<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1997
REGISTRATION NO. 333-40503
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ALLERGAN SPECIALTY THERAPEUTICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2834 33-0779207
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
2525 DUPONT DRIVE
IRVINE, CA 92612
(714) 752-4500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LESTER J. KAPLAN, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ALLERGAN SPECIALTY THERAPEUTICS, INC.
2525 DUPONT DRIVE
IRVINE, CA 92612
(714) 246-6301
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
THOMAS A. COLL, ESQ. FRANCIS R. TUNNEY, JR., ESQ.
MICHAEL R. JACOBSON, ESQ. ALLERGAN, INC.
JANE K. ADAMS, ESQ. 2525 DUPONT DRIVE
COOLEY GODWARD LLP IRVINE, CA 92612
4365 EXECUTIVE DRIVE, SUITE 1100 (714) 752-4500
SAN DIEGO, CA 92121
(619) 550-6000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C>
===========================================================================================================
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE TO BE AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PRICE(2) FEE
- -----------------------------------------------------------------------------------------------------------
Class A Common Stock, $.01 par value........... 3,300,000 shares $200,000,000 $60,607
===========================================================================================================
</TABLE>
(1) Based on an estimate of the maximum number of shares issuable in connection
with the distribution described herein.
(2) Calculated for the purpose of calculating the registration statement fee
pursuant to Rule 457(f)(2) under the Securities Act of 1933 based on the
adjusted book value of the Class A Common Stock of the Registrant after
giving effect to the distribution described herein. No consideration will be
paid by the recipients of the securities.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
LOGO
, 1998
Dear Stockholder:
I am pleased to send you the attached Prospectus concerning Allergan
Specialty Therapeutics, Inc. ("ASTI") and notify you of the special distribution
of shares of ASTI Class A Common Stock to the holders of Common Stock of
Allergan, Inc. Holders of Allergan Common Stock at the close of business on
, 1998, the record date for this distribution, will receive one
share of ASTI Class A Common Stock (an "ASTI Share") for each 20 shares of
Allergan Common Stock held.
The distribution is expected to occur on or about , 1998. The
ASTI Shares will be held in "book-entry" form, although stock certificates will
be available upon request. First Chicago Trust Company of New York is acting as
distribution agent and will be responsible for making book-entry credits to
holders of record on the record date and for mailing stock certificates to ASTI
stockholders upon request. Application has been made for the ASTI Class A Common
Stock to be quoted on the Nasdaq National Market under the symbol "ASTI."
ASTI has been formed by Allergan to conduct research and development of
potential pharmaceutical products, and to commercialize such products, most
likely through licensing to Allergan. In exchange for all of the shares of ASTI
Common Stock outstanding prior to the Distribution, Allergan will contribute
$200 million to ASTI to be used for the research and development of such
potential pharmaceutical products. As the sole holder of ASTI's outstanding
Class B Common Stock following the distribution, Allergan will have the option
to repurchase all of the outstanding ASTI Shares under specified conditions. In
addition, in exchange for technology licenses granted by Allergan and a
commitment by Allergan to make specified payments on sales of certain products,
Allergan will be paid a technology fee by ASTI and will have the option to
independently develop certain compounds funded by ASTI prior to the filing of an
Investigational New Drug application ("IND") with respect thereto and/or to
license any products and technology developed by ASTI.
ASTI's technology and product research and development activities will take
place under a research and development agreement with Allergan. It is currently
expected that substantially all of ASTI's funds will be directed toward
continuing the research and development of products based on retinoid and
neuroprotective technologies, including Memantine and other glutamate and ion
channel blockers (collectively, "Retinoid and Neuroprotective Technologies"). In
addition, ASTI may fund the research and development of pharmaceutical products
in therapeutic categories of interest to Allergan that are not based on Retinoid
and Neuroprotective Technologies, but that complement Allergan's product
pipeline or otherwise are believed to provide a potential commercialization
opportunity for Allergan.
Allergan is increasing its focus on leading-edge, technology-based
pharmaceutical products. Through internal research and development efforts and
external research and development collaborations, Allergan seeks to expand its
product line with proprietary specialty pharmaceutical products that provide
distinctive therapeutic and economic benefit. Efforts to date have yielded many
potential product opportunities. Such opportunities involve significantly
different risk/reward profiles as compared to Allergan's established specialty
pharmaceutical business.
To continue the advancement of, and in certain cases accelerate, these
projects and programs, Allergan seeks strategic collaborations and ventures,
such as the recently concluded Allergan Ligand Retinoid Therapeutics, Inc.
("ALRT") collaboration, to provide complementary financing. Allergan's strategy
also involves actively seeking outside product opportunities through joint
ventures, licensing, acquisitions and strategic alliances with biotechnology,
marketing and geographic partners.
i
<PAGE> 3
Allergan believes that the retinoid research and development work
undertaken by ALRT to date and the research and development work Allergan has
undertaken, directly and through collaborators, in the neuroprotective area have
yielded results which justify further research and development. A substantial
amount of additional research and development effort is required to further
develop Allergan's Retinoid and Neuroprotective Technologies through their
potential commercialization.
By creating ASTI and distributing the ASTI Shares to Allergan stockholders,
Allergan will separate the risks associated with discovering, researching and
developing these products from those associated with its established specialty
pharmaceutical business. Thus, the transaction will provide an opportunity for
Allergan's stockholders to decide whether or not to participate in the research
and development of the retinoids and other specialty pharmaceutical products by
continuing to hold ASTI Shares after the Distribution.
We are very enthusiastic about our progress to date in pursuing Allergan's
specialty pharmaceutical business, and about the possibility of ASTI helping to
expand this business through the research and development of potential products
for commercialization by Allergan.
The Prospectus contains important information about the distribution and
about the proposed business of ASTI. I encourage you to read it carefully.
Holders of Allergan Common Stock on the record date for the distribution are not
required to take any action to participate in the distribution.
Sincerely,
--------------------------------------
David E. I. Pyott
President and Chief Executive Officer
ii
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 15, 1997
PROSPECTUS
ALLERGAN SPECIALTY THERAPEUTICS, INC.
CLASS A COMMON STOCK
Shares of callable Class A Common Stock ("ASTI Shares") of Allergan
Specialty Therapeutics, Inc. ("ASTI") will be distributed (the "Distribution")
by Allergan, Inc. ("Allergan") to the holders of record (the "Holders") at the
close of business on , 1998 (the "Record Date") of Allergan Common
Stock. Each Holder will receive one ASTI Share for every 20 shares of Allergan
Common Stock held on the Record Date. The Distribution will result in all of the
then outstanding ASTI Shares being distributed to the Holders. Assuming that
65,248,462 shares of Allergan Common Stock (the number of shares outstanding on
October 31, 1997) are outstanding on the Record Date, approximately 3,262,400
ASTI Shares are expected to be issued in the Distribution to Holders of Allergan
Common Stock. After the Distribution, Allergan will hold 1,000 shares of ASTI
Class B Common Stock, representing all of the authorized shares of such class.
Prior to the Distribution, Allergan will contribute $200 million in cash to ASTI
in exchange for all of the shares of ASTI Common Stock outstanding prior to the
Distribution. As the sole holder of ASTI's outstanding Class B Common Stock
following the Distribution, Allergan will have the option to repurchase all of
the outstanding ASTI Shares under specified conditions. Allergan has also
granted certain technology licenses and agreed to make specified payments on
sales of certain products in exchange for the payment by ASTI of a technology
fee and the option to independently develop certain compounds funded by ASTI
prior to the filing of an Investigational New Drug application ("IND") with
respect thereto and to license any products and technology developed by ASTI.
The Distribution is expected to be taxable to the Holders of Allergan
Common Stock. See "Federal Income Tax Considerations." The Distribution is
expected to take place on or about , 1998, subject to certain
conditions specified in the Distribution Agreement between Allergan and ASTI
dated as of , 1997. ASTI Shares will be held in "book-entry" form,
although stock certificates will be available upon request. First Chicago Trust
Company of New York ("FCTC") is acting as distribution agent and will be
responsible for making book-entry credits to Holders and for mailing stock
certificates to ASTI stockholders upon request.
There has been no previous public market for the ASTI Shares. Application
has been made for the ASTI Shares to be quoted on the Nasdaq National Market
under the symbol "ASTI."
Allergan will have the option to purchase all (but not less than all) of
the outstanding ASTI Shares at a price determined in accordance with a formula
specified in ASTI's Restated Certificate of Incorporation (the "Purchase Option
Exercise Price") at any time from and after the Distribution until the date
which is the earliest to occur of (i) December 31, 2002 (unless extended in
accordance with the terms contained in ASTI's Restated Certificate of
Incorporation) and (ii) the 90th day after the date on which Allergan receives
notice that the amount of cash and marketable securities held by ASTI is less
than $15 million. The Purchase Option Exercise Price may be paid by Allergan in
cash, registered Allergan Common Stock or any combination of cash and Allergan
Common Stock at Allergan's discretion. See "The Agreements and the Purchase
Option -- Purchase Option."
Stockholders of Allergan with inquiries regarding the Distribution should
contact Allergan, Inc., Investor Relations, 2525 Dupont Drive, Irvine, CA 92612;
telephone (714) 246-6301.
------------------------
THE ASTI SHARES DISTRIBUTED HEREUNDER INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 16.
------------------------
NO APPROVAL OF THE DISTRIBUTION BY STOCKHOLDERS OF ALLERGAN IS REQUIRED
OR SOUGHT. NO PROXY IS REQUESTED AND NO ACTION IS REQUIRED WITH RESPECT TO THE
DISTRIBUTION.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 5
AVAILABLE INFORMATION
As a result of the Distribution, ASTI will be required to comply with the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, to file annual, quarterly and
other reports with the Securities and Exchange Commission ("SEC"). Additionally,
ASTI will be subject to the proxy solicitation requirements of the Exchange Act.
ASTI intends to provide annual reports containing audited financial statements
to its stockholders in connection with its annual meetings of stockholders.
ASTI has filed a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended, with respect to the
securities offered by this Prospectus. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto.
Reference is made to the Registration Statement and to the exhibits thereto for
further information with respect to ASTI and the Distribution. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference to such exhibit. The Registration Statement,
including exhibits and schedules thereto, may be inspected without charge at the
Public Reference Room of the SEC, 450 Fifth Street, Washington, D.C. 20549 and
at the SEC's regional offices at 7 World Trade Center, Suite 1300, New York, New
York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Reports, proxy statements and other information filed electronically by ASTI
with the SEC are available at the SEC's World Wide Web site at
http://www.sec.gov. Copies of all or any part thereof may be obtained from the
SEC at its principal offices in Washington, D.C. after payment of fees
prescribed by the SEC.
2
<PAGE> 6
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS OR THE REGISTRATION STATEMENT
OF WHICH THIS PROSPECTUS IS A PART.
CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN
THIS PROSPECTUS, INCLUDING IN THE GLOSSARY BEGINNING ON PAGE 13.
Some of the statements made in this Prospectus and the accompanying letter
to stockholders are forward-looking in nature, including, but not limited to,
ASTI's and Allergan's research and development activities and plans,
particularly with respect to anticipated ASTI Products and Pre-Selection
Products, plans concerning the potential commercialization of products, and
other statements that are not historical facts. The occurrence of the events
described and the achievement of the intended results are subject to the future
occurrence of many events, some or all of which are not predictable or within
ASTI's control; therefore, actual results may differ materially from those
anticipated in any forward-looking statements. Many risks and uncertainties are
inherent in the biotechnology and pharmaceutical industry; others are more
specific to ASTI's business or that of Allergan. These risks include the risks
associated with product and technology research and development, including
clinical development, attempts to obtain regulatory clearance to market products
and medical acceptance of products, changes in the health care marketplace,
patent and intellectual property matters, regulatory and manufacturing issues,
the ability to commercialize products effectively, and risks associated with
competition from other companies. Many of the risks are described in "Risk
Factors" beginning on page 16 and/or in documents filed by Allergan under the
Exchange Act.
Distributing Company....... Allergan, Inc., a Delaware corporation, is a
leading provider of specialty pharmaceutical
products throughout the world with niche products
in the movement disorder, dermatological, eye care
pharmaceutical, ophthalmic surgical device and
over-the-counter contact lens care markets.
Distributed Company........ Allergan Specialty Therapeutics, Inc., a Delaware
corporation, is a company recently formed by
Allergan to conduct research and development of
potential human pharmaceutical products, and to
commercialize such products, most likely through
licensing to Allergan.
The Distribution........... Each Holder will receive one ASTI Share for every
20 shares of Allergan Common Stock held on the
Record Date. A total of approximately 3,262,400
ASTI Shares are expected to be distributed,
assuming 65,248,462 shares of Allergan Common Stock
(the number of shares outstanding on October 31,
1997) are outstanding on the Record Date. No Holder
will be required to pay any cash or other
consideration for the ASTI Shares received in the
Distribution (exclusive of applicable taxes), nor
will any action be required to be taken by any
Holder in order to receive ASTI Shares. The
Distribution is expected to be taxable to the
Holders. See "Certain Federal Income Tax
Considerations."
ASTI Shares................ All of the shares of callable Class A Common Stock
of ASTI, whether distributed by Allergan in the
Distribution or later issued by ASTI, will be
subject to the Purchase Option. See "The Agreements
and the Purchase Option -- Purchase Option" and
"Description of ASTI Capital Stock."
Record Date; Distribution
Date....................... The Record Date for the Distribution will be the
close of business on , 1998.
Distribution of the ASTI Shares is expected to take
place on or about , 1998 (the
"Distribution Date"), subject to certain conditions
specified in the Distribution Agreement.
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<PAGE> 7
Trading Market............. Application has been made for quotation of the ASTI
Shares on the Nasdaq National Market under the
symbol "ASTI."
Contribution by Allergan... Prior to the Distribution, Allergan will contribute
$200 million in cash to ASTI in exchange for all of
the shares of ASTI Common Stock outstanding prior
to the Distribution. Allergan expects to borrow all
or a portion of such funds from third parties. As
the sole holder of ASTI's outstanding Class B
Common Stock following the Distribution, Allergan
will have the option to repurchase all of the
outstanding ASTI Shares under specified conditions.
Allergan has also granted certain technology
licenses and agreed to make specified payments on
sales of certain products in exchange for the
payment of a technology fee by ASTI and the option
to independently develop certain compounds funded
by ASTI prior to the filing of an IND with respect
thereto and to license any products and technology
developed by ASTI.
The retinoid technology being licensed by Allergan
to ASTI includes technology acquired by Allergan
upon exercise of its option to acquire a one-half
undivided interest in the assets of Allergan Ligand
Retinoid Therapeutics, Inc. ("ALRT"). In September
1997, Ligand Pharmaceuticals Incorporated
("Ligand") and Allergan exercised their respective
options to purchase the outstanding ALRT Callable
Common Stock and a one-half undivided interest in
ALRT's assets. The initial agreements between
Allergan and Ligand provided for a joint research
and development and joint commercialization
arrangement following exercise of the buyout
option. Allergan and Ligand have amended and
restated their existing agreements, effective as of
the option exercise closing date, so that among
other things, existing ALRT compounds and research
and development programs will be divided among
Allergan and Ligand, and each party will receive
exclusive rights to the ALRT technology for use
with their respective compounds and programs. See
"Reasons For the Distribution and Effects on
Allergan, Inc."
ASTI Products.............. ASTI Products generally are expected to be based on
retinoid and neuroprotective technologies,
including Memantine and other glutamate and ion
channel blockers (collectively, "Retinoid and
Neuroprotective Technologies"). In addition, ASTI
may fund the research and development of products
licensed from third parties that complement the
products to be developed by ASTI or otherwise may
provide a significant commercialization opportunity
for Allergan. It is anticipated that ASTI will
initially develop four selected products. In
addition, ASTI may pursue the research and
development of other products to which it has been
granted rights pursuant to the Technology License
Agreement as substitutes for, or in addition to,
such products (any such products together with the
four initial products being the "ASTI Products").
The four initial ASTI Products, which are described
more fully in the section entitled "The Business of
ASTI -- The ASTI Products" below, are:
- Tazarotene (oral), an RAR beta gamma-selective
agonist being developed in oral form for the
treatment of cancer, acne and psoriasis
worldwide;
- Memantine, a glutamate blocker being developed as
a potential treatment to be used to halt the
progression of optic nerve damage that
4
<PAGE> 8
leads to blindness in glaucoma patients and for
other ocular indications in the United States;
- AGN 4310, an RAR antagonist/inverse agonist,
being developed as a topical antidote to systemic
retinoid-induced mucocutaneous toxicity and for
the topical treatment of psoriasis worldwide; and
- A compound to be selected from the RAR
alpha-selective agonist class of retinoid
compounds for the treatment of various cancers
worldwide.
Pursuant to the Research and Development Agreement,
ASTI will fund the research and development of the
ASTI Products from the date on which ALRT ceased
funding (October 23, 1997) until March 31, 1998.
Continuation of the research and development of any
ASTI Product after March 31, 1998 will depend upon
whether Allergan proposes and ASTI's independent
Board of Directors accepts additional work plans
and cost estimates for such ASTI Product. It is
anticipated that if ASTI were to fund the continued
research and development of the four initial ASTI
Products through U.S. Food and Drug Administration
("FDA") review for marketing clearance, the funding
of these activities, together with the
Pre-Selection Work expected to be undertaken by
Allergan and funded by ASTI, would require
substantially all of the Available Funds. See "The
Agreements and the Purchase Option -- Research and
Development Agreement."
ASTI Board of Directors.... Lester J. Kaplan, Ph.D., is currently serving as
the interim President and Chief Executive Officer
and a Director of ASTI. Prior to the commencement
of the Distribution, Dr. Kaplan will resign as
interim President and Chief Executive Officer and
an individual who is not an employee or Director of
Allergan will be appointed Director, President and
Chief Executive Officer of ASTI. It is expected
that this individual will appoint three additional
Directors of ASTI, each of whom will not be an
employee or Director of Allergan. Dr. Kaplan will
remain a Director of ASTI following the
Distribution in accordance with the rights of
Allergan under ASTI's Restated Certificate of
Incorporation as the sole holder of the outstanding
shares of ASTI Class B Common Stock.
No Fractional Shares....... No fractional ASTI Shares will be distributed.
Fractional ASTI Shares will be aggregated and sold
as whole ASTI Shares by ASTI's transfer agent and
distribution agent for the Distribution, FCTC (the
"Distribution Agent"), to provide cash to Holders
in lieu of such fractional ASTI Shares.
Reasons for the
Distribution............... Allergan is increasing its focus on leading-edge,
technology-based pharmaceutical products. Through
internal research and development efforts and
external research and development collaborations,
Allergan seeks to expand its product line with
proprietary specialty pharmaceutical products that
provide distinctive therapeutic and economic
benefit. Allergan believes that the retinoid
research and development work undertaken by ALRT to
date and the research and development work it has
undertaken, directly and through collaborators, in
the neuroprotective area have yielded results which
justify further research and development. However,
a substantial amount of additional research and
development effort is required to further develop
Allergan's Retinoid and Neuroprotective
Technologies through to their potential
commercialization. Such oppor-
5
<PAGE> 9
tunities involve significantly different
risk/reward profiles as compared to Allergan's
established specialty pharmaceutical business.
Allergan believes that the arrangements with ASTI
will significantly benefit Allergan stockholders
by:
- separating the risks associated with researching
and developing pharmaceutical products based on
Retinoid and Neuroprotective Technologies from
those associated with Allergan's established
specialty pharmaceutical business;
- allowing individual stockholders of Allergan to
increase or decrease their level of participation
in the business of researching and developing
pharmaceutical products based on Retinoid and
Neuroprotective Technologies for
commercialization by Allergan by varying their
level of investment in ASTI;
- obtaining for Allergan the exclusive right to
commercialize, in the United States with respect
to Memantine and worldwide with respect to any
other ASTI Products, any successfully developed
ASTI Product, assuming Allergan's exercise of the
License Option with respect to such product or
exercise of the Purchase Option, thereby making
it possible for Allergan to capture a potentially
greater return on the products developed with
ASTI than would otherwise be possible from
products developed for commercialization in
conjunction with other third parties; and
- allowing Allergan's near-term financial results
to continue to reflect principally its
established specialty pharmaceutical business, by
providing Allergan with research and development
revenues from ASTI to reimburse Allergan for
Research and Development Costs incurred by
Allergan.
Research and Development
Agreement................ ASTI and Allergan will enter into the Research and
Development Agreement under which Allergan will
perform research and development on products
recommended by Allergan and accepted by ASTI as
ASTI Products. Such recommendation and acceptance
may be made on a "field of use" basis. Such new
product recommendation must be made no later than
the date of filing of an IND with the FDA for such
product. It is anticipated that ASTI will initially
develop four selected products which will be the
initial ASTI Products. Unless ASTI agrees
otherwise, all ASTI Products will be owned by ASTI
or, in the case of a product or a therapeutic agent
licensed from a third party, exclusively licensed
to ASTI, in each case subject to the License
Option. A portion of the Available Funds is
expected to be used to identify potential new
products within the portfolio of product candidates
licensed to ASTI under the Technology License
Agreement for possible research and development as
ASTI Products by ASTI under the Research and
Development Agreement. Compounds evaluated under
this process, other than those which become ASTI
Products, will be Pre-Selection Products. To the
extent any Pre-Selection Product is approved for
commercial sale, Allergan will make payments to
ASTI based on such sales, as described below.
ASTI is required to spend all of the Available
Funds under the Research and Development Agreement.
ASTI is expected to utilize substantially
6
<PAGE> 10
all of the Available Funds to reimburse Allergan
for its Research and Development Costs. Research
and Development Costs will be charged in a manner
consistent with industry practices, and
reimbursement for all reasonable, fully-burdened
costs will be recognized by Allergan as contract
research and development revenue. Under the
Research and Development Agreement, ASTI also may
use Available Funds for licensing technology,
products or therapeutic agents from third parties
and for the research and development of ASTI
Products with third parties; provided, however,
that Allergan's consent will be required if such
activities involve Allergan Technology or could
affect Allergan's rights under the Allergan/ASTI
Agreements. Subject to the foregoing, the amount
and nature of work to be performed by third parties
will be determined by ASTI. It is not anticipated
that ASTI will undertake research and development
without contracting with a third party, as ASTI is
not expected to have the staffing or facilities to
do so.
Pursuant to the Research and Development Agreement,
ASTI will fund the research and development of the
initial four ASTI Products beginning as of October
23, 1997 and continuing through March 31, 1998.
Research and Development Costs are expected to
total between $7 million and $8 million for all of
the four initial ASTI Products and for Pre-
Selection Work conducted during such period.
Continuation of the research and development of any
ASTI Product after March 31, 1998 will depend upon
whether Allergan proposes, and ASTI's Board of
Directors accepts, additional work plans and cost
estimates for such ASTI Product. It is anticipated
that if ASTI were to fund the continued research
and development of the initial four ASTI Products
through FDA review for marketing clearance, the
funding of these activities, together with the
Pre-Selection Work expected to be undertaken by
Allergan and funded by ASTI, would require
substantially all of the Available Funds. It is
anticipated that ASTI will spend the Available
Funds under the Research and Development Agreement
over a period of approximately four to five years.
ASTI's use of Available Funds is subject to the
terms of ASTI's Restated Certificate of
Incorporation and the Allergan/ASTI Agreements. All
technology developed or otherwise obtained pursuant
to the Research and Development Agreement
("Developed Technology") will be owned by Allergan,
subject to ASTI's right to use Developed Technology
in ASTI Products. Allergan will pay ASTI royalties
with respect to products, other than ASTI Products,
that use any patented Developed Technology, as
described below.
The Research and Development Agreement will
terminate upon the exercise or expiration of the
Purchase Option, which will expire on the earlier
of December 31, 2002 or 90 days after ASTI provides
Allergan with notification that there are less than
$15 million of Available Funds. However, Allergan's
obligation under the Research and Development
Agreement to make payments to ASTI with respect to
Developed Technology Products and Pre-Selection
Products will continue if the Purchase Option
expires unexercised. See "The Agreements and the
Purchase Option -- Research and Development
Agreement."
Technology License
Agreement.................. Pursuant to the Technology License Agreement,
Allergan has granted to ASTI a license to use
Allergan Technology solely to conduct research and
development with respect to ASTI Products, and to
commercialize
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<PAGE> 11
such products, in the United States with respect to
Memantine and worldwide with respect to other ASTI
Products. Until a product candidate becomes an ASTI
Product, Allergan will have full rights to exploit
such product, subject only to its obligations to
pay Developed Technology Royalties and
Pre-Selection Product Payments. In exchange for the
license to use existing Allergan Technology
relating to the ASTI Products and Allergan's
commitment to make certain payments specified under
the Technology License Agreement, ASTI will pay a
fee (the "Technology Fee") to Allergan and has
granted Allergan the License Option and the option
to independently develop Pre-Selection Products.
The Technology Fee will be payable monthly over a
period of four years and will be $833,333 for each
of the 12 months following the Distribution,
$558,333 per month for the following 12 months,
$275,000 per month for the following 12 months and
$166,667 per month for the following 12 months;
provided that the Technology Fee will no longer be
payable at such time as fewer than two ASTI
Products are being researched or developed by ASTI
and/or have been licensed by Allergan pursuant to
Allergan's exercise of the License Option.
License Option............. In exchange for Allergan's license grants pursuant
to the Technology License Agreement and Allergan's
commitment to make specified payments thereunder,
ASTI has granted Allergan an option to acquire a
license to each ASTI Product (the "License
Option"), in addition to the option to
independently develop Pre-Selection Products and
ASTI's commitment to pay the Technology Fee. Upon
exercise of the License Option, Allergan will make
Product Payments to ASTI with respect to each
Licensed Product. The License Option for each ASTI
Product is exercisable on a country-by-country
basis at any time until (i) with respect to the
United States, 30 days after clearance by the FDA
to commercially market such ASTI Product in the
United States and (ii) with respect to any other
country, 90 days after the earlier of (a) clearance
by the appropriate regulatory agency to
commercially market the ASTI Product in such
country and (b) clearance by the FDA to market the
ASTI Product in the United States. The License
Option will expire, to the extent not previously
exercised, 30 days after the expiration of the
Purchase Option. If and to the extent the License
Option is exercised as to any ASTI Product (a
"Licensed Product"), Allergan will acquire a
perpetual, exclusive license (with the right to
sublicense) to research, develop, make, have made
and use the Licensed Product and to sell and have
sold the Licensed Product in the country or
countries as to which the License Option is
exercised, subject to the obligation to make
Product Payments.
Product Payments........... Allergan will make Product Payments to ASTI with
respect to each Licensed Product as follows:
(a) if the Licensed Product is sold by Allergan,
royalties of up to a maximum of 6% of Net Sales (as
defined in the Glossary) of the Licensed Product
determined as follows: (i) 1% of such Net Sales,
plus (ii) an additional 0.1% of such Net Sales for
each full $1 million of Research and Development
Costs of the Licensed Product that have been paid
by ASTI; and
(b) if the Licensed Product is sold by a third
party, sublicensing fees of up to a maximum of 50%
of Sublicensing Revenues (as defined in the
8
<PAGE> 12
Glossary) with respect to such Licensed Product
determined as follows: (i) 10% of such Sublicensing
Revenues, plus (ii) an additional 1% of such
Sublicensing Revenues for each full $1 million of
Research and Development Costs of the Licensed
Product paid by ASTI.
Because the marketing expenses associated with
newly introduced products during the first few
years after launch are generally significantly
higher than those for established products, the
License Option provides that the Product Payments
described above will be capped at 3% of Net Sales,
on a quarterly basis, for the first twelve calendar
quarters during which the Licensed Product is
commercially sold in the first Major Market
Country. Subject to Allergan's Product Payment
buy-out option described below, Product Payments
will be payable, with respect to all countries for
which the License Option has been exercised, until
10 years after the first commercial sale of the
Licensed Product in the first Major Market Country
in which such product is commercially sold. To the
extent Allergan does not exercise the License
Option with respect to any ASTI Product, ASTI will
retain the rights to research, develop and
commercialize such ASTI Product.
Developed Technology
Royalties................ Allergan will pay ASTI Developed Technology
Royalties, on a country-by-country basis, equal to
the sum of (i) 1% of Net Sales in the relevant
country plus (ii) 10% of any Sublicensing Revenues
with respect to any product that, in each case, is
not an ASTI Product and is (a) covered at the time
of sale in a country by one or more unexpired
patents issued in such country that are included in
Developed Technology and (b) with respect to which
Allergan receives any consideration (a "Developed
Technology Product"). Developed Technology
Royalties will be payable with respect to a
Developed Technology Product in any country until
expiration of the last to expire of the relevant
patent or patents.
Pre-Selection Product
Payments................. Allergan will make Pre-Selection Product Payments
to ASTI equal to the sum of (i) 1% of Net Sales and
(ii) 10% of any Sublicensing Revenues with respect
to each Pre-Selection Product. Pre-Selection
Product Payments will be payable until seven years
after such Pre-Selection Product is commercially
sold in the first Major Market Country, subject to
Allergan's payment buy-out option. A product may be
both a Pre-Selection Product and a Developed
Technology Product; however, in such a case the
payment due for any period for such product will be
limited to the sum of (i) 1% of Net Sales and (ii)
10% of any Sublicensing Revenues with respect to
such product.
Product Payment Buy-Out
Options.................. Allergan has the option to buy out ASTI's right to
receive Product Payments for any Licensed Product,
Developed Technology Royalties for any Developed
Technology Product, and Pre-Selection Product
Payments for any Pre-Selection Product, in each
case, on a country-by-country or global basis. A
country-by-country buy-out option may be exercised
for any Licensed Product, Developed Technology
Product or Pre-Selection Product in any country at
any time after the end of the twelfth calendar
quarter during which the product was commercially
sold in such country. The buy-out price will be 15
times the payments made by or due from Allergan to
ASTI with respect to sales of such product in
9
<PAGE> 13
such country for the four calendar quarters
immediately preceding the quarter in which the
buy-out option is exercised (plus, in the case of a
Licensed Product, 15 times such additional Product
Payments as would have been made for such period
but for the 3% limits described above). The global
buyout option may be exercised for any Licensed
Product, Developed Technology Product or
Pre-Selection Product at any time after the end of
the twelfth calendar quarter during which the
product was commercially sold in either the United
States or two other Major Market Countries. The
global buy-out price will be (i) 20 times (a) the
payments made by or due from Allergan to ASTI for
the relevant product, plus (b) such payments as
would have been made by or due from Allergan to
ASTI if Allergan had not exercised any country-
specific buy-out option with respect to such
product, plus (c) such additional Product Payments,
in the case of a Licensed Product, as would have
been made but for the 3% limits described above, in
each case for the four calendar quarters
immediately preceding the quarter in which the
global buy-out option is exercised, less (ii) any
amounts previously paid as the result of the
exercise of any country-specific buy-out option
with respect to such product. The global buy-out
option with respect to any Licensed Product may be
exercised only with respect to countries as to
which Allergan has exercised the License Option.
Purchase Option............ Pursuant to ASTI's Restated Certificate of
Incorporation and Allergan's rights as the sole
holder of the ASTI Class B Common Stock outstanding
after the Distribution, Allergan has the right to
purchase all (but not less than all) of the
outstanding ASTI Shares (the "Purchase Option").
The Purchase Option will be exercisable by written
notice to ASTI at any time during the period
beginning immediately after the Distribution and
ending on December 31, 2002; provided that such
date will be extended for successive six month
periods if, as of any June 30 or December 31
beginning with June 30, 2001, ASTI has not paid or
accrued expenses for at least 95% of all Available
Funds pursuant to the Research and Development
Agreement. The Purchase Option will in any case
terminate on the 90th day after the date (the
"Statement Date") on which Allergan receives notice
that the amount of cash and marketable securities
held by ASTI is less than $15 million. If the
Purchase Option is exercised, the exercise price
(the "Purchase Option Exercise Price") will be the
greatest of:
(a) (i) 25 times the aggregate of (a) all worldwide
payments made by and all worldwide payments due
to be made by Allergan to ASTI with respect to
all Licensed Products, Developed Technology
Products and Pre-Selection Products for the
four calendar quarters immediately preceding
the quarter in which the Purchase Option is
exercised (the "Base Period") and (b) all
payments that would have been made and all
payments due to be made by Allergan to ASTI
during the Base Period if Allergan had not
previously exercised its payment buy-out option
with respect to any product; provided, however,
that for the purposes of the foregoing
calculation, for any product which has not been
commercially sold during each of the four
calendar quarters in the Base Period, Allergan
will be deemed to have made Product Payments,
Developed Technology Royalties and
Pre-Selection Product Payments to ASTI for each
such quarter equal to the average of the
payments made during each
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<PAGE> 14
of such calendar quarters during which such
product was commercially sold less (ii) any
amounts previously paid to exercise any payment
buy-out option for any product;
(b) the fair market value of 500,000 shares of
Allergan Common Stock;
(c) $250 million less the aggregate amount of all
Technology Fee payments and Research and
Development Costs paid or incurred by ASTI as
of the date the Purchase Option is exercised;
and
(d) $60 million.
In each case, the amount payable as the Purchase
Option Exercise Price will be reduced to the
extent, if any, that ASTI's liabilities at the time
of exercise (other than liabilities under the
Research and Development Agreement, the Services
Agreement and the Technology License Agreement)
exceed ASTI's cash and cash equivalents, and
short-term and long-term investments (excluding the
amount of Available Funds remaining at such time).
Allergan may pay the Purchase Option Exercise Price
in cash, in Allergan Common Stock or in any
combination of cash and Allergan Common Stock.
Under ASTI's Restated Certificate of Incorporation,
ASTI is prohibited from taking or permitting any
action inconsistent with, or which would in any way
alter, Allergan's rights under the Purchase Option.
In addition, until the expiration of the Purchase
Option, ASTI may not, without the consent of
Allergan as the sole holder of the ASTI Class B
Common Stock, merge, liquidate, sell any
substantial assets, or amend its Restated
Certificate of Incorporation to alter the Purchase
Option, ASTI's authorized capitalization, or
certain provisions of the Restated Certificate of
Incorporation governing ASTI's Board of Directors.
Federal Income Tax
Considerations........... It is expected that the Distribution will be
taxable to each Holder in the amount of the fair
market value of the ASTI Shares distributed to such
Holder. No later than February 2, 1999, Allergan
will issue to each Holder an IRS Form 1099-DIV
reflecting the fair market value of the ASTI Shares
distributed to such Holder; the Holder's basis (for
income tax purposes) in the distributed ASTI Shares
will be such fair market value. If Allergan were to
exercise the Purchase Option, a Holder would have a
taxable gain or loss equal to the difference
between the value of the consideration received
from Allergan in such exercise and the Holder's
basis in the ASTI Shares, unless Allergan were to
exercise the Purchase Option solely for shares of
Allergan Common Stock and certain other conditions
were satisfied, in which case receipt of the
Allergan Common Stock should be tax-free to the
Holder under current federal income tax laws. The
Distribution, any subsequent sale of ASTI Shares,
and the exercise or expiration of the Purchase
Option may have other federal income tax
consequences to Holders. See "Certain Federal
Income Tax Considerations."
HOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS.
Risk Factors............... Ownership of ASTI Shares involves a high degree of
investment risk. The risk factors listed below
should be considered carefully in evaluating the
ownership of ASTI Shares. See "Risk Factors."
- ASTI is a newly formed company.
- There can be no assurance of the successful
research, development, manufacturing or marketing
of ASTI Products.
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<PAGE> 15
- There can be no assurance that ASTI will have
sufficient funds to complete the research and
development of any or all of the ASTI Products.
- ASTI and Allergan will face competition from
others with greater resources and experience. The
fundamental technology underlying retinoids
licensed to ASTI is also cross-licensed to Ligand
and therefore competition from similar activities
by Ligand and its collaborators in retinoids is
likely.
- There can be no assurance that necessary
regulatory approvals and clearances, including
pricing approvals, will be obtained.
- There can be no assurance of the exercise of the
Purchase Option or the License Option for any
ASTI Product.
- There can be no assurance that ASTI or Allergan
will effectively commercialize any ASTI Products
for which regulatory clearance is obtained.
- There can be no assurance that Allergan's
personnel and facilities will be adequate for the
performance of its duties to ASTI under the
Research and Development Agreement.
- There can be no assurance that therapeutic
agents, technologies, patents or products can be
licensed by ASTI or Allergan, if such licenses
are necessary.
- There can be no assurance of patent protection
for ASTI Products or that such products will not
infringe the patents or proprietary rights of
third parties.
- The Allergan/ASTI Agreements and Allergan's
rights as holder of the ASTI Class B Common Stock
may restrain ASTI from taking certain actions,
including actions with third parties, and may
limit the ability of ASTI to raise additional
capital.
- The terms of the Allergan/ASTI Agreements were
not negotiated at arm's length.
- There may be conflicts of interest between ASTI
and Allergan, including competition from
Allergan.
- The members of the ASTI Board of Directors after
the Distribution, other than Lester J. Kaplan,
Ph.D., have not been identified and will not be
selected by the holders of the ASTI Shares.
- There can be no assurance of a trading market
for, or of the trading value of, the ASTI Shares.
Principal Offices.......... ASTI's principal offices are located at 2525 Dupont
Drive, Irvine,
CA 92612, telephone (714) 246-6301.
Reasons for Furnishing this
Prospectus............... This Prospectus is being furnished solely to
provide information for Holders, each of whom will
receive ASTI Shares in the Distribution. It is not
to be construed as an inducement or encouragement
to buy or sell any securities of ASTI or Allergan.
The information contained herein is provided as of
the date of this Prospectus unless otherwise
indicated. ASTI will not update the information
contained in this Prospectus except in the normal
course of its public disclosure practices.
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<PAGE> 16
GLOSSARY
Allergan/ASTI Agreements... The Distribution Agreement, the Research and
Development Agreement, the Technology License
Agreement, the License Option Agreement, the
Services Agreement and the Purchase Option,
collectively.
Allergan Technology........ All proprietary technology, whether patented or
unpatented, owned by, licensed to or controlled by
Allergan and related to the Retinoid and
Neuroprotective Technologies, which Allergan has
the right to license or sublicense, including
technology and data relating to the ASTI Products
and Developed Technology, and any additional
technology which Allergan chooses to designate as
Allergan Technology. Allergan Technology excludes,
and ASTI will have no rights with respect to, any
topical formulation of Tazarotene. Allergan is
currently marketing a topical formulation of
Tazarotene for the treatment of psoriasis and acne
in the United States under the brand name "Tazorac"
and outside of the United States under the brand
name "Zorac." Allergan Technology also excludes,
and ASTI will have no rights with respect to,
proprietary technology related to the research,
development, manufacture, sale and other use of
Memantine outside of the United States. These
rights will be retained by an overseas affiliate of
Allergan.
ALRT....................... Allergan Ligand Retinoid Therapeutics, Inc., a
Delaware corporation.
ASTI Product............... Any dosage form of a compound which is the subject
of research and development as a potential human
pharmaceutical product which has been recommended
by Allergan and accepted by ASTI's independent
Board of Directors for such research and
development as such under the Research and
Development Agreement. Such recommendations may be
made on a Field of Use basis. Research to identify
and select product candidates may be performed by
ASTI or Allergan. Such potential product candidates
will be Pre-Selection Products until and unless
they become ASTI Products.
Available Funds............ All of the funds contributed to ASTI by Allergan,
plus any investment income earned thereon, less (i)
Research and Development Costs, (ii) ASTI's
administrative expenses and (iii) the Technology
Fee payments.
Developed Technology....... Any technology developed or otherwise obtained by
ASTI pursuant to the Research and Development
Agreement.
Developed Technology
Product.................... Any product, other than an ASTI Product, (i)
covered at the time of sale in a country by one or
more unexpired patents issued in such country that
are included in Developed Technology and (ii) with
respect to which Allergan receives any
consideration.
Developed Technology
Royalties................ The payments made by Allergan to ASTI with respect
to Net Sales of Developed Technology Products.
Distribution............... Allergan's distribution of all of the outstanding
ASTI Shares to the Holders.
Distribution Date.......... , 1998, the date of commencement of the
Distribution.
Distribution Agreement..... The agreement between Allergan and ASTI relating to
the terms and conditions of the Distribution.
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<PAGE> 17
Field of Use............... A particular disease state or set of related
disease states (e.g., "cancer," "diabetes,"
"non-insulin dependent diabetes"). A license or an
ASTI Product may be limited to a particular field
of use.
Holders.................... The holders of record, on the Record Date, of
Allergan Common Stock.
License Option............. The option granted by ASTI to Allergan to acquire a
license to each ASTI Product, exercisable on a
product-by-product and country-by-country basis.
License Option Agreement... The agreement between Allergan and ASTI granting
the License Option.
Licensed Product........... An ASTI Product as to which the License Option has
been exercised by Allergan.
Major Market Country....... Any one of the following countries: the United
States, France, Germany, Italy, Japan or the United
Kingdom.
Net Sales.................. The total amount invoiced on sales of a Licensed
Product, Developed Technology Product or
Pre-Selection Product by Allergan (or its
affiliates) to unrelated third parties such as
wholesalers, hospitals and others, in bona fide
arm's-length transactions, less allowances as
customarily determined under Allergan's accounting
policies.
Pre-Selection Work......... Research and pre-clinical development work
undertaken in order to determine the suitability of
lead compounds and product candidates for research
and development. Any such compounds or product
candidates recommended by Allergan and accepted by
ASTI for research and development will become ASTI
Products. Such recommendation must be made no later
than the date of filing of an IND with the FDA with
respect to such compounds or product candidates.
Pre-Selection Product...... A product, other than one which becomes an ASTI
Product, for which ASTI funds Pre-Selection Work.
Pre-Selection Product
Payments................. The payments to be made by Allergan to ASTI with
respect to worldwide Net Sales of Pre-Selection
Products.
Product Payment Buy-Out
Options.................. Allergan's option to buy out ASTI's right to
receive Product Payments for any Licensed Product,
Developed Technology Royalties for any Developed
Technology Product and Pre-Selection Product
Payments for any Pre-Selection Product, in each
case, on a country-by-country or global basis.
Product Payments........... Payments to be made by Allergan to ASTI with
respect to Net Sales of Licensed Products and
Sublicensing Revenues with respect to Licensed
Products.
Purchase Option............ The option of Allergan to purchase all (but not
less than all) of the outstanding ASTI Shares.
Purchase Option Exercise
Price.................... The amount payable by Allergan to exercise the
Purchase Option.
Record Date................ , 1998, the date as of which holders of
record of Allergan Common Stock will be eligible to
receive ASTI Shares in the Distribution.
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<PAGE> 18
Research and Development
Agreement................ The agreement between Allergan and ASTI providing
for the research and development of potential human
pharmaceutical products and conducting related
activities.
Research and Development
Costs.................... The fully-burdened cost of activities undertaken
pursuant to the Research and Development Agreement.
Services Agreement......... The agreement between Allergan and ASTI pursuant to
which Allergan has agreed to provide ASTI with
administrative services on a fully-burdened cost
reimbursement basis.
Specialty Royalty
Payments................... Front-end distribution fees, prepaid royalties or
similar one-time, infrequent or special payments
from a sublicensee to Allergan with respect to a
Licensed Product, a Developed Technology Product or
a Pre-Selection Product.
Sublicensing Revenues...... Percentage-of-sales payments and Special Royalty
Payments received by Allergan from sublicensees
with respect to a Licensed Product, a Developed
Technology Product or a Pre-Selection Product.
Technology Fee............. The payments to be made by ASTI to Allergan which,
together with the License Option and Allergan's
option to independently develop Pre-Selection
Products, are made in exchange for Allergan
granting ASTI a license to use existing Allergan
Technology relating to ASTI Products and Allergan's
commitment to make specified payments on sales of
certain products.
Technology License
Agreement.................. The agreement between Allergan and ASTI pursuant to
which Allergan has granted to ASTI a license to use
Allergan Technology solely to conduct research and
development and related activities with respect to
ASTI Products, and to commercialize ASTI Products,
in the United States with respect to Memantine and
worldwide with respect to any other ASTI Product,
together with the commitment to make specified
payments on sales of certain products, in exchange
for the Technology Fee, the License Option and the
option to independently develop Pre-Selection
Products.
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<PAGE> 19
RISK FACTORS
The following factors, in addition to the other information set forth in
this Prospectus, should be considered carefully in evaluating ownership of ASTI
Shares.
NEW COMPANY
ASTI is a newly formed company and is subject to the risks inherent in the
establishment of a new business enterprise in the biotechnology industry. ASTI
will incur substantial losses for several years due to the long-term nature of
the research and development of pharmaceutical products through clinical testing
and the regulatory process, which losses may never be recovered. See "Business
of ASTI."
NO ASSURANCE OF CONTINUED RESEARCH OR DEVELOPMENT OF ASTI PRODUCTS
There can be no assurance that the independent ASTI Board of Directors will
approve the continued funding of the research and development of the four
initial ASTI Products, or that any ASTI Products can be successfully researched,
developed and/or commercialized within the anticipated cost estimates or time
frames, if at all. Certain of the ASTI Products are at critical stages of
research and development, and technical and clinical outcomes are impossible to
predict. Because of the long-range nature of any pharmaceutical product research
and development plan, research and development of a particular product or
products could accelerate, slow down or be discontinued, and other unforeseen
events could occur, all of which would significantly affect the timing and
amount of ASTI's expenditures on a particular product, or in total. As a result,
estimates of costs and timing of research and development programs and for the
use of Available Funds may not be accurate. There can be no assurance that
Allergan will recommend, or that ASTI will approve, additional products for
research and development as ASTI Products beyond the four initial ASTI Products.
Although ASTI has received from Allergan a license to use Allergan
Technology for the purpose of researching, developing and commercializing ASTI
Products, some or all of the ASTI Products may require new technologies or
enhancements or modifications to existing Allergan Technology, and there can be
no assurance that such technology can or will be successfully developed or
acquired. Even if appropriate technology is available or developed, there can be
no assurance that such ASTI Products will be successfully researched or
developed (or be researched or developed in a timely fashion) or be proven to be
safe and efficacious in clinical trials.
NEED FOR REGULATORY CLEARANCE
All ASTI Products, Developed Technology Products and Pre-Selection Products
will require FDA clearance before such products may be lawfully marketed in the
United States. Applications for FDA clearance must be based on costly and
extensive clinical trials designed to demonstrate safety and efficacy. Clearance
to market such products will also be required from corresponding regulatory
authorities in foreign countries before such products may be marketed in those
countries. Such clearance often involves pricing and reimbursement approvals in
addition to clearance based on safety and efficacy. Delay in obtaining FDA
and/or foreign regulatory clearance or pricing or reimbursement approvals for
any such product may have a material adverse effect on the commercial success of
such product. There can be no assurance that the necessary regulatory clearances
and approvals will be obtained in a timely fashion or, if obtained, that such
clearances and approvals will not be revoked or withdrawn.
NO ASSURANCE OF SUFFICIENCY OF FUNDS OR AVAILABILITY OF ADDITIONAL FUNDS
Prior to the Distribution, Allergan will contribute $200 million in cash to
ASTI in exchange for all of the shares of ASTI Common Stock outstanding prior to
the Distribution. Allergan has no obligation to contribute additional funds to
ASTI, and has no present intention to do so. It is anticipated that if ASTI were
to fund the continued research and development of the initial four ASTI Products
through FDA review for marketing clearance, the funding of these activities,
together with any Pre-Selection Work undertaken by Allergan and/ or ASTI and
funded by ASTI, would require substantially all of the Available Funds. There
can be no
16
<PAGE> 20
assurance that ASTI will have sufficient funds to complete the research and
development of any or all of the ASTI Products, including the four initial ASTI
Products.
Allergan's rights under the Allergan/ASTI Agreements may limit ASTI's
ability to raise funds, or may prevent ASTI from doing so, if ASTI needs
additional funds to continue or complete research and development of any ASTI
Product. If ASTI were to attempt to raise funds following the expiration of the
Purchase Option, ASTI would have very little cash, few assets and an
undeterminable number of products under research and development. Allergan would
at that time have the unilateral option to license any or all ASTI Products for
such countries for which Allergan's License Option had not previously expired.
Third parties might therefore be reluctant to lend money to ASTI, or to invest
in ASTI.
NO ASSURANCE OF SUCCESSFUL MANUFACTURING OR MARKETING
Even if ASTI Products are developed and receive necessary regulatory
clearances and approvals, there can be no assurance that the ASTI Products will
be successfully manufactured for clinical trials or successfully manufactured or
marketed for commercial sale. To be successfully marketed, any ASTI Product must
be manufactured in commercial quantities in compliance with regulatory
requirements and at an acceptable cost. Any significant delays in the completion
of validation and licensing of expanded or new facilities could have a material
adverse effect on the ability to continue clinical trials of and ultimately to
market ASTI Products on a timely and profitable basis. If Allergan does not
exercise its License Option for an ASTI Product (and does not exercise the
Purchase Option), ASTI will have to make alternative arrangements for
manufacturing that ASTI Product, and there can be no assurance that ASTI will be
able to do so.
If Allergan exercises its License Option for any ASTI Product, Allergan may
need to develop and/or expand its marketing capabilities to commercialize such
Licensed Product effectively. If Allergan exercises its License Option for any
ASTI Product, and does not at the time the product is to be commercialized have
a sales force in the relevant country or countries, Allergan will need to
arrange for marketing by third parties outside of the United States and, if the
product is not within Allergan's target markets at such time, within the United
States. If Allergan does not exercise its License Option for an ASTI Product
(and does not exercise the Purchase Option), ASTI will need to find other means
to commercialize that ASTI Product not involving Allergan, and there can be no
assurance that ASTI will be able to do so.
At the present time, ASTI does not have, nor, through the development stage
of the ASTI Products, does it expect to develop, any manufacturing or marketing
capability. If ASTI decides to manufacture or market one or more ASTI Products
itself, ASTI will need substantial additional funds. There is no assurance that
additional funds will be available, or will be available on attractive terms,
and Allergan has no obligation to supply any additional funds to ASTI. In
addition, ASTI may not use Available Funds for this purpose without Allergan's
consent.
If either Allergan or ASTI seeks a third party to manufacture or market an
ASTI Product, there can be no assurance that satisfactory arrangements can be
successfully negotiated or that any such arrangements will be on commercial
terms acceptable to Allergan or ASTI. In addition, even if ASTI decides to
license any ASTI Product to a third party, agreements with that third party, if
available, may be on terms less favorable to ASTI than the terms of the
Allergan/ASTI Agreements.
Even if acceptable manufacturing and marketing resources are available,
there can be no assurance that any ASTI Products will be accepted in the
marketplace. There can be no assurance that there will be adequate reimbursement
by health insurance companies or other third party payors for any ASTI Products
that are marketed.
NO ASSURANCE OF EXERCISE OF ALLERGAN'S OPTIONS
Allergan is not obligated to exercise the License Option for any ASTI
Product or to exercise the Purchase Option, and Allergan will exercise any such
option only if it is in Allergan's best interest to do so. The timing of the
exercise of the Purchase Option is within Allergan's sole discretion, and
Allergan may choose to exercise the Purchase Option at a time when the Purchase
Option Exercise Price is as low as possible. The
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<PAGE> 21
timing of the exercise of the License Option with respect to any Licensed
Product is also within Allergan's sole discretion, and thereafter research,
development and funding of any such product will be controlled by Allergan.
RELIANCE ON PROPRIETARY TECHNOLOGIES; UNPREDICTABILITY OF PATENT PROTECTION
Patent protection generally has been important in the pharmaceutical
industry. Therefore, ASTI's financial success may depend in part upon Allergan
obtaining strong patent protection for the technologies incorporated in ASTI
Products. Allergan will determine which patent applications to pursue, and the
expense of obtaining and maintaining patents covering Developed Technology will
be shared equally by Allergan and ASTI during the term of the Research and
Development Agreement. However, there can be no assurance that patents will be
issued covering any products, or that any existing patents or patents issued in
the future will be of commercial benefit. In addition, it is impossible to
anticipate the breadth or degree of protection that any such patents will
afford, and there can be no assurance that any such patents will not be
successfully challenged in the future. If Allergan is unsuccessful in obtaining
or preserving patent protection, or if any products rely on unpatented
proprietary technology, there can be no assurance that others will not
commercialize products substantially identical to such products.
Patents have been issued to third parties covering various therapeutic
agents, products and technologies. There can be no assurance that any ASTI
Products, Developed Technology Products or Pre-Selection Products will not
infringe patents held by third parties. In such event, licenses from such third
parties would be required, or their patents would have to be designed around.
There can be no assurance that such licenses would be available or that they
would be available on commercially attractive terms, or that any necessary
redesign could be successfully completed.
Allergan licenses certain intellectual property from third parties which it
will sublicense to ASTI pursuant to the Technology License Agreement.
Specifically, Allergan has licensed certain rights to its retinoid technology
from ALRT and certain rights to the technology underlying Memantine from
Children's Medical Center Corporation and Merz + Co. GmbH & Co. ("Merz"). Under
the terms of certain of its license agreements, Allergan may be obligated to
exercise diligence and make certain royalty and milestone payments as well as
incur costs related to filing and prosecuting the underlying patents. Each
agreement is terminable by either party upon notice if the other party defaults
in its obligations. Should Allergan default under any of its agreements,
Allergan and therefore ASTI may lose its right to market and sell products based
upon such licensed technology. In addition, there can be no assurance that
Allergan's licensors will meet their obligations to Allergan pursuant to such
licenses. In such event, ASTI's results of operations and business prospects
would be materially and adversely affected. See "The Business of ASTI -- The
ASTI Products."
COMPETITION
ASTI Products, Developed Technology Products and Pre-Selection Products are
likely to face competition from other therapies for the same indications.
Competitors potentially include any of the world's pharmaceutical and
biotechnology companies. Many pharmaceutical companies have greater financial
resources, technical staffs and manufacturing and marketing capabilities than
Allergan or ASTI. A number of companies have developed and are developing
competing technologies and products. To the extent that ASTI Products, Developed
Technology Products and Pre-Selection Products incorporate therapeutic agents
that are off-patent or therapeutic agents marketed by multiple companies, such
products will face more competition than products incorporating proprietary
therapeutic agents.
The fundamental technology underlying retinoids licensed to ASTI is also
cross-licensed to Ligand and therefore competition from similar activities by
Ligand and its collaborators in retinoids is likely. In addition, pursuant to
the agreement between Allergan and Ligand, each party has been granted
non-exclusive rights to use the ALRT technology with respect to any
unsynthesized compounds, provided that such license will become exclusive with
respect to any compound with respect to which an IND is filed with and accepted
by the FDA. Accordingly, no assurance can be given that Ligand will not be the
first party to file an IND with
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<PAGE> 22
respect to any retinoid compound under research by ASTI, thereby preventing ASTI
and Allergan from undertaking any further research, development or
commercialization with respect to such compound.
Allergan may develop products (including Developed Technology Products and
Pre-Selection Products) for its own account, independent of ASTI, that compete
directly with ASTI Products. In addition, ASTI Products, Developed Technology
Products and Pre-Selection Products may compete with one another. Allergan
Technology excludes, and ASTI will have no rights with respect to, any topical
formulation of Tazarotene. Allergan is currently marketing a topical formulation
of Tazarotene for the treatment of psoriasis and acne in the United States under
the brand name "Tazorac" and outside of the United States under the brand name
"Zorac."
DEPENDENCE ON ALLERGAN FOR PERSONNEL AND FACILITIES
ASTI will depend substantially on Allergan for research and development
activities to be performed under the Research and Development Agreement.
Although ASTI may perform directly, or engage other third parties to perform on
its behalf, some of these activities, it is likely that Allergan will be
responsible for executing substantially all of ASTI's research and development
activities. While Allergan believes that its current and planned personnel and
facilities will be adequate for the performance of its duties under the Research
and Development Agreement, such personnel will perform services in the same
facilities for Allergan itself. Subject to Allergan's obligation to use diligent
efforts under the Research and Development Agreement, Allergan may allocate its
personnel and facilities as it deems appropriate. Allergan's own research and
development activities may restrict the resources that otherwise would be
available for performing Allergan's duties under the Research and Development
Agreement. See "The Agreements and the Purchase Option -- Research and
Development Agreement."
RELATIONSHIP BETWEEN ASTI AND ALLERGAN MAY LIMIT ASTI'S ACTIVITIES AND MARKET
VALUE
The terms of the Allergan/ASTI Agreements and ASTI's Restated Certificate
of Incorporation were not determined on an arm's-length basis and certain terms
may limit ASTI's activities and its market value.
ASTI's Restated Certificate of Incorporation prohibits ASTI from taking or
permitting any action that might impair Allergan's rights under the Purchase
Option. Prior to the expiration of the Purchase Option, ASTI may not, without
the consent of Allergan as the sole holder of ASTI Class B Common Stock, merge
or liquidate, or sell, lease, exchange, transfer or dispose of any substantial
assets, or amend its Restated Certificate of Incorporation to alter the Purchase
Option, ASTI's authorized capitalization, or the provisions of the Restated
Certificate of Incorporation governing ASTI's Board of Directors. The provisions
of ASTI's Restated Certificate of Incorporation granting special rights to the
holder or holders of the ASTI Class B Common Stock and eliminating the right of
ASTI stockholders to call special meetings of stockholders may prevent a change
in control of ASTI. The special rights accorded to the holder or holders of the
ASTI Class B Common Stock will expire upon expiration of the Purchase Option.
See "The Agreements and The Purchase Option--Purchase Option" and "Description
of ASTI Capital Stock."
So long as the Purchase Option is exercisable, the market value of the ASTI
Shares will be limited by the Purchase Option Exercise Price. The Purchase
Option Exercise Price was determined by Allergan, giving consideration to the
structure of the Distribution, ASTI's planned business, the Allergan/ASTI
Agreements, advice given by Merrill Lynch, and such other factors as Allergan
deemed appropriate. The Purchase Option Exercise Price was not determined on an
arm's-length basis.
The existence of the Purchase Option and Allergan's rights as holder of the
ASTI Class B Common Stock may inhibit ASTI's ability to raise capital.
Additional capital raised by ASTI, if any, would most likely reduce the per
share proceeds available to holders of ASTI Shares if the Purchase Option were
exercised. The existence of the Purchase Option and Allergan's rights as the
holder of the ASTI Class B Common Stock may inhibit a change of control and may
make an investment in ASTI Shares less attractive to certain potential
stockholders, which could adversely affect the liquidity and market value of
ASTI Shares.
19
<PAGE> 23
If Allergan exercises its License Option for any ASTI Product, Allergan
will have the right to commercialize the product with third parties on such
terms as Allergan deems appropriate. In such event, payments from Allergan to
ASTI with respect to the ASTI Product will be based solely on Sublicensing
Revenues received from such third parties.
DIRECTORS NOT INITIALLY ELECTED BY STOCKHOLDERS
Lester J. Kaplan, Ph.D., is currently serving as the interim President and
Chief Executive Officer and a Director of ASTI. Prior to the Distribution, Dr.
Kaplan will resign as interim President and Chief Executive Officer and a
Director, President and Chief Executive Officer of ASTI who is not an employee
or Director of Allergan will be appointed. It is expected that this individual
will appoint three additional Directors of ASTI, each of whom will not be an
employee or Director of Allergan. Dr. Kaplan will remain a Director of ASTI
following the Distribution in accordance with the rights of Allergan under
ASTI's Restated Certificate of Incorporation as the sole holder of the
outstanding shares of ASTI Class B Common Stock. Therefore, at present, the
Directors expected to be appointed shortly after the Distribution are unknown.
In addition, such Directors will not be elected by the stockholders, and the
holders of the ASTI Shares will not have the opportunity to elect any members of
the full Board of Directors until the first annual meeting of stockholders
following the Distribution.
LIMITATION ON ASTI'S ABILITY TO LICENSE PRODUCTS TO THIRD PARTIES
ASTI has granted Allergan the License Option, which is exercisable on a
product-by-product and country-by-country basis. During the term of the License
Option for each ASTI Product, ASTI will not be able to license such ASTI Product
to any party other than Allergan. Furthermore, ASTI may perform research with
respect to product candidates which become ASTI Products only if recommended by
Allergan and accepted by ASTI. In particular, it is expected that Allergan will
perform Pre-Selection Work with respect to various product candidates. If such
product candidates do not become ASTI Products, ASTI will have no rights with
respect thereto except the right to receive limited royalties from Allergan on
commercial sales of such products, if any.
NO ASSURANCE OF TRADING VALUE OR MARKET FOR ASTI SHARES
There can be no assurance there will be an active trading market for the
ASTI Shares.
POSSIBLE DILUTION; REDUCTION OF PER SHARE PURCHASE OPTION EXERCISE PRICE
All ASTI Shares issued by ASTI after the Distribution will be subject to
the Purchase Option, and the Purchase Option Exercise Price will not increase as
a result of any such issuance. Accordingly, if additional ASTI Shares were to be
issued, the percentage of the Purchase Option Exercise Price payable with
respect to each ASTI Share in the event Allergan exercises the Purchase Option
would be reduced. Liabilities, including any debt issued by ASTI, but excluding
any accounts payable to Allergan, will reduce the Purchase Option Exercise Price
to the extent that such liabilities exceed ASTI's cash, cash equivalents, and
short-term and long-term investments (excluding Available Funds), unless repaid
or discharged by ASTI prior to exercise of the Purchase Option.
NO DIVIDENDS
ASTI's Restated Certificate of Incorporation prohibits the payment of
dividends from Available Funds.
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<PAGE> 24
THE DISTRIBUTION
The Board of Directors of Allergan has declared a distribution, payable to
Holders, of one ASTI Share for every 20 shares of Allergan Common Stock owned by
such Holder on the Record Date. As a result of the Distribution, all of the then
outstanding ASTI Shares will be distributed to the Holders. After the
Distribution, Allergan will hold all of the authorized shares of ASTI Class B
Common Stock. See "Description of ASTI Capital Stock."
Subject to certain conditions set forth in the Distribution Agreement,
Allergan will effect the Distribution (expected to be on or about ,
1998) by delivering all of the ASTI Shares to the Distribution Agent. Commencing
on or about the Distribution Date, the Distribution Agent will begin mailing
account statements reflecting ownership of ASTI Shares to the Holders. ASTI
stockholders may request stock certificates from the Distribution Agent.
No fractional shares will be issued as part of the Distribution. The
Distribution Agent will aggregate undistributed fractional shares and sell such
shares at the earliest practicable date at the then-prevailing market price.
Each person who would be otherwise entitled to receive a fractional share will
instead receive a cash payment equal to such person's proportionate share of the
net proceeds of the sale of such aggregated shares.
No Holder will be required to pay any cash or other consideration for the
ASTI Shares to receive shares in the Distribution. However, income taxes are
likely to be payable. See "Certain Federal Income Tax Considerations."
The general terms and conditions of the Distribution and the arrangements
between Allergan and ASTI are set forth in the Allergan/ASTI Agreements. See
"The Agreements and the Purchase Option." The Distribution Agreement conditions
the Distribution on, among other things, the absence of material adverse changes
to Allergan or ASTI.
Stockholders of Allergan with inquiries regarding the Distribution should
contact Allergan, Inc., Corporate and Investor Relations, 2525 Dupont Drive,
Irvine, California 92612; telephone (714) 246-6301.
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<PAGE> 25
ASTI CAPITALIZATION
The following table sets forth the capitalization and certain other balance
sheet data of ASTI as of November 18, 1997, as adjusted to give effect to the
contribution by Allergan of $200 million to ASTI, the filing of the Restated
Certificate of Incorporation of ASTI and the issuance to Allergan of ASTI Shares
prior to the Distribution. The data set forth below should be read in
conjunction with the Financial Statements and related Notes included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
AS ADJUSTED AS OF
NOVEMBER 18,
1997(1)
-----------------
<S> <C>
Cash................................................................. $ 200,000,000
============
Stockholders' equity:
Class A Common Stock, $.01 par value; 6,000,000 shares authorized;
3,262,400 shares outstanding as adjusted........................ $ 32,624
Class B Common Stock, $1.00 par value; 1,000 shares authorized;
1,000 shares outstanding as adjusted(2)......................... 1,000
Additional paid-in capital......................................... 199,966,376
------------
Total stockholders' equity................................. $ 200,000,000
============
</TABLE>
- ---------------
(1) See notes (a), (b) and (c) to Pro Forma Balance Sheet on Page F-5 for a
description of the pro forma adjustments reflected in the adjusted balances.
(2) All shares of Class B Common Stock, as adjusted, are held by Allergan.
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<PAGE> 26
REASONS FOR THE DISTRIBUTION AND EFFECTS ON ALLERGAN, INC.
Allergan is a leading provider of specialty pharmaceutical products
throughout the world with niche products in the movement disorder,
dermatological, ophthalmic surgical device, eye care pharmaceutical and the
over-the-counter contact lens care markets. Allergan had 1996 net sales of $1.1
billion and net income of $77.1 million. Adjusting for a one-time charge, its
1996 net income was $132.1 million. At September 30, 1997, Allergan's
stockholders' equity was $795.5 million.
Allergan is increasing its focus on leading-edge, technology-based
pharmaceutical products. Through internal research and development efforts and
external research and development collaborations, Allergan seeks to expand its
product line with proprietary specialty pharmaceutical products that provide
distinctive therapeutic and economic benefit. Allergan's research and
development efforts to date have yielded many potential product opportunities.
Such opportunities involve significantly different risk/reward profiles as
compared to Allergan's established specialty pharmaceutical business.
To continue the advancement of, and in certain cases accelerate, these
projects and programs, Allergan seeks strategic collaborations and ventures,
such as the recently concluded ALRT collaboration, to provide complementary
financing. In September 1997, Ligand and Allergan exercised their respective
options to purchase the outstanding ALRT Callable Common Stock and a one-half
undivided interest in ALRT's assets. The initial agreements between Allergan and
Ligand provided for a joint research and development and joint commercialization
arrangement following exercise of the buyout option. Allergan and Ligand have
amended and restated their existing agreements, effective as of the option
exercise closing date, so that among other things, existing ALRT compounds and
research and development programs will be divided among Allergan and Ligand, and
each party will receive exclusive rights to the ALRT technology for use with
their respective compounds and programs. Allergan's strategy also involves
actively seeking outside product opportunities through joint ventures,
licensing, acquisitions and strategic alliances with both technology, marketing
and geographic partners.
Allergan believes that the retinoid research and development work
undertaken by ALRT to date and the research and development work it has
undertaken, directly and through collaborations, in the neuroprotective area
have yielded results which justify further research and development. However, a
substantial amount of additional research and development effort is required to
further develop Allergan's Retinoid and Neuroprotective Technologies through to
their potential commercialization.
Allergan believes that the formation of ASTI to fund the research and
development of products for commercialization by Allergan, and the arrangements
between Allergan and ASTI, will provide Allergan with the opportunity to
continue to pursue and expand, more quickly than would otherwise be possible,
its product commercialization business. Allergan believes that the arrangements
with ASTI will significantly benefit Allergan stockholders by:
- separating the risks associated with researching and developing
pharmaceutical products based on Retinoid and Neuroprotective
Technologies from those associated with Allergan's established specialty
pharmaceutical business;
- allowing individual stockholders of Allergan to increase or decrease
their level of participation in the business of researching and
developing pharmaceutical products based on Retinoid and Neuroprotective
Technologies for commercialization by Allergan by varying their level of
investment in ASTI;
- obtaining for Allergan the exclusive right to commercialize, in the
United States with respect to Memantine and worldwide with respect to any
other ASTI Products, any successfully developed ASTI Product, assuming
Allergan's exercise of the License Option with respect to such product or
exercise of the Purchase Option, thereby making it possible for Allergan
to capture a potentially greater return on the products researched and
developed with ASTI than may otherwise be possible from products
researched and developed for commercialization in conjunction with other
third parties; and
- allowing Allergan's near-term financial results to continue to reflect
principally its established specialty pharmaceutical business, by
providing Allergan with research and development revenues from ASTI to
reimburse Allergan for Research and Development Costs incurred by
Allergan.
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<PAGE> 27
After reviewing Allergan's goals and objectives and considering other
possible methods of expanding its product line with proprietary specialty
pharmaceutical products based on Retinoid and Neuroprotective Technologies that
provide distinctive therapeutic and economic benefit, Allergan's management and
Board of Directors believe that continuing to pursue the research and
development of such products through the formation of ASTI and the Distribution
will significantly benefit the Allergan stockholders. The Board of Directors'
final approval of this transaction was conditioned upon the advice and the
delivery of a written opinion of Merrill Lynch. Merrill Lynch has delivered an
opinion dated , 1998, substantially to the effect that, based upon
the factors recited in such opinion and the actions described below, (i) from a
financial point of view, the Distribution provides a reasonable structure to
pursue the financial objectives of Allergan set forth above and (ii) from a
financial point of view, the Distribution is fair to Allergan's stockholders.
In delivering its opinion, Merrill Lynch has undertaken, among other
things, the following actions: (a) a review of the Prospectus and certain other
material documents; (b) discussions with members of senior management of
Allergan with respect to the businesses and prospects of Allergan and ASTI and
the strategic objectives of each; (c) discussions concerning the Distribution
with other representatives and advisors of Allergan; (d) a review of financial
and other information concerning Allergan (with and without ASTI) that was
either publicly available or was furnished to it by Allergan; (e) a review of
historical prices and trading volumes of the Allergan Common Stock; (f) a review
of the terms and conditions of transactions that are similar to the transactions
contemplated in connection with the Distribution; and (g) a review of such other
financial studies and analyses as it deemed to be appropriate.
The opinion states that Merrill Lynch has relied on the accuracy and
completeness of all information supplied or otherwise made available to it,
discussed with or reviewed by or for it, or publicly available (including the
information contained in this Prospectus), and Merrill Lynch has not assumed any
responsibility for independently verifying such information or undertaken an
independent evaluation or appraisal of any of the assets or liabilities of
Allergan (with or without ASTI) or been furnished with any such evaluation or
appraisal. In connection with this opinion, Merrill Lynch has not been asked to,
nor has it provided any opinion as to, the valuation or future performance of
ASTI as an independent public company following the Distribution.
In its opinion, Merrill Lynch does not opine on or give assurances of the
price at which the shares of Allergan Common Stock will actually trade after
announcement of the Distribution or the price at which the ASTI Shares will
actually trade after the Distribution. The opinion notes that such trading
following the Distribution may be characterized by a redistribution among
existing stockholders and other investors and that accordingly the shares of
Allergan Common Stock and the ASTI Shares may trade during such period at prices
below those at which they would trade on a fully distributed basis. In addition,
the opinion does not address whether the funds invested by Allergan or ASTI will
be adequate to accomplish the objective of successfully developing ASTI
Products.
Allergan will pay Merrill Lynch a fee of $ for its services in
connection with the Distribution. The receipt of this fee is contingent upon the
consummation of the Distribution. Merrill Lynch will also be reimbursed for up
to $ of expenses that it has incurred or will incur in rendering its
services. Allergan has agreed to indemnify Merrill Lynch against certain
liabilities and expenses in connection with its services as financial advisor.
Merrill Lynch has from time to time performed various investment banking and
financial advisory services for Allergan. Merrill Lynch may actively trade
Allergan Common Stock and may, in the future, trade ASTI Shares for its own
account and for accounts of customers and, accordingly, may at any time hold a
long or short position in such securities.
Merrill Lynch, as part of its investment banking business, engages in the
valuation of businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements, and valuations for estate, corporate and other purposes.
Allergan selected Merrill Lynch as its financial advisor because it is a
nationally recognized investment banking firm that has substantial experience in
transactions similar to the Distribution.
Although Merrill Lynch participated in certain of the discussions regarding
the Distribution, the terms of the Distribution were determined by Allergan's
Board of Directors.
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<PAGE> 28
BUSINESS OF ASTI
BACKGROUND
ASTI was formed by Allergan in November 1997 to research and develop
pharmaceutical products based on Retinoid and Neuroprotective Technologies. ASTI
has not conducted any business to date and has no employees other than its
President and Chief Executive Officer. ASTI does not intend to perform any
research, development or other activities on its own behalf, as it will pay
Allergan to perform all such activities pursuant to the terms of the Research
and Development Agreement. The ASTI Products initially to be researched and
developed under the Research and Development Agreement are (i) Tazarotene
(oral), (ii) Memantine (in the United States), (iii) AGN 4310 and (iv) a
compound to be selected from the RAR alpha-selective agonist class of compounds.
In addition, the Board of Directors of ASTI has the right, with the consent of
Allergan, to expand the indications for the ASTI Products and to select
additional products for research and development. However, ASTI will have no
rights with respect to any topical formulation of Tazarotene. Allergan is
currently marketing a topical formulation of Tazarotene for the treatment of
psoriasis and acne in the United States under the brand name "Tazorac" and
outside of the United States under the brand name "Zorac."
ASTI's belief in the potential efficacy of the ASTI Products is based upon
preclinical studies performed by Allergan or other third parties. ASTI has not
received FDA approval to begin clinical trials on any ASTI Product other than
Memantine, and neither ASTI nor Allergan has received FDA approval for the
manufacturing and/or marketing of any of the ASTI Products. Consequently, there
can be no assurance that the ASTI Products or any other products selected for
research and development will receive the necessary FDA approvals, that either
ASTI or Allergan will commence manufacturing or marketing of any of the ASTI
Products or as to when manufacturing and marketing of the ASTI Products will
commence.
In order to conduct its business, ASTI will depend substantially on
Allergan and Allergan's licensors for rights to use Allergan Technology, for
research and development activities, for administrative services and, if
Allergan exercises any License Option, for the commercialization of ASTI
Products. ASTI may also perform directly, or engage other third parties to
perform on its behalf, some of these activities. However, it is likely that
Allergan will be responsible for executing substantially all of the operational
activities necessary for ASTI's business following the Distribution and
continuing through completion of the development stage of the ASTI Products, and
that ASTI's funds will be used primarily to fund these activities under the
Research and Development Agreement and the Services Agreement and to pay the
Technology Fee. ASTI's Board of Directors will be responsible for determining
which products will be pursued, and for approving the work plans and cost
estimates therefor. ASTI's Chief Executive Officer will supervise and review
Allergan's ongoing activities on behalf of ASTI. See "Risk Factors -- Dependence
on Allergan for Personnel and Facilities."
Prior to the Distribution, Allergan will contribute a total of $200 million
in cash to ASTI in exchange for all of the shares of ASTI Common Stock
outstanding prior to the Distribution. As the sole holder of ASTI's outstanding
Class B Common Stock following the Distribution, Allergan will have the option
to repurchase all of the outstanding ASTI Shares under specified conditions.
Allergan has also granted certain technology licenses and agreed to make
specified payments on sales of certain products in exchange for the payment by
ASTI of the Technology Fee and the option to independently develop certain
compounds funded by ASTI prior to the filing of an Investigational New Drug
application ("IND") with respect thereto and to license any products and
technology developed by ASTI. In the early years, ASTI's only revenues are
expected to be from investment income. In later years, if Allergan were to
exercise its License Option for any ASTI Product, or if an ASTI Product were
commercialized by ASTI itself or by a third party on behalf of ASTI, ASTI would
derive revenues from sales of the ASTI Product or from fees paid to ASTI by
third parties for the rights to commercialize the ASTI Product.
ALLERGAN TECHNOLOGY OVERVIEW
ASTI will be entitled to use Allergan Technology in connection with
research and development relating to the ASTI Products. Allergan Technology
includes all technology owned, licensed to or controlled by Allergan relating to
Retinoid and Neuroprotective Technologies, excluding topical formulations of
Tazarotene and non-U.S. rights to Memantine. The Allergan Technology licensed to
ASTI includes existing Allergan
25
<PAGE> 29
Technology and will also include new technology developed or licensed by
Allergan. The following is a description of certain Allergan Technology that may
be incorporated in ASTI Products.
OVERVIEW OF RETINOID TECHNOLOGY
Retinoids, which include naturally occurring hormones derived from Vitamin
A and synthetic analogs, regulate a very broad range of important biological
activities including cell proliferation and differentiation, programmed cell
death, lipid metabolism and immune function. Retinoids have been shown to be of
potential therapeutic benefit in a variety of diseases including psoriasis,
acne, cancer, diabetes, emphysema and arthritis. Despite their major therapeutic
applications, the use of retinoids in clinical medicine has been limited by
unacceptable toxicities that are associated with most of the currently-marketed
retinoids. However, recent advances in the understanding of retinoid mechanism
of action have provided rational approaches to the design and research and
development of new retinoid drugs with superior therapeutic indices.
Retinoids elicit their myriad biological effects by regulating gene
transcription through multiple, specific nuclear receptors termed retinoid
receptors. There are six known retinoid receptors belonging to two families, the
Retinoid Acid Receptors ("RARs") and the Retinoid X Receptors ("RXRs"), each
with three distinct subtypes (alpha, beta and gamma). These individual receptors
appear to have distinct biological functions because of different tissue
distribution patterns and target gene specificities.
Non-selective retinoid compounds that indiscriminately activate all of the
retinoid receptors cause many toxic side effects along with the therapeutic
effect in a given disease. Receptor-selective retinoids, on the other hand,
would be expected to be of therapeutic benefit in a narrower range of diseases
but also to be associated with far fewer side-effects. Thus, a
receptor-selective retinoid which will be targeted to specific diseases should
have a much better therapeutic index than the current drugs.
The fundamental technology underlying retinoids licensed to ASTI is also
cross-licensed to Ligand and therefore competition from similar activities by
Ligand or its collaborators in retinoids is likely. In addition, pursuant to the
agreement between Allergan and Ligand, each party has been granted non-exclusive
rights to use the ALRT technology with respect to any unsynthesized compounds,
provided that such license will become exclusive with respect to any compound
with respect to which an IND is filed with and accepted by the FDA. Accordingly,
no assurance can be given that Ligand will not be the first party to file an IND
with respect to any retinoid compound under research by ASTI, thereby preventing
ASTI and Allergan from undertaking any further research, development or
commercialization with respect to such compound.
OVERVIEW OF NEUROPROTECTIVE TECHNOLOGY AND GLAUCOMA
Vision loss in glaucoma results from damage to retinal ganglion cells, the
cells that connect the retina to the brain. Currently, the clinical management
of glaucoma is limited to surgical or pharmaceutical reduction of intraocular
pressure. In many patients, however, reduction of intraocular pressure does not
prevent progression of visual loss associated with glaucoma. Furthermore, a
significant fraction of the clinical glaucoma population has intraocular
pressure within the normal range. For this reason, efforts to develop more
effective glaucoma therapies are focused on the preservation of retinal ganglion
cells and, thereby, the prevention of blindness. The prevention of blindness in
glaucoma patients would represent a medical breakthrough. With an estimated 6 to
7 million glaucoma patients by the year 2000 worldwide, glaucoma represents a
large market opportunity.
Allergan has undertaken a rigorous study of the mechanisms which may be
responsible for glaucomatous damage to retinal ganglion cells. Allergan is
focused on two specific targets, the NMDA-type glutamate receptor and the
voltage-gated sodium channel or combination ion channel blockers, which are
physiologically well characterized and which, according to existing evidence,
may contribute to glaucomatous damage of retinal ganglion cells. Allergan
believes that these two mechanisms represent currently the best opportunities
for protection of retinal ganglion cells and, accordingly, obtained worldwide
exclusive rights to develop products containing Memantine for ophthalmic uses
from Merz in February 1997. Memantine is currently in use in Germany for the
treatment of other clinical indications and can be expected to reach protective
levels in the retina following oral administration. New clinical methods that
are more sensitive in reducing vision loss with higher sensitivity are important
areas of current clinical investigation. Thus, Memantine may allow a
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<PAGE> 30
rapid path into a clinical efficacy trial using current and novel approaches to
document vision sparing in humans. In parallel, Allergan research will be
developing new neuroprotection compounds from Allergan research or in
collaboration with Cambridge NeuroSciences, Inc. ("CNSI").
THE ASTI PRODUCTS
ASTI Products are products recommended by Allergan, and accepted by ASTI,
for research and development under the Research and Development Agreement. Four
initial ASTI Products are currently under research and development by Allergan.
The Research and Development Agreement provides that ASTI will reimburse
Allergan for the Research and Development Costs of the four initial ASTI
Products from October 23, 1997, the date on which ALRT ceased funding their
research and development, through March 31, 1998. Such Research and Development
Costs are expected to total between $7 million and $8 million for all of the
ASTI Products and Pre-Selection Work undertaken during such period. This
arrangement is intended to ensure that research and development of the ASTI
Products continues uninterrupted through and beyond the Distribution. To
continue research and development of any ASTI Product beyond March 31, 1998,
Allergan must propose and ASTI's independent Board of Directors must accept an
additional work plan and cost estimate for that ASTI Product. It is expected
that Allergan will recommend such additional work plans and cost estimates to
ASTI by March 31, 1998. Under the Allergan/ASTI Agreements, ASTI will own the
ASTI Products. Continuation of Pre-Selection Work will also require proposal and
acceptance of a plan and cost estimate. See "Risk Factors -- No Assurance of
Continued Research or Development of ASTI Products."
RETINOID PRODUCTS
Allergan has already identified many classes of retinoid compounds which
are selective for receptor families (for example, RAR vs. RXR) as well as for
individual receptor subtypes (for example, RAR alpha selective and RAR beta
selective receptor subtypes). As a further advance, Allergan has identified new
function-selective compounds such as RAR neutral antagonists and inverse
agonists. Allergan has also been successful in combining the structural features
separately required for receptor subtype and for function selectivity to produce
subtype/function selective compounds such as RAR alpha specific antagonists. As
these novel compounds become available, research is initiated in order to
identify specific therapeutic applications for the different classes of
selective compounds. Allergan evaluates these selective compounds in a variety
of pre-clinical models for efficacy in dermatology, oncology and metabolic
disease. The scope of the search for potential therapeutic applications is
further expanded by collaborations with academic laboratories in which the
compounds are evaluated in pre-clinical models in a variety of other areas
including ophthalmology (proliferative vitreoretinopathy and age-related macular
degeneration), human papilloma virus-related diseases (cervical dysphasia),
emphysema and restenosis. Several lead compounds and therapeutic targets have
already been identified and these are in various stages of development as
detailed below. It is also expected that ongoing research will identify newer
classes of retinoid compounds and exciting applications in human disease.
Tazarotene (oral).
Tazarotene is a potent RAR beta gamma selective agonist which was recently
introduced into the market as a topical treatment for psoriasis and acne.
Tazarotene is the first retinoid to be approved for the topical treatment of
psoriasis, and Allergan is currently marketing topical Tazarotene for the
treatment of psoriasis and acne in the United States under the brand name
"Tazorac" and outside of the United States under the brand name "Zorac."
Allergan Technology excludes, and ASTI will have no rights with respect to, any
topical formulation of Tazarotene. An oral formulation of Tazarotene is in late
stages of pre-clinical research and development and clinical trials in cancer,
acne and psoriasis are expected to start in 1998.
Given the clear demonstration of the clinical efficacy of topical
Tazarotene in plaque psoriasis, oral Tazarotene may also be effective in the
treatment of psoriasis. It is also possible that oral Tazarotene may be an
effective agent in severe psoriasis involving extended body areas. If this were
the case and depending on its side-effect profile, it is possible that oral
Tazarotene may effectively replace acitretin and etretinate as the preferred
oral retinoid for psoriasis. It should be noted that acitretin and etretinate
are not particularly
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<PAGE> 31
efficacious agents. Thus, if oral Tazarotene is an effective agent which
provides prolonged remission, oral Tazarotene may expand the current limited
market for oral retinoids in psoriasis.
Topical Tazarotene is also effective in treatment of mild to moderate acne,
presumably by a keratolytic mechanism similar to other topical retinoids. The
systemic retinoid, Accutane, is a very effective agent in severe acne and it is
believed to work by a sebosuppressive mechanism. Oral Tazarotene may also be
sebosuppressive in humans, which will be evaluated in a phase II study. If
effective, oral Tazarotene could be a competitor in the large market of oral
retinoids for acne.
Oral retinoids have been shown to be of benefit in a variety of human
cancers including acute promyeloctyic leukemia and squamous cell carcinomas of
the cervix and the head and neck. After phase I/IIA studies to determine a
maximum tolerated dose, oral Tazarotene will be investigated in phase IIB
studies in several tumors, both as monotherapy and in combination with other
modalities.
AGN 4310.
RAR antagonists/inverse agonists represent a completely novel class of
retinoid compounds which have a unique biology distinct from that observed for
retinoid agonists. AGN 4310, an optimized compound from this class, is in
pre-clinical development with expected IND filings for two indications (topical
antidote to systemic retinoid-induced mucocutaneous toxicity and topical
treatment of psoriasis) in the fourth quarter of 1998. Mucocutaneous toxicity is
an almost universally observed and bothersome side-effect associated with the
use of systemic retinoids such as Accutane. As a consequence, an effective agent
for the treatment and prevention of this adverse effect is likely to be a
well-accepted adjunct to systemic retinoid therapy. It is well-established that
mucocutaneous toxicity induced by systemic retinoids results from activation of
RARs, particularly RAR gamma. AGN 4310 is a very potent and effective antagonist
of retinoid agonist activity at all three RARs. Also, topical AGN 4310 used at
very low doses can effectively prevent or treat the skin irritation produced by
systemic retinoids in clinically-relevant animal models. Animal models have
shown that this blockage of topical irritation can be achieved without
compromising the systemic efficacy of retinoid agonist. Thus, AGN 4310 may be
effective in human clinical studies as a topical antidote to systemic
retinoid-induced mucocutaneous toxicity. It would be the first product
introduced for this therapeutic application.
In addition to its efficacy as an antagonist of retinoid agonist action,
AGN 4310 may have pharmacological actions by itself by acting as an inverse
agonist. Inverse agonists are compounds that can actually repress the basal gene
transcriptional activity associated with unliganded nuclear receptors. The
concept of inverse agonsim in the field of nuclear receptors is a completely
novel one and was first introduced by Allergan. Recent studies have shown that
RAR inverse agonists such as AGN 4310 function by binding to RAR and increasing
interaction between RARs and co-repressor proteins such as NCoR. However, the
subsequent molecular events have not been identified and the pharmacology
associated with these novel compounds remains largely unexplored. Studies
conducted by Allergan scientists have indicated that RAR inverse agonists can
suppress psoriasis-associated markers in human keratinocytes induced to
differentiate along a psoriasiform pathway.
Given the possibility that psoriasis is associated with defective
keratinocyte function, these data suggest that an RAR inverse agonists such as
AGN 4310 may be an effective agent for the topical treatment of psoriasis. Other
studies have suggested that AGN 4310 will function in psoriasis by a mechanism
quite distinct from that of a retinoid agonist such as Tazarotene. Since AGN
4310 is also expected to be non-irritating, it is possible that it could be an
important product for the topical treatment of psoriasis. It is also possible
that ongoing research will identify other therapeutic applications for RAR
inverse agonists.
Since endogenous retinoid signaling pathways are intimately involved in the
control of several fundamental biological processes such as cell differentiation
and proliferation, it is likely that there are pathological conditions which are
dependent on endogenous retinoids for their maintenance. Such diseases are
likely to be appropriate therapeutic targets for an RAR inverse agonists such as
AGN 4310.
RAR alpha Selective Retinoids.
Allergan has also identified several series of RAR alpha subtype-specific
agonists, the first known examples of receptor subtype-specific retinoids.
Studies in pre-clinical models suggest that RAR alpha-
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<PAGE> 32
specific agonists may be of potential use in breast cancer and leukemia. RAR
alpha-specific agonists also inhibit the proliferation of some estrogen receptor
(ER)-negative breast cancer cell lines suggesting that they may be effective in
treating ER-negative breast cancers as well. This is of particular therapeutic
significance since the prognosis for ER-negative breast cancer patients is
particularly poor. Studies conducted in various animal models of retinoid
toxicity suggest that RAR alpha-specific retinoids agonists are significantly
reduced or completely devoid of the mucocutaneous, bone and some other general
toxicities associated with non-specific retinoids. However, RAR alpha-specific
compounds still retain the hypertriglyceridmic toxicity associated with their
non-selective counterparts. This type of data indicate that the RAR
alpha-specifics may have a much improved therapeutic index in their target
diseases relative to the non-selective retinoids currently in use. Our findings
in the RAR alpha area appears to validate our fundamental hypothesis that
receptor and function selectivity can lead to compounds of improved therapeutic
ratios.
Treatment of leukemias and breast cancer is the immediate therapeutic goal
in the RAR alpha area and it is anticipated a development candidate will be
selected and development activities commence in 1998. However, it is likely that
further research in the area and clinical studies with the development candidate
will identify other therapeutic applications for RAR alpha agonists. In
addition, the relative clean side-effect profile of RAR alpha-specific agonists
may make them the compounds of choice as potential chemopreventive agents. It is
currently expected that specific RAR alpha product candidates will be selected
in 1998.
Other Retinoids.
RAR beta-specific transactivators. Allergan scientists have also identified
several classes of RAR beta-specific transactivators. Research in terms of
potential therapeutic applications for RAR beta-specifics is at a relatively
early stage. However, several studies have suggested that aberrations in RAR
beta mediated gene transcription may be associated with head and neck and lung
cancer. Hence, cancer of these types are potential targets for RAR
beta-specifics and research investigations are underway with the currently
available compounds to identify therapeutic applications.
Research programs are also underway to identify better retinoids for the
oral treatment of acne and the oral and topical treatment of psoriasis. Allergan
scientists have also shown that it is possible to make compounds that do not
themselves activate gene transcription through RARs but can antagonize the gene
transcriptional effects of other pathogenic nuclear transcription factors such
as AP1. Such anti-AP1 function selective retinoids may be effective
anti-inflammatory agents and the development of pure anti-AP1 compounds is also
being pursued.
RXR Agonists. RXRs function in vivo as heterodimeric partners with other
nuclear receptors including RARs. Recent research has suggested that RXRs
heterodimerized with the Peroxisome-Proliferator Activated Receptor gamma
("PPARg") may be a molecular target in functions of potential benefit in
metabolic disease. Thiazolidinediones ("TZDs") are a class of compounds of
demonstrated clinical efficacy in the treatment of Type II or non-insulin
dependent diabetes mellitus. It has recently been shown that TZDs function by
binding to the PPARg half of RXR-PPARg heterodimers and activating these
heterodimers. Our research has shown that RXR ligands can also activate
RXR-PPARg heterodimers and that they are effective in well-characterized animal
models of Type II diabetes. Thus, RXR agonists effectively lower the
hyperglycemia and hyperinsulinemia observed in rodent models of diabetes
associated with disorders of leptin signaling. Moreover, the RXR agonists, like
TZD's, appear to function in these models by restoring insulin sensitivity.
Thus, RXR agonists and TZDs may be a new class of anti-diabetic agents that
function as insulin sensitizers. Also, the RXR agonists give additive or
synergistic effects when used in combination with TZDs and insulin in these
animal models. These data suggest that the maximum therapeutic benefits in
diabetes can be derived by combination therapies may prevent progression to
insulin dependence and may reduce insulin requirement in Type I diabetes.
Allergan currently intends to develop RXR agonists with a collaboration partner.
It is therefore likely that these products will be licensed by Allergan while
still undergoing Pre-Selection Work.
MEMANTINE
Memantine is a glutamate receptor blocker, which has been shown to protect
nerve cells from injury and death in a number of in vitro and in vivo studies.
This neuroprotective activity has been shown to be useful
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<PAGE> 33
both for acute injury (ischemia, trauma) and for chronic, neurodegenerative
processes (dementia) involving neurons in the central nervous system.
Glaucoma is a blinding disease characterized by death of neurons
(specifically, retinal ganglion cells) that connect the eye to the brain. This
neuronal cell death is the ultimate cause of visual loss associated with the
disease. Currently, therapy is directed toward lowering of intraocular pressure
("IOP"), one of the major risk factors for vision loss. Memantine, as a drug
directed toward preserving nerves important for vision, would directly target
the loss of visual function. As such, the drug represents a novel therapeutic
approach which is applicable to various forms of glaucoma regardless of their
etiology.
The excitatory neurotransmitter glutamate is normally involved in
interneuronal signal transmission, but in excess can be toxic to neurons. This
concept of "excitotoxicity" is widely recognized and has served as a basis for
the design of a number of novel therapeutic agents. Increased levels of
glutamate have been found, in fact, in the vitreous (the material filling the
interior of the eye) of glaucoma patients. This has led to the hypothesis that
an excessive release of glutamate in the retina is associated with glaucoma, and
may contribute significantly to retinal ganglion cell loss. Previous studies
have demonstrated that glutamate toxicity is mediated by activation of a subset
of glutamate receptors (NMDA) and the subsequent influx of calcium ions into the
nerve cells. Memantine has been shown to bind to NMDA receptors and lead to
blocking of receptor channel function. Recently, it has been determined that
Memantine is able to block NMDA receptors in the presence of increasing levels
of glutamate. By this mechanism, Memantine has been shown to protect against
glutamate toxicity both in cell culture and in animal models, while having
minimal effects on normal synaptic transmission. These studies support the use
of Memantine in glaucoma patients, where inhibition of NMDA receptors would be
expected to slow or prevent glutamate-induced excitotoxicity and the associated
loss of visual function.
Memantine has been marketed in Germany by Merz since 1983 and is registered
in 14 other countries around the world. Its licensed uses are dementia/organic
brain syndrome, Parkinson's disease and cerebral and spinal spasticity. Allergan
completed an agreement with Merz in February 1997 to purchase the clinical,
toxicological, pharmacokinetic and chemistry data supporting the safety and
efficacy of this drug, together with the right to cross-reference Merz's U.S.
IND, for Allergan's filing purposes. Allergan filed its own U.S. IND in
September 1997. A Phase I/II safety study in glaucoma patients was begun in
October 1997. Two Phase III trials are planned for July 1998. One will be
carried out in open-angle glaucoma patients, with concurrent IOP-lowering
medication. The second study will be done in ocular hypertensive patients not
receiving IOP lowering drugs. These studies, directed toward registration of the
drug world-wide, are scheduled for completion in 2002. Many NMDA antagonists
have been tested in human clinical trials and have been disappointing. Side
effects are the principal reason for failure. The unique pharmacological profile
and current use in humans suggests Memantine may be different from most NMDA
antagonists; however, there can be no assurance of this fact.
The use of Memantine in glaucoma is covered by a patent application filed
by Children's Hospital, Boston, Massachusetts ("Children's Hospital") in
December 1992. Allergan obtained exclusive rights to this technology through a
license agreement with Children's Hospital in August 1995. Memantine is
currently undergoing clinical trials in the U.S. for AIDS, dementia and
neuropathic pain.
Allergan, Allergan Pharmaceuticals (Ireland) Ltd., Inc., an affiliate of
Allergan ("Allergan-Ireland"), and certain other Allergan affiliates have
entered into a cross license agreement (the "Cross License Agreement") whereby
rights to commercialize Memantine and any improvements to the Memantine
technology in the United States have been exclusively licensed to Allergan, and
rights to commercialize Memantine and any improvements to the Memantine
technology in the rest of the world other than the United States have been
exclusively licensed to Allergan-Ireland. Pursuant to the Technology License
Agreement, Allergan has licensed to ASTI its rights under the Cross License
Agreement.
VOLTAGE-ACTIVATED SODIUM CHANNELS AND NMDA ANTAGONISTS
Another class of ion channels that Allergan has targeted for research are
voltage-activated sodium channels. These channels are expressed on the axons of
retinal ganglion cells. Allergan scientists speculate that
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<PAGE> 34
this is an important site of injury in glaucoma. Drugs which can shut down the
operation of sodium channels and/or NMDA channels may prevent or limit the
extent of neurodegeneration in animals.
In addition, further research by Allergan scientists and universities
regarding the molecular biology, structure and function of NMDA and sodium
channels may lead to the identification of additional drug discovery targets.
These advances may facilitate the development of novel, differentiated
neuroprotective drugs.
Ion Channel Blockers
Research by Allergan scientists has indicated that excessive activation of
ion channels other than the NMDA-type in the ischemic retina and optic nerve may
lead to cellular calcium overload and neurodegeneration.
Allergan has entered into a collaborative relationship with CNSI to
discover, develop and commercialize compounds for use in the field of ion
channel blockers for the treatment of ophthalmic diseases and disorders.
Compounds selected by Allergan from CNSI are at a much earlier phase of the drug
discovery/development process than Memantine. CNSI compounds are currently
undergoing ocular pharmacology testing. Included in the CNSI technology licensed
to Allergan are patent rights covered by 19 granted U.S. patents and numerous
U.S. and foreign corresponding pending patent applications.
PRE-SELECTION WORK
Much of the Allergan Technology consists of product candidates for which
substantial additional research must be conducted before a conclusion can be
reached as to whether it is worthwhile to attempt to develop the candidate as a
therapeutic product. Such research would include such matters as determining the
molecular make-up of the candidate, determining whether and how it can be
manufactured and determining how strongly it binds to a desired receptor or
otherwise exhibits in-vitro and in-vivo effects. ASTI will spend a portion of
its funds conducting this type of broad research to identify viable product
candidates. ASTI will pay for this research in the same manner as other research
and development under the Research and Development Agreement. ASTI will not pay
for any research on a product development candidate that is the subject of an
IND filing unless Allergan has proposed and the ASTI Board has accepted such
product as an ASTI Product. Unless such product has been proposed and accepted
as an ASTI Product, Allergan will be free to exploit such product in any way it
deems beneficial, including through potential corporate partners and/or
sublicensing to third parties, subject only to its obligations to make payments
to ASTI as Developed Technology Royalties or Pre-Selection Product Payments. It
is currently expected that approximately $7 million to $10 million will be spent
on candidate identification, feasibility evaluation and research relating to
Pre-Selection Product candidates each year by ASTI. See "Business of
ASTI -- Potential Research and Development Expenditures."
POTENTIAL RESEARCH AND DEVELOPMENT EXPENDITURES
Based on Allergan's experience in other product research and development
programs, Available Funds are expected to be expended pursuant to the Research
and Development Agreement over a period of approximately four to five years as
follows:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Candidate Identification,
Feasibility Evaluation and
Research..................... $ 7 - 8 $ 8 - 10 $ 8 - 10 $ 7 - 8 $ 7 - 9
Product Development............ 18 - 22 21 - 25 27 - 33 35 - 42 43 - 52
-------- -------- -------- -------- --------
Total................ $25 - 30 $29 - 35 $35 - 43 $42 - 50 $50 - 61
</TABLE>
These estimates will change as ASTI Products are researched and developed.
Because of the long-range nature of any pharmaceutical product research and
development plan, research and development of a particular product or products
could accelerate, slow down or be discontinued, technology or products could be
purchased or licensed, and other unforeseen events could occur, all of which
would significantly affect the
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timing and amount of expenditures. See "Risk Factors -- No Assurance of
Continued Research or Development of ASTI Products."
GOVERNMENTAL REGULATION
All ASTI Products, Developed Technology Products and Pre-Selection Products
will require clearance by the FDA and comparable agencies in other countries
before they can be marketed. During the research and development stage and as
required, INDs for all new products will be filed with the FDA prior to the
commencement of initial (Phase I) clinical testing in human subjects in the
United States. In some instances this process could result in substantial delay
and expense. No INDs have been filed to date for any of the initial ASTI
Products other than Memantine.
After Phase I/II testing, which is intended to demonstrate the safety and
functional characteristics of a product, extensive efficacy and safety studies
in patients must be conducted. After completion of Phase III clinical testing,
an NDA is submitted, and its clearance involves an extensive review process.
There can be no marketing in the United States of any product for which an NDA
has been submitted until that NDA has been accepted for filing and cleared by
the FDA. It is impossible to determine the amount of time that will be required
to obtain clearance from the FDA to market any product or the cost of obtaining
such clearance.
Whether or not FDA clearance has been obtained, marketing clearance of a
product by the relevant regulatory authorities must be obtained in each foreign
country before the product may be marketed in that country. The clearance
procedures vary from country to country, and the time required may be longer or
shorter than that required for FDA clearance. In many foreign countries, pricing
and reimbursement approvals are also required. Although there are certain
procedures for unified filing in the European Community, in general each country
has its own procedures and requirements.
All facilities and manufacturing techniques used for the manufacture of
products for clinical use or for sale must conform with "current Good
Manufacturing Practices," the FDA regulations governing the production of
pharmaceutical products. These regulations govern a range of activities
including manufacturing, packaging, quality assurance and recordkeeping. Other
FDA regulations govern labeling and advertising materials. From time to time,
the FDA and other federal, state and local government agencies may adopt
regulations that affect the manufacturing and marketing of pharmaceutical
products. Environmental regulations will also affect the manufacture of such
products. Pharmaceutical products and their manufacture often use chemicals and
materials that may be classified as hazardous or toxic and/or require special
handling and disposal. Allergan undertakes to minimize releases into the
environment, and exposure of its employees and the public, to such materials.
The cost of these activities continues to increase. Some of the therapeutic
agents used in ASTI Products, Developed Technology Products and Pre-Selection
Products may also be regulated by the United States Drug Enforcement
Administration.
PATENTS
As of November 17, 1997, Allergan owned 1,287 granted patents worldwide and
785 pending patent applications worldwide. It is expected that Allergan will
attempt to secure patent coverage for each of the ASTI Products. Allergan
believes that its current patents, and patents that may be obtained in the
future, are important to its future operations and to ASTI.
Patent protection generally has been important in the pharmaceutical
industry, and the commercial success of ASTI Products, Pre-Selection Products
and Developed Technology Products may depend, in part, upon Allergan's ability
to obtain strong patent protection. Although Allergan's existing patents,
pending patents, and any patents obtained in the future may be of importance to
ASTI, there can be no assurance that any additional patents will be issued or
that any patents now or hereafter issued will be of commercial benefit.
Although a patent has a statutory presumption of validity in the United
States, the issuance of a patent is not conclusive as to such validity or as to
the enforceable scope of the claims therein, and the validity and enforceability
of a patent after its issuance by the United States Patent Office can be
challenged in litigation. If the outcome of such litigation is adverse to the
owner of the patent, third parties may then be able to use the invention
pertaining to the patent, in some cases without payment. There can be no
assurance that patents
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<PAGE> 36
covering ASTI Products, Developed Technology Products or Pre-Selection Products,
if and when issued, will not be infringed or successfully avoided through design
innovation.
It is also possible that third parties will obtain patents or other
proprietary rights that might be necessary or useful to Allergan or ASTI. In
cases where third parties are the first to invent a particular product or
technology, it is possible that those parties will obtain patents that will be
sufficiently broad so as to prevent Allergan or ASTI from using certain
Developed Technology or other Allergan Technology or from marketing certain
products. If licenses from third parties are necessary and cannot be obtained,
commercialization of such products could be delayed or prevented. Third parties
may claim that ASTI Products infringe their patents; in such event Allergan or
ASTI would need to defend against such claims. Defense of such claims could be
costly and time consuming. If licenses to the third party's patents are
available, the payments required by the third parties could be significant.
In addition, ASTI may use substantial unpatented technology. There can be
no assurance that others will not develop similar technology. Allergan licenses
certain intellectual property from third parties which it will sublicense to
ASTI pursuant to the Technology License Agreement. Specifically, Allergan has
licensed certain rights to its retinoid technology from ALRT and certain rights
to the technology underlying Memantine from Children's Medical Center
Corporation and Merz. In addition, Allergan has licensed certain ion channel
blocker technology from CNSI. Under the terms of certain of its license
agreements, Allergan may be obligated to exercise diligence and make certain
royalty and milestone payments as well as incur costs related to filing and
prosecuting the underlying patents. Each agreement is terminable by either party
upon notice if the other party defaults in its obligations. Should Allergan
default under any of its agreements, Allergan and therefore ASTI may lose its
right to market and sell products based upon such licensed technology. In
addition, there can be no assurance that Allergan's licensors will meet their
obligations to Allergan pursuant to such licenses. In such event, ASTI's results
of operations and business prospects would be materially and adversely affected.
See "The Business of ASTI -- The ASTI Products." See "Risk Factors -- Reliance
on Proprietary Technologies; Unpredictability of Patent Protection."
FACILITIES AND PERSONNEL
ASTI is not expected to hire a significant number of employees or to
acquire significant property or assets prior to completion of the development
stage of the ASTI Products. However, pursuant to the Research and Development
Agreement, Allergan has been engaged by ASTI to research and develop human
pharmaceutical products under work plans and cost estimates recommended by
Allergan and accepted by ASTI. Decisions as to whether and/or when to hire
employees, purchase property or assets, perform administrative functions, engage
Allergan to perform administrative services under the Services Agreement, engage
others to do so or engage third parties other than or in addition to Allergan to
perform research and development activities will be made by ASTI.
COMPETITION
Any ASTI Product successfully developed under the Research and Development
Agreement will face competition from other therapies for the same indications.
Competitors potentially include any of the world's pharmaceutical and
biotechnology companies. Allergan is also free to develop competitive products
for its own account. The fundamental technology underlying retinoids licensed to
ASTI is also cross-licensed to Ligand and therefore competition from similar
activities by Ligand in retinoids is likely. In addition, pursuant to the
agreement between Allergan and Ligand, each party has been granted non-exclusive
rights to use the ALRT technology with respect to any unsynthesized compounds,
provided that such license will become exclusive with respect to any compound
with respect to which an IND is filed with and accepted by the FDA. Accordingly,
no assurance can be given that Ligand will not be the first party to file an IND
with respect to any retinoid compound under research by ASTI, thereby preventing
ASTI and Allergan from undertaking any further research, development or
commercialization with respect to such compound. See "Risk Factors --
Competition."
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MANAGEMENT OF ASTI
The following table provides information concerning the current officers
and Directors of ASTI. Each of the Directors and officers of ASTI is employed by
Allergan and has held his or her position with ASTI since its formation.
<TABLE>
<CAPTION>
AGE ON
NAME POSITION WITH ASTI 9/30/97
---- ------------------ -------
<S> <C> <C>
Lester J. Kaplan, Ph.D.................. President, Chief Executive Officer and Director 47
Dwight J. Yoder......................... Chief Financial Officer 52
Susan J. Glass.......................... Secretary and General Counsel 54
</TABLE>
LESTER J. KAPLAN, PH.D. has been the President and Chief Executive Officer
of ASTI, as well as its sole Director, since its formation in November 1997. He
has also been the Corporate Vice President, Science and Technology of Allergan
since July 1996 and had been Corporate Vice President, Research and Development
since 1992. Dr. Kaplan is an Advisory Board Member to the Pediatric Cancer
Research Foundation and Healthcare Ventures. He first joined Allergan in 1983
and was elected to its Board of Directors in 1994.
DWIGHT J. YODER has been the Chief Financial Officer of ASTI since its
formation in November 1997. He has also been the Senior Vice President and
Controller of Allergan since July 1996 and had been Vice President and
Controller since joining Allergan in 1990. Mr. Yoder is the Chief Financial
Officer of ALRT, a position he has held since July 1995.
SUSAN J. GLASS has been the Secretary and General Counsel of ASTI since its
formation in November 1997. She has also been the Associate General Counsel and
Assistant Secretary of Allergan since December 1995 and had been the Assistant
General Counsel and Assistant Secretary since 1989. Ms. Glass joined Allergan in
1987. She is also a member of the Board of Directors of Pacific Chorale.
Prior to commencement of the Distribution, Dr. Kaplan will resign as
interim President and Chief Executive Officer of ASTI and a person who is not an
employee or Director of Allergan will be appointed Director, President and Chief
Executive Officer of ASTI. It is expected that this individual will appoint
three additional directors of ASTI, each of whom will not be an employee or
Director of Allergan. Dr. Kaplan will remain a Director of ASTI following the
Distribution in accordance with the rights of Allergan under ASTI's Restated
Certificate of Incorporation as the sole holder of the outstanding shares of
ASTI Class B Common Stock.
SECURITY OWNERSHIP OF ASTI
Immediately prior to the Distribution, all of the outstanding ASTI Shares
will be held by Allergan. The following tables set forth the projected
beneficial ownership of ASTI Shares following the Distribution by each Director
and executive officer of ASTI and all Directors and officers of ASTI as a group,
as well as by any person that owns beneficially more than 5% of the outstanding
shares of Allergan Common Stock.
BY MANAGEMENT
<TABLE>
<CAPTION>
ASTI SHARES PROJECTED TO BE
BENEFICIALLY OWNED
----------------------------------
NAME NUMBER(1)(2) PERCENT OF CLASS
---- -------------- -----------------
<S> <C> <C>
Lester J. Kaplan, Ph.D........................... 711 *
Dwight J. Yoder.................................. 289 *
Susan J. Glass................................... 267 *
All Directors and executive officers as a group
(3 persons).................................... 1,267 *
</TABLE>
- ---------------
* Less than 1%
(1) Except as otherwise noted, reflects, in each case, the number of shares of
Allergan Common Stock beneficially owned as of September 30, 1997, divided
by 20. In addition to shares held in the individual's sole name, this column
includes shares held by the spouse and other members of the named person's
immediate household who share that household with the named person, and
shares held in family trusts.
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<PAGE> 38
This column also includes, for employees, shares held in trust for the
benefit of the named party or group in Allergan's Savings and Investment
Plan and the Employee Stock Ownership Plan as of September 30, 1997.
(2) In calculating the number of ASTI shares projected to be owned by the
individuals listed above, the calculation has been accomplished by treating
each category of ownership, direct, book entry, street name and trust
account separately and dividing each by 20, eliminating each set of
fractional shares.
BY OTHERS
Management of ASTI knows of no person, except as set forth below, who would
be the beneficial owner of more than 5% of the projected to be issued.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES PERCENT
BENEFICIAL OWNERS BENEFICIALLY OWNED OF CLASS
------------------- ------------------ --------
<S> <C> <C>
Swiss Bank Corporation and Brinson Partners,
Inc............................................ 287,382(1) 8.8%
209 South LaSalle Street
Chicago, Illinois 60604-1295
State Farm Mutual Automobile Insurance Company... 214,145(2) 6.5%
One State Farm Plaza
Bloomington, Illinois 61710
Mellon Bank Corporation.......................... 199,664(3) 6.1%
One Mellon Bank Center
Pittsburgh, PA 15258-0001
Certain Fidelity funds........................... 198,794(4) 6.1%
82 Devonshire Street
Boston, MA 02109-3614
</TABLE>
- ---------------
(1) Based on a Schedule 13G, dated February 12, 1997, relating to its holdings
of Allergan common stock, filed with the Securities and Exchange Commission
by the named beneficial owner on behalf of itself and related entities.
(2) Based on a Schedule 13G, dated January 17, 1997, relating to its holdings of
Allergan common stock, filed with the Securities and Exchange Commission by
the named beneficial owner on behalf of itself and related entities.
(3) Based on a Schedule 13G, dated February 1, 1997, relating to its holdings of
Allergan common stock, filed with the Securities and Exchange Commission by
the named beneficial owner on behalf of itself and related entities.
Includes shares held as trustee for certain of the Company's employee
benefit plans.
(4) Based on a Schedule 13G, dated February 14, 1997, relating to its holdings
of Allergan common stock, filed with the Securities and Exchange Commission
by FMR Corp. on behalf of itself and related entities.
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<PAGE> 39
SELECTED FINANCIAL DATA OF ASTI
Balance Sheet Data:
<TABLE>
<CAPTION>
AS OF
NOVEMBER 17,
1997(1)
------------
<S> <C>
Cash............................................................................ $1,000
Stockholders' equity............................................................ $1,000
</TABLE>
- ---------------
(1) ASTI was incorporated in November 1997. Allergan contributed $1,000 in
November 1997 in exchange for 100 shares of Common Stock. ASTI had no
operations through November 17, 1997.
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<PAGE> 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
ASTI was formed in November 1997. Prior to the Distribution, in exchange
for all of the shares of ASTI Common Stock outstanding prior to the
Distribution, Allergan will contribute a total of $200 million in cash to ASTI.
ASTI's funds are expected to be used primarily to fund activities to be
conducted under the Research and Development Agreement with Allergan and to
reimburse Allergan for the Research and Development Costs relating to the ASTI
Products and Pre-Selection Work from October 23, 1997, the date on which ALRT
ceased funding, until March 31, 1998 (expected to be between $7 million and $8
million). Allergan's contribution, together with any investment interest earned
thereon, is expected to fund such activities for approximately four to five
years. ASTI is not expected to require facilities or capital equipment of its
own during the term of the Research and Development Agreement.
There can be no assurance, particularly given the existence of the
Allergan/ASTI Agreements, that ASTI will be able to raise any additional
capital. Such additional capital, if raised, would most likely reduce the per
share proceeds available to holders of ASTI Shares if the Purchase Option were
to be exercised. See "The Agreements and the Purchase Option -- Purchase
Option."
OPERATIONS
Prior to the Distribution, ASTI will not have conducted any operations.
After the Distribution and continuing through completion of the development
stage of the ASTI Products, ASTI's operations will be conducted largely pursuant
to the Allergan/ASTI Agreements. See "The Agreements and the Purchase Option."
In its early years, ASTI's revenues are expected to consist solely of
investment income (which will become part of the Available Funds). In later
years, ASTI could receive revenues through the commercialization of ASTI
Products either from Allergan in the form of Product Payments if Allergan were
to exercise its License Option for any ASTI Product, or otherwise if Allergan's
License Option for any ASTI Product were to expire unexercised and ASTI were to
commercialize the product alone or with a third party. ASTI also could receive
revenues from Allergan in the form of Developed Technology Royalties or
Pre-Selection Product Payments. However, ASTI is not expected to earn
substantial revenues unless or until ASTI Products or, to a lesser extent,
Pre-Selection Products or Developed Technology Products are successfully
commercialized.
ASTI's expenses largely will be incurred under the Allergan/ASTI
Agreements. ASTI will have research and development expenses as a result of (i)
the payment of Research and Development Costs under the Research and Development
Agreement, most likely through reimbursements to Allergan, and (ii) payment of
the Technology Fee to Allergan under the Technology License Agreement. The
Research and Development Agreement provides that, in addition to funding ongoing
Research and Development Costs, ASTI will reimburse Allergan for the Research
and Development Costs of the ASTI Products and Pre-Selection Work after October
23, 1997, the date on which ALRT ceased funding, until March 31, 1998. Such
reimbursements are expected to total between $7 million and $8 million for such
period. ASTI also will incur administrative expenses, which will be paid to
Allergan under the Services Agreement to the extent that ASTI engages Allergan
to perform administrative services on its behalf.
ASTI's future cash flow obligations will derive largely from the
Allergan/ASTI Agreements. ASTI is required to expend all of the Available Funds
under the Research and Development Agreement and to pay the Technology Fee. ASTI
is expected to utilize substantially all of the Available Funds to reimburse
Allergan for its Research and Development Costs and Pre-Selection Work. However,
the rate at which Available Funds are expended will derive from work plans and
cost estimates approved by ASTI.
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<PAGE> 41
THE AGREEMENTS AND THE PURCHASE OPTION
TECHNOLOGY LICENSE AGREEMENT
ASTI and Allergan have entered into a Technology License Agreement pursuant
to which Allergan has granted to ASTI an exclusive (subject to certain
pre-existing rights), perpetual license, with certain rights to sublicense, to
use Allergan Technology solely to conduct research and development with respect
to ASTI Products and to conduct related activities, and to commercialize such
products, in the U.S. with respect to Memantine and worldwide with respect to
other ASTI Products. Until a product candidate becomes an ASTI Product, Allergan
will have full rights to exploit such product, subject only to its obligations
to pay Developed Technology Royalties and Pre-Selection Product Payments. ASTI
has agreed to enter into license arrangements to document such rights, as
necessary.
In exchange for the license to use the existing Allergan Technology
relating to the ASTI Products and Allergan's commitment to make specified
payments on sales of certain products, ASTI will pay the Technology Fee to
Allergan and has granted Allergan the License Option and the option to
independently develop Pre-Selection Products. The Technology Fee will be payable
monthly over a period of four years and will be $833,333 per month for the first
12 months following the Distribution, $558,333 per month for the following 12
months, $275,000 per month for the following 12 months and $166,667 per month
for the following 12 months; provided that the Technology Fee will no longer be
payable at such time as fewer than two of the ASTI Products are being developed
by ASTI and/or have been licensed by Allergan pursuant to Allergan's exercise of
the License Option.
Either Allergan or ASTI may terminate the Technology License Agreement upon
the occurrence of a material breach of the Technology License Agreement or the
License Option Agreement by the other party which continues for 60 days after
written notice. The Technology License Agreement will automatically terminate
(a) upon termination by ASTI of the Research and Development Agreement other
than due to a breach thereof by Allergan or (b) upon termination by Allergan of
the Research and Development Agreement due to a breach thereof by ASTI.
Pursuant to the Technology License Agreement, Allergan has licensed to ASTI
rights to research and develop Memantine for commercialization in the United
States only. Commercialization rights to Memantine for the rest of the world
other than the United States have been licensed to Allergan-Ireland.
Allergan-Ireland and ASTI have entered into a cross-license agreement whereby
each has exclusively licensed to the other rights to commercialize in each
party's respective territory any improvements to the Memantine technology
developed by the licensing party.
Allergan Technology excludes, and ASTI will have no rights with respect to,
any topical formulation of Tazarotene. Allergan is currently marketing a topical
formulation of Tazarotene for the treatment of psoriasis and acne in the United
States under the brand name "Tazorac" and outside of the United States under the
brand name "Zorac."
RESEARCH AND DEVELOPMENT AGREEMENT
Under the Research and Development Agreement, Allergan will agree to
perform diligently all work necessary to conduct the activities agreed upon by
Allergan and ASTI. Allergan is not required to devote any specific amount of
time or resources to research and development activities under the Research and
Development Agreement, and Allergan expects to devote a substantial amount of
its time and resources to activities for its own account. Activities under the
Research and Development Agreement will be undertaken pursuant to work plans and
cost estimates proposed by Allergan and accepted by ASTI. ASTI may approve all
or any portion of a proposed work plan and cost estimate or may determine not to
approve any proposed work plan and cost estimate. ASTI is not obligated to fund
research and development of ASTI Products or Pre-Selection Work in excess of
amounts reflected in approved work plans and cost estimates. Allergan is not
required to undertake activities that would result in Research and Development
Costs exceeding those in approved work plans and cost estimates.
Under the Research and Development Agreement, ASTI is expected to utilize
substantially all of the Available Funds to reimburse Allergan for its Research
and Development Costs and Pre-Selection Work.
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<PAGE> 42
Research and Development Costs will be determined on the same basis as charged
by Allergan to its pharmaceutical company clients, and Allergan will recognize
reimbursement of such amounts as research and development revenue. The
corresponding research and development expenses of Allergan will offset this
revenue. Under the Research and Development Agreement, ASTI also may use
Available Funds for licensing technology, products or therapeutic agents from
third parties and for the research and development of ASTI Products with third
parties; provided, however, that Allergan's consent will be required if such
activities involve Allergan Technology or could affect Allergan's rights under
any of the Allergan/ASTI Agreements or Allergan's rights as a holder of the ASTI
Class B Common Stock. Any agreements between ASTI and third parties relating to
ASTI Products or Developed Technology must include appropriate provisions for
the protection of Allergan Technology and Developed Technology and Allergan's
rights under the Allergan/ASTI Agreements. Subject to the foregoing, the amount
and nature of the work to be performed by third parties will be determined by
ASTI.
Pursuant to the Research and Development Agreement, ASTI will fund the
research and development of the ASTI Products and Pre-Selection Work as of
October 23, 1997 through March 31, 1998. Continuation of the research and
development of any ASTI Product and Pre-Selection Work after that time will
depend upon whether Allergan proposes, and ASTI's independent Board of Directors
accepts, additional work plans and cost estimates for such ASTI Product and
Pre-Selection Work. It is anticipated that if ASTI were to fund the continued
research and development of the initial four ASTI Products through FDA review
for marketing clearance, the funding of these activities, together with
Pre-Selection Work undertaken by Allergan and funded by ASTI, would require
substantially all of the Available Funds.
ASTI has agreed to use diligent efforts to research and develop ASTI
Products in accordance with approved work plans and cost estimates under the
Research and Development Agreement, most likely by paying Allergan or third
parties to perform research and development services. ASTI is required to spend
all Available Funds under the Research and Development Agreement. It is
anticipated that ASTI will spend the Available Funds over a period of
approximately four to five years. Prior to expenditure, ASTI will invest
Available Funds in certain types of high quality marketable securities. ASTI may
not encumber, pledge or otherwise take any action with respect to Available
Funds that could prevent the full expenditure of such funds under the Research
and Development Agreement. There are no restrictions on ASTI's use of its funds
other than Available Funds to conduct its business as it determines, subject to
the terms of ASTI's Restated Certificate of Incorporation and the Allergan/ASTI
Agreements.
Unless ASTI agrees otherwise, all ASTI Products will be owned by ASTI or,
in the case of a product licensed from a third party (or a product incorporating
a therapeutic agent licensed from a third party), exclusively licensed to ASTI,
in each case subject to the License Option. Any such exclusive license will be
worldwide, will include the right to sublicense and will grant rights to ASTI
that are substantially similar to those rights ASTI would have as the owner of
such product. As between Allergan and ASTI, Allergan will own all Developed
Technology, including patents, subject to ASTI's exclusive license to use
Developed Technology to select and develop ASTI Products and to conduct related
activities, and to commercialize ASTI Products. Allergan will determine whether
and to what extent to seek patent protection for Developed Technology. If
Allergan declines to seek patent protection for any technology, ASTI will not
have the right to do so. ASTI and Allergan will share equally the costs of
obtaining and maintaining patents covering Developed Technology during the term
of the Research and Development Agreement. Such costs are to be included as
Research and Development Costs under the Research and Development Agreement.
Allergan will pay Developed Technology Royalties to ASTI, on a
country-by-country basis, equal to the sum of (i) 1% of Net Sales of such
Developed Technology Product, plus (ii) 10% of any Sublicensing Revenues with
respect to such Developed Technology Product. Subject to Allergan's payment
buy-out option, Developed Technology Royalties will be payable with respect to a
Developed Technology Product in any country until expiration of the last to
expire of the relevant patent or patents.
Allergan will make Pre-Selection Product Payments to ASTI equal to the sum
of (i) 1% of Net Sales of such Pre-Selection Product, plus (ii) 10% of any
Sublicensing Revenues with respect to such Pre-Selection Product. Subject to
Allergan's payment buy-out option, Pre-Selection Product Payments will be
payable with
39
<PAGE> 43
respect to a Pre-Selection Product until seven years after the first commercial
sale of such Pre-Selection Product in the first Major Market Country in which
such product is commercially sold.
In the case where Allergan is required to make payments with respect to a
product that is both a Pre-Selection Product (by virtue of ASTI having funded
Pre-Selection Work therefor) and a Developed Technology Product (by virtue of
the issuance of a patent covering such product which claims Developed
Technology) in any country, the payment due for any period with respect to such
product will be limited to the sum of (i) 1% of Net Sales, plus (ii) 10% of
Sublicensing Revenues.
In determining the Developed Technology Royalties and Pre-Selection Product
Payments due to ASTI, Net Sales by Allergan will be reduced by the amount of any
license payments or similar payments due to third parties from Allergan with
respect to such Developed Technology Product or Pre-Selection Product. It is
possible that, to develop certain products using Developed Technology or
Pre-Selection Products, licenses or other arrangements with third parties may be
necessary or appropriate. Such arrangements could require payments by Allergan
that would reduce payments owed to ASTI.
Allergan has the option to buy out the right of ASTI to receive Developed
Technology Royalties and Pre-Selection Product Payments with respect to any
Developed Technology Product or Pre-Selection Product, in each case, on either a
country-by-country or worldwide basis.
A country-by-country buy-out option may be exercised for any Developed
Technology Product or Pre-Selection Product in any country at any time after the
end of the twelfth calendar quarter during which the product was commercially
sold in such country. The buy-out price will be 15 times the payments made by or
due from Allergan to ASTI with respect to sales of such product in such country
for the four calendar quarters immediately preceding the quarter in which the
buy-out option is exercised. The global buy-out option may be exercised for any
Developed Technology Product or Pre-Selection Product at any time after the end
of the twelfth calendar quarter during which the product was commercially sold
in either the United States or two other Major Market Countries. The global
buy-out price will be (i) 20 times (a) the payments made by or due from Allergan
to ASTI for the relevant product, plus (b) such payments as would have been made
by or due from Allergan to ASTI if Allergan had not exercised any
country-specific buy-out option with respect to such product, in each case, for
the four calendar quarters immediately preceding the quarter in which the global
buy-out option is exercised, less (ii) any amounts previously paid to exercise
any country-specific buy-out option with respect to such product.
The Research and Development Agreement will terminate upon the exercise or
expiration of the Purchase Option; provided, however that Allergan's obligation
to pay Developed Technology Royalties and Pre-Selection Product Payments will
continue if the Purchase Option expires unexercised. Either party may terminate
the Research and Development Agreement if the other party (i) breaches a
material obligation thereunder or under the Technology License Agreement, the
License Option Agreement or any license thereunder (if such breach continues for
60 days after written notice by the terminating party), or (ii) enters into any
proceeding, whether voluntary or involuntary, in bankruptcy, reorganization or
similar arrangement for the benefit of creditors. In addition, ASTI's
expenditures under the Research and Development Agreement relating to an ASTI
Product in any country will terminate after exercise of the License Option for
such ASTI Product in such country if the development of such ASTI Product is
being continued by Allergan, alone or with a third party, and if Allergan elects
not to include ASTI in the continuing development activities related to the ASTI
Product. If Allergan does include ASTI in such development activities, ASTI may
continue to fund all or a portion of Research and Development Costs, even after
any arrangement with the third party has been executed, subject to ASTI's
continued approval of the work plans and cost estimates for the ASTI Product.
LICENSE OPTION AGREEMENT
Pursuant to the License Option Agreement, ASTI has granted the License
Option to Allergan pursuant to which Allergan may, on a product-by-product and
country-by-country basis, obtain from ASTI a perpetual, exclusive license (with
the right to sublicense) to research, develop, make, have made and use the
Licensed Product and to sell and have sold the Licensed Product in the country
or countries as to which the License Option is exercised (the "Territory").
Allergan may exercise the License Option with respect to any ASTI
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<PAGE> 44
Product on a country-by-country basis at any time until (i) with respect to the
United States, 30 days after FDA clearance to market such ASTI Product in the
United States and (ii) with respect to all other countries, 90 days after the
earlier of (a) clearance by the appropriate regulatory agency to market such
ASTI Product in such country, or (b) clearance by the FDA to market the ASTI
Product in the United States. The License Option will expire, to the extent not
previously exercised, 30 days after the expiration of the Purchase Option.
Allergan must exercise the License Option for any country prior to the date of
the first commercial sale of the ASTI Product in such country. Even if Allergan
exercises its License Option with respect to an ASTI Product, ASTI may continue
to fund the development of such product to the extent proposed by Allergan and
accepted by ASTI's Board of Directors.
If Allergan exercises the License Option for an ASTI Product, ASTI and
Allergan will enter into a License Agreement with respect to such product
(thereafter a "Licensed Product"), and Allergan will be required to use diligent
efforts to complete the research and development of and to commercialize such
Licensed Product in each Major Market Country covered by the License Agreement.
Allergan will devote to its commercialization efforts the same resources as
other pharmaceutical companies of similar size devote to products with similar
market potential and similar relative importance in their product portfolios and
may use reasonable discretion in allocation of its resources in performing such
obligations.
Allergan will make Product Payments to ASTI with respect to each Licensed
Product as follows: (a) if the Licensed Product is sold by Allergan, royalties
of up to a maximum of 6% of Net Sales of the Licensed Product determined as
follows: (i) 1% of Net Sales of the Licensed Product, plus (ii) an additional
0.1% of such Net Sales for each full $1 million of Research and Development
Costs of the Licensed Product paid by ASTI; and (b) if the Licensed Product is
sold by a third party, sublicensing fees of up to a maximum of 50% of
Sublicensing Revenues with respect to such Licensed Product determined as
follows: (i) 10% of such Sublicensing Revenues, plus (ii) an additional 1% of
Sublicensing Revenues for each full $1 million of Research and Development Costs
of the Licensed Product paid by ASTI. For purposes of determining the payments
due for any quarter, Research and Development Costs will be determined as of the
last day of the immediately preceding calendar quarter. Because the marketing
expenses associated with a newly introduced product during the first few years
after launch are generally significantly higher than those for an established
product, the Product Payments will not exceed 3% of Net Sales, on a quarterly
basis, for the first twelve calendar quarters during which the Licensed Product
is commercially sold in the first Major Market Country. As a result of this
provision, if a Licensed Product were to be cleared for marketing in a country
or countries that are not Major Market Countries prior to marketing clearance in
the first Major Market Country and Product Payments in such countries would
exceed 3% of Net Sales, the Product Payment rates in such countries will not
exceed 3% for the first twelve calendar quarters during which the Licensed
Product is commercially sold in the first Major Market Country.
In determining the payments due to ASTI with respect to any Licensed
Product, Net Sales by and Sublicensing Revenues of Allergan will be reduced by
the amount of any license or similar payments made by or due from Allergan to
third parties with respect to sales of such Licensed Product in the Territory.
It is possible that, to develop the ASTI Products, licenses or other
arrangements with third parties may be necessary or appropriate. Such
arrangements could also require payments by Allergan that would reduce the
Product Payments owed to ASTI.
Subject to Allergan's buy-out option described below, Product Payments will
commence on the date of the first commercial sale of such Licensed Product in
any country for which the License Option has been exercised. Allergan will make
such Product Payments, with respect to all countries for which the License
Option has been exercised, until 10 years after the first commercial sale of the
Licensed Product in the first Major Market Country in which such product is
commercially sold.
Allergan has the option to buy out ASTI's right to receive Product Payments
for any Licensed Product on either a country-by-country or global basis. A
country-specific buy-out option may be exercised for any Licensed Product at any
time after the end of the twelfth calendar quarter during which the product was
commercially sold in such country. The global buy-out option may be exercised
for any Licensed Product, for all countries for which Allergan has exercised the
License Option, at any time after the end of the twelfth calendar quarter during
which the product was commercially sold in either the United States or two other
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<PAGE> 45
Major Market Countries. The buy-out price in the case of a country-specific
buy-out will be 15 times the Product Payments made by or due from Allergan to
ASTI with respect to such Licensed Product in such country for the four calendar
quarters immediately preceding the quarter in which the buy-out option is
exercised. The buy-out price in the case of a global buy-out will be (i) 20
times (a) the Product Payments made by or due from Allergan to ASTI with respect
to the Licensed Product, plus (b) such Product Payments as would have been made
by or due from Allergan to ASTI if Allergan had not exercised any
country-specific buy-out option with respect to such Licensed Product, in each
case for the four calendar quarters immediately preceding the quarter in which
the global buy-out option is exercised, less (ii) any amounts previously paid to
exercise any country-specific buy-out option with respect to such Licensed
Product. In either case, the buy-out price will be computed as if Product
Payments were not limited to 3% of Net Sales during early marketing as described
above. At the time Allergan exercises the global buyout option for any Licensed
Product, the License Option for such product will expire for all countries for
which it has not been exercised.
If Allergan exercises the License Option for any ASTI Product, Allergan
will continue to own and have the right to use any clinical supplies, materials
and other assets purchased, manufactured or developed for use in the development
of such ASTI Product under approved work plans and cost estimates (the
"Development Assets"), without any additional payment to or reimbursement of
ASTI. To the extent Allergan does not exercise the License Option for any ASTI
Product prior to its expiration, or to the extent Allergan notifies ASTI that it
will not exercise its License Option for any ASTI Product, Allergan must make
Development Assets relating to such ASTI Product available to ASTI at no charge,
unless such Development Assets are being used under the Research and Development
Agreement.
During the term of the License Agreement for a Licensed Product, Allergan
will provide quarterly reports to ASTI detailing payments due for such period
with respect to the Licensed Product. Such reports will be due 90 days after the
end of each calendar quarter and will indicate the quantity and dollar amount of
Net Sales of or Sublicensing Revenue relating to the Licensed Product, or other
consideration in respect of Net Sales, during the quarter covered by such
report. No more than once in each calendar year upon reasonable notice and
during regular business hours, at ASTI's expense, Allergan is required to make
available for inspection by an independent public accountant selected by ASTI
such records of Allergan as may be necessary to verify the accuracy of reports
and payments made under the License Agreement. Allergan must provide similar
reports and records with respect to all Developed Technology Products and
Pre-Selection Products.
A License Agreement may be terminated by ASTI in the event that Allergan
(i) breaches any material obligation under the License Agreement (which breach
continues for a period of 60 days after written notice by ASTI) or (ii) enters
into any proceeding, voluntary or involuntary, in bankruptcy, reorganization or
similar arrangement for the benefit of its creditors. Allergan may terminate a
License Agreement as to any country upon 30 days' written notice to ASTI.
To the extent Allergan does not exercise the License Option with respect to
any ASTI Product, ASTI will retain exclusive rights to develop and commercialize
such ASTI Product.
PURCHASE OPTION
The Purchase Option is set forth in ASTI's Restated Certificate of
Incorporation. Pursuant to the Purchase Option, Allergan has an exclusive,
irrevocable option to purchase all, but not less than all, of the issued and
outstanding ASTI Shares. Allergan may exercise the Purchase Option by written
notice to ASTI at any time during the period beginning immediately after the
Distribution and ending on December 31, 2002; provided, that such date will be
extended for successive six month periods if, as of any June 30 or December 31
beginning with June 30, 2001, ASTI has not paid or accrued expenses for at least
95% of all Available Funds pursuant to the Research and Development Agreement.
The Purchase Option will in any case terminate on the 90th day after the date
(the "Statement Date") on which Allergan receives notice that the amount of cash
and marketable securities held by ASTI is less than $15 million. All
certificates evidencing ASTI Shares will bear a legend indicating that such ASTI
Shares are subject to the Purchase Option.
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<PAGE> 46
If the Purchase Option is exercised, the exercise price (the "Purchase
Option Exercise Price") will be the greatest of:
(a) (i) 25 times the aggregate of (a) all worldwide payments made by
and all worldwide payments due to be made by Allergan to ASTI with respect
to all Licensed Products, Developed Technology Products and Pre-Selection
Products for the four calendar quarters immediately preceding the quarter
in which the Purchase Option is exercised (the "Base Period") and (b) all
payments that would have been made and all payments due to be made by
Allergan to ASTI during the Base Period if Allergan had not previously
exercised its payment buy-out option with respect to any product; provided,
however, that, for the purposes of the foregoing calculation, for any
product which has not been commercially sold during each of the four
calendar quarters in the Base Period, Allergan will be deemed to have made
Product Payments, Developed Technology Royalties and Pre-Selection Product
Payments to ASTI for each such quarter equal to the average of the payments
made during each of such calendar quarters during which such product was
commercially sold, less (ii) any amounts previously paid to exercise any
payment buy-out option for any product;
(b) the fair market value of 500,000 shares of Allergan Common Stock
determined as of the date Allergan provides notice of its intention to
exercise its Purchase Option;
(c) $250 million less the aggregate amount of all Technology Fee
payments and Research and Development Costs paid or incurred by ASTI as of
the date the Purchase Option is exercised; or
(d) $60 million.
In each case, the amount payable as the Purchase Option Exercise Price will
be reduced to the extent, if any, that ASTI's liabilities at the time of
exercise (other than liabilities under the Research and Development Agreement,
the Services Agreement and the Technology License Agreement) exceed ASTI's cash
and cash equivalents and short-term and longterm investments (excluding the
amount of Available Funds remaining at such time). For this purpose, liabilities
will include, in addition to liabilities required to be reflected on ASTI's
financial statements under generally accepted accounting principles, certain
contingent liabilities relating to guarantees and similar arrangements.
Allergan may pay the Purchase Option Exercise Price in cash, in Allergan
Common Stock registered under the Securities Act of 1933, or in any combination
of cash and Allergan Common Stock. For the purpose of determining either the
Purchase Option Exercise Price or the fair market value of the Allergan Common
Stock to be issued in payment thereof, the fair market value of Allergan Common
Stock shall be deemed to be the average of the closing sales price of Allergan
Common Stock on the New York Stock Exchange for the 20 trading days ending with
the trading day that is two trading days prior to the date of exercise of the
Purchase Option.
The closing of the acquisition of the ASTI Shares pursuant to exercise of
the Purchase Option will take place on a date selected by Allergan, but no later
than 60 days after the exercise of the Purchase Option unless, in the judgment
of Allergan, a later date is required to satisfy any applicable legal
requirements or to obtain required consents. Between the time of exercise of the
Purchase Option and the time of closing of the acquisition of the ASTI Shares,
ASTI may not, without Allergan's consent, incur additional debt, dispose of
assets, pay or declare any dividends or operate its business other than in the
ordinary course.
Allergan's election, ASTI may redeem on such closing date the ASTI Shares
for an aggregate redemption price equal to the final Purchase Option Exercise
Price. Any such redemption would be in lieu of Allergan paying the final
Purchase Option Exercise price directly to holders of ASTI Shares, and would be
subject to Allergan providing the final Purchase Option Exercise Price to ASTI
to allow ASTI to pay the redemption price.
In the event that prior to Allergan's exercise of the Purchase Option, the
number of outstanding shares of Allergan Common Stock is increased by virtue of
a stock split or a dividend payable in Allergan Common Stock or the number of
such shares is decreased by virtue of a combination or reclassification of such
shares, then the number of shares of Allergan Common Stock used to compute the
Purchase Option Exercise Price (if the Purchase Option Exercise Price is the
fair market value of 500,000 shares of Allergan Common Stock)
43
<PAGE> 47
shall be increased or decreased, as the case may be, in proportion to such
increase or decrease in the number of outstanding shares of Allergan Common
Stock.
DISTRIBUTION AGREEMENT
Under the Distribution Agreement, Allergan will contribute $200 million in
cash to ASTI in exchange for all of the shares of ASTI Common Stock outstanding
prior to the Distribution, and will distribute the ASTI Shares to the Holders.
Under the Distribution Agreement, Allergan has agreed to indemnify ASTI's
officers and directors to the same extent such persons are entitled to
indemnification under ASTI's Restated Certificate of Incorporation if Allergan
exercises the Purchase Option.
SERVICES AGREEMENT
ASTI and Allergan have entered into a Services Agreement pursuant to which
Allergan has agreed to provide ASTI with administrative services, including
accounting and legal services, and other services as mutually agreed on a
fully-burdened cost reimbursement basis.
The initial term of the Services Agreement expires on December 31, 1998,
but such agreement will be renewed automatically for successive one-year terms
during the term of the Research and Development Agreement, until six months
after the expiration of the Purchase Option. ASTI may terminate the Services
Agreement at any time upon 60 days' written notice.
44
<PAGE> 48
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion sets forth the opinion of Cooley Godward LLP with
respect to certain material federal income tax considerations under the Internal
Revenue Code of 1986, as amended (the "Code"), with respect to the ASTI Shares,
cash in lieu of fractional ASTI Shares, or both ASTI Shares and cash distributed
to Holders in the Distribution. THIS DISCUSSION DOES NOT ADDRESS THE TAX
CONSEQUENCES OF THE ACQUISITION OF ASTI SHARES BY PURCHASE OR MEANS OTHER THAN
THE DISTRIBUTION. In addition, this discussion is intended only to provide
general information regarding Holders that are subject to United States federal
income tax; it may not address all relevant federal income tax consequences to
such persons or to other categories of Holders, e.g., foreign persons, dealers
in securities, and Holders that are exempt from federal income tax. This
discussion is based upon the Code, Treasury Regulations (including proposed
Treasury Regulations) promulgated thereunder, rulings, official pronouncements
and judicial decisions all as in effect on the date hereof and all of which are
subject to change or different interpretations by the Internal Revenue Service
("IRS") or the courts, any of which changes or interpretations may have
retroactive effect. Cooley Godward LLP has disclaimed any undertaking to advise
as to any change in the law that may affect its opinion, including changes that
may be made under currently pending legislative proposals, and has expressed no
opinion as to the laws of any jurisdictions other than the federal income tax
laws of the United States of America. An opinion of counsel does not bind the
IRS, which could take a contrary position, but represents only counsel's
judgment as to the likely outcome if the issues involved were properly presented
to a court of competent jurisdiction. This discussion assumes that the ASTI
Shares will at all relevant times constitute capital assets of the Holders. This
discussion does not address state, local, or foreign tax considerations. HOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS. Cooley Godward LLP acted as United
States federal income tax counsel to Allergan and assisted in preparing this
Prospectus.
TAXABILITY OF THE DISTRIBUTION TO HOLDERS OF ALLERGAN COMMON STOCK
The fair market value of ASTI Shares, plus the cash intended to represent
the fair market value of a fractional ASTI Share (together, the "Taxable
Amount"), distributed to a Holder of Allergan Common Stock will constitute a
dividend taxable as ordinary income to the extent that Allergan has current or
accumulated "earnings and profits" as of the end of the taxable year in which
the Distribution occurs that are allocable to the Distribution for federal
income tax purposes. Assuming that there will be a public market for the ASTI
Shares at the time of the Distribution, the fair market value of an ASTI Share
to a Holder for this purpose is expected to be the average of the high and low
trading price on the date of the Distribution or if such date is not a trading
day, on the first trading day following the Distribution. However, if the
Taxable Amount exceeds the Holder's allocable share of Allergan's current and
accumulated earnings and profits for federal income tax purposes determined as
of the end of Allergan's fiscal year ending December 31, 1998, the excess will
generally be treated first as a basis-reducing, tax-free return of capital to
the extent of the Holder's basis in the Holder's Allergan Common Stock, and
after this basis is reduced to zero, as either short-term, mid-term or long-term
capital gain. Allergan's management has advised that, based on the information
currently available, Allergan's accumulated earnings and profits at December 31,
1998 is expected to be such that the Taxable Amount will not exceed the Holder's
allocable share of such earnings and profits.
No later than February 2, 1999, Allergan will issue to each Holder of
Allergan Common Stock receiving ASTI Shares in the Distribution an IRS Form
1099-DIV reflecting the fair market value of the ASTI Shares (and any amount of
cash received in lieu of fractional ASTI Shares) distributed to such Holder, as
well as any portion of the Taxable Amount exceeding such Holder's allocable
share of Allergan's current and accumulated earnings and profits.
To the extent that the Taxable Amount constitutes ordinary income, it will
generally be subject to back-up withholding with respect to Holders who, before
the Distribution, have not provided their correct taxpayer identification
numbers to Allergan on an IRS Form W-9 or a substitute therefor. Although this
discussion does not generally address tax consequences of the Distribution to
foreign Holders of Allergan Common Stock, such Holders should note that
distribution of the Taxable Amount will generally be subject to U.S. withholding
tax at the rate of 30%. This rate may be reduced by income tax treaties to which
the United States
45
<PAGE> 49
is a party. Non-resident alien individuals, foreign corporations and other
foreign Holders are urged to consult their own tax advisors regarding the
availability of such reductions and the procedures for claiming them.
For corporate Holders of Allergan Common Stock, the Taxable Amount will be
eligible for a "dividends-received" deduction, subject to limitations and
exclusions provided by the Code, if the Purchase Option is "significantly out of
the money" for at least 46 days during the 90-day period beginning 45 days
before the Allergan Common Stock becomes ex-dividend with respect to the
Distribution. However, for corporate Holders of Allergan Common Stock, the
Taxable Amount will be subject to the Code's extraordinary dividend rules, which
could reduce a corporate Holder's basis in its Allergan Common Stock by the
amount of the deduction, if the Taxable Amount equals at least 10% of the
Holder's basis. Moreover, to the extent that the untaxed distribution exceeds
the corporate Holder's basis, gain will be recognized.
SALE OF ASTI SHARES
Upon the sale of ASTI Shares, the Holder will have a capital gain or loss
equal to the difference between the sale price and the Holder's basis in the
ASTI Shares sold. This gain or loss will be short-term if the ASTI Shares have a
holding period of one year or less on the sale date. For individuals, short-term
capital gain is subject to federal income tax at a maximum rate of 39.6%; under
recently enacted federal income tax legislation, capital gain from assets like
ASTI Shares, that have a holding period of more than a year on the sale date, is
subject to federal income tax at rates that vary from 28% to 10%, depending upon
the taxpayer's income level and the length of the holding period. If the holding
period is more than one year but not more than 18 months, the maximum stated
federal income tax rate upon sale is 28%. If the holding period is more than 18
months, the maximum stated federal income tax rate is 20%. (The phase-out or
elimination of certain deductions and exemptions at higher income levels has the
effect of raising the marginal tax rate at those levels for other income of the
taxpayer.) These rules are new and complex and have not yet been interpreted by
the IRS or the courts. In addition, the combination of the ASTI Shares and the
Purchase Option may be deemed a "straddle," with the result that the holding
period of ASTI Shares would not begin until such date as the Purchase Option is
exercised or expires. There is presently no difference in federal income tax
rates between ordinary income and capital gains of corporations. Limitations may
apply to deduction of capital loss.
A Holder's initial basis in ASTI Shares received in the Distribution will
be the fair market value of those ASTI Shares at the time of the Distribution.
EXERCISE OF PURCHASE OPTION
If Allergan exercises its Purchase Option solely by delivering Allergan
Common Stock in exchange for ASTI Shares, no gain or loss will be taxable to the
Holders of ASTI Shares upon the exchange if: (a) exercise of the Purchase Option
constitutes a "plan of reorganization" for purposes of Section 368(a)(1)(B) of
the Code, (b) no consideration other than Allergan Common Stock and cash in lieu
of fractional shares is deemed to be paid by Allergan upon exercise of the
Purchase Option, and (c) the other requirements of Section 368(a)(1)(B) are
satisfied. If the requirements for tax-free treatment are not satisfied (e.g.,
if Allergan delivers cash (other than cash in lieu of fractional shares) or both
cash (other than cash in lieu of fractional shares) and Allergan Common Stock in
exchange for ASTI Shares), Holders of ASTI Shares will have a capital gain or
loss due to Allergan's exercise of the Purchase Option equal to the difference
between (a) the sum of the cash and the fair market value of the Allergan Common
Stock (and any other deemed consideration) received and (b) the Holder's basis
in the ASTI Shares surrendered. Gain or loss due to the exercise of the Purchase
Option should be short-term if the ASTI Shares have been held for one year or
less at the time of the closing of the exercise of the Purchase Option. If the
holding period is more than one year but not more than 18 months, the maximum
stated federal income tax rate is 28%. If the holding period is more than 18
months, the maximum stated federal income tax rate is 20%. However, the
combination of the ASTI Shares and the Purchase Option may be deemed a
"straddle," with the result that the holding period of ASTI Shares would not
begin until such date as the Purchase Option is exercised and that capital gain
or loss upon exercise of the Purchase Option would be short-term. Limitations
may apply to deduction of capital loss.
46
<PAGE> 50
EXPIRATION OF PURCHASE OPTION
If the Purchase Option expires unexercised, each Holder of ASTI Shares on
the date it expires may have short-term capital gain in the amount of the fair
market value of the portion of the Purchase Option covering the Holder's ASTI
Shares on the date of the Distribution; any such gain would increase the
Holder's basis in the ASTI Shares. Allergan believes that the fair market value
of the Purchase Option is not readily ascertainable. Each Holder of ASTI Shares
should consult his or her own tax adviser as to what amount, if any, should be
reported as gain if the Purchase Option expires unexercised.
47
<PAGE> 51
DESCRIPTION OF ASTI CAPITAL STOCK
At the time of the Distribution, ASTI's authorized capital stock will
consist of 6,000,000 ASTI Shares and 1,000 shares of ASTI Class B Common Stock
(together with ASTI Shares, the "ASTI Common Stock").
Holders of ASTI Common Stock will be entitled to receive dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor. Available Funds may not be used to pay dividends. In the event of a
liquidation, dissolution or winding up of ASTI, holders of ASTI Common Stock
will be entitled to receive, pro rata, all remaining assets of ASTI available
for distribution to stockholders.
No preemptive rights, conversion rights or sinking fund provisions will be
applicable to ASTI Shares. Upon completion of this Distribution, all outstanding
ASTI Shares will be fully paid and nonassessable and will not be subject to any
liability for further call. The ASTI Shares will be subject to the Purchase
Option and certificates representing such shares and book-entry account
statements will bear a legend to that effect. See "The Agreements and the
Purchase Option -- Purchase Option."
No preemptive rights, redemption rights or sinking fund provisions will be
applicable to the ASTI Class B Common Stock. Each share of the ASTI Class B
Common Stock, all of which are held by Allergan, will automatically convert into
one ASTI Share upon such date as the Purchase Option expires.
Until the expiration of the Purchase Option, Allergan, as the sole holder
of the ASTI Class B Common Stock, will be entitled to vote separately as a class
with respect to any merger or liquidation of ASTI, the sale, lease, exchange,
transfer or other disposition of any substantial asset of ASTI, and any
amendments to the Restated Certificate of Incorporation of ASTI that would alter
the Purchase Option, ASTI's authorized capitalization, or the provisions of the
Restated Certificate of Incorporation governing ASTI's Board of Directors.
Accordingly, Allergan could preclude the holders of the ASTI Shares from taking
any of the foregoing actions during such period. Prior to exercise of the
Purchase Option, the holders of the ASTI Class B Common Stock, voting as a
separate class, will be entitled to elect one director, and the holders of the
ASTI Shares will be entitled to elect up to four directors. Upon exercise of the
Purchase Option, Allergan, as the sole holder of the ASTI Class B Common Stock,
will have the right to elect all of the ASTI directors and to remove directors
with or without cause. On all other matters, holders of the ASTI Shares and ASTI
Class B Common Stock will vote together as a single class. Holders of ASTI
Common Stock will have one vote for each share of ASTI Common Stock held by
them.
Only the ASTI Board of Directors, the Chairman of the Board or the
President may call special meetings of the ASTI stockholders. The approval of
the holder of the ASTI Class B Common Stock is required to amend the provisions
of ASTI's Restated Certificate of Incorporation and bylaws governing the number
and classification of the Board of Directors and certain related matters. The
provisions of ASTI's Restated Certificate of Incorporation granting special
voting rights to the holder or holders of the ASTI Class B Common Stock and
eliminating the right of ASTI stockholders to call special meetings of
stockholders may inhibit a change in control of ASTI.
48
<PAGE> 52
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the ASTI Shares is First Chicago Trust
Company of New York, P.O. Box 2500, Jersey City, New Jersey 07303-2500, (201)
324-1644; email address: [email protected]; website: http://www.fctc.com.
EXPERTS
The balance sheet of Allergan Specialty Therapeutics, Inc. as of November
17, 1997 has been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
LEGAL MATTERS
The statements included in this Prospectus under the caption "Certain
Federal Income Tax Consequences" have been reviewed by, and the validity of the
ASTI Shares offered hereby will be passed upon by, Cooley Godward LLP, San
Diego, California, Allergan's and ASTI's counsel.
49
<PAGE> 53
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of KPMG Peat Marwick LLP, Independent Auditors................................. F-2
Allergan Specialty Therapeutics, Inc. Balance Sheet and Notes to Balance Sheet........ F-3
Allergan Specialty Therapeutics, Inc. Pro Forma Balance Sheet and Notes to Pro Forma
Balance Sheet....................................................................... F-5
</TABLE>
F-1
<PAGE> 54
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Allergan Specialty Therapeutics, Inc.:
We have audited the accompanying balance sheet of Allergan Specialty
Therapeutics, Inc. as of November 17, 1997. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit of a balance sheet includes examining, on a test basis, evidence
supporting the amounts and disclosures in that balance sheet. An audit of a
balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Allergan Specialty Therapeutics,
Inc. as of November 17, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Costa Mesa, California
November 17, 1997
F-2
<PAGE> 55
ALLERGAN SPECIALTY THERAPEUTICS, INC.
BALANCE SHEET
NOVEMBER 17, 1997
<TABLE>
<S> <C>
ASSETS
Cash................................................................................ $1,000
======
STOCKHOLDER'S EQUITY (NOTE 2)
Common Stock, $1.00 par value,
100 shares authorized, 100 shares issued and outstanding.......................... $ 100
Additional paid-in capital.......................................................... 900
------
Total stockholder's equity.......................................................... $1,000
======
</TABLE>
F-3
<PAGE> 56
ALLERGAN SPECIALTY THERAPEUTICS, INC.
NOTES TO BALANCE SHEET
NOVEMBER 17, 1997
1. ORGANIZATION AND OWNERSHIP
Allergan Specialty Therapeutics, Inc. (the "Company") was incorporated on
November 12, 1997 in the state of Delaware for the purpose of conducting
research and development of potential human pharmaceutical products, and to
commercialize such products, most likely through licensing to Allergan, Inc.
("Allergan").
The Company has not yet commenced significant operations, and its only
activity to date has been the initial funding provided by Allergan, which owns
all of the Company's outstanding Common Stock. Accordingly, no statement of
operations or statement of cash flows is presented.
2. COMMON STOCK
Prior to the closing of the distribution contemplated by the Prospectus, of
which this balance sheet is a part (the "Prospectus"), the Company intends to
restate its Certificate of Incorporation to provide for Class A Common Stock and
Class B Common Stock. The common stockholders of Allergan will receive one share
of Allergan Specialty Therapeutics, Inc. Class A Common Stock for each 20 shares
of Allergan Common Stock held on the record date. The shares of the Company's
Common Stock owned by Allergan on the date on which the Restated Certificate of
Incorporation is filed will be converted into 1,000 shares of Class B Common
Stock.
3. CERTAIN TRANSACTIONS WITH ALLERGAN
The Company expects to enter into certain agreements with Allergan in early
1998 including a Technology License Agreement, a Research and Development
Agreement, a License Option Agreement, a Services Agreement and a Distribution
Agreement. In addition, under the Company's Restated Certificate of
Incorporation, Allergan will have an option, for a specified period, to purchase
all of the outstanding shares of Class A Common Stock. For further information
with respect to such agreements and the purchase option, see "The Agreements and
the Purchase Option" in the Prospectus.
F-4
<PAGE> 57
ALLERGAN SPECIALTY THERAPEUTICS, INC.
PRO FORMA BALANCE SHEET
NOVEMBER 18, 1997
The following pro forma balance sheet should be read in conjunction with
the audited balance sheet and notes of Allergan Specialty Therapeutics, Inc. as
of November 17, 1997. The pro forma balance sheet is presented to show the
financial position of ASTI following the receipt of $200,000,000 in cash from
Allergan, the conversion of 100 shares of Common Stock owned by Allergan into
1,000 shares of Class B Common Stock, and the issuance to Allergan of ASTI
Shares prior to the Distribution.
<TABLE>
<CAPTION>
ASSETS
PRO FORMA AS ADJUSTED
UNADJUSTED ADJUSTMENTS AS OF NOVEMBER 18, 1997
---------- ------------ -----------------------
<S> <C> <C> <C>
Cash........................................... $1,000 $199,999,000(a) $200,000,000
------ ------------ ------------
STOCKHOLDER'S EQUITY
Common Stock, $1.00 par value, 100 shares
authorized, 100 shares issued and outstanding
(none as adjusted)........................... $ 100 $ (100)(b) $ --
Class A Common Stock, $.01 par value; 6,000,000
shares authorized; 3,262,400 shares to be
issued and outstanding as adjusted........... -- 32,624 (c) 32,624
Class B Common Stock, $1.00 par value;
1,000 shares authorized; 1,000 shares to be
issued and outstanding as adjusted........ -- 1,000 (b) 1,000
Additional paid-in capital..................... 900 (32,624)(c)
(900)(b)
199,999,000 (a) 199,966,376
------ ------------ ------------
Total stockholder's equity........... $1,000 $199,999,000 $200,000,000
====== ============ ============
</TABLE>
- ---------------
(a) To reflect the receipt of the remainder of the $200,000,000 contribution
from Allergan.
(b) To reflect the conversion of 100 shares of Common Stock held by Allergan
into 1,000 shares of Class B Common Stock.
(c) To reflect the issuance of 3,262,400 ASTI Shares.
F-5
<PAGE> 58
EXHIBIT A
Investment Banking
Corporate and
Institutional
Client Group
3300 Hillview Avenue
Suite 150
Palo Alto, California
94304
[LOGO]
, 1998
Board of Directors
Allergan, Inc.
2525 Dupont Drive
Irvine, CA 92612
Ladies and Gentlemen:
You have advised us that Allergan, Inc. ("Allergan") intends to distribute
(the "Distribution") to its stockholders shares (the "ASTI Shares") of Class A
Common Stock of Allergan Specialty Therapeutics, Inc. ("ASTI"). The Distribution
is described in detail in the prospectus (the "Prospectus"), filed as part of a
registration statement on Form S-1 file no. 333- , which is to be sent to
Allergan stockholders in connection with the Distribution. You have asked us for
our opinion as to whether or not (a) from a financial point of view, the
Distribution provides a reasonable structure to pursue the financial objectives
of Allergan as set forth in the Prospectus, and (b) from a financial point of
view, the Distribution is fair to the stockholders of Allergan.
In arriving at the opinion set forth below, we have, among other things:
1. reviewed the Prospectus including the following items as presented
therein: (i) the terms and conditions of the Distribution, (ii) the
Distribution Agreement, (iii) the Technology License Agreement, (iv) the
Research and Development Agreement, (v) the License Option Agreement and
(vi) the Restated Certificate of Incorporation of ASTI including the
Purchase Option;
2. conducted discussions with members of the senior management of
Allergan with respect to the businesses and prospects of Allergan and ASTI
and the strategic objectives of each;
3. conducted discussions concerning the Distribution with other
representatives and advisors of Allergan, including its independent public
accountants;
4. reviewed the financial and other information concerning Allergan
(with and without ASTI) that was publicly available or furnished to us by
Allergan, including information provided during discussions with the senior
management of Allergan;
5. reviewed historical trading prices and volume of the Common Stock
of Allergan ("Allergan Common Stock"); and
6. reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available (including the
information contained in the Prospectus), and we have not assumed any
responsibility for independently verifying such information or undertaken an
independent evaluation or appraisal of any of the assets or liabilities of
Allergan (with or without ASTI) or been furnished with any such evaluation or
appraisal. In addition, we have not assumed any obligation to conduct, nor have
we conducted, any physical inspection of the properties or facilities of
Allergan. With respect to the financial forecast information furnished to or
discussed with us by Allergan, we have assumed it has been reasonably prepared
and reflects
A-1
<PAGE> 59
the best currently available estimates and judgment of Allergan's management as
to the expected future financial performance of Allergan and ASTI.
We have also assumed that: (i) the Distribution will occur as described in
the Prospectus, (ii) the Distribution will not be a taxable transaction to
Allergan, and (iii) after the Distribution, ASTI will be accounted for as an
entity independent of Allergan.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We note that trading in shares of Allergan Common
Stock and the ASTI Shares for a period following completion of the Distribution
may be characterized by a redistribution of the shares of Allergan Common Stock
and the ASTI Shares among existing Allergan stockholders and other investors
and, accordingly, during such period, the shares of Allergan Common Stock and
the ASTI Shares may trade at prices below those at which they would trade on a
fully distributed basis. This opinion does not opine on or give assurances of
the price at which the shares of Allergan Common Stock will actually trade after
the announcement date of the Distribution or the price at which the ASTI Shares
will actually trade after the Distribution. In addition, this opinion does not
address the valuation or future performance of ASTI as an independent public
company following the Distribution. We express no opinion as to whether the
funds contributed by Allergan to ASTI will be adequate to accomplish the
objective of successfully developing the intended pharmaceutical products.
We are acting as financial advisor to Allergan in connection with the
Distribution and will receive a fee for our services, which fee is contingent
upon the consummation of the Distribution. In addition, Allergan has agreed to
indemnify us for certain liabilities arising out of our engagement. We have, in
the past, provided financial advisory and financing services to Allergan and may
continue to do so and have received, and may receive, fees for the rendering of
such services. In addition, in the ordinary course of our business, we may
actively trade Allergan Common Stock, and we may, in the future, trade the ASTI
Shares for our own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of
Allergan.
On the basis of and subject to the foregoing, as of the date hereof, it is
our opinion that (a) from a financial point of view, the Distribution provides a
reasonable structure to pursue the financial objectives of Allergan as set forth
in the Prospectus, and (b) from a financial point of view, the Distribution is
fair to the stockholders of Allergan. Our conclusions are based on information
available to us as of the date of this letter.
Very truly yours,
A-2
<PAGE> 60
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY ASTI. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF ANY OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF ASTI OR THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Summary............................... 3
Glossary.............................. 13
Risk Factors.......................... 16
The Distribution...................... 21
ASTI Capitalization................... 22
Reasons for the Distribution and
Effects on Allergan, Inc............ 23
Business of ASTI...................... 25
Selected Financial Data of ASTI....... 36
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 37
The Agreements and the Purchase
Option.............................. 38
Certain Federal Income Tax
Considerations...................... 44
Description of ASTI Capital Stock..... 47
Transfer Agent and Registrar.......... 48
Experts............................... 48
Legal Matters......................... 48
Index to Financial Statements......... F-1
Opinion of Merrill Lynch, Pierce,
Fenner & Smith Incorporated......... A-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE ASTI CLASS A COMMON STOCK OFFERED HEREBY,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS.
======================================================
======================================================
[LOGO]
ALLERGAN SPECIALTY
THERAPEUTICS, INC.
CLASS A
COMMON STOCK
------------------------
PROSPECTUS
------------------------
, 1998
======================================================
<PAGE> 61
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses incurred by Allergan
and ASTI in connection with the distribution of the securities being registered
which will be paid by Allergan. All amounts are estimated except the SEC
Registration Fee and the Nasdaq National Market Application Fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................... $60,607
Nasdaq National Market Application Fee............................. 21,250
Financial Advisory Fee............................................. *
Blue Sky Qualification Fees and Expenses........................... *
Accounting Fees and Expenses....................................... *
Legal Fees and Expenses (including Blue Sky)....................... *
Transfer Agent and Registrar Fees.................................. 65,000
Printing and Engraving............................................. 65,000
Miscellaneous...................................................... *
--------
Total.............................................................. *
========
</TABLE>
- ---------------
* To be completed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102 of the Delaware General Corporation Law allows a corporation to
eliminate the personal liability of directors of a corporation to the
corporation or to any of its stockholders for monetary damage for a breach of
his or her fiduciary duty as a director, except in the case where the director
breached his or her duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or knowingly violated a law, authorized the payment of a
dividend or approved a stock repurchase in violation of Delaware corporate law
or obtained an improper personal benefit. ASTI's Restated Certificate of
Incorporation contains a provision that eliminates directors' personal liability
as set forth above.
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was a director, officer, employee or
agent of the corporation or is or was serving at its request in such capacity in
another corporation or business association against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful.
In addition, Article 10 of ASTI's Restated Certificate of Incorporation
provides as follows:
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS.
(A) ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS. No director of this
corporation shall be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a
director except, to the extent provided by applicable law, for liability
(i) for any breach of the director's duty of loyalty to this corporation or
its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit.
No amendment to or repeal of this article shall apply to or have any effect
on
II-1
<PAGE> 62
the liability or alleged liability of any director of this corporation for
or with respect to any acts or omissions of such director occurring prior
to such amendment.
(B) INDEMNIFICATION AND INSURANCE.
(1) RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding"), because he or she, or a person of whom
he or she is the legal representative, is or was a director or officer
of this corporation or is or was serving at the request of this
corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other
enterprise (including service with respect to employee benefit plans),
whether the basis of the proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall
be indemnified and held harmless by this corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits this
corporation to provide broader indemnification rights than that law
permitted this corporation to provide before such amendment), against
all expense, liability and loss (including attorneys' fees, judgments,
penalties, fines, Employee Retirement Income Security Act of 1974 excise
taxes or penalties, and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith;
provided, however, that this corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if the proceeding (or part
thereof) was authorized by the Board of Directors of this corporation.
Such indemnification shall continue as to a person who has ceased to be
a director or officer of this corporation and shall inure to the benefit
of his or her heirs, executors and administrators. The right to
indemnification conferred by this Section shall be a contract right
which may not be retroactively amended and shall include the right to be
paid by this corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that
the payment of such expenses incurred by a director or officer in his or
her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or
officer, including, without limitation, service with respect to an
employee benefit plan) in advance of the final disposition of the
proceeding shall be made only upon delivery to this corporation of an
undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if ultimately it shall be determined that such
director or officer is not entitled to be indemnified under this Section
or otherwise. This corporation may, by action of its Board of Directors,
provide indemnification to employees and agents of this corporation with
the same scope and effect as the indemnification of directors and
officers.
(2) RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Paragraph 1
of this Section is not paid in full by this corporation within ninety
(90) days after a written claim has been received by this corporation,
the claimant may at any time thereafter bring suit against this
corporation to recover the unpaid amount of the claim and, if successful
in whole or in part, the claimant shall be entitled to be paid also the
expense of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition
where the required undertaking, if any, has been tendered to this
corporation) that the claimant has not met the standards of conduct
which make it permissible under the Delaware General Corporation Law for
this corporation to indemnify the claimant for the amount claimed, but
the burden of proving such defense shall be on this corporation. Neither
the failure of this corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because
he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by this
corporation (including its Board of Directors, independent legal
counsel, or its stockholders) that the
II-2
<PAGE> 63
claimant has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that claimant has not met
the applicable standard of conduct.
(3) NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, provision of this Restated Certificate of Incorporation, bylaw,
agreement, vote of stockholders or disinterested directors, or
otherwise.
(4) INSURANCE. This corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent
of this corporation or another corporation, partnership, joint venture,
trust or other enterprise against any such expense, liability or loss,
whether or not this corporation would have the power to indemnify such
person against such expense, liability or loss under the Delaware
General Corporation Law.
ASTI intends to purchase directors and officers liability insurance which
would indemnify the directors and officers of ASTI against damages arising out
of certain kinds of claims which might be made against them based on their
negligent acts or omissions while acting in their capacity as such.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In November 1997, ASTI sold 100 shares of Common Stock to Allergan for an
aggregate cash purchase price of $1,000 in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereof. In connection with the Distribution contemplated by the Registration
Statement, the 100 shares of Common Stock held by Allergan will be converted
into 1,000 shares of Class B Common Stock in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 3(a)(9)
thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
3.1 Certificate of Incorporation of ASTI*
3.2 Bylaws of ASTI
3.3 Form of Restated Certificate of Incorporation of ASTI (to be effective prior
to the Distribution)
4.1 Specimen Certificate of Class A Common Stock of ASTI+
5.1 Form of Opinion of Cooley Godward LLP as to legality of ASTI Shares*
8.1 Opinion of Cooley Godward LLP as to tax matters*
10.1 Form of Technology License Agreement between Allergan and ASTI
10.2 Form of Research and Development Agreement between Allergan and ASTI
10.3 Form of License Option Agreement between Allergan and ASTI
10.4 Form of Services Agreement between Allergan and ASTI
10.5 Form of Distribution Agreement between Allergan and ASTI
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1)+
23.3 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated+
24.1 Power of Attorney (Reference is made to page II-5)
27.1 Financial Data Schedule+
</TABLE>
- ---------------
* Previously filed.
+ To be filed by amendment.
II-3
<PAGE> 64
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(1) For purpose of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to the provisions set forth
in Item 14 above, or otherwise, the Registrant has been advised in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred,
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and the Registrant will be governed by the final
adjudication of such issue.
II-4
<PAGE> 65
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Allergan
Specialty Therapeutics, Inc. has duly caused this Amendment to the Registration
Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Irvine, State of California on December 15,
1997.
ALLERGAN SPECIALTY THERAPEUTICS, INC.
By: *
------------------------------------
Lester J. Kaplan, Ph.D.,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
* President, Chief December 15, 1997
- ----------------------------------------------- Executive Officer and
Lester J. Kaplan, Ph.D. Sole Director
(Principal Executive
Officer)
* Chief Financial Officer December 15, 1997
- ----------------------------------------------- (Principal Financial
Dwight J. Yoder and Accounting Officer)
*By: /s/ FRANCIS R. TUNNEY, JR.
------------------------------------------
Francis R. Tunney, Jr.
Attorney-in-fact
</TABLE>
II-5
<PAGE> 66
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
3.1 Certificate of Incorporation of ASTI*
3.2 Bylaws of ASTI
3.3 Form of Restated Certificate of Incorporation of ASTI (to be effective prior
to the Distribution)
4.1 Specimen Certificate of Class A Common Stock of ASTI+
5.1 Form of Opinion of Cooley Godward LLP as to legality of ASTI Shares*
8.1 Opinion of Cooley Godward LLP as to tax matters*
10.1 Form of Technology License Agreement between Allergan and ASTI
10.2 Form of Research and Development Agreement between Allergan and ASTI
10.3 Form of License Option Agreement between Allergan and ASTI
10.4 Form of Services Agreement between Allergan and ASTI
10.5 Form of Distribution Agreement between Allergan and ASTI
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1)+
23.3 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated+
24.1 Power of Attorney (Reference is made to page II-5)
27.1 Financial Data Schedule+
</TABLE>
- ---------------
* Previously filed.
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
ALLERGAN SPECIALTY THERAPEUTICS, INC.
ARTICLE I
REGISTERED OFFICE AND REGISTERED AGENT
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
shall be in the City of Dover, County of Kent, State of Delaware.
SECTION 2. OTHER OFFICES. The corporation may also have offices at such
other places, both within or without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 3. TIME AND PLACE OF MEETINGS. All meetings of the stockholders
shall be held at such time and place, either within or without the State of
Delaware, as shall be fixed by the Board of Directors and stated in the notice
or waiver of notice of the meeting.
SECTION 4. ANNUAL MEETING. An annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting, shall be held on such date and at such time
and place as the Board of Directors shall each year designate.
SECTION 5. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose or purposes prescribed in the notice of meeting, may be called only
by the Board of Directors, the Chairman of the Board or the President of the
corporation.
SECTION 6. NO ACTION WITHOUT MEETING. Except as otherwise provided in
the Certificate of Incorporation, at any time when the corporation has more than
one stockholder of any class of capital stock, no action required to be taken or
which may be taken at any annual or special meeting of the stockholders of such
class of capital stock of the corporation may be taken without a meeting, and
the power of stockholders to consent in writing, without a meeting, to the
taking of any action is specifically denied.
1.
<PAGE> 2
SECTION 7. NOTICE.
(a) Written notice of the place, date, and time of all meetings
of the stockholders shall be given, not less than ten (10) nor more than sixty
(60) days before the date on which the meeting is to be held, to each
stockholder entitled to vote at such meeting, except as otherwise provided
herein or required by law (meaning, here and hereinafter, as required from time
to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the corporation).
(b) When a meeting is adjourned to another place, date or time,
written notice need not be given of the adjourned meeting if the place, date and
time thereof are announced at the meeting at which the adjournment is taken and
the adjournment is not for more than thirty (30) days; provided however, that if
the date of any adjourned meeting is more than thirty (30) days after the date
for which the meeting was originally noticed, or if a new record date is fixed
for the adjourned meeting, written notice of the place, date, and time of the
adjourned meeting shall be given in conformity herewith. At any adjourned
meeting, any business may be transacted which might have been transacted at the
original meeting.
SECTION 8. NOMINATIONS AND PROPOSALS.
(a) The Board of Directors of the corporation may nominate
candidates for election as directors of the corporation and may propose such
other matters for approval of the stockholders as the board deems necessary or
appropriate.
(b) Any stockholder entitled to vote for directors may nominate
candidates for election as directors of the corporation; provided, however, that
so long as the corporation has more than one stockholder, no nominations for
director of the corporation by any person other than the Board of Directors
shall be presented to any meeting of stockholders unless the person making the
nomination is a record stockholder and shall have delivered a written notice to
the Secretary of the corporation no later than the close of business sixty (60)
days in advance of the stockholder meeting or ten (10) days after the date on
which notice of the meeting is first given to the stockholders, whichever is
later. Such notice (i) shall set forth the name and address of the person
advancing such nomination and the nominee, together with such information
concerning the person making the nomination and the nominee as would be required
by the appropriate Rules and Regulations of the Securities and Exchange
Commission to be included in a proxy statement soliciting proxies for the
election of such nominee, and (ii) shall include the duly executed written
consent of such nominee to serve as director if elected.
2.
<PAGE> 3
(c) No proposal by any person other than the Board of Directors
shall be submitted for the approval of the stockholders at any regular or
special meeting of the stockholders of the corporation unless the person
advancing such proposal shall have delivered a written notice to the Secretary
of the corporation no later than the close of business sixty (60) days in
advance of the stockholder meeting or ten (10) days after the date on which
notice of the meeting is first given to the stockholders, whichever is later.
Such notice shall set forth the name and address of the person advancing the
proposal, any material interest of such person in the proposal, and such other
information concerning the person making such proposal and the proposal itself
as would be required by the appropriate Rules and Regulations of the Securities
and Exchange Commission to be included in a proxy statement soliciting proxies
for the proposal.
SECTION 9. QUORUM AND REQUIRED VOTE.
(a) At any meeting of the stockholders, the holders of a majority
of all of the shares of the stock entitled to vote on the subject matter at the
meeting, present in person or by proxy, shall constitute a quorum, unless or
except to the extent that the presence of a larger number may be required by
law. Except as otherwise provided in these bylaws or as otherwise required by
law, the affirmative vote of a majority of shares present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders.
(b) If a quorum shall fail to attend any meeting, the chairman of
the meeting or the holders of a majority of the shares of stock entitled to vote
who are present, in person or by proxy, may adjourn the meeting to another
place, date, or time.
(c) If a notice of any adjourned special meeting of stockholders
is sent to all stockholders entitled to vote thereat, stating that it will be
held with those present constituting a quorum, then except as otherwise provided
in these bylaws or as otherwise required by law, those present at such adjourned
meeting shall constitute a quorum, and all matters shall be determined by a
majority of the votes cast at such meeting.
SECTION 10. ORGANIZATION. The Chairman of the Board or, in his or her
absence, the President of the corporation or, in the absence of both, such
person as may be designated by the Board of Directors or, if there is no such
designation, such person as may be chosen by the holders of a majority of the
shares entitled to vote who are present, in person or by proxy, shall call to
order any meeting of the stockholders and act as chairman of the meeting.
SECTION 11. CONDUCT OF BUSINESS. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such
3.
<PAGE> 4
regulation of the manner of voting and the conduct of discussion as seem to him
or her in order.
SECTION 12. PROXIES AND VOTING. At any meeting of the stockholders,
every stockholder entitled to vote may vote in person or by proxy authorized by
an instrument in writing filed in accordance with the procedures established for
the meeting.
SECTION 13. STOCK LIST. A complete list of stockholders entitled to vote
at any meeting of stockholders, arranged in alphabetical order and showing the
address of each such stockholder and the number of shares of each class
registered in his or her name, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or if not so specified, at the place where the
meeting is to be held. The stock list shall also be kept at the place of the
meeting during the whole time thereof and shall be open to the examination of
any such stockholder present.
ARTICLE III
BOARD OF DIRECTORS
SECTION 14. POWERS. The business and affairs of the corporation shall be
managed by or under the direction of its Board of Directors.
SECTION 15. NUMBER, CLASSIFICATION AND TERM OF OFFICE. The number of
directors of the corporation who shall constitute the whole board shall be five
(5) or as otherwise provided in this corporation's Certificate of Incorporation.
Subject to the corporation's Certificate of Incorporation, each director shall
serve for a term ending on the next annual meeting of stockholders following the
date as of which the director was elected, or until his or her successor is duly
elected and qualified or until his or her death, resignation or removal.
SECTION 16. REMOVAL. Except as otherwise provided in the corporation's
Certificate of Incorporation, a director may be removed from office only with
cause, and then only by the holders of a majority of the shares entitled to vote
in an election of directors.
SECTION 17. RESIGNATIONS. A director may resign at any time by giving
written notice to the corporation. Such resignation shall be effective when
given unless the director specifies a later time. The resignation shall be
effective regardless of whether it is accepted by the corporation.
4.
<PAGE> 5
SECTION 18. VACANCIES. Except as otherwise provided in the corporation's
Certificate of Incorporation, any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal or other cause shall be
filled by the affirmative vote of a majority of the remaining directors then in
office (and not by stockholders), even though less than a quorum of the Board of
Directors. Any director elected in accordance with the preceding sentence shall
hold office until such director's successor shall have been elected and
qualified.
SECTION 19. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such place or places, on such date or dates, and at such time
or times as shall have been established by the Board of Directors and publicized
among all directors. A notice of each regular meeting shall not be required.
SECTION 20. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President or any two directors.
SECTION 21. NOTICE OF MEETINGS.
(a) Special meetings and regular meetings not fixed as provided
in these Bylaws shall be held upon four (4) days' notice by mail or two (2)
days' notice delivered personally or by telephone or telegraph to each director
who does not waive such notice. The notice shall state the place, date and time
of the meeting. Unless otherwise indicated in the notice, any and all business
may be transacted at a special meeting.
(b) Notice of a reconvened meeting need not be given if the
place, date and time of the reconvened meeting are announced at the meeting at
which the adjournment is taken and the adjournment is not for more than
twenty-four (24) hours. If a meeting is adjourned for more than twenty-four (24)
hours, notice of the reconvened meeting shall be given prior to the time of that
reconvened meeting to the directors who were not present at the time of
adjournment.
SECTION 22. ACTION WITHOUT MEETING. Except as required by law, any
action required or permitted to be taken at any meeting of the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board of Directors or any committee thereof, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of the
Board of Directors or committee.
SECTION 23. MEETING BY TELEPHONE. Except as required by law, members of
the Board of Directors, or of any committee thereof may participate in the
meeting of the Board of Directors or committee by means of conference telephone
or similar communications equipment if all persons who participate in the
meeting can hear each other. Such participation shall constitute presence in
person at such meeting.
5.
<PAGE> 6
SECTION 24. QUORUM AND MANNER OF ACTING. At any meeting of the Board of
Directors, a majority of the directors then in office shall constitute a quorum
for all purposes. A meeting at which a quorum is initially present may continue
to transact business notwithstanding the withdrawal of directors. If a quorum
shall fail to attend any meeting, a majority of those present may adjourn the
meeting to another place, date, or time, without further notice or waiver
thereof. Except as provided herein, the act of the majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors.
SECTION 25. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of
Directors, by a vote of a majority of the whole Board, may from time to time
designate committees of the Board, with such lawfully delegable powers and
duties as it thereby confers, to serve at the pleasure of the Board and shall,
for those committees and any others provided for herein, elect a director or
directors to serve as the member or members, designating, if it desires, other
directors as alternate members who may replace any absent or disqualified member
at any meeting of the committee. Any committee so designated may exercise the
power and authority of the Board of Directors to declare a dividend or to
authorize the issuance of stock if the resolution which designates the committee
or a supplemental resolution of the Board of Directors shall so provide. The
principles set forth in Sections 19 through 24 of these Bylaws shall apply to
committees of the Board of Directors and to actions taken by such committees.
SECTION 26. COMPENSATION OF DIRECTORS. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, the Board of Directors shall
have the authority to fix the compensation of directors. The directors may be
paid their expenses, if any, of attendance at each meeting of the Board of
Directors or a committee thereof and may receive fixed fees and other
compensation for their services as directors. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation for such service.
ARTICLE IV
OFFICERS
SECTION 27. TITLES. The officers of the corporation shall be chosen by
the Board of Directors and shall include a Chairman of the Board or a President
or both and a Secretary. The Board of Directors may also appoint a Treasurer and
one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers or
other officers. Any number of offices may be held by the same person. All
officers shall perform their duties and exercise their powers subject to the
Board of Directors.
6.
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SECTION 28. ELECTION, TERM OF OFFICE AND VACANCIES. The officers shall
be elected annually by the Board of Directors at its regular meeting following
the annual meeting of the stockholders and each officer shall hold office until
the next annual election of officers and until the officer's successor is
elected and qualified or until the officers death, resignation or removal. Any
officer may be removed at any time, with or without cause, by the Board of
Directors. Any vacancy occurring in any office may be filled by the Board of
Directors.
SECTION 29. RESIGNATION. Any officer may resign at any time upon notice
to the corporation without prejudice to the rights, if any, of the corporation
under any contract to which the officer is a party. The resignation of an
officer shall be effective when given unless the officer specifies a later time.
The resignation shall be effective regardless of whether it is accepted by the
corporation.
SECTION 30. CHIEF EXECUTIVE OFFICER. The Chairman of the Board shall be
the chief executive officer. The Board of Directors may prescribe the duties and
powers of the chief executive officer. Subject to the provisions of these Bylaws
and to the direction of the Board of Directors, the chief executive officer
shall have the responsibility for the general management and control of the
business and affairs of the corporation and shall perform all duties and have
all powers which are commonly incident to the office of chief executive or which
are delegated to him or her by the Board of Directors. Either the Chairman of
the Board or the President and such other officers as may, from time to time, be
expressly designated by the Board of Directors shall have the power to sign all
stock certificates, contracts and other instruments of the corporation which are
authorized.
SECTION 31. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
issue all authorized notices for and shall keep minutes of all meetings of the
stockholders and the Board of Directors. He or she shall have charge of the
corporate books and shall perform such other duties as the Board of Directors
may from time to time prescribe. At the request of the Secretary, or in the
Secretary's absence or disability, any Assistant Secretary shall perform any of
the duties of the Secretary and when so acting shall have all the powers of and
be subject to all the restrictions upon, the Secretary.
SECTION 32. OTHER OFFICERS. The other officers of the corporation, if
any, shall exercise such powers and perform such duties as the Board of
Directors or the chief executive officer shall prescribe.
SECTION 33. COMPENSATION. The Board of Directors shall fix the
compensation of the chief executive officer and may fix the compensation of
other employees of the corporation, including the other officers. If the Board
does not fix the compensation of the other officers, the chief executive officer
shall fix such compensation.
7.
<PAGE> 8
SECTION 34. ACTIONS WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the Chairman of the Board,
the president or any officer of the corporation authorized by the Chairman of
the Board or the president, shall have power to vote and otherwise act on behalf
of the corporation, in person or by proxy, at any meeting of stockholders of, or
with respect to any action of stockholders of, any other corporation in which
the corporation may hold securities and otherwise shall have power to exercise
any and all rights and powers which the corporation may possess by reason of its
ownership of securities in such other corporation.
ARTICLE V
STOCK AND DIVIDENDS
SECTION 35. CERTIFICATES OF STOCK. Each stockholder shall be entitled to
a certificate signed by, or in the name of, the corporation by the Chairman, the
President or a Vice President, and by the Secretary or an Assistant Secretary,
or a Treasurer or an Assistant Treasurer, certifying the number of shares owned
by him or her. Any or all of the signatures on the certificate may be facsimile.
SECTION 36. TRANSFERS OF STOCK. Transfers of stock shall be made only
upon the transfer books of the corporation kept at an office of the corporation
or by transfer agents designated to transfer shares of the stock of the
corporation. Except where a certificate is issued in accordance with the next
sentence of this Section, an outstanding certificate for the number of shares
involved shall be surrendered for cancellation before a new certificate is
issued therefor. In the event of the loss, theft or destruction of any
certificate of stock, another may be issued in its place pursuant to such
regulations as the Board of Directors may establish concerning proof of such
loss, theft or destruction and concerning the giving of a satisfactory bond or
bonds of indemnity.
SECTION 37. REGULATIONS. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
ARTICLE VI
RECORD DATE
SECTION 38. RECORD DATE. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board
8.
<PAGE> 9
of Directors may fix in advance a record date, which shall not be more than
sixty (60) nor less than ten (10) days before the date of such meeting, nor more
than sixty (60) days prior to any other action. If no record date is fixed, the
record date (1) for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held; and
(2) for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the reconvened meeting.
ARTICLE VII
WAIVER OF NOTICE
SECTION 39. WAIVER OF NOTICE. Whenever notice is required to be given by
law or these Bylaws, a written waiver of notice, signed by the person entitled
to notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Unless so required by the Certificate of Incorporation or these
Bylaws, neither the business to be transacted at, nor the purpose of any regular
or special meeting of the stockholders, directors or members of a committee of
directors need be specified in any written waiver of notice.
ARTICLE VIII
AMENDMENTS
SECTION 40. AMENDMENTS. In furtherance and not in limitation of the
powers conferred by statute, the Board of Directors and the stockholders of this
corporation are each expressly authorized to adopt, amend, or repeal these
Bylaws subject to any particular provisions concerning amendments set forth in
this corporation's Certificate of Incorporation or these Bylaws.
9.
<PAGE> 10
ARTICLE IX
MISCELLANEOUS
SECTION 41. FISCAL YEAR. The fiscal year of the corporation shall be as
fixed by the Board of Directors.
SECTION 42. TIME PERIODS. In applying any provision of these Bylaws
which requires that an act be done or not done within a specified number of days
prior to an event, calendar days shall be used, the day of doing of the act
shall be excluded, and the day of the event shall be included.
SECTION 43. FACSIMILE SIGNATURES. In addition, to the provisions for use
of facsimile signature elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the corporation may be used
whenever and as authorized by the Board of Directors.
SECTION 44. CORPORATE SEAL. The Board of Directors may provide a
suitable seal, containing the name of the corporation, which seal shall be in
the charge of the Secretary. Duplicates of the seal may be kept and used by a
Treasurer or by an Assistant Secretary or Assistant Treasurer.
SECTION 45. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director,
each member of any committee designated by the Board of Directors, and each
officer of the corporation shall, in the performance of his or her duties, be
fully protected in relying in good faith upon the books of account or other
records of the corporation, including reports made to the corporation by any of
its officers, by an independent certified public accountant or by an appraiser.
This is to certify that these Bylaws were duly adopted by the Board of
Directors of this corporation on November 12, 1997.
-----------------------------------
Susan J. Glass
Secretary and General Counsel
10.
<PAGE> 1
EXHIBIT 3.3
RESTATED CERTIFICATE OF INCORPORATION
OF
ALLERGAN SPECIALTY THERAPEUTICS, INC.
(Originally incorporated under the same name on November 12, 1997)
FIRST: NAME. The name of this corporation is Allergan Specialty
Therapeutics, Inc. (the "corporation").
SECOND: REGISTERED OFFICE; REGISTERED AGENT. The address of the registered
office of this corporation in the State of Delaware is 9 East
Loockerman Street, in the City of Dover, County of Kent. The name of
the registered agent of this corporation at such address is National
Registered Agents, Inc.
THIRD: PURPOSE. The purpose of this corporation is to engage in any lawful
act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
FOURTH: AUTHORIZED CAPITAL STOCK.
(A) This corporation is authorized to issue two classes of shares, which shall
be known as Class A Common Stock ("Class A Common Stock") and Class B Common
Stock ("Class B Common Stock"). The total number of shares of stock of all
classes that this corporation is authorized to issue is 6,001,000. The total
number of shares of Class A Common Stock which this corporation is authorized to
issue is 6,000,000. The total number of shares of Class B Common Stock which
this corporation is authorized to issue is 1,000. Each share of Class A Common
Stock shall have a par value of $0.01, and each share of Class B Common Stock
shall have a par value of $1.00.
Effective immediately upon the filing of this Restated Certificate of
Incorporation (the "Filing Date"), each share of Common Stock, par value $1.00
per share, of this corporation outstanding immediately prior to such filing
shall be converted into and reclassified as ten shares of Class B Common Stock.
(B) The powers, designations, preferences, and relative, participating, optional
or other special rights granted to, and the qualifications, limitations and
restrictions imposed upon, the Class A Common Stock and Class B Common Stock and
the respective holders thereof are as follows:
(1) REDEMPTION. The shares of Class A Common Stock are redeemable and
may be redeemed as provided in (but only as provided in) Article FIFTH, Section
(F).
1.
<PAGE> 2
(2) DIVIDENDS. The holders of shares of Class A Common Stock and Class B
Common Stock shall be entitled to receive per share and without preference such
dividends as may be declared by the Board of Directors from time to time out of
funds legally available therefor. No dividend may be declared on the Class A
Common Stock unless the same per share dividend is declared on the Class B
Common Stock, and no dividend may be declared on the Class B Common Stock unless
the same per share dividend is declared on the Class A Common Stock. Dividends
may not be declared, nor may shares of Class A Common Stock or Class B Common
Stock be repurchased, or redeemed (other than pursuant to Section (F) of Article
FIFTH), if, after payment of such dividend, or after effecting such repurchase
or redemption, the amount of this corporation's cash, cash equivalents,
short-term and long-term investments would be less than the amount of Available
Funds remaining after expenditures pursuant to the Research and Development
Agreement, as of the date of such dividend, repurchase or redemption.
(3) LIQUIDATION. In the event of voluntary or involuntary liquidation of
this corporation, the holders of the Class A Common Stock and Class B Common
Stock of the corporation shall be entitled to receive, on a pro rata per share
basis and without preference, all of the remaining assets of this corporation
available for distribution to its stockholders.
(4) VOTING RIGHTS. Except as otherwise required by law or provided
herein, the holders of Class A Common Stock and Class B Common Stock shall vote
together as a single class. Each holder of Class A Common Stock and Class B
Common Stock shall have one vote for each share standing in his or her name on
all matters submitted to a vote of holders of the common shares. At any meeting
of the stockholders of this corporation, the determination of a quorum shall be
based upon the presence of shares of Class A Common Stock and Class B Common
Stock representing a majority of the voting power of all of the shares of Class
A Common Stock and Class B Common Stock. This corporation shall not, without the
affirmative vote of the holders of a majority of the issued and outstanding
shares of Class B Common Stock, voting separately and as a class, (a) alter or
change the powers, designations, preferences and relative, participating,
optional or other special rights granted to, or the qualifications, limitations
and restrictions imposed upon, the Class A Common Stock or the Class B Common
Stock, (b) alter or change this Article FOURTH or any of Articles FIFTH, SIXTH
or SEVENTH of this Restated Certificate of Incorporation, or otherwise make any
amendment to this Restated Certificate of Incorporation that would alter the
rights of the holders of the Class B Common Stock, (c) authorize the creation or
issuance of any additional class or series of stock, (d) undertake the voluntary
dissolution, liquidation or winding up of this corporation, (e) merge or
consolidate this corporation with or into any other corporation or entity, (f)
sell, lease, exchange, transfer or otherwise dispose of any substantial asset of
this corporation or (g) alter the bylaws of this corporation in a manner
described in the
2.
<PAGE> 3
last sentence of Article EIGHTH. Furthermore, from and after the Purchase Option
Exercise Date, as defined in Article FIFTH, (i) the holders of Class B Common
Stock shall be entitled to remove directors with or without cause; and (ii) the
holders of the Class B Common Stock shall have the sole right to elect the
directors of this corporation. No new directorships created as a result of the
increase in the size of the Board of Directors pursuant to the preceding
sentence shall be filled other than by the holders of the Class B Common Stock.
(5) CONVERSION. The Class B Common Stock shall automatically convert
into fully paid and non-assessable shares of Class A Common Stock of this
corporation at 12:01 a.m. New York time on the day immediately following the
expiration of the Purchase Option without exercise granted in Article FIFTH. The
Class B Common Stock shall convert into Class A Common Stock at the rate of one
share of Class A Common Stock for each share of Class B Common Stock.
FIFTH: PURCHASE OPTION.
(A) DEFINITIONS. For purposes of this Restated Certificate of Incorporation, the
following terms shall have the following definitions:
(1) Allergan means Allergan, Inc. and its successors or assigns of the
Purchase Option.
(2) Allergan Common Stock means the Common Stock of Allergan or, if such
Common Stock is converted into or exchanged for another class or series of stock
of Allergan or any other corporation, such other class or series of stock.
(3) Available Funds means, as of any date of determination, $200 million
plus any investment income earned thereon less (i) the aggregate amount of all
Research and Development Costs paid or incurred by this corporation as of such
date, (ii) this corporation's aggregate reasonable ongoing administrative
expenses paid or incurred as of such date and (iii) the aggregate amount of all
Technology Fee payments paid or incurred by this corporation as of such date.
(4) ASTI Product means any dosage form of a compound which is the
subject of research and development as a potential human pharmaceutical product
which has been recommended by Allergan and accepted by the Board of Directors of
this corporation for development as such under the Research and Development
Agreement. Such recommendations may be made on on a field of use basis as
provided in the Research and Development Agreement. The following compounds have
been selected as the initial ASTI Products as of the Filing Date: (i) Tazarotene
(oral), (ii) Memantine, (iii) AGN 4310 and (iv) a compound to be selected from
the RAR alpha-selective agonist class of retinoid compounds for the treatment of
various cancers.
3.
<PAGE> 4
(5) Developed Technology means any technology generated or otherwise
obtained pursuant to the Research and Development Agreement.
(6) Developed Technology Product means any product other than an ASTI
Product (i) covered, at the time of sale in a country, by one or more unexpired
patents issued in such country that are included in Developed Technology and
(ii) with respect to which Allergan receives any consideration.
(7) Developed Technology Royalties means the payments made by Allergan
to this corporation with respect to net sales of Developed Technology Products.
(8) Fair Market Value means, with reference to Allergan Common Stock,
(a) if Allergan Common Stock is listed on the New York Stock Exchange or any
other securities exchange reporting closing sales prices (including without
limitation the Nasdaq National Market), the average of the closing sales price
of Allergan Common Stock on such exchange (which shall be the New York Stock
Exchange or, if Allergan Common Stock is not then traded on such exchange, on
the principal exchange on which Allergan Common Stock is then traded), for the
twenty trading days ending with the trading day that is two trading days prior
to the date of determination, (b) if Allergan Common Stock is not listed on any
securities exchange described in clause (a) but is quoted on Nasdaq or another
quotation system providing bid prices, the average (over the twenty day period
described in clause (a)) of the bid prices at the close of each day in such
period on Nasdaq (or, if Allergan Common Stock is not then quoted on Nasdaq, the
largest quotation system on which Allergan Common Stock is then quoted), and (c)
if Allergan Common Stock is not listed on any exchange or quoted on any
quotation system, the value thereof as determined in good faith by Allergan's
board of directors.
(9) Final Purchase Option Exercise Price means the Purchase Option
Exercise Price minus (a) the amount by which this corporation's Liabilities
existing at the Purchase Option Exercise Date (other than Liabilities under the
Research and Development Agreement, Services Agreement and Technology License
Agreement) exceed the aggregate of this corporation's then existing cash, cash
equivalents and short-term and long-term investments (but excluding from such
cash, cash equivalents and short-term and long-term investments the amount of
Available Funds determined as of the Purchase Option Exercise Date which had
not, as of such date, been paid by this corporation in accordance with the
Research and Development Agreement) and minus (b), if the Purchase Option
Exercise Price was determined based upon the provisions of clause (c) of Section
(A)(19) of this Article FIFTH, any additional amounts not already included in
the calculation set forth in Article FIFTH, Section (A)(19) that are paid by (or
due from) this corporation under the Research and Development Agreement from the
date of the last report of such expenditures provided by this corporation to
Allergan in a Status Statement
4.
<PAGE> 5
through the Purchase Option Exercise Date pursuant to the Research and
Development Agreement.
(10) Liabilities means, with respect to this corporation, (a) all
liabilities required to be reflected or reserved against in this corporation's
financial statements under generally accepted accounting principles consistently
applied ("GAAP") and (b) any reimbursement or similar obligation with respect to
any letter of credit issued for the account of this corporation or as to which
this corporation is otherwise liable. Liabilities of the type described in (b)
shall be valued at the full amount of the potential liability of the corporation
thereon.
(11) License Agreement means any License Agreement between Allergan and
this corporation entered into upon the exercise by Allergan of the license
option granted to it pursuant to the License Option Agreement, as any such
agreement may be amended or modified from time to time by amendments approved by
Allergan and the Board of Directors of this corporation.
(12) License Option Agreement means the License Option Agreement between
Allergan and this corporation dated as of _________, 1998, as such agreement may
be amended or modified from time to time by amendments approved by Allergan and
the Board of Directors of this corporation.
(13) Licensed Product means an ASTI Product as to which the license
option under the License Option Agreement has been exercised by Allergan.
(14) Pre-Selection Work means research and pre-clinical development work
involving a product candidate owned or controlled by Allergan or a third party
funded by this corporation pursuant to the Research and Development Agreement
and undertaken in order to determine the suitability of such candidate for
research and development.
(15) Pre-Selection Product means a product, other than one which becomes
an ASTI Product, for which this corporation funds Pre-Selection Work.
(16) Pre-Selection Product Payments means the payments made by Allergan
to this corporation with respect to net sales of Pre-Selection Products.
(17) Product Payments means payments made by Allergan to this
corporation under a License Agreement with respect to Licensed Products.
(18) Purchase Option Exercise Date means the date upon which Allergan
notifies this corporation in writing of its exercise of the Purchase Option as
provided in Section (C) of this Article FIFTH.
5.
<PAGE> 6
(19) Purchase Option Exercise Price means the greatest of the following:
(A) (i) 25 times the aggregate of (A) all worldwide payments made
by and all worldwide payments due to be made by Allergan to this corporation
with respect to all Licensed Products, Developed Technology Products and
Pre-Selection Products for the four calendar quarters immediately preceding the
quarter in which the Purchase Option is exercised (the "Base Period") and (B)
all payments that would have been made by Allergan to this corporation during
the Base Period if Allergan had not previously exercised its payment buy-out
option with respect to such Licensed Product, Developed Technology Product or
Pre-Selection Product; provided, however, that for purposes of the foregoing
calculation, for any Licensed Product, Developed Technology Product or
Pre-Selection Product which has not been commercially sold during each of the
four calendar quarters in the Base Period, Allergan will be deemed to have made
Product Payments, Developed Technology Royalties and Pre-Selection Product
Payments to this corporation for each such quarter equal to the average of the
Product Payments, Developed Technology Royalties and Pre-Selection Product
Payments made by or due from Allergan to this corporation for each of such
calendar quarters during which such product was commercially sold, less (ii) any
amounts previously paid to exercise any payment buy-out option for any Licensed
Product, Developed Technology Product or Pre-Selection Product pursuant to a
License Agreement or the Research and Development Agreement.
(B) the Fair Market Value of five hundred thousand (500,000) shares
of Allergan Common Stock (which number of shares shall be proportionately
adjusted for any stock dividend, split-up, combination or reclassification of
the Allergan Common Stock) determined as of the Purchase Option Exercise Date;
(C) $250 million less the aggregate amount of all Technology Fee
payments and Research and Development Costs paid or incurred by this corporation
as of the Purchase Option Exercise Date; and
(D) $60 million.
(20) Purchase Option Expiration Time means 11:59 p.m. New York time on
December 31, 2002; provided that such date will be extended for successive six
month periods if, as of any June 30 or December 31 beginning with June 30, 2001,
this corporation has not paid (or accrued expenses for) at least 95% of all
Available Funds pursuant to the Research and Development Agreement.
Notwithstanding the foregoing sentence, the Purchase Option Expiration Time will
in no event occur later than 11:59 p.m. New York time on the 90th day after this
corporation provides Allergan with a statement that, as of the end of any
calendar month, there are less than $15 million of Available Funds remaining.
6.
<PAGE> 7
(21) Research and Development Agreement means the Research and
Development Agreement between Allergan and this corporation, dated as of
_________, 1998, as such agreement may be amended or modified from time to time
by amendments approved by Allergan and the Board of Directors of this
corporation.
(22) Research and Development Costs means payments paid by or due from
this corporation under the Research and Development Agreement as last reported
by this corporation to Allergan in a Status Statement through the Purchase
Option Exercise Date.
(23) Services Agreement means the Services Agreement between Allergan
and this corporation, dated as of _________, 1998, as such agreement may be
amended or modified from time by amendments approved by Allergan and the Board
of Directors of this corporation.
(24) Status Statement means, as of any date, a balance sheet prepared by
the Company and delivered to Allergan dated as of such date, together with (a) a
statement and brief description of all other liabilities of this corporation
constituting Total Liabilities as of such date not reflected on such balance
sheet, (b) a statement of the amount of Available Funds remaining as of such
date, and (c) a statement of the total amounts paid by and due from this
corporation pursuant to the Research and Development Agreement through such
date.
(25) Technology Fee means the payments to be made over a maximum period
of four (4) years by this corporation to Allergan pursuant to the Technology
License Agreement.
(26) Technology License Agreement means the Technology License Agreement
between Allergan and this corporation , dated as of _________, 1998, as such
agreement may be amended or modified from time to time by amendments approved by
Allergan and the Board of Directors of this corporation.
(27) Total Liabilities means (a) all Liabilities, plus (b) any other
debts, liabilities or obligations, absolute or contingent, matured or unmatured,
liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever
arising, including all costs and expenses relating thereto, and including those
debts, liabilities and obligations arising under any law, rule or regulation, or
under any pending or threatened action, suit or proceeding, or any order or
consent decree of any governmental entity or any award of any arbitrator of any
kind, and those arising under any contract, commitment or undertaking.
(B) GRANT OF OPTION. Allergan is hereby granted an exclusive irrevocable
purchase option to purchase all issued and outstanding shares of Class A Common
Stock of this corporation for the Final Purchase Option Exercise Price (the
"Purchase Option"). The
7.
<PAGE> 8
Purchase Option, if exercised, must be exercised as to all, but not less than
all, issued and outstanding shares of Class A Common Stock and may be exercised
at any time at or prior to the Purchase Option Expiration Time. Allergan shall
elect, at the time of exercise of the Purchase Option, to pay all or any portion
of the Final Purchase Option Exercise Price in cash, Allergan Common Stock
(valued at its Fair Market Value determined as of the Purchase Option Exercise
Date and registered under the Securities Act of 1933, as amended), or any
combination thereof. The Purchase Option, together with the other rights of
Allergan under this Article FIFTH and Article SIXTH, may, at Allergan's option,
be assigned or otherwise transferred to any person or entity, including this
corporation.
(C) MANNER OF EXERCISE. The Purchase Option shall be exercised, if at all, at or
before the Purchase Option Expiration Time by written notice (the "Exercise
Notice") from Allergan to this corporation stating that the Purchase Option is
being exercised and setting forth (1) the Purchase Option Exercise Price; (2)
the portion, if any, of the Final Purchase Option Exercise Price to be paid in
cash and the portion, if any, of the Final Purchase Option Exercise Price to be
paid in Allergan Common Stock, and if any portion of the Final Purchase Option
Exercise Price is to be paid in Allergan Common Stock, stating the Fair Market
Value of such Allergan Common Stock determined as of the Purchase Option
Exercise Date; and (3) a closing date (the "Closing Date") on which all of the
issued and outstanding shares of Class A Common Stock will be purchased. The
Purchase Option shall be deemed to be exercised as of the date of mailing by
first class mail of the Exercise Notice to this corporation at its principal
offices.
(D) CLOSING.
(1) CLOSING DATE; COOPERATION. Except as set forth below, the Closing
Date shall be the date specified as such in the Exercise Notice, which date
specified shall be no later than sixty (60) days after the Purchase Option
Exercise Date. The Closing Date may be extended by Allergan if, in the judgment
of Allergan, an extension of the Closing Date is necessary to obtain any
governmental or third party consent to the purchase of the Class A Common Stock,
to permit any necessary registration statement or similar filing to be declared
effective, or to permit the expiration prior to the Closing Date of any
statutory or regulatory waiting period. Allergan may extend the Closing Date for
the reasons set forth in the preceding sentence by delivering written notice of
such extension to this corporation on or prior to the previously specified
Closing Date. This corporation shall cooperate with Allergan to effect the
closing of the Purchase Option, including without limitation seeking any
required third-party or governmental consents, and filing any applications,
notifications, registration statements or the like which may be necessary to
effect the closing.
8.
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(2) CERTAIN RESTRICTIONS FOLLOWING PURCHASE OPTION EXERCISE DATE. From
the Purchase Option Exercise Date until the Closing Date, this corporation will
not take any of the following actions (or permit any such actions to be taken on
its behalf) except with the prior written consent of Allergan:
(A) borrow money, or mortgage, remortgage, pledge, hypothecate or
otherwise encumber any of its assets;
(B) sell, lease, lend, exchange or otherwise dispose of any of its
assets, other than sales of inventory in the ordinary course of business;
(C) pay or declare any dividends or make any distributions on or in
respect of any shares of its capital stock;
(D) default in its obligations under any material contract,
agreement, commitment or undertaking of any kind or enter into any material
contract, agreement, purchase order or other commitment; or
(E) enter into any other transaction or agreement or arrangement, or
incur any liabilities, not in the ordinary course of this corporation's
business.
(3) DETERMINATION OF FINAL PURCHASE OPTION EXERCISE PRICE. Not later
than twenty (20) business days following the Purchase Option Exercise Date, this
corporation shall deliver a final Status Statement to Allergan prepared as of
the Purchase Option Exercise Date. Following receipt of such Status Statement
and completion of any other investigation as Allergan shall deem necessary or
appropriate, and prior to the Closing Date, Allergan shall determine the Final
Purchase Option Exercise Price by making the adjustments to the Purchase Option
Exercise Price contemplated by Section (A)(9) of this Article FIFTH and shall
notify this corporation of such determination.
(4) PAYMENT OF FINAL PURCHASE OPTION EXERCISE PRICE. On or before the
Closing Date, Allergan shall deposit the full amount of the Final Purchase
Option Exercise Price with a bank or banks or similar entities designated by
Allergan (which may include Allergan's transfer agent if shares of Allergan
Common Stock are being delivered) to pay, on Allergan's behalf, the Final
Purchase Option Exercise Price (the "Payment Agent"). Funds, if any, and
Allergan Common Stock, if any, deposited with the Payment Agent shall be
delivered in trust for the benefit of the holders of Class A Common Stock, and
Allergan shall provide the Payment Agent with irrevocable instructions to pay,
on or after the Closing Date, the Final Purchase Option Exercise Price for the
shares of Class A Common Stock to the holders of record thereof determined as of
the Closing Date. Payment for shares of Class A Common Stock shall be mailed to
each holder at the address set forth in this corporation's records or at the
address provided by each holder or, if no address is set forth in this
corporation's records for a holder or
9.
<PAGE> 10
provided by such holder, to such holder at the address of this corporation. As
soon as practicable upon Allergan's request, this corporation shall provide, or
shall cause its transfer agent to provide, to Allergan or to the Payment Agent,
free of charge, a complete list of the record holders of shares of Class A
Common Stock, as of a specified date, including the number of shares of Class A
Common Stock held of record and the address of each record holder as set forth
in the records of this corporation's transfer agent.
(E) TRANSFER OF TITLE. Transfer of title to all of the issued and outstanding
shares of Class A Common Stock shall be deemed to occur automatically on the
Closing Date and thereafter this corporation shall be entitled to treat Allergan
as the sole holder of all of the issued and outstanding shares of its Class A
Common Stock, notwithstanding the failure of any holder of Class A Common Stock
to tender the certificates representing such shares to the Payment Agent,
whether or not such tender is required or requested by the Payment Agent. This
corporation shall instruct its transfer agent not to accept any shares of Class
A Common Stock for transfer on and after the Closing Date. This corporation
shall take all actions reasonably requested by Allergan to assist in
effectuating the transfer of shares of Class A Common Stock in accordance with
this Article FIFTH.
(F) REDEMPTION OF CLASS A COMMON STOCK. At Allergan's election (which election
may be made at any time, provided it is made, by delivery of written notice
thereof to this corporation, not less than five days prior to the Closing Date),
this corporation shall, subject to applicable restrictions in the Delaware
General Corporation Law, redeem on the Closing Date all issued and outstanding
shares of Class A Common Stock for an aggregate redemption price equal to the
Final Purchase Option Exercise Price. Such redemption shall be in lieu of
Allergan paying the Final Purchase Option Exercise Price directly to the
stockholders of this corporation, and shall be subject to Allergan providing the
Final Purchase Option Exercise Price to this corporation to allow this
corporation to pay the redemption price.
SIXTH: PROTECTIVE PROVISIONS.
(A) LEGEND. Certificates evidencing shares of Class A Common Stock issued by or
on behalf of this corporation shall bear a legend in substantially the following
form: "The shares of Allergan Specialty Therapeutics, Inc. evidenced hereby are
subject to an option in favor of Allergan, Inc., its successors and assigns, as
described in the Restated Certificate of Incorporation of Allergan Specialty
Therapeutics, Inc. to purchase such shares at a purchase price determined in
accordance with Article FIFTH thereof exercisable by notice delivered to this
corporation at or prior to the Purchase Option Expiration Time (as defined in
the Restated Certificate of Incorporation of Allergan Specialty Therapeutics,
Inc.). Copies of the Restated Certificate of Incorporation of Allergan Specialty
Therapeutics, Inc. are available at the principal place of business of
10.
<PAGE> 11
Allergan Specialty Therapeutics, Inc. at 2525 Dupont Drive, Irvine, California
92612 and will be furnished to any stockholder on request and without cost."
(B) NO CONFLICTING ACTION. This corporation shall not take, nor permit any other
person or entity within its control to take, any action inconsistent with
Allergan's rights under Article FIFTH. This corporation shall not enter into any
arrangement, agreement or understanding, whether oral or in writing, that is
inconsistent with or limits or impairs the rights of Allergan and the
obligations of this corporation hereunder, including without limitation any
arrangement, agreement or understanding which imposes any obligation upon this
corporation, or deprives this corporation of any material rights, as a
consequence of the exercise of the Purchase Option or the acquisition of the
outstanding Class A Common Stock pursuant thereto.
(C) INSPECTION AND VISITATION RIGHTS; STATUS STATEMENTS. Allergan shall have the
right to inspect and copy, on reasonable notice and during regular business
hours, the books and records of this corporation. Allergan shall also have the
right to request from time to time (but not more frequently than monthly) a
Status Statement as of such fiscal month end as Allergan may request. Each
Status Statement shall be sent within twenty (20) business days of request by
Allergan. Allergan shall also have the right to send a non-voting representative
to attend all meetings of this corporation's Board of Directors and any
committees thereof. Any representative, if designated in writing by Allergan as
such, shall receive notice of all meetings of this corporation's Board of
Directors and each committee thereof, as well as copies of all documents and
other materials provided to any directors of this corporation in connection with
any such meeting not later than the time such materials are provided to other
directors. Such representative shall also be provided with copies of all
resolutions adopted or proposed to be adopted by unanimous written consent not
later than the time such resolutions are provided to other directors.
SEVENTH: BOARD OF DIRECTORS.
(A) The number of directors which shall constitute the whole Board of Directors
of this corporation shall initially be five.
(B) Subject to the provisions of this Article SEVENTH, nomination of candidates
for election to the Board of Directors shall be made as provided in the bylaws
of this corporation. Election of directors need not be by written ballot.
(C) Subject to Article FOURTH, Section (B)(4), the holders of the Class B Common
Stock, voting together as a separate class, shall be entitled to elect one (1)
director of the corporation, and the holders of the Class A Common Stock shall
be entitled to elect up to four (4) directors of the corporation. Subject to the
provisions of this Article SEVENTH, each director shall serve until the next
annual meeting of stockholders of this corporation
11.
<PAGE> 12
following such director's election as a member of the Board of Directors or
until his or her successor is duly elected and qualified or until his or her
death, resignation, disqualification or removal.
(D) Except as otherwise provided in Article FOURTH, Section (B)(4), or as
required by law, a vacancy in any directorship elected by the holders of the
Class B Common Stock shall be filled only by vote or written consent of the
holders of the Class B Common Stock, and a vacancy in any directorship elected
by the holders of the Class A Common Stock shall be filled only by vote or
written consent of the holders of the Class A Common Stock. Any director elected
in accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been elected and qualified. Except as otherwise provided in Article FOURTH,
Section (B)(4), or as required by law, a director elected by the holders of the
Class B Common Stock may be removed without cause only by vote of holders of a
majority of the outstanding shares of Class B Common Stock, and a director
elected by the holders of the Class A Common Stock may be removed without cause
only by vote of holders of a majority of the outstanding shares of Class A
Common Stock.
(E) The name and mailing address of each person who is to serve as a director
until the first annual meeting of the stockholders after the Filing Date or
until a successor is elected or appointed and qualified are as follows:
NAME MAILING ADDRESS
Lester J. Kaplan, Ph.D. 2525 Dupont Drive
Irvine, CA 92612
[to come] [to come]
EIGHTH:BYLAWS. In furtherance and not in limitation of the powers
conferred by statute, and subject to the next sentence, the Board of Directors
and the stockholders of this corporation are each expressly authorized to adopt,
amend or repeal the bylaws of this corporation subject to any particular
provisions concerning amendments set forth in this Restated Certificate of
Incorporation or the bylaws of this corporation. Any amendment of the bylaws
shall be subject to the provisions of this Restated Certificate of Incorporation
and no amendment to the bylaws may be adopted by the stockholders without the
approval of holders of a majority of the Class B Common Stock voting separately
as a class if such amendment would regulate the conduct of the Board's affairs
or the manner in which it may act.
12.
<PAGE> 13
NINTH: STOCKHOLDER MEETINGS.
(A) SPECIAL MEETINGS. Special meetings of the stockholders for any purpose or
purposes whatsoever may be called at any time only by the Board of Directors,
the Chairman of the Board or the President of this corporation.
(B) NO ACTION WITHOUT MEETING. At any time when this corporation has more than
one stockholder of any class of capital stock, no action required to be taken or
which may be taken at any annual or special meeting of the stockholders may be
taken without a meeting, and the power of stockholders to consent in writing,
without a meeting, to the taking of any action is specifically denied.
Notwithstanding the foregoing, the holder or holders of the Class B Common Stock
may take any action permitted to be taken by such holders as a class by written
consent without a meeting.
TENTH: LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS.
(A) ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS. No director of this
corporation shall be personally liable to this corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director except, to the
extent provided by applicable law, for liability (i) for any breach of the
director's duty of loyalty to this corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article TENTH shall
apply to or have any effect on the liability or alleged liability of any
director of this corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment.
(B) INDEMNIFICATION AND INSURANCE.
(1) RIGHT TO INDEMNIFICATION. Each person who was or is made a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding"), because he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of this corporation or is or was
serving at the request of this corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise (including service with respect to employee benefit plans), whether
the basis of the proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
this corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits
13.
<PAGE> 14
this corporation to provide broader indemnification rights than that law
permitted this corporation to provide before such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, penalties,
fines, Employee Retirement Income Security Act of 1974 excise taxes or
penalties, and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith; provided, however, that this
corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
the proceeding (or part thereof) was authorized by the Board of Directors of
this corporation. Such indemnification shall continue as to a person who has
ceased to be a director or officer of this corporation and shall inure to the
benefit of his or her heirs, executors and administrators. The right to
indemnification conferred by this Section shall be a contract right which may
not be retroactively amended and shall include the right to be paid by this
corporation the expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that the payment of such expenses
incurred by a director or officer in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
with respect to an employee benefit plan) in advance of the final disposition of
the proceeding shall be made only upon delivery to this corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if ultimately it shall be determined that such director or officer
is not entitled to be indemnified under this Section or otherwise. This
corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of this corporation with the same scope and effect as the
indemnification of directors and officers.
(2) RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Paragraph 1 of
this Section is not paid in full by this corporation within ninety (90) days
after a written claim has been received by this corporation, the claimant may at
any time thereafter bring suit against this corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to this
corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for this corporation
to indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on this corporation. Neither the failure of this corporation
(including its Board of
14.
<PAGE> 15
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by this corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that claimant has not met the applicable standard of
conduct.
(3) NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
this Restated Certificate of Incorporation, bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise.
(4) INSURANCE. This corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of this
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not this
corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
15.
<PAGE> 16
IN WITNESS WHEREOF, the undersigned officer has executed this Restated
Certificate of Incorporation on _________, 1998 and does hereby certify that
this Restated Certificate of Incorporation, which restates and integrates, and
also further amends, the provisions of this corporation's Certificate of
Incorporation, was duly adopted by the stockholders of this corporation in
accordance with Sections 242 and 245 of the Delaware General Corporation Law.
ALLERGAN SPECIALTY THERAPEUTICS, INC.
By: _____________________________________
Lester J. Kaplan, Ph.D.
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.1
TECHNOLOGY LICENSE AGREEMENT
This Technology License Agreement (this "Agreement") is made as of the
_____ day of _______, 1998 among Allergan, Inc., a Delaware corporation
("Allergan"), each Allergan Affiliate listed on the signature page hereto (an
"Allergan Affiliate") and Allergan Specialty Therapeutics, Inc., a Delaware
corporation ("ASTI").
BACKGROUND
A. ASTI has been formed for the purpose of researching and developing
human pharmaceutical products, including products using Allergan Technology (as
defined herein), and commercializing such products, most likely through
licensing to Allergan.
B. Allergan and ASTI have entered into the Research and Development
Agreement (as defined herein) for the research and development of such products
and related activities.
C. Allergan is willing to grant to ASTI a license to use Allergan
Technology solely for the purposes set forth above on the terms set forth herein
and in the Research and Development Agreement and the License Option Agreement
(as defined herein).
Now, therefore, the parties agree as follows:
1. DEFINITIONS.
For the purposes of this Agreement, the following terms shall have the
meanings set forth below:
1.1 "Affiliate" shall mean a corporation or any other entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the designated party. "Control"
shall mean ownership of at least 50% of the shares of stock entitled to vote for
the election of directors in the case of a corporation, and at least 50% of the
interests in profits in the case of a business entity other than a corporation.
1.2 "Allergan Technology" shall mean all Proprietary Rights, whether
patented or unpatented, owned by, licensed to or controlled by Allergan, as of
the date of this Agreement or during the term of the Research and Development
Agreement, relating to retinoid and neuroprotective technologies, including but
not limited to Tazarotene, Memantine and other glutamate and ion channel
blockers and Allergan's and each Allergan Affiliate's rights under the
agreements listed on Exhibit A hereto. "Allergan
1.
<PAGE> 2
Technology" shall also include any additional technology which Allergan
designates expressly in a writing delivered to ASTI as Allergan Technology for
purposes of this Agreement. Notwithstanding the foregoing, however, in no event
shall "Allergan Technology" include, and ASTI shall have no rights with respect
to, (i) any topical formulation of Tazarotene or the research, development,
manufacture or commercial sale or other use thereof or (ii) the commercial sale
of Memantine and/or products incorporating or based on Memantine outside of the
United States.
1.3 "ASTI Product" shall mean any dosage form of a compound which is the
subject of research and development as a potential human pharmaceutical product
which has been recommended by Allergan and accepted by ASTI's Board of Directors
for development as such under the Research and Development Agreement. Such
recommendations may be made on a Field of Use basis. The following compounds
have been selected as the initial ASTI Products as of the date hereof: (i)
Tazarotene (oral), (ii) Memantine, (iii) AGN 4310 and (iv) a compound to be
selected from the RAR alpha-selective agonist class of retinoid compounds for
the treatment of various cancers.
1.4 "Developed Technology" shall mean Proprietary Rights that (a) are
first generated, conceived or reduced to practice, as the case may be, by
Allergan or by any third party in the course of performing activities undertaken
pursuant to the Research and Development Agreement or (b) are, in any manner,
acquired by, or otherwise obtained on behalf of, ASTI during the term of the
Research and Development Agreement from persons other than Allergan and are
necessary or useful to the research, development or commercialization of ASTI
Products or Pre-Selection Products.
1.5 "Distribution" shall mean Allergan's distribution of all of the
outstanding shares of Class A Common Stock of ASTI to Allergan stockholders of
record on ________, 1998.
1.6 "Field of Use" shall mean a particular disease state or set of
related disease states.
1.7 "Infringing Product" shall mean any product sold by a third party
which infringes or is alleged to infringe any patent or patents licensed to ASTI
hereunder and covering an ASTI Product.
1.8 "License Agreement" shall mean an exclusive license agreement for a
particular ASTI Product between Allergan and ASTI, entered into as a result of
Allergan's exercise of the License Option for such product.
1.9 "License Option" shall mean the option granted to Allergan pursuant
to the License Option Agreement.
2.
<PAGE> 3
1.10 "License Option Agreement" shall mean the License Option Agreement
dated as of the date hereof between Allergan and ASTI.
1.11 "Pre-Selection Work" shall mean research and pre-clinical
development work involving one or more product candidates owned or controlled by
Allergan or a third party funded by ASTI pursuant to the Research and
Development Agreement and undertaken in order to determine the suitability of
such candidate for research and development.
1.12 "Pre-Selection Product" shall mean a product, other than one which
becomes an ASTI Product, for which ASTI funds Pre-Selection Work.
1.13 "Pre-Existing Rights" shall mean the rights of each party other
than Allergan under the agreements listed on Exhibit A.
1.14 "Proprietary Rights" shall mean data, inventions, information,
processes, know-how and trade secrets, and patents or patent applications
claiming any of the foregoing, owned by, licensed to or controlled by a person
and which such person has the right to license or sublicense. Proprietary Rights
shall not include trademarks.
1.15 "Purchase Option" shall mean that certain option contained in
ASTI's Restated Certificate of Incorporation pursuant to which Allergan has the
right to purchase all of the outstanding shares of ASTI Class A Common Stock.
1.16 "Research and Development Agreement" shall mean the Research and
Development Agreement dated as of the date hereof between Allergan and ASTI.
1.17 "Therapeutic Agent" shall mean a drug, protein, peptide, gene,
compound or other pharmaceutically active incredient.
2. LICENSE.
2.1 GRANT OF LICENSE. Allergan hereby grants to ASTI, on the terms and
conditions of this Agreement, a worldwide (except as set forth below), exclusive
license (subject to the Pre-Existing Rights), in perpetuity, with the right to
sublicense (as set forth below), to use the Allergan Technology to research and
develop ASTI Products, to conduct related activities (including Pre-Selection
Work), and to commercialize ASTI Products, but for no other purposes whatsoever;
provided, however, that, the foregoing license shall exclude (i) the research,
development, manufacture or commercial sale or other use of any topical
formulation of Tazarotene and (ii) the commercial sale of Memantine and/or
products incorporating or based on Memantine outside of the United States. ASTI
shall not sublicense any Allergan Technology to, or enter into other
3.
<PAGE> 4
arrangements with respect to any Allergan Technology with, any third party for
any purpose, except as set forth in Sections 2.2 and 2.3 hereof.
2.2 PERMITTED SUBLICENSES.
(a) Except as set forth in Section 2.2(b) hereof, ASTI may grant
sublicenses to Allergan and third parties to use the Allergan Technology solely
for the purpose of performing activities in connection with the research and
development of ASTI Products and conducting related activities (including
Pre-Selection Work); provided however, that, during the term of the Research and
Development Agreement, any such sublicenses shall be granted in accordance with
the terms of the Research and Development Agreement.
(b) If the License Option with respect to any ASTI Product in one
or more countries expires unexercised, from and after expiration of such License
Option in any such country, ASTI may sublicense Allergan Technology to a third
party or third parties solely to the extent necessary to complete the
development of, or to make (or have made) and use such ASTI Product, or to sell
(or have sold) such ASTI Product in such country.
2.3 CONDITIONS OF SUBLICENSES. Each sublicensee shall execute such
agreements as Allergan reasonably deems appropriate to protect the Allergan
Technology and to protect Allergan's rights under all agreements between
Allergan and ASTI and under the Purchase Option. Each sublicensee shall have all
the duties of ASTI hereunder with respect to such sublicense, and each
sublicensee shall acknowledge these duties to Allergan in writing. No sublicense
shall have the effect of relieving ASTI of any of its obligations hereunder.
2.4 PRIOR AND FUTURE GRANTS. ASTI understands and acknowledges that
Allergan is in the business of researching and developing products incorporating
the Allergan Technology for its own account and under arrangements with third
parties, and as a result, the license granted hereunder is limited strictly to
use the Allergan Technology for the purpose of researching and developing ASTI
Products and conducting related activities (including Pre-Selection Work) and
commercializing ASTI Products. ASTI acknowledges that Allergan may use and may
grant third party licenses to use the Allergan Technology for any and all other
purposes.
3. COVENANTS OF ASTI.
3.1 DILIGENCE. ASTI promptly shall commence and shall use diligent
efforts to develop ASTI Products in accordance with approved work plans and cost
estimates under the Research and Development Agreement, subject to Allergan
diligently undertaking its obligations thereunder.
4.
<PAGE> 5
3.2 TECHNOLOGY FEE. ASTI shall pay Allergan in arrears the following
Technology Fee payments:
(a) $833,333 thirty days after the date of the Distribution and
$833,333 on the same day of each of the next eleven months;
(b) $558,333 per month on the same day of each of the next twelve
months;
(c) $275,000 per month on the same day of each of the next twelve
months; and
(d) $166,667 per month on the same day of each of the next twelve
months;
provided, however, that ASTI shall no longer be obligated to make such payment
beginning with any month following the date on which the total number of ASTI
Products either under development by ASTI pursuant to the Research and
Development Agreement or licensed to Allergan pursuant to Allergan's exercise of
the License Option is less than two.
3.3 PRE-EXISTING OBLIGATIONS. ASTI agrees to perform and timely
discharge all of Allergan's and/or each Allergan Affiliate's obligations and
duties under each of the agreements listed on Exhibit A, including but not
limited to any and all royalty, milestone, non-disclosure, patent filing and/or
prosecution license grant and/or license back and/or similar or related
obligations and duties.
4. PATENTS.
4.1 INFRINGEMENT. Each party shall promptly notify the other of any
infringement or alleged infringement known to such party of any patent covering
Allergan Technology, by the manufacture, development, use or sale by a third
party of any Infringing Product.
4.2 ACTION BY ALLERGAN. Subject to the provisions of the Research and
Development Agreement and any License Agreement, in the event of any such
alleged infringement, Allergan shall have the right, at its own expense and with
the right to all recoveries, to take appropriate action to restrain such alleged
infringement. If Allergan takes any such action, ASTI shall cooperate fully with
Allergan in its pursuit thereof, at Allergan's expense, to the extent reasonably
requested by Allergan. If Allergan brings an action under this Section 4.2, the
parties shall share equally any recoveries, after Allergan is reimbursed for its
expenses of bringing the action (including reasonable attorneys' fees).
5.
<PAGE> 6
4.3 ACTION BY ASTI. If (a) the Infringing Product is substantially
similar to an ASTI Product (in that the Infringing Product incorporates the same
active Therapeutic Agent or Agents as such ASTI Product and, in the case of an
ASTI Product that utilizes Allergan drug delivery technology, a drug delivery
system substantially similar to the Allergan drug delivery system) for which the
License Option has expired unexercised, and (b) within 90 days after the written
notice from either party described above (or at any time thereafter), Allergan
has not taken appropriate action to restrain such alleged infringement, and (c)
at such time, the annualized unit sales volume of such Infringing Product in a
country over a period of at least two calendar quarters, equals or exceeds 25%
of the annualized unit sales volume of the related ASTI Product in such country
during the same period, then ASTI shall have the right, at its own expense and
with the right to all recoveries, to take such action as it deems appropriate to
restrain such alleged infringement. If ASTI takes any such action, Allergan
shall cooperate with ASTI in its pursuit thereof, at ASTI's expense, to the
extent reasonably requested by ASTI. If the third party in any such action
brings a counteraction for invalidation or misuse of a patent covering the
Allergan Technology or the ASTI Product, ASTI shall promptly notify Allergan,
and Allergan may, within six months after the notification, join and participate
in such action at its own expense. ASTI shall not settle any such action
relating to any alleged infringement which in any manner would adversely affect
Allergan Technology without the prior written consent of Allergan.
5. CONFIDENTIALITY OF INFORMATION.
5.1 CONFIDENTIALITY. During the term of this Agreement and for a period
of ten years following its termination, ASTI shall maintain in confidence all
Allergan Technology; provided, however, that nothing contained herein shall
prevent ASTI from disclosing any Allergan Technology to the extent such Allergan
Technology (a) is required to be disclosed in connection with researching or
developing ASTI Products, conducting Pre-Selection Work, conducting related
activities, securing necessary governmental authorization for the marketing of
ASTI Products, or directly or indirectly making, using or selling ASTI Products,
as permitted or provided for in the agreements between the parties, (b) is
required to be disclosed by law for the purpose of complying with governmental
regulations, (c) is disclosed in connection with any sublicense permitted
hereunder, (d) is known to or used by ASTI prior to the date hereof (other than
through disclosure by or on behalf of Allergan) as evidenced by ASTI's written
records, (e) is lawfully disclosed to ASTI by a third party having the right to
disclose such information to ASTI, or (f) either before or after the time of
disclosure to ASTI, becomes known to the public other than by an unauthorized
act or omission of ASTI or any of ASTI's employees or agents. Any disclosure of
Allergan Technology to third parties shall be made subject to similar
obligations of confidentiality on the part of such third parties. The
obligations of ASTI pursuant to this Section 5.1 shall survive the termination
of this Agreement for any reason. Any breach of this Section 5.1 may result in
irreparable harm
6.
<PAGE> 7
to Allergan, and in the event of a breach, Allergan shall be entitled to seek
injunctive relief (without the need to post a bond) in addition to any other
remedies available at law or in equity .
6. DISCLAIMER.
6.1 DISCLAIMER CONCERNING ALLERGAN TECHNOLOGY. ALLERGAN DISCLAIMS ANY
EXPRESS OR IMPLIED WARRANTY (A) THAT ANY ALLERGAN TECHNOLOGY, OR THE USE
THEREOF, OR ANY PRODUCTS INCORPORATING OR MANUFACTURED BY THE USE THEREOF, WILL
BE FREE FROM CLAIMS OF PATENT INFRINGEMENT, INTERFERENCE OR UNLAWFUL USE OF
PROPRIETARY INFORMATION OF ANY THIRD PARTY AND (B) OF THE ACCURACY, RELIABILITY,
TECHNOLOGICAL OR COMMERCIAL VALUE, COMPREHENSIVENESS OR MERCHANTABILITY OF THE
ALLERGAN TECHNOLOGY OR ITS SUITABILITY OR FITNESS FOR ANY PURPOSE WHATSOEVER
INCLUDING, WITHOUT LIMITATION, THE DESIGN, RESEARCH, DEVELOPMENT, MANUFACTURE,
USE OR SALE OF PRODUCTS. ALLERGAN DISCLAIMS ALL OTHER WARRANTIES OF WHATEVER
NATURE, EXPRESS OR IMPLIED.
7. REPORTS OF ADVERSE REACTIONS.
7.1 REPORTS OF ADVERSE REACTIONS. During the term of this Agreement,
each party shall promptly inform the other party of any information that it
obtains or develops regarding the efficacy or safety of an ASTI Product and
shall promptly report to the other party any information or notice of adverse or
unexpected reactions or side effects related to the utilization or medical
administration of an ASTI Product. Further, during the term of this Agreement,
each party shall promptly inform the other of any information that it obtains or
develops regarding the safety of any Allergan Technology as related to the ASTI
Products. Each such party shall permit the other to comply with the adverse
reaction reporting obligations under the United States Food, Drug and Cosmetic
Act, or similar statutory provisions, and regulations thereunder and shall
assist the other party in complying therewith, with respect to the ASTI
Products. When appropriate, the parties will execute a standard operating
procedure to cover the foregoing. ASTI agrees and acknowledges that Allergan may
provide information it obtains under this Section 7.1 to Allergan's other
clients developing and/or commercializing products incorporating the same
Allergan drug delivery systems as are incorporated in the ASTI Products.
8. EFFECTIVE DATE; TERMINATION.
8.1 EFFECTIVE DATE. This Agreement shall become effective on the date of
the Distribution.
7.
<PAGE> 8
8.2 TERMINATION FOR BREACH. Either party may terminate this Agreement
effective upon the giving of written notice of such termination to the other
party in the event such other party breaches any of its material obligations
hereunder or under the License Option Agreement and such breach continues for a
period of 60 days after written notice thereof by the terminating party to the
other party.
8.3 AUTOMATIC TERMINATION. This Agreement shall automatically terminate
upon termination by ASTI of the Research and Development Agreement other than
due to a breach by Allergan, or upon termination by Allergan of the Research and
Development Agreement due to a breach by ASTI.
8.4 TERMINATION OF SUBLICENSES. Termination by Allergan of this
Agreement shall automatically terminate any sublicenses granted by ASTI
hereunder.
9. FORCE MAJEURE.
9.1 FORCE MAJEURE. Neither party to this Agreement shall be liable for
failure or delay in the performance of any of its obligations hereunder if such
failure or delay is due to causes beyond its reasonable control, including,
without limitation, acts of God, earthquakes, fires, strikes, acts of war, or
intervention of any governmental authority, but any such delay or failure shall
be remedied by such party as soon as possible after the removal of the cause of
such failure or delay.
10. INDEMNIFICATION.
10.1 INDEMNITY. ASTI shall indemnify, defend and hold Allergan harmless
from and against any and all liabilities, claims, demands, damages, costs,
expenses or money judgments incurred by or rendered against Allergan and its
Affiliates, which arise out of the use, design, labeling, manufacture,
processing, packaging, sale or commercialization of the ASTI Products by ASTI,
its Affiliates and permitted subcontractors and sublicensees (other than
Allergan and its Affiliates, subcontractors, sublicensees, distributors and
others operating under arrangements with or through Allergan). Allergan shall
permit ASTI's attorneys, at ASTI's discretion and cost, to control the defense
of any claims or suits as to which Allergan may be entitled to indemnity
hereunder, and Allergan agrees not to settle any such claims or suits without
the prior written consent of ASTI. Allergan shall have the right to participate,
at its own expense, in the defense of any such claim or demand to the extent it
so desires.
10.2 NOTICE. Allergan shall give ASTI prompt notice in writing, in the
manner set forth in Section 11.7 below, of any claim or demand made against
Allergan for which Allergan may be entitled to indemnification under Section
10.1.
8.
<PAGE> 9
11. MISCELLANEOUS.
11.1 WAIVER, REMEDIES AND AMENDMENT. Any waiver by either party hereto
of a breach of any provisions of this Agreement shall not be implied and shall
not be valid unless such waiver is recited in writing and signed by such party.
Failure of any party to require, in one or more instances, performance by the
other party in strict accordance with the terms and conditions of this Agreement
shall not be deemed a waiver or relinquishment of the future performance of any
such terms or conditions or of any other terms and conditions of this Agreement.
A waiver by either party of any term or condition of this Agreement shall not be
deemed or construed to be a waiver of any other term or condition of this
Agreement. All rights, remedies, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and none of them shall be a
limitation of any other remedy, right, undertaking, obligation or agreement of
either party. This Agreement may not be amended except in a writing signed by
both parties.
11.2 ASSIGNMENT. Neither party may assign its rights and obligations
hereunder without the prior written consent of the other party, which consent
may not be unreasonably withheld; provided, however, that Allergan may assign
such rights and obligations hereunder to an Affiliate of Allergan or to any
person or entity with which Allergan is merged or consolidated or which acquires
all or substantially all of the assets of Allergan.
11.3 DISPUTE RESOLUTION. In the event of any dispute, the parties shall
refer such dispute to the CEO of ASTI and the CEO of Allergan for attempted
resolution by good faith negotiations within sixty (60) days after such referral
is made. During such period of good faith negotiations, any applicable time
periods under this Agreement shall be tolled. In the event such executives are
unable to resolve such dispute within such sixty (60) day period, the parties
shall submit their dispute to binding arbitration before a retired California
Superior Court Judge at J.A.M.S./Endispute located in Orange, California, such
arbitration to be conducted pursuant to the J.A.M.S./Endispute procedure rules
for commercial disputes then in effect. The award of the arbitrator shall
include an award of reasonable attorneys' fees and costs to the prevailing
party.
11.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute this Agreement.
11.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of California as applied to residents of
that state entering into contracts to be performed in that state.
9.
<PAGE> 10
11.6 HEADINGS. The section headings contained in this Agreement are
included for convenience only and form no part of the Agreement between the
parties.
11.7 NOTICES. Notices required under this Agreement shall be in writing
and sent by registered or certified mail, postage prepaid, or by facsimile and
confirmed by registered or certified mail, postage prepaid, and addressed as
follows:
If to Allergan
and/or any
Allergan Affiliate: Allergan, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: Corporate Vice President,
General Counsel
If to ASTI: Allergan Specialty Therapeutics, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: President and Chief
Executive Officer
All notices shall be deemed to be effective five days after the date of
mailing or upon receipt if sent by facsimile (but only if followed by certified
or registered confirmation). Either party may change the address at which notice
is to be received by written notice pursuant to this Section 11.7.
11.8 SEVERABILITY. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid or unenforceable, it shall be modified,
if possible, to the minimum extent necessary to make it valid and enforceable
or, if such modification is not possible, it shall be stricken and the remaining
provisions shall remain in full force and effect.
11.9 RELATIONSHIP OF THE PARTIES. For purposes of this Agreement, ASTI
and Allergan shall be deemed to be independent contractors, and anything in this
Agreement to the contrary notwithstanding, nothing herein shall be deemed to
constitute ASTI and Allergan as partners, joint venturers, co owners, an
association or any entity separate and apart from each party itself, nor shall
this Agreement constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever. Neither party hereto
is authorized to make any statements or representations on behalf of the other
party or in any way obligate the other party, except as expressly authorized in
writing by the other party. Anything in this Agreement to the contrary
notwithstanding,
10.
<PAGE> 11
no party hereto shall assume or be liable for any liabilities or obligations of
the other party, whether past, present or future.
11.10 SURVIVAL. The provisions of Sections 1, 5, 6, 7, 10, 11.1, 11.3,
11.5, 11.6, 11.7, 11.8, 11.9 and this Section 11.10 shall survive the
termination for any reason of this Agreement. Any payments due under this
Agreement with respect to any period prior to its termination shall be made
notwithstanding the termination of this Agreement. Neither party shall be liable
to the other due to the termination of this Agreement as provided herein,
whether in loss of good will, anticipated profits or otherwise.
11.
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
ALLERGAN SPECIALTY
THERAPEUTICS, INC.
By: ____________________________________________
Title: _________________________________________
ALLERGAN, INC.
By: ____________________________________________
Title: _________________________________________
ALLERGAN AFFILIATES:
ALLERGAN AMERICA, INC.
By: ____________________________________________
Title: _________________________________________
ALLERGAN PHARMACEUTICALS (IRELAND) LTD., INC.
By: ____________________________________________
Title: _________________________________________
12.
<PAGE> 13
VISION PHARMACEUTICALS, L.P.
A Texas limited partnership, dba Allergan,
by Allergan General, Inc.,
its general partner
By: ____________________________________________
Title: _________________________________________
13.
<PAGE> 14
EXHIBIT A
Exclusive License Agreement dated August 23, 1995 among Children's
Medical Center Corporation, Allergan, Allergan America, Inc. ("Allergan
America") and Allergan Pharmaceuticals (Ireland) Ltd., Inc.
("Allergan-Ireland").
License and Supply Agreement dated February 28, 1997 among Merz + Co.
GmbH & Co., Vision Pharmaceuticals L.P. ("Vision"), Allergan America,
Allergan-Ireland and Allergan.
Collaborative Research, Development and Marketing Agreement dated
November 20, 1996 between Cambridge NeuroScience, Inc. and Vision.
Amended and Restated Technology Cross License Agreement dated September
24, 1997 among Ligand Pharmaceuticals Incorporated, Allergan and Allergan Ligand
Retinoid Therapeutics, Inc.
Cross License Agreement dated ________, 1998 among Allergan, Allergan
America, Allergan-Ireland and Vision.
14.
<PAGE> 1
EXHIBIT 10.2
RESEARCH AND DEVELOPMENT AGREEMENT
This Research and Development Agreement (the "Agreement") is made as of
the ____ day of ________, 1998 between Allergan, Inc., a Delaware corporation
("Allergan"), and Allergan Specialty Therapeutics, Inc., a Delaware corporation
("ASTI").
BACKGROUND
A. ASTI has been formed for the purpose of research and developing human
pharmaceutical products, including products using Allergan Technology (as
defined below) and commercializing such products, most likely through licensing
to Allergan.
B. Allergan is engaged in the business of performing research,
development, marketing, manufacture and distribution of therapeutic and
prophylactic products.
C. ASTI desires that Allergan perform, on behalf of ASTI, research and
development activities directed toward the research and development of ASTI
Products (as defined below) and related activities.
Now, therefore, the parties agree as follows:
1. DEFINITIONS.
For the purposes of this Agreement, the following terms shall have the
meanings set forth below:
1.1 "Affiliate" shall mean a corporation or any other entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the designated party. "Control"
shall mean ownership of at least 50% of the shares of stock entitled to vote for
the election of directors in the case of a corporation, and at least 50% of the
interests in profits in the case of a business entity other than a corporation.
1.2 "Allergan Technology" shall mean all Proprietary Rights licensed
and/or sublicensed by Allergan and/or its Affiliates pursuant to the Technology
License Agreement.
1.3 "ALRT" shall mean Allergan Ligand Retinoid Therapeutics, Inc, a
Delaware corporation.
1.4 "ASTI Product" shall mean any dosage form of a compound which is the
subject of research and development as a potential human pharmaceutical product
which has been recommended by Allergan and accepted by ASTI's Board of Directors
for
1.
<PAGE> 2
development as such under this Agreement. Such recommendations may be made on a
Field of Use basis. The following compounds have been selected as the initial
ASTI Products as of the date hereof: (i) Tazarotene (oral), (ii) Memantine,
(iii) AGN 4310 and (iv) a compound to be selected from the RAR alpha-selective
agonist class of retinoid compounds for the treatment of various cancers.
1.5 "Available Funds" shall mean, as of any date of determination, $200
million plus any investment income earned thereon less (a) the aggregate amount
of all Research and Development Costs paid or incurred by ASTI as of such date,
(b) ASTI's aggregate reasonable ongoing administrative expenses paid or incurred
as of such date and, (c) the aggregate amount of all Technology Fee payments
paid or incurred by ASTI as of such date.
1.6 "Developed Technology" shall mean Proprietary Rights that (a) are
first generated, conceived or reduced to practice, as the case may be, by
Allergan or by any third party in the course of performing activities undertaken
pursuant to this Agreement or (b) are, in any manner, acquired by, or otherwise
obtained on behalf of, ASTI during the term of this Agreement from persons other
than Allergan and are necessary or useful to the research, development or
commercialization of ASTI Products or Pre-Selection Products.
1.7 "Developed Technology Product" shall mean any product (other than an
ASTI Product) (i) covered, at the time of sale in a country by one or more
unexpired patents issued in such country that are included in Developed
Technology and (ii) with respect to which Allergan receives any consideration.
1.8 "Developed Technology Royalties" shall mean the payments made by
Allergan to ASTI with respect to Net Sales of Developed Technology Products.
1.9 "Distribution" shall mean Allergan's distribution of all of the
outstanding shares of Class A Common Stock of ASTI to Allergan stockholders of
record on ________, 1998.
1.10 "Distribution Agreement" shall mean the Distribution Agreement
dated as of the date hereof between Allergan and ASTI.
1.11 "FDA" shall mean the United States Food and Drug Administration or
any successor agency whose clearance is necessary to market an ASTI Product in
the United States.
1.12 "Field of Use" shall mean a particular disease state or set of
related disease states.
2.
<PAGE> 3
1.13 "License Option" shall mean the option granted to Allergan pursuant
to the License Option Agreement.
1.14 "License Option Agreement" shall mean the License Option Agreement
dated as of the date hereof between Allergan and ASTI.
1.15 "Major Market Country" shall mean any of the following countries:
United States, France, Germany, Italy, Japan or the United Kingdom.
1.16 "Net Sales" shall mean, with respect to any Licensed Product,
Developed Technology Product or Pre-Selection Product, the amount billed by
Allergan or its Affiliates to a third party which is not an Affiliate of the
selling party (unless such Affiliate is the end user of such product, in which
case the amount billed therefor shall be deemed to be the amount that would be
billed to a third party in an arm's length transaction) for sales of such
Licensed Product, Developed Technology Product or Pre-Selection Product to third
parties less the following items, as allocable to such Licensed Product,
Developed Technology Product or Pre-Selection Product: (i) trade discounts,
credits or allowances, (ii) credits or allowances additionally granted upon
returns, rejections or recalls (except where any such recall arises out of
Allergan's or its Affiliate's gross negligence, willful misconduct or fraud),
(iii) freight, shipping and insurance charges, (iv) taxes, duties or other
governmental tariffs (other than income taxes) and (v) government mandated
rebates.
1.17 "Pre-Selection Work" shall mean research and pre-clinical
development work involving one or more product candidates owned or controlled by
Allergan or a third party undertaken in order to determine the suitability of
such candidate for research and development by ASTI.
1.18 "Pre-Selection Product" shall mean a product, other than one which
becomes an ASTI Product, for which ASTI funds Pre-Selection Work.
1.19 "Pre-Selection Product Payments" shall mean the payments made by
Allergan to ASTI pursuant to Section 7.4 with respect to Net Sales of
Pre-Selection Products.
1.20 "Product Candidate" shall mean a potential ASTI Product or
potential Pre-Selection Product for which Allergan proposes a Work Plan in
accordance with Section 2.2.
1.21 "Product Research and Development Program" shall mean a program to
conduct research and development with respect to an ASTI Product.
3.
<PAGE> 4
1.22 "Proprietary Rights" shall mean data, inventions, information,
processes, know-how and trade secrets, and patents or patent applications
claiming any of the foregoing, owned by, licensed to or controlled by a person
and which such person has the right to license or sublicense. Proprietary Rights
shall not include trademarks.
1.23 "Purchase Option" shall mean that certain option contained in
ASTI's Restated Certificate of Incorporation pursuant to which Allergan has the
right to purchase all of the outstanding shares of ASTI Class A Common Stock.
1.24 "Research and Development Costs" shall mean the cost of the
activities undertaken pursuant to this Agreement, determined in accordance with
Exhibit A hereto.
1.25 "Specialty Royalty Payments" shall mean front-end distribution
fees, prepaid royalties or similar one-time, infrequent or special payments from
a sublicensee to Allergan with respect to a Licensed Product, a Developed
Technology Product or a Pre-Selection Product.
1.26 "Sublicensing Revenues" shall mean percentage-of-sales payments and
Specialty Royalty Payments received by Allergan from sublicensees with respect
to a Licensed Product, a Developed Technology Product or a Pre-Selection
Product.
1.27 "Technology Fee" shall mean payments to be made over a maximum
period of four (4) years by ASTI to Allergan pursuant to the Technology License
Agreement.
1.28 "Technology License Agreement" shall mean the Technology License
Agreement dated as of the date hereof between Allergan and ASTI.
1.29 "Therapeutic Agent" shall mean a drug, protein, peptide, gene,
compound or other pharmaceutically active ingredient.
1.30 "Work Plan" shall mean a work plan for research and development of
a potential ASTI Product or potential Pre-Selection Product including cost
estimates.
2. PRODUCT RESEARCH AND DEVELOPMENT PROGRAM.
2.1 PRODUCT CANDIDATE IDENTIFICATION PROCESS. On or before March 31,
1998 and at least annually thereafter, Allergan shall provide ASTI with a
proposed Work Plan covering activities to be undertaken by Allergan to identify
and conduct research and development with respect to Product Candidates for
consideration by ASTI under Sections 2.2, 2.3 and, as applicable, Section 2.4.
Promptly after Allergan provides ASTI with such proposed Work Plan, ASTI shall
notify Allergan of its acceptance or rejection of such proposed Work Plan.
4.
<PAGE> 5
2.2 PRODUCT CANDIDATE SELECTION.
(a) From time to time during the term of this Agreement, Allergan
shall present ASTI with Product Candidates recommended by Allergan for research
and development as ASTI Products, together with preliminary lifetime plans that
provide, for each such Product Candidate, an estimate of the total Research and
Development Costs for the Product Research and Development Program for such
Product Candidate through FDA review for clearance to market the resulting
product, milestones (including the timetable for the development of the
resulting product), detailed Work Plans for the first proposed stage of the
Product Research and Development Program and any other factors that Allergan
deems appropriate to determine whether to recommend the Product Candidate for
research and development.
(b) Promptly after Allergan recommends a Product Candidate for
research and development to ASTI, ASTI shall notify Allergan in writing of its
acceptance (in whole or in part) or rejection (in whole or in part) of the
initial Work Plan included with such recommendation. Upon written acceptance (in
whole or in part) of a Work Plan for a Product Candidate under this Section 2.2,
such Product Candidate shall be deemed to be an ASTI Product.
(c) If ASTI fails to accept a recommended Product Candidate for
research and development as an ASTI Product within 120 days of recommendation by
Allergan, then, subject to Section 7.4, ASTI shall have no rights with respect
to such Product Candidate; provided, however, that, at any time during the term
of this Agreement, ASTI may request Allergan to perform a Product Research and
Development Program for such Product Candidate and Allergan shall undertake its
duties with respect to such Product Research and Development Program, all in
accordance with this Section 2 and Section 3, unless, at the time of such
request, Allergan is then undertaking the research and development of such
Product Candidate for its own account or with a third party, or Allergan is
otherwise not permitted to undertake such research or development hereunder
because of an arrangement with a third party.
2.3 ASTI PRODUCTS AND PRE-SELECTION WORK. ASTI shall fund the Research
and Development Costs under Allergan approved Work Plans in accordance with
Section 4.1 for each of the initial ASTI Products specified in Section 1.4 and
for the Pre-Selection Work described in Exhibit B during the period from the
date on which ALRT ceased such funding (October 23, 1997) through March 31,
1998. On or before March 31, 1998, Allergan shall provide ASTI with a proposed
Work Plan and a lifetime plan for the continued development of each of such
initial ASTI Products and such initial Pre-Selection Work. On or before March
31, 1998, ASTI shall notify Allergan in writing of its acceptance (in whole or
in part) or rejection (in whole or in part) thereof.
5.
<PAGE> 6
2.4 PRE-SELECTION WORK. From time to time during the term of this
Agreement, Allergan may provide ASTI with a proposed Work Plan covering one or
more Pre-Selection Work projects with respect to Product Candidates which
Allergan designates as Pre-Selection Products. Promptly after Allergan provides
ASTI with such proposed Work Plan, ASTI shall notify Allergan of its acceptance
(in whole or in part) or rejection (in whole or in part) of such proposed Work
Plan. Allergan may propose to ASTI at any time that any Pre-Selection Product
(including any Pre-Selection Product relating to the Pre-Selection Work referred
to on Exhibit B) become an ASTI Product by complying with the procedures set
forth in Section 2.2.
2.5 PARTIAL ACCEPTANCE. If ASTI accepts or rejects a Work Plan in part,
Allergan may either (i) perform the activities under the Work Plan as approved
by ASTI or (ii) propose a modified Work Plan to ASTI for approval.
3. RESEARCH AND DEVELOPMENT PROGRAMS; ALLERGAN SERVICES.
3.1 PRODUCT DEVELOPMENT--ASTI OBLIGATIONS. Once ASTI accepts a Work Plan
for an ASTI Product or a Pre-Selection Work pursuant to Section 2.2, 2.3 or 2.4,
ASTI shall use diligent efforts to complete such Work Plan, as amended from time
to time. ASTI shall request that Allergan or a third party perform the
activities under each such Work Plan; provided, however, that Allergan's prior
written consent shall be required for a third party to perform any activities
that involve Allergan Technology or that could affect Allergan's rights under
any agreement between Allergan and ASTI or Allergan's rights as holder of the
Class B Common Stock of ASTI. ASTI shall use diligent efforts to cause each
third party other than Allergan (or a third party engaged by Allergan) to
perform diligently the activities assigned it under a Work Plan.
3.2 PRODUCT DEVELOPMENT--ALLERGAN OBLIGATIONS; OTHER ALLERGAN
ACTIVITIES. ASTI hereby engages Allergan to perform product identification,
evaluation, research, development and related activities in accordance with the
tasks assigned to Allergan under the Work Plans accepted under Section 2, and to
undertake such other activities as the parties may agree. Allergan diligently
shall perform or cause to be performed such activities. In connection therewith,
Allergan shall make available such of its scientific and other personnel, and
shall take such steps as it deems necessary in order to perform its obligations
in accordance with the terms hereof, but Allergan is not obligated to devote any
specific amount of time or resources to activities hereunder. Allergan shall
have full discretion to determine from time to time the allocation of resources
of Allergan (facilities, equipment and personnel) that are available for
activities hereunder, and to determine from time to time the allocation of
resources of Allergan among such activities. ASTI understands, acknowledges and
agrees that Allergan may devote substantial time and resources to research and
development activities for other persons and for its own account, and as a
result, Allergan may develop and commercialize, or have
6.
<PAGE> 7
commercialized, products competitive with ASTI Products, Pre-Selection Products
and Developed Technology Products.
3.3 WORK PLANS. The parties understand and acknowledge that it is
difficult to predict accurately the activities that will be necessary to
complete any Work Plan, including the Research and Development Costs thereof,
and that significant uncertainties exist in any product development effort. ASTI
and Allergan shall cooperate in good faith to devise mutually acceptable Work
Plans for Product Research and Development Programs, Pre-Selection Work,
candidate identification activities and such other activities as the parties may
agree. Allergan and ASTI shall review each such Work Plan from time to time, and
with respect to a Work Plan for an ASTI Product no less often than at the end of
each stage of research and development, and shall revise each Work Plan as
appropriate such that each Work Plan remains a best estimate of the work to be
performed to complete the development objectives identified therein and of the
Research and Development Costs thereunder. ASTI shall not be obligated to pay
Research and Development Costs in excess of those provided for in approved Work
Plans, and Allergan shall not be obligated to perform work which would result in
Research and Development Costs exceeding those in approved Work Plans.
3.4 CONSULTATION. ASTI shall consult with Allergan and shall review with
Allergan from time to time the progress toward completion of the activities
under the Work Plans for each ASTI Product and Pre-Selection Work, including
without limitation, the status in each country for each ASTI Product for which
marketing clearance is being sought.
3.5 THIRD PARTY RIGHTS. Subject to the terms and conditions of this
Agreement, ASTI shall have discretion to attempt to obtain, using Available
Funds, any Proprietary Rights from any third party that ASTI reasonably
determines to be necessary or useful to conduct any Product Research and
Development Program, Pre-Selection Work or related activities under this
Agreement. Such Proprietary Rights shall be included in the Developed
Technology. The costs of obtaining any such Proprietary Rights shall be included
in the calculation of Research and Development Costs paid by ASTI pursuant to
this Agreement.
3.6 DEVELOPMENT ASSETS. Allergan shall own and have the right to use any
clinical supplies, materials and other assets purchased, manufactured or
developed pursuant to approved Work Plans ("Development Assets") and, until such
time as the License Option is exercised with respect to the product to which any
particular Development Asset pertains, shall use such Development Assets solely
in the development of ASTI Products under approved Work Plans.
7.
<PAGE> 8
3.7 NO USE OF AVAILABLE FUNDS. After either (i) such time as the License
Option for an ASTI Product in a country expires unexercised as to such country
or (ii) an investigational new drug application ("IND") is filed with the FDA
with respect to a Pre-Selection Product which has not been recommended by
Allergan and accepted by ASTI's Board of Directors as an ASTI Product, no
additional Available Funds shall be expended for the research or development of
such ASTI Product for sale in such country or such Pre-Selection Product, as
applicable.
3.8 NOTICES. Allergan shall notify ASTI within three business days after
Allergan receives notice of clearance to market any ASTI Product in any country.
Allergan shall promptly notify ASTI of the first commercial sale of an ASTI
Product, Developed Technology Product or Pre-Selection Product in any country.
4. PAYMENT FOR SERVICES; TIMING OF PAYMENTS.
4.1 PAYMENT OF RESEARCH AND DEVELOPMENT COSTS. In consideration of the
work to be carried out by Allergan hereunder, ASTI shall reimburse Allergan for
all Research and Development Costs incurred by Allergan in accordance with
accepted Work Plans. ASTI shall also reimburse Allergan for (i) Research and
Development Costs incurred with respect to the initial ASTI Products referred to
in Section 1.4 and (ii) Pre-Selection Work described in Exhibit B, which costs
are incurred from the date on which ALRT ceased such funding (October 23, 1997)
through March 31, 1998 in accordance with the Allergan approved Work Plans
therefor in effect as of the date hereof.
4.2 TIMING OF PAYMENTS. ASTI shall pay to Allergan monthly, in arrears,
all such Research and Development Costs incurred by Allergan during the
preceding calendar month, within 30 days after Allergan's invoice therefor.
4.3 SUFFICIENCY OF FUNDS. Neither ASTI nor Allergan makes any warranty,
express or implied, that Available Funds will be sufficient to complete the
development of any or all ASTI Products or the other activities contemplated
hereunder.
5. REPORTS AND RECORDS.
5.1 PRODUCT RESEARCH AND DEVELOPMENT PROGRAM REPORTS. Within 45 days
after the end of each calendar quarter, Allergan shall provide to ASTI, and ASTI
shall require each third party engaged by ASTI pursuant to Section 3.1 to
provide to ASTI and to Allergan, a reasonably detailed report setting forth (a)
a summary of the work performed hereunder by Allergan or such third party, as
appropriate, and its employees and agents during such quarter; and (b) the total
Research and Development Costs of such activities during such quarter and
cumulatively to date, for each Work Plan.
8.
<PAGE> 9
5.2 AVAILABLE FUNDS STATEMENT. Within 45 days after the end of each
calendar quarter, ASTI shall provide to Allergan a statement setting forth, as
of the end of such quarter, the Available Funds remaining.
5.3 PAYMENT REPORTS. Within 90 days after the end of each calendar
quarter for which payments are due under Section 7.4, Allergan shall render an
accounting to ASTI, on a product-by-product and country-by-country basis, with
respect to all payments due for such quarter under Section 7.4. Such report
shall indicate, for such quarter, the quantity and dollar amount of Net Sales
of, and Sublicensing Revenues with respect to, each Developed Technology Product
and each Pre-Selection Product by Allergan and its Affiliates, sublicensees,
distributors and marketing partners (and their Affiliates), with respect to
which payments are due; provided, however, that if Allergan shall not have
received from any foreign sublicensee, distributor or marketing partner a report
of its (and its Affiliates') sales for such quarter, then such sales shall be
included in the next quarterly report, and payments with respect to such report
shall be due in the next quarter. In case no payment is due for any calendar
quarter, Allergan shall so report. Allergan shall keep accurate records in
sufficient detail to enable the payments due hereunder to be determined.
5.4 RECORDS; REVIEW BY ACCOUNTANTS. Each of ASTI and Allergan shall keep
and maintain, in accordance with generally accepted accounting principles,
proper and complete records and books of account documenting all Research and
Development Costs and amounts paid or payable by Allergan to ASTI under this
Agreement, in the case of Allergan, and remaining Available Funds, in the case
of ASTI. Each of ASTI and Allergan shall have the right, once in each calendar
year during regular business hours and upon reasonable notice to the other
party, and at its own expense, to examine or to have examined by a certified
public accountant or similar person reasonably acceptable to the other party,
pertinent books and records of one another, for the sole purpose of determining
the correctness of amounts invoiced, paid or due under this Agreement and the
application of Available Funds by ASTI. Such examination shall take place not
later than two years following the year in question, and only one examination
may take place with respect to any period as to which such books and records are
examined. Each party shall obtain, for itself and for the other party, similar
reasonable rights to audit the Research and Development Costs of, and payments
with respect to Net Sales by, each third party engaged by ASTI pursuant to
Section 3.1 or appointed or permitted by Allergan to commercialize any product
as to which payments are due to ASTI hereunder.
6. TECHNOLOGY LICENSED FOR DEVELOPMENT.
6.1 LICENSE TO USE ALLERGAN TECHNOLOGY. ASTI hereby grants to Allergan a
sublicense to use the Allergan Technology and the Developed Technology solely
for the purpose of conducting the activities contemplated hereunder.
9.
<PAGE> 10
6.2 TERMINATION OF LICENSE. Termination of the license granted under the
Technology License Agreement automatically shall terminate the sublicense to the
Allergan Technology granted to Allergan pursuant to Section 6.1.
7. OWNERSHIP OF ASTI PRODUCTS AND DEVELOPED TECHNOLOGY; PATENTS; PAYMENTS TO
ASTI.
7.1 OWNERSHIP OF ASTI PRODUCTS. Unless ASTI agrees otherwise, all ASTI
Products will be owned by ASTI or, in the case of a product licensed from a
third party (or a product incorporating a Therapeutic Agent licensed from a
third party), exclusively licensed to ASTI on a worldwide basis, with the right
to sublicense, and otherwise on terms granting rights substantially similar to
those rights ASTI would have as an owner, in either case subject to the License
Option.
7.2 OWNERSHIP OF DEVELOPED TECHNOLOGY. As between Allergan and ASTI,
Allergan shall own all Developed Technology, subject to the Technology License
Agreement.
7.3 PATENTS COVERING DEVELOPED TECHNOLOGY. Allergan shall determine
whether and to what extent to seek and maintain United States and/or foreign
patents covering any Developed Technology. Any such patents and applications
therefor shall be in Allergan's name and shall be owned by Allergan. In the
event that Allergan declines to seek patent protection for any Developed
Technology, ASTI will not have the right to do so. ASTI and Allergan each shall
pay one-half of the costs of obtaining and maintaining any such patents during
the term of this Agreement.
7.4 PAYMENTS BASED ON SALES OF DEVELOPED TECHNOLOGY PRODUCTS AND
PRE-SELECTION PRODUCTS.
(a) Allergan shall pay Developed Technology Royalties to ASTI, on a
country-by-country basis, equal to the sum of (i) 1% of Allergan's Net Sales in
the relevant country of each Developed Technology Product plus (ii) 10% of any
Sublicensing Revenues with respect to such Developed Technology Product. Only
one payment under this Section 7.4 shall be payable by Allergan to ASTI with
respect to Net Sales of each Developed Technology Product in any country,
regardless of the number of patents covering such Developed Technology Product
in such country. Subject to Section 7.5, payments with respect to sales of a
Developed Technology Product in any country shall be made by Allergan until the
expiration of the last to expire of the patent or patents covering such
Developed Technology Product in any country.
(b) Allergan shall make Pre-Selection Product Payments to ASTI equal
to the sum of (i) 1% of Allergan's Net Sales of each Pre-Selection Product plus
(ii) 10% of any Sublicensing Revenues with respect to such Pre-Selection
Product. Subject to
10.
<PAGE> 11
Section 7.5, payments with respect to sales of a Pre-Selection Product shall be
made by Allergan until seven years after the first commercial sale of such
Pre-Selection Product in the first Major Market Country in which such product is
commercially sold.
(c) In determining payments due under this Section 7.4, Net Sales by
Allergan shall be reduced by the dollar amount of any license or similar
payments made by or due from Allergan or its Affiliates to third parties with
respect to any such sales of such Developed Technology Product or Pre-Selection
Product. If license or similar payments are made to third parties with respect
to sales of such products and to sales of other products, Allergan shall
allocate such payments, if necessary, in a commercially reasonable manner.
(d) Notwithstanding the foregoing, if a product is both a Developed
Technology Product and a Pre-Selection Product, amounts payable under this
Section 7.4 with respect to such product for any period of time shall be limited
to the sum of (i) 1% of Allergan's Net Sales plus (ii) 10% of any Sublicensing
Revenues.
7.5 BUY-OUT OF PAYMENTS BASED ON SALES OF DEVELOPED TECHNOLOGY PRODUCTS
AND PRE-SELECTION PRODUCTS.
(a) Allergan shall have the option with respect to each Developed
Technology Product and each Pre-Selection Product, in its discretion, at any
time after the end of the twelfth calendar quarter during which such product was
commercially sold in a country, to buy out its remaining obligation to make
payments under Section 7.4 with respect to sales of such Developed Technology
Product or Pre-Selection Product in such country. The buy out price shall be an
amount equal to 15 times the payments made by or due from Allergan to ASTI under
Section 7.4 with respect to sales of such Developed Technology Product or
Pre-Selection Product in such country for the four calendar quarters immediately
preceding the quarter in which the buy out option is exercised.
(b) Allergan shall have the option with respect to each Developed
Technology Product and each Pre-Selection Product, in its discretion, at any
time after the end of the twelfth calendar quarter during which such product was
commercially sold in either the United States or two other Major Market
Countries, to buy out its remaining worldwide obligations to make payments under
Section 7.4 with respect to sales of such Developed Technology Product or
Pre-Selection Product. The buyout price shall be an amount equal to (i) 20 times
(A) the payments made by or due from Allergan to ASTI under Section 7.4 with
respect to sales of such Developed Technology Product or Pre-Selection Product,
plus (B) such payments as would have been made by or due from Allergan to ASTI
if Allergan had not exercised any country-specific buy-out option with respect
to such Developed Technology Product or Pre-Selection Product, in each case, for
the four calendar quarters immediately preceding the quarter in which the
buy-out option
11.
<PAGE> 12
is exercised, less (ii) any amounts previously paid to exercise any country-
specific buy-out option with respect to such Developed Technology Product or
Pre-Selection Product.
7.6 PAYMENTS. Payments shown by each calendar quarter report described
in Section 5.3 to have accrued shall be due and payable on the date the report
is due and shall be paid in United States dollars. Any and all taxes due or
payable on such payments or with respect to the remittance thereof shall be
deducted from such payments and shall be paid by Allergan to the proper taxing
authorities, and proof of payment shall be secured and sent to ASTI as evidence
of such payment. The rate of exchange to be used in computing the amount of
United States dollars due to ASTI in satisfaction of payment obligations with
respect to sales in foreign countries shall be calculated by converting the
amount due in such foreign currency into United States dollars based on the rate
for the purchase of United States dollars with such currency as published in the
Wall Street Journal on the last business day of the calendar quarter for which
payment is being made.
7.7 CERTAIN FOREIGN PAYMENTS. If governmental regulations prevent
remittance from any foreign country of any amounts due under Section 7.4 with
respect to that country, Allergan shall so notify ASTI in writing, and the
obligation under this Agreement to make payments with respect to sales in that
country shall be suspended (but the amounts due but not paid shall continue to
accrue) until such remittances are possible. ASTI shall have the right, upon
written notice to Allergan, to receive payment in any such country in the local
currency.
7.8 LATE PAYMENTS. Any payments due hereunder that are not made when due
shall accrue interest at the lesser of 10% per annum or the maximum rate as may
be allowed by law, beginning on the date when ASTI notifies Allergan that such
payments are overdue.
8. ACCESS TO INFORMATION; CONFIDENTIALITY.
8.1 ACCESS. Subject to the terms of this Agreement, each party shall be
permitted access to the premises of the other during normal business hours, for
the purpose of monitoring the progress of activities under this Agreement. Each
party shall keep full and complete records and notebooks containing all
experiments performed during its work under this Agreement and the results
thereof. Such items and copies of all documentation shall be available during
normal business hours for inspection by the other party. In addition, each party
shall provide to the other such other information as reasonably may be
requested.
8.2 THIRD PARTIES. ASTI and Allergan shall cause each third party
engaged pursuant to Section 3.1 or 3.2 to provide access similar to that to be
provided pursuant to Section 8.1, for the benefit of both ASTI and Allergan.
12.
<PAGE> 13
8.3 PRODUCT LISTS. Allergan shall maintain a complete list of ASTI
Products, Developed Technology Products and Pre-Selection Products at all times.
Confirmation of the completeness and accuracy of such list shall be made at any
time upon the reasonable request of ASTI.
8.4 CONFIDENTIALITY. During the term of this Agreement and for a period
of ten years following its termination, each party shall maintain in confidence
all Proprietary Rights of the other; provided, however, that nothing contained
herein shall prevent either party from disclosing any Proprietary Rights to the
extent that such Proprietary Rights (a) are required to be disclosed in
connection with researching and developing ASTI Products, conducting
Pre-Selection Work, conducting related activities, securing necessary
governmental authorization for the marketing of ASTI Products or Pre-Selection
Products, or directly or indirectly making, using or selling ASTI Products or
Pre-Selection Products, as permitted or provided for in the agreements between
the parties, (b) are required to be disclosed by law for the purpose of
complying with governmental regulations, (c) are disclosed to sublicensees,
distributors or marketing partners or potential sublicenses, distributors or
marketing partners permitted under the agreements between the parties in
connection with the proposed or actual research, development, manufacturing or
marketing of ASTI Products or Pre-Selection Products, subject to similar
obligations of confidentiality on the part of such third parties as required by
the agreements between the parties, (d) are known to or used by the recipient
prior to the date hereof (other than through disclosure by or on behalf of the
other party) as evidenced by the recipient's written records, (e) are lawfully
disclosed to the recipient by a third party having the right to disclose such
information to the recipient, or (f) either before or after the time of
disclosure to the recipient, become known to the public other than by an
unauthorized act or omission of the recipient or any of the recipient's
employees or agents; provided that clause (d) does not give Allergan the right
to disclose Proprietary Rights that relate exclusively to ASTI Products;
provided further that, ASTI may disclose Allergan Proprietary Rights to third
parties only in accordance with the provisions of Section 10.3 hereof and in
accordance with the provisions of the Technology License Agreement. The
obligations of each of the parties pursuant to this Section 8.4 shall survive
the termination of this Agreement for any reason. Any breach of this Section 8.4
may result in irreparable harm, and in the event of a breach, the aggrieved
party shall be entitled to seek injunctive relief (without the need to post a
bond) in addition to any other remedies available at law or in equity.
9. PUBLIC DISCLOSURE.
9.1 PUBLIC DISCLOSURE. The parties will work together with respect to
public statements disclosing the status of and results under Product Research
and Development Programs and related matters. Except to the extent previously
disclosed pursuant to the terms hereof, neither party shall disclose to third
parties nor originate any publicity, news
13.
<PAGE> 14
release or public announcement, written or oral, whether to the public, the
press, stockholders or otherwise, referring to activities conducted, or the
parties' performance under, this Agreement, except such announcements, as in the
opinion of the counsel for the party making such announcement, are required by
law, including United States securities laws, rules or regulations, without the
prior written consent of the other party. If a party decides to make an
announcement it believes to be required by law with respect to this Agreement,
it will give the other party such notice as is reasonably practicable and an
opportunity to comment upon the announcement.
10. COVENANTS.
10.1 USE OF AVAILABLE FUNDS. Unless Allergan agrees otherwise, ASTI
agrees to expend all Available Funds for activities undertaken pursuant to this
Agreement. Pending application of all Available Funds as set forth above,
Available Funds shall be invested in securities issued or guaranteed as to
principal and interest by the United States, or by a person controlled or
supervised by or acting as an instrumentality of the government of the United
States pursuant to authority granted by the Congress of the United States, or
any certificate of deposit for any of the foregoing, or any other types of high
quality marketable investment securities that are proposed by ASTI and are
approved by Allergan in its sole discretion.
10.2 NEGATIVE PLEDGE. ASTI shall not create, incur, assume or suffer to
exist any lien upon or with respect to, or otherwise take any action with
respect to, Available Funds so as to prevent or interfere with full expenditure
of such funds for activities under this Agreement in accordance with Section
10.1.
10.3 NO INCONSISTENT AGREEMENTS. Without the written consent of
Allergan, ASTI shall not enter into any agreement or arrangement that is in any
way inconsistent with or that could adversely affect Allergan Technology or
Allergan's rights under any agreement between Allergan and ASTI, or that is in
any way inconsistent with or that could adversely affect Allergan's rights as
holder of the Class B Common Stock of ASTI. ASTI must include in any agreement
between ASTI and a third party relating to ASTI Products and/or activities
hereunder such provisions as Allergan reasonably deems appropriate to protect
Allergan Technology and to protect Allergan's rights under any agreement between
Allergan and ASTI and as a holder of the Class B Common Stock of ASTI (including
Allergan's rights under the Purchase Option).
11. EFFECTIVE DATE; TERM AND TERMINATION.
11.1 EFFECTIVE DATE. The effective date of this Agreement shall be the
date of the Distribution.
14.
<PAGE> 15
11.2 AUTOMATIC TERMINATION. This Agreement shall terminate upon exercise
or expiration of the Purchase Option, except that Allergan's obligations to make
payments to ASTI with respect to Developed Technology Products and Pre-Selection
Products shall continue after expiration of the Purchase Option as provided in
Section 7 hereof.
11.3 OTHER TERMINATION. Either party may, in its discretion, terminate
this Agreement in the event that the other party:
(a) breaches any material obligation hereunder or under the
Technology License Agreement, the License Option Agreement, or any license
thereunder, and such breach continues for a period of 60 days after written
notice thereof by the terminating party to the other party; or
(b) enters into any proceeding, whether voluntary or otherwise, in
bankruptcy, reorganization or arrangement for the appointment of a receiver or
trustee to take possession of its assets or any other proceeding under any law
for the relief of creditors, or makes an assignment for the benefit of its
creditors.
12. FORCE MAJEURE.
12.1 FORCE MAJEURE. Neither party to this Agreement shall be liable for
failure or delay in the performance of any of its obligations hereunder, if such
failure or delay is due to causes beyond its reasonable control including,
without limitation, acts of God, earthquakes, fires, strikes, acts of war, or
intervention of any governmental authority, but any such delay or failure shall
be remedied by such party as soon as possible after the removal of the cause of
such failure or delay.
13. MISCELLANEOUS.
13.1 WAIVER, REMEDIES AND AMENDMENT. Any waiver by either party hereto
of a breach of any provisions of this Agreement shall not be implied and shall
not be valid unless such waiver is recited in writing and signed by such party.
Failure of any party to require, in one or more instances, performance by the
other party in strict accordance with the terms and conditions of this Agreement
shall not be deemed a waiver or relinquishment of the future performance of any
such terms or conditions or of any other terms and conditions of this Agreement.
A waiver by either party of any term or condition of this Agreement shall not be
deemed or construed to be a waiver of any other term or condition of this
Agreement. All rights, remedies, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and none of them shall be a
limitation of any other remedy, right, undertaking, obligation or agreement of
either party. This Agreement may not be amended except in a writing signed by
both parties.
15.
<PAGE> 16
13.2 ASSIGNMENT. Neither party may assign its rights and obligations
hereunder without the prior written consent of the other party, which consent
may not be unreasonably withheld; provided, however, that Allergan may assign
such rights and obligations hereunder to an Affiliate of Allergan or to any
person or entity with which Allergan is merged or consolidated or which acquires
all or substantially all of the assets of Allergan.
13.3 DISPUTE RESOLUTION. In the event of any dispute, the parties shall
refer such dispute to the CEO of ASTI and the CEO of Allergan for attempted
resolution by good faith negotiations within sixty (60) days after such referral
is made. During such period of good faith negotiations, any applicable time
periods under this Agreement shall be tolled. In the event such executives are
unable to resolve such dispute within such sixty (60) day period, the parties
shall submit their dispute to binding arbitration before a retired California
Superior Court Judge at J.A.M.S./Endispute located in Orange, California, such
arbitration to be conducted pursuant to the J.A.M.S./Endispute procedure rules
for commercial disputes then in effect. The award of the arbitrator shall
include an award of reasonable attorneys' fees and costs to the prevailing
party.
13.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute this Agreement.
13.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of California as applied to residents of
that state entering into contracts to be performed in that state.
13.6 HEADINGS. The section headings contained in sections of this
Agreement are included for convenience only and form no part of the Agreement
between the parties.
13.7 NOTICES. Notices required under this Agreement shall be in writing
and sent by registered or certified mail, postage prepaid, or by facsimile and
confirmed by registered or certified mail, postage prepaid, and addressed as
follows:
If to Allergan: Allergan, Inc.
2525 Dupont Drive
Irvine, CA 92715
Facsimile: (714) 246-4774
Attention: Corporate Vice President,
General Counsel
16.
<PAGE> 17
If to ASTI: Allergan Specialty Therapeutics, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: President and Chief
Executive Officer
All notices shall be deemed to be effective five days after the date of mailing
or upon receipt if sent by facsimile (but only if followed by certified or
registered confirmation). Either party may change the address at which notice is
to be received by written notice pursuant to this Section 13.7.
13.8 SEVERABILITY. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid or unenforceable, it shall be modified,
if possible, to the minimum extent necessary to make it valid and enforceable
or, if such modification is not possible, it shall be stricken and the remaining
provisions shall remain in full force and effect.
13.9 RELATIONSHIP OF THE PARTIES. For purposes of this Agreement, ASTI
and Allergan shall be deemed to be independent contractors, and anything in this
Agreement to the contrary notwithstanding, nothing herein shall be deemed to
constitute ASTI and Allergan as partners, joint venturers, coowners, an
association or any entity separate and apart from each party itself, nor shall
this Agreement constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever. Neither party hereto
is authorized to make any statements or representations on behalf of the other
party or in any way obligate the other party, except as expressly authorized in
writing by the other party. Anything in this Agreement to the contrary
notwithstanding, no party hereto shall assume or be liable for any liabilities
or obligations of the other party, whether past, present or future.
13.10 SURVIVAL. The provisions of Sections 1, 7, 8.3, 8.4, 11, 13.1,
13.3, 13.5, 13.6, 13.7, 13.8, 13.9, and this Section 13.10, and of Sections 4
and 5 to the extent of obligations under such sections relating to periods prior
to termination of this Agreement, shall survive the termination for any reason
of this Agreement. Any payments due under this Agreement with respect to any
period prior to its termination shall be made notwithstanding the termination of
this Agreement. Neither party shall be liable to the other due to the
termination of this Agreement as provided herein, whether in loss of good will,
anticipated profits or otherwise.
17.
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
ALLERGAN, INC.
By: ____________________________________
Title: _________________________________
ALLERGAN SPECIALTY THERAPEUTICS, INC.
By: ____________________________________
Title: _________________________________
18.
<PAGE> 19
EXHIBIT A
CALCULATION OF RESEARCH AND DEVELOPMENT COSTS
Allergan shall charge ASTI for both "direct" and "indirect" Research and
Development Costs based on Allergan's internal R&D Project Accounting System or
such other comparable successor system as Allergan may use to gather such costs.
Direct costs include third party contract costs, such as those expenses paid to
outside vendors which can be directly identified to a specific research and
development program or project (see Exhibit A1). Indirect costs include the
fully absorbed cost of labor (labor plus overhead) which can be specifically
identified with or physically traced to a project using the Allergan Project
Reporting System. The allocation of such indirect costs is based on timecards
which all Allergan R&D employees who work directly on research and development
projects complete each month (see Exhibit A2).
In order to fully and fairly allocate all allocable overhead to projects
undertaken by Allergan hereunder, an amount equal to 10% of the total Research
and Development Costs determined in accordance with the above provisions
(exclusive of the costs charged to Allergan or ASTI pursuant to contracts with
third parties for the performance of services related to research and
development hereunder) will also be added to the amount charged to ASTI.
19.
<PAGE> 20
EXHIBIT A1
RESEARCH AND DEVELOPMENT DIRECT COSTS
The following is a list of the types of expenses which are considered as
"direct" in Exhibit A and would be billable to ASTI when they can be directly
identified with ASTI research and development:
Collaborative research agreement payments
Payments for compound supply
Payments for biologicals
Payments for chemical precursors
Payment for clinical studies
Payment for toxicological, pharmacokinetic studies and other outside services
Payment for other Allergan functions (non-R&D) which provide services
Payment for research grants
Payment for consulting services
Hiring expenses for people who will work predominantly on ASTI projects
Milestone payments to third parties
Project travel, entertainment and related expenses
Capital equipment purchased exclusively for ASTI projects
Miscellaneous project expenses
Regulatory and filing fees
Telephone and communications
Patent and trademark expenses
Software
20.
<PAGE> 21
EXHIBIT A2
RESEARCH AND DEVELOPMENT INDIRECT COSTS
The following is a list of the types of expenses which are considered as
"indirect" in Exhibit A and would be billable to ASTI when they can be
identified with ASTI research and development:
Salaries and fringe benefits of people working directly on ASTI projects
Salaries and fringe benefits of people managing and supporting those working
directly on ASTI projects
General supplies and chemicals
General Information Systems and communications support
General equipment depreciation
General facilities depreciation, utilities, rent
Miscellaneous indirect expenses
Miscellaneous general and administrative expenses
21.
<PAGE> 22
EXHIBIT B
PRE-SELECTION WORK
During the period from the date on which ALRT ceased funding (October 23, 1997)
through March 31, 1998, ASTI shall, in addition to funding research and
development of the four initial ASTI Products, fund research and development of
certain classes of receptor-selective and function-selective retinoid compounds
as well as compounds for use in the field of ion channel blockers, including
compounds that may shut down the operation of voltage-activated sodium channels
and/or NMDA channels, for the treatment of ophthalmic diseases and disorders. It
is anticipated that the total Research and Development Costs to be incurred in
connection with such additional research and development will be between $4
million and $5 million during such period.
22.
<PAGE> 1
EXHIBIT 10.3
LICENSE OPTION AGREEMENT
This License Option Agreement (the "Agreement") is made as of the ____
day of ________, 1998 by and between Allergan, Inc., a Delaware corporation
("Allergan"), and Allergan Specialty Therapeutics, Inc., a Delaware corporation
("ASTI").
BACKGROUND
A. ASTI has been formed for the purpose of researching and developing
human pharmaceutical products, including products using Allergan Technology (as
defined herein) and commercializing such products, most likely through licensing
to Allergan.
B. As of the date hereof, Allergan and ASTI have entered into a
Technology License Agreement and a Research and Development Agreement.
C. ASTI desires to grant to Allergan an option to commercialize the
products developed by ASTI under the Research and Development Agreement as set
forth herein.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings set forth below:
1.1 "Affiliate" shall mean a corporation or any other entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the designated party. "Control"
shall mean ownership of at least 50% of the shares of stock entitled to vote for
the election of directors in the case of a corporation, and at least 50% of the
interests in profits in the case of a business entity other than a corporation.
1.2 "ASTI Product" shall mean any dosage form of a compound which is the
subject of research and development as a potential human pharmaceutical product
which has been recommended by Allergan and accepted by ASTI's Board of Directors
for development as such under the Research and Development Agreement. Such
recommendations may be made on a Field of Use basis. The following compounds
have been selected as the initial ASTI Products as of the date hereof: (i)
Tazarotene (oral), (ii) Memantine, (iii) AGN 4310 and (iv) a compound to be
selected from the RAR alpha-selective agonist class of retinoid compounds for
the treatment of various cancers.
1.
<PAGE> 2
1.3 "Distribution" shall mean Allergan's distribution of all of the
outstanding shares of Class A Common Stock of ASTI to Allergan stockholders of
record on _______, 1998.
1.4 "FDA" shall mean the United States Food and Drug Administration or
any successor agency whose clearance is necessary to market an ASTI Product in
the United States.
1.5 "Field of Use" shall mean a particular disease state or set of
related disease states.
1.6 "License Agreement" shall mean an exclusive license agreement for a
particular ASTI Product between Allergan and ASTI, in the form of Exhibit A to
this Agreement.
1.7 "License Option" shall mean the option granted to Allergan pursuant
to Section 2 of this Agreement.
1.8 "Product Payments" shall have the meaning set forth in Section 3.1
of the License Agreement.
1.9 "Proprietary Rights" shall mean data, inventions, information,
processes, know-how and trade secrets, and patents or patent applications
claiming any of the foregoing, owned by, licensed to or controlled by a person
and which such person has the right to license or sublicense. Proprietary Rights
shall not include trademarks.
1.10 "Purchase Option" shall mean that certain option contained in
ASTI's Restated Certificate of Incorporation pursuant to which Allergan has the
right to purchase all of the outstanding shares of ASTI Class A Common Stock.
1.11 "Research and Development Agreement" shall mean the Research and
Development Agreement dated as of the date hereof between Allergan and ASTI.
1.12 "Technology License Agreement" shall mean the Technology License
Agreement dated as of the date hereof between Allergan and ASTI.
2. LICENSE OPTION.
2.1 GRANT OF LICENSE OPTION. On the terms and subject to the conditions
of this Agreement, ASTI hereby grants to Allergan an option to obtain an
exclusive license with respect to each ASTI Product, exercisable on a
product-by-product and country-by-country basis as described in Section 2.2.
2.
<PAGE> 3
2.2 TIME FOR EXERCISE.
(a) Allergan may exercise the License Option with respect to any
ASTI Product on a country-by-country basis at any time during the period
beginning on the date hereof and ending (i) with respect to the United States,
30 days after clearance by the FDA to market such ASTI Product in the United
States, and (ii) with respect to any other country, 90 days after the earlier of
(A) clearance by the appropriate regulatory agency to market such ASTI Product
in such country and (B) clearance by the FDA to market such ASTI Product in the
United States. Notwithstanding the foregoing, the License Option shall expire,
to the extent not previously exercised, at the close of business on the 30th day
after the expiration of the Purchase Option or, with respect to a particular
ASTI Product, upon exercise by Allergan of the global buy-out option for such
ASTI Product under the License Agreement for such ASTI Product. In any case,
Allergan must exercise the License Option for a particular ASTI Product in a
particular country prior to the first commercial sale of such product in such
country by Allergan or any of its Affiliates, sublicensees, distributors or
marketing partners.
(b) The License Option for any ASTI Product in any country will
expire if not exercised within the time periods described above. In addition,
the License Option for any ASTI Product will expire, with respect to all
countries for which it has not yet been exercised, upon exercise by Allergan of
the global buy-out option for such ASTI Product under the License Agreement for
such ASTI Product.
(c) ASTI will notify Allergan in writing within 10 business days of
receipt of each clearance to market any ASTI Product in any country.
2.3 MANNER OF EXERCISE. Allergan shall exercise its License Option by
delivering to ASTI, within the time period described in Section 2.2 above, a
written notice of exercise specifying the ASTI Product and the country or
countries as to which the License Option is exercised. A License Agreement for
such ASTI Product shall be deemed to be effective in such country or countries
as of the date of such notice of exercise, without the necessity of any
additional action by the parties. For the convenience of the parties, however,
Allergan shall, promptly after delivery of such notice, forward to ASTI two
executed copies of a License Agreement dated the effective date thereof and
containing completed Attachments A and B. ASTI shall execute both copies and
return one to Allergan as soon as possible. Failure of either or both of the
parties to execute such License Agreement shall not, however, affect the
effectiveness of the license granted thereby. The parties shall enter into a
separate License Agreement for each ASTI Product as to which Allergan elects to
exercise a License Option. For convenience, the parties shall amend Attachment B
to a License Agreement to add a country or countries in cases where a License
Option is being exercised for an ASTI Product for which a License Option already
has been exercised in another country or
3.
<PAGE> 4
countries. Such amendment shall set forth the additional country or countries
and the dates of exercise of the License Option for such countries.
2.4 DEVELOPMENT ASSETS. If Allergan does not exercise the License Option
for any ASTI Product in any country prior to the expiration of such License
Option or, if Allergan notifies ASTI expressly in writing that it will not
exercise the License Option for an ASTI Product, Allergan shall make available
to ASTI for further development and commercialization activities at no charge,
all clinical supplies, materials and other assets purchased, manufactured or
developed for use in the development of such ASTI Product with respect to such
country to the extent such assets will not be used under the Research and
Development Agreement.
3. NO CONFLICT.
ASTI agrees that no license, sale or other commercialization of any ASTI
Product has been or shall be made or offered to any person or entity on any
basis that is or will be in conflict with this Agreement or any License
Agreement.
4. ACCESS TO INFORMATION.
4.1 INFORMATION AVAILABLE TO ALLERGAN. ASTI shall make available to
Allergan, at all reasonable times, all available information relating to all
ASTI Products as to which the License Option remains exercisable so as to enable
Allergan to determine whether and when to exercise its License Option.
4.2 CONSULTATION WITH ALLERGAN. ASTI shall consult with Allergan and
inform Allergan on a continuing basis of the current state of research and
development of all ASTI Products as to which the License Option remains
exercisable and will review from time to time with Allergan the progress towards
completion of the ASTI Products.
4.3 CONSULTATION WITH ASTI. In the event that the License Option with
respect to one or more ASTI Products in one or more countries expires
unexercised, Allergan shall make available to ASTI all information reasonably
available to Allergan relating to such ASTI Products and Allergan's previous
contacts with potential sublicensees, distributors or marketing partners for
such ASTI Products in such countries.
5. EFFECTIVE DATE; TERMINATION.
5.1 EFFECTIVE DATE. This Agreement shall become effective on the date of
the Distribution.
5.2 TERMINATION. This Agreement shall terminate on the earlier of (a)
the date of expiration of the License Option for all of the ASTI Products and
(b) 30 days after expiration of the Purchase Option.
4.
<PAGE> 5
6. MISCELLANEOUS.
6.1 WAIVER, REMEDIES AND AMENDMENT. Any waiver by either party hereto of
a breach of any provisions of this Agreement shall not be implied and shall not
be valid unless such waiver is recited in writing and signed by such party.
Failure of any party to require, in one or more instances, performance by the
other party in strict accordance with the terms and conditions of this Agreement
shall not be deemed a waiver or relinquishment of the future performance of any
such terms or conditions or of any other terms and conditions of this Agreement.
A waiver by either party of any term or condition of this Agreement shall not be
deemed or construed to be a waiver of such term or condition for any other term.
All rights, remedies, undertakings, obligations and agreements contained in this
Agreement shall be cumulative and none of them shall be a limitation of any
other remedy, right, undertaking, obligation or agreement of either party. This
Agreement may not be amended except in a writing signed by both parties.
6.2 ASSIGNMENT. Neither party may assign its rights and obligations
hereunder without the prior written consent of the other party, which consent
may not be unreasonably withheld; provided, however, that Allergan may assign
such rights and obligations hereunder to an Affiliate of Allergan or any person
or entity with which Allergan is merged or consolidated or which acquires all or
substantially all of the assets of Allergan.
6.3 DISPUTE RESOLUTION. In the event of any dispute, the parties shall
refer such dispute to the CEO of ASTI and the CEO of Allergan for attempted
resolution by good faith negotiations within sixty (60) days after such referral
is made. During such period of good faith negotiations, any applicable time
periods under this Agreement shall be tolled. In the event such executives are
unable to resolve such dispute within such sixty (60) day period, the parties
shall submit their dispute to binding arbitration before a retired California
Superior Court Judge at J.A.M.S./Endispute located in Orange, California, such
arbitration to be conducted pursuant to the J.A.M.S./Endispute procedure rules
for commercial disputes then in effect. The award of the arbitrator shall
include an award of reasonable attorneys' fees and costs to the prevailing
party.
6.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute this Agreement.
6.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of California as applied to residents of
that state entering into contracts wholly to be performed in that state.
6.6 HEADINGS. The section headings contained in this Agreement are
included for convenience only and form no part of the Agreement between the
parties.
5.
<PAGE> 6
6.7 NOTICES. Notices required under this Agreement shall be in writing
and sent by registered or certified mail, postage prepaid, or by facsimile and
confirmed by registered or certified mail and addressed as follows:
If to Allergan: Allergan, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: Corporate Vice President,
General Counsel
If to ASTI: Allergan Specialty Therapeutics, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: President and Chief
Executive Officer
All notices shall be deemed to be effective five days after the date of
mailing or upon receipt if sent by facsimile (but only if followed by certified
or registered confirmation). Either party may change the address at which notice
is to be received by written notice pursuant to this Section 6.7.
6.8 SEVERABILITY. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid or unenforceable, it shall be modified,
if possible, to the minimum extent necessary to make it valid and enforceable
or, if such modification is not possible, it shall be stricken and the remaining
provisions shall remain in full force and effect.
6.9 RELATIONSHIP OF THE PARTIES. For purposes of this Agreement, ASTI
and Allergan shall be deemed to be independent contractors, and anything in this
Agreement to the contrary notwithstanding, nothing herein shall be deemed to
constitute ASTI and Allergan as partners, joint venturers, co owners, an
association or any entity separate and apart from each party itself, nor shall
this Agreement constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever. Neither party hereto
is authorized to make any statements or representations on behalf of the other
party or in any way obligate the other party, except as expressly authorized in
writing by the other party. Anything in this Agreement to the contrary
notwithstanding, no party hereto shall assume nor shall be liable for any
liabilities or obligations of the other party, whether past, present or future.
6.10 SURVIVAL. The provisions of Sections 1, 2.4, 4.3, 6.1, 6.3, 6.5,
6.7, 6.8, 6.9 and this Section 6.10 shall survive the termination for any reason
of this Agreement. Any payments due under this Agreement with respect to any
period prior to its termination shall be made notwithstanding the termination of
this Agreement. Neither party shall be
6.
<PAGE> 7
liable to the other due to the termination of this Agreement as provided herein,
whether in loss of good will, anticipated profits or otherwise.
7.
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
ALLERGAN, INC.
By: ____________________________________
Title: _________________________________
ALLERGAN SPECIALTY THERAPEUTICS, INC.
By: ____________________________________
Title: _________________________________
8.
<PAGE> 9
EXHIBIT A
FORM OF LICENSE AGREEMENT
This License Agreement (the "Agreement") is made this ____ day of
_______________ , _____, by and between Allergan, Inc., a Delaware corporation
("Allergan"), and Allergan Specialty Therapeutics, Inc. ("ASTI"), a Delaware
corporation.
BACKGROUND
A. ASTI and Allergan have entered into a License Option Agreement and
certain other agreements dated as of _______, 1998.
B. Section 2 of the License Option Agreement provides for a license, the
terms of which are to be set forth herein.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings set forth below:
1.1 "Affiliate" shall mean a corporation or any other entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the designated party. "Control"
shall mean ownership of at least 50% of the shares of stock entitled to vote for
the election of directors in the case of a corporation, and at least 50% of the
interests in profits in the case of a business entity other than a corporation.
1.2 "Research and Development Cost(s)" shall mean the cost of activities
undertaken pursuant to the Research and Development Agreement with respect to
the Licensed Product, determined in accordance with Exhibit A thereto.
1.3 "Infringing Product" shall mean any product sold by a third party,
other than pursuant to an agreement with Allergan, (i) which incorporates the
same Therapeutic Agent or Agents as incorporated in the Licensed Product and
(ii) which infringes or is alleged to infringe any patent or patents owned by,
licensed to or controlled by Allergan.
1.4 "License Option Agreement" shall mean the License Option Agreement
between Allergan and ASTI dated as of _______, 1998.
1.5 "Licensed Product" shall mean the product listed on Exhibit A
hereto.
9.
<PAGE> 10
1.6 "Major Market Country" shall mean any of the following countries:
the United States, France, Germany, Italy, Japan or the United Kingdom.
1.7 "Net Sales" shall mean, with respect to a product, the amount billed
by Allergan or its Affiliates to a third party which is not an Affiliate of the
selling party (unless such Affiliate is the end user of such product, in which
case the amount billed therefor shall be deemed to be the amount that would be
billed to a third party in an arm's length transaction) for sales of such
product to third parties less the following items, as allocable to such product:
(i) trade discounts, credits or allowances, (ii) credits or allowances
additionally granted upon returns, rejections or recalls (except where any such
recall arises out of Allergan's or its Affiliate's gross negligence, willful
misconduct or fraud), (iii) freight, shipping and insurance charges specifically
included in the billing amount, (iv) taxes, duties or other governmental tariffs
(other than income taxes) specifically included in the billing amount and (v)
government mandated rebates.
1.8 "Research and Development Agreement" shall mean the Research and
Development Agreement between Allergan and ASTI dated as of _______, 1998.
1.9 "Specialty Royalty Payments" shall mean front-end distribution fees,
prepaid royalties or similar one-time, infrequent or special payments from a
sublicensee to Allergan with respect to a Licensed Product.
1.10 "Sublicensing Revenues" shall mean percentage-of-sales payments and
Specialty Royalty Payments received by Allergan from sublicensees with respect
to a Licensed Product.
1.11 "Territory" shall mean the country or countries listed on Exhibit B
hereto, as amended from time to time by the parties in connection with the
exercise by Allergan of its option for additional countries under the License
Option Agreement or the surrender by Allergan of its rights to commercialize the
Licensed Product in any country or countries.
1.12 "Therapeutic Agent" shall mean a drug, protein, peptide, gene,
compound or other pharmaceutically active ingredient.
2. GRANT OF LICENSE.
2.1 GRANT. ASTI hereby grants to Allergan an exclusive, perpetual
license, with the right to sublicense, to research, develop, make, have made and
use the Licensed Product and to sell and have sold the Licensed Product in the
Territory. Allergan agrees to use diligent efforts to conduct or have conducted
any remaining activities necessary to complete the development of the Licensed
Product in the Territory through regulatory clearance to market the Licensed
Product in the Territory. Such activities will be
10.
<PAGE> 11
undertaken at no cost to ASTI, unless ASTI agrees otherwise in writing. Promptly
after regulatory clearance, Allergan shall commence and continue to use diligent
efforts to commercialize the Licensed Product in each Major Market Country of
the Territory through the manufacture and sale or the sublicensing of the
Licensed Product, devoting to the Licensed Product the same resources as other
pharmaceutical companies of similar size devote to products with similar market
potential and with similar relative importance to their product portfolios.
Allergan may use reasonable business discretion in the allocation of its
technological and monetary resources in performing its obligations hereunder,
taking into account not only the Licensed Product but also activities for its
own account and its obligations under its other agreements with third parties.
ASTI acknowledges that Allergan will continue to own and have the right to use
any clinical supplies, materials and other assets purchased, manufactured or
developed for use in the development of such Licensed Product, without any
additional payment to or reimbursement of ASTI.
2.2 NO OTHER COMMERCIALIZATION. Allergan shall not commercialize the
Licensed Product in any country except pursuant to this Agreement.
3. PRODUCT PAYMENTS.
3.1 PAYMENTS.
(a) Allergan shall make payments to ASTI ("Product Payments") with
respect to the Licensed Product as follows:
(i) if the Licensed Product is sold by Allergan, royalties of up
to a maximum of 6% of Allergan's Net Sales of the Licensed Product determined as
follows: (A) 1% of such Net Sales, plus (B) an additional 0.1% of such Net Sales
for each full $1 million of Research and Development Costs of the Licensed
Product that have been paid by ASTI prior to such quarter end; and
(ii) if the Licensed Product is sold by a third party,
sublicensing fees of up to a maximum of 50% of Sublicensing Revenues with
respect to such Licensed Product determined as follows: (A) 10% of such
Sublicensing Revenues, plus (B) an additional 1% of such Sublicensing Revenues
for each full $1 million of Research and Development Costs of the Licensed
Product that have been paid by ASTI prior to such quarter end.
Notwithstanding the foregoing, Product Payments for any quarter
will not exceed 3% of Net Sales, on a quarterly basis, in the Territory for the
first twelve calendar quarters during which the Licensed Product is commercially
sold in the first Major Market Country.
11.
<PAGE> 12
(b) In determining Product Payments, Research and Development Costs
shall be determined as of the last day of each calendar quarter, in order to
determine the rates payable with respect to Net Sales for the next calendar
quarter for all countries included in the Territory as of the first day of such
next calendar quarter, and for any country added to the Territory during such
next calendar quarter.
(c) In determining Product Payments, Net Sales by and Sublicensing
Revenues of Allergan shall be reduced by the dollar amount of any license or
similar payments made by or due from Allergan or its Affiliates to third parties
with respect to sales of such Licensed Product in the Territory. If license or
similar payments are made to third parties with respect to sales of both the
Licensed Product in the Territory and to sales of other products, Allergan shall
allocate such payments, if necessary, in a commercially reasonable manner.
3.2 TERM OF PAYMENTS. The obligation to make Product Payments hereunder
shall continue until seven years after the date of the first commercial sale of
the Licensed Product in any Major Market Country, and shall terminate as to all
countries at the end of such seven-year period.
3.3 BUY-OUT OF PAYMENTS.
(a) Allergan shall have the option, in its discretion, at any time
after the end of the twelfth calendar quarter during which the Licensed Product
was commercially sold in any country, to buy out its remaining obligations to
make Product Payments with respect to Net Sales and Sublicensing Revenues of
such Licensed Product in such country. The buy-out price shall be an amount
equal to 15 times the Product Payments made by or due from Allergan to ASTI with
respect to Net Sales and Sublicensing Revenues of such Licensed Product in such
country for the four calendar quarters immediately preceding the quarter in
which the buy-out option is exercised, plus 15 times such additional Product
Payments as would have been made but for the 3% limit set forth in Section 3.1
on Product Payments for such period.
(b) Allergan shall have the option, in its discretion, at any time
after the end of the twelfth calendar quarter during which the Licensed Product
was commercially sold in either the United States or two other Major Market
Countries, to buy out its remaining obligations to make Product Payments with
respect to Net Sales and Sublicensing Revenues of such Licensed Product in the
Territory. The buy-out price shall be an amount equal to (i) 20 times (A) the
Product Payments made by or due from Allergan to ASTI for such Licensed Product
in the Territory, plus (B) such payments as would have been made by or due from
Allergan to ASTI if Allergan had not exercised any country-specific buy-out
option with respect to Net Sales and Sublicensing Revenues of such Licensed
Product, plus (C) such additional Product Payments as would have been made but
for the 3% limit set forth in Section 3.1 on Product Payments for such period,
in
12.
<PAGE> 13
each case, for the four calendar quarters immediately preceding the quarter in
which the buy-out option is exercised, less (ii) any amounts previously paid to
exercise any country-specific buy-out option with respect to Net Sales and
Sublicensing Revenues of such Licensed Product.
4. ACCOUNTING.
4.1 REPORTS. Within 90 days after the end of each calendar quarter for
which Product Payments are due, Allergan shall render an accounting to ASTI, on
a country-by-country basis, with respect to all Product Payments due for such
quarter. Such report shall indicate, for such quarter, the quantity and dollar
amount of Net Sales of the Licensed Product by Allergan and its Affiliates,
sublicensees, distributors and marketing partners (and their Affiliates), or
other consideration with respect to Net Sales, with respect to which payments
are due; provided, however, that if Allergan shall not have received from any
sublicensee, distributor or marketing partner a report of its (and its
Affiliates') sales for such quarter, then such sales shall be included in the
next quarterly report. In case no Product Payments are due for any calendar
quarter, Allergan shall so report
4.2 RECORDS; REVIEW BY ACCOUNTANTS. Allergan shall keep and maintain, in
accordance with generally accepted accounting principles, proper and complete
records and books of account documenting all amounts paid or payable by Allergan
to ASTI. ASTI shall have the right, once in each calendar year during regular
business hours and upon reasonable notice to Allergan, at ASTI's expense, to
examine or have examined by a certified public accountant or similar person,
such of the records of Allergan as may be necessary to verify the accuracy of
the reports and payments made under this Agreement. Such examination shall take
place not later than two years following the year in question, and only one
examination may take place with respect to any period as to which such books and
records are examined. Allergan shall obtain, for itself and for ASTI, similar
reasonable rights to audit information pertaining to Net Sales from each party
appointed to commercialize any product as to which payments are due to ASTI
hereunder.
5. TIMES AND CURRENCIES OF PAYMENTS.
5.1 PAYMENTS. Payments shown by each calendar quarter report to have
accrued shall be due and payable on the date such report is due and shall be
paid in United States dollars. Any and all taxes due or payable on such payments
or with respect to the remittance thereof shall be deducted from such payments
and shall be paid by Allergan to the proper taxing authorities, and proof of
payment shall be secured and sent to ASTI as evidence of such payment. The rate
of exchange to be used in computing the amount of the United States dollars due
to ASTI in satisfaction of payment obligations with respect to sales in foreign
countries shall be calculated by converting the amount due in such foreign
currency into United States dollars at the rate for the purchase of United
13.
<PAGE> 14
States dollars with such currency as published in The Wall Street Journal on the
last business day of the calendar quarter for which payment is being made.
5.2 CERTAIN FOREIGN PAYMENTS. If governmental regulations prevent
remittance from any foreign country of any amounts due under Section 3.1 in
respect of that country, Allergan shall so notify ASTI in writing, and the
obligation under this Agreement to make payments with respect to sales in that
country shall be suspended (but the amounts due but not paid shall continue to
accrue) until such remittances are possible. ASTI shall have the right, upon
written notice to Allergan, to receive payment in any such country in the local
currency.
5.3 LATE PAYMENTS. Any payments due hereunder that are not made when due
shall bear interest at the lesser of 10% per annum or the maximum rate as may be
allowed by law, beginning on the date when ASTI has notified Allergan that such
payments are overdue.
6. PATENT INFRINGEMENT.
6.1 NOTICE. Each party shall promptly notify the other party of use or
sale by a third party of an Infringing Product.
6.2 LEGAL ACTION. If a third party manufactures or sells an Infringing
Product, Allergan may, at its own expense, bring legal action to restrain such
infringement and for damages. Any recoveries resulting from any such action
shall be first applied to reimburse Allergan for its expenses (including
reasonable attorneys' fees) incurred in bringing the action. ASTI will be
entitled to a share of the remaining recoveries in the same percentage as the
percentage of Net Sales as to which Product Payments are due to ASTI during the
period of the infringement or alleged infringement. If (a) Allergan fails to
take the necessary steps to restrain such infringement or alleged infringement
by litigation or otherwise within 90 days after either party's notice described
in Section 6.1, (b) if the infringement or alleged infringement occurs during a
period for which ASTI is entitled to receive Product Payments hereunder, and (c)
if over a period of at least two calendar quarters such Infringing Product
achieves an annualized unit sales volume in the country of infringement equal to
25% of the annualized unit sales volume of the Licensed Product sold by Allergan
and its Affiliates, sublicensees, distributors and marketing partners (and their
Affiliates) in such country during such year, then ASTI may institute, in its
own name, at its own expense and with the right to all recoveries, such
litigation or other appropriate action as it may deem appropriate to restrain
such infringement, provided that ASTI has first given to Allergan 60 days
advance notice of its intention to take such action, and provided further, that
Allergan has not itself taken appropriate action during such 60 day period.
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<PAGE> 15
6.3 COOPERATION. If either party desires to bring an action in
accordance with Section 6.2, the other party agrees to cooperate fully with the
party bringing such action in the pursuit thereof, at the expense of the party
bringing such action and to the extent reasonably requested by such party. If
the third party in any such action brought by ASTI brings a counteraction for
invalidation or misuse of a patent covering the Licensed Product, ASTI promptly
shall notify Allergan and Allergan may, within six months of the notification,
join and participate in such action at its own expense.
6.4 SETTLEMENT. Each party agrees not to settle any action it brings in
a manner that would adversely affect the other party without the other party's
prior written approval.
7. EFFECTIVE DATE AND TERM.
7.1 EFFECTIVE DATE AND TERM. This Agreement will become effective in
accordance with Section 2.3 of the License Option Agreement and, unless
terminated in accordance with any of the provisions hereof, shall remain in full
force and effect thereafter.
8. INDEMNIFICATION.
8.1 INDEMNITY. Allergan shall indemnify, defend and hold ASTI (and its
Affiliates) harmless from and against any and all liabilities, claims, demands,
damages, costs, expenses or money judgments incurred by or rendered against ASTI
and its Affiliates, which arise out of the use, design, labeling or manufacture,
processing, packaging, sale or commercialization of the Licensed Product by
Allergan, its Affiliates, subcontractors, sublicensees, distributors and
marketing partners (and their Affiliates). ASTI shall permit Allergan's
attorneys, at Allergan's discretion and cost, to control the defense of any
claims or suits as to which ASTI may be entitled to indemnification hereunder,
and ASTI agrees not to settle any such claims or suits without the prior written
consent of Allergan. ASTI shall have the right to participate, at its own
expense, in the defense of any such claim or demand to the extent it so desires.
8.2 NOTICE. ASTI shall give Allergan prompt notice in writing, in the
manner set forth in Section 11.7 below, of any claim or demand made against ASTI
for which ASTI may be entitled to indemnification under Section 8.1.
9. DISCLAIMERS.
ASTI DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY (A) THAT THE LICENSED PRODUCT OR
ANY TECHNOLOGY INCORPORATED THEREIN, OR THE MANUFACTURE, USE OR SALE THEREOF,
WILL BE FREE FROM CLAIMS OF PATENT INFRINGEMENT, INTERFERENCE OR UNLAWFUL USE OF
15.
<PAGE> 16
PROPRIETARY INFORMATION OF ANY THIRD PARTY AND (B) OF THE ACCURACY, RELIABILITY,
TECHNOLOGICAL OR COMMERCIAL VALUE, COMPREHENSIVENESS OR MERCHANTABILITY OF THE
LICENSED PRODUCT OR ANY TECHNOLOGY INCORPORATED THEREIN OR THEIR SUITABILITY OR
FITNESS FOR ANY PURPOSE WHATSOEVER INCLUDING, WITHOUT LIMITATION, THE RESEARCH,
DESIGN, DEVELOPMENT, MANUFACTURE, USE OR SALE OF THE LICENSED PRODUCT. ASTI
DISCLAIMS ALL OTHER WARRANTIES OF WHATEVER NATURE, EXPRESS OR IMPLIED.
10. TERMINATION.
10.1 TERMINATION BY ASTI. ASTI may, in its discretion, terminate this
Agreement in the event that Allergan:
(a) breaches any of its material obligations hereunder and such
breach continues for a period of 60 days after written notice thereof; or
(b) enters into any proceeding, whether voluntary or otherwise, in
bankruptcy, reorganization or arrangement for the appointment of a receiver or
trustee to take possession of Allergan's assets or any other proceedings under
any law for the relief of creditors or makes an assignment for the benefit of
its creditors.
10.2 TERMINATION BY ALLERGAN. Allergan may terminate this Agreement with
respect to one or more countries included in the Territory upon 30 days' prior
written notice to ASTI if Allergan elects for any reason to discontinue
commercialization of the Licensed Product in such country.
10.3 CONSEQUENCES OF TERMINATION. Termination of this Agreement for any
reason in accordance with the terms hereof shall be without prejudice to:
(a) ASTI's right to receive all payments accrued under Section 3
prior to the effective date of such termination; and
(b) any other remedies which either party may then or thereafter
have hereunder or otherwise. If this Agreement terminates pursuant to this
Section 10, Allergan shall immediately discontinue any promotion and sales of
the Licensed Product. Notwithstanding the foregoing, in the event of any
termination under this Section 10, Allergan may sell its inventory in stock on
the date of termination for a period of up to six months after the termination,
and shall remit payments to ASTI in respect thereto in accordance with this
Agreement.
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11. MISCELLANEOUS.
11.1 WAIVER, REMEDIES AND AMENDMENT. Any waiver by either party hereto
of a breach of any provisions of this Agreement shall not be implied and shall
not be valid unless such waiver is recited in writing and signed by such party.
Failure of any party to require, in one or more instances, performance by the
other party in strict accordance with the terms and conditions of this Agreement
shall not be deemed a waiver or relinquishment of the future performance of any
such terms or conditions or of any other terms and conditions of this Agreement.
A waiver by either party of any term or condition of this Agreement shall not be
deemed or construed to be a waiver of such term or condition for any other term.
All rights, remedies, undertakings, obligations and agreements contained in this
Agreement shall be cumulative and none of them shall be a limitation of any
other remedy, right, undertaking, obligation or agreement of either party. This
Agreement may not be amended except in a writing signed by both parties.
11.2 ASSIGNMENT. Neither party may assign its rights and obligations
hereunder without the prior written consent of the other party, which consent
may not be unreasonably withheld; provided, however, that Allergan may assign
such rights and obligations hereunder to an Affiliate of Allergan or to any
person or entity with which Allergan is merged or consolidated or which acquires
all or substantially all of the assets of Allergan.
11.3 DISPUTE RESOLUTION. In the event of any dispute, the parties shall
refer such dispute to the CEO of ASTI and the CEO of Allergan for attempted
resolution by good faith negotiations within sixty (60) days after such referral
is made. During such period of good faith negotiations, any applicable time
periods under this Agreement shall be tolled. In the event such executives are
unable to resolve such dispute within such sixty (60) day period, the parties
shall submit their dispute to binding arbitration before a retired California
Superior Court Judge at J.A.M.S./Endispute located in Orange, California, such
arbitration to be conducted pursuant to the J.A.M.S./Endispute procedure rules
for commercial disputes then in effect. The award of the arbitrator shall
include an award of reasonable attorneys' fees and costs to the prevailing
party.
11.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute this Agreement.
11.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of California as applied to residents of
that state entering into contracts to be performed in that state.
17.
<PAGE> 18
11.6 HEADINGS. The headings set forth at the beginning of the various
sections of this Agreement are for convenience and form no part of the Agreement
between the parties.
11.7 NOTICES. Notices required under this Agreement shall be in writing
and sent by registered or certified mail, postage prepaid, or by facsimile and
confirmed by registered or certified mail, postage prepaid, and addressed as
follows:
If to Allergan: Allergan, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: Corporate Vice President,
General Counsel
If to ASTI: Allergan Specialty Therapeutics, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: President and Chief
Executive Officer
All notices shall be deemed to be effective five days after the date of mailing
or upon receipt if sent by facsimile (but only if followed by certified or
registered confirmation). Either party may change the address at which notice is
to be received by written notice pursuant to this Section 11.7.
11.8 SEVERABILITY. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid or unenforceable, it shall be modified,
if possible, to the minimum extent necessary to make it valid and enforceable
or, if such modification is not possible, it shall be stricken and the remaining
provisions shall remain in full force and effect.
11.9 RELATIONSHIP OF THE PARTIES. For all purposes of this Agreement,
ASTI and Allergan shall be deemed to be independent contractors and anything in
this Agreement to the contrary notwithstanding, nothing herein shall be deemed
to constitute ASTI and Allergan as partners, joint venturers, co-owners, an
association or any entity separate and apart from each party itself, nor shall
this Agreement constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever. Neither party hereto
is authorized to make any statements or representations on behalf of the other
party or in any way to obligate the other party, except as expressly authorized
in writing by the other party. Anything in this Agreement to the contrary
notwithstanding, no party hereto shall assume nor shall be liable for any
liabilities or obligations of the other party, whether past, present or future.
18.
<PAGE> 19
11.10 SURVIVAL. The provisions of Sections 1, 4.2, 8, 9, 10.3, 11.1,
11.3, 11.5, 11.6, 11.7, 11.8, 11.9, and this Section 11.10 shall survive the
termination for any reason of this Agreement. Any payments due under this
Agreement with respect to any period prior to its termination shall be made
notwithstanding the termination of this Agreement. Neither party shall be liable
to the other due to the termination of this Agreement as provided herein,
whether in loss of good will, anticipated profits or otherwise.
11.11 FORCE MAJEURE. Neither party to this Agreement shall be liable for
failure or delay in the performance of any of its obligations hereunder, if such
failure or delay is due to causes beyond its reasonable control including,
without limitation, acts of God, earthquakes, fires, strikes, acts of war, or
intervention of any governmental authority, but any such delay or failure shall
be remedied by such party as soon as possible after the removal of the cause of
such failure or delay.
19.
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first set forth above.
ALLERGAN, INC.
By: ____________________________________
Title: _________________________________
ALLERGAN SPECIALTY THERAPEUTICS, INC.
By: ____________________________________
Title: _________________________________
20.
<PAGE> 21
ATTACHMENT A
LICENSED PRODUCT
21.
<PAGE> 22
ATTACHMENT B
TERRITORY
DATE OF EXERCISE COUNTRY
22.
<PAGE> 1
EXHIBIT 10.4
SERVICES AGREEMENT
This Services Agreement (the "Agreement") is made as of the __ day of
_______, 1998 between Allergan, Inc., a Delaware corporation ("Allergan"), and
Allergan Specialty Therapeutics, Inc., a Delaware corporation ("ASTI").
BACKGROUND
ASTI desires that Allergan provide certain services to ASTI, and
Allergan desires to provide such services, on the terms and conditions set forth
herein.
Now, therefore, the parties agree as follows:
1. SERVICES. Upon request by ASTI, Allergan will supply ASTI with any
number of the following services: accounting, legal, stockholder relations, cash
management and similar management and administrative services, as mutually
agreed. Such services will be provided at reasonable times and upon reasonable
notice, as mutually agreed.
2. COMPENSATION. ASTI shall pay Allergan's "Costs" in providing such
services, monthly in arrears, within 30 days of the date of Allergan's invoice.
Allergan's "Costs", for purposes of this Agreement, shall include reimbursement
for (i) Allergan's direct and indirect expenses relating to the services
provided hereunder and (ii) the cost of assets purchased for use solely on
behalf of ASTI, the purchase of which is approved by ASTI. In order to fully and
fairly allocate all allocable overhead to services performed by Allergan
hereunder, an amount equal to 10% of the total Costs determined in accordance
with the above provisions (exclusive of the costs charged to Allergan or ASTI by
third parties) will also be added to the amount charged to ASTI.
3. TERM AND TERMINATION. The initial term of this Agreement shall
commence on the date hereof and shall terminate on December 31, 1998.
Thereafter, this Agreement shall automatically be renewed for successive terms
of one year each unless written notice of termination is given by the
terminating party to the other party at least 30 days in advance of the
expiration of any term; provided, however, that in no event shall the renewal
term extend past the date that is 180 days after the exercise or expiration of
the option granted to Allergan pursuant to ASTI's Restated Certificate of
Incorporation to purchase all but not less than all of the shares of Class A
Common Stock of ASTI. ASTI may, in its discretion, terminate this Agreement at
any time upon 60 days written notice to Allergan. Either party may, in its
discretion, terminate this Agreement by written notice to the other party in the
event that the other party (a) breaches any material obligations hereunder or
under the Technology License Agreement, the Research and
1.
<PAGE> 2
Development Agreement or the License Option Agreement, each dated as of the date
hereof and between Allergan and ASTI, or any license granted to Allergan under
the License Option Agreement, which breach continues for a period of 60 days
after written notice thereof, or (b) enters into any proceeding, whether
voluntary or involuntary, in bankruptcy, reorganization or arrangement for the
appointment of a receiver or trustee to take possession of such party's assets
or any other proceeding under any law for the relief of creditors, or makes an
assignment for the benefit of its creditors.
4. INDEMNIFICATION OF ALLERGAN. ASTI hereby agrees to indemnify, protect
and hold Allergan harmless from any and all liabilities, costs or expenses
incurred by Allergan as a result of services rendered by it under this
Agreement, including, without limitation, lawsuits of and claims by third
parties, except for liabilities, costs or expenses resulting from Allergan's
gross negligence or willful misconduct. Allergan shall give ASTI prompt notice,
in writing, in the manner set forth in Section 6.7 below, of any claim or demand
made against Allergan for which Allergan may be entitled to indemnification
under this Section 4.
5. FORCE MAJEURE. Allergan shall not be liable for failure or delay in
performance of any of its obligations hereunder if such failure or delay is due
to causes beyond its reasonable control including, without limitation, acts of
God, fires, earthquakes, strikes, acts of war, or intervention of any
governmental authority, but any such delay or failure shall be remedied by
Allergan as soon as possible after the removal of the cause of such failure or
delay.
6. MISCELLANEOUS.
6.1 WAIVER, REMEDIES AND AMENDMENT. Any waiver by either party hereto
of a breach of any provisions of this Agreement shall not be implied and shall
not be valid unless such waiver is recited in writing and signed by such party.
Failure of any party to require, in one or more instances, performance by the
other party in strict accordance with the terms and conditions of this Agreement
shall not be deemed a waiver or relinquishment of the future performance of any
such terms or conditions or of any other terms and conditions of this Agreement.
A waiver by either party of any term or condition of this Agreement shall not be
deemed or construed to be a waiver of such term or condition for any other term.
All rights, remedies, undertakings, obligations and agreements contained in this
Agreement shall be cumulative and none of them shall be a limitation of any
other remedy, right, undertaking, obligation or agreement of either party. This
Agreement may not be amended except in a writing signed by both parties.
6.2 ASSIGNMENT. Neither party may assign its rights and obligations
hereunder without the prior written consent of the other party, which consent
may not be unreasonably withheld; provided, however, that Allergan may assign
such rights and
2.
<PAGE> 3
obligations hereunder to an Affiliate of Allergan or any person or entity with
which Allergan is merged or consolidated or which acquires all or substantially
all of the assets of Allergan.
6.3 DISPUTE RESOLUTION. In the event of any dispute, the parties
shall refer such dispute to the CEO of ASTI and the CEO of Allergan for
attempted resolution by good faith negotiations within sixty (60) days after
such referral is made. During such period of good faith negotiations, any
applicable time periods under this Agreement shall be tolled. In the event such
executives are unable to resolve such dispute within such sixty (60) day period,
the parties shall submit their dispute to binding arbitration before a retired
California Superior Court Judge at J.A.M.S./Endispute located in Orange,
California, such arbitration to be conducted pursuant to the J.A.M.S./Endispute
procedure rules for commercial disputes then in effect. The award of the
arbitrator shall include an award of reasonable attorneys' fees and costs to the
prevailing party.
6.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute this Agreement.
6.5 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the state of California as applied to residents
of that state entering into contracts wholly to be performed in that state.
6.6 HEADINGS. The section headings contained in this Agreement are
included for convenience only and form no part of the Agreement between the
parties.
6.7 NOTICES. Notices required under this Agreement shall be in
writing and sent by registered or certified mail, postage prepaid, or by
facsimile and confirmed by registered or certified mail and addressed as
follows:
If to Allergan: Allergan, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: Corporate Vice President,
General Counsel
If to ASTI: Allergan Specialty Therapeutics, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: President and Chief
Executive Officer
3.
<PAGE> 4
All notices shall be deemed to be effective five days after the date of mailing
or upon receipt if sent by facsimile (but only if followed by certified or
registered confirmation). Either party may change the address at which notice is
to be received by written notice pursuant to this Section 6.7.
6.8 SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid or unenforceable, it shall be
modified, if possible, to the minimum extent necessary to make it valid and
enforceable or, if such modification is not possible, it shall be stricken and
the remaining provisions shall remain in full force and effect.
6.9 RELATIONSHIP OF THE PARTIES. For purposes of this Agreement, ASTI
and Allergan shall be deemed to be independent contractors, and anything in this
Agreement to the contrary notwithstanding, nothing herein shall be deemed to
constitute ASTI and Allergan as partners, joint venturers, co-owners, an
association or any entity separate and apart from each party itself, nor shall
this Agreement constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever. Neither party hereto
is authorized to make any statements or representations on behalf of the other
party or in any way obligate the other party, except as expressly authorized in
writing by the other party. Anything in this Agreement to the contrary
notwithstanding, no party hereto shall assume nor shall be liable for any
liabilities or obligations of the other party, whether past, present or future.
6.10 SURVIVAL. The provisions of Sections 4, 6.3, 6.5, 6.6, 6.7, 6.8,
6.9 and this Section 6.10 shall survive the termination for any reason of this
Agreement. Any payments due under this Agreement with respect to any period
prior to its termination shall be made notwithstanding the termination of this
Agreement. Neither party shall be liable to the other due to the termination of
this Agreement as provided herein, whether in loss of good will, anticipated
profits or otherwise.
4.
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
ALLERGAN, INC.
By: ____________________________________
Title: _________________________________
ALLERGAN SPECIALTY THERAPEUTICS, INC.
By: ____________________________________
Title: _________________________________
5.
<PAGE> 1
EXHIBIT 10.5
DISTRIBUTION AGREEMENT
This Distribution Agreement (the "Agreement") is made as of the __
day of _______, 1998 between Allergan, Inc., a Delaware corporation
("Allergan"), and Allergan Specialty Therapeutics, Inc., a Delaware corporation
("ASTI").
BACKGROUND
A. Allergan is the holder of all of the issued and outstanding
shares of capital stock of ASTI. Allergan intends to make a $200 million capital
contribution to ASTI, to license certain technology to ASTI, and to make other
arrangements in order to establish ASTI as a separate enterprise for the purpose
of researching and developing human pharmaceutical products and commercializing
such products, most likely through licensing to Allergan.
B. Allergan intends to distribute all of the ASTI Shares (as defined
below) to the holders of Allergan Common Stock.
Now, therefore, the parties agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings set forth below:
1.1 "Action" shall mean any action, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other
regulatory or administrative agency or commission or any arbitration tribunal.
1.2 "Agent" shall mean First Chicago Trust Company of New York, as
distribution agent, appointed by Allergan to set up book entry accounts under
the Direct Registration System representing the ASTI Shares pursuant to the
Distribution.
1.3 "Allergan/ASTI Agreements" shall mean this Agreement, the
Research and Development Agreement, the Technology License Agreement, the
License Option Agreement, the Services Agreement and the Purchase Option.
1.4 "Allergan Common Stock" shall mean the Common Stock, par value
$0.01 per share, of Allergan.
1.5 "Commission" shall mean the Securities and Exchange Commission.
1.6 "ASTI Shares" shall mean the Class A Common Stock, par value
$0.01 per share, of ASTI.
1.
<PAGE> 2
1.7 "Distribution" shall mean the distribution of ASTI Shares to
holders of record on ______, 1998 of Allergan Common Stock immediately following
completion of the transactions contemplated in Sections 2 and 3 hereof.
1.8 "Distribution Date" shall mean the proposed date of effecting
the Distribution, which is anticipated to occur on or about _______, 1998.
1.9 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
1.10 "Form 8-A" shall mean the registration statement on Form 8-A to
be filed by ASTI with the Commission to effect the registration of the ASTI
Shares pursuant to the Exchange Act.
1.11 "License Option Agreement" shall mean the License Option
Agreement dated as of the date hereof between Allergan and ASTI.
1.12 "Prospectus" shall mean the prospectus to be distributed to the
holders of Allergan Common Stock in connection with the Distribution.
1.13 "Purchase Option" shall mean that certain option contained in
ASTI's Restated Certificate of Incorporation pursuant to which Allergan has the
right to purchase all, but not less than all, of the outstanding ASTI Shares.
1.14 "Record Date" shall mean the close of business on _______, 1998
or such other date as is determined by the Allergan Board of Directors or any
committee thereof.
1.15 "Registration Statement" shall mean the registration statement
on Form S-1 registering the issuance of ASTI Shares pursuant to the
Distribution.
1.16 "Research and Development Agreement" shall mean the Research
and Development Agreement dated as of the date hereof between Allergan and ASTI.
1.17 "Services Agreement" shall mean the Services Agreement dated as
of the date hereof between Allergan and ASTI.
1.18 "Securities Act" shall mean the Securities Act of 1933, as
amended.
1.19 "Technology License Agreement" shall mean the Technology
License Agreement dated as of the date hereof between Allergan and ASTI.
2.
<PAGE> 3
2. PRELIMINARY ACTION.
2.1 REGISTRATION STATEMENT AND PROSPECTUS. ASTI has prepared and
filed the Registration Statement with the Commission. Subject to the conditions
set forth herein, Allergan and ASTI shall use reasonable efforts to cause the
Registration Statement to become effective under the Securities Act. ASTI has
prepared, and Allergan shall cause to be mailed, the Prospectus to the record
holders on the Record Date of Allergan Common Stock.
2.2 FORM 8-A. ASTI has prepared and filed with the Commission a Form
8-A which includes or incorporates by reference relevant portions of the
Registration Statement. Subject to the conditions set forth herein, ASTI shall
use reasonable efforts to cause the Form 8-A to become effective under the
Exchange Act.
2.3 BLUE SKY. ASTI shall take all such action as may be necessary or
appropriate under the securities or blue sky laws of states or other political
subdivisions of the United States in connection with the Distribution to permit
the ASTI Shares to be distributed as described in the Prospectus.
2.4 LISTING. ASTI has prepared and filed an application to effect
the listing of the ASTI Shares on the Nasdaq National Market. ASTI shall use
reasonable efforts to cause the ASTI Shares to be so listed.
2.5 NO REPRESENTATIONS OR WARRANTIES; CONSENTS. Each party hereto
understands and agrees that no party hereto is, in this Agreement or in any
other agreement or document contemplated by this Agreement or otherwise,
representing or warranting in any way that the obtaining of any consents or
approvals, the execution and delivery of any agreements or the making of any
filings or applications contemplated by this Agreement will satisfy the
provisions of any or all applicable laws. Notwithstanding the foregoing, the
parties shall use reasonable efforts to obtain all consents and approvals, to
enter into all agreements and to make all filings and applications which may be
required for the consummation of the transactions contemplated by this
Agreement, including, without limitation, all applicable regulatory filings or
consents under federal or state laws and all necessary consents, approvals,
agreements, filings and applications.
3. ISSUE AND SALE OF ASTI SHARES.
3.1 PURCHASE OF ASTI CLASS A COMMON STOCK. Prior to the Distribution
Date, ASTI will issue to Allergan that number of ASTI Shares such that Allergan
may distribute to holders of Allergan Common Stock one ASTI Share for every 20
shares of Allergan Common Stock held on the Record Date. Allergan and ASTI
acknowledge that all of the ASTI Shares held by Allergan will be distributed by
Allergan to the holders of outstanding shares of Allergan Common Stock.
3.
<PAGE> 4
4. THE DISTRIBUTION.
4.1 THE DISTRIBUTION. ASTI shall take all steps required by Allergan
or the Agent to effect the Distribution. Prior to the Distribution, and upon
receipt of the capital contribution described in Section 3 hereof, ASTI shall
cause to be issued to Allergan a certificate or certificates representing a
sufficient number of ASTI Shares so that Allergan may distribute one ASTI Share
for every 20 shares of Allergan Common Stock held on the Record Date.
4.2 EXPENSES OF DISTRIBUTION. All expenses related in any way to the
Distribution, including without limitation all legal, financial advisory and
accounting fees of Allergan and ASTI, shall be borne by ASTI.
5. ADDITIONAL ASSURANCES; INDEMNIFICATION.
5.1 MUTUAL ASSURANCES. Allergan and ASTI agree to cooperate with
respect to the implementation of the Allergan/ASTI Agreements and to execute
such further documents and instruments as may be necessary to confirm the
transactions contemplated thereby.
5.2 INDEMNIFICATION. If Allergan exercises the Purchase Option, from
and after such exercise, Allergan shall indemnify, defend and hold harmless
ASTI's officers and directors to the same extent as provided in ASTI's Restated
Certificate of Incorporation.
5.3 NOTICE. Any person entitled to indemnification pursuant to
Section 5.2 shall give Allergan prompt notice in writing, in the manner set
forth in Section 7.7 below, of any claim or demand made against such person for
which such person may be entitled to indemnification under Section 5.2.
6. CONDITIONS TO EFFECTIVENESS OF DISTRIBUTION.
The Distribution shall be subject to the satisfaction or waiver by
Allergan of the following conditions and the satisfaction or waiver by ASTI of
the conditions in Sections 6.8 and 6.9:
6.1 BOARD APPROVAL. The Allergan/ASTI Agreements (including exhibits
and schedules) shall have been approved by the Board of Directors of Allergan
and ASTI and shall have been executed and delivered by appropriate officers of
Allergan and ASTI, and the Allergan Board of Directors (or a committee thereof)
shall have declared a dividend of the ASTI Shares as of the Record Date to the
holders of record of the Allergan Common Stock.
4.
<PAGE> 5
6.2 SECURITIES LAW COMPLIANCE. The transactions contemplated hereby
shall be in compliance with applicable federal and state securities laws, and
the Registration Statement shall have been declared effective and no stop orders
shall have been instituted with respect thereto under the Securities Act.
6.3 RESTATED CERTIFICATE OF INCORPORATION. The Restated Certificate
of Incorporation of ASTI shall have been adopted by the Board of Directors,
approved by Allergan as sole stockholder of ASTI, and filed with the Delaware
Secretary of State.
6.4 FORM 8-A EFFECTIVE. The Form 8-A shall have become effective
under the Exchange Act.
6.5 LISTING APPLICATION APPROVED. The ASTI Shares shall be approved
for quotation on the Nasdaq National Market.
6.6 FAIRNESS OPINION. Allergan shall have received an opinion of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, investment advisor to
Allergan, in form and substance satisfactory to Allergan, to the effect that (i)
from a financial point of view, the Distribution provides a reasonable structure
to pursue the financial objectives described in the Prospectus of Allergan and
(ii) from a financial point of view, the Distribution is fair to the
stockholders of Allergan.
6.7 PERMITS AND LICENSES. ASTI shall have received such permits and
licenses as may be necessary for the purpose of commencing operations
contemplated by the Allergan/ASTI Agreements.
6.8 CONSENTS. Each of Allergan and ASTI shall have received such
consents, and shall have received executed copies of such agreements or
amendments of agreements, as it shall deem necessary in connection with the
completion of the transaction contemplated by this Agreement.
6.9 OTHER INSTRUMENTS. All actions and other documents and
instruments deemed necessary or advisable in connection with the transactions
contemplated hereby shall have been taken or executed, as the case may be, in
form and substance satisfactory to Allergan and ASTI.
6.10 LEGAL PROCEEDINGS. No legal proceedings affecting or arising
out of the transactions contemplated hereby or which could otherwise affect
Allergan or ASTI in a materially adverse manner shall have been commenced or
threatened against Allergan, ASTI or the directors or officers of either
Allergan or ASTI.
6.11 MATERIAL CHANGES. No material adverse change shall have
occurred with respect to Allergan or ASTI, the securities markets (either
generally or with respect to
5.
<PAGE> 6
Allergan or ASTI) or general economic or financial conditions which shall, in
the reasonable judgment of Allergan, make the transactions contemplated by this
Agreement inadvisable.
6.12 OTHER CONDITIONS. Such other conditions as may be set by the
Allergan Board of Directors or any committee thereof in the resolutions
authorizing the Distribution shall have been satisfied.
7. MISCELLANEOUS.
7.1 WAIVER, REMEDIES AND AMENDMENT. Any waiver by either party
hereto of a breach of any provisions of this Agreement shall not be implied and
shall not be valid unless such waiver is recited in writing and signed by such
party. Failure of any party to require, in one or more instances, performance by
the other party in strict accordance with the terms and conditions of this
Agreement shall not be deemed a waiver or relinquishment of the future
performance of any such terms or conditions or of any other terms and conditions
of this Agreement. A waiver by either party of any term or condition of this
Agreement shall not be deemed or construed to be a waiver of such term or
condition for any other term. All rights, remedies, undertakings, obligations
and agreements contained in this Agreement shall be cumulative and none of them
shall be a limitation of any other remedy, right, undertaking, obligation or
agreement of either party. This Agreement may not be amended except in a writing
signed by both parties.
7.2 ASSIGNMENT. Neither party may assign its rights and obligations
hereunder without the prior written consent of the other party, which consent
may not be unreasonably withheld; provided, however, that Allergan may assign
such rights and obligations hereunder to an Affiliate of Allergan or to any
person or entity with which Allergan is merged or consolidated or which acquires
all or substantially all of the assets of Allergan.
7.3 DISPUTE RESOLUTION. In the event of any dispute, the parties
shall refer such dispute to the Chief Executive Officer ("CEO") of ASTI and the
CEO of Allergan for attempted resolution by good faith negotiations within sixty
(60) days after such referral is made. During such period of good faith
negotiations, any applicable time periods under this Agreement shall be tolled.
In the event such executives are unable to resolve such dispute within such
sixty (60) day period, the parties shall submit their dispute to binding
arbitration before a retired California Superior Court Judge at
J.A.M.S./Endispute located in Orange, California, such arbitration to be
conducted pursuant to the J.A.M.S./Endispute procedure rules for commercial
disputes then in effect. The award of the arbitrator shall include an award of
reasonable attorneys' fees and costs to the prevailing party.
6.
<PAGE> 7
7.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute this Agreement.
7.5 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the state of California as applied to residents
of that state entering into contracts to be performed in that state.
7.6 HEADINGS. The headings set forth at the beginning of the various
sections of this Agreement are for convenience and form no part of the Agreement
between the parties.
7.7 NOTICES. Notices required under this Agreement shall be in
writing and sent by registered or certified mail, postage prepaid, or by
facsimile and confirmed by registered or certified mail, postage prepaid, and
addressed as follows:
If to Allergan: Allergan, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: Corporate Vice President,
General Counsel
If to ASTI: Allergan Specialty Therapeutics, Inc.
2525 Dupont Drive
Irvine, CA 92612
Facsimile: (714) 246-4774
Attention: President and Chief
Executive Officer
All notices shall be deemed to be effective five days after the date
of mailing or upon receipt if sent by facsimile (but only if followed by
certified or registered confirmation). Either party may change the address at
which notice is to be received by written notice pursuant to this Section 7.7.
7.8 SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid or unenforceable, it shall be
modified, if possible, to the minimum extent necessary to make it valid and
enforceable or, if such modification is not possible, it shall be stricken and
the remaining provisions shall remain in full force and effect.
7.9 RELATIONSHIP OF THE PARTIES. For all purposes of this Agreement,
ASTI and Allergan shall be deemed to be independent contractors and anything in
this Agreement to the contrary notwithstanding, nothing herein shall be deemed
to constitute ASTI and Allergan as partners, joint venturers, coowners, an
association or any entity separate and
7.
<PAGE> 8
apart from each party itself, nor shall this Agreement constitute any party
hereto an employee or agent, legal or otherwise, of the other party for any
purposes whatsoever. Neither party hereto is authorized to make any statements
or representations on behalf of the other party or in any way to obligate the
other party, except as expressly authorized in writing by the other party.
Anything in this Agreement to the contrary notwithstanding, no party hereto
shall assume nor shall be liable for any liabilities or obligations of the other
party, whether past, present or future.
7.10 SURVIVAL. The provisions of Sections 1, 5, 7.1, 7.3, 7.5, 7.6,
7.7, 7.8 and this Section 7.10 shall survive the termination for any reason of
this Agreement. Any payments due under this Agreement with respect to any period
prior to its termination shall be made notwithstanding the termination of this
Agreement. Neither party shall be liable to the other due to the termination of
this Agreement as provided herein, whether in loss of good will, anticipated
profits or otherwise.
8.
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
ALLERGAN, INC.
By:_____________________________________
Title:__________________________________
ALLERGAN SPECIALTY THERAPEUTICS, INC.
By:_____________________________________
Title:__________________________________
9.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Allergan Specialty Therapeutics, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Costa Mesa, California
December 15, 1997
