior Securities.................................15
Item 4. Submission of Matters to a Vote of Security Holders............15
Item 5. Other Information..............................................15
Item 6. Exhibits and Reports on Form 8-K...............................15
i
<PAGE>
PART I
FINANCIAL INFORMATION
INTERLEUKIN GENETICS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents .............................. $ 3,544,508 $ 2,432,271
Accounts receivable, net of reserves of $58,235 at
September 30, 1999 and $20,959 at December 31, 1998 .... 165,435 125,086
Prepaid expenses ....................................... 110,952 127,426
------------ ------------
Total Current assets ................................... $ 3,820,895 2,684,783
------------ ------------
Furniture and equipment, net ........................... 318,134 458,107
Other assets ........................................... 0 530,000
------------ ------------
TOTAL ASSETS ........................................... $ 4,139,029 $ 3,672,890
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable ....................................... $ 287,675 $ 278,773
Notes payable .......................................... 4,915 47,813
Accrued expenses ....................................... 493,832 433,859
Deferred income ........................................ 398,484 275,321
Current portion of long-term debt ...................... 0 81,432
Current portion of capitalized lease obligations ....... 77,647 104,837
------------ ------------
Total current liabilities .............................. 1,262,553 1,222,035
Long-term debt, net .................................... 0 447,856
Capitalized lease obligations, net ..................... 110,232 156,651
------------ ------------
Total liabilities ...................................... 1,372,785 1,826,542
Preferred Stock, no par value
5,000,000 shares authorized
none issued and outstanding .......................... 0 0
Common stock, no par value
5,000,000 shares authorize; 16,576,175 shares
issued (includes 475,000 to be issued) and outstanding
at September 30, 1999
10,000,000 shares authorized,; 5,548,470 shares issued
and outstanding at December 31, 1998 ................. 22,639,904 16,719,933
Accumulated deficit .................................... (19,833,179) (14,873,585)
Other comprehensive income ............................. (40,481) --
------------ ------------
Total shareholders' equity ............................. 2,766,244 1,846,348
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............. $ 4,139,029 $ 3,672,890
------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
INTERLEUKIN GENETICS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales ............................................................. $ 140,179 $ 107,981 $ 362,252 $ 269,491
Cost of sales ..................................................... 79,518 58,252 155,635 172,344
------------ ------------ ------------ ------------
Gross profit ...................................................... 60,661 49,729 206,617 97,147
Expenses:
Research &
Development ................................................ 1,764,845 513,128 2,865,789 1,379,860
Selling, General &
Administrative ............................................. 936,561 1,584,922 2,339,132 5,405,887
------------ ------------ ------------ ------------
Total expenses .................................................... 2,701,406 2,098,050 5,204,921 6,785,747
------------ ------------ ------------ ------------
Loss from operations .............................................. (2,640,745) (2,048,321) (4,998,304) (6,688,600)
Other expense (expense):
Interest income ................................................... 34,944 74,130 79,280 326,470
Interest expense .................................................. (9,997) (22,853) (50,544) (70,278)
Other income ...................................................... 3,017 (2,566) 9,974 (130)
------------ ------------ ------------ ------------
Total other ....................................................... 27,964 48,711 38,710 256,062
------------ ------------ ------------ ------------
Loss before provision for
income taxes ...................................................... (2,612,781) (1,999,610) (4,959,594) (6,432,538)
Provision for income taxes ........................................ 0 0 0 850
------------ ------------ ------------ ------------
NET LOSS .......................................................... $ (2,612,781) $ (1,999,610) $ (4,959,594) $ (6,433,388)
============ ============ ============ ============
Reconciliation of net loss to net loss appplicable to common stock:
Net Loss .......................................................... $ (2,612,781) $ (1,999,610) $ (4,959,594) $ 6,433,388)
Amortization of the value
of the beneficial
conversion feature of the
preferred stock ................................................... $ (3,765,146) 0 (5,000,000) 0
------------ ------------ ------------ ------------
Net loss applicable
to common stock ................................................... $ (6,377,927) $ (1,999,610) $ (9,959,594) $ (6,433,388)
============ ============ ============ ============
Basic and diluted loss
per share ......................................................... (0.60) (0.36) (1.37) (1.16)
============ ============ ============ ============
Weighted average
common shares
outstanding ....................................................... 10,587,245 5,540,895 7,251,550 5,540,895
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
INTERLEUKIN GENETICS, INC.
AND SUBSIDIARIES
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss .......................................................... $(4,959,594) $(6,433,388)
Adjustments to reconcile net loss to net cash used in
operating activities:
Common stock issued in consideration for services
rendered ..................................... 1,180,198 0
Depreciation and amortization ................... 147,538 109,478
Accretion of investments ........................ 0 (219,082)
(Increase) decrease in:
Accounts receivable ............................. (40,349) (45,250)
Inventories ..................................... 0 11,357
Prepaid expenses ................................ 16,474 (26,307)
Increase (decrease) in:
Accounts payable ................................ 8,902 (240,553)
Accrued expenses ................................ 59,973 376,858
Deferred income ................................. 123,163 113,123
----------- -----------
Net cash used in operating activities ............................. (3,463,695) (6,353, 764)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchases of furniture and equipment .............................. (7,565) (395,275)
Increases in patents .............................................. 0 (351,844)
Maturity of investments ........................................... 0 6,226,795
Decreases (Increases) in other assets ............................. 530,000 (570,000)
----------- -----------
Net cash provided by investing activities ......................... 522,435 4,909,676
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from preferred stock issuance ........................ 4,713,279 0
Proceeds from sale of common stock ................................ 26,494 0
Proceeds from capitalized lease obligations ....................... 0 205,768
Principal payments of notes payable ............................... (42,898) 0
Retirement of long-term debt ...................................... 0 (558,538)
Proceeds from long-term borrowings ................................ 0 570,000
Principal payments of long-term debt .............................. (529,288) (94,120)
Principal payments of capitalized lease obligations ............... (73,609) (82,911)
Loss on treasury note ............................................. (40,481) 0
----------- -----------
Net cash provided by financing activities ......................... 4,053,497 40,199
----------- -----------
Net increase (decrease) in cash and equivalents................... 1,112,237 (1,403,889)
Cash and equivalents, beginning of period ......................... 2,432,271 6,005,059
----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD ............................... $ 3,544,508 $ 4,601,170
----------- -----------
Interest paid ..................................................... $ 50,544 $ 326,470
Income taxes paid ................................................. $ 0 $ 850
NON-CASH ITEMS
Stock issued to placement agent ................................... $ 500,000 $ 0
Common Stock warrants issued to placement agent ................... $ 3,080,000 $ 0
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
NOTE 1 - PRESENTATION OF INTERIM INFORMATION
As contemplated by the Securities and Exchange Commission under Item 310(b) of
Regulation S-B, the accompanying consolidated financial statements and footnotes
have been condensed and therefore do not contain all disclosures required by
generally accepted accounting principles. It is recommended that these interim
consolidated financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1998. The interim
financial data are unaudited; however, in the opinion of the management of
Interleukin Genetics, Inc. and subsidiaries (the "Company"), the accompanying
unaudited consolidated financial statements include all adjustments, consisting
only of normal recurring adjustments, necessary to make the interim financial
information not misleading. All significant intercompany transactions and
accounts have been eliminated in consolidation. Results for interim periods are
not necessarily indicative of those to be expected for the full year. Certain
classifications have been made in prior period financial statements to conform
with the current period presentation.
The accompanying financial statements of the Company have been prepared on the
basis of accounting principles applicable to a going concern. Since its
inception, the Company has incurred cumulative net losses of approximately $19.8
million, including losses of approximately $2.6 million during the third quarter
of 1999 and $5.0 million for the nine months ended September 30, 1999.
Additionally, for the nine months ended September 30, 1999, the Company
experienced negative cash flows from operating activities of approximately $3.5
million. As a result of these losses, available cash resources are limited.
These matters raise substantial doubt about the Company's ability to continue as
a going concern. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties. The ability of the Company
to continue as a going concern is dependent upon the Company achieving
significant revenue increases from their existing genetic products, developing
new products, successfully marketing its products to customers at profitable
prices and obtaining significant levels of new capital. If the Company is not
successful in these efforts, the Company would likely be unable to continue
operating as a going concern.
As discussed in footnote 3, the Company issued $5 million of preferred stock
during the second quarter, which generated approximately $4.7 million in net
proceeds. Management is in discussions with a number of potential strategic
partners and, if discussions are successfully completed, believes there should
be up-front funding of some of the Company's development programs. There can be
no assurance that any of the partnering discussions will be completed, or if
such discussions are complete, that there will be up-front funding of the
Company's programs. Management anticipates the current cash resources, absent
additional capital or financings, will be sufficient to conduct its operations
as planned through September 2000.
Commercial success of genetic susceptibility tests will depend upon their
acceptance as medically useful and cost-effective by patients, physicians,
dentists, other members of the medical and dental community, and third-party
payers. It is uncertain whether current genetic susceptibility tests or others
that the Company may develop will gain commercial acceptance on a timely basis.
Research in the field of disease predisposing genes and genetic markers is
intense and highly competitive. The Company has many competitors in the United
States and abroad which have considerably greater financial, technical,
marketing, and other resources available. If the Company does not discover
disease predisposing genes or genetic
4
<PAGE>
markers and develop susceptibility tests and launch such services or products
before their competitors, then revenues may be reduced or eliminated.
The Company's ability to successfully commercialize genetic susceptibility tests
depends on obtaining adequate reimbursement for such products and related
treatment from government and private health care insurers and other third-party
payers. Doctors' decisions to recommend genetic susceptibility tests will be
influenced by the scope and reimbursement for such tests by third-party payers.
If both third-party payers and individuals are unwilling to pay for the test,
then the number of tests performed will significantly decrease, therefore
resulting in a reduction of revenues.
The Company has entered into an arrangement with Sheffield University (the
Agreement) whereby the Company will undertake the development and
commercialization of certain discoveries resulting from Sheffield University's
research. The Agreement with Sheffield University (the University) is a
five-year agreement with an automatic yearly renewal. In accordance with the
Agreement, the Company issued 275,000 shares of common stock to the University
for past research services, the value of which was expensed in the third
quarter. Additionally, each year beginning July 1, 2000, the University will
receive 25,000 stock options at the then current market price, plus 10,000
options for each new patent application filed in the previous 12 months. These
options will be fully vested upon the grant date and have a five-year exercise
period. The Company signed another agreement with the University for research
and development services which automatically renews in one-year increments. Both
agreements can be canceled if the key collaborator leaves the University.
In September 1999, a five-year Consulting Agreement was entered into with the
University's key collaborator. In accordance with the Consulting Agreement, the
key collaborator received 200,000 shares of common stock for past research
services, the value of which was expensed in the third quarter. The key
collaborator will also receive one percent of the first $4 million of net sales
under the PST Technology and two percent for sales above $4 million. Payments
are required 45 days after each quarter end. Beginning July 1, 2000, in
consideration for future services, the key collaborator will receive 25,000
stock options at the then current market price. These options have a five-year
exercise period from the date of grant.
NOTE 2 - EARNINGS PER SHARE
Statement of Financial Accounting Standards (SFAS) No. 128 (SFAS 128), "Earnings
per Share," outlines methods for computing and presenting earnings per share.
SFAS 128 requires a calculation of basic and diluted earnings per shares for all
periods presented. As the Company had losses for the three and nine months ended
September 30, 1999 and 1998, options and warrants have been excluded from the
calculation of the dilutive weighted average shares outstanding as they are
antidilutive in loss periods.
NOTE 3 - EQUITY
Pursuant to a private placement which occurred in June 1999, the Company issued
2,200,000 shares of its Series A Preferred Stock, no par value (Series A Stock),
for $5 million. In conjunction with this offering, the placement agent received
200,000 shares of Series A Stock and a warrant to purchase 1,000,000 shares of
common stock at a price of $0.50 per share. This warrant expires on June 16,
2004. Each share of the Series A Stock was automatically converted into five
shares of the Company's common stock at a conversion price of $0.50 per share
upon the approval of the private placement by the
5
<PAGE>
Company's shareholders on August 20, 1999. The Company filed a Registration
Statement registering the resale of the shares of the common stock underlying
the Series A Stock on July 23, 1999, which was declared effective by the SEC on
September 14, 1999. On the closing date of the private placement, the conversion
price of the Series A Stock was less than the market price of the common stock
which resulted in a beneficial conversion of $5 million. The beneficial
conversion was recorded as common stock and was accreted to preferred stock
ratably from the closing date of the preferred stock to the earliest conversion
date, August 20, 1999.
NOTE 4 - SEGMENT INFORMATION
During 1998, the Company adopted SFAS No. 131 (SFAS 131), "Disclosures about
Segments of an Enterprise and Related Information." SFAS 131 establishes new
standards for reporting information about operating segments in annual and
interim financial statements, requiring that public business enterprises report
financial and descriptive information about its reportable segments based on a
management approach. SFAS 131 also establishes standards for related disclosures
about products and services, geographic areas and major customers. In applying
the requirements of this statement, each of the Company's geographic areas
described below were determined to be an operating segment as defined by the
statement, but have been aggregated as allowed by the statement for reporting
purposes. As a result, the Company continues to have one reportable segment,
which is the development of genetic susceptibility tests and therapeutic targets
for common diseases.
The following table presents information about the Company by geographic area.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
----------- -----------
<S> <C> <C>
Total Revenues: ............................................ (Unaudited) (Unaudited)
United States .................................................... $ 284,384 $ 197,427
France ........................................................... 27,982 18,810
Other foreign .................................................... 49,886 53,254
----------- -----------
Total ............................................................ $ 362,252 $ 269,491
=========== ===========
Operating Loss:
United States .................................................... $(3,948,660) $(4,882,678)
France ........................................................... (399,864) (468,202)
Other foreign .................................................... (649,780) (1,337,720)
----------- -----------
Total ............................................................ $(4,998,304) $(6,688,600)
=========== ===========
AS OF SEPTEMBER 30,
1999 1998
----------- -----------
Assets: .................................................... (Unaudited) (Unaudited)
United States .................................................... $ 4,139,029 $ 6,679,615
France ........................................................... 0 0
Other foreign .................................................... 0 0
----------- -----------
Total ............................................................ $ 4,139,029 $ 6,679,615
=========== ===========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
6
<PAGE>
Certain statements contained in this Form 10-QSB are "forward-looking
statements" within the meaning of the Section 27A of the Securities Act and
Section 21E of the Exchange Act. Specifically, all statements other than
statements of historical fact included in this Form 10-QSB regarding the
Company's financial position, business strategy and plans and objectives of
management of the Company for future operations are forward-looking statements.
These forward-looking statements are based on the beliefs of the Company's
management, as well as assumptions made by and information currently available
to the Company's management. When used in this report, the words "anticipate,"
"believe," "estimate," "expect" and "intend" and words or phrases of similar
import, as they relate to the Company or its subsidiaries or Company management,
are intended to identify forward-looking statements. Such statements reflect the
current view of the Company with respect to future events and are subject to
certain risks, uncertainties and assumptions related to certain factors
including, without limitation, risks inherent to developing genetic tests once
genes have been discovered, the Company's limited sales and marketing
experience, risk of market acceptance of the Company's products, risk of
technology and products obsolescence, delays in development of products,
reliance on partners, risks related to third-party reimbursement, risks
regarding government regulation, competitive risks and those risks and
uncertainties described in the Company's Registration Statement on Form S-3
filed July 23, 1999 (File No. 333-83631), as amended on July 25, 1999, and in
other filings made by the Company with the Securities and Exchange Commission
(collectively, "cautionary statements"). Although the Company believes that its
expectations are reasonable, it can give no assurance that such expectations
will prove to be correct. Based upon changing conditions, should any one or more
of these risks or uncertainties materialize, or should any underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected, or intended. 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 the applicable cautionary statements. The Company does not intend to
update these forward-looking statements.
The following comments should be read in conjunction with the Company's
consolidated financial statements and related notes included elsewhere in this
Quarterly Report on Form 10-QSB.
GENERAL OVERVIEW
Interleukin Genetics, Inc., a Texas corporation formerly named Medical Science
Systems, Inc. ("ILGN" or the "Company"), develops and commercializes genetic
diagnostic tests and medical research tools. The Company's efforts are focused
on genetic factors that affect the rate of progression of clinical disease
through their influence on common host systems. The Company's first genetic
test, PST(R), a test predictive of risk for periodontal disease, is currently
marketed in the United States, Europe and Israel. Products under development
include tests predictive of risk for osteoporosis, coronary artery disease,
diabetic retinopathy, asthma, pulmonary fibrosis, and meningitis/sepsis.
The Company believes by combining genetic risk assessment with specific
therapeutic strategies, improved clinical outcomes and more cost-effective
management of these common diseases are achieved. ILGN also develops and
licenses its medical research tools, including BioFusion(R), to pharmaceutical
companies. BioFusion, a proprietary enabling system for diagnostic and drug
discovery and development, is a computer modeling system that integrates genetic
and other sub-cellular behavior, system functions, and clinical symptoms to
simulate complex diseases. This system allows
7
<PAGE>
useful information to be derived from rapidly increasing databases of gene
expression being generated in companies and academic centers worldwide.
The Company completed a private placement in June 1999 of $5 million of
preferred stock, with $4.7 million in net proceeds. All of the preferred stock
was converted into common stock upon approval of the private placement by the
shareholders of the Company on August 20, 1999.
The Company is in discussions with a number of potential strategic partners and,
if such discussions are successfully completed, the Company believes this will
result in the up-front funding of some of its programs. There can be no
assurance that any of these discussions will be completed, or if such
discussions are complete, that there will be up-front funding of the Company's
programs.
The Company has followed a strategy of working with strategic partners at the
fundamental discovery stage. This strategy has given the Company access to
discoveries while reducing up-front research expenses. Since 1994, the Company
has had a strategic alliance with the Department of Molecular and Genetic
Medicine at Sheffield University in the United Kingdom (Sheffield). Under this
alliance, Sheffield has provided to the Company the fundamental discovery and
genetic analysis from Sheffield's research laboratories and the Company has
focused on product development, including clinical trials, and the
commercialization of these discoveries. The Company has entered into multiple
joint development and commercialization project agreements with Sheffield, and
anticipates entering into additional collaborative arrangements with Sheffield
and other parties in the future.
During the third quarter of 1999, the Company entered into a new arrangement
with Sheffield. This new arrangement replaced the research and development
agreement that had been in place with Sheffield since 1996. Pursuant to the new
arrangement, the Company issued an aggregate of 475,000 shares of its common
stock to Sheffield and its investigators in exchange for the transfer of certain
patents to the Company and the relinquishment by Sheffield and its investigators
of their respective net proceeds interests under certain agreements with the
Company.
In April 1999, the Company entered into an agreement with Dumex, a subsidiary of
AlPharma, a pharmaceutical manufacturer, to market and sell PST in nine European
countries (Austria, Denmark, Finland, Germany, Ireland, Norway, Sweden,
Switzerland and the U.K.). Dumex is well-known in Europe as a manufacturer of
oral health care products used by periodontists.
In March 1999, the Company entered into an agreement with the Straumann Company,
a leading supplier of dental implants, to market and sell PST in the United
States and Puerto Rico. Straumann launched its PST promotional activities in
April 1999.
In December 1998, the Company signed an agreement with Washington Dental
Service, a member of the Delta Dental Plans Association, for the purchase of
1,200 PST tests. The tests will be used in a study, sponsored by Washington
Dental Service, in collaboration with the University of Washington School of
Dentistry and Interleukin Genetics. The study will provide scientific and
financial information about PST in a reimbursement system. This study is
expected to provide scientific and financial data regarding the use of PST as a
treatment-planning tool to assess risk. The data from the study is anticipated
to be available for analysis in the first quarter of 2000.
8
<PAGE>
In December 1997, the Company entered into an agreement with Medicadent, a
French corporation ("Medicadent"), to market and sell PST in France. In August
1998, the Company entered into an agreement with H.A. Systems, Ltd. to market
and sell PST in Israel. Medicadent commenced offering PST in France in June
1998, and H.A. Systems commenced offering PST in Israel in April 1999. No
assurances can be made regarding the commercial acceptance of PST.
The Company has been awarded four U.S. patents, and has sixteen U.S. patent
applications pending. The U.S. Patent & Trademark Office awarded patents to the
Company for its osteoporosis and periodontal disease susceptibility tests and
two patent awards for its biologic modeling technology called BioFusion(R).
BioFusion is used by the Company in the discovery, development and
commercialization process. The Company's disease susceptibility patents seek to
protect the use of its various genetic markers as an indicator of risk for the
specific disease covered, as well as protecting various therapeutic applications
which these markers may have.
The Company has been granted a number of corresponding foreign patents and
has filed foreign counterparts of its U.S. applications. Where the Company
has originally filed in another country, it has filed and plans to continue
to file U.S. and other foreign counterparts.
CURRENT FINANCIAL CONDITION
Since its inception, the Company has incurred cumulative net losses of
approximately $19.8 million including losses of approximately $2.6 million
during the third quarter of 1999 and $5.0 million for the nine months ended
September 30, 1999. As a result of these losses, available cash resources are
limited and will be depleted in September of 2000 absent additional debt or
equity funding or a strategic alliance which provides operating capital. The
ability of the Company to continue as a going concern is dependent upon the
Company achieving significant revenue increases from its existing genetic
products, developing new products, successfully marketing its products to
customers at profitable prices and obtaining significant levels of new capital.
If the Company is not successful in these efforts, the Company would likely be
unable to continue operating as a going concern. See footnote 1 to the Financial
Statements included herein.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
Gross revenue for the three months ended September 30, 1999 was $140,179
compared to $107,981 for the same period ended September 30, 1998, an increase
of 30%. In the three months ended September 30, 1999, the Company conducted 429
PST tests compared to 636 tests in the same period in 1998. The results for the
three months ended September 30, 1998, reflect the activity of the Company's
direct sales force during such period. The Company disbanded its sales force and
discontinued its direct marketing efforts in late 1998, and opted to pursue
collaborative partners to market the PST test in lieu of its direct sales force.
Due to the absence of a direct sales force and its marketing partners only just
beginning to market the PST test during the quarter ended September 30, 1999,
the number of PST tests conducted in such quarter were lower than the
corresponding previous year's quarter. Despite the lower number of PST tests
conducted in the third quarter of 1999, gross revenue was higher in the third
quarter of 1999 compared to the year earlier period due to the addition of
revenue from upfront payments by distributors and biological modeling services
in the 1999 quarter. Cost of sales was $79,518 for the three months ended
September 30, 1999 compared to $58,252 for 1998. Gross profit margin was 43% in
the three months ended September 30, 1999 compared to 46% for the year
9
<PAGE>
earlier period. This decrease in gross profit margin reflected higher costs for
sample collection materials associated with the introduction of the new saliva
test kit in the 1999 quarter.
For the three months ended September 30, 1999, the Company had research and
development expenses of $1,764,845 as compared to $513,128 for the third quarter
of 1998. The year-earlier expense was lower due to an abnormally low level of
expenditures during that quarter for clinical trials. Research and development
expense for the three months ended September 30, 1999 included $1,128,125 in
non-cash expense, for the market value of 475,000 shares of common stock issued
to Sheffield University and a consultant for past research and development
services as discussed in footnote 1 to the Financial Statements included herein.
Selling, general and administrative expenses were $936,561 in the third quarter
of 1999 compared to $1,584,922 in the third quarter of 1998, a decrease of
40.9%. This decrease is a result of the Company's ongoing cost-cutting
initiatives, including its strategy to utilize collaborative partners for its
direct sales of its genetic tests. As a result of the Company's effort to reduce
costs, the Company had 14 full-time employees as of September 30, 1999 compared
to 49 one-year earlier.
Interest income in the third quarter of 1999 was $34,944 compared to $74,130 in
the third quarter of 1998. This decrease reflects lower balances of cash in the
third quarter of 1999 compared to the year earlier period, as cash was utilized
throughout 1998 to cover the Company's operating losses. Interest expense of
$9,997 was incurred during the period ended September 30, 1999, compared to
$22,853 in the same period in 1998. The reduction in interest expense was due to
the reduction in the principal amount of the bank debt and lower interest rate
on that debt.
Net loss was $2,612,781 for the third quarter of 1999 compared to a net loss of
$1,999,610 for the third quarter of 1998, an increase of 30.7%, due to the
reasons set forth above. The Company anticipates that it will continue to
experience losses unless its genetic testing revenues grow substantially from
current levels and its efforts to develop revenue from licensing its biologic
modeling research tools are successful. In addition, if the Company is
successful in reaching agreements with strategic partners on developing
additional genetic tests, milestone payments, if any, from these strategic
partners will help cover the Company's research and development expense and
could also reduce the net loss. No assurances can be made that the Company will
be able to increase its revenues, either from genetic tests or licensing
revenue, or that it will be able to reach collaborative partnering agreements.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Gross revenue for the nine months ended September 30, 1999 was $362,252 compared
to $269,491 for the same period ended September 30, 1998, an increase of 34%. In
the nine months ended September 30, 1999, the Company conducted 1,343 tests
compared to 1,614 tests in the same period in 1998. The decrease in tests for
the nine months ended September 30, 1999, was due to the lack of a direct sales
force and due to the fact that the Company's two major PST distributors were
just beginning distribution. Cost of sales was $155,635 for the nine months
ended September 30, 1999 compared to $172,344 for 1998. Gross profit margin was
57% in the nine months ended September 30, 1999 compared to 36% for the year
earlier period, reflecting lower unit laboratory costs for the Company's genetic
tests.
10
<PAGE>
For the nine months ended September 30, 1999, the Company had research and
development expenses of $2,865,789 compared to $1,379,860 for the same period of
1998. The higher expense in the first three quarters of 1999 reflects a higher
level of clinical trials in 1999 as well as the $1,128,125 in non-cash expense
for the 475,000 shares of common stock issued to Sheffield University and
consultant.
Selling, general and administrative expenses were $2,339,132 for the nine months
ended September 30, 1999, compared to $5,405,887 in the same period of 1998, a
decrease of 56.7%. This decrease is a result of the Company's ongoing
cost-cutting initiatives, including its strategy to utilize collaborative
partners for its sales of its genetic tests.
Interest income in the nine months ended September 30, 1999, was $79,280
compared to $326,470 in the same period of 1998. This decrease reflects lower
balances of cash in 1999 compared to the year-earlier period, as cash was
utilized throughout 1998 to cover the Company's operating losses. Interest
expense of $50,544 was incurred during the nine month period ended September 30,
1999, compared to $70,278 in the same period in 1998. The reduction in interest
expense was due to the reduction in the principal amount of the bank debt and
lower interest rate on that debt.
Net loss was $4,959,594 for the nine months ended September 30,1999, compared to
a net loss of $6,433,388 for the same period in 1998, a decrease of 22.9%. This
decrease reflects the reduction in sales and marketing expense as the Company
shifts to a collaborative partnering strategy.
LIQUIDITY AND CAPITAL RESOURCES
Pursuant to a $5 million private placement in June 1999, the Company issued
2,200,000 shares of Series A Preferred Stock, no par value, which generated net
proceeds of $4.7 million. Each share of the Series A Preferred Stock converted
into five shares of the Company's common stock upon approval of the private
placement by the Company's shareholders at the Annual Meeting of Shareholders on
August 20, 1999.
Net cash used in operating activities was $3,463,695 during the nine months
ended September 30, 1999 and $6,353,764 during the same period of the prior
fiscal year. As of September 30, 1999, the Company had cash and cash equivalents
of $3,544,508.
The Company currently does not have any commitments for material capital
expenditures. The Company's obligation at September 30, 1999 for capitalized
lease obligations totaled $187,879, of which $110,232 is classified as long-term
and $77,647 is classified as current.
In June 1999 the Company repaid a bank loan which had a principal balance of
$495,358. The Company had provided a $530,000 certificate-of-deposit as security
for this loan, which was released upon the repayment of the loan.
The Company anticipates that its existing cash and cash equivalents, together
with anticipated interest income and revenue, will be sufficient to conduct its
operations as planned until September 30, 2000. However, the Company's future
capital requirements are anticipated to be substantial, and the Company does not
have commitments for additional capital at this time. Such capital requirements
are expected to arise from the commercial launch of additional genetic tests,
continued marketing and sales efforts for PST, continued research and
development efforts, the protection of the Company's intellectual property
rights (including preparing and filing of patent applications), as well
11
<PAGE>
as operational, administrative, legal and accounting expenses. THERE CAN BE NO
ASSURANCE THAT THE COMPANY WILL BE ABLE TO RAISE ANY ADDITIONAL NECESSARY
CAPITAL. IF ADDITIONAL AMOUNTS CANNOT BE RAISED, THE COMPANY WOULD SUFFER
MATERIAL ADVERSE CONSEQUENCES TO ITS BUSINESS, FINANCIAL CONDITION AND RESULTS
OF OPERATIONS AND WOULD LIKELY BE REQUIRED TO SEEK PROTECTION UNDER THE UNITED
STATES BANKRUPTCY LAWS. SEE "Current Financial Condition" on page 9 hereof and
Note 1 of the Financial Statements included herein.
The Company's Common Stock is currently listed on The NASDAQ SmallCap Market and
the Boston Stock Exchange. If the Company fails to maintain the qualification
for its Common Stock to trade on the NASDAQ SmallCap Market or the Boston Stock
Exchange, its Common Stock could be subject to delisting. Effective February
1998, the NASDAQ Stock Market announced increases in the quantitative standards,
which require the maintenance of any of (x) $2,000,000 of net tangible assets,
(y) $35,000,000 of market capitalization or (z) $500,000 of net income for two
of the last three years and a minimum bid price per share of $1.00. On February
3, 1999, we received notice from NASDAQ that we were in violation of NASDAQ's
minimum bid price requirement and that if our Common Stock did not have a
closing bid price of at least $1.00 for ten consecutive trading days during the
90-day period ending May 3, 1999, our Common Stock was subject to delisting on
May 3, 1999. The Company believes it satisfied this requirement by having a
closing bid price of at least $1.00 for each trading day since May 7, 1999;
however the Company has not yet received notice from NASDAQ that such
requirement was satisfied. Furthermore, there can be no assurance that our stock
price will maintain such $1.00 minimum bid price. If the market price for our
Common Stock does fall below the $1.00 bid price, our Common Stock could be
subject to delisting from The NASDAQ SmallCap Market.
On April 19, 1999, the Company received notice from the NASDAQ SmallCap Market
that the Company was in violation of NASDAQ's $2,000,000 minimum net tangible
asset requirement. As a result of the private placement completed in June 1999,
management believes that the Company is in compliance with NASDAQ's minimum net
tangible asset requirement; however, the Company has not yet received notice
from NASDAQ that such requirement was satisfied. The Company filed a Current
Report on Form 8-K dated June 25, 1999, containing the Company's pro forma
balance sheet at May 31, 1999, adjusted to reflect the results of the June
private placement. Such balance sheet reflects net tangible assets in excess of
$2,000,000. If the Company is unable to maintain compliance with NASDAQ's
minimum net tangible asset requirement, or maintain a $35,000,000 market
capitalization, the Company would likely be delisted from The NASDAQ SmallCap
Market and may also suffer material adverse consequences to its business,
financial condition and results of operations.
On April 26, 1999, the Company received a letter from NASDAQ expressing concern
regarding the "going concern" opinion of Arthur Andersen LLP, the Company's
independent public accountant, given in Arthur Andersen LLP's report contained
in the Company's Annual Report on Form 10-KSB for the year ended December 31,
1998. While NASDAQ did not notify the Company that its Common Stock was subject
to delisting due to such opinion, NASDAQ does have the discretion to so delist
the Company's Common Stock for any number of reasons, including the "going
concern" opinion of Arthur Andersen LLP. There can be no assurance that the
Company will be able to address this issue in a manner satisfactory to NASDAQ,
or that that the Company's Common Stock will not be delisted from The NASDAQ
SmallCap Market.
12
<PAGE>
On August 3, 1999, the Company received a letter from NASDAQ questioning whether
the Company had violated the shareholder approval provisions of the NASDAQ
Marketplace Rules due to an alleged change-in-control resulting from the private
placement of the Series A Preferred Stock completed by the Company in June 1999.
As a result, NASDAQ is reviewing the Company's eligibility for continued listing
on The NASDAQ SmallCap Market. The Company does not believe that a
change-of-control occurred and has engaged in discussions with NASDAQ to resolve
this matter. There can be no assurance that the Company will be able to address
this issue in a manner satisfactory to NASDAQ, or that the Company's Common
Stock will not be delisted from The NASDAQ SmallCap Market.
If the Company's shares are not listed as intended, trading, if any, would be
conducted in the over-the-counter market in the so-called "pink sheets" or the
OTC Bulletin Board, which was established for securities that do not meet The
NASDAQ SmallCap Market's listing requirements. Consequently, selling the Common
Stock of the Company would be more difficult because smaller quantities of
shares could be bought and sold, transactions could be delayed, and security
analysts' and news media's coverage of the Company may be reduced. These factors
could result in lower prices and larger spreads in the bid and ask prices for
shares of Common Stock. Such NASDAQ delisting would also greatly impair the
Company's ability to raise additional necessary capital through equity or debt
financing.
If the Common Stock of the Company is not listed on The NASDAQ SmallCap Market
and/or the Boston Stock Exchange, it may become subject to Rule 15g-9 under the
Exchange Act. That rule imposes additional sales practice requirements on
broker-dealers that sell low-priced securities to persons other than established
customers and institutional accredited investors. For transactions covered by
this rule, a broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transaction
prior to sale. Consequently, the rule may affect the ability of broker-dealers
to sell the Common Stock and affect the ability of holders to sell their shares
of Common Stock of the Company in the secondary market.
The SEC's regulations define a "penny stock" to be any equity security that has
a market price less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to certain exceptions. The penny stock restrictions
will not apply to our shares if they are listed on The NASDAQ SmallCap Market or
the Boston Stock Exchange and we provide certain price and volume information on
a current and continuing basis, or meet required minimum net tangible assets or
average revenue criteria. There can be no assurance that the shares of Common
Stock of the Company will qualify for exemption from these restrictions. If such
shares were subject to the penny stock rules, the market liquidity for the
shares could be adversely affected.
Historically, the Common Stock of the Company has experienced low trading
volumes. The market price of the Common Stock also has been highly volatile and
it may continue to be highly volatile as has been the case with the securities
of other public biotechnology companies. Factors such as announcements by the
Company or its competitors concerning technological innovations, new commercial
products or procedures, proposed government regulations and developments or
disputes relating to patents or proprietary rights may substantially affect the
market price of the Company's securities. Changes in the market price of the
common Stock may bear no relation to the Company's actual operational or
financial results.
YEAR 2000 COMPLIANCE
13
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The efficient operation of the Company's business is dependent on its computer
software programs and operating systems (collectively, "Programs and Systems").
These Programs and Systems are used in several key areas of the Company's
business, including financial reporting, as well as in various administrative
functions. The Company has evaluated its Programs and Systems to identify
potential year 2000 compliance problems, as well as manual processes, external
interfaces with customers, and services supplied by vendors to coordinate year
2000 compliance and conversion. The year 2000 problem refers to the limitations
of the programming code in certain existing software programs to recognize date
sensitive information for the year 2000 and beyond. Unless modified prior to the
year 2000, such systems may not properly recognize such information and could
generate erroneous data or cause a system to fail to operate properly. Based on
current information, the Company believes its Programs and Systems are year 2000
compliant. However, because most computer systems are, by their very nature,
interdependent, it is possible that non-compliant third party computers may not
interface properly with the Company's computer systems. The Company could be
adversely affected by the year 2000 problem if it or unrelated parties fail to
successfully address this issue.
In the event the Company determines following the year 2000 date change that its
Programs and Systems are not year 2000 compliant, the Company will likely
experience considerable delays in compiling information required for financial
reporting and performing various administrative functions. In the event of such
occurrence, the Company's contingency plans call for it to switch vendors to
obtain hardware and/or software that is 2000 compliant, and until such hardware
and/or software can be obtained, the company will plan to use non-computer
systems for its business, including information management services and
financial reporting, as well as its various administrative functions.
Year 2000 Information and Readiness Disclosure Act
To the maximum extent permitted by applicable law, the above information is
being designated as "Year 2000 Readiness Disclosure" pursuant to the "Year 2000
Information and Readiness Disclosure Act" which was signed into law on October
19, 1998.
14
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to, nor is its property the subject of, any pending
legal proceeding.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable
(b) Not applicable
(c) On September 30, 1999, the Company approved the issuance of 475,000
shares of common stock, no par value (the "Shares"), to the University of
Sheffield, U.K. (Sheffield) and its investigators in connection with a new
arrangement with Sheffield. This new arrangement replaces the research and
development agreement that had been in place since 1996. In consideration for
the Shares, Sheffield and its investigators relinquished their respective net
proceeds interests under certain agreements with the Company and transferred
certain patents. Under the terms of the new arrangement, the Company is
obligated to grant to Sheffield and its investigators on each July 1 (with the
first options to be granted on July 1, 2000) during the term of the arrangement
options to purchase an aggregate of 50,000 shares of common stock of the Company
and options to purchase an additional 10,000 shares of common stock of the
Company for each patent application filed during the preceding 12 months. These
options are exercisable for a period of five years from the date of grant at an
exercise price to be determined on the applicable grant date. The Shares were
not registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to Section 4(2) of the Securities Act and Regulation D
promulgated thereunder, and pursuant to Rule 903 and Rule 904 of Regulation S.
The Company relied on certain representations and warranties of Sheffield and
its investigators (the "Sheffield Parties"), including, among other things, each
of the Sheffield Parties' ability to evaluate the merits and risks of an
investment in the Shares, each of the Sheffield Parties' status as an
"accredited investor" (as that term is defined in Rule 501(a) of Regulation D),
that each of the Sheffield Parties' residence, domicile and/or principal
corporate office is Sheffield, England and that the Shares were acquired solely
for each of the Sheffield Parties' own account for investment and not with a
view to distribution.
(d) Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders was held on August 20, 1999.
(b) Not applicable
15
<PAGE>
(c) (1) The following directors were elected by the following votes to
serve until the next Annual Meeting of Shareholders or until their successors
have been elected and qualified:
NAME NO. OF VOTES FOR SHARES WITHHELD
---- ---------------- ---------------
Philip R. Reilly 4,490,116 1,500
Kenneth S. Kornman 4,490,116 1,500
Thomas A. Moore 4,490,116 1,500
Edward M. Blair, Jr. 4,490,116 1,500
Gary L. Crocker 4,490,116 1,500
(2) With respect to the proposal to amend the Articles of
Incorporation of the Company to increase the number of authorized shares of
Common Stock of the Company from 10,000,000 shares to 50,000,000 shares,
3,195,545 shares of Common Stock were voted "For", 19,700 shares were voted
"Against," 23,500 shares abstained from voting and 1,252,871 shares were broker
non-votes.
(3) With respect to the proposal to amend the Articles of
Incorporation of the Company to change the name of the Company to "Interleukin
Genetics, Inc.," 4,467,796 shares of Common Stock were voted "For", 6,520 shares
were voted "Against," 17,300 shares abstained from voting and no shares were
broker non-votes.
(4) With respect to the proposal to ratify the issuance of shares of
Series A Preferred Stock issued pursuant to the Private Placement completed by
the Company in June 1999 to comply with the requirements of the NASDAQ
Marketplace Rules, 3,197,990 shares of Common Stock were voted "For", 9,920
shares were voted "Against," 14,175 shares abstained from voting and 1,269,531
shares were broker non-votes.
(5) With respect to the proposal to ratify the adoption of the
Employee Stock Purchase Plan of the Company, 3,194,285 shares of Common Stock
were voted "For", 14,500 shares were voted "Against," 13,300 shares abstained
from voting and 1,269,531 shares were broker non-votes.
(6) With respect to the proposal to ratify the appointment of Arthur
Andersen LLP as independent public accountants of the Company for the fiscal
year ending December 31, 1999, 4,482,116 shares of Common Stock were voted
"For", 7,300 shares were voted "Against," 2,200 shares abstained from voting and
no shares were broker non-votes.
(d) Not applicable
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3.1 Articles of Incorporation of the Company, as amended (filed
herewith).
10.1* Research and Technology Transfer Agreement dated effective July 1,
1999 between the Company and the University of Sheffield (filed
herewith).
16
<PAGE>
10.2* Research Support Agreement dated effective July 1, 1999, between the
Company and the University of Sheffield (filed herewith).
10.3* Consulting Agreement dated effective July 1, 1999 between the
Company and Gordon Duff, PhD, FRCP (filed herewith).
27 Financial Data Schedule (filed herewith)
* Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with Securities
and Exchange Commission.
(b) Reports on Form 8-K
Form 8-K dated August 20, 1999 reporting the results of the
Company's Annual Meeting of Shareholders held on August 20, 1999.
Form 8-K dated October 8, 1999 describing the new arrangement with
the University of Sheffield, U.K.
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
3.1 Articles of Incorporation of the Company, as amended (filed
herewith).
10.1* Research and Technology Transfer Agreement dated effective July 1,
1999 between the Company and the University of Sheffield (filed herewith).
10.2* Research Support Agreement dated effective July 1, 1999, between the
Company and the University of Sheffield (filed herewith).
10.3* Consulting Agreement dated effective July 1, 1999 between the
Company and Gordon Duff, PhD, FRCP (filed herewith).
27 Financial Data Schedule (filed herewith)
* Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separetely with
Securities and Exchange Commission.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTERLEUKIN GENETICS, INC.
Date: November 15, 1999 By: __/S/
U. Spencer Allen
Chief Financial Officer, Secretary &
Treasurer
Duly authorized signatory and
Principle Financial and Accounting
Officer
17
EXHIBIT 3.1
SECOND AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MEDICAL SCIENCE SYSTEMS, INC.
1. Medical Science Systems, Inc., a Texas corporation (the
"Corporation"), pursuant to the provisions of Article 4.07 of the Texas Business
Corporation Act, hereby adopts these Second Amended and Restated Articles of
Incorporation, which accurately copy the Articles of Incorporation of the
Corporation, as amended through, and in effect on, the date hereof, as further
amended by these Second Amended and Restated Articles of Incorporation as
hereinafter set forth, and contain no other change in any provisions thereof.
2. The Articles of Incorporation, as amended, of the Corporation are
amended by these Second Amended and Restated Articles of Incorporation as
follows:
The amendments made by these Second Amended and Restated Articles of
Incorporation (the "Amendments") alter or change Articles ONE and FOUR of the
Restated Articles of Incorporation. The full text of each provision altered is
as set forth in Section 5 hereof.
The Amendments (a) change the name of the Corporation to Interleukin
Genetics, Inc. and (b) increase the number of authorized shares of Common Stock
of the Corporation from 10,000,000 shares to 50,000,000 shares.
3. The Amendments have been effected in conformity with the
provisions of the Texas Business Corporation Act, and each such amendment made
by the Second Amended and Restated Articles of Incorporation were duly adopted
by all of the shareholders of the Corporation on the 20th day of August 1999.
4. On that date there were 5,558,835 common shares of the
Corporation outstanding, all of which were entitled to vote on the Amendments. A
total of 4,467,796 shares of Common Stock were voted in favor of, and 6,520
shares voted against, the amendment to change the name of the Corporation to
Interleukin Genetics, Inc. A total of 3,195,545 shares of Common Stock were
voted in favor of, and 19,700 shares voted against, the amendment to increase
the number of authorized shares of Common Stock of the Corporation from
10,000,000 shares to 50,000,000 shares.
5. The Amended and Restated Articles of Incorporation of the
Corporation filed with the Secretary of State of the State of Texas on October
9, 1996 are hereby superseded by the
<PAGE>
following Second Amended and Restated Articles of Incorporation, which
accurately copy the entire text thereof as amended hereby:
SECOND AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MEDICAL SCIENCE SYSTEMS, INC.
ARTICLE ONE
The name of the Corporation is Interleukin Genetics, Inc.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose or purposes for which the Corporation is organized is
the transaction of all lawful business for which a corporation may be
incorporated under the corporation laws of the State of Texas.
ARTICLE FOUR
The aggregate number of shares that the Corporation shall have the
authority to issue is 55,000,000 shares, consisting of 50,000,000 shares of
common stock, no par value per share (the "Common Stock"), and 5,000,000 shares
of preferred stock, no par value per share (the "Preferred Stock"). The
descriptions of the different classes of capital stock of the Corporation and
the preferences, designations, relative rights, privileges and powers, and the
restrictions, limitations and qualifications thereof, of said classes of stock
are as follows:
Division A
The shares of Preferred Stock may be divided into and issued in one
or more series, the relative rights and preferences of which series may vary in
any and all respects. The board of directors of the Corporation is hereby vested
with the authority to establish series of Preferred Stock by fixing and
determining all the preferences, limitations and relative rights of the shares
of any
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<PAGE>
series so established, to the extent not provided for in these Amended and
Restated Articles of Incorporation or any amendment hereto, and with the
authority to increase or decrease the number of shares within each such series;
provided, however, that the board of directors may not decrease the number of
shares within a series below the number of shares within such series that is
then issued. The authority of the board of directors with respect to each such
series shall include, but not be limited to, determination of the following:
1. the distinctive designation and number of shares of that series;
2. the rate of dividend (or the method of calculation thereof) payable with
respect to shares of that series, the dates, terms and other conditions
upon which such dividends shall be payable, and the relative rights of
priority of such dividends to dividends payable on any other class or
series of capital stock of the Corporation;
3. the nature of the dividend payable with respect to shares of that series
as cumulative, noncumulative or partially cumulative, and if cumulative or
partially cumulative, from which date or dates and under what
circumstances;
4. whether shares of that series shall be subject to redemption, and, if made
subject to redemption, the times, prices, rates, adjustments and other
terms and conditions of such redemption (including the manner of selecting
shares of that series for redemption if fewer than all shares of such
series are to be redeemed);
5. the rights of the holders of shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation (which rights may be different if such action is voluntary
than if it is involuntary), including the relative rights of priority in
such event as to the rights of the holders of any other class or series of
capital stock of the Corporation;
6. the terms, amounts and other conditions of any sinking or similar purchase
or other fund provided for the purchase or redemption of shares of that
series;
7. whether shares of that series shall be convertible into or exchangeable
for shares of capital stock or other securities of the Corporation or of
any other corporation or entity, and, if provision be made for conversion
or exchange, the times, prices, rates, adjustments and other terms and
conditions of such conversion or exchange;
8. the extent, if any, to which the holders of shares of that series shall be
entitled (in addition to any voting rights provided by law) to vote as a
class or otherwise with respect to the election of directors or otherwise;
9. the restrictions and conditions, if any, upon the issue or reissue of any
additional Preferred Stock ranking on a parity with or prior to shares of
that series as to dividends or upon liquidation, dissolution or winding
up;
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<PAGE>
10. any other repurchase obligations of the Corporation, subject to any
limitations of applicable law; and
11. notwithstanding their failure to be included in (1) through (10) above,
any other designations, preferences, limitations or relative rights of
shares of that series.
Any of the designations, preferences, limitations or relative rights (including
the voting rights) of any series of Preferred Stock may be dependent on facts
ascertainable outside these Amended and Restated Articles of Incorporation.
Shares of any series of Preferred Stock shall have no voting rights
except as required by law or as provided in the preferences, limitations and
relative rights of such series.
Division B
1. DIVIDENDS. Dividends may be paid on the Common Stock out of any assets of
the Corporation available for such dividends subject to the rights of all
outstanding shares of capital stock ranking senior to the Common Stock in
respect of dividends.
2. DISTRIBUTION OF ASSETS. In the event of any liquidation, dissolution or
winding up of the Corporation, after there shall have been paid to or set
aside for the holders of capital stock ranking senior to the Common Stock
in respect of rights upon liquidation, dissolution or winding up the full
preferential amounts to which they are respectively entitled, the holders
of the Common Stock shall be entitled to receive, pro rata, all of the
remaining assets of the Corporation available for distribution to its
shareholders.
3. VOTING RIGHTS. The holders of the Common Stock shall be entitled to one
vote per share for all purposes upon which such holders are entitled to
vote.
Division C
1. NO PREEMPTIVE RIGHTS. No shareholder of the Corporation shall by reason of
his holding shares of any class have any preemptive or preferential right
to acquire or subscribe for any additional, unissued or treasury shares of
any class of the Corporation now or hereafter to be authorized, or any
notes, debentures, bonds or other securities convertible into or carrying
any right, option or warrant to subscribe to or acquire shares of any
class now or hereafter to be authorized, whether or not the issuance of
any such shares, or such notes, debentures, bonds or other securities,
would adversely affect the dividends or voting or other rights of such
shareholder, and the board of directors may issue or authorize the
issuance of shares of any class, or any notes, debentures, bonds or other
securities convertible into or carrying rights, options or warrants to
subscribe to or acquire shares of any class, without offering any such
shares of any class, either in whole or in part, to the existing
shareholders of any class.
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<PAGE>
2. SHARE DIVIDENDS. Subject to any restrictions in favor of any series of
Preferred Stock provided in the relative rights and preferences of such
series, the Corporation may pay a share dividend in shares of any class or
series of capital stock of the Corporation to the holders of shares of any
class or series of capital stock of the Corporation.
3. NO CUMULATIVE VOTING. Cumulative voting for the election of directors is
expressly prohibited as to all shares of any class or series.
ARTICLE FIVE
The Corporation shall not commence business until it has received
for the issuance of its shares consideration of at least the value of One
Thousand Dollars ($1,000.00), consisting of money, labor done or property
actually received.
ARTICLE SIX
The address of the Corporation's registered office is 100 N.E. Loop
410, Suite 820, San Antonio, Texas 78216, and the name of its registered agent
at such address is U. Spencer Allen.
ARTICLE SEVEN
1. NUMBER AND TERMS OF DIRECTORS. The number of directors of the Corporation
shall be fixed by, or in the manner provided in, the Amended and Restated
Bylaws of the Corporation; provided that the maximum number of directors
shall be nine (9). The number of directors constituting the current board
of directors is five (5), and the name and address of the persons who are
to serve as directors until their successors are elected and qualified
are:
Philip R. Reilly
100 N.E. Loop 410, Suite 820
San Antonio, Texas 78216
Kenneth S. Kornman
100 N.E. Loop 410, Suite 820
San Antonio, Texas 78216
Thomas A. Moore
100 N.E. Loop 410, Suite 820
San Antonio, Texas 78216
Edward M. Blair, Jr.
100 N.E. Loop 410, Suite 820
San Antonio, Texas 78216
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Gary L. Crocker
100 N.E. Loop 410, Suite 820
San Antonio, Texas 78216
2. REMOVAL OF DIRECTORS. No director of the Corporation shall be removed from
such office by vote or other action of the shareholders of the Corporation
or otherwise, except by the affirmative vote of holders of at least a
majority of the then outstanding Voting Stock (as defined below), voting
together as a single class. The term "Voting Stock" shall mean all
outstanding shares of all classes and series of capital stock of the
Corporation entitled to vote generally in the election of directors of the
Corporation, considered as one class; and, if the Corporation shall have
shares of Voting Stock entitled to more or less than one vote for any such
share, each reference in the Amended and Restated Articles of
Incorporation to a proportion or percentage of Voting Stock shall be
calculated by reference to the portion or percentage of votes entitled to
be cast by holders of such shares generally in the election of directors
of the Corporation. Prior to the first date (the "Public Status Date") on
which the Corporation has outstanding a class of equity securities
registered under the Securities Exchange Act of 1934, as may be amended
from time to time (the "Exchange Act"), any such removal of a director of
the Corporation may be with or without cause. On and after the Public
Status Date, no director of the Corporation shall be removed from such
office by vote or other action of the shareholders of the Corporation or
otherwise, except for cause, which shall be deemed to exist only if: (i)
such director has been convicted, or such director is granted immunity to
testify where another has been convicted, of a felony by a court of
competent jurisdiction (and such conviction is no longer subject to direct
appeal); (ii) such director has been found by a court of competent
jurisdiction (and such finding is no longer subject to direct appeal) or
by the affirmative vote of at least a majority of the Whole Board (as
defined below) at any regular or special meeting of the board of directors
called for such purpose to have been grossly negligent or guilty of
willful misconduct in the performance of his duties to the Corporation in
a matter of substantial importance to the Corporation; (iii) such director
has been adjudicated by a court of competent jurisdiction to be mentally
incompetent, which mental incompetency directly affects his ability to
perform as a director of tile Corporation; (iv) such director has been
found by a court of competent jurisdiction (and such finding is no longer
subject to direct appeal) or by the affirmative vote of at least a
majority of the Whole Board at any regular or special meeting of the board
of directors called for such purpose to have breached such director's duty
of loyalty to the Corporation or its shareholders or to have engaged in
any transaction with the Corporation from which such director derived an
improper personal benefit; or (v) "cause" for removal otherwise exists
under Article 2.32.A. of the Texas Business Corporation Act (the "TBCA").
No director of the Corporation so removed may be nominated, re-elected or
reinstated as a director of the Corporation so long as the cause for
removal continues to exist. The term "Whole Board" shall mean the total
number of authorized directors of tile Corporation whether or not there
exist any vacancies in previously authorized directorships. This paragraph
shall be subject to the rights, if any, of holders of any class or series
of stock to elect directors and remove directors elected by them.
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ARTICLE EIGHT
No director of the Corporation shall be liable to the Corporation or
its shareholders for monetary damages for an act or omission in the director's
capacity as a director, except that this article does not eliminate or limit the
liability of a director for: (1) a breach of a director's duty of loyalty to the
Corporation or its shareholders; (2) an act or omission not in good faith that
constitutes a breach of duty of that director to the Corporation or an act or
omission that involves intentional misconduct or a knowing violation of the law;
(3) a transaction from which a director received an improper benefit, whether or
not the benefit resulted from an action taken within the scope of the director's
office; or (4) an act or omission for which the liability of a director is
expressly provided for by an applicable statute.
If the Texas Miscellaneous Corporation Laws Act or the Texas
Business Corporation Act ("TBCA") is amended to authorize action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the corporation shall be eliminated or limited to the fullest
extent permitted by such statutes, as so amended. Any amendment, repeal or
modification of this Article EIGHT shall be prospective only and shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such amendment, repeal or modification.
ARTICLE NINE
On and after the Public Status Date, the vote of shareholders
required for approval of (1) any plan of merger, consolidation, or exchange for
which the TBCA requires a shareholder vote, (2) any disposition of assets for
which the TBCA requires a shareholder vote, (3) any dissolution of the
corporation for which the TBCA requires a shareholder vote, and (4) any
amendment of the Restated Articles of Incorporation of the Corporation for which
the TBCA requires a shareholder vote, shall be (in lieu of any greater vote
required by the TBCA) the affirmative vote of the holders of a majority of the
outstanding Voting Stock entitled to vote thereon, unless any class or series of
shares is entitled to vote as a class thereon, in which event the vote required
shall be the affirmative vote of the holders of a majority of the outstanding
shares within each class or series of shares entitled to vote thereon as a class
and at least a majority of the outstanding Voting Stock otherwise entitled to
vote thereon.
ARTICLE TEN
Special meetings of shareholders may be called by the Corporation's
chairman of the board, the president or the board of directors. Subject to the
provisions of the Corporation's Amended and Restated Bylaws governing special
meetings, holders of not less than 50% of the outstanding shares of stock
entitled to vote at the proposed special meeting may also call a special
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meeting of shareholders by furnishing the Corporation with a written request
which states the purpose or purposes of the proposed meeting in the manner set
forth in the Amended and Restated Bylaws.
ARTICLE ELEVEN
Prior to the Public Status Date, any action required or permitted to
be taken at any annual or special meeting of shareholders of the Corporation may
be taken without a meeting, without prior notice and without a vote, if a
consent or counterpart consents in writing, setting forth the action so taken,
shall be signed by the holder or holders of shares having not less than the
minimum number of votes that would be necessary to take such action at a meeting
at which the holders of all shares entitled to vote on the action were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those shareholders who
did not consent in writing to the action.
EXECUTED AND EFFECTIVE this 20th day of August 1999.
MEDICAL SCIENCE SYSTEMS, INC.
By:
U. Spencer Allen,
Chief Financial Officer,
Treasurer and Secretary
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MEDICAL SCIENCE SYSTEMS, INC.
CERTIFICATE
Providing for the Elimination of
Series A Preferred Stock
Pursuant to Article 2.13 of the
Texas Business Corporation Act
Medical Science Systems, Inc., a Texas corporation (the "Company"),
certifies that pursuant to the authority contained in Article Four of its
Articles of Incorporation, and in accordance with the provisions of Article 2.13
of the Texas Business Corporation Act (the "TBCA"), its Board of Directors has
adopted, by the unanimous written consent of directors dated August 20, 1999,
the following resolutions eliminating Series A Preferred Stock, all in
accordance with the provisions of Article 2.13 of the TBCA:
WHEREAS, pursuant to the Statement Establishing Relative Rights and
Preferences of Preferred Stock, all shares of Series A Preferred Stock
have been converted into shares of Common Stock;
WHEREAS, no shares of Series A Preferred Stock are outstanding and
none will be issued; and
NOW, THEREFORE BE IT RESOLVED, that pursuant to Article Four of the
Company's Articles of Incorporation and Article 2.13 of the TBCA, the
series of shares of preferred stock designated Series A Preferred Stock is
hereby eliminated;
RESOLVED, all references in the Company's Articles of Incorporation
to Series A Preferred Stock are hereby eliminated; and
RESOLVED, that a Certificate be executed by the Chief Financial
Officer of the Company, which shall have the effect when filed with the
Secretary of State of the State of Texas of eliminating Series A Preferred
Stock and eliminating all references to Series A Preferred Stock from the
Company's Articles of Incorporation.
The above resolutions were duly adopted by all necessary action on the
part of the Company.
[signature on next page]
<PAGE>
IN WITNESS WHEREOF, MEDICAL SCIENCE SYSTEMS, INC. has caused this
certificate to be duly executed this 20th day of August, 1999.
MEDICAL SCIENCE SYSTEMS, INC.
By
U. Spencer Allen
Chief Financial Officer, Treasurer and
Secretary
EXHIBIT 10.1
[Confidential treatment has been requested for portions of this exhibit. The
confidential portions have been redacted and are denoted by [**]. The
confidential portions have been separately filed with the Securities and
Exchange Commission.]
EXHIBIT 10.1
RESEARCH AND TECHNOLOGY TRANSFER AGREEMENT
This Research and Technology Transfer Agreement (the "AGREEMENT") is
entered into and made effective as of this 1st day of July, 1999 (the "EFFECTIVE
DATE") by and between Interleukin Genetics, Inc., a Texas corporation having its
principal place of business at 100 N.E. Loop 410, Suite 820, San Antonio TX
78216-4749 ("IL") and The University of Sheffield, Western Bank, Sheffield S10
2TN, England (the "UNIVERSITY"), acting through The Department of Molecular &
Genetic Medicine ("MGM").
RECITALS
A. University and IL entered into a Master Agreement for Technology
Evaluation (as defined below). Following the procedures set forth in the Master
Agreement for Technology Evaluation, the parties have entered into a number of
specific Project Agreements (as defined below), pursuant to which the parties
have agreed to work together in the development and commercialization of certain
technology including technology around the genetics of inflammatory diseases and
other disorders. The parties have also entered into a Master Technology and
Patent License Agreement (as defined below), pursuant to which the University
licensed certain technology which was not covered under the scope of a specific
Project Agreement.
B. This Agreement is intended as a complete amendment and restatement of
the provisions set forth in the Master Agreement for Technology Evaluation, the
Project Agreements and the Master Technology and Patent License Agreement. This
Agreement supercedes in its entirety those prior agreements.
C. The parties desire to continue with their joint collaborative
relationship around various technologies. This Agreement is intended to set
forth the terms and conditions of that ongoing relationship.
NOW, THEREFORE, in consideration of the foregoing premises and of the
terms and conditions of this Agreement, the parties agree as follows:
1. DEFINITIONS
1.1 "ANNUAL RESEARCH PLAN" means the written plan describing the research
in the Field of Use to be carried out during each year of the Research Program
by Sheffield Investigators and IL. Each Annual Research Plan will be set forth
in a written document devised by and adopted by the Research Steering Committee.
1.2 "FIELD OF USE " means the scope of the relationship as set forth in
Schedule 1 as amended from time to time by mutual agreement of the parties.
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1.3 "INNOVATIONS WITHIN THE FIELD OF USE" means all ideas, inventions,
apparatus, systems, data, discoveries, methods, processes, improvements, works
of authorship and other innovations of any kind within the Field of Use, whether
or not they are eligible for patent, copyright, trademark, service mark, trade
dress, trade secret or other legal protection.
1.4 "INTELLECTUAL PROPERTY RIGHTS" means patent applications, patents,
design rights or other similar invention rights, rights of priority, copyrights,
trademarks, service marks, trade dress, trade secret rights and other intangible
rights, whether existing under statutory or common law, in any country in the
world.
1.5 "JOINT INNOVATIONS WITHIN THE FIELD OF USE" means all inventions,
improvements, works of authorship and other innovations of any kind within the
Field of Use that may be made, conceived, developed or reduced to practice
jointly by Sheffield Investigators and by IL and its employees and consultants,
in the course of this Agreement, whether or not they are eligible for patent,
copyright, trademark, service mark, trade dress, trade secret or other legal
protection.
1.6 "LICENSED INVENTION" means any apparatus, system, process, method or
other invention claimed in any of the Patents, and any work of authorship, know
how, trade secret and other technology within the Field of Use covered by any
other Intellectual Property Right of the Sheffield Investigators.
1.7 "MASTER AGREEMENT FOR TECHNOLOGY EVALUATION" means the Master
Agreement for Technology Evaluation dated July 1, 1996 entered into by IL and
the University.
1.8 "INTERLEUKIN GENETICS MASTER TECHNOLOGY AND PATENT LICENSE AGREEMENT"
means the Master Technology and Patent License Agreement dated January 1, 1998
entered into by IL and the University.
1.9 "IL INNOVATIONS WITHIN THE FIELD OF USE" means all Innovations within
the Field of Use that may be made, conceived, developed or reduced to practice
solely by IL and its employees, consultants, and technicians.
1.10 "PARTY OR PARTIES" means the two parties to this agreement that is IL
and/or University as the case may be.
1.11 "PATENTS" means (i) any and all patents in any countries of the world
that may issue to IL or the University based on those patent applications listed
in Schedule 2 as amended from time to time; (ii) any other patents in any
countries of the world that may issue to the University or IL during the term of
this Agreement to the extent they cover any Innovations conceived, developed or
reduced to practice at least in part by Sheffield Investigators within the Field
of Use; and (iii) any and all divisionals, continuations, continuations-in-part,
reissues, extensions, and reexaminations of any of the foregoing.
1.12 "PROJECT AGREEMENTS" means, collectively, all the various project
agreements that IL
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and University entered into pursuant to the Master Agreement for Technology
Evaluation. The Project Agreements that are in effect between IL and University
as of the Effective Date of this Agreement are listed in Schedule 3.
1.13 "RESEARCH PROGRAM" means the collaborative research program in the
Field of Use to be conducted by Sheffield Investigators and IL pursuant to
Section 4 of this Agreement and reflected in the Annual Research Plan.
1.14 "RESEARCH STEERING COMMITTEE" shall be as defined in Section 4 of
this Agreement.
1.15 "SHEFFIELD INVESTIGATORS" shall mean the individuals at University
including its employees, consultants, faculty, technicians, visiting scientist
students and post doctoral associates all as listed on Schedule 4 as such
schedule is amended from time to time.
1.16 "UNIVERSITY INNOVATIONS WITHIN THE FIELD OF USE" means all
Innovations within the Field of Use that may be made, conceived, developed or
reduced to practice solely by Sheffield Investigators.
2. TECHNOLOGY TRANSFER
2.1 TRANSFER OF CURRENT TECHNOLOGY. In consideration for the grants of
stock set forth below, the University hereby agrees to assign to IL all right,
title and interest to the Patents set forth in Schedule 2 and to all
Intellectual Property Rights therein.
2.2 LICENSE AND TRANSFER OF INNOVATIONS. In consideration for the stock
options grants set forth below, the University hereby grants to IL an exclusive,
worldwide, irrevocable, transferable license, to all University Innovations
within the Field of Use and future Patents and any other applicable Intellectual
Property Rights, not listed in Schedule 2 as amended from time to time, and
developed during the term of this Agreement.
2.3 ASSIGNMENT OF RIGHTS. Upon the filing of a patent application with
respect to a University Innovation within the Field of Use, the University
hereby agrees to assign to IL all right, title and interest to such Patent and
to all Intellectual Property Rights therein. During the term of this Agreement,
University will not grant to any other third party any licenses or rights with
respect to any of the University Innovations within the Field of Use.
2.4 USE FOR INTERNAL RESEARCH PURPOSES. Notwithstanding Sections 2.1, 2.2
and 2.3, the University retains the right to practice and utilize any University
Innovations within the Field of use for its own internal non-commercial research
purposes, for carrying out its responsibilities under this Agreement, and for
publications according to the criteria set forth in Section 6 of this Agreement.
2.5 EXECUTION OF DOCUMENTS. The University agrees to execute, and to cause
its employees, faculty, consultants, technicians, visiting scientists,
researchers, investigators, post-
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doctoral associates, staff and/or students to execute any documents reasonably
requested by IL to transfer and perfect the assignment to IL of the Patents and
Intellectual Property Rights therein.
3. GRANTS OF STOCK AND STOCK OPTIONS
3.1 GRANT OF STOCK AND TRANSFER OF PATENT. In consideration for the
University relinquishing its net proceeds interests in all Project Agreements,
and the transfer of Patents set forth above, IL shall grant to the University
275,000 shares of common stock in IL pursuant to the terms and conditions of the
Subscription Agreement attached as Schedule 5. IL also hereby agrees to assign
to University all rights, title and interest to the patent application entitled
"Expression Cloning and Single Cell Detection of Phenotype", patent application
number PCT/US 98/26715, including all rights to all international filings,
divisional, continuation, continuations-in-part, reissues, extensions and
re-examining related thereto.
3.2 GRANT OF FUTURE STOCK OPTIONS. In consideration for the future
research performed by Sheffield Investigators and the transfer of Patents based
on future University Innovations or Joint Innovations within the Field of Use as
set forth above, IL shall grant to the University on an annual basis (with the
first options to be granted on July 1, 2000 and on such date each year
thereafter as long as this Agreement is in effect), options to purchase 25,000
shares of common stock in IL pursuant to the terms and conditions of the Stock
Option Agreement attached as Schedule 6; provided that the Exercise Price (as
defined in the Stock Option Agreement) of such options shall be equal to the
"Current Market Price" (as defined below) of the common stock on the applicable
annual grant date, and the Exercise Period (as defined in the Stock Option
Agreement) of such options shall be five years from the applicable annual grant
date. In addition, for each Patent application that IL files containing a
University Innovation or a Joint Innovation within the Field of Use (exclusive
of the Patents listed in Schedule 2 and which the parties agree have been
accounted for in Section 3.1), IL will grant to the University on an annual
basis (with the first options to be granted on July 1, 2000 and on such date
each year thereafter as long as this Agreement is in effect) options to purchase
10,000 shares of common stock in IL for each Patent filed during the preceding
12 months, pursuant to the terms and conditions of the Stock Option Agreement
attached as Schedule 6; provided that the Exercise Price (as defined in the
Stock Option Agreement) of such options shall be equal to the "Current Market
Price" (as defined below) of the common stock on the applicable annual grant
date, and the Exercise Period (as defined in the Stock Option Agreement) of such
options shall be five years from the applicable annual grant date.
The "Current Market Price" at any date shall mean, in the event the common
stock is publicly traded, the average of the daily closing prices per share of
such equity security for the 10 consecutive trading days ending on the trading
day immediately before such date (as adjusted for any stock dividend, split,
combination or reclassification that took effect during such 10 trading day
period). The closing price for each day shall be the last reported sale price
regular way or, in case no such reported sale takes place on such day, the
average of the last closing bid prices regular way, in either case on the
principal national securities exchange on which such equity security is listed
or admitted to trading, or if not listed or admitted to trading on any national
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securities exchange, the closing bid price for such day reported by NASDAQ, if
such equity security is traded over-the-counter and quoted in the National
Market System, or if such equity security is so traded, but not so quoted, the
average of the closing bid prices of such equity security as reported by NASDAQ
or any comparable system or, if such equity security is not listed on NASDAQ or
any comparable system, the average of the closing bid prices as furnished by two
members of the National Association of Securities Dealers, Inc., selected in
good faith from time to time by the Board of Directors of IL for that purpose.
If such equity security is not traded in such manner that the quotations
referred to above are available for the period required hereunder, Current
Market Price per share of such equity security shall be deemed to be the fair
value as determined in good faith by the Board of Directors of IL, irrespective
of any accounting treatment.
3.3 EXECUTION OF DOCUMENTS. IL agrees to execute, and to cause its
employees and consultants to execute any documents reasonably requested by
University to transfer and perfect the titling of stock certificates and/or
stock options to the University. In addition, as a condition to receiving the
option grants described above or prior to transferring same, all as governed by
the terms of the Stock Option Agreement, the University agrees to execute, and
to cause its employees and consultants to execute, an investment letter
containing representations and warranties as to investment intent, financial
sophistication and ability to bear the risk of any investment in the options and
the common stock underlying same and such other matters as may be reasonably
appropriate and acceptable to IL to demonstrate compliance with relevant
securities and other laws and regulations before any such issuance of options
shall be given effect. Such representations and warranties may include those
contained in or similar to the Subscription Agreement attached as Schedule 5.
3.4 OPTION, SHORT POSITION AND OTHER TRANSACTIONS. University covenants
that neither University nor its affiliates nor any person acting on its or their
behalf has entered, has the intention of entering or will enter into any put
option, short position or other similar instrument or position anywhere in the
world with respect to the common stock of IL or any security convertible into or
exercisable for the common stock of IL. In addition, University covenants that
neither University nor its affiliates nor any person acting on its or their
behalf has entered, has the intention of entering or will enter into any other
scheme or arrangement for the intended purpose of lowering the price at which
the options to be issued pursuant to this Agreement may be exercised. University
covenants and agrees to inform its employees, consultants and other relevant
parties of the requirements and restrictions of this section and otherwise
contained in the Subscription Agreement and impose and use it best efforts to
enforce such restrictions upon such persons.
4. RESEARCH PROGRAM
4.1 RESEARCH PROGRAM. Sheffield Investigators agree to use best efforts
based on reasonable business judgment to perform research within the Field of
Use according to priorities established by the Research Steering Committee. The
Research Steering Committee shall develop an Annual Research Plan which shall
address short and long term focuses and resources to be committed. IL shall have
the right to participate in such research and any such efforts of IL
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shall be part of the Annual Research Plan. Without first obtaining the written
approval of IL, Sheffield Investigators will not perform additional research in
the Field of Use area (including genetic discovery, functional genetics,
functional biology or clinical studies) for third parties whether pursuant to a
sponsored research agreement, donations or other support or otherwise where the
University cannot transfer all right, title and interest to Innovations within
the Field of Use and related Intellectual Property Rights to IL. Notwithstanding
the above, Sheffield Investigators can: (a) perform whole genome searches for
third parties, but will not perform additional research within the Field of Use
without obtaining written approval of IL, and/or (b) perform research funded by
charities, governmental agencies, or other non-commercial entities within the
Field of Use as long as Sheffield Investigators receive the approval of a
Sheffield appointee of the Research Steering Committee. Sheffield Investigators
will notify IL of all proposed research within the Field of Use. Prior to any
individual beginning work under the Research Program, the University shall
require that such individual execute and sign in substantially similar form the
Sheffield Investigator Agreement attached as Schedule 7 and University shall
notify IL that such individual is added to Schedule 4 as a Sheffield
Investigator.
4.2 RESEARCH STEERING COMMITTEE. IL and University shall establish a
Research Steering Committee, ("RSC") with a minimum of four members and a
maximum of six members. The RSC shall plan, administer and monitor the Research
Program. In particular, the RSC shall prepare an Annual Research Plan, review
progress in the Research Program and recommend necessary adjustments to the
Research Program as the research takes place. IL and the University each have
the option to appoint up to three members to the RSC. IL initially appoints
Kenneth Kornman, and Philip Reilly. The University initially appoints Gordon
Duff and David Winstanley. Either IL or the University may nominate alternative
or replacement members to serve on the Steering Committee by notice in writing
to the other party, provided, however, Gordon Duff will always serve as one
member of the University's two appointments, representing Sheffield
Investigators, so long as he is an employee of the University. The RSC shall be
chaired by two co-chairpersons, one appointed by IL and one appointed by the
University. The initial Chair for IL shall be Kenneth Kornman and the initial
chair for the University shall be Gordon Duff. The RSC representatives of each
Party shall collectively have one vote on all matters before the RSC. All
decisions of the RSC shall be made by unanimous vote of both parties. The
Steering Committee will meet on a regular basis as the committee members may
determine to be necessary. Written minutes of the meetings of the RSC will be
kept and will be circulated prior to the next meeting for committee members'
approval at the next meeting.
4.3 PATENT PROSECUTION AND OTHER COSTS. IL will have responsibility for
and control of the preparation and filing in a country of IL's choosing the
patent application with respect to those Innovations within the Field of Use for
which IL determines in its judgment that patent protection should be sought. IL
will have responsibility for the ongoing prosecution of such patent
applications, as well as for the preparation, filing and prosecution of any
corresponding international patent applications. IL will itself bear all costs
for the preparation, filing and prosecution of all patent application for each
such Innovation within the Field of Use including the costs of all corresponding
international patent applications (including but not limited to filing fees,
translation costs and legal fees). Each party will carry out the activities for
which it is
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responsible at its own expense, including the costs of any research and
development, commercialization costs, internal staff and overhead costs,
consultants and other outside contractors assisting a party in performing its
duties. IL may, in its sole discretion, provide research funding to support work
being performed by Sheffield Investigator(s) in support of its ongoing research
within the Field of Use. Any such research funding will be set forth in a
separate agreement.
5. OWNERSHIP
5.1 IL INNOVATIONS WITHIN THE FIELD OF USE. IL shall be the sole and
exclusive owner of IL Innovations, and all Intellectual Property Rights in the
foregoing.
5.2 UNIVERSITY INNOVATIONS WITHIN THE FIELD OF USE. University agrees to
assign to IL all right, title and interest in and to any University Innovations
within the Field of Use and Patents and to all Intellectual Property Rights
therein.
5.3 JOINT OWNERSHIP. University agrees to assign to IL all right, title
and interest in and to any Joint Innovations within the Field of Use and Patents
and to all Intellectual Property Rights therein.
6. PUBLICATION
6.1 PUBLICATION. While neither Party wishes in any way to restrict the
academic freedom of those participating in the project, the Parties aim to
prevent publications or statements that adversely affect the commercial interest
of IL. IL agrees that Sheffield Investigators shall be encouraged to present a
symposia, national or regional professional meetings, and to publish in
journals, theses, dissertations, or otherwise of University's own choosing,
methods and results of the Research Program. Before publishing or presenting,
however, Sheffield Investigators and University shall furnish a copy of any
proposed publication or presentation to IL reasonably in advance (preferably at
least six weeks) of the submission of such proposed publication or presentation
to a journal, editor, or other third party. IL shall have one month, after
receipt of said copy, to notify Sheffield Investigator and University of its
objection to such proposed presentation or proposed publication because there is
patentable subject matter or Confidential Information which needs protection. In
the event that IL makes such notification, University shall refrain from making
such publication or presentation for a maximum of 6 months from date of receipt
of such notification in order for IL to file patent application(s) with the
United States Patent and Trademark Office and/or foreign patent office(s)
directed to the patentable subject matter contained in the proposed publication
or presentation and University shall edit such proposed publications or
presentations to remove the material identified by IL as Confidential
Information. Both Parties will strive for consensus before publishing. If a
publication does result, the authors will acknowledge IL's support of the
research in the publications and authorship shall be jointly decided by IL and
University based on accepted scientific practice.
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The parties acknowledge that emergency situations may arise where a Sheffield
Investigator is attempting to meet a deadline. The Parties will attempt to
accommodate such deadlines as long as all patentable subject matter or
Confidential Information is protected.
6.2 RIGHT TO DATA. IL shall have the right to use the data generated from
the Research Program in filing patent applications, in filing for regulatory
approvals and for any other commercial purposes.
7. TERM AND TERMINATION
7.1 TERM. Unless earlier terminated in accordance with the terms of this
Section 7, this Agreement shall remain in effect from the Effective Date for a
period of five (5) years, and shall thereafter automatically renew for
additional one (1) year periods, unless either party gives written notice to the
other party at least six (6) months in advance of any renewal date that such
party does not wish to renew this Agreement.
7.2 TERMINATION UPON NOTICE OF BREACH. In the event that either party
breaches or defaults under any material term or condition of this Agreement, and
such breach or default is not cured within sixty (60) days of written notice of
the same from the other party, the other party may, in addition to any other
remedy that it may have at law or in equity or under this Agreement, terminate
this Agreement.
7.3 TERMINATION UPON DUFF DEPARTURE. IL may at its option upon written
notice to the University terminate this Agreement in the event that Professor
Gordon Duff is no longer an employee of the University as a result of a change
in his employment.
7.4 IMMEDIATE TERMINATION UPON CERTAIN EVENTS OF BANKRUPTCY. Either party
may at its option terminate this Agreement immediately upon written notice to
the other party upon the occurrence of any of the following events:
(a) In the event that the other party makes an assignment for the
benefit of creditors; admits in writing its inability to pay its debts as they
become due; files a voluntary petition in bankruptcy; is adjudicated to be
bankrupt or insolvent; files a petition seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
arrangement under any present or future statute, law or regulation, or files an
answer or similar pleading admitting the material allegations of a petition
filed against it in any such proceeding; or consents to or acquiesces in the
appointment of, or has its business placed in the hands of, a trustee, receiver,
assignee, or liquidator of it or any substantial part of its business, assets or
properties, whether by voluntary act or otherwise; or
(b) In the event that either party ceases doing business as a going
concern, or it or its shareholders take any action in anticipation of or
furtherance of dissolution or liquidation.
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7.5 EFFECT OF TERMINATION. In the event of the expiration of the term or
early termination of this Agreement for any reason, the following provisions
shall apply:
(a) except as provided in this Section 7.5 or under Section 7.6
below, all further obligations of both parties under this Agreement will cease
as of the date of termination of this Agreement; and
(b) IL shall retain ownership of any Innovations within the Field of
Use, Patents and Intellectual Property Rights to which University had assigned
its right, title and interest or to which University was obligated to assign
right, title and interest under this Agreement as of the date of such
termination.
(c) The University shall retain ownership of any stock or stock
options which the University has been granted under Sections 3.1 and 3.2 of this
Agreement as of the date of such termination.
7.6 SURVIVAL OF CERTAIN PROVISIONS. The provisions of Articles 5 and 6-12
of this Agreement will survive the expiration or termination of this Agreement.
In addition, the provisions of Sections 2.2 and 2.3 shall survive with respect
to any Innovations within the Field of Use discovered, conceived, developed or
reduced to practice during the term of this Agreement, even if Patents or other
Intellectual Property Rights therein are not filed, issued or perfected until
after the expiration or termination of this Agreement. In addition, the
provisions of Section 3.2 shall survive with respect to: (a) any patent
application that IL files containing a University Innovation or Joint Innovation
within the Field of Use even if the patent applications are not filed until
after the expiration or termination of the Agreement, and (b) a pro-rata share
of the annual option to purchase 25,000 shares of Common Stock of IL accruing to
the University that have not yet been granted as of the date of the termination.
8. SETTLEMENT OF DISPUTES
8.1 DISPUTE RESOLUTION. If a dispute arises out of or relates to this
Agreement or its breach (the "Matter"), the Parties agree to resolve the Matter
as follows:
(a) A Party shall submit written notice of the Matter to the other
Party and request negotiation;
(b) The Parties shall attempt in good faith to resolve any Matter
arising out of or relating to this Agreement by promptly appointing
representatives with authority to resolve disputes to negotiate the resolution
The designated representatives shall meet as often as necessary during a fifteen
(15) day period (or such other time as the parties may agree) to gather and
furnish to the other all information with respect to the matter in issue which
is appropriate and germane in connection with its resolution. Such
representatives shall discuss the problem and negotiate in good faith in an
effort to resolve the dispute without the necessity of any formal proceeding
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relating thereto. During the course of such negotiation, all reasonable requests
made by one party to the other for non-privileged information reasonably related
to this Agreement, will be honored in order that each of the parties may be
fully advised of the other's position. The specific format for such discussions
will be left to the discretion of the designated representatives, but may
include the preparation of agreed upon statements of fact or written statements
of position furnished to the other party.
(c) If the Matter has not been resolved within sixty (60) days of a
Party's request for negotiation, either Party may request that the Matter be
submitted to a sole mediator selected by the Parties for a mandatory one (1) day
mediation; and
(d) If the Matter has not been resolved by such mediation, either
Party may submit the Matter for binding arbitration in accordance with the
Commercial Rules of the American Arbitration Association ("AAA"). A single
arbitrator shall be selected from the AAA's large complex case panel, provided,
however, if this panel is of insufficient size to pick the arbitrator, then the
regular commercial panel shall be used to pick the arbitrator. In the event the
parties cannot agree on the arbitrator within thirty (30) calendar days of
issuance of a written demand for arbitration by either party, then the American
Arbitration Association shall designate the arbitrator.
(e) The award shall be made within six (6) months of selection of an
arbitrator(s).
8.2 APPROVAL OF ONE SUBSTANTIVE POSITION OF THE PARTIES. In all
arbitration proceedings submitted under Section 8.1(d), the arbitrator shall be
required to agree upon and approve the substantive position advocated by either
IL or the University with respect to each disputed item(s). Any decision
rendered by the arbitrator that does not reflect a substantive position
advocated by either IL or the University shall be beyond the scope of authority
granted to the arbitrator and shall be void. No decision of the arbitrator shall
ever be construed as or have the effect of amending or altering this Agreement
or the parties' rights and responsibilities with respect thereto.
8.3 The mediation and arbitration shall be held in San Antonio, Texas,
U.S.A. or other mutually agreed location. The Parties, their representatives,
the mediator and the arbitrator shall hold the existence, content and results of
any negotiation, mediation or arbitration in confidence unless disclosure is
required by law or regulation, and in such case the Parties shall take
reasonable precautions to only disclose what is required by law or governmental
regulation.
8.4 Any award of the Arbitration shall be binding on the Parties and shall
be enforceable in any court having jurisdiction over the Party from whom
enforcement is requested.
8.5 If the dispute resolution procedure of this Article 8 is not
instituted by submission of written notice under Section 8.1(a) within three (3)
years of the Party's first knowledge of a
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Matter or is not diligently pursued, then such Party waives its rights to seek a
remedy for such Matter.
8.6 OTHER DISPUTES. Notwithstanding this Article 8, either party can seek
injunctive relief in a court of competent jurisdiction.
9. CONFIDENTIALITY
9.1 CONFIDENTIALITY OF THE AGREEMENT. The parties agree to maintain all
terms and conditions of this Agreement in confidence, except that (i) IL may
state that it has a collaborative research and technology transfer agreement
with the University in the Field of Use under this Agreement and may name the
patents and Intellectual Property Rights to which this applies; (ii) The
University may state that it has a collaborative research and technology
transfer agreement in the Field of Use with IL and may state that it has
received stock in IL; (iii) this Agreement may be disclosed to either party's
attorneys, accountants or other professional advisors in the course of seeking
professional advice and to the extent required by applicable securities law and
regulations or other law or regulations or court order; and (iv) this Agreement
may be disclosed by IL to entities with which IL is discussing a proposed sale
of its stock, sale of all or substantially all of its assets, obtaining
financing or entering into a partnering arrangement, provided that the entity to
whom the terms of this Agreement is to be disclosed has executed a reasonable
non-disclosure agreement.
9.2 PROTECTION OF CONFIDENTIAL INFORMATION. Each party agrees to keep all
Confidential Information of the other party to which it has access hereunder
strictly confidential, and agrees that it will not, except with the express
permission of the other party or as required by applicable law or regulations or
by court order, use such information except in the performance of this
Agreement, or disclose any such Confidential Information to any person or entity
other than its own employees, faculty, consultants, technicians, visiting
scientists, researchers, investigators, post-doctoral associates, staff and/or
students who have a need to know and who have been informed in advance of the
receiving party's obligations with respect to such Confidential Information.
Confidential Information may be disclosed by IL to entities with which IL is
discussing a proposed sale of its stock, sale of all or substantially all of its
assets, obtaining financing or entering into a partnering arrangement, provided
that the entity to whom the Confidential Information is to be disclosed has
executed a reasonable non-disclosure agreement. The obligations of this Section
10 will survive for a period of five (5) years from termination of this
Agreement.
10. REPRESENTATIONS AND WARRANTIES
10.1 BY THE UNIVERSITY. The University represents and warrants to IL that:
(a) AUTHORITY. The University has the full right and power to
perform its
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obligations under this Agreement, and to license and/or transfer Patents and
University Innovations within the Field of Use to IL;
(b) INCONSISTENT OBLIGATIONS. There are no outstanding agreements,
licenses, assignments or encumbrances inconsistent with the provisions of such
licenses or with any other provision of this Agreement; and
(c) INFRINGEMENT OF RIGHTS OF OTHERS. To the best of the
University's knowledge as of the Effective Date, the University knows of no
third parties' rights which would be infringed by practicing the inventions
claimed in the Patents listed in Schedule 2. The University will promptly notify
IL in the event that it learns or has cause to believe at any time that any
third parties' rights would or might be infringed by practicing the inventions
claimed in any Patents or by any Innovation within the Field of Use thereto.
10.2 BY IL. IL represents and warrants to University that:
(a) AUTHORITY. IL has the full right and power to perform its
obligations under this Agreement, and to transfer the securities to the
University;
(b) INCONSISTENT OBLIGATIONS. There are no outstanding agreements,
licenses, assignments or encumbrances inconsistent with the provisions of such
licenses or with any other provision of this Agreement, and.
10.3 NO OTHER WARRANTIES. EXCEPT AS SET FORTH IN THIS SECTION, UNIVERSITY
AND IL MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED, RELATING TO THIS AGREEMENT
OR ANY GENERAL INNOVATION, AND UNIVERSITY SPECIFICALLY DISCLAIMS ANY IMPLIED
WARRANTY OR CONDITION OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
11. LIMITATION OF LIABILITY
EXCEPT FOR ANY WILLFUL BREACH OF ARTICLES 6 OR 10, NEITHER PARTY SHALL BE
LIABLE TO THE OTHER FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR INCIDENTAL
DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING OUT OF THIS
AGREEMENT.
12. GENERAL
12.1 GOVERNING LAW. This Agreement shall be deemed to have been made
under, and shall be construed and interpreted in accordance with the laws of the
state of Texas, U.S.A. No conflicts-of-law rule or law which might refer such
construction and interpretation to the laws of another state, republic, or
country shall be considered. Any national law, United Nations treaty or
convention, or law arising from any international treaty is hereby waived in
favor of the
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application of Texas law. The Parties hereby specifically exclude the
application of The Convention for the International Sale of Goods. All questions
concerning the construction or effect of patent right shall be construed in
accordance of the laws of the country granting those rights. Except for
injunctive relief, all disputes arising in connection herewith shall be resolved
by the dispute resolution procedure of Article 8. If either Party seeks an
injunction, equitable relief or enforcement of the arbitrator such action shall
be submitted to the exclusive jurisdiction of the courts in San Antonio, Texas,
U.S.A. and both Parties agree to submit to the jurisdiction of such courts.
12.2 WAIVER AND MODIFICATION. Failure by either party to enforce any
provision of this Agreement will not be deemed a waiver of future enforcement of
that or any other provision. Any waiver, amendment or other modification of any
provision of this Agreement will be effective only if in writing and signed by
the parties.
12.3 SEVERABILITY. Both Parties hereby especially agree in contract that
neither Party intends to violate any public policy, statutory or common law,
rule, regulation, treaty or decision of any government agency or executive body
thereof of any country or community or association of countries; that if any
word, sentence, paragraph or clause or combination thereof of this Agreement is
found, by a court or executive body with judicial powers having jurisdiction
over this Agreement or any of its Parties hereto, in a final unappealed order to
be in violation of any such provision in any country or community or association
of countries, such words, sentences, paragraphs or clauses or combination shall
be inoperative in such country or community or association of countries, and the
remainder of this Agreement shall remain binding upon the Parties hereto.
12.4 NOTICES. All notices required or permitted under this Agreement will
be in writing, will reference this Agreement and will be deemed given: (i) when
sent by confirmed facsimile; (ii) ten (10) working days after having been sent
by registered or certified mail, return receipt requested, postage prepaid; or
(iii) five (5) working days after deposit with a commercial overnight carrier,
with written verification of receipt. All communications will be sent to the
addresses set forth below or to such other address as may be designated by a
party by giving written notice to the other party pursuant to this section:
TO IL:
Kenneth S. Kornman, DDS, PhD
President
Interleukin Genetics, Inc.
100 NE Loop 410, Suite 820
San Antonio, TX 78216-4749
U.S.A.
with a copy to:
U. Spencer Allen
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Chief Financial Officer
Interleukin Genetics, Inc.
100 NE Loop 410, Suite 820
San Antonio, TX 78216-4749
U.S.A.
TO THE UNIVERSITY:
Dr. David J. Winstanley
The University of Sheffield
Research and Consultancy Unit
2-4 Palmerston Road
Sheffield, S10 2TE
England
with a copy to:
Professor Gordon W. Duff
Lord Florey Chair of Molecular Medicine
The University of Sheffield
Department of Molecular & Genetic Medicine
Royal Hallamshire Hospital
Sheffield, S10 2JF
England
Sir Gareth Roberts
Vice Chancellor
The University of Sheffield
Sheffield
England
12.5 DELAYS BEYOND CONTROL. Neither party will be liable to the other
party for any failure or delay in performance caused by reasons beyond such
party's reasonable control, and such failure or delay will not constitute a
material breach of this Agreement.
12.6 ASSIGNMENT. Neither party may assign its rights or obligations
hereunder, by operation of law or otherwise, without express written consent of
the other party, which consent will not be unreasonably withheld. Any attempted
assignment without such consent shall be void. Subject to the foregoing, this
Agreement will benefit and bind the successors and assigns of the parties.
12.7 NO THIRD PARTY BENEFICIARIES; NO AGENCY. Except as expressly provided
herein to the contrary, no provision of this Agreement, express or implied, is
intended or will be construed to confer rights, remedies or other benefits to
any third party under or by reason of this Agreement. This Agreement will not be
construed as creating an agency, partnership or any
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other form of legal association (other than as expressly set forth herein)
between the parties.
12.8 ENTIRE AGREEMENT. This Agreement is the final, complete and exclusive
agreement of the Parties with respect to the subject matter hereof and
supersedes and merges all prior agreements and discussions between MMS and
University.
12.9 MULTIPLE COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be considered an original and all of which
together will constitute one agreement. This Agreement may be executed by the
attachment of signature pages which have been previously executed.
12.10 CUMULATION. All rights and remedies enumerated in this Agreement
will be cumulative and none will exclude any other right or remedy permitted
herein or by law.
12.11 PUBLICITY. Neither Party hereto shall originate any publicity, news
release or other public announcements, written or oral, whether to the public
press or otherwise, relating to this Agreement, to any amendment hereto or to
either Party's performance hereunder, without the prior written approval of the
other Party, which approval shall not be unreasonably withheld.
12.12 HEADINGS. The headings contained in this Agreement are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
12.13 REVIEW OF COUNSEL. Each Party acknowledges that it and its counsel
have received and reviewed this Agreement and that normal rules of construction,
to the effect that ambiguities are to be resolved against the drafting Party,
shall not apply to this Agreement or to any amendments, modifications,
schedules, exhibits or attachments to this Agreement.
12.14 EXPENSES. Each Party is responsible for its own expenses related to
the preparation and execution of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement through their
duly authorized representatives as set forth below:
INTERLEUKIN GENETICS, INC. THE UNIVERSITY OF SHEFFIELD
By: By:
Printed Name: KENNETH S. KORNMAN, DDS, PHD Printed Name:
Title: PRESIDENT Title:
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SCHEDULE 1
FIELD OF USE
CONFIDENTIAL
1. Discovery and development of new technology (markers, genes and/or gene
polymorphisms etc.) involved in the regulation and control of cytokine
mechanisms involved in inflammatory pathological processes and inflammatory
diseases, including but not limited to the genetics of cytokines for all uses
including diagnostic (including prognostic, diagnostic and pharmacogenomic
uses), therapeutic or prophylactic regimens (including prescription drug and
nutraceutical regimens).
2. Discovery and development of new technology (markers, genes and/or gene
polymorphisms, etc.) within the IL-1 and TNF gene clusters for all clinical
fields and for all uses including diagnostic (including prognostic, diagnostic
and pharmacogenomic uses), therapeutic or prophylactic regimens (including
prescription drug and nutraceutical regimens).
3. Protease technology - all applications.
<PAGE>
SCHEDULE 2
PATENTS APPLICATIONS
CONFIDENTIAL
PENDING, ISSUED
o Detecting Genetic Predisposition for Osteoporosis, Patent # 5,698,399
o Prediction of Chronic Obstructive Airway Disease, US 09/005,923
o Prediction of Risk of Interstitial Lung Disease, US 09/286,108
o Prediction of Coronary Artery Disease, US 08/013,456
o Diagnostics and Therapeutics for Restenosis, pending
o Fetal Testing for Prediction of Low Birth Weight, US 60/082,487
o Detecting Genetic Predisposition to Sight-Threatening Diabetic
Retinopathy, US 09/037,472
o Transgenic Models of Inflammatory Disease, PCT/US98/24287
o Diagnostic and Therapeutics for Sepsis, US 09/183,850
o Therapeutics and Diagnostics Based on IL-1B Mutation, US09/247,874
o Diagnostics and Therapeutics for Vascular Diseases, pending
o Prediction of Inflammatory Diseases, PCT GB 98/01481
o Diagnostics and Therapeutics for Diseases Associated with an IL-1
Inflammatory Haplotype, pending
o Designer Proteases, US 09/266,498
o The IBR Gene and Polypeptide Products, 60/144,298
APPLICATIONS IN PROCESS
o Diagnostics and Therapeutics for MIF Polymorphisms
o Diagnostics and Therapeutics for Retinopathy
o Diagnostic and Therapeutics for Chronic Obstructive Airway Disease
<PAGE>
SCHEDULE 3
EXISTING PROJECT AGREEMENTS
CONFIDENTIAL
1. Interleukin Genetics Development And Commercialization Project Agreement
(Osteoporosis) dated September 1, 1996 entered into by IL and the
University.
2. Interleukin Genetics Development And Commercialization Project Agreement
(Atherosclerosis Including Coronary Artery Disease) dated September 1,
1996 entered into by IL and the University.
3. Interleukin Genetics Development And Commercialization Project Agreement
(Eye Diseases Among Diabetics) dated September 1, 1996 entered into by IL
and the University.
4. Interleukin Genetics Development And Commercialization Project Agreement
(Protease Technology) dated October 1, 1996 entered into by IL and the
University.
5. Interleukin Genetics Research Support Agreement and Amendments to Various
Existing Project Agreements, dated July 1, 1997 entered into by IL and the
University.
6. Interleukin Genetics Development And Commercialization Project Agreement
(Chronic Obstructive Lung Disease Including Asthma) dated August 1, 1997
entered into by IL and the University.
7. Amendment No. 1 to Interleukin Genetics Development and Commercialization
Project Agreement (Protease Technology), dated August 1, 1997 entered into
by IL and the University.
8. Interleukin Genetics Development And Commercialization Project Agreement
(Signal Transduction) dated January 1, 1998 entered into by IL and the
University.
9. Interleukin Genetics Development And Commercialization Project Agreement
(Interleukin Knockout) dated January 1, 1998 entered into by IL and the
University.
10. Interleukin Genetics Development and Commercialization Project Agreement
(Protease Technology), October 1, 1996.
<PAGE>
SCHEDULE 4
SHEFFIELD INVESTIGATORS
CONFIDENTIAL
[Confidential treatment has been requested for portions of this page. The
confidential portions have been redacted and are denoted by [**]. The
confidential portions have been seperately filed with the Securities and
Exchange Commission.]
Sheffield Investigators shall mean Professor Gordon Duff and other parties
(including employees, consultants, faculty, technicians, visiting
scientists, students, and/or post-doctoral associates) working for or
within the Department of Molecular and Genetic Medicine that are: (a)
listed below; (b) performing research collaboratively with Professor
Gordon Duff within the Field of Use; or (c) performing research where
Professor Gordon Duff is the instigator, principal investigator or
supervisor.
Sheffield Investigators within the Department of Molecular and Genetic
Medicine:
[**]
Sheffield Investigators shall also mean other parties (including
employees, consultants, faculty, technicians, visiting scientists,
students, and/or post-doctoral associates) outside the Department of
Molecular and Genetic Medicine that are listed below.
[**]
<PAGE>
SCHEDULE 5
SUBSCRIPTION AGREEMENT
<PAGE>
SCHEDULE 6
STOCK OPTION AGREEMENT
<PAGE>
SCHEDULE 7
SHEFFIELD INVESTIGATOR AGREEMENT
EXHIBIT 10.2
[Confidential treatment has been requested for portions of this exhibit. The
confidential portions have been redacted and are denoted by [**]. The
confidential portions have been separately filed with the Securities and
Exchange Commission.]
RESEARCH SUPPORT AGREEMENT
This Research Support Agreement (the "AGREEMENT") is entered into and made
effective as of this 1st day of July, 1999 (the "EFFECTIVE DATE") by and between
Interleukin Genetics, Inc., a Texas corporation having its principal place of
business at 100 N.E. Loop 410, Suite 820, San Antonio TX 78216-4749 ("IL") and
The University of Sheffield, Western Bank, Sheffield S10 2TN, England (the
"UNIVERSITY"), acting through The Department of Molecular & Genetic Medicine
("MGM").
RECITALS
A. University and IL entered into a number of specific Research Support
Agreements (as defined below) pursuant to which IL is providing funding to the
University.
B. This Agreement is intended as a complete amendment and restatement of
the provisions set forth in the Research Support Agreements. This Agreement
supercedes in its entirety those prior agreements.
C. The parties desire to continue with their joint collaborative
relationship around various technologies and have entered into a Research and
Technology Transfer Agreement (as defined below) to support that effort. IL may
wish to provide some additional support to departments and/or investigator(s) at
the University to support that effort. This Agreement is intended to set forth
the terms and conditions on which IL will provide such support.
NOW, THEREFORE, in consideration of the foregoing premises and of the
terms and conditions of this Agreement, the parties agree as follows:
1. DEFINITIONS
Any terms not defined in this Agreement shall have the meaning given such
term in the Research and Technology Transfer Agreement.
1.1 "ANNUAL RESEARCH PLAN" means the written plan describing the research
in the Field of Use to be carried out during each year of the Research Program
by Sheffield Investigators and IL as set forth in the Research and Technology
Transfer Agreement.
1.2 "FIELD OF USE " means the scope of the relationship as set forth in
the Research and Technology Transfer Agreement.
1.3 "INNOVATIONS WITHIN THE FIELD OF USE" and "UNIVERSITY INNOVATIONS
WITHIN THE FIELD OF USE" shall have the same meaning as set forth in the
Research and Technology Transfer Agreement; provided, however, if any ideas
inventions, apparatus, system data, discoveries,
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methods, processes, improvements, works of authorship, and the innovations of
any kind are made outside the Field of Use using any part of the funds under
this Agreement, any such ideas inventions, apparatus, system data, discoveries,
methods, processes, improvements, works of authorship, and the innovations of
any kind shall also be classified as Innovations within the Field of Use.
1.4 "IL CLINICAL STUDIES" shall mean research being sponsored by IL for
discovery and/or development of Innovation within the Field of Use at the
University or with some other institution, individual or entity.
1.5 "PARTY OR PARTIES" means the two parties to this agreement that is IL
and/or University as the case may be.
1.6 "RESEARCH AND TECHNOLOGY TRANSFER AGREEMENT" means the Research and
Technology Transfer Agreement dated July 1, 1999 entered into by IL and the
University.
1.7 "RESEARCH SUPPORT AGREEMENTS" means, collectively, all the various
research support agreements and amendments that IL and University entered into
that are in effect as of the Effective Date of this Agreement and are listed in
Attachment 1.
1.8 "RESEARCH PROGRAM" means the collaborative research program in the
Field of Use to be conducted by Sheffield Investigators and IL pursuant to the
Research and Technology Transfer Agreement.
1.9 "RESEARCH STEERING COMMITTEE" shall have the same meaning as set forth
in the Research and Technology Transfer Agreement.
1.10 "SHEFFIELD INVESTIGATORS" shall have the same meaning as set forth in
the Research and Technology Transfer Agreement.
2. RESEARCH SUPPORT
2.1 ANNUAL RESEARCH SUPPORT. IL agrees to provide the research support set
forth in Attachment 2 for the following year, beginning on the Effective Date of
this Agreement. On an annual basis the Research Steering Committee shall agree
on the amount of such research support and the allocation of such support to
Sheffield Investigators. Attachment 2 shall be modified yearly to reflect each
years' annual research support. The research support provided shall be in
support of the Research Program and be incorporated as part of the Annual
Research Plan developed by the Research Steering Committee.
2.2 WAIVER OF UNPAID OVERHEAD AND CREDITS. The University and IL
respectively, each waive any accrued overhead or credits against net proceeds
under the Research Support Agreements prior to the Effective Date of this
Agreement.
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2.3 IL CLINICAL STUDIES. The support provided under this Agreement does
not preclude IL from sponsoring clinical studies with Sheffield Investigators or
other parties at the University in support of IL development efforts for
Innovations within the Field of Use.
3. TERMS GOVERNING RESEARCH SUPPORT
3.1 INCORPORATION OF THE TERMS AND CONDITIONS OF THE RESEARCH AND
TECHNOLOGY TRANSFER AGREEMENT. As to any Innovations within the Field of Use
resulting from the research support provided by this Agreement, the technology
transfer, ownership, intellectual property rights, publication and
confidentiality provisions set forth in the Research and Technology Transfer
Agreement shall govern any such Innovations within the Field of Use. These
provisions are incorporated herein by this reference.
4. TERM
4.1 TERM. Unless earlier terminated in accordance with the terms of
Section 5 below, this Agreement shall remain in effect from the Effective Date
for a period of one (1) year, and shall thereafter automatically renew for
additional one (1) year periods, unless either party gives written notice to the
other party at least six months (6) months in advance of any renewal date that
such party does not wish to renew this Agreement.
4.2 TERMINATION UPON NOTICE OF BREACH. In the event that either party
breaches or defaults under any material term or condition of this Agreement, and
such breach or default is not cured within sixty (60) days of written notice of
the same from the other party, the other party may, in addition to any other
remedy that it may have at law or in equity or under this Agreement, terminate
this Agreement.
4.3 TERMINATION UPON DUFF DEPARTURE. IL may at its option upon written
notice to the University terminate this Agreement in the event that Professor
Gordon Duff is no longer an employee of the University as a result of a change
in his employment.
4.4 IMMEDIATE TERMINATION UPON CERTAIN EVENTS OF BANKRUPTCY. Either party
may at its option terminate this Agreement immediately upon written notice to
the other party upon the occurrence of any of the following events: (a) In the
event that the other party makes an assignment for the benefit of creditors;
admits in writing its inability to pay its debts as they become due; files a
voluntary petition in bankruptcy; is adjudicated to be bankrupt or insolvent;
files a petition seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar arrangement under
any present or future statute, law or regulation, or files an answer or similar
pleading admitting the material allegations of a petition filed against it in
any such proceeding; or consents to or acquiesces in the appointment of, or has
its business placed in the hands of, a trustee, receiver, assignee, or
liquidator of it or any substantial part of its business,
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assets or properties, whether by voluntary act or otherwise; or
(b) In the event that either party ceases doing business as a going
concern, or it or its shareholders take any action in anticipation of or
furtherance of dissolution or liquidation.
4.5 SURVIVAL OF CERTAIN PROVISIONS. The provisions of Section 3 and 5 of
this Agreement will survive the expiration or termination of this Agreement.
6. SETTLEMENT OF DISPUTES
6.1 DISPUTE RESOLUTION. If a dispute arises out of or relates to this
Agreement or its breach (the "Matter"), the Parties agree to resolve the Matter
as follows:
(a) A Party shall submit written notice of the Matter to the other
Party and request negotiation;
(b) The Parties shall attempt in good faith to resolve any Matter
arising out of or relating to this Agreement by promptly appointing
representatives with authority to resolve disputes to negotiate the resolution
The designated representatives shall meet as often as necessary during a fifteen
(15) day period (or such other time as the parties may agree) to gather and
furnish to the other all information with respect to the matter in issue which
is appropriate and germane in connection with its resolution. Such
representatives shall discuss the problem and negotiate in good faith in an
effort to resolve the dispute without the necessity of any formal proceeding
relating thereto. During the course of such negotiation, all reasonable requests
made by one party to the other for non-privileged information reasonably related
to this Agreement, will be honored in order that each of the parties may be
fully advised of the other's position. The specific format for such discussions
will be left to the discretion of the designated representatives, but may
include the preparation of agreed upon statements of fact or written statements
of position furnished to the other party.
(c) If the Matter has not been resolved within sixty (60) days of a
Party's request for negotiation, either Party may request that the Matter be
submitted to a sole mediator selected by the Parties for a mandatory one (1) day
mediation; and
(d) If the Matter has not been resolved by such mediation, either
Party may submit the Matter for binding arbitration in accordance with the
Commercial Rules of the American Arbitration Association ("AAA"). A single
arbitrator shall be selected from the AAA's large complex case panel, provided,
however, if this panel is of insufficient size to pick the arbitrator, then the
regular commercial panel shall be used to pick the arbitrator. In the event the
parties cannot agree on the arbitrator within thirty (30) calendar days of
issuance of a written demand for arbitration by either party, then the American
Arbitration Association shall designate
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<PAGE>
the arbitrator.
(e) The award shall be made within six (6) months of selection of an
arbitrator(s).
6.2 APPROVAL OF ONE SUBSTANTIVE POSITION OF THE PARTIES. In all
arbitration proceedings submitted under Section 6.1(d), the arbitrator shall be
required to agree upon and approve the substantive position advocated by either
IL or the University with respect to each disputed item(s). Any decision
rendered by the arbitrator that does not reflect a substantive position
advocated by either IL or the University shall be beyond the scope of authority
granted to the arbitrator and shall be void. No decision of the arbitrator shall
ever be construed as or have the effect of amending or altering this Agreement
or the parties' rights and responsibilities with respect thereto.
6.3 The mediation and arbitration shall be held in San Antonio, Texas,
U.S.A. or other mutually agreed location. The Parties, their representatives,
the mediator and the arbitrator shall hold the existence, content and results of
any negotiation, mediation or arbitration in confidence unless disclosure is
required by law or regulation, and in such case the Parties shall take
reasonable precautions to only disclose what is required by law or governmental
regulation.
6.4 Any award of the Arbitration shall be binding on the Parties and shall
be enforceable in any court having jurisdiction over the Party from whom
enforcement is requested.
6.5 If the dispute resolution procedure of this Article 8 is not
instituted by submission of written notice under Section 6.1(a) within three (3)
years of the Party's first knowledge of a Matter or is not diligently pursued,
then such Party waives its rights to seek a remedy for such Matter.
6.6 OTHER DISPUTES. Notwithstanding this Article 6, either party can seek
injunctive relief in a court of competent jurisdiction.
7. GENERAL
7.1 GOVERNING LAW. This Agreement shall be deemed to have been made under,
and shall be construed and interpreted in accordance with the laws of the state
of Texas, U.S.A. No conflicts-of-law rule or law which might refer such
construction and interpretation to the laws of another state, republic, or
country shall be considered. Any national law, United Nations treaty or
convention, or law arising from any international treaty is hereby waived in
favor of the application of Texas law. The Parties hereby specifically exclude
the application of The Convention for the International Sale of Goods. All
questions concerning the construction or effect of patent right shall be
construed in accordance of the laws of the country granting those rights. Except
for injunctive relief, all disputes arising in connection herewith shall be
resolved by the dispute resolution procedure of Article 6. If either Party seeks
an injunction, equitable relief or enforcement of the arbitrator such action
shall be submitted to the exclusive jurisdiction
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<PAGE>
of the courts in San Antonio, Texas, U.S.A. and both Parties agree to submit to
the jurisdiction of such courts.
7.2 WAIVER AND MODIFICATION. Failure by either party to enforce any
provision of this Agreement will not be deemed a waiver of future enforcement of
that or any other provision. Any waiver, amendment or other modification of any
provision of this Agreement will be effective only if in writing and signed by
the parties.
7.3 SEVERABILITY. Both Parties hereby especially agree in contract that
neither Party intends to violate any public policy, statutory or common law,
rule, regulation, treaty or decision of any government agency or executive body
thereof of any country or community or association of countries; that if any
word, sentence, paragraph or clause or combination thereof of this Agreement is
found, by a court or executive body with judicial powers having jurisdiction
over this Agreement or any of its Parties hereto, in a final unappealed order to
be in violation of any such provision in any country or community or association
of countries, such words, sentences, paragraphs or clauses or combination shall
be inoperative in such country or community or association of countries, and the
remainder of this Agreement shall remain binding upon the Parties hereto.
7.4 NOTICES. All notices required or permitted under this Agreement will
be in writing, will reference this Agreement and will be deemed given: (i) when
sent by confirmed facsimile; (ii) ten (10) working days after having been sent
by registered or certified mail, return receipt requested, postage prepaid; or
(iii) five (5) working days after deposit with a commercial overnight carrier,
with written verification of receipt. All communications will be sent to the
addresses set forth below or to such other address as may be designated by a
party by giving written notice to the other party pursuant to this section:
TO IL:
Kenneth S. Kornman, DDS, PhD
President
Interleukin Genetics, Inc.
100 NE Loop 410, Suite 820
San Antonio, TX 78216-4749
U.S.A.
with a copy to:
U. Spencer Allen
Chief Financial Officer
Interleukin Genetics, Inc.
100 NE Loop 410, Suite 820
San Antonio, TX 78216-4749
TO THE UNIVERSITY:
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<PAGE>
Dr. David J. Winstanley
The University of Sheffield
Research and Consultancy Unit
2-4 Palmerston Road
Sheffield, S10 2TE
England
with a copy to:
Professor Gordon W. Duff
Lord Florey Chair of Molecular Medicine
The University of Sheffield
Department of Molecular and Genetic Medicine
Royal Hallamshire Hospital
Sheffield, S10 2JF
England
Sir Gareth Roberts
Vice Chancellor
The University of Sheffield
Sheffield
England
7.5 DELAYS BEYOND CONTROL. Neither party will be liable to the other party
for any failure or delay in performance caused by reasons beyond such party's
reasonable control, and such failure or delay will not constitute a material
breach of this Agreement.
7.6 ASSIGNMENT. Neither party may assign its rights or obligations
hereunder, by operation of law or otherwise, without express written consent of
the other party, which consent will not be unreasonably withheld. Any attempted
assignment without such consent shall be void. Subject to the foregoing, this
Agreement will benefit and bind the successors and assigns of the parties.
7.7 NO THIRD PARTY BENEFICIARIES; NO AGENCY. Except as expressly provided
herein to the contrary, no provision of this Agreement, express or implied, is
intended or will be construed to confer rights, remedies or other benefits to
any third party under or by reason of this Agreement. This Agreement will not be
construed as creating an agency, partnership or any other form of legal
association (other than as expressly set forth herein) between the parties.
7.8 ENTIRE AGREEMENT. This Agreement and the Research and Technology
Transfer Agreement are the final, complete and exclusive agreements of the
Parties with respect to the subject matter hereof and supersede and merge all
prior agreements and discussions between MMS and University.
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<PAGE>
7.9 MULTIPLE COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be considered an original and all of which
together will constitute one agreement. This Agreement may be executed by the
attachment of signature pages which have been previously executed.
7.10 CUMULATION. All rights and remedies enumerated in this Agreement will
be cumulative and none will exclude any other right or remedy permitted herein
or by law.
7.11 PUBLICITY. Neither Party hereto shall originate any publicity, news
release or other public announcements, written or oral, whether to the public
press or otherwise, relating to this Agreement, to any amendment hereto or to
either Party's performance hereunder, without the prior written approval of the
other Party, which approval shall not be unreasonably withheld.
7.12 HEADINGS. The headings contained in this Agreement are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
7.13 REVIEW OF COUNSEL. Each Party acknowledges that it and its counsel
have received and reviewed this Agreement and that normal rules of construction,
to the effect that ambiguities are to be resolved against the drafting Party,
shall not apply to this Agreement or to any amendments, modifications,
schedules, exhibits or attachments to this Agreement.
7.14 EXPENSES. Each Party is responsible for its own expenses related to
the preparation and execution of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement through their
duly authorized representatives as set forth below:
INTERLEUKIN GENETICS, INC. THE UNIVERSITY OF SHEFFIELD
By: By:
Printed Name: KENNETH S. KORNMAN, DDS, PHD Printed Name:
Title: PRESIDENT Title:
ATTACHMENT 1
EXISTING RESEARCH SUPPORT AGREEMENTS
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<PAGE>
CONFIDENTIAL
1. Interleukin Genetics Research Support Agreement and Amendments to Various
Existing Project Agreements, dated July 1, 1997 entered into by IL and the
University.
2. Interleukin Genetics Research Support Agreement (for Protease Project
Agreement), dated August 1, 1997 entered into by IL and the University
3. Addendum A to Research Support Agreement (for Protease Project Agreement),
dated April 1, 1998 entered into by IL and the University.
4. Addendum A to Research Support Agreement and Amendments to Various
Existing Project Agreements, dated April 1, 1998 entered into by IL and
the University.
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<PAGE>
[Confidential treatment has been requested for portions of this page. The
confidential portions have been redacted and are denoted by [**]. The
confidential portions have been separately filed with the Securities and
Exchange Commission.]
ATTACHMENT 2
RESEARCH SUPPORT
CONFIDENTIAL
FUNDING COMMITMENT FROM JULY 1ST, 1999 UNTIL JUNE 30TH, 2000
o IL will fund $[**] and $[**] respectively for 2 individuals to conduct
genetic analysis on IL Clinical Studies under the supervision of Sheffield
Investigator [**].
o IL will pay consumables costs, not to exceed an amount per sample agreed
to by IL and MGM for genetic analysis work performed at University on IL
Clinical Studies. The MGM laboratory under [**] direction shall invoice IL
on a monthly basis and IL shall pay shall invoice within 30 days of
receipt.
o IL will fund the University members Research Steering Committee
reasonable approved travel costs for Research Steering Committee meetings
and other activities approved by IL.
o IL will pay through September 30th, 1999, support for [**] for the
ongoing research on the Protease Technology and the final consumable
payment. The parties agree that the balance for Vitowsky support is $[**]
and the balance for consumable funding is $[**]. The [**] payment shall be
paid as invoiced quarterly, (see below) and the $[**] consumable payment
shall be invoiced by University on September 30, 1999.
o IL has allowed University to use [**] thermocyclers machines. These
machines shall remain on consignment with University for use by Sheffield
Investigator [**[ in the MGM laboratory.
o IL shall fund the annual maintenance contract costs for the [**] above
referenced machines at a cost not to exceed [**] UK pounds per year.
Unless otherwise specified, payment terms shall be within 30 days of receipt of
invoice from the University. The University shall invoice IL quarterly.
EXHIBIT 10.3
[Confidential treatment has been requested for portions of this exhibit. The
confidential portions have been redacted and are denoted by [**]. The
confidential portions have been separately filed with the Securities and
Exchange Commission.]
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is made and entered into,
effective this first day of July, 1999 ("Effective Date") by and between
Interleukin Genetics, Inc., having an address at Suite 820, 100 N. E. Loop, San
Antonio, Texas, 78216-4749 ("IL") and Gordon Duff Ph.D., FRCP, having an address
at 18 Ashgate Road, Broomhill, Sheffield, S10 3BZ, England ("DUFF").
WITNESSETH
DUFF is a full-time employee and faculty member of the University who is
permitted by the University's policies to render consulting services on projects
and to Parties acceptable to the University;
The University and IL have a joint collaborative relationship around
various technologies and have entered into a Research and Technology Transfer
Agreement to support that effort. DUFF has technical knowledge and expertise
which will enable DUFF to render professional services to IL for the purpose of
commercially exploiting Innovations discovered and/developed pursuant to the
Research and Technology Transfer Agreement;
IL desires to continue to engage DUFF's professional services on and for
the terms, conditions and considerations set forth herein and DUFF is desirous
of providing professional services to IL and performing the services. This
Agreement is intended to set forth the terms and conditions on which Duff will
provide such services.
IL and DUFF have entered into a number of Previous Agreements.
The Parties wish to enter into this new Agreement as evidenced herein and
intend that this Agreement be a complete amendment and restatement of the
Previous Agreements and supercedes in its entirety the Previous Agreements; NOW,
THEREFORE, in consideration of the mutual covenants and promises herein
contained the Parties hereto agree as follows:
1. DEFINITIONS
1.1 "Affiliate" shall mean any Person that, directly or indirectly, controls or
is controlled by or is under common control with such a Person. A Person shall
be deemed to control another entity if that Person beneficially owns at least
25% of the outstanding voting equity or other ownership interests or assets of
the other entity as determined under rule 13d-3 promulgated under the Securities
and Exchange Act of 1934.
1.2 "Confidential Information" shall mean subject to Section 5.02 any
information known by, disclosed to, learned by, developed by, DUFF in the course
and scope of the performance of the duties in SCHEDULE 1, which information is
not generally known in the trade, science or industry in which IL or its
Affiliates are engaged. For example, and without limiting the definition of
Confidential Information, the following shall be Confidential Information: (i)
the existence of this Agreement and the nature of the Engagement; (ii) the
Innovations within the Field of Use, (iii) any scientific or non-scientific
information obtained directly or indirectly from meetings with or disclosures by
IL or its Representatives; and (iv) any information regarding plans for
research, development, new products, marketing and selling, business plans,
budgets, unpublished financial statements, licenses, prices and costs, suppliers
and customers, and information regarding the skills and compensation of any
employees or other consultants of IL.
<PAGE>
1.3 A "Party" or "Parties" shall mean the two parties to this agreement that is
IL and/or DUFF as the case may be.
1.4 A "Person" shall mean an individual, corporation, partnership, joint
venture, trust, unincorporated organization, university, college or a government
or any agency or political subdivision thereof.
1.5 "Previous Agreements" shall mean that certain Letter Agreement entered into
by the Parties dated November 9, 1994 Re Terms and Condition of Joint Project,
that certain Letter Agreement entered into by the Parties dated November 9, 1994
which was subsequently amended pursuant to that certain Letter Agreement dated
July 13, 1995 which was subsequently amended pursuant to that certain Consulting
Agreement of August 1, 1996 which was subsequently amended pursuant to that
certain Letter Agreement dated August 1, 1997.
1.6 Field of Use" means the scope of the relationship as set forth in the
Research and Technology Transfer Agreement.
1.7 "Innovations within the Field of Use" and "University Innovations within the
Field of Use" shall have the same meaning as set forth in the Research and
Technology Transfer Agreement.
1.8 Research Program" means the collaborative research program in the Field of
Use as set forth in the Research and Technology Transfer Agreement.
1.9 Annual Research Plan" means the written plan describing the research in the
Field of Use to be carried out during each year of the Research Program as set
forth in the Research and Technology Transfer Agreement.
1.10 "Research and Technology Transfer Agreement" shall mean that certain
Research and Technology Transfer Agreement entered into by University and IL on
July 1, 1999.
1.11 "University" shall mean the University of Sheffield where DUFF is currently
employed.
1.12 "Project Agreement" shall mean the various Project Agreements set forth in
the Research and Technology Transfer Agreement.
1.13 "Patents" shall have the same meaning as set forth in the Research and
Technology Transfer Agreement and shall include the Patents listed in Schedule 2
of that agreement.
1.14 "PST Technology" shall mean IL commercially available genetic
susceptibility test for periodontal disease.
1.15 "Net Sales" shall mean revenues actually recognized by IL, using generally
accepted accounting principles consistently applied, from the sale, use or other
disposition of PST Technology, less sales, use and excise taxes, and shipping
charges included in these revenues.
2. ENGAGEMENT
2.1 Subject to the terms, conditions and limitations set forth herein, IL agrees
to continue to engage DUFF and DUFF agrees to the continuation of that
engagement by IL to provide professional services, as set out in Schedule 1, to
IL relating to the development and the commercial exploitation of Innovations
during the Term of the Agreement (the "Engagement").
2.2 DUFF warrants that DUFF has listed all current employment, including without
limitation, any
<PAGE>
engagements, commissions, or positions as advisor, consultant, director,
officer, employee or faculty member on SCHEDULE 2. IL acknowledges that DUFF is
and will continue to be an employee of the University and its related Affiliates
and in such capacity owes primary obligation and allegiance to the University
and that satisfaction of DUFF's respective obligations to the University shall
take precedence without penalty to DUFF over the obligation of DUFF to perform
services under this Agreement. DUFF warrants that (i) DUFF has obtained consent
from the University to perform the Engagement and, (ii) DUFF is able and
entitled to carry out the Engagement without obtaining the consent of any other
third party and without breaching any agreements with any third party.
2.3 Other than the commitments referred to in Section 2.2, DUFF agrees during
the Term of the Engagement to use DUFF's best efforts to devote such time as is
necessary to provide IL with the professional services required hereunder and to
provide prompt attention to IL's matters, and IL agrees that its requests for
DUFF services shall be reasonable in view of DUFF's obligations under Section
2.2.
2.4 DUFF agrees to inform IL whenever the amount of responsibilities and
obligations under Section 2.2 change or if any opportunities arise for DUFF to
serve as an advisor, consultant, director, officer, employee or faculty member
with any Person other than IL. DUFF shall seek written approval from IL before
accepting any such positions or any changes in the amount of responsibilities
and obligations.
2.5 DUFF shall be deemed to be an independent contractor. DUFF shall not be
considered an employee or agent of IL nor shall DUFF be entitled or eligible to
participate in any benefits or privileges given or extended by IL to its
employees. DUFF shall have no power or right to enter into contracts or
commitments on behalf of IL. DUFF shall not in any way represent that DUFF is an
agent of IL.
2.6 IL and DUFF acknowledges that DUFF will provide the services as described in
SCHEDULE 1 at the University. As to any Innovations within the Field of Use
resulting from such research provided by this Agreement, the technology
transfer, ownership and intellectual property rights set forth in the Research
and Technology Transfer Agreement shall govern any such Innovations within the
Field of Use. These provisions are incorporated herein by this reference. For
any service under the Engagement owned by the University but not covered by the
Research and Technology Transfer Agreement, DUFF will use DUFF's best efforts to
have such intellectual property rights licensed to IL. Such best efforts shall
include but not be limited to obtaining license agreements, and making available
the opportunity to obtain license agreements, for IL on terms which are
attractive to IL and assisting IL in its efforts to obtain patent protection
with respect to such intellectual property rights to which IL is entitled to
such protection. Notwithstanding the above, DUFF will obtain the prior approval
of IL to conduct research which is sponsored by a for-profit entity, where any
Innovations within the Field of Use would be owned by a for-profit entity.
3. TERMINATION
The term of this Agreement shall commence as of the Effective Date, and continue
until 30 June, 2004 (the "Term"); provided, however, this Agreement shall be
earlier terminated by either Party upon: (i) breach of this Agreement upon the
non-breaching Party providing ten days written notice to the breaching Party;
(ii) immediately upon DUFF's death or disability; (iii) upon mutual consent;
(iv) on the termination of the Research and Technology Transfer Agreement; or
(v) at IL option, if DUFF is no longer an employee of the University as a result
of a change in his employment.
In the event of termination of this agreement, DUFF shall be entitled to: (i) a
prorata share of his consulting fee through the effective date of the
termination; (ii) retain ownership of any stock or stock options which DUFF has
been granted under Section 4.3 and 4.5 of this Agreement as of the date of such
termination; and (iii) a prorata share of the annual option to purchase 25,000
shares of common stock of IL accruing to DUFF that has not yet been granted as
of the date of termination.
<PAGE>
4. COMPENSATION
4.1 In consideration of the rendition of services as contemplated by this
Agreement, IL shall pay DUFF during the Consulting Period a fee in accordance
with SCHEDULE 3.
4.2 During the Term hereof, IL shall reimburse DUFF for all reasonable and
necessary business expenses set out in SCHEDULE 3 in accordance with and on the
terms of IL's customary expense reimbursement policies.
4.3 In consideration for DUFF relinquishing his net proceeds interests in all
Project Agreements and all previous agreements (except for his net proceeds
interests in the PST Technology), IL shall grant to the DUFF 200,000 shares of
common stock in IL pursuant to the terms and conditions of the Subscription
Agreement attached as Schedule 4.
4.4 DUFF will relinquish any net proceeds, interests he is entitled to from the
PST Technology under that certain PST(TM) Projects Agreement of November 9, 1994
and in return IL shall pay DUFF the following royalties:
(i) one percent of the first $4 million of Net Sales under the PST Technology
per year,
(ii) two percent of all Net Sales under the PST Technology above $4 million per
year.
IL will, within forty-five (45) days after the close of each calendar quarter,
issue a written report to DUFF reporting the Net Sales generated by IL during
such quarter and a computation of the royalty payment due. Full payment of
DUFF's royalty for the quarter will accompany the report. The royalty under this
Section 4.4 shall survive termination of this Agreement and shall be owed for
life of any issued patent covering the PST technology.
4.5 In consideration for the future services to be performed by DUFF under the
Engagement, IL shall grant to DUFF on an annual basis (with the first options to
be granted on July 1, 2000 and on such date each year thereafter as long as this
Agreement is in effect), options to purchase 25,000 shares of common stock in IL
pursuant to the terms and conditions of the Stock Option Agreement attached as
Schedule 5; provided that the Exercise Price (as defined in the Stock Option
Agreement) of such options shall be equal to the "Current Market Price" (as
defined below) of the common stock on the applicable annual grant date, and the
Exercise Period (as defined in the Stock Option Agreement) of such options shall
be five years from the applicable annual grant date.
The "Current Market Price" at any date shall mean, in the event the common stock
is publicly traded, the average of the daily closing prices per share of such
equity security for the 10 consecutive trading days ending on the trading day
immediately before such date (as adjusted for any stock dividend, split,
combination or reclassification that took effect during such 10 trading day
period). The closing price for each day shall be the last reported sale price
regular way or, in case no such reported sale takes place on such day, the
average of the last closing bid prices regular way, in either case on the
principal national securities exchange on which such equity security is listed
or admitted to trading, or if not listed or admitted to trading on any national
securities exchange, the closing bid price for such day reported by NASDAQ, if
such equity security is traded over-the-counter and quoted in the National
Market System, or if such equity security is so traded, but not so quoted, the
average of the closing bid prices of such equity security as reported by NASDAQ
or any comparable system or, if such equity security is not listed on NASDAQ or
any comparable system, the average of the closing bid prices as furnished by two
members of the National Association of Securities Dealers, Inc., selected in
good faith from time to time by the Board of Directors of IL for that purpose.
If such equity security is not traded in such manner that the quotations
referred to above are available for the period required hereunder, Current
Market Price per share of such equity security shall be deemed to be the fair
value as determined in good faith by the
<PAGE>
Board of Directors of IL, irrespective of any accounting treatment.
4.6 If DUFF fails to carry out the Engagement or any part thereof or is in
breach of any of the terms of this Agreement, IL shall be entitled to withhold
all further payments from DUFF whether or not the same shall have accrued due
and without prejudice to any other rights of IL in respect of such breach;
provided, however, IL shall still be obligated to pay the royalties under
Section 4.04, minus any offset for damages due hereunder.
4.7 As a condition to receiving the option grants described above or prior to
transferring same, all as governed by the terms of the Stock Option Agreement,
the DUFF agrees to execute an investment letter containing representations and
warranties as to investment intent, financial sophistication and ability to bear
the risk of any investment in the options and the common stock underlying same
and such other matters as may be reasonably appropriate and acceptable to IL to
demonstrate compliance with relevant securities and other laws and regulations
before any such issuance of options shall be given effect. Such representations
and warranties may include those contained in or similar to the Subscription
Agreement attached as Schedule 4.
4.8 DUFF covenants that neither DUFF nor its affiliates nor any person acting on
his or their behalf has entered, has the intention of entering or will enter
into any put option, short position or other similar instrument or position
anywhere in the world with respect to the common stock of IL or any security
convertible into or exercisable for the common stock of IL. In addition, DUFF
covenants that neither DUFF nor his affiliates nor any person acting on his or
their behalf has entered, has the intention of entering or will enter into any
other scheme or arrangement for the intended purpose of lowering the price at
which the options to be issued pursuant to this Agreement may be exercised. DUFF
covenants and agrees to inform other relevant parties of the requirements and
restrictions of this section and otherwise contained in the Subscription
Agreement and impose and use it best efforts to enforce such restrictions upon
such persons.
5. PROPRIETARY RELATIONSHIPS
5.1 Without the prior written consent of IL, any Confidential Information
developed or otherwise acquired by or made known to DUFF including without
limitation reports, laboratory notebooks, information or data relating to a IL's
technology products, services, or business and developed by DUFF pursuant to the
performance of the consulting services contemplated hereunder, shall not be
disclosed by DUFF to any third party or used by DUFF for the benefit of DUFF or
any third party other than in connection with the research contemplated by
SCHEDULE 1. DUFF further understands that IL has received and in the future will
receive from third parties confidential or proprietary information ("Third Party
Information") subject to a duty on IL's part to maintain the confidentiality of
such information and to use it only for certain limited purposes. Third Party
Information will be treated as Confidential Information under this Agreement.
5.2 The foregoing provisions of Section 5.01 shall not apply to information
which DUFF demonstrates to IL's reasonable satisfaction:
(i) is publicly known at the time of disclosure or becomes publicly
known other than through a breach of this Agreement;
(ii) that was known to DUFF as shown in written records kept in the
ordinary course of business other than under an obligation of confidentiality or
restricted use prior to disclosure by IL;
(iii) was developed independently by members or students of the
University who are not aware of the content of information disclosed by IL as
shown in written records kept in the ordinary course of business;
<PAGE>
(iv) was made available by a third party who had a right to do so
and has not imposed any obligation of confidentiality or restricted use in
respect thereof.
(v) is required to disclose under court or government order, law or
regulation; provided, however, DUFF shall not disclose such information prior to
giving IL reasonable notice to object to such disclosure and then shall only
disclose the information to the extent necessary to comply with such order, law
or regulation.
5.3 DUFF agrees that:
DUFF shall have the sole responsibility for and control over any persons engaged
to execute the Engagement or to perform any of DUFF's obligations under the
Agreement. All such persons shall be regarded as either principal, agent or
employee of DUFF and neither they nor DUFF shall be regarded as an employee of
IL;
(ii) DUFF may not assign or sub-contract, in whole or in part, any of DUFF's
obligations or rights hereunder without the prior written consent of IL;
(iii) DUFF shall limit the disclosure of the Confidential Information and
Innovations to such of DUFF's principal, agent, employee, or approved assign and
sub-contractor to whom such disclosure is necessary in order to carry out the
Engagement; and
(iv) DUFF shall ensure that such principal, agent, employee, or approved assign
and sub-contractor, acknowledge and are bound by equivalent obligations in
respect to the Confidential Information and the Innovations within the Field of
Use (including any waiver of moral rights) as are undertaken by DUFF in this
Agreement.
5.4 DUFF acknowledges that IL has a proprietary interest in maintaining the
confidentiality of the Confidential Information and undertakes that both during
and for seven years after the termination of this Agreement, DUFF will not
disclose the Confidential Information (except in accordance with Section 5.03)
or use the Confidential Information for any purpose other than to enable DUFF to
carry out the Engagement.
5.5 DUFF hereby acknowledges that any Confidential Information, papers,
documents, drawings, other printed or written matter, samples, computer software
or equipment supplied to DUFF by or on behalf of IL to assist DUFF in the
performance of the Engagement or any such items prepared by or on behalf of DUFF
in connection with the performance of the Engagement are the sole and exclusive
property of IL. DUFF agrees that during the term of this Agreement, DUFF will
not remove any IL materials from the business premises of IL or deliver any IL
materials to any person or entity outside IL, without the written permission of
an officer of IL. DUFF undertakes to return all such items to IL on completion
of the Engagement or such earlier date as IL may require together with any
copies thereof which may then be in DUFF's possession.
6. PROPRIETARY PROPERTY ASSIGNMENT
6.1 Any Innovations within the Field of Use made, conceived or developed alone
or jointly by DUFF or DUFF's principal, agent, employee, approved assign,
sub-contractor or others in connection with the performance of services
hereunder during the Term and for six months thereafter shall be governed by the
terms of the Research and Technology Transfer Agreement, and all Innovations
within the Field of Use including that made, conceived or developed in
performance of DUFF's duties as an employee of University shall be promptly
reported in writing to IL. To the extent the services resulted in an innovation
that was outside the Field of Use, then DUFF shall assign all his rights in such
innovations to IL; provided, however, if such rights are required to be assigned
to the University, DUFF shall assign those rights to the
<PAGE>
University and shall comply with Section 2.06. DUFF shall not use the
Innovations for DUFF's own purposes nor disclose it to or use it for any third
party without the prior written approval of IL. At all times before or after
completion of the Engagement, IL shall have the right to examine the results and
any materials relating thereto to ensure IL compliance with the provisions of
this Agreement.
6.2 DUFF will assist IL in every proper way to obtain and from time to time to
enforce IL's United States and foreign intellectual property rights emanating
from this Agreement in any and all countries. To that end, DUFF, without charge
to IL, other than the reimbursement to DUFF by IL of reasonable out-of-pocket
costs, shall execute, acknowledge and deliver to IL all such further papers,
including any patent and design applications, assignments, copyrights, any
waiver of moral rights and other legal instruments as may be reasonably
requested by IL and necessary to enable IL to protect any innovations developed
hereunder by patent or otherwise in any and all countries, and shall render all
such assistance as IL may require in any patent office, litigation (including
appearance as a witness) or other proceeding involving said innovations.
6.3 DUFF shall ensure that DUFF's principal, agent, employee and approved assign
or sub-contractor shall cooperate fully to enable DUFF to vest all rights in the
innovations in IL including executing any patent or design applications or
assignments and any other legal instruments and doing any other things which IL
deems necessary to establish or protect its rights in the innovations.
6.4 DUFF, as part of the services to be performed hereunder, shall keep written
records of DUFF's work, properly witnessed for use as invention records, and
shall submit such records to IL when requested or at the termination of DUFF's
services hereunder. DUFF shall not, except at the direction of IL, or as
otherwise permit hereunder, reproduce, in whole or in part, any of said written
notebook records. DUFF shall provide to IL in a timely fashion all written or
tangible materials and deliverables resulting from DUFF's work under this
Agreement.
6.5 DUFF's obligations under this Article 6 shall survive termination of this
Agreement, regardless of how this Agreement is terminated.
7. PUBLICATION PROCEDURES
7.1 A. While neither Party wishes in any way to restrict the academic freedom of
those participating in the project, the Parties aim to prevent publications or
statements which adversely affect the commercial interest of IL. IL agrees that
DUFF shall be encouraged to present a symposia, national or regional
professional meetings, and to publish in journals, theses, dissertations, or
otherwise of DUFF's own choosing, methods and results of the Engagement. Before
publishing or presenting, however, DUFF shall furnish a copy of any proposed
publication or presentation to IL reasonably in advance (preferably at least 6
weeks) of the submission of such proposed publication or presentation to a
journal, editor, or other third party. IL shall have one month, after receipt of
said copy, to notify DUFF of its objection to such proposed presentation or
proposed publication because there is patentable subject matter or Confidential
Information which needs protection. In the event that IL makes such
notification, DUFF shall refrain from making such publication or presentation
for a maximum of 6 months from date of receipt of such notification in order for
IL to file patent application(s) with the United States Patent and Trademark
Office and/or foreign patent office(s) directed to the patentable subject matter
contained in the proposed publication or presentation and DUFF shall edit such
proposed publications or presentations to remove the material identified by IL
as Confidential Information. Both Parties will strive for consensus before
publishing. If a publication does result from the Engagement, the authors will
acknowledge IL's support of the research in the publications and authorship
shall be jointly decided by IL and DUFF based on accepted scientific practice.
The parties acknowledge that emergency situations may arise where DUFF is
attempting to meet a deadline. The Parties will attempt to accommodate such
deadlines as long as all patentable subject matter or Confidential Information
is protected.
<PAGE>
B. IL shall have the right to use the data generated in this Engagement in
filing patent applications, in filing for regulatory approvals and for any other
commercial purposes.
8. WARRANTIES
8.1 During DUFF's work with IL DUFF will not improperly use or disclose any
confidential information or trade secrets, if any, of any former employer or any
other person to whom DUFF has an obligation of confidentiality, and DUFF will
not bring onto the premises of IL any unpublished documents or any property
belonging to any former employer or any other person to whom DUFF has an
obligation of confidentiality unless consented to in writing by that former
employer or person. DUFF will use in the performance of duties only information
which is generally known and used by persons with training and experience
comparable to DUFF's, which is common knowledge in the industry or otherwise
legally in the public domain, or which is otherwise provided or developed by IL.
8.2 DUFF represents that performance of all the terms of this Agreement and the
Engagement by IL does not and will not breach any agreement to keep in
confidence information acquired by DUFF in confidence or in trust prior to this
Agreement. DUFF has not entered into, and agrees to not enter into, any
agreement either written or oral in conflict herewith, except for Schedule 2.
8.3 Except as provided herein, IL shall hold harmless and indemnify DUFF against
any and all liabilities, costs, damages, expenses and attorney fees resulting
from or attributable to any and all acts or omissions of DUFF relating to or
arising out of DUFF's Engagement with IL provided that DUFF has acted in good
faith and in a manner which DUFF reasonably believed to be in, or not opposed
to, the best interests of IL. Except as provided herein, DUFF shall not be
required to indemnify or reimburse IL or any insurer for any such liabilities,
costs, damages, expenses and attorneys' fees, relating to or arising out of
actions of DUFF undertaken in good faith and in a manner which DUFF reasonably
believed to be in, or not opposed to, the best interests of IL.
9. LEGAL AND EQUITABLE REMEDIES
9.1 Because DUFF's services are personal and unique and because DUFF may have
access to and become acquainted with the Confidential Information of IL, IL
shall have the right to enforce this Agreement and any of its provisions by
injunction, specific performance or other equitable relief, without bond and
without prejudice to any other rights and remedies that IL may have for a breach
of this Agreement.
10. DISPUTE RESOLUTION
10.1 If a dispute arises out of or relates to this Agreement or its breach (the
"Matter"), the Parties agree to resolve the Matter as follows:
(i) A Party shall submit written notice of the Matter to the other Party and
request negotiation;
(ii) The Parties shall attempt in good faith to resolve any Matter arising out
of or relating to this Agreement promptly by negotiation between representatives
which the Parties may appoint;
(iii) If the Matter has not been resolved within sixty (60) days of a Party's
request for negotiation, either Party may request that the Matter be submitted
to a sole mediator selected by the Parties for a mandatory one (1) day
mediation; and
(iv) If the Matter has not been resolved by such mediation, either Party may
submit the Matter for binding
<PAGE>
arbitration in accordance with the Commercial Rules of the American Arbitration
Association ("AAA"). The panel shall be selected from the AAA's large complex
case panel, provided, however, if this panel is of insufficient size to pick the
arbitrator(s), then the regular commercial panel shall be used to pick any
additional arbitrator(s).
(v) The award shall be made within six (6) months of selection of an
arbitrator(s).
The mediation and arbitration shall be held in San Antonio, Texas, U.S.A.
or other mutually agreed location. The Parties, their representatives, the
mediator and the arbitrator shall hold the existence, content and results of any
negotiation, mediation or arbitration in confidence unless disclosure is
required by law or regulation, and in such case the Parties shall take
reasonable precautions to only disclose what is required by law or governmental
regulation.
Any award of the Arbitration shall be binding on the Parties and shall be
enforceable in any court having jurisdiction over the Party from whom
enforcement is requested.
10.2 If the dispute resolution procedure of this ARTICLE 10 is not instituted by
submission of written notice under Section 10.01(i) within three (3) years of
the Party's first knowledge of a Matter or is not diligently pursued, then such
Party waives its rights to seek a remedy for such Matter.
11. MISCELLANEOUS
11.1 This Agreement shall be binding upon and shall inure to the benefit of the
heirs, legal representatives, administrators, successors and licensees of the
Parties hereto. Neither Party may make any assignment of its rights or
obligations under this Agreement without the prior written consent of the other
Party hereto.
11.2 This Agreement shall be deemed to have been made under, and shall be
construed and interpreted in accordance with the laws of the state of Texas,
U.S.A. No conflicts-of-law rule or law which might refer such construction and
interpretation to the laws of another state, republic, or country shall be
considered. Any national law, United Nations treaty or convention, or law
arising from any international treaty is hereby waived in favor of the
application of Texas law. The Parties hereby specifically exclude the
application of The Convention for the International Sale of Goods. All questions
concerning the construction or effect of patent right shall be construed in
accordance of the laws of the country granting those rights. All disputes
arising in connection herewith shall be resolved by the dispute resolution
procedure of Article X. If either Party seeks an injunction, equitable relief or
enforcement of the arbitrator such action shall be submitted to the exclusive
jurisdiction of the courts in San Antonio, Texas, U.S.A. and both Parties agree
to submit to the jurisdiction of such courts.
11.3 Both Parties hereby especially agree in contract that neither Party intends
to violate any public policy, statutory or common law, rule, regulation, treaty
or decision of any government agency or executive body thereof of any country or
community or association of countries; that if any word, sentence, paragraph or
clause or combination thereof of this Agreement is found, by a court or
executive body with judicial powers having jurisdiction over this Agreement or
any of its Parties hereto, in a final unappealed order to be in violation of any
such provision in any country or community or association of countries, such
words, sentences, paragraphs or clauses or combination shall be inoperative in
such country or community or association of countries, and the remainder of this
Agreement shall remain binding upon the Parties hereto.
11.4 The Parties covenant and agree that if either Party fails or neglects for
any reason to take advantage of any of the terms provided for the termination of
this Agreement or if either Party, having the right to declare this Agreement
terminated, shall fail to do so, any such failure or neglect by either Party
shall not be a waiver or be deemed or be construed to be a waiver of any cause
for the termination of this
<PAGE>
Agreement subsequently arising, or as a waiver of any of the terms, covenants or
conditions of this Agreement or of the performance thereof. None of the terms,
covenants and conditions of this Agreement can be waived by either Party except
by its written consent.
11.5 This Agreement is the final, complete and exclusive agreement of the
Parties with respect to the subject matter hereof and supersedes and merges all
prior discussions between IL and DUFF. No modification of or amendment to this
Agreement, or any waiver of any rights under this Agreement, will be effective
unless in writing and signed by the Party to be charged. Any subsequent change
or changes in DUFF's duties, salary or compensation will not affect the validity
or scope of this Agreement. As used in this Agreement, the period of the
Engagement includes any time during which DUFF may be retained by IL as an
employee.
11.6 Neither Party hereto shall originate any publicity, news release or other
public announcements, written or oral, whether to the public press or otherwise,
relating to this Agreement, to any amendment hereto or to either Party's
performance hereunder, without the prior written approval of the other Party,
which approval shall not be unreasonably withheld.
11.7 All covenants and obligations of DUFF under this Agreement shall survive
the termination of this Agreement.
11.8 Any notice required or permitted to be given under this Agreement shall be
delivered by hand or sent by recorded delivery, post, cable, telex, facsimile
copy or electronic mail to each Party at the address stated in this Agreement or
such other address as may be notified for this purpose from time to time. Any
notice so sent shall not be deemed to have been given until it has been received
by the Party to whom it has been addressed.
11.9 DUFF specifically agrees to pay all federal and state self-employment and
other income taxes, social security taxes, disability and unemployment or other
employment related taxes. DUFF shall assume full responsibility for the payment
of all taxes with respect to the equity, cash or other payments made to him
under this Agreement; provided, however, IL may withhold from any compensation
payable to DUFF under this Agreement all federal, state, city or other taxes as
may be required pursuant to any law or governmental regulation or ruling.
11.10 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
11.11 Each Party acknowledges that it and its counsel have received and reviewed
this Agreement and that normal rules of construction, to the effect that
ambiguities are to be resolved against the drafting Party, shall not apply to
this Agreement or to any amendments, modifications, schedules, exhibits or
attachments to this Agreement.
11.12 Each Party is responsible for its own expenses related to the preparation
and execution of this Agreement.
IN WITNESS WHEREOF, DUFF and IL have hereunto executed this Agreement in
multiple originals by their duly authorized officers and representatives
effective as of the date first set forth above.
INTERLEUKIN GENETICS, INC. GORDON DUFF PHD, FRCP
By: By:
Name: KENNETH S. KORNMAN, DDS, PHD Name: GORDON DUFF, PHD, FRCP
<PAGE>
Title: PRESIDENT Title:
<PAGE>
SCHEDULE 1
THE ENGAGEMENT
The detailed description of the Engagement is as follows:
DESCRIPTION OF SERVICES. DUFF shall provide the following services:
Manage Research Program as set forth in the Annual Research Plan.
Attend meetings and make technical presentations at conferences as requested
by IL.
Attend meetings of and participate on the IL's Scientific Advisory Board(s).
Consult with the IL on any research and/or development programs including
Innovations that may be jointly collaborated on with DUFF and/or University.
Such other services as agreed to by the Parties.
The Parties recognize that no minimum or maximum time commitment or availability
is required under this Agreement, although Duff will use reasonable efforts to
be available to IL, if needed, for up to two sessions per week. DUFF will make
himself available as needed by the IL for telephone calls and telephone
conferences, Scientific Advisory Board meetings, and other meetings which the IL
deems necessary.
<PAGE>
SCHEDULE 2
CURRENT EMPLOYMENT
REMUNERATED AND NON-REMUNERATED.
================================================================================
University of Sheffield, Professor of Molecular Medicine.
Director, Division of Molecular &
Genetic Medicine
Research Dean, Medical School.
Various internal committees
================================================================================
Central Sheffield University Hospitals Honorary Clinical Consultant.
Trust Member of Research Executive
(As Research Dean of Medical School)
================================================================================
Department of Health (UK)
Committee on Safety of Medicines (London) Member
================================================================================
Committee on Safety of Medicines
Biological Sub-Committee Chairman
================================================================================
Department of Trade & Industry (UK)
International Health Group Chairman (to end 1999)
================================================================================
Interleukin Genetics (USA) Consultant, Scientific Advisory Boards
================================================================================
Fairfield Technology (UK) Consultant in medical image analysis
(role to be defined)
================================================================================
British Biotech (UK) Scientific Advisory Board
================================================================================
Medical Research Council (UK) Scientific Advisory Board
================================================================================
National Institute for Biological
Standards and Control (UK) External reviewer
================================================================================
Academic Press journal CYTOKINE Co-editor
================================================================================
Blackwell Science journal GENESCREEN Co-editor
================================================================================
International Cytokine Society Council Member (past-president)
================================================================================
European Cytokine Network Editorial Board and Council Member
================================================================================
Current Opinion publications ARTHRITIS RESEARCH, Editorial Board
================================================================================
Various committees of Learned Societies, e.g., databases working group,
Academy of Medical Sciences (London)
================================================================================
<PAGE>
SCHEDULE 3
PAYMENT TERMS
[Confidential treatment has been requested for portions of this page. The
confidential portions have been redacted and are denoted by [**]. The
confidential portions have been separatley filed with the Securities and
Exchange Commission.]
A. In consideration of DUFF carrying out the Engagement IL shall pay to DUFF
a fee of [**] UK Pounds per year payable at [**] UK Pounds per quarter with
the first payment due July 1, 1999 and each subsequent payment due on the 1st
day of the following quarter (October 1, January 1, April 1, July 1). Each
quarterly payment made covers the services to be rendered by DUFF during that
quarter (e.g., the October 1st payment covers the Engagement period of October
through December). Therefore, the last payment due under this Agreement would be
the April 1, 2004 payment. The parties shall agree on the currency exchange on a
yearly basis. For the first quarterly payment, the Parties recognize and agree
that a prorated amount will be paid.
B. IL shall reimburse DUFF for all pre-approved in writing normal and
reasonable "out of pocket" expenses relating to the Engagement (not to exceed
[**] trips per year without the approval of IL). Such pre-approved reimbursed
expenses will include reasonable airfare, travel, lodging or car rentals, meals
and long distance telephone expenses. DUFF shall bill IL for pre-approved travel
expenses incurred on a monthly basis by submission of an itemized statement.
<PAGE>
SCHEDULE 4
SUBSCRIPTION AGREEMENT
<PAGE>
SCHEDULE 5
STOCK OPTION AGREEMENT
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<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM ________________________________________________________________
[Identify specific financial statements]
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
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<RECEIVABLES> 223,671
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<CURRENT-ASSETS> 3,820,895
<PP&E> 800,172
<DEPRECIATION> 482,037
<TOTAL-ASSETS> 4,139,029
<CURRENT-LIABILITIES> 1,262,553
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0
0
<COMMON> 22,639,904
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<TOTAL-LIABILITY-AND-EQUITY> 4,139,029
<SALES> 140,179
<TOTAL-REVENUES> 140,179
<CGS> 79,518
<TOTAL-COSTS> 2,701,406
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,997
<INCOME-PRETAX> (2,612,781)
<INCOME-TAX> 0
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